SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material under Rule 14a-12
EARTHLINK, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
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(1) Amount Previously Paid:
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(4) Date Filed:
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EARTHLINK, INC.
1375 PEACHTREE ST.,
ATLANTA, GEORGIA 30309
(404) 815-0770
April 12, 2001
Dear Stockholders:
You are cordially invited to attend the 2001 Annual Meeting of Stockholders
of EarthLink, Inc., which will be held at 10:00 a.m. (local time) on Thursday,
May 24, 2001, at the Georgia Center for Advanced Telecommunications Technology
(GCATT), located at 250 14th Street NW, Atlanta, Georgia (the "ANNUAL MEETING").
The principal business of the Annual Meeting will be the election of our
Class II directors and the ratification of the appointment by the Board of
Directors of Ernst & Young LLP as independent auditors for the year ending
December 31, 2001. We will also review the results of the past fiscal year and
report on significant aspects of our operations during the first quarter of
2001.
Our Board of Directors is divided into three classes, with only one class
(Class II) to be elected this year. Please refer to the section entitled "Board
of Directors" in the Proxy Statement for further details.
If you do not attend the Annual Meeting, you may vote your shares in any of
three ways--by mail, by telephone or by Internet. The enclosed proxy card
materials provide you details on how to vote by these three methods. Whether or
not you plan to attend the Annual Meeting, we encourage you to vote in the
method that suits you best so that your shares will be voted at the Annual
Meeting. If you decide to attend the Annual Meeting, you may, of course, revoke
your proxy and personally cast your votes.
Thank you, and we look forward to seeing you at the Annual Meeting or
receiving your proxy vote.
Sincerely yours,
/s/ Sky D. Dayton
Sky D. Dayton
CHAIRMAN OF THE BOARD
EARTHLINK, INC.
1375 PEACHTREE ST.,
ATLANTA, GEORGIA 30309
(404) 815-0770
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The 2001 Annual Meeting of the Stockholders of EarthLink, Inc. (the
"COMPANY") will be held at 10:00 a.m. (local time), Thursday, May 24, 2001, at
the Georgia Center for Advanced Telecommunications Technology (GCATT) located at
250 14th Street NW, Atlanta, Georgia. The meeting is called for the following
purposes:
1. To elect Class II directors for a three-year term;
2. To ratify of the appointment by the Board of Directors of Ernst & Young
LLP as independent auditors for the year ending December 31, 2001.
3. To transact such other business as may properly come before the meeting.
The Board of Directors has fixed the close of business on March 23, 2001 as
the record date for the purpose of determining the stockholders who are entitled
to notice of and to vote at the meeting and any adjournment or postponement
thereof.
By order of the Board of Directors,
/s/ Sky D. Dayton
Sky D. Dayton
CHAIRMAN OF THE BOARD
Atlanta, Georgia
April 12, 2001
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. IF YOU ARE UNABLE TO BE
PRESENT AT THE MEETING, PLEASE VOTE YOUR SHARES BY MAIL WITH THE ENCLOSED PROXY
CARD, BY TELEPHONE OR BY INTERNET SO THAT YOUR SHARES WILL BE REPRESENTED. YOU
MAY, IF YOU WISH, REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE TIME IT IS VOTED.
EARTHLINK, INC.
1375 PEACHTREE ST.,
ATLANTA, GEORGIA 30309
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 24, 2001
This Proxy Statement is furnished by and on behalf of the Board of Directors
of EarthLink, Inc. (the "COMPANY" or "EARTHLINK") in connection with the
solicitation of proxies for use at the 2001 Annual Meeting of Stockholders of
the Company to be held at 10:00 a.m. (local time) on Thursday, May 24, 2001, at
the Georgia Center for Advanced Telecommunications Technology (GCATT), 250 14th
Street NW, Atlanta, Georgia, and at any adjournments or postponements thereof
(the "ANNUAL MEETING"). This Proxy Statement and the enclosed proxy card will be
mailed on or about April 12, 2001 to the Company's stockholders of record (the
"STOCKHOLDERS") on the Record Date, as defined below.
THE BOARD OF DIRECTORS URGES YOU TO VOTE YOUR SHARES BY ANY OF THE THREE
AVAILABLE METHODS--BY MAIL, BY TELEPHONE OR BY INTERNET. IF YOU VOTE BY MAIL,
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED
ENVELOPE.
YOUR VOTE IS IMPORTANT !
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
GENERAL
Proxies will be voted as specified by the Stockholder or Stockholders
granting the proxy. Unless contrary instructions are specified, if the enclosed
proxy card is executed and returned (and not revoked) prior to the Annual
Meeting, the shares of common stock, $.01 par value per share, of the Company
(the "COMMON STOCK") represented thereby will be voted FOR the proposals set
forth in this Proxy Statement. The submission of a signed proxy will not affect
a Stockholder's right to attend and to vote in person at the Annual Meeting. A
Stockholder who executes a proxy may revoke it at any time before it is voted by
filing with the Secretary of the Company either a written revocation or an
executed proxy bearing a later date or by attending and voting in person at the
Annual Meeting.
As of the close of business on the March 9, 2001, there were 130,660,887
shares of the Company's Common Stock (the "SHARES") outstanding. Only holders of
record of Common Stock as of the close of business on March 23, 2001 (the
"RECORD DATE") will be entitled to vote at the Annual Meeting. Holders of Shares
authorized to vote are entitled to cast one vote per Share on all matters voted
upon at the Annual Meeting.
QUORUM REQUIRED
According to the Company's Bylaws, the holders of a majority of the Shares
entitled to be voted must be present or represented by proxy to constitute a
quorum. Shares as to which authority to vote is withheld and abstentions are
counted in determining whether a quorum exists.
VOTE REQUIRED
Under Delaware law, directors are elected by a plurality of the votes of the
shares entitled to vote and present in person or represented by proxy at a
meeting at which a quorum is present. Only votes actually cast will be counted
for the purpose of determining whether a particular nominee received more votes
than the persons, if any, nominated for the same seat on the Board of Directors.
A stockholder may withhold votes from any or all nominees by notation on the
proxy card. Except to the extent that a stockholder withholds votes from any or
all nominees, the persons named in the proxy card, in their sole discretion,
will vote such proxy for the election of the nominees listed below as directors
of the Company.
Abstentions will be counted in determining the minimum number of votes
required for approval of proposals and will therefore, have the effect of votes
against such proposals. Broker non-votes, those shares held by a broker or
nominee as to which such a broker or nominee does not have discretionary voting
power, will not be counted as votes for or against approval of such matters.
With respect to any other matters that may come before the Annual Meeting,
if proxies are executed and returned, such proxies will be voted in a manner
deemed by the proxy representatives named therein to be in the best interests of
the Company and its stockholders.
PROPOSAL I--ELECTION OF DIRECTORS
NOMINEES
EarthLink's Amended and Restated Certificate of Incorporation provides that
the Company shall have at least two and not more than 17 directors, with the
exact number to be fixed by resolution of the Board of Directors from time to
time or by a majority vote of the stockholders entitled to vote on directors.
The current size of the Board of Directors is fixed at 13, and the Company
currently has seven directors, with the existing six vacancies to be filled by
the Board of Directors in the future. The Board of Directors held nine meetings
in 2000, and held one meeting from January 1, 2001 through the date of this
Proxy Statement.
As established in its Amended and Restated Certificate of Incorporation,
EarthLink's Board of Directors is divided into three classes, designated as
Class I, Class II and Class III, which classes are to have as nearly equal
number of directors as possible. The current seven-member Board of Directors
consists of two Class I members, three Class II members and two Class III
members. The remaining six director positions (which are currently vacant)
consist of two Class I directorships, one Class II directorship and three
Class III directorships. The term for each class is three years, which expires
at the third succeeding annual stockholder meeting after their election. The
initial term for our initial Board of Director's Class II directors expires at
this year's Annual Meeting. One Class I director is not elected by our common
stockholders but rather is appointed to our Board of Directors by Apple
Computer, Inc. ("APPLE") based on certain rights granted to them in contractual
agreements and in the Certificate of Designation establishing the terms of our
Series C Convertible Preferred Stock issued to Apple.
DIRECTORS STANDING FOR ELECTION
The Board of Directors has nominated Linwood A. Lacy, Jr., Michael S.
McQuary and Reed E. Slatkin for election as Class II directors to the Board of
Directors at the Annual Meeting, each to serve until the 2004 Annual Meeting of
Stockholders or until their successors are duly elected and qualified.
