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SCHEDULE 14a
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 ( AMENDMENT NO. )
Filed by the Registrant
Filed by a Party other than the Registrant
Check the appropriate box:
Preliminary Proxy Statement Confidential For Use of the Commission Only
(as permitted by Rule 14a-6(e)(2)
/X/ Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
EARTHLINK NETWORK, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
- - --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- - --------------------------------------------------------------------------------
(5) Total fee paid:
- - --------------------------------------------------------------------------------
Fee paid previously with preliminary materials:
- - --------------------------------------------------------------------------------
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date
of its filing.
(1) Amount previously paid:
- - --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- - --------------------------------------------------------------------------------
(3) Filing Party:
- - --------------------------------------------------------------------------------
(4) Date Filed:
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EARTHLINK NETWORK, INC.
3100 NEW YORK DRIVE
PASADENA, CALIFORNIA 91107
(818) 296-2400
April 22, 1997
Dear Stockholder:
You are cordially invited to attend the 1997 Annual Meeting of Stockholders
of EarthLink Network, Inc., which will be held at 2:00 p.m. local time on
Thursday, May 22, 1997, in the Executive Conference Room of EarthLink's Wes
LeBaron Technology Center, 2947 Bradley Street, Pasadena, California (the
"Annual Meeting").
The principal business of the meeting will be to elect directors for the
ensuing year. During the meeting, we will also review the results of the past
fiscal year and report on significant aspects of our operations during the first
quarter of 1997.
Whether or not you plan to attend the Annual Meeting, please complete,
sign, date and return the enclosed proxy card in the postage prepaid envelope
provided so that your shares will be voted at the meeting. If you decide to
attend the meeting, you may, of course, revoke your proxy and personally cast
your votes.
Sincerely yours,
Sky D. Dayton
CHAIRMAN OF THE BOARD
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EARTHLINK NETWORK, INC.
3100 NEW YORK DRIVE
PASADENA, CALIFORNIA 91107
(818) 296-2400
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The 1997 Annual Meeting of the Stockholders of EarthLink Network, Inc. will
be held at 2:00 p.m. local time, Thursday, May 22, 1997, in the Executive
Conference Room of EarthLink's Wes LeBaron Technology Center, 2947 Bradley
Street, Pasadena, California. The meeting is called for the following purposes:
(1) To elect directors for the ensuing year; and
(2) To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on April 2, 1997 as
the record date for the purpose of determining the stockholders who are entitled
to notice of and to vote at the meeting and any adjournment or postponement
thereof.
By order of the Board of Directors,
Sky D. Dayton
CHAIRMAN OF THE BOARD
Pasadena, California
April 22, 1997
IF YOU ARE UNABLE TO BE PRESENT AT THE MEETING, YOU ARE REQUESTED TO MARK,
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD SO THAT YOUR SHARES WILL BE
REPRESENTED.
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EARTHLINK NETWORK, INC.
3100 NEW YORK DRIVE
PASADENA, CALIFORNIA 91107
PROXY STATEMENT
This Proxy Statement is furnished by and on behalf of the Board of
Directors of EarthLink Network, Inc. (the "Company" or "EarthLink") in
connection with the solicitation of proxies for use at the 1997 Annual Meeting
of Stockholders of the Company to be held at 2:00 p.m. local time on Thursday,
May 22, 1997, in the Executive Conference Room of EarthLink's Wes LeBaron
Technology Center, 2947 Bradley Street, Pasadena, California, and at any
adjournments or postponements thereof (the "Annual Meeting"). This Proxy
Statement and the enclosed proxy card will be mailed on or about April 22, 1997
to the Company's stockholders of record (the "Stockholders") on the Record Date,
as defined below.
THE BOARD OF DIRECTORS URGES YOU TO MARK, SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD IN THE
POSTAGE PREPAID ENVELOPE PROVIDED.
SHARES ENTITLED TO VOTE
GENERAL
Proxies will be voted as specified by the Stockholder or Stockholders
granting the proxy. Unless contrary instructions are specified, if the enclosed
proxy card is executed and returned (and not revoked) prior to the Annual
Meeting, the shares of common stock, $.01 par value per share, of the Company
(the "Common Stock") represented thereby will be voted FOR the election as
directors of the nominees listed in this Proxy Statement. The submission of a
signed proxy will not affect a Stockholder's right to attend and to vote in
person at the Annual Meeting. A Stockholder who executes a proxy may revoke it
at any time before it is voted by filing with the Secretary of the Company
either a written revocation or an executed proxy bearing a later date or by
attending and voting in person at the Annual Meeting.
