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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 6, 1999
REGISTRATION NO. 333-74153
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MINDSPRING ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
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<TABLE>
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<S> <C>
DELAWARE 58-2113290
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
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1430 WEST PEACHTREE STREET, SUITE 400
ATLANTA, GA 30309
(404) 815-0770
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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CHARLES M. BREWER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MINDSPRING ENTERPRISES, INC.
1430 WEST PEACHTREE STREET, SUITE 400
ATLANTA, GA 30309
(404) 815-0770
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPY TO:
NANCY J. KELLNER, ESQ.
HOGAN & HARTSON L.L.P.
COLUMBIA SQUARE
555 THIRTEENTH STREET, N.W.
WASHINGTON, D.C. 20004-1109
(202) 637-5600
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration statement number
of the earlier effective registration statement for the same offering. [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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PROSPECTUS
376,116 SHARES
MINDSPRING ENTERPRISES, INC.
COMMON STOCK
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MindSpring Enterprises, Inc. is a leading national Internet service
provider focused on serving individuals and small businesses. This prospectus
relates to the offer and sale from time to time of up to 376,116 shares of our
common stock by one of our stockholders, ICG PST, Inc., formerly known as NETCOM
On-Line Communication Services, Inc. We will not receive any proceeds from the
sale of these shares by ICG PST.
Our common stock is listed for trading on The Nasdaq Stock Market's
National Market under the symbol "MSPG." On April 5, 1999, the last reported
sale price of our common stock on the Nasdaq National Market was $111.25.
Our principal executive offices are located at 1430 West Peachtree
Street, Suite 400, Atlanta, Georgia 30309, and our telephone number at that
address is (404) 815-0770.
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SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR A DISCUSSION OF FACTORS THAT
YOU SHOULD CONSIDER BEFORE PURCHASING THE SHARES OFFERED BY THIS PROSPECTUS.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
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PROSPECTUS DATED April 6, 1999.
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IF IT IS AGAINST THE LAW IN ANY STATE TO MAKE AN OFFER TO SELL THESE
SHARES, OR TO SOLICIT AN OFFER FROM SOMEONE TO BUY THESE SHARES, THEN THIS
PROSPECTUS DOES NOT APPLY TO ANY PERSON IN THAT STATE, AND NO OFFER OR
SOLICITATION IS MADE BY THIS PROSPECTUS TO ANY SUCH PERSON.
YOU SHOULD RELY ONLY ON THE INFORMATION PROVIDED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR ANY SUPPLEMENT. NEITHER WE NOR ICG PST HAS
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. YOU SHOULD NOT
ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY SUPPLEMENT IS ACCURATE AS
OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS OR ANY
SUPPLEMENT.
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TABLE OF CONTENTS
PAGE
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Risk Factors................................................................ 3
Cautionary Note Regarding
Forward-Looking Statements................................................18
Where You Can Find More
Information...............................................................18
MindSpring..................................................................20
Use of Proceeds.............................................................20
Selling Stockholder.........................................................21
Plan of Distribution........................................................22
Legal Matters...............................................................24
Experts.....................................................................24
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RISK FACTORS
In addition to the other information contained in this prospectus, you
should carefully consider the following risk factors relating to MindSpring
before purchasing shares of our common stock.
WE HAVE A LIMITED OPERATING HISTORY DURING WHICH WE HAVE INCURRED SIGNIFICANT
ANNUAL OPERATING LOSSES.
We started our business on February 24, 1994 and began offering Internet
access in June 1994. Our limited historical operating data and rapid growth may
make it more difficult for you to evaluate our performance. Before 1998, we had
incurred annual operating losses in each year since we started our business. Our
annual net losses since 1995 and our accumulated deficit as of December 31, 1998
are as follows:
<TABLE>
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Annual Accumulated Deficit
Net Loss as of December 31, 1998
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<S> <C> <C>
1995 $1,959,000
1996 $7,612,000
1997 $4,083,000
1998 N/A $3,185,000
</TABLE>
Our ability to maintain profitability and positive cash flow depends upon
a number of factors, including our ability to increase revenue while maintaining
or reducing per subscriber costs. We may not succeed in increasing revenue while
maintaining or reducing per subscriber costs or achieving or sustaining positive
cash flow in the future, and our failure to do so could have a material adverse
effect on our business, financial condition and results of operations.
THERE ARE RISKS ASSOCIATED WITH OUR ACQUISITIONS OF SUBSCRIBER ACCOUNTS,
INCLUDING THE SPRY AND NETCOM ACQUISITIONS.
As part of our business strategy, we have acquired subscriber accounts
and related assets from other companies. In October 1998, we acquired
approximately 130,000 subscribers and related assets of Spry, Inc. from America
Online, Inc. In February 1999, we completed the acquisition of approximately
400,000 subscribers from NETCOM On-Line Communication Services, Inc., now known
as ICG PST, Inc., a wholly owned subsidiary of ICG Communications, Inc. We will
continue to evaluate strategic acquisitions of businesses and subscriber
accounts principally relating to our current operations. These transactions
commonly involve risks. These risks include, among others, that:
- we may experience difficulty in assimilating the acquired
operations and personnel;
- the acquisition may disrupt our ongoing business;
- the acquisition may divert management's attention from our ongoing
business;
- we may not be able to successfully incorporate acquired assets
and technology into our service offerings;
- we may not be able to maintain uniform standards, controls,
procedures, and policies;
- we may lack the necessary experience to enter new markets and add
new services; and
- an acquisition may impair our relationships with employees and
subscribers as a result of changes in management.
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We may not be successful in overcoming these risks or any other problems
encountered in connection with the Spry and NETCOM acquisitions or any future
transactions. In addition, a transaction could require us to (1) issue
additional equity securities, which would dilute our stockholders, (2) incur
additional debt, or (3) amortize acquisition or debt-related expenses for
goodwill and other intangible assets. We were required to take each of these
actions to complete the NETCOM acquisition. Any of these actions could have a
material adverse effect on our business, operating results and financial
condition.
WE CANNOT ASSURE YOU THAT WE WILL EFFECTIVELY MANAGE OUR GROWTH.
We may not be successful in effectively managing our growth. Our rapid
growth has in the past placed, and may in the future place, a significant strain
on our business and financial resources. The rapid expansion of our subscriber
base, including through the Spry and NETCOM acquisitions, has placed increasing
demands on our customer service and technical support resources. Failure to
manage our recent and anticipated growth could have a material adverse effect on
our business, results of operations and financial condition.
For us to effectively (1) manage our rapidly growing operations, (2)
successfully integrate newly acquired assets, including those acquired in the
Spry and NETCOM acquisitions, and (3) continue to implement a nationwide
strategy and network, we must:
- continue to implement and improve our operational, financial, and
management information systems;
- closely monitor service quality, particularly through third-party
points-of-presence, or "POPs";
- integrate leased physical sites;
- acquire and install necessary equipment and telecommunications
facilities;
- implement marketing efforts in new and existing markets, which may
involve expanding our marketing strategy to include telemarketing
and other methods;
- add new services and provide related customer and technical
support;
- employ qualified personnel to provide technical and marketing
support for new sites;
- identify, attract, train, integrate, and retain other qualified
personnel, including new management personnel;
- develop additional expertise; and
- continue to expand our operational and financial resources.
WE HAVE SIGNIFICANT DEBT AND WE MAY BE UNABLE TO SERVICE THAT DEBT.
On February 17, 1999, we entered into a credit agreement with First Union
National Bank and other lenders establishing a $100 million secured revolving
credit facility. Also on February 17, 1999, we borrowed approximately $80
million under the credit facility to finance the NETCOM acquisition. At December
31, 1998, giving effect to the Spry acquisition, the NETCOM acquisition and the
borrowings under the credit facility as if they had occurred on January 1, 1998:
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- we would have had $85.1 million of indebtedness;
- stockholders' equity would have been $237.1 million; and
- our earnings would have been insufficient to cover our fixed
charges for the year ended December 31, 1998 by $96.2 million.
Even if we repay all amounts outstanding under our credit facility, we
will have significant additional debt upon completion of our recently announced
offering of $130 million principal amount of convertible subordinated notes.
We cannot assure you that we will be able to improve our earnings before fixed
charges or that we will be able to meet our debt service obligations under our
credit facility or the convertible subordinated notes. We will be in default
under the terms of our credit facility if (1) we are unable to generate
sufficient cash flow or otherwise obtain funds necessary to make required
payments, or (2) we otherwise fail to comply with the various covenants in our
debt obligations. A default would permit the holders of the indebtedness to
accelerate its maturity. This, in turn, would have a material adverse effect on
our business, financial condition and results of operations. In addition, we are
required under the terms of the credit facility to obtain, by May 19, 1999,
landlord consents under some of our operating leases. If we do not obtain these
consents by the required date, the lenders' commitment under the credit facility
could be reduced to $20 million, which could have a material adverse effect on
our business, financial condition and results of operations. For a more detailed
description of our secured credit facility, see our Current Report on Form 8-K
filed with the Securities and Exchange Commission on February 25, 1999.