Set forth below is certain biographical information furnished to the Company
by the directors standing for election:
LINWOOD A. LACY, JR.--CLASS II DIRECTOR
Age: 55
Mr. Lacy is a member of the Board of Directors of EarthLink, and was a
member of the Board of Directors of EarthLink Network from June 1996 until its
merger with MindSpring. From October 1996 to October 1998, he served as
President and Chief Executive Officer of Micro Warehouse Incorporated. From 1989
to May 1996, he served as the Co-Chairman and Chief Executive Officer of Ingram
Micro, Inc., a microcomputer products distributor and a then wholly-owned
subsidiary of Ingram Industries Inc. From December 1993 to June 1995, Mr. Lacy
was also President of Ingram Industries Inc. From June 1995 until April 1996, he
was President and Chief Executive Officer of Ingram Industries Inc., and from
April 1996 to May 1996 served as its Vice-Chairman. Mr. Lacy serves as a
director of Ingram Industries Inc., SemQuip, Inc., and Modus Media International
Holding, Inc.
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MICHAEL S. MCQUARY--CLASS II DIRECTOR
Age: 41
Mr. McQuary is the President and a member of the Board of Directors of
EarthLink. Mr. McQuary served as President of MindSpring from March 1996, the
Chief Operating Officer from September 1995 and a director from December 1995
until its merger with EarthLink Network. He also served as MindSpring's
Executive Vice President from October 1995 to March 1996 and MindSpring's
Executive Vice President of Sales and Marketing from July 1995 to
September 1995. Prior to joining MindSpring, Mr. McQuary served in a variety of
management positions with Mobil Chemical Co., a petrochemical company, from
August 1984 to June 1995, including regional sales manager from April 1991 to
February 1994 and Manager of Operations (Reengineering) from February 1994 to
June 1995. He is also a member of the Board of Directors of Novient Inc, Artisan
Network, and MDCM Inc. (Showbuys).
REED E. SLATKIN--CLASS II DIRECTOR
Age: 52
Mr. Slatkin is a member of the Board of Directors of EarthLink, and was one
of the co-founders of EarthLink Network, where he served as a member of its
Board of Directors from inception until its merger with MindSpring. Mr. Slatkin
is a private investor and money manager who has invested in public and private
companies for the last 15 years.
The nominees have consented to serve for a three year term. If a nominee
becomes unavailable to serve as a director, the Board of Directors may designate
a substitute nominee.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE ELECTION AS DIRECTORS OF THE NOMINEES NAMED ABOVE.
DIRECTORS CONTINUING IN OFFICE
Set forth below is certain biographical information furnished to the Company
by each of the directors continuing in office:
ROBERT M. KAVNER--CLASS I DIRECTOR
Age: 57
Robert M. Kavner was a director of EarthLink Network, Inc. until the merger
with MindSpring in February 2000. Since 1995 Mr. Kavner has been a venture
capital investor in Internet companies and in December 1998 he became Vice
Chairman of Idealab, an incubator of technology companies. From September 1996
through December 1998 he served as President and Chief Executive Officer of On
Command Corporation, a provider of on-demand video for the hospitality industry.
From 1984 to 1994, Mr. Kavner held several senior management positions at AT&T,
including Senior Vice President and Chief Financial Officer, Chief Executive
Officer of the Multimedia Products and Services Group, and Chairman of AT&T
Venture Capital Group. Mr. Kavner also served as a member of AT&T's Executive
Committee. Mr. Kavner serves as a director of Fleet Financial Group, GoTo.Com
and Jupiter Media Metrics, Inc.
CHARLES G. BETTY--CLASS III DIRECTOR
Age: 44
Charles G. Betty is the Chief Executive Officer and a member of the Board of
Directors of EarthLink. Mr. Betty served as President and as a director of
EarthLink Network from January 1996 and in May 1996 was named Chief Executive
Officer of EarthLink Network, serving in each capacity until its merger with
MindSpring.
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SKY D. DAYTON--CLASS III DIRECTOR
Age: 29
Sky D. Dayton is the Chairman of Board of Directors of EarthLink. He founded
EarthLink Network in 1994 and served as Chief Executive Officer from May 1994
until May 1996. From 1992 to 1993, he was co-owner of a computer graphics firm,
Dayton Walker Design. From 1990 to 1994, Mr. Dayton co-owned Cafe Mocha, a
coffee house in Los Angeles, which he co-founded, and was a co-owner of Joe
Cafe, a coffee house in Studio City, California. In June 1999, he co-founded
eCompanies, an Internet incubator and venture fund. Mr. Dayton serves on the
boards of a number of private companies including eCompanies Wireless, a joint
venture between eCompanies and Sprint, and Business.com.
Messrs. William H. Scott, III and Campbell B. Lanier, III resigned from our
Board of Directors on February 16, 2001.
INVESTOR DIRECTORS
Pursuant to the terms of the Company's Series C Convertible Preferred Stock
issued to Apple and our strategic alliance with Apple, Apple has the right to
name a member to our Board of Directors. Apple's director designation rights
exist generally for so long as Apple maintains a certain percentage of its
ownership in EarthLink and EarthLink is Apple's exclusive default Internet
Service Provider in the setup software of certain Apple computers. Apple has
designated Mr. Philip W. Schiller (Class I Director) as its director
representative.
Although Sprint Corporation has maintained two seats on our board, occupied
by Messrs. William Esrey and Len Lauer, Sprint relinquished and resigned from
those seats on February 9, 2001 when we amended our strategic relationship with
Sprint.
PHILIP W. SCHILLER--CLASS I DIRECTOR (INVESTOR DIRECTOR APPOINTED BY APPLE)
Age: 40
Philip W. Schiller is a member of the Board of Directors of EarthLink, and
is Apple's Vice President of Worldwide Product Marketing, responsible for
Apple's product strategy, management and communications, including Apple's Power
Macintosh G3, PowerBook G3, Mac OS 8.5, Mac OS X Server and the innovative iMac.
Previously at Apple Computer, Mr. Schiller held marketing positions in field
marketing, channel marketing, multimedia marketing and product marketing where
he created the successful PowerBook 500 series of notebook personal computers.
Prior to joining Apple, Mr. Schiller was the Vice President of Product Marketing
at Macromedia, Inc. of San Francisco and Director of Product Marketing at
FirePower Systems, Inc. of Menlo Park. Mr. Schiller has also held marketing and
programming positions at Nolan, Norton & Company of Lexington, MA and
Massachusetts General Hospital in Boston.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has the following standing committees of its Board of Directors:
Compensation Committee, Audit Committee, Investment Committee and Nominating
Committee.
The Compensation Committee met four times during the year ended
December 31, 2000. The Compensation Committee of the Board of Directors
presently consists of Mr. Lacy, Mr. Kavner and Mr. Dayton. Mr. Lanier, who
previously was a member of the Compensation Committee, resigned from our Board
on February 16, 2001. The Compensation Committee establishes cash and long-term
incentive compensation for executive officers and other key employees of the
Company. The Compensation Committee also administers the Company's Stock
Incentive Plan for employees and Stock Option Plan for Non-Employee Directors.
The Audit Committee met six times during the year ended December 31, 2000.
The Audit Committee of the Board of Directors presently consists of
Messrs. Kavner, Slatkin and Schiller.
4
Mr. Len Lauer, who was appointed to our Board by Sprint Corporation and who
served on the Audit Committee, resigned from our Board on February 9, 2001, as
part of the restructuring of our strategic relationship with Sprint. Mr. Scott,
who served on the Audit Committee, resigned from our Board on February 16, 2001.
Messrs. Kavner and Schiller were appointed to Audit Committee subsequent to
those resignations. The Audit Committee is responsible for making
recommendations to the Board regarding the selection of independent auditors,
reviews the results and scope of audits and other services provided by the
Company's independent auditors and reviews and evaluates the Company's internal
audit and control functions. The Company's Board of Directors has adopted a
written charter for the Audit Committee. The members of our Audit Committee are
independent, as defined in Rule 4200(a)(15) of the NASD Listing Standards for
Nasdaq-listed companies.
The Investment Committee met three times during the year ended December 31,
2000. The Investment Committee of the Board of Directors presently consists of
Mr. Dayton, Mr. Betty and Mr. Slatkin. The Investment Committee is responsible
for reviewing, analyzing and making determinations regarding material
investments by EarthLink.
The Nominating Committee did not meet during the year ended December 31,
2000. The Nominating Committee of the Board of Directors presently consists of
Mr. Dayton and Mr. Betty. The Nominating Committee is responsible for
identifying, nominating, proposing and qualifying nominees for open seats on the
Board of Directors. The Nominating Committee does not consider or accept
nominees recommended by the Company's security holders.