Only holders of record of Common Stock as of the close of business on April
2, 1997 (the "Record Date") will be entitled to vote at the Annual Meeting. As
of the close of business on the Record Date, there were 9,732,589 shares of
Common Stock (the "Shares") outstanding. Holders of Shares authorized to vote
are entitled to cast one vote per Share on all matters except with respect with
the cumulative voting features applicable to the election of Directors.
QUORUM REQUIRED
According to the Company's Bylaws, the holders of a majority of the Shares
entitled to be voted must be present or represented by proxy to constitute a
quorum. Shares as to which authority to vote is withheld and abstentions are
counted in determining whether a quorum exists.
VOTE REQUIRED
Under Delaware law, directors are elected by a plurality of the votes of
the shares entitled to vote and present in person or represented by proxy at a
meeting at which a quorum is present. Only votes actually cast will be counted
for the purpose of determining whether a particular nominee received more votes
than the persons, if any, nominated for the same seat on the Board of Directors.
In connection with
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the cumulative voting feature applicable to the election of directors, each
Stockholder is entitled to as many votes as shall equal the number of shares
held by such person at the close of business on the Record Date, multiplied by
the number of directors to be elected. A Stockholder may cast all of such votes
for a single nominee or may apportion such votes among any two or more nominees.
For example, when nine directors are to be elected, a holder of 100 shares may
cast 900 votes for a single nominee, apportion 450 votes to each of two
nominees, or apportion 900 votes in any other manner by so noting in the space
provided on the accompanying proxy card. A Stockholder may withhold votes from
any or all nominees by notation to that effect on the proxy card. Except to the
extent that a Stockholder withholds votes from any or all nominees, the persons
named in the proxy card, in their sole discretion, will vote such proxy for,
and, if necessary, exercise cumulative voting rights to secure, the election of
the nominees listed below as directors of the Company.
With respect to any other matters that may come before the Annual Meeting,
if proxies are executed and returned, such proxies will be voted in a manner
deemed by the proxy representatives named therein to be in the best interests of
the Company and its Stockholders.
PROPOSAL I - ELECTION OF DIRECTORS
NOMINEES
The Company's Bylaws provide that the Company shall have at least one and
not more than eleven directors, the exact number to be fixed by resolution of
the Board of Directors from time to time. The Board has fixed the number of
directors at nine. At this Annual Meeting, all nine directors will be elected
for a term expiring at the 1998 Annual Meeting of Stockholders. The Board of
Directors has nominated Sky D. Dayton, Charles G. Betty, Sidney Azeez, Robert M.
Kavner, Linwood A. Lacy, Jr., Paul McNulty, Kevin M. O'Donnell, John W. Sidgmore
and Reed E. Slatkin for election to the Board of Directors at the Annual
Meeting, each to serve until the 1998 Annual Meeting of Stockholders or until
their successors are duly elected and qualified.
All Shares represented by properly executed proxies received in response to
this solicitation will be voted for the election of directors as specified
therein by the Stockholders. Unless otherwise specified in the proxy, it is the
intention of the persons named on the enclosed proxy card to vote FOR the
election of the nominees listed in this Proxy Statement to the Board of
Directors. Each nominee has consented to serve as a director of the Company if
elected. If at the time of the Annual Meeting a nominee is unable or declines
to serve as a director, the discretionary authority provided in the enclosed
proxy card may be exercised to vote for a substitute candidate designated by the
Board of Directors. The Board of Directors has no reason to believe that any
nominee will be unable or will decline to serve as a director.
Stockholders may withhold their votes from the entire slate of nominees by
so indicating in the space provided on the enclosed proxy card. Stockholders
may withhold their votes from any particular nominee by writing that nominee's
name in the space provided for that purpose on the enclosed proxy card.
Set forth below is certain biographical information furnished to the
Company by each director nominee. Each such nominee currently serves as a
director of the Company.