Even if we are able to meet our debt service obligations, the amount of
debt we have could adversely affect us in a number of ways, including by:
- limiting our ability to obtain any necessary financing in the
future for working capital, capital expenditures, debt service
requirements or other purposes;
- limiting our flexibility in planning for, or reacting to, changes
in our business;
- placing us at a competitive disadvantage to those of our
competitors having lower levels of debt;
- making us more vulnerable to a downturn in our business or the
economy generally; and
- requiring us to use a substantial portion of our cash flow from
operations to pay principal and interest on our debt, instead of
contributing those funds to other purposes, such as working
capital and capital expenditures.
To be able to meet our obligations under our credit facility, we
must successfully implement our business strategy, which includes:
- expanding our network;
- attracting or acquiring and retaining a significant number of
subscribers; and
- achieving significant and sustained growth in our cash flow.
We cannot assure you that we will successfully implement our business
strategy or that we will be able to generate sufficient cash flow from operating
activities to meet our debt service obligations and working capital
requirements. Our ability to meet our obligations will be dependent upon our
future performance, which will in turn depend upon prevailing economic
conditions and financial, business and other factors.
If the implementation of our business strategy is delayed or
unsuccessful, or if we do not generate sufficient cash flow to meet our debt
service and working capital requirements, we may need to seek additional
financing. If we are unable to obtain necessary financing on terms that are
acceptable to us, we could be forced to dispose of assets to make up for any
shortfall in the payments due on our
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indebtedness under circumstances that might not be favorable to realizing the
highest price for those assets. A substantial portion of our assets consist of
intangible assets, the value of which will depend upon a variety of factors,
including the success of our business. As a result, we cannot assure you that
our assets could be sold quickly enough, or for amounts sufficient, to meet our
obligations.
VARIOUS FACTORS OUTSIDE OF OUR CONTROL MAY AFFECT OUR OPERATING RESULTS AND
CAUSE POTENTIAL FLUCTUATIONS IN OUR QUARTERLY RESULTS.
Our future success depends on a number of factors, many of which are
beyond our control. In particular, our revenue depends on our ability to attract
and keep subscribers. We normally offer our new subscribers a 30-day money-back
satisfaction guarantee. In addition, our subscribers, including the recently
acquired Spry and NETCOM subscribers, may discontinue their service at the end
of any month for any reason. We incur some expenses based on our expectations of
future revenue. If revenue is less than we expect, we may not be able to reduce
expenses proportionately. If we do not do so, our operating results, cash flows,
and liquidity will likely be adversely affected.
Our operating results, cash flows and liquidity may also fluctuate
significantly in the future due to other factors beyond our control which
include:
- how quickly we are able to acquire new subscribers;
- how expensive it will be to acquire new subscribers;
- the impact of increased depreciation and amortization from
acquisitions;
- how much money we have to spend to improve our business and expand
our operations;
- how quickly we are able to develop new products and services that
our subscribers require;
- how our prices compare to those of our competitors;
- whether customers accept our new and enhanced products and
services;
- how much our operating expenses increase;
- the nature of changes in our strategy;
- whether we lose key employees;
- whether we experience business disruptions resulting from third
parties encountering "Year 2000" computer problems;
- whether and how quickly alternative technologies introduced by our
competitors gain market acceptance;
- whether our arrangements with third-party network providers under
various services agreements prove to be viable;
- changes in laws and regulations which affect our business;
- the extent to which we experience increased competition in our
markets; and
- other general economic factors.
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Due to all of the foregoing factors, it is likely that in some future
periods, our operating results and/or our growth rate will be below what public
market analysts and investors expect. If that happens, the market price of our
common stock could decline materially.
Technology and industry standards relating to our business are constantly
evolving and our success depends on our ability to keep pace with these
developments.
The market for Internet access and Web hosting is characterized by
rapidly changing technology, evolving industry standards, changes in subscriber
needs, and frequent new service and product introductions. Our future success
will depend, in part, on our ability to use leading technologies effectively, to
continue to develop our technical expertise, and to enhance our existing
services and develop new services to meet changing subscriber needs on a timely
and cost-effective basis. We may not be successful in achieving these goals.
We believe that our ability to compete successfully will also depend upon
the continued compatibility and interoperability of our services with products
and architectures offered by various vendors. Although we intend to support
emerging standards in the market for Internet access, industry standards may not
be established or, if they are established, we may not be able to conform to
these new standards in a timely fashion and maintain a competitive position in
the market. In addition, others may develop services or technologies that will
render our services or technology noncompetitive or obsolete.
We are also at risk to fundamental changes in the way customers access
the Internet. Currently, customers access Internet services primarily through
computers connected by telephone lines. Several companies, however, have
developed cable television modems that transmit data at substantially faster
speeds than the modems that we and most of our subscribers currently use. As the
Internet becomes accessible through these cable television modems and by
screen-based telephones, wireless products, televisions, and other consumer
electronic devices, or as subscriber requirements change the way Internet access
is provided, we must develop new technology or modify our existing technology to
accommodate these developments.
We will have to continue to modify and expand the means by which we
deliver our services. As discussed below, our ability to offer cable wire access
to our subscribers may depend on our ability to negotiate agreements with cable
companies and, therefore, may be very limited. Our pursuit of technological
advances, such as a new technology called Digital Subscriber Lines, or "DSL,"
that uses telephone lines for high-speed data transfers, may require substantial
time and expense. We may not succeed in adapting our Internet access business to
alternate access devices and conduits.
WE MAY NEED ADDITIONAL CAPITAL TO FINANCE OUR GROWTH AND CAPITAL REQUIREMENTS.
We must continue to enhance and develop our network to maintain our
competitive position and continue to meet the increasing demands for service
quality, availability, and competitive pricing. Despite the availability of
additional network capacity from third-party network providers, we intend to
maintain the flexibility to expand or open MindSpring POPs or make other capital
investments as dictated by subscriber demand or strategic considerations. To
open new MindSpring POPs, we must spend significant amounts of money for new
equipment as well as for leased telecommunications facilities and advertising.
In addition, to further expand our subscriber base nationwide, we will probably
have to spend significant amounts of money on additional equipment to maintain
the high speed and reliability of our Internet access services. We may also need
to spend significant amounts of cash to:
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- fund growth, operating losses and increases in expenses;
- take advantage of unanticipated opportunities, such as major
strategic alliances or other special marketing opportunities,
acquisitions of complementary businesses or assets, or the
development of new products; or
- otherwise respond to unanticipated developments or competitive
pressures.
If we do not have enough cash on hand, cash generated from our
operations, or cash available under our credit facility to meet these cash
requirements, we will need to seek alternative sources of financing to carry out
our growth and operating plans. We may not be able to raise needed cash on terms
acceptable to us or at all. Financings may be on terms that are dilutive or
potentially dilutive to our stockholders. If alternative sources of financing
are required, but are insufficient or unavailable, we will be required to modify
our growth and operating plans to the extent of available funding and attempt to
attain profitability in our existing operations.
OUR BUSINESS DEPENDS ON OUR NETWORK INFRASTRUCTURE, INCLUDING OUR ABILITY TO
OBTAIN SUFFICIENT NETWORK CAPACITY.
The future success of our business will depend on the capacity,
reliability, and security of our network infrastructure, including the
third-party POPs. We will need to use substantial financial, operational, and
management resources to expand and adapt our network infrastructure to meet the
needs of an increasing number of subscribers and to accommodate the expanding
amount and type of information they wish to transfer. We may not be able to
expand or adapt our network infrastructure to meet additional demand or changing
subscriber requirements on a timely basis and at a commercially reasonable cost,
or at all.
In the past we have experienced shortages in bandwidth capacity, both at
the level of particular POPs, which affects only subscribers attempting to use
the particular POP, and in connection with system-wide services, such as e-mail
and news group services. If we do not maintain sufficient bandwidth capacity in
our network connections, subscribers will perceive a general slowdown of all
services on the Internet. We will sometimes temporarily delay adding new
subscribers in cities experiencing significant capacity constraints until the
capacity constraints can be alleviated. This is done to protect the service
levels for current subscribers. Similar problems can occur if we are unable to
expand the capacity of our information servers for e-mail, news, and the World
Wide Web fast enough to keep up with demand from our rapidly expanding
subscriber base. If the capacity of our servers is exceeded, subscribers will
experience delays when trying to use a particular service. While our objective
is to maintain excess capacity, our failure to expand or enhance our network
infrastructure on a timely basis or to adapt it to an expanding subscriber base,
changing subscriber requirements, or evolving industry standards could
materially adversely affect our business, financial condition, and results of
operations.
WE ARE DEPENDENT ON THIRD-PARTY NETWORK PROVIDERS.
