<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 10, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EARTHLINK, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4825 58-2511877
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
1430 WEST PEACHTREE ST., SUITE 400
ATLANTA, GEORGIA 30309
(404) 815-0770
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
CHARLES G. BETTY
1430 WEST PEACHTREE ST., SUITE 400
ATLANTA, GEORGIA 30309
(404) 815-0770
(Name, Address, including Zip Code, and Telephone
Number, including Area Code, of Agent for Service)
COPIES TO:
<TABLE>
<S> <C>
DANIEL O. KENNEDY, ESQ. JAMES E. SHOWEN, ESQ.
Hunton & Williams Hogan & Hartson L.L.P.
Bank of America Plaza, Suite 4100 Columbia Square
600 Peachtree St., N.E. 555 13(th) St., N.W.
Atlanta, GA 30308-2216 Washington, D.C., 20004-1109
(404) 888-4000 (202) 637-5600
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective and all other
conditions to the merger of OneMain.com, Inc. ("OneMain") with a wholly-owned
subsidiary of registrant pursuant to the Agreement and Plan of Merger dated as
of June 7, 2000, described in the proxy statement/prospectus contained herein
have been satisfied.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE(3) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, Par Value
$.01 Per Share................................... 10,768,633 (2 ) 1$49,004,302.20 $39,337.14
</TABLE>
(1) Represents the maximum number of shares of common stock of the registrant
issuable in the merger to holders of common stock, options and warrants of
OneMain, determined in accordance with the terms of the Agreement and Plan
of Merger. This share amount is based on the sum of (a) the product of
25,141,971 (the maximum number of issued and outstanding shares of OneMain
common stock) and a maximum exchange ratio of .3559, (b) the product of
4,109,598 (the expected total number of outstanding OneMain options
exercisable at the close of the merger) and a maximum exchange ratio of
.3559, and (c) 358,000 (the total number of shares issuable pursuant to
outstanding OneMain warrants based on the maximum warrant exchange ratio).
(2) The proposed maximum offering price per share is not included pursuant to
Rule 457(o) under the Securities Act of 1933.
(3) Amount is derived using: (1) the average of the high and low prices of the
OneMain common stock as reported by the Nasdaq National Market System on
July 6, 2000 of $10.94 minus the cash payment payable to OneMain
stockholders of $5.98, resulting in $4.96, which amount is used with respect
to all issued and outstanding shares of OneMain common stock and options to
purchase OneMain common stock, and (2) $10.94 (the average of the high and
low prices of the OneMain common stock as reported by the Nasdaq National
Market System on July 6, 2000) with respect to the total number of shares of
common stock issuable to holders of warrants to purchase OneMain common
stock. The total amount is estimated solely for the purpose of calculating
the registration fee pursuant to Rule 457(c), Rule 457(f)(l) and Rule
457 (f)(3) under the Securities Act of 1933.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a)OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
ONEMAIN.COM, INC.
1860 MICHAEL FARADAY DRIVE, SUITE 200
RESTON, VIRGINIA 20190
Dear Fellow Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
OneMain.com, Inc., on , 2000, at 10:00 a.m., local time, at the
Hyatt Regency Reston, 1800 Presidents Street in Reston, Virginia. At the Special
Meeting, we are asking for stockholder approval of a merger agreement and the
transactions contemplated by that agreement, including the merger of OneMain
with and into OM Combination, Inc., a wholly owned subsidiary of EarthLink, Inc.
In the merger:
- each outstanding share of OneMain common stock will be converted into a
right to receive a combination of cash and EarthLink common stock, subject
to certain adjustments based on the closing price of EarthLink common
stock the day prior to the closing of the merger; based on EarthLink's
closing stock price of $17.9375 on June 7, 2000, you will receive cash and
EarthLink common stock valued at approximately $12.26 per share;
- OM Combination will survive and remain a wholly owned subsidiary of
EarthLink; and
- EarthLink stockholders will continue to hold their shares of EarthLink
common stock.
Our board of directors received a written opinion dated June 7, 2000 of
Jefferies & Co., our financial advisor, to the effect that, as of such date and
based upon and subject to the matters stated in the opinion, the merger
consideration was fair to OneMain's stockholders from a financial point of view.
These transactions are more fully described in the accompanying proxy
statement/prospectus. Included with these soliciting materials is a proxy card
for voting, an envelope, postage prepaid, in which to return your proxy,
instructions for voting by telephone or on the Internet and a copy of our and
EarthLink's respective Annual Reports on Form 10-K for the year ended
December 31, 1999.
If the merger were completed on June 30, 2000, OneMain stockholders would
own approximately 6.6% of EarthLink's outstanding common stock immediately after
the proposed merger, assuming (1) the outstanding OneMain options are converted
into EarthLink options and not exercised prior to the closing of the merger,
(2) the outstanding OneMain warrants are converted into EarthLink warrants and
not exercised prior to the closing of the merger and (3) Sprint Corporation does
not exercise its right to purchase additional shares of EarthLink common stock
to maintain its current ownership level. EarthLink's common stock is listed on
the Nasdaq National Market System under the trading symbol "ELNK."
Our board of directors has unanimously approved the merger agreement and the
related transactions. OUR BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED MERGER
IS ADVISABLE AND IN THE BEST INTERESTS OF ONEMAIN AND ITS STOCKHOLDERS, AND THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE
PROPOSED MERGER.
It is important that your shares be represented at the meeting, even if you
cannot attend the meeting and vote your shares in person. Please give careful
consideration to the items to be voted upon, complete and sign the proxy card
and return it in the envelope provided or vote by telephone or on the Internet
as instructed. If you return a proxy card or vote by telephone or on the
Internet and decide to attend the meeting, you may revoke your proxy at the
meeting and vote your shares in person as described in the accompanying proxy
statement/prospectus.
We look forward to receiving your vote and seeing you at the meeting.
Sincerely,
Stephen E. Smith
CHAIRMAN OF THE BOARD OF DIRECTORS AND
CHIEF EXECUTIVE OFFICER
<PAGE>
ONEMAIN.COM, INC.
1860 MICHAEL FARADAY DRIVE, SUITE 200
RESTON, VIRGINIA 20190
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 2000
To our Stockholders:
A special meeting of Stockholders of OneMain.com, Inc. will be held at
10:00 a.m. local time, on , , 2000, at the Hyatt Regency
Reston, 1800 Presidents Street in Reston, Virginia for the following purposes:
1. To consider and vote upon a proposal to approve an Agreement and Plan of
Merger, dated June 7, 2000, by and among EarthLink, Inc., OM Combination, Inc.,
a wholly owned subsidiary of EarthLink, and OneMain, and approve the related
merger pursuant to which OneMain will merge with and into OM Combination.
2. To consider and take action upon any other business that may properly
come before the special meeting, or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the proxy
statement/prospectus accompanying this notice.
THE BOARD OF DIRECTORS OF ONEMAIN HAS CAREFULLY CONSIDERED THE TERMS OF THE
MERGER AGREEMENT AND THE MERGER AND BELIEVES THAT THE MERGER IS FAIR, ADVISABLE
TO, AND IN THE BEST INTERESTS OF, ONEMAIN AND ITS STOCKHOLDERS. THE BOARD OF
DIRECTORS OF ONEMAIN HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
MERGER AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF THE
MERGER.
All stockholders are cordially invited to attend the meeting. However, to
assure your representation at the meeting, you are urged to mark, sign, date and
return the enclosed proxy card as promptly as possible in the postage-prepaid
envelope enclosed for that purpose or vote by telephone or by Internet as
instructed. Any stockholder attending the meeting may vote in person even if he
or she has submitted a proxy, provided he or she complies with the steps for
revoking a proxy as described in the accompanying proxy statement/prospectus.
All holders of record of shares of OneMain's common stock at the close of
business on , 2000 are entitled to vote at the meeting or any
postponements or adjournments of the meeting.
By order of the Board of Directors,
Kevin S. Lapidus
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
Reston, Virginia
, 2000
<PAGE>
PROSPECTUS
FOR
EARTHLINK, INC.
(COMMON STOCK PAR VALUE $.01 PER SHARE)
------------------------
PROXY STATEMENT
FOR
ONEMAIN.COM, INC.
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD
, 2000
------------------------
This proxy statement/prospectus relates to a proposed merger pursuant to the
terms of an Agreement and Plan of Merger dated June 7, 2000, by and among
EarthLink, Inc., a Delaware corporation, OM Combination, Inc., a Delaware
corporation and newly-formed and wholly owned subsidiary of EarthLink, and
OneMain.com, Inc., a Delaware corporation. Pursuant to the merger agreement,
each stockholder of OneMain will receive the right to convert each share of
OneMain common stock into a combination of cash and EarthLink common stock, and
OneMain will merge into OM Combination, which will survive the merger and remain
a wholly owned subsidiary of EarthLink.
EarthLink has filed a registration statement on Form S-4 with the Securities
and Exchange Commission under the Securities Act of 1933 covering the number of
shares of EarthLink common stock that EarthLink will need to issue to
stockholders of OneMain pursuant to the merger (approximately 10.8 million
shares). This proxy statement/prospectus constitutes the prospectus that
EarthLink files as part of its registration statement and also constitutes the
proxy statement that OneMain furnishes to its stockholders in connection with
the solicitation of proxies by the OneMain board of directors for use at the
special meeting of the stockholders of OneMain being held to vote on the merger
and merger agreement.
This proxy statement/prospectus and the accompanying form of proxy, along
with the enclosed copy of EarthLink's annual report on Form 10-K for the year
ended December 31, 1999 and OneMain's annual report on Form 10-K for the year
ended December 31, 1999 are first being mailed to OneMain stockholders on or
about , 2000.
AN INVESTMENT IN EARTHLINK COMMON STOCK AFTER THE MERGER INVOLVES RISKS. SEE
"RISK FACTORS" BEGINNING ON PAGE 17.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the merger and the shares of EarthLink
common stock to be issued in the merger or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
The date of this proxy statement/prospectus is , 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS... iii
WHERE YOU CAN FIND MORE INFORMATION......................... iv
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... vi
SUMMARY..................................................... 1
COMPARATIVE PER SHARE DATA.................................. 6
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION...... 7
EarthLink Summary Consolidated Financial and Operating
Information............................................... 8
OneMain Summary Consolidated Combined Financial and
Operating Information..................................... 9
Unaudited Pro Forma Financial Information................... 11
RISK FACTORS................................................ 17
MARKET PRICES AND DIVIDEND INFORMATION...................... 26
INFORMATION ABOUT EARTHLINK AND ONEMAIN..................... 27
EarthLink................................................... 27
OneMain..................................................... 30
Merger Sub.................................................. 32
THE SPECIAL MEETING OF ONEMAIN STOCKHOLDERS................. 33
Time, Date and Place........................................ 33
Purpose of the Special Meeting.............................. 33
Record Date; Voting Rights; Vote Required for Approval...... 33
Proxies..................................................... 33
Availability of Accountants................................. 34
THE MERGER AND RELATED TRANSACTIONS......................... 35
The Merger and Merger Consideration......................... 35
Background of the Merger.................................... 36
OneMain's Reasons for the Merger............................ 39
Recommendation of OneMain's Board of Directors.............. 41
Opinion of Financial Advisor to OneMain..................... 41
EarthLink's Reasons for the Merger.......................... 46
Recommendation of EarthLink's Board of Directors............ 47
Interests of OneMain Officers and Directors in the Merger... 47
Material United States Federal Income Tax Consequences...... 48
Accounting Treatment........................................ 49
Governmental and Regulatory Matters......................... 49
Appraisal Rights............................................ 50
Federal Securities Law Consequences; Resale Restrictions.... 51
Exchange of Certificates.................................... 51
Listing of EarthLink's Common Stock on Nasdaq............... 52
MATERIAL TERMS OF THE MERGER AGREEMENT...................... 53
The Merger.................................................. 53
Certain Covenants........................................... 54
Certain Representations and Warranties...................... 56
Conditions to the Merger.................................... 57
Termination of the Merger Agreement......................... 59
Expenses.................................................... 60
</TABLE>
-i-
<PAGE>
<TABLE>
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PAGE
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<S> <C>
OneMain Agreement to Vote Stock............................. 60
Amendments.................................................. 61
EARTHLINK SELECTED HISTORICAL CONSOLIDATED FINANCIAL
INFORMATION............................................... 62
ONEMAIN SELECTED HISTORICAL CONSOLIDATED COMBINED FINANCIAL
INFORMATION............................................... 63
DESCRIPTION OF EARTHLINK CAPITAL STOCK...................... 70
Common Stock................................................ 70
Preferred Stock............................................. 70
Limitation of Director Liability............................ 70
Transfer Agent and Registrar................................ 71
COMPARATIVE RIGHTS OF EARTHLINK AND ONEMAIN STOCKHOLDERS.... 71
General..................................................... 71
Limitation of Director Liability............................ 71
Authorized Capital.......................................... 72
Special Meetings of Stockholders............................ 72
Voting; Election of Directors............................... 72
Mergers, Share Exchanges and Sales of Assets................ 73
Anti-takeover Statutes...................................... 73
Amendments to Certificates of Incorporation................. 74
Amendments to Bylaws........................................ 74
Stockholder Action by Written Consent....................... 75
Board of Directors.......................................... 75
LEGAL MATTERS............................................... 77
EXPERTS..................................................... 77
ANNEX A--Agreement and Plan of Merger....................... A-1
ANNEX B--Pricing Schedule................................... B-1
ANNEX C--Opinion of OneMain's Financial Advisor............. C-1
ANNEX D--Appraisal Rights Under Delaware Law................ D-1
</TABLE>
-ii-
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Statements made in this proxy statement/prospectus and in other public
filings and releases by both EarthLink and OneMain contain "forward-looking"
information, as defined in the Private Securities Litigation Reform Act of 1995,
that involve risk and uncertainty. These forward-looking statements may include,
but are not limited to, future capital expenditures, acquisitions, future sales,
earnings, margins, costs, currency fluctuations, inflation and various economic
and business trends. You can identify forward-looking statements by the use of
words such as "expect," "estimate," "project," "budget," "forecast,"
"anticipate," "plan" and similar expressions. Forward-looking statements include
all statements regarding expected financial position, results of operations,
cash flows, dividends, financing plans, business strategies, operating
efficiencies or synergies, budgets, capital and other expenditures, competitive
positions, growth opportunities for existing products, plans and objectives of
management, and markets for stock of EarthLink and OneMain. EarthLink and
OneMain caution you not to place undue reliance on these forward-looking
statements, which speak only as of the date they were made. EarthLink and
OneMain undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
These forward-looking statements are subject to known and unknown risks and
uncertainties that could cause actual results to differ materially from those
described in the forward-looking statements. These risks and uncertainties
include:
- ability of EarthLink and OneMain to retain and grow their respective
subscriber base;
- general industry trends and the ability of EarthLink and OneMain to
succeed in the highly competitive markets in which they operate;
- market demand for Internet services and changes in the economies and
geographic areas served by the companies;
- ability of EarthLink and OneMain to sustain their respective projected
growth;
- unexpected costs or difficulties related to the integration of new
subscribers and/or assets obtained through acquisitions, including the
integration of the businesses of EarthLink and OneMain;
- regulatory delays or conditions imposed by regulatory bodies in approving
the merger;
- employment workforce factors, including loss or retirement of key
employees;
- technological developments affecting the Internet and the ability of
EarthLink and OneMain to respond to such developments; and
- ability to protect intellectual property rights.
This list is intended to identify some of the principal factors that could
cause actual results to differ materially from those described in the
forward-looking statements included elsewhere in this proxy
statement/prospectus. These risks and uncertainties are not intended to
represent a complete list of all risks and uncertainties inherent in our
business, and no assurance can be given that future results indicated, whether
expressed or implied, will be achieved.
-iii-
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
EarthLink and OneMain each are subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended, and in
accordance with the Exchange Act file annual, quarterly and current reports,
proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any reports, statements or other information
EarthLink and OneMain file at the following locations:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661-2511
</TABLE>
Please call the SEC at 1-800-SEC-0300 for further information on the public
reference rooms. EarthLink and OneMain SEC filings also are available to the
public from commercial document retrieval services and at the world wide web
site maintained by the SEC at HTTP://WWW.SEC.GOV.
EarthLink has filed the EarthLink registration statement on Form S-4 with
the SEC to register the EarthLink common stock to be issued in the merger. This
proxy statement/prospectus is a part of the EarthLink registration statement and
constitutes a prospectus of EarthLink in addition to being a proxy statement of
OneMain for its special meeting. As allowed by SEC rules, this proxy statement/
prospectus does not contain all the information you can find in the EarthLink
registration statement or the exhibits to the EarthLink registration statement.
The SEC allows EarthLink and OneMain to "incorporate by reference"
information into this proxy statement/prospectus, which means that EarthLink and
OneMain can disclose important information to you by referring you to another
document filed separately with the SEC. The information incorporated by
reference is deemed to be part of this proxy statement/prospectus, except for
any information superseded by information in this proxy statement/prospectus or
by later filings with the SEC. This proxy statement/prospectus incorporates by
reference the documents set forth below. EarthLink and OneMain, as applicable,
have previously filed these documents with the SEC. These documents contain
important information about EarthLink or OneMain, as applicable.
This proxy statement/prospectus incorporates by reference the following
documents filed by EarthLink with the SEC (File No. 001-15605):
- EarthLink's Annual Report on Form 10-K for the year ended December 31,
1999, a copy of which is enclosed with this proxy statement/prospectus,
including information incorporated by reference in the Form 10-K from the
definitive proxy statement for the 2000 annual meeting of stockholders of
EarthLink held on June 1, 2000, which was filed on May 1, 2000;
- EarthLink's Quarterly Report on Form 10-Q for the quarter ended March 31,
2000;
- EarthLink's Current Reports on Form 8-K, which were filed with the SEC on
February 16, 2000, June 21, 2000, July 6, 2000 and July 10, 2000;
- The description of EarthLink's common stock contained in its registration
statement on Form S-4 (Registration No. 333-94177) filed with the SEC on
January 6, 2000; and
- EarthLink Network's Current Report on Form 8-K which was filed with the
SEC on October 14, 1999.
-iv-
<PAGE>
This proxy statement/prospectus incorporates by reference the following
documents filed by OneMain with the SEC (File No. 0-25599):
- OneMain's Annual Report on Form 10-K for the year ended December 31, 1999,
a copy of which is enclosed with this proxy statement/prospectus,
including information incorporated by reference in the Form 10-K from the
definitive proxy statement for the 2000 annual meeting of stockholders of
OneMain held on May 23, 2000, which was filed on April 19, 2000;
- OneMain's Quarterly Report on Form 10-Q for the quarter ended March 31,
2000; and
- OneMain's Current Reports on Form 8-K dated May 5, 2000 and June 16, 2000.
EarthLink and OneMain also are incorporating by reference all additional
documents that either files with the SEC pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act between the date of this proxy statement/prospectus
and the date of the special meeting.
You can obtain the documents incorporated by reference from EarthLink or
OneMain, as applicable, or the SEC. Documents incorporated by reference are
available from EarthLink or OneMain, as applicable, without charge, excluding
exhibits unless those exhibits are specifically incorporated by reference as an
exhibit to the registration statement of which this proxy statement/ prospectus
is a part. Stockholders may obtain documents that are referred to or that are
incorporated by reference in this proxy statement/prospectus by requesting them
in writing or by telephone at the following addresses:
<TABLE>
<S> <C>
IF FROM EARTHLINK: IF FROM ONEMAIN:
1430 West Peachtree St., Suite 400 1860 Michael Faraday Dr., Suite 200
Atlanta, Georgia 30309 Reston, Virginia 20190
Attn: Investor Relations Attn: Investor Relations
Tel: (404) 815-0770 Tel: (703) 375-3000
</TABLE>
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY ,
2000 TO RECEIVE THEM BEFORE THE ONEMAIN SPECIAL MEETING.
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus in connection with deciding your
vote upon the approval of the merger agreement and the merger. Neither EarthLink
nor OneMain has authorized anyone to provide you with information different from
what is contained in this proxy statement/prospectus. This proxy statement/
prospectus is dated , 2000. You should not assume that the
information contained in this proxy statement/prospectus is accurate as of any
date other than such date, and neither the mailing of this proxy
statement/prospectus to stockholders nor the issuance of EarthLink common stock
in the merger shall create any implication to the contrary.
-v-
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: PLEASE BRIEFLY DESCRIBE THE PROPOSED MERGER AND THE RELATED TRANSACTIONS.
A: EarthLink will acquire all of the outstanding common stock of OneMain,
including the options that have an exercise price equal to or below the per
share merger purchase price and assuming a closing EarthLink common stock
price of $17.9375, for an aggregate purchase price of approximately
$316 million, consisting of a combination of cash and EarthLink common
stock. OneMain will be merged into Merger Sub, which is a newly created and
wholly owned subsidiary of EarthLink. Merger Sub will survive the merger,
and the former OneMain will become a wholly owned subsidiary of EarthLink.
In this proxy statement/prospectus:
- we refer to EarthLink, Inc., a Delaware corporation, and its subsidiaries
as "EarthLink."
- we refer to OM Combination, Inc., a Delaware corporation and a newly
formed subsidiary of EarthLink, as "Merger Sub."
- we refer to OneMain.com, Inc., a Delaware corporation, and its
subsidiaries as "OneMain."
- we refer to the merger of OneMain into Merger Sub as the "merger."
- we refer to the agreement between EarthLink, Merger Sub and OneMain
concerning the merger as the "merger agreement."
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: As a OneMain stockholder, you will receive the right to convert each of your
shares of outstanding OneMain common stock into a combination of cash and
EarthLink common stock. We will determine the final merger consideration
based on the closing stock price of the EarthLink common stock on the day
prior to the merger. The amounts and possible combinations of cash and
EarthLink common stock are set forth on the pricing schedule attached as
ANNEX B to this proxy statement/prospectus. You will receive only whole
shares of EarthLink common stock. We will pay you cash for any fractional
share you would otherwise receive in the exchange.
Q: WHY ARE EARTHLINK AND ONEMAIN PROPOSING THE MERGER?
A: The boards of directors of EarthLink and OneMain believe that the combined
strengths of the two companies will enable them to compete more effectively
on a national basis. The combined company should help the companies achieve
long-term strategic goals by providing the combined company access to
broader markets in the Internet service provider business. A more detailed
description of the background and reasons for the merger appears on
pages 36, 39 and 46.
Q: HOW MANY SHARES OF EARTHLINK COMMON STOCK WILL BE OUTSTANDING AFTER THE
MERGER?
A: If the merger were completed on June 30, 2000 we expect that there will be
approximately 134 million shares of EarthLink common stock outstanding,
approximately 6.6% of which will be held by former stockholders of OneMain,
assuming (1) the outstanding OneMain options are converted into EarthLink
options and not exercised prior to the closing of the merger, (2) the
outstanding OneMain warrants are converted into EarthLink warrants and not
exercised prior to the closing of the merger and (3) Sprint Corporation does
not exercise its right to purchase additional shares of EarthLink common
stock to maintain its current ownership level.
-vi-
<PAGE>
Q: WHAT DIVIDENDS WILL I RECEIVE IN THE FUTURE?
A: EarthLink has never paid cash dividends on the EarthLink common stock, and
for the foreseeable future EarthLink intends to retain all of its earnings,
if any, for the future operation and expansion of its business.
Q: WHERE WILL THE SHARES OF EARTHLINK COMMON STOCK BE LISTED?
A: The shares of EarthLink common stock to be delivered in the merger will be
listed on the Nasdaq National Market System under the trading symbol "ELNK."
Q: WHAT ARE THE TAX CONSEQUENCES TO ONEMAIN STOCKHOLDERS OF THE MERGER?
A: The shares of EarthLink common stock received in the merger may or may not be
tax-free to the stockholders of OneMain for U.S. federal income tax
purposes, except that in any event, OneMain stockholders will be subject to
tax based on the amount of cash received in exchange for their shares,
including cash received instead of fractional shares. A more detailed
description of the material U.S. federal income tax consequences of the
merger appears on page 48.
Q: WHEN IS THE MERGER EXPECTED TO BE COMPLETED?
A: EarthLink and OneMain expect that the merger will be completed promptly after
the OneMain special meeting and receipt of governmental approvals, including
antitrust clearance. EarthLink and OneMain anticipate closing the
transaction in September 2000.
Q: ARE ONEMAIN STOCKHOLDERS ENTITLED TO DISSENTERS' RIGHTS?
A: Yes. Under Delaware law, which governs OneMain and the rights of its
stockholders, OneMain stockholders who comply with Section 262 of the
Delaware General Corporation Law are entitled to dissenters' rights of
appraisal for their shares instead of the merger consideration by reason of
the merger.
Q: WHO MUST APPROVE THE MERGER?
A: In addition to the boards of directors of EarthLink and OneMain, which have
already approved the merger, the holders of a majority of OneMain's
outstanding common stock must approve the merger. EarthLink and OneMain must
also obtain some regulatory approvals for the merger.
Q: WHAT SHOULD I DO NOW?
A: After reading this proxy statement/prospectus carefully, you should vote your
shares by either telephone, Internet or utilizing the enclosed proxy card,
according to the instructions included with the proxy card. If you use the
proxy card, please complete and mail it in the enclosed return envelope as
soon as possible, so that your shares may be represented at the OneMain
special meeting. If you sign, date and mail your proxy card without
identifying how you want to vote, your proxy will be voted "FOR" the merger
agreement. If you do not vote in person, by telephone, by Internet or by
returning your completed proxy card, it will have the same effect as a vote
"AGAINST" the merger agreement. THE ONEMAIN BOARD OF DIRECTORS RECOMMENDS
VOTING FOR ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: No. Your broker will vote your shares only if you provide instructions on how
to vote. You should follow the directions provided by your broker regarding
how to instruct your broker to vote your shares.
-vii-
<PAGE>
Q: ONCE I HAVE VOTED, MAY I CHANGE MY VOTE PRIOR TO THE ONEMAIN SPECIAL
MEETING?
A: Yes. You can change your vote at any time prior to your proxy being voted at
the OneMain special meeting by sending a signed notice of revocation or a
later-dated, signed proxy card to OneMain's Secretary before the OneMain
special meeting. If you hold your OneMain shares in your own name, you may
change your vote by attending the OneMain special meeting and voting in
person. If you hold your OneMain shares in "street name," you must first
obtain a broker proxy card to vote in person at the meeting. If you vote by
telephone or Internet, you can also change your vote by any of these three
methods or by following the instructions in the enclosed proxy form.
Q: IF I HOLD MY STOCK CERTIFICATES IN MY OWN NAME, SHOULD I SEND MY STOCK
CERTIFICATES NOW?
A: No. After the merger is completed, EarthLink will send you instructions for
exchanging your shares of OneMain common stock for cash and shares of
EarthLink common stock.
Q: WHAT WILL HAPPEN IN THE MERGER TO EMPLOYEE STOCK OPTIONS HELD BY ONEMAIN
EMPLOYEES?
A: Each outstanding option to purchase OneMain common stock that is vested and
has an exercise price equal to or below the per share purchase price in the
merger will be converted into an option to purchase EarthLink common stock.
EarthLink will adjust the exercise prices of those options and the number of
shares of EarthLink common stock covered by those options using formulas
designed to maintain the approximate economic value of the OneMain options
at the time of the merger. For this purpose, the number of shares of OneMain
common stock that may be acquired by exercising options will be multiplied
by the exchange ratio, and the exercise price per share will be divided by
the exchange ratio. All other options will be terminated and cancelled in
connection with the merger.
Q: MAY I EXERCISE MY VESTED STOCK OPTIONS AND SELL SHARES OF ONEMAIN COMMON
STOCK BETWEEN NOW AND THE COMPLETION OF THE MERGER?
A: Yes, unless you are subject to limitations on trading by persons defined as
OneMain "affiliates" and other restrictions on "insider trading" under
securities laws. The limitations on "affiliates" are described beginning on
page 51.
Q: WHO SHOULD I CALL WITH QUESTIONS?
A: If you have any questions about the merger, or if you would like copies of
any of the documents referred to or incorporated by reference in this proxy
statement/prospectus, please call: (1) Samuel DeSimone, General Counsel of
EarthLink, at (404) 815-0770; or (2) Marian O'Leary, Chief Financial Officer
of OneMain, at (703) 375-3034. See also "Where You Can Find More
Information" beginning on page iv.
-viii-
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT/PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. TO UNDERSTAND THE MERGER AND RELATED TRANSACTIONS MORE FULLY,
YOU SHOULD CAREFULLY READ THIS ENTIRE DOCUMENT AND THE DOCUMENTS REFERRED TO
UNDER THE CAPTION "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE IV.
THE COMPANIES (SEE PAGE 27)
EARTHLINK. EarthLink, Inc. is a Delaware corporation organized in
February 2000 as a result of the merger of its predecessors EarthLink
Network, Inc. and MindSpring Enterprises, Inc. Its principal executive offices
are located at:
EARTHLINK, INC.
1430 West Peachtree St., Suite 400
Atlanta, Georgia 30309
(404) 815-0770
EarthLink, based in Atlanta, Georgia is one of the world's leading Internet
service providers, with approximately 3.5 million individual and business
customers. EarthLink provides a full range of access, hosting and e-commerce
solutions to thousands of communities from more than 5,000 points of presence.
ONEMAIN. OneMain.com, Inc. is a Delaware corporation organized in August
1998. Its principal executive offices are located at:
ONEMAIN.COM, INC.
1860 Michael Faraday Dr., Suite 200
Reston, Virginia 20190
(703) 375-3036
OneMain, based in Reston, Virginia, is one of the largest independent
Internet service providers in the country, with more than 762,000 subscribers.
OneMain provides Internet access, services and local content throughout the
United States to individuals and businesses predominantly located in smaller
metropolitan markets and rural communities.
MERGER SUB. OM Combination, Inc. is a Delaware corporation organized in
June 2000.
OM COMBINATION, INC.
1430 West Peachtree St., Suite 400
Atlanta, Georgia 30309
(404) 815-0770
OM Combination, Inc. is a newly formed and wholly owned subsidiary of
EarthLink that to date has not conducted any activities other than activities
related to its formation, the execution of the merger agreement and the
preparation of this proxy statement/prospectus.
THE MERGER AND RELATED TRANSACTIONS (SEE PAGE 35)
The merger agreement provides for the acquisition by EarthLink of all of the
outstanding common stock of OneMain. If the merger and merger agreement are
approved by the OneMain stockholders, EarthLink will exchange a combination of
cash and EarthLink common stock for each share of outstanding common stock of
OneMain, and OneMain will be merged into Merger Sub. The merger agreement is
attached as ANNEX A to this proxy statement/prospectus and is incorporated by
reference into this document. We encourage you to read the merger agreement
carefully in its entirety because it is the legal document that governs the
merger.
1
<PAGE>
Some stockholders of OneMain, including members of its management and board
of directors, who collectively own approximately 10.5% of OneMain's outstanding
common stock, have signed an agreement to vote their shares in favor of the
merger. See "OneMain Agreement to Vote Stock" on page 60 for a more detailed
description of this voting agreement.
WHAT ONEMAIN STOCKHOLDERS WILL RECEIVE (SEE PAGE 53)
In the merger transaction, each share of OneMain common stock will be
converted into a right to receive not less than $5.708 and not more than $6.050
in cash and not less than 0.3357 and not more than 0.3559 of a share of
EarthLink common stock. The exact combination and amounts of cash and stock are
dependent upon the closing price of EarthLink common stock on Nasdaq on the day
prior to the closing of the merger. The pricing schedule attached as ANNEX B to
this proxy statement/prospectus provides the range and combinations of the cash
and EarthLink stock each OneMain stockholder will receive in exchange for each
share of OneMain stock. The method for calculating the merger consideration is
explained in more detail in "Material Terms of the Merger Agreement--The Merger"
beginning on page 53.
OPTIONS AND WARRANTS (SEE PAGE 53)
All outstanding options to purchase OneMain common stock that are vested and
have an exercise price equal to or below the final per share purchase price in
the merger will be converted into options to purchase EarthLink common stock,
based on an exchange ratio. All other outstanding OneMain options will terminate
and expire as of the merger date and will not be converted into options to
purchase EarthLink common stock. OneMain has outstanding warrants to purchase
its common stock, which will be converted into warrants to buy EarthLink common
stock.
THE ONEMAIN SPECIAL MEETING OF STOCKHOLDERS--STOCKHOLDERS' APPROVAL (SEE PAGE
33)
The special meeting of OneMain stockholders will be held at the Hyatt
Regency Reston, 1800 Presidents Street in Reston, Virginia, at 10:00 a.m. local
time, on , 2000.
At the special meeting, OneMain stockholders will be asked to vote to adopt
the merger agreement and approve the merger with EarthLink. Adoption of the
merger agreement requires the favorable vote of a majority of the outstanding
shares of OneMain common stock. The vote of EarthLink common stockholders is not
required to approve the merger.
You can vote at the special meeting if you owned OneMain common stock at the
close of business on , 2000. As of that date, directors and
executive officers of OneMain owned approximately % of the outstanding
shares of OneMain common stock. If you do not vote your shares of OneMain common
stock or give instructions to your broker as to how to vote, the effect will be
the same as a vote against the merger agreement and the merger.
RECOMMENDATION OF ONEMAIN'S BOARD OF DIRECTORS TO ONEMAIN STOCKHOLDERS (SEE
PAGE 41)
The board of directors of OneMain believes the merger is in the best
interests of OneMain and its stockholders and recommends that you vote "FOR" the
merger proposal.
In reaching its recommendation in favor of the merger, the OneMain board of
directors considered a number of factors, including the following:
- the ability of OneMain stockholders to own equity in the second largest
provider of Internet services in the United States which has a larger
analyst and investor following than OneMain;
- the opportunity for OneMain to expand into new markets in the Internet
services provider business; and
2
<PAGE>
- the June 7, 2000 presentation and written opinion to the OneMain board of
directors of OneMain's financial advisor, Jefferies & Co., a copy of which
opinion is attached as ANNEX C to this proxy statement/prospectus, that
the merger consideration to be received by OneMain stockholders in the
merger is fair from a financial point of view to OneMain as of the date of
the opinion.
For a more detailed discussion of these and other factors, see "The Merger
and Related Transactions--OneMain's Reasons for the Merger" beginning on
page 39.
OPINION OF ONEMAIN'S FINANCIAL ADVISOR (SEE PAGE 41)
In deciding to approve the merger, the board of directors of OneMain
received and considered the opinion of Jefferies & Co., its financial advisor,
as to the fairness, from a financial point of view, of the merger consideration.
The opinion is attached as ANNEX C to this proxy statement/prospectus, and a
summary of that opinion is set forth on page 41. EarthLink and OneMain encourage
you to read the summary and the opinion in their entirety.
INTERESTS OF ONEMAIN OFFICERS AND DIRECTORS IN THE MERGER (SEE PAGE 47)
When considering the recommendations of the board of directors of OneMain,
you should be aware that directors and executive officers of OneMain have
interests and arrangements in addition to your interests as stockholders,
including the vesting of previously unvested stock options upon the change of
control of OneMain resulting from the merger. Also, four members of OneMain's
board of directors and executive officers have agreed to vote their shares of
OneMain stock in favor of the merger, totaling approximately 10.5% of OneMain's
outstanding shares.
CONDITIONS TO THE MERGER (SEE PAGE 57)
We will complete the merger and related transactions only if specified
conditions, including the following, are satisfied or, in certain circumstances,
waived:
- the OneMain stockholders approve the merger;
- Nasdaq approves for trading the shares of EarthLink common stock to be
issued in the merger; and
- we receive all material governmental and other consents and approvals
required, including those under the Hart-Scott-Rodino Antitrust
Improvements Act.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 59)
EarthLink and OneMain may terminate the merger agreement by mutual written
consent at any time prior to completing the merger. The merger agreement may
also be terminated in specified other circumstances, generally including the
following:
- Either EarthLink or OneMain may terminate the merger agreement if (i) the
stockholders of OneMain do not vote to approve the merger, (ii) a court or
government authority has acted to prevent the merger or (iii) the merger
has not been completed by October 30, 2000;
- OneMain may terminate the merger agreement if (i) EarthLink materially
breaches its representations, warranties or covenants in the merger
agreement, or (ii) OneMain receives or accepts another proposal to acquire
OneMain that is determined to be superior by its board of directors; and
- EarthLink may terminate the merger agreement if (i) OneMain materially
breaches its representations, warranties or covenants in the merger
agreement, (ii) OneMain violates its duty
3
<PAGE>
to refrain from seeking alternative takeover proposals, (iii) OneMain
receives or accepts another proposal to acquire OneMain that its board of
directors determines to be materially more favorable than the proposed
merger by its board of directors, (iv) OneMain's board of directors
withdraws or modifies its recommendations in favor of the merger, or
OneMain fails to mail the proxy statement/prospectus to its stockholders,
or (v) OneMain fails to repurchase and terminate its outstanding
debentures and related agreements.
See "Material Terms of the Merger Agreement--Termination of the Merger
Agreement" on page 59 for a more detailed description of the termination
provisions.
TERMINATION FEE PAYABLE BY ONEMAIN (SEE PAGE 60)
If the merger agreement is terminated for the reasons described on page 60,
OneMain must pay EarthLink a fee of $9 million plus EarthLink's expenses related
to the merger.
REGULATORY APPROVALS (SEE PAGE 49)
We have made filings and taken other actions necessary to obtain approvals
from certain regulatory authorities, including antitrust authorities, in
connection with the merger. The initial filings under the Hart-Scott-Rodino
Antitrust Improvements Act were made on June 27, 2000. We expect to obtain this
approval and all other necessary regulatory approvals before the OneMain special
meeting. However, it is not certain that we will obtain all required regulatory
approvals by that date. Any approvals that we receive may be subject to
conditions that could be detrimental to EarthLink or OneMain.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 48)
The merger may or may not qualify as a tax-free reorganization under U.S.
tax laws, which qualification depends in part on the amounts of cash and
EarthLink stock ultimately used to purchase the OneMain stock in the merger.
Qualification of the merger as a tax-free reorganization is NOT a condition to
completing the merger. If the merger qualifies as a tax-free reorganization, you
will not recognize gain or loss by virtue of your receipt of EarthLink common
stock for your OneMain stock, but your receipt of the cash portion of the merger
consideration will require you to recognize any gain (but not loss) you realize
on the transaction up to the amount of the cash received. If the merger does not
qualify as a tax-free reorganization, you will recognize all gain or loss that
you realize, equal to the difference between the tax basis in your OneMain stock
and the fair market value of the merger consideration that you receive.
Tax matters are complicated, and the tax consequences of the proposed
transactions to you will depend on the facts of your own situation. You should
consult your own tax advisor for a full understanding of the tax consequences to
you of the merger.
APPRAISAL RIGHTS (SEE PAGE 50)
Under Delaware law, OneMain stockholders will have a right to an appraisal
of the value of their shares in connection with the merger and to receive cash
payment of the appraised amount for their OneMain common stock in the merger. In
order to qualify for these appraisal rights, OneMain stockholders must take
specific actions. For more on appraisal rights, see page 50.
ONEMAIN MARKET PRICE INFORMATION (SEE PAGE 26)
OneMain common stock is listed on the Nasdaq National Market System, and its
ticker symbol on Nasdaq is "ONEM." On June 7, 2000, the last full trading day
prior to the public announcement of the proposed merger, OneMain common stock
closed at $8.00 per share. On July 7, 2000, the last full day
4
<PAGE>
prior to the date of this proxy statement/prospectus, OneMain common stock
closed at $10.75 per share.
EARTHLINK MARKET PRICE INFORMATION (SEE PAGE 26)
EarthLink common stock is listed on the Nasdaq National Market System, and
its ticker symbol on Nasdaq is "ELNK." On June 7, 2000, the last full trading
day prior to the public announcement of the proposed merger, EarthLink common
stock closed at $17.9375 per share. On July 7, 2000, the last full day prior to
the date of this proxy statement/prospectus, EarthLink common stock closed at
$14.56 per share.
LISTING OF EARTHLINK COMMON STOCK (SEE PAGE 52)
EarthLink will apply to list on Nasdaq the EarthLink common stock to be
issued to OneMain stockholders in connection with the merger and to be issued
upon exercise of OneMain options and warrants that are converted into EarthLink
options and warrants.
COMPARISON OF STOCKHOLDER RIGHTS (SEE PAGE 71)
If you own OneMain common stock, you will receive EarthLink common stock and
become a stockholder of EarthLink after the merger. Your rights will continue to
be governed by Delaware law, but also will be governed by EarthLink's amended
and restated certificate of incorporation and bylaws instead of OneMain's
certificate of incorporation and bylaws. For a description of how your rights as
a OneMain stockholder would differ from your rights as an EarthLink stockholder,
see "Comparative Rights of EarthLink and OneMain Stockholders" beginning on page
71.
WHERE YOU CAN FIND MORE INFORMATION (SEE PAGES IV AND V)
If you would like more information about EarthLink or OneMain, you can find
this information in documents filed by EarthLink and OneMain with the SEC. These
documents are identified, and instructions on how you can obtain copies of these
documents, are on pages iv and v.
5
<PAGE>
COMPARATIVE PER SHARE DATA
(UNAUDITED)
The following table compares historical and pro forma earnings (loss) per
share and book value per share information for EarthLink and OneMain. You should
read the table together with the financial information for EarthLink and OneMain
included or incorporated by reference in this proxy statement/prospectus. You
should not rely on the pro forma financial information as an indication of the
results that EarthLink would have achieved if the merger had taken place earlier
or of the results of EarthLink after the merger.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- ------------------
<S> <C> <C>
EarthLink Historical--Per Common Share:
Net loss per share--basic and diluted...... $ (1.65) $(0.95)
Book value per share(1).................... $ 4.78 $ 3.97
Cash dividends per share................... -- --
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- ------------------
<S> <C> <C>
OneMain Historical--Per Common Share:
Net loss per share--basic and diluted(2)... $ (4.45) $(1.92)
Book value per share(1).................... $ 12.47 $10.58
Cash dividends per share................... -- --
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- ------------------
<S> <C> <C>
Pro Forma Combined--Per Common Share:
Net loss per EarthLink share--basic and
diluted.................................. $ 2.62 $(1.34)
Net loss per equivalent OneMain
share--basic and diluted(3).............. $ (0.92) $(0.47)
Book value per EarthLink share(4).......... $ 6.93 $ 5.06
Book value per equivalent OneMain
share(4)................................. $ 2.43 $ 1.77
</TABLE>
------------------------
(1) The historical book value per share amounts are computed by dividing
EarthLink's and OneMain's stockholders' equity, respectively, by their
actual common shares outstanding as of December 31, 1999 and March 31, 2000.
(2) The net loss per share--basic and diluted for the year ended December 31,
1999 includes the pro forma results of operations from OneMain's
acquisitions of 17 Internet service providers on March 30, 1999 ("IPO
Acquisitions") as if the IPO Acquisitions occurred on January 1, 1999.
(3) The pro forma combined book value per share amounts are computed by dividing
pro forma stockholders equity by the pro forma number of common shares of
EarthLink outstanding as of March 31, 2000, assuming the merger had occurred
as of that date.
(4) The equivalent pro forma OneMain combined per share amounts are calculated
by multiplying the pro forma combined share amounts by the exchange ratio of
0.3509 shares of EarthLink common stock for each share of OneMain common
stock.
6
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
SOURCES OF THE HISTORICAL FINANCIAL INFORMATION
EarthLink and OneMain are providing the following summary financial
information to help you in your analysis of the financial aspects of the
proposed merger. EarthLink and OneMain derived the historical information from
their audited and unaudited financial statements for the periods presented. The
information is only a summary and you should read it together with the financial
information included or incorporated by reference in this proxy
statement/prospectus. See "Where You Can Find More Information" beginning on
page iv, "EarthLink Selected Historical Consolidated Financial Information" on
page 62 and "OneMain Selected Historical Consolidated Combined Financial
Information" on page 63.
PREPARATION OF THE PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma combined financial information is presented to show
you how EarthLink might have looked if EarthLink's acquisition of OneMain had
been combined for the periods presented. See "The Merger and Related
Transactions--Accounting Treatment" on page 49. If the companies had been
combined in the past, they might have performed differently. You should not rely
on the pro forma financial information as an indication of the results that
EarthLink would have achieved if the acquisition had taken place earlier or the
future results that EarthLink will experience after the acquisition.
MERGER-RELATED EXPENSES
EarthLink and OneMain estimate that the merger and related transactions will
result in fees and expenses totaling approximately $6 million, which will be
capitalized. After the merger, EarthLink may incur charges and expenses relating
to integrating the operations of OneMain. We did not adjust the pro forma
information for these charges and expenses or for operating efficiencies or
inefficiencies that EarthLink may realize as a result of the merger.
7
<PAGE>
EARTHLINK, INC.
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
EarthLink derived the summary information below, excluding EBITDA, from the
audited consolidated statements of operations of EarthLink for its fiscal years
ended December 31, 1997 through 1999 and balance sheets at December 31, 1998 and
1999 and from the unaudited consolidated statements of operations of EarthLink
for its fiscal years ended December 31, 1995 and 1996 and for the three months
ended March 31, 1999 and 2000 and balance sheets at December 31, 1995, 1996 and
1997. You should not expect the results for the prior periods to be an
indication of the results to be achieved for future periods. This information is
only a summary and should be read together with EarthLink's historical
consolidated financial statements, and the related notes, which are incorporated
by reference into this proxy statement/prospectus. In addition, this document
should be read together with EarthLink's Annual Report on Form 10-K, which is
incorporated by reference into and included with this proxy
statement/prospectus. See "Where You Can Find More Information" beginning on
page iv.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------- ----------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- --------- --------- --------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
--------------------------------
Revenues...................... $ 5,255 $ 51,362 $ 133,444 $ 290,614 $ 670,443 $ 129,871 $ 219,705
Operating costs and
expenses.................... 12,507 89,142 165,641 345,069 866,113 161,493 337,952
Net loss(1)................... (8,079) (38,761) (33,997) (53,178) (173,694) (27,757) (108,514)
======= ======== ========= ========= ========= ========= ==========
OTHER OPERATING DATA:
--------------------------------
EBITDA(2)..................... $(6,682) $(30,342) $ (14,127) $ 15,498 $ (6,157) $ 7,526 $ (81,496)
Cash flows from
Operating activities........ $(3,713) $(18,227) $ (9,936) $ 62,098 $ 44,211 $ 32,824 $ (42,763)
Investing activities........ (7,990) (39,697) (25,097) (56,886) (339,749) (251,213) (26,936)
Financing activities........ 11,833 70,855 47,223 277,559 672,684 304,552 275,288
BALANCE SHEET DATA:
--------------------------------
Cash and cash equivalents..... $ 715 $ 13,646 $ 25,836 $ 308,607 $ 685,753 $ 394,770 $ 891,342
Total assets.................. 9,719 62,351 91,175 510,002 1,109,147 838,782 1,298,632
Total liabilities............. 8,947 44,192 63,685 109,515 350,694 206,843 370,314
Stockholders' equity.......... 772 18,159 27,490 400,487 758,453 631,938 928,318
</TABLE>
--------------------------
1. Includes adjustments of $3.9 million for 1998 and $25.3 million for 1999, to
give effect to the reestablishment of a valuation allowance on net deferred
tax assets.
2. Represents earnings (loss) before depreciation and amortization, interest
income and expense and income tax expense. EBITDA is not determined in
accordance with generally accepted accounting principles, is not indicative
of cash used by operating activities and should not be considered in
isolation from, as an alternative to, or more meaningful than measures of
performance determined in accordance with generally accepted accounting
principles. Not all companies define EBITDA in the same way, and our EBITDA
is not necessarily comparable to EBITDA reported by other companies.
8
<PAGE>
ONEMAIN.COM, INC.
SUMMARY CONSOLIDATED COMBINED FINANCIAL AND OPERATING INFORMATION
OneMain derived the summary information below from the audited consolidated
statements of operations and cash flows for the period August 19, 1998
(inception) through December 31, 1998 and the year ended December 31, 1999 and
balance sheets at December 31, 1998 and 1999 and from the unaudited consolidated
statements of operations and cash flow for the three months ended March 31, 1999
and 2000 and balance sheets at March 31, 1999 and 2000.
The summary pro forma statement of operations data includes (a) OneMain's
historical consolidated results combined with the 17 Internet service providers
as if the initial public offering acquisitions had occurred on January 1, 1998;
(b) the amortization of goodwill and customer lists resulting from the initial
public offering acquisitions; (c) the elimination of interest expense for the
debt that was paid from the initial public offering proceeds; and (d) an income
tax benefit at an appropriate rate. The summary pro forma financial information
includes the results of operations of the subsequent acquisitions from the dates
of acquisition only.
The pro forma combined financial information does not purport to represent
what OneMain's results of operations would actually have been if such
transactions and events in fact had occurred on those dates or to project our
results of operations for any future period.
This information is only a summary and should be read together with
OneMain's historical consolidated financial statements, and the related notes,
which are incorporated by reference in this proxy statement/prospectus.
9
<PAGE>
<TABLE>
<CAPTION>
FOR THE PERIOD
AUGUST 19, 1998 THREE MONTHS
(INCEPTION) PRO FORMA PRO FORMA ENDED
THROUGH YEAR ENDED YEAR ENDED YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, -------------------
1998 1999 1998 1999 1999 2000
---------------- ------------- ------------- ------------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
--------------------------------
Revenues........................ $ -- $ 82,765 $ 56,687 $102,266 $ -- $ 39,812
Operating costs and expenses.... 761 177,065 140,880 217,000 3,379 91,711
Net loss........................ (765) (81,245) (74,029) (98,852) (3,371) (48,025)
----- --------- -------- -------- -------- --------
OTHER OPERATING DATA:
--------------------------------
EBITDA(1)....................... $(761) $ (9,752) $ (3,379) $(12,567)
Cash flows from operating
activities.................... (375) 2,553 (423) (5,118)
Cash flows from investing
activities.................... -- (156,613) (68,073) (1,242)
Cash flows from financing
activities.................... 547 180,987 159,723 (4,512)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------- -------------------
1998 1999 1999 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 172 $ 27,099 $ 91,399 $ 16,227
Total assets................................................ 6,331 434,893 363,472 393,287
Total liabilities........................................... 7,049 124,019 59,480 127,991
Stockholders' equity (deficit).............................. (718) 310,874 303,992 265,296
</TABLE>
------------------------------
1. EBITDA represents earnings or losses before interest, taxes, depreciation
and amortization. We have included EBITDA in these data because it is a
measure commonly used by investors to analyze and compare companies on the
basis of operating performance, EBITDA is not a measurement of financial
performance under generally accepted accounting principles and should not be
construed as a substitute for operating activities for purposes of analyzing
our operating performance, financial position or cash flows. Not all
companies define EBITDA in the same way, and our EBITDA is not necessarily
comparable to EBITDA reported by other companies.
10
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements
give effect to the acquisition by EarthLink of OneMain in a transaction to be
accounted for as a purchase. The unaudited pro forma condensed combined
financial statements are based on the historical consolidated combined financial
statements and related notes of EarthLink and OneMain, which are incorporated by
reference to this proxy statement/prospectus. The unaudited pro forma condensed
combined balance sheet has been prepared to reflect the acquisition by EarthLink
of OneMain as of March 31, 2000. The unaudited pro forma condensed combined
statements of operations combine the results of operations of EarthLink and of
OneMain for the year ended December 31, 1999 and the three months ended
March 31, 2000 as if the acquisition occurred on January 1, 1999. These
unaudited pro forma condensed combined financial statements should be read
together with the financial statements and related notes of EarthLink and
OneMain, both incorporated by reference into this proxy statement/ prospectus.
The historical financial statements of OneMain are not necessarily indicative of
the financial condition or results of operations of such operations on a
prospective combined basis.
EarthLink agreed to purchase OneMain for cash and stock valued at
approximately $308 million or approximately $12.26 per share for each of
OneMain's 25.1 million common shares outstanding plus options and warrants. The
purchase price consists of approximately $150 million in cash and approximately
8.8 million shares of EarthLink common stock valued at $158 million at the
Nasdaq closing price of $17.9375 on June 7, 2000. On June 7, 2000, the day the
merger agreement was executed, the combination of cash and stock would have been
$5.97 and 0.3509 of a share of EarthLink common stock, based on the EarthLink
common stock closing price of $17.9375 on that day. The cash portion will be no
more than $6.050 and no less than $5.708 per share, and the stock portion will
be no more than 0.3559 and no less than 0.3357 of a share of EarthLink common
stock. On the day prior to the merger, the final per share price, the EarthLink
stock portion, the cash portion and the stock ratio will be calculated based on
the then existing closing stock price of EarthLink common stock. For purposes of
this calculation, the minimum and maximum EarthLink common stock prices used
will be $5.00 and $50.00, respectively, to determine the cash portion and stock
ratio. The minimum and maximum purchase price for all outstanding OneMain shares
would be $229.3 million and $575.4 million, respectively. This includes the
value of options and warrants to purchase EarthLink common stock to be granted
to current holders of OneMain options and warrants, respectively.
For purposes of this pro forma information, the purchase price has been
allocated to the assets of OneMain. The excess of the purchase price over the
fair value of the assets acquired has been allocated to goodwill. The final
allocation may differ from that used in the unaudited pro forma condensed
combined financial statements.
The unaudited pro forma condensed combined financial statements are based on
the estimates and assumptions set forth in the notes to such statements, which
are preliminary and have been made solely for purposes of developing such pro
forma information. The unaudited pro forma condensed combined financial
statements are not necessarily indicative of the results that would have been
achieved had such transactions been consummated as of the dates indicated, or
that may be achieved in the future, or the results that would have been realized
had the entities been a single entity during these periods. These unaudited pro
forma condensed combined financial statements should be read together with the
audited historical consolidated combined financial statements and related notes
of EarthLink and OneMain, and other financial information pertaining to
EarthLink and OneMain including "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Risk Factors" from their
respective documents incorporated by reference into this proxy statement/
prospectus.
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EARTHLINK, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
EARTHLINK ONEMAIN ADJUSTMENTS COMBINED
---------- -------- ----------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents.................. $ 891,342 $ 16,227 $(150,000)(a) $ 757,569
Accounts receivable, net................... 19,085 5,527 24,612
Other assets............................... 28,669 5,570 34,239
---------- -------- --------- ----------
Total current assets..................... 939,096 27,324 (150,000) 816,420
LONG-TERM ASSETS
Investments in other companies............. 10,400 10,400
Restricted marketable securities........... 1,785 1,785
Other long-term assets..................... 1,198 823 2,021
Property and equipment, net................ 166,080 62,484 228,564
Intangibles, net........................... 181,858 300,871 25,970 (b) 508,699
---------- -------- --------- ----------
$1,298,632 $393,287 $(124,030) $1,567,889
========== ======== ========= ==========
CURRENT LIABILITIES
Trade accounts payable..................... $ 29,726 $ 8,164 $ 6,000 (c) $ 43,890
Accrued payroll and related expenses....... 11,189 11,189
Other accounts payable and accrued
liabilities.............................. 101,227 18,277 119,504
Deferred income taxes...................... 17,661 (17,661)(d) --
Restructuring reserve...................... 7,045 7,045
Current portion of capital lease
obligations.............................. 8,823 11,062 19,885
Convertible notes.......................... 179,975 441 180,416
Deferred revenue........................... 31,171 25,482 56,653
---------- -------- --------- ----------
Total current liabilities................ 362,111 88,132 (11,661) 438,582
LONG-TERM LIABILITIES
Long-term debt, net of current portion..... 5,119 5,119
Deferred income tax........................ 20,592 (20,592)(d) --
Long-term portion of capital lease
obligations.............................. 8,203 14,148 22,351
---------- -------- --------- ----------
Total liabilities...................... 370,314 127,991 (32,253) 466,052
STOCKHOLDERS' EQUITY
Preferred stock............................ 167 167
Common stock............................... 1,182 25 63 (a) 1,270
Additional paid-in capital................. 1,366,744 395,306 (395,306)(a) 1,538,350
157,912 (a)
13,694 (e)
Warrants to purchase common stock.......... 448 1,825 (f) 2,273
Accumulated deficit........................ (440,223) (130,035) 130,035 (a) (440,223)
---------- -------- --------- ----------
Total stockholders' equity............... 928,318 265,296 (91,777) 1,101,837
---------- -------- --------- ----------
$1,298,632 $393,287 $(124,030) $1,567,889
========== ======== ========= ==========
</TABLE>
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<PAGE>
EARTHLINK, INC.
