<PAGE>
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
Filed by the Registrant /X/
Filed by a Party other than the Registrant
Check the appropriate box:
/X/Preliminary Proxy Statement -Confidential For Use of the Commission Only
-(as permitted by Rule 14a-6(e)(2)
- -Definitive Proxy Statement
- -Definitive Additional Materials
- -Soliciting Material Pursuant to 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:
- --------------------------------------------------------------------------------
/X/ 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:
- --------------------------------------------------------------------------------
<PAGE>
EARTHLINK NETWORK, INC.
3100 New York Drive
Pasadena, California 91107
(626) 296-2400
January 23, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of the
Stockholders of EarthLink Network, Inc. (the "Company"), which will be held
at 2:00 p.m. local time, Thursday, February 19, 1998, in the Executive
Conference Room of the Company's corporate headquarters, 3100 New York Drive,
Pasadena, California.
The principal business of the meeting will be to approve an
amendment to the Company's 1995 Stock Option Plan to increase the number of
shares of the Company's common stock, $.01 par value per share, reserved for
the grant of stock options under the plan from 1,250,000 to 1,850,000.
Whether or not you plan to attend the Special 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,
/s/ Sky D. Dayton
------------------
Sky D. Dayton
Chairman of the Board
<PAGE>
EARTHLINK NETWORK, INC.
3100 New York Drive
Pasadena, California 91107
(626) 296-2400
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
A Special Meeting of the Stockholders of EarthLink Network,
Inc. (the "Company") will be held at 2:00 p.m. local time, Thursday, February
19, 1998, in the Executive Conference Room of the Company's corporate
headquarters, 3100 New York Drive, Pasadena, California. The meeting is
called for the following purposes:
(1) To amend the Company's 1995 Stock Option Plan to increase
the number of shares of the Company's common stock, $.01 par
value per share, reserved for the grant of stock options
under the plan from 1,250,000 to 1,850,000; 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
January 14, 1998 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,
/s/ Sky D. Dayton
-----------------
Sky D. Dayton
Chairman of the Board
Pasadena, California
January 23, 1998
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.
<PAGE>
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") in connection
with the solicitation of proxies for use at a Special Meeting of the
Stockholders of the Company to be held at 2:00 p.m. local time on Thursday,
February 19, 1998, in the Executive Conference Room of the Company's
corporate headquarters, located at 3100 New York Drive, Pasadena, California,
and at any adjournments or postponements thereof (the "Special Meeting").
This Proxy Statement and the enclosed proxy card will be mailed on or about
January 23, 1998 to the Company's stockholders of record on the Record Date,
as defined below (the "Stockholders").
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 Special Meeting, the shares of common stock, $.01 par value per share,
of the Company (the "Common Stock") represented thereby will be voted FOR the
amendment to the Company's 1995 Stock Option Plan (the "Stock Option Plan")
as described 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
Special 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 Special Meeting.
Only holders of record of Common Stock as of the close of
business on January 14, 1998 (the "Record Date") will be entitled to vote at
the Special Meeting. As of the close of business on the Record Date, there
were _______________ shares of Common Stock (the "Shares") outstanding.
Holders of Shares authorized to vote are entitled to cast one vote per Share
on all matters.
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.
<PAGE>
Vote Required
Approval of the proposed amendment to the Stock Option Plan,
as well as any other matter that may properly come before the Special
Meeting, requires the affirmative vote of a majority of the Shares present in
person or represented by proxy and entitled to vote on such matter at a
meeting at which a quorum is present. Abstentions will be counted in
determining the minimum number of votes required for approval and will,
therefore, have the effect of votes against such proposals. Broker
non-votes, those shares held by a broker or nominee as to which such broker
or nominee does not have discretionary voting power, will not be counted as
votes for or against approval of such matters.
With respect to any other matters that may come before the
Special 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 - AMENDMENT OF 1995 STOCK OPTION PLAN
On January 5, 1998, the Board of Directors adopted and
recommended for submission to the Stockholders for their approval a proposal
to amend the Company's 1995 Stock Option Plan. The proposed amendment to the
Stock Option Plan will increase the number of shares of Common Stock reserved
for issuance under the Stock Option Plan from 1,250,000 to 1,850,000. A copy
of the Stock Option Plan in the amended form proposed for approval by the
Stockholders is attached as Appendix A to this Proxy Statement.
The purposes of the Stock Option Plan are to attract and
retain the best available personnel, to provide additional incentive to the
employees of the Company and its subsidiaries, if any, to promote the success
of the Company's business and to enable the Company's employees to share in
the growth and prosperity of the Company by providing them with an
opportunity to purchase stock in the Company.
The Board has reserved 1,250,000 shares of Common Stock for
grants of options under the Stock Option Plan. Since the Company's
inception, the Compensation Committee of the Company's Board of Directors has
granted options to purchase 1,335,418 shares of Common Stock under the Stock
Option Plan. Of the options granted to date, options to purchase 221,807
shares have been recaptured from employees whose employment with the Company
has terminated. Accordingly, if the proposal to amend and restate the Stock
Option Plan is approved, there will be 687,432 shares of Common Stock
available for future grants under the Stock Option Plan. The primary
features of the Stock Option Plan are summarized below
Plan Summary and Other Information
General. Under the Stock Option Plan, options may be granted
to employees of the Company and its Subsidiaries (as defined in the Stock
Option Plan), if any. As of December 31, 1997, there were approximately 800
persons eligible to receive grants of options under the Stock Option Plan,
subject to the Compensation Committee's approval of individual grants.
The Stock Option Plan offers to eligible employees
("Participants" or, individually, a "Participant") the opportunity to
purchase shares of Common Stock through stock options granted to them under
the Stock Option Plan. A stock option entitles the optionee to purchase
shares of Common Stock from the Company at the exercise price. Two types of
options, incentive stock options ("ISOs")
2
<PAGE>
and nonstatutory stock options, may be granted under the Stock Option Plan.
The two types of options differ primarily in the tax consequences associated
with the exercise of an option and the disposition of the shares of Common
Stock received upon exercise of an option. See "--Certain Federal Income Tax
Consequences." No Participant may be granted options that relate to more
than 250,000 shares of Common Stock during any one-year period.
Grants Under the Stock Option Plan. The Compensation
Committee, which is comprised of two or more non-employee directors appointed
by the Board of Directors, administers the Stock Option Plan and designates
Participants to whom options are granted, specifies whether the option is
intended to be an ISO or a nonstatutory stock option and specifies the number
of shares of Common Stock subject to each option. All options granted under
the Stock Option Plan are evidenced by option agreements ("Option Agreements"
or, individually, an "Option Agreement") that are subject to the applicable
provisions of the Stock Option Plan and to such other terms, conditions and
restrictions as the Compensation Committee may determine to be appropriate.
In the case of ISOs, the aggregate Fair Market Value (as
defined in the Plan) of Common Stock with respect to which stock options
intended to meet the requirements of Code Section 422 of the Internal Revenue
Code of 1986, as amended, become exercisable for the first time by an
individual during any calendar year under all plans of the Company and its
subsidiaries may not exceed $100,000; provided further, that if the
limitation is exceeded, the ISOs that cause the limitation to be exceeded
will be treated as nonstatutory stock options.