In a significant number of markets, we provide Internet access
exclusively through third-party POPs. Our ability to provide Internet access to
our subscribers will be limited if (1) third-parties are unable or unwilling to
provide POP access to our subscribers, (2) we are unable to secure alternative
POP arrangements upon partial or complete termination of third-party network
provider agreements or (3) there is a loss of access to third-party POPs for
other reasons. These events could also limit our
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ability to further expand nationally, which could, in turn, have a material
adverse effect on our business. If we lose access to third-party POPs under our
current arrangements, we may not be able to make alternative arrangements on
terms acceptable to us, or at all. We do not currently have any plans or
commitments with respect to alternative POP arrangements, although there are
some geographic overlaps among our current arrangements. Moreover, while our
contracts with the third-party providers require them to provide commercially
reliable service to MindSpring's subscribers with a significant assurance of
accessibility to the Internet, the performance of third-party providers may not
meet our requirements, which could materially adversely affect our business,
financial condition and results of operations.
In connection with the NETCOM acquisition, we entered into a network
services agreement with NETCOM, which has changed its name to ICG PST,
Inc. We expect to provide service to the majority of subscribers we acquired
from NETCOM under this agreement which, at least for the first year of the
agreement, will be at favorable rates. However, ICG PST is just beginning to
offer network services as a third-party provider for companies like MindSpring.
We cannot be sure that this network agreement will be adequate to provide the
level of service we require for our subscribers, and there may be operating
inefficiencies, network reliability issues or technical support difficulties
that are outside of our control.
OUR OPERATIONS AND SERVICES ARE VULNERABLE TO NATURAL DISASTERS.
Our operations and services depend on the extent to which our computer
equipment and the computer equipment of our third-party network providers is
protected against damage from fire, earthquakes, power loss, telecommunications
failures, and similar events. A significant portion of our computer equipment,
including critical equipment dedicated to our Internet access services, is
located at a single facility in Atlanta, Georgia. Despite precautions taken by
us and our third-party network providers, over which we have no control, a
natural disaster or other unanticipated problems at our headquarters, network
hub, or a MindSpring or third-party network provider POP could cause
interruptions in the services that we provide. If disruptions occur, we may have
no means of replacing these network elements on a timely basis or at all. We do
not currently maintain fully redundant or back-up Internet services or backbone
facilities or other fully redundant computing and telecommunications facilities.
Any accident, incident, system failure, or discontinuance of operations
involving our network or a third-party network that causes interruptions in our
operations could have a material adverse effect on our ability to provide
Internet services to our subscribers and, in turn, on our business, financial
condition, and results of operations.
WE ARE DEPENDENT ON TELECOMMUNICATIONS CARRIERS AND OTHER SUPPLIERS.
We rely on local telephone companies and other companies to provide data
communications capacity via local telecommunications lines and leased
long-distance lines. We may experience disruptions or capacity constraints in
these telecommunications services. If disruptions or capacity constraints occur,
we may have no means of replacing these services, on a timely basis or at all.
In addition, local phone service is sometimes available only from the local
monopoly telephone company in each of the markets we serve. We believe that the
federal Telecommunications Act of 1996 generally will lead to increased
competition in the provision of local telephone service, but we cannot predict
when or to what extent this will occur or the effect of increased competition on
pricing or supply.
We depend on a few third-party suppliers of hardware components.
Currently, we acquire some components we use to provide our networking services
from only one source, including modems and terminal servers manufactured by
3Com(R) Corporation and high-performance routers manufactured by Cisco
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Systems, Inc. The expansion of our network infrastructure and the expansion of
Internet services in general is placing, and will continue to place, a
significant demand on our suppliers, some of which have limited resources and
production capacity. From time to time, we have experienced delayed delivery
from suppliers of new telephone lines, modems, terminal servers, and other
equipment. If delays of this nature are severe, all incoming modem lines may
become full during peak times, resulting in busy signals for subscribers who are
trying to connect to MindSpring. If our suppliers cannot adjust to meet
increasing demand, the higher demand levels may prevent them from continuing to
supply components and products in the quantities, at the quality levels and at
the times we require, or at all. If we are unable to develop alternative sources
of supply, if required, we could experience delays and increased costs in
expanding our network infrastructure.
Our suppliers and telecommunications carriers also sell or lease products
and services to our competitors and may be, or in the future may become,
competitors themselves. Our suppliers and telecommunications carriers may enter
into exclusive arrangements with our competitors or stop selling or leasing
their products or services to us at commercially reasonable prices, or at all.
OUR NETWORK IS VULNERABLE TO SECURITY BREACHES AND INAPPROPRIATE USE BY INTERNET
USERS WHICH COULD DISRUPT OUR SERVICE.
The future success of our business will depend on the security of our
network and, in part, on the security of the network infrastructures of our
third-party providers, over which we have no control. Despite the implementation
of security measures, our infrastructure and the infrastructures of our network
providers are vulnerable to computer viruses or similar disruptive problems
caused by our or their subscribers or other Internet users. Computer viruses or
problems caused by third parties, such as the sending of excessive volumes of
unsolicited bulk e-mail or "spam," could lead to interruptions, delays, or
cessation in service to our subscribers. Third parties could also potentially
jeopardize the security of confidential information stored in our computer
systems or our subscribers' computer systems by their inappropriate use of the
Internet, which could cause losses to us or our subscribers or deter persons
from subscribing to our services. Inappropriate use of the Internet includes
attempting to gain unauthorized access to information or systems, commonly known
as "cracking" or "hacking." Although we intend to continue to implement security
measures to prevent this, "hackers" have circumvented security measures in the
past, and others may be able to circumvent our security measures or the security
measures of our third-party network providers in the future.
To alleviate problems caused by computer viruses or other inappropriate
uses or security breaches, we may have to interrupt, delay, or cease service to
our subscribers, which could have a material adverse effect on our business,
financial condition, and results of operations. In addition, we expect that our
subscribers will increasingly use the Internet for commercial transactions in
the future. Any network malfunction or security breach could cause these
transactions to be delayed, not completed at all, or completed with compromised
security. Subscribers or others may assert claims of liability against us as a
result of any failure by us to prevent these network malfunctions and security
breaches. Until more comprehensive security technologies are developed, the
security and privacy concerns of existing and potential subscribers may inhibit
the growth of the Internet service industry in general and our subscriber base
and revenue in particular.
THE INTERNET ACCESS AND WEB HOSTING MARKETS ARE VERY COMPETITIVE.
The markets for the provision of Internet access and Web hosting services
to individuals and small businesses are extremely competitive and highly
fragmented. There are no substantial barriers to
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entry, and we expect that competition will continue to intensify. We may not be
able to compete successfully against current or future competitors, many of whom
may have financial resources greater than ours. Increased competition could
cause us to increase our selling and marketing expenses and related subscriber
acquisition costs and could also result in increased subscriber attrition. We
may not be able to offset the effects of these increased costs through an
increase in the number of our subscribers or higher revenue from enhanced
services and we may not have the resources to continue to compete successfully.
These developments could adversely affect our business, financial condition and
results of operations.
COMPETITIVE FACTORS. We believe that the primary competitive factors
determining success in the Internet access and Web hosting markets are a
reputation for reliability and service, effective customer support, pricing,
easy-to-use software, and geographic coverage. Other important factors include
the timing of introductions of new products and services and industry and
general economic trends. Our current and prospective competitors include many
large companies that have substantially greater market presence and financial,
technical, marketing, and other resources. In addition, every local market that
we have entered or intend to enter is served by multiple local ISPs.
OUR COMPETITORS. We currently compete or expect to compete with the
following types of companies:
- established on-line commercial information service providers, such
as AOL;
- national long-distance carriers, such as AT&T Corp. and MCI
WorldCom, Inc.;
- national commercial ISPs, such as EarthLink Network, Inc.;
- computer hardware and software and other technology companies,
such as IBM Corp. and Microsoft Corporation;
- numerous regional and local commercial ISPs which vary widely in
quality, service offerings, and pricing;
- national and regional Web hosting companies that focus primarily
on providing Web hosting services;
- cable operators and on-line cable services;
- local telephone companies and regional Bell operating companies;
and
- nonprofit or educational Internet service providers.
We believe that new competitors, including large computer hardware and
software, media, and telecommunications companies, will continue to enter the
Internet access and Web hosting markets. As consumer awareness of the Internet
grows, existing competitors are likely to further increase their emphasis on
their Internet access and Web hosting services, resulting in even greater
competition for us. In addition, telecommunications companies may be able to
offer customers reduced communications costs in connection with these services,
reducing the overall cost of their Internet access and Web hosting solutions and
significantly increasing pricing pressures on us. The ability of our competitors
to acquire other ISPs, to enter into strategic alliances or joint ventures or to
bundle other services and products with Internet access or Web hosting could
also put us at a significant competitive disadvantage.