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
Pro forma adjustments are as follows:
a. Based on the per share prices of EarthLink and OneMain and the effective
exchange ratios at June 7, 2000, the aggregate purchase price for OneMain is
approximately $324 million. Assuming no outstanding OneMain options and
warrants are exercised prior to the closing of the merger, the purchase
price consists of approximately $150 million in cash, approximately
8.8 million shares of EarthLink common stock valued at $158 million and
options and warrants valued at $16 million. This entry reflects the value of
cash and EarthLink common stock given in exchange for OneMain common stock
and the value of options and warrants, to purchase EarthLink common stock,
granted to former holders of OneMain options and warrants, respectively.
b. This adjustment reflects the fair value of the assets acquired consisting
primarily of the tangible assets of OneMain, customer lists valued at
$212,800 and goodwill of $114,041.
c. This adjustment reflects the accrual of $6.0 million of estimated costs
resulting from the proposed purchase. These charges include direct
transaction costs including estimated investment banking fees, financial
advisory fees and fees for other professional services. These charges
represent a preliminary estimate only and are subject to change.
d. Management has reviewed their combined deferred tax assets and liabilities
and, based on the anticipated reversal of combined temporary differences,
has determined that it is more likely than not that certain deferred tax
assets will be realized. Accordingly, this adjustment gives effect to the
reduction of the combined valuation allowance and the netting of the
resulting deferred tax assets and liabilities.
e. This adjustment is to account for the fair value of OneMain stock options
that will be converted into EarthLink stock options. In conjunction with the
merger agreement, EarthLink agreed to convert the options granted under any
of the stock option plans of OneMain provided the options are vested and
have an exercise price equal to or less than the final per share price of
OneMain common stock on the date of the merger agreement. The conversion of
the OneMain stock options to EarthLink options is based on the exchange
ratio of the total consideration to be paid for each share of OneMain common
stock divided by the closing price of EarthLink common stock the day prior
to the merger. This adjustment assumes an exchange ratio of 0.6835 of a
share of EarthLink common stock for each share of OneMain common stock.
f. In connection with a purchase agreement and rights agreement OneMain
(i) issued 6.75% convertible debentures, due April 27, 2003, in the
aggregate principal amount of $12 million to purchasers and (ii) 277,777
warrants at $10.80 per share, dated April 27, 2000, (the "debenture
warrants"). OneMain is expected to repay the convertible debentures prior to
the consummation of the merger with EarthLink and incur a loss on early
extinguishments of debt of approximately $4.3 million. However, in
conjunction with the purchase agreement, EarthLink agreed to convert the
debenture warrants to warrants to purchase EarthLink common stock. The
conversion of the OneMain warrants to EarthLink warrants is based on an
exchange ratio determined by dividing the total consideration paid for each
share of OneMain common stock by $17. Based on the per share consideration
to be paid for each share of OneMain on June 7, 2000, $12.26, the exchange
ratio is determined to be approximately 0.7212. Accordingly, the holders of
the debenture warrants will receive 0.7212 warrants to purchase EarthLink
shares at $14.98 per share.
13
<PAGE>
EARTHLINK, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
EARTHLINK PRO FORMA PRO FORMA
AS ADJUSTED(A) ONEMAIN ADJUSTMENTS COMBINED
-------------- --------- ----------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues..................................... $ 219,705 $ 39,812 $ 259,517
Operating costs and expenses:
Cost of revenues........................... 70,260 15,100 85,360
Selling, general and administrative and
member support........................... 196,974 30,100 227,074
Merger and restructuring charges........... 33,967 7,179 41,146
Depreciation............................... 13,088 5,108 18,196
Acquisition-related costs.................. 23,663 34,224 $ 2,164 (c) 60,051
--------- -------- -------- ---------
337,952 91,711 2,164 431,827
--------- -------- -------- ---------
Loss from operations....................... (118,247) (51,899) (2,164) (172,310)
Interest income (expense), net............... 9,733 (364) (2,250)(d) 7,119
--------- -------- -------- ---------
Loss before taxes.......................... (108,514) (52,263) (4,414) (165,191)
Income tax benefit........................... 4,238 (4,238)(e)
--------- -------- -------- ---------
Net loss................................... (108,514) (48,025) (8,652) (165,191)
Deductions for accretion dividends........... (3,331) (3,331)
--------- -------- -------- ---------
Net loss attributable to common
stockholders............................... $(111,845) $(48,025) $ (8,652) $(168,522)
========= ======== ======== =========
Basic and diluted net loss per share......... $ (0.95) $ (1.92) $ (1.34)
========= ======== =========
Weighted average common shares outstanding... 117,426 25,002 (16,229)(f) 126,199
========= ======== ======== =========
</TABLE>
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<PAGE>
EARTHLINK, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
EARTHLINK ONEMAIN PRO FORMA PRO FORMA
AS ADJUSTED(A) AS ADJUSTED(B) ADJUSTMENTS COMBINED
-------------- -------------- ----------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues.................................. $ 670,433 $ 102,266 $ 772,699
Operating costs and expenses:
Cost of revenues........................ 225,046 40,581 265,627
Selling, general and administrative and
member support........................ 451,544 69,756 521,300
Depreciation............................ 41,256 8,889 50,145
Acquisition-related costs............... 148,267 97,774 $ 8,657 (c) 254,698
--------- --------- -------- ----------
866,113 217,000 8,657 1,091,770
--------- --------- -------- ----------
Loss from operations.................... (195,680) (114,734) (8,657) (319,071)
Interest income (expense), net............ 21,986 2,529 (9,000)(d) 15,515
--------- --------- -------- ----------
Loss before taxes....................... (173,694) (112,205) (17,657) (303,556)
Income tax benefit........................ 13,353 (13,353)(e) --
--------- --------- -------- ----------
Net loss................................ (173,694) (98,852) (31,010) (303,556)
Deductions for accretion dividends........ (14,106) (14,106)
--------- --------- -------- ----------
Net loss attributable to common
stockholders............................ $(187,800) $ (98,852) $(31,010) $ (317,662)
========= ========= ======== ==========
Basic and diluted net loss per share...... $ (1.65) $ (4.45) $ (2.62)
========= ========= ==========
Weighted average common shares
outstanding............................. 113,637 22,222 (14,424)(f) 121,435
========= ========= ======== ==========
</TABLE>
15
<PAGE>
EARTHLINK, INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
a. This column represents the historical results of operations of EarthLink
except that depreciation expense, which is normally allocated to cost of
revenues and operating expense accounts, has been separately disclosed for
purposes of these statements.
b. This column reflects the pro forma results of operations of OneMain for the
periods presented including the acquisitions of the original 17 Internet
service providers (the "IPO Acquisitions") by OneMain as if the IPO
Acquisitions occurred on January 1, 1999.
c. This entry reflects the amortization of the OneMain customer list and the
excess of the purchase price over net assets acquired over 36 months.
Additional costs to provide service to acquired customers are not considered
material.
d. Represents the reduction to interest income based on the assumption that the
$150 million cash component of the cost to purchase OneMain was paid on
January 1, 1999.
e. Management has reviewed their combined deferred tax assets and liabilities
and, based on the anticipated reversal of combined temporary differences,
has determined that it is more likely than not that certain deferred tax
assets will be realized. No income tax benefit has been recorded in the
Combined Pro Forma Results of Operations for the Year Ended December 31,
1999 and the Three Months Ended March 31, 2000 because the combined deferred
tax assets exceed the combined deferred tax liabilities on the date of
purchase and future deferred tax benefits are anticipated to be offset by an
increase in the valuation allowance.
f. Pursuant to the terms of the purchase agreement, each share of OneMain
common stock will be exchanged for not less than 0.3357 and not more than
0.3559 shares of EarthLink common stock. The adjustment is calculated as the
number of OneMain shares outstanding multiplied by an assumed exchange ratio
of 0.3509.
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<PAGE>
RISK FACTORS
AN INVESTMENT IN THE EARTHLINK COMMON STOCK OFFERED BY THIS PROXY
STATEMENT/PROSPECTUS INVOLVES A HIGH DEGREE OF RISK. BEFORE YOU DECIDE TO INVEST
IN THE EARTHLINK COMMON STOCK OFFERED BY THIS PROXY STATEMENT/PROSPECTUS, YOU
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, TOGETHER WITH THE OTHER
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS.
RISKS RELATED TO THE MERGER
IF THE BUSINESSES OF EARTHLINK AND ONEMAIN CANNOT BE SUCCESSFULLY
INTEGRATED, WE MAY NOT ACHIEVE THE ANTICIPATED BENEFITS OF THE MERGER.
Integrating two companies like EarthLink and OneMain involves a number of
risks, including:
- the diversion of management's attention away from ongoing operations;
- difficulties and expenses in combining the operations, technology and
systems of the two companies;
- difficulties and expenses in the assimilation and retention of employees,
including the integration of teams that have not previously worked
together;
- difficulties in the creation and maintenance of uniform standards,
controls, procedures and policies;
- different geographic locations of the principal operations of EarthLink
and OneMain;
- challenges in keeping and attracting members and business customers; and
- potential adverse short-term effects on operating results, primarily as a
result of increased costs resulting from the integration of the two
businesses.
If EarthLink and the stockholders of the combined company are to realize the
anticipated benefits of the merger, the operations of EarthLink and OneMain must
be integrated and combined efficiently and effectively. EarthLink cannot assure
you that the integration will be successful or that the anticipated benefits of
the merger will be realized. Similarly, EarthLink cannot guarantee that the
OneMain stockholders will achieve greater value through their ownership of
EarthLink common stock than they would have achieved as stockholders of OneMain
as a separate entity. The failure to successfully integrate our operations may
adversely affect EarthLink's businesses, operations, properties, assets,
financial condition, results of operations or business prospects. EarthLink
cannot guarantee that our integration activities will not result in a decrease
in the value of EarthLink common stock or that there will not be other material
adverse effects from EarthLink's integration activities.
THE COSTS OF THE MERGER, THE COSTS OF INTEGRATING ONEMAIN INTO EARTHLINK'S
BUSINESS AND OTHER POTENTIAL ADJUSTMENTS WILL BE SUBSTANTIAL.
We estimate that it will cost approximately $6 million to consummate the
merger. These costs will consist of transaction fees for investment bankers,
attorneys, accountants and other related costs incurred by EarthLink and
OneMain. EarthLink expects to incur additional nonrecurring restructuring and
integration charges, the amount of which has not been estimated. Some of these
charges are anticipated to be recorded in the period in which the merger is
consummated.
EarthLink cannot assure you that it will not incur additional charges in
excess of these amounts to reflect costs associated with the merger, including
the costs of integrating the EarthLink and OneMain businesses.
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<PAGE>
THE FAILURE OF THE MERGER TO QUALIFY AS A TAX-FREE REORGANIZATION WOULD
RESULT IN AN INCREASED TAX BURDEN TO ONEMAIN STOCKHOLDERS.
Fluctuations in the price of EarthLink common stock impact the relative
percentages of EarthLink common stock to cash that OneMain stockholders would
receive in the merger and would therefore affect the ability of EarthLink and
OneMain to qualify the merger as a tax-free reorganization under Section 368(a)
of the Internal Revenue Code of 1986. If the closing price of EarthLink common
stock on the day before the closing of the merger is toward the lower end of the
pricing schedule attached as ANNEX B to this proxy statement/prospectus, the
relative percentages of EarthLink common stock to cash that OneMain stockholders
would receive could be such that the merger will not qualify as a tax-free
reorganization. Qualifying for this tax-free status is not a condition to the
closing of the merger.
If the merger qualifies as a tax-free reorganization, you will not recognize
gain or loss by virtue of your receipt of EarthLink common stock for your
OneMain stock, but your receipt of the cash portion of the merger consideration
will require you to recognize any gain (but not loss) you realize on the
transaction up to the amount of the cash received.
However, if the merger does not qualify as a tax-free reorganization under
Section 368(a) of the Internal Revenue Code, you will recognize gain or loss
based on the entire per share merger consideration you receive, including both
the cash and EarthLink stock portions. Thus, you could incur significantly
higher tax obligations if the merger does not qualify as a tax-free
reorganization under Section 368(a) of the Code. Also, if the merger does not
qualify for tax-free treatment, OneMain will recognize significant taxable
income as a result, which could decrease the value of the EarthLink common stock
that OneMain stockholders receive in the merger. For more information on the
material tax consequences of the merger, see "The Merger and Related
Transactions--Material United States Federal Income Tax Consequences" on
page 48.
SALES OF SUBSTANTIAL AMOUNTS OF EARTHLINK'S COMMON STOCK IN THE OPEN MARKET
COULD DEPRESS EARTHLINK'S STOCK PRICE.
If EarthLink's stockholders sell substantial amounts of EarthLink common
stock in the public market following consummation of the merger, including
shares issued on the exercise of outstanding options and warrants, the market
price of EarthLink's common stock could fall. These sales might also make it
more difficult for EarthLink to sell equity or equity related securities at a
time and price that EarthLink would deem appropriate.
Sales of a large number of shares of common stock in the public market
following the consummation of the merger, or even the belief that such sales
could occur, could cause a drop in the market price of EarthLink common stock
and could impair EarthLink's ability to raise capital through offerings of
EarthLink's equity securities. Immediately after the merger, there will be
approximately 134.3 million shares of EarthLink common stock outstanding. All of
the shares issued to OneMain stockholders will be freely tradable without
restrictions or further registration under the Securities Act of 1933, unless
such shares are held by any EarthLink "affiliate" or any "affiliate" of OneMain
prior to the merger, as that term is defined under the Securities Act of 1933.
The term "affiliate" would include directors, executive officers and some
significant stockholders.
RISKS OF EARTHLINK'S BUSINESS
INCREASED COMPETITION IN THE INTERNET SERVICE INDUSTRY MAY MAKE IT DIFFICULT
FOR EARTHLINK TO ATTRACT AND RETAIN MEMBERS AND TO MAINTAIN CURRENT PRICING
LEVELS, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION.
EarthLink operates in the Internet services market, which is extremely
competitive. Our current and prospective competitors include many large
companies that have substantially greater market
18
<PAGE>
presence, financial, technical, marketing and other resources than EarthLink. We
compete directly or indirectly with the following categories of companies:
- established online service providers, such as America Online, Inc., the
Microsoft Network and Prodigy Communications Corporation;
- local, regional and national Internet service providers, such as
RMI.NET, Inc. and Internet America, Inc.;
- national telecommunications companies, such as AT&T Corp. and GTE
Corporation;
- regional Bell operating companies, such as BellSouth Corporation and SBC
Communications Inc.;
- personal computer manufacturers with Internet service provider businesses
such as Gateway, Inc. and Dell Computer Corporation;
- "free access" Internet service providers, such as NetZero, Inc.; and
- online cable services, such as Excite@Home Corporation and Roadrunner
Computer Systems, Inc.
We also face competition from companies that provide broadband and other
high-speed connections to the Internet, including local and long-distance
telephone companies, cable television companies, electric utility companies, and
wireless communications companies. These companies may use broadband
technologies to include Internet access or web hosting in their basic bundle of
services or may offer Internet access or web hosting services for a nominal
additional charge. Broadband technologies enable consumers to transmit and
receive print, video, voice and data in digital form at significantly faster
access speeds than existing dial-up modems.
These companies may also prevent us from delivering Internet access through
their systems. If the owners of these high-speed, broadband facilities
increasingly use them to provide Internet access and we are unable to gain
access to these facilities on reasonable terms, our business, financial
condition and results of operations could be materially adversely affected.
Our competition is likely to increase. We believe this will probably happen
as large diversified telecommunications and media companies acquire Internet
service providers, as Internet service providers consolidate into larger, more
competitive companies and as providers who offer free access to the Internet
grow in number and size. Diversified competitors may bundle other services and
products with Internet connectivity services, potentially placing us at a
significant competitive disadvantage. In addition, competitors may charge less
than we do for Internet services, or may charge nothing at all in some
circumstances, causing us to reduce, or preventing us from raising our fees. As
a result, our business may suffer, and the value of our common stock may
decrease.
EARTHLINK'S RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED BY
FLUCTUATIONS IN THE USE OF THE INTERNET FOR E-COMMERCE TRANSACTIONS.
Use of the Internet for retail transactions is a relatively recent
development and the continued demand and growth of a market for services and
products via the Internet is uncertain. The Internet may ultimately prove not to
be a viable commercial marketplace for a number of reasons, including:
- unwillingness of consumers to shift their purchasing from traditional
retailers to online-purchases;
- lack of acceptable security for data and concern for privacy of personal
information;
- limitations on access and ease of use;
- congestion leading to delayed or extended response times;
19
<PAGE>
- inadequate development of the web infrastructure to keep pace with
increased levels of use; and
- increased or excessive government regulation.
If use of the Internet for commercial transactions declines or does not
increase, and if other uses, such as e-mail and personal web sites do not
increase, this could have a materially adverse affect on EarthLink's business
and results of operations through a decrease in new members and portal related-
revenue, and could result in a decrease in the value of EarthLink common stock.
ANY DISRUPTION IN THE INTERNET ACCESS PROVIDED BY EARTHLINK COULD ADVERSELY
AFFECT EARTHLINK'S BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
EarthLink's systems and infrastructure will be susceptible to natural and
man-made disasters such as earthquakes, fires, floods, power loss and sabotage.
EarthLink's systems also will be vulnerable to disruptions from computer viruses
and attempts by hackers to penetrate EarthLink's network security.
EarthLink will be covered by insurance from loss of income from some of the
events listed above, but this insurance may not be adequate to cover all
instances of system failure. EarthLink also will have insurance from loss of
income due to earthquakes, but the amount of such insurance may be insufficient,
especially given the frequency and magnitude of earthquakes in California, where
a number of EarthLink's facilities will be located.
Any of the events described above could cause interference, delays, service
interruptions or suspensions and adversely affect EarthLink's business and
results of operations.
EarthLink must continue to expand and adapt its system infrastructure to
keep pace with the increase in the number of members who use the services it
expects to provide. Demands on infrastructure that exceed EarthLink's current
forecasts could result in technical difficulties with its servers. Continued or
repeated system failures could impair EarthLink's reputation and brand names and
reduce EarthLink's revenues.
If, in the future, EarthLink cannot modify these systems to accommodate
increased traffic, EarthLink could suffer slower response times, problems with
customer service and delays in reporting accurate financial information. Any of
these factors could significantly and adversely affect the results of
EarthLink's operations and cause a decrease in the value of our common stock.
EARTHLINK MUST CONTINUE TO ENHANCE ITS PRODUCTS AND SERVICES AND DEVELOP NEW
ONES TO BE SUCCESSFUL IN THE RAPIDLY EVOLVING MARKET FOR INTERNET SERVICES, AND
WE CANNOT BE CERTAIN THAT EARTHLINK WILL BE ABLE TO DO SO COST-EFFECTIVELY.
Rapid technological change, changing customer needs, frequent new product
and service introductions and evolving industry standards characterize the
Internet market. These market characteristics could render EarthLink's services,
technology and systems obsolete. EarthLink must continually improve the
performance, features and reliability of its services to respond to evolving
market demands and competition. EarthLink's business, operating results and
financial condition would be materially adversely affected and the value of our
common stock could decline if we are unable to respond in a cost-effective and
timely manner to changing market conditions or customer requirements.
IF EARTHLINK'S THIRD PARTY NETWORK PROVIDERS ARE UNABLE OR UNWILLING TO
PROVIDE INTERNET ACCESS TO OUR MEMBERS ON COMMERCIALLY REASONABLE TERMS,
EARTHLINK MAY SUFFER A LOSS OF CUSTOMERS, HIGHER COSTS AND LOWER OVERALL
REVENUES.
EarthLink provides dial-up access through company-owned points of presence
and through the networks of Worldcom/UUNet, PSINet, Level 3 and Sprint. OneMain
provides dial-up access through company-owned points of presence and through the
networks of Sprint, Level 3, Worldcom/ UUNet, GTE/BBN and PSINet. Approximately
94% of the members of EarthLink will live in a geographic area served by two or
more network providers. EarthLink will be able to serve its members through the
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<PAGE>
combination of network providers that it deems most efficient. Only
approximately 6% of the members of EarthLink will live in a geographic area
served by only one network provider. Our ability to provide Internet access to
our members will be limited if our third-party network providers are unable or
unwilling to provide access to our members, we are unable to secure alternative
arrangements upon termination of third-party network provider agreements or
there is a loss of access to third-party providers for other reasons. These
events could also limit our ability to further expand nationally, which could
have a material adverse affect on our business. If we lose access to third-party
providers under current arrangements, we may not be able to make alternative
arrangements on terms acceptable to us, or at all. We do not currently have any
plans or commitments with respect to alternative third-party provider
arrangements in areas served by only one network provider. Moreover, while the
contracts with the third-party providers require them to provide commercially
reliable service to our members with a significant assurance of accessibility to
the Internet, the performance of third-party providers may not meet our
requirements, which could materially adversely affect our business, financial
condition and results of operations.
EARTHLINK MAY NOT BE ABLE TO MAINTAIN OR INCREASE ITS MEMBERSHIP LEVELS IF
IT DOES NOT HAVE UNINTERRUPTED AND REASONABLY PRICED ACCESS TO THE LOCAL AND
LONG-DISTANCE TELECOMMUNICATIONS LINES NECESSARY FOR IT TO PROVIDE INTERNET
ACCESS TO ITS MEMBERS.
EarthLink will rely on local telephone companies and other firms to provide
data communications capacity through local telecommunications lines and leased
long-distance lines. We may experience disruptions or capacity constraints in
these telecommunications services. If disruptions or capacity constraints occur,
we may have no means of replacing these services on a timely basis, or at all.
In addition, local phone service is sometimes available only from the local
monopoly telephone company in each of the markets we serve. We believe that the
Federal Telecommunications Act of 1996 generally will lead to increased
competition in the provision of local telephone services, but we cannot predict
when or to what extent this will occur or the effect of increased competition on
pricing or supply.
EARTHLINK'S REVENUES AND RESULTS OF OPERATIONS WILL BE DEPENDENT UPON ITS
PROPRIETARY TECHNOLOGY AND EARTHLINK MAY NOT BE SUCCESSFUL IN PROTECTING ITS
PROPRIETARY RIGHTS OR AVOIDING CLAIMS THAT IT INFRINGES UPON THE PROPRIETARY
RIGHTS OF OTHERS.
Our success depends in part upon the software and related documentation of
EarthLink and OneMain. We principally rely upon copyright, trade secret and
contract laws to protect our proprietary technology. We cannot be certain that
we have taken adequate steps to prevent misappropriation of our technology or
that our competitors will not independently develop technologies that are
substantially equivalent or superior to our technology.
We have permission and, in some cases, licenses from each manufacturer of
the software that we bundle in EarthLink's and OneMain's front-end software
product for members. Although we do not believe that the software or the
trademarks we use or any of the other elements of our business infringe on the
proprietary rights of any third parties, third parties may assert claims against
us for infringement of their proprietary rights and these claims may be
successful.
We could incur substantial costs and diversion of management resources in
the defense of any claims relating to proprietary rights, which could materially
adversely affect our business, financial condition, and results of operations.
Parties making these claims could secure a judgment awarding substantial damages
as well as injunctive or other equitable relief that could effectively block our
ability to license our products in the United States or abroad. Such a judgment
could have a material adverse effect on our business, financial condition and
results of operations. If a third party asserts a claim relating to proprietary
technology or information against us, we may seek licenses to the intellectual
property from the third party. We cannot be certain, however, that third parties
will extend licenses to us on commercially reasonable terms, or at all. If we
fail to obtain the necessary licenses or other
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rights, it could materially adversely affect EarthLink's business, financial
condition and results of operations.
DIFFICULTIES EARTHLINK MAY ENCOUNTER WITH OUR GROWTH AND EXPANSION COULD
ADVERSELY AFFECT THE RESULTS OF EARTHLINK'S OPERATIONS.
EarthLink's strategy will be to grow its membership at a rapid pace. This
strategy is likely to place a significant strain on EarthLink's resources
because of:
- the need to manage relationships with various strategic partners,
technology licensors, members and other third parties;
- difficulties in hiring and retaining skilled personnel necessary to
support EarthLink's business;
- increased demand on customer service and technical support;
- pressures for the continued development of EarthLink's financial and
information management systems; and
- potential challenges associated with strategic acquisitions of
complementary member accounts and businesses, if any, including systems
integration difficulties and infrastructure strains on our ongoing
business.
Difficulties EarthLink may encounter in dealing successfully with the above
risks could adversely affect the results of EarthLink's operations.
THE ABILITY OF EARTHLINK STOCKHOLDERS TO EFFECT CHANGES IN CONTROL OF
EARTHLINK WILL BE LIMITED.
There are provisions in EarthLink's certificate of incorporation, bylaws,
and the Delaware General Corporation Law ("DGCL") that could delay or impede the
removal of incumbent directors and could make more difficult a merger, tender
offer, or proxy contest involving EarthLink or could discourage a third party
from attempting to acquire control of EarthLink, even if these events would be
beneficial to the interests of the stockholders. In particular, the board of
directors could delay a change in control of EarthLink. In addition, EarthLink's
certificate of incorporation will authorize its board to provide for the
issuance of shares of preferred stock of EarthLink, in one or more series, which
the board of directors could issue without further stockholder approval and with
terms and conditions and rights, privileges and preferences determined by the
board of directors. Pursuant to its contractual obligations with Sprint,
EarthLink issues convertible preferred stock to Sprint periodically in
connection with Sprint's rights to purchase stock in order to maintain its
percentage interest in EarthLink. Other than such periodic issuances to Sprint,
EarthLink has no current plans to issue any shares of preferred stock.
Furthermore, EarthLink will be governed by Section 203 of the DGCL. In general,
Section 203 prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless specified conditions are met. These factors could have the
effect of delaying, deferring, or preventing a change of control of EarthLink.
SPRINT CORPORATION IS ONE OF OUR PRINCIPAL STOCKHOLDERS, AND IT CAN EXERCISE
SIGNIFICANT INFLUENCE OVER EARTHLINK.
Sprint Corporation will own approximately 9% of the common stock of
EarthLink immediately following the merger and it also will own preferred stock
that if converted would cause its ownership percentage to increase to 25%, on a
fully-diluted basis, following the merger. Assuming that Sprint fully exercises
its right to maintain its current ownership levels, Sprint will own
approximately 26% of EarthLink, including approximately 10% of the common stock
of EarthLink. As a result in either case, Sprint will be able to exercise
significant influence over most matters requiring stockholder approval,
including the election of directors and the approval of significant corporate
matters, such as some types of change-of-control transactions. For example, the
approval by both of Sprint's representatives on the
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EarthLink board of directors was required for EarthLink to go forward with the
merger. Sprint did not participate in, or materially seek to influence
EarthLink's management in its negotiations with OneMain; however, to the extent
that EarthLink engages in significant transactions in the future, we may be
required to seek Sprint's prior approval.
Sprint's ownership of EarthLink preferred stock permits it to elect two of
EarthLink's directors, whose approval will be required for EarthLink to
undertake various activities. Also, without Sprint's consent, EarthLink will not
be able to enter into certain commercial relationships with competitors of
Sprint such as AT&T or any regional bell operating company. This may reduce or
eliminate opportunities for revenue growth. Further, Sprint's competitors may
choose not to engage in commercial relationships with us because of our close
relationship with Sprint, potentially significantly reducing our opportunities
for revenue growth.
On October 5, 1999, Sprint announced that it entered into an agreement to be
acquired by MCI WorldCom Inc. We cannot guarantee you that EarthLink's
relationship with MCI WorldCom will provide EarthLink with the same benefits
that were expected to come from its relationship with Sprint.
WE MAY BECOME REGULATED BY THE FEDERAL COMMUNICATIONS COMMISSION OR OTHER
GOVERNMENT AGENCIES, WHICH COULD SIGNIFICANTLY INCREASE OUR OVERHEAD COSTS AND
REQUIRE US TO MODIFY OUR GROWTH STRATEGIES AND OPERATING PLANS.
As Internet service providers, EarthLink and OneMain are not currently
directly regulated by the Federal Communications Commission or any other agency,
other than regulations applicable to businesses and publicly-traded companies
generally. In a report to Congress on April 10, 1998, the Federal Communications
Commission reaffirmed that Internet service providers should be classified as
unregulated "information service providers" other than regulated
"telecommunications providers" under the terms of the Federal Telecommunications
Act of 1996.
Nevertheless, Internet-related regulatory policies are continuing to
develop, and it is possible that we could be exposed to regulation in the
future. For example, in the same report to Congress, the Federal Communications
Commission stated its intention to consider whether to regulate voice and fax
telephony services provided over the Internet as "telecommunications" even
though Internet access itself would not be regulated. We cannot predict whether
in the future the Federal Communications Commission will modify its current
policies regarding the regulation of Internet service providers.
ACCESS CHARGES. EarthLink also could be affected by any change in the
ability of customers to reach our network through a dial-up telephone call
without any additional charges. This practice has allowed Internet service
providers to offer flat-rate, non-usage sensitive pricing, and has been an
important reason for the growth in Internet use. Recently, the Federal
Communications Commission ruled that connections linking end users to their
Internet service providers are jurisdictionally interstate rather than local,
but the Federal Communications Commission did not subject such calling to the
access charges that apply to traditional telecommunications companies. Local
telephone companies assess access charges to long distance companies for the use
of the local telephone network to originate and terminate long-distance calls,
generally on a per-minute basis. EarthLink could be adversely affected by any
regulatory change that would result in application of access charges to Internet
service because this would substantially increase the cost of using the
Internet. However, the FCC Chairman has stated that he opposes Internet-related
access charges, and we believe that this development is unlikely, with one
possible exception that is not currently relevant to our business. Specifically,
there is substantial debate as to whether carrier access charges should apply to
Internet-based telephone services that substitute for conventional telephony. We
have no current plans to install gateway equipment and other telephony, thus we
believe we would not be directly affected by these developments were they to
occur.
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POTENTIAL LIABILITY. The law relating to the liability of Internet service
providers and on-line services companies for information carried on, stored on,
or disseminated through their network is unsettled, even with the recent
enactment of the Digital Millennium Copyright Act. While no one has ever filed a
claim against EarthLink or OneMain relating to information carried on, stored
on, or disseminated through their network, someone may file a claim of that type
in the future and may be successful in imposing liability on us. If that
happens, we may have to spend significant amounts of money to defend ourselves
against these claims and, if we are not successful in our defense, the amount of
damages that we will have to pay may be significant. Any costs that we incur as
a result of defending these claims or the amount of liability that we may suffer
if our defense is not successful could materially adversely affect our business,
financial condition and results of operations.
If, as the law in this area develops, we become liable for information
carried on, stored on, or disseminated through our network, we may decide to
take actions to reduce our exposure to this type of liability. This may require
us to spend significant amounts of money for new equipment and may also require
us to discontinue offering some of our products or services.
OTHER ISSUES. Due to the increasing popularity and use of the Internet, it
is possible that additional laws and regulations may be adopted with respect to
the Internet, covering issues such as:
- content;
- privacy;
- access to some types of content by minors;
- pricing;
- bulk e-mail or "spam;"
- encryption standards;
- consumer protection;
- electronic commerce;
- taxation;
- copyright infringement; and
- other intellectual property issues.
We cannot predict the impact, if any, that any future regulatory changes or
developments may have on our business, financial condition, and results of
operations. Changes in the regulatory environment relating to the Internet
access industry, including regulatory changes that directly or indirectly affect
telecommunication costs or increase the likelihood or scope of competition from
regional telephone companies or others, could have a material adverse effect on
our business, financial condition and results of operations.
EARTHLINK'S STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY REGARDLESS OF
EARTHLINK'S ACTUAL OPERATING PERFORMANCE.
EarthLink common stock is listed for trading on the Nasdaq National Market.
The trading price of EarthLink's common stock is likely to be highly volatile.
EarthLink's stock price could be subject to wide fluctuations in response to a
variety of factors, including:
- actual or anticipated variations in quarterly operating results and
announcements of technological innovations;
- new products or services offered by EarthLink or its competitors;
- changes in financial estimates by securities analysts;
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- conditions or trends in the Internet services industry and the portal and
community services segment in particular;
- EarthLink's announcement of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;
- additions or departures of key personnel;
- sales of common stock; and
- other events that may be beyond EarthLink's control.
In addition, the Nasdaq National Market, where most publicly-held Internet
companies are traded, has recently experienced extreme price and volume
fluctuations. These fluctuations often have been unrelated or disproportionate
to the operating performance of these companies. The trading prices of many
Internet companies' stocks are, or recently have been, at or near historical
highs and these trading prices and multiples are substantially above historical
levels. These trading prices and multiples may not be sustainable. These broad
market and industry factors may materially adversely affect the market price of
EarthLink's common stock, regardless of EarthLink's actual operating
performance. In the past, following periods of volatility in the market price of
an individual company's securities, securities class action litigation often has
been instituted against that company. This type of litigation, if instituted,
could result in substantial costs and a diversion of management's attention and
resources.
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<PAGE>
MARKET PRICES AND DIVIDEND INFORMATION
EarthLink common stock is traded on Nasdaq under the symbol "ELNK." OneMain
common stock is traded on Nasdaq under the symbol "ONEM." The following table
shows the high and low sales prices of EarthLink common stock and OneMain common
stock as reported by Nasdaq for the periods indicated, during which neither
EarthLink nor OneMain paid cash dividends. The quotations are as reported in
published financial sources.
<TABLE>
<CAPTION>
EARTHLINK ONEMAIN
COMMON STOCK(1) COMMON STOCK(2)
------------------- -------------------
HIGH LOW HIGH LOW
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1998
First Quarter............................... $58.44 $24.50 $ -- $ --
Second Quarter.............................. 78.00 46.56 -- --
Third Quarter............................... 92.50 19.50 -- --
Fourth Quarter.............................. 78.50 29.50 -- --
1999
First Quarter............................... $96.75 $56.25 $46.75 $28.00
Second Quarter.............................. 99.38 36.75 41.00 14.19
Third Quarter............................... 71.25 35.00 34.00 14.75
Fourth Quarter.............................. 52.19 18.81 24.00 14.38
2000
First Quarter............................... $52.19 $18.81 $16.81 $11.13
Second Quarter.............................. 22.19 10.56 11.69 4.50
Third Quarter (through July 7, 2000)........ 15.50 14.63 11.31 10.63
</TABLE>
------------------------
1. 1998 and 1999 intra day market prices are for EarthLink Network, Inc. prior
to its merger with MindSpring Enterprises, Inc. on February 4, 2000. First
and second quarter 2000 market prices are for EarthLink after the merger.
2. From the date of OneMain's initial public offering on March 25, 1999.
On June 7, 2000, the last full trading day prior to the joint public
announcement by EarthLink and OneMain of the signing of the merger agreement,
the closing prices per share of EarthLink common stock and OneMain common stock
as reported by Nasdaq were $17.9375 and $8.00, respectively. On July 7, 2000,
the last full trading day for which information was available prior to the
printing of this proxy statement/prospectus, the closing price per share of
EarthLink common stock and OneMain common stock as reported by Nasdaq were
$14.56 and $10.75, respectively. The market prices of EarthLink and OneMain
fluctuate. As a result we urge EarthLink and OneMain stockholders to obtain
current market quotations for EarthLink and OneMain shares.
Following the merger, the EarthLink common stock will continue to be traded
on Nasdaq and the OneMain common stock will cease to be traded on Nasdaq and
will represent only the right to obtain a combination of cash and EarthLink
common stock under the merger agreement.
EarthLink has never paid cash dividends on EarthLink common stock, and for
the foreseeable future EarthLink intends to retain all of its earnings, if any,
for the future operation and expansion of its business.
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INFORMATION ABOUT EARTHLINK AND ONEMAIN
EARTHLINK
OVERVIEW
EarthLink, based in Atlanta, Georgia is one of the leading Internet service
providers in the world, providing reliable nationwide Internet access and
related value-added services to approximately 3.5 million individual and
business customers. EarthLink provides a full range of access, hosting and
e-commerce solutions to thousands of communities from more than 5,000 points of
presence. EarthLink was formed in February 2000 as a result of the merger of
EarthLink Network, Inc. and MindSpring Enterprises, Inc.
EarthLink's growth has resulted from strategic acquisitions as well as
traditional marketing channels and alliances. Our organic growth is a product of
our efforts to enhance our members' Internet experience through (1) simple,
rapid and reliable access to the Internet, (2) superior member service and
technical support, and (3) member education and support. As a result, EarthLink
believes that it has a high member retention rate for its industry.
Our corporate offices are located at 1430 West Peachtree St., Suite 400,
Atlanta, Georgia 30309 and our telephone number at that address is
(404) 815-0770.
SERVICES
EarthLink's primary service offerings include:
- dial-up Internet access;
- high speed access via dedicated circuits, DSL or cable modem;
- web hosting;
- content, commerce and advertising;
- domain name registration; and
- e-commerce solutions.
KEY BUSINESS AREAS
EarthLink's key business areas are as follows:
NARROWBAND ACCESS
As of March 31, 2000 we had approximately 3.3 million narrowband members.
Narrowband access revenues consist primarily of monthly fees charged to members
for dial-up Internet access. Narrowband revenues were $582.9 million or 87% of
our total revenues in 1999 and $185.5 million or 85% of our total revenues in
the three months ended March 31, 2000.
WEB HOSTING
We lease server space and provide web services to companies and individuals
wishing to have a web or e-commerce presence. As of March 31, 2000, we hosted
approximately 121,000 web sites compared to 36,000 in 1998, a 236% increase.
EarthLink's web hosting revenues were $47.4 million or 7% of total revenues in
1999 and $16.3 million or 7% of revenues in the three months ended March 31,
2000.
BROADBAND ACCESS
Broadband access revenues consist of fees charged for high-speed,
high-capacity access services including cable, dedicated circuits and DSL
services. In 1999, our main broadband focus became DSL.
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As of March 31, 2000, we serviced 21 broadband markets nationwide. As of
March 31, 2000, we had approximately 45,000 broadband members. Broadband
revenues were $23.5 million or 4% of our total revenues in 1999 and $9.1 million
or 4% of our total revenues during the three months ended March 31, 2000.
CONTENT, COMMERCE AND ADVERTISING
We generate content, commerce and advertising revenues by leveraging the
value of our member base and user traffic. The principal component of our
strategy is our Premier Partnership Program, through which we offer and sell
promotional packages that provide advertisers with access to the multiple points
of contact we have with our members. The Premier Partnership Program focuses on
third parties having a natural affinity to and benefit for our member base. The
program generates revenues through (1) sales of banner and other online ads;
(2) fees generated through revenue sharing arrangements with online retailers
who are accessed through our properties; and (3) payments for placing links from
our properties to third-party content. We also sell advertising and content
space on our various online properties, such as the Personal Start Page, the
Mall and our online magazine eLink, and through our news magazine, bLink.
Content, commerce and advertising revenues were $16.6 million or 2% of total
revenues for 1999 and $9.0 million or 4% of total revenues for the three months
ended March 31, 2000.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table provides information concerning (i) those persons known
by management of EarthLink to own beneficially more than 5% of its outstanding
common stock, (ii) the directors and executive officers of EarthLink, and
(iii) all directors and officers of EarthLink as a group. Except as otherwise
indicated in the footnotes below, such information is provided as of May 31,
2000.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) CLASS
--------------------------------------- ----------------------- ----------
<S> <C> <C>
Lee Adrean.................................................. *(3) *
Charles G. Betty............................................ 1,186,595(4) 0.9%
Charles M. Brewer........................................... 4,665,161(5) 3.7
Sky D. Dayton............................................... 4,715,112(6) 4.0
Samuel R. DeSimone, Jr...................................... *(7) *
William T. Esrey............................................ 48,815,103(8) 38.9
Jon M. Irwin................................................ 296,548(9) *
William S. Heys............................................. 62,381(10) *
Linwood A. Lacy, Jr......................................... 228,125(11) *
Campbell B. Lanier, III..................................... 10,723,134(12) *
Len J. Lauer................................................ 48,817,603(13) 38.9
Michael C. Lunsford......................................... 20,187(14) *
Michael S. McQuary.......................................... 773,663(15) *
Veronica J. Murdock......................................... 39,791(16) *
William H. Scott, III....................................... 10,703,134(17) 8.5
Philip W. Schiller.......................................... 7,083,333(18) 5.6
Reed E. Slatkin............................................. 2,854,296(19) 2.3
Gregory J. Stromberg........................................ 79,482(20) *
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) CLASS
--------------------------------------- ----------------------- ----------
<S> <C> <C>
Lance Weatherby............................................. 71,398(21) *
Brinton O. C. Young......................................... 509,042(22) *
Sprint Corporation.......................................... 48,815,103(23) 38.9
Apple Computer, Inc......................................... 7,083,333(24) 5.6
ITC Holding Company, Inc.................................... 10,648,134(25) 8.5
All directors and executive officers as a group
(20 persons).............................................. 71,530,216(26) 57.0
</TABLE>
------------------------
* Represents beneficial ownership of less than 1% of our common stock.
(1) Except as otherwise indicated by any other footnote (i) the named person
has sole voting and investment power with respect to all shares of common
stock shown as beneficially owned, and (ii) the address of the named person
is that of EarthLink.
(2) Beneficial ownership is determined in accordance with the rules of the SEC,
based on factors including voting and investment power with respect to
shares, subject to applicable community property laws. Shares of common
stock subject to options or warrants exercisable within 60 days of May 31,
2000 are deemed outstanding for the purpose of computing the percentage
ownership of the person holding such options or warrants, but are not
deemed outstanding for computing the percentage ownership of any other
person.
(3) The individual holds no shares or vested options to purchase shares of
common stock.
(4) Includes options to purchase 482,441 shares of common stock.
(5) Includes options to purchase 25,155 shares of common stock.
(6) Includes options to purchase 121,128 shares of common stock.
(7) The individual holds no shares or vested options to purchase shares of
common stock.
(8) Includes 12,512,333 shares of common stock, 6,626,250 shares of Series A
convertible preferred stock convertible into 13,252,500 shares of common
stock and 23,050,270 shares of Series B convertible preferred stock
convertible into 23,050,270 shares of common stock beneficially owned by
Sprint. Mr. Esrey, as an affiliate of Sprint, may be deemed to beneficially
own such shares. See footnote 23 below.
(9) Includes options to purchase 149,004 shares of common stock.
(10) Includes options to purchase 35,855 shares of common stock.
(11) Includes options to purchase 96,900 shares of common stock.
(12) Includes 30,000 shares of common stock and options to purchase 45,000
shares of common stock owned by Mr. Lanier, and 10,648,134 shares of
common stock beneficially owned by ITC Holding Company, Inc., of which
Mr. Lanier is an affiliate. Mr. Lanier may be deemed to beneficially own
such shares but disclaims such beneficial ownership. See footnote 25
below.
(13) Includes 12,512,333 shares of common stock, 6,626,250 shares of Series A
convertible preferred stock convertible into 13,252,500 shares of common
stock and 23,050,270 shares of Series B convertible preferred stock
convertible into 23,050,270 shares of common stock beneficially owned by
Sprint. Mr. Lauer, as an affiliate of Sprint, may be deemed to
beneficially own such shares. Also includes 2,500 shares of common stock
personally held by Mr. Lauer.
(14) Represents options to purchase 20,187 shares of common stock.
(15) Includes options to purchase 517,143 shares of common stock.
(16) Represents options to purchase 39,791 shares of common stock.
(17) Includes 10,000 shares of common stock and options to purchase 45,000
shares of common stock, and 10,648,134 shares of common stock beneficially
owned by ITC Holding Company, Inc., of
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<PAGE>
which Mr. Scott is an affiliate. Mr. Scott may be deemed to beneficially
own such shares but disclaims such beneficial ownership. See footnote 25
below.
(18) Includes 7,083,333 shares of Series C convertible preferred stock
convertible into 7,083,333 shares of common stock beneficially owned by
Apple. Mr. Schiller is an affiliate of Apple and may be deemed to
beneficially own such shares, but disclaims such ownership.
(19) Includes (i) warrants to purchase 347,225 shares of common stock and
(ii) 39,000 shares of common stock held in trust for Mr. Slatkin's minor
children.
(20) Includes options to purchase 62,282 shares of common stock.
(21) Includes options to purchase 38,606 shares of common stock.
(22) Includes options to purchase 157,139 shares of common stock.
(23) Includes 12,512,333 shares of common stock, 6,626,250 shares of Series A
convertible preferred stock convertible into 13,252,500 shares of common
stock and 23,050,270 shares of Series B convertible preferred stock
convertible into 23,050,270 shares of common stock beneficially owned by
Sprint. Mr. Esrey and Mr. Lauer, as affiliates of Sprint, may be deemed to
beneficially own such shares. See footnotes 8 and 13 above.
(24) Includes 7,083,333 shares of Series C convertible preferred stock
convertible into 7,083,333 shares of common stock beneficially owned by
Apple. See footnote 18 above.
(25) Represents 10,648,134 shares of common stock. See footnotes 12 and 17
above.
(26) Includes (i) options and warrants to purchase 2,182,856 shares of common
stock, (ii) 39,000 shares of common stock owned by family members or
affiliates of certain members of the group (iii) 6,626,250 shares of
Series A convertible preferred stock convertible into 13,252,499 shares of
common stock and 23,050,270 shares of Series B convertible preferred stock
convertible into 23,050,270 shares of common stock (v) 7,083,833 shares of
Series C convertible preferred stock convertible into 7,083,833 shares of
common stock.
ONEMAIN
OVERVIEW
OneMain, based in Reston, Virginia, is a leading Internet service provider
primarily focused on providing Internet access and services to individuals and
businesses located predominantly in smaller metropolitan markets and rural
communities throughout the United States. As of March 31, 2000, OneMain had
approximately 762,000 subscribers. OneMain provides a full range of dial-up,
dedicated access, broadband, hosting and wireless services to our subscribers in
35 states. OneMain executed an initial public offering in March 1999.
OneMain has one of the leading churn, or customer retention, rates in the
Internet service provider industry. OneMain believes its commitment to customer
satisfaction, local presence and the unique nature of its markets combine to
result in this industry leading customer retention rate.
Our corporate offices are located at 1860 Michael Faraday Drive, Suite 200,
Reston, Virginia 20190 and our telephone number is (703) 375-3000.
ONEMAIN MARKET OPPORTUNITIES
The 25 largest metropolitan areas in the United States comprise only 50% of
the U.S. population, leaving approximately 135 million individuals in hundreds
of smaller markets as potential subscribers. In addition, the Internet
penetration rate of these smaller markets is less than that of larger
metropolitan areas. As of March 31, 2000, approximately 71 million people, or
approximately 26% of the U.S. population, were within OneMain's market coverage.
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SERVICES
OneMain offers services to meet the needs of both individual and business
users. While dial-up access remains OneMain's primary service, comprising
approximately 730,000 subscribers as of March 31, 2000, OneMain also provides
DSL, cable modem and dedicated circuit access. These broadband services
accounted for approximately 5,000 subscribers as of March 31, 2000. We also
offer Web hosting for approximately 27,000 businesses and other organizations
that utilize OneMain's servers and high-speed Internet connections.
Through a partnership with Research In Motion, OneMain also provides
wireless Internet access to its business subscribers.
GEOGRAPHIC COMMUNITIES
OneMain is creating on-line geographic communities in each of its markets to
enhance the on-line experience of its subscribers and to generate additional
revenue. As of March 31, 2000, OneMain has established two geographic
communities. These communities serve as a local portal offering local,
customized content, community message boards and chat rooms. Internet telephony,
Web-based calendars and e-commerce resources will also be added to OneMain's
geographic communities.
BUSINESS SERVICES
OneMain has created a sales and service organization dedicated to meeting
the needs of small to mid-size businesses in its markets. This organization will
concentrate on the sale of broadband and web-hosting services. As of March 31,
2000, business customers constituted approximately 14% of OneMain's revenue.
NETWORK AND SERVICES
When fully integrated, OneMain's network will permit the implementation of a
central, highly scalable, server architecture. OneMain has entered into
contracts, and is negotiating other contracts, to establish a national network
with multiple upstream Internet connectivity points, a national ATM service
backbone and regional interconnectivity hubs. OneMain has also installed a
redundant, scalable system architecture.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The table below shows the amount of OneMain's common stock beneficially
owned, unless otherwise indicated, by our executive officers who are currently
employed by OneMain, OneMain's directors, OneMain's one non-management
stockholder who owns more than 5% of our common stock and our directors and
executive officers as a group. Except as otherwise indicated, all information is
as of May 31, 2000. OneMain's named executive officers are its Chief Executive
Officer and five other current and former executive officers whose salary and
bonus for services rendered in all capacities for the years ended December 31,
1998 and 1999 exceeded $100,000. Except as indicated by footnote, the persons
named in the table have sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by them. The total number of
shares of common stock outstanding used in calculating the percentage for each
listed person includes the shares of common stock underlying options held by
that person that are exercisable within 60 days of May 31, 2000 but excludes
shares of common stock underlying options held by any other person. Unless
otherwise
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indicated, the address for each listed individual is OneMain.com, Inc., 1860
Michael Faraday Dr., Suite 200, Reston, Virginia 20190.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OWNERSHIP
------------------------------------ ------------------ ----------
<S> <C> <C>
Stephen E. Smith(1)......................................... 1,493,334 5.9%
Michael D. Read(2).......................................... 150,000 *
Joseph M. Songer(3)......................................... 87,109 *
M. Cristina Dolan(4)........................................ 200,000 *
Allon H. Lefever(5) ........................................ 234,235 *
212 Spottswood Lane
Lancaster, PA 17601
Thomas R. Eisenmann(2) ..................................... 8,334 *
Harvard Business School
Baker West 188
Soldiers Field
Boston, MA 02163
Ella Fontanals de Cisneros(6) .............................. 1,018,334 4.1
Calle Caribay
Qta Los Cisnes
Caracas, Venezuela
Jonathan J. Ledecky(7) ..................................... 2,200,000 8.8
1400 34(th) Street, N.W.
Washington, D.C. 20007
All directors and executive officers as a group 3,636,096 14.0
(14 persons)(8)...........................................
</TABLE>
------------------------
* Represents beneficial ownership of less than 1%.
(1) Includes 133,334 shares issuable upon exercise of options that are currently
exercisable.
(2) Includes shares issuable upon exercise of options that are currently
exercisable.
(3) Includes 83,459 shares issuable upon exercise of options that are currently
exercisable.
(4) Includes 100,000 shares issuable upon exercise of options that are currently
exercisable.
(5) Includes 66,939 shares issuable upon exercise of options that are currently
exercisable.
(6) Mrs. Cisneros' shares are held by SWIFT Company (B.V.I.) Limited, which is
wholly owned by Mrs. Cisneros and, therefore, beneficial ownership of the
shares of our common stock owned by SWIFT is attributed to her. Includes
8,334 shares issuable upon exercise of options that are currently
exercisable.
(7) As reported in a Schedule 13G filed with the SEC on April 9, 1999.
(8) Includes 891,148 shares issuable upon exercise of options that are currently
exercisable, 340,748 of which were granted to our seven other executive
officers who are not individually named above.
MERGER SUB
Merger Sub is a newly formed, wholly owned subsidiary of EarthLink. Merger
Sub has transacted no business to date other than in connection with the merger
agreement. Merger Sub is a Delaware corporation that was incorporated in
June 2000 solely for the purpose of completing the merger with OneMain.
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THE SPECIAL MEETING OF ONEMAIN STOCKHOLDERS
This proxy statement/prospectus is furnished in connection with the
solicitation of proxies from the holders of OneMain common stock by the OneMain
board of directors for use at the OneMain special meeting and any adjournment or
postponement thereof. This proxy statement/prospectus and accompanying proxy
card are first being mailed to the stockholders of OneMain beginning on or about
, 2000.
TIME, DATE AND PLACE
The special meeting will be held at 10:00 a.m. local time, on ,
, 2000, at the Hyatt Regency Reston, 1800 Presidents Street, in Reston,
Virginia.
PURPOSE OF THE SPECIAL MEETING
At the OneMain special meeting, and any adjournment or postponement thereof,
OneMain's stockholders will be asked to consider and vote upon (1) a proposal to
approve the merger and the merger agreement and (2) such other matters as may
properly be brought before the special meeting and any adjournment or
postponement thereof.
RECORD DATE; VOTING RIGHTS; VOTE REQUIRED FOR APPROVAL
OneMain's board of directors has fixed the close of business on
, 2000 as the record date for OneMain's stockholders to be entitled to
notice of and to vote at the special meeting.
Only holders of record of shares of OneMain common stock at the close of
business on the record date are entitled to notice of and to vote at the special
meeting. Each holder of record of OneMain common stock as of the record date is
entitled to cast one vote per share on all matters submitted to OneMain's
stockholders.
At the close of business on , 2000, there were holders of
record of OneMain common stock and million shares of OneMain common stock
outstanding and entitled to vote at the special meeting.
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of OneMain common stock entitled to vote is necessary to
constitute a quorum at the special meeting. The affirmative vote of the holders
of a majority of the outstanding shares of OneMain common stock is required to
approve and adopt the merger proposal.
As of the record date, the directors and executive officers of OneMain
beneficially own approximately % of the outstanding OneMain common stock.
For additional information on the ownership of OneMain common stock by OneMain
directors and executive officers, see "OneMain--Beneficial Ownership of Common
Stock" beginning on page 31.
Some of OneMain's stockholders, including members of its management and
board of directors, who own approximately 10.5% of OneMain's outstanding common
stock, have signed an agreement to vote their shares in favor of the merger. See
"OneMain Agreement to Vote Stock" on page 60 for more information about the
voting agreement.
PROXIES
All shares of OneMain common stock represented by properly executed proxies
received prior to or at the special meeting, and not revoked, will be voted in
accordance with the instructions indicated in those proxies. If no instructions
are indicated on a properly executed returned proxy, such proxy will be voted
"FOR" the approval of the merger proposal.
Abstentions may be specified with respect to the merger proposal. A properly
executed proxy marked "ABSTAIN" with respect to the merger proposal will be
counted as present for purposes of
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determining whether there is a quorum and for purposes of determining the
aggregate voting power and number of shares represented and entitled to vote at
the special meeting with respect to the merger proposal. Because the affirmative
vote of a majority of the outstanding shares of OneMain common stock is required
for approval of the merger proposal, a proxy marked "ABSTAIN" with respect to
the merger proposal will have the effect of a vote against the merger proposal.
In addition, the failure of a stockholder of OneMain to return a proxy will have
the effect of a vote against the merger proposal. Under Nasdaq rules, brokers
who hold shares in "street name" for customers have the authority to vote on
certain "routine" proposals when they have not received instructions from
beneficial owners. Under Nasdaq rules, such brokers are precluded from
exercising their voting discretion with respect to proposals for non-routine
matters such as the merger proposal. Thus, absent specific instructions from the
beneficial owner of such shares, brokers are not empowered to vote such shares
with respect to the approval and adoption of the merger proposal (I.E., "broker
non-votes"). Since the affirmative votes described above are required for
approval of the merger proposal, a "broker non-vote" with respect to the merger
proposal will have the effect of a vote "AGAINST" the merger proposal.
