EARTHLINK NETWORK INC, 424B1, 1997-01-22

EARTHLINK NETWORK INC
424B1, 1997-01-22
PREPACKAGED SOFTWARE

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<PAGE>
PROSPECTUS

2,000,000 SHARES

EARTHLINK NETWORK-REGISTERED TRADEMARK-

COMMON STOCK

ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY EARTHLINK
NETWORK, INC. (THE "COMPANY"). PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC
MARKET FOR THE COMPANY'S COMMON STOCK. FOR FACTORS CONSIDERED IN DETERMINING THE
INITIAL PUBLIC OFFERING PRICE, SEE "UNDERWRITING." THE COMMON STOCK HAS BEEN
APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "ELNK."

UP TO 10% OF THE COMMON STOCK OFFERED HEREBY MAY BE RESERVED FOR EMPLOYEES,
DIRECTORS AND FRIENDS OF THE COMPANY. SEE "UNDERWRITING."

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
---------------------

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

<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS (1) COMPANY (2)
----------------- ----------------- -----------------
<S> <C> <C> <C>
Per Share......................... $13.00 $.91 $12.09
Total (3)......................... $26,000,000 $1,820,000 $24,180,000
</TABLE>

(1) FOR INFORMATION REGARDING INDEMNIFICATION OF THE UNDERWRITER, SEE
"UNDERWRITING."

(2) BEFORE DEDUCTING EXPENSES OF THE OFFERING PAYABLE BY THE COMPANY, ESTIMATED
AT $600,000.

(3) THE COMPANY HAS GRANTED THE UNDERWRITER AN OPTION, EXERCISABLE FOR 30 DAYS
FROM THE DATE OF THIS PROSPECTUS, TO PURCHASE UP TO 300,000 ADDITIONAL
SHARES OF COMMON STOCK SOLELY TO COVER OVER-ALLOTMENTS, IF ANY. IF THE
OPTION IS EXERCISED IN FULL, THE TOTAL PRICE TO PUBLIC, UNDERWRITING
DISCOUNTS AND COMMISSIONS AND PROCEEDS TO COMPANY WILL BE $29,900,000,
$2,093,000 AND $27,807,000, RESPECTIVELY. SEE "UNDERWRITING."

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

THE SHARES OF COMMON STOCK ARE OFFERED BY THE UNDERWRITER, SUBJECT TO
PRIOR SALE, WHEN, AS AND IF DELIVERED TO AND ACCEPTED BY IT AND SUBJECT TO ITS
RIGHT TO REJECT ANY ORDER IN WHOLE OR IN PART. IT IS EXPECTED THAT DELIVERY OF
THE SHARES WILL BE MADE IN NEW YORK, NEW YORK ON OR ABOUT JANUARY 27, 1997.

INVEMED ASSOCIATES, INC.

THE DATE OF THIS PROSPECTUS IS JANUARY 21, 1997.
<PAGE>
[GATEFOLD PAGES SHOWING VARIOUS SCREEN IMAGES FROM THE EARTHLINK NETWORK
WORLD WIDE WEB SITE, SCREENS FROM THE EARTHLINK REGISTRATION SOFTWARE AND
PICTURES OF PRODUCTS WITH WHICH THE EARTHLINK NETWORK TOTALACCESS SOFTWARE
PRODUCT IS BUNDLED AND OFFERED BY VARIOUS OF THE COMPANY'S AFFINITY MARKETING
PARTNERS]

THE EARTHLINK INTERNET USER EXPERIENCE

EarthLink focuses on providing reliable access, useful information, assistance
and services to its customers to encourage their introduction to the Internet
and help them have a satisfying user experience.

GAINING ACCESS TO THE INTERNET THROUGH EARTHLINK NETWORK

The EarthLink Network-R- TotalAccess-TM- software package enables quick and easy
Internet access. A customer simply inserts the EarthLink Network-R-
TotalAccess-TM- disk into the computer and follows the step-by-step instructions
to register on-line for a new EarthLink account and gain access to the resources
of the Internet.

EarthLink Network-R- TotalAccess-TM- guides customers through a simple account
registration procedure. EarthLink provides a toll-free customer support number,
staffed 24 hours a day.

Once on the Internet, the customer can access a variety of EarthLink services,
such as the EarthLink Store, The Daily Blink-TM- on-line newsletter and The
Arena-TM-, EarthLinks' multi-player Internet game area.

[INSIDE BACK COVER PAGE]

EarthLink Network-R- has established relationships with a number of affinity
marketing partners through which the Company has expanded the reach of its
marketing efforts.

Trademarks are property of their respective owners. EarthLink Network-R-
TotalAccess-TM- is a trademark of EarthLink Network, Inc. Netscape Navigator-TM-
is a trademark of Netscape Communications Corporation. T@P Online is a trademark
of MarketSource Corporation. LAUNCH-TM- is a trademark of 2Way Media, Inc.
Activision-R- and Zork are registered trademarks. Spycraft-TM-: The Great Game
and Zork Nemesis are trademarks of Actvision, Inc. CNN-TM-, CNN Interactive-TM-,
CNN Learning-TM-, and each of their logos are trademarks of Cable News Network,
Inc. Smart Ventures-TM- is a trademark for American Institute for Financial
Research, Inc. DealerNet-TM- is a trademark of the Reynolds & Reynolds Company.

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

2
<PAGE>
PROSPECTUS SUMMARY

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL EVENTS AND RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS GIVES EFFECT TO
THE CONVERSION, UPON CONSUMMATION OF THIS OFFERING, OF ALL OUTSTANDING SHARES OF
THE COMPANY'S SERIES A CONVERTIBLE PREFERRED STOCK INTO 1,363,624 SHARES OF
COMMON STOCK AND OF $725,000 OF OUTSTANDING INDEBTEDNESS INTO 55,767 SHARES OF
COMMON STOCK, AND ALSO ASSUMES THE UNDERWRITER'S OVER-ALLOTMENT OPTION IS NOT
EXERCISED. SEE "DESCRIPTION OF CAPITAL STOCK" AND "UNDERWRITING." THE PROSPECTUS
REFLECTS A ONE-FOR-TWO REVERSE STOCK SPLIT EFFECTIVE ON DECEMBER 4, 1996. THE
FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.

THE COMPANY

EarthLink Network, Inc. ("EarthLink" or the "Company") is an Internet
service provider ("ISP") that was formed to help users derive meaningful
benefits from the extensive resources of the Internet. The Company focuses on
providing reliable access, useful information, assistance and services to its
customers to encourage their introduction to the Internet and to help them have
a satisfying user experience.

The Company believes that many users have not been able to enjoy the
benefits of the Internet. Particularly for non-technical users, access to the
Internet is often difficult. In addition, for some users the volume and lack of
organization of the information on the Internet makes accessing useful
information and entertainment an intimidating task. EarthLink's principal
strategy is to rapidly expand its customer base and retain those customers who
use its services principally by addressing these problems. The Company provides
its services through its EarthLink Network TotalAccess software ("TotalAccess"),
which is designed to simplify access to the Internet through an online
registration feature and a "point and click" graphical user interface. This
software permits users to browse the Internet through use of Netscape
Communications Corporation's ("Netscape") Navigator ("Netscape Navigator") or
Microsoft Corporation's ("Microsoft") Internet Explorer ("Microsoft Explorer")
(one or the other of which is included in each copy of TotalAccess), or any
other third-party browser that a customer may wish to use. The Company also
provides useful information to users through its extensive World Wide Web site.
On this site, users can find technical assistance information, an on-line
newsletter, links to numerous popular categories of information and
entertainment and many other items and services designed to enhance users'
satisfaction with their Internet experience. In addition, the Company provides a
monthly printed newsletter, as well as 24 hour customer and technical support.

The Company markets its services through print advertisements, an affinity
marketing program, a customer referral program and other marketing activities.
Its affinity marketing program includes relationships with, among others,
prominent print publication, software and hardware companies. For example,
Macmillan Publishing USA bundles TotalAccess with several Internet-related book
titles. Customer referrals have also been an important source of new customers,
and the Company provides economic incentives to its customers to encourage these
referrals. The Company believes that these programs are a cost-effective means
of acquiring new customers.

The Company believes that its long-term success largely depends on
maintaining customer satisfaction with its services. Therefore, the Company will
continue to devote substantial resources to enhancing its service offerings,
expanding its technical support staff and expanding its World Wide Web site.

EarthLink also seeks to enhance its revenues by offering business services,
including business Web sites, high-speed ISDN communications capability and
frame relay connectivity. In addition, the Company offers consumer services such
as multiplayer Internet games and the EarthLink online store.

The Company has achieved a nationwide presence, without incurring
significant capital costs, by leasing access to dial-up points-of-presence
("POPs") from UUNET Technologies, Inc. ("UUNET") on a non-exclusive basis. The
Company also operates its own POPs in California. In addition, EarthLink has
agreed to lease POP access from PSINet, Inc. ("PSINet") on a non-exclusive
basis. In January 1997, certain of the Company's customers began to access the
Internet through some of PSINet's POPs. The Company plans to expand its own POPs
in Northern California within the next year and will consider establishing its
own POPs in other areas if there is sufficient concentration of customers to
support the required capital investment.

The Company was incorporated as a California corporation in May 1994 and
reincorporated as a Delaware corporation in June 1996. The Company's principal
executive offices are located at 3100 New York Drive, Pasadena, California
91107, and its telephone number is (818) 296-2400.

3
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered.......................... 2,000,000 shares
Common Stock Outstanding after this
Offering..................................... 9,442,115 shares (1)
Use of Proceeds............................... To finance sales and marketing activities,
leasehold improvements and investments in
network equipment, information systems and
office equipment, new service introductions
and for working capital and other general
corporate purposes, including the repayment
of indebtedness and possibly acquisitions.
Nasdaq National Market Symbol................. ELNK
Risk Factors.................................. The Common Stock offered hereby involves a
high degree of risk. See "Risk Factors."
</TABLE>

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

(1) Based on shares of Common Stock outstanding as of October 31, 1996, and
1,363,624 additional shares of Common Stock that will be outstanding upon
consummation of this Offering pursuant to the automatic conversion of all of
the Company's outstanding shares of Series A Convertible Preferred Stock.
This amount excludes (i) 1,028,250 shares of Common Stock subject to options
outstanding under the Company's 1995 Stock Option Plan having a weighted
average exercise price of $7.48 per share, (ii) 1,331,438 shares of Common
Stock subject to outstanding warrants and non-plan stock options having a
weighted average exercise price of $5.82 per share, (iii) 221,750 and 62,500
shares of Common Stock reserved for future grant of options under the
Company's 1995 Stock Option Plan and Directors Stock Option Plan,
respectively, (iv) up to approximately 382,000 shares of Common Stock into
which $5,000,000 of outstanding indebtedness will be convertible upon
consummation of this Offering, and (v) 360,000 shares of Common Stock
underlying warrants and options that the Company has committed to issue if
certain future events occur. See "Capitalization," "Management -- 1995 Stock
Option Plan and Other Option and Warrant Issuances," "Management --
Directors Stock Option Plan and Other Director Option Issuances,"
"Description of Capital Stock" and Notes 7 and 8 of Notes to Financial
Statements.

SUMMARY FINANCIAL DATA
(in thousands, except per share data)

<TABLE>
<CAPTION>
INCEPTION NINE MONTHS ENDED
(MAY 26, 1994) YEAR ENDED ----------------------------
THROUGH DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
DEC. 31, 1994 1995 1995 1996
-------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues......................................... $ 111 $ 3,028 $ 1,447 $ 20,162
Loss from operations................................... (148) (6,018) (2,914) (21,240)
Net loss............................................... (148) (6,120) (2,972) (21,809)
Net loss per share (1)................................. $ (0.04) $ (1.25) $ (0.65) $ (3.32)
Weighted average shares
outstanding (1)....................................... 3,653 4,903 4,596 6,568
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------------------------
ACTUAL PRO FORMA (2) AS ADJUSTED (3)
---------- -------------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............................................. $ (6,439) $ (6,439) $ 14,916
Total assets.......................................................... 26,033 31,033 47,388
Capital lease obligations, net of current portion..................... 5,388 5,388 5,388
Total liabilities..................................................... 23,941 28,941 21,716
Accumulated deficit................................................... (26,816) (26,816) (26,816)
Stockholders' equity (deficit)........................................ (11,921) (11,921) 26,397
</TABLE>

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

(1) See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of weighted average shares outstanding used in
the net loss per share computation.

(2) Adjusted to give effect to the issuance of a $5.0 million convertible
promissory note, as if such event occurred on September 30, 1996.

(3) Adjusted to reflect the conversion upon consummation of this Offering of the
Series A Convertible Preferred Stock into 1,363,624 shares of Common Stock
and $725,000 of outstanding indebtedness into 55,767 shares of Common Stock,
the sale of the 2,000,000 shares of Common Stock offered hereby and
application by the Company of a portion of the estimated net proceeds
therefrom (after deduction of estimated offering expenses and underwriting
discounts and commissions) to repay certain indebtedness. See "Use of
Proceeds" and "Capitalization."

"EARTHLINK NETWORK-REGISTERED TRADEMARK-," "EARTHLINK NETWORK
TOTALACCESS-TM-," "BLINK-TM-," "THE ARENA-TM-" AND THE EARTHLINK LOGO ARE
TRADEMARKS OF THE COMPANY. THIS PROSPECTUS INCLUDES TRADEMARKS OF COMPANIES
OTHER THAN THE COMPANY.

4
<PAGE>
RISK FACTORS

LIMITED OPERATING HISTORY; HISTORY OF LOSSES AND EXPECTATIONS OF FUTURE LOSSES

The Company was founded in May 1994 and began offering its services in July
1994. Accordingly, the Company has only a limited operating history upon which
an evaluation of its prospects can be made. Such prospects must be considered in
light of the substantial risks, expenses and difficulties encountered by new
entrants into the Internet services industry. The Company had net losses of
approximately $6.3 million from inception through 1995 and of approximately
$21.8 million for the nine months ended September 30, 1996. As of September 30,
1996, the Company had an accumulated deficit of approximately $26.8 million
(exclusive of $1.3 million of losses incurred while the Company was an S
Corporation for tax purposes, which, upon the Company's conversion to C
Corporation status in June 1995, were charged to the Company's capital
accounts). The Company expects that it is likely to continue to incur net losses
as it continues to expend substantial resources on sales, marketing and
administration, build its network systems, develop new service offerings and
improve its management information systems. There can be no assurance that the
Company will achieve or sustain profitability or positive cash flow from its
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

COMPETITION

The Internet services market in which the Company operates is extremely
competitive, and the Company expects competition in this market to intensify in
the future. The Company's current and prospective competitors include many large
companies that have substantially greater market presence and financial,
technical, marketing and other resources than the Company. The Company competes
(or in the future is expected to compete) directly or indirectly with the
following categories of companies: (i) national and regional ISPs such as Bolt
Beranek & Newman, Inc. ("BBN"), IDT Corporation ("IDT"), MindSpring Enterprises,
Inc. ("MindSpring"), Netcom On-line Communication Services, Inc. ("NETCOM"),
PSINet and UUNET; (ii) established online services such as America Online,
CompuServe, Prodigy and the Microsoft Network; (iii) computer software and
technology companies such as Microsoft; (iv) national telecommunications
companies such as AT&T Corp. ("AT&T"), MCI Communications Corporation ("MCI")
and Sprint Corporation ("Sprint"); (v) regional Bell operating companies
("RBOCs"); (vi) cable operators such as Comcast Corporation ("Comcast"),
Tele-Communications, Inc. ("TCI") and Time Warner, Inc. ("Time Warner"); and
(vii) nonprofit or educational ISPs.

The entry of new participants from these categories and the potential entry
of competitors from other categories (such as computer hardware manufacturers)
would result in substantially greater competition for the Company. The ability
of these competitors or others to bundle services and products with Internet
connectivity services could place the Company at a significant competitive
disadvantage. In addition, competitors in the telecommunications industry may be
able to provide customers with reduced communications costs in connection with
their Internet access services, reducing the overall cost of Internet access and
significantly increasing pricing pressures on the Company. Among other
competitors who have recently introduced or enhanced their Internet offerings,
AT&T has recently expanded its Internet services offerings. The Company believes
that AT&T's expansion has substantially increased pricing pressure in the
industry. In addition, certain of the Company's online competitors, including
America Online, the Microsoft Network and Prodigy, have recently introduced
unlimited access to the Internet and their proprietary content at flat rates
that are equal to the Company's monthly flat rate, and do not require a set-up
fee. Certain of the RBOCs have also introduced competitive flat-rate pricing for
unlimited access (without a set-up fee for at least some period of time). As a
result, competition for active users of Internet services has intensified. There
can be no assurance that the

5
<PAGE>
Company will be able to offset the adverse effect on revenues of any necessary
price reductions resulting from competitive pricing pressures by increasing the
number of its customers, by generating higher revenue from enhanced services, by
reducing costs or otherwise.

Competition is also expected to focus increasingly on overseas markets, in
which Internet services are just beginning to be introduced. The Company is not
presently seeking to penetrate overseas markets. To the extent that the ability
to provide Internet services overseas becomes a competitive advantage in the
Internet services industry, the failure of the Company to penetrate overseas
markets may result in the Company being at a competitive disadvantage relative
to other Internet access providers.

There can be no assurance that the Company will have the financial
resources, technical expertise or marketing and support capabilities to compete
successfully. See "-- Dependence on Third-Party Network Providers," "-- New and
Uncertain Market; Dependence on Continued Growth in Use of the Internet;
Uncertainty of Customer Retention," "-- Dependence on Network Infrastructure;
Capacity; Risk of System Failure; Security Risks," "-- Dependence on Affinity
Marketing and Distribution Relationships," "Business -- Competition" and "--
Government Regulation."

RISKS ASSOCIATED WITH MANAGEMENT OF POTENTIAL GROWTH

The Company's growth has placed, and is expected to continue to place, a
significant strain on its managerial, operational, financial and information
systems resources. To accommodate its current size and manage growth, the
Company must continue to implement and improve its operational, financial and
information systems, and expand, train and manage its employee base.
Additionally, expansion of the Company's information and network systems is
required to accommodate its growth. There can be no assurance that the Company
will be able to effectively manage the expansion of its operations, or that the
Company's facilities, systems, procedures or controls will be adequate to
support the Company's operations. The inability of the Company to manage
effectively its future growth would have a material adverse effect on the
Company.

Demand on the Company's network infrastructure, technical staff and
resources has grown rapidly with the Company's expanding customer base, and the
Company has experienced difficulties satisfying the demand for its Internet
services. There can be no assurance that the Company's infrastructure, technical
staff and resources will be adequate to facilitate the Company's growth. In
addition, delays have occurred in establishing Internet accounts for the
Company's customers, and customers have experienced significant delays in
contacting, and in receiving responses from, the Company's customer and
technical support personnel. There can be no assurance that the Company will be
able to establish accounts or provide customer or technical support on a timely
basis, or that any delays will not result in a loss of customers. The Company
believes that its ability to provide timely access for customers and adequate
customer and technical support largely will depend on its ability to attract,
identify, train, integrate and retain qualified personnel. Failure to provide
adequate customer and technical support services would adversely affect the
Company's ability to maintain and increase its customer base, and could
therefore have a material adverse effect on the Company. See "-- Dependence on
Network Infrastructure; Capacity; Risk of System Failure; Security Risks,"
"-- Dependence on Key Personnel," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview" and "Business --
Employees."

DEPENDENCE ON THIRD-PARTY NETWORK PROVIDERS

As of October 31, 1996, the Company maintained 20 Company-owned POPs and
provided Internet access through an additional 336 UUNET POPs to which it has
access on a non-exclusive basis. The Company is dependent on UUNET, a
third-party provider of Internet network infrastructure, to continue to provide
the Company's customers with access to the Internet through UUNET's systems of
POPs. The Company recently executed an agreement with PSINet to access PSINet's
nationwide system of POPs on a non-exclusive basis. In January 1997, certain of
the Company's customers began to access the Internet through some of PSINet's
POPs. The Company's agreement with UUNET has a term expiring in March 1999
(subject to earlier

6
<PAGE>
cancellation after March 1998 upon one year's prior notice, but provided that if
this notice is given, EarthLink is required to begin to reduce its usage of
UUNET's POPs in accordance with a schedule set forth in the agreement). Unless
otherwise terminated prior to or at the end of its current term, the agreement
automatically renews for consecutive one-year terms. The PSINet agreement has a
term expiring in July 1998 after which it is automatically renewed for
consecutive one-year terms unless prior notice of termination is given.

Both UUNET and PSINet provide POP access to ISPs other than the Company and
to entities offering online services. UUNET provides such access to, among
others, Microsoft for the Microsoft Network, a competitor of the Company. The
Microsoft Network recently introduced unlimited access to the Internet at a flat
rate, which, the Company believes, has substantially increased utilization of
UUNET POPs by subscribers to the Microsoft Network. Microsoft is a significant
customer of UUNET, and therefore could be granted preferred access to UUNET's
system of POPs. Accordingly, if customer usage of the Microsoft Network
materially increases, the Company's access to UUNET's system of POPs may be
limited and the Company's customers may experience increased difficulties in
gaining access to the Internet. As usage of UUNET's and PSINet's POPs by other
ISPs' and online service providers' customers increases, system performance
experienced by EarthLink's customers may degrade and POP access may become
limited. UUNET and PSINet also independently compete with the Company.

UUNET was recently acquired by MFS Communications Company, Inc. ("MFS"), a
supplier of local and long distance telephone service. In December 1996, MFS was
acquired by WorldCom, Inc. ("WorldCom"). There can be no assurance that,
following the expiration of the Company's current agreement with UUNET, the
Company will continue to have access to UUNET's POPs or that such access, if
provided, will be available to the Company on acceptable terms.

The Company's customers generally pay a fixed monthly fee for the Company's
Internet services. Under the Company's current agreement with UUNET, the Company
pays UUNET a monthly fee equal to the greater of a specified minimum or an
amount that varies based primarily on peak customer usage. The Company also pays
UUNET an additional fee to the extent that hours of usage exceed a formula set
forth in the agreement. The Company has recently experienced increasing per
customer usage of its services. If the number of hours used by EarthLink
customers accessing the Internet through UUNET increases beyond the amount
provided for in the agreement or the usage becomes more concentrated during peak
times, the fees paid by the Company to UUNET would increase, which would
adversely affect the Company's operating margins. The UUNET agreement also
provides that in the event of regulatory or legislative changes having a
structural impact on the ISP marketplace which materially increase UUNET's
costs, EarthLink will renegotiate the agreement in good faith at UUNET's
request. There can be no assurance that EarthLink and UUNET will be able to
renegotiate the UUNET agreement with terms acceptable to UUNET and EarthLink or
that any renegotiation would not result in additional costs to the Company. Any
such renegotiated agreement or the failure to renegotiate the agreement could
have a material adverse affect on the Company.

As noted above, under the Company's current agreement with UUNET, the
Company pays UUNET a monthly fee equal to the greater of a specified minimum or
an amount that varies based primarily on peak customer usage. The specified
minimum amount increases over the term of the agreement. The Company's operating
margins could be adversely affected if the Company is unable to increase its
customer base so as to avoid paying the increasing minimum amount. See "--
Dependence on Network Infrastructure; Capacity; Risk of System Failure; Security
Risks," "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Results of Operations -- Cost of Revenues," "Business --
EarthLink's Services" and "-- Customers, POPs and Network Infrastructure."

The inability or unwillingness of one or both of UUNET and PSINet to provide
POP access to the Company's customers, or the Company's inability to secure
alternative POP arrangements if necessary, would limit the Company's ability to
provide Internet access to its customers, and would, in turn, have a material
adverse effect on the Company. See "-- Dependence on Network Infrastructure;
Capacity; Risk of System Failure; Security Risks."

7
<PAGE>
FACTORS AFFECTING OPERATING RESULTS; POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS

The Company's operating results may fluctuate significantly in the future as
a result of a variety of factors, many of which are beyond the Company's
control. These factors include the rates of, and costs associated with, new
customer acquisition, customer retention, capital expenditures and other costs
relating to the expansion of operations, including upgrading the Company's
systems and infrastructure, the timing and market acceptance of new and upgraded
service introductions, changes in the pricing policies of the Company and its
competitors, changes in operating expenses (including telecommunications costs),
personnel changes, the introduction of alternative technologies, the effect of
potential acquisitions, increased competition in the Company's markets and other
general economic factors. In addition, a significant portion of the Company's
expenses are fixed; therefore, the Company's operating margins are particularly
sensitive to fluctuations in revenues. Due to these factors, in some future
quarter the Company's operating results may fall below the expectations of
securities analysts and investors. In such event, the market price of the
Company's Common Stock would likely be materially and adversely affected.