BROADBAND TECHNOLOGIES. We also face competition from companies that
provide broadband connections to consumers' homes, including local and
long-distance telephone companies, cable television companies, electric utility
companies, and wireless communications companies. These
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companies may use broadband technologies to include Internet access or Web
hosting in their basic bundle of services or may offer Internet access or Web
hosting services for a nominal additional charge. Broadband technologies enable
consumers to transmit and receive print, video, voice and data in digital form
at significantly faster access speeds than existing dial-up modems.
The companies that own these broadband networks could prevent us from
delivering Internet access through the wire and cable connections that they own.
Cable television companies are not currently required to allow ISPs to access
their broadband facilities and the availability and terms of ISP access to
broadband local telephone company networks are under regulatory review. Our
ability to compete with telephone and cable television companies that are able
to support broadband transmission, and to provide better Internet services and
products, may depend on future regulation to guarantee open access to the
broadband networks. However, in January 1999, the Federal Communications
Commission declined to take any action to mandate or otherwise regulate access
by ISPs to broadband cable facilities at this time. It is unclear whether and to
what extent local and state regulatory agencies will take any initiatives to
implement this type of regulation, and whether they will be successful in
establishing their authority to do so. Similarly, the FCC is considering
proposals that could limit the right of ISPs to connect with their customers
over broadband local telephone lines. In addition to competing directly in the
ISP market, both cable and telephone facilities operators are also aligning
themselves with certain ISPs who would receive preferential or exclusive use of
broadband local connections to end users. If high-speed, broadband facilities
increasingly become the preferred mode by which customers access the Internet
and we are unable to gain access to these facilities on reasonable terms, our
business, financial condition and results of operations could be materially
adversely affected.
NO INTERNATIONAL OPERATIONS. We do not currently compete internationally,
except that we have a small number of Canadian subscribers obtained in the Spry
acquisition. If the ability to provide Internet access internationally becomes a
competitive advantage in the Internet access industry, we may be at a
competitive disadvantage relative to our competitors.
WE MAY NOT BE SUCCESSFUL IN PROTECTING OUR PROPRIETARY RIGHTS OR AVOIDING CLAIMS
THAT WE INFRINGE THE PROPRIETARY RIGHTS OF OTHERS.
Our success depends in part upon our software and related documentation.
We principally rely upon copyright, trade secret, and contract laws to protect
our proprietary technology. We cannot be certain that we have taken adequate
steps to prevent misappropriation of our technology or that our competitors will
not independently develop technologies that are substantially equivalent or
superior to our technology.
We have permission and, in some cases, licenses from each manufacturer of
the software that we bundle in MindSpring's front-end software product for
subscribers. Although we do not believe that the software or the trademarks we
use or any of the other elements of our business infringe on the proprietary
rights of any third parties, third parties may assert claims against us for
infringement of their proprietary rights and these claims may be successful. We
might also face third party claims as a result of our acquisition of software,
trademarks and other proprietary technology from Spry and NETCOM.
We could incur substantial costs and diversion of management resources in
the defense of any claims relating to proprietary rights, which could materially
adversely affect our business, financial condition, and results of operations.
Parties making these claims could secure a judgment awarding substantial damages
as well as injunctive or other equitable relief that could effectively block our
ability to license our products in the United States or abroad. Such a judgment
could have a material adverse effect on our business, financial condition and
results of operations. If a third party asserts a claim relating to proprietary
technology or information against us, we may seek licenses to the intellectual
property from the third party. We cannot be certain, however, that third parties
will extend licenses to us on commercially reasonable terms, or at all. If we
fail to obtain the necessary licenses or other rights, it could materially
adversely affect our business, financial condition and results of operations.
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<PAGE> 15
OUR SUCCESS DEPENDS UPON OUR ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL.
Our success depends upon the continued efforts of our senior management
team and our technical, marketing, and sales personnel. These employees may
voluntarily terminate their employment with us at any time. Our success also
depends on our ability to attract and retain additional highly qualified
management, technical, marketing, and sales personnel. The process of hiring
employees with the combination of skills and attributes required to carry out
our strategy can be extremely competitive and time-consuming. We may not be able
to successfully retain or integrate existing personnel or identify and hire
additional personnel. If we lose the services of key personnel or are unable to
attract additional qualified personnel, our business, financial condition and
results of operations could be materially and adversely affected.
ITC HOLDING COMPANY, INC., ONE OF OUR PRINCIPAL STOCKHOLDERS, AND OUR MANAGEMENT
CAN EXERCISE SIGNIFICANT INFLUENCE OVER MINDSPRING.
ITC Holding Company, Inc. indirectly owns approximately 18.5% of our
common stock as of February 28, 1999. MindSpring's executive officers and
directors own an aggregate of approximately 9.6% of our common stock as of the
same date. As a result, if ITC Holding and management act together, they would
be able to exercise significant influence over most matters requiring
stockholder approval, including the election of directors and the approval of
significant corporate matters, such as some types of change-of-control
transactions. The common stock of MindSpring owned by ITC Holding is pledged to
ITC Holding's lenders in connection with a credit facility. If ITC Holding's
subsidiaries default under the credit facility, ITC Holding could lose ownership
of all of its stock in MindSpring and someone unknown to us would become a
significant stockholder of MindSpring.
SOME OF OUR DIRECTORS HAVE CONFLICTS OF INTEREST INVOLVING ITC HOLDING.
ITC Holding, as a significant stockholder of MindSpring, and Campbell B.
Lanier, III, William H. Scott, III, and O. Gene Gabbard, who are directors of
MindSpring and directors, stockholders, and, in the case of Messrs. Lanier and
Scott, officers of ITC Holding, are in positions involving the possibility of
conflicts of interest with respect to transactions concerning MindSpring. Some
decisions concerning our operations or financial structure may present conflicts
of interest between us and ITC Holding and/or its affiliates. For example, if we
are required to raise additional capital from public or private sources to
finance our anticipated growth and contemplated capital expenditures, our
interests might conflict with those of ITC Holding and/or its affiliates with
respect to the particular type of financing sought. In addition, we may have an
interest in pursuing acquisitions, divestitures, financings, or other
transactions that, in our judgment, could be beneficial to us, even though the
transactions might conflict with the interests of ITC Holding and/or its
affiliates. If these conflicts do occur, ITC Holding and its affiliates may
exercise their influence in their own best interests.
We currently engage and expect in the future to engage in transactions
with ITC Holding and/or its affiliates. In addition, we provide Internet access
to various companies controlled by ITC Holding, although the revenue we derive
from these sources is not substantial. We have a policy that requires any
material transaction with our officers, directors, or principal stockholders, or
their affiliates, to be on terms no less favorable to MindSpring than we
reasonably could have obtained in arm's-length transactions with independent
third parties. We believe that each current transaction in which we are engaged
with an affiliate complies with this policy.
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THE ABILITY OF OUR STOCKHOLDERS TO EFFECT CHANGES IN CONTROL OF MINDSPRING IS
LIMITED.
There are provisions in our Amended and Restated Certificate of
Incorporation, as amended, our Amended and Restated Bylaws, and the Delaware
General Corporation Law that could delay or impede the removal of incumbent
directors and could make more difficult a merger, tender offer, or proxy contest
involving MindSpring or could discourage a third-party from attempting to
acquire control of MindSpring, even if these events would be beneficial to the
interests of the stockholders. In particular, our board of directors could delay
a change in control of MindSpring. In addition, our Amended and Restated
Certificate of Incorporation authorizes the board of directors to provide for
the issuance of shares of preferred stock of MindSpring, in one or more series,
which the board of directors could issue without further stockholder approval
and with terms and conditions and rights, privileges, and preferences determined
by the board of directors. We have no current plans to issue any shares of
preferred stock. We are also governed by Section 203 of the Delaware Corporation
Law. In general, Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless specified conditions are met. These
factors could have the effect of delaying, deferring, or preventing a change of
control of MindSpring.
WE MAY BECOME REGULATED BY THE FEDERAL COMMUNICATIONS COMMISSION OR OTHER
GOVERNMENT AGENCIES.
As an Internet service provider, we are not currently directly regulated
by the Federal Communications Commission or any other agency, other than
regulations applicable to businesses generally. In a report to Congress adopted
on April 10, 1998, the FCC reaffirmed that Internet service providers should be
classified as unregulated "information service providers" rather than regulated
"telecommunications providers" under the terms of the Telecommunications Act of
1996.
This finding is important because it means that regulations that apply to
telephone companies and similar carriers do not apply to us. We also are not
required to contribute a percentage of our gross revenues to support "universal
service" subsidies for local telephone services and other public policy
objectives, such as enhanced communications systems for schools, libraries, and
some health care providers. The FCC action is also likely to discourage states
from regulating Internet service providers as telecommunications carriers or
imposing similar subsidy obligations.