Set forth below is the number of incentive stock options that
had been granted to certain employees of the Company under the Stock Option
Plan and that remained outstanding as of December 31, 1997. No nonstatutory
stock options have been granted under the Stock Option Plan. The closing
sales price reported by the Nasdaq National Market of the Company's Common
Stock on December 31, 1997 was $25.75 per share.
Incentive
Name Options Granted(1)
- ---- ------------------
Sky D. Dayton............... --
Charles G. Betty............ 175,000(2)
David Tommela............... 50,000(3)
Brinton O.C. Young.......... 112,500(4)
Grayson L. Hoberg........... 50,000(5)
Richard D. Edmiston......... 27,500(6)
All Executive Officers
as a Group (6 Persons)..... 415,000
Non-Executive Officer
Employees as a Group....... 698,611(7)
______________________
(1) All stock options vest in equal increments of 5% per quarter over the
five-year period beginning on the date of grant.
(2) Granted January 15, 1996.
(3) 37,500 granted December 4, 1995; 12,500 granted May 7, 1996.
(4) Granted May 7, 1996.
(5) Granted November 7, 1997.
(6) Granted January 23, 1997.
(7) Represents options granted to 324 employees under the Stock Option Plan.
This figure was adjusted to reflect both the recapture of 221,807 options
pursuant to employee terminations and the exercise of 48,957 options by
employees as of December 31, 1997.
3
<PAGE>
Although undeterminable at the time of this Proxy Statement,
the Company believes that the Compensation Committee of the Board of
Directors will award Mr. Betty, the Company's President and Chief Executive
Officer, both incentive and nonstatutory stock options under the amended
Stock Option Plan, pending the approval of this amendment and the
Compensation Committee's review of the Company's executive compensation
policies for fiscal 1998.
Exercise Price. The exercise price of a share of Common Stock
purchased upon the exercise of an option granted under the Stock Option Plan
(the "Exercise Price") is determined by the Compensation Committee on the
date the option is granted and set forth in the applicable Option Agreement.
The Exercise Price of an ISO may not be less than the Fair Market Value of a
share of Common Stock on the date the option is granted. With respect to
each grant of an ISO to a Participant who beneficially owns more than 10% of
the combined voting power of the Company or any of its Subsidiaries
(determined by applying certain attribution rules), the Exercise Price may
not be less than 110% of the Fair Market Value of the Common Stock on the
date the option is granted. These Exercise Price requirements do not apply
to nonstatutory stock options. However, under the Stock Option Plan, the
exercise price of a nonstatutory stock option may not be less than 85% of the
Fair Market Value of a share of Common Stock on the date of grant.
Exercise and Payment. An option may be exercised in
accordance with the Stock Option Plan and such other terms and conditions as
the Compensation Committee may prescribe. Each option is exercisable by the
Participant at such time or times, or upon the occurrence of such event or
events, and in such amounts, as the Compensation Committee shall specify in
the Option Agreement; provided, however, that subsequent to the grant of an
option, the Compensation Committee, at any time before complete termination
of such option, may accelerate the time or times at which the option may be
exercised, in whole or in part, and may permit the Participant or any other
designated person to exercise the option, or any portion thereof, for all or
part of the remaining option term, notwithstanding any provision of the
Option Agreement to the contrary.
The maximum period during which an ISO may be exercised is
determined by the Compensation Committee on the date of grant, but may not be
longer than ten years, provided that, any ISO granted to a Participant who
beneficially owns more than 10% of the combined voting power of the Company
or any of its Subsidiaries (determined by applying certain attribution rules)
may not be exercisable after the expiration of five years after the date of
grant. The term of any option is specified in the applicable Option
Agreement. An option is considered exercised on the date the Exercise Price
is paid to the Company.
The Exercise Price must be paid in cash or a cash equivalent
authorized by the Compensation Committee. If the Option Agreement provides,
the payment of all or part of the Exercise Price may be made by surrendering
shares of Common Stock that have been owned by the Participant for at least
six months prior to the date of exercise to the Company to the extent
sufficient to pay the full Exercise Price. The Exercise Price may also be
paid by having the Company withhold a number of shares, the Fair Market Value
of which is sufficient to satisfy the Exercise Price.
Administration. The Stock Option Plan is administered by the
Compensation Committee of the Board of Directors. Compensation Committee
members generally may not be employees of or consultants to the Company or
its Subsidiaries and serve at the pleasure of the Board of Directors. All
members of the Compensation Committee are appointed (and may be removed) by
and serve for such terms as determined by the Board of Directors. The
Compensation Committee has the authority to
4
<PAGE>
interpret all provisions of the Stock Option Plan; to prescribe the form of
Option Agreements; to adopt, amend and rescind rules and regulations pertaining
to the administration of the Stock Option Plan; and to make all other
determinations necessary or advisable for the administration of the Stock Option
Plan. The Compensation Committee's determinations under the Stock Option Plan
need not be uniform and may be made by it selectively among persons who receive,
or are eligible to receive, grants under the Stock Option Plan (whether or not
such persons are similarly situated).
Certain Federal Income Tax Consequences
The following discussion outlines certain federal income tax
consequences of participation in the Stock Option Plan. Individual
circumstances may vary these results. Additionally, federal income tax laws
and regulations are complex and frequently amended, and each Participant
should rely on his own tax counsel for advice regarding the federal income
tax consequences of participation in the Stock Option Plan.
Federal Income Tax Treatment of ISOs. A Participant generally
will not recognize taxable income on the grant or the exercise of an ISO
(although the exercise of an ISO can increase the Participant's alternative
minimum tax liability because the difference between the fair market value of
the Common Stock acquired and the Exercise Price will be included in the
Participant's alternative minimum taxable income). A Participant will
recognize taxable income if and when the Participant disposes of the shares
of Common Stock acquired under the ISO. If the disposition occurs more than
two years after the grant of the ISO and more than one year after the shares
of Common Stock are transferred to the Participant on exercise of the ISO
(the "ISO Holding Period"), the Participant will recognize capital gain (or
loss) equal to the excess (or deficiency) of the amount realized from
disposition of the Common Stock less the Participant's tax basis in the
Common Stock. A Participant's tax basis in the Common Stock generally is the
amount the Participant paid on exercise of the ISO. The capital gain (or
loss) will be long-term or short-term depending on the length of time the
Participant held the shares of Common Stock.
If Common Stock acquired under an ISO is disposed of before
the expiration of the ISO Holding Period described in the preceding paragraph
(a "Disqualifying Disposition"), a Participant generally will recognize as
ordinary income in the year of the Disqualifying Disposition the difference
between the fair market value of the Common Stock on the date of exercise of
the ISO and the Exercise Price paid by the Participant. Any additional gain
will be treated as long-term or short-term capital gain depending on the
length of time the Participant held the shares of Common Stock.
A special rule applies to a Disqualifying Disposition of
Common Stock where the amount realized on the disposition is less than the
fair market value of the Common Stock on the date of exercise of the ISO. In
that event, the Participant generally will recognize as ordinary income the
difference between the amount realized on the disposition of the Common Stock
and the Exercise Price paid by the Participant instead of the ordinary income
amount described above for a Disqualifying Disposition. Any additional loss
will be treated as a long-term or short-term capital loss depending on the
length of time the Participant held the shares of Common Stock.
The Company generally will not be entitled to a federal income
tax deduction with respect to the grant or exercise of an ISO. In the event
a Participant disposes of Common Stock acquired under an ISO in a
Disqualifying Disposition, the Company generally will be entitled to a
federal income tax deduction equal to the amount of ordinary income the
Participant is to recognize.