In May 1996, the Company entered into an agreement with National Media
Corporation ("NMC"), a producer of infomercials and commercials, pursuant to
which NMC agreed to produce and broadcast 15-second and 60-second commercials
for EarthLink's services. Under this agreement, in addition to certain fees
payable to NMC, the Company agreed to issue warrants to NMC to purchase 50,000
shares of Common Stock having an exercise price of $9.76 per share, upon the
completion by NMC, subject to the Company's approval, of the 15-second and
60-second commercials, and to issue warrants to NMC to purchase one share of
Common Stock for each two customers generated by this relationship, up to
300,000 shares of Common Stock. The exercise price of such additional warrants
earned through December 31, 1997 will be $9.76 per share, and thereafter the
exercise price will be the fair market value of the Common Stock on the date of
grant. Upon issuance of any such warrants, the Company will be required to
record in the quarter in which such warrant is issued a non-cash charge against
earnings in an amount equal to the fair value of the warrant on the date of
issuance. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Potential Fluctuations in Quarterly Results."

DEPENDENCE ON NETWORK INFRASTRUCTURE; CAPACITY; RISK OF SYSTEM FAILURE; SECURITY
RISKS

The future success of the Company's business will depend on the capacity,
reliability and security of the Company's network infrastructure, including the
POP sites to which the Company has access through UUNET and PSINet. The Company
will be required to expand and improve this infrastructure as the number of
customers and the amount and type of information its customers communicate over
the Internet increases, and the means by which customers connect to the Internet
evolve. Such expansion and improvement may require substantial financial,
operational and managerial resources. There can be no assurance that the Company
will be able to expand or improve its network infrastructure to meet any
additional demand or changing customer requirements on a timely basis or at a
commercially reasonable cost, if at all.

Capacity constraints have occurred, and may occur in the future, both at the
level of particular POPs (affecting only customers attempting to use that
particular POP) and in connection with system wide services (such as email and
news services, which can affect all customers). From time to time, the Company
has experienced delayed delivery from suppliers of new telephone lines, modems,
servers and other equipment used by the Company in providing its services. Any
severe shortage of new telephone lines, modems, servers or other equipment could
result in incoming access lines becoming full during peak times, causing busy
signals for customers who are trying to connect to the Internet. Similar
problems may occur if the Company is unable to expand the capacity of its
various network, email, Web and other servers quickly enough to keep pace with
demand from the Company's expanding customer base. If the capacity of such
servers is exceeded, customers will experience delays when trying to use a
particular service. Further, if the Company does not maintain sufficient
capacity in its network connections, customers will experience a general slow
down of all services on the Internet. Any of these events could cause customers
to terminate use of the Company's services. Accordingly, any failure of the
Company to expand or enhance its network infrastructure on a timely basis, or

8
<PAGE>
to adapt it to an expanding customer base, changing customer requirements or
evolving industry standards, could have a material adverse effect on the
Company. See "-- Dependence on Third-Party Network Providers" and "Business --
Customers, POPs and Network Infrastructure."

The Company's operations are dependent on its ability to protect its
computer equipment against damage from fire, earthquake, power loss,
telecommunication failure and similar events. The occurrence of a natural
disaster or another unanticipated problem at the Company's headquarters and
network hub or at POPs through which customers connect to the Internet could
cause interruptions in the services provided by the Company. For example, in
October 1996, the Company experienced a power outage at its network hub in Los
Angeles, which caused a several hour system wide disruption of the Company's
Internet services. Services were restored when the Company installed a backup
power source. The Company's computer equipment, including critical equipment
dedicated to its Internet services, is located in Los Angeles and Pasadena,
California. The Company will relocate its data center from Los Angeles to a
facility adjacent to its Pasadena headquarters in the near future. The risks
associated with such a move include network and services down time, loss of
data, loss of system integrity and the risk of system failure. The occurrence of
any of these events could have a material adverse effect on the Company's
ability to provide Internet services to its customers, and, in turn, on the
Company. In addition, failure of the Company's telecommunications providers to
provide the data communications capacity required by the Company as a result of
a natural disaster, operational disruption or for any other reason could cause
interruptions in the services provided by the Company, which could have a
material adverse effect on the Company.

The Company's network infrastructure, including the POP sites to which the
Company has access through UUNET and PSINet, is vulnerable to computer viruses
and other similar disruptive problems caused by its customers, other Internet
users or other third parties. Computer viruses and other problems could lead to
interruptions, delays in or cessation of service to the Company's customers, as
well as corruption of the Company's or its customers' computer systems.
Inappropriate use of the Internet by third parties could also potentially
jeopardize the security of confidential information stored in the computer
systems of the Company or those of its customers, which may cause losses to the
Company or its customers, or deter certain persons from using the Company's
services. The Company expects that its customers may 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 or
completed with compromised security. Alleviating problems caused by computer
viruses or other inappropriate uses or security breaches may cause
interruptions, delays or cessation in service to the Company's customers, which
could have a material adverse effect on the Company. In addition, there can be
no assurance that customers or others will not assert claims of liability
against the Company as a result of these events.

The Company does not presently maintain redundant or backup Internet
services or backbone facilities or other redundant computing and
telecommunications facilities. Any accident, incident or system failure that
causes interruptions in the Company's operations could have a material adverse
effect on the Company's ability to provide Internet services to its customers,
and, in turn, on the Company. See "-- Risks Associated with Management of
Potential Growth," and "-- Dependence on Third-Party Network Providers."

FUTURE ADDITIONAL CAPITAL REQUIREMENTS

The Company believes that the net proceeds from this Offering, together with
other available cash, will be sufficient to meet the Company's operating
expenses and capital requirements for at least the next 12 months. However, the
Company's capital requirements depend on numerous factors, including the rate of
market acceptance of the Company's services, the Company's ability to maintain
and expand its customer base, the rate of expansion of the Company's network
infrastructure, the level of resources required to expand the Company's
marketing and sales organization, information systems and research and
development activities, the availability of hardware and software provided by
third-party vendors and other factors. The timing and amount of such capital
requirements cannot accurately be predicted. If capital requirements vary
materially from those currently planned, the Company may require additional
financing sooner than anticipated. The

9
<PAGE>
Company has no commitments for any additional financing, and there can be no
assurance that any such commitments can be obtained on favorable terms, if at
all. Any additional equity financing may be dilutive to the Company's
stockholders, and debt financing, if available, may involve restrictive
covenants with respect to dividends, raising future capital and other financial
and operational matters. If the Company is unable to obtain additional financing
as needed, the Company may be required to reduce the scope of its operations or
its anticipated expansion, which could have a material adverse effect on the
Company, as well as the market price of the Common Stock. See "-- Risks
Associated with Management of Potential Growth," "-- Dependence or Network
Infrastructure; Capacity; Risk of System Failure; Security Risks," "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

DEPENDENCE ON TELECOMMUNICATIONS CARRIERS AND OTHER SUPPLIERS

The Company relies on local telephone companies and other companies to
provide data communications capacity via local telecommunications lines and
leased long distance lines. The Company is subject to potential disruptions in
these telecommunications services and may have no means of replacing these
services, on a timely basis or at all, in the event of such disruption. Any such
disruptions could have a material adverse effect on the Company.

In addition, the Company is dependent on certain third-party suppliers of
hardware components. Certain components used by the Company in providing its
network services are currently acquired from limited sources. The Company also
depends on third-party software vendors to provide the Company with much of its
Internet software, including Netscape Navigator and Microsoft Explorer, the
World Wide Web browser software that the Company licenses from Netscape and
Microsoft, respectively. Failure of the Company's suppliers to provide
components and products in the quantities, at the quality levels or at the times
required by the Company, or an inability by the Company to develop alternative
sources of supply if required, could materially adversely affect the Company's
ability to effectively support the growth of its customer base in a timely
manner and increase its costs of expansion. Moreover, because Netscape Navigator
and Microsoft Explorer are the two most widely used Web browsers, the failure of
Netscape or Microsoft to continue to provide World Wide Web browser software to
the Company could have a material adverse effect on the Company.

The Company's suppliers and telecommunications carriers also sell or lease
services and products to the Company's competitors, and some of these carriers
are, and in the future others may become, competitors of the Company. There can
be no assurance that the Company's suppliers and telecommunications carriers
will not enter into exclusive arrangements with the Company's competitors or
otherwise stop selling or leasing their services or products to the Company,
which events could have a material adverse effect on the Company. See "--
Competition," "Business -- Supplier Relationships" and "-- Marketing."

DEPENDENCE ON AFFINITY MARKETING AND DISTRIBUTION RELATIONSHIPS

A significant number of the Company's customers have been generated through
its relationships with its affinity marketing partners. The Company relies on
these marketing relationships to assist it with distributing TotalAccess, which
enables users to register as customers and to access the Company's Internet
services. There can be no assurance that the Company's current affinity
marketing partners will continue to distribute the Company's software or will be
successful in developing new customers for the Company's services. The Company's
inability to maintain its affinity marketing relationships or establish new
affinity marketing relationships could result in delays and increased costs in
expanding its customer base, which could, in turn, have a material adverse
effect on the Company. See "Business -- Marketing -- Affinity Marketing Partners
Program."

10
<PAGE>
NEW AND UNCERTAIN MARKET; DEPENDENCE ON CONTINUED GROWTH IN USE OF THE INTERNET;
UNCERTAINTY OF CUSTOMER RETENTION

EarthLink's future success is substantially dependent on continued growth in
the use of the Internet. Rapid growth in the use of, and interest in, the
Internet, and in particular the World Wide Web, is a recent phenomenon and there
can be no assurance that Internet usage will become more widespread, that
extensive Internet content will continue to be developed or that extensive
Internet content will continue to be accessible at no or nominal cost. The
Internet may not prove to be viable for a number of reasons, including
potentially inadequate development of the necessary infrastructure or of
performance improvements. If use of the Internet does not continue to grow, the
Company would be materially and adversely affected. Conversely, to the extent
that the Internet continues to experience significant growth in the number of
users and level of use, there can be no assurance that the Internet
infrastructure will be able to support the demands placed on it by such
potential growth. See "-- Risks Associated with Management of Potential Growth."

The sales, marketing and other costs to the Company of acquiring new
customers are substantial relative to the monthly fee derived from such
customers. Accordingly, the Company believes that its long-term success largely
depends on its ability to retain its existing customers, while continuing to
attract new customers. The Company continues to invest significant resources in
its infrastructure and customer and technical support capabilities. However,
there can be no assurance that such investment will improve customer retention.
Because the Internet services market is new and the variety of available
services is not well understood by new and potential customers, it is difficult,
if not impossible, for the Company to predict future customer retention rates.
Moreover, intense competition from competitors, some of whom offer many free
hours of services for new customers, have most likely caused, and may continue
to cause, some of the Company's customers to switch to a competitor's service.
In addition, a certain number of new Internet users experience the Internet only
as a novelty and do not become consistent users of Internet services. These
factors adversely affect the Company's customer retention rates. Any decline in
customer retention rates would have a material adverse effect on the Company.
See "-- Risks Associated with Management of Potential Growth," "-- Dependence on
Network Infrastructure; Capacity; Risk of System Failure; Security Risks," "--
Competition" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Overview."

RAPID TECHNOLOGICAL CHANGE

The market for Internet services is characterized by rapidly changing
technology, evolving industry standards, changes in customer needs and frequent
new service and product introductions. The Company's future success will depend,
in part, on its ability to use leading technologies effectively, to continue to
develop its technical expertise, to enhance its existing services and to develop
new services that meet changing customer needs on a timely and cost-effective
basis and obtain market acceptance. There are currently under development a
number of alternative methods for users to connect to the Internet, including
cable modems and satellite and other wireless telecommunications technologies.
Any failure on the part of the Company to use new technologies effectively, to
develop its technical expertise and new services or to enhance existing services
on a timely basis, either internally or through arrangements with third parties,
could have a material adverse effect on the Company.

DEPENDENCE ON KEY PERSONNEL

The Company is highly dependent on the technical and managerial skills of
its key employees, including technical, sales, marketing, information systems,
financial and executive personnel, and on its ability to identify, hire and
retain additional personnel. To accommodate its current size and manage its
anticipated growth, the Company must maintain and expand its employee base.
Competition for key personnel, particularly persons having technical expertise,
is intense, and there can be no assurance that the Company will be able to
retain existing personnel or to identify or hire additional personnel. The need
for such personnel is particularly important given the strains on the Company's
existing infrastructure and the need to anticipate the demands of future growth.
In particular, the Company is highly dependent on the continued services of its
senior management team, which currently is composed of a small number of
individuals, most of whom only recently joined the Company. Of the members of
its senior management team, only the Company's President

11
<PAGE>
and Chief Executive Officer, Charles G. Betty is a party to an employment
agreement with the Company. The Company does not maintain key-man life insurance
on the life of any employee. The inability of the Company to attract, hire or
retain the necessary technical, sales, marketing, information systems, financial
and executive personnel, or the loss of the services of any member of the
Company's senior management team, could have a material adverse effect on the
Company. See "-- Risks Associated with Management of Potential Growth,"
"Business -- Employees" and "Management."

GOVERNMENT REGULATION

The Company provides Internet services, in part, through data transmissions
over public telephone lines. These transmissions are governed by regulatory
policies establishing charges and terms for wire line communications. The
Company is not currently subject to direct regulation by the Federal
Communications Commission (the "FCC") or any other governmental agency, other
than regulations applicable to businesses generally. However, in the future the
Company could become subject to regulation by the FCC or another regulatory
agency as a provider of basic telecommunications services. For example, a number
of long distance telephone carriers recently filed a petition with the FCC
seeking a declaration that Internet telephone service is a "telecommunications
service" subject to common carrier regulation. Such a declaration, if enacted,
would create substantial barriers to the Company's entry into the Internet
telephone market. The FCC has requested comments on this petition, but has not
set a deadline for issuing a final decision. Also, a number of local telephone
companies have asked the FCC to levy access charges on "enhanced service
providers," which may be deemed to include ISPs. Although the Chairman of the
FCC has indicated his opposition to levying service charges against ISPs, local
interconnection charges could be levied in the future. Moreover, the public
service commissions of certain states are exploring the adoption of regulations
that might subject ISPs to state regulation.

The recently enacted Telecommunications Act of 1996 (the "Telecommunications
Act") contains certain provisions that lift, or establish procedures for
lifting, certain restrictions relating to the RBOCs' ability to engage directly
in the Internet access business. The Telecommunications Act also makes it easier
for national long distance carriers such as AT&T to offer local telephone
service and allows RBOCs to provide electronic publishing of information and
databases. Competition from these companies could have a material adverse effect
on the Company. See "Business -- Government Regulation."

POTENTIAL LIABILITY

The case law relating to the liability of ISPs and online services companies
for information carried on or disseminated through their networks has not yet
been definitively established. Several private lawsuits seeking to impose such
liability upon ISPs and online services companies are currently pending.
Although no such claims have been asserted against the Company to date, there
can be no assurance that such claims will not be asserted in the future, or if
asserted, will not be successful. The Telecommunications Act imposes fines on
any entity that knowingly (i) uses any interactive computer service or
telecommunications device to send obscene or indecent material to minors; (ii)
makes obscene or indecent material available to minors via an interactive
computer service; or (iii) permits any telecommunications facility under such
entity's control to be used for the purposes detailed above. The standard for
determining whether an entity acted "knowingly" has not yet been established
although a federal district court panel recently issued a preliminary injunction
preventing enforcement of this part of the Telecommunications Act. This decision
has been appealed. As the law in this area develops, the potential imposition of
liability upon the Company for information carried on and disseminated through
its network could require the Company to implement measures to reduce its
exposure to such liability. The implementation of such measures could require
the expenditure of substantial resources or the discontinuation of certain
service offerings. Any costs that are incurred as a result of such expenditure,
contesting any such asserted claims or the imposition of liability could have a
material adverse effect on the Company.

Due to the increasing use of the Internet, it is possible that additional
laws and regulations may be adopted with respect to the Internet covering issues
such as content, user privacy, pricing, libel, intellectual

12
<PAGE>
property protection and infringement and technology export and other controls.
Changes in the regulatory environment relating to the Internet services
industry, including regulatory changes that directly or indirectly affect
telecommunication costs or increase the likelihood or scope of competition,
could have a material adverse effect on the Company.

PROPRIETARY RIGHTS; INFRINGEMENT CLAIMS

The Company believes that its success is dependent in part on its technology
and its continuing right to use such technology. The Company relies on a
combination of copyright, trademark and trade secret laws and contractual
restrictions to establish and protect its technology. It is the Company's policy
to require employees, consultants and, when possible, suppliers to execute
confidentiality agreements upon the commencement of their relationships with the
Company. There can be no assurance that the steps taken by the Company will be
adequate to prevent misappropriation of its technology and other proprietary
property or that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technology.

The Company has obtained authorization, typically in the form of a license,
to distribute third-party software incorporated in the EarthLink Network
TotalAccess software product for Windows 3.1, Windows 95 and Macintosh
platforms. Most of these licenses have one-year terms and automatically renew
for additional one-year terms in the absence of notice of termination from the
other party, but are generally terminable earlier upon the occurrence of certain
events (and, with respect to Microsoft, is terminable by Microsoft or the
Company at will). Applications licensed by the Company include Netscape
Navigator, Microsoft Explorer and MacTCP software from Apple Computer, Inc.
("Apple"). There can be no assurance that the Company will be able to maintain
its existing licenses or successfully obtain necessary license renewals in the
future. The failure to maintain or renew its licenses in the future could have a
material adverse effect on the Company.

There can be no assurance that third parties will not assert that the
Company's services and products infringe their proprietary rights. From time to
time, the Company has received communications from third parties alleging that
certain of the names or marks for the Company's services infringe the trademarks
of such parties. To date, no such claims have had an adverse effect on the
Company's ability to market and sell its services. However, there can be no
assurance that those claims will not have an adverse effect in the future or
that other parties will not assert infringement claims against the Company in
the future with respect to current or future services. Such claims could result
in substantial costs and diversion of resources, even if ultimately decided in
favor of the Company, and could have a material adverse effect on the Company,
particularly if judgments on such claims are adverse to the Company. In the
event a claim is asserted alleging that the Company has infringed the
proprietary technology or information of a third party, the Company may be
required to seek licenses to continue to use such intellectual property. There
can be no assurance, however, that such licenses would be offered or obtained on
commercially reasonable terms, if at all, or that the terms of any offered
licenses will be acceptable to the Company. The failure to obtain the necessary
licenses or other rights could have a material adverse effect on the Company.
See "Business -- Proprietary Rights."

INTEGRATION OF POTENTIAL ACQUISITIONS

As part of its business strategy, EarthLink may make acquisitions of, or
significant investments in, complementary companies, services or technologies,
although no such acquisitions or investments are currently pending. Any such
future transactions would be accompanied by the risks commonly encountered in
making acquisitions of companies, services and technologies. Such risks include,
among other things, the difficulty associated with assimilating the operations
and personnel of the acquired companies, the potential disruption of the
Company's ongoing business, the inability of management to maximize the
financial and strategic position of the Company through the successful
integration of acquired network facilities, technology, rights and other assets,
additional expenses associated with the amortization of acquired intangible
assets, the inability to maintain uniform standards, controls, procedures and
policies and the impairment of relationships with employees and customers as a
result of the integration of new management personnel. There can be

13
<PAGE>
no assurance that the Company will be successful in overcoming these risks or
any other problems encountered in connection with any such acquisitions. See
"Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Potential Fluctuations in Quarterly
Results."

CONTROL BY DIRECTORS, EXECUTIVE OFFICERS, FIVE PERCENT STOCKHOLDERS AND
AFFILIATED ENTITIES

The Company's executive officers, directors and holders of more than 5% of
the outstanding Common Stock and their affiliates will beneficially own an
aggregate of approximately 59.4% of the Company's outstanding shares of Common
Stock after this Offering (approximately 57.5% if the Underwriter's over-
allotment option is exercised in full). If warrants and options outstanding and
exercisable within 60 days of December 31, 1996 were exercised, these
percentages would increase to 63.4% and 61.6%, respectively. As a result, these
stockholders, acting together, would effectively be able to control most matters
requiring approval by the Company's stockholders, including the election of a
majority of the Company's directors. See "Principal Stockholders."

BENEFITS OF THE OFFERING TO CURRENT STOCKHOLDERS

After consummation of this Offering, current stockholders, including members
of management, will benefit from the creation of a public market for the
Company's Common Stock and the increase in the market value of the shares held
by such persons. The excess of market value over amounts paid for Common Stock
(including Common Stock issuable upon conversion of the Series A Convertible
Preferred Stock) by executive officers and directors of the Company is
approximately $46.5 million. In addition, the excess of the assumed offering
price over the aggregate exercise price of options and warrants held by
executive officers and directors is approximately $10.5 million.

SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of shares of the Common Stock in the public
market following this Offering could adversely affect the market price of the
Common Stock. The number of shares of Common Stock available for sale in the
public market is limited by restrictions under the Securities Act and lock-up
agreements under which the holders of 5,998,432 shares of Common Stock,
2,727,273 shares of Series A Convertible Preferred Stock (that will be converted
into 1,363,624 shares of Common Stock upon completion of this Offering) and
warrants, options and convertible debt securities exercisable or convertible
into an aggregate of 2,154,801 shares of Common Stock (including all of the
Company's officers and directors) have agreed not to sell or otherwise dispose
of any of such shares of Common Stock, any such options or warrants to acquire
shares of Common Stock or any such securities convertible into shares of Common
Stock (or any shares of Common Stock issuable upon exercise of such securities)
for a period of one year after the date of this Prospectus without the prior
written consent of the Underwriter. However, the Underwriter may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to such lock-up agreements. Further, the holders of
substantially all of the shares of Common Stock outstanding prior to this
Offering as well as holders of certain warrants and convertible debt are parties
to registration rights agreements. The exercise of these registration rights and
subsequent sale of a substantial number of shares of the Common Stock in the
public market could adversely affect the market price of the Common Stock. See
"Description of Capital Stock -- Registration Rights," "Shares Eligible for
Future Sale" and "Underwriting."

EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS

The Company's Certificate of Incorporation and Bylaws contain certain
provisions that may discourage proposals or bids to acquire the Company. These
provisions could limit the price that investors might be willing to pay for
shares of the Common Stock. Certain of such provisions allow the Company to
issue Preferred Stock, the rights and preferences of which may be specified by
the Board of Directors at any time prior to issuance, without further
stockholder approval, and could have the effect of delaying, deferring or
preventing a change in control of the Company. The Company also will be subject
to Section 203 of the

14
<PAGE>
Delaware General Corporation Law which, under certain circumstances, could
delay, defer or prevent a business combination with an "interested stockholder."
Following the first meeting of its stockholders subsequent to this Offering, and
provided that there are 800 or more beneficial owners of the Common Stock, the
Company anticipates that it will seek stockholder approval to divide its Board
into three classes, each serving a staggered three-year term. See "Description
of Capital Stock."

NO PUBLIC MARKET FOR COMMON STOCK; POTENTIAL VOLATILITY OF STOCK PRICE

Prior to this Offering, there has been no public market for the Common
Stock, and there can be no assurance that a regular trading market will develop
and continue after this Offering or that the market price of the Common Stock
will not decline below the initial public offering price. The initial public
offering price will be determined through negotiations between the Company and
the Underwriter and may not be indicative of the market price of the Common
Stock following this Offering. Among the factors to be considered in such
negotiations are an estimate of the business potential of the Company, the
present state of the Company's development, an assessment of the Company's
management, prevailing market conditions, the demand for similar securities of
comparable companies and other factors deemed relevant. The stock markets have
experienced price and volume fluctuations that have particularly affected the
stocks of technology companies, resulting in changes in the market prices of the
stocks of many companies that may not have been directly related to the
operating performance of those companies. Such broad market fluctuations may
adversely affect the market price of the Common Stock following this Offering.
In addition, the market price of the Common Stock following this Offering may be
highly volatile. Factors such as variations in the Company's financial results,
comments by securities analysts, announcements of technological innovations or
new products by the Company or its competitors, changing government regulations,
developments concerning the Company's proprietary rights or litigation may have
a material adverse effect on the market price of the Common Stock.