A stockholder may revoke his or her proxy at any time prior to the vote at
the special meeting by delivering to the Secretary of OneMain a signed notice of
revocation or a later-dated, signed proxy. A stockholder holding OneMain shares
in his or her own name may change his or her vote by attending the OneMain
special meeting and voting in person. A stockholder holding OneMain shares in
"street name" must first obtain a broker proxy card to vote in person at the
meeting. Attendance at the special meeting will not in itself constitute the
revocation of a proxy. You should address any written notice of proxy revocation
to: OneMain.com, Inc., 1860 Michael Faraday Dr., Suite 200, Reston, Virginia
20190, Attention: General Counsel.
The cost of solicitation of proxies will be paid by OneMain, except that the
costs related to the financial printer, printing and mailing of this proxy
statement/prospectus will be paid for equally by EarthLink and OneMain. In
addition to solicitation by mail, arrangements will be made with brokerage
houses and other custodians, nominees and fiduciaries to send the proxy
materials to beneficial owners. OneMain will, upon request, reimburse these
brokerage houses and custodians for their reasonable expenses in so doing.
OneMain expects to engage a firm to aid in the solicitation of proxies, and
OneMain estimates that related fees will not exceed $15,000 (plus expenses). To
the extent necessary to ensure sufficient representation at its special meeting,
OneMain or its proxy solicitor may request the return of proxy cards by personal
interview, mail, telephone, facsimile or other means of electronic transmission.
The extent to which this will be necessary depends entirely upon how promptly
proxy cards are returned. Stockholders are urged to send in their proxies
without delay.
Stockholders should not send in any stock certificates with their proxy
cards. As soon as practicable after the consummation of the merger, a
transmittal form will be sent to former stockholders of OneMain who hold their
stock in their own name with instructions for receiving cash and EarthLink
common stock. Broker-dealers who hold stock for a stockholder in "street name"
will execute the conversion from OneMain common stock to cash and EarthLink
common stock for that stockholder.
As of the date of this proxy statement/prospectus, the OneMain board of
directors does not know of any business to be presented at the special meeting
other than the merger proposal. If any other matters should properly come before
the special meeting, it is intended that the shares represented by proxies will
be voted with respect to such matters in accordance with the judgment of the
persons voting such proxies. Proxies voted "AGAINST" the merger proposal will
not be used to vote for any adjournment pursuant to this authority.
AVAILABILITY OF ACCOUNTANTS
A representative of OneMain's independent public accountants is expected to
be present at the special meeting and to be available to respond to appropriate
questions. Such representative will have the opportunity to make a statement at
the special meeting if he or she so desires.
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THE MERGER AND RELATED TRANSACTIONS
The discussion in this proxy statement/prospectus of the merger and the
principal terms of the merger agreement is subject to, and qualified in its
entirety by reference to, the merger agreement, which is attached to this proxy
statement/prospectus as ANNEX A and is incorporated herein by reference.
THE MERGER AND MERGER CONSIDERATION
Pursuant to the terms and conditions of the merger agreement, including
approval by the stockholders of OneMain, OneMain will be merged into Merger Sub,
with Merger Sub being the surviving corporation and a wholly owned subsidiary of
EarthLink. In connection with the merger, each stockholder of OneMain will
receive the right to convert each share of OneMain common stock into a per share
price equal to a combination of (1) not less than $5.708 and not more than
$6.050 in cash and (2) not less than 0.3357 and not more than 0.3559 of a share
of EarthLink common stock. The amounts of cash and EarthLink stock that OneMain
stockholders can receive is variable and will be based on the closing price of
EarthLink stock price on the day prior to the closing of the merger. The pricing
schedule attached as ANNEX B to this proxy statement/prospectus sets forth the
possible amounts and combinations of cash and stock that OneMain stockholders
can receive in the merger. On the day prior to the closing of the merger,
EarthLink and OneMain will calculate the final per share price, the EarthLink
stock portion, the cash portion and the stock ratio based on the then-existing
closing stock price of the EarthLink common stock as reported from Nasdaq. If
the EarthLink closing price on such date is below $5.00 per share or above
$50.00 per share, the amount of the cash portion of the per share price and the
stock ratio will be determined assuming the $5.00 and $50.00 closing price
levels, respectively. If the closing price is other than a whole dollar amount
between $5.00 and $50.00, the cash portion of the per share price and the stock
ratio will be on a pro rata basis between the whole dollar amounts. Cash will be
paid instead of issuing fractional shares of EarthLink common stock.
For example, if the closing price of EarthLink common stock on the day
before the merger is $17.00, for each share of OneMain common stock you own, you
will receive $5.969 in cash and 0.3511 of a share of EarthLink common stock for
a total value of $11.938 per share. If the closing price of EarthLink common
stock on the day before the merger is $17.50, for each share of OneMain common
stock you own, you will receive $5.967 in cash and 0.3510 of a share of
EarthLink common stock for a total value of $12.109.
At the effective time of the merger, each outstanding option of OneMain that
has vested and has an exercise price equal to or below the merger per share
purchase price will be converted into an option to acquire the number of shares
of EarthLink common stock determined by multiplying an exchange ratio times the
number of shares of OneMain common stock issuable under the old option. The
exercise price for the options will be determined by dividing the exercise price
under the old option by that exchange ratio. For these purposes, the "exchange
ratio" will be fixed on the day prior to the closing of the merger, and will be
calculated by dividing the final per share purchase price by the closing price
of EarthLink's common stock on the day prior to the merger. Each outstanding
warrant to purchase OneMain common stock will be replaced or converted into
warrants to purchase EarthLink common stock.
If the merger were completed on June 30, 2000 the former stockholders of
OneMain will hold approximately 8.8 million shares of EarthLink common stock or
approximately 6.6% of the outstanding shares of EarthLink common stock, assuming
(1) the outstanding OneMain options are converted into EarthLink options and not
exercised prior to the closing of the merger, (2) the outstanding OneMain
warrants are converted into EarthLink warrants and not exercised prior to the
closing of the merger and (3) Sprint Corporation does not exercise its right to
purchase additional shares of EarthLink common stock to maintain its current
ownership level. In addition, approximately 1.5 million shares of EarthLink
common stock will be subject to the converted OneMain options and warrants.
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The merger will become effective when a certificate of merger is duly filed
with the Secretary of State of the State of Delaware or at such other time as
will be specified in the certificate of merger. The closing of the merger will
occur on the date of the OneMain special meeting or as soon as practicable after
the last condition in the merger agreement has been satisfied or waived, unless
the parties agree otherwise. EarthLink and OneMain expect the closing to occur
promptly after the special meeting if all governmental approvals have been
received at that time.
BACKGROUND OF THE MERGER
The initial contacts between EarthLink and OneMain that ultimately led to
the merger agreement and the acquisition of OneMain by EarthLink occurred on
January 19, 2000, when Mr. Charles M. Brewer, Chairman of EarthLink, called
Mr. Stephen E. Smith, Chief Executive Officer of OneMain, on the telephone to
initiate possible discussions of a business combination between the two
companies. In that discussion, Mr. Brewer proposed that OneMain and EarthLink
engage in preliminary discussions about a potential acquisition of OneMain by
EarthLink. Mr. Smith and Mr. Brewer agreed to initiate such preliminary
discussions, and they agreed to arrange an early February meeting between
executive management of the companies for such purposes.
On February 7 and February 8, 2000, Mr. Smith spoke to Donald Kauffman, Ella
Cisneros, Thomas Eisenmann and Allon Lefever, each members of OneMain's Board of
Directors, regarding EarthLink's interest in meeting with OneMain to discuss a
possible business combination. Mr. Smith described the January 19, 2000
discussion with Mr. Brewer, and told the board members of the plans for both
companies to meet on February 9, 2000.
On February 9, 2000, Mr. Betty and Mr. Brewer met with Mr. Smith and Michael
D. Read, President of OneMain, at a hotel in Reston, Virginia to discuss the
operating and business strategies and philosophies of EarthLink and OneMain. No
preliminary or other agreements were reached at this meeting, and the executives
agreed to continue their preliminary discussions in the future. This was the
first in-person meeting between executive management of the two companies to
discuss a possible business combination. On February 12 and 13, 2000, Mr. Smith
and Mr. Read spoke to each member of OneMain's board of directors to update them
regarding the February 9, 2000 meeting and discussions with the EarthLink
executives.
Between February 9, 2000 and early March 2000, the executive management
teams of both EarthLink and OneMain held periodic and informal internal
discussions regarding the possibility of a business combination between the
companies. On February 9, 2000, OneMain engaged Jefferies & Co. to act as its
financial advisor in OneMain's pursuit of possible business combinations and
other strategic alternatives, including without limitation the potential
acquisition by EarthLink.
On March 4, 2000, Michael S. McQuary, President of EarthLink, met with
Mr. Smith, Mr. Read and other members of OneMain's senior management team at
OneMain's headquarters in Reston, Virginia to discuss the business operations,
management and overall strategies of the two companies. On March 5, 2000,
Mr. McQuary was joined in Reston by Samuel R. DeSimone, Jr., General Counsel of
EarthLink, and Bradley Ferguson, Vice President and Treasurer of EarthLink, to
continue the discussions. Mr. McQuary, Mr. DeSimone and Mr. Ferguson met with
Mr. Smith, Mr. Read, Marian O'Leary, Chief Financial Officer of OneMain,
Cristina Dolan, Executive Vice President of OneMain, and Phillip G. Gross and
Carlos A. Escaffi of OneMain. The discussions consisted principally of
EarthLink's gathering of information and data regarding OneMain's business
operations and corporate structure for purposes of EarthLink's review and
analysis of whether it wanted to pursue further discussions regarding the
acquisition of OneMain. Mr. McQuary, Mr. DeSimone and Mr. Ferguson reviewed
contracts, agreements and other written materials pertaining to OneMain's
business operations. No preliminary or final agreements or understandings
regarding a business combination between the companies were reached at these
meetings. Among other key business terms, EarthLink and OneMain could not agree
on an aggregate purchase price for OneMain during these March 4 and March 5,
2000 meetings. Further discussions or meetings between EarthLink and OneMain
were not
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scheduled for the future, although the parties did agree to maintain open lines
of communication in the future.
From March 6, 2000 through mid-April 2000, no formal discussions or meetings
between EarthLink and OneMain occurred. During that period, Richard Handler of
Jefferies & Co., OneMain's financial advisor, had periodic discussions with Mr.
Brewer regarding the possible acquisition. Also during that period, executives
from EarthLink and OneMain apprised members of their respective Boards of
Directors of the status of the discussions between the companies. On March 14,
2000 and March 15, 2000, Mr. Smith and Mr. Read met in Miami, Florida with
Ms. Cisneros to discuss, together with the other OneMain board members via
telephone, the potential acquisition by EarthLink and possible business
combinations with other companies that OneMain management was considering. On
March 24, Mr. Smith met with Ms. Cisneros to discuss OneMain's strategic
options, including acquisition by EarthLink and other potential strategic
business alternatives for OneMain.
On March 27, 2000, Robert Siegel from Jefferies & Co. contacted Mr. Brewer
to discuss OneMain and EarthLink's position on pursuing a business combination,
but no agreement to begin discussions was made.
In early April 2000, Mr. Brewer called Mr. Smith with a proposal to
reinitiate preliminary discussions of a possible business combination between
OneMain and EarthLink. After discussing the current status of OneMain and
possible synergies between the companies, they agreed to begin preliminary
acquisition discussions by their respective senior management.
Mr. Siegel maintained separate communication with Mr. DeSimone and
Mr. McQuary from EarthLink, and with Mr. Smith and Mr. Read from OneMain, during
April and early May 2000, in an effort to facilitate communications and the
exchange of information between the parties.
On May 5, 2000, Mr. Smith and Mr. Betty spoke via telephone regarding the
reinitiation of preliminary acquisition discussions, and Mr. Siegel called
Mr. DeSimone to discuss EarthLink's due diligence review of OneMain, including
transmission of its written due diligence materials to EarthLink. Mr. Read and
Mr. McQuary also spoke via telephone on this day regarding a potential
acquisition and related issues.
During early May 2000, EarthLink and its outside legal counsel, Hunton &
Williams in Atlanta, prepared and delivered to OneMain a preliminary term sheet
with the basic transaction terms and a mutual confidentiality and standstill
agreement. The preliminary term sheet and the confidentiality and standstill
agreement were negotiated by the parties and their respective legal counsel, and
the confidentiality and standstill agreement was executed on May 24, 2000. The
preliminary term sheet was negotiated and discussed by OneMain and EarthLink and
their respective legal counsel until basic agreement was reached on the
preliminary term sheet provisions. The preliminary term sheet was not executed,
however, and on May 24, 2000, EarthLink distributed to OneMain a first draft of
the definitive merger agreement, based on the terms of the preliminary term
sheet.
Throughout May 2000, EarthLink engaged in a thorough "due diligence" review
and analysis of OneMain, including its operations, financial matters, employees,
technology, equipment, infrastructure, intellectual property, contracts and
agreements, marketing, subscriber data, organizational and corporate structure
and related areas. Several representatives from EarthLink visited OneMain's
headquarters in Reston, Virginia to review OneMain's computer equipment,
computer systems and network facilities and its financial condition. During
May 2000, EarthLink and its legal counsel reviewed the written due diligence
materials provided by OneMain to Hunton & Williams in Atlanta, and several
telephone calls and conference calls were held between the parties for
EarthLink's due diligence review of OneMain. On May 31, 2000, a telephonic
conference call was held to discuss and review OneMain and its financial
statements and projections, with participation by Mr. Siegel, Mr. DeSimone,
Mr. Ferguson, Lee Adrean, Chief Financial Officer of EarthLink, and
Ms. O'Leary.
Also throughout May 2000, executive management from EarthLink and OneMain
continued executive-level discussions regarding a possible business combination
between EarthLink and OneMain.
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The companies discussed business, operating, financial, strategic and related
matters in an effort to determine if a business combination was feasible and in
the best interests of the respective companies. During that period, the
executive management of EarthLink and OneMain and their respective legal counsel
engaged in near-daily telephone calls, conference calls, email correspondence
and in-person meetings to negotiate, draft and prepare the definitive merger
agreement and related agreements and documents. The principal participants in
the negotiations included Mr. Betty, Mr. DeSimone, Mr. McQuary and Mr. Adrean
for EarthLink, and Mr. Smith, Mr. Read, Kevin S. Lapidus, General Counsel of
OneMain, and Ms. O'Leary for OneMain, together with Hunton & Williams as legal
counsel for EarthLink and Donaldson, Lufkin & Jenrette Securities Corporation as
financial advisor for EarthLink, and Hogan & Hartson L.L.P. as legal counsel for
OneMain and Jefferies & Co. as financial advisor for OneMain.
Important conference calls between the parties were held on May 23, 2000 and
May 25, 2000. On May 23, 2000, Mr. Betty, Mr. DeSimone and Mr. Adrean from
EarthLink discussed terms and open issues in the acquisition negotiations with
Mr. Smith and Hovey Kemp from Hogan & Hartson L.L.P. On May 25, 2000, another
conference call between Mr. Betty, Mr. McQuary and Mr. DeSimone of EarthLink and
Mr. Smith and Mr. Lapidus of OneMain was held to further clarify, discuss and
negotiate open issues in the acquisition negotiations.
On May 31, 2000, EarthLink's Board of Directors met via telephonic
conference call to discuss and deliberate the proposed acquisition of OneMain.
At that meeting, members of executive management made presentations to the Board
as to the terms and status of the proposed acquisition of OneMain. Donaldson,
Lufkin & Jenrette, EarthLink's financial advisor, also presented information as
to the financial and other analyses it provided with respect to OneMain. This
Board of Directors meeting was for informational purposes only, and a vote on
the proposed acquisition of OneMain was not taken.
Important meetings between the parties were held on June 1, 2000 in Atlanta
at Hunton & Williams' offices to negotiate remaining open issues in the merger
agreement and other related matters. Representatives from both parties'
executive management, legal counsel and financial advisors were present.
On June 5, 2000, the OneMain Board of Directors met via telephonic
conference call to discuss the proposed transaction. Mr. Smith explained the
financial details of the proposed transaction, employment opportunities for
OneMain employees and reviewed other potential acquirors of OneMain. Mr. Kemp
and Mr. Lapidus also updated the Board of Directors on the structure and legal
issues involved in the proposed acquisition. This Board of Directors meeting was
for informational purposes only, and a vote on the proposed merger with
EarthLink was not taken.
On June 7, 2000, the EarthLink Board of Directors met via telephonic
conference call to deliberate and make a final decision on whether to approve or
reject the acquisition of OneMain. After full consideration and discussion of
the structure, terms and conditions of the proposed transaction, including a
presentation by Donaldson, Lufkin & Jenrette Securities Corporation as to the
financial and related analyses it provided to EarthLink's Board of Directors,
the EarthLink Board of Directors approved the proposed transaction and the
merger agreement, and authorized the executive management of EarthLink to
proceed with the acquisition of OneMain.
On June 7, 2000, the OneMain Board of Directors met via telephonic
conference call to deliberate and make a final decision on whether to approve or
reject the proposed acquisition by EarthLink. After full consideration and
discussion of the structure, terms and conditions of the proposed transaction,
including a presentation by Jefferies & Co. as to the financial and related
analyses it provided to OneMain's Board of Directors and by Hogan & Hartson
L.L.P. as to the fiduciary obligations of the members of the Board of Directors,
the OneMain Board of Directors approved the proposed transaction and the merger
agreement, and authorized the executive management of OneMain to proceed with
the transaction.
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The merger agreement and all related agreements and documents were finalized
and executed by both parties on June 7, 2000, and the acquisition of OneMain by
EarthLink was announced on June 8, 2000 by a joint press release sent to the
major business wire and media agencies.
ONEMAIN'S REASONS FOR THE MERGER
The OneMain board of directors believes that the terms of the merger are
advisable and in the best interests of OneMain and its stockholders, and has
unanimously approved the merger and the merger agreement and recommends the
approval and adoption of the merger by OneMain's stockholders.
The OneMain board of directors views the merger as a means of achieving the
long-term strategic and financial goals of OneMain while at the same time
offering OneMain stockholders the ability to own equity in the second largest
provider of Internet services in the United States which has a larger analyst
and investor following than OneMain. The OneMain board of directors also
believes the merger provides an opportunity to expand into new markets in the
Internet services provider business, as well as provide access to capital to
finance OneMain's growth and integration.
In reaching its conclusion to approve the merger, the OneMain board of
directors also considered the following factors:
- The significant advantages that the board of directors believed would
accrue to the first company that can aggregate significant subscriber
accounts and establish itself as the clear alternative to America On Line
in the Internet access market;
- The anticipated ability of the combined corporation to share resources and
capitalize on synergies that will increase its ability to attract and
retain subscribers and compete effectively at the top tier of the industry
more quickly than OneMain could do on its own;
- The anticipated ability of the combined corporation to realize several
benefits from the increased size of its operations, including
- strengthening its negotiating position with vendors, network providers
and content providers,
- becoming a leading Internet service provider portal site on the
Internet;
- providing greater opportunities to develop alternative revenue streams;
and
- providing additional business and marketing opportunities to the
combined corporation that might not otherwise be available to the two
companies on an individual basis;
- EarthLink's and OneMain's prior experiences in business combination
transactions and OneMain's and EarthLink's respective abilities to
successfully integrate different companies;
- The potential for significant opportunities for cost savings, revenue
growth, technological development and other benefits;
- The anticipated ability of the combined corporation to obtain brand
efficiency in sales and marketing by utilizing the combined resources of
OneMain and EarthLink to promote one national brand instead of two;
- EarthLink's stronger brand recognition in the consumer Internet access
market;
- The strategic alternatives available to OneMain, including potential
business combinations with other entities, the strong strategic fit
between OneMain and EarthLink and the potential for significant near-term
and long-term synergies expected to result from the merger;
- EarthLink's significant cash position on its balance sheet and ability to
finance OneMain's growth and integration requirements;
- The potential increase in ability of the combined corporation to access
additional capital resources to finance growth and integrate existing
operations;
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- Information concerning the business, assets, liabilities, capital
structure, financial performance and condition and prospects of OneMain
and EarthLink;
- The likely valuation premium of EarthLink's common stock as a result of
its size and prestige;
- Historical and forecasted financial information relating to OneMain and
EarthLink, and the results of information exchanges with EarthLink;
- The views of OneMain's management regarding the proposed merger and the
anticipated economic and operational benefits;
- The consistency of the strategies that OneMain and EarthLink are pursuing;
- The anticipated impact of the merger on the combined corporation's ability
to maintain and enhance its reputation for delivering high quality
services to customers;
- The impact that the merger would be expected to have on the combined
corporation's balance sheet, earnings and cash flow;
- The proposed merger consideration and the current and historical market
prices for OneMain's and EarthLink's common stock;
- The financial presentation and opinion of Jefferies & Co.;
- The composition and strength of the proposed management of the combined
corporation and the composition of the proposed board of directors of the
combined corporation when the merger is completed;
- The fact that regulatory issues are unlikely to arise which could delay or
jeopardize the transaction;
- The increased brand name recognition of EarthLink and its expected ability
to attract new subscribers;
- The terms and structure of the proposed transaction and the merger
agreement, including the ratio for the exchange of shares, the cash to be
paid, and the size of the termination fee and the circumstances under
which it would be payable; and
- The fact that the merger agreement would, subject to certain limitations,
permit the OneMain to terminate the merger agreement, upon payment of a
termination fee to EarthLink, if the OneMain board of directors withdraws
its recommendation for approval of the merger agreement to the
stockholders pursuant to its terms.
The OneMain board of directors also considered certain countervailing
factors in its deliberations concerning the merger, including:
- the potential disruption of OneMain's business that might result from the
announcement of the merger;
- the risk that some key employees of OneMain would depart or be terminated;
- the possible difficulties of integrating the operations, management and
corporate cultures of OneMain and EarthLink; and
- the risk that the merger would not be consummated.
The OneMain board of directors did not believe that the negative factors
were sufficient, individually or in the aggregate, to outweigh the potential
advantages of the merger.
In determining that the merger was in the best interest of OneMain's
stockholders, the OneMain board of directors considered the factors above as a
whole and did not assign specific or relative weights to such factors. The
OneMain board of directors believes that the merger is an opportunity for
OneMain's stockholders to participate in a combined enterprise that has
potentially greater business and financial resources than OneMain would have
absent the merger and to receive, on a tax-deferred basis, a premium for their
OneMain common stock based on recent market prices.
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RECOMMENDATION OF ONEMAIN'S BOARD OF DIRECTORS
For the reasons discussed under "Background of the Merger" on page 36 and
"OneMain's Reasons for the Merger" on page 39, the OneMain board of directors
believes that the merger is advisable and in the best interests of OneMain and
the holders of OneMain common stock. THE ONEMAIN BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE MERGER AND THE MERGER AGREEMENT AND RECOMMENDS THAT THE
HOLDERS OF ONEMAIN COMMON STOCK VOTE "FOR" ADOPTION AND APPROVAL OF THE MERGER
AND THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR TO ONEMAIN
The board of directors of OneMain retained Jefferies & Company, Inc. to
render an opinion to the board of directors as to the fairness, from a financial
point of view, of the consideration to be paid to the holders of OneMain common
stock in the merger. The board of directors retained Jefferies & Co. based on
Jefferies & Co.'s experience as a financial advisor in connection with mergers
and acquisitions and in securities valuations generally, as well as Jefferies &
Co.'s investment banking relationship and familiarity with OneMain.
On June 7, 2000, at a meeting of the board of directors of OneMain held to
evaluate the proposed transaction with EarthLink, Jefferies & Co. delivered its
oral opinion to the board of directors, which was subsequently confirmed in
writing to the board of directors in a letter dated June 7, 2000, that, as of
June 7, 2000 and based on the assumptions made, the procedures followed, the
matters considered and the limitations on the scope of review undertaken
described in the opinion, the consideration to be received in the merger by the
holders of OneMain common stock was fair, from a financial point of view, to
such holders. In rendering its opinion, Jefferies & Co. assumed that the
consideration to be paid in the merger was $12.26 per share of OneMain Common
Stock, consisting of approximately $5.96 in cash and approximately $6.29 in
shares of EarthLink common stock (the "Proposed Merger Consideration"), based on
the $17.9375 closing price of EarthLink common stock on June 7, 2000, the last
full trading day prior to announcement of the merger. The form and amount of the
consideration was determined through negotiations between EarthLink and OneMain,
and Jefferies & Co. did not recommend to OneMain that any specific consideration
was appropriate for the transaction.
The full text of Jefferies & Co.'s opinion, which sets forth the assumptions
made, procedures followed, matters considered and limitations on the scope of
review undertaken by Jefferies & Co., is attached as ANNEX C to this proxy
statement and is incorporated herein by reference. Jefferies & Co.'s opinion is
directed to the OneMain board of directors, and addresses only the fairness,
from a financial point of view, of the consideration to be received by the
holders of OneMain common stock. Jefferies & Co. provided the opinion to inform
and assist the OneMain board of directors in connection with its consideration
of the merger. Jefferies & Co.'s opinion does not constitute a recommendation to
any OneMain stockholder as to how such stockholder should vote, or take any
other action, with respect to the proposed merger. Jefferies & Co.'s opinion
does not address the relative merits of the proposed transaction or any other
transactions or business strategies discussed by the OneMain board as
alternatives to the proposed transaction, or the underlying business decision of
the OneMain board to proceed with the transaction. The summary of Jefferies &
Co.'s opinion set forth below is qualified in its entirety by reference to the
full text of its opinion. Stockholders are urged to read the opinion carefully
and in its entirety.
In the course of performing its review and analyses for rendering its
opinion, Jefferies & Co., among other things:
- reviewed a draft of the Merger Agreement dated June 7, 2000, including any
schedules and exhibits thereto which were provided by OneMain;
- reviewed certain financial and other information that was publicly
available or furnished to Jefferies & Co. by OneMain, including the
financial terms of the transaction, certain internal financial analyses,
projections, budgets, reports and other information prepared by OneMain's
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management and certain projections and other information prepared by the
management of EarthLink;
- held discussions with various members of senior management of OneMain and
EarthLink concerning their respective historical and current operations,
financial condition and prospects, as well as the strategic and operating
benefits anticipated from the business combination;
- reviewed the reported price and trading activities of OneMain's and
EarthLink's common stock;
- compared certain financial and stock market information for OneMain with
similar information for other publicly-traded companies that Jefferies &
Co. considered relevant;
- reviewed, to the extent publicly available, the financial terms of certain
other business combinations that Jefferies & Co. considered relevant; and
- conducted such other reviews, analyses and inquiries and considered such
other financial, economic and market criteria as Jefferies & Co.
considered appropriate in rendering its opinion.
No limitations were imposed by the OneMain board of directors on Jefferies &
Co. with respect to the investigations made or procedures followed by it in
rendering its opinion. Jefferies & Co. relied as to all legal matters relevant
to rendering its opinion on the advice of counsel.
In its review and analysis, and in arriving at its opinion, Jefferies & Co.
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided to it including, without limitation, information
furnished to it orally or otherwise discussed with it by OneMain's management,
as well as publicly available information. Jefferies & Co. neither attempted to
verify, nor assumed responsibility for verifying, any of such information.
Jefferies & Co. relied upon the assurances of OneMain management that they were
not aware of any facts that would make such information inaccurate or
misleading. Furthermore, Jefferies & Co. did not obtain or make, or assume any
responsibility for obtaining or making, any independent evaluation or appraisal
of the properties, assets or liabilities, contingent or otherwise, of OneMain,
nor was Jefferies & Co. furnished with any such evaluation or appraisal. In
addition, Jefferies & Co. assumed that the merger will be consummated upon the
terms set forth in the merger agreement without material alteration thereof.
With respect to the financial forecasts and projections and the assumptions
and bases therefor that Jefferies & Co. reviewed, Jefferies & Co. assumed, upon
the advice of OneMain's management, that such forecasts and projections:
- had been reasonably prepared in good faith on the basis of reasonable
assumptions;
- reflected the best available estimates and judgments as to the future
financial condition and performance of OneMain; and
- will be realized in the amounts and in the time periods estimated.
Jefferies & Co.'s opinion is necessarily based upon market, economic and
other conditions as in effect on, and information made available to Jefferies &
Co. as of the date of Jefferies & Co.'s opinion. It should be understood that
subsequent developments may affect the conclusion expressed in Jefferies & Co.'s
opinion and that Jefferies & Co. disclaims any undertaking or obligation to
advise any person of any change in any matter affecting the opinion which may
come or be brought to its attention after the date of the opinion. Jefferies &
Co.'s opinion is limited to the fairness, from a financial point of view and as
of the date thereof, of the Proposed Merger Consideration to the holders of
OneMain common stock.
The following is a summary of the material financial analyses performed by
Jefferies & Co. in connection with rendering its opinion. The summary of the
financial analyses is not a complete description of all of the analyses
performed by Jefferies & Co. Some of the information in this section is
presented in a tabular form. In order to better understand the financial
analyses performed by Jefferies & Co., these tables must be read together with
the text of each summary. Considering the data set forth in the tables without
considering the narrative description of the financial analyses,
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including the methodologies and assumptions underlying the analyses, could
create a misleading or incomplete view of the financial analyses. Jefferies &
Co.'s opinion is based upon the totality of the various analyses performed by
Jefferies & Co. and no particular portion of the analyses has any merit standing
alone.
IMPLIED PREMIUMS ANALYSIS. Jefferies & Co. examined the trading history of
OneMain common stock and compared the premium implied in the Proposed Merger
Consideration offered by EarthLink to the OneMain price per share and to the
average premium paid in comparable public transactions during the past two
years. The results of such analysis are included in the table below.
<TABLE>
<CAPTION>
PERIOD PRIOR TO JUNE 8,
2000 ANNOUNCEMENT OF MERGER
--------------------------------
ONE DAY ONE WEEK FOUR WEEKS
-------- -------- ----------
<S> <C> <C> <C>
OneMain price per share during period....................... $8.00 $7.81 $4.88
----- ----- -----
Purchase premium--OneMain................................... 53.2% 56.9% 151.5%
Average premium paid in comparable public transactions(1)... 19.3% 25.3% 36.0%
</TABLE>
------------------------
(1) Average of 68 transactions under $1 billion in similar sectors over the past
two years.
In addition to analyzing the premium paid relative to other acquisitions,
Jefferies & Co. reviewed the premium paid relative to the trading history of
OneMain shares as outlined in the table below.
<TABLE>
<CAPTION>
PERIOD PRIOR TO JUNE 8, 2000 ANNOUNCEMENT OF MERGER PRICE PREMIUM
--------------------------------------------------- -------- --------
<S> <C> <C>
30-day average.............................................. $6.50 88.7 %
60-day average.............................................. 6.71 82.7 %
90 day average.............................................. 9.73 26.0 %
52 week high................................................ 34.00 (63.9)%
52 week low................................................. 4.50 172.4 %
</TABLE>
COMPARABLE COMPANIES ANALYSIS. Using publicly available information,
Jefferies & Co. analyzed and compared, among other things, the trading multiples
of OneMain to the corresponding trading multiples of selected publicly-traded
companies that Jefferies & Co. believed were generally comparable to OneMain.
These comparable companies are set forth in the table below.
<TABLE>
<CAPTION>
COMPARABLE PUBLICLY-TRADED COMPANIES
----------------------------------------------------------------------------
INTERNET SERVICE PROVIDERS
----------------------------------------------------------------------------
<S> <C>
America Online [AOL] NetZero [NZRO]
FlashNet Communications [FLAS] Prodigy Communications [PRGY]
Internet America [GEEK] RMI.net [RMII]
Juno Online Services [JWEB] Voyager. net [VOYN]
</TABLE>
The purpose of the comparable company analysis was to establish that the
acquisition multiple being considered for OneMain was in the range of the
comparable publicly-traded companies. This was accomplished by deriving a range
of multiples determined by dividing the total enterprise value of these
companies by their operating results. Multiples compared by Jefferies & Co.
consisted of total enterprise value ("TEV") to:
- Estimated 2000 revenues ("2000E Revenue"),
- Last Quarter Revenues annualized ("LQA Revenue"), and
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- Total subscribers ("Subs").
All multiples were based on closing stock prices as of June 7, 2000. Results
of Jefferies & Co.'s analysis are summarized as follows:
<TABLE>
<CAPTION>
COMPARABLE COMPANY MULTIPLES
TOTAL ENTEPRISE VALUE/
--------------------------------------
LQA 2000E TOTAL
REVENUE REVENUE SUBS
-------- -------- --------
<S> <C> <C> <C>
High(1)(3)................................................ 3.9x 2.9x $867
Low(2)(3)................................................. 1.5x 2.1x 269
Peer Median(3)............................................ 2.8x 2.5x 359
OneMain Acquisition Multiple.............................. 2.1x 1.9x 437
</TABLE>
------------------------
(1) Excludes highest value.
(2) Excludes lowest value.
(3) Excludes America Online and NetZero.
Jefferies & Co. noted that no company compared in the comparable companies
analysis is identical to OneMain. Accordingly, an analysis of the results of the
foregoing is not entirely mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics and other factors that could affect the acquisition, public
trading and other values of the comparable companies to which they are being
compared.
COMPARABLE TRANSACTION ANALYSIS. Using publicly available information,
Jefferies & Co. analyzed the consideration offered and the implied transaction
value multiples paid or proposed to be paid in acquisition and asset sale
transactions that were announced in the past two years in the Internet service
provider industry that Jefferies & Co. deemed generally comparable to the
merger. These transactions are set forth in the table below:
<TABLE>
<CAPTION>
ANNOUNCEMENT
TARGET ACQUIROR DATE
------ ----------------------------------- ------------
<S> <C> <C>
Voyager.net CoreComm 3/12/00
FlashNet Communications Prodigy Communications 11/5/99
MindSpring Enterprises EarthLink Network 9/22/99
Internet Technology Group plc Concentric Network Corp 9/1/99
NetCom On-Line Services MindSpring Enterprises 2/27/99
SpryNet MindSpring Enterprises 9/10/98
</TABLE>
The purpose of the comparable transaction analysis was to establish that the
acquisition multiple being considered for OneMain was in the range of the
comparable public acquisition multiples. This was accomplished by dividing the
aggregate consideration paid in the selected comparable transactions by the
projected operating results and number of then current subscribers of the
acquired companies.
Multiples compared by Jefferies & Co. included the total enterprise value in
such transactions as a multiple of total subscribers, as well as projected
revenues for the next two years. All multiples for the comparable transactions
were based on public information available at the time of the announcement of
such transactions. Based on this information and other publicly available
information, the following
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table illustrates the implied OneMain acquisition multiples compared to
multiples that Jefferies & Co. derived from the comparable transactions.
<TABLE>
<CAPTION>
COMPARABLE TRANSACTION MULTIPLES
TOTAL ENTERPRISE VALUE/
----------------------------------------------
TOTAL PROJECTED YEAR 1 PROJECTED YEAR 2
SUBS REVENUE REVENUE
-------- ---------------- ----------------
<S> <C> <C> <C>
High.................................... $1,505 6.0x 4.1x
Low..................................... 178 1.3x 0.8x
Median.................................. 593 2.5x 1.1x
Mean.................................... 672 3.1x 2.0x
OneMain Acquisition Multiple............ 437 1.9x 1.5x
</TABLE>
Jefferies & Co. noted that no company or transaction compared in the
comparable transaction analysis is identical to OneMain or the proposed
transaction. Accordingly, an analysis of the results of the foregoing is not
entirely mathematical; rather it involves complex considerations and judgments
concerning differences in financial and operating characteristics and other
factors that could affect the acquisition, public trading and other values of
the comparable transactions to which they are being compared.
DISCOUNTED CASH FLOW ANALYSIS. Jefferies & Co. performed a discounted cash
flow analysis of the after-tax free cash flows of OneMain using management's
projections for the years ended December 31, 2000 to 2004. The purpose of the
discounted cash flow analysis was to establish a range for the potential equity
value of OneMain by determining a range for the net present value of OneMain's
projected future cash flows. Jefferies & Co. first discounted the projected,
after tax free cash flows through December 31, 2004 using discount rates ranging
from 20.0% to 30.0%, which discount rates were based upon OneMain's weighted
average cost of capital as measured by Jefferies & Co., back to March 31, 2000.
OneMain's after-tax free cash-flows were calculated as the after-tax operating
earnings of OneMain adjusted to add back non-cash expenses and deduct uses of
cash not reflected in the income statement. Jefferies & Co. then added to the
present value of the free cash flows the terminal value of OneMain at
December 31, 2004, discounted back at the same discount rate to represent a
present value. The terminal value of the projected free cash flows (for
projected free cash flows beyond December 31, 2004) was determined by
multiplying the EBITDA (earnings before interest, taxes, depreciation and
amortization) in the fiscal year ending December 31, 2004 by an EBITDA multiple
ranging from 8.0x to 12.0x to reach a total enterprise value. The following
table summarizes the resulting implied OneMain equity values per share which can
be compared to the Proposed Merger Consideration:
<TABLE>
<CAPTION>
EBITDA MULTIPLE
----------------------------------------------------
DISCOUNT RATE 8.0X 9.0X 10.0X 11.0X 12.0X
------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
20.0%............................... $12.53 $13.88 $15.23 $16.58 $17.93
22.5%............................... 11.30 12.52 13.75 14.97 16.19
25.0%............................... 10.21 11.32 12.42 13.53 14.64
27.5%............................... 9.23 10.24 11.24 12.25 13.26
30.0%............................... 8.35 9.27 10.19 11.11 12.03
</TABLE>
While the foregoing summary describes certain analyses and factors that
Jefferies & Co. deemed material in its presentation to the board of directors,
it is not a comprehensive description of all analyses and factors considered by
Jefferies & Co. The preparation of a fairness opinion is a complex analytical
process that involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of these methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to partial analysis or summary description. Jefferies & Co. believes
that its analyses must be considered as a whole and that selecting portions of
its
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analyses and of the factors considered by it, without considering all analyses
and factors, would create an incomplete view of the evaluation process
underlying Jefferies & Co.'s opinion. Several analytical methodologies were
employed and no one method of analysis should be regarded as critical to the
overall conclusion reached by Jefferies & Co.. Each analytical technique has
inherent strengths and weaknesses, and the nature of the available information
may further affect the value of particular techniques. The conclusions reached
by Jefferies & Co. are based on all analyses and factors taken as a whole and
also on application of Jefferies & Co. own experience and judgment. Such
conclusions may involve significant elements of subjective judgment and
qualitative analysis. Jefferies & Co. therefore gives no opinion as to the value
or merit standing alone of any one or more parts of the analysis it performed.
In performing its analyses, Jefferies & Co. considered general economic, market
and financial conditions and other matters, many of which are beyond the control
of OneMain. The analyses performed by Jefferies & Co. are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than those suggested by such analyses. Accordingly, analyses
relating to the value of a business do not purport to be appraisals or to
reflect the prices at which the business actually may be purchased. Furthermore,
no opinion is being expressed as to the prices at which shares of OneMain common
stock or EarthLink common stock may be traded at any future time. As described
above, Jefferies & Co.'s opinion to the OneMain board of directors was one of
many factors taken in to consideration by the OneMain board of directors in
making its determination to approve the merger agreement and should not be
considered as determinative of such decision.
The engagement letter between Jefferies & Co. and OneMain provides that, for
its services, Jefferies & Co. is entitled to receive a fee of $350,000 for
rendering a fairness opinion, all of which was immediately due upon delivery of
the opinion, and will be credited against any financial advisory fee. In
addition, Jefferies & Co. is entitled to receive a financial advisory fee upon
closing of the transaction equal to 1.0% of the transaction value. OneMain has
also agreed to reimburse Jefferies & Co. for certain out-of-pocket expenses,
including legal fees, and to indemnify and hold harmless Jefferies & Co. and its
affiliates and any director, employee or agent of Jefferies & Co. or any of its
affiliates, or any person controlling Jefferies & Co. or its affiliates for
certain losses, claims, damages, expenses and liabilities relating to or arising
out of services provided by Jefferies & Co. as financial advisor to OneMain. The
terms of the fee arrangement with Jefferies & Co., which OneMain and Jefferies &
Co. believe are customary in transactions of this nature, were negotiated at
arm's length between the board of directors and Jefferies & Co., and the OneMain
board was aware of such fee arrangements. Jefferies & Co. maintains a market in
the shares of OneMain common stock.
Jefferies & Co. is a nationally recognized investment banking firm. As part
of its investment banking business, Jefferies & Co. is frequently engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of securities,
private placements and other purposes. In the ordinary course of its business,
Jefferies & Co. may trade in OneMain's securities and securities for its own
account and the account of its customers and, accordingly, may at any time hold
a long or short position in OneMain's securities. Jefferies & Co. was previously
retained by OneMain to assist in raising high-yield financing. In 1998 and 1999
Jefferies & Co. provided investment banking services to MindSpring
Enterprises, Inc., which merged with EarthLink Network, Inc. in February 2000 to
form EarthLink, and received customary fees for rendering such services. In
December 1998, Jefferies & Co. was retained by MindSpring as a co-manager for a
common stock offering. Additionally, in April 1999, Jefferies & Co. was retained
by MindSpring as a co-manager for a convertible subordinated notes offering and
a common stock offering.
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<PAGE>
EARTHLINK'S REASONS FOR THE MERGER
The EarthLink board of directors believes that the terms of the merger are
in the best interests of EarthLink and its stockholders, and has unanimously
approved the merger and the merger agreement.
The EarthLink board of directors views the merger as a means of achieving
the long-term strategic and financial goals of EarthLink. In reaching its
conclusion to approve the merger, the EarthLink board of directors also
considered the following factors:
- information concerning the financial performance and condition, business
operations and prospects of OneMain, and OneMain's projected future
performance and prospects on a combined basis with EarthLink;
- current industry, economic and market conditions, which have encouraged
business combinations and other strategic alliances in the industry;
- the structure of the transaction and terms of the merger agreement and the
merger consideration, which were the result of arm's-length negotiations
between EarthLink and OneMain;
- OneMain's strength in and penetration of rural communities where EarthLink
has minimal market presence;
- the financial analyses of Donaldson, Lufkin & Jenrette Securities
Corporation;
- the fact that the merger would provide holders of OneMain common stock
with the opportunity to receive a significant premium over current market
prices for OneMain common stock;
- the terms of the merger agreement permit the OneMain board of directors,
in the exercise of its fiduciary duties, and EarthLink (each subject to
certain conditions), to terminate the merger agreement if the OneMain
board of directors receives and/or accepts a third party takeover
proposal. In that regard, the EarthLink board of directors noted that if
the merger agreement is so terminated, OneMain will be obligated to pay
EarthLink a $9 million termination fee together with reimbursement for
expenses. See Material Terms of the Merger Agreement--Certain
Covenants--No Solicitation" on page 55 and "--Termination of the Merger
Agreement--Termination Fees Payable by OneMain"on page 60;
- the historical performance and reputation of OneMain; and
- the likelihood that the merger would be consummated.
In determining that the merger was in the best interest of EarthLink's
stockholders, the EarthLink board of directors considered the factors above as a
whole and did not assign specific or relative weights to such factors.
EARTHLINK'S BOARD OF DIRECTORS
For the reasons set forth under "Background of the Merger" on page 36, and
"EarthLink's Reasons for the Merger" on page 46, the EarthLink board of
directors believes that the merger is advisable and in the best interests of
EarthLink and the holders of EarthLink common stock. The EarthLink board of
directors has unanimously approved the merger and the merger agreement.
INTERESTS OF ONEMAIN OFFICERS AND DIRECTORS IN THE MERGER
In considering the recommendation of the OneMain board of directors with
respect to the merger, OneMain's stockholders should be aware that four
directors and executive officers of OneMain have interests in respect of the
merger in addition to your interests as stockholders of OneMain common stock.
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<PAGE>
When the merger of EarthLink and OneMain is consummated, each outstanding
option that has vested and has an exercise price equal to or below the per share
merger purchase price, including options held by directors and officers, will be
converted into an option to purchase shares of EarthLink common stock. As of
June 30, 2000, the directors and executive officers of OneMain held options to
purchase 2,801,628 shares of OneMain common stock.
OneMain's board of directors adopted a 1999 Stock Option and Incentive Plan
and a 1999 Plan under which the vesting of stock options held by OneMain's
directors and employees accelerate upon a change of control of OneMain.
Generally, a change of control includes a merger or reorganization of OneMain
with one or more other entities in which OneMain is not the surviving entity, or
upon a sale of substantially all of the assets of OneMain to another entity, or
upon any transaction that results in any person or entity (or person or entities
acting as a group or otherwise in concert), owning fifty percent (50%) or more
of the combined voting power of all classes of securities of OneMain. The merger
would constitute a change of control for purposes of the vesting plans. As a
result, options to purchase 1,888,547 shares of OneMain common stock that are
held by OneMain directors and officers will accelerate and become fully
exercisable upon the occurrence of the merger.
The OneMain board of directors was aware of these interests and considered
them, among other matters, in approving the merger agreement and the
transactions contemplated thereby.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material U.S. Federal income tax
consequences of the merger which are generally applicable to holders of OneMain
common stock under the Internal Revenue Code of 1986, as amended (the "Code").
Tax consequences that are different from or in addition to those described
herein may apply to OneMain stockholders who are subject to special treatment
under the U.S. federal income tax laws, such as non-U.S. persons, tax-exempt
organizations, financial institutions, insurance companies, broker-dealers,
OneMain stockholders who hold their OneMain common stock as part of a hedge,
straddle, wash sale, synthetic security, conversion transaction, or other
integrated investment comprised of OneMain common stock and one or more other
investments, and persons who acquired their shares in compensatory transactions.
The discussion does not address non-U.S. or state or local tax considerations.
THIS SUMMARY IS NOT A SUBSTITUTE FOR AN INDIVIDUAL ANALYSIS OF THE TAX
CONSEQUENCES OF THE MERGER TO YOU. YOU SHOULD CONSULT A TAX ADVISER REGARDING
THE PARTICULAR FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES OF THE MERGER
IN LIGHT OF YOUR OWN SITUATION.
EarthLink and OneMain intend that the merger will qualify as a
reorganization under Section 368(a) of the Code. However, it is not a condition
to the closing of the merger that the merger qualify as a tax-free
reorganization under Section 368(a) of the Code.
If the merger qualifies as a reorganization under Section 386(a) of the
Code, the U.S. Federal income tax consequences will include the following:
- No gain or loss will be recognized by EarthLink or OneMain as a result of
the merger;
- You will recognize any gain you realize up to the amount of cash received,
excluding cash paid instead of a fractional share, but will not recognize
any loss on the exchange of your OneMain stock for EarthLink stock and
cash. The amount of gain or loss you realize will be the difference
between your tax basis for your OneMain stock and the sum of the fair
market value, on the merger date, of the EarthLink stock you receive and
the cash you receive. The amount of gain recognized generally will be a
capital gain if you hold your OneMain stock as a capital asset at the time
of the merger;
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<PAGE>
- Your aggregate tax basis for the shares of EarthLink stock, including any
fractional share interest, received for your OneMain stock will be the
same as your aggregate tax basis for your OneMain stock, plus the amount
of gain you recognize minus the amount of cash you receive, excluding cash
paid instead of a fractional share;
- Your holding period for shares of EarthLink stock, including any
fractional share interest, received for your OneMain stock will include
your holding period for the OneMain stock exchanged for the EarthLink
stock, if you hold your OneMain stock as a capital asset at the time of
the merger; and
- If you receive cash instead of a fractional share, you will recognize gain
or loss equal to the difference between the amount of cash received and
your tax basis allocable to the fractional share. This gain or loss
generally will be a capital gain or loss if you hold your OneMain stock as
a capital asset at the time of the merger.
If the merger does not qualify as a reorganization under Section 368(a) of
the Code, you will recognize gain or loss in an amount equal to the difference
between your basis in your OneMain shares and the sum of the fair market value,
as of the merger date, of the EarthLink common stock you receive in exchange
plus the cash portion of the merger consideration. In that event, your basis in
the EarthLink common stock will be equal to its fair market value as of the
merger date, and the holding period for the stock will begin on the day after
the merger date. In addition, OneMain would be treated as if it sold all of its
assets for their fair market value (which would be based on the amount of merger
consideration provided by EarthLink in the merger), and OneMain would realize
taxable income equal to the excess of the deemed sales price for the assets over
OneMain's tax basis for the assets. This taxable income would not produce cash
flow to OneMain but could produce a substantial tax liability.
Unless you comply with certain reporting and/or certification procedures or
are an exempt recipient under applicable provision of the Internal Revenue Code
and Treasury regulations, consideration paid in exchange for your OneMain common
shares in the merger may be subject to "backup withholding" at a rate of 31
percent for federal income tax purposes. Any amounts withheld under the backup
withholding rules may be allowed as a refund or credit against the holder's
federal income tax liability, provided the required information is furnished to
the IRS.
ACCOUNTING TREATMENT
EarthLink and OneMain intend to account for the merger as a purchase by
Earthlink of OneMain, and not a pooling-of-interests.
GOVERNMENTAL AND REGULATORY MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the rules and regulations promulgated thereunder, the merger may not be
consummated until notifications have been given and certain information has been
furnished to the Federal Trade Commission and the Antitrust Division of the
United States Department of Justice and specified waiting period requirements
have been satisfied. EarthLink and OneMain filed the required notification and
report forms under the Hart-Scott-Rodino Act with the Federal Trade Commission,
and the Antitrust Division on June 27, 2000.
Each state in which EarthLink or OneMain has operations also may review the
merger under state antitrust laws.
At any time before the effective time of the merger, the Justice Department,
the Federal Trade Commission, the Antitrust Division, a state or non-U.S.
governmental authority or a private person or an entity could seek under the
antitrust laws, among other things, to enjoin the merger or to cause
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EarthLink to divest itself, in whole or in part, of businesses conducted by
OneMain or of other businesses conducted by EarthLink. There can be no assurance
that a challenge to the merger will not be made, or that, if such a challenge is
made, EarthLink and OneMain will prevail. The obligations of EarthLink and
OneMain to consummate the merger are subject to the condition that there be no
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the merger. Each party has agreed to
use reasonable efforts to have any such injunction, order, restraint or
prohibition vacated.
EarthLink and OneMain believe that they will obtain all required regulatory
approvals prior to the OneMain special meeting. However, it is not certain that
all such approvals will be received by such time, or at all, and governmental
authorities may impose unfavorable conditions for granting the required
approvals.
APPRAISAL RIGHTS
OneMain is a Delaware corporation, and as a result of the terms of the
merger agreement and under the Delaware General Corporation Law, OneMain
stockholders shall have rights of appraisal with respect to their OneMain common
stock.
Delaware law entitles the holders of record of shares of OneMain common
stock who follow the procedures specified in Section 262 of the Delaware law to
have their shares appraised by the Delaware Court of Chancery and to receive the
"fair value" of such shares as of the effective time of the merger as determined
by the court instead of the merger consideration. In order to exercise such
rights, a stockholder must demand and perfect the rights in accordance with
Section 262. The following is a summary of Section 262 and is qualified in its
entirety by reference to Section 262, a copy of which is attached as ANNEX D to
this proxy statement/prospectus. Stockholders should carefully review Section
262 as well as information discussed below to determine their rights to
appraisal.
If a stockholder of OneMain elects to exercise the right to an appraisal
under Section 262, that stockholder must do all of the following:
(1) file with OneMain at its main office in Reston, Virginia, a written
demand for appraisal of shares of OneMain common stock held, which demand
must identify the stockholder and expressly request an appraisal, before
the vote is taken on the merger agreement at the special meeting (this
written demand for appraisal must be in addition to and separate from any
proxy or vote against the merger agreement; neither voting against,
abstaining from voting nor failing to vote on the merger agreement will
constitute a demand for appraisal within the meaning of Section 262);
(2) not vote in favor of the merger agreement (a failure to vote or
abstaining from voting will satisfy this requirement, but a vote in favor
of the merger agreement, by proxy or in person, or the return of a signed
proxy that does not specify a vote against approval and adoption of the
merger agreement, will constitute a waiver of such stockholder's right of
appraisal and will nullify any previously filed written demand for
appraisal); and
(3) continuously hold such shares through the effective time of the merger.
All written demands for appraisal should be addressed to: OneMain.com, Inc.,
1860 Michael Faraday Drive, Suite 200, Reston, Virginia 20190, Attention:
General Counsel, before the vote is taken on the merger agreement at the special
meeting, and should be executed by, or on behalf of, the holder of record. Such
demand must reasonably inform OneMain of the identify of the stockholder and
that the stockholder is thereby demanding appraisal of his or her shares of
OneMain common stock.
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Within 10 days after the effective time of the merger, the surviving
corporation of the merger will give written notice to each stockholder of
OneMain who has satisfied the requirements of Section 262 and has not voted for
the proposal to approve and adopt the merger agreement and the transactions
contemplated thereby (a "Dissenting Stockholder"). Within 120 days after the
effective time, the surviving corporation or any Dissenting Stockholder may file
a petition in the court demanding a determination of the fair value of the
shares of OneMain common stock that are held by all Dissenting Stockholders. Any
Dissenting Stockholder desiring to file this petition is advised to file the
petition on a timely basis unless the Dissenting Stockholder receives notice
that a petition has already been filed by the surviving corporation or another
Dissenting Stockholder.
If a petition for appraisal is timely filed, the court will determine which
stockholders are entitled to appraisal rights and thereafter will determine the
fair value of the shares of OneMain common stock held by Dissenting
Stockholders, exclusive of any element of value arising from the accomplishment
or expectation of the merger, but together with a fair rate of interest, if any,
to be paid on the amount determined to be fair value. In determining such fair
value, the court shall take into account all relevant factors. The court may
determine such fair value to be more than, less than or equal to the
consideration that the Dissenting Stockholder would otherwise be entitled to
receive pursuant to the merger agreement. If a petition for appraisal is not
timely filed, then the right to an appraisal shall cease. The costs of the
appraisal proceeding shall be determined by the court and taxed against the
parties as the court determines to be equitable under the circumstances. Upon
the application of any stockholder, the court may determine the amount of
interest, if any, to be paid upon the value of the shares of OneMain common
stock of stockholders entitled to such interest. Upon application of a
stockholder, the court may order all or a portion of the expenses incurred by
any stockholder in connection with the appraisal proceeding, including, without
limitation, reasonable attorneys' fees and the fees and expenses of experts, to
be charged pro rata against the value of all shares of OneMain common stock
entitled to appraisal.
From and after the effective time of the merger, no Dissenting Stockholder
shall have any rights of a OneMain stockholder with respect to such holder's
shares for any purpose, except to receive payment of its fair value and to
receive payment of dividends or other distributions on such holder's shares of
OneMain common stock, if any, payable to OneMain stockholders of record as of a
date prior to the effective time. If a Dissenting Stockholder delivers to the
surviving corporation a written withdrawal of the demand for an appraisal within
60 days after the effective time or thereafter with the written approval of the
surviving corporation, or, if no petition for appraisal is filed within 120 days
after the effective time, then the right of that Dissenting Stockholder to an
appraisal will cease and the Dissenting Stockholder will be entitled to receive
only the merger consideration.
FEDERAL SECURITIES LAW CONSEQUENCES; RESALE RESTRICTIONS
All shares of EarthLink common stock that will be distributed to
stockholders of OneMain in the merger will be freely transferable, except for
certain restrictions applicable to "affiliates" of OneMain. Shares of EarthLink
common stock received by persons who are deemed to be affiliates of OneMain may
be resold by them only in transactions permitted by the resale provisions of
Rule 145 or as otherwise permitted under the Securities Act. Persons who may be
deemed to be affiliates of OneMain generally include certain officers, directors
and significant stockholders of OneMain. In connection with the merger
agreement, certain officers and directors of OneMain executed a written
agreement to the effect that such persons will not sell, or dispose of any of
the shares of EarthLink common stock issued to them in the merger unless such
sale or disposition has been registered under the Securities Act, is in
conformity with Rule 145 or is otherwise exempt from the registration
requirements under the Securities Act.