Nevertheless, Internet-related regulatory policies are continuing to
develop, and it is possible that we could be exposed to regulation in the
future. For example, in the same report to Congress, the FCC stated its
intention to consider whether to regulate voice and fax telephony services
provided over the Internet as "telecommunications" even though Internet access
itself would not be regulated. We cannot predict whether in the future the FCC
will modify its current policies against regulation of ISPs.
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<PAGE> 17
Mindspring also could be affected by any change in the ability of
customers to reach our network through a dial-up telephone call without any
additional charges. This practice has allowed ISPs to offer flat-rate,
non-usage-sensitive pricing, and has been an important reason for the growth in
Internet use. Recently, the FCC ruled that connections linking end users to
their ISPs are jurisdictionally interstate rather than local, but the FCC did
not subject such calling to the access charges that apply to traditional
telecommunucations companies. Local telephone companies assess access charges to
long distance companies for the use of the local telephone network to originate
and terminate long distance calls, generally on a per-minute basis. Mindspring
could be adversely affected by any regulatory change that would result in
application of access charges to Internet service because this would
substantially increase the cost of using the Internet. However, the FCC Chairman
has stated that he opposes Internet-related access charges, and we believe that
this development is unlikely, with one possible exception that is not currenly
relevant to our business. Specifically, there is substantial debate as to
whether carrier access charges, or the universal support obligations discussed
above, should apply to Internet-based telephone services that substitute for
conventional telephony. We have no current plans to install gateway equipment
and offer telephony, and so we do not believe we would be directly affected by
these developments were they to occur.
The law relating to the liability of Internet service providers and
on-line services companies for information carried on, stored on, or
disseminated through their network is unsettled, even with the recent enactment
of the Digital Millennium Copyright Act. While no one has ever filed a claim
against us relating to information carried on, stored on, or disseminated
through our network, someone may file a claim of that type in the future and may
be successful in imposing liability on us. If that happens, we may have to spend
significant amounts of money to defend ourselves against these claims and, if we
are not successful in our defense, the amount of damages that we will have to
pay may be significant. Any costs that we incur as a result of defending these
claims or the amount of liability that we may suffer if our defense is not
successful could materially adversely affect our business, financial condition
and results of operations.
If, as the law in this area develops, we become liable for information
carried on, stored on, or disseminated through our network, we may decide to
take actions to reduce our exposure to this type of liability. This may require
us to spend significant amounts of money for new equipment and may also require
us to discontinue offering some of our products or services.
Due to the increasing popularity and use of the Internet, it is possible
that additional laws and regulations may be adopted with respect to the
Internet, covering issues such as content, privacy, access to some types of
content by minors, pricing, bulk e-mail or "spam," encryption standards,
consumer protection, electronic commerce, taxation, copyright infringement, and
other intellectual property issues. We cannot predict the impact, if any, that
any future regulatory changes or developments may have on our business,
financial condition, and results of operations. Changes in the regulatory
environment relating to the Internet access industry, including regulatory
changes that directly or indirectly affect telecommunication costs or increase
the likelihood or scope of competition from regional telephone companies or
others, could have a material adverse effect on our business, financial
condition and results of operations.
FAILURE TO ACHIEVE YEAR 2000 COMPLIANCE MAY HAVE ADVERSE EFFECTS ON MINDSPRING.
Most of the world's computer hardware and software have historically used
only two digits to identify the year in a date, often meaning that the computer
will fail to distinguish dates in the 21st century from dates in the 20th
century. As a result, various problems may arise from the improper processing of
dates and date-sensitive calculations by computers and other machinery as the
Year 2000 is approached and reached.
Our failure, or the failure of third parties on which we rely, to
adequately address Year 2000 readiness issues could result in an interruption,
or a failure, of some normal business activities or operations. Presently, we
believe that the primary risks that we face with regard to the Year 2000 are
those arising from third party services or products.
In particular, MindSpring depends heavily on a significant number of
third party vendors to provide both network services and equipment. A
significant Year 2000-related disruption of these network services or equipment
could cause our customers to consider seeking alternate providers or cause an
unmanageable burden on customer service and technical support. This in turn
could materially and adversely affect MindSpring's results of operations,
liquidity and financial condition.
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<PAGE> 18
Furthermore, our business depends on the continued operation of, and
widespread access to, the Internet. To the extent that the normal operation of
the Internet is disrupted by the Year 2000 issue, or if a large portion of our
customers are unable to access the Internet due to Year 2000 related issues in
connection with their own systems, MindSpring's results of operations, liquidity
and financial condition could be materially and adversely affected.
We also face Year 2000 risks related to the acquisitions we make. If we
fail to identify and address Year 2000 issues in connection with our
acquisitions, our results of operations, liquidity and financial condition could
be materially and adversely affected.
We have established a Year 2000 readiness program to coordinate
appropriate activity to be taken to address the Year 2000 issue. As of December
31, 1998, we had incurred approximately $75,000 in connection with the
implementation of the program. We expect to incur an additional $250,000 to
$300,000 of expenses to implement the remainder of the Year 2000 readiness
program. These estimates do not include additional costs which may be incurred
in connection with expanding the program to include the systems and products
acquired in the Spry and NETCOM transactions. These are our best estimates, and
we do not believe that the total costs will have a material affect on our
business. However, if the actual costs resulting from implementation of the Year
2000 readiness program significantly exceed our estimates, they may have a
material adverse effect on our results of operations, liquidity and financial
condition.
OUR CREDIT FACILITY CONTAINS RESTRICTIVE COVENANTS.
Our credit facility contains restrictions on MindSpring and any of our
future subsidiaries that affect, and in some cases prohibit or significantly
limit, our ability and the ability of our future subsidiaries, if any, to:
- incur additional indebtedness;
- create liens;
- make investments;
- declare and pay cash dividends;
- issue some types of convertible and redeemable stock; and
- sell assets.
Our credit facility also requires us to maintain specified financial
ratios and satisfy financial condition tests. Our ability to meet those
financial ratios and tests can be affected by events beyond our control. We can
offer no assurance that we will meet those tests. In addition, these restrictive
covenants may adversely affect our ability to finance our future operations or
capital needs, or to engage in other business activities that may be in our
interest. A breach of any of these covenants could result in a default under the
credit facility. Upon the occurrence of an event of default under the credit
facility, our lenders could elect to declare all amounts outstanding under the
credit facility, together with any accrued interest, to be immediately due and
payable. If we were unable to repay those amounts, our lenders could proceed
against the collateral granted to them to secure that indebtedness.
Substantially all of our assets are pledged as collateral under the credit
facility. If the credit facility were to be accelerated, we can offer no
assurance that our assets would be sufficient to repay in full that
indebtedness. An event of
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default or acceleration of the credit facility could have a material adverse
effect on our business, financial condition and results of operations.
OUR STOCK PRICE WILL FLUCTUATE, AND COULD FLUCTUATE SIGNIFICANTLY.
Since our common stock has been publicly traded, the market price of our
common stock has fluctuated over a wide range and may continue to do so in the
future. Significant fluctuations in the market price of our common stock may
occur in response to various factors and events, including, among other things:
- the depth and liquidity of the trading market for our common
stock;
- quarterly variations in actual or anticipated operating results;
- growth rates;
- changes in estimates by analysts;
- market conditions in the industry, including demand for Internet
access;
- announcements by competitors;
- regulatory actions; and
- general economic conditions.
In addition, the stock market has from time to time experienced
significant price and volume fluctuations, which have particularly affected the
market prices of the stocks of high-technology companies and which may be
unrelated to the operating performance of particular companies. Furthermore, our
operating results and prospects from time to time may be below the expectations
of public market analysts and investors. The occurrence of any of these events
could result in a material decline in the price of our common stock.
WE DO NOT ANTICIPATE THAT WE WILL PAY CASH DIVIDENDS.
We have never declared or paid any cash dividends on our capital stock
and do not anticipate paying cash dividends in the foreseeable future. In
addition, our credit facility contains limits on our ability to declare and pay
cash dividends.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the information incorporated by reference in it, as
well as any prospectus supplement that accompanies it, include "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. We intend the
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements in these sections. All statements regarding our
expected financial position and operating results, our business strategy and our
financing plans and similar matters are forward-looking statements. These
statements can sometimes be identified by our use of forward-looking words such
as "may," "will," "anticipate," "estimate," "expect," or "intend." We cannot
promise that our expectations in such forward-looking statements will turn out
to be correct. Our actual results could be materially different from our
expectations. Important factors that could cause our actual results to be
materially different from our expectations include those discussed in this
prospectus under the caption "Risk Factors."
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC under the Securities Exchange Act. Our Securities
Exchange Act file number for our SEC filings is 0-27890. You may read and copy
any document we file with the SEC at the following SEC public reference rooms:
<TABLE>
<S> <C> <C>
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661
</TABLE>
You may obtain information on the operation of the public reference rooms
by calling the SEC at 1-800-SEC-0330.
Our SEC filings also are available from the SEC's Web Site at
http://www.sec.gov.