IMMEDIATE AND SUBSTANTIAL DILUTION

Investors purchasing shares of Common Stock in this Offering will incur
immediate and substantial dilution in net tangible book value of the Common
Stock of $10.28 per share. To the extent that currently outstanding options,
warrants and convertible debt are exercised or converted, there will be further
dilution. See "Dilution."

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<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $23,580,000 ($27,207,000 if the
Underwriter's over-allotment option is exercised in full) after deducting
estimated underwriting discounts and commissions and offering expenses payable
by the Company.

EarthLink expects to use the net proceeds of this Offering to finance sales
and marketing activities, leasehold improvements, investments in network
equipment, information systems and office equipment. In addition, the Company
expects to use the net proceeds for new service introductions and for working
capital and other general corporate purposes. The Company also intends to use a
portion of the net proceeds of this Offering to repay certain outstanding
indebtedness. As of November 30, 1996, approximately $2.95 million was
outstanding under the 10% Promissory Notes (which mature in June 1997). The
holders of $725,000 of such notes have agreed to convert such indebtedness into
55,767 shares of Common Stock upon consummation of this Offering. The balance,
approximately $2.23 million as of November 30, 1996, will be repaid using a
portion of the net proceeds of the Offering. The Company also intends to repay
all outstanding indebtedness under a promissory note issued to UUNET (which, as
of November 30, 1996, had a principal balance of $5.0 million and accrued
interest of approximately $42,700), unless UUNET decides to convert the note
into Common Stock prior to repayment. The note bears interest at a floating rate
of prime plus 2% per annum, and matures in October 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and "Certain Transactions."

The amounts actually expended for each purpose, other than repayment of the
indebtedness described above, will be determined at the discretion of the
Company's management. The Company's future capital requirements and the
allocation of the net proceeds of this Offering will depend on many factors,
including the rate of market acceptance of the Company's services, the Company's
ability to expand and maintain its customer base, the rate of expansion of the
Company's network infrastructure, the level of resources required to expand the
Company's marketing and sales organization, information systems and research and
development activities, the availability of hardware and software provided by
third-party vendors and other factors. The Company also anticipates that it may
use a portion of the net proceeds to acquire complementary product and service
lines, technology, equipment, other companies or interests in other companies.
While the Company from time to time has engaged in preliminary discussions
concerning possible acquisitions, investments or joint ventures, it has no
present understandings, commitments, agreements or active negotiations with
respect to any such transaction.

Pending such uses, the net proceeds of this Offering will be invested in
government securities or short-term, investment grade, interest-bearing
securities. The Company believes that the net proceeds from this Offering,
together with other available cash, will be sufficient to meet the Company's
operating expenses and capital requirements for at least the next 12 months. See
"Risk Factors -- Future Additional Capital Requirements" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."

DIVIDEND POLICY

The Company has not paid any dividends since its inception and does not
intend to pay any dividends in the foreseeable future. The payment of future
cash dividends, if any, will be at the sole discretion of the Board of
Directors.

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<PAGE>
CAPITALIZATION

The following table sets forth as of September 30, 1996 (i) the
capitalization of the Company, (ii) the pro forma capitalization of the Company
giving effect to the issuance by the Company of a convertible note payable in
the principal amount of $5,000,000 and (iii) the capitalization of the Company
as adjusted to reflect the conversion upon consummation of this Offering of the
Series A Convertible Preferred Stock into 1,363,624 shares of Common Stock and
of $725,000 of outstanding indebtedness into 55,767 shares of Common Stock, the
sale of the shares of Common Stock being offered hereby and the application of
the estimated net proceeds therefrom after deduction of estimated offering
expenses and underwriting discounts and commissions.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------------
AS
ACTUAL PRO FORMA ADJUSTED
----------- --------- ---------
(IN THOUSANDS)

<S> <C> <C> <C>
Capitalized lease obligations, net of current portion........................ $ 5,388 $ 5,388 $ 5,388
Convertible debt............................................................. -- 5,000 --
----------- --------- ---------
Total debt........................................................... 5,388 10,388 5,388
Redeemable preferred stock................................................... 14,013 14,013 --
Stockholders' equity:
Common Stock, $0.01 par value, 50,000,000 shares authorized; 6,022,724
issued and outstanding, actual and pro forma; 9,442,115 shares issued and
outstanding, as adjusted (1).............................................. 60 60 95
Additional paid-in capital................................................... 14,236 14,236 52,519
Warrants to purchase Common Stock............................................ 599 599 599
Accumulated deficit.......................................................... (26,816) (26,816) (26,816)
----------- --------- ---------
Total stockholders' equity (deficit)................................. (11,921) (11,921) 26,397
----------- --------- ---------
Total capitalization................................................. $ 7,480 $ 12,480 $ 31,785
----------- --------- ---------
----------- --------- ---------
</TABLE>

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

(1) This amount excludes the following securities outstanding or reserved for
future grant as of October 31, 1996: (i) 1,028,250 shares of Common Stock
subject to options outstanding under the Company's 1995 Stock Option Plan
having a weighted average exercise price of $7.48 per share, (ii) 1,331,438
shares of Common Stock subject to outstanding warrants and non-plan stock
options having a weighted average exercise price of $5.82 per share, (iii)
221,750 and 62,500 shares of Common Stock reserved for future grant of
options under the Company's 1995 Stock Option Plan and Directors Stock
Option Plan, respectively, (iv) up to approximately 382,000 shares of Common
Stock into which $5,000,000 of indebtedness will be convertible upon
consummation of this Offering and (v) 360,000 shares of Common Stock
underlying warrants and options that the Company has committed to issue if
certain future events occur. See "Capitalization," "Management -- 1995 Stock
Option Plan and Other Option and Warrant Issuances," "Management --
Directors Stock Option Plan and Other Director Option Issuances,"
"Description of Capital Stock" and Notes 7 and 8 of Notes to Financial
Statements.

17
<PAGE>
DILUTION

The pro forma net tangible book value of the Common Stock as of September
30, 1996, assuming the conversion of the Series A Convertible Preferred Stock
and of $725,000 of outstanding indebtedness into Common Stock, was $2,074,000,
or approximately $0.28 per share. Pro forma net tangible book value per share
represents the amount of the Company's total tangible assets less total
liabilities, divided by the pro forma number of shares of Common Stock
outstanding (assuming the issuance, on September 30, 1996, of the Company's
Series A Convertible Preferred Stock and the conversion of such stock into
1,363,624 shares of Common Stock and of the conversion of $725,000 of
outstanding indebtedness to 55,767 shares of Common Stock). After giving effect
to the sale by the Company of the 2,000,000 shares of Common Stock offered
hereby and after deducting estimated underwriting discounts and commissions and
offering expenses payable by the Company, the pro forma net tangible book value
of the Company as of September 30, 1996 would have been $23,580,000, or
approximately $2.72 per share. This represents an immediate increase in the net
tangible book value of $2.44 per share to existing stockholders and an immediate
dilution of $10.28 per share to new investors purchasing shares of Common Stock
in this Offering. Dilution per share represents the difference between the
amount per share paid by purchasers of shares of Common Stock in the Offering
made hereby and the net tangible book value per share of Common Stock
immediately after completion of this Offering.

The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share........................... $ 13.00
Pro forma net tangible book per share value as of September 30,
1996........................................................... $ 0.28
Increase per share attributable to the Offering................. 2.44
---------
Pro forma net tangible book value after this Offering............. 2.72
---------
Dilution per share to new investors............................... $ 10.28
---------
---------
</TABLE>

The following table sets forth, on an as adjusted basis as of September 30,
1996, the difference between the number of shares of Common Stock purchased from
the Company (assuming the conversion, on September 30, 1996, of the Company's
Series A Convertible Preferred Stock and of $725,000 of outstanding indebtedness
into 1,419,391 shares of Common Stock), the total cash consideration paid and
the average price per share paid by the existing holders of Common Stock and by
the new investors, before deducting estimated underwriting discounts and
commissions and offering expenses payable by the Company:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION (1) AVERAGE
------------------------ --------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 7,442,115 78.8% $ 30,820,000 54.2% $ 4.14
New investors.......................... 2,000,000 21.2 26,000,000 45.8 13.00
----------- ----- -------------- -----
Total................................ 9,442,115 100.0% $ 56,820,000 100.0%
----------- ----- -------------- -----
----------- ----- -------------- -----
</TABLE>

- ------------
(1) Excludes non-cash consideration.

The foregoing table excludes all options, warrants and convertible
indebtedness that will remain outstanding upon consummation of this Offering.
See Notes 7 and 8 of Notes to Financial Statements. The exercise or conversion
of outstanding options, warrants and convertible indebtedness having an exercise
or conversion price less than the initial public offering price would increase
the dilutive effect to new investors illustrated by the foregoing tables.

18
<PAGE>
SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and Notes thereto included elsewhere in
this Prospectus. The statement of operations data for the period from inception
(May 26, 1994) through December 31, 1994, for the year ended December 31, 1995
and the nine months ended September 30, 1996, and the balance sheet data as of
December 31, 1994 and 1995 and September 30, 1996, have been derived from
financial statements audited by Price Waterhouse LLP, independent accountants.
The selected financial data for the nine months ended September 30, 1995 have
been derived from the Company's unaudited financial statements. In the opinion
of management, the unaudited financial statements include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the results for the period presented.
<TABLE>
<CAPTION>
INCEPTION
(MAY 26, 1994) NINE MONTHS ENDED
THROUGH YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ----------------------
1994 1995 1995 1996
-------------- ------------ --------- -----------
(in thousands, except per share data)

<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Recurring revenues.................................... $ 53 $ 2,422 $ 1,057 $ 15,914
Other revenues........................................ 58 606 390 4,248
-------------- ------------ --------- -----------
Total revenues...................................... 111 3,028 1,447 20,162
Operating costs and expenses:
Cost of recurring revenues............................ 4 1,055 448 11,736
Cost of other revenues................................ 12 349 105 2,020
Sales and marketing................................... 37 3,711 1,775 9,867
General and administrative............................ 168 2,062 990 7,838
Operations and customer support....................... 38 1,869 1,043 9,941
-------------- ------------ --------- -----------
Total operating costs and expenses.................. 259 9,046 4,361 41,402
-------------- ------------ --------- -----------
Loss from operations.................................... (148) (6,018) (2,914) (21,240)
Interest expense........................................ -- (136) (70) (683)
Interest income......................................... -- 34 12 114
-------------- ------------ --------- -----------
Net loss............................................ $ (148) $ (6,120) $ (2,972) $ (21,809)
-------------- ------------ --------- -----------
-------------- ------------ --------- -----------
Net loss per share (1).................................. $ (0.04) $ (1.25) $ (0.65) $ (3.32)
-------------- ------------ --------- -----------
-------------- ------------ --------- -----------
Weighted average shares outstanding (1)................. 3,653 4,903 4,596 6,568

DECEMBER 31, SEPTEMBER 30,
---------------------------- ----------------------
1994 1995 1995 1996
-------------- ------------ --------- -----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............................... $ (62) $ (1,976) $ 1,365 $ (6,439)
Total assets............................................ 186 4,874 4,554 26,033
Capital lease obligations, net of current portion....... -- 355 211 5,388
Total liabilities....................................... 89 4,584 2,239 23,941
Accumulated deficit..................................... (148) (5,007) (1,859) (26,816)
Total stockholders' equity (deficit).................... 97 290 2,316 (11,921)
</TABLE>

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

(1) See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of weighted average shares outstanding used in
the net loss per share computation.

19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

EarthLink is an ISP that was formed to help users derive meaningful benefits
from the extensive resources of the Internet. The Company began offering its
services in July 1994. Since inception, the growth in the Company's customer
base along with an expansion of service offerings has resulted in significant
increases in revenues and related expenses. As a result, period-to period
comparisons of the Company's results of operations may not be as meaningful as
these comparisons would be for mature companies.

The Company's standard EarthLink Network service provides unlimited Internet
access for a one-time registration fee of $25.00 and a flat monthly fee of
$19.95, which is generally collected from a pre-authorized credit card account.
In addition to its standard service, the Company offers a number of premium,
add-on and other services which can increase the speed of, or add features to,
the capabilities of the standard service. Prices and billing methods for
premium, add-on and other services vary. See "Business -- EarthLink's Services."

The Company has experienced net losses since it commenced operations and had
net losses of approximately $6.3 million from inception through 1995 and of
approximately $21.8 million for the nine months ended September 30, 1996. As of
September 30, 1996, the Company had an accumulated deficit of approximately
$26.8 million (exclusive of $1.3 million of losses incurred while the Company
was an S Corporation for tax purposes, which, upon the Company's conversion to C
Corporation status in June 1995, were charged to the Company's capital
accounts). The Company expects that it will continue to incur net losses as it
continues to expend substantial resources on sales, marketing and
administration, build its infrastructure, develop new service offerings and
improve its management information systems. There can be no assurance that the
Company will achieve or sustain profitability or positive cash flow from its
operations.

The Company's principal strategy is to expand rapidly and retain its
customer base. To realize this strategy, the Company intends to increase its
investment in sales and marketing. Also, the Company plans to add administrative
infrastructure, increase customer and technical support capability and build
network infrastructure to meet customer demand. The sales and marketing and
other costs to the Company of acquiring new customers are substantial relative
to the monthly fee derived from such customers. Accordingly, the Company's
long-term success depends largely upon its ability to retain its existing
customers, while continuing to attract new customers.

The market for the Company's services has only recently begun to develop, is
rapidly evolving and is characterized by an increasing number of market entrants
who have introduced new services for access to the Internet. The Company and its
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by companies in the new and rapidly evolving market for
Internet services and products. To address these risks, the Company must, among
other things, continue to attract, retain and motivate qualified persons, and
continue to upgrade its infrastructure, including its information systems,
technologies and services. There can be no assurance that the Company will be
successful in addressing such risks. See "Risk Factors."

RESULTS OF OPERATIONS

REVENUES. Recurring revenues consist of monthly fees charged to customers
for Internet access and other ongoing services. Other revenues generally
represent one-time setup fees. Recurring revenues are recognized over the period
for which the services are performed.

For the period from inception, May 26, 1994, through December 31, 1994 (the
"Inception Period") and the year ended December 31, 1995, recurring revenues
were approximately $53,000 and $2.4 million, respectively. Other revenues for
the same periods were approximately $58,000 and $606,000, respectively.
Recurring revenues were approximately $1.1 million and $15.9 million for the
nine months ended September 30, 1995 and September 30, 1996, respectively. Other
revenues were approximately $390,000 and

20
<PAGE>
$4.2 million for the nine months ended September 30, 1995 and September 30,
1996, respectively. The increase in recurring revenues in 1995 as compared to
the Inception Period is primarily attributable to the Company being operational
for the full year in 1995 and an increase in the number of customers during that
period. Revenues for the nine months ended September 30, 1996 increased over
revenues for the nine months ended September 30, 1995 as a result of an increase
in the number of customers. The increase in revenues was partially offset by
credits given to customers under the Company's customer referral program. Under
this program, the Company waives one month of service fee in consideration for
each new customer referred by an existing customer. This waived service fee
results in a reduction to revenue. The increase in other revenues for 1995 as
compared to the Inception Period is primarily attributable to an increase in the
number of customers added in 1995 and one-time set-up fees collected from
customers. Other revenues for the nine months ended September 30, 1996 increased
over other revenues in the nine months ended September 30, 1995 as a result of
an increase in the number of new customers during that period and one-time
set-up fees collected from customers. From time to time, the Company waives the
one-time set-up fee it charges new customers. As competition in the ISP market
intensifies, the Company may find it necessary to waive the one-time set-up fee
to remain competitive. Therefore, revenues from the one-time set-up fee are
expected to decrease in future periods.

COST OF REVENUES. Cost of revenues consists of cost of recurring revenues
and cost of other revenues. Cost of recurring revenues principally includes
telecommunications expenses and depreciation expense on equipment used in
network operations for ongoing customer services. Included in telecommunications
cost are fees paid to UUNET for local access to its nationwide system of POPs.
Cost of other revenues principally includes expenses related to the registration
of new customers. These costs include licensing fees for software, software
duplication costs and commissions paid to third parties for referring new
customers to the Company.

For the year ended December 31, 1995, cost of recurring revenues increased
to approximately 44% of recurring revenues, up from 8% of recurring revenues for
the Inception Period. This increase was due to increased hourly customer usage
and the Company's expansion of its POP sites. Cost of recurring revenues for the
nine months ended September 30, 1996 increased to approximately 74% of recurring
revenues, up from 42% of recurring revenues for the nine months ended September
30, 1995 due to increased hourly customer usage and the Company's expansion to
nationwide service through its relationship with UUNET. During these periods,
the Company paid UUNET a fixed monthly fee per customer plus a variable amount
based on customer usage in excess of a threshold number of hours per month. The
Company's agreement with UUNET was amended as of October 1996 such that the key
variable component is peak usage rather than hourly usage. As the Company
continues to expand, the Company anticipates that it may build and use
additional Company-owned POPs in those geographical areas where there is a
sufficient concentration of customers to support the cost of such investment.

As noted above, under the Company's current agreement with UUNET, the
Company pays UUNET a monthly fee equal to the greater of a specified minimum or
an amount that varies based primarily on peak

21
<PAGE>
customer usage. The specified minimum amount increases over the term of the
agreement. The Company's operating margins could be adversely affected if the
Company is unable to increase its customer base so as to avoid paying the
increasing minimum amount. See "Business -- EarthLink's Services" and "--
Customers, POPs and Network Infrastructure."

SALES AND MARKETING. Sales and marketing expenses consist primarily of
sales commissions, salaries, cost of promotional material, advertising, travel
and third-party sales commissions. Sales and marketing expenses were
approximately $37,000, or 33% of revenues, and $3.7 million, or 123% of
revenues, for the Inception Period and the year ended December 31, 1995,
respectively. Sales and marketing expenses were approximately $1.8 million, or
123% of revenues, and $9.9 million, or 49% of revenues, for the nine months
ended September 30, 1995 and September 30, 1996, respectively. These
period-to-period increases have primarily resulted from increased emphasis on
marketing the Company's services, expanding sales and marketing efforts
nationwide, increased sales commissions and increased marketing personnel. The
Company intends to aggressively promote EarthLink's services and as a result
expects further significant increases in sales and marketing expenses in future
periods. The Company does not capitalize costs associated with the acquisition
of customers.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of costs associated with the finance and accounting and human
resources departments, professional expenses, rent and expenses, principally
compensation, related to certain executive officers and bad debts. General and
administrative expenses were approximately $168,000 and $2.1 million for the
Inception Period and the year ended December 31, 1995, respectively. General and
administrative expenses were approximately $990,000 and $7.8 million, for the
nine months ended September 30, 1995 and September 30, 1996, respectively. Since
inception, general and administrative expenses have increased as a result of
increased employee headcount, rent and other general and administrative
expenses. During the nine months ended September 30, 1996, the Company hired a
number of senior management personnel, moved into a new headquarters building
and engaged professional consultants to assist in the development of an
administrative infrastructure to accommodate anticipated increases in the number
of customers and employees, which resulted in a significant increase in general
and administrative expenses as compared to the same period in 1995. General and
administrative expenses for the nine months ended September 30, 1996, included
bad debt expense of $1.7 million resulting from difficulties in billing
customers and in disconnecting late-paying customers on a timely basis. In
addition, in September 1996, the Company issued 37,500 shares of Common Stock as
consideration for the termination of a consulting agreement. The value of the
stock, $413,000, was included in general and administrative expenses for the
nine months ended September 30, 1996. Management intends to implement new
information systems and continue to expand staff in order to support anticipated
customer and operational growth. As a result, the Company expects general and
administrative expenses to increase in future periods.

OPERATIONS AND CUSTOMER SUPPORT. Operations and customer support expenses
consist primarily of expenses associated with technical support and customer
service to register and maintain customer accounts. Operations and customer
support expenses were approximately $38,000, or 34% of revenues, and $1.9
million, or 62% of revenues, for the Inception Period and the year ended
December 31, 1995, respectively. Operations and customer support expenses were
approximately $1.0 million, or 72% of revenues, and $9.9 million, or 49% of
revenues, for the nine months ended September 30, 1995 and September 30, 1996,
respectively. These expenses have increased significantly since the Company's
inception. This trend reflects the costs associated with building a customer
service organization to support the Company's customer base and anticipated
customer growth. The Company intends to continue to increase expenditures for
operations and customer support.

INCOME TAXES. No provision for federal or state income taxes has been
recorded as the Company incurred net operating losses through September 30,
1996. At September 30, 1996, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $24.7 million, which begin to
expire in 2010. The Internal Revenue Code of 1986, as amended, includes
provisions that limit the net operating loss carryforwards for use in a given
year if significant ownership changes have occurred. The Company expects that
this Offering will result in an ownership change limiting the Company's ability
to utilize net operating loss carryforwards to offset future income, if any. The
Company has provided a full valuation allowance on the deferred tax asset
because of the uncertainty regarding realizability. Prior to July 1995, the
Company was

22
<PAGE>
taxed as an S Corporation under the Internal Revenue Code. As a result, losses
totaling approximately $2.8 million flowed directly to the stockholders during
the period and are not included in the amount of net operating loss
carryforwards.

POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS

In May 1996, the Company entered into an agreement with NMC, a producer of
infomercials and commercials, pursuant to which NMC agreed to produce and
broadcast 15-second and 60-second commercials for EarthLink's services. Under
this agreement, for customers who, in response to these commercials, subscribe
to and pay for the Company's services for 60 days from the date of registration,
the Company is obligated to pay NMC, at NMC's one-time election made prior to
the first airing of any such commercials, either a $45.00 per customer fee or
fees equal to 7% of all revenues received from such customers for five years
from their registration. In addition, the Company agreed to issue warrants to
NMC to purchase 50,000 shares of Common Stock, having an exercise price of $9.76
per share, upon the completion by NMC, subject to the Company's approval, of the
15-second and 60-second commercials, and to issue warrants to NMC to purchase
one share of Common Stock for each two customers generated by this relationship,
up to 300,000 shares of Common Stock. The exercise price of such additional
warrants earned through December 31, 1997 will be $9.76 per share, and
thereafter the exercise price will be the fair market value of the Common Stock
on the date of grant. Upon issuance of any such warrants, the Company will be
required to record in the quarter in which such warrant is issued a non-cash
charge against earnings in an amount equal to the fair value of the warrant on
the date of issuance.

LIQUIDITY AND CAPITAL RESOURCES

The Company has not generated net cash from operations since its inception.
The Company has funded its operations primarily through private sales of equity
securities, borrowings from third parties and capital leases of equipment. The
Company's operating activities used net cash of approximately $3.6 million and
$11.1 million during 1995 and the nine months ended September 30, 1996,
respectively. During 1995 and the nine months ended September 30, 1996, net cash
used in operations resulted primarily from net losses, partially offset by
increases in trade accounts payable.

Cash used by investing activities has consisted primarily of equipment
purchases for POP and network expansion. For the year ended December 31, 1995
and the nine months ended September 30, 1996, capital expenditures amounted to
approximately $2.8 million and $13.6 million, respectively. The Company
estimates that capital expenditures for the remainder of 1996 and through the
end of 1997 will be approximately $20.0 million including network enhancements,
data center expansion, and procurement of telecommunication and office equipment
and furniture and fixtures. Where feasible, the Company will seek to finance
certain of these expenditures through capital leases.

Cash from financing activities provided the Company with approximately $8.2
million and $31.9 million during 1995 and the nine months ended September 30,
1996, respectively. The Company's financing activities have consisted of the
private sale of debt and equity securities and capital lease transactions,
primarily for equipment. From inception through September 30, 1996, the Company
raised $29.1 million through the private sale of debt and equity securities and
$9.8 million relating to capital lease obligations, respectively. Capital lease
obligations generally result from the sale and leaseback of equipment. During
the year ended December 31, 1995 and the nine months ended September 30, 1996,
the Company financed the acquisition of data processing and office equipment
amounting to approximately $556,000 and $9.2 million, respectively, by entering
into a number of agreements for the sale and leaseback of equipment. The sale
leaseback transactions

23
<PAGE>
are recorded at cost, which approximates the fair market value of the property
and, therefore, no gains or losses have been recorded. The property remains on
the books and continues to be depreciated. A financing obligation representing
the proceeds is recorded and reduced based upon payments under the lease
agreement.