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EXCHANGE OF CERTIFICATES
EarthLink has agreed to deposit certificates representing the shares of
EarthLink common stock to be issued and cash to be paid under the merger
agreement with American Stock Transfer and Trust Co., which will act as exchange
agent in the merger for the benefit of the holders of issued and outstanding
shares of OneMain common stock.
Promptly after the merger is consummated, American Stock Transfer and Trust
will send to each former stockholder of OneMain who held their shares in their
own name a letter and instructions for exchanging the stockholder's OneMain
stock certificates for stock certificates of EarthLink and for cash.
Broker-dealers who hold stock for a stockholder in "street name" will execute
the conversion from OneMain common stock to cash and EarthLink common stock for
that stockholder.
The EarthLink common stock certificates and any checks will be delivered to
each former OneMain common stockholder who held their shares in their own name
on receipt by American Stock Transfer of certificates representing the
stockholder's shares of OneMain common stock, along with a properly completed
letter transmitting the certificates. If any of the certificates of OneMain
common stock have been lost, stolen or destroyed, the stockholder must deliver
an affidavit and make an indemnity reasonably satisfactory to Earthlink and
American Stock Transfer. No interest will be paid on any cash to be paid instead
of fractional shares.
IF YOU HOLD YOUR STOCK IN YOUR OWN NAME, YOU SHOULD NOT SEND IN YOUR
CERTIFICATES REPRESENTING ONEMAIN COMMON STOCK UNTIL YOU RECEIVE INSTRUCTIONS
FROM AMERICAN STOCK TRANSFER.
After the effective time of the merger and until OneMain stockholders
surrender the certificates representing their OneMain common stock for exchange,
holders of these certificates will not be paid any dividends or other
distributions declared after the effective time of the merger on the EarthLink
common stock issuable to such stockholders in the merger. Any such unpaid
dividends or other distributions on such EarthLink common stock will be paid,
without interest, only to the holders who have properly tendered their OneMain
common stock certificates for exchange. All stock certificates presented after
the effective time of the merger will be canceled and exchanged for a
certificate or certificates representing the applicable number of shares of
EarthLink common stock to be received in the merger and cash, including cash
representing fractional shares.
LISTING OF EARTHLINK COMMON STOCK ON NASDAQ
It is a condition to the obligation of EarthLink and OneMain to complete the
merger that EarthLink common stock to be issued under the merger agreement,
including EarthLink shares issuable upon the exercise of assumed stock options
and warrants, be approved for listing on Nasdaq National Market.
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MATERIAL TERMS OF THE MERGER AGREEMENT
This section describes the material provisions of the merger agreement. This
description does not purport to be complete and is qualified in its entirety by
reference to the merger agreement, a copy of which is attached hereto as ANNEX
A, and which is incorporated herein by reference. All stockholders are urged to
read the merger agreement carefully in its entirety.
THE MERGER
STRUCTURE. In the merger, OneMain will be merged into Merger Sub, with
Merger Sub being the surviving corporation and a wholly owned subsidiary of
EarthLink.
EFFECTIVE TIME. The merger will become effective when a certificate of
merger relating to the merger is duly filed with the Secretary of State of the
State of Delaware, which is expected to occur as soon as possible after the
stockholders of OneMain have approved the merger and after all of the other
conditions set forth in the merger agreement have been satisfied or waived.
EarthLink and OneMain anticipate that the effective time of the merger will
occur in September 2000.
SHARE CONVERSION. In connection with the merger, each stockholder of
OneMain will receive the right to convert each share of OneMain common stock
into a per share price equal to a combination of (1) not less than $5.708 and
not more than $6.050 in cash and (2) not less than 0.3357 and not more than
0.3559 of a share of EarthLink common stock. The amounts of cash and EarthLink
stock that OneMain stockholders can receive is variable and will be based on the
closing price of EarthLink stock price on the day prior to the closing of the
merger. The pricing schedule attached as ANNEX B to this proxy
statement/prospectus sets forth the possible amounts and combinations of cash
and stock that OneMain stockholders can receive in the merger. On the day prior
to the closing of the merger, EarthLink and OneMain will calculate the final per
share price, the EarthLink stock portion, the cash portion and the stock ratio
based on the then-existing closing stock price of the EarthLink common stock as
reported from Nasdaq. If the EarthLink closing price on such date is below $5.00
per share or above $50.00 per share, the amount of the cash portion of the per
share price and the stock ratio will be determined assuming the $5.00 and $50.00
closing price levels, respectively. If the closing price is other than a whole
dollar amount between $5.00 and $50.00, the cash portion of the per share price
and the stock ratio will be on a pro rata basis between the whole dollar
amounts.
For example, if the closing price of EarthLink common stock on the day
before the merger is $17.00, for each share of OneMain common stock you own, you
will receive $5.969 in cash and 0.3511 of a share of EarthLink common stock for
a total value of $11.938 per share. If the closing price of EarthLink common
stock on the day before the merger is $17.50, for each share of OneMain common
stock you own, you will receive $5.967 in cash and 0.3510 of a share of
EarthLink common stock for a total value of $12.109.
Pursuant to the merger, all OneMain shares shall automatically be cancelled
and retired and shall cease to exist, and each certificate previously evidencing
any such shares shall thereafter represent only the right to receive the merger
consideration. At the effective time of the merger, the holders of OneMain
shares outstanding immediately prior to the merger shall cease to have any
rights with respect to such OneMain shares, except the right to receive the
merger consideration, rights to dividends if declared and their rights of
appraisal under Delaware law as described in this proxy statement/prospectus.
No fractional shares of EarthLink stock shall be issued in the merger. Cash
will be paid instead of issuing any fraction of a share of EarthLink common
stock.
ONEMAIN STOCK OPTIONS. All outstanding options to purchase OneMain common
stock that are vested and have an exercise price equal to or below the merger
per share purchase price will be
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converted into an option to purchase EarthLink common stock, based on the
exchange ratio derived by dividing the per share purchase price by the closing
price of EarthLink common stock on the day prior to the closing of the merger.
If such conversion would entitle an option holder to a fractional share of
EarthLink common stock, that option holder will receive cash in lieu of that
fractional share when the option is fully exercised. All other outstanding
OneMain options will terminate and expire as of the closing of the merger and
will not be converted into options to purchase EarthLink common stock. OneMain
has three outstanding warrants to purchase its common stock, which will be
replaced or converted into warrants to buy EarthLink common stock.
CERTAIN COVENANTS
INTERIM OPERATIONS. OneMain and its subsidiaries are currently engaged in a
series of integration steps whereby OneMain's subsidiaries and regional
operations are to be integrated into OneMain's national Internet service
pursuant to OneMain's integration plan. From the date of signing the merger
agreement until the closing of the merger, OneMain and its subsidiaries may
carry on the OneMain integration plan and conduct their businesses in the
ordinary course consistent with the integration plan and past practice, and
shall use all commercially reasonable efforts to preserve their business
organizations intact, to refrain from altering employment and severance
agreements of their current officers and employees and to preserve their
relationships with customers, suppliers and others with whom they do business.
In addition, OneMain shall not, and shall not permit any of its subsidiaries to
take any of the actions set forth below without EarthLink's prior approval, and
other than pursuant to certain exceptions:
- declare, set aside or pay any dividends;
- split, combine or reclassify any of its capital stock;
- purchase, redeem or otherwise acquire any shares of capital stock of
OneMain or any of its subsidiaries;
- authorize, issue, deliver, sell or pledge any of its securities;
- amend OneMain's or any of its subsidiaries' articles of incorporation,
bylaws, or other governing documents;
- acquire or agree to acquire any business or entity other than subscriber
purchases with certain agreed upon parameters;
- borrow money, with certain limited exceptions, or issue letters of credit
in excess of $100,000;
- sell, lease, mortgage, pledge or otherwise encumber or dispose of any
assets except (i) sales of inventory in the ordinary course of business
consistent with past practice, (ii) immaterial liens not relating to the
borrowing of money or the incurrence of any monetary obligation and
(iii) other immaterial transactions not in excess of $100,000 in the
aggregate;
- make any material election relating to taxes or settle or compromise any
material tax liability;
- adopt a plan of complete or partial liquidation of OneMain or any of its
subsidiaries or resolutions providing for or authorizing such a
liquidation;
- change any material accounting principle, except as required by
regulations promulgated by the SEC;
- fail to maintain insurance upon all its properties;
- accelerate the vesting schedule of any options, warrants or any other
rights exercisable into capital stock of OneMain or any subsidiary other
than pursuant to contractual obligations;
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- authorize or make any payment to an affiliate of OneMain except in the
ordinary course of business or pursuant to prior arrangements;
- authorize any cash expenditure that exceeds $100,000;
- make any earnout or any similar type payment, except as set forth in the
merger agreement;
- adopt or amend any bonus, profit sharing, compensation, or other employee
benefit plan for the benefit of any employee or director other than an
increase on the one year anniversary of the previous wage increase;
- increase the compensation or any fringe benefits of any employee other
than an increase on the one year anniversary of the previous wage
increase;
- grant, pay or agree to grant or pay any severance, termination or similar
arrangement except as required as a condition to the closing of the
merger; or
- take any action that would result in a material breach of any of the
representations and warranties set forth in the merger agreement.
NO SOLICITATION. Prior to OneMain's special meeting and closing of the
merger, OneMain may not, directly or indirectly, solicit, initiate or encourage
any "takeover proposal" (as defined below) nor may it engage in any discussions
or negotiations relating to a takeover proposal. OneMain may, however, engage in
discussions (but not negotiate) with a party making an unsolicited takeover
proposal for 15 calendar days for the limited purpose of determining whether
that proposal is a "superior proposal" (as defined below). If OneMain determines
that such takeover proposal constitutes a superior proposal, OneMain then has 15
calendar days in which to negotiate and execute a definitive purchase agreement.
However, upon such determination that it is a superior proposal, EarthLink may
terminate the merger agreement within such 15 day period without payment by
OneMain of the $9 million termination fee plus expenses. If a third party makes
a superior proposal that does not result in a transaction, OneMain may not
entertain another proposal from such party unless its second offer is at least
materially more favorable to the OneMain stockholders from a financial point of
view. In such event, if a second offer is determined by vote of OneMain's board
of directors to be materially more favorable to OneMain stockholders, EarthLink
may terminate the merger agreement within 15 days of OneMain's board of
directors' determination and receive a $9 million termination fee plus its
expenses. See "Termination of the Merger Agreement" on page 59.
A "takeover proposal" means (i) any proposal or offer, other than a proposal
or offer by EarthLink or any of its affiliates, for a merger, share exchange or
other business combination involving OneMain (excluding an acquisition by
OneMain otherwise permitted to be made under the merger agreement), (ii) any
proposal or offer to acquire from OneMain in any manner, directly or indirectly,
all or any portion of the voting or equity interest in OneMain or the
acquisition of a material amount of the assets of OneMain, taken as a whole,
including an investment in or acquisition of securities of a subsidiary of
OneMain, to the extent so material, or (iii) any proposal or offer to acquire
from the stockholders of OneMain by tender offer, exchange offer or otherwise
all or any material portion of OneMain shares then outstanding.
A "superior proposal" means a takeover proposal that the board of directors
of OneMain, in its good faith judgment and after consultation with its financial
advisors, believes is materially more favorable from a financial point of view
to the stockholders of OneMain than EarthLink's proposal set forth in the merger
agreement.
MUTUAL COVENANTS. OneMain and EarthLink have agreed, among other things,
not to take any action or to fail to take any action that is reasonably likely
to breach their respective representations and warranties.
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CERTAIN OTHER COVENANTS. OneMain and EarthLink agreed to certain other
customary covenants in the merger agreement, including covenants relating to:
- obtaining necessary consents and approvals;
- cooperating with each other to obtain antitrust clearances;
- providing access to and furnishing information;
- providing notices of certain events and consulting with each other
regarding public statements and filings;
- certain employee matters; and
- mutually defending any claims or actions questioning the validity or
legality of the transactions contemplated by the merger agreement.
CERTAIN REPRESENTATIONS AND WARRANTIES
The merger agreement contains several representations and warranties by
EarthLink and the Merger Sub on the one hand, and OneMain, on the other hand as
to the following:
- corporate organization, good standing and corporate power and authority to
carry on its respective businesses as now being conducted;
- their respective capitalization, including the number of shares of capital
stock authorized, the number of shares outstanding and the number of
shares reserved for issuance;
- the corporate power and authority to execute and deliver the merger
agreement and related documents and to consummate the merger and other
contemplated transactions;
- the compliance of the merger agreement and related documents with
EarthLink's and OneMain's respective certificates of incorporation and
bylaws, applicable laws, and material agreements, including the absence of
events of defaults or breach thereunder;
- required governmental and third-party consents;
- filing of all forms, reports, statements and other documents required to
be filed with the SEC and the accuracy of the financial reports contained
in these filings;
- absence of material misstatements or omissions in the information
furnished by EarthLink and OneMain, respectively for inclusion in the
proxy statement/prospectus;
- the absence of brokers utilized by EarthLink and OneMain, respectively,
except as identified in the merger agreement;
- except as disclosed in the merger agreement, the absence of material
claims, actions, suits, proceedings and specified judgments, decrees and
injunctions;
- receipt of opinions from financial advisers as to the fairness of the
merger consideration from a financial point of view;
- absence of material undisclosed liabilities;
- absence of specified changes in EarthLink's and OneMain's respective
business since December 31, 1999; and
- absence of material misstatements or omissions in EarthLink's and
OneMain's respective representations and warranties or in any information
furnished in a certificate or schedule provided by EarthLink or OneMain.
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In addition, OneMain has made certain additional representations and
warranties to EarthLink and Merger Sub in the merger agreement relating to:
- corporate organization and good standing of OneMain's subsidiaries,
including that they have the corporate power and authority to carry on
their respective businesses as now being conducted;
- absence of material contracts except as disclosed in the merger agreement;
- absence of applicability of state takeover statutes;
- accuracy of bookkeeping and maintenance of records and accounts;
- filing and accuracy of OneMain's tax returns and lack of pending or
threatened proceeding, deficiencies or audits with respect to taxes;
- possession of and compliance with all required licenses and permits;
- the ownership of intellectual property and absence of intellectual
property infringement or contests;
- absence of transactions with affiliates except as disclosed in or allowed
under the merger agreement;
- the number of subscriber accounts as of May 31, 2000;
- OneMain's employee benefit plans and related matters,
- compliance with laws relating to employees or the workplace, and the
absence of material disputes with employees;
- no excess "parachute payments;"
- compliance with environmental laws and the absence of environmental
liabilities;
- the ownership and condition of owned or leased real property;
- the maintenance of insurance;
- information concerning severance payments; and
- absence of payments of securities in connection with earnout or similar
payment obligations.
The representations and warranties in the merger agreement do not survive
the closing of the merger.
CONDITIONS TO THE MERGER
CONDITIONS TO EACH PARTY'S OBLIGATIONS. The obligations of OneMain and
EarthLink to consummate the merger are subject to the satisfaction of the
following conditions:
- the receipt of approval of the stockholders of OneMain;
- the approval for trading on Nasdaq of the shares of EarthLink common stock
to be issued in the merger;
- the expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Act and receipt of all governmental and other consents
and approvals required in connection with the consummation of the merger;
- the absence of any temporary restraining order, preliminary or permanent
injunction or other legal restraint or prohibition preventing the
consummation of the merger;
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- the effectiveness of this registration statement, with no stop order
suspending its effectiveness and no proceedings seeking a stop order; and
- receipt of all material permits, approvals, and consents of securities or
"blue sky" authorities of any jurisdiction that are necessary.
ADDITIONAL CONDITIONS TO OBLIGATIONS OF EARTHLINK. The obligations of
EarthLink to consummate the merger are subject to the satisfaction or waiver by
EarthLink at or prior to the closing date of the following additional
conditions:
- the representations and warranties of OneMain in the merger agreement must
be true and correct in all material respects as of the date of the merger
agreement (or if the representation and warranty already contains a
materiality qualifier, then it will be true and correct in all respects),
and other than representations and warranties as of a specific date, as of
the closing date as though made on and as of the closing date;
- the performance in all material respects by OneMain of its obligations
under the merger agreement required to be performed at or prior to the
closing date;
- the receipt of certain customary certificates, consents, and other closing
documents;
- EarthLink shall have received a letter agreement from certain of its
directors and officers prior to the execution of the merger agreement;
- the termination of all registration rights agreements, "lock-up"
agreements with OneMain's shareholders, all consulting agreements that
expire after March 31, 2000 and all financial advisory and securities
brokerage agreements;
- there shall not be pending or threatened by any governmental entity any
suit, action or proceeding challenging or seeking to block the merger;
- the receipt by EarthLink of written resignations from all corporate
officers and directors of OneMain and its subsidiaries; and
- the consummation by OneMain of its repurchase of its outstanding
debentures and termination of related agreements.
ADDITIONAL CONDITIONS TO OBLIGATIONS OF ONEMAIN. The obligations of OneMain
to consummate the merger are subject to the satisfaction or waiver by OneMain at
or prior to the closing date of the following additional conditions:
- the representations and warranties of EarthLink and Merger Sub in the
merger agreement must be true and correct in all material respects (or if
the representation and warranty already contains a materiality qualifier,
then it will be true and correct in all respects) as of the date of the
merger agreement and, other than representations and warranties as of a
specific date, as of the closing date as though made on and as of the
closing date of the merger;
- the performance in all material respects by EarthLink of its obligations
under the merger agreement required to be performed at or prior to the
Closing Date;
- the receipt of certain customary certificates, consents and other closing
documents;
- there shall not be pending or threatened by any governmental entity any
suit, action or proceeding challenging or seeking to block the merger; and
- EarthLink shall have filed an S-8 registration statement to register
shares of EarthLink common stock issuable on exercise of assumed OneMain
options and filed all necessary documents with Nasdaq in connection with
OneMain's options and warrants.
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TERMINATION OF THE MERGER AGREEMENT
RIGHTS TO TERMINATE. At any time prior to the merger closing, the merger
agreement may be terminated and the transactions contemplated may be abandoned
as follows (any of the following rights to terminate may be waived by the party
possessing the right):
- by the mutual written consent of each party to the merger agreement;
- by either OneMain or EarthLink if:
- any required approval of the stockholders of OneMain shall not have
been obtained by reason of the failure to obtain the required vote;
- any court or other governmental authority has issued an order, decree
or ruling permanently enjoining, restraining or otherwise prohibiting
the merger; or
- the merger shall not have been consummated by October 30, 2000, unless
the failure to consummate the merger is the result of a failure to
fulfill any obligations under the merger agreement by the party seeking
to terminate the merger agreement.
- by EarthLink if:
- OneMain materially breaches any of its representations, warranties or
covenants in the merger agreement and such breach is not cured within
20 days following receipt of notice of breach;
- OneMain or any of its representatives encourage, elicit or initiate any
takeover proposal by a party other than EarthLink;
- OneMain fails to consummate a repurchase of its outstanding debentures
and terminate the agreements related to such debentures;
- OneMain's board of directors shall have withdrawn or modified its
recommendation in favor of the merger with EarthLink or failed to mail
the proxy statement to its stockholders;
- if, in response to the commencement of any tender offer or exchange
offer for 10% or more of the outstanding OneMain common shares or
public announcement or disclosure of any other takeover proposal,
OneMain fails to recommend rejection of such tender or exchange offer
or such takeover proposal within ten days of such commencement, unless
such actions are otherwise permitted by the merger agreement;
- OneMain enters into a definitive agreement with respect to any takeover
proposal; or
- OneMain receives a takeover proposal that its board of directors
determines to constitute a superior proposal and EarthLink terminates
within 15 days of such determination.
- by OneMain if:
- EarthLink materially breaches any of its representations, warranties or
covenants in the merger agreement and such breach is not cured within
20 days following receipt of notice of breach; or
- OneMain receives a takeover proposal that its board of directors
determines to constitute a superior proposal or enters into a
definitive agreement with respect to a takeover proposal.
If the merger agreement is terminated pursuant to its terms, no provision of
the merger agreement will survive (other than the provisions relating to
confidentiality, termination fees and certain general provisions), provided,
that EarthLink will be entitled to receive a termination fee and reimbursement
for its expenses in certain cases, and that both EarthLink and OneMain shall
have the ability to seek
59
<PAGE>
other legal remedies that are otherwise available to them in the event of
termination of the merger agreement.
TERMINATION FEES PAYABLE BY ONEMAIN. OneMain has agreed to pay EarthLink a
termination fee of $9 million and to reimburse its expenses related to the
merger if the merger agreement is terminated prior to the effective time of the
merger because:
- the stockholders of OneMain fail to give any required approval of the
merger and OneMain consummates or enters into an agreement to consummate
another transaction in which more than 25% or substantially all of
OneMain's assets are acquired within 12 months of termination of the
merger agreement;
- OneMain breaches any of its representations, warranties or covenants in
the merger agreement and such breach is not cured within 20 days following
receipt of notice of breach;
- OneMain or any of its representatives encourage, elicit or initiate any
takeover proposal from an entity other than EarthLink;
- OneMain fails to consummate its required repurchase of its outstanding
debentures and terminate the agreements related to such debentures;
- OneMain's board of directors withdraws or modifies its recommendation of
the merger with EarthLink or fails to mail the proxy statement to its
stockholders;
- OneMain fails to reject any other takeover proposal, unless such failure
to reject is permitted under the merger agreement;
- OneMain enters into a definitive agreement with respect to any takeover
proposal; or
- OneMain's board of directors determines that a second proposal offered by
a third party bidder, who had previously offered a superior proposal which
did not result in the execution of a definitive agreement, to acquire
OneMain is materially more favorable to OneMain stockholders from a
financial point of view, and EarthLink terminates the merger agreement
within 15 days of such determination and before OneMain terminates
negotiations with such bidder.
EXPENSES
Whether or not the merger or other transactions contemplated by the merger
agreement are consummated, all costs and expenses incurred in connection with
the merger agreement and the transactions contemplated thereby will be paid by
the party incurring such costs or expenses. However, EarthLink and OneMain will
each be responsible for 50% of the financial printer, printing and mailing costs
incurred in connection with this proxy statement/prospectus, and EarthLink will
be responsible for all registration fees with the SEC and blue sky filings and
the Nasdaq listing fees. If the merger agreement is terminated under
circumstances that would require OneMain to pay the termination fee to
EarthLink, OneMain will also be required to reimburse EarthLink for its
merger-related expenses.
ONEMAIN AGREEMENT TO VOTE STOCK
The following information relating to the Agreement to Vote Stock is not
intended to be a complete description of all the information relating to that
agreement, but is intended to include its material terms.
On June 7, 2000, as a condition to the execution of the merger agreement,
four of OneMain's directors and executive officers, referred to as OneMain
Voting Stockholders, entered into an Agreement to Vote Stock with OneMain,
EarthLink and Merger Sub. Under the Agreement to Vote Stock, the OneMain Voting
Stockholders have agreed to vote, to cause the record holders of their OneMain
common stock to vote or to cause anyone to whom they transfer their voting
rights in the
60
<PAGE>
common stock to vote, the OneMain common stock beneficially owned by them as of
June 7, 2000 and any other voting interests in OneMain acquired by them after
June 7, 2000 in favor of:
- the merger;
- the other transactions contemplated by the merger; and
- any related matter that must be approved by OneMain stockholders in order
to complete the transactions contemplated by the merger agreement.
The OneMain common stock beneficially owned by the OneMain Voting
Stockholders represented 2,637,296 shares or approximately 10.5% of the OneMain
common stock outstanding as of June 7, 2000. The OneMain Voting Stockholders
consist of the following persons:
- Stephen E. Smith, OneMain's Chief Executive Officer and Chairman of the
Board of Directors;
- Allon Lefever, OneMain's President of Un-Integrated Companies and Vice
Chairman of the Board of Directors;
- Ella Fontanals de Cisneros, a OneMain director; and
- M. Cristina Dolan, OneMain's Executive Vice President and Chief Content
and Strategic Alliances Officer.
Under the Agreement to Vote Stock, each OneMain Voting Stockholder granted
an irrevocable proxy to EarthLink to vote the shares of such OneMain Voting
Stockholder in favor of the merger and the transactions contemplated by the
merger agreement.
The OneMain Voting Stockholders have agreed not to take any of the following
actions until the effective time of the merger or, if earlier terminated, the
termination of the Agreement to Vote Stock:
- sell, transfer, assign, pledge, cause to be redeemed or otherwise dispose
of any shares of capital stock beneficially owned by the OneMain Voting
Stockholders;
- grant any other proxy, power of attorney or other voting interest in or
with respect to any shares of capital stock beneficially owned by the
OneMain Voting Stockholders; or
- enter into any other voting agreements with respect to the shares of
capital stock beneficially owned by the OneMain Voting Stockholders.
The Agreement to Vote Stock and the obligations under such agreement will
terminate on the earlier to occur of the effective time of the merger and the
termination of the merger agreement.
AMENDMENTS
The merger agreement may be amended by EarthLink, Merger Sub and OneMain by
written instrument at any time before or after adoption of the merger agreement
by the stockholders of OneMain. However, after adoption by the OneMain
stockholders, no amendment may be made that by law requires further approval by
those stockholders without that further approval.
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<PAGE>
EARTHLINK, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
We derived the information below from the audited consolidated statements of
operations of EarthLink for its fiscal years ended December 31, 1997 through
1999 and balance sheets at December 31, 1998 and 1999 and from the unaudited
consolidated statements of operations of EarthLink for its fiscal years ended
December 31, 1995 and 1996 and for the three months ended March 31, 1999 and
2000 and balance sheets at December 31, 1995, 1996 and 1997. You should not
expect the results for the prior periods to be an indication of the results to
be achieved for future periods. This information is only a summary and should be
read in conjunction with EarthLink's historical consolidated financial
statements, and the related notes, which are incorporated by reference into this
proxy statement/prospectus. In addition, this document should be read together
with the financial information in EarthLink's Annual Report on Form 10-K, which
is incorporated by reference into this proxy statement/prospectus. See "Where
You Can Find More Information" on page iv.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------- ----------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- --------- --------- --------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $ 5,255 $ 51,362 $ 133,444 $ 290,614 $ 670,443 $ 129,871 $ 219,705
Operating costs and
expenses.................... 12,507 89,142 165,641 345,069 866,113 161,493 337,952
Loss from operations.......... (7,252) (37,780) (32,197) (54,455) (195,680) (36,122) (118,247)
Net loss...................... (8,079) (38,761) (33,997) (53,178) (173,694) (27,756) (108,514)
Deductions for accretion
dividends(1)................ -- -- -- (7,601) (14,106) (3,646) (3,331)
------- -------- --------- --------- --------- --------- ----------
Net loss attributable to
common stockholders......... $(8,079) $(38,761) $ (33,997) $ (60,779) $(187,800) $ (31,403) $ (111,845)
======= ======== ========= ========= ========= ========= ==========
Basic and diluted net loss per
share....................... $ (0.25) $ (0.76) $ (0.44) $ (0.66) $ (1.65) $ (0.29) $ (0.95)
Weighted average shares....... 32,254 51,119 77,387 91,466 113,637 107,902 117,426
======= ======== ========= ========= ========= ========= ==========
OTHER OPERATING DATA:
EBITDA(2)..................... $(6,682) $(30,342) $ (14,127) $ 15,498 $ (6,157) $ 7,526 $ (81,496)
Cash flows from
Operating activities........ $(3,713) (18,227) (9,936) 62,098 44,211 32,824 (42,763)
Investing activities........ (7,990) (39,697) (25,097) (56,886) (339,749) (251,213) (26,936)
Financing activities........ 11,833 70,855 47,223 277,559 672,684 304,552 275,288
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------------------------- ----------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..... $ 715 $ 13,646 $ 25,836 $ 308,607 $ 685,753 $ 394,770 $ 891,342
Total assets.................. 9,719 62,351 91,175 510,002 1,109,147 838,782 1,298,632
Long-term debt................ 355 8,813 13,308 10,125 188,367 88,140 8,203
Total liabilities............. 8,947 44,192 63,685 109,515 350,694 206,843 370,314
Accumulated deficit........... (7,041) (45,802) (79,799) (140,578) (328,378) (171,981) (440,223)
Stockholders' equity.......... 772 18,159 27,490 400,487 758,453 631,938 928,318
</TABLE>
--------------------------
1. Reflects the accretion of liquidation dividends on Series A and B
convertible preferred stock at 3% compounded quarterly and the accretion of
a dividend related to the beneficial conversion feature in accordance with
EITF D-60.
2. Represents earnings (loss) before depreciation and amortization, interest
income and expense and income tax expense. EBITDA is not determined in
accordance with generally accepted accounting principles, is not indicative
of cash used by operating activities and should not be considered in
isolation from, as an alternative to, or more meaningful than measures of
performance determined in accordance with generally accepted accounting
principles. Not all companies define EBITDA in the same way, and our EBITDA
is not necessarily comparable to EBITDA reported by other companies.
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<PAGE>
ONEMAIN.COM, INC.
SELECTED HISTORICAL CONSOLIDATED COMBINED FINANCIAL INFORMATION
OneMain derived the selected information below from the audited consolidated
statements of operations and cash flows for the period August 19, 1998
(inception) through December 31, 1998 and the year ended December 31, 1999 and
balance sheets at December 31, 1998 and 1999 and from the unaudited consolidated
statements of operations and cash flows for the three months ended March 31,
1999 and 2000 and balance sheets at March 31, 1999 and 2000.
The selected pro forma financial income statement information includes
(a) OneMain's historical consolidated results combined with the 17 Internet
service providers as if the initial public offering acquisitions had occurred on
January 1, 1998; (b) the amortization of goodwill and customer lists resulting
from the initial public offering acquisitions; (c) the elimination of interest
expense for the debt that was paid from the initial public offering proceeds;
and (d) an income tax benefit at an appropriate rate. The selected pro forma
financial information includes the results of operations of the subsequent
acquisitions from the dates of acquisition only.
The pro forma combined financial information does not purport to represent
what our results of operations would actually have been if such transactions and
events in fact had occurred on those dates or to project our results of
operations for any future period.
This information is only a summary and should be read together with
OneMain's historical consolidated financial statements, and the related notes,
which are incorporated by reference in this proxy statement/prospectus.
63
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA FOR ONEMAIN.COM, INC.
------------------------------------------------------------------- THREE MONTHS
FOR THE PERIOD PRO FORMA PRO FORMA ENDED
AUGUST 19, 1998 YEAR ENDED YEAR ENDED YEAR ENDED MARCH 31,
(INCEPTION) THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, -------------------
DECEMBER 31, 1998 1999 1998 1999 1999 2000
------------------- ------------- ------------- ------------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SUBSCRIBER DATA) (UNAUDITED)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
-------------------------------
Revenues:
Access revenues.............. $ -- $ 78,296 $ 51,814 $ 96,263 $ -- $ 38,431
Other revenues............... -- 4,469 4,873 6,003 -- 1,381
------ --------- -------- --------- -------- --------
Total revenues............. -- 82,765 56,687 102,266 -- 39,812
Cost and expenses:
Costs of access revenues..... -- 31,027 21,573 38,744 -- 14,598
Costs of other revenues...... -- 1,463 1,214 1,837 -- 502
Operations and customer
support.................... -- 12,124 8,834 14,908 -- 7,988
Sales and marketing.......... -- 14,096 7,115 16,466 -- 9,051
General and administrative
(exclusive of non-cash
compensation expense shown
below)..................... 761 31,350 18,439 35,937 910 13,118
Restructuring charge......... -- -- -- -- -- 7,179
Non-cash compensation........ -- 2,594 -- 2,594 2,469 --
Amortization................. -- 76,961 79,105 (1) 97,774 (1) -- 34,224
Depreciation................. -- 7,587 4,281 8,889 -- 5,108
Other (income) expense,
net........................ -- (137) 319 (149) -- (57)
------ --------- -------- --------- -------- --------
Total costs and expenses... 761 177,065 140,880 217,000 3,379 76,611
Loss from operations......... (761) (94,300) (84,193) (114,734) (3,379) (51,899)
Interest income.............. -- 3,225 93 3,251 24 223
Interest expense............. (4) (640) (221) (722) (16) (587)
------ --------- -------- --------- -------- --------
Loss before income tax
benefit.................... (765) (91,715) (84,321) (112,205) (3,371) (52,263)
Income tax benefit........... -- 10,470 10,292 13,353 -- 4,238
Net loss..................... $ (765) $ (81,245) $(74,029) $ (98,852) $ (3,371) $(48,025)
====== ========= ======== ========= ======== ========
Basic and diluted net loss
per share.................. $(0.16) $ (4.38) $ (0.60) $ (1.92)
====== ========= ======== ========
Shares used in the
calculation of basic and
diluted net loss per
share...................... 4,668 18,568 5,623 25,002
====== ========= ======== ========
Pro forma basic and diluted
net loss per share......... $ (3.62) $ (4.45)
======== =========
Shares used in the
calculation of pro forma
basic and diluted net loss
per share.................. 20,422 22,222
======== =========
OTHER OPERATING DATA:
-------------------------------
Approximate number of
subscribers at end of
period..................... -- 701,000 371,000 762,000
Cash flows from operating
activities................. $ (375) $ 2,553 $ (423) $ (5,118)
Cash flows from investing
activities................. $ -- $(156,613) $(68,073) $ (1,242)
Cash flows from financing
activities................. $ 547 $ 180,987 $159,723 $ (4,512)
EBITDA(2).................... $ (761) $ (9,752) $ (3,379) $(12,567)
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------- -------------------
1999 1998 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)................................. $(30,929) $ (718) $(60,808) $ 61,911
Total assets.............................................. $434,893 $6,331 $393,287 $363,472
Long-term debt and other liabilities...................... $ 40,968 -- $ 39,859 $ 25,079
Stockholders' equity (deficit)............................ $310,874 $ (718) $265,296 $303,992
</TABLE>
------------------------------
1. Consists of amortization expense of $96,930 and $77,910 for the years ended
December 31, 1999 and 1998 recorded as a result of acquisitions. These
amortization charges are attributable primarily to goodwill and subscriber
lists and are amortized over three years.
2. EBITDA represents earnings or losses before interest, taxes, depreciation
and amortization. We have included EBITDA in these data because it is a
measure commonly used by investors to analyze and compare companies on the
basis of operating performance, EBITDA is not a measurement of financial
performance under generally accepted accounting principles and should not be
construed as a substitute for operating activities for purposes of analyzing
our operating performance, financial position or cash flows. Not all
companies define EBITDA in the same way, and our EBITDA is not necessarily
comparable to EBITDA reported by other companies.
65
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA FOR ONEMAIN'S ISPS
(IN THOUSANDS, EXCEPT SUBSCRIBER DATA)
The selected financial data of OneMain's predecessor 17 ISPs acquired upon
the closing of its IPO is presented below. The selected historical statement of
operations data for the three months ended March 31, 1999 and for the years
ended December 31, 1998 and 1997 and the selected historical balance sheet data
at December 31, 1998 have been derived from the companies' audited financial
statements included in OneMain's Annual Report on Form 10-K. The selected
historical statement of operations data for the years ended December 31, 1996
and 1995 and the selected historical balance sheet data at December 31, 1997,
1996 and 1995 have been derived from the companies' audited financial statements
not included in OneMain's Annual Report on Form 10-K. All of its ISPs have
fiscal years ending December 31. Subscriber information for December 31, 1995 is
not available.
<TABLE>
<CAPTION>
FOR OR AT THE THREE FOR OR AT THE YEARS ENDED DECEMBER 31,
COMMENCED MONTHS ENDED -----------------------------------------
OPERATIONS MARCH 31, 1999 1998 1997 1996 1995
--------------- ------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
EAST OPERATING GROUP
D&E SuperNet, Inc.
Revenues...................... July 1995 $ 1,705 $ 3,947 $ 1,749 $ 842 $ 120
Operating income (loss)....... $ 13 $ 457 $ 117 $ (11) $ (190)
Subscribers................... 27,445 23,150 7,395 3,499 --
SunLink, Inc.
Revenues...................... October 1995 $ 576 $ 1,411 $ 798 $ 225 $ 7
Operating income (loss)....... $ 104 $ (61) $ 150 $ -- $ (9)
Subscribers................... 9,609 8,497 3,914 1,390 --
LebaNet, Inc.
Revenues...................... March 1996 $ 77 $ 298 $ 200 $ 149
Operating income.............. $ 40 $ 116 $ 35 $ 53
Subscribers................... 237 233 253 289
TGF Technologies, Inc.
Revenues...................... November 1994 $ 1,602 $ 4,955 $ 2,512 $ 1,145 $ 603
Operating income (loss)....... $ 58 $ (126) $ (916) $ (509) $ (650)
Subscribers................... 30,228 27,189 15,239 5,858 --
SOUTH OPERATING GROUP
SouthWind Internet Access, Inc.
Revenues...................... October 1994 $ 680 $ 2,170 $ 1,438 $ 837 $ 202
Operating income.............. $ 7 $ 330 $ 365 $ 187 $ 4
Subscribers................... 12,025 11,287 8,116 5,185 --
Horizon Internet Technologies,
Inc.
Revenues...................... July 1995 $ 392 $ 1,161 $ 435 $ 149 $ 2
Operating (loss) income....... $ (107) $ 58 $ (53) $ -- $ (14)
Subscribers................... 7,594 7,261 3,126 807 --
Internet Partners of America, LC
Revenues...................... June 1995 $ 1,643 $ 4,426 $ 1,857 $ 931 $ 28
Operating income (loss)....... $ 51 $ (519) $ (979) $(1,162) $ (150)
Subscribers................... 25,699 24,183 13,060 6,789 --
PalmNet, USA, Inc.
Revenues...................... April 1996 $ 216 $ 626 $ 432 $ 96
Operating income (loss)....... $ 52 $ 119 $ 80 $ (52)
Subscribers................... 5,544 5,337 2,824 1,600
Internet Access Group, Inc.
Revenues...................... January 1995 $ 384 $ 1,534 $ 1,179 $ 951 $ 393
Operating (loss) income....... $ (27) $ (59) $ 36 $ 33 $ (138)
Subscribers................... 5,189 4,931 3,887 2,574 --
</TABLE>
66
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA FOR ONEMAIN'S ISPS--(CONTINUED)
(IN THOUSANDS, EXCEPT SUBSCRIBER DATA)
<TABLE>
<CAPTION>
FOR OR AT THE THREE FOR OR AT THE YEARS ENDED DECEMBER 31,
COMMENCED MONTHS ENDED -----------------------------------------
OPERATIONS MARCH 31, 1999 1998 1997 1996 1995
--------------- ------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CENTRAL OPERATING GROUP
United States Internet, Inc.
Revenues...................... April 1994 $ 2,832 $ 6,515 $ 4,174 $ 2,507 $ 890
Operating loss(1)............. $ (169) $ (4,650) $ (226) $(1,851) $(2,593)
Subscribers................... 38,523 35,289 16,219 10,927 --
ZoomNet, Inc.
Revenues...................... September 1995 $ 805 $ 1,968 $ 858 $ 273 $ 19
Operating income (loss)....... $ 155 $ 202 $ 162 $ (13) $ (1)
Subscribers................... 15,616 12,921 5,309 1,997 --
Midwest Internet, L.L.C.
Revenues...................... March 1995 $ 1,596 $ 4,091 $ 2,523 $ 1,790 $ 186
Operating income (loss)....... $ 295 $ 500 $ 59 $ (482) $ (197)
Subscribers................... 24,693 21,581 11,474 11,529 --
Internet Solutions, L.L.C.
Revenues...................... October 1995 $ 413 $ 1,003 $ 446 $ 141 $ 7
Operating income (loss)....... $ 22 $ 113 $ 6 $ (75) $ (47)
Subscribers................... 6,983 5,437 2,667 1,010 --
FGINet, Inc.
Revenues...................... November 1994 $ 598 $ 1,494 $ 818 $ 275 $ 34
Operating loss................ $ (37) $ (104) $ -- $ (125) $ (4)
Subscribers................... 11,440 10,031 4,601 2,919 --
Superhighway, Inc. d/b/a Indynet
Revenues...................... June 1995 $ 866 $ 3,013 $ 2,106 $ 1,249 $ 248
Operating income.............. $ 152 $ 150 $ 460 $ 239 $ 28
Subscribers................... 19,314 18,114 12,468 6,556 --
WEST OPERATING GROUP
Lightspeed Net, Inc.
Revenues...................... March 1995 $ 1,266 $ 4,653 $ 3,086 $ 1,124 $ 85
Operating loss................ $ (59) $ (519) $ (1,243) $(1,066) $ (385)
Subscribers................... 15,698 15,672 15,533 4,059 --
JPS.Net Corporation
Revenues...................... January 1997 $ 3,850 $ 9,002 $ 2,074
Operating loss................ $ (36) $ (853) $ (993)
Subscribers................... 115,002 100,736 32,119
TOTAL
Revenues...................... $ 19,501 $ 52,267 $ 26,685 $12,684 $ 2,824
Operating income (loss)....... $ 514 $ (4,846) $ (2,940) $(4,834) $(4,346)
Subscribers................... 370,839 331,849 158,204 66,988 --
</TABLE>
------------------------------
(1) Operating loss for the years ended December 31, 1998, 1997, 1996, and 1995
includes incentive compensation expense (benefit) of $3,341, $(599), $581,
and $1,681, respectively. This expense (benefit) is attributable to
compensation expense related to United States Internet's stock appreciation
rights.
67
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA FOR ONEMAIN'S ISPS--(CONTINUED)
(IN THOUSANDS, EXCEPT SUBSCRIBER DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1998 1997 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
EAST OPERATING GROUP
D&E SuperNet, Inc.
Total assets......................................... $ 3,560 $ 767 $ 596 $ 228
Long-term debt....................................... $ 2,180 $ -- $ -- $ --
Total stockholders' equity........................... $ 597 $ 46 $ -- $ 52
SunLink, Inc.
Total assets......................................... $ 698 $ 437 $ 149 $ 22
Long-term debt....................................... $ 345 $ 13 $ 8 $ 5
Total stockholders' equity........................... $ 76 $ 157 $ 18 $ 11
LebaNet, Inc.
Total assets......................................... $ 109 $ 115 $ 75
Long-term debt....................................... $ -- $ -- $ --
Total stockholders' equity........................... $ 103 $ 49 $ 25
TGF Technologies, Inc.
Total assets......................................... $ 1,640 $ 1,277 $ 723 $ 317
Long-term debt....................................... $ 574 $ 758 $ 355 $ 40
Total stockholders' (deficit) equity................. $ (49) $ (388) $ 54 $ 155
SOUTH OPERATING GROUP
SouthWind Internet Access, Inc.
Total assets......................................... $ 620 $ 609 $ 428 $ 159
Long-term debt....................................... $ 37 $ 139 $ 167 $ 90
Total stockholders' equity........................... $ 464 $ 398 $ 207 $ 31
Horizon Internet Technologies, Inc.
Total assets......................................... $ 558 $ 178 $ 80 $ 36
Long-term debt....................................... $ 152 $ 100 $ 49 $ 13
Total stockholders' (deficit) equity................. $ (16) $ (49) $ 7 $ 8
Internet Partners of America, LC
Total assets......................................... $ 3,642 $ 2,360 $ 1,501 $ 298
Long-term debt....................................... $ 3,880 $ 2,087 $ 772 $ 100
Total members' (deficit) equity...................... $(1,164) $ (319) $ 573 $ 150
PalmNet, USA, Inc.
Total assets......................................... $ 166 $ 129 $ 74
Long-term debt....................................... $ -- $ -- $ --
Total stockholders' equity (deficit)................. $ 85 $ 14 $ (50)
Internet Access Group, Inc.
Total assets......................................... $ 493 $ 290 $ 293 $ 83
Long-term debt....................................... $ 343 $ 209 $ 154 $ 52
Total stockholders' deficit.......................... $ (204) $ (112) $ (124) $ (146)
CENTRAL OPERATING GROUP
United States Internet, Inc.
Total assets......................................... $ 8,855 $ 2,228 $ 1,902 $ 752
Long-term debt....................................... $ 4,983 $ 2,062 $ 1,763 $ 138
Stock appreciation rights liability.................. $ 5,104 $ 1,763 $ 2,362 $ 1,781
Total stockholders' deficit.......................... $(3,026) $(2,799) $(3,308) $(1,854)
</TABLE>
68
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA FOR ONEMAIN'S ISPS--(CONTINUED)
(IN THOUSANDS, EXCEPT SUBSCRIBER DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1998 1997 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
ZoomNet, Inc.
Total assets......................................... $ 1,402 $ 681 $ 170 $ 32
Long-term debt....................................... $ 699 $ 363 $ 24 $ 5
Total stockholders' equity........................... $ 244 $ 147 $ 61 $ 19
Midwest Internet L.L.C.
Total assets......................................... $ 1,867 $ 747 $ 760 $ 435
Long-term debt....................................... $ 1,689 $ 973 $ 39 $ 86
Total members' deficit............................... $ (186) $ (589) $ (583) $ (123)
Internet Solutions, L.L.C.
Total assets......................................... $ 721 $ 307 $ 107 $ 62
Long-term debt....................................... $ 235 $ -- $ -- $ --
Total members' equity................................ $ 155 $ 103 $ 81 $ 43
FGInet, Inc.
Total assets......................................... $ 1,012 $ 375 $ 243 $ 28
Long-term debt....................................... $ -- $ -- $ -- $ --
Total stockholders' equity........................... $ 218 $ 211 $ 159 $ 13
Superhighway, Inc. d/b/a IndyNet
Total assets......................................... $ 916 $ 919 $ 435 $ 171
Long-term debt....................................... $ 29 $ 50 $ -- $ --
Total stockholders' equity........................... $ 659 $ 703 $ 317 $ 113
WEST OPERATING GROUP
Lightspeed Net, Inc.
Total assets......................................... $ 1,528 $ 1,484 $ 1,082 $ 310
Long-term debt....................................... $ -- $ -- $ -- $ --
Total stockholders' equity........................... $ 762 $ 848 $ 875 $ 297
JPS.Net Corporation
Total assets......................................... $ 4,322 $ 1,258
Long-term debt....................................... $ 990 $ --
Total stockholders' deficit.......................... $(2,966) $ (979)
</TABLE>
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DESCRIPTION OF EARTHLINK CAPITAL STOCK
The authorized capital stock of EarthLink consists of 300,000,000 shares of
common stock, par value $.01 per share, and 100,000,000 shares of preferred
stock, par value $.01 per share. As of May 31, 2000, 125,976,987 shares of
EarthLink common stock were outstanding and held by approximately 1,646 holders
of record and 16,734,057 shares of preferred stock were outstanding. A total of
20,350,000 shares of EarthLink common stock are reserved for future issuance of
which (i) 20,000,000 shares are reserved for issuance upon the exercise of
options granted under EarthLink's Stock Incentive Plan, and (ii) 350,000 shares
are reserved for issuance upon the exercise of options granted under EarthLink's
Stock Option Plan for Non-Employee Directors.
COMMON STOCK
Holders of shares of EarthLink common stock are entitled to one vote per
share in the election of directors and on all other matters submitted to a vote
of stockholders. Such holders do not have the right to cumulate their votes in
the election of directors. Holders of EarthLink common stock have no redemption
or conversion rights and no preemptive or other rights to subscribe for
securities of EarthLink. In the event of a liquidation, dissolution or winding
up of EarthLink, holders of EarthLink common stock are entitled to share equally
and ratably in all of the assets remaining, if any, after satisfaction of all
debts and liabilities of EarthLink, and the preferential rights of any series of
preferred stock then outstanding. The shares of EarthLink common stock
outstanding are fully paid and non-assessable.
Holders of EarthLink common stock have an equal and ratable right to receive
dividends, when, and if, declared by the board of directors out of funds legally
available therefor and only after payment of, or provision for, full dividends
on all outstanding shares of any series of preferred stock and after EarthLink
has made provision for any required sinking or purchase funds for any series of
Preferred Stock. EarthLink's Credit Agreement prohibits the payment of cash
dividends on EarthLink common stock.
PREFERRED STOCK
The preferred stock may be issued, from time to time in one or more series,
and the board of directors, without further approval of the stockholders, is
authorized to fix the dividend rights and terms, redemption rights and terms,
liquidation preferences, conversion rights, voting rights and sinking fund
provisions applicable to each such series of preferred stock. If EarthLink
issues a series of preferred stock in the future that has voting rights or
preference over EarthLink common stock with respect to the payment of dividends
and upon EarthLink's liquidation, dissolution or winding up, the rights of the
holders of EarthLink common stock offered hereby may be adversely affected. The
issuance of shares of preferred stock could be utilized, under certain
circumstances, in an attempt to prevent an acquisition of EarthLink.
EarthLink has issued the following series of its preferred stock: Series A
convertible preferred stock, Series B convertible preferred stock and Series C
convertible preferred stock.
LIMITATION OF DIRECTOR LIABILITY
The amended and restated certificate of incorporation of EarthLink contains
a provision that limits the liability of EarthLink's directors as permitted
under Delaware law. The provision eliminates the liability of a director to
EarthLink or its stockholders for monetary damages for negligent or grossly
negligent acts or omissions in the director's capacity as a director. The
provision does not affect the liability of a director (i) for breach of his duty
of loyalty to EarthLink or to stockholders, (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law,
(iii) for acts or omissions for which the liability of a director is expressly
provided by an applicable statute, or (iv) in respect of any transaction from
which a director received an improper personal
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benefit. Pursuant to the amended and restated certificate of incorporation, the
liability of directors will be further limited or eliminated without action by
stockholders if Delaware law is amended to further limit or eliminate the
personal liability of directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the EarthLink common stock is American
Stock Transfer and Trust Company.
COMPARATIVE RIGHTS OF EARTHLINK AND ONEMAIN STOCKHOLDERS
GENERAL
As a result of the merger, holders of OneMain common stock will become
stockholders of EarthLink, and the rights of the former stockholders of OneMain
will thereafter be governed by EarthLink's amended and restated certificate of
incorporation, bylaws and the Delaware General Corporation Law. The rights of
OneMain stockholders are currently governed by the OneMain certificate of
incorporation and bylaws and the Delaware General Corporation Law.
EarthLink and OneMain are each Delaware corporations subject to the
provisions of Delaware law. Because EarthLink and OneMain are Delaware
corporations, the stockholders of each corporation are treated the same under
Delaware law. However, because of different provisions in the companies'
certificates of incorporation and bylaws, the rights of the stockholders of the
companies will differ in some instances.
Set forth below are comparisons between the rights of EarthLink stockholders
and OneMain stockholders under their respective certificates of incorporation
and bylaws. This description summarizes the material differences that may affect
the rights of stockholders of EarthLink and OneMain, but does not purport to be
a complete statement of all such differences. Stockholders should read the
relevant provisions of the laws and documents discussed below.
LIMITATION OF DIRECTOR LIABILITY
EARTHLINK. The amended and restated certificate of incorporation of
EarthLink contains provisions that limit the liability of the directors of
EarthLink to the fullest extent permitted under Delaware law. The provisions
eliminate the liability of the EarthLink directors to EarthLink and to its
respective stockholders for monetary damages relating to breaches of the
directors' fiduciary duties in their capacity as directors, except for specific
breaches and acts or omissions for which the law of Delaware expressly provides
that no limitation of liability may be effective. Delaware law does not permit
indemnification in the following circumstances:
- for breach of a director's duty of loyalty to a corporation or its
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of the law;
- for unlawful distributions; and
- in respect of any transaction from which a director received an improper
personal benefit.
Pursuant to the amended and restated certificate of incorporation of
EarthLink, limitation of liability of directors will not be limited or
eliminated by any amendment or modification of the certificates of
incorporation.
ONEMAIN. OneMain's certificate of incorporation provides that no director
of OneMain will be liable to OneMain or its stockholders for monetary damages
for a breach of the director's fiduciary duty, except that a director's
liability will not be limited for:
- any breach of the director's duty of loyalty to OneMain or its
stockholders;
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- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- the unlawful payment of dividends; or
- any transaction from which the director derived an improper personal
benefit.
Under the certificate of incorporation of OneMain, limitation of liability
of directors may not be retroactively limited or eliminated by any amendment or
modification of OneMain's certificate of incorporation. The OneMain bylaws
further instruct the corporation to indemnify directors, officers and agents of
OneMain to the fullest extent permitted by the Delaware General Corporation Law
for claims or proceedings arising from such individuals' relationship with
OneMain.
AUTHORIZED CAPITAL
EARTHLINK. EarthLink has total authorized capital stock of 400,000,000
shares, consisting of 300,000,000 shares of common stock, $.01 par value, and
100,000,000 shares of preferred stock, $.01 par value. EarthLink may issue its
preferred stock in one or more series, from time to time, each with the rights,
preferences and designations as determined by the board of directors, without
need for authorization or approval by its stockholders. EarthLink has authorized
and issued shares of Series A convertible preferred stock and Series B
convertible preferred stock to Sprint Corporation, and shares of Series C
convertible preferred stock to Apple Computers, Inc.
ONEMAIN. OneMain has total authorized capital stock of 110,000,000 shares,
consisting of 100,000,000 shares of common stock, $.001 par value, and
10,000,000 shares of preferred stock, $.001 par value. As of May 31, 2000,
25,126,471 shares of OneMain common stock and no shares of its preferred stock
were issued and outstanding. OneMain may issue its preferred stock in one or
more series, from time to time, each with the rights, preferences and
designations as determined by the board of directors without need for
authorization or approval of its stockholders.
SPECIAL MEETINGS OF STOCKHOLDERS
Under Delaware law, unless provided in the certificate of incorporation or
bylaws of a corporation, stockholders of a public corporation do not have the
right to call a special meeting of stockholders.
EARTHLINK. The EarthLink bylaws provide that a special meeting of EarthLink
stockholders may be called at any time by the chairman of the board of directors
or by a majority of the board of directors.
ONEMAIN. The OneMain bylaws and certificate of incorporation provide that a
special meeting of OneMain's stockholders may be called at any time by the
OneMain board of directors, OneMain's chairman of the board, chief executive
officer or president or, upon written request, by the holders of at least a
majority of the outstanding shares of OneMain common stock entitled to vote in
an election of directors.
VOTING; ELECTION OF DIRECTORS
EARTHLINK. Each EarthLink stockholder is entitled to one vote for each
share of common stock on all matters required or permitted to be voted on by
stockholders of EarthLink. Cumulative voting is not permitted under EarthLink's
amended and restated certificate of incorporation. In all elections of
directors, directors are elected by an affirmative vote of the holders of the
plurality of the votes of the shares present, in person or by proxy at the
meeting and entitled to vote in the election of directors. The vote of a
majority of shares represented at a meeting and entitled to vote at a meeting at
which a quorum exists is generally necessary to approve other actions requiring
stockholder approval.
Although EarthLink preferred stockholders generally do not have the right to
vote their shares, through its ownership of series A preferred stock, Sprint has
the right to elect two directors so long as
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its ownership of capital stock does not fall below 20% of the outstanding
capital stock of EarthLink on a fully diluted basis for three consecutive
months, and it can elect one director so long as its ownership does not fall
below 10% of the outstanding capital stock of EarthLink on a fully diluted basis
for three consecutive months. Apple, the series C preferred stockholder, has the
right to elect a member to EarthLink's board of directors for so long as
EarthLink is Apple's exclusive default ISP in the setup software under the
EarthLink-Apple Internet services agreement, Apple holds series C preferred
stock and Apple maintains a certain percentage ownership of the EarthLink
securities it purchased in the initial investment and subsequent top-ups. The
required ownership percentages are:
(a) during the first year after January 4, 2000, Apple must maintain
ownership of 100% of the EarthLink securities it purchased;
(b) during the second and third years after January 4, 2000, Apple must
maintain ownership of at least 75% of the EarthLink securities it
purchased; and
(c) from the fourth year after January 4, 2000, Apple must maintain
ownership of at least 50% of the EarthLink securities it purchased.