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INFORMATION REGARDING NOMINEES FOR DIRECTORS
SKY D. DAYTON
Age: 25
Mr. 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
Age: 40
Mr. Betty has served as the President and as a director of the Company
since January 1996, and, was named the Company's Chief Executive Officer in May
1996. From February 1994 to January 1996, Mr. Betty was a strategic planning
consultant, advising, among others, 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.
SIDNEY AZEEZ
Age: 64
Mr. 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"), both of which are 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
Age: 53
Mr. 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.
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LINWOOD A. LACY, JR.
Age: 51
Mr. Lacy 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
Age: 35
Mr. 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
Age: 46
Mr. 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
Age: 45
Mr. 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 Technologies, Inc.
("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.
UUNET is presently a wholly-owned subsidiary of MFS and, indirectly, of
WorldCom. 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 was employed by GEIS, where he was Vice President and General
Manager of GEIS North America from 1985 to 1989. Mr. Sidgmore is also a director
of Saville Systems PLC, a provider of billing software for the
telecommunications industry.
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REED E. SLATKIN
Age: 47
Mr. 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.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE ELECTION AS DIRECTORS OF THE NOMINEES NAMED ABOVE.
ADDITIONAL INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Company's Board of Directors held twelve meetings during 1996. The
Board has an Audit Committee and a Compensation Committee, but does not have a
Nominating Committee. During 1996, no director attended less than 75% of the
aggregate number of meetings of the Board and the committees of the Board on
which he served that were held during his term as a director of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS. The Compensation Committee of the
Board of Directors consists of Messrs. Lacy, O'Donnell and Slatkin. The
Compensation Committee establishes 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 Incentive Stock Option Plan. The
Compensation Committee held four meetings in 1996.
The Audit Committee of the Board of Directors 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 Audit Committee held one meeting in 1996.
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.
EXECUTIVE OFFICERS
The executive officers of the Company serve at the discretion of the Board
of Directors and presently include Messrs. Sky D. Dayton, Charles G. Betty,
Barry W. Hall, Robert E. Johnson, Jr., David R. Tommela, Brinton O.C. Young and
Dr. Richard D. Edmiston. See "Information Regarding Nominees For Directors" for
information regarding Messrs. Dayton and Betty.
BARRY W. HALL
Age: 48
Mr. 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
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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.
Age: 44
Mr. Johnson 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.
DAVID R. TOMMELA
Age: 57
Mr. 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
Age: 45
Mr. 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.
DR. RICHARD D. EDMISTON
Age: 54
Dr. Edmiston has served as Vice President of Research and Development of
the Company since January 1997. From December 1992 to January 1997, Dr.
Edmiston was Vice President of Network Planning and Architecture at BBN
Corporation, a leading Internet research and development organization, and the
founder of BBN Planet, a leading provider of Internet services to businesses.
From September 1990 to November 1992, Dr. Edmiston managed distributed computer
and information systems research at GTE Laboratories.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors, executive officers and persons who own
beneficially more than 10% of the Company's Common Stock to file reports of
ownership and changes in ownership of such stock with the Securities and
Exchange Commission (the "SEC") and the National Association of Securities
Dealers, Inc. These persons are also required by SEC regulations to furnish the
Company with copies of all such forms they file. To the Company's knowledge,
based solely on a review of the copies of such reports furnished
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to the Company and written representations that no other reports were required,
all of the Company's reporting persons complied during fiscal 1996 with all
applicable Section 16(a) filing requirements.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth information concerning (i) those persons
known by management of the Company to own beneficially more than 5% of the
Company's outstanding Common Stock, (ii) the directors of the Company, (iii) the
executives officers named in the Summary Compensation Table included elsewhere
herein and (iv) all directors and officers of the Company as a group. Except as
otherwise indicated in the footnotes below, such information is provided as of
April 2, 1997, the Record Date. According to rules adopted by the SEC, a person
is the "beneficial owner" of securities if he or she has or shares the power to
vote them or to direct their investment or has the right to acquire beneficial
ownership of such securities within 60 days through the exercise of an option,
warrant or right, the conversion of a security or otherwise. Except as
otherwise noted, the indicated owners have sole voting and investment power with
respect to shares beneficially owned. An asterisk in the percent of class
column indicates beneficial ownership of less than 1% of the outstanding Common
Stock.