As of December 31, 1995 and September 30, 1996, the Company had cash and
cash equivalents of approximately $290,000 and $8.7 million, respectively, and
negative working capital of approximately $2.0 million and $6.4 million,
respectively. During the second quarter of 1996, the Company received short-term
debt financing (issued in the form of 10% Promissory Notes that mature in June
1997) of $2.95 million from a limited number of investors, including certain
directors and existing stockholders. As additional consideration for this
investment, EarthLink issued warrants to purchase 98,340 shares of Common Stock
having an exercise price of $11.00 per share. The holders of $725,000 of such
notes have agreed to convert the notes into 55,767 shares of Common Stock upon
consummation of this Offering. Also during the third quarter of 1996, the
Company sold 2,727,273 shares of Series A Convertible Preferred Stock to a
limited number of investors, including certain directors, existing stockholders,
the Underwriter and certain of its affiliates and associates for approximately
$15.0 million in the aggregate, or $5.50 per share. In connection with this
financing, the Company issued to certain of the investors warrants to purchase
up to 100,000 shares of Common Stock at an exercise price of $11.00 per share.
The Series A Convertible Preferred Stock will automatically convert into
1,363,624 shares of Common Stock upon the consummation of this Offering. See
"Certain Transactions."

In connection with an amendment of its strategic network services
relationship with UUNET, in October 1996, the Company issued a $5.0 million,
one-year promissory note to UUNET. This note bears interest at prime plus 2% per
annum (an effective rate of 10.25% per annum at December 1, 1996), and will be
convertible upon consummation of this Offering into up to approximately 382,000
shares of Common Stock at a conversion price of between $13.20 and $16.00 per
share, depending upon the number of shares of Common Stock, if any, purchased in
this Offering by certain investors referred to in the preceding paragraph and
the public offering price of the Common Stock in this Offering. See "Certain
Transactions."

EarthLink expects to use the net proceeds of this Offering to finance sales
and marketing activities, leasehold improvements, investments in network
equipment, information systems, office equipment and new service introductions,
and for working capital and other general corporate purposes. The Company
intends to use a portion of the net proceeds of this Offering to repay
approximately $2.23 million of the 10% Promissory Notes, which will remain
outstanding upon consummation of this Offering. The Company also intends to use
a portion of the net proceeds of this Offering to repay its outstanding
convertible debt to UUNET, unless UUNET decides to convert such debt to Common
Stock prior to repayment. See "Use of Proceeds." The Company also anticipates
that it may use a portion of the net proceeds to acquire complementary products
and service lines, technology, equipment, other companies or interests in other
companies. While the Company from time to time has engaged in preliminary
discussions concerning possible acquisitions, investments or joint ventures, it
has no present understandings, commitments, agreements or active negotiations
with respect to any such transaction. See "Certain Transactions."

Pending such uses, the net proceeds of this Offering will be invested in
short-term, investment grade, interest-bearing securities. The Company believes
that the net proceeds from this Offering, together with other available cash
will be sufficient to meet the Company's operating expenses and capital
requirements for at least the next 12 months. However, the Company's capital
requirements depend on numerous factors, including the rate of market acceptance
of the Company's services, the Company's ability to maintain and expand its
customer base, the rate of expansion of the Company's network infrastructure,
the level of resources required to expand the Company's marketing and sales
organization, information systems and research and development activities, the
availability of hardware and software provided by third-party vendors and other
factors. The timing and amount of such capital requirements cannot accurately be
predicted. If capital requirements vary materially from those currently planned,
the Company may require additional financing sooner than anticipated. The
Company has no commitments for any additional financing, and there can be no
assurance that any such commitments can be obtained on favorable terms, if at
all. Any additional equity financing may be dilutive to the Company's
stockholders, and debt financing, if available, may involve restrictive
covenants with respect to dividends, raising future capital and other financial
and operational matters. If the Company is unable to obtain additional financing
as needed, the Company may be required to reduce the scope of its operations or
its anticipated expansion, which could have a material adverse effect on the
Company.

24
<PAGE>
BUSINESS

OVERVIEW

EarthLink is an ISP that was formed to help users derive meaningful benefits
from the extensive resources of the Internet. The Company focuses on providing
access, information, assistance and services to its customers to encourage their
introduction to the Internet and to help them have a satisfying user experience.

The Company provides its services through its EarthLink Network TotalAccess
software package, which is designed to simplify access to the Internet through
an online registration feature and a "point and click" graphical user interface.
This software permits users to browse the Internet through use of Netscape
Navigator or Microsoft Explorer (one or the other of which is included in each
copy of TotalAccess), or any other third-party browser that a customer may wish
to use. The Company also provides useful information to its users through its
extensive World Wide Web site. On this site, a user can find technical
assistance information, an on-line newsletter, links to numerous popular
categories of information and entertainment and many other items and services
designed to enhance users' satisfaction with their Internet experience. In
addition, the Company provides a monthly printed newsletter to its customers, a
booklet entitled "Getting the Most Out of EarthLink" and 24 hour customer and
technical support.

EarthLink also offers business services, including business Web sites,
high-speed ISDN communications capability and frame relay connectivity. In
addition, the Company offers consumer services such as multiplayer Internet
games and the EarthLink online store.

INDUSTRY BACKGROUND

The Internet is a collection of computer networks linking millions of public
and private computers around the world. Historically, the Internet was used by
government agencies and academic institutions to exchange information, publish
research and transfer email. A number of factors, including the proliferation of
communication-enabled personal computers, the availability of intuitive
graphical user interface software and the wide accessibility of an increasingly
robust network infrastructure, have combined to allow users to easily access the
Internet and, in turn, have produced rapid growth in the number of Internet
users.

The emergence of the World Wide Web, the graphical, multimedia environment
of the Internet, has resulted in the development of the Internet as a new mass
communications medium. The ease and speed of publishing, distributing and
communicating text, graphics, audio and video over the Internet has led to a
proliferation of Internet-based services, including chat, online magazines, news
feeds, interactive games and a wealth of educational and entertainment
information, as well as to the development of online communities. In addition,
the reduced cost of executing transactions over the Internet provides
individuals and organizations with a new means to conduct business.

STRATEGY

The principal components of EarthLink's growth strategy are as follows:

RAPIDLY EXPAND ITS CUSTOMER BASE. EarthLink believes that a key to success
in the competitive ISP market is to expand its customer base as rapidly as
possible to establish a significant revenue base, thereby enhancing its ability
to enter into favorable arrangements with affinity marketing partners and
providers of content, network access and software enhancements. The Company
plans to devote significant effort and financial resources on sales and
marketing. The Company also plans to continue print advertising in major
computer

25
<PAGE>
magazines, expand its radio advertising program, seek to expand its affinity
marketing program, maintain a presence at national, regional and local trade
shows and continue to offer economic incentives to customers who refer new
customers.

RETAIN THE COMPANY'S EXISTING CUSTOMERS. The sales, marketing and other
costs to the Company of acquiring new customers are substantial relative to the
monthly fee derived from such customers. Accordingly, the Company believes that
its long-term success largely depends on maintaining customer satisfaction with
its services. EarthLink plans to devote significant resources to enhancing its
network operations capability, its World Wide Web site and its service
offerings. In addition, the Company will continue to expand its technical
support staff and enhance the staff 's effectiveness by implementing a new call
center and providing software tools that can assist the staff in identifying and
solving customer problems.

DEVELOP ADDITIONAL SERVICE OFFERINGS. EarthLink recognizes that the
introduction of additional service offerings can serve not only to expand and
maintain its customer base, but also, in certain instances, to enhance revenues.
Accordingly, the Company has introduced a variety of services for business
consumers, including business Web sites, high-speed ISDN communications
capability and frame relay connections, each of which involve a monthly service
charge plus set-up fees. The Company also plans to expand its service offerings
for consumers, including personalized start pages, chat and multiplayer Internet
games.

FOCUS ON CUSTOMER NEEDS. EarthLink seeks to help its customers derive
meaningful benefits from the extensive resources of the Internet. In order to
maintain its focus on customer needs, the Company has leveraged the
infrastructure and software development efforts of others by leasing POP
capacity from UUNET and PSINet and licensing software from software developers.
The Company believes that this approach gives it flexibility to rapidly expand
its service coverage without the need for substantial capital expenditures. The
Company will continue to pursue this strategy so that, in addition to its sales
and marketing efforts, it can devote its principal resources to improving its
customers' experience with the Internet.

EARTHLINK'S SERVICES

EarthLink provides a variety of competitively-priced Internet services to
consumer and business customers. The Company makes these services available
through its EarthLink Network TotalAccess software package. This software
incorporates a telephone dialer and email functionality with several leading
third-party Internet access tools, including either Netscape Navigator or
Microsoft Explorer, thereby providing a functional, easy-to-use Internet access
solution for Windows 3.1, Windows 95 and Macintosh platforms. EarthLink Network
TotalAccess installation software automatically installs these and other
software applications on the customer's computer. The simple point-and-click
functionality of EarthLink Network TotalAccess, combined with its easy-to-use
registration module, permits online credit card registration, allowing new
EarthLink customers to quickly access the Internet.

The prices quoted below are subject to change.

STANDARD EARTHLINK NETWORK INTERNET SERVICES. EarthLink provides its
customers with a core set of features through its standard Internet service,
which provides unlimited access to the Internet as well as the other features
and services for a flat monthly fee of $19.95 and a one-time setup fee of $25.
The following functionalities are included in the standard EarthLink service:

INTERNET ACCESS. EarthLink provides customers with direct high-speed access
to the Internet and the World Wide Web in a manner that is designed to be
reliable and easy to use.

EARTHLINK NETWORK WEB SITE. EarthLink has developed and maintains its own
Web site containing EarthLink content and links to third-party content.
EarthLink's in-house staff actively seeks out interesting content from across
the World Wide Web and categorizes it into subject areas of interest organized
on the EarthLink Web site under topics such as "What's Hot," "Hollywood,"
"News," "Finance" and "Games." The Company's Web site provides a road map to
volumes of information and services available on the Internet. A

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<PAGE>
user can browse the site and click on topics of interest in order to link to
desired information. In addition, through search engines and the embedded
functionality of Netscape Navigator or Microsoft Explorer, a user can conduct
customized searches for other topics.

EMAIL. Each customer is provided a mailbox, or address, from which to send
and receive email. Email functionality allows customers to exchange an unlimited
number of multimedia text, graphics, audio and video messages with other
EarthLink customers as well as with non-EarthLink Internet users.

PERSONAL WEB SITES. Each EarthLink customer is provided two megabytes of
disk space on the Company's Web server to create his or her own Web home page.
This enables each customer to participate in the Internet community by
personally adding content to the World Wide Web.

PUBLICATIONS. EarthLink publishes BLINK, a monthly newsletter, which it
mails to each of its customers. Through this publication, the Company provides
its customers with useful information, such as tips on how to search for certain
categories of information on the Internet and information regarding new
EarthLink service offerings, new Internet sites and other items of interest.
This publication is also available as an online feature, updated daily, on the
EarthLink home page. Additionally, the Company's founder, Sky Dayton, has
authored and published a booklet entitled "Getting the Most Out of EarthLink,"
which the Company provides its new customers subscribing through dial-up sales
and provides to all other customers upon request.

CHAT. Chat enables customers to "talk" with one another in typed text in
real time, one-on-one or in groups known as chat rooms.

PREMIUM EARTHLINK NETWORK SERVICES. In addition to its standard service,
the Company offers a variety of premium services, including the following:

BUSINESS WEB SITES. The Company provides space on its Web server for
commercial customers to publish their own Web pages. Monthly fees for business
Web sites range from $89 to $439, plus one-time setup fees of $179 to $479,
depending on the size of the site and whether the site is a shared or unique
address. Each option is also available with an audio feature for an additional
charge. Additional charges, based on the volume of users accessing a site, may
apply.

ISDN CAPABILITY. EarthLink offers high-speed ISDN Internet access
communication lines on a nationwide basis. ISDN provides a faster, more
efficient method for communicating digital data over telephone lines. ISDN
speeds are significantly faster than conventional modem speeds (up to 128 Kbps
versus up to the current maximum of 33.6 Kbps). The monthly ISDN service charge
is $35 for the first 100 channel hours and $1 for each additional channel hour.
A one-time setup fee of $50 is also charged.

FRAME RELAY CAPABILITY. Frame relay enables direct, high-speed continuous
connection of an organization's internal local area network to the Internet
using dedicated circuits at speeds ranging from 56 Kbps to 1,536 Kbps. This
service enables businesses to connect an entire local area network or high-end
workstation to the Internet and provides the fastest data transfer rate
generally available. Frame relay service fees range from $335 to $1,675 per
month depending on access speeds, data throughput and other data transfer
metrics. One-time setup fees range from $495 to $1,995.

MULTIPLAYER INTERNET GAMES. The Company recently introduced The Arena, a
multiplayer Internet games service that allows EarthLink and non-EarthLink users
to play multimedia games through the EarthLink Network for an hourly fee. The
Company creates an incentive for non-EarthLink users to subscribe to EarthLink
by charging them a slightly higher fee to participate in The Arena.

SUPPLEMENTAL SERVICES. To augment its standard and premium services, the
Company provides its customers with the following supplemental services:

ADDITIONAL MAILBOXES. The Company provides additional mailboxes for a per
mailbox setup fee of $9.95 and a monthly service fee of $4.95 for those
customers who require more than one mailbox for colleagues, employees or family
members.

DOMAIN NAME REGISTRATION. EarthLink provides unique domain names for those
customers who prefer an individualized address. Instead of
"[email protected]," the user Joe Smith may prefer the name

27
<PAGE>
"[email protected]." Or a business user may find greater marketing presence by
having a domain name in the name of his business, such as "[email protected]."
EarthLink charges $75 to assist in establishing unique domain names for
customers. Customers then pay an annual renewal fee to an Internet domain
registration agency.

800 SERVICE. EarthLink provides 800 number dial-up service for customers
who do not have access to a local POP. EarthLink charges customers $24.95 per
month for five hours of 800 number service plus a one-time setup fee of $25.00.
Additional hours are $4.95 per hour.

TECHNICAL DEVELOPMENT AND SERVICE ENHANCEMENT

EarthLink places significant emphasis on expanding and refining its services
to enhance its customers' Internet experience. EarthLink's technical staff is
engaged in a variety of technical development and service enhancement
activities, including improvement of the functionality of the Company's
EarthLink Network TotalAccess software and reviewing new third-party software
products for potential incorporation into TotalAccess. EarthLink also regularly
updates and expands the online services provided through the EarthLink Web site.
These activities include organizing Web content and the development of online
guides, help screens and other user services.

The Company anticipates the near-term release of the following services:

PERSONALIZED START PAGE. When customers "sign on" to EarthLink, they
generally begin their Internet session at the EarthLink home page and proceed
from there to the other sites and services of their choice. A "personalized
start page," which the Company plans to introduce in early 1997, will allow
customers to customize the page that first appears when they log on to the
EarthLink Network. For example, a customer may include short-cuts to favorite
Web sites, find advertisements targeted to the customer's interests
automatically displayed, change the "look and feel" of the start page and
otherwise tailor the start page to accomodate his or her personal preferences.

PREMIUM SERVICE OFFERINGS. The Company is engaged in ongoing efforts to
provide its customers with access to premium services, such as the Wall Street
Journal online newspaper and the ESPN sports service. The Company intends to
bundle these third-party premium services in packages and offer them to its
customers at discounted rates. These services will be billed directly to the
user's EarthLink account rather than separately by the provider of the premium
services, and will not require EarthLink customers to establish separate user
names and passwords to access the premium services.

ONLINE COMMERCE. The Company recently opened the EarthLink online store,
which offers EarthLink branded merchandise that online shoppers may purchase by
placing an order through the EarthLink Network via an online credit card
transaction. The Company intends to further develop its systems for offering
electronic retail services by establishing an online mall through which it can
"lease space" to businesses to advertise and sell their products and services.

MARKETING

As of September 30, 1996, the Company marketed and sold its services through
its sales and marketing department comprised of 92 employees. EarthLink's sales
and marketing efforts consist of the following programs:

ADVERTISING. The Company advertises its services in print media and on
radio. Included in the advertisement is a toll-free 800 number to contact the
Company's internal sales staff. When a potential customer calls the Company's
sales staff, the customer is assigned a user name and password. Subsequently,
the new customer is sent a copy of EarthLink Network TotalAccess, which the
customer uses to log on to the Company's system.

AFFINITY MARKETING PROGRAM. EarthLink's affinity marketing program promotes
the Company through the distribution of the EarthLink Network TotalAccess
software package by its affinity marketing partners.

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These partners typically bundle EarthLink Network TotalAccess disks with their
own goods or services. Marketing partners include MacMillan Publishing USA,
Activision, Inc., Micro Warehouse Incorporated, Adobe Systems, Inc., United
Airlines, Inc., Iomega Corp., CompUSA, Inc. and Best Buy Co., Inc.

A significant number of EarthLink's customers have been generated through
its relationships with its affinity marketing partners, and the Company believes
that its affinity marketing relationships will continue to account for a
significant number of new customers. There can be no assurance, however, that
the Company's current affinity marketing partners will continue to distribute
the Company's software or will continue to generate new customers for the
Company's services. The Company's inability to maintain its affinity marketing
relationships or establish new affinity marketing relationships could result in
delays and increased costs in expanding its customer base, which could, in turn,
have a material adverse effect on the Company.

CUSTOMER REFERRAL PROGRAM. The Company believes that one of its most
important marketing tools is its existing customers. In order to encourage
customers to refer other users, the Company currently waives one month of
service fees per referred customer.

OTHER MARKETING ACTIVITIES. EarthLink maintains a presence at national
trade shows such as Comdex, MacWorld and OnLine Expo, as well as local and
regional trade shows. Additionally, the Company markets through computer,
Internet and related publications, and bundles EarthLink Network TotalAccess
with a few of these publications, either as disks that contain only the
EarthLink Network TotalAccess software package or as CD-ROMs that may include
numerous other software applications. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Potential Fluctuations in
Quarterly Results" for additional information concerning a marketing agreement
with NMC.

CUSTOMERS, POPS AND NETWORK INFRASTRUCTURE

As of December 1, 1996 the Company had approximately 200,000 customers.

The Company presently provides its customers with Internet access primarily
through UUNET's nationwide system of POPs. Substantially all of the Company's
customers access the EarthLink Network and the Internet by dialing into local
POPs. Of these, the Company owns 20 POP sites in California and currently offers
additional access through 336 UUNET POPs, to which it has access on a
non-exclusive basis. The following map depicts the Company's POP network, as of
October 31, 1996:

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<PAGE>
[MAP]

Not reflected on this map are the approximately 225 POPs maintained by
PSINet, through which the Company has agreed to lease POP capacity on a
non-exclusive basis. Some of the PSINet POPs became accessible to certain of the
Company's customers in January 1997. The Company is dependent on UUNET (and in
the future may also be dependent on PSINet) to continue to provide the Company's
customers with access to the Internet through its system of POPs. The inability
or unwillingness of either or both of these third-party network providers to
permit POP access to EarthLink's customers, or the Company's inability to secure
alternative POP arrangements, could have a material adverse effect on the
Company. See "Risk Factors -- Dependence on Third-Party Network Providers" and
"Risk Factors -- Dependence on Network Infrastructure; Capacity; Risk of System
Failure; Security Risks."

For customers located in a geographic area not presently serviced by a local
POP, the EarthLink Network can be accessed by a toll-free number for which the
Company bills customers on an hourly usage basis. The Company's POP sites are
connected to the Internet primarily through its network hub in Los Angeles. The
Company's network hub is in turn connected directly to the Internet via leased
high-speed fiber optic data lines. The Company intends to relocate its network
hub from Los Angeles to Pasadena. See "-- Facilities" and "Risk Factors --
Dependence on Network Infrastructure; Capacity; Risk of System Failure; Security
Risks."

The Company does not presently maintain redundant or backup Internet
services or backbone facilities or other redundant computing and
telecommunication facilities. Any accident, incident or system failure that
causes interruptions in the Company's operations could have a material adverse
effect on the Company's ability to provide Internet services to its customers,
and, in turn, on the Company.

CUSTOMER AND TECHNICAL SUPPORT

The Company believes that reliable customer and technical support is
critical to retaining existing and attracting new customers. The Company
currently provides the following types of customer and technical support: (i)
toll-free, live telephone assistance available seven days a week, 24 hours a
day; (ii) email-based

30
<PAGE>
assistance available seven days a week, 24 hours a day; (iii) help sites and
Internet guide files on the EarthLink Web site; (iv) automated "fax back" and
"fax on demand" assistance; and (v) printed reference material. Additionally,
the Company provides dedicated support for its business customers.

In order to continue to improve its support services and to deliver those
services in a more timely and cost-effective manner, the Company is currently
expanding its call center facilities and installing new call management database
software. The Company also intends to purchase new call center hardware and
software.

The Company's growth has placed, and is expected to continue to place, a
significant strain on its managerial, operational, financial and information
system resources. Demand on the Company's network infrastructure, technical
staff and resources has grown rapidly with the Company's expanding customer
base, and the Company has experienced difficulties satisfying the demand for its
Internet services. There can be no assurance that the Company's infrastructure,
information systems, technical staff and resources will be adequate to
facilitate the Company's growth. See "Risk Factors -- Risks Associated with
Management of Potential Growth."

SUPPLIER RELATIONSHIPS

The Company is dependent on certain third-party suppliers of hardware
components. Certain components used by the Company in providing its network
services are currently acquired from limited sources. The Company also depends
on third-party software vendors to provide the Company with much of its Internet
software, including Netscape Navigator and Microsoft Explorer, the World Wide
Web browser software that the Company licenses from Netscape and Microsoft,
respectively. Failure of the Company's suppliers to provide components and
products in the quantities, at the quality levels or at the times required by
the Company, or an inability by the Company to develop alternative sources of
supply if required, could materially adversely affect the Company's ability to
effectively support the growth of its customer base in a timely manner and
result in delays in and increase its costs of expansion. Moreover, because
Netscape Navigator and Microsoft Explorer are the two most widely used Web
browsers, the failure of Netscape or Microsoft to continue to provide World Wide
Web browser software to the Company could have a material adverse effect on the
Company.

COMPETITION

The Internet services market in which the Company operates is extremely
competitive, and the Company expects competition in this market to intensify in
the future. The Company's current and prospective competitors include many large
companies that have substantially greater market presence and financial,
technical, marketing and other resources than the Company. The Company competes
(or in the future is expected to compete) directly or indirectly with the
following categories of companies: (i) national and regional ISPs, such as BBN,
IDT, MindSpring, NETCOM, PSINet and UUNET; (ii) established online services such
as America Online, CompuServe, Prodigy and the Microsoft Network; (iii) computer
software and technology companies such as Microsoft; (iv) national
telecommunications companies, such as AT&T, MCI and Sprint; (v) RBOCs; (vi)
cable operators, such as Comcast, TCI and Time Warner; and (vii) nonprofit or
educational ISPs.

The entry of new participants from these categories and the potential entry
of competitors from other categories (such as computer hardware manufacturers)
would result in substantially greater competition for the Company. The ability
of these competitors or others to bundle services and products with Internet
connectivity services could place the Company at a significant competitive
disadvantage. In addition, competitors in the telecommunications industry may be
able to provide customers with reduced communications costs in connection with
their Internet access services, reducing the overall cost of Internet access and
significantly increasing pricing pressures on the Company. Moreover, certain of
the Company's online competitors, including America Online, the Microsoft
Network and Prodigy, have recently introduced unlimited access to the Internet
and their proprietary content at flat rates that are equal to the Company's flat
rate, and do not require a set-up fee. Certain of the RBOCs have also introduced
competitive flat-rate pricing for unlimited

31
<PAGE>
access (without a set-up fee) for at least some period of time. As a result,
competition for active users of Internet services has intensified. There can be
no assurance that the Company will be able to offset the adverse effect on
revenues of any necessary price reductions resulting from competitive pricing
pressures by increasing the number of its customers, by generating higher
revenue from enhanced services, by reducing costs or otherwise. See "Risk
Factors -- Competition."

The Company believes that its ability to compete successfully in the
Internet services market depends on a number of factors, including market
presence; the adequacy of the Company's customer and technical support services;
the capacity, reliability and security of its network infrastructure; the ease
of access to and navigation of the Internet provided by the Company's services;
the pricing policies of the Company, its competitors and its suppliers; the
timing of introductions of new services by the Company and its competitors; the
Company's ability to support existing and emerging industry standards; and
industry and general economic trends. There can be no assurance that the Company
will have the financial resources, technical expertise or marketing and support
capabilities to compete successfully.