In addition, the approval of 66 2/3% of the shares of EarthLink series A
convertible preferred stock, voting as a class, or the series B convertible
preferred stock voting as a class, is required to:
- change the rights, preferences or privileges of the shares of the series
of preferred stock;
- increase the number of the authorized shares of the series of preferred
stock;
- create any new series of stock or securities convertible into equity
securities having a preference over or being on par with the series of
preferred stock with respect to voting, dividends, or distributions of
assets upon liquidation of conversion rights;
- amend the organizational documents of EarthLink or take any action or
enter into any agreements that conflict with EarthLink's obligation to the
holders of the series of preferred stock; or
- liquidate EarthLink.
ONEMAIN. Each OneMain stockholder is entitled to one vote for each share of
common stock upon any matter properly considered and acted on by the
stockholders of OneMain. In all elections of directors, directors are elected by
an affirmative vote of the holders of the plurality of the votes of the shares
present, in person or by proxy at the meeting and entitled to vote in the
election of directors. The vote of a majority of shares represented at a meeting
and entitled to vote at a meeting at which a quorum exists is generally
necessary to approve other actions requiring stockholder approval. OneMain's
6.75% convertible debentures contain certain restrictions on voting. However,
these debentures will be repaid and terminated as a condition to the closing of
the merger.
MERGERS, SHARE EXCHANGES AND SALES OF ASSETS
EARTHLINK AND ONEMAIN. Delaware law generally requires that any merger,
share exchange or sale of all or substantially all the assets of a corporation
not in the ordinary course of business be approved by the affirmative vote of
the majority of the issued and outstanding shares of each voting group entitled
to vote, unless a different vote is required by the certificate of incorporation
or bylaws. The certificates of incorporation and bylaws of EarthLink and OneMain
do not specifically address mergers, share exchanges or sales of assets;
therefore, an affirmative vote of the majority of the outstanding shares of
common stock entitled to vote is required.
ANTI-TAKEOVER STATUTES
EARTHLINK AND ONEMAIN. Delaware law contains a number of provisions that
may have the effect of delaying or discovering a hostile takeover. Section 203
of the Delaware General Corporation Law
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prohibits a Delaware corporation from entering into a business combination with
the beneficial owner of 15% or more of the corporation's outstanding voting
stock, or its affiliates, for a period of three years after the 15% beneficial
owner achieved this level of ownership. Section 203 permits a business
combination with a 15% beneficial owner if:
- prior to the date the stockholder becomes a 15% beneficial owner, the
board of directors of the corporation approve either the business
combination or the transaction that will result in the person or entity
becoming 15% beneficial owner;
- the interested stockholder acquires at least 85% of the corporation's
outstanding voting stock, excluding shares owned by persons who are
directors, officers and by various employee stock plans, in the same
transaction in which the stockholder becomes a 15% beneficial owner; or
- on or subsequent to the date of the transaction by which the stockholder
becomes a 15% beneficial owner, the board of directors approves the
business combination and by a vote of the holders of two-thirds of the
corporation's outstanding voting stock, not including shares owned by the
15% beneficial owners.
In general, a Delaware corporation must specifically elect, through an
amendment to its bylaws or certificate of incorporation, not to be governed by
these provisions. Neither EarthLink nor OneMain has made an election not to be
governed by these provisions and, therefore, each of them is currently subject
to these provisions of the Delaware law.
AMENDMENTS TO CERTIFICATES OF INCORPORATION
Delaware law provides generally that a Delaware corporation's certificate of
incorporation may be amended by the affirmative vote of the holders of a
majority of the outstanding shares entitled to vote on the matter.
EARTHLINK. In addition to the standard Delaware requirement, EarthLink's
amended and restated certificate of incorporation provides that any amendment to
the provisions of the certificate of incorporation that govern the board of
directors, indemnification or the amendment of the certificate of incorporation
must be approved by at least two-thirds of the shares entitled to vote on the
amendment and by a majority of the members of the entire board of directors. The
holders of the EarthLink preferred stock must approve any amendment to the
certificate of incorporation that would affect the terms of the preferred stock.
See "Voting; Election of Directors" on page 73.
ONEMAIN. OneMain's certificate of incorporation may be amended under the
Delaware General Corporation Law by the affirmative vote of the holders of at
least a majority of the voting power of all outstanding shares of the capital
stock of OneMain entitled to vote.
AMENDMENTS TO BYLAWS
EARTHLINK. EarthLink's amended and restated certificate of incorporation
and bylaws provide that the bylaws may be amended by the majority vote of the
directors then in office or by stockholders holding a majority of the number of
shares of stock present and entitled to vote at the meeting at which the
amendment is to be voted upon.
ONEMAIN. In addition to the right of stockholders to amend OneMain's bylaws
pursuant to Delaware law, OneMain's certificate of incorporation authorizes the
board of directors to amend OneMain's bylaws. OneMain's bylaws may also be
amended by the affirmative vote of its stockholders holding at least a majority
of the outstanding shares entitled to vote generally in the election of
directors.
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STOCKHOLDER ACTION BY WRITTEN CONSENT
EARTHLINK. The stockholders may take any action required to be taken or
that may be taken at any annual or special meeting of stockholders by written
consent without a meeting if the consent is signed by stockholders who would
have had the votes necessary to approve the action at a meeting at which all
shares entitled to vote on the action were present and if the consent is
properly delivered to the company.
ONEMAIN. OneMain's bylaws provide that any action required or permitted to
be taken at a stockholders' meeting may be taken without a meeting if the action
is taken by a unanimous vote of persons who would be entitled to vote with
respect to the action at a meeting. The action must be evidenced by one or more
written consents describing the action taken, signed by all of the stockholders
who would be entitled to vote with respect to the action at a meeting, and
delivered to OneMain.
BOARD OF DIRECTORS
EARTHLINK. EarthLink's amended and restated certificate of incorporation
requires that there be at least two and no more than seventeen directors, with
the exact number of directors to be set by a majority of the board of directors
or by the affirmative vote of the holders of at least a majority of all
outstanding shares entitled to vote in the election of directors, voting as a
single class. At the effective time of the merger of OneMain into Merger Sub,
EarthLink's board will have eleven directors, two of which were chosen by Sprint
pursuant to its rights related to its ownership of EarthLink's series A
preferred stock, and one of which was chosen by Apple pursuant to its rights
related to its ownership of EarthLink's series C preferred stock. EarthLink has
a classified board in which approximately one-third of its directors will stand
for election each year. The initial term of the class I directors expired at the
annual meeting of EarthLink's stockholders in 2000, the term of the class II
directors will expire at the annual meeting of stockholders in 2001, and the
term of the class III directors will expire at the annual meeting of
stockholders in 2002. In all cases a director will serve until his or her
successor is elected and qualifies, or until he or she resigns, is removed, dies
or is incapacitated.
At each annual meeting of EarthLink stockholders the successors to the class
of directors whose term then expires will be elected to hold office for a term
expiring at the third succeeding annual meeting and until their successors are
elected and qualify, except with respect to vacancies and newly created
directorships. Directors will be elected by a plurality of the votes of the
shares of common stock present in person or represented by proxy at the meeting
and entitled to vote in the election of directors.
If the number of directors is changed by resolution of the board, any
increase or decrease will be apportioned among the classes so as to keep the
number of directors in each class as nearly equal as possible. No decrease in
the number of directors will shorten the term of an incumbent director.
Nominations for the election of directors may be made by the board of
directors or a committee appointed by the board. Also, any stockholder of record
who is entitled to vote in the election of directors may nominate persons for
election as directors at a meeting, but only if the stockholder gives written
notice of his intent to make nominations. Any vacancy on the board of directors
that results from an increase in the number of directors or from a director's
death, resignation, retirement, disqualification or removal from office may be
filled by a majority of the board of directors then in office, even if less than
a quorum, or by the stockholders if the board of directors has not filled the
vacancy. Any director elected to fill a vacancy will have the same remaining
term as the director's predecessor.
At any meeting of stockholders with respect to which notice of the intent to
propose directors has been given, the entire board of directors or any
individual director may be removed, with or without cause, by the affirmative
vote of the holders of a majority of all outstanding shares entitled to be voted
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at an election of directors, but if less than the entire board of directors is
to be removed, no director may be removed without cause if the votes cast
against his removal would have been sufficient to elect him if they had been
cumulatively voted at an election of the entire board of directors.
Whenever the holders of any one or more classes or series of preferred stock
issued by EarthLink have the right to elect directors, the election, term of
office, filling of vacancies and other features of those directorships will be
governed by the terms of the certificate of incorporation and the resolutions of
the board of directors creating the class or series. As of the effective time of
the merger and for so long as its percentage ownership of capital stock does not
fall below 20% of the outstanding capital stock of EarthLink on a fully diluted
basis for three consecutive months Sprint will have the right to elect two
directors through its ownership of EarthLink's series A convertible preferred
stock. So long as Sprint's percentage ownership does not fall below 10% of the
outstanding capital stock of EarthLink on a fully diluted basis for three
consecutive months Sprint will have the right to elect one director. Apple,
through its ownership of EarthLink's series C convertible preferred stock, will
have the right to elect a director so long as it maintains certain stock
ownership levels as described above.
ONEMAIN. OneMain's certificate of incorporation provides that its board of
directors will be comprised of three classes as nearly equal in number as
possible, with each class elected for a term of three years, so that a different
class of directors stands for election each year. The OneMain certificate of
incorporation provides that the number of directors may not be less than three
nor more than fifteen. The OneMain board of directors currently consists of five
directors. A director of OneMain holds his office until his successor is elected
and qualified or until his earlier death, resignation or removal.
At each annual meeting of OneMain stockholders, the successors to the class
of directors whose term then expires will be elected to hold office for a term
expiring at the third succeeding annual meeting and until their successors are
elected and qualify, except with respect to vacancies and newly created
directorships. Directors will be elected by a plurality of the votes of the
shares of common stock present in person or represented by proxy at the meeting
and entitled to vote in the election of directors.
If the number of directors is changed by the affirmative vote of a majority
of directors then in office, any increase or decrease will be apportioned among
the classes so as to keep the number of directors in each class as nearly equal
as possible. No decrease in the number of directors will shorten the term of an
incumbent director.
OneMain's certificate of incorporation provides that if a vacancy occurs on
the OneMain board, the vacancy may be filled by a majority vote of the directors
then in office, even if they constitute less than a quorum, or by the sole
remaining director. Whenever the holders of any class or classes of OneMain
stock or series of OneMain stock are entitled to elect one or more directors by
the provisions of OneMain's certificate of incorporation, vacancies and newly
created directorships of such class or series may be filled by a majority of the
directors elected by such class or series or by a sole remaining director
elected by such class or series. In the event that one or more OneMain directors
resigns from the OneMain board effective at a future date, a majority of the
directors then in office, including those who have so resigned, may fill such
vacancy or vacancies.
OneMain's board of directors nominate candidates to stand for election as
directors. Candidates may also be nominated by any OneMain stockholder, provided
such nominations are submitted in writing to OneMain no earlier than 60 days and
no later than 90 days prior to the anniversary of the preceding year's annual
meeting, together with the identity of the stockholder making the nomination and
the number of shares of OneMain stock owned, directly or indirectly, by the
stockholder.
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LEGAL MATTERS
The validity of the shares of EarthLink common stock to be issued in
connection with the merger will be passed on by Hunton & Williams, Atlanta,
Georgia. Certain consequences of the merger will be passed on for OneMain by
Hogan & Hartson L.L.P., Washington, D.C.
EXPERTS
The audited consolidated financial statements of EarthLink, Inc. for the
three years ended December 31, 1999 incorporated in this proxy
statement/prospectus by reference to the Current Report on Form 8-K dated July
7, 2000 and the audited supplemental combined financial statements of EarthLink,
Inc. incorporated in this proxy statement/prospectus by reference to the Annual
Report on Form 10-K for the year ended December 31, 1999, except as they relate
to MindSpring Enterprises, Inc., have been audited by PricewaterhouseCoopers
LLP, independent accountants, and, insofar as they relate to MindSpring
Enterprises, Inc. by Arthur Andersen LLP, independent accountants, whose report
thereon is also incorporated by reference. The audited consolidated financial
statements of EarthLink Network, Inc. incorporated in this proxy
statement/prospectus by reference to the Annual Report on Form 10-K for the year
ended December 31, 1999 and the statement of assets acquired and liabilities
assumed of the Sprint Internet Passport Business acquired by EarthLink Network,
Inc. as of June 5, 1998 incorporated in this proxy statement/prospectus by
reference to the Current Report on From 8-K dated October 14, 1999 have also
been audited by PricewaterhouseCoopers LLP, independent accountants. Such
financial statements have been so included in reliance on the reports of such
independent accountants given on the authority of such firms as experts in
auditing and accounting.
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of OneMain.com, Inc. at December 31, 1998 and 1999, and for
the period from its inception on August 19, 1998 to December 31, 1998 and for
the year ended December 31, 1999, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. OneMain.com, Inc.'s financial statements are incorporated by
reference in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of D&E SuperNet, Inc. at December 31 1998, and for each of the two
years in the period ended December 31, 1998 and the three months ended
March 31, 1999, as set forth in their report, which contains an explanatory
paragraph describing conditions that raise substantial doubt about the ability
of D&E SuperNet, Inc. to continue as a going concern as described in Note 2 to
the financial statements, which is incorporated by reference in this prospectus
and elsewhere in the registration statement. D&E SuperNet, Inc's financial
statements are incorporated by reference in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of SunLink, Inc. at December 31, 1998, and for the two years in the
period ended December 31, 1998 and the three months ended March 31, 1999, as set
forth in their report, which contains an explanatory paragraph describing
conditions that raise substantial doubt about the ability of SunLink, Inc. to
continue as a going concern as described in Note 2 to the financial statements,
which is incorporated by reference in this prospectus and elsewhere in the
registration statement. SunLink, Inc.'s financial statements are incorporated by
reference in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of LebaNet, Inc. at December 31, 1998, and for each of the two years
in the period ended December 31, 1998 and the three months ended March 31, 1999,
as set forth in their report, which is incorporated by reference in this
prospectus and elsewhere in the registration statement. LebaNet, Inc.'s
financial statements are
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incorporated by reference in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of SouthWind Internet Access, Inc. at December 31, 1998, and for the
year then ended and the three months ended March 31, 1999, as set forth in their
report, which is incorporated by reference in this prospectus and elsewhere in
the registration statement. SouthWind Internet Access, Inc.'s financial
statements are incorporated by reference in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
Grant Thornton LLP, independent auditors, have audited the financial
statements of SouthWind Internet Access, Inc. for the year ended December 31,
1997, as set forth in their report, which is incorporated by reference in this
prospectus and elsewhere in the registration statement. SouthWind Internet
Access, Inc.'s financial statements are incorporated by reference in reliance on
Grant Thornton LLP's report, given on their authority as experts in accounting
and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of Horizon Internet Technologies, Inc. at December 31, 1998, and for
each of the two years in the period ended December 31, 1998, and for the three
months ended March 31, 1999, as set forth in their report, which is incorporated
by reference in this prospectus and elsewhere in the registration statement.
Horizon Internet Technologies, Inc.'s financial statements are incorporated by
reference in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of United States Internet, Inc. at December 31, 1998, and for the
year then ended and for the three months ended March 31, 1999, as set forth in
their report, which contains an explanatory paragraph describing conditions that
raise substantial doubt about the ability of United States Internet, Inc. to
continue as a going concern as described in Note 2 to the financial statements,
which is incorporated by reference in this prospectus and elsewhere in the
registration statement. United States Internet, Inc.'s financial statements are
incorporated by reference in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
Coulter & Justus, P.C., independent auditors, have audited the financial
statements of United States Internet, Inc. for the year ended December 31, 1997,
as set forth in their report, which is incorporated by reference in this
prospectus and elsewhere in the registration statement. United States
Internet, Inc.'s financial statements are incorporated by reference in reliance
on Coulter & Justus, P.C.'s report, given on their authority as experts in
accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of Internet Partners of America, LC at December 31, 1998, and for
each of the two years in the period ended December 31, 1998, and for the three
months ended March 31, 1999, as set forth in their report, which is incorporated
by reference in this prospectus and elsewhere in the registration statement.
Internet Partners of America, LC's financial statements are incorporated by
reference in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of ZoomNet, Inc. at December 31, 1998, and for each of the two years
in the period ended December 31, 1998, and for the three months ended March 31,
1999, as set forth in their report, which is incorporated by reference in this
prospectus and elsewhere in the registration statement. ZoomNet, Inc.'s
financial statements are incorporated by reference in reliance on Ernst & Young
LLP's report, given on their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of Palm.Net, Inc. at December 31, 1998, and for each of the two years
in the period ended December 31, 1998, and for the three months ended March 31,
1999, as set forth in their report, which is incorporated by reference
78
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in this prospectus and elsewhere in the registration statement.
Palm.Net, Inc.'s financial statements are incorporated by reference in reliance
on Ernst & Young LLP's report, given on their authority as experts in accounting
and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of Internet Access Group, Inc. at December 31, 1998, and for each of
the two years in the period ended December 31, 1998, and for the three months
ended March 31, 1999, as set forth in their report, which contains an
explanatory paragraph describing conditions that raise substantial doubt about
the ability of Internet Access Group, Inc. to continue as a going concern as
described in Note 2 to the financial statements, which is incorporated by
reference in this prospectus and elsewhere in the registration statement.
Internet Access Group, Inc.'s financial statements are incorporated by reference
in reliance on Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of Midwest Internet, L.L.C. at December 31, 1998, and for each of the
two years in the period ended December 31, 1998, and for the three months ended
March 31, 1999, as set forth in their report, which is incorporated by reference
in this prospectus and elsewhere in the registration statement. Midwest
Internet, L.L.C.'s financial statements are incorporated by reference in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of Internet Solutions, LLC at December 31, 1998, and for the year
then ended and the three months ended March 31, 1999, as set forth in their
report, which is incorporated by reference in this prospectus and elsewhere in
the registration statement. Internet Solutions, LLC's financial statements are
incorporated by reference in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
Kevin J. Tochtrop, independent auditor, has audited the financial statements
of Internet Solutions, LLC for the year ended December 31, 1997, as set forth in
his report, which is incorporated by reference in this prospectus and elsewhere
in the registration statement. Internet Solutions, LLC's financial statements
are incorporated by reference in reliance on Kevin J. Tochtrop's report, given
on his authority as an expert in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of FGInet, Inc. at December 31, 1998, and for each of the two years
in the period ended December 31, 1998, and for the three months ended March 31,
1999, as set forth in their report, which is incorporated by reference in this
prospectus and elsewhere in the registration statement. FGInet, Inc.'s financial
statements are incorporated by reference in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of SuperHighway, Inc. d/b/a Indynet at December 31, 1998, and for
each of the two years in the period ended December 31, 1998, and for the three
months ended March 31, 1999, as set forth in their report, which is incorporated
by reference in this prospectus and elsewhere in the registration statement.
SuperHighway, Inc. d/b/a Indynet's financial statements are incorporated by
reference in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of LightSpeed Net, Inc. at December 31, 1998, and for each of the two
years in the period ended December 31, 1998, and for the three months ended
March 31, 1999, as set forth in their report, which contains an explanatory
paragraph describing conditions that raise substantial doubt about the ability
of LightSpeed Net, Inc. to continue as a going concern as described in Note 2 to
the financial statements, which is incorporated by reference in this prospectus
and elsewhere in the registration statement. LightSpeed
79
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Net, Inc.'s financial statements are incorporated by reference in reliance on
Ernst & Young LLP's report, given on their authority as experts in accounting
and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of JPS.Net Corporation at December 31, 1998, and for the period from
its inception on January 31, 1997 to December 31, 1997 and for the year ended
December 31, 1998 and the three months ended March 31, 1999, as set forth in
their report, which contains an explanatory paragraph describing conditions that
raise substantial doubt about the ability of JPS.Net Corporation to continue as
a going concern as described in Note 2 to the financial statements, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. JPS.Net Corporation's financial statements are incorporated by
reference in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of TGF Technologies, Inc. for the three months ended March 31, 1999,
as set forth in their report, which is incorporated by reference in this
prospectus and elsewhere in the registration statement. TGF
Technologies, Inc.'s financial statements are incorporated by reference in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
The financial statements of TGF Technologies, Inc. at December 31, 1998, and
for each of the two years in the period ended December 31, 1998, incorporated by
reference in this prospectus and registration statement have been audited by
KPMG LLP, independent auditors, as set forth in their report on these financial
statements incorporated by reference in this prospectus and registration
statement, and are included in reliance upon this report given upon the
authority of KPMG as experts in auditing and accounting.
Ernst & Young LLP, independent auditors, have audited the Statement of
Revenues and Direct Expenses of the Consumer Internet Access Services of Sprint
Corporation for the year ended December 31, 1997, as set forth in their report,
which is incorporated by reference in this prospectus and elsewhere in the
registration statement. The Statement of Revenues and Direct Expenses of the
Consumer Internet Access Services of Sprint Corporation is incorporated by
reference in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
<PAGE>
ANNEX A
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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ONEMAIN.COM, INC.
OM COMBINATION, INC.
AND
EARTHLINK, INC.
JUNE 7, 2000
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TABLE OF CONTENTS
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ARTICLE I THE MERGER........................................ 1
SECTION 1.1. THE MERGER................................... 2
SECTION 1.2. EFFECTIVE TIME............................... 2
SECTION 1.3. EFFECTS OF THE MERGER........................ 2
SECTION 1.4. CERTIFICATE OF INCORPORATION AND BYLAWS...... 3
SECTION 1.5. DIRECTORS AND OFFICERS....................... 3
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES........ 3
SECTION 2.1. EFFECT ON CAPITAL STOCK...................... 3
(a) CANCELLATION OF TREASURY STOCK...................... 3
(b) CONVERSION OF COMPANY SHARES........................ 3
(c) NO FRACTIONAL EARTHLINK SHARES...................... 4
SECTION 2.2. EXCHANGE OF CERTIFICATES..................... 4
(a) EXCHANGE AGENT...................................... 5
(b) PAYMENT OF MERGER CONSIDERATION..................... 5
(c) EXCHANGE PROCEDURE.................................. 5
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED COMPANY
SHARES................................................. 6
(e) NO FURTHER OWNERSHIP RIGHTS IN COMPANY SHARES....... 6
(f) NO LIABILITY........................................ 7
(g) LOST, STOLEN OR DESTROYED CERTIFICATES.............. 7
SECTION 2.3. CONVERSION OF STOCK OPTIONS AND CERTAIN
WARRANTS................................................ 7
SECTION 2.4. CONVERTIBLE DEBENTURES....................... 9
SECTION 2.5. STOCK TRANSFER BOOKS......................... 9
SECTION 2.6. CERTAIN ADJUSTMENTS.......................... 9
ARTICLE III REPRESENTATIONS AND WARRANTIES.................. 10
SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE SUBSIDIARIES.................................... 10
(a) ORGANIZATION; STANDING AND POWER.................... 10
(b) SUBSIDIARIES; OTHER INVESTMENTS..................... 10
(c) CAPITAL STRUCTURE................................... 11
(d) AUTHORITY; NON-CONTRAVENTION........................ 12
(e) SEC DOCUMENTS....................................... 14
(f) MATERIAL CONTRACTS.................................. 14
(g) INFORMATION SUPPLIED................................ 16
(h) ABSENCE OF CERTAIN CHANGES OR EVENTS................ 16
(i) STATE TAKEOVER STATUTES; ANTI-TAKEOVER
PROVISIONS............................................. 17
(j) BROKERS............................................. 17
(k) LITIGATION.......................................... 17
(l) ACCOUNTING MATTERS.................................. 18
(m) TAXES............................................... 18
(n) COMPLIANCE WITH LAWS................................ 19
(o) INTELLECTUAL PROPERTY............................... 19
(p) NO DEFAULT.......................................... 20
(q) Y2K READINESS....................................... 20
(r) OPINION OF COMPANY FINANCIAL ADVISORS............... 21
(s) TRANSACTIONS WITH AFFILIATES........................ 21
(t) LICENSES............................................ 21
(u) SUBSCRIBER ACCOUNTS................................. 22
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(v) EMPLOYEE BENEFIT MATTERS............................ 22
(w) EMPLOYMENT MATTERS.................................. 25
(x) NO EXCESS PARACHUTE PAYMENTS........................ 25
(y) ENVIRONMENTAL MATTERS............................... 25
(z) TITLE TO AND CONDITIONS OF PROPERTIES............... 26
(aa) UNDISCLOSED LIABILITIES............................ 27
(bb) INSURANCE.......................................... 27
(cc) FULL DISCLOSURE.................................... 27
(dd) [reserved]......................................... 27
(ee) SEVERANCE PAYMENTS................................. 27
(ff) WARN ACT........................................... 28
(gg) EARNOUT PAYMENTS................................... 28
SECTION 3.2. REPRESENTATIONS AND WARRANTIES OF EARTHLINK
AND COMBINATION COMPANY................................. 28
(a) ORGANIZATION; STANDING AND POWER.................... 28
(b) CAPITAL STRUCTURE................................... 29
(c) AUTHORITY; NON-CONTRAVENTION........................ 29
(d) SEC DOCUMENTS....................................... 30
(e) INFORMATION SUPPLIED................................ 31
(f) BROKERS............................................. 31
(g) UNDISCLOSED LIABILITIES............................. 32
(h) LITIGATION.......................................... 32
(i) OPINION OF EARTHLINK FINANCIAL ADVISORS............. 32
(j) FULL DISCLOSURE..................................... 32
(k) ABSENCE OF CERTAIN CHANGES OR EVENTS................ 33
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS........ 33
SECTION 4.1. CONDUCT OF BUSINESS OF THE COMPANY........... 33
(a) INTEGRATION; ORDINARY COURSE........................ 33
(b) CHANGES IN EMPLOYMENT ARRANGEMENTS.................. 36
(c) SEVERANCE ARRANGEMENTS.............................. 36
(d) OTHER ACTIONS....................................... 37
(e) COMPANY STOCK PURCHASE PLAN......................... 37
ARTICLE V ADDITIONAL AGREEMENTS............................. 37
SECTION 5.1. STOCKHOLDER APPROVAL; PREPARATION OF PROXY
STATEMENT; PREPARATION OF REGISTRATION STATEMENT........ 37
SECTION 5.2. ACCESS TO INFORMATION........................ 39
SECTION 5.3. REASONABLE EFFORTS; NOTIFICATION............. 40
SECTION 5.4. FEES AND EXPENSES............................ 41
SECTION 5.5. PUBLIC ANNOUNCEMENTS......................... 42
SECTION 5.6. AGREEMENT TO DEFEND.......................... 42
SECTION 5.7. OTHER ACTIONS................................ 42
SECTION 5.8. RETENTION PLAN............................... 42
SECTION 5.9. INDEMNIFICATION.............................. 42
SECTION 5.10. BLUE SKY.................................... 43
SECTION 5.11. COMBINATION COMPANY......................... 43
SECTION 5.12. [RESERVED].................................. 43
SECTION 5.13. EXEMPTION FROM LIABILITY UNDER SECTION
16(b)................................................... 43
SECTION 5.14. EMPLOYEE MATTERS............................ 44
ARTICLE VI CONDITIONS PRECEDENT............................. 44
SECTION 6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO
EFFECT THE MERGER....................................... 44
(a) STOCKHOLDER APPROVAL................................ 44
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(b) NASDAQ.............................................. 44
(c) HSR ACT; OTHER APPROVALS............................ 44
(d) NO INJUNCTIONS OR RESTRAINTS........................ 45
(e) REGISTRATION STATEMENT EFFECTIVENESS................ 45
(f) BLUE SKY FILINGS.................................... 45
SECTION 6.2. CONDITIONS OF EARTHLINK...................... 45
(a) COMPLIANCE.......................................... 45
(b) CERTIFICATIONS...................................... 45
(c) REPRESENTATIONS AND WARRANTIES TRUE................. 46
(d) COMPANY AFFILIATE LETTERS........................... 46
(e) CONSENTS; RELATED MATTERS........................... 46
(f) NO LITIGATION....................................... 46
(g) RESIGNATIONS........................................ 47
(h) NOTE TERMINATION.................................... 47
(i) TERMINATION OF AGREEMENTS; REPAYMENT OF SEVERANCE
OBLIGATIONS............................................ 47
SECTION 6.3. CONDITIONS OF THE COMPANY.................... 47
(a) COMPLIANCE.......................................... 47
(b) CERTIFICATIONS AND OPINION.......................... 48
(c) REPRESENTATIONS AND WARRANTIES TRUE................. 48
(d) NO LITIGATION....................................... 48
(e) REGISTRATIONS....................................... 49
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER............... 49
SECTION 7.1. TERMINATION.................................. 49
SECTION 7.2. EFFECT OF TERMINATION........................ 51
SECTION 7.3. AMENDMENT.................................... 51
SECTION 7.4. EXTENSION; WAIVER............................ 51
SECTION 7.5. PROCEDURE FOR TERMINATION, AMENDMENT,
EXTENSION OR WAIVER..................................... 51
ARTICLE VIII SPECIAL PROVISIONS AS TO CERTAIN MATTERS....... 51
SECTION 8.1. NO SOLICITATION.............................. 51
(a) RESTRICTED ACTIONS.................................. 52
(b) PERMITTED ACTIONS................................... 52
(c) NOTICES............................................. 55
(d) TERMINATION OF NEGOTIATIONS......................... 56
SECTION 8.2. TAKEOVER DEFENSES............................ 56
SECTION 8.3. FEE AND EXPENSE REIMBURSEMENTS............... 56
SECTION 8.4. CONFIDENTIALITY.............................. 57
ARTICLE IX GENERAL PROVISIONS............................... 57
SECTION 9.1. NONSURVIVAL OF REPRESENTATIONS AND
WARRANTIES.............................................. 57
SECTION 9.2. NOTICES...................................... 57
SECTION 9.3. DEFINITIONS.................................. 58
SECTION 9.4. INTERPRETATION............................... 60
SECTION 9.5. COUNTERPARTS; FACSIMILE EXECUTION............ 60
SECTION 9.6. ENTIRE AGREEMENT; NO THIRD-PARTY
BENEFICIARIES........................................... 60
SECTION 9.7. GOVERNING LAW................................ 60
SECTION 9.8. ASSIGNMENT................................... 60
SECTION 9.9. ENFORCEMENT OF THE AGREEMENT................. 60
SECTION 9.10. SEVERABILITY................................ 61
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LIST OF EXHIBITS AND ANNEX
<TABLE>
<S> <C>
Exhibit A...................... Certificate of Incorporation of the Combination Company
Exhibit B...................... Bylaws of the Combination Company
Exhibit C...................... Note and Warrant Termination Agreement
Exhibit D...................... Voting Agreement
Annex A........................ Purchase Price Calculation
</TABLE>
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Affiliate................................................... Section 9.3(a)
Affiliate Letter............................................ Section 6.2(d)
Aggregate Purchase Price.................................... Declarations Page
Agreement................................................... Declarations Page
Agreement to Vote Stock..................................... Section 3.1(d)
Alternative Transaction..................................... Section 8.3
Approval Items.............................................. Section 4.1(a)
Approval Mechanism.......................................... Section 4.1(a)
Cash Portion................................................ Section 2.1(b)
Certificate of Merger....................................... Section 1.2
Certificates................................................ Section 2.2(c)
Closing..................................................... Section 1.2
Closing Date................................................ Section 1.2
Code........................................................ Declarations Page
Combination Company......................................... Declarations Page
Company..................................................... Declarations Page
Company Beneficiary......................................... Section 3.1(v)(i)
Company Benefit Plans....................................... Section 3.1(v)(i)
Company Common Stock........................................ Section 3.1(c)
Company Disclosure Schedule................................. Section 3.1
Company ERISA Affiliate..................................... Section 3.1(v)(iii)
Company Financial Advisor................................... Section 3.1(j)
Company Insiders............................................ Section 5.13
Company Intellectual Property Rights........................ Section 3.1(o)(i)
Company Options............................................. Section 2.3(a)
Company Permits............................................. Section 3.1(n)
Company Preferred Stock..................................... Section 3.1(c)
Company SEC Documents....................................... Section 3.1(e)
Company Share............................................... Declarations Page
Company Stock Plans......................................... Section 2.3(a)
Company Stockholder Approval................................ Section 3.1(d)
Company Stockholders Meeting................................ Section 1.2
Company Termination Fee..................................... Section 8.3
Confidentiality Agreement................................... Section 5.2
Contracts................................................... Section 3.1(f)
Convertible Options......................................... Section 2.3(a)
Default..................................................... Section 3.1(d)
DGCL........................................................ Section 1.1
DOL......................................................... Section 3.1(v)(ii)(3)
Earnouts.................................................... Section 3.1(gg)
Effective Time of the Merger................................ Section 1.2
EarthLink................................................... Declarations Page
EarthLink Common Stock...................................... Declarations Page
EarthLink Options........................................... Section 2.3(a)
EarthLink Preferred Stock................................... Section 3.2(b)
EarthLink SEC Documents..................................... Section 3.2(d)
EarthLink Stock Plans....................................... Section 2.3(a)
EarthLink Stock Portion..................................... Section 2.1(b)
ERISA....................................................... Section 3.1(v)(i)
Exchange Act................................................ Section 3.1(d)
Exchange Agent.............................................. Section 2.2(a)
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Exchange Fund............................................... Section 2.2(b)
Exchange Ratios............................................. Section 2.3(a)
Family Affiliate............................................ Section 3.1(s)
Fully Diluted Basis......................................... Section 9.3(b)
Governmental Entity......................................... Section 3.1(d)
HSR Act..................................................... Section 3.1(d)
HSR Documents............................................... Section 5.3(c)(ii)
Indemnified Parties......................................... Section 5.9(a)
Initial Consideration Period................................ Section 8.1(b)(i)
Integration Plan............................................ Section 4.1(a)
IRS......................................................... Section 3.1(v)(ii)(2)
Knowledge................................................... Section 9.3(c)
Licenses.................................................... Section 3.1(t)
Liens....................................................... Section 3.1(b)
Material Adverse Effect..................................... Section 9.3(d)
Material Contracts.......................................... Section 3.1(f)
Merger...................................................... Declarations Page
Merger Consideration........................................ Section 2.1(b)
Mindspring.................................................. Section 3.2(d)
NASD........................................................ Section 3.1(d)
Nasdaq...................................................... Section 3.1(d)
Nasdaq Closing Price........................................ Section 9.3(e)
Negotiation Activities...................................... Section 8.1(b)
Negotiation Period.......................................... Section 8.1(b)(ii)
Note and Warrant Termination................................ Section 2.4
Note and Warrant Termination Agreement...................... Section 2.4
Noteholder Warrants......................................... Section 2.4
Noteholders................................................. Section 2.4
Notes....................................................... Section 2.4
Offer Letters............................................... Section 3.1(w)(ii)
Offeror..................................................... Section 8.1(b)(i)
Old EarthLink............................................... Section 3.2(d)
OM Integration.............................................. Section 4.1(a)
Per Share Price............................................. Declarations Page
Person...................................................... Section 9.3(f)
Proxy Statement............................................. Section 3.1(d)
Registration Statement...................................... Section 5.1(b)
Representatives............................................. Section 8.1(a)
S-8 Registration Statement.................................. Section 6.3(e)
Salary/Severance List....................................... Section 3.1(ee)
SEC......................................................... Section 3.1(d)
Section 16 Information...................................... Section 5.13
Securities Act.............................................. Section 3.1(e)
Stock Ratio................................................. Section 2.1(b)
Subscriber Accounts......................................... Section 3.1(u)
Subsequent Negotiation Period............................... Section 8.1(b)(v)
Subsequent Proposal......................................... Section 8.1(b)(v)
Subsequent Superior Proposal................................ Section 8.1(b)(v)
Subsidiary.................................................. Section 9.3(g)
Superior Proposal........................................... Section 9.3(h)
Surviving Corporation....................................... Section 1.1
</TABLE>
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Takeover Proposal........................................... Section 8.1(a)
Tax......................................................... Section 3.1(m)
Tax Return.................................................. Section 3.1(m)
Taxes....................................................... Section 3.1(m)
Terminated Subsequent Proposal.............................. Section 8.1(b)(vii)
Terminated Superior Proposal................................ Section 8.1(b)(iv)
Treasury Stock.............................................. Section 2.1(a)
Year 2000 Readiness Disclosure Statement.................... Section 3.1(q)
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of June 7, 2000 (the "AGREEMENT"), by
and among ONEMAIN.COM, INC., a Delaware corporation ("COMPANY"), OM
COMBINATION, INC., a Delaware corporation and wholly-owned subsidiary of
EarthLink ("COMBINATION COMPANY"), and EARTHLINK, INC., a Delaware corporation
("EARTHLINK").
WHEREAS, the respective Boards of Directors of EarthLink, Combination
Company and the Company have approved the merger of the Company with and into
the Combination Company (the "MERGER"), upon the terms and subject to the
conditions of this Agreement and Plan of Merger (this "AGREEMENT"), whereby each
issued and outstanding share of the Company's common stock, $.001 par value per
share (a "COMPANY SHARE") will be converted into the right to receive a per
share amount (the "PER SHARE PRICE") based on (a) $308,059,333 (the "AGGREGATE
PURCHASE PRICE") DIVIDED BY (b) 25,804,064 Company Shares (the total number of
Company Shares outstanding on a Fully Diluted Basis on the date hereof (using
the treasury method for Options outstanding as of the date hereof), with each
Per Share Price consisting of $5.97 in cash and .3511 of a share of EarthLink
common stock, $.01 par value per share ("EARTHLINK COMMON STOCK") all as
provided herein and as subject to adjustment as set forth in Section 2.1(b)
hereof.
WHEREAS, for federal income tax purposes, it is intended that the parties
will use their commercially reasonable best efforts to qualify the Merger as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "CODE"), if possible; and
WHEREAS, EarthLink, Combination Company and the Company desire to make
certain representations, warranties and agreements in connection with the Merger
and also to prescribe various conditions to the Merger; and
WHEREAS, certain of the officers, directors and significant stockholders of
the Company have each entered into a voting agreement with EarthLink pursuant to
which such officers, directors and significant stockholders have agreed to vote
the Company Shares owned by them in favor of the Merger; and
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. THE MERGER. Upon the terms and subject to the conditions
hereof and in accordance with the Delaware General Corporation Law, as amended
(the "DGCL"), the Company shall be merged with and into the Combination Company
at the Effective Time of the Merger (as hereinafter defined). Following the
Merger, the separate corporate existence of the Company shall cease and the
Combination Company shall continue as the surviving corporation (the "SURVIVING
CORPORATION") and shall succeed to and assume all the rights and obligations of
the Company in accordance with the DGCL.
SECTION 1.2. EFFECTIVE TIME. As soon as practicable following the
satisfaction or, to the extent permitted hereunder, waiver of the conditions set
forth in ARTICLE VI, the Surviving Corporation shall file the certificate of
merger required by the DGCL with respect to the Merger (the "CERTIFICATE OF
MERGER") and other appropriate documents executed in accordance with the
relevant provisions of the DGCL. The Merger shall become effective at such time
as the Certificate of Merger is duly filed with the Delaware Secretary of State,
or at such other time as EarthLink and the Company shall agree should be
specified in the Certificate of Merger (the time the Merger becomes effective
being the "EFFECTIVE TIME OF THE MERGER"). The closing of the Merger (the
"CLOSING") shall take place at the offices
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of Hunton & Williams, Bank of America Plaza, 600 Peachtree Street, N.E., Suite
4100, Atlanta, Georgia 30308, on the date of the meeting of the Company's
stockholders to approve the Merger (the "COMPANY STOCKHOLDERS MEETING"), or, if
any of the conditions set forth in ARTICLE VI have not been satisfied, then as
soon as practicable thereafter, or at such other time and place or such other
date as EarthLink and the Company shall agree (the "CLOSING DATE").
SECTION 1.3. EFFECTS OF THE MERGER. The Merger shall have the effects set
forth herein and in Section 251, 259 and 261 of the DGCL. If at any time after
the Effective Time of the Merger, the Surviving Corporation shall consider or be
advised that any further assignments or assurances in law or otherwise are
necessary or desirable to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation, all rights, title and interests in all real estate
and other property and all privileges, powers and franchises of the Company and
the Combination Company, the Surviving Corporation and its proper officers and
directors, in the name and on behalf of the Company and the Combination Company,
shall execute and deliver all such proper deeds, assignments and assurances in
law and do all things necessary and proper to vest, perfect or confirm title to
such property or rights in the Surviving Corporation and otherwise to carry out
the purpose of this Agreement, and the proper officers and directors of the
Surviving Corporation are fully authorized in the name of the Company and the
Combination Company or otherwise to take any and all such action.
SECTION 1.4. CERTIFICATE OF INCORPORATION AND BYLAWS.
(a) The Certificate of Incorporation of the Combination Company, as in
effect immediately prior to the Effective Time of the Merger as set forth in
EXHIBIT A hereto, shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law.
(b) The Bylaws of the Combination Company, as in effect immediately prior to
the Effective Time of the Merger as set forth in EXHIBIT B hereto, shall be the
Bylaws of the Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law.
SECTION 1.5. DIRECTORS AND OFFICERS. The directors and officers of
Combination Company shall, from and after the Effective Time of the Merger, be
the directors and officers of the Surviving Corporation and shall serve until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and Bylaws.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.1. EFFECT ON CAPITAL STOCK. As of the Effective Time of the
Merger, by virtue of the Merger and without any action on the part of the
Company, Combination Company, EarthLink or the holders of any Company Shares or
capital stock of Combination Company:
(a) CANCELLATION OF TREASURY STOCK. All shares of capital stock of the
Company held in the treasury of the Company immediately prior to the Effective
Time of the Merger, if any ("TREASURY STOCK") shall be cancelled and
extinguished as of the Effective Time of the Merger, without any conversion
thereof and no amount or other consideration shall be delivered or deliverable
in exchange therefor.
(b) CONVERSION OF COMPANY SHARES. Subject to SECTIONS 2.1(a) and 2.1(c),
each Company Share issued and outstanding immediately prior to the Effective
Time of the Merger shall be converted automatically into the right to receive,
upon the surrender of the certificate formerly representing such Company Shares
pursuant to SECTION 2.2, a Per Share Price equal to $5.97 in cash (the "CASH
PORTION")
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and .3511 (the "STOCK RATIO") of a share of EarthLink Common Stock (the
"EARTHLINK STOCK PORTION"), subject to adjustment as set forth herein. The Cash
Portion and the EarthLink Stock Portion of the Per Share Price payable and
issuable to the holders of Company Shares outstanding on the day
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immediately prior to the date on which the Effective Time of the Merger occurs
pursuant hereto (the "MEASUREMENT DATE"), together with payments of cash in lieu
of fractional shares as provided in Section 2.1(c) hereof, shall be referred to
herein as the "MERGER CONSIDERATION". On the Measurement Date, the parties shall
recalculate the Per Share Price (as so recalculated, the "FINAL PER SHARE
PRICE"), the EarthLink Stock Portion, the Cash Portion and the Stock Ratio on
such date, based on the then-existing closing stock price of the EarthLink
Common Stock (determined by reference to closing quotation from Nasdaq-National
Market--the "CLOSING PRICE"), as set forth in ANNEX A attached hereto, PROVIDED,
that for purposes of such adjustments, if the Closing Price on the Measurement
Date is below $5.00 per share or above $50.00 per share, the Cash Portion and
the Stock Ratio shall be determined using the $5.00 and $50.00 Closing Price
levels, respectively, and PROVIDED further, that if the Closing Price is other
than a whole Dollar amount between a $5 and $50 Closing Price, the adjustment to
the Cash Portion, the Stock Ratio, the EarthLink Stock Portion and the Intrinsic
Option Value shall be on a pro rata basis between such whole Dollar amounts and
otherwise consistent with this provision.
All such Company Shares shall automatically be cancelled and retired and
shall cease to exist, and each certificate previously evidencing any such shares
shall thereafter represent only the right to receive the Merger Consideration.
At the Effective Time of the Merger, the holders of Company Shares outstanding
immediately prior to the Effective Time of the Merger shall cease to have any
rights with respect to such shares of the Company Shares, except the right to
receive the Merger Consideration and as otherwise provided herein or pursuant to
any rights of appraisal under any applicable law.
(c) NO FRACTIONAL EARTHLINK SHARES. No fractional shares of EarthLink
Common Stock shall be issued in the Merger. All fractional shares of EarthLink
Common Stock that a holder of Company Shares would otherwise be entitled to
receive as a result of the Merger shall be aggregated and if a fractional share
of EarthLink Common Stock results from such aggregation, such holder shall be
entitled to receive, in lieu thereof, an amount in cash determined by
multiplying the closing sale price per share of a share of EarthLink Common
Stock on Nasdaq-National Market on the first trading day immediately preceding
the Effective Time of the Merger by the fraction of a share of EarthLink Common
Stock to which such holder would otherwise have been entitled pursuant to this
sentence. No such cash in lieu of fractional shares of EarthLink Common Stock
shall be paid to any holder of fractional EarthLink Common Stock until that
holder's Certificates (as defined in SECTION 2.2(c)) are surrendered and
exchanged in accordance with SECTION 2.2(c).
SECTION 2.2. EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Effective Time of the Merger, EarthLink
shall engage American Stock Transfer and Trust Company to act as exchange agent
(the "EXCHANGE AGENT") for the issuance of the Merger Consideration upon
surrender of Certificates (as defined in SECTION 2.2(c)).
(b) PAYMENT OF MERGER CONSIDERATION. As of the Effective Time of the
Merger, EarthLink shall have delivered to the Exchange Agent the Merger
Consideration consisting of the certificates for the EarthLink Common Stock
comprising the EarthLink Stock Portion to be issued upon the conversion of the
Company Shares pursuant to SECTION 2.1(b), the Cash Portion to be issued to each
Stockholder of the Company, and any cash necessary to make payments in lieu of
fractional shares pursuant to SECTION 2.1(c) (such shares of EarthLink Common
Stock and cash being hereinafter referred to as the "EXCHANGE FUND"). At the
Effective Time of the Merger, EarthLink shall cause the Exchange Agent, pursuant
to irrevocable instructions delivered to the Exchange Agent prior thereto, to
deliver EarthLink Common Stock, the Cash Portion and cash for fractional shares
contemplated to be issued and paid pursuant to SECTION 2.1 out of the Exchange
Fund. The Exchange Fund shall not be used for any purpose other than as set
forth in this SECTION 2.2(b).
(c) EXCHANGE PROCEDURE. As soon as practicable after the Effective Time of
the Merger, the Exchange Agent shall mail to each holder of record of a
certificate or certificates that immediately prior to the Effective Time of the
Merger represented outstanding Company Shares (the "CERTIFICATES"),
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other than the Company, and any wholly owned Subsidiary of the Company, (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in a form and have such other
provisions as EarthLink may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for the certificates
representing the EarthLink Stock Portion and cash (in payment of the Cash
Portion) and any additional cash in lieu of a fractional share of EarthLink
Common Stock. Upon surrender of a Certificate for cancellation to the Exchange
Agent, together with such letter of transmittal, duly executed, and such other
documents as may reasonably be required by the Exchange Agent, the holder of
such Certificate shall be entitled to receive in exchange therefor the
applicable amount of the Merger Consideration consisting of (i) a certificate or
certificates representing the number of whole shares of EarthLink Common Stock
and cash into which the Company Shares theretofore represented by such
Certificate shall have been converted pursuant to SECTION 2.1, and (ii) any cash
payable in lieu of a fractional share of EarthLink Common Stock, and the
Certificate so surrendered shall forthwith be canceled. If the shares of
EarthLink Common Stock are to be issued to a Person other than the Person in
whose name the Certificate so surrendered is registered, it shall be a condition
of exchange that such Certificate shall be properly endorsed or otherwise in
proper form for transfer and that the Person requesting such exchange shall pay
any transfer or other taxes required by reason of the exchange to a Person other
than the registered holder of such Certificate or establish to the reasonable
satisfaction of EarthLink that such tax has been paid or is not applicable.
Until surrendered as contemplated by this SECTION 2.2, each Certificate shall be
deemed at any time after the Effective Time of the Merger to represent only the
right to receive, upon surrender of such Certificate in accordance with this
SECTION 2.2(c), the applicable amount of the Merger Consideration consisting of
the number of shares of EarthLink Common Stock and cash and, additional cash, if
any, in lieu of a fractional share of EarthLink Common Stock into which the
Company Shares theretofore represented by such Certificate shall have been
converted pursuant to SECTION 2.1. The Exchange Agent shall not be entitled to
vote or exercise any rights of ownership with respect to the EarthLink Common
Stock held by it from time to time hereunder, except that it shall receive and
hold all dividends or other distributions paid or distributed with respect
thereto for the account of Persons entitled thereto.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED COMPANY SHARES. No dividends
or other distributions declared or made after the Effective Time of the Merger
with respect to the EarthLink Common Stock with a record date after the
Effective Time of the Merger shall be paid to the holder of any unsurrendered
Certificate with respect to the EarthLink Common Stock issuable upon exchange of
such Certificates pursuant to this Agreement, and no cash payment (including any
cash payment in lieu of fractional shares) shall be paid to any such holder
pursuant to SECTION 2.1 until the holder of record of such Certificate shall
surrender such Certificate in accordance with SECTION 2.2(c). Subject to the
effect of applicable laws, following surrender of any such Certificate, there
shall be paid to the record holder of the certificates representing the
EarthLink Common Stock issued in exchange therefor, without interest, (i) at the
time of such surrender, the amount of cash payable pursuant to SECTION 2.1(b)
and any additional cash payable in lieu of a fractional share of EarthLink
Common Stock to which such holder is entitled pursuant to SECTION 2.1(c) and the
amount of dividends or other distributions with a record date after the
Effective Time of the Merger theretofore paid with respect to such EarthLink
Common Stock, as the case may be, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time of the Merger but prior to surrender and a payment date
subsequent to surrender payable with respect to such EarthLink Common Stock.
(e) NO FURTHER OWNERSHIP RIGHTS IN COMPANY SHARES. All shares of EarthLink
Common Stock issued and all cash paid upon the surrender of Certificates in
accordance with the terms of this ARTICLE II, together with any dividends
payable thereon to the extent contemplated by this SECTION 2.2, shall be deemed
to have been exchanged and paid in full satisfaction of all rights pertaining to
the
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Company Shares theretofore represented by such Certificates and there shall be
no further registration of transfers on the stock transfer books of the
Surviving Corporation of the Company Shares represented by such Certificates
that were outstanding immediately prior to the Effective Time of the Merger. If,
after the Effective Time of the Merger, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this ARTICLE II, except as otherwise provided by applicable law.
(f) NO LIABILITY. Neither EarthLink nor the Company nor any of their
Subsidiaries shall be liable to any holder of Company Shares for any shares of
EarthLink Common Stock (or dividends or distributions with respect thereto) or
cash (including any cash in lieu of fractional shares of EarthLink Common Stock)
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(g) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit
setting forth that fact by the Person claiming such loss, theft or destruction
and, the granting of a reasonable indemnity against any claim that may be made
against EarthLink or the Exchange Agent with respect to such Certificate,
EarthLink shall cause the Exchange Agent to issue to such Person the applicable
amount of the Merger Consideration with respect to such lost, stolen or
destroyed Certificate to which the holder thereof may be entitled pursuant to
this ARTICLE II.
SECTION 2.3. CONVERSION OF STOCK OPTIONS AND CERTAIN WARRANTS.
(a) At the Effective Time of the Merger, each option or other right to
purchase shares of Company Common Stock (as hereinafter defined) pursuant to
stock options (the "COMPANY OPTIONS") granted by the Company under any of the
Amended and Restated OneMain.com, Inc. 1999 Stock Option and Incentive Plan and
the OneMain.com, Inc. 1999 Plan (together, the "COMPANY STOCK PLANS") and which
have an exercise price equal to or below the Final Per Share Price on the
Measurement Date (the "CONVERTIBLE OPTIONS"), shall be converted into an option
to purchase EarthLink Common Stock and become a right with respect to EarthLink
Common Stock based on the Exchange Ratio (as defined below), and upon conversion
each such Company Option shall be subject to the terms of the EarthLink Stock
Incentive Plan and EarthLink Stock Option Plan for Non-Employee Directors (the
"EARTHLINK STOCK PLANS"), as applicable, and the stock option agreement issued
by EarthLink by which it is evidenced upon, at and as of the Effective Time of
the Merger (such converted Company Options shall be referred to as "EARTHLINK
OPTIONS"). For purposes of this Agreement, the term "EXCHANGE RATIO" shall mean
the ratio derived by dividing the Final Per Share Price by the Closing Price.
The Convertible Options shall be converted into the number of EarthLink Options
as determined by multiplying the Convertible Options by the Exchange Ratio. The
applicable exercise price for the EarthLink Options issued upon conversion of
the Convertible Options shall be determined by dividing the exercise price of
such Convertible Options by the Exchange Ratio. Attached hereto as
Section 2.3(a) of the Company Disclosure Schedule is a list of the Company
Options, applicable strike prices and other information related to the Company
Options as of the date hereof, which list is true, accurate and complete in all
material respects.
Notwithstanding the above, EarthLink shall not be obligated to issue any
EarthLink Option exercisable into a fraction of a share of EarthLink Common
Stock. The EarthLink Options issued upon conversion of the Company Options as
provided herein that are "incentive stock options" (as defined in Section 422 of
the Code) are reasonably intended to be effected in a manner that is consistent
with continued treatment of such EarthLink Options as "incentive stock options"
under Section 424(a) of the Code. Each of the Company and EarthLink agrees to
take all reasonably necessary steps to effectuate the foregoing provisions of
this SECTION 2.3, including using its reasonable best efforts to obtain from
each holder of a Company Option any consent or contract that may be deemed
necessary or advisable in order to effect the transactions contemplated by this
SECTION 2.3.
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At the Effective Time of the Merger, each Company Option granted by the
Company under any of the Company Stock Plans and which have an exercise price
above the Final Per Share Price and/or which are unvested as of the Effective
Time of the Merger shall terminate in full as of the Effective Time of the
Merger. At the Effective Time of the Merger, all Company Options that are not at
that time converted into EarthLink Options or exercised by the holders thereof,
regardless of exercise price, shall terminate in full as of the Effective Time
of the Merger.
(b) As soon as practicable after the Effective Time of the Merger, EarthLink
shall deliver to the participants in each Company Stock Plan an appropriate
notice setting forth such participant's rights pursuant thereto, and the grants
subject to such Company Stock Plan shall continue in effect on the same terms
and conditions (subject to the adjustments required by SECTION 2.3(a) after
giving effect to the Merger). At or prior to the Effective Time of the Merger,
EarthLink shall take all corporate action necessary to reserve for issuance
sufficient shares of EarthLink Common Stock for delivery upon exercise of
Company Options assumed by it in accordance with this SECTION 2.3.
(c) EarthLink shall: (i) prior to the Effective Time of the Merger file all
necessary registration statements on Form S-8 (or amend existing registration
statements on Form S-8) in order to effectively register the shares of EarthLink
Common Stock subject to Company Options converted pursuant to this SECTION 2.3
that were granted under the Company Stock Plans; (ii) use reasonable efforts to
maintain the effectiveness of such registration statement(s) (and maintain the
current status of the prospectus or prospectuses contained therein) for so long
as such converted Company Options remain outstanding; and (iii) prior to the
Effective Time of the Merger (subject to official notice of issuance), prepare
and submit to Nasdaq the Notification of Additional Listing of Shares relating
to inclusion for quotation on Nasdaq the shares of EarthLink Common Stock
subject to such converted Company Options and use reasonable efforts to cause
such securities to be approved for quotation on Nasdaq.
(d) As of the Effective Time of the Merger, the warrant issued by the
Company to Heidrick & Struggles exercisable into 15,000 shares of Company Shares
shall be converted into and replaced by a warrant to purchase EarthLink Common
Stock, based on the applicable Exchange Ratio.