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNERS (1) BENEFICIAL OWNERSHIP CLASS
- - ----------------------------------------- -------------------- -----
Sky D. Dayton . . . . . . . . . . . . . . 1,587,500 (2) 16.2%
Kevin M. O'Donnell. . . . . . . . . . . . 1,134,702 (3) 11.4
Reed E. Slatkin . . . . . . . . . . . . . 1,181,237 (4) 11.9
Sidney Azeez. . . . . . . . . . . . . . . 544,124 (5) 5.6
Charles G. Betty. . . . . . . . . . . . . 83,299 (6) *
Linwood A. Lacy, Jr . . . . . . . . . . . 44,810 (7) *
Robert M. Kavner. . . . . . . . . . . . . 34,009 (8) *
Robert E. Johnson, Jr.. . . . . . . . . . 17,500 (9) *
John W. Sidgmore. . . . . . . . . . . . . 392,000 (10) 3.9
Paul McNulty. . . . . . . . . . . . . . . 504 (11) *
Brinton O.C. Young. . . . . . . . . . . . 32,500 (12) *
Barry W. Hall . . . . . . . . . . . . . . 17,500 (13) *
David R. Tommela. . . . . . . . . . . . . 11,875 (14) *
Quantum Industrial Partners LDC . . . . . 673,063 (15) 6.9
UUNET Technologies, Inc.. . . . . . . . . 392,000 (16) 3.9
Storie Partners, L.P (17).. . . . . . . . 521,892 5.4
All directors and officers as a group
(14 persons). . . . . . . . . . . . . . . 5,082,935 (18) 47.4
- - ------------
* 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.
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(2) Includes options to purchase 87,500 shares of Common Stock. Mr. Dayton's
business address is that of the Company.
(3) Includes (i) 7,538 shares of Common Stock and options to purchase an
additional 50 shares held by Mr. O'Donnell's son, and (ii) warrants to
purchase 182,500 shares of Common Stock. 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) 316,201 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 51,250 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 17,500 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 held by UUNET Technologies, Inc.
("UUNET"). 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.
(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 Soros Fund Management ("SFM"), a sole proprietorship of
Mr. George Soros. 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. The
business address of Quantum Industrial is: c/o Curacao Corporation
Company N.V., Kaya Flamboyan 9, Willemstad, Curacao, Netherlands
Antilles.
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(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. The business address of UUNET
is: 3060 Williams Drive, Fairfax, Virginia 22031.
(17) The business address of Storie Partners L.P. is: c/o Mr. Steve Ledger,
One Bush Street, Suite 1350, San Francisco, California 94104.
(18) Includes (i) options and warrants to purchase 613,226 shares of Common
Stock, (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 50 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.
EXECUTIVE COMPENSATION
PURSUANT TO SEC RULES FOR PROXY STATEMENT DISCLOSURE OF EXECUTIVE
COMPENSATION, THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF THE
COMPANY HAS PREPARED THE FOLLOWING REPORT ON EXECUTIVE COMPENSATION. THE
COMMITTEE INTENDS THAT THIS REPORT CLEARLY DESCRIBE THE CURRENT EXECUTIVE
COMPENSATION PROGRAM OF THE COMPANY, INCLUDING THE UNDERLYING PHILOSOPHY OF THE
PROGRAM AND THE SPECIFIC PERFORMANCE CRITERIA ON WHICH EXECUTIVE COMPENSATION IS
BASED. THIS REPORT ALSO DISCUSSES IN DETAIL THE COMPENSATION PAID TO THE
COMPANY'S CHIEF EXECUTIVE OFFICERS, MR. SKY D. DAYTON (THROUGH MAY 1996) AND MR.
CHARLES G. BETTY (THROUGH THE REMAINDER OF 1996).
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report by the Compensation Committee of the Board of Directors (the
"Committee") discusses the Committee's compensation objectives and policies
applicable to the Company's executive officers. The report reviews the
Committee's policy generally with respect to the compensation of all executive
officers as a group for fiscal 1996 and specifically reviews the compensation
established for the Company's Chief Executive Officers as reported in the
Summary Compensation Table. The Committee is composed entirely of non-employee
directors of the Company. The Committee also administers the Company's Stock
Option Plans.
COMPENSATION PHILOSOPHY
The Committee consists of three non-employee directors. The Committee is
responsible for setting cash and long-term incentive compensation for executive
officers and other key employees of the Company.