PROPRIETARY RIGHTS

GENERAL. The Company believes that its success is dependent in part on its
technology and its continuing right to use such technology. The Company relies
on a combination of copyright, trademark and trade secret laws and contractual
restrictions to establish and protect its technology. It is the Company's policy
to require employees and consultants and, when possible, suppliers to execute
confidentiality agreements upon the commencement of their relationships with the
Company. There can be no assurance that the steps taken by the Company will be
sufficient to prevent misappropriation of its technology and other proprietary
property or that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technology.

There can be no assurance that third parties will not assert that
EarthLink's services infringe their proprietary rights. From time to time, the
Company has received communications from third parties alleging that certain of
the names or marks for the Company's services infringe the trademarks of such
third parties. To date, no such claims have had an adverse effect on the
Company's ability to market and sell its services. However, there can be no
assurance that those claims will not have an adverse effect in the future or
that other parties will not assert infringement claims against the Company in
the future with respect to current or future services. Such claims could result
in substantial costs and diversion of resources even if ultimately decided in
favor of the Company and could have a material adverse effect on the Company,
particularly if judgments on such claims are adverse to the Company. In the
event a claim is asserted alleging that the Company has infringed the
intellectual property or information of a third party, the Company may be
required to seek licenses to continue to use such intellectual property. There
can be no assurance, however, that such licenses would be offered or obtained on
commercially reasonable terms, if at all, or that the terms of any offered
licenses will be acceptable to the Company. The failure to obtain the necessary
licenses or other rights could have a material adverse effect on the Company.

LICENSES. EarthLink has obtained authorization, typically in the form of a
license, to distribute third-party software incorporated in the EarthLink
Network TotalAccess software product for Windows 3.1, Windows 95 and Macintosh
platforms. Applications licensed by the Company include Netscape Navigator (the
initial term of the license for which expires in December 1997 and thereafter
automatically renews for additional one-year terms unless either party
terminates the license on 120 days notice), Microsoft Explorer (the initial term
of the license for which expires in August 1998 and thereafter automatically
renews for additional one-year terms, although either party may terminate the
license at any time on 30 days notice), and MacTCP software from Apple (the
current term of the license for which expires on December 31, 1997 thereafter
and automatically renews for additional one-year terms unless either party
terminates the license on twelve-month notice). The only software in the
EarthLink Network TotalAccess package that is developed by the Company is the
front-end program and the installation/registration program. The Company
currently

32
<PAGE>
intends to maintain or negotiate renewals of existing software licenses and
authorizations. The Company may want or need to license other applications in
the future. The failure to renew existing software licenses and authorizations
or license other applications could have a material adverse effect on the
Company.

TRADEMARKS. "EarthLink Network-Registered Trademark-," "EarthLink Network
TotalAccess-TM-," "bLink-TM-," "The Arena-TM-" and the EarthLink logo are
trademarks of the Company. This Prospectus includes trademarks of companies
other than the Company.

GOVERNMENT REGULATION

The Company provides Internet services, in part, through data transmissions
over public telephone lines. These transmissions are governed by regulatory
policies establishing charges and terms for wire line communications. The
Company currently is not subject to direct regulation by the FCC or any other
governmental agency, other than regulations applicable to businesses generally.
However, in the future the Company could become subject to regulation by the FCC
or another regulatory agency as a provider of basic telecommunications services.
For example, a number of long distance telephone carriers recently filed a
petition with the FCC seeking a declaration that Internet telephone service is a
"telecommunications service" subject to common carrier regulation. Such a
declaration, if enacted, would create substantial barriers to the Company's
entry into the Internet telephone market. The FCC has requested comments on this
petition, but has not set a deadline for issuing a final decision. Also, a
number of local telephone companies have asked the FCC to levy access charges on
"enhanced service providers," which may be deemed to include ISPs. Although the
Chairman of the FCC has indicated his opposition to levying service charges
against ISPs, local interconnection charges could be levied in the future.
Moreover, the public service commissions of certain states are exploring the
adoption of regulations that might subject ISPs to state regulation.

The recently enacted Telecommunications Act contains certain provisions that
lift, or establish procedures for lifting, certain restrictions relating to the
RBOCs' ability to engage directly in the Internet access business. The
Telecommunications Act also makes it easier for national long distance carriers
such as AT&T to offer local telephone service. In addition, the
Telecommunications Act allows the RBOCs to provide electronic publishing of
information and databases. Competition from these companies could have an
adverse effect on the Company's business. The Telecommunications Act also
imposes fines on any entity that knowingly (i) uses any interactive computer
service or telecommunications device to send obscene or indecent material to
minors; (ii) makes obscene or indecent material available to minors via an
interactive computer service; or (iii) permits any telecommunications facility
under such entity's control to be used for the purposes detailed above. The
standard for determining whether an entity acted "knowingly" has not yet been
established, although a federal district court panel recently issued a
preliminary injunction preventing enforcement of this part of the
Telecommunications Act. This decision has been appealed. See "Risk Factors --
Potential Liability."

Due to the increasing use of the Internet, it is possible that additional
laws and regulations may be adopted with respect to the Internet, covering
issues such as content, user privacy, pricing, libel, intellectual property
protection and infringement and technology export and other controls. Changes in
the regulatory environment relating to the Internet access industry, including
regulatory changes that directly or indirectly affect telecommunications costs
or increase the likelihood or scope of competition from regional telephone
companies or others, could have a material adverse effect on the Company. See
"Risk Factors -- Competition."

EMPLOYEES

As of September 30, 1996, the Company employed 463 people on a full-time
basis, including 92 sales and marketing personnel, 27 Web site and content
development personnel, 75 MIS and information technologies personnel, 197
customer and technical support representatives and 72 administrative personnel.
As of that date, the Company also employed 81 people on a part-time basis, most
of whom serve as telephone customer and technical support representatives. None
of the Company's employees are represented by a labor union, and the Company is
not a party to any collective bargaining agreement.

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FACILITIES

EarthLink's corporate headquarters are located in an 85,500-square foot
facility in Pasadena, California. The lease for this space expires June 30, 2001
and currently provides for rental payments of approximately $46,000 per month.
The Company has an option to extend this lease for an additional five years at
the then prevailing market rate. In addition to the Company's corporate
headquarters, the Company also leases approximately 7,200 square feet of office
space in Los Angeles that presently houses the Company's data center. The lease
for this space expires July 31, 1999 and currently provides for rental payments
of approximately $10,000 per month. EarthLink has signed a lease for an
additional 55,000 square feet in a facility located adjacent to its corporate
headquarters in which it plans to house its data center. The Company expects to
occupy this new space commencing February 1997 for an initial ten-year term at a
rent of $66,000 per month for the first 60 months and $77,000 per month for the
remaining 60 months. The Company has an option to extend this lease for an
additional ten years at the then prevailing market rate.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information concerning the Company's
executive officers and directors:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Sky D. Dayton............................. 25 Founder and Chairman of the Board of Directors
Charles G. Betty.......................... 39 President, Chief Executive Officer and Director
Barry W. Hall............................. 48 Vice President, Finance and Administration and Chief Financial
Officer
Robert E. Johnson, Jr..................... 44 Vice President, Sales and Marketing
David R. Tommela.......................... 57 Vice President, Operations
Brinton O.C. Young........................ 45 Vice President, Strategic Planning
Sidney Azeez (1).......................... 64 Director
Robert M. Kavner (1)...................... 53 Director
Linwood A. Lacy, Jr. (2).................. 51 Director
Paul McNulty.............................. 35 Director
Kevin M. O'Donnell (2).................... 46 Director
John W. Sidgmore.......................... 45 Director
Reed E. Slatkin (1)(2).................... 47 Director
</TABLE>

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

(1) Member of Audit Committee.

(2) Member of Compensation Committee.

SKY D. DAYTON, the founder of the Company, has served as Chairman of the
Board of Directors since the Company's inception in May 1994 and served as its
Chief Executive Officer from May 1994 until May 1996. From 1992 to 1993, he
served as co-owner of a computer-based digital imaging firm, Dayton Walker
Design. From 1991 to 1992, he served as Director of Marketing for new products
at Executive Software, a VAX/VMS utility software maker. From 1990 to 1994, Mr.
Dayton co-owned Cafe Mocha, a coffee house in Los Angeles, which he co-founded,
and was a co-owner of Joe Cafe, a coffee house in Studio City, California.

CHARLES G. BETTY has served as the President and as a director of the
Company since January 1996, and in May 1996, was named the Company's Chief
Executive Officer. From February 1994 to January 1996, Mr. Betty was a strategic
planning consultant, advising Reply Corp., Perot Systems Corporation and
Microdyne, Inc. From September 1989 to February 1994, Mr. Betty served as
President, Chief Executive Officer and a director of Digital Communications
Associates, Inc., a publicly traded network connectivity provider.

BARRY W. HALL has served as Vice President, Finance and Administration and
Chief Financial Officer of the Company since January 1996. From April 1994 to
December 1995, he was an independent management consultant. From 1989 to March
1994, Mr. Hall served as Chief Executive Officer and Chairman of California
Amplifier, Inc., a publicly traded manufacturer of microwave amplifiers. Prior
to joining California Amplifier, Inc., he served as Vice President of Finance
and Chief Financial Officer of Los Angeles Cellular Telephone Company. Mr. Hall
also worked for eight years as a certified public accountant with Arthur Young &
Company. He currently serves on the board of directors of Luther Medical
Products, Inc.

ROBERT E. JOHNSON, JR. has served as Vice President, Sales and Marketing of
the Company since February 1995. From June 1992 through January 1995, he served
as Vice President of Sales for Competence Software, Inc., a provider of
interactive training software. From 1982 to May 1992, he was employed by Real
World Software, Inc., a provider of accounting software, and served as its Vice
President of National Sales from 1990 to May 1992. In December 1994, Mr. Johnson
filed a voluntary bankruptcy petition which was dismissed in January 1996 when
Mr. Johnson and his creditors agreed upon a repayment plan.

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<PAGE>
DAVID R. TOMMELA has served as Vice President, Operations of the Company
since December 1995. From 1973 to August 1995, he served in various capacities
for, and ultimately as the Chief Information Officer of, Southern California
Edison Company, an electric power utility.

BRINTON O.C. YOUNG has served as Vice President, Strategic Planning of the
Company since March 1996. From 1990 to 1996, Mr. Young was President of Young &
Associates, a consulting firm specializing in strategic planning for high growth
companies.

SIDNEY AZEEZ has been a director of the Company since June 1996. During the
past five years, Mr. Azeez has been a private investor. Mr. Azeez founded
Ultronic Systems Corp., which produced a stock and commodity quotation system.
He also founded American Cellular Network, Inc. and Universal Telecell, Inc.
("Unitel"), cellular telephone companies, PCS, Inc., a wireless communications
company, and several banks in Colorado and New Jersey. Mr. Azeez is a director
of Unitel and Thermal Tech Development, Inc.

ROBERT M. KAVNER has been a director of the Company since June 1996. Since
September 1996, he has served as President and Chief Executive Officer of On
Command Corporation, a provider of on demand video for the hospitality industry.
From 1994 through August 1995, he was director of business advisory services for
Creative Artist Agency. From 1984 to 1994, Mr. Kavner held several senior
management positions at AT&T, including Senior Vice President and Chief
Financial Officer, Executive Vice President of the Communications Products
Group, Chief Executive Officer of the Multimedia Products and Services Group,
President of the Computer Division, Chairman of the UNIX Systems Laboratory,
Chairman of AT&T Capital Corporation, Chairman of AT&T Paradyne Corporation and
Chairman of AT&T Venture Capital Group. Mr. Kavner also served as a member of
AT&T's Executive Committee. Mr. Kavner serves as a director of Fleet Financial
Group, Ascent Entertainment, Inc. and Tandem Computers, Inc.

LINWOOD A. LACY, JR. has been a director of the Company since June 1996.
Since October 1996, he has served as President and Chief Executive Officer of
Micro Warehouse Incorporated. From 1989 to May 1996, he served as the
Co-Chairman and Chief Executive Officer of Ingram Micro, Inc., a microcomputer
products distributor and a then wholly-owned subsidiary of Ingram Industries
Inc. From December 1993 to June 1995, Mr. Lacy was also President of Ingram
Industries Inc. From June 1995 until April 1996, he was President and CEO of
Ingram Industries Inc., and from April 1996 to May 1996 served as its Vice
Chairman. Mr. Lacy serves as a director of Ingram Industries Inc., Entex
Information Services, Inc. and Micro Warehouse Incorporated.

PAUL MCNULTY has been a Director of the Company since November 1996. Mr.
McNulty has been a Managing Director of Soros Fund Management ("SFM"), a New
York-based investment firm, since January 1996, and was a Securities Analyst at
SFM from January 1993 until January 1996. Prior thereto, Mr. McNulty was
employed as an Associate at MVP Ventures, a venture capital firm in Boston,
Massachusetts.

KEVIN M. O'DONNELL, a co-founder of the Company, has been a director of the
Company since its inception. Mr. O'Donnell is President of O'Donnell &
Associates, a venture capital firm specializing in emerging high technology
companies. In 1982, Mr. O'Donnell founded Government Technology Services, Inc.,
a reseller of computer equipment to the federal government, and from 1982 to
1990 served as its Chairman, Chief Executive Officer and President.

JOHN W. SIDGMORE has served as a director of the Company since October 1996.
He has served as President and Chief Operating Officer of MFS Communications
Company, Inc. ("MFS") since August 1996 and as a director of MFS since October
1996. MFS was acquired by WorldCom, Inc. ("WorldCom") in December 1996, and
since December 31, 1996, Mr. Sidgmore has served as a director and as the Vice
Chairman and Chief Operations Officer of WorldCom. In addition, Mr. Sidgmore
served as Chief Executive Officer and a director of UUNET from June 1994 to the
present, and also held the position of President of UUNET from June 1994 to
August 1996 and from January 1997 to the present. In 1989, he became President
and Chief Executive Officer of Intelicom Solutions Corporation (currently CSC
Intelicom), a telecommunications software company. In 1991, this company was
sold to Computer Sciences Corporation, and he remained President and Chief
Executive Officer until June 1994. From 1975 to 1989, Mr. Sidgmore

36
<PAGE>
was employed by GEIS, where he was Vice President and General Manager of GEIS
North America from 1985 to 1989. Mr. Sidgmore is a director of Saville Systems
PLC, a provider of billing software for the telecommunications industry.

REED E. SLATKIN, a co-founder of the Company, has been a director of the
Company since its inception. Mr. Slatkin is a private investor and money manager
who has invested in public and private companies for the last 15 years. Mr.
Slatkin is a director of Havenwood Ventures, Inc.

BOARD OF DIRECTORS

Currently, all directors hold office until the next annual meeting of
stockholders and until their successors have been duly elected and qualified.
Following the first meeting of its stockholders subsequent to this Offering, and
provided that there are 800 or more beneficial owners of the Common Stock, the
Company anticipates that it will seek stockholder approval to divide its Board
into three classes, each serving a staggered three-year term. See "Description
of Capital Stock--Common Stock." The Board of Directors maintains an Audit
Committee and a Compensation Committee. The Audit Committee consists of Messrs.
Azeez, Kavner and Slatkin. The Audit Committee is responsible for making
recommendations to the Board regarding the selection of independent auditors,
reviews the results and scope of audits and other services provided by the
Company's independent auditors and reviews and evaluates the Company's internal
audit and control functions. The Compensation Committee consists of Messrs.
Lacy, O'Donnell and Slatkin. The Compensation Committee is responsible for
setting cash and long-term incentive compensation for executive officers and
other key employees of the Company. The Compensation Committee also administers
the Company's 1995 Stock Option Plan.

The holders of the Company's outstanding Series A Convertible Preferred
Stock have the right to elect one director. Mr. McNulty was elected by the
holders of the Series A Convertible Preferred Stock. All outstanding shares of
the Series A Convertible Preferred Stock will automatically be converted into
Common Stock upon consummation of this Offering. In addition, pursuant to the
Note Purchase Agreement with UUNET, the Company agreed to fill a vacancy on the
Board of Directors with a designee of UUNET. Mr. Sidgmore has been designated by
UUNET pursuant to this provision.

TECHNOLOGY ADVISORY COUNCIL

The Company has established a Technology Advisory Council, the purpose of
which is to help the Company predict and overcome long-range technology barriers
and to help the Company attract talented engineers and technology executives.
The Council is chaired by Mr. Dayton, and it is intended that the Council meet
at least quarterly. Except for Mr. Dayton, the members received warrants to
purchase 7,500 shares of Common Stock which vest in equal quarterly increments
over two years and have an exercise price of $11.00 per share. Presently, the
Council consists of the following three members in addition to Mr. Dayton:

DAVID FARBER is an Alfred Fitler Moore Professor of Telecommunications
Systems holding appointments in the Computer and Information Science and
Electrical Engineering Departments at the University of Pennsylvania and is the
Director of the Center for Communications and Information Science and Policy.
Mr. Farber is a member of the boards of trustees of the Internet Society and the
Electronic Fronteir Foundation.

DR. PHILIP M. NECHES is recently retired as Group Technical Officer,
Multimedia Products Group of Lucent Technologies, Inc. He has served as Senior
Vice President and Chief Scientist of NCR Corp. and was Group Technical Officer
for NCR Corp. after its acquisition by AT&T in 1991. Dr. Neches co-founded
Teradata Corporation, a company engaged in commercial parallel computing and
large-scale relational database management systems, and served as its Vice
President and Chief Scientist.

DR. ARNO PENZIAS, a 1978 Nobel Prize recipient, is Chief Scientist at Lucent
Technologies, Inc. Previously he was head of research at Bell Laboratories.

37
<PAGE>
DIRECTOR COMPENSATION

Directors do not receive cash compensation for serving in that capacity, but
are reimbursed for the expenses they incur in attending meetings of the Board or
committees thereof. Non-employee directors are eligible to receive options to
purchase Common Stock awarded under the Company's Directors Stock Option Plan.
See "-- Directors Stock Option Plan."

EXECUTIVE COMPENSATION

The following table sets forth the total compensation, for the years ended
December 31, 1995 and 1996, of each individual who served as the Chief Executive
Officer of the Company during 1996 and each of the four other most highly
compensated executive officers of the Company for 1996. These individuals are
hereinafter referred to as the "Named Officers."

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------------
ANNUAL COMPENSATION SECURITIES
NAME AND -------------------------- UNDERLYING OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (1) (#) COMPENSATION
- ----------------------------------------- --------- ----------- ------------- ------------------- -------------
<S> <C> <C> <C> <C> <C>
Sky Dayton .............................. 1996 $ 153,036 $ 70,006 -- --
Chairman (2) 1995 97,726 16,573 250,000 --
Charles G. Betty ........................ 1996 220,550 77,635 250,000 $ 24,000(3)
President and Chief Executive Officer 1995 -- -- -- --
(2)
Barry W. Hall ........................... 1996 121,567 32,092 75,000 --
Vice President, Finance and 1995 -- -- -- --
Administration and Chief Financial
Officer
David R. Tommela ........................ 1996 130,392 34,439 12,500 --
Vice President, Operations 1995 8,862 -- 37,500 --
Robert E. Johnson, Jr. .................. 1996 100,000 111,162(4) -- --
Vice President, Sales and Marketing 1995 87,578 21,646(4) 50,000 --
Brinton O.C. Young ...................... 1996 73,681 18,409 112,500 --
Vice President, Strategic Planning 1995 -- -- -- --
</TABLE>

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

(1) Except for the bonus amounts shown for Mr. Johnson, all bonus amounts for
1996 represent the maximum potential bonus subject to approval and potential
reduction by the Company's Board of Directors.

(2) Mr. Dayton served as the Company's President until January 15, 1996 when Mr.
Betty's employment commenced. Mr. Dayton served as the Company's Chief
Executive Officer until May 7, 1996 when Mr. Betty was appointed to that
position.

(3) Consists of reimbursement of travel expenses pursuant to Mr. Betty's
employment agreement.

(4) The bonus amounts shown for Mr. Johnson represent sales commissions.

38
<PAGE>
STOCK OPTION INFORMATION

The following table sets forth certain information regarding options granted
in 1996 to the executive officers named in the Summary Compensation Table above.

OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERMS (5)
OPTIONS IN FISCAL PRICE EXPIRATION ----------------------------
NAME GRANTED (#) YEAR ($/SH) DATE 5% 10%
- -------------------------- ----------- ------------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sky D. Dayton............. -- -- -- -- -- --
Charles G. Betty.......... 175,000(1) 20.6% $ 4.84 1/14/06 $ 2,858,735 $ 5,053,764
75,000(2) 8.8 11.00 9/23/06 763,172 1,703,899
Barry W. Hall............. 50,000(3) 5.9 4.84 1/07/06 816,782 1,443,933
25,000(4) 2.9 9.76 5/06/06 285,391 598,966
David R. Tommela.......... 12,500(4) 1.5 9.76 5/06/06 142,695 299,483
Robert E. Johnson, Jr..... -- -- -- -- -- --
Brinton O.C. Young........ 112,500(4) 13.3 9.76 5/06/06 1,284,258 2,695,348
</TABLE>

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

(1) Vest in equal increments of 5% per quarter over the five-year period
beginning on the date of grant, January 15, 1996.

(2) Vest in equal increments of 5% per quarter over the five-year period
beginning on the date of grant, September 24, 1996.

(3) Vest in equal increments of 5% per quarter over the five-year period
beginning on the date of grant, January 8, 1996.

(4) Vest in equal increments of 5% per quarter over the five-year period
beginning on the date of grant May 7, 1996.

(5) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date based upon an assumed offering price of $13.00 per
share. These assumptions are not intended to forecast future appreciation
of the Company's stock price. The potential realizable value computation
does not take into account federal or state income tax consequences of
option exercises or sales of appreciated stock.

The following table sets forth certain information regarding stock options
held at December 31, 1996 by the executive officers named in the Executive
Compensation section above. None of these options has been exercised.

OPTION VALUES AS OF DECEMBER 31, 1996

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS (1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Sky D. Dayton............................................. 75,000 175,000 $ 839,250 $ 1,958,250
Charles G. Betty.......................................... 30,000 220,000 221,700 1,356,300
Barry W. Hall............................................. 10,000 65,000 69,300 419,700
David R. Tommela.......................................... 8,750 41,250 65,250 281,250
Robert E. Johnson, Jr..................................... 15,000 35,000 167,850 391,650
Brinton O.C. Young........................................ 11,250 101,250 36,450 328,050
</TABLE>

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

(1) The value of "in-the-money" options represents the difference between the
exercise price of stock options and the initial public offering price of
$13.00.

EMPLOYMENT AGREEMENT

In January 1996, the Company entered into a two-year employment agreement
with Mr. Charles G. Betty. Under this agreement, the Company agreed to employ
Mr. Betty as its President and Chief Operating Officer at a salary of $225,000
per year plus a $24,000 a year travel allowance for Mr. Betty and his family and
such other benefits as are generally made available to other senior executives
of the Company. In May 1996,

39
<PAGE>
Mr. Betty was named the Company's Chief Executive Officer. Pursuant to his
employment agreement, Mr. Betty was also guaranteed a bonus of at least $37,500
for 1996 and was eligible to earn up to an additional $37,500 for 1996 if the
Company had a specified number of customers by year-end. The agreement further
entitles Mr. Betty, upon the attainment of performance goals, to an annual bonus
of $75,000. In addition, the agreement provides that (i) if Mr. Betty is
terminated by the Company other than for "cause" or "total disability," as
defined in the agreement, (ii) if the Company elects not to extend the term of
the employment agreement at the end of the first two-year term or any yearly
extension or (iii) if Mr. Betty terminates his employment because of a breach of
the employment agreement by the Company, he is entitled to severance
compensation equal to 100% of his then-current annual salary. In connection with
entering into the employment agreement, Mr. Betty purchased 25,000 shares of the
Common Stock at $4.84 per share, and also was granted options to purchase an
additional 175,000 shares of Common Stock at an exercise price of $4.84 per
share. In addition, in September 1996, Mr. Betty was granted options to purchase
an additional 75,000 shares of Common Stock at an exercise price of $11.00 per
share. All of Mr. Betty's options vest in equal quarterly increments of 5%
during the five-year period beginning on the respective dates of grant, January
15, 1996 and September 24, 1996. In the event of a "change in control," as
defined in the agreement, the termination of Mr. Betty by the Company other than
for cause or if Mr. Betty terminates his employment because of a breach of the
agreement by the Company, all unvested options held by Mr. Betty will vest
immediately.

