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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 COMMISSION FILE NUMBER 0-27890

                          MINDSPRING ENTERPRISES, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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                               DELAWARE                                                   58-2113290
    (State or other jurisdiction of incorporation or organization)          (I.R.S. Employer Identification No.)

                       1430 WEST PEACHTREE, SUITE 400                                         30309
                              ATLANTA, GEORGIA                                             (Zip Code)
                      (principal executive offices)
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                                 (404) 815-0770
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                (NOT APPLICABLE)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                                (TITLE OF CLASS)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes  X  No    
                                       ---    ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Based upon the closing price of the registrant's common stock as of March 25,
1999 the aggregate market value of the common stock held by non-affiliates of
the registrant is $1,914,463,972.*

The number of shares of common stock outstanding as of March 25, 1999 was
28,914,414.


---------------
*    Solely for purposes of this calculation, all executive officers and
     directors of the registrant and all shareholders reporting beneficial
     ownership of more than 5% of the registrant's common stock are considered
     to be affiliates.


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                                TABLE OF CONTENTS
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       PART I           Item 1.     Business...........................................                   1
                        Item 2.     Properties.........................................                  24
                        Item 3.     Legal Proceedings..................................                  25
                        Item 4.     Submission of Matters to a Vote of Security Holders                  25

       PART II          Item 5.     Market for Registrant's Common Stock and
                                    Related Stockholder Matters........................                  26
                        Item 6.     Selected Financial Data............................                  27
                        Item 7.     Management's Discussion and Analysis of Financial                    
                                    Condition and Results of Operations................                  29
                        Item 7A.    Quantitative and Qualitative Disclosures
                                    About Market Risk..................................                  41
                        Item 8.     Financial Statements and Supplementary Data........                  41
                        Item 9.     Changes in and Disagreements With Accountants on
                                    Accounting and Financial Disclosure................                  41

       PART III         Item 10.    Directors and Executive Officers of the Registrant.                  42
                        Item 11.    Executive Compensation.............................                  44
                        Item 12.    Security Ownership of Certain Beneficial Owners
                                    and Management.....................................                  47
                        Item 13.    Certain Relationships and Related Transactions.....                  49

       PART IV          Item 14.    Exhibits, Financial Statement Schedules, and Reports
                                    on Form 8-K........................................                  50

       SIGNATURES......................................................................                  53

       INDEX TO FINANCIAL STATEMENTS...................................................                 F-1

       REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO  SCHEDULES.......................                 S-1

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         This Form 10-K includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act
of 1934. We intend the forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements in these sections. All
statements regarding our expected financial position and operating results, our
business strategy and our financing plans are forward-looking statements. These
statements can sometimes be identified by our use of forward-looking words such
as "may," "will," "anticipate," "estimate," "expect," or "intend." Known and
unknown risks, uncertainties and other factors could cause the actual results to
differ materially from those contemplated by the statements. The forward-looking
information is based on various factors and was derived using numerous
assumptions.

         Although we believe that our expectations that are expressed in these
forward-looking statements are reasonable, we cannot promise that our
expectations will turn out to be correct. Our actual results could be
materially different from our expectations. Important risks and factors that
could cause our actual results to be materially different from our expectations
include (1) that we will not retain or grow our subscriber base, (2) that we
will not be able to successfully integrate new subscribers and/or assets
obtained through acquisitions, (3) that we will fail to be competitive with
existing and new competitors, (4) that we will not be able to sustain our
current growth, (5) that we will not adequately respond to technological
developments impacting the Internet, and (6) that financing will not be
available to us if and as needed. 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
report. These factors are not intended to represent a complete list of all
risks and uncertainties inherent in MindSpring's business, and should be read
in conjunction with the more detailed cautionary statements included in this
Form 10-K under the caption "Business -- Risk Factors."

                                     PART I

ITEM 1.         BUSINESS

         MindSpring is a leading national Internet service provider, or ISP. We
focus on serving individuals and small businesses. Our primary service offerings
are dial-up Internet access and business services, which we offer in various
price and usage plans designed to meet the needs of our subscribers. Our
business services include Web hosting, which entails maintaining a customer's
Internet Web site; high-speed, dedicated Internet access; Web page design;
domain name registration and customer Web server co-location. Web hosting, our
principal business service, complements our Internet access business and is one
of the fastest growing segments of the Internet marketplace.

         MindSpring offers subscribers complete Internet access and Web hosting
solutions, placing an emphasis on user-friendly and easy to install software,
network reliability, highly responsive customer service and superior technical
support. Through our nationwide network of MindSpring-owned and third-party
provider-owned points of presence, or POPs, our subscribers are able to access
the Internet in the 48 contiguous U.S. states and the District of Columbia via a
local telephone call.

         Over the past three years, we have rapidly increased our subscriber
base and revenues by:

            -     providing superior customer service and technical support;

            -     expanding our marketing and distribution activities;

            -     making strategic acquisitions; and

            -     creating additional revenue streams by offering value-added
                  services such as Web hosting that build on our basic operating
                  capabilities and services.

         Our subscriber base has grown from approximately 12,000 subscribers at
December 31, 1995, to over 693,000 subscribers at December 31, 1998, including
over 21,000 Web hosting subscribers. In February 1999, we completed the
acquisition of substantially all of NETCOM On-Line Communication Services,
Inc.'s subscriber 



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accounts in the U.S., which increased our subscriber base to approximately 1.1
million subscribers, including approximately 45,000 Web hosting subscribers. As
a result, MindSpring is currently the fourth largest ISP in the U.S. in terms of
the number of subscribers.

         By providing superior service and support to our subscribers, making
good build-versus-buy network decisions and achieving significant market
penetration in a number of our target markets, we have achieved profitability
ahead of many other national ISPs. For the year ended December 31, 1998, we had
revenues of approximately $115 million, EBITDA of approximately $23 million, net
income of approximately $8.8 million and earnings per share of $0.35, in each
case excluding a one-time tax benefit of approximately $1.7 million. Including
the one-time tax benefit, our net income for 1998 was approximately $10.5
million and our earnings per share were $0.41.

RECENT ACQUISITIONS

         In October 1998, we purchased substantially all of Spry, Inc.'s
subscriber base of individual dial-up Internet access customers in the United
States and Canada, including approximately 130,000 individual access accounts.
We also acquired various assets used in serving those customers, including a
leased customer support facility and a leased network operations facility in
Seattle, Washington and all rights to the "Sprynet" name. Spry was a
wholly-owned subsidiary of America Online, Inc. The purchase price for these
assets was approximately $32 million.

         In February 1999, we purchased substantially all of NETCOM On-Line
Communication Services, Inc.'s subscriber accounts in the U.S., including
approximately 371,000 individual access accounts, approximately 3,000 dedicated
Internet access accounts and approximately 22,000 Web hosting accounts. NETCOM,
now known as ICG PST, Inc., is a wholly owned subsidiary of ICG Communications,
Inc. MindSpring also acquired assets used in serving those customers, including
leased operations facilities in San Jose, California and Dallas, Texas and ICG
PST's rights to the "NETCOM" name (except in Canada, the United Kingdom and
Brazil). ICG PST retained all of its assets used in connection with its network
operations. Under a separate network services agreement with ICG PST, we
purchase access to ICG PST's network. We paid $245 million for the NETCOM
assets, consisting of $215 million in cash and $30 million in MindSpring common
stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview."

MINDSPRING SERVICES

         Our services include dial-up Internet access and business services,
which consist of Web hosting and other services such as high-speed dedicated
Internet access for small to medium-sized businesses, Web page design and
Web-server co-location. MindSpring's primary service offerings, dial-up Internet
access and Web hosting, are offered in various price and usage plans designed to
meet the needs of our customers. We continuously evaluate the need to add
additional product offerings and modify our service features based upon market
demands.

         INTERNET ACCESS

         Dial-Up Internet Access. MindSpring's primary service offering is
dial-up Internet access. As of December 31, 1998, approximately 84% of our total
revenues were attributable to dial-up Internet access. The basic equipment
requirements for an individual dial-up subscriber are a Windows 3.1 or later
operating system or Macintosh computer with at least 8MB of RAM and a modem of
14.4 Kbps speed or faster. The subscriber's MindSpring connection is a direct,
point-to-point protocol, or "PPP," connection to the Internet. A direct PPP
connection enables a subscriber to use any standard Internet capable software
that will run on the subscriber's computer.

         MindSpring currently offers the following five price plans for dial-up
subscription, taking account of demand for both heavy and light Internet usage.
Each plan requires a start-up fee of up to $25 (except for the Commercial plan,
which has a start-up fee of $50), which is waived in certain instances depending
upon the promotional method by which the subscriber is acquired.



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         The Works. For $26.95 per month, individual subscribers receive
unlimited usage (not intended to be a full-time connection) as well as 10MB of
Web space, a personal Web page editor that permits subscribers to create and
upload their own Web pages, and two additional mailboxes.

         Unlimited Access. Individual subscribers pay $19.95 per month for
unlimited usage and 5MB of Web space. As with the Works Plan, the subscriber
must disconnect when not actively accessing the Internet. The subscriber is not
permitted, for example, to maintain a full-time computer connection as a World
Wide Web server.

         Standard.  Subscribers pay $14.95 per month for 20 hours of use and $1
per hour for each additional hour. Subscribers also receive 5MB of Web space.

         Light.  Subscribers pay $6.95 per month for 5 hours of use and $2 per
hour for each additional hour. Subscribers also receive 5MB of Web space.

         Commercial. Designed for small businesses, subscribers pay a $50
start-up fee and $99 per month thereafter in exchange for 160 hours of usage and
$.75 for each additional hour. Subscribers receive 10 mailboxes and are not
charged for simultaneous usage, which would permit several employees to be
on-line at once without paying additional fees.

         Subscribers to each plan can also purchase additional features such as
extra mailboxes for specified fees.

         Substantially all of our subscribers are on month-to-month
subscriptions. MindSpring offers a 30-day money-back satisfaction guarantee for
new subscribers. Billing is monthly, with payments made by the majority of
subscribers by a monthly charge to the subscriber's credit card. Payment is made
at the beginning of each billing cycle, although some subscribers are invoiced
(for an extra charge). Subscribers, as well as MindSpring, may cancel an account
at any time, with the cancellation taking effect as of the first day of the
following billing month.

         A subscriber who is within local dialing range of one of the MindSpring
POPs or a designated third-party provider POP can access the Internet with a
local telephone call. MindSpring also offers access to its services through an
"800" number for an additional charge. All dial-up subscribers can connect to
the MindSpring network (including the third-party provider POPs) via modem at
speeds up to 33.6 Kbps and over 90% of MindSpring's subscribers can connect at
speeds up to 56 Kbps. In a majority of the cities that MindSpring serves,
individual subscribers, except subscribers to the Unlimited Access and
Commercial plans, can also choose to connect via ISDN at 64 Kbps or 128 Kbps.
There is a one-time extra start-up fee of $25 for ISDN users who subscribe to
the Standard and Light plans; otherwise, 64K ISDN pricing is the same as for
modem subscribers, and 128K users pay a small surcharge. All dial-up subscribers
also have the option of using MindSpring servers to publish information on the
Internet through the World Wide Web or FTP. MindSpring subscribers may use the
space made available on MindSpring's servers to make World Wide Web pages or
computer data files available to the Internet.

         MindSpring recently introduced high-speed cable modem Internet access
on a very limited basis in the Montgomery, Alabama area. We provide this service
through an agreement with KNOLOGY Holdings, Inc., an affiliate of ITC Holding
Company, Inc., one of our principal stockholders. Our ability to expand our
geographic offering of this service will depend on KNOLOGY's enhancement and
expansion of its network infrastructure and our access to other third-party
cable and broadband networks. See "-- Competition -- Broadband Technologies" and
"-- Risk Factors -- The Internet access and Web hosting markets are very
competitive -- Broadband Technologies."

         BUSINESS SERVICES

         MindSpring business services consist of:

            -      Web hosting, the business of maintaining a customer's
                   Internet Web site,

            -      high-speed, dedicated Internet access,

            -      Web page design,

            -      domain name registration,


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            -      customer Web server co-locations, and

            -      e-commerce services.

         As of December 31, 1998, business services revenues, which were derived
almost entirely from Web hosting services, accounted for approximately 13% of
our total revenues.

         Web Hosting. MindSpring offers Web hosting accounts for companies and
other organizations that wish to create their own World Wide Web sites without
maintaining their own Web servers and high-speed Internet connections. Web
hosting subscribers can use their own domain names in their World Wide Web
addresses. This type of Web hosting is called "virtual hosting." Web hosting
subscribers create their Web sites themselves and then upload the pages to a
MindSpring Web server. MindSpring's Web hosting service features
state-of-the-art Web servers for high speed and reliability, a high-quality
connection to the Internet, specialized customer support, advanced services
features, such as secure transactions and VRML, or Virtual Reality Markup
Language, a feature used to make Web pages seem three-dimensional, and reporting
on site usage. MindSpring currently offers three price plans for Web hosting
subscribers ranging from $19.95 to $99.95 per month. MindSpring has
approximately 45,000 Web hosting subscribers, including approximately 22,000 Web
hosting accounts acquired from NETCOM in February 1999.

         Web Page Design. Our Web page design services consist of four standard
design packages from which a subscriber can choose or the subscriber can create
a custom Web package from scratch. The subscriber provides the text for the Web
site, and custom design work is available from MindSpring, including logo
design, additional HTML pages, and database integration.

         E-commerce. We recently introduced our e-commerce hosting service,
which enables even unsophisticated subscribers to set up an Internet storefront
in virtually minutes. We offer merchants a complete suite of commercial hosting
options including:

            -      Web hosting,

            -      Web site or Web page design,

            -      domain name registration,

            -      store front and back office applications,

            -      customer-to-merchant e-mail services,

            -      search engine registration,

            -      encryption security certificates to assure confidentiality 
                   of transactions, and

            -      credit card and on-line payment processing services.

         Dedicated Access, Domain Registration and Web Server Co-location.
MindSpring offers domain registration services and, in some markets, high-speed
dedicated access connections to the Internet, including for the approximately
3,000 dedicated access accounts we purchased in the NETCOM acquisition. We also
offer Web-server co-location services at our Atlanta headquarters and at our
Dallas call center for subscribers who want to maintain their own Web servers in
MindSpring's state-of-the-art telephony environment and receive a high-speed,
full-time connection to the Internet. MindSpring's co-location services include
(1) 24-hour security monitoring, (2) an uninterrupted power supply, (3) climate
control, (4) remote access for the subscriber, (5) tape swap, and (6) secure
tape storage.

CUSTOMER SERVICE AND TECHNICAL SUPPORT

         MindSpring believes that excellent customer services and technical
support is critical to our success in retaining and attracting new subscribers.
We currently provide customer service and technical support through our call
centers located in Atlanta, Georgia; Harrisburg, Pennsylvania; Phoenix, Arizona;
Seattle, Washington; San Jose, 


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California; and Dallas, Texas. In February 1999, we acquired approximately 3,000
dedicated access accounts and related support personnel from NETCOM. These
subscribers are generally small to medium-sized businesses that require
full-time, dedicated connections to the Internet. We are in the process of
integrating these subscribers into MindSpring's operations. Dedicated access
subscribers generally require technical and customer support relating to the
quality of and interruptions in the full-time Internet connection, which in turn
will require MindSpring staff to interact and coordinate with the telephone
company or other dedicated line providers. We believe that our ability to
successfully integrate and support these acquired customers profitably will
determine the extent to which we will seek to expand this line of business.

         MindSpring's customer service staff handles all questions regarding a
subscriber's account and are available from 9 a.m. to 9 p.m. eastern time seven
days a week, except for major holidays. As of February 28, 1999, we had
approximately 200 customer service employees.

         Our technical support staff handles questions related to the provision
of our services such as questions regarding installation of MindSpring's
service, connection to our network and use of various software applications.
MindSpring's technical support staff is available 24 hours a day, seven days a
week, except for major holidays. As of February 28, 1999, we had over 820
technical support employees. In the NETCOM acquisition, we assumed a third-party
technical support service contract through which NETCOM had provided technical
support to the subscribers we acquired. We plan to continue to provide technical
support to the acquired NETCOM subscribers under this contract until
approximately the last quarter of 1999, when we expect that substantially all of
these subscribers will have transitioned to the MindSpring software.

         Subscribers can call any of our call center facilities for customer
service and technical support through a local telephone number, for those cities
local to a call center, or a toll-free "800" number. Subscribers can also e-mail
their questions directly to a customer service and technical support address at
MindSpring. In addition, we maintain MindSpring-specific newsgroups on the
Internet where subscribers can post requests for help and other subscribers, as
well as MindSpring support personnel, can respond.

SALES AND MARKETING

         MindSpring believes that the market for individual Internet access is
heavily influenced by person-to-person referrals. Accordingly, our marketing
efforts have been geared, among other things, toward generating positive
referrals and stimulating subscriber growth and retention by providing
exceptionally high-quality service to our existing subscribers. We also offer a
$10 credit to existing subscribers each time a new subscriber names the existing
subscriber as the referral source. A significant number of MindSpring's new
subscribers indicate that an existing subscriber referred them.

         We also engage in targeted marketing and distribution efforts in
markets where there is the opportunity for substantial market penetration. We
believe that high geographic concentrations of subscribers improve network
economics and reduce subscriber acquisition costs, thereby resulting in higher
margins. While continuing to encourage referrals from existing subscribers, we
plan to increase our print publication, radio, television and direct mail
advertising in certain targeted major metropolitan areas throughout the United
States in order to achieve greater density in our subscriber base.

         In addition, we have pursued nationwide strategic alliances available
to MindSpring as a result of our nationwide access and reputation for
reliability and high quality. Such nationwide marketing opportunities may
include, among others, entering into large-scale bundling arrangements with
complementary products, such as computers, software products, multimedia books,
and CD-ROM merchandise, and seeking strategic alliances available with
complementary businesses operating in our service areas, such as
Internet-oriented training organizations and consulting firms, World Wide Web
content developers, computer networking firms, media companies,
telecommunications companies, local area network and World Wide Web consulting
companies, and other Internet access companies that specialize in providing
dedicated connections. The nature and terms of these alliances vary.



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         We intend to continue to expand our marketing and distribution efforts.
We will continue to closely monitor the results of our marketing techniques as
part of an ongoing effort to increase the cost-effectiveness of our marketing
efforts.

         We have attempted to maintain a high degree of personal contact with
the communities that we serve, and we have a staff of territory managers who are
responsible for generating interest in MindSpring in these communities.
MindSpring marketing personnel spend considerable time meeting with and making
presentations to groups representing potential subscribers, such as computer
user associations, high-technology business associations, and educational
institutions. We plan to continue these efforts in the southeastern United
States, New York, California, Phoenix, Arizona and Chicago, Illinois and to
selectively expand them to include key metropolitan areas in other regions of
the country.

         Sales are consummated by MindSpring's telephone sales force, which
responds to incoming subscription inquiries, as well as through an on-line
sign-up procedure. The on-line registration module, which is available in
MindSpring's retail software package, through MindSpring's Web site and through
various Original Equipment Manufacturer, or OEM, arrangements, enables a user to
become a MindSpring subscriber by selecting service plans and billing methods
on-line, without the need to speak to a MindSpring employee.

NETWORK INFRASTRUCTURE

         Geographic Coverage. Through our nationwide network of MindSpring-owned
and third-party provider-owned points of presence, or POPs, our subscribers are
able to access the Internet in the 48 contiguous U.S. states and the District of
Columbia via a local telephone call. We purchase access to third-party provider
POPs through network services agreements with PSINet, Worldcom Advanced Networks
(formerly Gridnet International, L.L.C.), GTE Internetworking Incorporated
(formerly BBN Planet Corporation) and ICG PST.

         We believe that using a combination of MindSpring-owned POPs and POPs
owned by third-party network providers enables us to provide Internet access
services on a nationwide basis while managing the timing and magnitude of our
capital expenditures. We employ a strategy of leasing POPs from third-party
providers in locations where it is more economical to do so. These are typically
geographic areas where MindSpring has lower market penetration than areas we
serve through MindSpring POPs. We periodically reevaluate the economics of this
strategy and, if warranted, we may install a MindSpring POP to replace or
overlap with a leased POP.

         MindSpring POPs. Each MindSpring POP typically consists of data
communications equipment such as 3Com(R) Total Control modem chassis, 3Com(R) or
Bay Networks switches and Cisco Systems routers, the majority of which are
currently co-located with a local telecommunications or media company. The
3Com(R) modem chassis employed by MindSpring support both ISDN and analog
terminations. MindSpring has upgraded all modem chassis to support the new
international 56Kb modem standard, V.90.

         Each MindSpring POP is connected to MindSpring's Atlanta Network Data
Center. These connections consist of either a private line point-to-point
Internet Protocol, or "IP" connection, or a frame relay connection. In addition,
we use private peering points to more efficiently manage our network traffic. A
private peering point is a point where our network connects to the network of
one of our third-party network providers. This enables us to route network
traffic along the shortest path feasible.

         We refer to some of our POPs as "super-POPs." A super-POP is a POP
where MindSpring co-locates its equipment with a competitive local exchange
carrier, or "CLEC". By co-locating with a CLEC, we are able to aggregate
Internet traffic from multiple local calling areas into a single modem pool via
local telephone numbers. This creates, in effect, a "super-POP," enabling
MindSpring to offer local dial-up access out of a single POP to areas that would
otherwise require co-location sites in each local dial-up area -- that is,
multiple POPs -- to accomplish the same task. As part of our strategy, we intend
to open additional super-POPs where demand and other economic factors warrant.

         Atlanta Network Hub. MindSpring's Atlanta Network Data Center is
connected to Internet backbone providers such as GTE Internetworking via large
leased telecommunications lines called DS-3s. MindSpring's Atlanta Network Data
Center is supported by dual SONET rings provided by BellSouth Corporation and


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MediaOne. The Data Center has a back-up generator for emergency use in the event
of a prolonged loss of electric power. In addition to dial-up subscribers, most
of MindSpring's Web hosting and Web-server co-location customers are served from
this location.