The Company's compensation policies are intended to create a direct
relationship between the level of compensation paid to executives and the
Company's current and long-term level of performance. The Committee believes
that this relationship is best implemented by providing a compensation package
of separate components, all of which are designed to enhance the Company's
overall performance. The components are base salary, short-term compensation in
the form of annual bonuses and long-term incentive compensation in the form of
stock options.
9
<PAGE>
BASE SALARIES
The base salaries for the Company's executive officers for 1996 were
established subjectively by the Committee. The salaries of Messrs. Dayton and
Betty were established based on the market environment and the Company's need to
attract and retain key personnel for whom the Company must compete against
larger, more established companies.
SHORT-TERM ANNUAL BONUSES
Annual bonuses established for the executive officers are intended to
provide an incentive for improved performance in the short term. Target bonus
levels for the executive officers are established by the Committee at the
beginning of the year. For 1996, these bonuses were established based on
pre-determined customer count levels.
LONG-TERM INCENTIVE COMPENSATION
The Company's long-term incentive compensation plan for its executive
officers is based on the Company's stock option plans. These plans promote
ownership of the Company's Common Stock which, in turn, provides a common
interest between the stockholder of the Company and the executive officers of
the Company. In establishing a long-term compensation plan, the Board of
Directors concluded that any compensation received under such plans should be
directly linked to the performance of the Company, as reflected by increases in
the price of its Common Stock, and the contribution of the individual thereto.
Options have an exercise price equal to the fair market value of the shares on
the date of grant and, to encourage a long-term perspective, have an exercise
period of ten years. The number of options granted to executive officers is
determined by the Committee, which is charged with administering the stock
option plans.
The base salaries, targeted bonus amounts and number of stock options
established for or granted to the Company's executive officers for 1996 are
based, in part on the Committee's understanding of compensation amounts and
forms paid to persons in comparable roles performing at comparable levels at
other companies in the same or related industries. Such amounts however, mainly
reflect the subjective discretion of the members of the Committee based on the
evaluation of the Company's current and anticipated future financial
performance, the contribution of the individual executive officers to such
financial performance, the contribution of the individual executive officers to
the Company in areas not necessarily reflected by the Company's financial
performance and the most appropriate incentive to link the performance and
compensation of the executive officers to the stockholder's return on the
Company's Common Stock.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Sky D. Dayton was the Company's Chief Executive Officer during the period
January 1, 1996 through May 7, 1996. During this period, Mr. Dayton was paid
$40,008 based on an annual base salary of $137,000, which was subsequently
increased to $165,000 in May 1996. The base salary was consistent with Mr.
Dayton's 1995 base salary and was awarded to Mr. Dayton by the Committee in its
subjective discretion based on Mr. Dayton's contributions to the Company.
Because Mr. Dayton is already a substantial stockholder of the Company, no stock
options were granted to Mr. Dayton during 1996. To provide incentive to Mr.
Dayton to devote additional efforts to improve the Company's
10
<PAGE>
performance, Mr. Dayton was allowed to participate in the Company's 1996 annual
bonus plan that provided for a cash bonus based on achieving certain customer
count levels. Mr. Dayton's total 1996 annual bonus payment was $70,006.
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 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, 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. 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. As a result of Mr. Betty's contributions not necessarily being reflected
in the in the Company's financial performance, the Committee reconsidered the
plan and in its discretion, allowed Mr. Betty to participate in the 1996 annual
bonus plan that provided for a cash bonus based on achieving certain customer
count levels and awarded Mr. Betty an actual bonus of $77,635.
BENEFITS
The Company believes that it must offer a competitive benefits program to
attract and retain all of its full time employees. Accordingly, the Company
provides the same medical and other benefits to its executive officers that are
generally available to its other employees.
LIMITATIONS ON DEDUCTIBILITY OF COMPENSATION
Under the 1993 Omnibus Budget Reconciliation Act, a portion of annual
compensation payable after 1993 to any of the Company's five highest paid
executive officers would not be deductible by the Company for federal income tax
purposes to the extent such officer's overall compensation exceeds $1,000,000.
Qualifying performance-based incentive compensation, however, would be both
deductible and excluded for purposes of calculating the $1,000,000 base.
Although the Committee does not presently intend to award compensation in excess
of the $1,000,000 cap, it will continue to address this issue when formulating
compensation arrangements for the Company's executive officers.