SECTION 2.4. CONVERTIBLE DEBENTURES. The Company shall: (a) repurchase and
terminate in full all outstanding 6.75% Convertible Debentures of the Company
due 2003 (the "NOTES") from the holders thereof (the "NOTEHOLDERS") on or prior
to the Closing Date, (b) effect the replacement of the warrants granted to the
Noteholders (the "NOTEHOLDER WARRANTS") with a warrant to purchase EarthLink
Common Stock (as acceptable to EarthLink) in accordance herewith, (c) terminate
in full the Convertible Debenture Purchase Agreement, the Registration Rights
Agreement and all other agreements related to such agreements, including without
limitation the termination of any obligation of the Company to issue Second and
Third Tranches (as defined therein) of Notes and all other future obligations to
issue securities thereunder, and (d) effect the replacement of such Registration
Rights Agreement with a Registration Rights Agreement to which EarthLink is a
party (as acceptable to EarthLink) (the "NOTE AND WARRANT TERMINATION"). The
written, binding agreement pursuant to which the Note and Warrant Termination
shall be effectuated and the new EarthLink warrants to be issued (the "NOTE AND
WARRANT TERMINATION AGREEMENT") is attached hereto as EXHIBIT C. As set forth in
the Note and Warrant Termination Agreement, the Noteholder Warrants shall be
replaced by warrants to purchase EarthLink Common Stock as set forth therein.
SECTION 2.5. STOCK TRANSFER BOOKS. At the Effective Time of the Merger,
the transfer books of the Company with respect to all shares of capital stock or
other securities of the Company shall be closed and no further registration of
transfers of such shares of capital stock or other securities shall thereafter
be made on the records of the Company.
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SECTION 2.6. CERTAIN ADJUSTMENTS. If between the date hereof and the
Effective Time of the Merger, the outstanding shares of Company Common Stock or
EarthLink Common Stock shall be changed into a different number of shares by
reason of any reclassification, recapitalization, split-up, combination or
exchange of shares, or any dividend payable in stock or other securities shall
be declared thereon with a record date within such period, the Per Share Price,
Exchange Ratio, EarthLink Stock Portion and Cash Portion shall be adjusted
accordingly to provide the same economic effect as contemplated by this
Agreement prior to such reclassification, recapitalization, split-up,
combination, exchange or dividend.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SUBSIDIARIES. The Company, for and in respect of itself and, where indicated,
for and in respect of its Subsidiaries, represents and warrants to, and agree
with, EarthLink and Combination Company as follows, subject to any exceptions
specified in the Disclosure Schedule of the Company provided to EarthLink on the
date hereof (the "COMPANY DISCLOSURE SCHEDULE"); it being understood and agreed
that the Company may cross reference disclosures within the Company Disclosure
Schedule:
(a) ORGANIZATION; STANDING AND POWER. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power and authority to carry on its
business as now being conducted. The Company is duly qualified to do business
and is in good standing in each jurisdiction in which the nature of its business
or the ownership or leasing of its properties makes such qualification
necessary, other than in such jurisdictions where the failure to be so qualified
to do business or in good standing (individually, or in the aggregate) would not
have a Material Adverse Effect on the Company and its Subsidiaries, taken as a
whole.
(b) SUBSIDIARIES; OTHER INVESTMENTS. Except as set forth in
SECTION 3.1(b) of the Company's Disclosure Schedule, the Company does not own,
directly or indirectly, any capital stock or other ownership interest in any
Person. SECTION 3.1(b) of the Company Disclosure Schedule contains a complete
and accurate list of the Company's direct and indirect Subsidiaries and the
respective capital structure of each Subsidiary (authorized capital stock, par
value, outstanding capital stock, owner of capital stock). Except as set forth
on SECTION 3.1(b) of the Company Disclosure Schedule, the Company's Subsidiaries
are all corporations and are duly organized, validly existing and in good
standing under the laws of their respective jurisdictions of incorporation and
have the requisite corporate power and authority to carry on their respective
businesses as they are now being conducted and to own, operate and lease the
assets they now own, operate or hold under lease, except where failure of any of
the above would not have a Material Adverse Effect on the Company and its
Subsidiaries taken as a whole. The Company's Subsidiaries are duly qualified to
do business and are in good standing in each jurisdiction in which the nature of
their respective businesses or the ownership or leasing of their respective
properties makes such qualification necessary, other than in such jurisdictions
where the failure to be so qualified or in good standing would not have a
Material Adverse Effect on the Company and its Subsidiaries, taken as a whole.
All the outstanding shares of capital stock of the Company's Subsidiaries are
owned by the Company or its Subsidiaries. All the outstanding shares of capital
stock of the Company's Subsidiaries have been duly authorized and validly issued
and are fully paid and non-assessable and were not issued in violation of any
preemptive rights or other preferential rights of subscription or purchase of
any Person other than those that have been waived or otherwise cured or
satisfied, except for immaterial breaches thereof. All such stock and ownership
interests are free and clear of all liens, pledges, security interests, charges,
claims, rights of third parties and other encumbrances of any kind or nature
("LIENS"), except for immaterial Liens.
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(c) CAPITAL STRUCTURE. The authorized capital stock of the Company
consists of 100,000,000 shares of common stock, $.001 par value ("COMPANY COMMON
STOCK"), and 10,000,000 shares of preferred stock, $.001 par value ("COMPANY
PREFERRED STOCK"). As of the date hereof, 25,126,471 shares of Company Common
Stock were issued and outstanding and no shares of Company Preferred Stock were
issued and outstanding. In addition, at the date hereof, an aggregate of options
to purchase 7,734,197 shares of Company capital stock in total (the "TOTAL
OPTION NUMBER") and options to purchase 698,647 shares of Company capital stock
(based on the treasury method) are issued and outstanding and 35,280,857 shares
of Company Common Stock were reserved for issuance pursuant to various employee
and director plans and agreements of the Company, all as accurately described in
SECTION 3.1(c) of the Company Disclosure Schedule. For purposes of the Total
Option Number above and the definition of "Material Adverse Effect" in
Section 9.3(d) hereof, any inaccuracy of the Total Option Number shall
constitute a Material Adverse Effect only if: (X) the actual intrinsic value of
the in-the-money and vested (vested either now or upon a change of control)
Company Options (as of the date hereof based on the Per Share Price) is not more
than $8,847,945; and/or (Y) the Company has at least 75,000 more vested and
in-the-money Company Options at the Measurement Date than as set forth on
Section 2.3(a) of the Company Disclosure Schedule. The intrinsic value of the
Company's in-the-money and vested (vested either now or upon a change of
control) options as of the Measurement Date does not exceed the intrinsic value
of such options at the Closing Price on the Measurement Date as set forth on
ANNEX A hereto, PROVIDED, that violation of this terms of this sentence shall
NOT be an automatic Material Adverse Effect as set forth in the definition of
that term in Section 9.3 hereof.
Except as set forth above, no shares of capital stock or other equity or
voting securities of the Company are reserved for issuance or outstanding. All
outstanding shares of capital stock of the Company are, and all such shares
issuable upon the exercise of outstanding stock options will be, validly issued,
fully paid and nonassessable and not subject to preemptive rights. All of such
issued and outstanding shares of capital stock of the Company were offered and
sold in compliance with all applicable state and Federal securities laws, rules
and regulations. Except as set forth in SECTION 3.1(c) of the Company Disclosure
Schedule, no capital stock has been issued by the Company since May 24, 2000,
other than shares of Company Common Stock issued (i) pursuant to the exercise of
options outstanding on or prior to such date in accordance with their terms at
such date, and (ii) pursuant to the Company's existing employee stock purchase
plan. Except as set forth in SECTION 3.1(c) of the Company Disclosure Schedule,
there are no outstanding or authorized securities, options, warrants, calls,
rights, commitments, preemptive rights, agreements, arrangements or undertakings
of any kind to which the Company or any of its Subsidiaries is a party, or by
which any of them is bound, obligating the Company or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, any shares of
capital stock or other equity or voting securities of, or other ownership
interests in, the Company or any of its Subsidiaries or obligating the Company
or any of its Subsidiaries to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement, arrangement or
undertaking, except for immaterial breaches hereof with respect to any of the
Subsidiaries. Except as set forth in SECTION 3.1(C) of the Company Disclosure
Schedule, all of which shall be terminated without cost to the Company by the
Effective Time of the Merger, there are not as of the date hereof and there will
not be at the Effective Time of the Merger any registration rights agreements,
stockholder agreements, voting trusts or other agreements or understandings to
which the Company is a party or by which it is bound relating to the voting of
any shares of the capital stock of the Company. There are no restrictions on the
Company with respect to voting or declaring or paying dividends or other
distributions in respect of the stock of any of its Subsidiaries.
(d) AUTHORITY; NON-CONTRAVENTION. The Board of Directors of the Company
has approved the Merger and this Agreement and declared the Merger and this
Agreement to be in the best interests of the stockholders of the Company.
Certain officers, directors and significant stockholders of the Company selected
by EarthLink have executed an agreement to vote in favor of the Merger and vote
against alternative proposals, which agreement is attached hereto as EXHIBIT D
(the "AGREEMENT TO VOTE
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STOCK"). The Company has the requisite corporate power and authority to enter
into this Agreement and, subject to obtaining the requisite approval of the
Merger and this Agreement by the Company's stockholders as required by the DGCL
("COMPANY STOCKHOLDER APPROVAL") to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Company,
subject to Company Stockholder Approval. This Agreement has been duly and
validly executed and delivered by the Company and, assuming due authorization
and delivery by EarthLink and Combination Company, constitutes a valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except that and as (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws or
judicial decisions now or hereafter in effect relating to creditors' rights
generally and the application of general principles of equity, (ii) the remedy
of specific performance and injunctive relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought and (iii) the enforceability of any indemnification provision
contained herein may be limited by applicable federal or state securities laws.
The execution, delivery and performance of this Agreement by the Company do not,
and the consummation of the transactions contemplated hereby and compliance with
the provisions hereof will not, conflict with, or result in any violation of or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of or "put" right with
respect to any obligation or loss of a material benefit under, or result in the
creation of any Lien, upon any of the properties or assets of the Company or any
of its Subsidiaries, individually or collectively (a "DEFAULT") under, any
provision of (i) the Certificate of Incorporation and Bylaws of the Company or
any provision of the comparable organizational documents of its Subsidiaries,
(ii) any loan or credit agreement, note, bond, mortgage, indenture, lease, or
other agreement, instrument, permit, concession, franchise or license to which
the Company or any of its Subsidiaries is a party or by which it or they or any
of their respective properties or assets is bound (individually, a "CONTRACTUAL
DOCUMENT" and collectively, the "CONTRACTUAL DOCUMENTS"), except any such
Default or Defaults that, individually or in the aggregate under one such
Contractual Document or several such Contractual Documents, would not have a
Material Adverse Effect on the Company and its Subsidiaries taken as a whole, or
(iii) subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance, rule
or regulation or arbitration award applicable to the Company or any of its
Subsidiaries or their respective properties or assets, except any such Default
or Defaults that, individually or in the aggregate, would not have a Material
Adverse Effect on the Company and its Subsidiaries taken as a whole.
SECTION 3.1(d) of the Company Disclosure Schedule sets forth, to the Company's
Knowledge, the Company's Defaults under the provisions described in (i), (ii),
and (iii) immediately above. No consent, approval, order or authorization of, or
registration, declaration or filing with ("CONSENT"), any court, administrative
agency or commission or other governmental authority or agency, domestic or
foreign, including local authorities (a "GOVERNMENTAL ENTITY") or other Person,
is required by or with respect to the Company or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by the Company or
the consummation by the Company of the transactions contemplated hereby, except
where lack of such Consents would not be material, and except for (i) the filing
by the Company of a pre-merger notification and report form under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT")
and the expiration or termination of the waiting period thereunder, (ii) the
filing with the Securities Exchange Commission ("SEC") of (A) a proxy statement/
prospectus relating to the Company Stockholder Meeting (such proxy statement/
prospectus as amended or supplemented from time to time, the "PROXY STATEMENT")
and (B) the Registration Statement (as defined in SECTION 5.1(b)) and (C) such
reports under SECTION 13(a) of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), as may be required in connection with this Agreement and
the transactions contemplated hereby, (iii) Company Stockholder Approval,
(iv) the filing of the Certificate of Merger with and approval by the Delaware
Secretary of State with respect to the Merger as provided in the
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DGCL and appropriate documents with the relevant authorities of other states in
which the Company is qualified to do business, (v) applicable requirements, if
any, of the National Association of Securities Dealers, Inc. (the "NASD") and
the Nasdaq National Market ("NASDAQ"), (vi) applicable requirements, if any, of
the consents, approvals, authorizations or permits described in SECTION 3.1(d)
of the Company Disclosure Schedule.
(e) SEC DOCUMENTS. The Company has filed all required reports, schedules,
forms, statements and other documents required to be filed with the SEC since
March 31, 1999 (such documents, together with all exhibits and schedules
thereto, collectively referred to herein as the "COMPANY SEC DOCUMENTS"). As of
their respective dates, (i) the Company SEC Documents complied in all material
respects with the requirements of the Securities Act of 1933, as amended (the
"SECURITIES ACT"), or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Company SEC
Documents, and (ii) at the time they were filed, none of the Company SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except to the extent corrected by a subsequently filed Company
SEC Document, PROVIDED that all such corrections were for immaterial errors or
omissions. The consolidated financial statements of the Company included in the
Company SEC Documents complied in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles (except, in the case of unaudited statements, as permitted
by Form 10-Q of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited statements, as permitted by Rule 10-01 of Regulation S-X of the SEC)
and present fairly the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments and other
adjustments described therein, which in the aggregate were not material), except
to the extent corrected by a subsequently filed Company SEC Document, PROVIDED,
that all of such corrections were for immaterial errors or omissions.
(f) MATERIAL CONTRACTS. SECTION 3.1(f) of the Company Disclosure Schedule
sets forth in reasonable detail all written or oral contracts, agreements,
leases, instruments or legally binding contractual commitments ("CONTRACTS") to
which the Company is a party that meet any of the following criteria (as
applicable). "Material Contracts" means any Contract to which the Company and/or
any of its Subsidiaries is a party and that meets any of the following criteria
(as applicable) (collectively, the "MATERIAL CONTRACTS"):
(i) Any Contract with a customer of the Company (and/or any of its
Subsidiaries) or with any entity that purchases goods or services from the
Company for consideration paid to the Company (and/or any of its
Subsidiaries) of $100,000 or more in any fiscal year;
(ii) any Contract for capital expenditures or the acquisition or
construction of fixed assets in excess of $100,000 in any fiscal year;
(iii) any Contract for the purchase or lease of goods or services
(including without limitation, equipment, materials, software, hardware,
supplies, merchandise, parts or other property, assets or services),
requiring aggregate future payments in excess of $100,000 in any fiscal
year, other than standard inventory purchase orders executed in the ordinary
course of business;
(iv) any Contract relating to the borrowing of money or guaranty of
indebtedness in excess of $100,000 in any fiscal year;
(v) any collective bargaining or other arrangement with any labor
union;
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(vi) any Contract granting a first refusal, first offer or similar
preferential right to purchase or acquire any of the Company's (or any of
the Subsidiaries') capital stock or assets;
(vii) any Contract limiting, restricting or prohibiting the Company (or
any of the Subsidiaries) from conducting business anywhere in the United
States or elsewhere in the world or any Contract limiting the freedom of the
Company (or any Subsidiary) to engage in any line of business or to compete
in any respects with any other Person;
(viii) any joint venture or partnership Contract;
(ix) Contracts, individually or in the aggregate, requiring future
payments of $100,000 or more in any fiscal year that require the consent of
the other party thereto in connection with the transactions contemplated
hereby;
(x) any employment Contract, severance agreement or other similar
binding agreement or policy with any employee; and
(xi) without Dollar or size thresholds, any Contract (other than
'shrinkwrap', 'clickwrap' or similar Contracts for widely distributed
commercially available software, for or with: (1) web browser software,
(2) exclusive arrangements for marketing, branding or services, (3) content
providers, and (4) software licenses (both server side and client side), and
(5) call center provider agreements.
The Company has provided (or will provide within 10 calendar days after the
date of this Agreement) to EarthLink a true and complete copy of each written
Contract (and a written description of each oral Contract), including all
amendments or other modifications thereto. Except as set forth on
SECTION 3.1(f) of the Company Disclosure Schedule, each Material Contract is a
valid and legally binding obligation of the Company and/or its Subsidiary a
party thereto, enforceable against the Company and/or its Subsidiary a party
thereto in accordance with its terms, subject only to bankruptcy,
reorganization, receivership or other laws affecting creditors' rights generally
and general principles of equity (whether applied in an action at law or in
equity). Except as set forth on SECTION 3.1(f) of the Company Disclosure
Schedule, the Company and/or its Subsidiary a party thereto has performed all
obligations required to be performed by it under the Material Contracts and the
Company and/or its Subsidiary a party thereto is not in breach or default
thereunder, except for immaterial breaches of and defaults under the Material
Contracts.
(g) INFORMATION SUPPLIED. None of the information supplied or required to
be supplied by the Company for inclusion or incorporation by reference in
(i) the Registration Statement will, at the time the Registration Statement is
filed with the SEC, and at any time it is amended or supplemented or at the time
it becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and (ii) the Proxy Statement relating to
the Company Stockholders Meeting, at the date the Proxy Statement is first
mailed to the Company's stockholders and at the time of the Company Stockholders
Meeting, will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. The Proxy Statement, as it relates to the Company
Stockholders Meeting, will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations thereunder.
Notwithstanding the foregoing, no representation or warranty is made by the
Company with respect to statements made or incorporated by reference contained
in or omitted from any of the foregoing documents based on information supplied
or required to be supplied by EarthLink for inclusion or incorporation by
reference therein
(h) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
SECTION 3.1(h) of the Company Disclosure Schedule or the Company SEC Documents,
since December 31, 1999 the Company has
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conducted its business only in the ordinary course consistent with past
practice, and there has not been (i) as of the date hereof, any change, event or
condition with respect to the Company that has had a Material Adverse Effect on
the Company and its Subsidiaries taken as a whole; (ii) any declaration, setting
aside or payment of any dividend (whether in cash, stock or property) with
respect to any of the Company's capital stock; (iii) (A) any granting by the
Company or any of its Subsidiaries to any executive officer of the Company or
any of its Subsidiaries of any increase in compensation, except in the ordinary
course of business consistent with prior practice or as was required under
employment agreements described in SECTION 3.1(h) to the Company Disclosure
Schedule, (B) any granting by the Company or any of its Subsidiaries to any such
executive officer of any increase in severance or termination pay, except as was
required under employment, severance or termination agreements listed in
SECTION 3.1(h) to the Company Disclosure Schedule, true copies of which have
been provided to EarthLink, or (C) any entry by the Company or any of its
Subsidiaries into any employment, severance or termination agreement with any
such executive officer, except in each case in this paragraph (iii), for
immaterial breaches hereof; (iv) any amendment of any material term of any
outstanding equity security of the Company or any Subsidiary; (v) any
repurchase, redemption or other acquisition by the Company or any Subsidiary of
any outstanding shares of capital stock or other equity securities of, or other
ownership interests in, the Company or any Subsidiary, except as contemplated by
any employee benefit plans of the Company; (vi) any material damage, destruction
or other property loss, whether or not covered by insurance; or (vii) any change
in accounting methods, principles or practices by the Company that has had a
Material Adverse Effect on the Company and its Subsidiaries taken as a whole
except insofar as may have been required by a change in generally accepted
accounting principles.
(i) STATE TAKEOVER STATUTES; ANTI-TAKEOVER PROVISIONS. The Company has
taken all action to assure that no state takeover statute, "control share
acquisition," "fair price," or similar statute or regulation shall apply to the
Merger or any of the other transactions contemplated hereby. The Company has
also taken such other action with respect to any other anti-takeover provisions
in its Bylaws or Certificate of Incorporation to the extent necessary to
consummate the Merger on the terms set forth in this Agreement.
(j) BROKERS. Except as set forth on SCHEDULE 3.1(j) and for Jefferies &
Company, Inc. (the "COMPANY FINANCIAL ADVISOR"), whose fees are to be paid by
the Company, no broker, investment banker or other Person is entitled to receive
from the Company or any of its Subsidiaries any investment banking, broker's,
finder's or similar fee or commission in connection with this Agreement or the
transactions contemplated hereby, including any fee for any opinion rendered by
any investment banker.
(k) LITIGATION. Except as disclosed in SECTION 3.1(k) of the Company
Disclosure Schedule or the Company SEC Documents, (x) there is no material
claim, suit, action, proceeding or investigation pending or, to the Company's
Knowledge, threatened against or affecting the Company or any of its
Subsidiaries, and (y) there is no claim, suit, action, proceeding or
investigation pending, or to the Company's Knowledge, threatened against the
Company or any of its Subsidiaries that could prevent or materially delay the
ability of the Company to consummate the transactions contemplated by this
Agreement, nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against the Company or any of its
Subsidiaries having, or which, insofar as reasonably can be foreseen, in the
future could have, any such effect.
(l) ACCOUNTING MATTERS. The books, records and accounts of the Company and
its Subsidiaries (i) have been maintained in accordance with good business
practices on a basis consistent with prior years, (ii) are stated in reasonable
detail and accurately and fairly reflect in all material respects the
transactions and dispositions of the assets of the Company and its Subsidiaries
and (iii) accurately and fairly reflect in all material respects the basis for
the Company's financial statements. Except as disclosed in SECTION 3.1(l) of the
Company Disclosure Schedule, the Company maintains a system of
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internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization and (ii) transactions are recorded as necessary (A) to
permit preparation of financial statements in conformity with generally accepted
accounting principles and (B) to maintain accountability for assets.
(m) TAXES. Except as set forth in SECTION 3.1(m) of the Company Disclosure
Schedule: (i) each of the Company and each of its Subsidiaries, and any
consolidated, combined, unitary or aggregate group for Tax (as defined below)
purposes of which the Company or any of its Subsidiaries is or has been a
member, has timely filed all Tax Returns, or has valid extensions of time for
filing such Tax Returns, required to be filed by it and has timely paid or
deposited (or the Company has paid or deposited on its behalf) all Taxes which
are required to be paid or deposited, (ii) each of the Tax Returns filed by the
Company or any of its Subsidiaries is accurate and complete in all material
respects; (iii) the most recent consolidated financial statements of the Company
contained in the filed Company SEC Documents reflect an adequate reserve for all
Taxes payable by the Company and its Subsidiaries for all taxable periods and
portions thereof through the date of such financial statements whether or not
shown as being due on any Tax Returns; (iv) no material deficiencies for any
Taxes have been proposed, asserted or assessed against the Company or any of its
Subsidiaries; no requests for waivers of the time to assess any such Taxes have
been granted or are pending; and there are no tax liens upon any assets of the
Company or any of its Subsidiaries except liens relating to current Taxes not
yet due; and (v) there are no current examinations or audits of any Tax Return
of the Company or any of its Subsidiaries being conducted and there are no
settlements or any prior examinations which could reasonably be expected to
adversely affect any taxable period for which the statute of limitations has not
run. The consummation of the transactions contemplated hereby will not
accelerate or otherwise cause to come due any Taxes or obligation with respect
to Taxes (including any indemnification of a third party for their Tax
liability) of the Company or any of its Subsidiaries, other than any
acceleration arising solely as a result of the Company being required to file a
Tax Return for a period ending before its normal taxable year, PROVIDED, that in
the event the transaction contemplated by this Agreement does not qualify for
tax-free treatment under Section 368 of the Code as a result of the final
combination of the Cash Portion and EarthLink Stock Portion, such event shall be
deemed not to be a breach of this provision by the Company. As used herein,
"TAX" or "TAXES" shall mean all taxes of any kind, including, without
limitation, those on or measured by or referred to as income, gross receipts,
sales, use, ad valorem, franchise, profits, license, withholding, payroll,
employment, estimated, excise, severance, stamp, occupation, premium, value
added, property or windfall profits taxes, customs, duties or similar fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts imposed by any
Governmental Entity, domestic or foreign. As used herein, "TAX RETURN" shall
mean any return, report, statement or information required to be filed with any
Governmental Entity with respect to Taxes.
(n) COMPLIANCE WITH LAWS. Except as set forth on SECTION 3.1(N) of the
Company Disclosure Schedule, the Company and its Subsidiaries hold all material
required, necessary or applicable permits, licenses, variances, exemptions,
orders, franchises and approvals of all Governmental Entities that are required
for the operation of the businesses of the Company and its Subsidiaries as
presently conducted and the ownership, operation, lease and holding by the
Company and its Subsidiaries of their respective properties and assets (the
"COMPANY PERMITS"). The Company and its Subsidiaries are in material compliance
with the terms of the Company Permits. Neither the Company nor any of its
Subsidiaries has violated or failed to comply with, nor has it received any
written notice of any alleged violation of or failure to comply with, any
statute, law, ordinance, regulation, rule, permit or order of any Governmental
Entity, any arbitration award or any judgment, decree or order of any court or
other Governmental Entity, applicable to the Company or any of its Subsidiaries
or their respective businesses, assets or operations.
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(o) INTELLECTUAL PROPERTY.
(i) Set forth on SECTION 3.1(o)(i) of the Company Disclosure Schedule
is a true and complete list of the registered intellectual property of the
Company and its Subsidiaries. Each of the Company and its Subsidiaries owns,
or possesses adequate licenses or other valid rights to use, all existing
United States and foreign patents, trademarks, trade names, service marks,
copyrights, trade secrets, domain names and applications therefor used in
their respective business and operations as presently conducted, including
without limitation the items set forth on SECTION 3.1(o)(i) of the Company
Disclosure Schedule (the "COMPANY INTELLECTUAL PROPERTY RIGHTS").
(ii) Neither the Company nor any of its Subsidiaries has received
communications alleging (and, to the Knowledge of the Company, is not aware
of any facts that could reasonably be expected to lead to an allegation)
that the Company and/or any of its Subsidiaries does not have valid right or
title to the Company Intellectual Property Rights.
(iii) Except as set forth in SECTION 3.1(o)(iii) of the Company
Disclosure Schedule, the conduct of the business of the Company and/or any
of its Subsidiaries as now conducted does not, to the Knowledge of the
Company, infringe any valid (registered or unregistered) patents,
trademarks, trade names, service marks, copyrights or domain name rights of
others. Except as set forth in SECTION 3.1(o)(iii) of the Company Disclosure
Schedule, the consummation of the transactions completed hereby will not
result in the loss or impairment of any Company Intellectual Property
Rights.
(iv) The Company has taken steps it believes appropriate to protect and
maintain its trade secrets as such, except in cases where the Company has
elected to rely on patent or copyright protection in lieu of trade secret
protection.
(p) NO DEFAULT. Neither the Company nor any of its Subsidiaries is in
default or violation (and no event has occurred which, with notice or the lapse
of time or both, would constitute a default or violation) of any material term,
condition or provision of: (i) the respective articles/certificate of
incorporation and bylaws of the Company and its Subsidiaries, (ii) any
Contractual Document, except any such defaults or violations that, individually
or in the aggregate under one such Contractual Document or several such
Contractual Documents, would not have a Material Adverse Effect on the Company
and its Subsidiaries taken as a whole, or (iii) any order, writ, injunction,
decree, statute, rule or regulation applicable to the Company or any of its
Subsidiaries, except any such defaults or violations that, individually or in
the aggregate, would not have a Material Adverse Effect on the Company and its
Subsidiaries taken as a whole. SECTION 3.1(p) of the Company's Disclosure
Schedules sets forth, to the Company's Knowledge, all such defaults and
violations as described in subsections (i), (ii), and (iii) set forth above.
(q) Y2K READINESS. The statements of the Company under the heading "YEAR
2000 READINESS DISCLOSURE STATEMENT" in the Company's Registration Statement on
Form S-4 (as amended) first filed with the SEC on February 2, 2000, relating to
the Company's year 2000 readiness do not contain any untrue statement of
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances under which they were made. The Company has not incurred any
material disruptions, delays, failures or other interruptions in its computer or
business systems related to year 2000 problems.
(r) OPINION OF COMPANY FINANCIAL ADVISORS. The Company's Board of
Directors has received an opinion from the Company Financial Advisor, to the
effect that, as of the date of this Agreement, the Merger Consideration to be
received by the holders of the Company Shares in the Merger is fair from a
financial point of view.
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(s) TRANSACTIONS WITH AFFILIATES. Except as set forth in SECTION 3.1(s) of
the Company Disclosure Schedule, or as contemplated by this Agreement, since
December 31, 1999 neither the Company nor any of its Subsidiaries has, in the
ordinary course of business or otherwise, purchased, leased or otherwise
acquired any material property or assets or obtained any material services from,
or sold, leased or otherwise disposed of any material property or assets or
provided any material services to (except with respect to remuneration for
services rendered as a director, officer or employee of either of the Company or
any of its Subsidiaries in the ordinary course), (i) any employee of the Company
and/or any of its Subsidiaries, (ii) any stockholder of the Company, (iii) any
person, firm or corporation that directly or indirectly controls, is controlled
by or is under common control with the Company, or (iv) any member of the
immediate family of any of the foregoing persons (collectively, a "FAMILY
AFFILIATE"). Except as set forth in SECTION 3.1(t) of the Company Disclosure
Schedule, (a) the Material Contracts do not include any obligation or commitment
between the Company and any Affiliate, (b) the assets of the Company and/or any
of its Subsidiaries do not include any receivable or other obligation or
commitment from an Affiliate to the Company and/or any of its Subsidiaries, and
(c) the liabilities reflected on the financial statements of the Company
included in the Company SEC Documents do not include any obligation or
commitment to any Affiliate.
(t) LICENSES. All material licenses issued by the Federal Communications
Commission and any similar applicable state agencies (the "LICENSES") required
for the operation of the business of the Company and its Subsidiaries are in
full force and effect and there are no pending or, to the Company's Knowledge,
threatened modifications, amendments or revocation proceedings which would
adversely affect the operations of the Company and its Subsidiaries in any
material respect. All fees due and payable to governmental authorities pursuant
to the rules governing the Licenses have been paid and, to the Company's
Knowledge, no event has occurred with respect to the Licenses held by the
Company and/or any of its Subsidiaries which, with the giving of notice or the
lapse of time or both, would constitute grounds for revocation thereof. The
Company and its Subsidiaries are in compliance in all material respects with the
terms of the Licenses, as applicable, and there is no condition, event or
occurrence existing, nor is there any proceeding being conducted of which the
Company has received notice, nor, to the Company's Knowledge, is there any
proceeding threatened, by any governmental authority, which would cause the
termination, suspension, cancellation or nonrenewal of any of the Licenses, or
the imposition of any penalty or fine by any regulatory authority.
(u) SUBSCRIBER ACCOUNTS. As of May 31, 2000 and at all times through the
Effective Time of the Merger, the Company (together with its Subsidiaries) had
and will have not less than 761,367 active and paying Subscriber Accounts in
good standing; as of May 31, 2000, the Company (together with its Subsidiaries)
had not more than 12,000 non-paying Subscriber Accounts. "SUBSCRIBER ACCOUNTS"
shall mean the Company's personal and business customer accounts for:
(i) dial-up Internet access, (ii) high speed Internet access (DSL, ISDN),
(iii) web site hosting, (iv) e-mail, and (v) all other Internet-related services
and products provided by the Company. SECTION 3.1(u) of the Company Disclosure
Schedule sets forth a list of the following as of May 31, 2000: (i) type of
services provided (dial-up, broadband/ high speed, web hosting, etc.),
(ii) total number of Subscriber Accounts, (iii) total number of paying and
non-paying Subscriber Accounts, and (iii) average revenue per Subscriber Account
by category.
(v) EMPLOYEE BENEFIT MATTERS.
(i) BENEFIT PLANS. SECTION 3.1(v)(i) of the Company Disclosure Schedule
contains a true and complete list of (1) all employee welfare benefit and
employee pension benefit plans as defined in sections 3(1) and 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
including, but not limited to, plans that provide retirement income or result in
a deferral of income by employees for periods extending to termination of
employment or beyond, and plans that provide medical, surgical, or hospital care
benefits or benefits in the event of sickness, accident, disability, death or
unemployment and (2) all other employee benefit agreements or arrangements,
including without limitation deferred compensation plans, incentive plans, bonus
plans or arrangements,
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stock option plans, stock purchase plans, stock award plans, golden parachute
agreements, severance pay plans, dependent care plans, cafeteria plans, employee
assistance programs, scholarship programs, employee discount programs, retention
incentive agreements and other similar plans, agreements and arrangements that
are currently in effect as of the date of this Agreement, or have been approved
before this date but are not yet effective, for the benefit of any director,
officer, employee or former employee (or any of their beneficiaries) of the
Company or any of its Subsidiaries (collectively, a "COMPANY BENEFICIARY"), or
with respect to which the Company or any of its Subsidiaries may have any
material liability ("COMPANY BENEFIT PLAN").
(ii) DISCLOSURE OF DOCUMENTS. With respect to each Company Benefit Plan,
the Company has heretofore made available to EarthLink, as applicable, complete
and correct copies of each of the following documents which the Company has
prepared or has been required to prepare:
(1) the Company Benefit Plan and any amendments thereto (or if the
Company Benefit Plan is not a written agreement, a description thereof);
(2) the three most recent annual Form 5500 reports filed with the
Internal Revenue Service (the "IRS");
(3) the most recent statement filed with the Department of Labor (the
"DOL") pursuant to 29 U.S.C. Section 2520.104-23;
(4) the three most recent annual Form 990 and 1041 reports filed with
the IRS;
(5) the three most recent actuarial reports;
(6) the three most recent reports prepared in accordance with
Statement of Financial Accounting Standards No. 106;
(7) the most recent summary plan description and summaries of
material modifications thereto;
(8) the trust agreement, group annuity contract or other funding
agreement that provides for the funding of the Company Benefit Plan;
(9) the most recent financial statement;
(10) the most recent determination letter received from the IRS; and
(11) any agreement pursuant to which the Company or any Subsidiaries
is obligated to indemnify any person.
(iii) CONTRIBUTIONS AND PAYMENTS. All contributions and other payments
required to have been made by the Company or any entity (whether or not
incorporated) that is treated as a single employer with the Company under
section 414 of the Code (a "COMPANY ERISA AFFILIATE") with respect to any
Company Benefit Plan (or to any person pursuant to the terms thereof) have been
made in all material respects or will be timely made and all such amounts
properly accrued through the date of this Agreement have been reflected in the
financial statements of the Company included in the Company SEC Documents.
(iv) QUALIFICATION; COMPLIANCE. The terms of all Company Benefit Plans
that are intended to be "qualified" within the meaning of section 401(a) of the
Code have been determined by the IRS to be so qualified or the applicable
remedial periods will not have ended prior to the Effective Time of the Merger.
Except as disclosed in SECTION 3.1(v)(vi) of the Company Disclosure Schedule, no
event or condition exists or has occurred that could cause the IRS to disqualify
any Company Benefit Plan that is intended to be qualified under Section 401(a)
of the Code. Except as disclosed in SECTION 3.1(v)(vi) of the Company Disclosure
Schedule, with respect to each Company Benefit Plan, the Company and each
Company ERISA Affiliate are in compliance in all material respects with, and
each Company
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Benefit Plan and related source of benefit payment is and has been operated in
compliance in all material respects with, its terms, all applicable laws, rules
and regulations governing such plan or source, including, without limitation,
ERISA, the Code and applicable local law. To the Knowledge of the Company,
except as set forth in SECTION 3.1(V)(IV) of the Company Disclosure Schedule, no
Company Benefit Plan is subject to any ongoing audit, investigation, or other
administrative proceeding of the IRS, the DOL, or any other federal, state, or
local governmental entity or is scheduled to be subject to such an audit
investigation or proceeding.
(v) LIABILITIES. With respect to each Company Benefit Plan, to the
Knowledge of the Company, there exists no condition or set of circumstances that
could subject the Company or any Company ERISA Affiliate to any liability
arising under the Code, ERISA or any other applicable law (including, without
limitation, any liability to or under any such plan or under any indemnity
agreement to which the Company or any Company ERISA Affiliate is a party), which
liability, excluding liability for benefit claims and funding obligations, each
payable in the ordinary course, could reasonably be expected to have a Material
Adverse Effect on the Company. No claim, action or litigation has been made,
commenced or, to the Knowledge of the Company, threatened, by or against and
Company Benefit Plan or the Company or any of its Subsidiaries with respect to
any Company Benefit Plan (other than for benefits in the ordinary course) that
could reasonably be expected to have a Material Adverse Effect on the Company.
(vi) RETIREE WELFARE PLANS. Except as disclosed in SECTION 3.1(v)(vi) of
the Company Disclosure Schedule, no Company Benefit Plan that is a "welfare
benefit plan" (within the meaning of section 3(1) of ERISA) provides benefits
for any retired or former employees (other than as required under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, or other
applicable state or local law that specifically mandates continued health
coverage).
(vii) PAYMENTS RESULTING FROM MERGER. Except as disclosed in
SECTION 3.1(v)(vii) of the Company Disclosure Schedule, the consummation or
announcement of any transaction contemplated by this Agreement will not (either
alone or in conjunction with another event, including termination of employment)
result in (A) any payment (whether of severance pay or otherwise) becoming due
from the Company or any of its Subsidiaries to any Company Beneficiary or to the
trustee under any "rabbi trust" or similar arrangement, or (B) any benefit under
any Company Benefit Plan being established or increased, or becoming
accelerated, vested or payable.
(viii) DEFINED BENEFIT PENSION PLANS. Neither the Company nor any entity
that was at any time during the six-year period ending on the date of this
Agreement a Company ERISA Affiliate has ever maintained, had an obligation to
contribute to, contributed to, or had any liability with respect to any plan
that is or was a pension plan (as defined in Section 3(2) of ERISA) that is or
was subject to Title IV of ERISA.
(w) EMPLOYMENT MATTERS.
(i) Neither the Company nor any of its Subsidiaries is subject to or
bound by any labor agreement or collective bargaining agreement, there is no
labor dispute, grievance, controversy, strike or request for union
representation pending or to the Knowledge of the Company threatened against
the Company or any of its Subsidiaries relating to or affecting the business
or operations of the Company or any of its Subsidiaries.
(ii) Attached hereto as SECTION 3.1(w) of the Company Disclosure
Schedules is a true and complete list of all outstanding offers of
employment with the Company or any Subsidiary (oral or written) to any
person other than call center employees or other hourly wage employees (the
"OFFER LETTERS"). The Company has provided to EarthLink a copy of all such
outstanding written Offer Letters and a summary of all material terms of
oral Offer Letters.
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(x) NO EXCESS PARACHUTE PAYMENTS. No amount that could be received either
in cash or property or the vesting of property as a result of any of any
transaction contemplated by this Agreement, either alone or in conjunction with
another event, including termination of employment, by any employee, officer or
director of the Company or any of its affiliates who is a "disqualified
individual" (as such term is defined in proposed Treasury Regulation
Section 1.280G-1) under any Company Benefit Plan would be characterized as an
"excess parachute payment" (as such term is defined in section 280G(b)(1) of the
Code).
(y) ENVIRONMENTAL MATTERS. (i) The business and operations of the Company
and its Subsidiaries are being conducted in compliance in all material respects
with all limitations, restrictions, standards and requirements established under
all environmental laws, (ii) no facts or circumstances exist that impose, or, to
the Company's Knowledge, with the passage of time, notice, cessation of
operations or otherwise will impose, on the Company or any of its Subsidiaries
an obligation under environmental laws to conduct any removal, remediation or
similar response action, at present or in the future, (iii) there is no
obligation, undertaking or liability arising out of or relating to environmental
laws that the Company or any of its Subsidiaries has agreed to, assumed or
retained, by contract or otherwise, or that has been imposed on the Company or
any of its Subsidiaries by any writ, injunction, decree, order or judgment, and
(iv) there are no actions, suits, claims, investigations, inquiries or
proceedings pending or, to the Company's Knowledge, threatened against the
Company or any of its Subsidiaries that arise out of or relate to environmental
laws.
(z) TITLE TO AND CONDITIONS OF PROPERTIES.
(i) Each of the Company and its Subsidiaries has good title to, or valid
leasehold interests in, all its properties and assets purported to be owned
by it in the Company SEC Documents, except for such as are no longer used or
useful in the conduct of its businesses or as have been disposed of in the
ordinary course of business and except for minor defects in title,
easements, restrictive covenants and similar encumbrances or impediments
that, in the aggregate do not and will not materially interfere with its
ability to conduct its business as currently conducted. Except as set forth
on SECTION 3.1(z) of the Company Disclosure Schedule, all such assets and
properties, other than assets and properties in which the Company or any of
the Subsidiaries has leasehold interests, are free and clear of all Liens,
other than those set forth in the Company SEC Documents and except for minor
Liens, that, in the aggregate, do not and will not materially interfere with
the ability of the Company or any of its Subsidiaries to conduct business as
currently conducted or as reasonably expected to be conducted.
(ii) Each of the Company and each of its Subsidiaries has complied in
all material respects with the terms of all leases to which it is a party
and under which it is in occupancy, and all such leases are in full force
and effect. Except as set forth in SECTION 3.1(z) of the Company Disclosure
Schedules, each of the Company and each of its Subsidiaries enjoys peaceful
and undisturbed possession under all such leases.
(iii) Except as set forth on SECTION 3.1(z) of the Company Disclosure
Schedule, to the Knowledge of the Company, the buildings and premises of the
Company and each of its Subsidiaries that are used in its business are in
reasonably good operating condition and in a state of reasonably good
maintenance and repair, normal wear and tear excepted, and are reasonably
adequate and suitable for the purpose for which they are currently being
used, and have access to adequate utility services necessary for the conduct
of the business. All items of operating equipment of the Company and its
Subsidiaries are in reasonably good operating condition and in a state of
reasonable maintenance and repair, ordinary wear and tear excepted.
(aa) UNDISCLOSED LIABILITIES. Except as set forth in the Company SEC
Documents or SECTION 3.1(aa) of the Company Disclosure Schedule (and other than
those directly incurred in connection with the execution of this Agreement), at
the date of the most recent audited financial
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statements of the Company included in the Company SEC Documents, neither the
Company nor any of its Subsidiaries had, and since such date neither the Company
nor any of such Subsidiaries has incurred (except in the ordinary course of
business), any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise), required by generally accepted accounting
principles to be set forth on a financial statement or in the notes thereto or
which, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on the Company and its Subsidiaries, taken as a whole.
(bb) INSURANCE. SECTION 3.1(bb) of the Company Disclosure Schedule
accurately lists in reasonable detail all insurance policies maintained by the
Company. The Company maintains insurance coverage reasonably adequate for the
operation of the business of the Company and each of its Subsidiaries, and the
transactions contemplated hereby will not materially adversely affect such
coverage.
(cc) FULL DISCLOSURE. No representation or warranty made by the Company or
any Subsidiaries contained in this Agreement and no statement contained in any
certificate or schedule furnished or to be furnished by the Company or any
Subsidiaries to EarthLink in, or pursuant to the provisions of, this Agreement
(including the Company Disclosure Schedule), contains or shall contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary, in the light of the circumstances under which it was made, in
order to make statements herein or therein not misleading.
(dd) [reserved]
(ee) SEVERANCE PAYMENTS. Attached hereto as Section 3.1(ee) of the Company
Disclosure Schedules is a true and complete list of the Company's and its
Subsidiaries' salaried employees with severance pay arrangements and the total
amount of potential severance payments for each such person (the
"SALARY/SEVERANCE LIST"). Such list sets forth the employee's name, total amount
of potential severance pay and other related information. From the date of this
Agreement through the Effective Time of the Merger, the Company's and
Subsidiaries' total aggregate future "Qualified Severance Expenditures" (as
defined herein) (whether paid, incurred or accrued prior to the Effective Time
of the Merger--"Paid") for severance and all similar payments to employees
identified on the Salary/ Severance List shall not exceed $1,700,000 (the
"SEVERANCE LIMIT"). For purposes hereof, a "Qualified Severance Expenditure"
shall mean any severance payment or expenditure Paid by the Company to persons
from the Salary/Severance List that have declined a comparable job offer from
EarthLink. The Severance Limit shall not include any severance payments by the
Company or its Subsidiaries related to its or their ongoing reduction in force
and reserved for on the Company's consolidated balance sheet as of March 31,
2001.
(ff) WARN ACT. In connection with the Company's planned reductions in
workforce and terminations of employees pursuant to its Integration Plan or
otherwise, the Company has complied and will comply in all material respects
with its obligations under the Worker Adjustment and Retraining Notification Act
(29 U.S.C. Section 2101 ET SEQ.), and all applicable regulations all similar
state laws.
(gg) EARNOUT PAYMENTS. SECTION 3.1(gg) of the Company Disclosure Schedule
sets forth a true, accurate and complete list of all the Company's and
Subsidiaries' "earnout" and similar payment obligations and receivables of every
type, related to prior acquisitions or otherwise (the "EARNOUTS"). No such
Earnouts require the Company or any Subsidiary to issue capital stock, options,
warrants or other types of securities in connection therewith.
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SECTION 3.2. REPRESENTATIONS AND WARRANTIES OF EARTHLINK AND COMBINATION
COMPANY. EarthLink and the Combination Company each represents and warrants to,
and agrees with, the Company as follows, except as expressly contemplated by
this Agreement:
(a) ORGANIZATION; STANDING AND POWER. EarthLink and Combination Company
are each respectively corporations duly organized, validly existing and in good
standing under the laws of the State of Delaware and have the requisite
corporate power and authority to carry on their respective businesses as now
being conducted. EarthLink and Combination Company are each respectively duly
qualified to do business and are in good standing in each jurisdiction in which
the nature of their respective businesses or the ownership or leasing of their
respective properties makes such qualification necessary, other than in such
jurisdictions where the failure to be so qualified to do business or in good
standing would not have a Material Adverse Effect on EarthLink and its
Subsidiaries, taken as a whole. Combination Company was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement. As of
the date of this Agreement, except for obligations or liabilities incurred in
connection with the transactions contemplated hereby, the Combination Company
has no material assets or liabilities of any type.
(b) CAPITAL STRUCTURE. The authorized capital stock of EarthLink consists
of 300,000,000 shares of EarthLink Common Stock, $.01 par value, and 100,000,000
shares of preferred stock, $.01 par value ("EARTHLINK PREFERRED STOCK"). As of
March 31, 2000, 118,174,099 shares of EarthLink Common Stock were issued and
outstanding, and 16,734,057 shares of EarthLink Preferred Stock were issued and
outstanding. In addition, as of the date hereof, a total of 20,350,000 shares of
common stock are reserved for issuance under EarthLink's Stock Incentive Plan
and Stock Option Plan for Non-Employee Directors. All outstanding shares of
capital stock of EarthLink are validly issued, fully paid and nonassessable and
not subject to preemptive rights. The shares of EarthLink Common Stock to be
issued pursuant to the terms of this Agreement and upon exercise of any
converted Company Options and Warrants have been adequately reserved and will,
when issued, be validly issued, fully paid and non-assessable and not subject to
preemptive rights. Such shares of EarthLink Common Stock will, when issued, be
registered under the Securities Act and the Exchange Act and will, when issued,
be approved for trading on Nasdaq-National Market. The authorized capital stock
of Combination Company consists of 10,000 shares of common stock, $.01 par
value, and no shares of preferred stock, $.01 par value. As of the date of this
Agreement, ten (10) shares of Combination Company common stock are issued and
outstanding in the name of EarthLink, and no other shares of capital stock of
Combination Company are issued and outstanding. All outstanding shares of
capital stock of Combination Company are validly issued, fully paid and
nonassessable and not subject to preemptive rights.
(c) AUTHORITY; NON-CONTRAVENTION. The Board of Directors of EarthLink and
Combination Company, respectively have approved the Merger and this Agreement
and determined the Merger and this Agreement to be in the best interests of
EarthLink and Combination Company and their respective stockholders. EarthLink
and Combination Company, respectively, have the requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by EarthLink
and the Combination Company and the consummation by EarthLink and Combination
Company of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of EarthLink and Combination Company,
respectively. This Agreement has been duly and validly executed and delivered by
EarthLink and Combination Company and constitutes a valid and binding obligation
of EarthLink and Combination Company, respectively, enforceable against
EarthLink and Combination Company in accordance with its terms, except that
(i) such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws or judicial decisions now or hereafter in
effect relating to creditors' rights generally, (ii) the remedy of specific
performance and injunctive relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor
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may be brought and (iii) the enforceability of any indemnification provision
contained herein may be limited by applicable federal or state securities laws.
The execution, delivery and performance of this Agreement by EarthLink does not,
and the consummation of the transactions contemplated hereby and compliance with
the provisions hereof will not, conflict with, or result in any violation of or
any default under or give rise to a right of termination, cancellation or
acceleration with respect to (i) the Amended and Restated Certificate of
Incorporation or the Bylaws of EarthLink or any provision of the comparable
organizational documents of Combination Company or any of their Subsidiaries,
(ii) any material: contract, loan, note, bond or other evidence of indebtedness,
or (iii) subject to the governmental filings and other matters referred to in
the following sentence, any judgment, order, decree, statute, law, ordinance,
rule or regulation or arbitration award applicable to EarthLink or any of its
Subsidiaries or their respective properties or assets, other than, in the case
of clauses (ii) and (iii), for any immaterial defaults, conflicts or violations.
No consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity or other Person is required by or with
respect to EarthLink or any of its Subsidiaries in connection with the execution
and delivery of this Agreement by EarthLink or the consummation by EarthLink of
the transactions contemplated hereby, except for (i) the filing by EarthLink of
a pre-merger notification and report form under the HSR Act and the expiration
or termination of the waiting period thereunder, (ii) the filing with the SEC of
(A) the Proxy Statement, (B) the Registration Statement (as defined in
SECTION 5.1(b)), and (C) such reports under Section 13(a) of the Exchange Act as
may be required in connection with this Agreement and the transactions
contemplated hereby, and (iii) the filing of the Certificate of Merger with and
approval by the Delaware Secretary of State with respect to the Merger as
provided in the DGCL and appropriate documents with the relevant authorities of
other states in which the Company is qualified to do business and such other
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under the "takeover" or "blue sky" laws of various
states and such other consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained or
made would not have a Material Adverse Effect on EarthLink and its Subsidiaries,
taken as a whole. No vote of the stockholders of EarthLink is necessary or
required to approve or consummate any of the transactions contemplated hereby.
The affirmative vote of EarthLink as the sole stockholder of Combination
Company, is the only vote of the holders of any class or series of capital stock
of Combination Company necessary to approve the transaction contemplated hereby.
(d) SEC DOCUMENTS. EarthLink, EarthLink Network, Inc., a Delaware
corporation ("OLD EARTHLINK") and MindSpring Enterprises, Inc., a Delaware
corporation ("MINDSPRING"), each has filed all required reports, schedules,
forms, statements and other documents with the SEC as follows: for EarthLink,
since February 4, 2000, for Old EarthLink, since January 1, 1999 and for
MindSpring, since January 1, 1999 (such documents, together with all exhibits
and schedules thereto and documents incorporated by reference therein
collectively referred to herein as the "EARTHLINK SEC DOCUMENTS"). As of their
respective dates, the EarthLink SEC Documents complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case may
be, and the rules and regulations of the SEC promulgated thereunder applicable
to such EarthLink SEC Documents, and none of the EarthLink SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The consolidated financial statements of EarthLink included in the
EarthLink SEC Documents complied in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles (except, in the case of unaudited statements, as permitted
by Form 10-Q of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited statements, as permitted by Rule 10-01 of Regulation S-X of the SEC)
and fairly present the consolidated financial position of EarthLink and its
consolidated Subsidiaries as of the
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dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments and other adjustments described therein).
(e) INFORMATION SUPPLIED. None of the information supplied or required to
be supplied by EarthLink or Combination Company for inclusion or incorporation
by reference in (i) the Registration Statement will, at the time the
Registration Statement is filed with the SEC, and at any time it is amended or
supplemented or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, and
(ii) the Proxy Statement relating to the Company's Stockholders Meeting, at the
date the Proxy Statement is first mailed to the Company's stockholders and at
the time of the Company Stockholders Meeting, will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. Notwithstanding the
foregoing, no representation or warranty is made by EarthLink with respect to
statements made or incorporated by reference contained in or omitted from any of
the foregoing documents based on information supplied or required to be supplied
by the Company for inclusion or incorporation by reference therein. All
documents that EarthLink is responsible for filing with the SEC in connection
with the transactions contemplated herein will comply as to form and substance
in all material respects with the applicable requirements of the Securities Act
and the Exchange Act.
(f) BROKERS. Other than Donaldson, Lufkin & Jenrette Securities
Corporation, no broker, investment banker or other Person is entitled to receive
from EarthLink or any of its Subsidiaries any investment banking, broker's,
finder's or similar fee or commission in connection with this Agreement or the
transactions contemplated hereby, including any fee for any opinion rendered by
any investment banker.
(g) UNDISCLOSED LIABILITIES. Except as set forth in the EarthLink SEC
Documents, at the date of the most recent audited financial statements of
EarthLink included in the EarthLink SEC Documents neither EarthLink nor any of
its Subsidiaries had, and since such date neither EarthLink nor any of such
Subsidiaries has incurred (except in the ordinary course of business), any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise), required by generally accepted accounting principles to be set
forth on a financial statement or in the notes thereto or which, individually or
in the aggregate, could reasonably be expected to have a Material Adverse Effect
on EarthLink and its Subsidiaries, taken as a whole.
(h) LITIGATION. Except as disclosed in the EarthLink SEC Documents,
(x) there is no material claim, suit, action, proceeding or investigation
pending or, to EarthLink's Knowledge, threatened against or affecting EarthLink,
the Combination Company or any of their Subsidiaries, and (y) there is no claim,
suit, action, proceeding or investigation pending or, to EarthLink's Knowledge,
threatened against or affecting EarthLink that could prevent or materially delay
the ability of EarthLink or the Combination Company to consummate the
transactions contemplated by this Agreement, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against EarthLink or the Combination Company or any of their Subsidiaries
having, or which, insofar as reasonably can be foreseen, in the future could
have, any such effect.
(i) OPINION OF EARTHLINK FINANCIAL ADVISORS. EarthLink's Board of
Directors has received an opinion from Donaldson, Lufkin & Jenrette Securities
Corporation to the effect that, as of the date of this Agreement, the aggregate
consideration, which includes cash consideration and EarthLink stock
consideration (based on the closing stock price of EarthLink Common Stock on
June 7, 2000), to be paid by EarthLink (excluding any consideration to be paid
to stockholders of the Company who perfect
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their appraisal rights under Delaware law) pursuant to this Agreement is fair to
EarthLink from a financial point of view.
(j) FULL DISCLOSURE. No representation or warranty made by EarthLink or
any Subsidiary of EarthLink contained in this Agreement, and no statement
contained in any certificate or schedule furnished to or to be furnished by
EarthLink or any Subsidiary of EarthLink contains or shall contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary, in the light of the circumstances under which it was made, in order
to make statements herein or therein not misleading.
(k) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the
EarthLink SEC Documents, since February 4, 2000, EarthLink has conducted its
business only in the ordinary course of business consistent with past practice,
and there has not been (i) as of the date hereof, any changes events or
conditions with respect to EarthLink that has had or is reasonably likely to
have a Material Adverse Effect on EarthLink and its Subsidiaries, taken as a
whole; (ii) any amendment of any material term of any outstanding equity
security of EarthLink or any Subsidiary; (iii) any material damage, destruction,
loss, whether or not covered by insurance; or (iv) any change in accounting
methods, principles or practices by EarthLink materially affecting its assets,
liabilities or business, except insofar as may have been required by a change in
generally accepted accounting principles.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1. CONDUCT OF BUSINESS OF THE COMPANY.