         Network Operations Center. MindSpring maintains a Network Operations
Center at our Atlanta headquarters through which our technical staff monitors
network traffic, service quality, and security, as well as equipment at
individual POPs, to ensure reliable Internet access. The Network Operations
Center is staffed 24 hours a day, 7 days a week. We also monitor network
operations through our facilities in Seattle, Washington and Dallas, Texas. In
the future, we may use our other call center facilities to supplement or add
redundancy to this network monitoring capability. In addition, we continue to
invest in improved network monitoring software and hardware systems.

MINDSPRING SOFTWARE

         An important component of our service offering for dial-up subscribers
is the MindSpring starter kit. The starter kit includes the MindSpring
installation program, front-end software and documentation, an on-line
registration module (retail version only), network software that enables a
subscriber to connect to the Internet, and application programs. See "--
Subscriber Applications." Our subscribers acquired from Spry and NETCOM connect
to the Internet using software that we acquired in those acquisitions. Those
subscribers may switch to MindSpring software at their option at any time.

         Our objectives in developing and providing the MindSpring starter kit
are to:

         Simplify Installation. MindSpring's software package automatically
    configures all the individual Internet access programs after one-time entry
    by the user of a few required fields of information (name, user name,
    password, etc.).

         Provide a Convenient and Intuitive Starting Place for Subscribers.
    MindSpring's front-end software allows subscribers to connect and
    disconnect, see any current messages from MindSpring, check their monthly
    usage, see if they have any e-mail, and launch any of their Internet
    application programs, all from one screen. "Help" files and the accompanying
    documentation contain information on troubleshooting and things to do on the
    Internet. Links to the most popular content sites are also provided.

         Enhance Efficiency of MindSpring's Support Services. High-quality
    software with which our technical support representatives are familiar makes
    it easier for MindSpring to provide fast and efficient customer service and
    technical support. Software that is reliable and easy to install and use
    also tends to reduce subscriber need for extensive customer service and
    technical support services.

         Provide State-of-the-Art Applications. MindSpring uses existing
    applications developed by third parties in its software package. We believe
    that this approach will enable us to include state-of-the-art software in
    our package and to keep pace with technology developments by replacing
    applications with newer or better programs as they become available without
    diverting resources by attempting to develop new applications programs.

SUBSCRIBER APPLICATIONS

         MindSpring subscribers use their accounts for, among other things,
communicating, retrieving information, and publishing information on the
Internet. In our surveys of our subscribers, a substantial number of
MindSpring's individual subscribers report that they use their MindSpring
accounts for personal as well as business purposes. The subscriber's MindSpring
connection is a direct PPP connection, enabling subscribers to use any standard
Internet-capable software that will run on their computers. A complete set of
the most popular Internet applications are part of the MindSpring starter kit
software package, including:



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         Electronic Mail. E-mail allows subscribers to exchange electronic
messages with anyone else who has an Internet e-mail address. These messages are
usually text only but can also include other kinds of computer files (such as
images, computer programs, or word processing documents), which are sent as
attachments. MindSpring's software package includes the Eudora Light(R) E-mail
application.

         The World Wide Web. The World Wide Web allows a multimedia presentation
of material (i.e., text, graphic, sound, and video). Users can move from one
World Wide Web site to another by clicking on hypertext links and can interact
with the World Wide Web information providers through typed input. The software
programs that allow users to explore the World Wide Web are known as "browsers."
The browser applications currently included in MindSpring's software package are
Microsoft's Internet Explorer(R) and Netscape Navigator(R).

         Network News. Network News provides Internet-wide, subject-specific
forums on thousands of different subjects, where users can post information and
review posted information from other users.

         FTP. File transfer protocol, or FTP, is a standard Internet tool that
allows users to send and retrieve computer files. FTP is often used for
retrieving software from various archive sites on the Internet.

         Internet Relay Chat. Internet Relay Chat allows users to participate in
chat sessions, in which typed comments from all participants appear on the
screen, allowing simultaneous multiperson real-time conversations.

         MindSpring has obtained permission and, in certain cases, licenses from
each manufacturer of the software that we bundle in MindSpring's front-end
software product for Windows and Macintosh subscribers. See " --Proprietary
Rights."

BILLING AND MANAGEMENT INFORMATION SYSTEMS

         A majority of our individual subscribers pay their MindSpring fees
automatically by credit card each month. MindSpring generally sends monthly
invoices to commercial accounts with multiple users. Billing calculations and
payment transactions are managed on our automated billing system. We expect to
continue to modify and upgrade our billing system as needed in order to maintain
our ability to bill and collect amounts due and to be responsive to changes in
the market.

PROPRIETARY RIGHTS

         General. Although we believe that our success is more a function of our
technical expertise and customer service than our proprietary rights,
MindSpring's success and ability to compete depends in part upon our technology.
We rely on a combination of copyright, trademark and trade secret laws, and
contractual restrictions to establish and protect our technology. It is our
policy to require employees and consultants and, when possible, suppliers to
execute confidentiality agreements upon the commencement of their relationships
with MindSpring. These agreements provide that confidential information
developed or made known during the course of a relationship with MindSpring must
be kept confidential and not disclosed to third parties except in specific
circumstances. We cannot provide any assurances that the steps we have taken
will be adequate to prevent misappropriation of our technology or that our
competitors will not independently develop technologies that are substantially
equivalent or superior to our technology.

         Licenses. We have obtained authorization to use the products of each
manufacturer of software that we bundle in MindSpring's front-end software
product for Windows and Macintosh subscribers. The particular applications
included in the MindSpring starter-kit have, in some cases, been licensed.
MindSpring currently intends to maintain or negotiate renewals of, as the case
may be, all existing software licenses and authorizations as necessary.
MindSpring may also want or need to license other applications in the future.
License fees charged to MindSpring upon enrollment of additional subscribers are
included in the cost of subscriber start-up fees. Other applications included in
the MindSpring starter kit are shareware that MindSpring has obtained permission
to distribute or that are from the public domain and are freely distributable.
MindSpring developed the front-end software programs in MindSpring's starter kit
for Windows 3.1, Windows 95, and Macintosh. We have acquired some software,
trademarks and other proprietary technology from Spry and NETCOM which we may
continue to use for acquired subscribers. See "-- Risk Factors."



                                       8
<PAGE>   11

COMPETITION

         The markets for the provision of Internet access and business 
services to individuals and small businesses are extremely competitive and
highly fragmented. There are no substantial barriers to entry, and we expect
that competition will continue to intensify. We may not be able to compete
successfully against current or future competitors, many of whom may have
financial resources greater than ours. Increased competition could cause us to
increase our selling and marketing expenses and related subscriber acquisition
costs and could also result in increased subscriber attrition. We may not be
able to offset the effects of these increased costs through an increase in the
number of our subscribers or higher revenue from enhanced services, and we may
not have the resources to continue to compete successfully. These developments
could adversely affect our business, financial condition and results of
operations.

         Competitive Factors. We believe that the primary competitive factors
determining success in the Internet access and business services markets are a
reputation for reliability and service, effective customer support, pricing,
easy-to-use software, and geographic coverage. Other important factors include
the timing of introductions of new products and services and industry and
general economic trends. Our current and prospective competitors include many
large companies that have substantially greater market presence and financial,
technical, marketing, and other resources. In addition, every local market that
we have entered or intend to enter is served by multiple local ISPs.

         Our Competitors. We currently compete or expect to compete with the
following types of companies:

         -    established on-line commercial information service providers,
              such as AOL;

         -    national long-distance carriers, such as AT&T Corp. and MCI
              WorldCom, Inc.;

         -    national commercial ISPs, such as EarthLink Network, Inc.;

         -    computer hardware and software and other technology companies,
              such as IBM Corp. and Microsoft Corporation;

         -    numerous regional and local commercial ISPs which vary widely in
              quality, service offerings, and pricing;

         -    national and regional Web hosting companies that focus primarily
              on providing Web hosting services;

         -    cable operators and on-line cable services;

         -    local telephone companies and regional Bell operating companies;
              and

         -    nonprofit or educational ISPs.

         We believe that new competitors, including large computer hardware and
software, media, and telecommunications companies, will continue to enter the
Internet access and business services markets. As consumer awareness of the 
Internet grows, existing competitors are likely to further increase their 
emphasis on their Internet access and business services, resulting in even
greater competition for us. In addition, telecommunications companies may be
able to offer customers reduced communications costs in connection with these
services, reducing the overall cost of their Internet access and business
services solutions and significantly increasing pricing pressures on us. The
ability of our competitors to acquire other ISPs, to enter into strategic
alliances or joint ventures or to bundle other services and products with
Internet access or Web hosting could also put us at a significant competitive
disadvantage.

         Broadband Technologies. We also face competition from companies that
provide broadband connections to consumers' homes, including local and
long-distance telephone companies, cable television companies, electric utility
companies, and wireless communications companies. These companies may include
Internet access or business services such as Web hosting using broadband 
technologies in their basic bundle of services or may offer Internet access or 
business 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.



                                       9
<PAGE>   12

         The companies that own these broadband networks could prevent us from
delivering Internet access through the wire and cable connections that they own.
Cable television companies are not currently required to allow ISPs to access
their broadband facilities and the availability and terms of ISP access to
broadband local telephone company networks are under regulatory review. Our
ability to compete with telephone and cable television companies that are able
to support broadband transmission, and to provide better Internet services and
products may depend on future regulation to guarantee open access to the
broadband networks. However, in January 1999, the Federal Communications
Commission, or FCC, declined to take any action to mandate or otherwise regulate
access by ISPs to broadband cable facilities at this time. It is unclear whether
and to what extent local and state regulatory agencies will take any initiatives
to implement this type of regulation, and whether they will be successful in
establishing their authority to do so. Similarly, the FCC is considering
proposals that could limit the right of ISPs to connect with their customers
over broadband local telephone lines. In addition to competing directly in the
ISP market, both cable and telephone facilities operators are also aligning
themselves with certain ISPs who would receive preferential or exclusive use of
broadband local connections to end users. If high-speed, broadband facilities
increasingly become the preferred mode by which customers access the Internet
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.

         No International Operations. We do not currently compete
internationally, except we have a small number of Canadian subscribers obtained
in the Spry acquisition. If the ability to provide Internet access
internationally becomes a competitive advantage in the Internet access industry,
we may be at a competitive disadvantage relative to our competitors.

GOVERNMENT REGULATION

         As an Internet service provider, we are not currently directly
regulated by the FCC or any other agency, other than regulations applicable to
businesses generally. In a report to Congress adopted on April 10, 1998, the FCC
reaffirmed that Internet service providers should be classified as unregulated
"information service providers" rather than regulated "telecommunications
providers" under the terms of the Telecommunications Act of 1996.

         This finding is important because it means that regulations that apply
to telephone companies and similar carriers do not apply to us. We also are not
required to contribute a percentage of our gross revenues to support "universal
service" subsidies for local telephone services and other public policy
objectives, such as enhanced communications systems for schools, libraries, and
some health care providers. The FCC action is also likely to discourage states
from regulating Internet service providers as telecommunications carriers or
imposing similar subsidy obligations.

         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 FCC 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 FCC
will modify its current policies against regulation of ISPs.

         MindSpring 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 ISPs to offer flat-rate, non-usage
sensitive pricing, and has been an important reason for the growth in Internet
use. Recently, the FCC ruled that connections linking end users to their ISPs
are jurisdictionally interstate rather than local, but the FCC 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. MindSpring 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, or the universal support obligations discussed above, should apply to
Internet-based telephone services that substitute for conventional telephony. We
have no current plans to install gateway equipment and offer telephony, and so
we do not believe we would be directly affected by these developments were they
to occur.


                                       10
<PAGE>   13

         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 us relating to information carried on, stored on, or disseminated
through our 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.

         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.

RISK FACTORS

         Our business is subject to certain risks, including the following:

         WE HAVE A LIMITED OPERATING HISTORY DURING WHICH WE HAVE INCURRED
         SIGNIFICANT ANNUAL OPERATING LOSSES.

         We started our business on February 24, 1994 and began offering
Internet access in June 1994. Our limited historical operating data and rapid
growth may make it more difficult for you to evaluate our performance. Before
1998, we had incurred annual operating losses in each year since we started our
business. Our annual net losses since 1995 and our accumulated deficit as of
December 31, 1998 are as follows:

<TABLE>
<CAPTION>

                                                  Annual              Accumulated Deficit
                                                 Net Loss            as of December 31, 1998
                                                 --------            -----------------------
<S>                                            <C>                        <C> 
                     1995                       $1,959,000
                     1996                       $7,612,000
                     1997                       $4,083,000
                     1998                          N/A                      $3,185,000
</TABLE>

         Our ability to maintain profitability and positive cash flow depends
upon a number of factors, including our ability to increase revenue while
maintaining or reducing per subscriber costs. We may not succeed in increasing
revenue while maintaining or reducing per subscriber costs or achieving or
sustaining positive cash flow in the future, and our failure to do so could have
a material adverse effect on our business, financial condition and results of
operations.

         THERE ARE RISKS ASSOCIATED WITH OUR ACQUISITIONS OF SUBSCRIBER
         ACCOUNTS, INCLUDING THE SPRY AND NETCOM ACQUISITIONS.

         As part of our business strategy, we have acquired subscriber accounts
and related assets from other companies. In October 1998, we acquired
approximately 130,000 subscribers and related assets of Spry, Inc. from America
Online, Inc. In February 1999, we completed the acquisition of approximately
400,000 subscribers from NETCOM On-Line Communication Services, Inc., now known
as ICG PST, Inc., a wholly owned subsidiary of


                                       11
<PAGE>   14
ICG Communications, Inc. We will continue to evaluate strategic acquisitions of
businesses and subscriber accounts principally relating to our current
operations. These transactions commonly involve risks. These risks include,
among others, that:

         -    we may experience difficulty in assimilating the acquired
              operations and personnel;

         -    the acquisition may disrupt our ongoing business;

         -    the acquisition may divert management's attention from our
              ongoing business;

         -    we may not be able to successfully incorporate acquired assets
              and technology into our service offerings;

         -    we may not be able to maintain uniform standards, controls,
              procedures, and policies;

         -    we may lack the necessary experience to enter new markets and add
              new services; and

         -    an acquisition may impair our relationships with employees and
              subscribers as a result of changes in management.

         We may not be successful in overcoming these risks or any other
problems encountered in connection with the Spry and NETCOM acquisitions or any
future transactions. In addition, these transactions and any future transaction
could require us to (1) issue additional equity securities, which would dilute
our stockholders, (2) incur additional debt, or (3) amortize acquisition or
debt-related expenses for goodwill and other intangible assets. We were required
to take each of these actions to complete the NETCOM acquisition. Any of these
actions could have a material adverse effect on our business, operating results
and financial condition.

         WE CANNOT ASSURE YOU THAT WE WILL EFFECTIVELY MANAGE OUR GROWTH.

         We may not be successful in effectively managing our growth. Our rapid
growth has in the past placed, and may in the future place, a significant strain
on our business and financial resources. The rapid expansion of our subscriber
base, including through the Spry and NETCOM acquisitions, has placed increasing
demands on our customer service and technical support resources. Failure to
manage our recent and anticipated growth could have a material adverse effect on
our business, results of operations and financial condition.

         For us to effectively (1) manage our rapidly growing operations, (2)
successfully integrate newly acquired assets, including those acquired in the
Spry and NETCOM acquisitions, and (3) continue to implement a nationwide
strategy and network, we must:

         -    continue to implement and improve our operational, financial, and
              management information systems;

         -    closely monitor service quality, particularly through third-party
              points-of-presence, or "POPs";

         -    integrate leased physical sites;

         -    acquire and install necessary equipment and telecommunications
              facilities;

         -    implement marketing efforts in new and existing markets, which
              may involve expanding our marketing strategy to include
              telemarketing and other methods;

         -    add new services and provide related customer and technical
              support;

         -    employ qualified personnel to provide technical and marketing
              support for new sites;

         -    identify, attract, train, integrate, and retain other qualified
              personnel, including new management personnel;

         -    develop additional expertise; and

         -    continue to expand our operational and financial resources.



                                       12
<PAGE>   15

         WE HAVE SIGNIFICANT DEBT AND WE MAY BE UNABLE TO SERVICE THAT DEBT.

         On February 17, 1999, we entered into a credit agreement with First
Union National Bank and other lenders establishing a $100 million secured
revolving credit facility. Also on February 17, 1999, we borrowed approximately
$80 million under the credit facility to finance the NETCOM acquisition. At
December 31, 1998, giving effect to the Spry acquisition, the NETCOM acquisition
and the borrowings under the credit facility as if they had occurred on January
1, 1998:

         -    we would have had $85.1 million of indebtedness;

         -    stockholders' equity would have been $237.1 million; and

         -    our earnings would have been insufficient to cover our fixed
              charges for the year ended December 31, 1998 by $96.2 million.

         Even if we repay all amounts outstanding under our credit facility, we
will have significant additional debt upon completion of our recently announced
offering of $130,000,000 principal amount of convertible subordinated notes. We
cannot assure you that we will be able to improve our earnings before fixed
charges or that we will be able to meet our debt service obligations under our
credit facility or the convertible subordinated notes. We will be in default
under the terms of our credit facility if (1) we are unable to generate
sufficient cash flow or otherwise obtain funds necessary to make required
payments, or (2) we otherwise fail to comply with the various covenants in our
debt obligations. A default would permit the holders of the indebtedness to
accelerate its maturity. This, in turn, would have a material adverse effect on
our business, financial condition and results of operations. In addition, we are
required under the terms of the credit facility to obtain, by May 19, 1999,
landlord consents under some of our operating leases. If we do not obtain these
consents by the required date, the lenders' commitment under the credit facility
could be reduced to $20 million, which could have a material adverse effect on
our business, financial condition and results of operations. For a more detailed
description of our secured credit facility, see our Current Report on Form 8-K
filed with the Securities and Exchange Commission on February 25, 1999.

         Even if we are able to meet our debt service obligations, the amount of
debt we have could adversely affect us in a number of ways, including by:

         -    limiting our ability to obtain any necessary financing in the
              future for working capital, capital expenditures, debt service
              requirements or other purposes;

         -    limiting our flexibility in planning for, or reacting to, changes
              in our business;

         -    placing us at a competitive disadvantage to those of our
              competitors having lower levels of debt;

         -    making us more vulnerable to a downturn in our business or the
              economy generally; and

         -    requiring us to use a substantial portion of our cash flow from
              operations to pay principal and interest on our debt, instead of
              contributing those funds to other purposes, such as working
              capital and capital expenditures.

         To be able to meet our obligations under our credit facility, we must
successfully implement our business strategy, which includes:

         -    expanding our network;

         -    attracting or acquiring and retaining a significant number of
              subscribers; and

         -    achieving significant and sustained growth in our cash flow.

         We cannot assure you that we will successfully implement our business
strategy or that we will be able to generate sufficient cash flow from operating
activities to meet our debt service obligations and working capital
requirements. Our ability to meet our obligations will be dependent upon our
future performance, which will in turn depend upon prevailing economic
conditions and financial, business and other factors.



                                       13
<PAGE>   16

         If the implementation of our business strategy is delayed or
unsuccessful, or if we do not generate sufficient cash flow to meet our debt
service and working capital requirements, we may need to seek additional
financing. If we are unable to obtain necessary financing on terms that are
acceptable to us, we could be forced to dispose of assets to make up for any
shortfall in the payments due on our indebtedness under circumstances that might
not be favorable to realizing the highest price for those assets. A substantial
portion of our assets consist of intangible assets, the value of which will
depend upon a variety of factors, including the success of our business. As a
result, we cannot assure you that our assets could be sold quickly enough, or
for amounts sufficient, to meet our obligations.

         VARIOUS FACTORS OUTSIDE OF OUR CONTROL MAY AFFECT OUR OPERATING RESULTS
         AND CAUSE POTENTIAL FLUCTUATIONS IN OUR QUARTERLY RESULTS.

         Our future success depends on a number of factors, many of which are
beyond our control. In particular, our revenue depends on our ability to attract
and keep subscribers. We normally offer our new subscribers a 30-day money-back
satisfaction guarantee. In addition, our subscribers, including the recently
acquired Spry and NETCOM subscribers, may discontinue their service at the end
of any month for any reason. We incur some expenses based on our expectations of
future revenue. If revenue is less than we expect, we may not be able to reduce
expenses proportionately. If we do not do so, our operating results, cash flows,
and liquidity will likely be adversely affected.

         Our operating results, cash flows and liquidity may also fluctuate
significantly in the future due to other factors beyond our control which
include:

         -    how quickly we are able to acquire new subscribers;

         -    how expensive it will be to acquire new subscribers;

         -    the impact of increased depreciation and amortization from
              acquisitions;

         -    how much money we have to spend to improve our business and
              expand our operations;

         -    how quickly we are able to develop new products and services that
              our subscribers require;

         -    how our prices compare to those of our competitors;

         -    whether customers accept our new and enhanced products and
              services;

         -    how much our operating expenses increase;

         -    the nature of changes in our strategy;

         -    whether we lose key employees;

         -    whether we experience business disruptions resulting from third
              parties encountering "Year 2000" computer problems;

         -    whether and how quickly alternative technologies introduced by
              our competitors gain market
              acceptance;

         -    whether our arrangements with third-party network providers under
              various services agreements prove to be viable;

         -    changes in laws and regulations which affect our business;

         -    the extent to which we experience increased competition in our
              markets; and

         -    other general economic factors.

         Due to all of the foregoing factors, it is likely that in some future
periods, our operating results and/or our growth rate will be below what public
market analysts and investors expect. If that happens, the market price of our
common stock could decline materially.