DIRECTOR COMPENSATION
Directors do not receive cash compensation for serving in that capacity, but
are reimbursed for the expenses they incur in attending meetings of the Board or
committees thereof. Non-employee directors are eligible to receive options to
purchase Common Stock awarded under the Company's Stock Option Plan for
Non-Employee Directors.
EXECUTIVE OFFICERS
The executive officers of the Company serve at the discretion of the Board
of Directors, and serve until they resign, are removed or are otherwise
disqualified to serve, or until their successors are elected and qualified.
EarthLink's executive officers presently include: Sky D. Dayton, Lee Adrean,
Linda Beck, Charles G. Betty, Carter Calle, Samuel R. DeSimone Jr., William S.
Heys, Jon M. Irwin, Michael C. Lunsford, Michael S. McQuary, Veronica J.
Murdock, Gregory J. Stromberg, Lance Weatherby and Brinton O. C. Young. The
following sets forth biographical information for our executive officers who are
not directors, for whom the biographical summaries are provided above.
LEE ADREAN--EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER
Age: 49
Mr. Adrean has served as the Executive Vice President and Chief Financial
Officer since March 2000. From May 1995 to February 2000, Mr. Adrean served as
the Executive Vice President and Chief Financial Officer of First Data
Corporation in Atlanta. From August 1993 to April 1995, Mr. Adrean served as the
President of Providian Corporation Agency Group (a division of Providian
Corporation).
LINDA BECK--EXECUTIVE VICE PRESIDENT, OPERATIONS
Age: 37
Ms. Beck has served as Executive Vice President of Operations for EarthLink
since September 2000. Ms. Beck is responsible for the management of all of
EarthLink's operations groups, including development, system administration,
MIS, and network operations. Following the EarthLink/ MindSpring merger in
February 2000, Ms. Beck served as vice president of engineering responsible for
the development of EarthLink's products and services, as well as the development
and evolution of EarthLink's service delivery infrastructure. She held similar
positions at both MindSpring and Netcom,
5
and brings to EarthLink more than 15 years of experience in the high-tech
industry. Before joining Netcom in 1996, Linda served in a variety of positions
at Sybase, GTE and Amdahl. She began her career at the National Security Agency
and has always focused largely on distributed systems, databases, network
connectivity solutions and the Internet. Linda earned her Bachelor's degree in
Computer Science from Iowa State University and a Master's of Business
Administration from St. Mary's College of California.
CARTER CALLE--EXECUTIVE VICE PRESIDENT, CALL CENTER OPERATIONS
Age: 35
Mr. Calle has served as Executive Vice President of Member Support since
September 2000 and has served EarthLink in a variety of executive positions
since 1995 including Vice President of Call Centers. Mr. Calle earned his
Bachelor's Degree in Management from the Georgia Institute of Technology and a
Master's Degree in Environmental Science from the University of Montana.
SAMUEL R. DESIMONE, JR.--EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
Age: 41
Mr. DeSimone has served as the Executive Vice President, General Counsel and
Secretary of EarthLink since February 2000. Prior to that, Mr. DeSimone served
in such capacities at MindSpring since November 1998. From September 1995 to
August 1998, Mr. DeSimone served as Vice President of Corporate Development with
Merix Corporation of Forest Grove, Oregon, a printed circuit board manufacturer.
From June 1990 to August 1995, he was an associate attorney and partner with
Lane Powell Spears Lubersky of Portland, Oregon.
WILLIAM S. HEYS--EXECUTIVE VICE PRESIDENT, SALES
Age: 51
Mr. Heys has served as Executive Vice President of Sales since
September 2000. From February 2000 to September 2000 he served as Vice President
of Business Development and Business Services. Prior to that he served as Senior
Vice President, Sales of EarthLink Network since August 1999, and was Vice
President of EarthLink Network's relationship with Sprint from January 1999
through August 1999. Prior to joining EarthLink Network, Mr. Heys founded the
high-tech industry consulting firm BHC & Associates. Before starting BHC,
Mr. Heys served in a variety of executive sales and marketing management
positions at IBM, Wang, Hayes Microcomputer Products and Digital Communications
Associates, Inc.
JON M. IRWIN--EXECUTIVE VICE PRESIDENT, MEMBER EXPERIENCE
Age: 40
Mr. Irwin has served as Executive Vice President of Member Experience since
September 2000 and was as Executive Vice President of Operations from
February 2000 to September 2000. Mr. Irwin has served EarthLink in a variety of
executive positions since November 1995 including, Executive Vice President of
Operations, Senior Vice President of Broadband Services and Vice President of
Customer Support. From November 1994 to November 1995, Mr. Irwin was Vice
President for Operations at WorldCom, a telecommunications company. From
November 1992 to November 1994, Mr. Irwin served as Vice President of Corporate
Development for Impact Telecommunications, an integrated communications company.
He has been involved in several start-up telecommunications companies in
management roles ranging from marketing to operations.
MICHAEL C. LUNSFORD--EXECUTIVE VICE PRESIDENT, BROADBAND SERVICES
Age: 33
Mr. Lunsford has served as EarthLink's Executive Vice President of Broadband
Services since February 2000. Prior to that, Mr. Lunsford served in the same
role for EarthLink Network from November 1999 until its merger with MindSpring.
Prior to that, Mr. Lunsford was EarthLink Network's Vice President of Special
Projects, a position he held from the beginning of his employment with EarthLink
Network in March of 1999. Before joining EarthLink Network, Mr. Lunsford was a
Director
6
with Scott, Madden & Associates, a management consulting firm in Raleigh, North
Carolina, from 1995 to 1999. Prior to joining Scott, Madden & Associates,
Mr. Lunsford worked for Andersen Consulting.
VERONICA J. MURDOCK--EXECUTIVE VICE PRESIDENT, ACQUISITIONS AND INTEGRATION
Age: 37
Ms. Murdock has served as EarthLink's Executive Vice President of
Acquisitions and Integration since September 2000. Ms. Murdock has served
EarthLink in a variety of Executive positions including Executive Vice President
of Member Support and Services and Vice President, Member Support and Services.
Prior to joining EarthLink Network, from 1994 to 1998 Ms. Murdock served as
Senior Vice President of Worldwide Operations for 7th Level, a multimedia
company. Prior to joining 7th Level, Ms. Murdock served as Vice President of
Operations for Digital Magic, a visual effects and teleportation company, as
well as several executive posts managing teleproduction studios and content
technology for the film and television mediums.
GREGORY J. STROMBERG--EXECUTIVE VICE PRESIDENT, EMPLOYEE SERVICES
Age: 48
Mr. Stromberg has served as EarthLink's Executive Vice President of Employee
Services since February 2000. Prior to that, Mr. Stromberg served as
MindSpring's Executive Vice President of Business Services since January 1999,
Executive Vice President of Technology from August 1998 until January 1999,
Executive Vice President of Call Centers from March 1998 until August 1998, Vice
President of Call Centers from June 1996 to March 1998, and Vice President of
Technical Support from October 1995 until June 1996. From June 1993 to
September 1994, Mr. Stromberg worked as a Regional Manager for Digital Financial
Services, a subsidiary of GE Capital. Mr. Stromberg worked in various sales,
product management, operations and management positions with Digital Equipment
Corporation from June 1983 to June 1993.
LANCE WEATHERBY--EXECUTIVE VICE PRESIDENT, EARTHLINK EVERYWHERE
Age: 40
Mr. Weatherby has served as EarthLink's Executive Vice President EarthLink
Everywhere since November 2000. Mr. Weatherby has served in a variety of
executive positions since September 1995 including Executive Vice President of
Dial Up, Executive Vice President of Sales and Marketing, and Vice President of
Business Development. Mr. Weatherby held a variety of sales, sales management
and marketing positions with Mobil from October 1990 through September 1995,
including District Sales Manager from December 1992 through September 1995.
BRINTON O. C. YOUNG--EXECUTIVE VICE PRESIDENT, MARKETING AND CORPORATE STRATEGY
Age: 49
Mr. Young has served as Executive Vice President of Marketing and Corporate
Strategy of EarthLink since February 2000. Prior to that he was Senior Vice
President, Marketing of EarthLink Network from August 1998 through
February 2000. Mr. Young was Vice President, Strategic Planning of EarthLink
Network from March 1996 throughout 1998. From 1990 to 1996, Mr. Young was
President of Young & Associates, a consulting firm specializing in strategic
planning for high growth companies.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "EXCHANGE ACT")
requires the Company's directors, executive officers and persons who own
beneficially more than 10% of the Company's Common Stock to file reports of
ownership and changes in ownership of such stock with the Securities and
Exchange Commission (the "SEC") and the National Association of Securities
Dealers, Inc. These persons are also required by SEC regulations to furnish the
Company with copies of all such forms they file. To the Company's knowledge,
based solely on a review of the copies of such reports furnished to the Company
and written representations that no other reports were required, all of the
Company's reporting persons complied during fiscal 2000 with all applicable
Section 16(a) filing requirements.