1995 STOCK OPTION PLAN AND OTHER OPTION AND WARRANT ISSUANCES

The EarthLink Network 1995 Stock Option Plan (the "1995 Plan") provides for
the grant of incentive stock options to employees of the Company within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and
non-qualified stock options to employees, officers, directors and consultants of
the Company. The 1995 Plan is administered by the Compensation Committee of the
Board of Directors, which determines the terms of the options granted, including
the exercise price, the number of shares subject to option and the option
vesting period. The exercise price of all options granted under the plan must be
at least 85% of the fair market value (for non-qualified stock options) or 100%
of the fair market value (for incentive stock options) as of the date of grant.
As of September 30, 1996, options to purchase 1,028,250 shares of Common Stock
were outstanding under the 1995 Plan. In addition, as of that date the Company
had issued non-plan options and warrants to purchase an aggregate of 1,331,438
shares of Common Stock at exercise prices ranging from $0.60 to $20.00 per
share.

DIRECTORS STOCK OPTION PLAN AND OTHER DIRECTOR OPTION ISSUANCES

Under the Amended and Restated EarthLink Network, Inc. Stock Option Plan for
Directors (the "Directors Plan"), options to purchase 62,500 shares of Common
Stock may be granted to directors who do not also serve as employees of the
Company and do not beneficially own, nor are employees, directors or officers of
any entity that beneficially owns, 5% or more of the outstanding shares of the
Company's capital stock. Under the Directors Plan, grants of options to purchase
10,000 and 2,500 shares of Common Stock are automatically made to each
non-management director at the time such person first becomes a member of the
Board of Directors and at the beginning of each fiscal year of the Company,
respectively. As of September 30, 1996, there were no options to purchase shares
of Common Stock outstanding under the Directors Plan.

Prior to the adoption by the Board of Directors of the Directors Plan, the
Company issued to each of Messrs. Kavner and Lacy warrants to purchase 50,000
shares of Common Stock at an exercise price of $4.84 per share, the amount then
determined by the Board of Directors to constitute fair market value, in
consideration of Messrs. Kavner's and Lacy's agreement to serve on the Board of
Directors. These warrants vest over a five-year period from January 12, 1996,
the date of grant.

40
<PAGE>
CERTAIN TRANSACTIONS

Kevin M. O'Donnell and Reed E. Slatkin are members of the Board of Directors
of the Company, and each owns more than five percent of the Company's
outstanding Common Stock. Messrs. O'Donnell and Slatkin have participated in the
Company's financing since inception, as described below.

In December 1994, Messrs. Slatkin and O'Donnell provided a $400,000 credit
line to the Company for which each of them received warrants to purchase 75,000
shares of Common Stock at an exercise price of $1.81 per share, the amount then
determined by the Board of Directors to constitute the fair market value of the
Common Stock. Indebtedness outstanding under this line bore interest at 8.1% per
annum. The maximum amount outstanding under this line was approximately
$383,200, which was repaid in full in September 1995.

In August 1995 and January 1996, Mr. Slatkin agreed to act as lessee
together with the Company under equipment leases of $500,000 and $1.5 million,
respectively. As consideration for this agreement, the Company issued Mr.
Slatkin warrants to purchase 50,000 shares of Common Stock at an exercise price
of $1.81 per share and 100,000 shares of Common Stock at an exercise price of
$4.84 per share, the amount then determined by the Board of Directors to
constitute the fair market value as of August 1995 and January 1996,
respectively. The Company and Mr. O'Donnell subsequently agreed to indemnify Mr.
Slatkin against certain liability arising out of these leases. As consideration
for this agreement, Mr. Slatkin transferred one-half of these warrants to Mr.
O'Donnell.

In December 1995, Mr. Slatkin guaranteed a $250,000 letter of credit as
security for the Company's lease of its Pasadena facility. In return, he
received warrants to purchase 50,000 shares of Common Stock at an exercise price
of $4.84 per share, the amount then determined by the Board of Directors to
constitute the fair market value of the Common Stock. The Company and Mr.
O'Donnell subsequently agreed to indemnify Mr. Slatkin with respect to certain
liability arising out of the letter of credit. As consideration for this
agreement, Mr. Slatkin transferred to Mr. O'Donnell one-half of these warrants.

In addition, the Company and Messrs. Dayton, O'Donnell and Slatkin are
parties to a Buy-Sell Agreement pursuant to which the Company has the first
right of refusal upon sale or transfer of shares of Common Stock by such
persons. The right will expire upon consummation of this Offering. See Note 7 to
Notes to Financial Statements.

From time to time since the Company's inception, the Company's officers,
directors and more than five percent stockholders (including certain of their
family members and affiliates) have purchased shares of Common Stock at the
weighted average per share purchase prices as follows: Charles G. Betty, 25,000
shares, $4.84 per share; Sky D. Dayton, 1,500,000 shares, $.0006 per share;
Sidney Azeez, 522,457 shares, $6.26 per share; Linwood A. Lacy, Jr., 24,810
shares, $4.84 per share; Robert M. Kavner, 20,675 shares, $4.84 per share;
Robert London, 372,032 shares, $2.16 per share; Kevin M. O'Donnell, 942,152
shares, $.84 per share; Reed E. Slatkin, 942,157 shares, $.84 per share; and
Storie Partners, L.P., 415,598 shares, $6.26 per share.

In June 1996, the Company issued $2,950,000 of its 10% Promissory Notes to
17 purchasers, including certain of its directors and more than five percent
stockholders. In connection with this financing, and as additional consideration
for the investment of these purchasers, the Company also issued warrants to
purchase 98,340 shares of Common Stock having an exercise price of $11.00 per
share. The 10% Promissory Notes are due on or before June 6, 1997 with interest
payable monthly until such date. The warrants are exerciseable for five years
commencing on the date of issuance.

The holders of $725,000 of the 10% Promissory Notes including Messrs.
Slatkin and Abbott and Storie Partners, L.P., have agreed to convert their
indebtedness into 55,767 shares of Common Stock upon consummation of this
Offering.

The following directors and more than five percent stockholders participated
in this financing: Sidney Azeez, $200,000 note, 6,667 warrants; Robert M.
Kavner, $100,000 note, 3,334 warrants; Robert S. London, $200,000 note, 6,667
warrants; Kevin M. O'Donnell, $225,000 note, 7,500 warrants; Reed E. Slatkin,
$225,000 note, 7,500 warrants; and Storie Partners, L.P., $300,000 note, 10,000
warrants.

41
<PAGE>
In September 1996, the Company sold 2,727,273 shares of its Series A
Convertible Preferred Stock to certain purchasers, including, among others,
certain directors, stockholders, the Underwriter and certain of its associates
for approximately $15,000,000 in the aggregate. In connection with this
transaction, Quantum Industrial Partners LDC and persons and entities associated
with or employed by Soros Fund Management ("SFM") received warrants to purchase
up to 100,000 shares of Common Stock at an exercise price of $11.00 per share.
Each two shares of Series A Convertible Preferred Stock will automatically
convert into one share of Common Stock upon the consummation of this Offering.

The following directors and more than five percent stockholders (including
certain of their family members and affiliates) participated in this financing
(share numbers reflect shares of Common Stock to be issued upon conversion of
the Series A Convertible Preferred Stock): Quantum Industrial Partners LDC
(933,063 shares of Common Stock and 95,300 shares of Common Stock underlying
warrants, which includes 214,545 shares of Common Stock and warrants to purchase
23,600 shares of Common Stock held by George Soros, who may be deemed to have
sole and ultimate control over SFM, in which Quantum Industrial Partners LDC has
vested investment discretion with respect to its portfolio investments, and
45,455 shares of Common Stock and 5,000 shares of Common Stock underlying
warrants held by trusts established for the benefit of certain children of Mr.
Soros); Storie Partners, L.P. (90,909 shares of Common Stock); Reed E. Slatkin
(39,273 shares of Common Stock); Sidney Azeez (15,000 shares of Common Stock);
Linwood A. Lacy, Jr. (10,000 shares of Common Stock); Robert S. London (10,000
shares of Common Stock); Paul McNulty (454 shares of Common Stock and 50 shares
of Common Stock underlying warrants); Kevin M. O'Donnell (10,000 shares of
Common Stock); and Charles G. Betty (5,000 shares of Common Stock).

John W. Sidgmore, a member of the Company's Board of Directors, also serves
as a director and as President and Chief Executive Officer of UUNET and as a
director and Vice Chairman and Chief Operations Officer of UUNET's corporate
parent, WorldCom. UUNET is the Company's primary provider of POP capacity. In
connection with the Company's and UUNET's execution of a new network services
agreement in May 1996, the Company agreed to issue warrants to UUNET to purchase
10,000 shares of Common Stock having an exercise price of $20.00 per share.

In connection with an amendment to the Company's network services agreement
with UUNET, the Company issued a $5.0 million, one-year promissory note to UUNET
and filled a vacancy on the Board of Directors with a designate of UUNET, John
W. Sidgmore. This note bears interest at prime plus 2% per annum (an effective
rate of 10.25% per annum at December 1, 1996), and will be convertible upon
consummation of this Offering into a maximum of 382,000 shares of Common Stock
at a conversion price at between $13.20 and $16.00 per share, depending on the
number of shares of Common Stock, if any, purchased in this Offering by certain
investors referred to two paragraphs above, and the public offering price of the
Common Stock in this Offering. The Company also granted UUNET registration
rights identical to those presently held by most of the Company's existing
stockholders. For the year ended December 31, 1995 and the nine-month period
ended September 30, 1996, EarthLink paid UUNET approximately $52,000 and
approximately $2.0 million for network services.

Linwood A. Lacy, Jr., a member of the Company's Board of Directors, also
serves as President and Chief Executive Officer of Micro Warehouse Incorporated
("Micro Warehouse"), one of the Company's affinity marketing partners. For the
nine-month period ended September 30, 1996, the Company paid Micro Warehouse
approximately $35,000 in bounties for new Company customers generated by Micro
Warehouse.

The Company believes that the foregoing transactions were on terms no less
favorable to the Company than could be obtained from unaffiliated parties. It is
the Company's current policy that all transactions by the Company with officers,
directors, more than five percent stockholders and their affiliates will be
entered into only if such transactions are approved by a majority of
disinterested independent directors and are on terms such directors believe are
no less favorable to the Company than could be obtained from unaffiliated
parties.

42
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of December 31, 1996 by (i) each
person or entity who is known by the Company to own beneficially more than five
percent of the Common Stock, (ii) each of the Company's directors and executive
officers, and (iii) all directors and executive officers of the Company as a
group. This table gives effect to the automatic conversion, upon consummation of
this Offering, of all of the Company's outstanding Series A Convertible
Preferred Stock and includes options, warrants and other convertible securities
that are exercisable or convertible within 60 days of December 31, 1996.

<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY SHARES BENEFICIALLY OWNED
OWNED PRIOR TO -------------------------
AND AFTER THE BEFORE THE AFTER THE
NAME AND ADDRESS OF BENEFICIAL OWNERS (1) OFFERING OFFERING OFFERING
- ---------------------------------------------------------------- ---------------- ---------- ----------
<S> <C> <C> <C>
Sky D. Dayton................................................... 1,575,000(2) 21.0% 16.5%
Kevin M. O'Donnell.............................................. 1,134,690(3) 14.9 11.8
Reed E. Slatkin................................................. 1,181,237(4) 15.5 12.3
Sidney Azeez.................................................... 544,124(5) 7.3 5.8
Charles G. Betty................................................ 70,799(6) * *
Linwood A. Lacy, Jr............................................. 44,810(7) * *
Robert M. Kavner................................................ 34,009(8) * *
Robert E. Johnson, Jr........................................... 15,000(9) * *
John W. Sidgmore................................................ 392,000(10) 5.0 4.0
Paul McNulty.................................................... 504(11) * *
Brinton O.C. Young.............................................. 26,875(12) * *
Barry W. Hall................................................... 13,750(13) * *
David R. Tommela................................................ 9,375(14) * *
Quantum Industrial Partners LDC................................. 673,063(15) 9.0 7.1
c/o Curacao Corporation Company N.V.
Kaya Flamboyan 9
Willemstad, Curacao
Netherlands Antilles
UUNET Technologies, Inc......................................... 392,000(16) 5.0 4.0
3060 Williams Drive
Fairfax, Virginia 22031
Storie Partners, L.P............................................ 529,583 7.1 5.6
One Bush Street
San Francisco, CA 94104
Robert S. London................................................ 388,699(17) 5.2 4.1
Cruttenden Roth Incorporated
809 Presidio Ave.
Santa Barbara, CA 93101
All directors and executive officers as a group (13 persons).... 5,042,173(18) 60.0% 48.5%
<FN>
- ------------
</TABLE>

* Represents beneficial ownership of less than 1% of the Common Stock.
(1) Except as otherwise indicated by footnote, the named person has sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned.
(2) Includes options to purchase 75,000 shares of Common Stock. Mr. Dayton's
address is that of the Company.
(3) Includes (i) 7,538 shares of Common Stock held by Mr. O'Donnell's son, (ii)
warrants to purchase 182,500 shares of Common Stock, and (iii) options to
purchase 38 shares of Common Stock held by Mr. O'Donnell's son. Mr.
O'Donnell disclaims beneficial ownership of the shares of Common Stock held
by his son and the shares of Common Stock issuable upon exercise of options
held by his son. Mr. O'Donnell's address is 9933 Beverly Grove Drive,
Beverly Hills, California 90210.
(4) Includes (i) warrants to purchase 182,500 shares of Common Stock and (ii)
7,428 shares of Common Stock held in trust for Mr. Slatkin's minor children.
Mr. Slatkin's address is 890 N. Kellog Avenue, Santa Barbara, California
93111.
(5) Includes (i) 302,861 shares of Common Stock held by Mr. Azeez's family and
(ii) warrants to purchase 6,667 shares of Common Stock. The address of Mr.
Azeez is c/o Unitel Cellular Communications Systems, Bayport One, Suite 400,
West Atlantic City, New Jersey 08232.
(6) Includes (i) options to purchase 38,750 shares of Common Stock and (ii)
2,049 shares of Common Stock held by Mr. Betty's father-in-law and
mother-in-law of which Mr. Betty disclaims beneficial ownership.
(7) Includes warrants to purchase 10,000 shares of Common Stock.
(8) Includes warrants to purchase 13,334 shares of Common Stock.
(9) Includes options to purchase 15,000 shares of Common Stock.
(10) Includes 10,000 shares of Common Stock issuable upon the exercise of
warrants and up to 382,000 shares of Common Stock issuable upon the
conversion of outstanding indebtedness. Mr. Sidgmore is Chief Executive
Officer and a director of UUNET and shares voting and investment power with
the other UUNET directors.
(11) Includes warrants to purchase 50 shares of Common Stock.
(12) Includes options to purchase 16,875 shares of Common Stock.
(13) Includes options to purchase 13,750 shares of Common Stock.
(14) Includes options to purchase 9,375 shares of Common Stock.

43
<PAGE>
(15) Includes warrants to purchase 66,700 shares of Common Stock. Quantum
Industrial Partners LDC ("Quantum Industrial") has vested investment
discretion with respect to its portfolio investments, including the Common
Stock, in SFM, a sole proprietorship of Mr. George Soros, over which Mr.
Soros may be deemed to have sole and ultimate control. Mr. Soros may be
deemed to be the beneficial owner of the Common Stock held by Quantum
Industrial. The shares shown exclude 214,545 shares of Common Stock and
warrants to purchase 23,600 shares of Common Stock held directly by Mr.
Soros and 45,455 shares of Common Stock and warrants to purchase 5,000
shares of Common Stock held by trusts established for the benefit of certain
children of Mr. Soros. The shares shown also exclude 42,727 shares of Common
Stock and warrants to purchase 4,700 shares of Common Stock held by certain
managing directors and other employees of SFM, of which Mr. Soros disclaims
beneficial ownership.
(16) Includes 10,000 shares of Common Stock issuable upon the exercise of
warrants and up to 382,000 shares of Common Stock issuable upon the
conversion of outstanding indebtedness.
(17) Includes warrants to purchase 6,667 shares of Common Stock.
(18) Includes (i) options and warrants to purchase 573,839 shares of Common
Stock and (ii) 319,876 shares of Common Stock owned by family members or
affiliates of certain members of the group, (iii) options and warrants held
by family members or affiliates of certain members of the group to purchase
38 shares of Common Stock and (iv) up to 382,000 shares of Common Stock
issuable upon the conversion of outstanding indebtedness held by UUNET, of
which Mr. Sidgmore serves as Chief Executive Officer and a director.

44
<PAGE>
DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of (i) 50 million
shares of Common Stock, $0.01 par value per share, and (ii) 10 million shares of
Preferred Stock, $0.01 par value per share, of which there is one authorized
series, Series A Convertible Preferred Stock, consisting of 2,727,273 authorized
shares. As of September 30, 1996, there were 6,022,724 shares of Common Stock
outstanding and 2,727,273 shares of Series A Convertible Preferred Stock. The
shares of Series A Convertible Preferred Stock will automatically convert into
1,363,624 shares of Common Stock upon consummation of this Offering. In
addition, the holders of $725,000 of the Company's outstanding indebtedness have
agreed to convert such indebtedness into 55,767 shares of Common Stock upon
consummation of this Offering. The following summary is qualified in its
entirety by reference to the Company's Amended and Restated Certificate of
Incorporation, which is filed as an exhibit to the Registration Statement of
which this Prospectus is a part.

COMMON STOCK

Under the Delaware General Corporation Law and the Company's Amended and
Restated Certificate of Incorporation, holders of Common Stock are entitled to
one vote per share on all matters submitted to a vote of the stockholders,
including the election of directors. The Company's Amended and Restated
Certificate of Incorporation provides for cumulative voting rights in the
election of directors, meaning that in such elections (i) each stockholder is
entitled to cast such number of votes as is equal to the product of the number
of shares owned by such stockholder multiplied by the number of directors
standing for election and (ii) each stockholder may cast all of such votes for a
single director or may distribute them among any two or more candidates for
election as such stockholder chooses. Following the first meeting of its
stockholders subsequent to this Offering, and provided that there are 800 or
more beneficial owners of the Common Stock, the Company anticipates that it will
seek stockholder approval to eliminate cumulative voting. The Common Stock
carries no preemptive rights and is not convertible, redeemable or assessable.
The holders of Common Stock are entitled to dividends in such amounts and at
such times as may be declared by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." Upon the liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to receive
ratably the net assets of the Company available after payment or provision for
payment of all debts and other liabilities subject to prior rights of holders of
Preferred Stock then outstanding, if any. All shares of Common Stock outstanding
immediately following this Offering will be fully paid and non-assessable.

Pursuant to Section 2115 of the California Corporations Code (the
"California Law"), a corporation incorporated in a state other than California
(such as the Company, which is incorporated in Delaware) may nevertheless be
subject to certain of the provisions of the California Law (as specified in
Section 2115 of the California Law) applicable to California corporations
(commonly designated a "Quasi-California Corporation") if more than one-half of
its outstanding voting securities are owned of record by persons having
addresses in California and more than half of its business is conducted in
California (generally, the average of its property factor, payroll factor and
sales factor (as defined in Sections 25129, 25132 and 25134 of the California
Revenue and Taxation Code) is more than 50 percent during its latest full income
year). Such a foreign corporation will not be treated as a Quasi-California
Corporation, however, if it has outstanding securities trading on the Nasdaq
National Market and has at least 800 holders of its equity securities as of the
record date of its most recent annual shareholders' meeting. Prior to this
Offering, a substantial majority of the Company's outstanding voting securities
were owned of record by persons having addresses in California. It is expected
that such percentage will be reduced as a result of this Offering. To the
extent, however, that the Company meets the requirements set forth in Section
2115 of the California Law, the Company could become a Quasi-California
Corporation subject to the California Law which, among other things, requires
cumulative voting and is more restrictive than the Delaware General Corporation
Law concerning dividends and other distributions to stockholders and, generally
with respect to a Quasi-California Corporation, does not permit classification
of the Board of Directors.

45
<PAGE>
PREFERRED STOCK

The Company's Amended and Restated Certificate of Incorporation authorizes
the issuance of 10 million shares of Preferred Stock, all of which will be
available for future issuance upon consummation of this Offering. Preferred
Stock may be issued from time to time in one or more series, and the Board of
Directors, without further approval of the stockholders, is authorized to fix
the dividend rights and terms, conversion rights, voting rights, redemption
rights and terms, liquidation preferences, sinking funds and any other rights,
preferences, privileges and restrictions applicable to each such series of
Preferred Stock. The issuance of Preferred Stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could, among
other things, adversely affect the voting power of the holders of Common Stock
and, under certain circumstances, make it more difficult for a third party to
gain control of the Company, discourage bids for the Common Stock at a premium,
or otherwise adversely affect the market price of the Common Stock.

CERTAIN CHARTER AND BYLAW PROVISIONS

Following the consummation of this Offering, the Company will be subject to
the "business combination" statute of the Delaware General Corporation Law. This
statute prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner,
such as the approval of a majority of certain members of the Board of Directors.
The term "business combination" includes mergers and stock and asset sales. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock. The effect of this statute could, among other
things, make it more difficult for a third party to gain control of the Company,
discourage bids for the Common Stock at a premium or otherwise adversely affect
the market price of the Common Stock.

LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY; INDEMNIFICATION

The Company has included in its Amended and Restated Certificate of
Incorporation provisions that limit the personal liability of its officers and
directors for monetary damages for breach of their fiduciary duty of directors,
except for liability that cannot be eliminated under the Delaware General
Corporation Law. The Amended and Restated Certificate of Incorporation provides
that, to the fullest extent provided by the Delaware General Corporation Law,
directors of the Company will not be personally liable for monetary damages for
breach of their fiduciary duty as directors. The Delaware General Corporation
Law does not permit a provision in a corporation's certificate of incorporation
that would eliminate such liability (i) for any breach of their duty of loyalty
to the Company or its stockholders, (ii) for acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law, (iii) for
any unlawful payment of a dividend or unlawful stock repurchase or redemption,
as provided in Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived an improper personal benefit.

While these provisions provide directors with protection from awards for
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions described above apply to an
officer of a corporation only if he or she is a director of such corporation and
is acting in his or her capacity as director, and do not apply to the officers
of the corporation who are not directors.

The Company's Bylaws provide that, to the fullest extent permitted by the
Delaware General Corporation Law, the Company may indemnify its directors,
officers and employees. The Bylaws further provide that the Company may
similarly indemnify its other employees and agents. In addition, the Company
anticipates that each director will enter into an indemnification agreement with
the Company pursuant to which the Company will indemnify such director to the
fullest extent permitted by the Delaware General Corporation

46
<PAGE>
Law. At present, there is no pending litigation or proceeding involving a
director or officer of the Company in which indemnification is required or
permitted, and the Company is not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification.

REGISTRATION RIGHTS

The holders of substantially all of the shares of Common Stock and all of
the shares of Series A Convertible Preferred Stock outstanding prior to this
Offering (including the Company's founder and Chairman of the Board and its
President and Chief Executive Officer) as well as certain holders of warrants
and convertible debt are parties to registration rights agreements with the
Company. These agreements provide incidental or "piggyback" registration rights
that allow such holders, under certain circumstances, to include shares of
Common Stock in registration statements initiated by the Company or other
stockholders. These agreements also permit demand registrations on Form S-3
registration statements at such time when the Company is eligible to register
its capital stock on such form. These agreements do not permit holders of
registration rights to include their shares of Common Stock in this Offering. In
addition, the Company has agreed to register 20,000 shares of Common Stock to be
issued pursuant to a consulting agreement in equal increments in January 1998
and January 1999. See "Shares Eligible for Future Sale."

TRANSFER AGENT AND REGISTRAR

The Company's Transfer Agent and Registrar is American Stock Transfer &
Trust Company.

47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Prior to this Offering, there has been no market for the Common Stock.
Future sales of substantial amounts of Common Stock in the public market could
adversely affect market prices prevailing from time to time. Sales of
substantial amounts of Common Stock in the public market after various
restrictions lapse could adversely affect the prevailing market price and the
ability of the Company to raise equity capital in the future.

Upon the completion of this Offering, 9,442,115 shares of Common Stock will
be outstanding. Of these shares, the 2,000,000 shares of Common Stock sold in
this Offering will be freely tradable without restriction under the Securities
Act, except that shares purchased by "affiliates" of the Company, as that term
is defined in Rule 144 under the Securities Act, may generally be sold only in
compliance with the limitations of Rule 144.