                                       14
<PAGE>   17

         Technology and industry standards relating to our business are
constantly evolving and our success depends on our ability to keep pace with
these developments.

         The market for Internet access and Web hosting is characterized by
rapidly changing technology, evolving industry standards, changes in subscriber
needs, and frequent new service and product introductions. Our future success
will depend, in part, on our ability to use leading technologies effectively, to
continue to develop our technical expertise, and to enhance our existing
services and develop new services to meet changing subscriber needs on a timely
and cost-effective basis. We may not be successful in achieving these goals.

         We believe that our ability to compete successfully will also depend
upon the continued compatibility and interoperability of our services with
products and architectures offered by various vendors. Although we intend to
support emerging standards in the market for Internet access, industry standards
may not be established or, if they are established, we may not be able to
conform to these new standards in a timely fashion and maintain a competitive
position in the market. In addition, others may develop services or technologies
that will render our services or technology noncompetitive or obsolete.

         We are also at risk to fundamental changes in the way customers access
the Internet. Currently, customers access Internet services primarily through
computers connected by telephone lines. Several companies, however, have
developed cable television modems that transmit data at substantially faster
speeds than the modems that we and most of our subscribers currently use. As the
Internet becomes accessible through these cable television modems and by
screen-based telephones, wireless products, televisions, and other consumer
electronic devices, or as subscriber requirements change the way Internet access
is provided, we must develop new technology or modify our existing technology to
accommodate these developments.

         We will have to continue to modify and expand the means by which we
deliver our services. As discussed below, our ability to offer cable wire access
to our subscribers may depend on our ability to negotiate agreements with cable
companies and, therefore, may be very limited. Our pursuit of technological
advances, such as a new technology called Digital Subscriber Lines, or "DSL,"
that uses telephone lines for high-speed data transfers, may require substantial
time and expense. We may not succeed in adapting our Internet access business to
alternate access devices and conduits.

         WE MAY NEED ADDITIONAL CAPITAL TO FINANCE OUR GROWTH AND CAPITAL
         REQUIREMENTS.

         We must continue to enhance and develop our network to maintain our
competitive position and continue to meet the increasing demands for service
quality, availability, and competitive pricing. Despite the availability of
additional network capacity from third-party network providers, we intend to
maintain the flexibility to expand or open MindSpring POPs or make other capital
investments as dictated by subscriber demand or strategic considerations. To
open new MindSpring POPs, we must spend significant amounts of money for new
equipment as well as for leased telecommunications facilities and advertising.
In addition, to further expand our subscriber base nationwide, we will probably
have to spend significant amounts of money on additional equipment to maintain
the high speed and reliability of our Internet access services. We may also need
to spend significant amounts of cash to:

         -    fund growth, operating losses and increases in expenses;

         -    take advantage of unanticipated opportunities, such as major
              strategic alliances or other special marketing opportunities,
              acquisitions of complementary businesses or assets, or the
              development of new products; or

         -    otherwise respond to unanticipated developments or competitive
              pressures.

         If we do not have enough cash on hand, cash generated from our
operations, or cash available under our credit facility to meet these cash
requirements, we will need to seek alternative sources of financing to carry out
our growth and operating plans. We may not be able to raise needed cash on terms
acceptable to us or at all. Financings may be on terms that are dilutive or
potentially dilutive to our stockholders. If alternative sources of financing
are required, but are insufficient or unavailable, we will be required to modify
our growth and operating plans to the extent of available funding and attempt to
attain profitability in our existing operations.



                                       15
<PAGE>   18

         OUR BUSINESS DEPENDS ON OUR NETWORK INFRASTRUCTURE, INCLUDING OUR
         ABILITY TO OBTAIN SUFFICIENT NETWORK CAPACITY.

         The future success of our business will depend on the capacity,
reliability, and security of our network infrastructure, including the
third-party POPs. We will need to use substantial financial, operational, and
management resources to expand and adapt our network infrastructure to meet the
needs of an increasing number of subscribers and to accommodate the expanding
amount and type of information they wish to transfer. We may not be able to
expand or adapt our network infrastructure to meet additional demand or changing
subscriber requirements on a timely basis and at a commercially reasonable cost,
or at all.

         In the past we have experienced shortages in bandwidth capacity, both
at the level of particular POPs, which affects only subscribers attempting to
use the particular POP, and in connection with system-wide services, such as
e-mail and news group services. If we do not maintain sufficient bandwidth
capacity in our network connections, subscribers will perceive a general
slowdown of all services on the Internet. We will sometimes temporarily delay
adding new subscribers in cities experiencing significant capacity constraints
until the capacity constraints can be alleviated. This is done to protect the
service levels for current subscribers. Similar problems can occur if we are
unable to expand the capacity of our information servers for e-mail, news, and
the World Wide Web fast enough to keep up with demand from our rapidly expanding
subscriber base. If the capacity of our servers is exceeded, subscribers will
experience delays when trying to use a particular service. While our objective
is to maintain excess capacity, our failure to expand or enhance our network
infrastructure on a timely basis or to adapt it to an expanding subscriber base,
changing subscriber requirements, or evolving industry standards could
materially adversely affect our business, financial condition, and results of
operations.

         WE ARE DEPENDENT ON THIRD-PARTY NETWORK PROVIDERS.

         In a significant number of markets, we provide Internet access
exclusively through third-party POPs. Our ability to provide Internet access to
our subscribers will be limited if (1) third-parties are unable or unwilling to
provide POP access to our subscribers, (2) we are unable to secure alternative
POP arrangements upon partial or complete termination of third-party network
provider agreements or (3) there is a loss of access to third-party POPs for
other reasons. These events could also limit our ability to further expand
nationally, which could, in turn, have a material adverse effect on our
business. If we lose access to third-party POPs under our 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 POP arrangements, although there are some geographic overlaps among
our current arrangements. Moreover, while our contracts with the third-party
providers require them to provide commercially reliable service to MindSpring's
subscribers 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.

         In connection with the NETCOM acquisition, we entered into a network
services agreement with NETCOM, which has changed its name to ICG PST, Inc. We
expect to provide service to the majority of subscribers we acquired from NETCOM
under this agreement which at least for the first year of the agreement, will be
at favorable rates. However, ICG PST is just beginning to offer network services
as a third-party provider for companies like MindSpring. We cannot be sure that
this network agreement will be adequate to provide the level of service we
require for our subscribers, and there may be operating inefficiencies, network
reliability issues or technical support difficulties that are outside of our
control.

         OUR OPERATIONS AND SERVICES ARE VULNERABLE TO NATURAL DISASTERS.

         Our operations and services depend on the extent to which our computer
equipment and the computer equipment of our third-party network providers is
protected against damage from fire, earthquakes, power loss, telecommunications
failures, and similar events. A significant portion of our computer equipment,
including critical equipment dedicated to our Internet access services, is
located at a single facility in Atlanta, Georgia. Despite precautions taken by
us and our third-party network providers, over which we have no control, a
natural disaster or other unanticipated problems at our headquarters, network
hub, or a MindSpring or third-party network provider POP could cause
interruptions in the services that we provide. If disruptions occur, we may have
no means of replacing these network elements on a timely basis or at all. We do
not currently maintain fully redundant or back-



                                       16
<PAGE>   19

up Internet services or backbone facilities or other fully redundant computing
and telecommunications facilities. Any accident, incident, system failure, or
discontinuance of operations involving our network or a third-party network that
causes interruptions in our operations could have a material adverse effect on
our ability to provide Internet services to our subscribers and, in turn, on our
business, financial condition, and results of operations.

         WE ARE DEPENDENT ON TELECOMMUNICATIONS CARRIERS AND OTHER SUPPLIERS.

         We rely on local telephone companies and other companies to provide
data communications capacity via 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 service, but we cannot predict
when or to what extent this will occur or the effect of increased competition on
pricing or supply.

         We depend on a few third-party suppliers of hardware components.
Currently, we acquire some components we use to provide our networking services
from only one source, including modems and terminal servers manufactured by
3Com(R) Corporation and high-performance routers manufactured by Cisco Systems,
Inc. The expansion of our network infrastructure and the expansion of Internet
services in general is placing, and will continue to place, a significant demand
on our suppliers, some of which have limited resources and production capacity.
From time to time, we have experienced delayed delivery from suppliers of new
telephone lines, modems, terminal servers, and other equipment. If delays of
this nature are severe, all incoming modem lines may become full during peak
times, resulting in busy signals for subscribers who are trying to connect to
MindSpring. If our suppliers cannot adjust to meet increasing demand, the higher
demand levels may prevent them from continuing to supply components and products
in the quantities, at the quality levels and at the times we require, or at all.
If we are unable to develop alternative sources of supply, if required, we could
experience delays and increased costs in expanding our network infrastructure.

         Our suppliers and telecommunications carriers also sell or lease
products and services to our competitors and may be, or in the future may
become, competitors themselves. Our suppliers and telecommunications carriers
may enter into exclusive arrangements with our competitors or stop selling or
leasing their products or services to us at commercially reasonable prices, or
at all.

         OUR NETWORK IS VULNERABLE TO SECURITY BREACHES AND INAPPROPRIATE USE BY
         INTERNET USERS WHICH COULD DISRUPT OUR SERVICE.

         The future success of our business will depend on the security of our
network and, in part, on the security of the network infrastructures of our
third-party providers, over which we have no control. Despite the implementation
of security measures, our infrastructure and the infrastructures of our network
providers are vulnerable to computer viruses or similar disruptive problems
caused by our or their subscribers or other Internet users. Computer viruses or
problems caused by third parties, such as the sending of excessive volumes of
unsolicited bulk e-mail or "spam," could lead to interruptions, delays, or
cessation in service to our subscribers. Third parties could also potentially
jeopardize the security of confidential information stored in our computer
systems or our subscribers' computer systems by their inappropriate use of the
Internet, which could cause losses to us or our subscribers or deter persons
from subscribing to our services. Inappropriate use of the Internet includes
attempting to gain unauthorized access to information or systems, commonly known
as "cracking" or "hacking." Although we intend to continue to implement security
measures to prevent this, "hackers" have circumvented security measures in the
past, and others may be able to circumvent our security measures or the security
measures of our third-party network providers in the future.

         To alleviate problems caused by computer viruses or other inappropriate
uses or security breaches, we may have to interrupt, delay, or cease service to
our subscribers, which could have a material adverse effect on our business,
financial condition, and results of operations. In addition, we expect that our
subscribers will increasingly use the Internet for commercial transactions in
the future. Any network malfunction or security breach could cause these
transactions to be delayed, not completed at all, or completed with compromised
security. Subscribers or 




                                       17
<PAGE>   20

others may assert claims of liability against us as a result of any failure by
us to prevent these network malfunctions and security breaches. Until more
comprehensive security technologies are developed, the security and privacy
concerns of existing and potential subscribers may inhibit the growth of the
Internet service industry in general and our subscriber base and revenue in
particular.

         THE INTERNET ACCESS AND WEB HOSTING MARKETS ARE VERY COMPETITIVE.

         The markets for the provision of Internet access and Web hosting
services to individuals and small businesses are extremely competitive and
highly fragmented. There are no substantial barriers to entry, and we expect
that competition will continue to intensify. We may not be able to compete
successfully against current or future competitors, many of whom may have
financial resources greater than ours. Increased competition could cause us to
increase our selling and marketing expenses and related subscriber acquisition
costs and could also result in increased subscriber attrition. We may not be
able to offset the effects of these increased costs through an increase in the
number of our subscribers or higher revenue from enhanced services and we may
not have the resources to continue to compete successfully. These developments
could adversely affect our business, financial condition and results of
operations.

         Competitive Factors. We believe that the primary competitive factors
determining success in the Internet access and Web hosting markets are a
reputation for reliability and service, effective customer support, pricing,
easy-to-use software, and geographic coverage. Other important factors include
the timing of introductions of new products and services and industry and
general economic trends. Our current and prospective competitors include many
large companies that have substantially greater market presence and financial,
technical, marketing, and other resources. In addition, every local market that
we have entered or intend to enter is served by multiple local ISPs.

         Our Competitors. We currently compete or expect to compete with the
     following types of companies:

         -    established on-line commercial information service providers,
              such as AOL;

         -    national long-distance carriers, such as AT&T Corp. and MCI
              WorldCom, Inc.;

         -    national commercial ISPs, such as EarthLink Network, Inc.;

         -    computer hardware and software and other technology companies,
              such as IBM Corp. and Microsoft Corporation;

         -    numerous regional and local commercial ISPs which vary widely in
              quality, service offerings, and pricing;

         -    national and regional Web hosting companies that focus primarily
              on providing Web hosting services;

         -    cable operators and on-line cable services;

         -    local telephone companies and regional Bell operating companies;
              and

         -    nonprofit or educational ISPs.

         We believe that new competitors, including large computer hardware and
software, media, and telecommunications companies, will continue to enter the
Internet access and Web hosting markets. As consumer awareness of the Internet
grows, existing competitors are likely to further increase their emphasis on
their Internet access and Web hosting services, resulting in even greater
competition for us. In addition, telecommunications companies may be able to
offer customers reduced communications costs in connection with these services,
reducing the overall cost of their Internet access and Web hosting solutions and
significantly increasing pricing pressures on us. The ability of our competitors
to acquire other ISPs, to enter into strategic alliances or joint ventures or to
bundle other services and products with Internet access or Web hosting could
also put us at a significant competitive disadvantage.

         Broadband Technologies. We also face competition from companies that
provide broadband connections to consumers' homes, 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 



                                       18
<PAGE>   21

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.

         The companies that own these broadband networks could prevent us from
delivering Internet access through the wire and cable connections that they own.
Cable television companies are not currently required to allow ISPs to access
their broadband facilities and the availability and terms of ISP access to
broadband local telephone company networks are under regulatory review. Our
ability to compete with telephone and cable television companies that are able
to support broadband transmission, and to provide better Internet services and
products may depend on future regulation to guarantee open access to the
broadband networks. However, in January 1999, the FCC declined to take any
action to mandate or otherwise regulate access by ISPs to broadband cable
facilities at this time. It is unclear whether and to what extent local and
state regulatory agencies will take any initiatives to implement this type of
regulation, and whether they will be successful in establishing their authority
to do so. Similarly, the FCC is considering proposals that could limit the right
of ISPs to connect with their customers over broadband local telephone lines. In
addition to competing directly in the ISP market, both cable and telephone
facilities operators are also aligning themselves with certain ISPs who would
receive preferential or exclusive use of broadband local connections to end
users. If high-speed, broadband facilities increasingly became the preferred
mode by which customers access the Internet 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.

         No International Operations. We do not currently compete
internationally, except that we have a small number of Canadian subscribers
obtained in the Spry acquisition. If the ability to provide Internet access
internationally becomes a competitive advantage in the Internet access industry,
we may be at a competitive disadvantage relative to our competitors.

         WE MAY NOT BE SUCCESSFUL IN PROTECTING OUR PROPRIETARY RIGHTS OR
         AVOIDING CLAIMS THAT WE INFRINGE THE PROPRIETARY RIGHTS OF OTHERS.

         Our success depends in part upon our software and related
documentation. 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 MindSpring's front-end software product for
subscribers. 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
might also face third party claims as a result of our acquisition of software,
trademarks and other proprietary technology from Spry and NETCOM.

         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 rights, it could materially adversely affect our business, financial
condition and results of operations.

         OUR SUCCESS DEPENDS UPON OUR ABILITY TO ATTRACT AND RETAIN KEY
         PERSONNEL.

         Our success depends upon the continued efforts of our senior management
team and our technical, marketing, and sales personnel. These employees may
voluntarily terminate their employment with us at any time. Our success also
depends on our ability to attract and retain additional highly qualified
management, technical, marketing, and sales personnel. The process of hiring
employees with the combination of skills and attributes required to carry out
our strategy can be extremely competitive and time-consuming. We may not be able
to 



                                       19
<PAGE>   22

successfully retain or integrate existing personnel or identify and hire
additional personnel. If we lose the services of key personnel or are unable to
attract additional qualified personnel, our business, financial condition and
results of operations could be materially and adversely affected.

         ITC HOLDING COMPANY, INC., ONE OF OUR PRINCIPAL STOCKHOLDERS, AND OUR
         MANAGEMENT CAN EXERCISE SIGNIFICANT INFLUENCE OVER MINDSPRING.

         ITC Holding Company, Inc. indirectly owns approximately 18.5% of our
common stock as of February 28, 1999. MindSpring's executive officers and
directors own an aggregate of approximately 9.6% of our common stock as of the
same date. As a result, if ITC Holding and management act together, they would
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. The common stock of MindSpring owned by ITC Holding is pledged to
ITC Holding's lenders in connection with a credit facility. If ITC Holding's
subsidiaries default under the credit facility, ITC Holding could lose ownership
of all of its stock in MindSpring and someone unknown to us would become a
significant stockholder of MindSpring.

         SOME OF OUR DIRECTORS HAVE CONFLICTS OF INTEREST INVOLVING ITC HOLDING.

         ITC Holding, as a significant stockholder of MindSpring, and Campbell
B. Lanier, III, William H. Scott, III, and O. Gene Gabbard, who are directors of
MindSpring and directors, stockholders, and, in the case of Messrs. Lanier and
Scott, officers of ITC Holding, are in positions involving the possibility of
conflicts of interest with respect to transactions concerning MindSpring. Some
decisions concerning our operations or financial structure may present conflicts
of interest between us and ITC Holding and/or its affiliates. For example, if we
are required to raise additional capital from public or private sources to
finance our anticipated growth and contemplated capital expenditures, our
interests might conflict with those of ITC Holding and/or its affiliates with
respect to the particular type of financing sought. In addition, we may have an
interest in pursuing acquisitions, divestitures, financings, or other
transactions that, in our judgment, could be beneficial to us, even though the
transactions might conflict with the interests of ITC Holding and/or its
affiliates. If these conflicts do occur, ITC Holding and its affiliates may
exercise their influence in their own best interests.

         We currently engage and expect in the future to engage in transactions
with ITC Holding and/or its affiliates. In addition, we provide Internet access
to various companies controlled by ITC Holding, although the revenue we derive
from these sources is not substantial. We have a policy that requires any
material transaction with our officers, directors, or principal stockholders, or
their affiliates, to be on terms no less favorable to MindSpring than we
reasonably could have obtained in arm's-length transactions with independent
third parties. We believe that each current transaction in which we are engaged
with an affiliate complies with this policy.

         THE ABILITY OF OUR STOCKHOLDERS TO EFFECT CHANGES IN CONTROL OF
         MINDSPRING IS LIMITED.

         There are provisions in our Amended and Restated Certificate of
Incorporation, as amended, our Amended and Restated Bylaws, and the Delaware
General Corporation Law that could delay or impede the removal of incumbent
directors and could make more difficult a merger, tender offer, or proxy contest
involving MindSpring or could discourage a third-party from attempting to
acquire control of MindSpring, even if these events would be beneficial to the
interests of the stockholders. In particular, our board of directors could delay
a change in control of MindSpring. In addition, our Amended and Restated
Certificate of Incorporation authorizes the board of directors to provide for
the issuance of shares of preferred stock of MindSpring, 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. We have no current plans to issue any shares of
preferred stock. We are also governed by Section 203 of the Delaware Corporation
Law. 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 MindSpring.



                                       20
<PAGE>   23

         WE MAY BECOME REGULATED BY THE FEDERAL COMMUNICATIONS COMMISSION OR
         OTHER GOVERNMENT AGENCIES.

         As an Internet service provider, we are not currently directly
regulated by the Federal Communications Commission or any other agency, other
than regulations applicable to businesses generally. In a report to Congress
adopted on April 10, 1998, the FCC reaffirmed that Internet service providers
should be classified as unregulated "information service providers" rather than
regulated "telecommunications providers" under the terms of the
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 FCC 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 FCC
will modify its current policies against regulation of ISPs.

         MindSpring 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 ISPs to offer flat-rate, non-usage
sensitive pricing, and has been an important reason for the growth in Internet
use. Recently, the FCC ruled that connections linking end users to their ISPs
are jurisdictionally interstate rather than local, but the FCC 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. MindSpring 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, or the universal support obligation discussed above, should apply to
Internet-based telephone services that substitute for conventional telephony. We
have no current plans to install gateway equipment and other telephony, and so
we do not believe we would be directly affected by these developments were they
to occur.

         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 us relating to information carried on, stored on, or disseminated
through our 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 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.

         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.



                                       21
<PAGE>   24

         FAILURE TO ACHIEVE YEAR 2000 COMPLIANCE MAY HAVE ADVERSE EFFECTS ON
         MINDSPRING.

         Most of the world's computer hardware and software have historically
used only two digits to identify the year in a date, often meaning that the
computer will fail to distinguish dates in the 21st century from dates in the
20th century. As a result, various problems may arise from the improper
processing of dates and date-sensitive calculations by computers and other
machinery as the Year 2000 is approached and reached.

         Our failure, or the failure of third parties on which we rely, to
adequately address Year 2000 readiness issues could result in an interruption,
or a failure, of some normal business activities or operations. Presently, we
believe that the primary risks that we face with regard to the Year 2000 are
those arising from third party services or products.

         In particular, MindSpring depends heavily on a significant number of
third party vendors to provide both network services and equipment. A
significant Year 2000-related disruption of these network services or equipment
could cause our customers to consider seeking alternate providers or cause an
unmanageable burden on customer service and technical support. This in turn
could materially and adversely affect MindSpring's results of operations,
liquidity and financial condition.

         Furthermore, our business depends on the continued operation of, and
widespread access to, the Internet. To the extent that the normal operation of
the Internet is disrupted by the Year 2000 issue, or if a large portion of our
customers are unable to access the Internet due to Year-2000 related issues in
connection with their own systems, MindSpring's results of operations, liquidity
and financial condition could be materially and adversely affected.

