PROSPECTUS SUMMARY
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS.
THE COMPANY
EarthLink Network, Inc. ("EarthLink" or the "Company") is a leading branded
provider of reliable, easy-to-use Internet services. The Company facilitates and
enhances the quality and productivity of its customers' Internet experience by
providing capabilities which enable its customers to navigate and exploit the
resources of the Internet. EarthLink has grown from approximately 30,000
customers at the end of 1995 to approximately 100,000 customers at the end of
May 1996.
International Data Corporation ("IDC") estimates that the number of Internet
users was approximately 56 million at the end of 1995 and that this number will
reach approximately 200 million by the end of 1999. This growth, combined with
the emergence of the World Wide Web, the graphical, multimedia environment of
the Internet, has resulted in the development of the Internet as a new mass
communications medium. However, current limitations of Internet service
providers ("ISPs") and traditional on-line service providers, combined with the
volume and lack of organization of the information contained on the Internet,
have precluded non-technical users from fully enjoying expanding Internet
resources. The Company believes that the next phase of growth in the Internet
services market will require providers to address the needs of non-technical
users and to shift from providing network infrastructure and undifferentiated
access to providing value-added, distinct services which build customer
satisfaction and loyalty.
EarthLink's services and products are designed to address these needs by (i)
focusing on the customer's need for speed, reliability and support in gaining
access to the Internet; (ii) transforming the resources of the Internet into
information, education, communication, entertainment and a sense of community;
and (iii) leveraging the infrastructure and software development investments of
third parties in order to focus the Company's efforts on providing the customer
with a useful and enjoyable Internet experience. The Company provides its
services through its EarthLink Network TotalAccess software package, a tool that
enables Internet access via an open, non-proprietary architecture. In addition,
the Company provides a variety of Internet services tailored to enhance its
customers' Internet experience, including the EarthLink Web site, with more than
800 pages of content and information, an EarthLink on-line store and on-line
multi-player gaming.
EarthLink has taken a strategic approach to network development. To increase
its national presence while minimizing capital costs, the Company leases
nationwide points-of-presence ("POPs") from UUNET Technologies, Inc. ("UUNET"),
while maintaining the flexibility to establish Company-owned POPs in those
geographical areas in which there is a sufficient concentration of customers to
support such investment. This approach permits the Company to focus on meeting
customer needs rather than on managing network infrastructure.
The Company markets its services through multiple distribution channels,
including affinity marketing partnerships, customer referrals and promotional
programs. The Company has established strategic relationships with approximately
90 affinity marketing partners through which the Company has expanded the reach
of its marketing efforts. The Company works with these leading media and
consumer products companies to promote and distribute EarthLink's services. The
Company believes that these relationships provide a cost-effective means by
which the Company can enhance the EarthLink brand. For example, Macmillan
Publishing USA bundles EarthLink Network TotalAccess software with several
Internet-related book titles. Other affinity marketing partners include
Activision, CNN Interative, Columbia TriStar and Graphix Zone.
The Company was incorporated as a California corporation in May 1994. The
Company anticipates that it will reincorporate as a Delaware corporation prior
to the closing of this Offering. The terms "EarthLink" and the "Company" as used
herein refer to EarthLink Network, Inc., a California corporation, and, where
applicable, its Delaware successor. The Company's principal executive offices
are located at 3100 New York Drive, Pasadena, California 91107. The Company's
telephone number is (818) 296-2400, and its World Wide Web address is
http://www.earthlink.net. Information contained on the Company's World Wide Web
site shall not be deemed to be a part of this Prospectus.
THE OFFERING
Common Stock Offered.......................... 3,600,000 shares
Common Stock Outstanding after this
Offering...................................... 15,570,465 shares (1)
Use of Proceeds............................... To finance enhancements to the Company's
network infrastructure, to fund new service
and product introductions, to finance
potential acquisitions, and for working
capital and other general corporate pur-
poses.
Proposed Nasdaq National Market Symbol........ ELNK
Risk Factors.................................. The Common Stock offered hereby involves a
high degree of risk. See "Risk Factors."
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
INCEPTION THREE MONTHS ENDED
(MAY 26, 1994) YEAR ENDED ----------------------------------
THROUGH DECEMBER 31, MARCH 31, MARCH 29,
DEC. 31, 1994 1995 1995 1996
---------------- ---------------- ---------------- ----------------
STATEMENT OF OPERATIONS DATA:
Total revenues.............................. $ 111 $ 3,028 $ 183 $ 3,418
Loss from operations........................ (148) (6,018) (252) (4,788)
Net loss.................................... (148) (6,120) (271) (4,869)
Net loss per share (2)...................... $ (0.01) $ (0.47) $ (0.02) $ (0.35)
------- ------- ------- -------
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Weighted average shares
outstanding (2)............................ 11,716 13,159 12,594 13,717
MARCH 29, 1996
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AS ADJUSTED
ACTUAL (3)
-------------- --------------
BALANCE SHEET DATA:
Working capital (deficit)......................................................... $ (3,016) $ 33,190
Total assets...................................................................... 8,878 45,084
Total liabilities................................................................. 7,081 7,081
Accumulated deficit............................................................... (9,876) (9,876)
Stockholders' equity.............................................................. 1,797 38,003
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(1) Based on shares of Common Stock outstanding as of May 31, 1996. This amount
excludes (i) 1,822,750 shares of Common Stock subject to options outstanding
under the Company's 1995 Stock Option Plan at a weighted average exercise
price of $3.51 per share, (ii) 1,880,654 shares of Common Stock subject to
outstanding warrants and non-plan stock options at a weighted average
exercise price of $1.75 per share, (iii) 677,250 and 125,000 shares of
Common Stock reserved for future grant of options under the Company's 1995
Stock Option Plan and Directors Stock Option Plan, respectively, and (iv)
920,000 shares of Common Stock reserved for future issuance pursuant to
warrants that the Company has made commitments to issue. See
"Capitalization," "Management -- 1995 Stock Option Plan," "Management --
Directors Stock Option Plan," "Description of Capital Stock" and Notes 7 and
11 of Notes to Financial Statements.
(2) See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of weighted average shares outstanding used in
the net loss per share computation.
(3) Adjusted to reflect the sale of the 3,600,000 shares of Common Stock offered
hereby and receipt by the Company of the estimated net proceeds therefrom.
See "Use of Proceeds" and "Capitalization."
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES (I)
THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED, AND (II) THE COMPANY'S
REINCORPORATION IN THE STATE OF DELAWARE PRIOR TO THE CLOSING OF THIS OFFERING.
SEE "CAPITALIZATION" AND "DESCRIPTION OF CAPITAL STOCK." IN JANUARY 1996, THE
COMPANY CHANGED ITS FISCAL YEAR SUCH THAT IT ENDS ON THE LAST FRIDAY OF DECEMBER
OF EACH YEAR.
"EARTHLINK NETWORK-REGISTERED TRADEMARK-," "EARTHLINK NETWORK
TOTALACCESS-TM-" AND THE EARTHLINK LOGO ARE TRADEMARKS OF THE COMPANY. THIS
PROSPECTUS INCLUDES TRADEMARKS OF COMPANIES OTHER THAN THE COMPANY.