7
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth information concerning (i) those persons
known by management of the Company to own beneficially more than 5% of the
Company's outstanding Common Stock, (ii) the directors of the Company,
(iii) the executives officers of the Company (including the executive officers
named in the Summary Compensation Table included elsewhere herein), and
(iv) all directors and executive officers of the Company as a group. Except as
otherwise indicated in the footnotes below, such information is provided as of
February 28, 2001. According to rules adopted by the SEC, a person is the
"beneficial owner" of securities if he or she has or shares the power to vote
them or to direct their investment or has the right to acquire beneficial
ownership of such securities within 60 days through the exercise of an option,
warrant or right, the conversion of a security or otherwise. Except as otherwise
noted, the indicated owners have sole voting and investment power with respect
to shares beneficially owned. An asterisk in the percent of class column
indicates beneficial ownership of less than 1% of the outstanding Common Stock.
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNERS(1) BENEFICIAL OWNERSHIP(2) CLASS
- ---------------------------------------- ----------------------- -----
Lee Adrean 67,500(3) *
Linda Beck 39,383(4) *
Charles G. Betty 1,121,595(5) *
Carter Calle 12,924(6) *
Sky D. Dayton 4,711,881(7) 3.6
Samuel R. DeSimone, Jr. 59,750(8) *
William S. Heys 117,576(9) *
Jon M. Irwin 253,653(10) *
Robert M. Kavner 227,979(11) *
Linwood A. Lacy, Jr. 370,050(12) *
Michael C. Lunsford 61,691(13) *
Michael S. McQuary 837,216(14) *
Veronica J. Murdock 74,472(15) *
Philip W. Schiller 7,083,333(16) 5.1
Reed E. Slatkin 1,392,797(17) 1.0
Gregory J. Stromberg 100,962(18) *
Lance Weatherby 92,072(19) *
Brinton O. C. Young 374,998(20) *
Sprint Corporation 48,815,103(21) 29.2
Apple Computer, Inc. 7,083,333(22) 5.1
All directors and executive officers as a group 17,000,032(23) 12.2
(18 persons)
- ------------------------
* Represents beneficial ownership of less than 1% of our common stock.
(1) Except as otherwise indicated by 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.
8
(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
March 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) Includes options to purchase 62,500 shares of common stock.
(4) Includes options to purchase 39,383 shares of common stock.
(5) Includes options to purchase 482,441 shares of common stock.
(6) Includes options to purchase 12,924 shares of common stock.
(7) Includes options to purchase 121,128 shares of common stock.
(8) Includes options to purchase 59,750 shares of common stock.
(9) Includes options to purchase 91,050 shares of common stock.
(10) Includes options to purchase 155,215 shares of common stock.
(11) Includes warrants to purchase 10,768 shares of common stock.
(12) All shares currently outstanding.
(13) Represents options to purchase 61,691 shares of common stock.
(14) Includes options to purchase 530,696 shares of common stock.
(15) Represents options to purchase 74,472 shares of common stock.
(16) 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.
(17) Includes (i) warrants to purchase 24,225 shares of common stock and
(ii) 39,000 shares of common stock held in trust for Mr. Slatkin's minor
children.
(18) Includes options to purchase 83,762 shares of common stock.
(19) Includes options to purchase 59,030 shares of common stock.
(20) Includes options to purchase 169,889 shares of common stock.
(21) 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.
(22) 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 16 above.
(23) Includes (i) options and warrants to purchase 2,039,124 shares of common
stock, (ii) 39,000 shares of common stock owned by family members or
affiliates of certain members of the group (iii) 7,083,833 shares of
Series C Convertible Preferred Stock convertible into 7,083,833 shares of
common stock.
9
EXECUTIVE COMPENSATION
PURSUANT TO SEC RULES FOR PROXY STATEMENT DISCLOSURE OF EXECUTIVE
COMPENSATION, THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF THE
COMPANY HAS PREPARED THE FOLLOWING REPORT ON EXECUTIVE COMPENSATION. THE
COMMITTEE INTENDS THAT THIS REPORT CLEARLY DESCRIBE THE CURRENT EXECUTIVE
COMPENSATION PROGRAM OF THE COMPANY, INCLUDING THE UNDERLYING PHILOSOPHY OF THE
PROGRAM AND THE SPECIFIC PERFORMANCE CRITERIA ON WHICH EXECUTIVE COMPENSATION IS
BASED. THIS REPORT ALSO DISCUSSES IN DETAIL THE COMPENSATION PAID TO THE
COMPANY'S CHIEF EXECUTIVE OFFICER.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report by the Compensation Committee of the Board of Directors (the
"COMMITTEE") discusses the Committee's compensation objectives and policies
applicable to the Company's executive officers. The report reviews the
Committee's policy generally with respect to the compensation of all executive
officers as a group for fiscal 2000 and specifically reviews the compensation
established for the Company's Chief Executive Officer as reported in the Summary
Compensation Table. The Committee is comprised entirely of non-employee
directors. The Committee also administers the Company's stock option plans.
COMPENSATION PHILOSOPHY
The Committee consists of three non-employee directors. The Committee is
responsible for setting cash and long-term incentive compensation for executive
officers and other key employees of the Company. The Company's compensation
policies are intended to create a direct relationship between the level of
compensation paid to executives and the Company's current and long-term level of
performance. The Committee believes that this relationship is best implemented
by providing a compensation package of separate components, all of which are
designed to enhance the Company's overall performance. The components are base
salary, short-term compensation in the form of annual bonuses and long-term
incentive compensation in the form of stock options.
BASE SALARIES
The base salaries for the Company's executive officers for 2000 were
established through comparison to base salaries offered for similar positions in
competing or similar locations. The salaries of the executive officers were
established based on the market environment and the Company's need to attract
and retain key personnel for whom the Company must compete against larger, more
established companies.
SHORT-TERM ANNUAL BONUSES
Annual bonuses established for the executive officers are intended to
provide an incentive for improved performance in the short term. The Committee
establishes target bonus levels for the executive officers at the beginning of
the year based on predetermined goals such as member counts, customer retention,
revenue and profitability.
LONG-TERM INCENTIVE COMPENSATION
The Company's long-term incentive compensation plan for its executive
officers is based on the Company's stock option plans. These plans promote
ownership of the Company's Common Stock, which, in turn, provides a common
interest between the stockholders of the Company and the executive officers of
the Company. In establishing a long-term compensation plan, the Board of
Directors concluded that any compensation received under such plans should be
directly linked to the performance of the Company, as reflected by increases in
the price of its Common Stock, and the contribution of the individual thereto.
Options have an exercise price equal to the fair market value of
10
the shares on the date of grant and, to encourage a long-term perspective, have
an exercise period of ten years and generally vest over four to five years. The
number of options granted to executive officers is determined by the Committee,
which is charged with administering the stock option plans.
The base salaries, targeted bonus amounts and number of stock options
established for or granted to the Company's executive officers are based in part
on the Committee's understanding of compensation amounts and forms paid to
persons in comparable roles performing at comparable levels at other companies
in the same or related industries. Such amounts, however, mainly reflect the
subjective discretion of the members of the Committee based on the evaluation of
the Company's current and anticipated future financial performance, the
contribution of the individual executive officers to such financial performance,
the contribution of the individual executive officers to the Company in areas
not necessarily reflected by the Company's financial performance and the most
appropriate incentive to link the performance and compensation of the executive
officers to the stockholder's return on the Company's Common Stock.
COMPENSATION OF OUR CHIEF EXECUTIVE OFFICER
Under the employment agreement of our Chief Executive Officer, Mr. Betty is
employed as Chief Executive Officer at a salary of not less than $360,000 per
year, plus a $24,000 a year travel allowance for Mr. Betty and his family, and
such other benefits generally made available to our other senior executives.