5
<PAGE>
The foregoing discussion assumes that the Participant
exercises the ISO while the Participant is an employee of the Company or
within three months of termination of employment. The three-month period is
extended to one year if the Participant terminates employment as a result of
a total and permanent disability and indefinitely if the termination is
caused by the Participant's death. If the Participant exercises the ISO
outside of these time limits, the Participant's tax consequences will be the
same as described for nonstatutory stock options. However, the Board of
Directors may shorten the time period during which the Participant may
exercise any ISO in the applicable Option Agreement.
Federal Income Tax Treatment of Nonstatutory Stock Options. A
Participant generally will not recognize taxable income on the grant of a
nonstatutory stock option. On the exercise of a nonstatutory stock option, a
Participant will recognize as ordinary income the difference between the fair
market value of the Common Stock acquired and the Exercise Price paid by the
Participant. A Participant's tax basis in the Common Stock acquired upon the
exercise of a nonstatutory stock option is the amount paid for the Common
Stock plus any amount included in income with respect to the exercise. The
Participant's holding period for the Common Stock begins on the day the
Common Stock is acquired. Any gain or loss that a Participant recognizes on
a subsequent disposition of Common Stock acquired upon the exercise of a
nonstatutory stock option generally will be long-term or short-term capital
gain or loss depending on the length of time the Participant held the shares
of Common Stock. The amount of the gain (or loss) will equal the excess (or
deficiency) of the amount realized on the subsequent disposition less the
Participant's tax basis in his shares of Common Stock.
The exercise of a nonstatutory stock option generally will
entitle the Company to claim a federal income tax deduction equal to the
amount of ordinary income the Participant is to recognize. The amount of
ordinary income the Participant is to recognize on the exercise of a
nonstatutory stock option will constitute wages for withholding and
employment tax purposes. Accordingly, the Company will be required to
withhold or obtain payment from the Participant, as each Option Agreement
permits, for the amount of required withholding and employment taxes.
Special Rules. The foregoing discussion assumes that the
Participant pays the Exercise Price in cash. Special rules apply to a
Participant who exercises an ISO or a nonstatutory stock option by paying the
Exercise Price, in whole or in part, by the transfer of shares of Common
Stock that the Participant already owns.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" THE AMENDMENT TO THE 1995 STOCK OPTION PLAN AS
DESCRIBED ABOVE.
6
<PAGE>
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 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 December 31, 1997. 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
- ---------------------------------------- -------------------- ----------
Executive Officers and Directors
Sky D. Dayton 1,625,000 (2) 14.3%
Reed E. Slatkin 1,237,047 (3) 10.8
Kevin M. O'Donnell 1,134,739 (4) 9.9
Sidney Azeez 590,636 (5) 5.2
John W. Sidgmore 401,500 (6) 3.4
Charles G. Betty 130,799 (7) 1.1
Linwood A. Lacy, Jr 98,066 (8) *
Robert M. Kavner 44,009 (9) *
Paul McNulty 504 (10) *
Brinton O.C. Young 59,375 (11) *
Grayson L. Hoberg 2,500 (12) *
David R. Tommela 19,375 (13) *
Dr. Richard D. Edmiston 15,500 (14) *
Quantum Industrial Partners LDC 1,523,180 (15) 13.5
Storie Partners, L.P (16). 696,950 6.2
UUNET Technologies, Inc. 401,500 (17) 3.4
All directors and officers as
a group (13 persons) 5,359,050 (18) 43.3
___________
(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 125,000 shares of Common Stock. Mr. Dayton's
address is that of the Company.
(3) Includes (i) warrants to purchase 182,500 shares of Common Stock and
(ii) 12,074 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.
7
<PAGE>
(4) Includes (i) 7,538 shares of Common Stock and options to purchase an
additional 87 shares of Common Stock 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.
(5) Includes (i) 347,085 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 10,000 shares of Common Stock issuable upon the exercise of
warrants and up to 391,500 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.
(7) Includes (i) options to purchase 88,750 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.
(8) Includes warrants to purchase 20,000 shares of Common Stock and options to
purchase 20,000 shares of Common Stock.
(9) Includes warrants to purchase 3,334 shares of Common Stock and options to
purchase 20,000 shares of Common Stock.
(10) Includes warrants to purchase 50 shares of Common Stock.
(11) Includes options to purchase 39,375 shares of Common Stock.
(12) Represents options to purchase 2,500 shares of Common Stock.
(13) Represents options to purchase 19,375 shares of Common Stock.
(14) Includes options to purchase 5,500 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 36,817 shares of Common Stock and warrants to purchase
3,925 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 Company N.V., Kaya
Flamboyan 9, Willemstad, Curacao, Netherlands Antilles.
(16) The business address of Storie Partners L.P. is: c/o Mr. Steve Ledger, One
Bush Street, Suite 1350, San Fransisco, California 94104.
(17) Includes 10,000 shares of Common Stock issuable upon the exercise of
warrants and up to 391,500 shares of Common Stock issuable upon the
conversion of outstanding indebtedness. The business address of UUNET is:
3060 Williams Drive, Fairfax, Virginia 22031.
8
<PAGE>
(18) Includes (i) options and warrants to purchase 725,551 shares of Common
Stock, (ii) 368,746 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
87 shares of Common Stock, and (iv) up to 391,500 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.
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 Securities
and Exchange Commission (the "SEC"):
In January 1996, Mr. Slatkin guaranteed a $1.5 million lease
for network equipment. 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 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 1997, the Company sold 1,459,759 shares of its
Common Stock to certain purchasers, including, among others, certain
directors and stockholders. The following directors and more than five
percent stockholders (including certain of their family members and
affiliates) participated in this financing: Reed E. Slatkin (55,810 shares);
Sidney Azeez (46,512 shares); Charles G. Betty (10,000 shares); Linwood A.
Lacy, Jr. (23,256 shares); Richard D. Edmiston (10,000 shares); Brinton O.C.
Young (10,000 shares); and Quantum Industrial Partners LDC (465,117 shares).
Until October 1997, Mr. Lacy also served 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, 1997, the Company paid Micro Warehouse approximately $35,200 in bounties
for new Company customers generated by Micro Warehouse.
9
<PAGE>
Certain Transactions
In addition to the transaction 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 Technologies, Inc. ("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 Internet dial-up points of
presence ("POPs") capacity. 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, John W. Sidgmore. This note bears interest at prime
plus 2% per annum (an effective rate of 10.25% per annum at December 31,
1997), and is convertible into 391,500 shares of Common Stock. The maturity
of this note has been extended until October 1998. The Company also granted
UUNET certain registration rights identical to those presently held by most
of the Company's then existing stockholders. EarthLink paid UUNET
approximately $21.9 million in 1997 for network services and interest.
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.
10
<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 the five most highly
compensated executive officers other than the Chief Executive Officer who
earned more than $100,000 during fiscal 1997 and was serving at the end of
fiscal 1997. Such executive officers are referred to as the "Named
Executive Officers."