Our common stock is quoted on the Nasdaq National Market under the symbol
"MSPG," and our SEC filings can also be read at the following Nasdaq address:
Nasdaq Operations
1735 K Street, N.W.
Washington, D.C. 20006
This prospectus is part of a registration statement we filed with the
SEC. The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below:
- Our Annual Report on Form 10-K for our fiscal year ended December
31, 1998, filed with the SEC on March 30, 1999.
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- Our Current Reports on Form 8-K, filed with the SEC on:
- January 8, 1999; and
- February 25, 1999.
- The description of our common stock included in a registration
statement on Form 8-A, filed with the SEC on March 1, 1996,
including any amendments or reports filed for the purpose of
updating that description.
In addition to the documents listed above, we also incorporate by
reference any future filings we make with the SEC under Sections 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934 until all of the offered
securities to which this prospectus relates are sold or the offering is
otherwise terminated.
You may request a copy of these filings, at no cost, by writing to us at
the following address or telephoning us at (404) 815-0770 between the hours of
9:00 a.m. and 4:00 p.m., Atlanta, Georgia local time:
Investor Relations
MindSpring Enterprises, Inc.
1430 West Peachtree Street, Suite 400
Atlanta, Georgia 30309
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MINDSPRING
MindSpring, which began operations in February 1994, is a leading
national Internet service provider, or ISP. We focus on serving individuals and
small businesses. Our primary service offerings are dial-up Internet access and
business services, which we offer in various price and usage plans designed to
meet the needs of our subscribers. Our business services include Web hosting,
which entails maintaining a customer's Internet Web site; high-speed, dedicated
Internet access; Web page design; domain name registration and customer Web
server co-location. Web hosting, our principal business service, complements our
Internet access business and is one of the fastest growing segments of the
Internet marketplace.
Our nationwide network consists of MindSpring-owned points of presence,
or POPs, and POPs that are owned by other companies with which we have service
agreements. This reliable network enables subscribers in the 48 contiguous U.S.
states and the District of Columbia to access the Internet via a local telephone
call.
Our objective is to strengthen MindSpring's position as a leading
national provider of high quality Internet access, Web hosting and other
value-added services to individuals and small businesses. We believe that to
achieve this objective we need to continue to:
- provide superior customer service and technical support by
maintaining and, as necessary, increasing our staff of
qualified service and support personnel;
- efficiently expand our national network through a
combination of MindSpring-owned POPs and POPs we lease from
third-party network service providers;
- expand our targeted marketing and distribution activities
in markets where there is the opportunity for substantial
market penetration;
- increase our revenues from value-added services, such as
Web hosting and Web page design, by continuing to take
advantage of our current sales, marketing and network
capabilities; and
- engage in selected and strategic acquisitions of businesses
and subscriber accounts.
In October 1998 we acquired approximately 130,000 subscriber accounts and
some related assets from Spry, Inc., a wholly owned subsidiary of America
Online, Inc. In February 1999, we acquired approximately 400,000 subscriber
accounts and some related assets from ICG PST, Inc., formerly known as NETCOM
Online Communication Services, Inc., a wholly owned subsidiary of ICG
Communications, Inc. These acquisitions increased our subscriber base to
approximately 1.1 million subscribers, compared to approximately 12,000
subscribers at the end of 1995, our first full year of operations. We intend to
continue to evaluate new acquisition opportunities as they become available.
USE OF PROCEEDS
ICG PST will receive all of the net proceeds from the sale of the shares
offered by this prospectus. Accordingly, MindSpring will not receive any
proceeds from the sale of these shares.
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SELLING STOCKHOLDER
The selling stockholder is ICG PST, Inc., formerly known as NETCOM
On-Line Communication Services, Inc., a wholly-owned subsidiary of ICG
Communications, Inc. MindSpring issued 376,116 shares of its common stock to ICG
PST on February 17, 1999 in partial consideration for MindSpring's acquisition
of assets used in connection with the U.S. Internet services business operated
by ICG PST. MindSpring has registered these shares under the Securities Act
pursuant to an Asset Purchase Agreement between MindSpring and ICG PST dated
January 5, 1999 and amended on February 17, 1999. MindSpring's registration of
these shares does not necessarily mean that ICG PST will sell all or any of its
shares of MindSpring common stock.
The following table sets forth certain information with respect to ICG
PST. Assuming all of the shares offered by this prospectus are sold, ICG PST
will not own shares of MindSpring common stock after this offering that will
represent 1% or more of MindSpring's outstanding common stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED PRIOR TO OFFERING SHARES OFFERED OWNED AFTER OFFERING
- ------------------------ ------------------------- -------------- ----------------------
<S> <C> <C> <C>
ICG PST, Inc. 376,116 376,116 0
</TABLE>
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PLAN OF DISTRIBUTION
MindSpring is registering the shares offered by this prospectus on behalf
of ICG PST. These shares may be sold or distributed from time to time by ICG
PST, by its donees or transferees or by its other successors in interest. ICG
PST may sell these shares at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, at negotiated prices, or at
fixed prices, which may be changed. ICG PST reserves the right to accept or
reject, in whole or in part, any proposed purchase of these shares, whether the
purchase is to be made directly or through agents.
ICG PST may offer these shares at various times in one or more of the
following transactions:
- in ordinary brokers' transactions and transactions in which the
broker solicits purchasers;
- in transactions involving cross or block trades or otherwise on
the Nasdaq National Market;
- in transactions in which brokers, dealers or underwriters purchase
the shares as principal and resell the shares for their own
accounts pursuant to this prospectus;
- in transactions "at the market" to or through market makers of
MindSpring common stock or into an existing market for the common
stock;
- in other ways not involving market makers or established trading
markets, including direct sales of the shares to purchasers or
sales of the shares effected through agents;
- through transactions in options, swaps or other derivatives which
may or may not be listed on an exchange;
- in privately negotiated transactions;
- in transactions to cover short sales; or
in a combination of any of the foregoing transactions.
ICG PST also may sell these shares in accordance with Rule 144 under the
Securities Act.
From time to time, ICG PST may pledge or grant a security interest in
some or all of these shares. If ICG PST defaults in performance of the
obligations secured by these shares, the pledgees or secured parties may offer
and sell the shares from time to time by this prospectus. ICG PST also may
transfer and donate these shares in other circumstances. The number of shares
beneficially owned by ICG PST will decrease as and when ICG PST transfers or
donates these shares or defaults in performing obligations secured by these
shares. The plan of distribution for shares offered and sold under this
prospectus will otherwise remain unchanged, except that the transferees, donees,
pledgees, other secured parties or other successors in interest will be selling
stockholders for purposes of this prospectus.
ICG PST may sell short its MindSpring common stock. ICG PST may deliver
this prospectus in connection with such short sales and use the shares offered
by this prospectus to cover such short sales.
ICG PST may enter into hedging transactions with broker-dealers. The
broker-dealers may engage in short sales of MindSpring common stock in the
course of hedging the positions they assume with ICG PST, including positions
assumed in connection with distributions of these shares by such broker-dealers.
ICG PST also may enter into options or other transactions with broker-dealers
that involve the delivery of these shares to the broker-dealers, who may then
resell or otherwise transfer such shares. In addition, ICG PST may loan or
pledge these shares to a broker-
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<PAGE> 25
dealer, which may sell the loaned shares or, upon a default by ICG PST of the
secured obligation, may sell or otherwise transfer the pledged shares.
ICG PST may use brokers, dealers, underwriters or agents to sell these
shares. The persons acting as agents may receive compensation in the form of
commissions, discounts or concessions. This compensation may be paid by ICG PST
or the purchasers of the shares for whom such persons may act as agent, or to
whom they may sell as principal, or both. The compensation as to a particular
person may be less than or in excess of customary commissions. ICG PST and any
agents or broker-dealers that participate with ICG PST in the offer and sale of
these shares may be deemed to be "underwriters" within the meaning of the
Securities Act. Any commissions they receive and any profit they realize on the
resale of these shares by them may be deemed to be underwriting discounts and
commissions under the Securities Act. Neither we nor ICG PST can presently
estimate the amount of such compensation.
If ICG PST sells these shares in an underwritten offering, the
underwriters may acquire these shares for their own account and resell the
shares from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. In such event, we will set forth in a supplement to this
prospectus the names of the underwriters and the terms of the transactions,
including any underwriting discounts, concessions or commissions and other items
constituting compensation of the underwriters and broker-dealers. The
underwriters from time to time may change any public offering price and any
discounts, concessions or commissions allowed or reallowed or paid to
broker-dealers. Unless otherwise set forth in a supplement, the obligations of
the underwriters to purchase the shares will be subject to certain conditions,
and the underwriters will be obligated to purchase all of the shares specified
in the supplement if they purchase any of the shares.