         We also face Year 2000 risks related to the acquisitions we make. If we
fail to identify and address Year 2000 issues in connection with our
acquisitions, our results of operations, liquidity and financial condition could
be materially and adversely affected.

         We have established a Year 2000 readiness program to coordinate
appropriate activity to be taken to address the Year 2000 issue. As of December
31, 1998, we had incurred approximately $75,000 in connection with the
implementation of the program. We expect to incur an additional $250,000 to
$300,000 of expenses to implement the remainder of the Year 2000 readiness
program. These estimates do not include additional costs which may be incurred
in connection with expanding the program to include the systems and products
acquired in the Spry and NETCOM transactions. These are our best estimates, and
we do not believe that the total costs will have a material affect on our
business. However, if the actual costs resulting from implementation of the Year
2000 readiness program significantly exceed our estimates, they may have a
material adverse effect on our results of operations, liquidity and financial
condition.

         OUR CREDIT FACILITY CONTAINS RESTRICTIVE COVENANTS.

         Our credit facility contains restrictions on MindSpring and any of our
future subsidiaries that affect, and in some cases prohibit or significantly
limit, our ability and the ability of our future subsidiaries, if any, to:

         -     incur additional indebtedness;

         -     create liens;

         -     make investments;

         -     declare and pay cash dividends;

         -     issue some types of convertible and redeemable stock; and

         -     sell assets.

         Our credit facility also requires us to maintain specified financial
ratios and satisfy financial condition tests. Our ability to meet those
financial ratios and tests can be affected by events beyond our control. We can
offer no assurance that we will meet those tests. In addition, these restrictive
covenants may adversely affect our ability to 



                                       22
<PAGE>   25

finance our future operations or capital needs, or to engage in other business
activities that may be in our interest. A breach of any of these covenants could
result in a default under the credit facility. Upon the occurrence of an event
of default under the credit facility, our lenders could elect to declare all
amounts outstanding under the credit facility, together with any accrued
interest, to be immediately due and payable. If we were unable to repay those
amounts, our lenders could proceed against the collateral granted to them to
secure that indebtedness. Substantially all of our assets are pledged as
collateral under the credit facility. If the credit facility were to be
accelerated, we can offer no assurance that our assets would be sufficient to
repay in full that indebtedness. An event of default or acceleration of the
credit facility could have a material adverse effect on our business, financial
condition and results of operations.

         OUR STOCK PRICE WILL FLUCTUATE, AND COULD FLUCTUATE SIGNIFICANTLY.

         Since our common stock has been publicly traded, the market price of
our common stock has fluctuated over a wide range and may continue to do so in
the future. Significant fluctuations in the market price of our common stock may
occur in response to various factors and events, including, among other things:

         -     the depth and liquidity of the trading market for our common
               stock;

         -     quarterly variations in actual or anticipated operating results;

         -     growth rates;

         -     changes in estimates by analysts;

         -     market conditions in the industry, including demand for Internet
               access;

         -     announcements by competitors;

         -     regulatory actions; and

         -     general economic conditions.

         In addition, the stock market has from time to time experienced
significant price and volume fluctuations, which have particularly affected the
market prices of the stocks of high-technology companies and which may be
unrelated to the operating performance of particular companies. Furthermore, our
operating results and prospects from time to time may be below the expectations
of public market analysts and investors. The occurrence of any of these events
could result in a material decline in the price of our common stock.

         WE DO NOT ANTICIPATE THAT WE WILL PAY CASH DIVIDENDS.

         We have never declared or paid any cash dividends on our capital stock
and do not anticipate paying cash dividends in the foreseeable future. In
addition, our credit facility contains limits on our ability to declare and pay
cash dividends.

EMPLOYEES

         As of February 28, 1999, MindSpring had approximately 1,600 employees,
of which approximately 300 were added in the NETCOM acquisition. None of
MindSpring's current employees is represented by a labor organization, and we
consider our relations with our employees to be good.

NON-DIRECTOR EXECUTIVE OFFICERS OF MINDSPRING

    The following is a list of the executive officers of MindSpring who are not
also directors of MindSpring, together with biographical summaries of their
experience. Executive officers serve until they resign or are removed, or are
otherwise disqualified to serve, or until their successors are elected and
qualified. The ages of the persons set forth below are as of March 1, 1999.

         Juliet M. Reising, age 48, has served as Executive Vice President,
Chief Financial Officer and Treasurer of MindSpring since February 1999. From
September 1998 to February 1999, Ms. Reising served as Chief Financial 



                                       23
<PAGE>   26

Officer with AvData Systems, Inc. ("AvData"), a provider of network management
services. From September 1997 to January 1998, Ms. Reising served as Vice
President and Chief Financial Officer of Composit Communications International,
a start-up call center software developer. From August 1995 to August 1997, she
served as Vice President and Chief Financial Officer of InterServ Services
Corp., a marketing services provider. From September 1994 to August 1995, she
served as Senior Vice President and Chief Financial Officer of Media Marketing
Services, a promotional travel incentive company. From July 1993 to September
1994, she was a financial consultant and from June 1992 to June 1993, she served
as Executive Vice President and Chief Financial Officer of Coin, Inc., a
computer systems developer. Ms. Reising started her career as a CPA with Ernst &
Young and received a BBA in Accounting from the University of Georgia.

         Samuel R. DeSimone, Jr., age 39, has served as the Executive Vice
President, General Counsel and Secretary of 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. Mr.
DeSimone received a BA from, and was a Phi Beta Kappa graduate of, Amherst
College and received a JD from New York University School of Law.

         Lance Weatherby, age 39, has served as MindSpring's Executive Vice
President of Sales and Marketing since April 1998. Mr. Weatherby served as
MindSpring's Vice President of Business Development from September 1996 to April
1998, MindSpring's Acting Vice President of Business Development from August
1996 to September 1996, and a Market Development Manager from September 1995 to
August 1996. Mr. Weatherby held a variety of sales, sales management and
marketing positions with Mobil from October 1990 to September 1995, including
District Sales Manager from December 1992 to September 1995. Mr. Weatherby
received a BBA in Marketing from Eastern Kentucky University and an MBA from
Indiana University.

         Gregory J. Stromberg, age 46, has served as MindSpring's Executive Vice
President and has managed the NETCOM customer integration into MindSpring since
January 1999. Mr. Stromberg served as MindSpring's 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. Mr. Stromberg received a BS in Business Management and an MBA from the
University of Utah.

ITEM 2.         PROPERTIES

         Our corporate headquarters are located in Atlanta, Georgia. The leases
for this space expire on March 31, 2001 and July 14, 2002. We also lease
additional office space in the vicinity of our Atlanta headquarters in order to
meet MindSpring's existing and anticipated space requirements. The lease for
this additional office space expires on March 31, 2002. We believe that these
facilities will provide sufficient capacity for MindSpring's operations for the
foreseeable future. Equipment for POPs other than the Atlanta POP site is
generally co-located with and in space leased from other companies operating in
the area of the particular POP.

         We also maintain call center and/or network operations facilities in
the following locations:

         -        Harrisburg, Pennsylvania -- The lease for this facility
                  expires on December 15, 1999. We have the option to extend
                  this lease for one additional year.

         -        Phoenix, Arizona -- The lease for this facility expires on
                  October 31, 2004. We have the option to extend this lease for
                  two successive five-year terms.

         -        Seattle, Washington -- The lease for this facility expires on
                  February 29, 2000. We have the option to extend this lease for
                  one additional year.


                                       24
<PAGE>   27


         -        Bellevue, Washington -- The lease for this facility expires
                  on December 31, 2000. We have the option to extend this lease
                  for one five-year term.

         -        Dallas, Texas -- The lease for this facility expires on April
                  30, 2003. We have the option to extend this lease for two
                  successive three-year terms.

         -        San Jose, California -- The lease for this facility expires
                  on October 31, 1999. We have the option to extend this lease
                  for two successive three-year terms.

ITEM 3.         LEGAL PROCEEDINGS

    We are not currently involved in any pending legal proceedings that are
likely to have a material impact on MindSpring.

ITEM 4.         SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.




                                       25
<PAGE>   28




                                     PART II

ITEM 5.         MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER 
                MATTERS

         Our common stock is traded on the Nasdaq National Market under the
symbol "MSPG." The following table shows for the periods indicated the high and
low sales prices per share of the common stock as reported by the Nasdaq
National Market (as adjusted for out 3-for-1 stock split effected on July 24,
1998).

<TABLE>
<CAPTION>
                                   Fiscal Year Ended December 31, 1998       High       Low
                                                                             ----       ---
<S>                                                                        <C>       <C>  
                                   First Quarter                           $23.00     $9.20
                                   Second Quarter                           34.75     16.17
                                   Third Quarter                            52.38     25.31
                                   Fourth Quarter                           79.00     23.13

<CAPTION>
                                   Fiscal Year Ended December 31, 1997       High       Low
                                                                             ----       ---
<S>                                                                         <C>       <C>  
                                   First Quarter                            $3.42     $1.92
                                   Second Quarter                            3.79      2.21
                                   Third Quarter                             8.21      3.54
                                   Fourth Quarter                           11.54      6.08

</TABLE>

         On March 25, 1999, the last reported sale price of the common stock on
the Nasdaq National Market was $92.00 per share. At March 25, 1999, there were
741 holders of record of the common stock.

         We have never declared or paid any cash dividends on our capital stock
and do not anticipate paying cash dividends on our common stock in the
foreseeable future. The current policy of our board of directors is to retain
earnings to finance the expansion of the our operations. Our board of directors
will determine future declaration and payment of dividends, if any, in light of
the then-current conditions, including our earnings, operations, capital
requirements, financial condition, restrictions in financing agreements, and
other factors they deem relevant. In addition, our ability to pay dividends is
limited by the terms of our credit facility.




                                       26
<PAGE>   29




ITEM 6.         SELECTED FINANCIAL DATA

    The following table contains selected financial and operating data for
MindSpring. The selected historical statements of operations data for the period
from February 24, 1994, MindSpring's inception, to December 31, 1994 and the
years ended December 31, 1995, 1996, 1997 and 1998 and the selected historical
balance sheet data as of December 31, 1994, 1995, 1996, 1997 and 1998 have been
derived from financial statements of MindSpring, which have been audited by
Arthur Andersen LLP, independent public accountants, whose report with respect
to these financial statements is included elsewhere in this Form 10-K. The
inception period referred to in the table below is the period from February 24,
1994, MindSpring's inception, to December 31, 1994.

    The information presented in the table excludes the effects of the NETCOM
acquisition and borrowings under our secured credit facility, which occurred on
February 17, 1999. See note 10 to MindSpring's audited Financial Statements for
the fiscal year ended December 31, 1998 included in this Form 10-K for certain
pro forma and other information concerning these and other events. Also see our
Current Report on Form 8-K filed with the Securities and Exchange Commission on
February 25, 1999 for more detailed pro forma information.

    You should read the following selected historical financial and operating
data with the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations," MindSpring's financial
statements and notes thereto and other financial and operating data included
elsewhere in this Form 10-K.

    The total debt information included in the balance sheet data presented
below contains the current portion of related indebtedness and the stockholders'
equity information included in the balance sheet data presented below excludes
approximately 2,123,000 shares of common stock reserved for issuance upon
exercise of stock options granted as of December 31, 1998.

<TABLE>
<CAPTION>

                                                                             FISCAL YEAR ENDED DECEMBER 31,
                                                                  -------------------------------------------------
                                                       INCEPTION
                                                        PERIOD       1995          1996         1997        1998
                                                                    (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                     <C>       <C>          <C>          <C>         <C>      
    STATEMENT OF OPERATIONS DATA:
        Revenues:
            Access..................................    $   70    $  1,455     $  13,420    $  40,925   $  95,852
            Business services.......................        --         260         2,286        7,711      14,735
            Subscribers start-up fees...............        33         512         2,426        3,920       4,086
                                                        ------    --------     ---------    ---------   ---------
                Total revenues......................       103       2,227        18,132       52,556     114,673
        Cost and expenses:
            Cost of revenues -- recurring...........        37         627         6,332       15,203      31,724
            Cost of subscriber start-up fees........        15         339         1,876        1,619       2,612
            Selling, general and administrative.....       121       2,230        14,161       30,784      57,324
            Depreciation and amortization...........         5         265         3,285        8,695      15,227
                                                        ------    --------     ---------    ---------   ---------
                Total operating expenses............       178       3,461        25,654       56,301     106,887
                                                        ------    --------     ---------    ---------   ---------
        Operating gain (loss).......................       (75)     (1,234)       (7,522)      (3,745)      7,786
        Interest income (expense), net..............        --        (725)          (90)        (338)      1,214
                                                        ------    --------     ---------    ---------   ---------
        Income (loss) before taxes..................       (75)     (1,959)       (7,612)      (4,083)      9,000
        Income tax provision........................        --          --            --           --       1,544
                                                        ------    --------     ---------    ---------   ---------
        Net income (loss)...........................    $  (75)   $ (1,959)    $  (7,612)   $  (4,083)  $  10,544
                                                        ======    ========     =========    =========   =========
    PER SHARE DATA:
        Basic earnings (loss) per share.............              $  (0.23)    $   (0.48)   $   (0.18)  $    0.43
        Diluted earnings (loss) per share...........              $  (0.20)    $   (0.48)   $   (0.18)  $    0.41
    WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
        Basic.......................................                 8,664        15,758       22,542      24,611
        Diluted.....................................                 9,930        15,758       22,542      25,431
    OTHER OPERATING DATA:
        Approximate number of subscribers at end of
          period....................................     1,000      12,000       122,000      278,000     693,000
        Approximate number of employees at end of
          period....................................         8          95           321          502         977
        EBITDA (1)..................................    $  (70)   $   (969)    $  (4,237)   $   4,950   $  23,013
        EBITDA margin (1)...........................       (68)%       (44)%         (23)%          9%         20%
     CASH FLOW DATA:
        Operations..................................       (33)        (70)       (2,005)      11,354      35,501
        Investing...................................      (127)     (3,724)      (21,336)      (9,002)    (47,647)
        Financing...................................       745       3,634        32,569       (2,619)    170,503
</TABLE>



                                       27
<PAGE>   30

<TABLE>
<CAPTION>

                                                                               DECEMBER 31,
                                                      ---------------------------------------------------------------
                                                      INCEPTION
                                                        PERIOD       1995        1996         1997         1998
<S>                                                     <C>        <C>         <C>          <C>          <C>     
     BALANCE SHEET DATA:
         Cash and cash equivalents....................  $ 585      $   425     $  9,653     $ 9,386      $167,743
         Working capital..............................    547       (3,100)       5,027      (5,352)      137,106
         Total assets.................................    722        4,845       35,232      44,286       247,599
         Total debt, including current maturities.....     --        2,500        4,005       9,740         5,119
         Total stockholders' equity...................    670          482       25,407      21,413       207,081
</TABLE>

------------------------

(1) EBITDA represents operating gain (loss) plus depreciation and amortization.
    EBITDA is provided 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 income, net income or cash flows from operating activities for
    purposes of analyzing MindSpring's operating performance, financial position
    and cash flows. EBITDA is not necessarily comparable with similarly titled
    measures for other companies.




                                       28
<PAGE>   31







ITEM 7.         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
                RESULTS OF OPERATIONS

         All common stock numbers and per share amounts in this report give
effect to a 3-for-1 stock split effected by MindSpring in June 1998.

    OVERVIEW

         MindSpring is a leading national Internet service provider, or ISP. We
focus on serving individuals and small businesses. Our subscribers use their
MindSpring accounts to, among other things, communicate, retrieve information,
and publish information on the Internet. Our primary service offerings are
dial-up Internet access and business services, which we offer in various price
and usage plans designed to meet the needs of our subscribers. Our business
services include Web hosting, which entails maintaining a customer's Web site;
high-speed, dedicated Internet access; Web page design; domain name registration
and customer Web server co-location. Web hosting, our principal business
service, complements our Internet access business and is one of the fastest
growing segments of the Internet marketplace.

         We offer our subscribers:

         -   user-friendly and easy to install software, containing a complete
             set of the most popular Internet applications including electronic
             mail, World Wide Web access, Network News, File Transfer Protocol
             and Internet Relay Chat;

         -   highly responsive customer service, and technical support which is
             available 24 hours a day, seven days a week; and

         -   a reliable nationwide network that enables subscribers in the 48
             contiguous United States and the District of Columbia to access the
             Internet via a local telephone call.

         Our nationwide network consists of MindSpring-owned points of presence
"POPs" and POPs that are owned by other companies with which we have service
agreements. Through these service agreements, we have the flexibility to offer
Internet access in a particular market through a MindSpring-owned POP, a
third-party network provider's POP or a combination of the two. As part of our
efforts to control quality and cost, we typically seek to increase the number of
MindSpring-owned POPs in markets where we have higher numbers of subscribers.

         MindSpring has grown rapidly by:

         -    providing superior customer service and technical support;

         -    expanding marketing and distribution activities;

         -    making strategic acquisitions; and

         -    creating additional revenue streams by offering value-added
              services such as Web hosting that build on our basic operating
              capabilities and services.

         We have increased our subscriber base from approximately 12,000
subscribers at December 31, 1995 to approximately 693,000 subscribers at
December 31, 1998, including over 21,000 Web hosting customers. In February
1999, we completed the NETCOM acquisition, which increased our subscriber base
to approximately 1.1 million subscribers, including approximately 45,000 Web
hosting subscribers. This acquisition is described below.

         In addition, we have rapidly increased revenues and have achieved
profitability ahead of other national ISPs. We believe that providing superior
service and support to our subscribers has contributed to our achieving
significant market penetration in a number of our target markets. We also
believe that high geographic




                                       29
<PAGE>   32

concentrations of satisfied subscribers in a particular market reduces the costs
of adding new subscribers in that market relative to revenues. This tends to
result in higher margins and greater profitability in these markets.

         From our inception in February 1994 through 1997, we experienced annual
net operating losses as a result of efforts to build our network infrastructure
and internal staffing, develop our systems, and expand into new markets. During
1997, we generated positive cash flows from operations, with EBITDA of
approximately $5 million. We had our first year of profitability in 1998. For
the year ended December 31, 1998, we had revenues of approximately $115 million,
EBITDA of approximately $23 million, net income of approximately $8.8 million
and earnings per share of $0.35, in each case excluding a one-time tax benefit
of approximately $1.7 million. Including the one-time tax benefit, our net
income for 1998 was approximately $10.5 million and our earnings per share were
$0.41.

         We expect to continue to focus on increasing our subscriber base.
Increases in our subscriber base will cause our revenues to increase, but will
also cause our costs of revenue, selling, general and administrative expenses,
capital expenditures, and depreciation and amortization to increase. Our
purchases of subscriber bases such as the Spry and NETCOM acquisitions cause an
immediate increase in our amortization expense. We generally amortize subscriber
acquisitions over a three-year period in approximately equal amounts each year.
As more fully described below, we anticipate that, while we will continue to
generate positive cash flows from operations and EBITDA during 1999 and 2000, we
expect to incur net losses into 2000, principally as a result of amortization
expenses related to the Spry and NETCOM acquisitions. If our assumptions are
incorrect, our business plans change and/or we undertake additional acquisitions
of subscriber bases in the near future, we could continue to incur net losses
for a longer period of time. We do not currently have any agreements to do
additional acquisitions. There can be no assurance that we will be able to
sustain growth in our subscriber base, revenues, cash flows or EBITDA. Also,
there can be no assurance that we will be able to achieve or sustain net income
in the future.

         Spry Acquisition. On September 10, 1998, we entered into an Asset
Purchase Agreement with AOL and Spry, a wholly owned subsidiary of AOL, to
purchase assets used in connection with the consumer dial-up Internet access
business operated by Spry. In that transaction, we acquired Spry's subscriber
base of approximately 130,000 individual Internet access customers in the United
States and Canada as well as various assets used in serving those customers.
These assets included a leased support facility and a leased network operations
facility in Seattle, Washington. MindSpring also acquired all rights held by
Spry to the "Sprynet" name. On October 15, 1998, we completed the Spry
acquisition and made an initial cash payment to AOL of $25 million. In March
1999, we made an additional and final payment to AOL of approximately $7
million. The total purchase price of approximately $32 million for the Spry
subscribers and assets was primarily a function of the number of acquired
subscribers who remained active with MindSpring as continuing users in good
standing after two billing cycles, measured as of December 31, 1998.

         NETCOM Acquisition. On January 5, 1999, we entered into an Asset
Purchase Agreement with NETCOM, which has changed its name to ICG PST, Inc., a
wholly owned subsidiary of ICG Communications, Inc., to purchase assets used in
connection with the United States Internet access and Web hosting business
operated by NETCOM. In that transaction, we acquired NETCOM's subscriber base of
approximately 371,000 individual Internet access accounts, 22,000 Web hosting
accounts, and 3,000 dedicated Internet access accounts in the United States. The
acquisition closed on February 17, 1999. We paid NETCOM approximately $245
million, consisting of $215 million in cash and $30 million in MindSpring common
stock (376,116 shares, at a price per share of $79.76). In addition to the
NETCOM subscriber base, MindSpring also acquired various assets used in serving
those subscribers, including leased operations facilities in San Jose,
California and Dallas, Texas and all of NETCOM's rights to the "NETCOM" name
(except in Canada, the United Kingdom and Brazil). ICG PST has retained the
network assets used to serve those subscribers. We purchase access to that
network under a network services agreement with ICG PST at rates that are
generally comparable to the costs of using MindSpring POPs. This network
agreement has a term of one year with an option for a second year on potentially
different terms to be agreed upon by the parties. During the first year under
this network agreement, we are obligated to pay at least $27 million for network
services, as long as the services provided meet specified performance levels.