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
SECURITIES
ANNUAL UNDERLYING ALL
NAME AND PRINCIPAL COMPENSATION OPTIONS OTHER
POSITION YEAR SALARY BONUS (#) COMPENSATION
- ----------------------------------------------- --------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Sky Dayton 1997 $ 180,000 $45,411 -- --
Chairman (1) 1996 153,036 70,006 -- --
1995 97,726 16,573 250,000 --
Charles G. Betty 1997 225,000 60,621 -- $ 10,578(2)
President and Chief Executive Officer (1) 1996 220,550 77,635 250,000 24,000(3)
1995 -- -- -- --
Grayson L. Hoberg (4) 1997 8,654 -- 100,000 --
Vice President, Finance and Administration 1996 -- -- -- --
and Chief Financial Officer 1995 -- -- -- --
David R. Tommela 1997 132,000 26,723 -- 1,218(5)
Vice President, Operations 1996 130,392 34,439 12,500 --
1995 8,862 -- 37,500 --
Richard D. Edmiston 1997 185,000 33,398(6) 27,500 33,626(7)
Vice President, Research and Development 1996 -- -- -- --
1995 -- -- --
Brinton O.C. Young 1997 140,000 29,754 -- --
Vice President, Strategic Planning 1996 73,681 18,409 112,500 --
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 $8,363 of travel expenses pursuant to Mr.
Betty's employment agreement and $2,215 in matching contributions to Mr.
Betty's account under the Company's 401(k) plan.
(3) Consists of reimbursement of travel expenses pursuant to Mr. Betty's
employment agreement.
(4) Mr. Hoberg commenced employment on December 5, 1997 with an annualized base
salary of $150,000.
(5) Consists of matching contributions to Mr. Tommela's account under the
Company's 401(k) plan.
(6) Includes a signing bonus of $15,000 paid to Mr. Edmiston pursuant to his
employment with the Company.
(7) Consists of reimbursement of $32,203 of travel expenses pursuant to Mr.
Edmiston's employment and $1,423 in matching contributions to Mr.
Edmiston's account under the Company's 401(k) plan.
11
<PAGE>
Table II - Option Grants in Fiscal 1997
This table presents information regarding options granted to
the Company's Named Executive Officers during fiscal 1997 to purchase shares
of the Company's Common Stock. In accordance with SEC rules, the table shows
the hypothetical "gains" or "option spreads" that would exist for the
respective options based on assumed rates of annual compound stock price of
5% and 10% from the date the options were granted over the full option term.
<TABLE>
<CAPTION>
% of Total
Number of Options Potential Realizable Value
Securities Granted to at Assumed Annual Rates
Underlying Employees Exercise of Stock Price Appreciation
Options in Fiscal Price Expiration for the Option Term (1)
Name Granted (#) Year ($/sh) Date 5% 10%
- ---- ----------- ------------ --------- ---------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Grayson L. Hoberg 50,000 (2) 12.6% $16.00 11/07/07 $1,297,201 $2,539,443
50,000 (3) 12.6 19.88 12/05/07 1,103,452 2,345,693
Richard D. Edmiston 27,500 (4) 7.0 13.00 1/23/07 795,961 1,479,194
</TABLE>
___________
(1) 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 a price of $25.75 per share, the closing
price of a share of Common Stock on December 31, 1997. 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.
(2) Vests in equal increments of 5% per quarter over the five-year period
beginning on the date of grant, November 7, 1997.
(3) Vests in equal increments of 5% per quarter over the five-year period
beginning on the date of grant, December 5, 1997.
(4) Vests in equal increments of 5% per quarter over the five-year period
beginning on the date of grant, January 23, 1997.
12
<PAGE>
Table III - Option Exercises In Fiscal 1997 and Fiscal 1997
Year-End Option Values
None of the Named Executive Officers exercised any stock
options during fiscal 1997. 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, 1997. The table
also reflects the values of such options based on the positive spread between
the exercise price of such options and $25.75, which was the closing sales
price of a share of Common Stock reported on the Nasdaq National Market on
December 31, 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 125,000 125,000 $2,992,500 $2,992,500
Charles G. Betty 80,000 170,000 1,557,300 3,208,200
Grayson L. Hoberg - 100,000 - 781,250
David R. Tommela 18,750 31,250 373,613 610,388
Richard D. Edmiston 4,125 23,375 52,594 298,031
Brinton O.C. Young 33,750 78,750 539,663 1,259,213
</TABLE>
___________
(1) The value of "in-the-money" options represents the difference between the
exercise price of stock options and $25.75, the closing sales price
reported by the Nasdaq National Market of the Company's Common Stock for
December 31, 1997.
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.
The agreement further entitles Mr. Betty, upon the attainment of performance
goals, to an annual bonus of $75,000. 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
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
13
<PAGE>
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. The agreement was amended in
December 1997 to formally reflect Mr. Betty's position as President and Chief
Executive Officer of the Company. The Board of Directors has extended the
agreement for an additional year pursuant to the terms of the agreement.
Director Compensation
Directors of the Company do not receive cash compensation for serving in
that capacity, but are reimbursed for the expenses they incur in attending
meetings of the Board of Directors or committees thereof. Non-employee
directors are eligible to receive options to purchase Common Stock awarded under
the Company's Directors Stock Option Plan.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before the
Special Meeting. However, if any other matters are properly brought before the
Special 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 $3,000 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.
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 have
been received by the Company at its executive offices at 3100 New York Drive,
Pasadena, California 91107, Attention Grayson Hoberg, Secretary, on or prior to
January 22, 1998.
By order of the Board of
Directors,
/s/ Sky D. Dayton
------------------
Sky D. Dayton
Chairman of the Board
Pasadena, California
January 23, 1998
14
<PAGE>
APPENDIX A
EARTHLINK NETWORK, INC.
1995 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this 1995 Stock Option Plan are
to attract and retain the best available personnel, to provide additional
incentive to the Employees of the Company and its Subsidiaries, to promote the
success of the Company's business and to enable the Employees to share in the
growth and prosperity of the Company by providing them with an opportunity to
purchase stock in the Company.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Board and as reflected in
the terms of the written stock option agreement.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Affiliate" shall mean any entity that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, the Company.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time. References in the Plan to any section of the Code shall be
deemed to include any amendment or successor provisions to such section and any
regulations issued under such section.
(d) "Common Stock" shall mean the Common Stock of the Company.
(e) "Company" shall mean EarthLink Network, Inc., a California
corporation.
(f) "Committee" shall mean the Committee appointed by the Board in
accordance with Section 4(a) of the Plan, if one is appointed.
(g) "Continuous Employment" or "Continuous Status As An Employee"
shall mean the absence of any interruption or termination of employment or
service as an Employee by or to the Company or any Parent or Subsidiary of the
Company which now exists or is hereafter organized or acquired by or acquires
the Company. Continuous Employment shall not be considered interrupted in the
case of sick leave, military leave or any other leave of absence approved by the
Board or in the case of transfers between locations of the Company or between
the Company, its Parent, or any of its Subsidiaries or its successors.
(h) "Disability" shall mean the inability of the Optionee to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or has
lasted or can be expected to last for a continuous period of not less than 12
months. In determining the Disability of an Optionee, the Board may require the
Optionee to furnish proof of the existence of Disability and may select a
A-1
<PAGE>
physician to examine the Optionee. The final determination as to the Disability
of the Optionee shall be made by the Board.