We have advised ICG PST that during such time as they may be engaged in a
distribution of these shares, they are required to comply with Regulation M
under the Exchange Act. With certain exceptions, Regulation M prohibits ICG PST,
any affiliated purchasers and other persons who participate in such a
distribution from bidding for or purchasing, or attempting to induce any person
to bid for or purchase, any security which is the subject of the distribution
until the entire distribution is complete.
All costs, expenses and fees in connection with the registration of the
shares offered by this prospectus will be borne by MindSpring.
It is possible that a significant number of these shares could be sold at
the same time. Such sales, or the perception that such sales could occur, may
adversely affect prevailing market prices for the MindSpring common stock.
This offering by ICG PST will terminate on the date specified in the
Registration Procedures Agreement between MindSpring and ICG PST or, if earlier,
on the date on which ICG PST has sold all of its shares.
23
<PAGE> 26
LEGAL MATTERS
For the purposes of this offering, Hogan & Hartson L.L.P., Washington,
D.C., has given its opinion as to the validity of the shares offered by ICG PST.
EXPERTS
The financial statements and financial statement schedules of MindSpring
as of December 31, 1997 and 1998 and for the three years ended December 31,
1998; the financial statements of Spry, Inc. as of April 30, 1997 and January
31, 1998 and for the years ended April 30, 1996 and 1997 and the nine months
ended January 31, 1998; and the financial statements of NETCOM On-Line
Communication Services, Inc. Domestic Subscriber Operations as of December 31,
1997 and 1998, and for the three years ended December 31, 1998 that are
incorporated by reference in this prospectus and elsewhere in the registration
statement have been audited by Arthur Andersen LLP, independent certified public
accountants, as indicated in their reports with respect to these financial
statements, and are included in this prospectus in reliance upon the authority
of Arthur Andersen as experts in giving these reports.
24
<PAGE> 27
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table shows the costs and expenses, other than underwriting
discounts and commissions, payable in connection with the sale and distribution
of the securities being registered. All of these expenses will be paid by
MindSpring. All amounts except the SEC registration fee are estimated.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee....................... $ 9,022.00
Accounting Fees and Expenses............... 25,000.00
Legal Fees and Expenses.................... 30,000.00
Printing and Engraving Expenses............ 30,000.00
Miscellaneous.............................. 2,978.00
------------
Total............................ $ 97,000.00
============
</TABLE>
- --------------------------------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware Corporation Law, a corporation may
indemnify its directors, officers, employees and agents and its former
directors, officers, employees and agents and those who serve, at the
corporation's request, in such capacities with another enterprise, against
expenses (including attorneys' fees), as well as judgments, fines and
settlements in lawsuits, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding in which they or
any of them were or are made parties or are threatened to be made parties by
reason of their serving or having served in such capacity. The Delaware
Corporation Law provides, however, that such person must have acted in good
faith and in a manner such person reasonably believed to be in (or not opposed
to) the best interests of the corporation and, in the case of a criminal action,
such person must have had no reasonable cause to believe his or her conduct was
unlawful. In addition, the Delaware Corporation Law does not permit
indemnification in an action or suit by or in the right of the corporation,
where such person has been adjudged liable to the corporation, unless, and only
to the extent that, a court determines that such person fairly and reasonably is
entitled to indemnity for costs the court deems proper in light of liability
adjudication. Indemnity is mandatory to the extent a claim, issue or matter has
been successfully defended.
The Amended and Restated Certificate of Incorporation of the Company, as
amended, contains provisions that provide that no director of the Company shall
be liable for breach of fiduciary duty as a director except for (i) any breach
of the director's duty of loyalty to the Company or its stockholders; (ii) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law; (iii) liability under Section 174 of the Delaware
Corporation Law; or (iv) any transaction from which the director derived an
improper personal benefit. The Company's Amended and Restated Certificate of
Incorporation contains provisions that further provide for the indemnification
of directors and officers to the fullest extent permitted by the Delaware
Corporation Law. Under the Amended and Restated Bylaws of the Company, the
Company is required to advance expenses incurred by an officer or director in
defending any such action if the director or officer undertakes to repay such
amount if it is determined that the director or officer is not entitled to
indemnification. In addition, the Company has entered into indemnity agreements
with each of its directors pursuant to which the Company has agreed to indemnify
the directors as permitted by the Delaware Corporation Law and has obtained
directors and officers liability insurance.
II-1
<PAGE> 28
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
<S> <C> <C>
4 -- Form of Common Stock Certificate of the Company. (Filed as Exhibit
4 to registration statement on Form S-1, File No. 333-00108, and
incorporated herein by reference.)
5.1 -- Opinion of Hogan & Hartson L.L.P, counsel to the Company, regarding
the validity of the securities being offered by ICG PST.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1).
*24 -- Power of Attorney (included on signature page).
99.1 -- Registration Procedures Agreement dated as of March 8, 1999 between
MindSpring Enterprises, Inc. and ICG PST, Inc.
</TABLE>
- -----------------------------
* Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by mean of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-2
<PAGE> 29
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the General Corporation Law of the State of Delaware,
the Amended and Restated Certificate of Incorporation, as amended, or the
Amended and Restated Bylaws of registrant, indemnification agreements entered
into between registrant and its officers and directors, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE> 30
SIGNATURES
Pursuant to the requirements of the Securities Act, MindSpring certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-3 and has duly caused this Amendment No. 1 to registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, Georgia, on this 6th day of April, 1999.
MINDSPRING ENTERPRISES, INC.
By: /s/ MICHAEL S. MCQUARY
---------------------------
Michael S. McQuary
President and Chief Operating Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 1
to registration statement has been signed by the following persons, in the
capacities indicated below, on this 6th day of April, 1999.
<TABLE>
<CAPTION>
<S> <C>
SIGNATURES TITLE
* Chairman, Chief Executive Officer and Director
(Principal executive officer)
- ----------------------------------------------------------
Charles M. Brewer
/S/ MICHAEL S. MCQUARY President, Chief Operating Officer and Director
- ----------------------------------------------------------
Michael S. McQuary
* Executive Vice President, Chief Financial
Officer and Treasurer (Principal financial officer
- ---------------------------------------------------------- and principal accounting officer)
Juliet M. Reising
* Director
- ----------------------------------------------------------
O. Gene Gabbard
* Director
- ----------------------------------------------------------
Campbell B. Lanier, III
* Director
- ----------------------------------------------------------
William H. Scott, III
</TABLE>
BY: /S/ MICHAEL S. MCQUARY
------------------------------
Michael S. McQuary
Attorney-in-Fact
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
<S> <C> <C>
4 -- Form of Common Stock Certificate of the Company. (Filed as Exhibit 4 to registration statement on
Form S-1, File No. 333-00108, and incorporated herein by reference.)
5.1 -- Opinion of Hogan & Hartson L.L.P, counsel to the Company, regarding the validity of the securities
being offered by ICG PST.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1).
*24 -- Power of Attorney (included on signature page).
99.1 -- Registration Procedures Agreement dated as of March 8, 1999 between MindSpring Enterprises, Inc.
and ICG PST, Inc.
</TABLE>
- ------------------------------
* Previously filed.
<PAGE> 1
[HOGAN & HARTSON L.L.P.]
EXHIBIT 5.1
April 6, 1999
Board of Directors
MindSpring Enterprises, Inc.
1430 West Peachtree Street
Suite 400
Atlanta, GA 30309
Gentlemen:
This firm has acted as counsel to MindSpring Enterprises, Inc., a
Delaware corporation (the "Company"), in connection with its registration,
pursuant to a registration statement on Form S-3 filed on March 10, 1999, as
amended, with the Securities and Exchange Commission (the "Registration
Statement"), for resales of 376,116 shares of the Company's common stock, par
value $0.01 per share (the "Shares") previously issued by the Company pursuant
to the Asset Purchase Agreement dated as of January 5, 1999, as amended by the
Closing Agreement dated February 17, 1999, by and between the Company and NETCOM
On-Line Communication Services, Inc. (as so amended, the "Asset Purchase
Agreement"). This opinion letter is furnished to you at your request to enable
you to fulfill the requirements of Item 601(b)(5) of Regulation S-K, 17 C.F.R.
Section 229.601(b)(5), in connection with the Registration Statement.
For purposes of this opinion letter, we have examined copies of the
following documents:
1. A copy of the Registration Statement.
2. An executed copy of the Asset Purchase Agreement.
3. The Amended and Restated Certificate of Incorporation of the Company,
as amended, as certified by the Secretary of State of the State of
Delaware on February 12, 1999 and by the Secretary of the Company on
the date hereof as then being complete, accurate and in effect.
4. The Amended and Restated Bylaws of the Company, as certified by the
Secretary of the Company on the date hereof as then being complete,
accurate and in effect.
5. Resolutions of the Board of Directors of the Company adopted on
January 4, 1999 as certified by the Secretary of the Company on the
date hereof as then being complete, accurate and in effect.