         Credit Facility. On February 17, 1999, we entered into a credit
agreement with First Union National Bank and several other lenders. The credit
agreement provides for a $100 million revolving credit facility that may be
increased at our option to $200 million with the approval of First Union and the
other lenders under the credit 




                                       30
<PAGE>   33

agreement. The credit facility will mature on February 17, 2002. The credit
facility is to be used to fund working capital and for general corporate
purposes, including permitted acquisitions. On February 17, 1999, we borrowed
approximately $80 million under the credit facility to finance the NETCOM
acquisition. Our obligations under the credit facility are secured by
substantially all of MindSpring's assets. We intend to repay all amounts
outstanding under the credit facility with a portion of the net proceeds from
our recently announced offering of 2,000,000 shares of common stock that we have
undertaken concurrently with an offering of $130,000,000 principal amount of
convertible subordinated notes. These offerings are described below. If we do
not complete this common stock offering, we intend to use a portion of the
proceeds from the notes offering to repay all amounts outstanding under the
credit facility. If we are unable to negotiate amendments to the credit
facility, the credit facility will effectively terminate when we complete the
notes offering. For a more detailed description of our secured credit facility,
see our Current Report on Form 8-K filed with the Securities and Exchange
Commission on February 25, 1999.

         Anticipated Effects of the Spry and NETCOM Acquisitions. The Spry and
NETCOM acquisitions represent significant growth opportunities and challenges
for MindSpring. Both acquisitions were of large customer bases and related
assets which, as previously operated stand-alone entities, were historically
unprofitable. We expect to incur net losses into 2000, primarily as a result of
the amortization expense associated with the Spry and NETCOM acquisitions. We
expect that annual amortization expense attributable to these transactions will
be between approximately $85 million and $90 million per year for the next three
years. In addition, we face the significant challenge of integrating the
acquired customers and assets into MindSpring's operations. The integration
process is most time and resource intensive during the sixty- to ninety-day
period immediately after completion of an acquisition, and involves, among other
things:

         -    communication with and increased technical and customer support
              to acquired subscribers;

         -    network supervision, provisioning and maintenance, including of
              third-party networks;

         -    increased management time and resources related to hiring and
              integration of new employees to support acquired subscribers;

         -    integration of acquired subscribers into MindSpring's billing
              systems; and

         -    attempting to bring the cost structures associated with the
              acquired subscribers and assets into alignment with MindSpring's
              historical cost structure.

         The Spry subscribers and assets were substantially integrated into
MindSpring's operations as of December 31, 1998. Net income for the fourth
quarter of 1998 was $1.9 million, excluding a one-time tax benefit of $1.8
million, compared to approximately $4.0 million for the third quarter of 1998.
This decrease resulted primarily from $2.3 million in amortization costs during
the fourth quarter attributable to the Spry acquisition.

         The NETCOM acquisition has significantly increased MindSpring's
customer base from approximately 693,000 to approximately 1,100,000. Principally
as a result of the NETCOM acquisition, we expect that we will incur net losses
into 2000. Even though we expect to incur net losses, we expect to continue to
generate increased revenues and EBITDA as we continue to increase our subscriber
base. We believe that reducing the historical costs associated with the acquired
NETCOM subscribers to levels that approximate MindSpring's historical costs of
providing Internet access to its subscribers will contribute to our ability to
reduce net losses in the future. We expect that these cost reductions will be 
achieved in part as a function of:

         -   the ICG PST network agreement, through which MindSpring expects
             initially to provide service to the majority of the acquired NETCOM
             subscribers and which MindSpring expects will be at a lower cost
             than that reported by NETCOM; and

         -   economies of scale in selling, general and administrative costs,
             particularly in the areas of numbers of employees and salaries,
             operating leases, and marketing expenses.

         By "economies of scale" we mean that, as the number of subscribers we
serve increases, the costs and expenses per subscriber decrease. There can be no
assurance that we will achieve these anticipated cost reductions in a timely
manner or at all. If the cost reductions are lower than anticipated, other costs
increase, and/or revenues 



                                       31
<PAGE>   34

decline, our EBITDA and net income would also decline, which would have a
material adverse effect on our business, results of operations and financial
condition, including our liquidity and capital resources.

         Recently Announced Offerings. We recently filed a universal shelf
registration statement with the Securities and Exchange Commission for the
public offering from time to time of up to $800 million of debt and equity
securities. This registration statement has not yet been declared effective. We
have also filed prospectus supplements under the universal shelf registration
statement for offerings of up to 2,000,000 shares of common stock (plus an
additional 300,000 shares to cover over-allotments, if any) and up to
$130,000,000 aggregate principal amount of convertible subordinated notes (plus
an additional $19,500,000 aggregate principal amount to cover over-allotments,
if any), all of which will be issued by MindSpring. These offerings of common
stock and convertible subordinated notes are currently expected to be completed
in April 1999. There can be no assurance, however, that these offerings will be
completed at that time or at all. The specific terms of other securities that
may be issued under the universal shelf registration statement will be
determined at the time of each issuance.

         Revenues. MindSpring derives revenue primarily from monthly
subscriptions from individuals for dial-up access to the Internet. Monthly
subscription fees vary by billing plan. Under MindSpring's current pricing
plans, customers have a choice of two "flat rate" plans (The Works and Unlimited
Access) and two "usage-sensitive" plans (Standard and Light). MindSpring also
has a prepayment plan available to all dial-up subscribers which allows
subscribers to prepay their access fees for either one or two years at a
discounted rate. For the years ended December 31, 1998 and 1997, the average
monthly recurring revenue per dial-up subscriber was approximately $20. Average
monthly recurring revenue is calculated by dividing monthly recurring revenue
plus usage charges for non-"flat rate" subscribers by the total number of
subscribers. Start-up fees for new subscribers vary depending upon the
promotional method by which the subscriber is acquired, ranging from $0 up to a
maximum of $25. Aggregate subscriber start-up fees are sufficient to cover the
aggregate costs of direct materials, mailing expenses, and licensing fees
associated with new subscribers. A majority of MindSpring's individual
subscribers pay their MindSpring fees automatically by pre-authorized monthly
charges to the subscriber's credit card.

         In addition, MindSpring earns revenue by providing Web-hosting,
full-time dedicated access connections to the Internet, other value-added
services such as Web page design, domain name registration and Web-server
co-location. MindSpring's Web-hosting services allow a business or individual to
post information on the World Wide Web so that the information is available to
anyone who has access to the Internet. MindSpring currently offers three price
plans for Web hosting subscribers ranging from $19.95 to $99.95 per month.
MindSpring had approximately 21,000 Web-hosting subscribers as of December 31,
1998, not including approximately 22,000 Web-hosting subscribers acquired from
NETCOM. Through our domain registration services, MindSpring offers subscribers
the ability to personalize electronic mail addresses and URLs (Uniform Resource
Locators). The services described in this paragraph have been classified as
business services in MindSpring's statements of operations and in the "Results
of Operations" table shown below.

         Costs. MindSpring's costs include (1) costs of revenue that are
primarily related to the number of subscribers; (2) selling, general and
administrative expenses that are associated more generally with operations; and
(3) depreciation and amortization, which are related to the number of
MindSpring-owned POPs and servers, and the deferred costs associated with
acquired customer bases.

         Costs of revenue that are primarily related to the number of
subscribers include both recurring costs and subscriber start-up expenses.
Recurring costs of revenue consist primarily of the costs of telecommunications
facilities necessary to provide service to subscribers. Telecommunications
facilities costs include (1) the costs of providing local telephone lines into
each MindSpring-owned POP; (2) costs related to the use of third-party networks;
and (3) costs associated with leased lines connecting each MindSpring-owned POP
and third-party network to MindSpring's hub and connecting MindSpring's hub to
the Internet backbone. Start-up expenses for each subscriber include primarily
the cost of diskettes and other product media, manuals, and packaging and
delivery costs associated with the materials provided to new subscribers.
MindSpring does not defer any subscriber start-up expenses.

         Selling, general and administrative costs are incurred in the areas of
sales and marketing, customer service and support, network operations and
maintenance, engineering, accounting and administration. Selling, general and
administrative costs will increase over time as MindSpring's scope of operations
increases. We may determine to 




                                       32
<PAGE>   35

significantly increase the level of marketing activity to increase the rate of
subscription growth. A significant increase in marketing activity would have a
short-term negative impact on net income. We believe that these increased costs
would be more than offset by anticipated increases in revenue attributable to
overall subscriber growth. However, there can be no assurance that we will be
able build, increase or maintain our subscriber base in a given market to the
extent necessary to generate sufficient revenues to offset these marketing
expenses. MindSpring does not defer any sales or marketing expenses.

         As MindSpring expands into new markets, both costs of revenue and
selling, general and administrative expenses will increase. To the extent
MindSpring opens MindSpring POPs in new markets, these costs and expenses may
also increase as a percentage of revenue in the short-term for the period
immediately after a new MindSpring POP is opened. Many of the fixed costs of
providing service in a new market through a new MindSpring POP are incurred
before significant revenue can be expected from that market. However, to the
extent that we expand into new markets by using third-party POPs instead of
opening our own POPs, MindSpring's incremental monthly recurring costs will
consist primarily of the fees to be paid to third parties under network services
agreements. In general, the margins on those subscribers will initially be
higher than if we had opened our own POP in new markets. When a market matures,
if the market is served through purchased, third-party network services rather
than MindSpring-owned POPs, costs of revenue as a percentage of revenue will
tend to be higher, and therefore, margins on subscribers will tend to be lower.
This is because the full costs of using third-party networks is included in
costs of revenue, as compared to the costs of using MindSpring-owned POPs, a
portion of which is included in depreciation and amortization. In addition, in
more mature markets, where we have greater concentrations of subscribers, we
generally can provide services at a lower cost per subscriber through
MindSpring-owned POPs after the initial period when related expenses are higher.
This depends in part on how much we must pay for local area telecommunications
charges.

         For the first year of the network services agreement with ICG PST, we
will pay for use of ICG PST's POPs at rates that are generally comparable to the
costs of using MindSpring POPs. We have an option for a second year under that
agreement, but on potentially different terms to be negotiated and agreed upon
by both parties. The ICG PST network services agreement should also contribute
to our ability to reduce future net losses. However, the cost advantages of
providing services to MindSpring subscribers through the ICG PST network
services agreement may be offset if there are operating inefficiencies, network
reliability issues or technical support difficulties due to the fact that ICG
PST is just beginning to offer network services as a third-party provider for
companies such as MindSpring.

         We have added, and may in the future continue to add, MindSpring
subscribers by purchasing customer bases from other ISPs. MindSpring amortizes
such purchased customer bases using the straight-line method over a period of
three years, commencing when the purchase is completed. This amortization has a
negative effect on net income. Therefore, to the extent we continue to expand
our subscriber base through acquisitions such as the Spry and NETCOM
acquisitions, we will continue to experience increased amortization expense.




                                       33
<PAGE>   36




RESULTS OF OPERATIONS

         The following table shows financial data for the years ended December
31, 1998, 1997, and 1996. Operating results shown for 1998 do not reflect the
NETCOM acquisition. Operating results for any period are not necessarily
indicative of results for any future period. Dollar amounts (except per share
data) are shown in thousands.

<TABLE>
<CAPTION>
                                                           YEAR ENDED              YEAR ENDED             YEAR ENDED
                                                       DECEMBER 31, 1998       DECEMBER 31, 1997       DECEMBER 31, 1996
                                                       -----------------       -----------------       -----------------
                                                                    % OF                    % OF                    % OF
                                                       (000's)   REVENUE       (000's)   REVENUE       (000's)   REVENUE
                                                       -------   -------       -------   -------       -------   -------
<S>                                               <C>              <C>   <C>               <C>   <C>               <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
   Dial-up access to Internet....................  $    95,852       84    $    40,925       78    $    13,420       74
   Business services.............................       14,735       13          7,711       15          2,286       13
   Start-up fees.................................        4,086        3          3,920        7          2,426       13
                                                   -----------    -----    -----------    -----    -----------     ----
       Total revenue.............................  $   114,673      100    $    52,556      100    $    18,132      100

Cost and expenses:
   Cost of revenues-recurring....................  $    31,724       28    $    15,202       29    $     6,332       35
   Cost of revenues-start-up fees................        2,612        2          1,620        3          1,876       10
   Selling, general, and administrative..........       57,324       50         30,784       59         14,161       78
                                                   -----------    -----    -----------    -----    -----------     ----

   Customer base amortization....................  $     7,048        6    $     4,210        8    $     1,521        8
   Depreciation..................................        8,179        7          4,485        9          1,764       10
                                                   -----------    -----    -----------    -----    -----------     ----
Operating income (loss)..........................        7,786        7         (3,745)      (7)        (7,522)     (42)
   Interest  income (expense), net...............        1,214        1           (338)      (1)           (90)      (1)
                                                   -----------    -----    -----------    -----    -----------     ----
Pre tax income (loss)............................        9,000        8         (4,083)      (8)        (7,612)     (42)
   Provision for income taxes....................        1,544        1              -        -              -        -
                                                   -----------    -----    -----------    -----    -----------     ----
Net income (loss)................................  $    10,544        9    $    (4,083)      (8)   $    (7,612)     (42)
                                                   ===========    =====    ===========    =====    ===========     ====

PER SHARE DATA:
Diluted net income (loss) per share..............  $      0.41             $     (0.18)            $     (0.48)
Weighted average common shares
outstanding......................................       25,431                  22,542                  15,758

OPERATING DATA:
Approximate number of
   subscribers at end of year....................      693,000                 278,300                 121,794
Number of MindSpring
    employees at end of year.....................          977                     502                     321
EBITDA (1).......................................  $    23,013       20    $     4,950        9    $    (4,237)     (23)
                                                   -----------    -----    -----------    -----    -----------     ----

CASH FLOW DATA:
Cash Flow (used in) from operations..............  $    35,501             $    11,354             $    (2,005)
Cash flow (used in) from investing activities....  $   (47,647)            $    (9,002)            $   (21,336)
Cash flow (used in) from financing activities....  $   170,503             $    (2,619)            $    32,569
</TABLE>

(1)  EBITDA represents operating income (loss) plus depreciation and
     amortization. EBITDA is provided 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 income, net income or cash flows from operating
     activities for purposes of analyzing MindSpring's operating performance,
     financial position and cash flows. EBITDA is not necessarily comparable
     with similarly titled measures for other companies.




                                       34
<PAGE>   37

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

         Revenues. Revenue for the year ended December 31, 1998 totaled
approximately $114.7 million, as compared to approximately $52.6 million for the
year ended December 31, 1997. This approximately 118% increase in period
revenues resulted primarily from an approximately 150% increase in subscribers.
The greater proportional increase in subscribers was principally due to the
acquisition of Spry subscribers from AOL during the fourth quarter of 1998.
Revenues from dial-up access to the Internet for the year ended December 31,
1998 represented approximately 84% of the revenue, compared to approximately 78%
for the year ended December 31, 1997. Business services revenue decreased as a
percentage of revenue to approximately 13% for the year ended December 31, 1998,
compared to approximately 15% for the year ended December 31, 1997. This
decrease is primarily attributable to the large amount of dial-up customers
added through acquisitions in 1998. Subscriber start-up fees accounted for 3% of
revenue for the year ended December 31, 1998, as compared to approximately 7%
for the year ended December 31, 1997. MindSpring anticipates that as its
customer base continues to expand, subscriber start-up fees will progressively
represent a smaller percentage of revenue.

         Cost of revenues-recurring. For the year ended December 31, 1998, cost
of revenues-recurring decreased to approximately 28% of total revenue, compared
to approximately 29% of total revenue for the year ended December 31, 1997. Cost
of revenues-recurring also decreased as a percentage of dial-up access revenue
to approximately 33% for the year ended December 31, 1998 from approximately 37%
for the year ended December 31, 1997. Not taking into account approximately $2
million in discounts we received in 1998 under our network services agreement
with PSINet, Inc., cost of revenues-recurring would have been approximately 35%
of total dial-up access revenue. Not taking into account approximately $2.1
million in discounts we received in 1997 under the network services agreement
with PSINet, Inc., cost of revenues-recurring would have been approximately 42%
of total dial-up access revenue. The discounts earned under the network services
agreement with PSINet ended in October 1998. This decrease of cost of
revenues-recurring as a percentage of total revenue and as a percentage of
dial-up access revenue resulted primarily from increased efficiency and reduced
network costs associated with MindSpring-owned POPs.

         Selling, general, and administrative expenses. Selling, general, and
administrative expenses were approximately 50% of revenue for the year ended
December 31, 1998, compared to approximately 59% of revenue for the year ended
December 31, 1997. The decrease in selling, general, and administrative expenses
as a percentage of revenue resulted from economies of scale with respect to
costs such as payroll that do not increase in direct proportion to increases in
revenue and from cost control efforts implemented by MindSpring's management.

         EBITDA margin. EBITDA margin refers to EBITDA as a percentage of
revenues. EBITDA margin increased to approximately 20% for the year ended
December 31, 1998, compared to 9% for the year ended December 31, 1997. The
increase is attributable to the significant revenue growth outpacing the related
cost increases principally as a result of economies of scale related to selling,
general, and administrative expenses as well as efficiencies and economies of
scale associated with MindSpring-owned POPs.

         Depreciation and amortization. Depreciation and amortization expenses
decreased to approximately 13% of revenues for the year ended December 31, 1998,
compared to approximately 17% of revenues for the year ended December 31, 1997.
Amortization expense declined slightly to 6% of total revenues for the year
ended December 31, 1998, compared to approximately 8% for the year ended
December 31, 1997. Amortization expense resulted solely from acquired subscriber
bases, which are being amortized over three years. Depreciation expense was
approximately 7% of total revenues for the year ended December 31, 1998,
compared to approximately 9% for the year ended December 31, 1997. The decrease
in depreciation expense as a percentage of total revenues resulted from adding
capacity through increased use of network services purchased from third-party
providers, as opposed to increasing capacity by building additional
MindSpring-owned POPs, and from reductions in the cost of new equipment and
improved operating efficiencies within MindSpring's network. MindSpring
anticipates amortization expense to increase as a percentage of revenues as a
result of the Spry and NETCOM acquisitions.




                                       35
<PAGE>   38

         Interest income (expense). The following table details the increase in
interest income in 1998 compared to 1997:

<TABLE>
<CAPTION>
                                                           1998                 1997
<S>                                                     <C>                  <C>           
   Interest on capital leases....................       $    (754,000)       $    (473,000)

   Interest on PSINet notes......................            (136,000)            (276,000)
   Interest income - other.......................           2,104,000              411,000
                                                        -------------        -------------

   Interest income (expense) net.................       $   1,214,000        $    (338,000)
                                                        =============        =============
</TABLE>

         Interest on capital leases increased for the year ended December 31,
1998, compared to the year ended December 31, 1997, because MindSpring entered
into several new capital leases for equipment at the end of 1997. Interest
income increased in 1998 due to the increase in outstanding cash balances
available for investment as a result of positive operating cash flows and two
public equity offerings completed during the year. See "-- Liquidity and Capital
Resources".

         Income tax provision. For the year ended December 31, 1998 MindSpring
recorded a benefit for income taxes due to a one time benefit taken in the
fourth quarter of the year as a result of the removal of the valuation allowance
associated with MindSpring's deferred tax assets. MindSpring is continually
assessing its income tax situation and management believes that it is "more
likely than not" that the deferred tax assets will be realized in the future. In
the future, MindSpring expects to report taxable earnings, even though we expect
to be incurring net losses at the same time. This is principally due to the
requirement that, for tax purposes, subscriber acquisition costs must be
amortized over 15 years, compared to the three-year period applied for
accounting purposes. For the year ended December 31, 1997, no income tax benefit
was recognized as MindSpring had a net taxable loss for the year.

         Net income (loss) and income (loss) per share. As a result of the
factors discussed above, MindSpring's net income for the year ended December 31,
1998 was $10.5 million, or $0.41 income per diluted share, compared to a net
loss of $4.1 million, or $0.18 basic and diluted loss per share, for the year
ended December 31, 1997.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

         Revenues. Revenues for the year ended December 31, 1997 totaled
approximately $52.6 million, as compared to approximately $18.1 million for the
year ended December 31, 1996. The approximately 190% increase in revenues
resulted primarily from an approximately 129% increase in subscribers. Revenues
increased in a greater proportion than subscribers due to the subscribers
acquired from PSINet Inc. during the fourth quarter of 1996. Revenues from
dial-up access to the Internet for the year ended December 31, 1997 represented
approximately 78% of the revenue, compared to approximately 74% for the year
ended December 31, 1996. Business services revenue increased slightly to
approximately 15% of revenues for the year ended December 31, 1997, compared to
approximately 13% for the year ended December 31, 1996. This increase is
primarily attributable to the increase in the number of MindSpring's Web hosting
customers. Subscriber start-up fees accounted for 7% of revenues for the year
ended December 31, 1997, as compared to approximately 13% for the year ended
December 31, 1996. MindSpring anticipates that as its customer base continues to
expand, subscriber start-up fees will progressively represent a smaller
percentage of revenues.

         Cost of revenues-recurring. For the year ended December 31, 1997, cost
of revenues-recurring decreased to approximately 29% of total revenues, compared
to approximately 35% of total revenues for the year ended December 31, 1996.
Cost of revenues-recurring also decreased as a percentage of dial-up access
revenue from approximately 47% for the year ended December 31, 1996 to
approximately 37% for the year ended December 31, 1997. Not taking into account
approximately $2.1 million in discounts we received in 1997 under the PSINet
Services Agreement, cost of revenues-recurring would have been approximately 42%
of total dial-up revenue for the year ended December 31, 1997, compared to
approximately 47% for the year ended December 31, 1996. This decrease in cost of
revenues-recurring as a percentage of total revenues and as a percentage of
dial-up access revenues resulted primarily from increased efficiency and reduced
network costs associated with MindSpring-owned POPs.