(i) "Disinterested Person" shall mean an administrator of the Plan
who, during the one year prior to service as an administrator of the Plan, has
not been granted or awarded and, during such service, is not granted or awarded
stock, stock options or stock appreciation rights pursuant to the Plan or any
other plan of the Company or any of its Affiliates entitling the participants
therein to acquire stock, stock options or stock appreciation rights of the
Company or any Affiliates, except for any plan under which the award of stock,
stock options or stock appreciation rights is not subject to the discretion of
any person or persons. The term "Disinterested Person" shall be interpreted in
a manner consistent with the meaning of such term under Rule 16b-3 promulgated
by the Securities and Exchange Commission under the Exchange Act.
(j) "Employee" shall mean any person, including officers and
directors, employed by the Company, its Parent, any of its Subsidiaries or its
successors. A person shall not be deemed to be employed by the Company merely
because such person is a member of the Board of Directors of the Company or a
consultant to the Company.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(l) "Incentive Stock Option" shall mean an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
(m) "Nonstatutory Stock Option" shall mean an Option which is not an
Incentive Stock Option.
(n) "Option" shall mean a stock option granted pursuant to the Plan
evidencing the grant of a right to an Employee pursuant to the Plan to purchase
a specified number of Shares at a specified exercise price.
(o) "Option Agreement" shall mean a written agreement substantially
in one of the forms attached hereto as Exhibit A, or such other form or forms as
the Board (subject to the terms and conditions of this Plan) may from time to
time approve, evidencing and reflecting the terms of an Option.
(p) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(q) "Optionee" shall mean an Employee who is granted an Option.
(r) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as deemed in Sections 424(e) and (g) of the Code.
(s) "Plan" shall mean this 1995 Stock Option Plan.
A-2
<PAGE>
(t) "Share" or "Shares" shall mean shares of the Common Stock, as
adjusted in accordance with Section 10 of the Plan.
(u) "Stock Purchase Agreement" shall mean an agreement substantially
in the form attached hereto as Exhibit B, or such other form or forms as the
Board (subject to the terms and conditions of this Plan) may from time to time
approve, which is to be executed as a condition of purchasing Optioned Stock
upon exercise of an Option.
(v) "Subsidiary" shall mean a subsidiary corporation, whether now or
hereafter existing, as defined in Sections 424(f) and (g) of the Code.
(w) "Termination for Cause" shall mean termination of employment as a
result of (i) any act or acts by the Optionee constituting a felony under any
federal, state or local law; (ii) the Optionee's willful and continued failure
to perform the duties assigned to him or her as an Employee; (iii) any material
breach by the Optionee of any agreement with the Company concerning his or her
employment or other understanding concerning the terms and conditions of
employment by the Company; (iv) dishonesty, gross negligence or malfeasance by
the Optionee in the performance of his or her duties as an Employee or any
conduct by the Optionee which involves a material conflict of interest with any
business of the Company or Affiliate; or (v) the Optionee's taking or knowingly
omitting to take any other action or actions in the performance of Optionee's
duties as an Employee without informing appropriate members of management to
whom such Optionee reports, which action or actions, in the determination of the
Board, have caused or substantially contributed to the material deterioration in
the business or financial condition of the Company or any Affiliate, taken as a
whole.
3. Stock Subject to the Plan. Subject to the provisions of Section 10 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
pursuant to the exercise of Options under the Plan is 1,850,000 Shares. The
Shares may be authorized, but unissued or reacquired Shares.
If an Option should expire or become unexercisable for any reason without
having been exercised in full or if the Company repurchases Shares from the
Optionee pursuant to the terms of a Stock Purchase Agreement, the unpurchased or
repurchased Shares, respectively, which were subject thereto shall, unless the
Plan shall have been terminated, return to the Plan and become available for
other Options under the Plan.
4. Administration of the Plan.
(a) Procedure. The Plan shall be administered by the Board. Members
of the Board who are eligible for Options or have been granted Options may vote
on any matters affecting the administration of the Plan or the grant of any
Options pursuant to the Plan, except that no such member shall act upon the
granting of an Option to himself or herself, but any such member may be counted
in determining the existence of a quorum at any meeting of the Board or
Committee during which action is taken with respect to the granting of Options
to him or her.
A-3
<PAGE>
The Board may at any time appoint a Committee consisting of not less
than two persons to administer the Plan on behalf of the Board, subject to such
terms and conditions as the Board may prescribe. Members of the Committee shall
serve for such period of time as the Board may determine. From time to time the
Board may increase the size of the Committee and appoint additional members
thereto, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies however caused, or remove all members of
the Committee and thereafter directly administer the Plan. In the event the
Company has a class of equity securities registered under Section 12 of the
Exchange Act and unless the Board determines otherwise, from the effective date
of such registration until six months after the termination of such
registration, all grants of Options to persons subject to the provisions of
Section 16(b) of the Exchange Act during any and all periods of time when all
members of the Board do not qualify as Disinterested Persons shall be made by,
or only in accordance with the recommendations of, a Committee of two or more
persons having full authority to act in the matter and all of whom are
Disinterested Persons.
(b) Powers of the Board. Subject to the provisions of the Plan, the
Board shall have the authority, in its discretion: (i) to grant Incentive Stock
Options and Nonstatutory Stock Options; (ii) to determine, upon review of
relevant information and in accordance with Section 7 of the Plan, the fair
market value per Share; (iii) to determine the terms and conditions of vesting
of Options, the exercise price of the Options and the consideration to be paid
for shares upon the exercise of Options (which exercise price and consideration
shall be determined in accordance with Section 7 of the Plan); (iv) to determine
the Employees to whom, and the time or times at which, Options shall be granted,
and the number of Shares to be subject to each Option; (v) to prescribe, amend
and rescind rules and regulations relating to the Plan; (vi) to determine the
terms and provisions of each Option Agreement and each Stock Purchase Agreement
(each of which need not be identical with the terms of other Options and Stock
Purchase Agreements) and, with the consent of the holder thereof, to modify or
amend each Option and Stock Purchase Agreement; (vii) to determine whether a
stock repurchase agreement or other agreement will be required to be executed by
any Employee as a condition to the exercise of an Option, and to determine the
terms and provisions of any such agreement (which need not be identical with the
terms of any other such agreement) and, with the consent of the Optionee, to
amend any such agreement; (viii) to interpret the Plan, the Option Agreements,
the Stock Purchase Agreements or any agreement entered into with respect to the
grant or exercise of Options; (ix) to authorize any person to execute on behalf
of the Company any instrument required to effectuate the grant of an Option
previously granted by the Board or to take such other actions as may be
necessary or appropriate with respect to the Company's rights pursuant to
Options or agreements relating to the grant or exercise thereof; and (x) to make
such other determinations and establish such other procedures as it deems
necessary or advisable for the administration of the Plan.
(c) Effect of the Board's Decision. All decisions, determinations
and interpretations of the Board shall be final and binding on all Optionees and
any other holders of Options.
A-4
<PAGE>
5. Eligibility. Options may be granted only to Employees (including
employees of the Company who are also directors of the Company). An Employee
who has been granted an Option may, if such Employee is otherwise eligible, be
granted additional Options.
6. Term of Plan. Effectiveness of the Plan shall be subject to approval
by the shareholders of the Company within 12 months before or after the date the
Plan is adopted; provided, however, that Options may be granted pursuant to the
Plan prior to such shareholder approval subject to subsequent approval of the
Plan by such shareholders. Shareholder approval shall be obtained by the
affirmative votes of the holders of a majority of voting shares of the Company's
capital stock present and entitled to vote at a meeting of shareholders duly
held in accordance with the laws of the State of California or by such other
means authorized under law. The Plan shall continue in effect for a term of ten
years unless sooner terminated in accordance with the terms and provisions of
the Plan.