6. A certificate of an officer of the Company dated the date hereof.
<PAGE> 2
In our examination of the aforesaid documents, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity, accuracy and completeness of all documents submitted to us, and
the conformity with the original documents of all documents submitted to us as
certified, telecopied, photostatic, or reproduced copies. We have also assumed
the accuracy, completeness and authenticity of the foregoing certifications of
public officials, governmental agencies and departments, and corporate
officials. This opinion letter is given, and all statements herein are made, in
the context of the foregoing.
This opinion letter is based as to matters of law solely on the
General Corporation Law of the State of Delaware. We express no opinion herein
as to any other laws, statutes, regulations or ordinances.
Based upon, subject to and limited by the foregoing, we are of the
opinion that the Shares are validly issued, fully paid and
non-assessable under the General Corporation Law of the State of Delaware.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter. This opinion letter has been
prepared solely for your use in connection with the filing of the Registration
Statement and should not be quoted in whole or in part or otherwise be referred
to, nor filed with or furnished to any governmental agency or other person or
entity, without the prior written consent of this firm.
We hereby consent to the filing of this opinion letter as Exhibit 5.1
to the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the prospectus constituting a part of the
Registration Statement. In giving this consent, we do not thereby admit that we
are an "expert" within the meaning of the Securities Act of 1933, as amended.
Very truly yours,
/s/ HOGAN & HARTSON L.L.P.
HOGAN & HARTSON L.L.P.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report dated February 17, 1999 included in the Company's
Current Report on Form 8-K dated February 25, 1999, our report on Spry, Inc.
dated November 6, 1998 included in the Company's Current Report on Form 8-K
dated November 13, 1998 (as amended by the Company's Current Report on Form
8-K/A filed with the SEC on December 11, 1998), and our report on NETCOM On-Line
Communications, Inc. Domestic Subscriber Operations dated January 27, 1999
included in the Company's Current Report on Form 8-K dated February 25, 1999
into this Registration Statement.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
April 2, 1999
<PAGE> 1
EXHIBIT 99.1
REGISTRATION PROCEDURES
These REGISTRATION PROCEDURES (the "Procedures") are dated as of March 8,
1999, and are between MINDSPRING ENTERPRISES, INC., a Delaware corporation
("MindSpring"), and ICG PST, INC., a Delaware corporation formerly known as
NETCOM On-Line Communication Services, Inc. ("ICG PST").
A. BACKGROUND
1. MindSpring and ICG PST (the "Parties") are parties to an Asset
Purchase Agreement dated as of January 5, 1999, as amended by the
Closing Agreement between the Parties dated February 17, 1999 (as so
amended, the "Asset Purchase Agreement"). Pursuant to the Asset
Purchase Agreement, on February 17, 1999, MindSpring issued 376,116
shares of MindSpring common stock, par value $.01 per share (the
"Shares"), to ICG PST.
2. Pursuant to Section 6.1 of the Asset Purchase Agreement, the Parties
agree that it is necessary and desirable to establish certain
procedures and understandings in order to implement Section 5.10 of
the Asset Purchase Agreement relating to the preparation and filing by
MindSpring of a resale registration statement on Form S-3 or other
eligible form with respect to the Shares (the "Resale Registration
Statement"). These Procedures are as follows:
B. MINDSPRING WILL:
1. furnish to ICG PST's counsel for review before filing with the
Securities and Exchange Commission (the "SEC") copies of the Resale
Registration Statement and any amendments or supplements thereto;
2. notify ICG PST (which notification may be made through ICG PST's
counsel) of (a) any request by the SEC to amend or supplement the
Resale Registration Statement, or (b) any stop order issued or
threatened by the SEC, and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
3. prepare and file with the SEC such amendments and supplements to the
Resale Registration Statement and the prospectus used in connection
therewith as may be necessary to keep the Resale Registration
Statement effective for a period of not less than sixty (60) days or
such shorter period which will terminate when all of the Shares
covered by the Resale Registration Statement have been sold (the last
day of such period being referred to herein as the "Termination
Date"), and comply with the provisions of the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the disposition of
all securities covered by the Resale Registration Statement during
such period in accordance with the intended methods of disposition by
ICG PST set forth in the Resale Registration Statement;
<PAGE> 2
4. furnish to ICG PST, without charge, such number of copies of the
Resale Registration Statement, each amendment and supplement thereto
(in each case including all exhibits thereto), and the prospectus
included in the Resale Registration Statement (including each
preliminary prospectus), and such other documents, as ICG PST may
reasonably request, in order to facilitate the public sale or other
disposition of the Shares;
5. use its best efforts to register or qualify the Shares under such
other securities or blue sky laws of such jurisdictions as ICG PST
reasonably requests and do any and all other acts and things which may
be reasonably necessary or advisable to enable ICG PST to consummate
the disposition in such jurisdictions of the Shares; provided,
however, that MindSpring shall not for any such purpose be required to
(a) qualify to do business as a foreign corporation in any
jurisdiction where, but for the requirements of these Procedures, it
is not then so qualified, (b) subject itself to taxation in any such
jurisdiction, or (c) take any action which would subject it to consent
to general or unlimited service of process in any such jurisdiction
where it is not then so subject;
6. cause the Shares to be listed on The Nasdaq Stock Market's National
Market, and to provide a transfer agent and registrar for the Shares
no later than the effective date of the Resale Registration Statement;
7. promptly notify ICG PST, at any time when a prospectus relating to the
Shares is required to be delivered under the Securities Act, of the
happening of any event which comes to MindSpring's attention if, as a
result of such event, the prospectus included in the Resale
Registration Statement, as then in effect, includes any untrue
statement of a material fact or omits to state a material fact
necessary in order to make the statements made therein, in light of
the circumstances under which they were made, not misleading and, at
the request of ICG PST, deliver a reasonable number of copies of an
amended or supplemental prospectus as may be necessary so that, as
thereafter delivered to the purchasers of the Shares, such prospectus
shall not include any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading; and
8. otherwise use its best efforts to comply with all applicable rules and
regulations of the SEC and make available to its security holders, in
each case as soon as practicable, an earnings statement covering a
period of at least twelve months, beginning with the first day of
MindSpring's first full fiscal quarter after the effective date of the
registration statement (as the term "effective date" is defined in
Rule 158(c) under the Securities Act), which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act
including, at MindSpring's option, Rule 158 thereunder.
2
<PAGE> 3
C. ICG PST WILL:
1. furnish to MindSpring such information regarding ICG PST and the
distribution of the Shares as MindSpring may from time to time
reasonably request in writing;
2. upon receipt of any notice from MindSpring of the happening of any
event of the kind described in Paragraph B.7 above, forthwith
discontinue disposition of the Shares pursuant to the Resale
Registration Statement until ICG PST receives the copies of the
supplemented or amended prospectus contemplated by Paragraph B.7
above, and, if so directed by MindSpring, ICG PST will deliver to
MindSpring (at MindSpring's expense) all copies, other than permanent
file copies, then in ICG PST's possession, of the prospectus covering
the Shares at the time of receipt of such notice; and
3. notify MindSpring in writing promptly after all of the Shares subject
to the Resale Registration Statement have been sold or otherwise
distributed.
C. ICG PST REPRESENTS THAT:
1. as of and after the filing of the Resale Registration Statement until
the Termination Date (1) ICG PST will be the sole legal and beneficial
owner of the Shares and (2) the Shares can and will be transferable
free and clear of all Encumbrances. For purposes of the foregoing, the
term "Encumbrances" means any lien, pledge, encumbrance, security
interest, option, hypothecation, reservation, order, decree, judgment,
condition, restriction, charge, agreement, claim or equity of any
kind;
2. ICG PST has not entered in to any arrangements with any other
MindSpring stockholder or with any broker, dealer, underwriter or
agent relating to the distribution of the Shares and will notify
MindSpring immediately upon entering into any such arrangement;
3. the information with respect to ICG PST contained in the draft Resale
Registration Statement dated March 5, 1999 is correct and complete,
and
4. ICG PST has been notified by MindSpring that during such time as ICG
PST may be engaged in a distribution of the Shares, it is required to
comply with Regulation M under the Securities Exchange Act of 1934, as
amended.
E. COUNTERPARTS
These Procedures may be executed in any number of counterparts, each of
which shall be deemed an original, but all such counterparts shall together
constitute one and the same instrument.
3
<PAGE> 4
IN WITNESS WHEREOF, each of the undersigned have executed and delivered
these Procedures, or caused these Procedures to be duly executed and delivered
on their behalf, as of the date first above written.
MINDSPRING ENTERPRISES, INC.
By: /s/Samuel R. DeSimone, Jr.
---------------------------------------
Name: Samuel R. DeSimone, Jr.
Title: Executive Vice President,
General Counsel and Secretary
ICG PST, INC.
By: /s/H. Don Teague
---------------------------------------
Name: H. Don Teague
Title: Executive Vice President
4