SUBMITTED BY: THE COMPENSATION COMMITTEE
Linwood A. Lacy, Jr.
Kevin M. O'Donnell
Reed E. Slatkin
THE COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION SHALL NOT BE
DEEMED TO BE INCORPORATED BY REFERENCE AS A RESULT OF ANY GENERAL INCORPORATION
BY REFERENCE OF THIS PROXY STATEMENT OR ANY PART HEREOF IN THE COMPANY'S 1996
ANNUAL REPORT TO STOCKHOLDERS OR ITS REPORT ON FORM 10-K.
11
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors currently
consists of Messrs. Lacy, O'Donnell and Slatkin. No member of the Compensation
Committee was, during the last fiscal year, an officer or employee of the
Company nor was formerly an officer of the Company. The following transactions
involve, among others, members of the Compensation Committee and are required to
be described under the rules of the SEC.
During January 1996, Mr. Slatkin agreed to act as lessee together with
the Company under an equipment lease in the amount of $1.5 million. As
consideration for this agreement, the Company issued Mr. Slatkin warrants to
purchase 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 January 1996. The Company and Mr. O'Donnell subsequently
agreed to indemnify Mr. Slatkin against certain liability arising out of this
lease. As consideration for this agreement, Mr. Slatkin transferred one-half of
these warrants to Mr. O'Donnell.
In 1996, 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; 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 were due on or before June 6, 1997 with interest
payable monthly until such date. The warrants are exercisable for five years
commencing on the date of issuance. 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; 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. The
holders of $725,000 of the 10% Promissory Notes, including Messrs. Slatkin and
Abbott and Storie Partners, L.P., converted their indebtedness into 55,767
shares of Common Stock upon consummation of the Companys' initial public
offering in January 1997. At that time, the Company also repaid the remaining
balance of the 10% Promissory Notes.
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 and stockholders. Each two shares of Series A Convertible
Preferred Stock automatically converted into one share of Common Stock upon the
consummation of the Company's initial public 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 issued upon conversion of the Series A Convertible
Preferred Stock): Quantum Industrial Partners LDC ("Quantum Industrial")
(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
12
<PAGE>
may be deemed to have sole and ultimate control over Soros Fund Management, in
which Quantum Industrial 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. Mr. Soros may be deemed to be the beneficial
owner of the Common Stock held by Quantum Industrial.); 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); 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).
Mr. Lacy also serves as President and Chief Executive Officer of Micro
Warehouse Incorporated ("Micro Warehouse"), one of the Company's affinity
marketing partners. For the year ended December 31, 1996, the Company paid Micro
Warehouse approximately $51,000 in bounties for new Company customers generated
by Micro Warehouse.
CERTAIN TRANSACTIONS
In addition to the transactions described under "Compensation Committee
Committee Interlocks and Insider Participation," the following transactions are
required to be disclosed under the rules of the SEC:
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 leased
dial-up points of presence ("POPs") for Internet access. In connection with the
Company's and UUNET's execution of a new network services agreement in May 1996,
the Company issued 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, Mr. Sidgmore. This note bears interest at prime plus 2% per annum (an
effective rate of 10.25% per annum at December 31, 1996), and became
convertible upon consummation of the Company's initial public offering into
382,000 shares of Common Stock. The Company also granted UUNET certain
registration rights identical to those presently held by most of the Company's
then existing stockholders. In 1996 EarthLink paid UUNET approximately $4.2
million for network services.
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.
13
<PAGE>
EXECUTIVE OFFICER COMPENSATION
TABLE I - SUMMARY COMPENSATION TABLE
The following table presents certain information required by the SEC
relating to various forms of compensation awarded to, earned by or paid to the
Company's Chief Executive Officer and each of the four most highly compensated
executive officers other than the Chief Executive Officer who earned more than
$100,000 during fiscal 1996 and was serving at the end of fiscal 1996. Such
executive officers are hereinafter referred to as the Company's "Named Executive
Officers."