7. Option Price and Consideration.
(a) Exercise Price. The exercise price per Share for the Shares to
be issued pursuant to the exercise of a Nonstatutory Stock Option shall be not
less than 85% of the "fair market value" per Share, as described below. The
exercise price per Share for the Shares to be issued pursuant to the exercise of
an Incentive Option shall be the fair market value per Share. However, with
respect to both Incentive Stock Options and Nonstatutory Stock Options, the
exercise price shall be 110% of the fair market value per Share on the date of
grant in the case of any Optionee who, at the time the Option is granted, owns
stock (as determined under Section 424(d) of the Code) possessing more than 10%
of the total combined voting power of all classes of stock of the Company or its
Parent or Subsidiaries.
(b) Fair Market Value. The fair market value per Share on the date
of grant shall be determined by the Board in its sole discretion, exercised in
good faith; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the average of the
closing bid and asked prices of the Common Stock on the date of grant, as
reported in The Wall Street Journal (or, if not so reported, as otherwise
reported by the National Association of Securities Dealers Automated Quotations
("Nasdaq") System), or, in the event the Common Stock is listed on a stock
exchange or on the Nasdaq Stock Market, the fair market value per Share shall be
the closing price on the exchange or on the Nasdaq Stock Market as of the date
of grant of the Option, as reported in The Wall Street Journal.
(c) Payment of Consideration. The consideration to be paid for the
Shares to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Board in its discretion on the date of grant and may
consist of cash, check, promissory notes or other forms of legally permitted
consideration if authorized by the Board in connection with the grant of an
Option.
8. Options.
(a) Terms and Provisions of Options. As provided in Section 4 of
this Plan and subject to any limitations specified herein, the Board shall have
the authority to determine
A-5
<PAGE>
the terms and provisions of any Option granted under the Plan or any
agreement required to be executed in connection with the grant or exercise of
an Option. Each Option granted pursuant to this Plan shall be evidenced by
an Option Agreement. Options granted under the Plan are conditioned upon the
Company obtaining any required permit or order from appropriate governmental
agencies, authorizing the Company to issue such Options and Shares issuable
upon exercise thereof.
(b) Number of Shares. Each Option Agreement shall state the number
of Shares to which it pertains and whether such Option is intended to constitute
an Incentive Stock Option or a Nonstatutory Stock Option. The maximum number of
Shares which may be awarded as Options under the Plan during any calendar year
to any Optionee is 250,000 Shares. If an Option held by an Employee is
canceled, the canceled Option shall continue to be counted against the maximum
number of Shares for which Options may be granted to such Employee and any
replacement Option granted to such Employee shall also count against such limit.
(c) Term of Option. The term of each Option may be up to ten years
from the date of grant thereof, as determined by the Board upon the grant of the
Option and specified in the Option Agreement, except that the term of an
Incentive Stock Option granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent of the
total combined voting power of all classes of stock of the Company or its Parent
or Subsidiaries, shall not exceed five years from the date of grant thereof.
(d) Exercise of Option.
(i) Procedure for Exercise; Rights as a Shareholder. Any Option
shall vest and become exercisable at such times, in such installments and under
such conditions as may be determined by the Board, specified in the Option
Agreement and as shall be permissible under the terms of the Plan, including
performance criteria with respect to the Company and/or the Optionee, provided
that each Option shall vest and become exercisable at the rate of not less than
15% per year over five years from the date such Option is granted.
An Option may be exercised in accordance with the provisions of
this Plan as to all or any portion of the Shares then exercisable under an
Option, from time to time during the term of the Option. An Option may not be
exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company at its principal business office in
accordance with the terms of the Option Agreement by the person entitled to
exercise the Option and full payment for the Shares with respect to which the
Option is exercised has been received by the Company, accompanied by an executed
Stock Purchase Agreement (including the attachments thereto) substantially in
the form of Exhibit B hereto and as may be modified by the Board from time to
time, and any other agreements required by the terms of the Plan and/or the
Option Agreement. Full payment may consist of such consideration and method of
payment allowable under Section 7 of the Plan. Until the Option is properly
exercised in accordance with the terms of this Section 8(d), no right to vote or
to receive dividends or any other rights as a shareholder shall exist with
respect to the Optioned Stock. No adjustment shall be made for a dividend or
other right for
A-6
<PAGE>
which the record date is prior to the date the Option is exercised, except as
provided in Section 10 of the Plan.
As soon as practicable after any proper exercise of an Option in
accordance with the provisions of the Plan, the Company shall, without transfer
or issue tax to the Optionee, deliver to the Optionee at the principal executive
office of the Company or such other place as shall be mutually agreed upon
between the Company and the Optionee, a certificate or certificates representing
the Shares for which the Option shall have been exercised. The time of issuance
and delivery of the certificate(s) representing the Shares for which the Option
shall have been exercised may be postponed by the Company for such period as may
be required by the Company, with reasonable diligence, to comply with any
applicable listing requirements of any national or regional securities exchange
or any law or regulation applicable to the issuance or delivery of such Shares.
No Option may be exercised unless the Plan has been duly approved by the
shareholders of the Company in accordance with applicable law. Notwithstanding
anything to the contrary herein, the terms of a Stock Purchase Agreement
required to be executed and delivered in connection with the exercise of an
Option may require the certificate or certificates representing the Shares
purchased upon the exercise of an Option to be delivered and deposited with the
Company as security for the Optionee's faithful performance of the terms and
conditions of his or her Stock Purchase Agreement.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(ii) Termination of Status as an Employee. If an Optionee ceases
to serve as an Employee for any reason other than death or Disability, and
thereby terminates his or her Continuous Status As An Employee, to the extent
that such Optionee was entitled to exercise the Option at the date of such
termination, such Optionee shall have the right to exercise the Option at any
time within 30 days subsequent to the last day of such Optionee's Continuous
Status As An Employee (unless at the time of grant of such Option the Board
specified a longer period, not to exceed 90 days), provided, however, that no
Option shall be exercisable after the expiration of the term set forth in the
Option Agreement. To the extent that such Optionee was not entitled to exercise
the Option at the date of the terminating event, or if such Optionee does not
exercise such Option (which such Optionee was entitled to exercise) within the
time specified herein, the Option shall terminate. In the event that an
Optionee's Continuous Status As An Employee terminates due to death or
Disability, to the extent that such Optionee was entitled to exercise the Option
at the date of such termination, the Option may be exercised any time within 180
days subsequent to the death or Disability of the Optionee (unless at the time
of grant of such Option the Board specified a longer period, not to exceed one
year), provided, however, that no Option shall be exercisable after the
expiration of the Option term set forth in the Option Agreement. To the extent
that such Optionee was not entitled to exercise such Option at the date of his
or her termination due to death or Disability or if such Option is not exercised
(to the extent it could be exercised) within the time specified herein, the
Option shall terminate.
(e) Limit on Value of Optioned Stock. To the extent that the
aggregate fair market value (determined at the time an Incentive Stock Option is
granted) of the Shares with
A-7
<PAGE>
respect to which Incentive Stock Options are exercisable for the first time
by an Optionee during any calendar year under all incentive stock option
plans of the Company, its Parent or its Subsidiaries, if any, exceeds
$100,000, the Options in excess of such limit shall be treated as
Nonstatutory Stock Options.