(a) INTEGRATION; ORDINARY COURSE. In furtherance of integrating the
Company and its Subsidiaries with EarthLink (the "OM INTEGRATION"), prior to the
Effective Time of the Merger, the Company and its Subsidiaries shall provide to
EarthLink and its representatives reasonable and full access (during business
hours and upon reasonable advance notice) to the Company's and Subsidiaries'
facilities, systems, records, employees (all levels and types) and other
personnel as requested by EarthLink. The Company and EarthLink agree to
cooperate and communicate in good faith in all aspects of the OM Integration,
with principal goals of facilitating the integration of the Company's and
Subsidiaries' operations into EarthLink and to minimize the Company's potential
contractual default/breaches, costs and other problems arising as a result of
the Merger. As part of the OM Integration, the Company and Subsidiary
representatives shall cooperate and work in good faith with EarthLink
representatives and take commercially reasonable actions in order to identify,
minimize and if possible eliminate potential violations (related to or caused by
the Merger) of the Company's and Subsidiaries' contracts, agreements and leases,
including without limitation working directly with the Company's and
Subsidiaries' vendors and other contractual parties for these purposes.
As has been disclosed to EarthLink, the Company and its Subsidiaries are
currently engaged in a series of integration steps whereby the Company's
Subsidiaries and regional operations are to be integrated into the Company's
national Internet service plan pursuant to the Company's Integration Plan as
provided in writing to EarthLink (the "INTEGRATION PLAN"). During the period
from the date of this Agreement to the Effective Time of the Merger (except as
otherwise specifically contemplated by the terms of this Agreement or as set
forth in the Company Disclosure Schedules), the Company shall and shall cause
its Subsidiaries to carry on the Company's Integration Plan and their respective
businesses in the usual, regular and ordinary course consistent with the
Integration Plan and in substantially the same manner as heretofore conducted
and, to the extent consistent therewith, use all commercially reasonable efforts
to preserve intact their current business organizations, keep available the
services of their current officers and employees and preserve their
relationships with customers, suppliers, licensors, licensees, distributors and
others having business dealings with them, in each case consistent with past
practice in the ordinary course of business to the end that their goodwill and
ongoing businesses shall be unimpaired to the fullest extent possible at the
Effective Time of the Merger. The Company shall use its best efforts to sell,
transfer or otherwise dispose of its leasehold and other interests in that
certain airplane currently leased by the Company.
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In connection with the Integration Plan, without limiting the generality of
the foregoing, and except as otherwise expressly contemplated by this Agreement
or as set forth in the Company Disclosure Schedules, from the date hereof until
the Effective Time of the Merger, without prior approval from EarthLink in
accordance with the following "APPROVAL MECHANISM", the Company shall not, and
shall not permit any of its Subsidiaries of which it owns directly or indirectly
more than 50% of the voting or equity interests in to take any of the actions
set forth below (the "APPROVAL ITEMS"). The Approval Mechanism shall be as
follows: for each proposed Approval Action set forth below, a Company
representative (the President or his designee) shall contact EarthLink (the
President or his designee) via telephone or email with the request and
reasonable detail on the proposed Approval Item. EarthLink shall then have two
(2) business days after receipt of such request to either approve or deny the
proposed Approval Item, which decision shall be communicated by EarthLink to the
Company via telephone or email. A lack of response to the Company by EarthLink
as required by 5:00 p.m. on the second business day following the request shall
be considered an approval for such request. The Approval Items, which are
applicable to the Company and its Subsidiaries as appropriate, are as follows:
(i) (A) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than dividends
and distributions by any direct or indirect wholly owned Subsidiary of the
Company to the Company or a wholly owned Subsidiary of the Company and
immaterial dividends, distributions and other similar transactions involving
existing Subsidiaries, (B) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock or
(C) purchase, redeem or otherwise acquire any shares of capital stock of the
Company or any of its Subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities;
(ii) (A) authorize, issue, deliver, sell, pledge or otherwise encumber
any securities (equity or debt or otherwise) whatsoever, including without
limitation, capital stock, common stock, preferred stock, notes, bonds,
debentures and any other securities convertible into capital stock or other
securities, including without limitation warrants, options or otherwise
(other than pursuant to the Offer Letters, pursuant to Company Options
outstanding on the date of this Agreement or pursuant to elections under the
Stock Purchase Plan made prior to the date of this Agreement);
(iii) amend the Company's or any Subsidiaries' Articles/Certificate of
Incorporation, Bylaws or other governing documents;
(iv) acquire or agree to acquire any business, corporation, partnership,
association, joint venture, limited liability company or other entity or
division thereof.
(v) incur any obligation for borrowed money, whether or not evidenced by
a note, bond, debenture or similar instrument, except for (a) purchase money
indebtedness, (b) capitalized leases or operating leases, and (c) such
borrowings under the Company existing revolving credit facilities or letters
of credit that would add additional outstanding indebtedness of the Company
and its Subsidiaries on a consolidated basis of more than $100,000;
(vi) sell, lease, mortgage, pledge or grant a Lien on or otherwise
encumber or dispose of any of its material properties or assets, except
(A) sales of inventory in the ordinary course of business consistent with
past practice, (B) immaterial liens not relating to the borrowing of money
or the incurrence of any monetary obligation and (C) other immaterial
transactions not in excess of $100,000 in the aggregate;
(vii) make any material election relating to Taxes or settle or
compromise any material Tax liability;
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(viii) adopt a plan of complete or partial liquidation of the Company or
any of its Subsidiaries or resolutions providing for or authorizing such a
liquidation or a dissolution, merger, consolidation, restructuring,
recapitalization or reorganization; PROVIDED, HOWEVER, that in connection
with the Company's Integration Plan, the Company's Subsidiaries or any one
of them may merge into the Company or any other Company Subsidiary.
(ix) change any material accounting principle used by it, except as
required by regulations promulgated by the SEC;
(x) fail to maintain insurance upon all its properties and with respect
to the conduct of its business of such kinds and in such amounts as is
current in effect;
(xi) accelerate the vesting schedule of any options, warrants or any
other rights exercisable into capital stock of the Company or any Subsidiary
(except to extent required by the Company's option agreements or warrants
and the Company's Stock Option Plan existing on the date hereof);
(xii) [reserved];
(xiii) authorize or make any payment to an Affiliate of the Company
except in the ordinary course of business or pursuant to any agreement,
arrangement or understanding existing on the date of this Agreement and
disclosed in writing to EarthLink;
(xiv) authorize any cash expenditure for any reason that exceeds
$100,000;
(xv) make any earnout or any similar type payments, except those set
forth on Section 3.1(gg) of the Company Disclosure Schedule; and
(xvi) authorize any of, or commit or agree to take any of, the foregoing
actions.
(b) CHANGES IN EMPLOYMENT ARRANGEMENTS. Except as may occur in connection
with the merger of certain of the Company's 401(k) Plans occurring as part of
the Integration Pan or as required by the Company's 401(k) Plans, neither the
Company nor any of its Subsidiaries shall (except as may be required in order to
give effect to the requirements of this Agreement) with respect to any Company
or Subsidiary officer, employee, consultant or otherwise: (i) adopt or amend
(except as may be required by law) any bonus, profit sharing, compensation,
stock option, pension, retirement, deferred compensation, employment or other
employee benefit plan, agreement, trust, fund or other arrangement (including
any Company Benefit Plan) for the benefit or welfare of any employee, director
or former director or employee, (ii) increase the compensation or any fringe
benefits of any employee of the Company or any of its Subsidiaries, or,
(iii) increase the compensation, bonus or fringe benefits of any employee or
former employee or pay any benefit, PROVIDED, that the Company may increase the
wage or salary of any employee only on the anniversary of their previous wage or
salary increase, PROVIDED, that the aggregate of such wage or salary increases
may not exceed 5% in total or 10% for any one individual.
(c) SEVERANCE ARRANGEMENTS. Except as may occur in connection severance
obligations set forth in SECTION 3.1(EE) of the Company Disclosure Schedule,
neither the Company nor any of its Subsidiaries shall grant, pay or agree to
grant or pay any severance, termination or similar arrangement or otherwise
modify or amend in any manner whatsoever (including without limitation an
increase or acceleration of such benefits) any existing severance, termination
or similar benefits, except as specifically permitted and as limited pursuant to
the Salary/Severance List and SECTION 3.1(EE) hereof.
Prior to the Effective Time of the Merger, the Company shall pay and
discharge in full all its severance obligations set forth in the portion of
Section 3.1(ee) of the Company Disclosure Schedules described as "Previously
Terminated Employees to whom the Company has Severance Obligations."
(d) OTHER ACTIONS. The Company shall not, and shall not permit any of its
Subsidiaries to, take any action that would, or that could reasonably be
expected to, result in any of the representations and warranties of the Company
set forth in this Agreement becoming untrue in any material respect.
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(e) COMPANY STOCK PURCHASE PLAN. Upon execution of this Agreement, the
Company shall suspend in full (and shall not reactivate) the Company's Stock
Purchase Plan effective as of the last day of the current Offering Period (as
such term is defined in the Stock Purchase Plan), which day is July 31, 2000.
Any rights to purchase Company Common Stock that are outstanding as of such date
may be exercised in accordance with the terms of the Stock Purchase Plan. The
Company shall not issue any Company Shares or any rights to acquire Company
Shares under the Stock Purchase Plan prior to the Effective Time of the Merger
(other than shares issued pursuant to elections existing under the Stock
Purchase Plan on the date hereof), and shall terminate the Stock Purchase Plan
in full as of the Effective Time of the Merger.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1. STOCKHOLDER APPROVAL; PREPARATION OF PROXY STATEMENT;
PREPARATION OF REGISTRATION STATEMENT.
(a) The Company shall, as soon as practicable following the execution and
delivery of this Agreement on a date to be agreed upon between EarthLink and the
Company, which date shall be set taking into account the status of pending
regulatory matters pertaining to the transactions contemplated hereby, duly
call, give notice of, convene and hold the Company Stockholders Meeting for the
purpose of approving the Merger, this Agreement and the transactions
contemplated hereby. Unless withdrawn pursuant to this Agreement, the Company
will, through its Board of Directors, recommend to its stockholders the approval
and adoption of the Merger. The Company and EarthLink shall coordinate and
cooperate with respect to the timing of the Company Stockholders Meeting and
shall endeavor to hold such meeting as soon as reasonably practical after the
date hereof.
(b) Promptly following the date of this Agreement, EarthLink shall prepare
and file with the SEC, and the parties hereto shall cooperate and use their
reasonable best efforts to prepare and file, a registration statement on
Form S-4 (in which the Proxy Statement will be included), and any necessary
amendments or supplements thereto relating to the registration under the
Securities Act of the EarthLink Common Stock to be issued in the Merger (the
"REGISTRATION STATEMENT"). Each of the Company and EarthLink shall use its
reasonable best efforts as promptly as practicable, subject to the setting of
the date for the Company Stockholders Meeting as provided in SECTION 5.1(A), to
have the Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing. Each of the Company and EarthLink
will use its reasonable best efforts to cause the Proxy Statement to be mailed
to the Company's stockholders as promptly as practicable after the Registration
Statement is declared effective under the Securities Act. EarthLink shall also
take such reasonable actions (other than qualifying to do business in any
jurisdiction in which it is not now so qualified) as may be required to be taken
under any applicable state securities laws in connection with the issuance of
EarthLink Common Stock in the Merger, and the Company shall furnish all
information concerning the Company and the holders of the Company Shares and
rights to acquire Company Shares pursuant to the Company Stock Plans as may be
reasonably requested in connection with any such action. The Company and
EarthLink will notify each other promptly of the receipt of any written or oral
comments from the SEC or its staff and of any request by the SEC or its staff
for amendments or supplements to the Proxy Statement, the Registration Statement
or for additional information and will supply each other with copies of all
correspondence between the Company or EarthLink, respectively, or any of its
representatives, on the one hand, and the SEC or its staff, on the other hand,
with respect to the Proxy Statement, the Registration Statement or the Merger.
No filing of, or amendment or supplement to, the Registration Statement or the
Proxy Statement will be made by EarthLink without the Company's prior consent
(which shall not be unreasonably withheld, delayed or conditioned) and without
providing the Company the reasonable and adequate opportunity to review and
comment thereon. EarthLink shall advise the Company, promptly after it receives
notice thereof, of the time when the Registration
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Statement has become effective or when any supplement or amendment has been
filed, the issuance of any stop order, the suspension of the qualification of
EarthLink Common Stock issuable in connection with the Merger for offering or
sale in any jurisdiction, or any request by the SEC for amendment of the Proxy
Statement or the Registration Statement or comments thereon and responses
thereto or requests by the SEC for additional information. If at any time prior
to the Effective Time of the Merger any information relating to the Company or
EarthLink, or any of their respective Affiliates, officers or directors, should
be discovered by the Company or EarthLink which should be set forth in an
amendment or supplement to any of the Registration Statement or the Proxy
Statement, so that any of such documents would not include any misstatement of a
material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, the party which discovers such information shall promptly notify
the other parties hereto and an appropriate amendment or supplement describing
such information shall be promptly filed with the SEC and, to the extent
required by law, disseminated to the stockholders of the Company and EarthLink.
EarthLink shall, prior to the Closing Date file with Nasdaq a Notification for
Additional Listing of Shares providing for inclusion for quotation on
Nasdaq-National Market of the shares of EarthLink Common Stock issuable in
connection with the Merger and upon the exercise of any Company Options and
Noteholder Warrant converted or replaced pursuant to this Agreement and shall
use its reasonable best efforts to cause the shares of EarthLink Common Stock
issuable in connection with the Merger and upon the exercise of any Company
Options and Noteholder Warrant converted pursuant to this Agreement to be
approved for quotation on Nasdaq-National Market, subject to official notice of
issuance, prior to the Closing Date.
(c) The Company will cause its transfer agent to make stock transfer records
relating to the Company available to the extent reasonably necessary to
effectuate the intent of this Agreement.
SECTION 5.2. ACCESS TO INFORMATION. Upon reasonable notice, the Company
and EarthLink shall each (and shall cause each of their respective Subsidiaries
to) afford to the officers, employees, accountants, counsel and other
representatives of the other, reasonable access during normal business hours
during the period from the date hereof to the Effective Time of the Merger, to
all of its properties, books, contracts, commitments and records, and during
such period, each of the Company and EarthLink shall (and shall cause each of
their respective Subsidiaries to) furnish promptly to the other (i) a copy of
each report, schedule, registration statement and other document filed or
received by it during such period pursuant to the requirements of the Exchange
Act or the Securities Act (including all comment letters from the staff of the
SEC) and (ii) all other information concerning its business, properties and
personnel as such other party may reasonably request; PROVIDED, HOWEVER, that
notwithstanding the foregoing provisions of this SECTION 5.2 or any other
provision of this Agreement, neither the Company nor EarthLink shall be required
to provide to the other party any information that is subject to a
confidentiality agreement and that relates primarily to a party other than the
Company, EarthLink or any Subsidiary or former Subsidiary of the Company or
EarthLink. Each of the Company and EarthLink agrees that it will not, and it
will cause its respective representatives not to, use any information obtained
pursuant to this SECTION 5.2 for any purpose unrelated to the consummation of
the transactions contemplated by this Agreement. The Confidentiality and
Standstill Agreement dated May 24, 2000 (the "CONFIDENTIALITY AGREEMENT"), by
and between the Company and EarthLink, shall apply with respect to information
furnished by the Company, EarthLink and their respective Subsidiaries and
representatives thereunder or hereunder and any other activities contemplated
thereby. The parties agree that this Agreement and the transactions contemplated
hereby shall not constitute a violation of the Confidentiality Agreement and
that the provisions hereof shall supersede all provisions of the Confidentiality
Agreement in the event of a conflict.
SECTION 5.3. REASONABLE EFFORTS; NOTIFICATION.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, except to the extent otherwise required by United States regulatory
considerations and otherwise provided in this
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SECTION 5.3, each of the parties agrees to use commercially reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger, and the other transactions contemplated by this
Agreement, including (i) the obtaining of all necessary actions or nonactions,
waivers, consents and approvals from Governmental Entities and the making of all
necessary registrations and filings (including filings with Governmental
Entities, if any) and the taking of all reasonable steps as may be necessary to
obtain an approval or waiver from, or to avoid an action or proceeding by, any
Governmental Entity, (ii) the obtaining of all necessary consents, approvals or
waivers from third parties, (iii) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of the transactions contemplated hereby, including seeking to
have any stay or temporary restraining order entered by any court or other
Governmental Entity vacated or reversed and (iv) the execution and delivery of
any additional instruments (including any required supplemental indentures)
necessary to consummate the transactions contemplated by this Agreement.
Notwithstanding the foregoing, neither party shall be required to agree to any
consent, approval or waiver that would require such party to take an action that
would impair the value that such party reasonably attributes to the Merger and
the transactions contemplated thereby. In connection with and without limiting
the foregoing, each of the Company and EarthLink and its respective Board of
Directors shall (i) take all action reasonably necessary to ensure that no state
takeover statute or similar statute or regulation is or becomes applicable to
the Merger and (ii) if any state takeover statute or similar statute or
regulation becomes applicable to the Merger, take all action reasonably
necessary to ensure that the Merger may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on the Merger.
(b) The Company shall give prompt notice to EarthLink, and EarthLink shall
give prompt notice to the Company, of (i) any representation or warranty made by
it contained in this Agreement becoming untrue or inaccurate in any material
respect or (ii) the failure by it to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied by
it under this Agreement; PROVIDED, HOWEVER, that no such notification shall
affect the representations or warranties or covenants or agreements of the
parties or the conditions to the obligations of the parties hereunder.
(c) (i) Each of the parties hereto shall file a premerger notification and
report form under the HSR Act with respect to the Merger as promptly as
reasonably possible following execution and delivery of this Agreement, but in
no event later than fifteen (15) calendar days after the date hereof. Each of
the parties agrees to use reasonable best efforts to promptly respond to any
request for additional information pursuant to Section (e)(1) of the HSR Act.
(ii) Except as otherwise required by United States regulatory
considerations, the Company and EarthLink will each furnish to the other,
copies of all correspondence, filings or communications (or memoranda
setting forth the substance thereof) (collectively, "HSR DOCUMENTS") between
the Company and EarthLink, respectively, or any of their respective
representatives, on the one hand, and any Governmental Entity, or members of
the staff of such agency or authority, with respect to this Agreement or the
Merger; PROVIDED, HOWEVER, that (x) with respect to documents and other
materials filed by or on behalf of either the Company or EarthLink, with the
Antitrust Division of the Department of Justice, the Federal Trade
Commission, or any state attorneys general that are available for review by
the other party, copies will not be required to be provided to such other
party, and (y) with respect to any HSR Documents (1) that contain any
information which, in the reasonable judgment of Hogan & Hartson L.L.P., on
behalf of the Company, and Hunton & Williams, on behalf of EarthLink, should
not be furnished to the Company or EarthLink, as applicable, because of
antitrust
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considerations or (2) relating to a request for additional information
pursuant to Section (e)(1) of the HSR Act, the obligation of the Company or
EarthLink, as applicable, to furnish any such HSR Documents to the other
party, shall be satisfied by the delivery of such HSR Documents on a
confidential basis to such party's counsel pursuant to a confidentiality
agreement in form and substance reasonably satisfactory to each party.
(iii) Nothing contained in this Agreement shall be construed so as to
require EarthLink or the Company, or any of their respective Subsidiaries or
affiliates, to sell, license, dispose of, or hold separate, or to operate in
any specified manner, any material assets or businesses of EarthLink, the
Company or the Surviving Corporation (or to require EarthLink, the Company
or any of their respective Subsidiaries or affiliates to agree to any of the
foregoing). The obligations of each party under SECTION 5.4(A) to use
reasonable best efforts with respect to antitrust matters shall be limited
to compliance with the reporting provisions of the HSR Act and with its
obligations under this SECTION 5.4(C).
SECTION 5.4. FEES AND EXPENSES. Except as provided in ARTICLE VIII, all
fees and expenses incurred in connection with the Merger, this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such fees
or expenses, whether or not the Merger is consummated; PROVIDED, that in
connection with the actions contemplated in SECTION 5.1 hereof, (a) EarthLink
and the Company shall each be responsible for 50% of the fees related to the
financial printer, printing and mailing of the Proxy Statement, (b) the SEC and
blue sky registration fees and Nasdaq listing fees shall be paid by EarthLink,
and (c) each party shall pay the filing fee related to its Hart-Scott-Rodino
filings and clearance. The Company has delivered to EarthLink an estimate of the
fees and expenses to be incurred by the Company in connection with this
Agreement and the transactions contemplated hereby.
SECTION 5.5. PUBLIC ANNOUNCEMENTS. EarthLink and the Company will consult
with each other before issuing any press release or otherwise making any public
statements with respect to the transactions contemplated by this Agreement and
shall not issue any such press release or make any such public statement prior
to such consultation, except that each party may respond to questions from
stockholders and may respond to inquiries from financial analysts and media
representatives in a manner consistent with its past practice and each party may
make such disclosure as may be required by applicable law or by obligations
pursuant to any listing agreement with any national securities exchange without
prior consultation to the extent such consultation is not reasonably
practicable. The parties agree that the initial press release or releases to be
issued in connection with the execution of this Agreement shall be mutually
agreed upon prior to the issuance thereof.
SECTION 5.6. AGREEMENT TO DEFEND. In the event any claim, action, suit,
investigation or other proceeding by any governmental body or other Person or
other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages in
connection therewith, the parties hereto agree to cooperate and use their
reasonable best efforts to defend against and respond thereto.
SECTION 5.7. OTHER ACTIONS. Except as contemplated by this Agreement,
neither EarthLink nor the Company shall, and neither shall permit any of its
Subsidiaries to, take or agree or commit to take any action that is reasonably
likely to result in any of its respective representations or warranties
hereunder being untrue in any material respect or in any of the conditions to
the Merger set forth in ARTICLE VI not being satisfied.
SECTION 5.8. RETENTION PLAN. The Company and EarthLink shall cooperate and
communicate in good faith on a plan for retaining key Company employees.
SECTION 5.9. INDEMNIFICATION.
(a) EarthLink agrees that all rights to indemnification (including rights to
advancement of expenses) and exculpation for acts or omissions occurring prior
to the Effective Time of the Merger
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now existing in favor of the current or former directors, officers, employees
and agents of the Company and its Subsidiaries (the "INDEMNIFIED PARTIES") as
provided in their respective certificates of incorporation or bylaws and
indemnity agreements shall survive the Merger, and the Surviving Corporation
shall continue such indemnification rights in full force and effect in
accordance with their terms and be financially responsible therefor. EarthLink
shall maintain and continue for a period of five (5) years from the Effective
Time of the Merger any directors and officers insurance policies in place at the
Company as of the Effective Time of the Merger, PROVIDED, that EarthLink shall
not have to pay more than 150% of the current annual policy premiums.
(b) The obligations under this SECTION 5.9 shall not be terminated, modified
or assigned in such a manner as to adversely affect any Indemnified Party
without the consent of such Indemnified Party. The provisions of this
SECTION 5.9 are intended to be for the benefit of, and shall be enforceable by,
the parties hereto and each Indemnified Party, his heirs and his
representatives. This SECTION 5.9 shall be binding upon all successors and
assigns of the Company, EarthLink and the Surviving Corporation.
SECTION 5.10. BLUE SKY. EarthLink shall use reasonable efforts to obtain
prior to the Closing Date any necessary permits and approvals under all
applicable state securities or blue sky laws required to permit the distribution
of the shares of EarthLink Common Stock to be issued in connection with the
Merger and upon exercise of the assumed Company Options assumed or converted
pursuant to this Agreement.
SECTION 5.11. COMBINATION COMPANY.
EarthLink shall cause Combination Company to approve and adopt, and to
perform its obligations in accordance with, this Agreement and shall take any
and all steps reasonably necessary to cause Combination Company to effect the
transactions contemplated hereby.
SECTION 5.12. [Reserved]
SECTION 5.13. EXEMPTION FROM LIABILITY UNDER SECTION 16(B). The Board of
Directors of EarthLink, or a committee of Non-Employee Directors thereof (as
such term is defined for purposes of Rule 16b-3(d) under the Exchange Act) shall
adopt a resolution in advance of the Effective Time of the Merger providing that
the receipt by the Company Insiders of EarthLink Common Stock or other equity
securities of EarthLink pursuant to the Merger or the other transactions
contemplated hereby and, to the extent such securities are listed in the
Section 16 Information, are intended to be exempt from liability pursuant to
Rule 16b-3 under the Exchange Act. "SECTION 16 INFORMATION" shall mean
information accurate in all respects regarding the Company Insiders, the number
of shares of EarthLink Common Stock or other EarthLink equity securities to be
acquired by each such Company Insider in connection with the Merger and other
transactions contemplated by this Agreement. "COMPANY INSIDERS" shall mean those
officers and directors of the Company who will become subject to the reporting
requirements of Section 16(a) of the Exchange Act as insiders of EarthLink in
conjunction with this Merger.
SECTION 5.14. EMPLOYEE MATTERS.
Each of the employee benefit plans of the Company and each of its
Subsidiaries shall be terminated prior to or concurrent with the Effective Time
of the Merger, including without limitation all stock option plans, 401(k) and
health plans. All employees that join EarthLink after the Merger will be
eligible to participate in all of EarthLink's employee benefit plans that are
generally available to all other EarthLink employees, and EarthLink shall make
such participation available at Closing.
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ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) STOCKHOLDER APPROVAL. The Company Stockholder Approval shall have been
obtained.
(b) NASDAQ. The shares of EarthLink Common Stock issuable to the Company's
stockholders pursuant to the Merger and issuable upon exercise of the Company
Options and any Noteholder Warrants converted pursuant to this Agreement shall
have been approved for trading and included for quotation on the Nasdaq-National
Market prior to or simultaneous with the Effective Time of the Merger, subject
to official notice of issuance.
(c) HSR ACT; OTHER APPROVALS. The waiting period (and any extension
thereof) applicable to the Merger under the HSR Act shall have been terminated
or shall have expired and all filings required to be made prior to the Effective
Time of the Merger with, and all consents, approvals, permits and authorizations
required to be obtained prior to the Effective Time of the Merger from, any
governmental entity in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby shall
have been made or obtained (as the case may be), except where the failure to
obtain such consents, approvals, permits and authorizations could not reasonably
be expected to have a Material Adverse Effect on the Company or EarthLink
(assuming the Merger has taken place) or to materially adversely affect the
consummation of the Merger.
(d) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; provided, however, that the
parties hereto shall, subject to SECTION 5.3, use reasonable best efforts to
have any such injunction, order, restraint or prohibition vacated.
(e) REGISTRATION STATEMENT EFFECTIVENESS. The Registration Statement shall
have become effective under the Securities Act prior to the mailing of the Proxy
Statement, and all post-effective amendments filed shall have been declared
effective or shall have been withdrawn; and no stop order suspending the
effectiveness thereof shall have been issued and no proceedings for that purpose
shall have been initiated or, to the knowledge of the parties, threatened by the
SEC.
(f) BLUE SKY FILINGS. There shall have been obtained any and all material
permits, approvals and consents of securities or "blue sky" authorities of any
jurisdiction that are necessary so that the consummation of the Merger and the
transactions contemplated thereby will be in compliance in all material respects
with applicable laws.
SECTION 6.2. CONDITIONS OF EARTHLINK. The obligation of EarthLink to
consummate the Merger is further subject to the satisfaction or waiver on or
prior to the Closing Date of the following conditions:
(a) COMPLIANCE. The agreements and covenants of the Company to be complied
with or performed on or before the Closing Date pursuant to the terms hereof
shall have been duly complied with or performed in all material respects and
EarthLink shall have received a certificate dated the Closing Date and executed
on behalf of the Company by the chief executive officer and the chief financial
officer of the Company to such effect.
(b) CERTIFICATIONS. The Company shall have furnished EarthLink with a
certified copy of a resolution or resolutions duly adopted by the Board of
Directors of the Company approving this
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Agreement and consummation of the Merger and the transactions contemplated
hereby and directing the submission of the Merger to a vote of the stockholders
of the Company.
(c) REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of the Company and its Subsidiaries contained in this Agreement
(other than any representations and warranties made as of a specific date) shall
be true and correct in all material respects (except to the extent the
representation or warranty is already qualified by materiality and/or the phrase
"Material Adverse Effect', in which case it shall be true and correct in all
respects) on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, except
where the failure of such representation or warranty to be true and correct
would not, individually or on an aggregate basis, have a Material Adverse Effect
on the Company and its Subsidiaries taken as a whole, and EarthLink shall have
received a certificate to that effect dated the Closing Date and executed on
behalf of the Company by the chief executive officer or the chief financial
officer of the Company.
(d) COMPANY AFFILIATE LETTERS. Prior to executing this Agreement,
EarthLink shall have received an Affiliate Letter (as defined below) from each
such Person selected by EarthLink that may be "affiliates" of the Company,
within the meaning of Rule 145 of the SEC pursuant to the Securities Act. The
Affiliate Letters shall contain various undertakings in form satisfactory to
EarthLink that no shares of EarthLink Common Stock received or to be received by
such Affiliate pursuant to the Merger will be sold or disposed of except
pursuant to an effective registration statement under the Securities Act or in
accordance with the provisions of paragraph (d) of Rule 145 under the Securities
Act or another exemption from registration under the Securities Act (an
"AFFILIATE LETTER").
(e) CONSENTS; RELATED MATTERS. EarthLink shall have received evidence, in
form and substance reasonably satisfactory to it, that such licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and other third parties as are reasonably necessary in connection
with the transactions contemplated hereby have been obtained, except such
licenses, permits, consents, approvals, authorizations, qualifications and
orders which are not, individually or in the aggregate, material to the
Surviving Corporation and its Subsidiaries, taken as a whole, or the failure of
which to have received would not (as compared to the situation in which such
license, permit, consent, approval, authorization, qualification or order had
been obtained) have a Material Adverse Effect on the Surviving Corporation and
its Subsidiaries, taken as a whole, after giving effect to the Merger.
(f) NO LITIGATION. There shall not be pending or threatened by any
Governmental Entity any suit, action or proceeding (or by any other Person any
pending suit, action or proceeding which has a reasonable likelihood of
success), (i) challenging or seeking to restrain or prohibit the consummation of
the Merger or any of the other transactions contemplated by this Agreement or
seeking to obtain from EarthLink or any of its Subsidiaries any damages that are
material in relation to EarthLink and its Subsidiaries taken as a whole,
(ii) seeking to prohibit or limit the ownership or operation by the Surviving
Corporation or any of its Subsidiaries of any material portion of the business
or assets of the Company, EarthLink or any of their respective Subsidiaries, to
dispose of or hold separate any material portion of the business or assets of
the Company, EarthLink or any of their respective Subsidiaries, as a result of
the Merger or any of the other transactions contemplated by this Agreement or
(iii) seeking to prohibit the Surviving Corporation or any of its Subsidiaries
from effectively controlling in any material respect the business or operations
of the Company or its respective Subsidiaries.
(g) RESIGNATIONS. EarthLink shall have received written resignations from
all corporate officers and directors of the Company, and from all directors of
each Subsidiary resigning from their positions in such capacities as of the
Effective Time of the Merger.
(h) NOTE TERMINATION. The Company shall have consummated in full the Note
and Warrant Termination and all of the transactions contemplated by the Note and
Warrant Termination Agreement,
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including without limitation the full satisfaction of the conditions and
obligations of each party thereto, and the full payment of amounts owed pursuant
thereto and termination and release of all obligations between the parties
thereto, and the Chief Executive Officer of the Company shall have delivered a
certificate certifying all of the above.
(i) TERMINATION OF AGREEMENTS; REPAYMENT OF SEVERANCE OBLIGATIONS. The
following agreements to which the Company or any Subsidiary is a party shall
have been cancelled prior to or simultaneous with the Effective Time of the
Merger: all registration rights agreements; all "lockup' agreements with the
Company's stockholders; all consulting (management and otherwise) agreements of
every type that expire after March 31, 2000; and all financial advisory and
securities brokerage agreements of every type. The Company shall have paid and
discharged in full its obligations pursuant to Section 4.1(c) hereof.
SECTION 6.3. CONDITIONS OF THE COMPANY. The obligation of the Company to
consummate the Merger is further subject to the satisfaction or waiver on or
prior to the Closing Date of the following conditions:
(a) COMPLIANCE. The agreements and covenants of EarthLink and the
Combination Company to be complied with or performed on or before the Closing
Date pursuant to the terms hereof shall have been duly complied with or
performed in all material respects and the Company shall have received a
certificate dated the Closing Date on behalf of EarthLink and the Combination
Company by the chief executive officer and the chief financial officer of
EarthLink and the Combination Company to such effect.
(b) CERTIFICATIONS AND OPINION. EarthLink shall have furnished the Company
with a certified copy of a resolution or resolutions duly adopted by the Board
of Directors or a duly authorized committee thereof of EarthLink and the
Combination Company approving this Agreement and consummation of the Merger and
the transactions contemplated hereby, including the issuance, listing and
delivery of the shares of EarthLink Common Stock pursuant hereto;
(c) REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of EarthLink and Combination Company contained in this Agreement
(other than any representations and warranties made as of a specific date) shall
be true and correct in all material respects (except to the extent the
representation or warranty is already qualified by materiality or the phrase
"Material Adverse Effect," in which case it shall be true and correct in all
respects) on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, except
where the failure of such representation or warranty to be true and correct
would not, individually or on an aggregate basis, have a Material Adverse Effect
on EarthLink and its Subsidiaries taken as a whole, and the Company shall have
received a certificate to that effect dated the Closing Date and executed on
behalf of EarthLink by the chief executive officer or the chief financial
officer of EarthLink.
(d) NO LITIGATION. There shall not be pending or threatened by any
Governmental Entity any suit, action or proceeding (i) challenging or seeking to
restrain or prohibit the consummation of the Merger or any of the other
transactions contemplated by this Agreement or seeking to obtain from the
Company, the Surviving Corporation or any of their respective Subsidiaries any
damages that are material in relation to the Company and its Subsidiaries taken
as a whole, (ii) seeking to prohibit or limit the ownership or operation by the
Surviving Corporation or any of its Subsidiaries of any material portion of the
business or assets of the Company, EarthLink or any of their respective
Subsidiaries, to dispose of or hold separate any material portion of the
business or assets of the Company, EarthLink or any of their respective
Subsidiaries, as a result of the Merger or any of the other transactions
contemplated by this Agreement or (iii) seeking to prohibit the Surviving
Corporation or any of its Subsidiaries from effectively controlling in any
material respect the business or operations of the Company or its Subsidiaries.
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(e) REGISTRATIONS. EarthLink shall have filed a registration statement on
Form S-8 ("S-8 REGISTRATION STATEMENT") or shall have amended an existing S-8
Registration Statement and shall have submitted all documents required by Nasdaq
as required by SECTION 2.3(c) of this Agreement, and such S-8 Registration
Statement or amendment thereto shall have become effective and the EarthLink
Common Stock issuable on exercise of the converted Company Options and
Noteholder Warrant shall be approved for quotation on Nasdaq, all as set forth
in and required by SECTION 2.3 of this Agreement.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. TERMINATION. This Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time of the Merger, whether before
or after approval of this Agreement and the Merger by the stockholders of the
Company;
(a) by mutual written consent of EarthLink, Combination Company and the
Company;
(b) by either EarthLink or the Company:
(i) if the stockholders of the Company fail to give any required
approval of the Merger and the transactions contemplated hereby upon a
vote at duly held meetings of stockholders of the Company or at any
adjournment thereof;
(ii) if any court of competent jurisdiction or any governmental,
administrative or regulatory authority, agency or body shall have issued
an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Merger; or
(iii) if the Merger shall not have been consummated on or before
October 30, 2000, PROVIDED, HOWEVER, that the right to terminate this
Agreement under this SECTION 7.1(b)(iii) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure of the Effective Time of
the Merger to occur on or before such date.
(c) by EarthLink:
(i) if the Company (X) breaches in any material respect any of its
representations or warranties herein such that the condition set forth in
Section 6.2(c) not be satisfied within 20 calendar days following receipt
by the Company of notice of breach, or (Y) fails to perform in any
material respect any of its covenants, agreements or obligations under
this Agreement within 20 calendar days following receipt by the Company
of notice of breach, if such failures result in or would reasonably be
expected to result in a Material Adverse Effect on the Company and its
Subsidiaries taken as a whole;
(ii) if the Company breaches SECTION 8.1(a)(i);
(iii) if the Company fails to fully consummate the Note and Warrant
Termination Agreement as set forth herein on or prior to the Effective
Time of the Merger;
(iv) if, prior to the Effective Time of the Merger, the Company's
Board of Directors shall have: (X) withdrawn, modified, amended or
materially qualified in any respect adverse to EarthLink the
recommendation of the Company's Board of Directors; (Y) failed to mail
the Proxy Statement to its stockholders, or (Z) resolved to do any of the
above;
(v) if, in response to the (X) commencement of any tender offer or
exchange offer for 10% or more of the outstanding the Company Common
Shares, or (Y) public announcement or disclosure of any Takeover
Proposal, the Company failed to fully and unconditionally recommend
rejection of such tender or exchange offer or reject such other Takeover
Proposal
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(and publicly announce such rejection, in the case of Takeover Proposals
which have been publicly disclosed or became publicly known) within ten
(10) business days of such commencement, announcement or disclosure; or
resolved to support or recommend any such Takeover Proposal, unless any
of the foregoing are done or omitted to be done in compliance with and
pursuant to SECTION 8.1(b) hereof;
(vi) if, prior to the Effective Time of the Merger, the Company shall
have entered into a definitive agreement with respect to any Takeover
Proposal, Superior Proposal or Subsequent Superior Proposal;
(vii) as permitted pursuant to SECTIONS 8.1(b)(iii); and
(viii) as permitted pursuant to SECTION 8.1(b)(vi).
(d) by the Company, (i) if EarthLink breaches in any material respects
any of its representations or warranties herein or fails to perform in any
material respect any of its covenants, agreements or obligations under this
Agreement upon 20 calendar days notice of breach, which breach has not been
cured within 20 calendar days following receipt by EarthLink of notice of
breach, or (ii) if the Company receives a Takeover Proposal that the
Company's Board of Directors by vote or resolution determines to constitute
a Superior Proposal or a Subsequent Superior Proposal as set forth in
SECTION 8.1(b) or enters into a definitive agreement with respect to a
Superior Proposal or Subsequent Superior Proposal, provided that the Company
has complied with its obligations under SECTIONS 8.1(b) and 8.3.
SECTION 7.2. EFFECT OF TERMINATION. In the event of termination of this
Agreement by either the Company or EarthLink as provided in SECTION 7.1, this
Agreement shall forthwith become void and have no effect, without any current or
future liability or obligation on the part of EarthLink or the Company, other
than the confidentiality provisions of SECTION 5.2, the provisions of
SECTION 8.3 and the provisions of Article IX. Any termination of this Agreement
pursuant to SECTION 7.1 hereof shall not relieve any party hereto for
liabilities related to any breach of any of its representations, warranties,
covenants or agreements in this Agreement, which right to recover damages shall
be in addition to (and not exclusive of) any other remedy at law or in equity
available to any party, including without limitation the Company Termination Fee
set forth in SECTION 8.3 hereof.
SECTION 7.3. AMENDMENT. This Agreement may be amended by the parties at
any time before or after any required approval of matters presented in
connection with the Merger by the stockholders of the Company; PROVIDED,
HOWEVER, that after any such approval, there shall be made no amendment that by
law requires further approval by such stockholders without the further approval
of such stockholders. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
SECTION 7.4. EXTENSION; WAIVER. At any time prior to the Effective Time of
the Merger, the parties may, to the extent legally allowed, (a) extend the time
for the performance of any of the obligations or the other acts of the other
parties, (b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto or (c) subject to
the proviso of SECTION 7.3, waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. The failure of any party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of such rights.
SECTION 7.5. PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER. A
termination of this Agreement pursuant to SECTION 7.1, an amendment of this
Agreement pursuant to SECTION 7.3 or an extension or waiver pursuant to
SECTION 7.4 shall, in order to be effective, require in the case of EarthLink or
the Company, action by its respective Board of Directors or the duly authorized
designee of such Board of Directors.
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ARTICLE VIII
SPECIAL PROVISIONS AS TO CERTAIN MATTERS
SECTION 8.1. NO SOLICITATION.
(a) RESTRICTED ACTIONS. Following the execution of this Agreement,
SECTION 8 in the Confidentiality Agreement shall be superseded by this
SECTION 8.1(a). Except as subject to and specifically permitted under
SECTION 8.1(b) (PROVIDED, that the actions described in SECTION 8.1(a)(i) below
shall in no event ever be permitted under this Agreement), following the
execution of this Agreement and before the Effective Time of the Merger, the
Company shall not, nor shall it permit any of its Subsidiaries to, nor shall it
authorize or permit any officer, director or employee of or any investment
banker, attorney or other advisor, agent or representative of the Company or any
of its Subsidiaries (the "REPRESENTATIVES") to, directly or indirectly,
(i) solicit, initiate or encourage the submission of any Takeover Proposal (as
defined below), (ii) enter into any agreement with respect to any Takeover
Proposal, (iii) seek to sell or otherwise dispose of shares of capital stock of
the Company or any portion of the assets of the Company and its Subsidiaries
outside of the ordinary course of business, to any third party, or enter into
any agreements with any third party with respect to such a sale or disposition
(unless approved by EarthLink in compliance with Section 4.1 hereof),
(iv) participate in any discussions or negotiations regarding, or furnish to any
Person any information with respect to, or take any other action to facilitate
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Takeover Proposal, or (v) take any such Takeover
Proposal to the Company's Board of Directors or stockholders for consideration,
except in accordance with Section 8.1 hereof. Without limiting the foregoing, it
is understood that any violation of the restrictions set forth in the preceding
sentence by any officer, director or employee of the Company or any of its
Subsidiaries or any investment banker, attorney or other advisor, agent or
representative of the Company, whether or not such Person is purporting to act
on behalf of the Company or otherwise, shall be deemed to be a material breach
of this Agreement by the Company. For purposes of this Agreement, "TAKEOVER
PROPOSAL" means (i) any proposal or offer, other than a proposal or offer by
EarthLink or any of its Affiliates, for a merger, share exchange or other
business combination involving the Company (excluding an acquisition by the
Company or by a Subsidiary of the Company otherwise permitted to be made by the
Company under this Agreement), (ii) any proposal or offer, other than a proposal
or offer by EarthLink or any of its Affiliates, to acquire from the Company or
any of its Affiliates in any manner, directly or indirectly, all or any portion
voting or equity interest in the Company or the acquisition of a material amount
of the assets of the Company and its Subsidiaries, taken as a whole, including
an investment in or acquisition of securities of a Subsidiary of the Company, to
the extent so material, or (iii) any proposal or offer, other than a proposal or
offer by EarthLink or any of its Affiliates, to acquire from the stockholders of
the Company by tender offer, exchange offer or otherwise all or any material
portion of the Company Shares then outstanding.
(b) PERMITTED ACTIONS. In the event that after the date of this Agreement,
the Company receives a bona fide, unsolicited Takeover Proposal, subject to the
last paragraph of this SECTION 8.1(b), the Company (including the Company's
Board of Directors and the Company's Representatives, employees and agents, for
purposes of this SECTION 8.1) may engage in the applicable activities set forth
in SECTIONS 8.1(a)(ii), 8.1(a)(iii), 8.1(a)(iv) and/or 8.1(a)(v) above
(excluding taking the Takeover Proposal to the Company's
stockholders--collectively, the "NEGOTIATION ACTIVITIES") as applicable and only
as specifically permitted herein, including furnishing information to such third
party, all within the following framework:
(i) the Company's Board of Directors shall have a 15 calendar day period
following receipt by the Company of any such bona fide, unsolicited Takeover
Proposal (the "INITIAL CONSIDERATION PERIOD") in which to engage in the
actions permitted in SECTIONS 8.1(a)(iv) and 8.1(a)(v) (other than taking
the Takeover Proposal to the Company's stockholders for approval) in order
to determine if
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such Takeover Proposal constitutes a Superior Proposal; PROVIDED, HOWEVER,
that with respect to the activities set forth in SECTION 8.1(a)(iv), the
Company may perform such activities only to determine whether or not such
Takeover Proposal is a Superior Proposal, and shall not directly or
indirectly participate in any negotiations with respect to such Takeover
Proposal with the Person who has made such Takeover Proposal or such
Person's representatives, employees or agents (the "OFFEROR") during the
Initial Consideration Period, unless and until the Company's Board of
Directors determines that such Takeover Proposal constitutes a Superior
Proposal, as set forth below;
(ii) if within the Initial Consideration Period as provided above, the
Company's Board of Directors, in good faith exercise of its fiduciary duties
to the Company's stockholders, determines by resolution that such Takeover
Proposal constitutes a Superior Proposal, then the Company's Board of
Directors shall have a 15 calendar day period following the day on which the
Company's Board of Directors makes such determination (the "NEGOTIATION
PERIOD") in which to engage in the Negotiation Activities in order to
negotiate and enter into a definitive agreement with respect to such
Superior Proposal.
(iii) Upon determination that a Takeover Proposal constitutes a Superior
Proposal as set forth above, then the Company shall so notify EarthLink
pursuant to SECTION 8.1(c) hereof and EarthLink may in its discretion
terminate this Agreement and abandon the Merger at any time during the
Negotiation Period, but only if done so prior to receiving written
notification by the Company that it has formally terminated negotiations
with such Offeror, PROVIDED, HOWEVER, that notwithstanding any other
provision of this Agreement, the Company shall not be required to pay the
Company Termination Fee (including, without limitation, any fees or expenses
of EarthLink) pursuant to SECTION 8.3 and SECTION 7.1(c)(vii) upon any such
termination and abandonment by EarthLink;
(iv) if the Company does not enter into a definitive agreement with
respect to such Superior Proposal within the Negotiation Period, the Company
shall promptly reject and shall be deemed to have rejected such Superior
Proposal and shall fully terminate and abandon its negotiations and
discussions with such Offeror (a "TERMINATED SUPERIOR PROPOSAL");
(v) if, after a Terminated Superior Proposal, the Company subsequently
receives another bona fide, unsolicited Takeover Proposal from the same
Offeror after the end of the Negotiation Period (a "SUBSEQUENT PROPOSAL"),
and the Company's Board of Directors, in good faith exercise of its
fiduciary duties to the Company's stockholders, determines by vote or
resolution that such Subsequent Proposal is materially more favorable to the
Company's stockholders from a financial point of view than such Offeror's
prior Superior Proposal (a "SUBSEQUENT SUPERIOR PROPOSAL"), then the Company
shall have a second 15 calendar day period following the day on which the
Company's Board of Directors makes such determination (the "SUBSEQUENT
NEGOTIATION PERIOD") in which to engage in the Negotiation Activities and
enter into a definitive agreement with respect to such Subsequent Superior
Proposal;
(vi) Upon such determination by the Company's Board of Directors that a
Subsequent Proposal constitutes a Subsequent Superior Proposal, then the
Company shall so notify EarthLink pursuant to SECTION 8.1(c) hereof and
EarthLink may in its discretion terminate this Agreement and abandon the
Merger at any time during the Subsequent Negotiation Period, but only if
done so prior to receiving written notification by the Company that it has
formally terminated negotiations with such Offeror, PROVIDED, HOWEVER, that
the Company shall be required to pay the Company Termination Fee (including,
without limitation, all fees or expenses of EarthLink) pursuant to
SECTION 8.3 and SECTION 7.1(c)(viii) upon any such termination and
abandonment by EarthLink; and
(vii) if the Company does not enter into a definitive agreement with
respect to such Subsequent Superior Proposal within the Subsequent
Negotiation Period, the Company and its
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Board of Directors shall promptly reject and shall be deemed to have
rejected such Subsequent Superior Proposal and shall fully terminate and
abandon its negotiations and discussions with such Offeror (a "TERMINATED
SUBSEQUENT PROPOSAL");
PROVIDED, that the Company and its Representatives may engage in the activities
set forth in SECTIONS 8.1(a)(ii), 8.1(a)(iii), 8.1(a)(iv) and/or 8.1(a)(v) as
applicable and as specifically permitted in this SECTION 8.1(b) only if (I) the
Board of Directors of the Company determines in its good faith judgment, after
consultation with outside legal counsel of the Company, that such action or
activity is reasonably necessary in order for the Board of Directors of the
Company to comply with its fiduciary duties under applicable law, (II) the
Company has received from such third party Offeror an executed confidentiality
agreement with terms regarding confidentiality not less favorable to the Company
than those contained in the Confidentiality Agreement with EarthLink, and
(III) the Company has fully and completely complied with all other provisions of
SECTION 8.1.
(c) NOTICES. If the Company (a) receives a Takeover Proposal, or a request
for nonpublic information relating to the Company (or any of its Subsidiaries)
or for access to the properties, books or records of the Company (or any of its
Subsidiaries) by any Person who is considering making or has made a Takeover
Proposal, (b) determines that a Takeover Proposal constitutes a Superior
Proposal, (c) determines to enter into a Negotiation Period, (d) enters into a
definitive agreement with respect to a Takeover Proposal, Superior Proposal or a
Subsequent Superior Proposal, (e) receives a Subsequent Proposal,
(f) determines that a Subsequent Proposal is a Subsequent Superior Proposal,
and/or (g) determines to enter into a Subsequent Negotiation Period, the Company
shall immediately inform EarthLink orally and shall as promptly as practicable
(in any event within one (1) calendar day) inform EarthLink in writing of every
such event, including terms and conditions of such Takeover Proposal, Superior
Proposal or Subsequent Superior Proposal (any of such events, a "PROPOSAL") and
the identity of the person making it, forwarding a copy of any written
communications relating thereto. The Company will keep EarthLink fully informed
on as prompt a basis as is practicable of the status and details of any such
Proposal or request and any related discussions or negotiations, including by
forwarding copies of any material written communications relating thereto. The
Company will immediately cease and cause its Subsidiaries, and its and their
officers, directors, agents, representatives and advisors, to cease any and all
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing, except that it shall use its
best efforts to cause any such parties in possession of confidential information
about the Company (or its Subsidiaries) that was furnished by or on behalf of
the Company (or its Subsidiaries) in connection with any of the foregoing to
return or destroy all such information in the possession of any such party or in
the possession of any agent or advisor of any such party. The Company agrees not
to release any third party from, or waive any provisions of, any confidentiality
or standstill agreement to which it (or its Subsidiaries) is a party. The
Company shall ensure that the officers, directors and employees of the Company
and its Subsidiaries and any investment banking firm or other advisor or
representative retained by such party are aware of and instructed to comply with
the restrictions described in this SECTION 8.1. Notwithstanding any other
provision of this Agreement, nothing contained in this SECTION 8.1 shall
prohibit the Board of Directors of the Company, only to the minimum extent
required, from complying with the mandatory disclosure requirements of
Rules 14e-2 and 14d-9 promulgated under the Securities and Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder with regard to
an any Proposal, after consultation with outside legal counsel; PROVIDED, that
any recommendation by the Board of Directors other than to recommend rejection
of such proposal shall be considered an immediate breach of this SECTION 8.1 and
be deemed to be a "withdrawal" as provided in SECTION 7.1(c)(iv)(x) hereof.
(d) TERMINATION OF NEGOTIATIONS. The Company agrees to cease and terminate
immediately, and to cause its Representatives to cease and terminate immediately
any negotiations (other than with EarthLink) with respect to any Takeover
Proposal.
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SECTION 8.2. TAKEOVER DEFENSES. The Company shall take such action with
respect to any anti-takeover provisions in its Certificate of Incorporation or
Bylaws, or afforded it by statute, to the extent necessary to consummate the
Merger on the terms set forth in the Agreement.
SECTION 8.3. FEE AND EXPENSE REIMBURSEMENTS. In the event this Agreement
is terminated pursuant to any of SECTION 7.1(b)(i), SECTION 7.1(c)(i),
SECTION 7.1(c)(ii), SECTION 7.1(c)(iii), SECTION 7.1(c)(iv), SECTION 7.1(c)(v),
SECTION 7.1(c)(vi) or SECTION 7.1(c)(viii) hereof, the Company agrees to pay to
EarthLink in immediately available funds Nine Million Dollars ($9,000,000)
PLUSreimbursement of all EarthLink Merger transaction expenses (including
without limitation all legal, accounting and investment banking fees and
expenses) (the "COMPANY TERMINATION FEE"); PROVIDED, HOWEVER, that if EarthLink
terminates the Agreement pursuant to SECTION 7.1(c)(i), and the Company also
terminates this Agreement pursuant to SECTION 7.1(d)(i), EarthLink shall
nevertheless be entitled to the Company Termination Fee, PROVIDED FURTHER, that
if the termination is pursuant to SECTION 7.1(b)(i) above, such fee shall be
payable only if within 12 months after the date of termination of this
Agreement, the Company shall have consummated (or entered into an agreement to
consummate) an Alternative Transaction (as defined below). An "ALTERNATIVE
TRANSACTION" shall mean (i) a merger, share exchange or other business
combination or other transaction in which more than 25% of the voting securities
of the Company or all or substantially all of the assets of the Company are
acquired, including an investment in or acquisition of securities of a
Subsidiary of the Company to the extent so material, or (ii) any acquisition
from the stockholders of the Company by tender offer, exchange offer or
otherwise of more than 25% of the outstanding Company Shares. The Company
Termination Fee payable under this SECTION 8.3 shall be payable as a condition
to the consummation of the Alternative Transaction. Payment of the Company
Termination Fee shall be made within one (1) business day following: (x) for
terminations pursuant to SECTIONS 7.1(c) hereof, the date of such formal written
termination by EarthLink, and (y) for terminations pursuant to
SECTION 7.1(b)(i), the date the Company closes the transaction contemplated by
such definitive agreement for the Alternative Transaction. If the Company does
not pay the Company Termination Fee within such permitted periods, the Company
shall pay to EarthLink its costs and expenses (including legal fees and
expenses) incurred in connection with any actions or lawsuits taken to collect
such payment, together with interest on the amount of any unpaid fee and/or
expense (at the published prime rate of Citibank, N.A. from the date such fee
was required to be paid to the date of payment).
SECTION 8.4. CONFIDENTIALITY.
(a) NEITHER THE COMPANY NOR EARTHLINK SHALL ISSUE ANY STATEMENT OR
COMMUNICATION TO THE PUBLIC OR PRESS REGARDING THE PROPOSED MERGER WITHOUT THE
PRIOR CONSENT AND APPROVAL OF THE OTHER PARTY, EXCEPT AS OTHERWISE MAY BE
REQUIRED BY LAW OR REGULATORY AUTHORITIES.
(b) If this Agreement is terminated pursuant to ARTICLE VIII by either the
Company or EarthLink, the proposed terms of the Merger and all Merger related
discussions shall remain confidential and shall not be disclosed to any person
without the consent of the other party except as may be required by law or
regulatory authorities.
(c) Notwithstanding any other provision herein or in the Confidentiality
Agreement, Sections 1 through 7, 9 and 10 of the Confidentiality Agreement shall
remain in effect subsequent to the execution of this Agreement and shall
continue to govern the confidentiality obligations of the parties with respect
to the Evaluation Material (as therein defined). Except as set forth in this
SECTION 8.4(c), the balance of the Confidentiality Agreement is hereby
terminated.
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ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations, warranties, covenants or agreements in this Agreement or in any
instrument delivered by the Company or EarthLink pursuant to this Agreement
shall survive the Effective Time of the Merger, except any covenant or agreement
of the parties which by its terms contemplates performance after the Effective
Time of the Merger.
SECTION 9.2. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by facsimile
or sent by overnight courier to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to the Company, to
OneMain.com, Inc.
1860 Michael Faraday Dr., #200
Reston, VA 20190
Attention: Kevin S. Lapidus
Telephone: 703-375-3036
Facsimile: 703-375-3160
with a copy to:
Hogan & Hartson L.L.P.
Columbia Square
555 13(th) Street, N.W.