                                       36
<PAGE>   39

         Selling, general, and administrative expenses. Selling, general, and
administrative expenses were approximately 59% of revenues for the year ended
December 31, 1997, compared to approximately 78% of revenues for the year ended
December 31, 1996. The decrease in selling, general, and administrative expenses
as a percentage of revenues resulted from economies of scale with respect to
costs such as payroll that do not increase in direct proportion to increases in
revenue and to cost control efforts implemented by MindSpring's management.

         EBITDA margin. EBITDA margin increased to approximately 9% for the year
ended December 31, 1997, compared to (23)% for the year ended December 31, 1996.
The increase is attributable to the significant revenue growth outpacing the
related cost increases principally as a result of economies of scale related to
selling, general, and administrative expenses, as well as efficiencies and
economies of scale associated with MindSpring-owned POPs.

         Depreciation and amortization. Depreciation and amortization expenses
decreased to approximately 16% of revenues for the year ended December 31, 1997,
compared to approximately 18% of revenues for the year ended December 31, 1996.
Amortization expense remained steady at approximately 8% of revenue for both the
years ended December 31, 1997 and December 31, 1996. Amortization expense
resulted primarily from acquired customer bases which are being amortized over
three years. Depreciation expense was approximately 8% of total revenues for the
year ended December 31, 1997, compared to approximately 10% for the year ended
December 31, 1996. The decrease in depreciation expense as a percentage of total
revenues resulted from adding capacity through increased use of network services
purchased from third-party providers, as opposed to increasing capacity by
building additional MindSpring-owned POPs, and from reductions in cost of new
equipment and improved operating efficiencies within MindSpring's network.

         Interest income (expense). The following table details the increase in
interest expense in 1997 compared to 1996:

<TABLE>
<CAPTION>
                                                           1997                 1996

<S>                                                  <C>                     <C>           
   Interest on capital leases....................    $       (473,000)       $      91,000)
   Interest on PSINet notes......................            (276,000)            (324,000)
   Interest income - other.......................             411,000              325,000
                                                     ----------------        -------------

   Interest expense, net.........................    $       (338,000)       $     (90,000)
                                                     ================        =============
</TABLE>

Interest on capital leases increased for the year ended December 31, 1997,
compared to the year ended December 31, 1996, because MindSpring entered into
several new capital leases for equipment. Interest income increased in 1997 due
to the increase in outstanding cash balances available for investment as a
result of positive operating cash flows.

         Income tax provision. For the years ended December 31, 1997 and 1996,
no income tax benefit was recognized because MindSpring had a net taxable loss
for the year.

         Net income (loss) and income (loss) per share. As a result of the
factors discussed above, MindSpring's net loss for the year ended December 31,
1997 was $4.1 million, or $(0.18) basic and diluted loss per share, compared to
a net loss of $7.6 million, or $(0.48) basic and diluted loss per share, for the
year ended December 31, 1996.

LIQUIDITY AND CAPITAL RESOURCES

         For the year ended December 31, 1998, MindSpring generated net cash
from operations of approximately $35.5 million, compared to $11.4 million for
the year ended December 31, 1997, an increase of approximately 212.7%. During
1998, we used approximately $27.3 million from cash flows from operations to
fund purchases of subscriber bases. $25 million of this amount was paid to AOL
on October 15, 1998 in partial payment for the Spry acquisition with the balance
of $7 million paid in March 1999. During 1998, we spent a total of approximately
$20.2 million related to purchases of telecommunications equipment necessary for
the provision of service to 




                                       37
<PAGE>   40

subscribers. We did not enter into any capital lease agreements in 1998,
compared to approximately $8.4 million incurred in 1997 under capital leases for
equipment acquisition. At December 31, 1998, MindSpring's capital lease
obligations and minimum rental commitments under non-cancelable operating leases
with initial or remaining terms of more than one year amounted to approximately
$5.7 million for capital leases, and approximately $10 million for
non-cancelable operating leases.

         During 1998, MindSpring generated approximately $170.5 million from
financing activities, consisting primarily of two public equity offerings. In
June 1998, MindSpring sold 3,000,000 shares of common stock at a public offering
price of $17.67 per share. Proceeds from the June offering, net of underwriting
discounts and offering expenses, were approximately $49.8 million. In December
1998, MindSpring sold 2,300,000 shares of common stock at a public offering
price of $57 per share. Proceeds from the December offering, net of underwriting
discounts and offering expenses, were approximately $124.8 million. Cash used
for financing activities consisted of approximately $4.6 million for capital
lease obligations and the final payment to PSINet Inc. due under a promissory
note issued in connection with MindSpring's 1996 purchase from PSINet of
subscribers and other assets and rights related to PSINet's U.S. consumer
dial-up Internet access business. The final payment to PSINet was made in
December 1998. During 1997, cash used for financing activities consisted
primarily of approximately $2.6 million in payments for capital lease
obligations and repayments of promissory notes to PSINet.

         As of December 31, 1998, MindSpring had cash on hand of approximately
$167.7 million. On February 17, 1999, we paid $215 million in cash in connection
with the closing of the NETCOM acquisition, approximately $80 million of which
we borrowed under our $100 million secured revolving credit facility. After
paying the amounts indicated for the NETCOM acquisition on February 17, 1999, we
had remaining cash on hand of approximately $35 million, of which we paid
approximately $7 million to AOL in March 1999 for the balance of the purchase
price for the Spry acquisition.

         MindSpring's future capital requirements depend on various factors
including, without limitation:

         -    our ability to integrate successfully the subscribers and assets
              acquired from Spry and NETCOM, which requires us to reduce the
              costs previously associated with those subscribers and assets to
              approximate MindSpring's historical cost structure;

         -    the rate of market acceptance of MindSpring's services;

         -    our ability to maintain and expand our subscriber base;

         -    the rate of expansion of MindSpring's network infrastructure;

         -    the resources required to expand our marketing and sales efforts, 
              and

         -    the availability of hardware and software provided by third-party
              vendors.

         We currently estimate that our cash and financing needs for 1999,
assuming reasonable internal growth, can be met by cash on hand, amounts
available under the credit facility, additional capital financing arrangements,
and cash flow from operations. We expect to repay all amounts outstanding under
the credit facility with a portion of the net proceeds from our recently
announced offering of common stock or, if necessary, a portion of the proceeds
from our recently announced convertible subordinated notes offering. However,
whether or not we repay those amounts, if we are unable to negotiate amendments
to the credit facility that are acceptable to us, the credit facility will
effectively terminate when we complete the notes offering. We are in discussions
with First Union National Bank regarding amending the credit facility, but we
cannot assure you that we will be successful in negotiating acceptable
amendments on a timely basis or at all.

         If our credit facility is unavailable and if our expectations change
regarding our capital needs due to market conditions, strategic opportunities or
otherwise, then our capital requirements may vary materially from those
currently anticipated. Other than our recently announced offerings of common
stock and convertible subordinated notes, we do not currently have any plans or
commitments for any additional financing, and there can be no assurance that if
and when we need additional capital it will be available on terms that are
acceptable to us, if at all. If additional capital financing arrangements,
including public or private sales of debt or equity securities, or additional
borrowings from commercial banks are insufficient or unavailable, or if we
experience shortfalls in anticipated revenues or increases in anticipated
expenses, we will be required to modify our growth and operating




                                       38
<PAGE>   41

plans to match available funding. Any additional equity financing may be on
terms that are dilutive or potentially dilutive to MindSpring's stockholders.
Debt financing, if available, may involve restrictive covenants with respect to
dividends, raising future capital and other financial and operational matters
and incurring additional debt may further limit MindSpring's ability to raise
additional capital. In addition, our credit facility contains restrictions on
our ability to incur additional debt and to issue some types of convertible or
redeemable capital stock.

         MindSpring frequently engages in discussions involving potential
business acquisitions. Depending on the circumstances, MindSpring may not
disclose material acquisitions until completion of a definitive agreement.
MindSpring may determine to raise additional debt or equity capital to finance
potential acquisitions and/or to fund accelerated growth. Any significant
acquisitions or increases in MindSpring's growth rate could materially affect
MindSpring's operating and financial expectations and results, liquidity and
capital resources.

         Market Risks. We believe our exposure to market rate fluctuations on
our investments is nominal due to the short-term nature of those investments. We
have no material future earnings or cash flow exposures with respect to our
outstanding capital leases, which are all at fixed rates. To the extent
MindSpring has borrowings outstanding under the credit facility, we would have
market risk relating to those amounts because the interest rates under the
credit facility are variable. At present, we have no plans to enter into any
hedging arrangements with respect to those borrowings.

RECENT ACCOUNTING PRONOUNCEMENTS

         In 1998, the provisions of Statement of Financial Accounting Standards
No. 130 ("SFAS 130"), "Reporting Comprehensive Income" and Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments
of an Enterprise and Related Information" applied to MindSpring. Neither
statement had any impact on MindSpring's financial statements as MindSpring does
not have any "comprehensive income" type earnings (losses) and its financial
statements reflect how the "key operating decisions maker" views the business.
MindSpring will continue to review these statements over time, in particular,
SFAS 131, to determine if any additional disclosures are necessary based on
evolving circumstances.

YEAR 2000

         Introduction. The term "Year 2000 issue" is a general term used to
describe the various problems that may result from the improper processing of
dates and date-sensitive calculations by computers and other machinery as the
year 2000 is approached and reached. These problems generally arise from the
fact that most of the world's computer hardware and software have historically
used only two digits to identify the year in a date, often meaning that the
computer will fail to distinguish dates in the "2000's" from dates in the
"1900's." These problems may also arise from other sources as well, such as the
use of special codes and conventions in software that make use of the date
field.

         State of Readiness. MindSpring has established a Year 2000 Program
Office to coordinate appropriate activity and report to the Board of Directors
on a continuing basis with regard to the Year 2000 issue. MindSpring's Year 2000
Program Office has developed and is currently implementing a comprehensive plan
(the "Year 2000 Program") for MindSpring to become Year 2000 ready. The Year
2000 Program consists of six phases: (1) project planning and inventory of all
of MindSpring's assets, (2) assessment, (3) renovation (whether by upgrade or
replacement), (4) testing and validation, (5) implementation and (6) creation of
contingency plans in the event of year 2000 failures.

         The Year 2000 Program covers: (1) software products which are supplied
by MindSpring to its customers, (2) MindSpring's information technology and
operating systems ("IT Systems"), and (3) MindSpring's non-information
technology systems, including embedded technology ("Non-IT Systems"). In
addition, the Program calls for MindSpring to identify and assess the systems
and services of MindSpring's major vendors, third party network service
providers and other material service providers ("Third Party Systems"), and take
appropriate remedial actions and develop contingency plans where appropriate in
connection with such Third Party Systems.

         MindSpring supplies its customers with a software package which, among
other things, allows its customers to access MindSpring's services. The software
package consists of internally developed software (e.g.,




                                       39
<PAGE>   42

the MindSpring Internet Desktop interface) which is bundled with third party
software (collectively, the "Access Product"). MindSpring believes that the
current shipping version of its software package (including the MindSpring
Internet Desktop) is Year 2000 ready.

         MindSpring has substantially completed the inventory phase of the Year
2000 Program for both its IT Systems and Non-IT Systems and has completed a
majority of the assessment phase of the Year 2000 Program for the IT Systems and
Non-IT Systems. MindSpring anticipates that it will complete the first two
phases for those systems during the second quarter of 1999. The Year 2000
Program calls for the completion of all six phases for both IT and Non-IT
Systems by the end of the second quarter of 1999.

         MindSpring has performed a technical review of many of the more
critical Third Party Systems and has surveyed the publicly available statements
issued by the vendors of those systems. Additionally, MindSpring has recently
sent inquiry letters to its significant providers of Third Party Systems
requesting information regarding their vulnerability to Year 2000 issues and
whether the products and services purchased from those entities are Year 2000
compliant. MindSpring intends to pursue appropriate responses to those inquiries
and will evaluate the responses it receives.

         MindSpring recently completed the Spry and NETCOM acquisitions.
MindSpring is developing appropriate plans to identify and address Year 2000
related concerns with Spry and NETCOM as part of the natural integration of the
Spry and NETCOM operations into MindSpring. Management believes that the Spry
and NETCOM operations will not present any significant Year 2000 issues to
MindSpring.

         MindSpring also recently acquired customers and assets of NETCOM, and
intends to develop plans to identify and address Year 2000 related concerns with
NETCOM as part of the natural integration of the NETCOM operation into
MindSpring.

         MindSpring has not deferred any specific IT project due to the Year
2000 Program. MindSpring has engaged a consulting firm to assist it in
completing the inventory and assessment phases of its Year 2000 Program, and to
assist it in its Year 2000 Program management.

         Costs. As of December 31, 1998, MindSpring has incurred expenses of
approximately $75,000 in connection with the implementation of the Year 2000
Program Office and Year 2000 Program. MindSpring estimates that an additional
$250,000 to $300,000 in expenses will be incurred by MindSpring through the
remainder of the Year 2000 Program. These costs will be expensed as incurred.
The costs and estimates provided include MindSpring's estimate of the cost of
internal resources directly attributable to MindSpring's Year 2000 Program, but
do not yet include additional costs which may be incurred in connection with
expanding the Year 2000 Program to include the systems and products acquired in
the Spry and NETCOM transactions. MindSpring has funded, and anticipates that it
will continue funding, the costs of the Year 2000 Program from cash flows. The
estimates for the costs of the Year 2000 Program are based upon management's
best estimates and may be updated or revised as additional information becomes
available. MindSpring currently believes these costs will not have a material
effect on MindSpring's financial condition, liquidity or results of operations.
MindSpring's estimates of Year 2000-related costs may change, however, depending
on MindSpring's Year 2000 evaluation of the assets acquired from NETCOM.

         Risks. The failure by MindSpring to correct a material Year 2000
problem could result in an interruption in, or a failure of, normal business
activities or operations. Presently, however, MindSpring perceives that its most
reasonably likely worst case scenario related to the Year 2000 is associated
with potential concerns with third party services or products.

         Specifically, MindSpring is heavily dependent on a significant number
of third party vendors to provide both network services and equipment. A
significant Year 2000-related disruption of the network services or equipment
provided to MindSpring by third party vendors could cause customers to consider
seeking alternate providers or cause an unmanageable burden on customer service
and technical support, which in turn could materially and adversely affect
MindSpring's results of operations, liquidity and financial condition.
MindSpring is not presently aware of any vendor related Year 2000 issue that is
likely to result in this type of disruption.



                                       40
<PAGE>   43

         Furthermore, MindSpring's business depends on the continued operation
of, and widespread access to, the Internet. To the extent that the normal
operation of the Internet is disrupted by the Year 2000 issue, MindSpring's
results of operations, liquidity and financial condition could be materially and
adversely affected.

         Although there is inherent uncertainty in the Year 2000 issue,
MindSpring expects that as it progresses in its Year 2000 Program the level of
uncertainty about the impact of the Year 2000 issue on MindSpring will be
reduced significantly and MindSpring should be better positioned to identify the
nature and extent of material risk to MindSpring as a result of any Year 2000
disruptions.

         Contingency Plans. The Year 2000 Program calls for the development of
contingency plans for at-risk functions. MindSpring has established a
Contingency Plan Committee to monitor and address the development of contingency
plans. Due to the current phase in which MindSpring is in of its Year 2000
Program, MindSpring is currently unable at this time to fully assess its risks
and determine what contingency plans, if any, need to be implemented by
MindSpring. As MindSpring progresses in its Year 2000 Program and identifies
specific risk areas, MindSpring intends to timely implement appropriate remedial
actions and contingency plans.

         The estimates and conclusions included in this discussion contain
forward-looking statements and are based on management's best estimates of
future events. MindSpring's expectations about risks, future costs and the
timely completion of its Year 2000 modifications may turn out to be incorrect
and any variance from these expectations could cause actual results to differ
materially from what has been discussed above. Factors that could influence
risks, amount of future costs and the effective timing of remediation efforts
include MindSpring's success in identifying and correcting potential Year 2000
issues and the ability of third parties to appropriately address their Year 2000
issues. The foregoing Year 2000 discussion and the information contained herein
is provided as a "Year 2000 Readiness Disclosure" as defined in the Year 2000
Information and Readiness Disclosure Act of 1998 (Public Law 105-271, 112 Stat.
2386) enacted on October 19, 1998.

ITEM 7A.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         We believe our exposure to market rate fluctuations on our investments
is nominal due to the short-term nature of those investments. We have no
material future earnings or cash flow exposures with respect to our outstanding
capital leases, which are all at fixed rates. To the extent we have borrowings
outstanding under our credit facility, we would have market risk relating to
those amounts because the interest rates under the credit facility are variable.
At present, we have no plans to enter into any hedging arrangements with respect
to those borrowings.

ITEM 8.         FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The Financial Statements of MindSpring, including MindSpring's Balance 
Sheets as of December 31, 1998 and 1997, Statements of Operations for the years
ended December 31, 1998, 1997 and 1996, Statements of Stockholders' Equity for
the years ended December 31, 1998, 1997 and 1996, Statements of Cash Flows for
the years ended December 31, 1998, 1997 and 1996, and Notes to Financial
Statements, together with a report thereon of Arthur Andersen LLP, dated
February 17, 1999, are attached hereto as pages F-1 through F-17.

ITEM 9.         CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                FINANCIAL DISCLOSURE

         Not applicable.




                                       41
<PAGE>   44

                                    PART III

ITEM 10.        DIRECTORS AND EXECUTIVE OFFICERS OF MINDSPRING

    Directors of MindSpring are elected at the annual meeting of stockholders.
Directors and officers serve until they resign or are removed, or are otherwise
disqualified to serve, or until their successors are elected and qualified. The
ages of the persons set forth below are as of March 1, 1999.

<TABLE>
<CAPTION>
                                                                                                         TERM AS
                                                                                                         DIRECTOR
                   NAME                     AGE           POSITION(S) WITH MINDSPRING                    EXPIRES
        ------------------------------------------------------------------------------------------------------------
<S>                                         <C>                                                            <C> 
        Charles M. Brewer..............     40    Chairman, Chief Executive Officer and Director           2001
        Michael S. McQuary.............     39    President, Chief Operating Officer and Director          2000
        O. Gene Gabbard(1)(2)..........     58    Director                                                 1999
        Campbell B. Lanier, III(1)(2)..     48    Director                                                 2001
        William H. Scott, III (1)(2)...     51    Director                                                 2000
</TABLE>

-------------------

(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

         Charles M. Brewer founded MindSpring and has served as Chief Executive
Officer and Director of MindSpring since its inception in February 1994 and as
Chairman since March 1996. He also served as the President of MindSpring from
its inception until March 1996 and as the Secretary and Treasurer of MindSpring
from its inception until January 1995. From May 1993 to January 1994, Mr. Brewer
developed the concept for MindSpring and evaluated its prospects. Prior to
starting MindSpring, he served as Chief Executive Officer of AudioFax, Inc., a
software company providing fax server software, from May 1992 to April 1993 and
was the Chief Financial Officer of AudioFax from May 1989 to April 1992. Mr.
Brewer received a BA in Economics from, and was a Phi Beta Kappa graduate of,
Amherst College and received an MBA from Stanford University.

         Michael S. McQuary has been the President of MindSpring since March
1996, the Chief Operating Officer of MindSpring since September 1995, and a
Director of MindSpring since December 1995. 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. Mr.
McQuary received a BA in Psychology from the University of Virginia and an MBA
from Pepperdine University.

         O. Gene Gabbard has been a Director of MindSpring since December 1995.
He has worked independently as an entrepreneur and consultant since February
1993. Mr. Gabbard currently serves as a director of ITC Holding and several of
its subsidiaries, as well as ITC/\DeltaCom, Inc. ("ITC/\DeltaCom"), a carriers'
carrier and retail telecommunications company, and Powertel, Inc. ("Powertel"),
a wireless telecommunications company formerly known as InterCel, Inc., and as a
director and Chairman of ClearSource, Inc., a provider of broadband
telecommunications services. From August 1990 through January 1993, he served as
Executive Vice President and Chief Financial Officer of MCI Communications
Corporation ("MCI"), a telecommunications company. Mr. Gabbard has served as a
Managing Director of South Atlantic Private Equity Fund IV, Limited Partnership
since 1997.

         Campbell B. Lanier, III has served as a Director of MindSpring since
November 1994. Mr. Lanier has served as Chairman of the Board and Chief
Executive Officer of ITC Holding (or its predecessors) since its inception in
1985. In addition, Mr. Lanier is an officer and director of several ITC Holding
subsidiaries. He is also the Chairman of ITC/\DeltaCom and is a director of
ITC/\DeltaCom, KNOLOGY Holdings, Inc. ("KNOLOGY"), a 





                                       42
<PAGE>   45



broadband telecommunications services company formerly known as CyberNet
Holding, Inc., Vista Eyecare, Inc., a full service optical retailer, K&G Men's
Centers, a discount retailer of men's clothing, Innotrac Corporation
("Innotrac"), which provides customized, technology-based marketing support
services, and is Vice Chairman of the Board of AvData and Chairman of the Board
of Powertel. Mr. Lanier has served as a Managing Director of South Atlantic
Private Equity Fund IV, Limited Partnership since 1997.

         William H. Scott, III has been a Director of MindSpring since November 
1994. Mr. Scott has served as President of ITC Holding (or its predecessors)
since December 1991 and has been a director of ITC Holding (or its predecessors)
since May 1989. He is also an officer and director of several ITC Holding
subsidiaries. Mr. Scott is a director of ITC/\DeltaCom, KNOLOGY, Powertel,
Innotrac and AvData.

         For a list of the executive officers of MindSpring who are not also 
directors of MindSpring, together with biographical summaries of their
experience, see "Item 1. Business-Non-Director Executive Officers of 
MindSpring."




                                       43
<PAGE>   46

ITEM 11.        EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE.

         The following table sets forth the compensation paid during the periods
indicated to the Chief Executive Officer of the Company and to each of the four
other most highly compensated executive officers of the Company during the
fiscal year ended December 31, 1998 (the "Named Executive Officers").