The remaining 7,442,115 shares were issued and sold by the Company in
private transactions and may be publicly sold only if registered under the
Securities Act or sold in accordance with an applicable exemption from
registration, such as those provided under Rules 144 and 701 under the
Securities Act. Of such shares, 2,220,590 shares will be immediately available
for sale upon completion of this Offering (subject to the volume limitations of
Rule 144) and 2,054,815 shares will become eligible for sale during 1997.
However, the holders of 7,362,056 shares of Common Stock (including shares of
Common Stock issuable upon conversion of the Series A Convertible Preferred
Stock) and warrants, options and convertible debt securities exercisable or
convertible into an aggregate of 2,154,801 shares of Common Stock (including all
of the Company's directors and officers) have entered into lock-up agreements
under which they have agreed not to offer, sell or otherwise dispose of any such
shares of Common Stock, any such options or warrants to acquire shares of Common
Stock or any such securities convertible into shares of Common Stock (or any
shares of Common Stock issuable upon exercise or conversion of such securities)
owned by them for a period of one year after the date of this Prospectus,
without the prior written consent of the Underwriter. The Company has entered
into a similar agreement, except that the Company may grant additional options
under its 1995 Stock Option Plan or issue shares of Common Stock under
outstanding options, warrants and convertible securities.

The holders of substantially all of the shares of the shares of Common Stock
and all of the shares of Series A Convertible Preferred Stock outstanding prior
to this Offering (including the Company's founder and Chairman and its President
and Chief Executive Officer) as well as certain holders of warrants and
convertible debt are parties to registration rights agreements with the Company
that provide incidental or "piggyback" registration rights that allow such
holders, under certain circumstances, to include shares of Common Stock in
registration statements initiated by the Company or other stockholders. Such
registration rights agreements also permit demand registrations on Form S-3
registration statements at such time as the Company is eligible to register
securities on such form. The number of shares sold in the public market could
increase if such rights are exercised. See "Description of Capital Stock --
Registration Rights."

Approximately 90 days after the date of this Prospectus, the Company intends
to file a Registration Statement on Form S-8 covering shares issuable under the
Company's 1995 Stock Option Plan (including shares subject to then outstanding
options under such plans), thus permitting the resale of such shares in the
public market without restriction under the Securities Act after expiration of
the applicable lock-up agreements.

Following the expiration of the 90-day period following the date of this
Prospectus, 1,028,250 shares of Common Stock subject to outstanding options will
become eligible for sale, to the extent they are vested, without restriction in
the public market pursuant to Rule 701; however, 512,750 of such shares will be
subject to lock-up agreements for an additional 275 days.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least two
years (including the holding period of any prior owner, except an affiliate) is
entitled to sell within any three month period commencing 90 days after the date
of this Prospectus, a number of shares that does not exceed the greater of (i)
one percent of the number of shares of Common Stock then outstanding or (ii) the
average weekly trading volume of the Common Stock during the four

48
<PAGE>
calendar weeks preceding the required filing of a Form 144 with respect to such
sale. Sales under Rule 144 are generally subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about the Company.

The Securities and Exchange Commission (the "Commission") has recently
proposed reducing the initial Rule 144 holding period to one year. There can be
no assurance as to if or when such rule changes will be enacted. If enacted,
such modifications will have a material effect on the times when shares of the
Company's Common Stock become eligible for resale.

49
<PAGE>
UNDERWRITING

Under the terms and subject to the conditions contained in an Underwriting
Agreement dated January 21, 1997 (the "Underwriting Agreement"), the Underwriter
has agreed to purchase from the Company 2,000,000 shares of Common Stock at the
initial public offering price less the underwriting discounts and commissions
set forth on the cover page of this Prospectus.

The Underwriting Agreement provides that the obligations of the Underwriter
are subject to certain conditions precedent and that the Underwriter will be
obligated to purchase all of the shares of Common Stock offered hereby if any
are purchased.

The Company has granted the Underwriter an option, expiring at the close of
business on the 30th day after the date of this Prospectus, to purchase up to
300,000 additional shares of Common Stock at the initial public offering price
less the underwriting discounts and commissions as set forth on the cover page
of this Prospectus. Such option may be exercised only to cover over-allotments
in the sale of the shares of Common Stock.

The Company has been advised by the Underwriter that the Underwriter
proposes to offer the Common Stock to the public initially at the offering price
set forth on the cover page of this Prospectus. The Underwriter may allot to
certain dealers a concession of $.50 per share, and the Underwriter and such
dealers may re-allow a concession of $.10 per share on sales to certain other
dealers. After the initial public offering, the public offering price and
concessions to dealers may be changed by the Underwriter.

The Company, the holders of 7,362,056 shares of Common Stock (including
shares issuable upon conversion of the Series A Convertible Preferred Stock) and
warrants, options and convertible debt securities exercisable or convertible
into an aggregate of 2,154,801 shares of Common Stock (including all of the
Company's officers and directors) have entered into lock-up agreements under
which they have agreed, subject to limited exceptions, not to offer, issue, sell
or otherwise dispose of any such shares of Common Stock, any such options or
warrants to acquire shares of Common Stock or any such securities convertible
into shares of Common Stock (or any shares of Common Stock issuable upon
exercise or conversion of such securities) owned by them for a period of one
year after the date of this Prospectus, without the prior written consent of the
Underwriter. See "Shares Eligible for Future Sale."

The Company has agreed to indemnify the Underwriter against certain
liabilities, including civil liabilities under the Securities Act, or to
contribute to payments which the Underwriter may be required to make with
respect thereto.

Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price will be determined through negotiations
between the Company and the Underwriter and may not be indicative of the market
price of the Common Stock following this Offering. Among the factors to be
considered in such negotiations are an estimate of the business potential of the
Company, the present state of the Company's development, an assessment of the
Company's management, prevailing market conditions, the demand for similar
securities of comparable companies and other factors deemed relevant.

At the request of the Company, the Underwriter is reserving up to 200,000
shares of Common Stock (10% of the shares to be offered) for sale to employees,
directors and friends of the Company. The number of shares available for sale to
the general public in this Offering will be reduced to the extent such persons
purchase such reserved shares. Shares purchased by employees, directors and
friends of the Company will be at the public offering price as set forth on the
cover page of this Prospectus. Any reserved shares not so purchased will be
offered by the Underwriters to the general public in this Offering.

As of December 31, 1996, the Underwriter and certain officers and employees
of the Underwriter held 113,635 shares of Series A Convertible Preferred Stock
(which will be converted into 56,815 shares of Common Stock upon completion of
the offering). In addition, two minority shareholders and directors of the
Underwriter's corporate parent own an aggregate of 13,636 shares of Series A
Convertible Preferred Stock

50
<PAGE>
which will be converted into 6,817 shares of Common Stock upon completion of the
offering. Such Series A Convertible Preferred Stock was purchased in September
1996 for $5.50 per share. For a period of one year following the date of this
Prospectus, the Underwriter and the other holders of Series A Convertible
Preferred Stock described in this paragraph will not sell, transfer, assign,
pledge or hypothecate the Series A Convertible Preferred Stock or the Common
Stock issuable upon conversion of the Series A Convertible Preferred Stock,
other than to the Underwriter or an officer of the Underwriter.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Hunton & Williams, Atlanta, Georgia.
Certain legal matters in connection with the Offering will be passed upon for
the Underwriter by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania.

EXPERTS

The financial statements as of December 31, 1994 and 1995 and September 30,
1996 and for the period from inception through December 31, 1994, the year ended
December 31, 1995 and the nine months ended September 30, 1996 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.

ADDITIONAL INFORMATION

The Company has filed a registration statement on Form S-1 (the
"Registration Statement") with the Commission under the Securities Act in
respect of the Common Stock offered hereby. This Prospectus omits certain
information contained in the Registration Statement as permitted by the rules
and regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits thereto. Statements herein
concerning the contents of any contract or other document filed with the
Commission as an exhibit to the Registration Statement are not necessarily
complete and are qualified in all respects by such reference. Copies of the
Registration Statement, including all exhibits and schedules thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of such
material can be obtained from the Public Reference Section of the Commission
upon payment of certain fees prescribed by the Commission. The Commission
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of that site is http://www.sec.gov.

51
<PAGE>
EARTHLINK NETWORK, INC.
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountants......................................... F-2

Balance Sheet as of December 31, 1994 and 1995 and September 30, 1996..... F-3

Statement of Operations for the period from inception (May 26, 1994)
through December 31, 1994, the year ended December 31, 1995 and the nine
months ended September 30, 1995 (unaudited) and September 30, 1996....... F-4

Statement of Stockholders' Equity (Deficit) for the period from inception
(May 26, 1994) through December 31, 1994, the year ended December 31,
1995 and the nine months ended September 30, 1996........................ F-5

Statement of Cash Flows for the period from inception (May 26, 1994)
through December 31, 1994, the year ended December 31, 1995 and the nine
months ended September 30, 1995 (unaudited) and September 30, 1996....... F-6

Notes to Financial Statements............................................. F-7
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of EarthLink Network, Inc.

In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of EarthLink
Network, Inc. at December 31, 1994 and 1995 and September 30, 1996, and the
results of its operations and its cash flows for the period from inception (May
26, 1994) through December 31, 1994, the year ended December 31, 1995 and the
nine months ended September 30, 1996 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

Costa Mesa, California
December 4, 1996

F-2
<PAGE>
EARTHLINK NETWORK, INC.

BALANCE SHEET

ASSETS

<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY AT
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996
------------- ------------- ------------- -------------
(UNAUDITED)
NOTE 7)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents......................... -- $ 290 $ 8,688
Restricted short-term investment (Note 6)......... -- 1,500 296
Accounts receivable, net of allowance of $664
at September 30, 1996............................ $ 27 218 1,765
Prepaid expenses.................................. -- 123 712
Other assets (Note 4)............................. 122 653
----- ------------- -------------
Total current assets.......................... 27 2,253 12,114
Property and equipment, net (Notes 1 and 3)......... 90 2,551 13,453
Intangibles, net (Notes 2, 5 and 8)................. 69 70 466
----- ------------- -------------
Total assets.................................. $ 186 $ 4,874 $ 26,033
----- ------------- -------------
----- ------------- -------------

LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Trade accounts payable............................ $ 18 $ 1,766 $ 5,878
Accrued payroll and related expenses.............. 4 193 1,522
Other accounts payable and accrued liabilities.... -- 405 3,809
Lines of credit (Note 6).......................... -- 1,494 --
Current portion of capital lease obligations (Note
10).............................................. -- 159 2,857
Notes payable (Note 6)............................ 67 -- 2,950
Deferred revenue.................................. -- 212 1,537
----- ------------- -------------
Total current liabilities..................... 89 4,229 18,553
Capital lease obligations, net of current portion
(Note 10)......................................... -- 355 5,388
----- ------------- -------------
Total liabilities............................. 89 4,584 23,941
----- ------------- -------------
Commitments and contingencies (Note 10)
Mandatorily redeemable convertible preferred stock
(Note 7).......................................... -- -- 14,013 $ --

Stockholders' equity (deficit)
Preferred Stock, $0.01 par value, 10,000,000
shares authorized, nil, nil and 2,727,273 shares
outstanding as redeemable preferred stock........ -- -- --
Common Stock, $0.01 par value, 50,000,000 shares
authorized, 2,941,180, 5,057,165 and 6,022,724
issued and outstanding 7,386,348 outstanding on a
pro forma basis (Note 7)......................... 29 51 60 74
Additional paid-in capital........................ 147 5,122 14,236 28,235
Warrants to purchase common stock (Note 8)........ 69 124 599 599
Accumulated deficit............................... (148) (5,007) (26,816) (26,816)
----- ------------- ------------- -------------
Total stockholders' equity (deficit)................ 97 290 (11,921) $ 2,092
----- ------------- ------------- -------------
----- ------------- ------------- -------------
$ 186 $ 4,874 $ 26,033
----- ------------- -------------
----- ------------- -------------
</TABLE>

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

F-3
<PAGE>
EARTHLINK NETWORK, INC.
STATEMENT OF OPERATIONS

Weighted average shares outstanding
(Note 1).............................. 3,653 4,903 4,596 6,568
</TABLE>

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

F-4
<PAGE>
EARTHLINK NETWORK, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL STOCKHOLDERS'
------------------------- PAID-IN WARRANTS ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL ISSUED DEFICIT (DEFICIT)
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)

<S> <C> <C> <C> <C> <C> <C>
Issuance of Common Stock................ 2,941 $ 29 $ 147 $ -- $ -- $ 176
Warrants issued in connection with line
of credit
(Note 8).............................. -- -- -- 69 -- 69
Net loss................................ -- -- -- -- (148) (148)
----- ----- ----------- ----- ----------- -----------
Balance at December 31, 1994............ 2,941 29 147 69 (148) 97
Issuance of Common Stock................ 2,116 22 6,236 -- -- 6,258
Reclassification of S Corporation
accumulated deficit (Note 8).......... -- -- (1,261) -- 1,261 --
Warrants issued for lease guarantee
(Note 8).............................. -- -- -- 50 -- 50
Warrants issued for non-competition
agreement (Notes 2 and 8)............. -- -- -- 5 -- 5
Net Loss................................ -- -- -- -- (6,120) (6,120)
----- ----- ----------- ----- ----------- -----------
Balance at December 31, 1995............ 5,057 51 5,122 124 (5,007) 290
Issuance of Common Stock................ 923 9 8,651 -- -- 8,660
Issuance of Common Stock for services... 43 -- 463 -- -- 463
Warrants issued in connection with
equipment leases and other
financings............................ -- -- -- 475 -- 475
Net loss................................ -- -- -- -- (21,809) (21,809)
----- ----- ----------- ----- ----------- -----------
Balance at September 30, 1996........... 6,023 $ 60 $ 14,236 $ 599 $ (26,816) $ (11,921)
----- ----- ----------- ----- ----------- -----------
----- ----- ----------- ----- ----------- -----------
</TABLE>

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

F-5
<PAGE>
EARTHLINK NETWORK, INC.
STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
INCEPTION
(MAY 26,
1994) NINE MONTHS ENDED
THROUGH YEAR ENDED -----------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1995 1996
------------- ------------- ------------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................. $ (148) $ (6,120) $ (2,972) $ (21,809)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization........... 7 305 167 2,773
Provision for doubtful accounts
receivable............................. -- -- -- 664
Issuance of common stock in exchange for
professional services.................. -- -- -- 50
Issuance of common stock in exhange for
termination of consulting agreement.... -- -- -- 413
Increase in accounts receivable......... (27) (191) (62) (2,211)
Increase in prepaid expenses and other
assets................................. -- (141) (164) (1,120)
Increase in accounts payable and accrued
liabilities............................ 22 2,292 1,308 8,845
Increase in deferred revenue............ -- 212 118 1,325
----- ------ ------ -------------
Net cash used in operating
activities........................... (146) (3,643) (1,605) (11,070)
----- ------ ------ -------------
Cash flows from investing activities:
Purchases of property and equipment....... (97) (2,766) (1,161) (13,596)
Liquidation of restricted short-term
investment............................... -- (1,500) (500) (296)
Purchase of restricted short-term
investment............................... -- -- -- 1,500
----- ------ ------ -------------
Net cash used in investing
activities........................... (97) (4,266) (1,661) (12,392)
----- ------ ------ -------------
Cash flows from financing activities:
Proceeds from (payment of) line of
credit................................... -- 1,494 494 (1,494)
Increase (decrease) in note payable....... 67 (67) (67) 2,950
Proceeds from capital lease obligations... -- 556 298 9,220
Principal payments under capital lease
obligations.............................. -- (42) (1) (1,489)
Proceeds from issuance of Mandatorily
Redeemable Preferred Stock............... -- -- -- 14,013
Proceeds from issuance of Common Stock.... 176 6,258 3,365 8,660
Proceeds from Common Stock pending
issuance................................. -- -- 1,800 --
----- ------ ------ -------------
Net cash provided by financing
activities........................... 243 8,199 5,889 31,860
----- ------ ------ -------------
Net increase in cash and cash equivalents... -- 290 2,623 8,398
Cash and cash equivalents, beginning of
year...................................... -- -- -- 290
----- ------ ------ -------------
Cash and cash equivalents, end of period.... $ -- $ 290 $ 2,623 $ 8,688
----- ------ ------ -------------
----- ------ ------ -------------
</TABLE>

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

F-6
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

EarthLink Network, Inc. ("EarthLink" or the "Company") was organized on May
26, 1994 and is an Internet service provider that was formed to help users
derive meaningful benefits from the extensive resources of the Internet.

The Company has experienced operating losses since its inception as a result
of efforts to build its network infrastructure and internal staffing, develop
its systems, and expand into new markets. The Company expects to continue to
focus on increasing its customer base and to expend substantial resources on
sales, marketing and administration, building its network systems, developing
new service offerings and improving its management information systems.
Accordingly, the Company expects its cost of revenues, selling, general, and
administrative expenses and capital expenditures will continue to increase
significantly, all of which will have a negative impact on short-term operating
results. In addition, the Company may change its pricing policies to respond to
a changing competitive environment. There can be no assurance that growth in the
Company's revenues or customer base will continue or that the Company will be
able to achieve or sustain profitability or positive cash flow. The failure of
the Company to achieve or sustain profitability or positive cash flow may
require the Company to reduce the scope of its operations or its anticipated
expansion, which could adversely affect the Company's business and results of
operations.

REVENUES

Recurring revenues from monthly Internet service are recognized over the
period services are provided. Other revenues, consisting primarily of sign-up
fees, are recognized as revenue when the registration process is completed.

CASH AND CASH EQUIVALENTS

All highly liquid investments with an original maturity of three months or
less at the date of acquisition are classified as cash equivalents.

ACCOUNTS RECEIVABLE AND DEFERRED REVENUES

Commencing in 1995, the Company began to bill for Internet service generally
one month in advance. Accordingly, these non-cancelable advanced billings are
included in both accounts receivable and deferred revenue.

CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations
or credit risk consist principally of cash investments and trade receivables.
The Company's cash investment policies limit investments to short-term,
investment grade instruments. Concentrations of credit risk with respect to
trade receivables are limited due to the large number of customers comprising
the Company's customer base.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost and depreciated using the
straight-line method over the estimated useful life of the assets, which is
generally three years. Leasehold improvements are amortized using the straight
line method over the shorter of their estimated lives or the term of the lease,
ranging from one to five years.

F-7
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

EQUIPMENT UNDER CAPITAL LEASE

The Company leases certain of its data communications and other equipment
under capital lease agreements. The assets and liabilities under capital lease
are recorded at the lesser of the present value of aggregate future minimum
lease payments, including estimated bargain purchase options, or the fair value
of the assets under lease. Assets under capital lease are amortized over the
lesser of their estimated useful lives of three years or the term of the lease.

INTANGIBLES

Intangible assets consist primarily of deferred financing and professional
service costs, prepaid lease guarantee costs, goodwill, rights to client lists
and a covenant not to compete. The costs assigned to intangible assets are being
amortized on a straight-line basis over the estimated useful lives of the
assets, which range from two to three years. The Company regularly reviews the
recoverability of intangible assets based on estimated undiscounted future cash
flows from operating activities compared with the carrying values of the
intangibles.

ADVERTISING AND CUSTOMER ACQUISITION COSTS

Advertising and customer acquisition costs are included in sales and
marketing. Such costs are expensed as incurred.

INCOME TAXES

Income taxes are accounted for under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Under this method, deferred
tax assets and liabilities are determined based on differences between the
financial reporting basis and tax basis of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.

NET LOSS PER SHARE

Net loss per share is computed using the weighted average number of common
shares outstanding. In addition, pursuant to Securities and Exchange Commission
Staff Accounting Bulletin No. 83, Common Stock and other potentially dilutive
instruments issued by the Company at prices below the public offering price
during the twelve-month period prior to the proposed offering date (using the
treasury stock method and an assumed initial public offering price of $13.00 per
share) including Common Stock pending issuance have been included in the
calculation as if they were outstanding for all periods regardless of whether
they are dilutive. Common Stock equivalent shares issued by the Company more
than twelve months prior to the proposed offering date have been excluded from
the net loss per share calculation because the impact is anti-dilutive.

USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS

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

F-8
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

RECENT PRONOUNCEMENTS

The Company has adopted, as of January 1, 1996, SFAS No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
and SFAS 123 and "Accounting for Stock-Based Compensation". The adoption of SFAS
No. 121 has not had any effect on the Company's financial position or results of
operations. The Company continues to account for its employee stock based
compensation in accordance with the provisions of APB 25 and provides pro forma
disclosures in the notes to the financial statements (see note 8), as if the
measurement provisions of SFAS No. 123 had been adopted. As such SFAS 123 has
not had a material effect on the Company's financial position or results of
operations.

INTERIM FINANCIAL STATEMENTS

The interim financial data for September 30, 1995 is unaudited. However, in
the opinion of the Company, the interim financial data includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair statement
of the results for the interim periods.

2. PURCHASE OF CERTAIN ASSETS FROM BECKEMEYER DEVELOPMENT TECHNOLOGIES

In order to recruit the principal shareholder of Beckemeyer Development
Technologies ("BDT") to serve as the Company's Vice President of Engineering, on
November 7, 1995, the Company agreed to purchase all fixtures, equipment, and
the client list of BDT for cash of $64,000. In addition to the above, the
principal shareholder was issued warrants to purchase 10,330 shares of the
Company's Common Stock at $4.84 per share as consideration for an agreement not
to compete for a two-year period. The value assigned to the warrants was $5,000
based upon an appraisal obtained by the Company. The warrants expire October 10,
2005. This purchase price was allocated to the assets acquired with the
remainder reflected as an intangible asset. At the time of purchase, BDT was not
material to the results of operations, financial position or customer base of
EarthLink.

3. PROPERTY AND EQUIPMENT

Property and equipment consist of:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------- -------------
1994 1995 1996
--------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Data communications equipment.......................................... $ 71 $ 2,167 $ 10,246
Office and other equipment............................................. 26 661 5,564
Leasehold improvements................................................. -- 35 624
Construction in progress............................................... -- -- 25
--- --------- -------------
97 2,863 16,459
Less accumulated depreciation and amortization......................... (7) (312) (3,006)
--- --------- -------------
$ 90 $ 2,551 $ 13,453
--- --------- -------------
--- --------- -------------
</TABLE>

Property under capital lease, primarily data communications equipment
included above, aggregated $556,000 and $9,775,000 at December 31, 1995 and
September 30, 1996, respectively. Included in accumulated depreciation and
amortization are amounts related to property under capital lease of $56,000 and
$1,720,000 at December 31, 1995 and September 30, 1996, respectively.
Depreciation expense charged to operations was $7,000, $305,000 and $2,694,000
in 1994, 1995 and for the nine months ended September 30, 1996, respectively,
and included nil, $56,000, and $1,664,000, respectively, pertaining to property
under capital lease.

F-9
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. OTHER ASSETS

Other assets consist of:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
--------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Deposits................................................................ $ 122 $ 327
Deferred offering costs................................................. -- 277
Other................................................................... -- 49
----- -----
$ 122 $ 653
----- -----
----- -----
</TABLE>

5. INTANGIBLE ASSETS

Intangible assets consist of:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred financing costs............................................ $ 69 $ -- $ 347
Lease guarantee..................................................... -- 50 110
Rights to client lists.............................................. -- 10 10
Professional Services............................................... -- -- 56
Other............................................................... -- 10 22
--- --- -----
69 70 545
Less: Accumulated amortization...................................... -- -- (79)
--- --- -----
$ 69 $ 70 $ 466
--- --- -----
--- --- -----
</TABLE>

6. NOTES PAYABLE

In 1995 the Company had three secured revolving credit agreements with its
banks. The outstanding principal balances under these lines of credit were
$1,000,000, $248,000 and $246,000 at December 31, 1995. The effective interest
rates at December 31, 1995 were 6.48%, 7.62% and 7.65%, respectively. The
Company repaid amounts outstanding on such lines of credit on April 6, 1996,
March 15, 1996 and June 8, 1996 respectively. The lines of credit subsequently
expired.

In June 1996, the Company issued to 17 investors, promissory notes
aggregating $2,950,000. Certain of the investors are directors and stockholders
of the Company. The 10% promissory notes expire on June 6, 1997. As described in
Note 7, the Company issued warrants valued at $116,000 to note holders. The fair
value of the warrants is included in deferred financing costs and is being
amortized as interest expense over the life of the notes resulting in a 14.30%
effective interest rate. Interest expense, which is paid in advance, on these
notes was approximately $123,000 for the nine months ended September 30, 1996.