Mr. Betty is entitled, if specified performance goals are met, to an annual
bonus in the amount equal to 50% of his base salary. In addition, Mr. Betty will
receive a severance payment equal to 100% of his then current base salary, will
receive the full bonus to which he would have otherwise been entitled during the
year in which the termination occurs, and will continue to receive health,
medical, life and liability insurance coverage for one year (i) if he is
terminated by the Company other than for "cause" as defined in the agreement,
(ii) if the Company elects not to extend the employment agreement at the end of
the first three-year term or any yearly extension or (iii) if Mr. Betty
terminates his employment because of a breach of the employment agreement by the
Company. The merger of EarthLink Network and MindSpring was deemed a "change in
control" under Mr. Betty's employment agreement, and pursuant to its terms all
of his outstanding stock options vested upon effectiveness of the merger.
LIMITATIONS ON DEDUCTIBILITY OF COMPENSATION
Under the 1993 Omnibus Budget Reconciliation Act, a portion of annual
compensation payable after 1993 to any of the Company's five highest paid
executive officers would not be deductible by the Company for federal income tax
purposes to the extent such officer's overall compensation exceeds $1,000,000.
Qualifying performance-based incentive compensation, however, would be both
deductible and excluded for purposes of calculating the $1,000,000 base.
Although the Committee does not presently intend to award compensation in excess
of the $1,000,000 cap, it will continue to address this issue when formulating
compensation arrangements for the Company's executive officers.
SUBMITTED BY: THE COMPENSATION
COMMITTEE
Linwood A. Lacy, Jr.
Sky D. Dayton
MR. KAVNER WAS APPOINTED TO THE COMPENSATION COMMITTEE AFTER THE DATE OF THIS
REPORT, AND THEREFORE DID NOT SIGN THIS REPORT.
11
THE COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION SHALL NOT BE
DEEMED TO BE INCORPORATED BY REFERENCE AS A RESULT OF ANY GENERAL INCORPORATION
BY REFERENCE OF THIS PROXY STATEMENT OR ANY PART HEREOF IN THE COMPANY'S 2000
ANNUAL REPORT TO STOCKHOLDERS, ITS ANNUAL REPORT ON FORM 10-K OR OTHERWISE.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors currently
consists of Messrs. Lacy, Dayton and Kavner. No member of the Compensation
Committee was, during the last fiscal year, an officer or employee of the
Company nor was formerly an officer of the Company, except for Mr. Dayton, who
currently is the Chairman of the Board and who served as our Chief Executive
Officer and President prior to Mr. Betty's assumption of those positions in
January of 1996. Mr. Lanier who prior to February 16, 2001 served on Board and
on the Compensation Committee, resigned from these positions on February 16,
2001. Mr. Lanier is a member of the Board of Directors of ITC Holding Company,
Inc., which was a substantial investor in EarthLink. ITC Holding Company, Inc.
sold its 10.7 million shares of EarthLink common stock during February 2001. The
Company has entered into certain business relationships with several
subsidiaries and affiliates of ITC Holding Company, Inc. Except as noted below,
none of these transactions were material for the periods presented.
The Company purchases long-distance telephone services and wide area network
transport service from ITC DeltaCom, Inc., a related party through relationships
with ITC Holding Company, Inc. Long-distance charges from ITC DeltaCom, Inc.
totaled approximately $9.6 million for 2000.
No other members of the Compensation Committee had disclosable relationships
with the Company in 2000. However, the following disclosure regarding
non-Compensation Committee Board members is required.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Esrey, who resigned from our Board of Directors on February 9, 2001,
serves as Chairman of the Board of Directors and Chief Executive Officer of
Sprint Corporation. Mr. Lauer, who also resigned from our Board of Directors on
February 9, 2001, serves as President of the Global Markets Group of Sprint. On
June 5, 1998, Sprint consummated a tender offer for 4.0 million shares of
EarthLink Network's common stock at a price per share of $13.94 in cash to each
tendering stockholder (the "OFFER"). Immediately following the closing of the
Offer, Sprint received approximately 6.6 million shares of the EarthLink
Network's Series A Convertible Preferred Stock (which are convertible into
13.2 million shares of Common Stock), in exchange for certain commercial and
financial arrangements. Sprint subsequently purchased shares of Series B
Convertible Preferred Stock under its preemptive rights to maintain its
ownership level in the Company. In 2000, under the network services agreement
that was implemented in connection with our Sprint alliance, EarthLink paid
Sprint approximately $53.6 million. On February 9, 2001, we revised the terms of
our strategic relationship with Sprint.
Mr. Schiller, a member of our Board of Directors, is the Vice President of
Worldwide Product Marketing with Apple Computer, Inc. In January 2000, EarthLink
Network entered into a multi-year strategic alliance with Apple to deliver
services to Apple customers in the U.S. In connection with this strategic
alliance, Apple purchased shares of EarthLink Network's Series C Convertible
Preferred Stock for $200 million and entered into certain marketing and other
agreements with EarthLink Network. The Company assumed those agreements and
securities as part of the merger of EarthLink Network and MindSpring. In 2000,
EarthLink paid Apple approximately $34.3 million under the arrangements
described above.
During 2000, the Company loaned money to the following executive officers to
allow them to meet margin calls on shares of EarthLink stock that they hold:
Mr. Betty, $3,000,000; Mr. McQuary, $450,000; Mr. Young $1,000,000 and
Mr. Irwin, $100,000. All of these loans are due prior to the end of
12
2001 and were made at what the Company believes to be market interest rates. The
loans may be prepaid at any time, without penalty, prior to their due dates.
The Company believes that the foregoing transactions were on terms no less
favorable to the Company than could be obtained from unaffiliated parties. It is
the Company's current policy that all transactions by the Company with officers,
directors, more than five percent stockholders and their affiliates will be
entered into only if such transactions are approved by a majority of
disinterested independent directors and are on terms such directors believe are
no less favorable to the Company than could be obtained from unaffiliated
parties.
EXECUTIVE OFFICER COMPENSATION
TABLE I--SUMMARY COMPENSATION TABLE
The following table presents certain information required by the SEC
relating to various forms of compensation awarded to, earned by or paid to the
Company's Chief Executive Officer and the four most highly compensated executive
officers other than the Chief Executive Officer who earned more than $100,000
during fiscal 2000 and were serving at the end of fiscal 2000. This compensation
information relates to compensation received by the named executives while
employed by EarthLink, EarthLink Network or MindSpring prior to their merger,
which created the Company. Of the five executives, Mr. McQuary previously was an
executive with MindSpring, and the other four executives were executives with
EarthLink Network. Such executive officers are referred to as the "Named
Executive Officers."
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
--------------------------- ---- ------ ----- ---------- ------------
Charles G. Betty ........................ 2000 $353,076 $133,652 300,000 $ 4,059(1)
Chief Executive Officer 1999 300,438 163,643 -- 19,385(2)
1998 312,000 60,142 484,500 22,435(3)
Michael S. McQuary ...................... 2000 260,016 94,710 321,370 2,625(4)
President 1999 160,417 71,355 52,102 --
1998 136,458 71,355 14,628 --
Jon M. Irwin ............................ 2000 255,182 74,251 195,000 2,732(4)
Executive Vice President, 1999 179,114 68,902 64,600 2,529(4)
Member Experience 1998 141,374 19,290 96,900 1,373(4)
William S. Heys ......................... 2000 234,768 68,311 191,000 --
Executive Vice President, 1999 174,685 78,444 -- --
Business Development and 1998 156,158 -- 242,250 --
Business Services
Brinton O. C. Young ..................... 2000 234,768 68,310 191,000 --
Executive Vice President, 1999 174,685 80,384 -- --
Marketing and Corporate 1998 140,000 29,522 161,500 --
Strategy
- ------------------------
1. Consists of reimbursement in 2000 of $2,378 in travel expenses pursuant to
Mr. Betty's employment agreement and $1,681 in matching contributions made
to Mr. Betty's account under our 401(k) Plan.
2. Consists of reimbursement in 1999 of $16,785 in travel expenses pursuant to
Mr. Betty's employment agreement and $2,600 in matching contributions made
to Mr. Betty's account under our 401(k) Plan.
3. Consists of reimbursement in 1998 of $19,042 in travel expenses pursuant to
Mr. Betty's employment agreement and $3,393 in matching contributions made
to Mr. Betty's account under our 401(k) Plan.
4. Consists of matching contributions made under our 401(k) Plan.
13
TABLE II--OPTION GRANTS IN FISCAL 2000
This table presents information regarding options granted to the Company's
Named Executive Officers during fiscal year 2000 to purchase shares of the
Company's Common Stock. In accordance with SEC rules, the table shows the
hypothetical "gains" or "option spreads" that would exist for the respective
options based on assumed rates of annual compound stock price appreciation of 5%
and 10% from the date the options were granted over the full option term.