<TABLE>
<CAPTION>
                                                                                                         LONG TERM
                                                                                                    COMPENSATION AWARDS
                                                                                                   ----------------------
                                                                         ANNUAL                    SECURITIES UNDERLYING
                                                                      COMPENSATION                      OPTIONS (1)
                                                         ---------------------------------         ---------------------
               NAME AND PRINCIPAL POSITIONS      YEAR          SALARY            BONUS (1)
          ------------------------------------- ------   ------------------ --------------
<S>                                              <C>          <C>                <C>                      <C>   
          Charles M. Brewer (2)                  1998         $163,750           $107,032                 17,841
           Chairman and Chief Executive          1997          150,000             65,550                  7,314 
           Officer                               1996           84,000             20,000                     -- 
                                                 

          Michael S. McQuary (3)                 1998         $136,458           $ 71,355                 17,367
           President and Chief Operating         1997          125,000             43,700                  7,314 
           Officer                               1996           84,000             36,035                116,238 

          Michael G. Misikoff (4)                1998         $114,625           $ 37,461                     --
           Executive Vice President, Chief       1997          105,000             22,943                  3,072   
           Financial Officer, Secretary          1996           84,000              6,300                     --
           and Treasurer      
                                                 
          James T. Markle (5)                    1998         $104,800           $ 41,100                  2,500
           Executive Vice President              1997           96,000             20,976                  2,808
                                                 1996           96,000              6,030                     --

          Gregory J. Stromberg (6)               1998         $ 91,700           $ 35,963                 13,348
           Executive Vice President              1997           82,250             18,354                  2,460
                                                 1996           62,500              6,150                  6,000
</TABLE>

(1) A portion of the bonuses paid to Named Executive Officers of the Company may
    be paid or awarded in the first quarter of the fiscal year following the
    year in which the bonus was earned.

(2) Mr. Brewer was granted options to purchase 17,841 shares of the Company's
    common stock in January 1999 for services performed in 1998 and options to
    purchase 7,314 shares of the Company's common stock in January 1998 for
    services performed in 1997.

(3) Mr. McQuary was granted options to purchase 17,367 shares of the Company's
    common stock in January 1999 for services performed in 1998, options to
    purchase 7,314 shares of the Company's common stock in January 1998 for
    services performed in 1997 and options to purchase 38,736 shares of the
    Company's common stock in February 1997 for services performed in 1996.

(4) Mr. Misikoff was granted options to purchase 3,072 shares of the Company's
    common stock in January 1998 for services performed in 1997. Mr. Misikoff
    resigned his positions as director and executive officer of the Company
    effective February 19, 1999.

(5) Mr. Markle was granted options to purchase 2,808 shares of the Company's
    common stock in January 1998 for services performed in 1997. Mr. Markle
    resigned his position as executive officer of the Company effective February
    28, 1999.

(6) Mr. Stromberg was granted options to purchase a total of 13,348 shares of
    the Company's common stock in December 1998 and February 1999 for services
    performed in 1998 and options to purchase 2,460 shares of the Company's
    common stock in January 1998 for services performed in 1997.




                                       44
<PAGE>   47




    STOCK OPTION GRANTS IN FISCAL YEAR 1998.

         The following table sets forth information with respect to grants of
stock options to each of the Named Executive Officers during the year ended
December 31, 1998 All such grants were made under the Company's 1995 Stock
Option Plan.

<TABLE>
<CAPTION>
                                                               OPTION GRANTS DURING 1998
                      -------------------------------------------------------------------------------------------------------------
                                                                                                          POTENTIAL REALIZABLE
                                                                                                            VALUE AT ASSUMED
                                                                                                         ANNUAL RATES OF STOCK
                                                                                                         PRICE APPRECIATION FOR
                                                                    INDIVIDUAL GRANTS                          OPTION TERM
                      -------------------------------------------------------------------------------------------------------------
                                        PERCENT OF
                                           TOTAL
                          NUMBER OF       OPTIONS
                         SECURITIES     GRANTED TO
                         UNDERLYING      EMPLOYEES
                           OPTIONS       IN FISCAL        EXERCISE                     EXPIRATION
        NAME             GRANTED (1)       YEAR             PRICE      GRANT DATE         DATE             5%              10%
-------------------   --------------- --------------   ------------- --------------  -------------- ----------------  -------------
<S>                        <C>             <C>            <C>        <C>             <C>                <C>               <C>
Charles M. Brewer          7,314           .85%           $ 10.94    1/27/98         1/27/08            $ 50,321          $127,524
Michael S. McQuary         7,314           .85%           $ 10.94    1/27/98         1/27/08            $ 50,321          $127,524
Michael G. Misikoff        3,072           .36%           $ 10.94    1/27/98         1/27/08            $ 21,136          $ 53,562
James T. Markle            2,808           .33%           $ 10.94    1/27/98         1/27/08            $ 19,319          $ 48,959
                           2,500           .29%           $ 60.69    12/18/98        12/18/08           $ 95,419          $241,811
Gregory J. Stromberg       2,460           .29%           $ 10.94    1/27/98         1/27/08            $ 16,925          $ 42,891
                           2,500           .29%           $ 60.69    12/18/98        12/18/08           $ 95,419          $241,811
</TABLE>

(1) All options represent shares of common stock. 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.

    OPTION EXERCISES AND FISCAL YEAR-END VALUES.

         The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during the fiscal year
ended December 31, 1998, the number of securities underlying unexercised options
at 1998 year-end and the year-end value of all unexercised in-the-money options
held by such individuals.

<TABLE>
<CAPTION>

                                                                   NUMBER OF SECURITIES
                                                                  UNDERLYING UNEXERCISED               VALUE OF UNEXERCISED
                                                                        OPTIONS AT                   IN-THE-MONEY OPTIONS AT
                                                                     DECEMBER 31, 1998               DECEMBER 31, 1998(2)(3)
                           SHARES                           ----------------------------------  ----------------------------------
                         ACQUIRED ON          VALUE
                          EXERCISE         REALIZED(1)        EXERCISABLE      UNEXERCISABLE      EXERCISABLE      UNEXERCISABLE
                        -------------   ---------------     ---------------  -----------------  ---------------  -----------------
<S>                        <C>          <C>                    <C>               <C>               <C>             <C>
Charles M. Brewer              --                 --                --             7,314                   --       $  446,615
Michael S. McQuary         12,500       $    203,913           147,456           123,537           $8,847,633        7,225,694
Michael G. Misikoff        38,737          1,323,450                --            41,807                   --        2,511,119
James T. Markle             6,900            330,801            51,201            24,676            3,115,719        1,320,279
Gregory J. Stromberg       12,500            425,125            14,490            16,457              862,685          807,720
</TABLE>

(1)    Represents the difference between the exercise price and the closing
       price of the common stock on the Nasdaq National Market upon the date of
       exercise.

(2)    Represents the difference between the exercise price and the closing
       price of the common stock on the Nasdaq National Market at December 31,
       1998.

(3)    Based on a per share price of $61.063 on December 31, 1998.




                                       45
<PAGE>   48

DIRECTOR COMPENSATION

         Since our inception, members of the board of directors have not
received any compensation for their service on the board of directors except
pursuant to MindSpring's Directors Stock Option Plan (the "Directors Plan").
Under the Directors Plan, 210,000 shares of common stock are authorized for
issuance to non-employee directors (in the form of grants of 30,000 options per
director) upon their initial election or appointment to the board, or, in the
case of Messrs. Lanier, Scott and Gabbard, who joined the board prior to the
creation of the Directors Plan, upon the adoption of the Directors Plan by the
board. Options are exercisable at the fair market value of the common stock (as
determined by the board) on the date of grant. The Directors Plan was amended in
1998 to provide for discretionary option grants. Upon adoption of this
amendment, each of Messrs. Lanier, Scott and Gabbard received a grant of 15,000
options.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.

         The members of the Compensation Committee for the year ended December
31, 1998 were Messrs. Gabbard, Lanier and Scott.

         As of February 28, 1999, ITC Holding beneficially owned approximately
18.5% of the outstanding capital stock of the Company. Both Messrs. Lanier and
Scott serve as executive officers and directors of ITC Holding. Mr. Gabbard also
is a director of ITC Holding. As of February 28, 1998, Messrs. Lanier, Scott and
Gabbard owned approximately 19%, less than 1.0% and less than 1.0%,
respectively, of the common stock of ITC Holding. As of February 28, 1998, Mr.
Brewer owned less than 1.0% of the common stock of ITC Holding.

         The Company has entered into certain business relationships with
subsidiaries of ITC Holding. The Company leases T-1 telecommunications lines for
data transport for some of its points of presence and purchases long distance
telephone services, maintenance and installation services and wide area network
transport service from ITC/\DeltaCom, which until October 20, 1997 was owned by
ITC Holding and is now owned by substantially the same stockholders as ITC
Holding. The Company pays ITC/\DeltaCom approximately $254,000 per month for
these services. Charges from ITC/\DeltaCom totaled approximately $3,672,000 for
the year ended December 31, 1998, of which the Company had paid approximately
$3,493,929 as of December 31, 1998.

         The Company leases telephone lines from, and has contracts for
maintenance and installation with, Interstate Telephone Company, Inc.
("Interstate Telephone"), a wholly-owned subsidiary of ITC Holding. The Company
pays Interstate Telephone approximately $18,000 per month for these leased
telephone lines. Charges from Interstate Telephone for telephone lines and
installation charges and payments made to Interstate Telephone totaled
approximately $219,736 for the year ended December 31, 1998.

SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Exchange Act requires our directors, officers and
persons who beneficially own more than ten percent of a registered class of the
Company's equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Directors, officers and
greater than ten percent beneficial owners are required by the SEC's regulations
to furnish us with copies of all Section 16(a) forms they file.

         Based solely on a review of copies of such forms furnished to us and
certain of the our internal records, or upon written representations that no
Forms 5 were required, we believe that during the year ended December 31, 1998,
all Section 16(a) filing requirements applicable to MindSpring's directors, 
officers and greater than ten percent beneficial owners were satisfied in a
timely manner.




                                       46
<PAGE>   49


ITEM 12.        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table provides information as of February 28, 1999
concerning beneficial ownership of common stock by (1) each person or entity
known by the Company to beneficially own more than 5% of the outstanding common
stock, (2) each director and nominee for director of the Company, (3) each Named
Executive Officer, and (4) all directors and executive officers of the Company
as a group. The information as to beneficial ownership has been furnished by the
respective stockholders, directors and executive officers of the Company, and,
unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares beneficially owned.

<TABLE>
<CAPTION>
                                                        AMOUNT AND
                                                         NATURE OF
                                                        BENEFICIAL                  PERCENT OF COMMON
              NAME OF BENEFICIAL OWNER                 OWNERSHIP (1)                STOCK OUTSTANDING
         -----------------------------               ---------------                -----------------
<S>                                                     <C>                           <C>  
         ITC  Service Company, Inc. (2)(3).             5,324,067                     18.5%
         Charles M. Brewer (4).............             2,320,003                      8.1%
         O. Gene Gabbard (5)(6)............                12,500                         *
         Campbell B. Lanier, III (6)(7)....                 7,500                         *
         James T. Markle (8)...............                71,549                         *
         Michael S. McQuary (9)............               306,695                      1.1%
         Michael G. Misikoff (10)..........               232,857                         *
         William H. Scott, III (6)(11).....                13,500                         *
         Gregory J. Stromberg (12).........                25,465                         *
         All executive officers and directors
           as a group (10 persons) (13)....             2,780,956                      9.6%
</TABLE>

---------------------------
*     Less than one percent.

(1)   In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a
      person is deemed to be the beneficial owner, for purposes of this table,
      of any shares of common stock if such person has or shares voting power or
      investment power with respect to such security, or has the right to
      acquire beneficial ownership at any time within 60 days from February 28,
      1999. As used herein, "voting power" is the power to vote or direct the
      voting of shares and "investment power" is the power to dispose or direct
      the disposition of shares.

(2)   ITC Holding Company, Inc. indirectly owns these shares through its
      indirect, wholly owned subsidiary, ITC Service Company. The address of
      both ITC Holding Company, Inc. and ITC Service Company is 1239 O.G.
      Skinner Drive, West Point, Georgia 31833.

(3)   ITC Holding has pledged all of its stock in the Company to certain lenders
      in connection with a credit agreement dated October 20, 1997.

(4)   The address for Charles M. Brewer is MindSpring Enterprises, Inc., 1430
      West Peachtree Street, Suite 400, Atlanta, Georgia 30309.

(5)   Includes 7,500 shares of common stock that Mr. Gabbard has the right to 
      purchase within 60 days from February 28, 1999 pursuant to options.

(6)   Mr. Lanier is Chairman of the Board, Chief Executive Officer and an owner
      of approximately 19% of the common stock of ITC Holding (as of February
      28, 1999). Mr. Scott is the President and a director of ITC Holding and is
      an owner of less than 1.0% of its common stock (as of February 28, 1999).
      Mr. Gabbard is a director of ITC Holding and an owner of less than 1.0% of
      its common stock (as of February 28, 1999). Each of Messrs. Lanier, Scott
      and Gabbard disclaims beneficial ownership of the shares of the Company's
      common stock held by ITC Holding.


                                       47
<PAGE>   50

(7)   Includes 7,500 shares of common stock that Mr. Lanier has the right to 
      purchase within 60 days from February 28, 1999 pursuant to options.

(8)   Includes 70,569 shares of common stock that Mr. Markle has the right to
      purchase within 60 days from February 28, 1999 pursuant to options. Mr.
      Markle resigned his position as executive officer of the Company effective
      February 28, 1999.

(9)   Includes 178,436 shares of common stock that Mr. McQuary has the right to 
      purchase within 60 days from February 28, 1999 pursuant to options.

(10)  Mr. Misikoff resigned his positions as director and executive officer of
      the Company effective February 19, 1999.

(11)  Includes 7,500 shares of common stock that Mr. Scott has the right to
      purchase within 60 days from February 28, 1999 pursuant to options. Mr.
      Scott's beneficial ownership of MindSpring includes 1,000 shares of
      common stock held in trust for Mr. Scott's minor daughter, of which Mr.
      Scott's wife is trustee.

(12)  Includes 14,865 shares of common stock that Mr. Stromberg has the right to
      purchase within 60 days from February 28, 1999 pursuant to options.

(13)  Includes 293,618 shares of common stock that such persons have the right
      to purchase within 60 days from February 28, 1999 pursuant to options.
      Does not include shares owned by Mr. Misikoff who resigned his position as
      director and executive officer of the Company effective February 19, 1999.




                                       48
<PAGE>   51

ITEM 13.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Company has adopted a policy requiring that any material
transactions between the Company and persons or entities affiliated with
officers, directors or principal stockholders of the Company be on terms no less
favorable to the Company than reasonably could have been obtained in arms'
length transactions with independent third parties.

         For a summary of certain transactions and relationships among the
Company and its associated entities, and among the directors, executive officers
and stockholders of the Company and its associated entities, see "Compensation
Committee Interlocks and Insider Participation."



                                       49
<PAGE>   52


                                     PART IV

ITEM 14.        EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

         (a)(1) The following consolidated financial statements of the
registrant and report of independent auditors are included in Item 8 of this
Form 10-K:

         Report of Independent Public Accountants.
         Balance Sheets as of December 31, 1998 and 1997.
         Statements of Operations for the years ended December 31, 1998, 1997
         and 1996.
         Statements of Stockholders' Equity for the years ended December 31,
         1998, 1997 and 1996.
         Statements of Cash Flows for the years ended December 31, 1998,
         1997 and 1996.
         Notes to Financial Statements.

         (a)(2) Except for the following, all schedules for which provision is
made in the applicable accounting regulations of the Securities and Exchange
Commission either have been included in the Financial Statements or are not
required under the related instructions, or are inapplicable and therefore have
been omitted:

         Report of Independent Public Accountant as to Schedules

         Schedule II - Valuation of Qualifying Accounts

         (a)(3) The following exhibits are either provided with this Report or
are incorporated herein by reference:

<TABLE>
<CAPTION>
                 EXHIBIT                                               EXHIBIT
                 NUMBER                                              DESCRIPTION
                --------       ----------------------------------------------------------------------------------
<S>                            <C>
                 2.1       --  Asset Purchase Agreement dated as of September 10, 1998 by and among MindSpring
                               Enterprises, Inc., America Online, Inc. and Spry, Inc.  (Filed as Exhibit 2.1
                               to Current Report on Form 8-K dated September 15, 1998, File No. 0-27890, and
                               incorporated herein by reference.) 

                 2.2       --  Asset Purchase Agreement dated as of January  5, 1999 by and between MindSpring  
                               Enterprises, Inc. and NETCOM On-Line Communication Services, Inc.  (Filed as 
                               Exhibit 2.1 to Current Report on Form 8-K dated February 25, 1999, File 
                               No. 0-27890, and incorporated herein by reference.)
                               
                 2.3       --  Closing Agreement, dated February 17, 1999, by and between MindSpring Enterprises,
                               Inc. and NETCOM On-Line Communication Services, Inc.  (Filed as Exhibit 2.2 to 
                               Current Report on Form 8-K dated February 25, 1999, File No. 0-27890, and 
                               incorporated herein by reference.)

                 3.1       --  Amended and Restated Certificate of Incorporation of MindSpring Enterprises,
                               Inc. (Filed as Exhibit 3.1 to Quarterly Report on Form 10-Q/A dated December 7,
                               1998, File No. 0-27890, and incorporated herein by reference.)

                 3.2       --  Certificate of Amendment to Amended and Restated Certificate of Incorporation
                               of MindSpring Enterprises, Inc.  (Filed as Exhibit 3.2 to Quarterly Report on
                               Form 10-Q/A dated December 7, 1998, File No. 0-27890, and incorporated herein
                               by reference.)

                 3.3       --  Amended and Restated Bylaws of MindSpring Enterprises, Inc. (Filed as Exhibit
                               3(b) to Quarterly Report on Form 10-Q/A dated August 30, 1996, File No.
                               0-27890, and incorporated herein by reference.)

                10.1       --  Support Agreement entered into as of April 1996 between Sykes Enterprises,
                               Incorporated and NETCOM On-Line Communication Services, Inc.

                10.2       --  Lease Agreement between Park West E-3 Associates and NETCOM On-Line
                               Communication Services, Inc., a Delaware Corporation, dated February 23, 1996.

                10.3       --  Credit Agreement dated as of February 17, 1999 by and among MindSpring
                               Enterprises, Inc., as Borrower, the Lenders referred to herein, First Union
                               Capital Markets Corp., as Arranger and First Union National Bank, as
                               Administrative Agent.  (Filed as Exhibit 10.1 to Current Report on Form 8-K
                               dated February 25, 1999, File No. 0-27890, and incorporated herein by
                               reference.)

               10.4       --   Guaranty and Collateral Agreement made by MindSpring Enterprises, Inc. and the
                               other Grantors party hereto in favor of First Union National Bank, as
                               Administrative Agent.  (Filed as Exhibit 10.2 to Current Report on Form 8-K
                               dated February 25, 1999, File No. 0-27890, and incorporated herein by
                               reference.)

               10.5       --   Lease Agreement commencing on November 1, 1995 between West Peachtree Point
                               Partners, L.P. and
</TABLE>

                                       50

<PAGE>   53
 
<TABLE>
<S>                            <C>     
                               MindSpring Enterprises, Inc.  (Filed as Exhibit 10(j) to
                               Initial Form S-1, and incorporated herein by reference.)

               10.6       --   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.  (Filed as Exhibit 10(cc) to
                               Initial Form S-1, and incorporated herein by reference.)

               10.7       --   MindSpring Enterprises, Inc. 1995 Stock Option Plan, as amended.

               10.8       --   Form of Stock Option Agreement.  (Filed as Exhibit 10(v) to Initial Form S-1,
                               and incorporated herein by reference.)

               10.9        --  MindSpring Enterprises, Inc. 1995 Directors Stock Option Plan, as amended.

               10.10       --  Form of Director Stock Option Agreement, as amended.  (Filed as Exhibit 10(x) to
                               Initial Form S-1, and incorporated herein by reference.)

               10.11       --  Form of MindSpring Director or Officer Indemnity Agreement.  (Filed as Exhibit
                               10(dd) to Initial Form S-1, and incorporated herein by reference.)

               10.12       --  Master Services Agreement dated July 15, 1996 between BellSouth
                               Telecommunications, Inc. and MindSpring Enterprises, Inc.  (Filed as Exhibit
                               10(cc) to the October 1996 S-1, and incorporated herein by reference.)

               10.13       --  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.

               10.14       --  Lease Agreement effective as of January 1, 1997 by and between CMS Peachtree,
                               L.P. and MindSpring Enterprises, Inc.  (Filed as Exhibit 10(hh) to Annual
                               Report on Form 10-K dated March 26, 1997, File No. 0-27890, and incorporated
                               herein by reference.)

               10.15       --  Amendment dated June 6, 1997 to Master Services Agreement dated July 15, 1996
                               between BellSouth Telecommunications, Inc. and MindSpring Enterprises, Inc.
                               (Filed as Exhibit 10.1 to Quarterly Report on Form 10-Q dated August 14, 1997,
                               File No. 0-27890, and incorporated herein by reference).

               10.16       --  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) (Filed as Exhibit 10.2 to
                               Quarterly Report on Form 10-Q dated August 14, 1997, File No. 0-27890, and
                               incorporated herein by reference).

               11.1        --  Statement regarding Computation of Per Share Earnings.

               23.1        --  Consent of Arthur Andersen LLP
</TABLE>

---------------


         (b)      On November 13, 1998, the Company filed a Current Report on
                  Form 8-K (the "Spry Form 8-K") reporting that, on October 15,
                  1998, the Company acquired certain assets used in connection
                  with the consumer dial-up Internet access business operated in
                  the United States by Spry, Inc., a Washington corporation
                  ("Spry") (the "Spry Acquisition"). Financial statements of
                  Spry and pro forma financial information required by Item 7 to
                  Form 8-K were filed with the Spry Form 8-K.