7. CAPITAL STOCK AND MANDATORILY REDEEMABLE EQUITY SECURITIES

BUY-SELL AGREEMENT

The Company and certain stockholders entered into a Buy-Sell Agreement
pursuant to which the Company has the first right of refusal upon sale or
transfer of shares of Common Stock by these stockholders. The right will expire
by either written agreement of all parties, dissolution, bankruptcy, or
insolvency of the

F-10
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company, registration of the Company's Common Stock under Section 12(b) or 12(g)
of the Securities Exchange Act of 1934, consummation of a public offering, sale
or merger, or at such time as only one stockholder remains.

COMMON STOCK

The Company issued 45,485 shares of Common Stock at $4.84 per share and
25,000 shares of Common Stock at $4.84 per share on January 18, 1996 and March
20, 1996, respectively. On May 6, 1996, the Company issued 852,460 shares of
common stock at $9.76 per share in a private placement. As a result of these
placements, EarthLink raised, in the aggregate, $8,660,000.

COMMON STOCK ISSUANCES FOR OTHER THAN CASH

On May 5, 1996, the Company issued 5,122 shares of Common Stock at $9.76 per
share, to a sub-contractor in lieu of cash for services provided to the Company.
In September 1996, the Company issued 37,500 shares of Common Stock at $11.00
per share as consideration for the termination of a consulting agreement.

MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK

On September 10, 1996, the Company issued 2,727,273 shares of its Series A
Redeemable Convertible Preferred Stock to investors including among others,
certain directors, stockholders and the Underwriter associated with the proposed
initial public offering and certain of its associates for $15,000,000. Each two
shares of the Series A Convertible Preferred Stock is convertible into one
share, adjusted for stock splits or recapitalizations, of the Company's Common
Stock at the option of the holder through March 10, 1997 and is automatically
converted upon consummation of an underwritten public offering of the Company's
common stock in which the proceeds are at least $20 million. Stock issuance
costs of $987,000 have been charged to redeemable convertible preferred stock.
Assuming conversion of the Series A Redeemable Convertible Preferred Stock into
shares of common stock on September 30, 1996, the pro forma number of, and par
value of common stock shares outstanding would be 7,386,348 and $74,000,
respectively.

Holders of Series A Convertible Preferred Stock are entitled to voting
rights and participation in dividends equivalent to the number of common shares
issuable if converted. The Series A Convertible Preferred Stockholders have the
exclusive right to elect one director and participate in the election of other
directors along with holders of Common Stock. In the event of a change in
ownership, as defined, the holders of the Company's Series A Convertible
Preferred Stock have the right to demand complete redemption. The holders of the
Company's Series A Convertible Preferred Stock have a liquidation preference
equal to their initial investment. Any assets remaining after the preferred
liquidation preference plus declared and unpaid dividends will be distributed to
the holders of Common Stock.

8. STOCK OPTIONS AND WARRANTS

STOCK OPTIONS

1995 STOCK OPTION PLAN

In September 1995, the Company established the EarthLink Network 1995 Stock
Option Plan (the "1995 Plan"). The 1995 Plan provides for the grant of incentive
stock options to purchase up to 1,250,000 shares of common stock to employees of
the Company and non-qualified stock options to employees, officers, directors
and consultants of the Company. The 1995 Plan is administered by a committee
appointed by the

F-11
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Board which determines the terms of the options granted, including the exercise
price, the number of shares subject to option, and the option vesting period.
The exercise price of all options granted under the plan must be at least 100%
of the fair market value on the date of grant. Options generally vest in equal
quarterly increments over a five year period.

DIRECTORS STOCK OPTION PLAN

In September 1995, the Company established the EarthLink Directors Stock
Option Plan (the "Directors Plan"). The Directors Plan as amended and restated
in December 1996, provides for the grant of options to purchase 62,500 shares of
Common Stock to directors who do not also serve as employees of the Company and
do not beneficially own, nor are employees, directors or officers of any entity
which owns 5% or more of the outstanding shares of the Company's capital stock.
Under the Directors Plan, grants of options to purchase 10,000 and 2,500 shares
of Common Stock are automatically made to each non-management director at such
time as the person first becomes a member of the Board of Directors and at the
beginning of each fiscal year, respectively. Options generally vest in equal
quarterly increments over a five year period. As of September 30, 1996, there
were no options to purchase shares of Common Stock outstanding under the
Directors Plan.

NON-QUALIFIED OPTION GRANTS

In addition to the options granted under the plan described above, the
Company granted non-qualified stock options to certain employees, officers and
directors. Non-qualified options have a maximum term of ten years and generally
vest in equal quarterly increments over a five-year period.

F-12
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Following is a summary of the status of the incentive stock and
non-qualified options during the year ended December 31, 1995 and the nine
months ended September 30, 1996.
<TABLE>
<CAPTION>
INCENTIVE STOCK OPTIONS
----------------------------------------
OPTIONS OUTSTANDING
---------------------------
WEIGHTED
AVERAGE
NUMBER OF OPTION PRICE EXERCISE
SHARES PER SHARE PRICE
----------- -------------- -----------
<S> <C> <C> <C>
Plan Creation 1995
Granted................................................................... 232,500 $ 4.84 $ 4.84
----------- -------------- -----
Balance at December 31, 1995.............................................. 232,500 $ 4.84 $ 4.84
Granted................................................................... 806,250 $ 4.84-11.00 $ 8.25
Forfeited................................................................. (10,500) $ 9.76 $ 9.76
----------- -------------- -----
Balance at September 30, 1996............................................. 1,028,250 $ 4.84-11.00 $ 7.48
----------- -------------- -----

OPTIONS EXERCISABLE
---------------------------
WEIGHTED
AVERAGE
NUMBER OF OPTION PRICE EXERCISE
SHARES PER SHARE PRICE
----------- -------------- -----------
<S> <C> <C> <C>
Plan Creation 1995
Granted................................................................... 36,125 $ 4.84 $ 4.84
----------- -------------- -----
Balance at December 31, 1995.............................................. 36,125 $ 4.84 $ 4.84
Granted................................................................... 48,031 $ 4.84-11.00 $ 6.94
----------- -------------- -----
Balance at September 30, 1996............................................. 84,156 $ 4.84-11.00 $ 6.04
----------- -------------- -----
<CAPTION>

NON-QUALIFIED STOCK OPTIONS
----------------------------------------
OPTIONS OUTSTANDING
---------------------------
WEIGHTED
AVERAGE
NUMBER OF OPTION PRICE EXERCISE
SHARES PER SHARE PRICE
----------- -------------- -----------
<S> <C> <C> <C>
Granted in 1995........................................................... 425,000 $ 0.60-1.81 $ 1.60
Forfeited................................................................. (60,209) $ 0.60 $ 0.60
----------- -------------- -----
Balance at December 31, 1995.............................................. 364,791 $ 0.60-1.81 $ 1.76
Granted................................................................... 175,000 $ 4.84-11.00 $ 7.48
----------- -------------- -----
Balance at September 30, 1996............................................. 539,791 $ 0.60-11.00 $ 3.62
----------- -------------- -----
<CAPTION>

OPTIONS EXERCISABLE
---------------------------
WEIGHTED
AVERAGE
NUMBER OF OPTION PRICE EXERCISE
SHARES PER SHARE PRICE
----------- -------------- -----------
<S> <C> <C> <C>
Granted in 1995........................................................... 97,292 $ 0.60-1.81 $ 1.63
----------- -------------- -----
Balance at December 31, 1995.............................................. 97,292 $ 0.60-1.81 $ 1.63
Granted................................................................... -- -- --
----------- -------------- -----
Balance at September 30, 1996............................................. 97,292 $ 0.60-1.81 $ 1.63
----------- -------------- -----
</TABLE>

F-13
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The summary of non-qualified options includes warrants to purchase 100,000
shares of Common Stock at $4.84. These warrants were issued for service on the
Board of Directors and as such are accounted for under APB 25.

Had compensation cost been determined on the basis of fair value pursuant to
SFAS 123, net loss and net loss per share would have been increased as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, NINE MONTHS ENDED
1995 SEPTEMBER 30, 1996
------------- ------------------
<S> <C> <C>
Net Loss
As reported....................................................... $ 6,120,000 $ 21,809,000
------------- ------------------
Pro forma......................................................... $ 6,405,000 $ 23,108,000
------------- ------------------
Net loss per share
As reported....................................................... $ 1.25 $ 3.32
------------- ------------------
Pro forma......................................................... $ 1.31 $ 3.52
------------- ------------------
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following assumptions used for grants during
both periods: dividend yield of 0.0%, risk free interest rate of 5.83% and
expected option term of 10 years.

WARRANTS

The Company has issued to certain Board members, consultants, lease
providers, creditors and others warrants to purchase shares of the Company's
Common Stock.

On December 15, 1994, certain stockholders provided the Company a revolving
line of credit of $400,000 bearing interest at a rate of 8.1%. As of December
31, 1994, the outstanding balance was $67,000. The loan balance, including
interest expense of $15,000, was repaid during the year ended December 31, 1995.
The Company issued warrants to the stockholders to purchase 150,000 shares of
Common Stock at $1.81 per share valued at $69,000, based upon an appraisal
obtained by the Company, as additional consideration for this line of credit.
These warrants expire June 19, 2000.

On September 1, 1995, certain stockholders guaranteed a $500,000 lease for
networking equipment. The Company issued warrants to purchase 50,000 shares of
Common Stock at $1.81 per share, valued at $25,000, based upon an appraisal
obtained by the Company, as consideration for this guarantee. These warrants
expire August 31, 2000.

On December 13, 1995, certain stockholders provided the Company with a
$250,000 Irrevocable Standby Letter of Credit as a performance guarantee for a
real estate lease. In conjunction with this transaction the Company issued
warrants to purchase 50,000 shares at $4.84 per share, valued at $25,000, based
upon an appraisal obtained by the Company. These warrants expire December 1,
2000.

On January 11, 1996, certain stockholders guaranteed a $1,500,000 lease for
networking equipment. The Company issued warrants to purchase 100,000 shares of
Common Stock at $4.84 per share. The value of the warrants has been reflected in
intangible assets. These warrants expire January 11, 2001.

F-14
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

On January 12, 1996 the Company issued warrants to purchase 100,000 shares
of Common Stock at $4.84 to Board members. The warrants vest quarterly over five
years. As these warrants were issued for service on the Board of Directors they
are accounted for under APB 25 and as such are included in the summary of
nonqualified options and are not included in the summary of warrant grants
below.

On January 18, 1996, LINC Capital Partners, Inc. ("LINC") provided a
$1,500,000 lease line for equipment. The Company issued warrants to LINC to
purchase 50,000 shares of Common Stock at $4.84 per share. The value of the
warrants has been reflected as deferred financing costs. These warrants expire
January 18, 2006.

On February 15, 1996, Boston Financial & Equity Corporation ("Boston
Financial") provided a $700,000 lease line for equipment. The Company issued
warrants to Boston Financial to purchase 5,000 shares of Common Stock at $9.76
per share. The value of the warrants has been reflected as deferred financing
costs. These warrants expire February 15, 2006.

On May 6, 1996, the Company agreed to issue warrants to a producer of
infomercials and commercials to purchase 50,000 shares of Common Stock at an
exercise price of $9.76 per share upon completion, subject to the Company's
approval, of 15-second and 60-second commercials for the Company's services. In
addition, the Company agreed to issue additional warrants to purchase a maximum
of 300,000 shares of Common Stock based upon the number of customers obtained
through the commercials. Through December 31, 1997, the exercise price will be
$9.76; per share thereafter, the exercise price will be set at the then fair
value of the Common Stock. The value of the warrants will be reflected as
consideration upon issuance.

On May 10, 1996, the Company issued warrants to purchase 45,477 shares of
Common Stock at $9.76 per share to various lessors in return for lease lines and
other services to the Company. The value of the warrants has been reflected as
deferred financing costs. The warrants expire on May 10, 2006.

On May 31,1996, in connection with the amendment and restatement of the
UUNET Agreement, the Company agreed to issue warrants to purchase 10,000 shares
of Common Stock at an exercise price of $20.00 per share.

In connection with the issuance of promissory notes aggregating $2,950,000,
the Company issued to the lenders warrants to purchase an aggregate of 98,340
shares of Common Stock at an exercise price of $11.00 per share, as adjusted.
The value of the warrants has been reflected as deferred financing costs.

In connection with the execution of the PSINet Inc. ("PSINet") agreement on
July 22, 1996 (Note 10) the Company issued warrants to purchase 100,000 shares
of Common Stock at an exercise price of $20.00 per share. The value of the
warrants has been reflected as deferred financing costs.

In connection with the private placement of Series A Convertible Preferred
Stock, described above, the Company granted to certain purchasers of the Series
A Convertible Preferred Stock warrants to purchase 100,000 shares of common
stock at $11.00 per share.

On September 24, 1996 the Company issued warrants to purchase 7,500 shares
of the Company's common stock at $11.00 per share to each of the three members
of the Company's Technology Advisory Council. The warrants vest quarterly over
two years. The value of the warrants is reflected as deferred professional
services expense and amortized ratably over the vesting period.

F-15
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

A summary of these warrant grants is as follows:

<TABLE>
<CAPTION>
WARRANTS OUTSTANDING
----------------------------------------
WEIGHTED
AVERAGE
NUMBER OF WARRANT PRICE EXERCISE
SHARES PER SHARE PRICE
----------- -------------- -----------
<S> <C> <C> <C>
Granted.................................................................. 150,000 $ 1.81 $ 1.81
----------- -------------- -----------
Balance at December 31,1994.............................................. 150,000 $ 1.81 $ 1.81
Granted.................................................................. 110,330 $ 1.81-4.84 $ 3.47
----------- -------------- -----------
Balance at December 31,1995.............................................. 260,330 $ 1.81-11.00 $ 2.51
Granted.................................................................. 531,317 $ 4.84-20.00 $ 11.01
----------- -------------- -----------
Balance at September 30,1996............................................. 791,647 $ 1.81-20.00 $ 8.21
----------- -------------- -----------
----------- -------------- -----------
</TABLE>

<TABLE>
<CAPTION>
WARRANTS EXERCISABLE
----------------------------------------
WEIGHTED
AVERAGE
NUMBER OF WARRANT PRICE EXERCISE
SHARES PER SHARE PRICE
----------- -------------- -----------
<S> <C> <C> <C>
Granted.................................................................. 150,000 $ 1.81 $ 1.81
----------- -------------- -----------
Balance at December 31,1994.............................................. 150,000 $ 1.81 $ 1.81
Granted.................................................................. 110,330 $ 1.81-4.84 $ 3.47
----------- -------------- -----------
Balance at December 31,1995.............................................. 260,330 $ 1.81-11.00 $ 2.51
Granted.................................................................. 508,817 $ 4.84-20.00 $ 11.01
----------- -------------- -----------
Balance at September 30,1996............................................. 769,147 $ 1.81-20.00 $ 8.13
----------- -------------- -----------
----------- -------------- -----------
</TABLE>

9. INCOME TAXES

The stockholders, upon incorporating the Company, elected to treat the
Company as an S Corporation under the Internal Revenue Code. On June 19, 1995,
this election was revoked as certain ineligible entities (i.e partnerships and
corporations) became stockholders. Losses of $1,261,000 incurred from inception
through June 19, 1995 have been reclassified from accumulated deficit to Common
Stock as a result of the change to C Corporation status. The Company is now
subject to income taxes on income earned after June 19, 1995. At December 31,
1995 and September 30, 1996, the Company had net operating loss carryforwards
for federal income tax purposes totaling approximately $3,328,000 and
$24,707,000 respectively, which begin to expire in 2010. The Internal Revenue
Code of 1986, as amended, includes provisions which may limit the net operating
loss carryforwards available for use in any given year if certain events occur,
including significant changes in ownership. If the Company is successful in
completing its proposed initial public offering, utilization of the Company's
net operating loss carryforwards to offset future income may be limited.

F-16
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Deferred tax assets include the following:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
-------------- --------------
<S> <C> <C>
Net operating loss carryforwards...................................... $ 1,304,000 $ 9,920,000
Deferred financing costs.............................................. -- 60,000
Depreciation.......................................................... -- 40,000
Vacation accrual...................................................... 27,000 56,000
-------------- --------------
Gross deferred tax assets............................................. 1,331,000 10,076,000
Deferred tax asset valuation allowance................................ (1,331,000) (10,076,000)
-------------- --------------
$ -- $ --
-------------- --------------
-------------- --------------
</TABLE>

The Company recorded a full valuation allowance for net deferred tax assets
due to the uncertainty of future taxable income.

10. COMMITMENTS AND CONTINGENCIES

LEASES

The Company leases its facilities and certain equipment under non-cancelable
operating leases expiring in various years through 2000. Total rent expense for
the years ended December 31, 1994 and 1995 and for the nine months ended
September 30, 1996 for all operating leases amounted to $24,000, $145,000 and
$541,000, respectively. The Company also leases equipment, primarily data
communications equipment, under non-cancelable capital leases. Most of the
Company's capital leases include purchase options at the end of the lease term.

During the year ended December 31, 1995 and the nine months ended September
30, 1996, the Company financed the acquisition of data processing and office
equipment amounting to approximately $556,000 and $9.2 million, respectively, by
entering into a number of agreements for the sale and leaseback of equipment.
The sale leaseback transactions are recorded at cost, which approximates the
fair market value of the property and, therefore, no gains or losses have been
recorded. The property remains on the books and continues to be depreciated. A
financing obligation representing the proceeds is recorded and reduced based
upon payments under the lease agreement.

Minimum lease commitments under non-cancelable leases at September 30, 1996
are as follows:

<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
- ------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
1996 (three months)...................................................... $ 908,000 $ 188,000
1997..................................................................... 3,523,000 713,000
1998..................................................................... 3,458,000 698,000
1999..................................................................... 1,505,000 647,000
2000..................................................................... 309,000 650,000
thereafter............................................................... 78,000 332,000
------------- -------------
Total minimum lease payments............................................. 9,781,000 $ 3,228,000
-------------
-------------
Less amount representing interest........................................ (1,536,000)
-------------
Present value of future lease payments................................... 8,245,000
Less current portion..................................................... (2,857,000)
-------------
$ 5,388,000
-------------
-------------
</TABLE>

F-17
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

GUARANTEED USAGE LEVELS

Guaranteed usage levels of data and voice communication with certain of the
Company's telecommunication vendors at September 30, 1996 aggregate to the
following annual amounts:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- -----------------------------------------------------------------------
<S> <C>
1996 (three months).................................................. $ 63,000
1997................................................................. 3,135,000
----------
Total.................................................................. $3,198,000
----------
----------
</TABLE>

SIGNIFICANT AGREEMENTS

Access to the Internet for customers outside of the Company's California
regional base is provided through points of presence ("POP") capacity leased
from UUNET Technologies, Inc. ("UUNET"). EarthLink is in effect a reseller of
UUNET's services, buying in bulk at a discount, and providing access to
EarthLink's customer base at EarthLink's normal rates. Payment to UUNET is
generally concurrent with EarthLink's receipt of funds from customers. UUNET was
recently acquired by MFS Communications, Inc. ("MFS"), a supplier of local and
long distance telephone service. In August 1996, MFS and WorldCom, Inc.
("WorldCom") announced that MFS and WorldCom had executed a definitive agreement
for the merger of MFS into WorldCom. At September 30, 1996, $2.4 million and
$2.3 million in amounts due to UUNET were recorded in accounts payable and other
accrued liabilities, respectively.

EarthLink has licensed Netscape Navigator software ("Netscape Navigator"),
the World Wide Web client software, from Netscape Communications Corporation.
This license permits the Company to distribute Netscape Navigator as part of its
EarthLink Network TotalAccess software package. Management believes that
contract renewal, under conditions acceptable to EarthLink, is probable.

On July 22, 1996 the Company entered into an agreement with PSINet pursuant
to which the Company intends to lease POP access from PSINet, becoming in effect
a reseller of PSINet services in a similar fashion to the Company's UUNET
arrangement, as amended.

11. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
----------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Cash paid for:
Interest.............................................................. $ 60 $ 759
Income taxes.......................................................... $ 1 $ 1
</TABLE>

NON-CASH INVESTING AND FINANCING ACTIVITIES:

As discussed in Note 2, the Company obtained a covenant not to compete
agreement in exchange for warrants valued at $5,000.

As discussed in Note 7, certain stockholders guaranteed a $500,000 equipment
lease in exchange for warrants valued at $25,000 and provided a standby letter
of credit as a performance guarantee for a real estate lease in exchange for
warrants valued at $25,000 during the year ended December 31, 1995. The Company
obtained a revolving line of credit of $400,000 in exchange for warrants valued
at $69,000 during 1994.

F-18
<PAGE>
EARTHLINK NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

12. REINCORPORATION

On June 27, 1996, the Company effected a reincorporation in Delaware. As a
result of the reincorporation, the Company's authorized shares of Common Stock
were increased to 25,000,000 shares with a par value of $0.01 per share. In
addition, the Company authorized 10,000,000 shares of preferred stock with a par
value of $0.01 per share. In March 1995 and January 1996 the Company effected
splits of the Company's Common Stock of 100-for-1 and 10-for-1, respectively. In
December 1996, the Company effected a 1-for-2 reverse stock split. The
accompanying financial statements have been retroactively adjusted to give
effect to the reincorporation, the stock splits and the reverse stock split.

13. SUBSEQUENT EVENTS

CONVERTIBLE DEBT

In October, 1996, the Company issued a $5 million, one year promissory note
at prime plus 2% to UUNET. Upon closing of the proposed initial offering, the
note will be convertible into a maximum of 382,000 shares of Common Stock at a
conversion price between $13.20 per share and $16.00 per share depending upon
the number of shares of Common Stock purchased in the proposed initial offering
by certain investors in Series A Convertible Preferred Stock. UUNET is a
provider of service to the Company and has a designate on the Company's board of
directors.

SIGNIFICANT AGREEMENTS

In October 1996, the Company's agreement with UUNet was amended. Under the
amended agreement, the Company pays UUNET a monthly fee equal to the greater of
a specified minimum or an amount that varies based primarily on peak customer
usage. The Company also pays UUNET an additional fee to the extent that hours of
usage exceed a formula set forth in the agreement. This agreement has a term
that expires in March 1999 (subject to earlier cancellation after March 1998
with one year's prior notice, but provided that if this notice is given, the
Company is required to begin to reduce its usage of UUNET's POPs in accordance
with a schedule set forth in the agreement). If the agreement expires at the end
of its term, it is automatically renewed for consecutive one-year terms unless
prior notice of termination is given. Minimum fees under the agreement are:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, IN MILLIONS
- ------------------------------------------------------------------------------------------- -----------
<S> <C>
1996 (three months)...................................................................... $ 3.0
1997..................................................................................... 16.2
1998..................................................................................... 22.8
1999..................................................................................... 6.0
-----
Total...................................................................................... $ 48.0
-----
-----
</TABLE>

LEASES

Earthlink has signed a lease for an additional 55,000 square feet in a
facility located adjacent to its corporate headquarters in which it plans to
house its data center. The lease term commences and the Company expects to
occupy this new space in February 1997 for an inital ten-year term. Monthly
rental will be $66,000 for the first 60 months increasing to $77,000 for the
remaining 60 months.

F-19
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------

No dealer, saleperson or other person has been authorized to give any
information or make any representation other than those contained in this
Prospectus and, if given or made, such information or representation must not be
relied upon as having been authorized by the Company or the Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby in any jurisdiction to any person to
whom it is unlawful to make such offer or solicitation in such jurisdiction.
Neither the delivery of this Prospectus nor any offer or sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company or that information contained herein is
correct as of any time subsequent to its date.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 16
Capitalization............................................................ 17
Dilution.................................................................. 18
Selected Financial Data................................................... 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 20
Business.................................................................. 25
Management................................................................ 35
Certain Transactions...................................................... 41
Principal Stockholders.................................................... 43
Description of Capital Stock.............................................. 45
Shares Eligible for Future Sale........................................... 48
Underwriting.............................................................. 50
Legal Matters............................................................. 51
Experts................................................................... 51
Additional Information.................................................... 51
Financial Statements...................................................... F-1
</TABLE>

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

UNTIL FEBRUARY 15, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

EARTHLINK NETWORK-REGISTERED TRADEMARK-

2,000,000 SHARES
COMMON STOCK

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

PROSPECTUS
-------------------

INVEMED ASSOCIATES, INC.

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