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------------------
------------------- SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (#) COMPENSATION
- - --------------------------- ---- ------ ----- ---------------------- ----------------
<S> <C> <C> <C> <C> <C>
Sky Dayton 1996 $153,036 $70,006 -- --
Chairman (1). . . . . . . . . . . . . . . . 1995 97,726 16,573 250,000 --
Charles G. Betty 1996 220,550 77,635 250,000 $24,000(2)
President and Chief Executive Officer (1) . 1995 -- -- -- --
Barry W. Hall
Vice President, Finance and Admini- 1996 121,567 32,092 75,000 --
stration and Chief Financial Officer . . . 1995 -- -- -- --
David R. Tommela 1996 130,392 34,439 12,500 --
Vice President, Operations. . . . . . . . . 1995 8,862 -- 37,500 --
Robert E. Johnson, Jr. 1996 100,000 111,162(3) -- --
Vice President, Sales and Marketing . . . . 1995 87,578 21,646(3) 50,000 --
Brinton O.C. Young 1996 73,681 18,409 112,500 --
Vice President, Strategic Planning. . . . . 1995 -- -- -- --
</TABLE>
- - -------------
(1) Mr. Dayton served as the Company's President until January 15, 1996 when
Mr. Betty's employment commenced. Mr. Dayton served as the Company's Chief
Executive Officer until May 7, 1996 when Mr. Betty was appointed to that
position.
(2) Consists of reimbursement of travel expenses paid in accordance with
Mr. Betty's employment agreement.
(3) The bonus amounts shown for Mr. Johnson represent sales commissions.
14
<PAGE>
TABLE II - OPTION GRANTS IN FISCAL 1996
This table presents information regarding options granted to the Company's
Named Executive Officers during fiscal 1996 to purchase shares of the Company's
Common Stock. In accordance with SEC rules, the table shows the hypothetical
"gains" or "option spreads" that would exist for the respective options based on
assumed rates of annual compound stock price of 5% and 10% from the date the
options were granted over the full option term.
<TABLE>
<CAPTION>
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO OF STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR THE OPTION TERM(5)
OPTIONS IN FISCAL PRICE EXPIRATION ------------------------------
NAME GRANTED (#) YEAR ($/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 the Company's initial public 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.
15
<PAGE>
TABLE III - OPTION EXERCISES IN FISCAL 1996 AND
FISCAL 1996 YEAR-END OPTION VALUES
None of the Company's Named Executive Officers exercised any stock options
during fiscal 1996. The following table shows the number of shares of Common
Stock subject to exercisable and unexercisable stock options held by each of the
Named Executive Officers as of December 31, 1996. The table also reflects the
values of such options based on the positive spread between the exercise price
of such options and $13.00, which was the per share price to the public in the
Company's initial public offering which was effected on January 21, 1997.
<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, 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.
Mr. Betty's actual bonus for 1996 was $77,635. 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.
16
<PAGE>
STOCK PERFORMANCE GRAPH
The following indexed line graph indicates the Company's total return to
stockholders from January 22, 1997, the date on which the Company's Common Stock
began trading on the Nasdaq National Market, to February 28, 1997, as compared
to the total return for the Nasdaq Stock Market - US Index and the Nasdaq
Telecommunications Index for the same period. The calculations in the graph
assume that $100 was invested on January 22, 1997, in each of the Company's
Common Stock and each index and also assume dividend reinvestment.
[GRAPH]
- - --------------------------------------------------------------------------------
1/22/97 1/31/97 2/28/97
- - --------------------------------------------------------------------------------
EarthLink Network, Inc. $100 $135 $123
- - --------------------------------------------------------------------------------
Nasdaq Stock Market - US Index $100 $100 $94
- - --------------------------------------------------------------------------------
Nasdaq Telecommunications Index $100 $98 $96
- - --------------------------------------------------------------------------------
17
<PAGE>
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before the
Annual Meeting. However, if any other matters are properly brought before the
Annual Meeting, the persons appointed in the accompanying proxy intend to vote
the Shares represented thereby in accordance with their best judgment.
SOLICITATION OF PROXIES
The cost of the solicitation of proxies on behalf of the Company will be
borne by the Company. The Company has engaged American Stock Transfer & Trust
Company to assist it in the proxy solicitation process and will pay such firm
approximately $1,000 for its services (exclusive of postage fees). In addition,
directors, officers and other employees of the Company may, without additional
compensation except reimbursement for actual expenses, solicit proxies by mail
in person or by telecommunication. The Company will reimburse brokers,
fiduciaries, custodians and other nominees for out-of-pocket expenses incurred
in sending the Company's proxy materials to, and obtaining instructions relating
to such materials from, beneficial owners.