(f) Expiration of Option. Notwithstanding any provision in the Plan,
including but not limited to the provisions set forth in this Section 8, an
Option may not be exercised, under any circumstances, after the expiration of
its term.
9. Nontransferability of Options. Options granted under this Plan may
not be sold, pledged, assigned, hypothecated, gifted, transferred or disposed of
in any manner, either voluntarily or involuntarily by operation of law, other
than by will or by the laws of descent or distribution or as a transfer between
spouses incident to a "divorce" within the meaning of Section 1041(a) of the
Code, and any such attempt may result, at the discretion of the Board, in the
termination of such Options. During the lifetime of the Optionee, his or her
Option may be exercised only by such Optionee or his or her legal guardian.
10. Adjustments Upon Changes in Capitalization or Merger.
(a) Subject to any required action by the shareholders of the
Company, the number of Shares covered by each outstanding Option, and the number
of Shares which have been authorized for issuance under the Plan but as to which
no Options have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option or repurchase of Shares from an Optionee
upon termination of employment or service, as well as the exercise price per
Share covered by each such outstanding Option, shall be proportionately adjusted
for any increase or decrease in the number of issued Shares resulting from a
stock split, reverse stock split, combination, recapitalization or
reclassification of the Common stock, or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
issued shares of Common Stock effected without receipt of consideration by the
Company (other than stock bonuses to Employees or directors); provided, however,
that the conversion of any convertible securities of the Company shall not be
deemed to have been effected without the receipt of consideration. Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no issue
by the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of Shares subject to the Plan
or an Option.
(b) In the event of a proposed dissolution or liquidation of the
Company or the sale of all or substantially all of the assets of the Company
(other than in the ordinary course of business), or the merger, consolidation or
reorganization of the Company with or into another corporation as a result of
which the Company is not the surviving corporation or as a result of which the
outstanding Shares are exchanged for or converted into cash or property or
securities not of the Company, the Board shall (i) make provision for the
assumption of all outstanding Options by the successor corporation or a Parent
or a Subsidiary thereof, or (ii) declare that outstanding Options shall
terminate as of a date fixed by the Board which is at least thirty (30) days
after the notice thereof to the Optionee (unless such thirty (30) day period is
waived by the
A-8
<PAGE>
Optionee) and shall give each Optionee the right to exercise his or her
Option as to all or any part of the shares underlying such Option to the
extent then exercisable, provided such exercise does not violate Section
8(d)(ii) of the Plan.
(c) No fractional shares of Common Stock shall be issuable on account
of any action described in this Section, and the aggregate number of shares into
which Shares then covered by the Option, when changed as the result of such
action, shall be reduced to the largest number of whole shares resulting from
such action, unless the Board, in its sole discretion, shall determine to issue
scrip certificates in respect to any fractional shares, which scrip
certificates, in such event, shall be in a form and have such terms and
conditions as the Board in its discretion shall prescribe.
11. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Board makes the determination granting
such Option, provided, however, that if the Board determines that such grant
shall be as of some future date, the date of grant shall be such future date.
Notice of the determination shall be given to each Employee to whom an Option is
so granted within a reasonable time after the date of such grant.
12. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or terminate the
Plan from time to time in such respects as the Board may deem advisable and
shall make any amendments which may be required so that Options intended to be
Incentive Stock Options shall at all times continue to be Incentive Stock
Options for the purpose of the Code, except that, without approval of the
holders of a majority of the shares of the Company's capital stock represented
or present and entitled to vote at a valid meeting of the Company's shareholders
at which action is taken on an amendment or revision, no such amendment or
revision shall:
(i) Increase the number of Shares subject to the Plan, other
than in connection with an adjustment under Section 10 of the Plan;
(ii) Materially change the designation of the class of Employees
eligible to be granted Options;
(iii) Remove the administration of the Plan from the Board
except to a Committee;
(iv) Materially increase the benefits accruing to participants
under the Plan; or
(v) Extend the term of the Plan.
(b) Effect of Amendment or Termination. Except as otherwise provided
in Section 10, any amendment or termination of the Plan shall not affect Options
already granted and such Options shall remain in full force and effect as if
this Plan had not been amended or terminated, unless mutually agreed otherwise
between the Optionee and the Company, which agreement must be in writing and
signed by the Optionee and the Company.
A-9
<PAGE>
13. Conditions Upon Issuance of Shares.
(a) Shares shall not be issued pursuant to the exercise of an Option
unless the exercise of such Option and the issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, applicable state securities laws, the rules
and regulations promulgated thereunder, and the requirements of any stock
exchange upon which the Shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance.
(b) As a condition to the exercise of an Option, the Board may
require the person exercising such Option to execute an agreement with, and/or
may require the person exercising such Option to make any representation and
warranty to, the Company as may in the judgment of counsel to the Company be
required under applicable law or regulation, including but not limited to a
representation and warranty that the Shares are being purchased only for
investment and without any present intention to sell or to distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
appropriate under any of the aforementioned relevant provisions of law.
14. Reservation of Shares. The Company, during the term of this Plan,
shall at all times reserve and keep available, such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The Company, during the term of this Plan, shall use its best efforts to
seek to obtain from appropriate regulatory agencies any requisite authorization
in order to issue and to sell such number of Shares as shall be sufficient to
satisfy the requirements of the Plan. The inability of the Company to obtain
from any such regulatory agency having jurisdiction the requisite
authorization(s) deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any Shares hereunder, or the inability of the Company to
confirm to its satisfaction that any issuance and sale of any Shares hereunder
will meet applicable legal requirements, shall relieve the Company of any
liability in respect to the failure to issue or to sell such Shares as to which
such requisite authority shall not have been obtained.
15. Stock Option and Stock Purchase Agreements. Options shall be
evidenced by written Option Agreements in such form or forms as the Board shall
approve from time to time. Upon the exercise of an Option, the Optionee shall
sign and deliver to the Company a Stock Purchase Agreement in such form or forms
as the Board shall approve from time to time.
16. Effective Date and Term of Plan. The Plan shall become effective upon
shareholder approval as provided in Section 17 of the Plan. The Plan shall
continue in effect for a term of ten years unless sooner terminated under
Section 12 of the Plan.
17. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within 12 months before or after the
date the Plan is adopted by the Board. If such shareholder approval is obtained
at a duly held shareholders' meeting, it may be obtained by the affirmative of
the holders of a majority of the shares of the Company
A-10
<PAGE>
represented or present and entitled to vote thereon. All Options granted
prior to shareholder approval of the Plan are subject to such approval, and
if such approval is not obtained within 12 months before or after the date
the Plan is adopted by the Board all such Options shall expire and shall be
of no further force or effect.
18. Taxes, Fees, Expenses and Withholding of Taxes.
(a) The Company shall pay all original issue and transfer taxes (but
not income taxes, if any) with respect to the grant of Options and/or the issue
and transfer of Shares pursuant to the exercise thereof, and all other fees and
expenses necessarily incurred by the Company in connection therewith, and will
from time to time use its best efforts to comply with all laws and regulations
which, in the opinion of counsel for the Company, shall be applicable thereto.