INDIVIDUAL GRANTS
-------------------------------------------------------
PERCENTAGE POTENTIAL REALIZABLE VALUE
OF TOTAL AT ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES IN THE OPTION TERM(3)
OPTIONS FISCAL EXERCISE PRICE EXPIRATION ---------------------------
NAME GRANTED(#) YEAR(1) PER SHARE(2) DATE 5% 10%
- ----------------------- ---------- ------------ -------------- ---------- ------------ ------------
Charles G. Betty....... 300,000(5) 2.0% $10.063 08/29/10 $4,917,226 $7,829,860
Michael S. McQuary..... 21,370(6) 0.1 28.251 01/24/10 983,396 1,565,893
Michael S. McQuary..... 100,000(4) 0.7 25.125 02/28/10 4,092,598 6,516,778
Michael S. McQuary..... 200,000(5) 1.4 10.063 08/29/10 3,278,150 5,219,907
William S. Heys........ 51,000(4) 0.3 25.125 02/28/10 2,087,225 3,323,557
William S. Heys........ 100,000(4) 0.7 10.063 08/29/10 1,639,075 2,609,953
William S. Heys........ 40,000(5) 0.3 10.063 08/29/10 655,630 1,043,981
Jon M. Irwin........... 55,000(4) 0.4 25.125 02/28/10 2,520,929 3,584,228
Jon M. Irwin........... 100,000(4) 0.7 10.063 08/29/10 1,639,075 2,609,953
Jon M. Irwin........... 40,000(5) 0.3 10.063 08/29/10 655,630 1,043,981
Brinton O. C. Young.... 55,000(4) 0.4 25.125 02/28/10 2,520,929 3,584,228
Brinton O. C. Young.... 100,000(4) 0.7 10.063 08/29/10 1,639,075 2,609,953
Brinton O. C. Young.... 40,000(5) 0.3 10.063 08/29/10 655,630 1,043,981
- ------------------------
1. The total number of options granted to employees in fiscal 2000 was
14,665,283.
2. The exercise price per share of options granted represented the fair market
value of the underlying shares of common stock on the dates the respective
options were granted.
3. As required under the SEC's rules, amounts represent hypothetical gains that
could be achieved for the respective options if exercised at the end of the
option term. These gains are based on assumed rates of stock price
appreciation of 5% and 10% compounded annually from the date the respective
options were granted to their expiration date. These assumptions are not
intended to forecast future appreciation of our stock price. The potential
realizable value computation does not take into account federal or state
income tax consequences of option exercises or sales of appreciated stock.
If our stock price does not actually increase to a level above the
applicable exercise price at the time of exercise, the realized value to the
Named Executive Officers from these options will be zero.
4. These options become exercisable as follows: (i) 25% of the options become
exercisable one year after the date of grant, and (ii) an additional 6.25%
of the options become exercisable each fiscal quarter thereafter until fully
vested.
5. These options vest as the Company achieves certain performance goals. If the
goals are not met the options will vest six years from the date of grant.
6. These options become exercisable as follows: (i) 50% of the options become
exercisable two years after the date of grant, (ii) an additional 25% of the
options become exercisable three years after the date of grant, and
(iii) the remaining 25% of the options become exercisable four years after
the date of grant.
14
TABLE III--OPTION EXERCISES IN FISCAL 2000 AND FISCAL 2000 YEAR-END OPTION
VALUES
The following table shows the number of shares of Common Stock subject to
exercisable and unexercisable stock options held by each of the Named Executive
Officers as of December 31, 2000. The table also reflects the values of such
options based on the positive spread between the exercise price of such options
and the closing sales prices of EarthLink common stock as reported on Nasdaq on
December 31, 2000.
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS (1)
ACQUIRED VALUE ------------------- ------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
Charles G. Betty....... 809,559 $13,769,627 482,441 300,000 $ 711,714 --
Michael S. McQuary..... 65,000 790,079 482,671 382,787 1,952,924 $67,989
William S. Heys........ 104,284 2,743,474 45,435 321,644 -- --
Jon M. Irwin........... 149,236 3,050,773 141,464 195,000 23,723 --
Brinton O.C. Young..... 367,736 7,371,432 157,139 191,000 88,601 --
- ------------------------
1. The value of "in-the-money" options represents the difference between the
exercise price of stock options and $5.0313, the closing sales price on
December 31, 2000 for EarthLink's common stock as reported by Nasdaq.
STOCK PERFORMANCE GRAPH
The following indexed line graph indicates EarthLink's total return to
stockholders from February 7, 2000, the date on which the Company's Common Stock
began trading on the Nasdaq National Market, to December 31, 2000, as compared
to the total return for the Nasdaq Stock Market--US Index and the JP Morgan H&Q
Internet index for the same period. The calculations in the graph assume that
$100 was invested on February 7, 2000 in the Company's Common Stock and each
index and also assume dividend reinvestment.
COMPARISON OF 11 MONTH CUMULATIVE TOTAL RETURN*
AMONG EARTHLINK, INC., THE NASDAQ STOCK MARKET
(U.S.) INDEX
AND THE JP MORGAN H & Q INTERNET 100 INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
DOLLARS
EARTHLINK, INC. NASDAQ STOCK MARKET (U.S.) JP MORGAN H & Q INTERNET 100
2/7/00 100 100 100
12/31/00 16.5 58.05 37.64
* $100 INVESTED ON 2/7/00 IN STOCK OR INDEX
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
15
ACCELERATED VESTING AND COMPENSATION CONTINUATION PLAN
ELIGIBILITY FOR PARTICIPATION. Every common-law employee of the Company or
an affiliate (whether employed now or hereafter) who is compensated on a
salaried basis and who is either (i) the Chief Executive Officer or President of
the Company, (ii) a "direct report" to the Chief Executive Officer or President
of the Company holding a position of Vice President or above, (iii) a Vice
President or above who is not a "direct report" to the Chief Executive Officer
or President of the Company or (iv) an employee or one or more classes of
employees (whether or not officers) whom the Board of Directors of the Company
selects for participation under the Company's Accelerated Vesting and
Compensation Continuation Plan ("AVCC Plan") becomes a participant of the AVCC
Plan.
COMPENSATION CONTINUATION. If at any time within one year after a change of
control of the Company occurs, the employment of a participating employee is
terminated by the Company or an affiliate for any reason other than cause,
disability or death or the participating employee voluntarily terminates his
employment for good reason, the Company or affiliate who employs the
participating employee shall pay him 12 months of severance pay on a monthly
basis and a pro-rated bonus at the end of the severance period. The payment of
the severance pay will be consistent with normal payroll practices and subject
to applicable withholdings and employment taxes.
ACCELERATION OF OPTIONS. If at any time within five years after a change of
control of the Company occurs, the employment of each participating employee
with the Company or an affiliate terminates for any reason whatsoever, all
outstanding stock options that the Company or any affiliate previously granted
to such employee before the change of control of the Company shall be
exercisable (to the extent not previously exercisable) as of the time of
termination of employment as described in the next sentence, and such stock
options shall remain exercisable thereafter in accordance with the terms of the
options and the applicable plans under which they were granted. If the employee
was a participant under the AVCC Plan as of March 8, 2000 or became a
participant under the AVCC Plan thereafter and the Board of Directors of the
Company directed that such employee be treated in the same manner as employees
participating in the AVCC Plan on March 8, 2000, all outstanding stock options
that the Company or any affiliate previously granted to such employee before the
change of control shall be exercisable in full (to the extent not previously
exercisable); if the employee was not a participant under the AVCC Plan as of
March 8, 2000 but became a participant thereafter and the Board of Directors of
the Company did not direct that such employee be treated like a participant as
of March 8, 2000, all outstanding stock options that the Company or any
affiliate previously granted to such employee before the change of control shall
be exercisable (to the extent not previously exercisable) as if the employee had
remained employed with the Company or any affiliate for an additional 24 months
from the date of the employee's termination of employment (it being deemed that
the employee had an additional 24 months of employment for purposes of
determining the extent of the exercisability of such outstanding stock options).
16
TERMINATION OF EMPLOYMENT. The AVCC Plan does not confer upon any
individual any right to continue in the employ or service of the Company or any
affiliate or in any way affect the right or power of the Company or any
affiliate to terminate the employment or service of the individual at any time.
UNFUNDED STATUS. The AVCC Plan is unfunded, and the Company and its
affiliates are not required to segregate any assets to fund the benefits, if
any, that will become payable under it. Any liability of the Company or any
affiliate to any employee with respect to the AVCC Plan is based solely on any
contractual obligations that may be created pursuant to the AVCC Plan.