Washington, D.C. 20004-1109
Attention: J. Hovey Kemp
Telephone: (202) 637-5623
Facsimile: (202) 637-5910
(b) if to EarthLink, to
EarthLink
1430 West Peachtree St., #400
Atlanta, GA 30309
Attention: Chief Executive Officer
With copy to: General Counsel
Telephone: 404-815-0770
Facsimile: 404-892-7616
with a copy to:
Hunton & Williams
Bank of America Plaza, Suite 4100
600 Peachtree Street, N.E.
Atlanta, Georgia 30308-2216
Attention: Scott M. Hobby
Telephone: (404) 888-4263
Facsimile: (404) 888-4190
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SECTION 9.3. DEFINITIONS. For purposes of this Agreement:
(a) an "AFFILIATE(S)" of any Person means another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled
by, or is under common control with, such first Person;
(b) "FULLY DILUTED BASIS" means all issued and outstanding capital stock of
the Company including all convertible securities, rights, options and
warrants (calculated using the treasury method).
(c) "KNOWLEDGE" means, with respect to any matter stated herein to be "to
the Company's knowledge," or similar language, the knowledge of the
officers of the Company, after due inquiry.
(d) "MATERIAL ADVERSE EFFECT" shall mean, with respect to any entity or
group of entities, a material adverse effect individually or in the
aggregate on the business, operations, assets, liabilities, financial
condition or results of operations of such entity or group of entities
taken as a whole, other than any change, circumstance or effect
(i) relating to the economy or securities markets in general,
(ii) relating to the industries in which the Company or EarthLink operate
and not specifically relating to the Company or EarthLink, or
(iii) resulting from the execution of this Agreement, the announcement of
this Agreement and the transactions contemplated hereby or any change in
the value, price or trading volume of Company or EarthLink Common Stock
relating to such execution or announcement; PROVIDED, HOWEVER, that any
breach, violation or failure of any of the following representations or
warranties to be true and correct shall constitute an automatic Material
Adverse Effect on the Company and its Subsidiaries taken as a whole under
this Agreement (including without limitation for purposes of SECTIONS
6.2(c) and 6.3(c)):
Section 3.1: (a), (b), (c), (d), (e), (h) except subsections (ii) and
(vi) thereof, (i), (j), (p), (u) and (aa).
(e) "NASDAQ CLOSING PRICE" means the closing price of the common stock as
quoted on the Nasdaq National Market System.
(f) "PERSON" means an individual, corporation, partnership, joint venture,
limited liability company, association, trust, unincorporated
organization or other entity; and
(g) a "SUBSIDIARY" of a Person means any corporation, partnership or other
legal entity of which securities or other ownership interests having
ordinary voting power to elect a majority of the board of directors or
other Persons performing similar functions are directly or indirectly
owned by such first mentioned Person.
(h) a "SUPERIOR PROPOSAL" means a Takeover Proposal that the Board of
Directors of the Company, in its good faith judgment and after
consultation with its financial advisors, believes is materially more
favorable from a financial point of view to the stockholders of the
Company than the proposal set forth in this Agreement.
SECTION 9.4. INTERPRETATION. When a reference is made in this Agreement to
a Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the word "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
SECTION 9.5. COUNTERPARTS; FACSIMILE EXECUTION. This Agreement may be
executed in one or more counterparts, all of which shall be considered one and
the same agreement and shall become effective when one or more counterparts have
been signed by each of the parties and delivered to the
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other parties. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of the
executing party with the same force and effect as if such facsimile signature
page were an original thereof.
SECTION 9.6. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement (including the documents and instruments referred to herein) and the
Confidentiality Agreement (a) constitute the entire agreement and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof and (b) are not intended to confer
upon any Person other than the parties any rights or remedies hereunder, except
as otherwise specified herein.
SECTION 9.7. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 9.8. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
without the prior written consent of the other parties. This Agreement will be
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
SECTION 9.9. ENFORCEMENT OF THE AGREEMENT. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States located in the State of Georgia, this being in addition to any other
remedy to which they are entitled at law or in equity.
SECTION 9.10. SEVERABILITY. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby. The parties shall endeavor in good faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions, the economic
effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
A-49
<PAGE>
IN WITNESS WHEREOF, EarthLink, Combination Company and the Company have
caused this Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
<TABLE>
<S> <C> <C>
EARTHLINK, INC.
By: /s/ MICHAEL S. MCQUARY
--------------------------------------
Name: Michael S. McQuary
--------------------------------------
Title: President
--------------------------------------
OM COMBINATION, INC.
By: /s/ SAMUEL R. DESIMONE
--------------------------------------
Name: Samuel R. DeSimone
--------------------------------------
Title: Executive Vice President
--------------------------------------
ONEMAIN.COM, INC.
By: /s/ STEPHEN E. SMITH
--------------------------------------
Name: Stephen E. Smith
--------------------------------------
Title: Chief Executive Officer
--------------------------------------
</TABLE>
A-50
<PAGE>
ANNEX B
PRICING SCHEDULE
<TABLE>
<CAPTION>
EARTHLINK CASH EARTHLINK TOTAL PAYMENT
CLOSING PAYMENT EXCHANGE STOCK VALUE FOR EACH
STOCK PRICE PER SHARE RATIO PER SHARE ONEMAIN SHARE
----------- --------- -------- ----------- -------------
<S> <C> <C> <C> <C>
$ 5.000 $6.050 0.3559 $ 1.779 $ 7.830
$ 6.000 $6.041 0.3553 $ 2.132 $ 8.173
$ 7.000 $6.032 0.3548 $ 2.484 $ 8.515
$ 8.000 $6.024 0.3543 $ 2.835 $ 8.858
$ 9.000 $6.016 0.3539 $ 3.185 $ 9.201
$10.000 $6.009 0.3535 $ 3.535 $ 9.544
$11.000 $6.002 0.3531 $ 3.884 $ 9.886
$12.000 $5.996 0.3527 $ 4.233 $10.229
$13.000 $5.991 0.3524 $ 4.581 $10.572
$14.000 $5.985 0.3520 $ 4.929 $10.913
$15.000 $5.979 0.3517 $ 5.276 $11.255
$16.000 $5.974 0.3514 $ 5.623 $11.597
$17.000 $5.969 0.3511 $ 5.969 $11.938
$18.000 $5.965 0.3509 $ 6.315 $12.280
$19.000 $5.960 0.3506 $ 6.661 $12.620
$20.000 $5.955 0.3503 $ 7.005 $12.960
$21.000 $5.949 0.3499 $ 7.348 $13.297
$22.000 $5.942 0.3496 $ 7.690 $13.633
$23.000 $5.936 0.3492 $ 8.031 $13.967
$24.000 $5.930 0.3488 $ 8.371 $14.301
$25.000 $5.921 0.3483 $ 8.708 $14.629
$26.000 $5.913 0.3478 $ 9.044 $14.957
$27.000 $5.905 0.3473 $ 9.378 $15.282
$28.000 $5.896 0.3468 $ 9.711 $15.608
$29.000 $5.887 0.3463 $10.043 $15.931
$30.000 $5.879 0.3458 $10.374 $16.253
$31.000 $5.869 0.3453 $10.703 $16.572
$32.000 $5.860 0.3447 $11.030 $16.890
$33.000 $5.850 0.3441 $11.356 $17.205
$34.000 $5.840 0.3435 $11.680 $17.521
$35.000 $5.831 0.3430 $12.005 $17.836
$36.000 $5.822 0.3425 $12.329 $18.151
$37.000 $5.813 0.3420 $12.653 $18.466
$38.000 $5.805 0.3415 $12.976 $18.780
$39.000 $5.797 0.3410 $13.298 $19.095
$40.000 $5.789 0.3405 $13.620 $19.409
$41.000 $5.781 0.3400 $13.942 $19.723
$42.000 $5.773 0.3396 $14.263 $20.037
$43.000 $5.766 0.3392 $14.585 $20.351
$44.000 $5.759 0.3388 $14.906 $20.664
$45.000 $5.752 0.3384 $15.226 $20.978
$46.000 $5.746 0.3380 $15.547 $21.292
$47.000 $5.739 0.3376 $15.867 $21.606
$48.000 $5.733 0.3372 $16.187 $21.920
$49.000 $5.721 0.3365 $16.490 $22.211
$50.000 $5.708 0.3357 $16.787 $22.495
</TABLE>
B-1
<PAGE>
ANNEX C
OPINION OF JEFFERIES & CO.
June 7, 2000
ONEMAIN.COM, INC.
1860 Michael Faraday Drive
Suite 200
Reston, VA 20190
To the Members of the Board of Directors:
We understand that EarthLink, Inc., a Delaware corporation (the
"Purchaser"), and OM Combination, Inc. (the "Merger Subsidiary"), a Delaware
corporation and a wholly owned subsidiary of the Purchaser, has offered to enter
into an Agreement and Plan of Merger (the "Merger Agreement") with OneMain.com,
Inc., a Delaware corporation (the "Company"), pursuant to which, subject to the
terms and conditions set forth therein, the Purchaser will acquire all of the
issued and outstanding common stock, $0.001 par value, of the Company (the
"Common Stock") for a price per share (the "Offer Price") equal to
(a) $316,553,617 divided by (b) the total number of shares of Company Common
Stock outstanding on a fully-diluted basis (using the treasury stock method for
outstanding options) as of the Effective Time of the Transaction (as defined
below), of which $5.96 per share will be paid in cash and $6.29 will be paid in
shares of Purchaser's common stock. We understand that Company shareholders will
receive 0.3509 shares of Purchaser common stock, and the value of the stock
consideration is based on the closing price of Purchaser on June 7, 2000 of
$17.9375, assuming a fully-diluted share count of 25,822,956. The Company will
be merged with and into the Merger Subsidiary and each issued and outstanding
share of Common Stock will be converted into the right to receive the Offer
Price (the "Transaction"). All capitalized terms not otherwise defined herein
shall have the same meaning as defined in the Merger Agreement.
You have asked us to render our opinion as to whether the Offer Price is
fair, from a financial point of view, to the holders of the Common Stock.
Jefferies & Company, Inc. ("Jefferies"), as part of its investment banking
business, is regularly engaged in the evaluation of capital structures and the
valuations of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements, financial
restructurings and other financial services.
We are not expressing any opinion as to what the value of the Purchaser
common stock will be at the time of the Transaction or the price or range of
prices at which Purchaser common stock may trade subsequent to the announcement
or consummation of the Transaction. Such trading price or range of prices of
Purchaser common stock may be impacted by, among other things, prevailing
interest rates, conditions in the financial markets, the anticipated initial
holdings of Purchaser common stock by former Company shareholders, some of whom
may prefer to liquidate their investment rather than hold it on a long-term
basis, arbitrage activity and other factors that generally influence the prices
of securities.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial analyses and the
application of those methods to particular circumstances and, therefore, such an
opinion is not readily susceptible to summary description. Furthermore,
Jefferies did not attribute any particular weight to any analysis or factor
considered by it, but rather made qualitative judgments as to the significance
and relevance of each analysis and factor.
In conducting our analysis and arriving at the opinion expressed herein, we
have reviewed a draft of the Merger Agreement, dated June 7, 2000 (including any
schedules and exhibits thereto which were
C-1
<PAGE>
provided by the Company) and certain financial and other information that was
publicly available or furnished to us by the Company, including the financial
terms of the Transaction, certain internal financial analyses, projections,
budgets, reports and other information prepared by the Company's management and
certain projections and other information prepared by management of Purchaser.
We have also held discussions with various members of senior management of the
Company and Purchaser concerning their respective historical and current
operations, financial condition and prospects, as well as the strategic and
operating benefits anticipated from the business combination. In addition, we
have reviewed the reported price and trading activities of the Common Stock and
Purchaser's common stock, compared certain financial and stock market
information for the Company with similar information for other publicly-traded
companies that we considered relevant, reviewed, to the extent publicly
available, the financial terms of certain other business combinations that we
considered relevant and conducted such other reviews, analyses and inquiries and
considered such other financial, economic and market criteria as we considered
appropriate in rendering this opinion.
In the course of our review and analysis and in rendering this opinion, we
have relied upon, but have not independently investigated or verified, the
accuracy, completeness and fair presentation of the financial and other
information that was provided to us by the Company or Purchaser, or that was
publicly available to us (including, without limitation, the information
described above and the financial projections and projected operating
assumptions provided by each of the Company and the Purchaser regarding its
estimated future performance). With respect to the financial projections
provided to or obtained and examined by us, we note that projecting future
results of any company is inherently subject to vast uncertainty. We have been
advised by management of the Company and the Purchaser, and we have assumed with
your permission, that the projections and underlying projected operating
assumptions were reasonably prepared on bases reflecting the best currently
available estimates and good faith judgments of the management of the Company
and Purchaser as to the future performance of the Company and Purchaser and the
strategic implications and operational benefits of the Transaction. This opinion
is expressly conditioned upon such information (whether written or oral) being
complete, accurate and fair in all respects.
We have not been requested to, and did not, solicit third party indications
of interest in acquiring all or any part of the Company. We did not make any
independent evaluation or appraisal of the assets or liabilities of, nor conduct
a comprehensive physical inspection of any of the assets of, the Company, nor
have we been furnished with any such appraisals. Our opinion is based on
information made available to us, and economic, monetary, political, regulatory,
market and other conditions existing and which can be evaluated, as of the date
of this opinion (including, without limitation, current market prices of the
Common Stock of the Company); however, such conditions are subject to rapid and
unpredictable change and such changes could affect the conclusions expressed
herein. We undertake no obligation to update this opinion to reflect any
developments occurring after the date hereof. We have made no independent
investigation of any legal matters affecting the Company, and we have assumed
the correctness of all legal and accounting advice given to such parties and
their respective boards of directors, including (without limitation) advice as
to the accounting and tax consequences of the Transaction to the Company and its
stockholders.
In rendering this opinion we have also assumed, with your permission, that:
(i) the terms and provisions contained in the Merger Agreement (including any
schedules and exhibits thereto) will not differ from those contained in the
drafts of those documents we have heretofore reviewed with respect to any matter
material to our opinion expressed herein; (ii) the conditions to the
consummation of the Transaction set forth in the Merger Agreement will be
satisfied without material expense; and (iii) there is not now, and there will
not as a result of the consummation of the transactions contemplated by the
Merger Agreement be, any default, or event of default, under any indenture,
credit agreement or other material agreement or instrument to which the Company
is a party.
C-2
<PAGE>
Moreover, in rendering the opinion set forth below we note that the
consummation of the Transaction is conditioned upon the approval of the holders
of the Common Stock, and we are not recommending that the Company, its Board of
Directors, any of its security holders or any other person should take any
specific action or vote in any specific manner in connection with the
Transaction. Our opinion does not constitute a recommendation of the Transaction
over any alternative transactions that may be available to the Company, and does
not address the Company's underlying business decision to effect the
Transaction.
In connection with its engagement, Jefferies will receive a fee from the
Company for its services, a significant portion of which is contingent upon
consummation of the Transaction. Jefferies also will receive a fee in connection
with the delivery of this opinion. In addition, Jefferies was previously engaged
by the Company to assist in raising high yield financing. In 1998 and 1999
Jefferies provided investment banking services to MindSpring Enterprises, Inc.
("MindSpring'), which merged with EarthLink Network, Inc. in February 2000 to
form Purchaser, and received customary fees for rendering such services.
Jefferies will not receive any compensation from the Purchaser in connection
with the delivery of this opinion. In the ordinary course of its business,
Jefferies may trade the securities of the Company and the Purchaser for its own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in those securities.
It is understood and agreed that this opinion is provided for the use of the
Board of Directors of the Company as one element in the Board's consideration of
the Transaction, and may not be used for any other purpose, or otherwise
referred to, relied upon or circulated, without our prior written consent. We
expressly disclaim any undertaking or obligation to advise any person of any
change in any fact or matter affecting this opinion of which we become aware
after the date hereof. This opinion may be reproduced in full in any proxy
statement mailed to holders of the Common Stock in connection with the
Transaction but may not otherwise be disclosed publicly in any manner without
our prior written approval.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and upon such other matters as we consider
relevant, we are of the opinion that, as of the date hereof, the Offer Price is
fair, from a financial point of view, to the holders of the Common Stock.
Sincerely,
/s/ JEFFERIES & COMPANY, INC.
JEFFERIES & COMPANY, INC.
C-3
<PAGE>
ANNEX D
DELAWARE RIGHTS OF APPRAISAL
SECTION 262 OF THE
DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock on
the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing
pursuant to Section228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of the stockholder's shares of stock
under the circumstances described in subsections (b) and (c) of this
section. As used in this section, the word "stockholder" means a holder of
record of stock in a stock corporation and also a member of record of a
nonstock corporation; the words "stock" and "share" mean and include what is
ordinarily meant by those words and also membership or membership interest
of a member of a nonstock corporation; and the words "depository receipt"
mean a receipt or other instrument issued by a depository representing an
interest in one or more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series of
stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section251 (other than a merger effected pursuant to
Section251(g) of this title), Section252, Section254, Section257,
Section258, Section263 or Section264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange
or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc.
or (ii) held of record by more than 2,000 holders; and further provided
that no appraisal rights shall be available for any shares of stock of
the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights under
this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
SectionSection251, 252, 254, 257, 258, 263 and 264 of this title to
accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national
securities exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more
than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph;
or
D-1
<PAGE>
d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
3. In the event all of the stock of a subsidiary Delaware corporation party
to a merger effected under Section253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the
assets of the corporation. If the certificate of incorporation contains such
a provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting
of stockholders, the corporation, not less than 20 days prior to the
meeting, shall notify each of its stockholders who was such on the record
date for such meeting with respect to shares for which appraisal rights
are available pursuant to subsections (b) or (c) hereof that appraisal
rights are available for any or all of the shares of the constituent
corporations, and shall include in such notice a copy of this section.
Each stockholder electing to demand the appraisal of his shares shall
deliver to the corporation, before the taking of the vote on the merger
or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing
to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section228 or
Section253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal
rights of the approval of the merger or consolidation and that appraisal
rights are available for any or all shares of such class or series of
stock of such constituent corporation, and shall include in such notice a
copy of this section; provided that, if the notice is given on or after
the effective date of the merger or consolidation, such notice shall be
given by the surviving or resulting corporation to all such holders of
any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after
the effective date of the merger or consolidation, shall, also notify
such stockholders of the effective date of the merger or consolidation.
Any stockholder entitled to appraisal rights may, within 20 days after
the date of mailing of such notice, demand in writing from the surviving
or resulting corporation the appraisal of such holder's shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such holder's shares. If such notice did not
notify stockholders of the
D-2
<PAGE>
effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the effective
date of the merger or consolidation notifying each of the holders of any
class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent
more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal
rights and who has demanded appraisal of such holder's shares in
accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in
the absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record
date that shall be not more than 10 days prior to the date the notice is
given, provided, that if the notice is given on or after the effective
date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior
to the effective date, the record date shall be the close of business on
the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation, the
surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the
effective date of the merger or consolidation, any stockholder shall have
the right to withdraw his demand for appraisal and to accept the terms
offered upon the merger or consolidation. Within 120 days after the
effective date of the merger or consolidation, any stockholder who has
complied with the requirements of subsections (a) and (d) hereof, upon
written request, shall be entitled to receive from the corporation surviving
the merger or resulting from the consolidation a statement setting forth the
aggregate number of shares not voted in favor of the merger or consolidation
and with respect to which demands for appraisal have been received and the
aggregate number of holders of such shares. Such written statement shall be
mailed to the stockholder within 10 days after his written request for such
a statement is received by the surviving or resulting corporation or within
10 days after expiration of the period for delivery of demands for appraisal
under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register
in Chancery in which the petition was filed a duly verified list containing
the names and addresses of all stockholders who have demanded payment for
their shares and with whom agreements as to the value of their shares have
not been reached by the surviving or resulting corporation. If the petition
shall be filed by the surviving or resulting corporation, the petition shall
be accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper
of general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail
and by publication shall be approved by the Court, and the costs thereof
shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders
who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by
D-3
<PAGE>
certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the Court may
dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court shall
appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting corporation or by
any stockholder entitled to participate in the appraisal proceeding, the
Court may, in its discretion, permit discovery or other pretrial proceedings
and may proceed to trial upon the appraisal prior to the final determination
of the stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting corporation pursuant
to subsection (f) of this section and who has submitted such stockholder's
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he
is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares, together
with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders
of shares represented by certificates upon the surrender to the corporation
of the certificates representing such stock. The Court's decree may be
enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of
any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and
the fees and expenses of experts, to be charged pro rata against the value
of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or
to receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed
within the time provided in subsection (e) of this section, or if such
stockholder shall deliver to the surviving or resulting corporation a
written withdrawal of his demand for an appraisal and an acceptance of the
merger or consolidation, either within 60 days after the effective date of
the merger or consolidation as provided in subsection (e) of this section or
thereafter with the written approval of the corporation, then the right of
such stockholder to an appraisal shall cease. Notwithstanding the foregoing,
no appraisal proceeding in the Court of Chancery shall be dismissed as to
any stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares of
such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
D-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 145 of the Delaware General Corporation Law ("DGCL") provides that
any director or officer of a Delaware corporation may be indemnified against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by him in connection with or in defending any action, suit or
proceeding in which he is a party by reason of his position. With respect to any
proceeding arising from actions taken in his official capacity as a director or
officer, he may be indemnified so long as it shall be determined that he
conducted himself in good faith and that he reasonably believed that such
conduct was in the corporation's best interests. In cases not concerning conduct
in his official capacity as a director or officer, a director may be indemnified
as long as he reasonably believed that his conduct was not opposed to the
corporation's best interests. In the case of any criminal proceeding, a director
or officer may be indemnified if he had no reasonable cause to believe his
conduct was unlawful. If a director or officer is wholly successful, on the
merits or otherwise, in connection with such a proceeding, such indemnification
is mandatory.
Pursuant to EarthLink's amended and restated certificate of incorporation
and bylaws, the directors of EarthLink shall be protected from personal
liability, through indemnification or otherwise, to the fullest extent permitted
under the DGCL as from time to time in effect and any other provisions of
Delaware law.
A director of EarthLink shall under no circumstances have any personal
liability to Earthlink or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for those specific breaches and acts or
omissions with respect to which the DGCL expressly provides that this provision
shall not eliminate or limit such personal liability of directors.
EarthLink shall indemnify each of its directors and officers to the fullest
extent permitted by applicable law, except as may be otherwise provided in
EarthLink's Amended and Restated Certificate of Incorporation and/or Bylaws. The
modification or repeal of this paragraph shall not adversely affect the right of
indemnification of any director or officer hereunder with respect to any act or
omission occurring prior to such modification or repeal.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <C> <S>
2.1 -- Agreement and Plan of Merger dated as of June 7, 2000 by and
among OneMain.com, Inc., OM Combination, Inc., and
EarthLink, Inc. (included as Annex A to this proxy
statement/prospectus as part of this Registration
Statement).
3.1 -- Amended and Restated Certificate of Incorporation of
EarthLink, as amended (incorporated by reference to
EarthLink's Form S-4 dated January 6, 2000--File No.
333-94177).
3.2 -- Bylaws of EarthLink, as amended (incorporated by reference
to EarthLink's Form S-4 dated January 6, 2000--File No.
333-94177).
4.1 -- Subordinated Debt Indenture (incorporated by reference to
Exhibit 4.3 to MindSpring's Form S-3/A filed on April 7,
1999--File No. 333-74151).
4.2 -- First Supplemental Indenture (incorporated by reference to
Exhibit 4.4 to MindSpring's Form S-3/A filed on April 7,
1999--File No 333-74151).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <C> <S>
4.3 -- Second Supplemental Indenture.
5.1 -- Opinion of Hunton & Williams.
8.1* -- Opinion of Hogan & Hartson L.L.P.
9.1 -- Agreement to Vote Stock, dated June 7, 2000, among
EarthLink, Inc., OneMain.com, Inc., OM Combination, Inc. and
certain stockholders named therein.
10.1 -- 1995 Stock Option Plan and form of Stock Option Agreement
(incorporated by reference to Exhibit 10.1 to EarthLink
Network's Registration Statement on Form S-1--File
No. 333-15781).
10.2 -- (a) Netscape Communications Corporation Internet Service
Provider Navigator Distribution Agreement, dated May 31,
1996, between EarthLink Network, Inc. and Netscape
Communications Corporation (incorporated by reference to
Exhibit 10.6 to EarthLink Network's Registration
Statement on Form S-1--File No. 333-15781).
(b) Amendment No. 1 to Netscape Communications Corporation
Internet Service Provider Agreement (incorporated by
reference to Exhibit 10.6(a) to EarthLink Network's
Registration Statement on Form S-1--File
No. 333-15781).
(c) Amendment No. 2 to Netscape Communications Corporation
Internet Service Provider Agreement (incorporated by
reference to Exhibit 10.6(b) to EarthLink Network's
Registration Statement on Form S-1--File
No. 333-15781).
10.3 -- (a) Network Services Agreement, dated May 31, 1996, between
EarthLink Network, Inc. and UUNET Technologies, Inc.
(incorporated by reference to Exhibit 10.7 to EarthLink
Network's Registration Statement on Form S-1--File
No. 333-15781).
(b) Addendum No. 1 to Network Services Agreement
(incorporated by reference to Exhibit 10.7(a) to EarthLink
Network's Registration Statement on Form S-1--File
No. 333-15781).
10.4 -- Software Distribution Agreement (MacTCP), dated October 2,
1995, between EarthLink Network, Inc. and Apple Computer,
Inc. (incorporated by reference to Exhibit 10.8 to EarthLink
Network's Registration Statement on Form S-1--File
No. 333-15781).
10.5 -- Amended and Restated Employment Agreement (incorporated by
reference to Exhibit 10.8(d) to EarthLink Network's
Registration Statement on Form S-1--File No. 333-53063).
10.6 -- Standard Industrial/Commercial Multi-Tenant Lease, dated
December 1, 1995, between EarthLink Network, Inc. and Becton
Dickinson and Company (incorporated by reference to
Exhibit 10.12 to EarthLink Network's Registration Statement
on Form S-1--File No. 333-15781).
10.7 -- Internet Wizard Sign-Up Agreement, between EarthLink
Network, Inc. and Microsoft Corporation, dated August 16,
1996 (incorporated by reference to Exhibit 10.19 to
EarthLink Network's Registration Statement on
Form S-1--File No. 333-15781).
10.8 -- Network Access Agreement, between EarthLink Network, Inc.
and PSINet, Inc., dated July 22, 1996 and Amendment No. 1 to
Network Access Agreement (incorporated by reference to
Exhibit 10.20 to EarthLink Network's Registration Statement
on Form S-1--File No. 333-15781).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <C> <S>
10.9 -- (a) Office Lease by and between The Mutual Life Insurance
Company of New York, and EarthLink Network, Inc., dated
September 20, 1996 (incorporated by reference to
Exhibit 10.21 to EarthLink Network's Registration
Statement on Form S-1--File No. 333-15781).
(b) Third Amendment to the lease agreement between WHMNY
Real Estate Limited Partnership and EarthLink Network, Inc.
(incorporated by reference to Exhibit 10.1 to EarthLink
Network's Form 10-Q filed on November 16, 1998--File
No. 0-20799).
10.10 -- Amended and Restated Convertible Securities Vesting Plan
(incorporated by reference to Exhibit 10.18 to EarthLink
Network's Report on Form 10-K for the fiscal year ended
December 31, 1997--File No. 0-20799).
10.11 -- (a) Key Employee Compensation Continuation Plan
(incorporated by reference to Exhibit 10.19 to EarthLink
Network's Report on Form 10-K for the fiscal year ended
December 31, 1997--File No. 0-20799).
(b) Amendment to Key Employee Compensation Continuation Plan
(incorporated by reference to Exhibit 10.19(a) to EarthLink
Network's Report on Form 10-K for the fiscal year ended
December 31, 1997--File No. 0-20799).
10.12 -- Governance Agreement, dated as of February 10, 1998,
(incorporated by reference to Exhibit 10.1 to EarthLink
Network's Form 8-K filed on February 10, 1998--File
No. 0-20799).
10.13 -- Credit Agreement, dated as of February 10, 1998, with Sprint
Corporation as the Lender (incorporated by reference to
Exhibit 10.3 to EarthLink Network's Form 8-K filed on
February 10, 1998--File No. 0-20799).
10.14 -- Registration Rights Agreement, dated as of February 10,
1998, with Sprint Corporation, and Sprint Communications
Company L.P. (incorporated by reference to Exhibit 99.1 to
EarthLink Network's Form 8-K filed on February 10,
1998--File No. 0-20799).
10.15 -- Stockholders Agreement, dated as of February 10, 1998, among
EarthLink Network, Inc., Sprint Corporation, Sprint
Communications Company L.P., and the persons identified on
Schedule 1 thereto (incorporated by reference to
Exhibit 99.2 to EarthLink Network's Form 8-K filed on
February 10, 1998--File No. 0-20799).
10.16 -- Marketing and Distribution Agreement, dated as of
February 10, 1998, Sprint Corporation, and Sprint
Communications Company L.P. (incorporated by reference to
Exhibit 10.26 of EarthLink Network's Registration Statement
on Form S-4 filed May 13, 1998--File No. 333-52507).
10.17 -- Lease Agreement, between EarthLink Network Inc. and Prentiss
Properties Natomas, L.P. (incorporated by reference to
Exhibit 10.1 to EarthLink Network's Form 10-Q filed on
September 30, 1999--File No. 0-20799).
10.18 -- Lease Agreement, between Park West E-3 Associates and NETCOM
On-Line Communication Services, Inc., dated February 23,
1996 (incorporated by reference to Exhibit 10.2 to
MindSpring's Form--10-K for the fiscal year ended
December 31, 1998--File No. 0-27890).
10.19 -- Lease Agreement, commencing on November 1, 1995, between
West Peachtree Point Partners, L.P. and MindSpring
Enterprises, Inc. (incorporated by reference to
Exhibit 10(j) to MindSpring's Registration Statement on
Form S-1--File No. 333-108).
10.20 -- First Amendment dated February 6, 1996 to Lease Agreement
dated November 1, 1995 between John Marshall Law School,
Inc. (assignee of West Peachtree Point Partners, L.P.) and
MindSpring Enterprises, Inc. (incorporated by reference to
Exhibit 10(cc) to MindSpring's Registration Statement on
Form S-1--File No. 333-108).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <C> <S>
10.21 -- MindSpring Enterprises, Inc. 1995 Stock Option Plan, as
amended (incorporated by reference to Exhibit 10.7 to
MindSpring's Form 10-K for the fiscal year ended
December 31, 1998--File No. 0-27890).
10.22 -- Form of Stock Option Agreement (incorporated by reference to
Exhibit 10(v) to MindSpring's Registration Statement on
Form S-1--File No. 333-108).
10.23 -- MindSpring Enterprises, Inc. 1995 Directors Stock Option
Plan, as amended (incorporated by reference to Exhibit 10.9
to MindSpring's Form 10-K for the fiscal year ended
December 31, 1998--File No. 0-27890).
10.24 -- Form of Director Stock Option Agreement, as amended
(incorporated by reference to Exhibit 10(x) to MindSpring's
Registration Statement on Form S-1--File No. 333-108).
10.25 -- Master Services Agreement, dated July 15, 1996, between
BellSouth Telecommunications, Inc. and MindSpring
Enterprises, Inc. (incorporated by reference to
Exhibit 10(cc) to MindSpring's Form S-1--File
No. 333-10779).
10.26 -- Office Building Lease Agreement, commencing December 15,
1997, between Pennsylvania Dental Service Corporation, a
Pennsylvania corporation d/b/a Delta Dental of Pennsylvania,
and MindSpring Enterprises, Inc. (incorporated by reference
to Exhibit 10.13 to MindSpring's Form 10-K for the fiscal
year ended December 31, 1998--File No. 0-27890).
10.27 -- Lease Agreement effective as of January 1, 1997 by and
between CMS Peachtree, L.P. and MindSpring Enterprises, Inc.
(incorporated by reference to Exhibit 10(hh) to MindSpring's
Form 10-K for the fiscal year ended December 31, 1996--File
No. 0-27890).
10.28 -- Amendment dated June 6, 1997 to Master Services Agreement,
dated July 15, 1996, between BellSouth Telecommunications,
Inc. and MindSpring Enterprises, Inc. (incorporated by
reference to Exhibit 10.1 to MindSpring's Form 10-Q for the
quarter ended June 30, 1997--File No. 0-27890).
10.29 -- Special Service Arrangement Agreement, dated June 1997,
between BellSouth Telecommunications, Inc. and MindSpring
Enterprises, Inc. (a substantially identical contract has
been executed for each of Alabama, Florida, Kentucky, North
Carolina, South Carolina and Tennessee) (incorporated by
reference to Exhibit 10.2 to MindSpring's Form 10-Q for the
quarter ended June 30, 1997--File No. 0-27890).
10.30 -- Lease Agreement dated November 16, 1999, between Kingston
Atlanta Partners, L.P. and MindSpring Enterprises, Inc.
(incorporated by reference to Exhibit 10.38 to EarthLink's
Form S-4 dated January 6, 2000--File No. 333-94177).
10.31 -- First Amendment to Lease, dated October 1, 1999, between
Park West E-3 Associates and NETCOM On-line Communication
Services, Inc. (incorporated by reference to Exhibit 10.39
to EarthLink's Form S-4 dated January 6, 2000--File
No. 333-94177).
10.32* -- Lease Agreement, dated June 30, 1998, between Ryan Southbank
II, L.L.C. and MindSpring Enterprises, Inc.
10.33 -- Sublease, dated September 14, 1999, between International
Business Machines Corporation and MindSpring Enterprises,
Inc. (incorporated by reference to Exhibit 10.41 to
EarthLink's Form S-4 dated January 6, 2000--File
No. 333-94177).
10.34 -- Fourth Amendment dated June 24, 1998, to Lease Agreement
dated August 11, 1995 by and among 1430 L.L.C. and
MindSpring Enterprises, Inc. (incorporated by reference to
Exhibit 10.42 to EarthLink's Form S-4 dated January 6,
2000--File No. 333-94177).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <C> <S>
10.35* -- Fifth Amendment dated October 26, 1999 to Lease Agreement
dated August 11, 1995 by and among 1430 L.L.C. and
MindSpring Enterprises, Inc.
10.36* -- Amendment dated December 20, 1999, to Office Building Lease
Agreement dated December 15, 1997, between Pennsylvania
Dental Service Corporation and MindSpring Enterprises, Inc.
10.37* -- EarthLink Centre Standard Modified Gross Office Lease, dated
October 5, 1999, by and between Limar Realty Corp. #6 and
Earthlink Network, Inc.
16.1 -- Letter Regarding Change in Certifying Accountant
(incorporated by reference from Exhibit 99 to Form 8-K filed
on July 6, 2000).
21.1 -- Subsidiaries of EarthLink.
23.1 -- Consent of PricewaterhouseCoopers LLP (EarthLink, Inc. and
EarthLink Network, Inc.).
23.2 -- Consent of Arthur Andersen LLP (MindSpring Enterprises,
Inc.).
23.3 -- Consent of Ernst & Young LLP (OneMain.com, Inc.).
23.4 -- Consent of Ernst & Young LLP, Independent Auditors (D&E
SuperNet, Inc.).
23.5 -- Consent of Ernst & Young LLP, Independent Auditors (SunLink,
Inc.).
23.6 -- Consent of Ernst & Young LLP, Independent Auditors (LebaNet,
Inc.).
23.7 -- Consent of Grant Thornton LLP, Independent Auditors
(Southwind Internet Access, Inc.).
23.8 -- Consent of Ernst & Young LLP, Independent Auditors
(Southwind Internet Access, Inc.).
23.9 -- Consent of Ernst & Young LLP, Independent Auditors (Horizon
Internet Techologies, Inc.).
23.10 -- Consent of Coulter & Justus, P.C., Independent Auditors
(United States Internet, Inc.).
23.11 -- Consent of Ernst & Young LLP, Independent Auditors (United
States Internet, Inc.).
23.12 -- Consent of Ernst & Young LLP, Independent Auditors (Internet
Partners of America, LLC).
23.13 -- Consent of Ernst & Young LLP, Independent Auditors (ZoomNet,
Inc.).
23.14 -- Consent of Ernst & Young LLP, Independent Auditors
(Palm.Net, USA, Inc.).
23.15 -- Consent of Ernst & Young LLP, Independent Auditors (Internet
Access Group, Inc.).
23.16 -- Consent of Ernst & Young LLP, Independent Auditors (Midwest
Internet, LLC).
23.17 -- Consent of Kevin J. Tochtrop, Certified Public Accountant,
Independent Auditor (Internet Solutions, LLC).
23.18 -- Consent of Ernst & Young LLP, Independent Auditors (Internet
Solutions LLC).
23.19 -- Consent of Ernst & Young LLP, Independent Auditors (FGInet,
Inc.).
23.20 -- Consent of Ernst & Young LLP, Independent Auditors
(Superhighway, Inc. d/b/a Indynet).
23.21 -- Consent of Ernst & Young LLP, Independent Auditors
(Lightspeed Net, Inc.).
23.22 -- Consent of Ernst & Young LLP, Independent Auditors (JPS.Net
Corporation).
23.23 -- Consent of KPMG LLP, Independent Auditors (TGF Technologies,
Inc.).
23.24 -- Consent of Ernst & Young LLP, Independent Auditors (TGF
Technologies, Inc.).
23.25 -- Consent of Ernst & Young LLP, Independent Auditors (Consumer
Internet Access Services of Sprint Corporation).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <C> <S>
23.26 -- Consent of Hunton & Williams (included in Exhibit 5.1).
23.27* -- Consent of Hogan & Hartson, L.L.P. (included in
Exhibit 8.1).
23.28 -- Consent of Jefferies & Co.
24.1 -- Powers of Attorney for EarthLink's directors (included on
signature page).
99.1 -- Form of proxy card for use at special meeting of OneMain.
</TABLE>
------------------------
* To be filed by amendment.
(b) Financial Statement Schedules.
All schedules are omitted because they are not applicable or because the
required information is contained in the financial statements or notes thereto.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
II-6
<PAGE>
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(5) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
(6) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(7) That every prospectus (i) that is filed pursuant to the paragraph
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415, will be filed as part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(8) That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia, on July 10, 2000.
<TABLE>
<S> <C> <C>
EARTHLINK, INC.
By: /s/ CHARLES G. BETTY
-----------------------------------------
Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on July 10, 2000
in the capacities indicated.
Each person whose individual signature appears below hereby authorizes and
appoints each of Charles G. Betty and Michael S. McQuary with full power of
substitution and resubstitution and full power to act as his true and lawful
attorney-in-fact and agent to act in his name, place and stead and to execute in
the name and on behalf of each person, individually and in each capacity stated
below, and to file, any and all amendments to this Registration Statement,
including any and all post-effective amendments and any registration statement
relating to the same offering as this Registration Statement that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agents full power and authority to do and perform
each and every act and thing, ratifying and confirming all that said
attorney-in-fact and agent or any of them or their substitute or substitutes,
may lawfully do or cause to be done by virtue thereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
/s/ CHARLES G. BETTY
-------------------------------------- Chief Executive Officer and Director
Charles G. Betty (principal executive officer)
/s/ LEE ADREAN
-------------------------------------- Chief Financial Officer
Lee Adrean (principal financial officer)
/s/ CARY S. SMITH
-------------------------------------- Vice President and Controller
Cary S. Smith (principal accounting officer)
/s/ CHARLES M. BREWER
-------------------------------------- Chairman of the Board of Directors
Charles M. Brewer
/s/ MICHAEL S. MCQUARY
-------------------------------------- President and Director
Michael S. McQuary
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
/s/ SKY D. DAYTON
-------------------------------------- Director
Sky D. Dayton
/s/ LINWOOD A. LACY, JR.
-------------------------------------- Director
Linwood A. Lacy, Jr.
/s/ CAMPBELL B. LANIER, III
-------------------------------------- Director
Campbell B. Lanier, III
/s/ WILLIAM H. SCOTT, III
-------------------------------------- Director
William H. Scott, III
/s/ WILLIAM T. ESREY
-------------------------------------- Director
William T. Esrey
/s/ REED E. SLATKIN
-------------------------------------- Director
Reed E. Slatkin
/s/ LEN J. LAUER
-------------------------------------- Director
Len J. Lauer
/s/ PHILIP W. SCHILLER
-------------------------------------- Director
Philip W. Schiller
</TABLE>
II-9
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <C> <S>
2.1 -- Agreement and Plan of Merger dated as of June 7, 2000 by and
among OneMain.com, Inc., OM Combination, Inc., and
EarthLink, Inc. (included as Annex A to this proxy
statement/prospectus as part of this Registration
Statement).
3.1 -- Amended and Restated Certificate of Incorporation of
EarthLink, as amended (incorporated by reference to
EarthLink's Form S-4 dated January 6, 2000--File No.
333-94177).
3.2 -- Bylaws of EarthLink, as amended (incorporated by reference
to EarthLink's Form S-4 dated January 6, 2000--File No.
333-94177).
4.1 -- Subordinated Debt Indenture (incorporated by reference to
Exhibit 4.3 to MindSpring's Form S-3/A filed on April 7,
1999--File No. 333-74151).
4.2 -- First Supplemental Indenture (incorporated by reference to
Exhibit 4.4 to MindSpring's Form S-3/A filed on April 7,
1999--File No 333-74151).
4.3 -- Second Supplemental Indenture.
5.1 -- Opinion of Hunton & Williams.
8.1* -- Opinion of Hogan & Hartson L.L.P.
9.1 -- Agreement to Vote Stock, dated June 7, 2000, among
EarthLink, Inc., OneMain.com, Inc., OM Combination, Inc. and
certain stockholders named therein.
10.1 -- 1995 Stock Option Plan and form of Stock Option Agreement
(incorporated by reference to Exhibit 10.1 to EarthLink
Network's Registration Statement on Form S-1--File
No. 333-15781).
10.2 -- (a) Netscape Communications Corporation Internet Service
Provider Navigator Distribution Agreement, dated May 31,
1996, between EarthLink Network, Inc. and Netscape
Communications Corporation (incorporated by reference to
Exhibit 10.6 to EarthLink Network's Registration
Statement on Form S-1--File No. 333-15781).
(b) Amendment No. 1 to Netscape Communications Corporation
Internet Service Provider Agreement (incorporated by
reference to Exhibit 10.6(a) to EarthLink Network's
Registration Statement on Form S-1--File
No. 333-15781).
(c) Amendment No. 2 to Netscape Communications Corporation
Internet Service Provider Agreement (incorporated by
reference to Exhibit 10.6(b) to EarthLink Network's
Registration Statement on Form S-1--File
No. 333-15781).
10.3 -- (a) Network Services Agreement, dated May 31, 1996, between
EarthLink Network, Inc. and UUNET Technologies, Inc.
(incorporated by reference to Exhibit 10.7 to EarthLink
Network's Registration Statement on Form S-1--File
No. 333-15781).
(b) Addendum No. 1 to Network Services Agreement
(incorporated by reference to Exhibit 10.7(a) to EarthLink
Network's Registration Statement on Form S-1--File
No. 333-15781).
10.4 -- Software Distribution Agreement (MacTCP), dated October 2,
1995, between EarthLink Network, Inc. and Apple Computer,
Inc. (incorporated by reference to Exhibit 10.8 to EarthLink
Network's Registration Statement on Form S-1--File
No. 333-15781).
10.5 -- Amended and Restated Employment Agreement (incorporated by
reference to Exhibit 10.8(d) to EarthLink Network's
Registration Statement on Form S-1--File No. 333-53063).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <C> <S>
10.6 -- Standard Industrial/Commercial Multi-Tenant Lease, dated
December 1, 1995, between EarthLink Network, Inc. and Becton
Dickinson and Company (incorporated by reference to
Exhibit 10.12 to EarthLink Network's Registration Statement
on Form S-1--File No. 333-15781).
10.7 -- Internet Wizard Sign-Up Agreement, between EarthLink
Network, Inc. and Microsoft Corporation, dated August 16,
1996 (incorporated by reference to Exhibit 10.19 to
EarthLink Network's Registration Statement on
Form S-1--File No. 333-15781).
10.8 -- Network Access Agreement, between EarthLink Network, Inc.
and PSINet, Inc., dated July 22, 1996 and Amendment No. 1 to
Network Access Agreement (incorporated by reference to
Exhibit 10.20 to EarthLink Network's Registration Statement
on Form S-1--File No. 333-15781).
10.9 -- (a) Office Lease by and between The Mutual Life Insurance
Company of New York, and EarthLink Network, Inc., dated
September 20, 1996 (incorporated by reference to
Exhibit 10.21 to EarthLink Network's Registration
Statement on Form S-1--File No. 333-15781).
(b) Third Amendment to the lease agreement between WHMNY
Real Estate Limited Partnership and EarthLink Network, Inc.
(incorporated by reference to Exhibit 10.1 to EarthLink
Network's Form 10-Q filed on November 16, 1998--File
No. 0-20799).
10.10 -- Amended and Restated Convertible Securities Vesting Plan
(incorporated by reference to Exhibit 10.18 to EarthLink
Network's Report on Form 10-K for the fiscal year ended
December 31, 1997--File No. 0-20799).
10.11 -- (a) Key Employee Compensation Continuation Plan
(incorporated by reference to Exhibit 10.19 to EarthLink
Network's Report on Form 10-K for the fiscal year ended
December 31, 1997--File No. 0-20799).
(b) Amendment to Key Employee Compensation Continuation Plan
(incorporated by reference to Exhibit 10.19(a) to EarthLink
Network's Report on Form 10-K for the fiscal year ended
December 31, 1997--File No. 0-20799).
10.12 -- Governance Agreement, dated as of February 10, 1998,
(incorporated by reference to Exhibit 10.1 to EarthLink
Network's Form 8-K filed on February 10, 1998--File
No. 0-20799).
10.13 -- Credit Agreement, dated as of February 10, 1998, with Sprint
Corporation as the Lender (incorporated by reference to
Exhibit 10.3 to EarthLink Network's Form 8-K filed on
February 10, 1998--File No. 0-20799).
10.14 -- Registration Rights Agreement, dated as of February 10,
1998, with Sprint Corporation, and Sprint Communications
Company L.P. (incorporated by reference to Exhibit 99.1 to
EarthLink Network's Form 8-K filed on February 10,
1998--File No. 0-20799).
10.15 -- Stockholders Agreement, dated as of February 10, 1998, among
EarthLink Network, Inc., Sprint Corporation, Sprint
Communications Company L.P., and the persons identified on
Schedule 1 thereto (incorporated by reference to
Exhibit 99.2 to EarthLink Network's Form 8-K filed on
February 10, 1998--File No. 0-20799).
10.16 -- Marketing and Distribution Agreement, dated as of
February 10, 1998, Sprint Corporation, and Sprint
Communications Company L.P. (incorporated by reference to
Exhibit 10.26 of EarthLink Network's Registration Statement
on Form S-4 filed May 13, 1998--File No. 333-52507).
10.17 -- Lease Agreement, between EarthLink Network Inc. and Prentiss
Properties Natomas, L.P. (incorporated by reference to
Exhibit 10.1 to EarthLink Network's Form 10-Q filed on
September 30, 1999--File No. 0-20799).
</TABLE>
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<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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10.18 -- Lease Agreement, between Park West E-3 Associates and NETCOM
On-Line Communication Services, Inc., dated February 23,
1996 (incorporated by reference to Exhibit 10.2 to
MindSpring's Form--10-K for the fiscal year ended
December 31, 1998--File No. 0-27890).
10.19 -- Lease Agreement, commencing on November 1, 1995, between
West Peachtree Point Partners, L.P. and MindSpring
Enterprises, Inc. (incorporated by reference to
Exhibit 10(j) to MindSpring's Registration Statement on
Form S-1--File No. 333-108).
10.20 -- First Amendment dated February 6, 1996 to Lease Agreement
dated November 1, 1995 between John Marshall Law School,
Inc. (assignee of West Peachtree Point Partners, L.P.) and
MindSpring Enterprises, Inc. (incorporated by reference to
Exhibit 10(cc) to MindSpring's Registration Statement on
Form S-1--File No. 333-108).
10.21 -- MindSpring Enterprises, Inc. 1995 Stock Option Plan, as
amended (incorporated by reference to Exhibit 10.7 to
MindSpring's Form 10-K for the fiscal year ended
December 31, 1998--File No. 0-27890).
10.22 -- Form of Stock Option Agreement (incorporated by reference to
Exhibit 10(v) to MindSpring's Registration Statement on
Form S-1--File No. 333-108).
10.23 -- MindSpring Enterprises, Inc. 1995 Directors Stock Option
Plan, as amended (incorporated by reference to Exhibit 10.9
to MindSpring's Form 10-K for the fiscal year ended
December 31, 1998--File No. 0-27890).
10.24 -- Form of Director Stock Option Agreement, as amended
(incorporated by reference to Exhibit 10(x) to MindSpring's
Registration Statement on Form S-1--File No. 333-108).
10.25 -- Master Services Agreement, dated July 15, 1996, between
BellSouth Telecommunications, Inc. and MindSpring
Enterprises, Inc. (incorporated by reference to
Exhibit 10(cc) to MindSpring's Form S-1--File
No. 333-10779).
10.26 -- Office Building Lease Agreement, commencing December 15,
1997, between Pennsylvania Dental Service Corporation, a
Pennsylvania corporation d/b/a Delta Dental of Pennsylvania,
and MindSpring Enterprises, Inc. (incorporated by reference
to Exhibit 10.13 to MindSpring's Form 10-K for the fiscal
year ended December 31, 1998--File No. 0-27890).
10.27 -- Lease Agreement effective as of January 1, 1997 by and
between CMS Peachtree, L.P. and MindSpring Enterprises, Inc.
(incorporated by reference to Exhibit 10(hh) to MindSpring's
Form 10-K for the fiscal year ended December 31, 1996--File
No. 0-27890).
10.28 -- Amendment dated June 6, 1997 to Master Services Agreement,
dated July 15, 1996, between BellSouth Telecommunications,
Inc. and MindSpring Enterprises, Inc. (incorporated by
reference to Exhibit 10.1 to MindSpring's Form 10-Q for the
quarter ended June 30, 1997--File No. 0-27890).
10.29 -- Special Service Arrangement Agreement, dated June 1997,
between BellSouth Telecommunications, Inc. and MindSpring
Enterprises, Inc. (a substantially identical contract has
been executed for each of Alabama, Florida, Kentucky, North
Carolina, South Carolina and Tennessee) (incorporated by
reference to Exhibit 10.2 to MindSpring's Form 10-Q for the
quarter ended June 30, 1997--File No. 0-27890).
10.30 -- Lease Agreement dated November 16, 1999, between Kingston
Atlanta Partners, L.P. and MindSpring Enterprises, Inc.
(incorporated by reference to Exhibit 10.38 to EarthLink's
Form S-4 dated January 6, 2000--File No. 333-94177).
10.31 -- First Amendment to Lease, dated October 1, 1999, between
Park West E-3 Associates and NETCOM On-line Communication
Services, Inc. (incorporated by reference to Exhibit 10.39
to EarthLink's Form S-4 dated January 6, 2000--File
No. 333-94177).
</TABLE>
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<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<C> <C> <S>
10.32* -- Lease Agreement, dated June 30, 1998, between Ryan Southbank
II, L.L.C. and MindSpring Enterprises, Inc.
10.33 -- Sublease, dated September 14, 1999, between International
Business Machines Corporation and MindSpring Enterprises,
Inc. (incorporated by reference to Exhibit 10.41 to
EarthLink's Form S-4 dated January 6, 2000--File
No. 333-94177).
10.34 -- Fourth Amendment dated June 24, 1998, to Lease Agreement
dated August 11, 1995 by and among 1430 L.L.C. and
MindSpring Enterprises, Inc. (incorporated by reference to
Exhibit 10.42 to EarthLink's Form S-4 dated January 6,
2000--File No. 333-94177).
10.35* -- Fifth Amendment dated October 26, 1999 to Lease Agreement
dated August 11, 1995 by and among 1430 L.L.C. and
MindSpring Enterprises, Inc.
10.36* -- Amendment dated December 20, 1999, to Office Building Lease
Agreement dated December 15, 1997, between Pennsylvania
Dental Service Corporation and MindSpring Enterprises, Inc.
10.37* -- EarthLink Centre Standard Modified Gross Office Lease, dated
October 5, 1999, by and between Limar Realty Corp. #6 and
Earthlink Network, Inc.
16.1 -- Letter Regarding Change in Certifying Accountant
(incorporated by reference from Exhibit 99 to Form 8-K filed
on July 6, 2000).
21.1 -- Subsidiaries of EarthLink.
23.1 -- Consent of PricewaterhouseCoopers LLP (EarthLink, Inc. and
EarthLink Network, Inc.).
23.2 -- Consent of Arthur Andersen LLP (MindSpring Enterprises,
Inc.).
23.3 -- Consent of Ernst & Young LLP (OneMain.com, Inc.).
23.4 -- Consent of Ernst & Young LLP, Independent Auditors (D&E
SuperNet, Inc.).
23.5 -- Consent of Ernst & Young LLP, Independent Auditors (SunLink,
Inc.).
23.6 -- Consent of Ernst & Young LLP, Independent Auditors (LebaNet,
Inc.).
23.7 -- Consent of Grant Thornton LLP, Independent Auditors
(SouthWind Internet Access, Inc.).
23.8 -- Consent of Ernst & Young LLP, Independent Auditors
(SouthWind Internet Access, Inc.).
23.9 -- Consent of Ernst & Young LLP, Independent Auditors (Horizon
Internet Techologies, Inc.).
23.10 -- Consent of Coulter & Justus, P.C., Independent Auditors
(United States Internet, Inc.).
23.11 -- Consent of Ernst & Young LLP, Independent Auditors (United
States Internet, Inc.).
23.12 -- Consent of Ernst & Young LLP, Independent Auditors (Internet
Partners of America, LLC).
23.13 -- Consent of Ernst & Young LLP, Independent Auditors (ZoomNet,
Inc.).
23.14 -- Consent of Ernst & Young LLP, Independent Auditors
(Palm.Net, USA, Inc.).
23.15 -- Consent of Ernst & Young LLP, Independent Auditors (Internet
Access Group, Inc.).
23.16 -- Consent of Ernst & Young LLP, Independent Auditors (Midwest
Internet, L.L.C.).
23.17 -- Consent of Kevin J. Tochtrop, Certified Public Accountant,
Independent Auditor (Internet Solutions, LLC).
23.18 -- Consent of Ernst & Young LLP, Independent Auditors (Internet
Solutions LLC).
23.19 -- Consent of Ernst & Young LLP, Independent Auditors (FGInet,
Inc.).
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <C> <S>
23.20 -- Consent of Ernst & Young LLP, Independent Auditors
(Superhighway, Inc. d/b/a Indynet).
23.21 -- Consent of Ernst & Young LLP, Independent Auditors
(Lightspeed Net, Inc.).
23.22 -- Consent of Ernst & Young LLP, Independent Auditors (JPS.Net
Corporation).
23.23 -- Consent of KPMG LLP, Independent Auditors (TGF Technologies,
Inc.).
23.24 -- Consent of Ernst & Young LLP, Independent Auditors (TGF
Technologies, Inc.).
23.25 -- Consent of Ernst & Young LLP, Independent Auditors (Consumer
Internet Access Services of Sprint Corporation).
23.26 -- Consent of Hunton & Williams (included in Exhibit 5.1).
23.27* -- Consent of Hogan & Hartson, L.L.P. (included in
Exhibit 8.1).
23.28 -- Consent of Jefferies & Co. (included in ANNEX C).
24.1 -- Powers of Attorney for EarthLink's directors (included on
signature page).
99.1 -- Form of proxy card for use at special meeting of OneMain.
</TABLE>
------------------------
* To be filed by amendment.