(b) The grant of Options hereunder and the issuance of Shares
pursuant to the exercise thereof is conditioned upon the Company's reservation
of the right to withhold, in accordance with any applicable law, from any
compensation or other amounts payable to the Optionee, any taxes required to be
withheld under federal, state or local law as a result of the grant or exercise
of such Option or the sale of the Shares issued upon exercise thereof. To the
extent that compensation or other amounts, if any, payable to the Optionee are
insufficient to pay any taxes required to be so withheld, the Company may, in
its sole discretion, require the Optionee, as a condition of the exercise of an
Option, to pay in cash to the Company an amount sufficient to cover such tax
liability or otherwise to make adequate provision for the Company's satisfaction
of its withholding obligations under federal, state and local law.
19. Liability of Company. The Company, its Parent or any Subsidiary which
is in existence or hereafter comes into existence shall not be liable to an
Optionee or other person if it is determined for any reason by the Internal
Revenue Service or any court having jurisdiction that any Options intended to be
Incentive Stock Options granted hereunder do not qualify as incentive stock
options within the meaning of Section 422 of the Code.
20. Information to Optionee. The Company shall provide without charge at
least annually to each Optionee during the period his or her Option is
outstanding a balance sheet and income statement of the Company. In the event
that the Company provides annual reports or periodic reports to its shareholders
during the period in which an Optionee's Option is outstanding, the Company
shall provide to each Optionee a copy of each such report.
21. Indemnification. No member of the Committee or of the Board shall be
liable for any act or action taken, whether of commission or omission, except in
circumstances involving actual bad faith, or for any act or action taken,
whether of commission or omission, by any other member or by any officer, agent,
or Employee. In addition to such other rights of indemnification they may have
as members of the Board, or as members of the Committee, the Committee shall be
indemnified by the Company against reasonable expenses, including attorneys'
fees actually and necessarily incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal therein, to which
they or any of them may be a party by reason of any action taken, by commission
or omission, in connection with the Plan or
A-11
<PAGE>
any Option taken thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a
judgment in any action, suit or proceeding, except in relation to matters as
to which it shall be adjudged in such action, suit or proceeding that such
Committee or Board member is liable for actual bad faith in the performance
of his or her duties; provided that within 60 days after institution of any
such action, suit or proceeding, a Committee or Board member shall in writing
offer the Company the opportunity, at its own expense, to handle and defend
the same.
22. Notices. Any notice to be given to the Company pursuant to the
provisions of this Plan shall be given in writing, addressed to the Company in
care of its Secretary at its principal office, and any notice to be given to an
Employee to whom an Option is granted hereunder shall be delivered personally or
addressed to him or her at the address given beneath his or her signature on his
Option Agreement or Stock Purchase Agreement or at such other address as such
Optionee or his or her transferee (upon the transfer of the Optioned Stock) may
hereafter designate in writing to the Company. Any such notice shall be deemed
duly given when enclosed in a properly sealed envelope or wrapper addressed as
aforesaid, registered or certified, and deposited, postage and registry or
certification fee prepaid, in a post office or branch post office regularly
maintained by the United States Postal Service. It shall be the obligation of
each Optionee and each transferee holding Shares purchased upon exercise of an
Option to provide the Secretary of the Company, by letter mailed as provided
hereinabove, with written notice of his or her direct mailing address.
23. No Enlargement of Employee Rights. This Plan is purely voluntary on
the part of the Company, and the continuance of the Plan shall not be deemed to
constitute a contract between the Company and any Employee, or to be
consideration for or a condition of the employment or service of any Employee.
Nothing contained in this Plan shall be deemed to give any Employee the right to
be retained in the employ or service of the Company, its Parent, Subsidiary or a
successor corporation, or to interfere with the right of the Company or any such
corporations to discharge or to retire any Employee at any time with or without
cause and with or without notice. No Employee shall have any right to or
interest in Options authorized hereunder prior to the grant thereof to such
Employee, and upon such grant he or she shall have only such rights and
interests as are expressly provided herein, subject, however, to all applicable
provisions of the Company's Articles of Incorporation, as the same may be
amended from time to time.
24. Legends on Certificates.
(a) Federal Law. Unless an appropriate registration statement is
filed pursuant to the federal Securities Act of 1933, as amended, with respect
to the Options and Shares issuable under this Plan, each document or certificate
representing such Options or Shares shall be endorsed thereon with a legend
substantially as follows:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW
A-12
<PAGE>
TO, OR IN CONNECTION WITH, THE SALE, TRANSFER OR DISTRIBUTION THEREOF. NO
SUCH SALE, TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. "
(b) Additional Legends. Each document or certificate representing
the Options or Shares issuable under the Plan shall also contain legends as may
be required under applicable blue sky laws or by any Stock Purchase Agreement or
other agreement the execution of which is a condition to the exercise of an
Option under this Plan.
25. Availability of Plan. A copy of this Plan shall be delivered to the
Secretary of the Company and shall be shown by him or her to any eligible person
making reasonable inquiry concerning it.
26. Invalid Provisions. In the event that any provision of this Plan is
found to be invalid or otherwise unenforceable under any applicable law, such
invalidity or unenforceability shall not be construed as rendering any other
provisions contained herein as invalid or unenforceable, and all such other
provisions shall be given full force and effect to the same extent as though the
invalid or unenforceable provision was not contained herein.
27. Severability. In the event that any provision of the Plan is found to
be invalid or otherwise unenforceable under any applicable law, such invalidity
or unenforceability shall not be construed as rendering any other provisions
contained herein as invalid or unenforceable, and all such other provisions
shall be given full force and effect to the saline extent as though the invalid
or unenforceable provision was not contained herein.
28. Applicable Law. To the extent that federal laws do not otherwise
control, this Plan shall be governed by and construed in accordance with the
laws of the State of California without regard to the conflict of laws
principles thereof.
A-13
<PAGE>
APPENDIX B
PROXY
EARTHLINK NETWORK, INC.
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints SKY DAYTON and GRAYSON HOBERG, and each
of them, proxies, each with the power of substitution, to vote the shares of
the undersigned at the Special Meeting of Stockholders of Earthlink Network,
Inc. on February 19, 1998, and any adjournments and postponements thereof,
upon all matters as may properly come before the Special Meeting. Without
otherwise limiting the foregoing general authorization, the proxies are
instructed to vote as indicated herein.
PLEASE COMPLETE, DATE AND SIGN ON THE REVERSE SIDE AND MAIL IN THE
ENCLOSED ENVELOPE.
<PAGE>
EARTHLINK NETWORK, INC.
A /X/ Please mark your
votes as in this
example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR MATTER (1) LISTED BELOW, TO COME
BEFORE THE SPECIAL MEETING.
(1) To approve a proposal to amend the 1995 Stock Option Plan to increase
the number of shares of common stock, $.01 par value per share, of
Earthlink Network, Inc. reserved for grant under the plan from 1,250,000
to 1,850,000.
FOR AGAINST ABSTAIN
/ / / / / /
(2) Upon any and all other business that may come before the Special Meeting.
THIS PROXY, WHICH IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS, WILL
BE VOTED FOR THE MATTER DESCRIBED IN PARAGRAPH (1) UNLESS THE STOCKHOLDER
SPECIFIES OTHERWISE, IN WHICH CASE IT WILL BE VOTED AS SPECIFIED.
SIGNATURE(S) __________________________________ DATE: ________________________
NOTE: Executors, Administrators, Trustee, Etc. should give full title.