AMENDMENT AND TERMINATION. The Company will have the right to amend the
AVCC Plan from time to time and may terminate it at any time; PROVIDED, however,
that after a change of control of the Company occurs (i) no amendment may be
made that diminishes any employee's rights following such change of control and
(ii) the AVCC Plan may not be terminated.
Set forth below is the number of incentive stock options that had been
granted to certain employees of the Company under the stock option plans of
EarthLink that remained outstanding as of December 31, 2000. On December 31,
2000, the closing price for EarthLink's common stock was $5.0313 as reported by
Nasdaq.
INCENTIVE
NAME OPTIONS
- ---- ---------
Charles G. Betty............................................ 620,941(1)
Michael S. McQuary.......................................... 865,458(2)
William S. Heys............................................. 367,080(3)
Brinton O. C. Young......................................... 348,139(4)
Jon M. Irwin................................................ 336,464(5)
All Named Executive Officers as a Group (5 Persons)......... 2,538,082(6)
Non-Executive Officer Employees as a Group.................. 16,963,148(7)
- ------------------------
1. 565,250 granted January 15, 1996; 242,250 granted February 10, 1998; 242,250
granted June 5, 1998; 300,000 granted August 29, 2000. This figure was
adjusted to reflect the exercise of 728,809 options by Mr. Betty as of
December 31, 2000.
2. 309,882 granted June 27, 1995; 92,892 granted January 24, 1996, 62,112
granted August 20, 1996; 77,472 granted February 26, 1997; 14,628 granted
January 27, 1998; 52,102 granted May 21, 1999; 21,370 granted January 24,
2000; 100,000 granted February 28, 2000; and 200,000 granted August 29,
2000. This figure was adjusted to reflect the exercise of 65,000 options by
Mr. McQuary as of December 31, 2000.
3. 242,250 granted January 2, 1998; 32,300 granted January 21, 1999; 51,000
granted February 28, 2000; 140,000 granted August 29, 2000. This figure was
adjusted to reflect the exercise of 98,470 options by Mr. Heys as of
December 31, 2000.
4. 363,375 granted May 7, 1996; 161,500 granted February 4, 1998; 51,000
granted February 28, 2000; 140,000 granted August 29, 2000. This figure was
adjusted to reflect the exercise of 367,736 options by Mr. Young as of
December 31, 2000.
5. 64,600 granted November 1, 1995, 96,900 granted January 23, 1997, 32,300
granted February 5, 1998; 32,300 granted October 29, 1998; 32,300 granted
January 21, 1999; 32,300 granted July 22, 1999; 55,000 granted February 28,
2000; 140,000 granted August 29, 2000. This figure was adjusted to reflect
the exercise of 149,236 options by Mr. Irwin as of December 31, 2000.
6. Represents a total of 3,947,333 options granted less the exercise of
1,409,251 shares.
7. Represents options granted to 4,363 employees under the stock option plans
of EarthLink. This figure was adjusted to reflect both the recapture of
8,045,104 options pursuant to employee terminations and the exercise of
4,791,430 options by employees as of December 31, 2000.
17
AUDIT COMMITTEE
PURSUANT TO SEC RULES FOR PROXY STATEMENT THE AUDIT COMMITTEE OF THE BOARD
OF DIRECTORS OF THE COMPANY HAS PREPARED THE FOLLOWING AUDIT COMMITTEE REPORT.
THE AUDIT COMMITTEE INTENDS THAT THIS REPORT CLEARLY DESCRIBE THE CURRENT AUDIT
PROGRAM OF THE COMPANY, INCLUDING THE UNDERLYING PHILOSOPHY AND ACTIVITIES OF
THE AUDIT COMMITTEE.
AUDIT COMMITTEE REPORT
The primary function of the Audit Committee of the Board of Directors (the
"AUDIT COMMITTEE") is to assist the Board in fulfilling its oversight
responsibilities by reviewing: (a) the financial reports and other financial
information provided by the Company to any governmental body or the public,
(b) the Company's systems of internal controls regarding finance, accounting,
legal compliance and ethics that management and the Board have established, and
(c) the Company's auditing, accounting and financial reporting processes
generally. The Audit Committee operates under a written charter. Consistent with
this function, the Audit Committee encourages continuous improvement of, and
fosters adherence to, the Company's policies, procedures and practices at all
levels. The Audit Committee is accountable and responsible to the full Board.
The Audit Committee's primary duties and responsibilities are to:
- Serve as independent and objective party to monitor the Company's
financial reporting process and internal control systems;
- Review and appraise the audit efforts of the Company's independent
auditors; and
- Provide open channels of communication among the Company's independent
auditors, financial and senior management and the Board.
COMPOSITION AND QUALIFICATIONS OF COMMITTEE MEMBERS
Prior to February 9, 2001, the Audit Committee was comprised of three
non-employee directors; however, Mr. Lauer resigned from the Audit Committee and
our Board of Directors on February 9, 2001, in connection with the restructuring
of our strategic relationship with Sprint Corporation. Mr. Scott resigned from
the Audit Committee and our Board of Directors on February 16, 2001 to pursue
other business interests. On February 16, 2001 the Board appointed
Messrs. Kavner and Schiller to the Audit Committee. Each member of the Audit
Committee is independent, financially literate and is free from any relationship
that, in the judgment of the Board, would interfere with the exercise of his or
her independent judgment as a member of the Audit Committee. At least one member
of the Audit Committee has accounting or related financial expertise.
ELECTION AND MEETINGS
The members of the Audit Committee are appointed by the Board annually. The
Audit Committee meets at least four times annually, or more frequently as
circumstances require. The Audit Committee meets at least annually with
representatives from the Company's executive management and its independent
auditors in separate sessions to discuss any matters that the Audit Committee or
any of these groups believe should be discussed. In addition, the Audit
Committee or at least its Chairman meets with the independent auditors and a
representative(s) of the Company's management at least quarterly to review the
Company's financial statements consistent with the provisions of the Statements
on Auditing Standards, AU Section380 ("SAS 61").
18
RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties, the Audit Committee performed
the following during the year ended December 31, 2000:
DOCUMENTS/REPORTS REVIEW
1. Reviewed the regular internal reports to management prepared by the
Company's internal accounting department and management's response to such
reports.
2. Reviewed with the Company's financial management and its independent
auditors, prior to filing with the Securities and Exchange Commission, all
10-Q Quarterly Reports, 10-K Annual Reports and other reports that contain
financial information. The Chairman of the Audit Committee may represent the
entire committee for purposes of these reviews.
INDEPENDENT AUDITORS
3. Recommended to the Board selection of Ernst & Young LLP as independent
auditors. The Audit Committee evaluates the performance of the independent
auditing firm. The Audit Committee has discussed with the firm the matters
required to be discussed by SAS 61. These discussions included the scope of
the auditor's responsibilities, significant accounting adjustments, any
disagreements with management and a discussion of the quality, not the just
the acceptability, of accounting principles, reasonableness of significant
judgments, and the clarity of disclosures in the financial statements. In
addition, the Audit Committee has also received the written disclosures and
the letter from Ernst & Young LLP relating to the independence of that firm
as required by Independence Standards Board Standard No. 1 (Independence
Discussion with Audit Committees), and has discussed with Ernst & Young LLP
that firm's independence from the Company.
On June 29, 2000, the Company dismissed PricewaterhouseCoopers LLP as the
Company's independent auditors and engaged Ernst & Young LLP as its new
independent auditors. The decision to change the Company's auditing firm was
recommended and approved by the Company's Audit Committee of the Board of
Directors.
PricewaterhouseCoopers LLP's reports on the Company's financial statements
for 1998 and 1999 contained no adverse opinion or a disclaimer of opinion,
and were not qualified or modified as to uncertainty, audit scope or
accounting principles.
During fiscal years 1998 and 1999 and the subsequent interim period to
June 29, 2000, there were no disagreements between the Company and
PricewaterhouseCoopers LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of
PricewaterhouseCoopers LLP, would have caused them to make reference to the
subject matter of the disagreements in connection with their report on the
financial statements for such years.
FINANCIAL REPORTING PROCESS
4. In consultation with the independent auditing firm and the Company's
internal accounting personnel/auditors, the Audit Committee reviewed the
integrity of the Company's financial reporting process, both internal and
external.
LEGAL COMPLIANCE; GENERAL
5. Reviewed, with the Company's outside legal counsel, legal compliance
matters, including corporate securities trading policies.