INDEPENDENT AUDITORS
The firm of Price Waterhouse LLP served as the Company's independent
auditors for the fiscal year ended December 31, 1996 and the Board of Directors
has reappointed this firm as the Company's independent auditors for the fiscal
year ending December 31, 1997. A representative of this firm is expected to
attend the Annual Meeting to respond to questions from stockholders and to make
a statement if he or she so desires.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Any proposal that a stockholder may desire to have included in the
Company's proxy material for presentation at the 1998 Annual Meeting must be
received by the Company at its executive offices at 3100 New York Drive,
Pasadena, California 91107, Attention Barry W. Hall, Secretary, on or prior to
December 31, 1997.
ANNUAL REPORT
The Company's 1996 Annual Report to Stockholders (which is not part of the
Company's proxy soliciting material) is being mailed to the Company's
Stockholders with this proxy statement.
By order of the Board of Directors,
Sky D. Dayton
CHAIRMAN OF THE BOARD
Pasadena, California
April 22, 1997
18
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF THE BOARD OF DIRECTORS OF
EARTHLINK NETWORK, INC.
The undersigned stockholder(s) of EarthLink Network, Inc., a Delaware
corporation (the "Company"), hereby acknowledges receipt of the Notice of
Annual Meeting of Stockholders and Proxy Statement, each dated April 22,
1997, and hereby appoints Sky D. Dayton and Charles G. Betty, or either of
them, proxies and attorneys-in-fact, with full power of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at
the 1997 Annual Meeting of Stockholders of the Company to be held at 2:00
p.m. Pacific Standard Time on Thursday, May 22, 1997 in the Executive
Conference Room of the Company's Wes LeBaron Technology Center, 2947 Bradley
Street, Pasadena, California 91107 and at any adjournment(s) thereof, and to
vote all shares of Common Stock which the undersigned would be entitled to
vote if then and there personally present, on the matters set forth on the
reverse side of this proxy card.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
<PAGE>
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
EARTHLINK NETWORK, INC.
May 22, 1997
Please Detach and Mail in the Envelope Provided
- - -------------------------------------------------------------------------------
A [X] Please mark your votes as in this example.
(1) To elect the nominee listed at right to serve as directors of the
Company for the ensuing year:
FOR all nominees listed at right, except as indicated below [ ]
WITHHOLD authority to vote for all nominees [ ]
INSTRUCTIONS: TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL NOMINEE, MARK "FOR"
ABOVE, AND WRITE THE NAME OF THE NOMINEE OR NOMINEES AS TO WHOM YOU WISH TO
WITHHOLD AUTHORITY IN THE SPACE BELOW. YOU MAY ALSO USE THE SPACE BELOW TO
CUMULATE VOTES WITH RESPECT TO ONE OR MORE NOMINEES.
- - -------------------------------------------------------------------------------
NOMINEES:
Sky D. Dayton, Charles G. Betty,
Sidney Azeez, Robert M. Kavner,
Linwood A. Lacy, Jr., Paul McNulty,
Kevin M. O'Donnell, John W. Sidgmore
and Reed E. Slatkin
Stockholders are entitled to cumulate votes in the election of directors as
described in the enclosed Proxy Statement. To cumulate votes as to a
particular nominee(s), indicate the name(s) and the number of votes to be
given to such nominee(s) on the line provided at left.
The proxies are authorized to vote, in their discretion, upon such other
matter or matters that may properly come before the meeting or any
adjournment(s) or postponement(s) thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE
DIRECTIONS GIVEN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE,
IT WILL BE VOTED FOR THE DIRECTOR NOMINEES NAMED IN PROPOSAL (1) ABOVE AND AS
THE PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE
MEETING.
PLEASE COMPLETE, DATE, SIGN AND RETURN THIS PROXY PROMPTLY.
Signature _____________________________________
Signature (if held jointly) __________________________________ Dated ____, 1997
TITLE OR AUTHORITY (IF APPLICABLE)
NOTE: Please sign exactly as name appears hereon. If shares are registered
in more than one name, the signature of all such persons are required. A
corporation should sign in its full corporate name by a duly authorized
officer, stating his or her title. Trustees, guardians, executors and
administrators should sign in their official capacity, giving their full
title as such. If a partnership, please sign in the partnership name by an
authorized person.