19
Based on the Audit Committee's discussions with management and Ernst & Young
LLP and the Audit Committee's review of the representation of management and
report of Ernst & Young LLP to the Audit Committee, the Audit Committee
recommended that the Board of Directors include the audited consolidated
financial statements in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000 filed with the Securities Exchange Commission.
SUBMITTED BY: THE AUDIT COMMITTEE
Reed E. Slatkin
MESSRS. LAUER AND SCOTT, WHO SERVED ON THE AUDIT COMMITTEE DURING 2000,
RESIGNED FROM OUR BOARD PRIOR TO THE DATE OF THIS PROXY STATEMENT, AND,
THEREFORE, DID NOT SIGN THIS REPORT. MESSRS. KAVNER AND SCHILLER WERE APPOINTED
TO THE AUDIT COMMITTEE AFTER THE DATE OF THIS REPORT, ALONG WITH MR. SLATKIN,
FOR 2001.
THE AUDIT COMMITTEE REPORT SHALL NOT BE DEEMED TO BE INCORPORATED BY
REFERENCE AS A RESULT OF ANY GENERAL INCORPORATION BY REFERENCE OF THIS PROXY
STATEMENT OR ANY PART HEREOF IN THE COMPANY'S 2000 ANNUAL REPORT TO
STOCKHOLDERS, ITS ANNUAL REPORT ON FORM 10-K OR OTHERWISE.
20
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
The Board of Directors, on the recommendation of the Audit Committee of the
Board, has appointed the firm of Ernst & Young LLP, independent auditors, to
audit and report on the financial statements of the Company for the year ending
December 31, 2001. The Company has employed Ernst & Young LLP, as its
independent auditors since July 2000. It is expected that a representative of
Ernst & Young LLP will be present at the Annual Meeting to answer questions of
stockholders and will have the opportunity, if desired, to make a statement.
During the fiscal year ended December 31, 2000, Ernst & Young LLP billed the
Company the fees set forth below in connection with services rendered by that
firm to the Company.
AUDIT FEES. For professional services rendered by Ernst & Young LLP for the
audit of the Company's annual financial statements for the fiscal year ended
December 31, 2000, and the reviews of the financial statements included in the
Company's Quarterly Reports on Form 10-Q for the fiscal year ended December 31,
2000, Ernst & Young LLP billed the Company fees in the aggregate amount of
$194,500.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. For the
fiscal year ended December 31, 2000, Ernst & Young LLP did not render
professional services to the Company in connection with (i) directly or
indirectly operating, or supervising the operation of the Company's information
system or managing the Company's local area network, (ii) designing or
implementing a hardware or software system that aggregates source data
underlying the Company's financial statements or generates information that is
significant to the Company's financial statements taken as a whole or
(iii) assessing, designing and implementing internal accounting controls and
risk management controls. Therefore, Ernst & Young LLP did not bill the Company
fees for such types of services because no such services were rendered.
ALL OTHER FEES. For professional services other than those described above
rendered by Ernst & Young LLP to the Company for the fiscal year ended
December 31, 2000, Ernst & Young LLP billed the Company fees in the aggregate
amount of $232,733.
The Audit Committee has considered whether the provision of services
described above under "Financial Information Systems Design and Implementation
Fees" and "All Other Fees" is compatible with maintaining the independence of
Ernst & Young LLP.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT AUDITORS FOR THE YEAR
ENDING DECEMBER 31, 2001.
If stockholders do not ratify the appointment, the audit committee and the
Board of Directors will reconsider the appointment.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before the
Annual Meeting. However, if any other matters are properly brought before the
Annual Meeting, the persons appointed in the accompanying proxy intend to vote
the shares represented thereby in accordance with their best judgment.
21
SOLICITATION OF PROXIES
The cost of the solicitation of proxies on behalf of the Company will be
borne by the Company. The Company has engaged Corporate Investor
Communications, Inc. to assist it in the proxy solicitation process and will pay
such firm approximately $10,000 for its services (exclusive of postage fees). In
addition, directors, officers and other employees of the Company may, without
additional compensation except reimbursement for actual expenses, solicit
proxies by mail in person or by telecommunication. The Company will reimburse
brokers, fiduciaries, custodians and other nominees for out-of-pocket expenses
incurred in sending the Company's proxy materials to, and obtaining instructions
relating to such materials from, beneficial owners.
STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Any proposal that a Stockholder may desire to have included in the Company's
proxy materials for presentation at its 2002 Annual Meeting of Stockholders must
be received by the Company at its executive offices at 1375 Peachtree St.,
Atlanta, GA 30309, Attention: Samuel R. DeSimone, Jr., Secretary, on or prior to
December 30, 2001. Any appropriate Stockholder proposal submitted to the Company
will be accepted for consideration at the 2002 Annual Meeting of Stockholders if
it is received by the Company on or prior to March 15, 2002. Stockholder
proposals received between the December 30, 2001 deadline and the later
March 15, 2002 deadline will not be included in the proxy materials for the 2002
Annual Meeting of Stockholders, but are eligible for consideration at such
meeting. Management of the Company can use its discretionary authority to vote
against such proposals even though no description of the proposals will be
included in the proxy materials.
ANNUAL REPORT
A copy of the Company's Annual Report to Stockholders and its Annual Report
on Form 10-K for the year ended December 31, 2000 (which are not part of the
Company's proxy soliciting material) are being mailed to the Company's
stockholders with this Proxy Statement. The Company filed an Annual Report on
Form 10-K for the year ended December 31, 2000 with the Securities and Exchange
Commission.
By order of the Board of Directors,
/s/ Sky D. Dayton
Sky D. Dayton
CHAIRMAN OF THE BOARD
Atlanta, Georgia
April 12, 2001
22
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
EARTHLINK, INC.
The undersigned stockholder(s) of EarthLink, Inc., a Delaware corporation
(the "Company"), hereby acknowledges receipt of the Notice of Annual Meeting
of Stockholders and Proxy Statement for the Company's 2001 Annual Meeting of
Stockholders, and hereby appoints Charles G. Betty and Michael S. McQuary, or
either of them, proxies and attorneys-in-fact, with full power of
substitution, on behalf and in the name of the undersigned, to represent the
undersigned at the 2001 Annual Meeting of Stockholders of the Company to be
held at 10:00 a.m. (local time) on Thursday, May 24, 2001 at GCATT, 250 14th
Street, Atlanta, Georgia 30309 and at any adjournment(s) thereof, and to vote
all shares of Common Stock which the undersigned would be entitled to vote if
then and there personally present, on the matters set forth on the reverse
side of this proxy card.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
- Please Detach Here and Mail in the Envelope Provided -
/X/ PLEASE MARK YOUR VOTES AS INDICATED IN THIS EXAMPLE
SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
1. ELECTION OF DIRECTORS
FOR ALL NOMINEES / /
WITHHOLD AS TO ALL NOMINEES / /
NOMINEES:
Linwood A. Lacy, Jr.
Michael S. McQuary
Reed E. Slatkin
FOR ALL NOMINEE(S) (Except as written below):
- ----------------------------------------------
2. Ratification of the selection of Ernst & Young LLP to serve as Company's
independent auditors for the fiscal year ending December 31, 2001.
FOR / / AGAINST / / ABSTAIN / /
3. To transact such other business as may properly come before the Annual
Meeting or any adjournment(s) or postponement(s) thereof and as to which the
undersigned hereby confers discretionary authority.
CHECK HERE IF YOU PLAN TO ATTEND THE MEETING / /
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THE VOTES
ENTITLED TO BE CAST BY THE UNDERSIGNED WILL BE CAST IN ACCORDANCE WITH THE
SPECIFICATIONS MADE. IF THIS PROXY IS EXECUTED BUT NO SPECIFICATION IS MADE,
THE VOTES ENTITLED TO BE CAST BY THE UNDERSIGNED WILL BE CAST "FOR" THE
FOREGOING PROPOSALS AND OTHERWISE IN THE DISCRETION OF THE PROXIES AT THE
ANNUAL MEETING OR ANY ADJOURNMENT(S) OR POSTPONEMENT(S) THEREOF.
The proxies are authorized to vote, in their discretion, upon such other
matter or matters that may properly come before the meeting or any
adjournment(s) or postponement(s) thereof.
PLEASE COMPLETE, DATE, SIGN AND RETURN THIS PROXY PROMPTLY
- --------------------------- ------------------------------- Dated _____, 2001
Signature Signature if held jointly
IMPORTANT: Please sign exactly as your name appears hereon and date. If the
shares are held jointly, each holder should sign. When signing as an
attorney, executor, administrator, trustee, guardian or as an officer,
signing for a corporation or other entity, please give full title under
signature.