                  On December 7, 1998, the Company filed a Current Report on
                  Form 8-K that contained, pursuant to Item 7 to Form 8-K,
                  certain updated, unaudited pro forma financial information
                  concerning the Spry Acquisition. The Company also filed
                  certain other information with respect to its business and
                  financial condition that was contained in the Company's
                  prospectus dated May 29, 1998 which formed a part of the
                  Company's Registration Statement on Form S-3 (SEC File No.
                  333-51615) and that the Company deemed of importance to its
                  stockholders.

                  On December 11, 1998, the Company filed an Amendment No. 1 to
                  Current Report on Form 8-K/A that contained, pursuant to Item
                  7 to Form 8-K, the financial statements of Spry and certain
                  unaudited pro forma financial information for the Company
                  reflecting the Spry Acquisition. This filing amended the
                  Company's November 13, 1998 Current Report on Form 8-K

                                       51
<PAGE>   54

                  Also on December 11, 1998, the Company filed an Amendment No.
                  1 to Current Report on Form 8-K/A that contained, pursuant to
                  Item 7 to Form 8-K, unaudited pro forma financial information
                  for the Company reflecting the Spry Acquisition. This filing
                  amended the Company's December 7, 1998 Current Report on Form
                  8-K.




                                       52
<PAGE>   55

                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized as of the 26th day of
March, 1999.

                                            MINDSPRING ENTERPRISES, INC.

                                            By  /s/ Charles M. Brewer
                                                ---------------------
                                                Charles M. Brewer
                                                Chairman, Chief Executive
                                                Officer and Director

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                                   SIGNATURES                     TITLE                         DATE
                            -----------------------       --------------------------     ----------------
<S>                                                      <C>                            <C>  
                            /s/ Charles M. Brewer
                            ---------------------
                                Charles M. Brewer         Chairman, Chief Executive      March 26, 1999
                                                          Officer and Director
                                                          (Principal Executive Officer)

                            /s/ Michael S. McQuary
                            ----------------------
                                Michael S. McQuary        President, Chief Operating     March 26, 1999
                                                          Officer and Director


                            /s/ Juliet M. Reising
                            ---------------------
                                Juliet M. Reising         Executive Vice President,      March 26, 1999
                                                          Chief Financial Officer and
                                                          Treasurer (Principal
                                                          financial officer and
                                                          principal accounting officer)

                            /s/ O. Gene Gabbard
                            -------------------
                                O. Gene Gabbard           Director                       March 26, 1999

                            /s/ Campbell B. Lanier, III
                            ---------------------------
                             Campbell B. Lanier, III      Director                       March 26, 1999

                            /s/ William H. Scott, III
                            -------------------------
                                William H. Scott, III     Director                       March 26, 1999
</TABLE>




                                       53
<PAGE>   56

                          INDEX TO FINANCIAL STATEMENTS

MINDSPRING ENTERPRISES, INC.

<TABLE>
<CAPTION>
                                                                                                             PAGE
                                                                                                             ----
<S>                                                                                                            <C>
Report of Independent Public Accountants ...............................................................     F-2

Balance Sheets as of December 31, 1998 and 1997.........................................................     F-3

Statement of Operations for the years ended December 31, 1998, 1997
         and 1996.......................................................................................     F-4

Statement of Stockholders' Equity for the years ended December 31,
         1998, 1997 and 1996............................................................................     F-5

Statements of Cash Flows for the years ended December 31,
         1998, 1997 and 1996............................................................................     F-6

Notes to Financial Statements...........................................................................     F-7
</TABLE>


                                       F-1
<PAGE>   57

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To MindSpring Enterprises, Inc.:

         We have audited the accompanying balance sheets of MINDSPRING
ENTERPRISES, INC. (a Delaware corporation) as of December 31, 1998 and 1997 and
the related statements of operations, stockholders' equity, and cash flows for
the three years ended December 31, 1998, 1997 and 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

         We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of MindSpring
Enterprises, Inc. as of December 31, 1998 and 1997 and the results of its
operations and its cash flows for the three years ended December 31, 1998, 1997
and 1996 in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Atlanta, Georgia
February 17, 1999




                                      F-2
<PAGE>   58

                          MINDSPRING ENTERPRISES, INC.
                                 BALANCE SHEETS
                        AS OF DECEMBER 31, 1998 AND 1997
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                         1998                          1997
                                                                                  ---------------                  -------------
<S>                                                                               <C>                              <C>          
                                     ASSETS
CURRENT ASSETS:
     Cash and cash equivalents....................................................$       167,743                  $       9,386
     Trade receivables, net of allowance for doubtful accounts of
       $1,224 and $751 at December 31, 1998 and 1997, respectively................          3,278                          2,002
     Deferred income taxes (Note 8)...............................................          3,421                              -
     Prepaids and other current assets............................................            758                          1,042
                                                                                  ---------------                  -------------
         Total current assets.....................................................        175,200                         12,430
                                                                                  ---------------                  -------------
PROPERTY AND EQUIPMENT:
     Computer and telecommunications equipment....................................         35,580                         18,050
     Assets under capital lease...................................................          9,546                          9,916
     Other........................................................................          4,821                          1,805
                                                                                  ---------------                  -------------
                                                                                           49,947                         29,771
     Less:  accumulated depreciation..............................................        (14,106)                        (6,133)
                                                                                  ----------------                 --------------
         Property and equipment, net..............................................         35,841                         23,638
                                                                                  ---------------                  -------------

OTHER ASSETS:
     Acquired customer base, net (Notes 1 and 2)..................................         34,742                          7,478
     Deferred income taxes (Note 8)...............................................          1,123                              -
     Other........................................................................            693                            740
                                                                                  ---------------                  -------------
         Total other assets.......................................................         36,558                          8,218
                                                                                  ---------------                  -------------
                                                                                  $       247,599                  $      44,286
                                                                                  ===============                  =============


                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Trade accounts payable ......................................................$         3,462                  $       4,306
     Current portion of capital lease liability (Note 7) .........................          2,695                            2,607
     Telecommunications costs payable.............................................          2,831                            2,233
     Deferred revenue (Note 1)....................................................          7,443                            2,198
     Current portion of notes payable (Note 6)....................................              -                            2,043
     Other accrued expenses.......................................................          5,105                            1,776
     Due to America Online, Inc. (Note 2).........................................          7,000                               -
     Accrued compensation expense.................................................          2,550                           1,404
     Income tax payable...........................................................          2,566                               -
     Network services payable ....................................................          4,442                           1,216
                                                                                   --------------                   -------------
         Total current liabilities................................................         38,094                          17,783
                                                                                   --------------                   -------------

LONG-TERM LIABILITIES:
         Capital lease liability (Note 7).........................................         2,424                           5,090
                                                                                  --------------                   -------------
         Total long-term liabilities..............................................         2,424                           5,090
                                                                                  --------------                   -------------

         Total liabilities........................................................        40,518                          22,873
                                                                                  --------------                   -------------

COMMITMENTS AND CONTINGENCIES (Note 7)

STOCKHOLDERS' EQUITY (Note 3):
     Common stock, $.01 par value; 60,000 and 45,000 shares authorized at
       December 31, 1998 and 1997 and 28,284 and 22,603 issued and outstanding
       at December 31, 1998 and  1997, respectively...............................           283                             226
     Additional paid-in capital...................................................       209,983                          34,916
     Accumulated deficit..........................................................        (3,185)                        (13,729)
                                                                                  ---------------                  --------------
         Total stockholders' equity...............................................       207,081                          21,413
                                                                                  --------------                   -------------
                                                                                  $      247,599                   $      44,286
                                                                                  ==============                   =============
</TABLE>

  The accompanying Notes to Financial Statements are an integral part of these
                                  statements.




                                      F-3
<PAGE>   59
                          MINDSPRING ENTERPRISES, INC.
                            STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
                      (IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                   1998                  1997             1996
                                                            ---------------       ---------------    -------------
<S>                                                         <C>                   <C>                <C>          
REVENUES:
     Access.................................................$        95,852       $        40,925    $      13,420
     Business services......................................         14,735                 7,711            2,286
     Subscriber start-up fees...............................          4,086                 3,920            2,426
                                                            ---------------       ---------------    -------------
       Total revenues.......................................        114,673                52,556           18,132
                                                            ---------------       ---------------    -------------

COST AND EXPENSES:
     Cost of revenues -- recurring..........................         31,724                15,203            6,332
     Cost of subscriber start-up fees.......................          2,612                 1,619            1,876
     General and administrative.............................         38,443                22,265           10,072
     Selling................................................         18,881                 8,519            4,089
     Depreciation and amortization..........................         15,227                 8,695            3,285
                                                            ---------------       ---------------    -------------
       Total operating expenses.............................        106,887                56,301           25,654
                                                            ---------------       ---------------    -------------

OPERATING INCOME (LOSS).....................................          7,786                (3,745)          (7,522)
INTEREST INCOME (EXPENSE), NET..............................          1,214                  (338)             (90)
                                                            ---------------       ----------------   --------------

INCOME (LOSS) BEFORE TAXES .................................$         9,000       $        (4,083)   $      (7,612)
                                                            ---------------       ----------------   --------------

    INCOME TAX BENEFIT .....................................          1,544                      -                -
                                                            ---------------       ---------------     -------------

NET INCOME (LOSS)...........................................$        10,544       $        (4,083)   $      (7,612)
                                                            ===============       ================   ==============

NET INCOME (LOSS) PER SHARE:
     Basic..................................................$          0.43       $         (0.18)   $       (0.48)
                                                            ===============       ================   ==============
     Diluted................................................$          0.41       $         (0.18)   $       (0.48)
                                                            ===============       ================   ==============
SHARES USED FOR COMPUTING NET
     INCOME (LOSS) PER SHARE:
     Basic .................................................         24,611                22,542           15,758
                                                            ===============       ===============    =============
     Diluted................................................         25,431                22,542           15,758
                                                            ===============       ===============    =============
</TABLE>



                 The accompanying Notes to Financial Statements
                    are an integral part of these statements.




                                      F-4
<PAGE>   60
                          MINDSPRING ENTERPRISES, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                      Common Stock           Additional       Preferred Stock                              Total
                              ------------------------------  Paid-in   -----------------------------  Accumulated     Stockholders'
                                  Shares          Amount      Capital      Shares          Amount          Deficit          Equity
                              -----------       ---------    ----------    -------     -----------     ------------    -------------

<S>                                <C>         <C>          <C>           <C>          <C>               <C>            <C>
Balance, December 31, 1995           3,802     $      38     $      95       1,933          $ 2,383        $ (2,034)      $     482
   Conversion of Class A
     preferred stock to common       3,563            36           709      (1,188)            (745)              -               -
   Conversion of Class B
     preferred stock to common       1,937            19           981        (645)          (1,000)              -               -
   Issuance of additional
     common stock, net of
     related offering expenses       6,075            60        14,089           -                 -              -          14,149
   Conversion of Class C
     preferred stock to common         300             3           635        (100)            (638)              -               -
   Issuance of additional
     common stock, net of
     related offering expenses       6,750            68        18,319           -                 -              -          18,387
   Issuance of common stock
     pursuant to exercise of
     options      ..........             4             -             1           -                 -              -               1
     Net loss...............             -             -             -           -                 -         (7,612)         (7,612)
                               -----------  ------------    -----------    ---------        ---------      --------        --------

Balance, December 31, 1996..        22,431  $        224    $   34,829           -          $      -       $ (9,646)       $ 25,407
   Issuance of common stock
     pursuant to exercise of
     options................           172             2            87           -                 -              -              89
     Net loss...............             -             -             -           -                 -         (4,083)         (4,083)
                               -----------  ------------    -----------    ---------        ---------      --------        --------

Balance, December 31, 1997..        22,603  $        226    $   34,916           -          $      -       $(13,729)       $ 21,413
   Issuance of additional
     common stock, net of
     related offering expenses       3,000            30        49,726           -                 -              -          49,756
   Issuance of additional
     common stock, net of
     related offering expenses       2,300            23       124,761           -                 -              -         124,784
Issuance of common stock
     pursuant to exercise of
     options................           381             4           580           -                 -              -             584
     Net income.............             -             -             -           -                 -         10,544          10,544
                               -----------  ------------    -----------    ---------        ---------      --------        --------
Balance, December 31, 1998..        28,284  $        283    $  209,983           -          $      -       $ (3,185)       $207,081
                               ===========  ============    ============   =========        =========      ========        ========
</TABLE>



                 The accompanying Notes to Financial Statements
                    are an integral part of these statements.




                                      F-5
<PAGE>   61




                          MINDSPRING ENTERPRISES, INC.
                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                         1998                  1997                      1996
                                                                     -------------      ------------------         --------------
<S>                                                                  <C>                <C>                        <C>           
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss)...............................................$      10,544      $         (4,083)          $      (7,612)
                                                                     -------------      ----------------           -------------
     Adjustments to reconcile net loss to net cash provided
       by (used in) operating activities:
     Depreciation and amortization...................................       15,227                 8,695                   3,285
     Deferred income taxes...........................................       (4,544)                    -                       -
     Changes in operating assets and liabilities:
         Trade receivables...........................................       (1,276)                   (5)                 (1,477)
         Other current assets........................................          284                  (565)                   (158)
         Trade accounts payable......................................         (844)                2,352                   1,106
         Telecommunications cost payable.............................          598                 1,332                     700
         Deferred revenue............................................        5,245                 1,782                      80
         Other accrued expenses......................................        3,329                 1,166                     246
         Accrued compensation expense................................        1,146                   769                     520
         Income taxes payable........................................        2,566                     -                       -
         Network services payable....................................        3,226                   (89)                  1,305
                                                                     -------------      -----------------          -------------
           Total adjustments.........................................       24,957                15,437                   5,607
                                                                     -------------      ----------------           -------------
           Net Cash Provided By (Used In) Operating Activities.......       35,501                11,354                  (2,005)
                                                                     -------------      ----------------           -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchases of property and equipment.............................      (20,176)               (8,042)                 (8,298)
     Purchase of customer base.......................................      (27,312)                 (960)                (12,249)
     Other...........................................................         (159)                    -                    (789)
                                                                     --------------     ----------------           --------------
         Net Cash Used In Investing Activities.......................      (47,647)               (9,002)                (21,336)
                                                                     -------------      ----------------           -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds of loan from preferred stockholder.....................            -                     -                   1,000
     Payments of loan from preferred stockholder.....................            -                     -                  (3,500)
     Proceeds from notes payable.....................................            -                     -                  11,488
     Payments of notes payable.......................................       (2,043)                 (624)                 (8,822)
     Payments of capital lease obligations...........................       (2,578)               (2,084)                   (134)
     Issuance of common stock........................................      175,124                    89                  32,537
                                                                     -------------      ----------------           -------------
         Net Cash Provided By (Used In)  Financing Activities........      170,503                (2,619)                 32,569
                                                                     -------------      -----------------          -------------

NET INCREASE (DECREASE)  IN CASH AND CASH
     EQUIVALENTS.....................................................      158,357                  (267)                  9,228
CASH AND CASH EQUIVALENTS, beginning of year.........................        9,386                 9,653                     425
                                                                     -------------      ----------------           -------------

CASH AND CASH EQUIVALENTS, end of year...............................$     167,743      $          9,386           $       9,653
                                                                     =============      ================           =============

SUPPLEMENTAL DISCLOSURE FOR CASH FLOW
INFORMATION:
     Interest paid...................................................$         890      $            749           $         402
                                                                     =============      ================           =============
     Income taxes paid...............................................$         434      $              -           $           -
                                                                     =============      ================           =============

SUPPLEMENTAL NONCASH DISCLOSURES:
     Assets acquired under capital lease.............................$           -      $          8,443           $       1,473
                                                                     =============      ================           =============
     Noncash accrual for acquired subscriber base....................$       7,000      $              -           $           -
                                                                     =============      ================           =============
</TABLE>


                 The accompanying Notes to Financial Statements
                    are an integral part of these statements.




                                      F-6
<PAGE>   62

                          MINDSPRING ENTERPRISES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997, AND 1996

1.       ORGANIZATION AND NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT 
         ACCOUNTING POLICIES

         MindSpring Enterprises, Inc. ("MindSpring" or the "Company") is a
national provider of Internet access. The Company was incorporated in Georgia on
February 24, 1994 and began marketing its services in June 1994. The Company
reincorporated in Delaware and effected a recapitalization in December 1995.

         ESTIMATES AND ASSUMPTIONS

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the period.
Actual results could differ from those estimates.

         PRESENTATION

         Certain amounts in the prior year financial statements have been
reclassified to conform to the current year presentation.

         SOURCES OF SUPPLIES

         The Company relies on third-party networks, local telephone companies,
and other companies to provide data communications capacity. Although management
feels alternative telecommunications facilities could be found in a timely
manner, any disruption of these services could have an adverse effect on
operating results.

         CASH AND CASH EQUIVALENTS

         The Company considers all short-term, highly liquid investments with an
original maturity date of three months or less to be cash equivalents. Cash and
cash equivalents are stated at cost, which approximates fair value.

         CREDIT RISK

         The Company's accounts receivable potentially subject the Company to
credit risk, as collateral is generally not required. The Company's risk of loss
is limited due to advance billings to customers for services, the use of
preapproved charges to customer credit cards, and the ability to terminate
access on delinquent accounts. In addition, the concentration of credit risk is
mitigated by the large number of customers comprising the customer base. The
carrying amount of the Company's receivables approximates their fair value.

         PROPERTY AND EQUIPMENT

         Property and equipment are stated at cost. Depreciation and
amortization are provided for using the straight-line method over the estimated
useful lives of the assets, commencing when assets are installed or placed in
service. The estimated useful life for all assets is five years or, for
leasehold improvements, the life of the lease, if shorter.

         EQUIPMENT UNDER CAPITAL LEASE

         The Company leases certain of its data communication and other
equipment under lease agreements accounted for as capital. The assets and
liabilities under capital leases are recorded at the lesser of the present value
of aggregate future minimum lease payments, including estimated bargain purchase
options, or the fair value of the 



                                      F-7
<PAGE>   63

assets under lease. Assets under capital lease are depreciated over their
estimated useful lives of five years, which are longer than the terms of the
leases.

         ACQUIRED CUSTOMER BASE

         The Company capitalizes specific costs incurred for the purchase of
customer bases from other Internet Service Providers ("ISPs"). The customer
acquisition costs include the actual fee paid to the selling ISP, as well as
legal and other expenses specifically related to the transactions. Subscriber
acquisition costs capitalized at December 31, 1998 and 1997 were $47,521,000 and
$13,209,000, respectively. Amortization is provided using the straight-line
method over three years commencing when the customer base is received.
Amortization expense for the years ended December 31, 1998, 1997, and 1996 was
$7,048,000, $4,210,000, and $1,521,000, respectively. See Note 2 for further
discussion.

         LONG-LIVED ASSETS

         The Company periodically reviews the values assigned to long-lived
assets, such as property and equipment and acquired customer bases, to determine
whether any impairments are other than temporary. Management believes that the
long-lived assets in the accompanying balance sheets are appropriately valued.

         INCOME TAXES

         Deferred income taxes are recorded using enacted tax laws and rates for
the years in which the taxes are expected to be paid. Deferred income taxes are
provided for items when there is a temporary difference in recording such items
for financial reporting and income tax reporting.

         STOCK-BASED COMPENSATION PLANS

         The Company accounts for its stock-based compensation plans under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." The disclosure option of Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" requires
that companies which do not choose to account for stock-based compensation as
prescribed by this statement shall disclose the pro forma effects on earnings
and earnings per share as if SFAS No. 123 had been adopted.

         REVENUE RECOGNITION

         The Company recognizes revenue when services are provided. Services are
generally billed one month in advance. During 1998, the Company began offering
prepaid services. Advance billings including prepaid services and collections
relating to future access services are recorded as deferred revenue and
recognized as revenue when earned.

         BARTER TRANSACTIONS

         The Company engages in certain exchanges of services for advertising
and promotional services. The Company records these transactions at the market
value of the services provided. Such transactions are not material for the
periods presented.

         ADVERTISING COSTS

         The Company expenses all advertising costs as incurred.


                                      F-8
<PAGE>   64

         NET INCOME (LOSS) PER SHARE

         The Company calculates net income (loss) per share as required by SFAS
No. 128, "Earnings Per Share." Basic earnings (loss) per common share ("EPS")
was computed by dividing net income (loss) by the weighted average number of
shares of common stock outstanding for the year ended. The effect of the
Company's stock options (using the treasury stock method) was included in the
computation of diluted EPS for the year ended December 31, 1998. For the years
ended December 31, 1997 and 1996, the effect of the options is excluded as their
effect is anti-dilutive. The following table summarizes the shares used in the
calculations:

<TABLE>
<CAPTION>
                                                                         TWELVE MONTHS ENDED
                                                                           DECEMBER 31,

                                                         1998             1997             1996
                                                         ---------------  ---------------  ---------------
<S>                                                      <C>              <C>              <C>   
          (In Thousands)

          Weighted average shares
               Outstanding-basic                         24,611           22,542           15,758
          Effect of dilutive stock options               820                       -                -
                                                         ---------------  ---------------  ---------------
          Shares used for diluted earnings per share     25,431           22,542           15,758
                                                         ===============  ===============  ===============
</TABLE>

         RECENT ACCOUNTING PRONOUNCEMENTS

         In 1998, the Company was subject to the provisions of Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income" and Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related Information." Neither
statement had any impact on the Company's financial statements as the Company
does not have any "comprehensive income" type earnings (losses) and its
financial statements reflect how the "key operating decisions maker" views the
business. The Company will continue to review these statements over time, in
particular SFAS 131, to determine if any additional disclosures are necessary
based on evolving circumstances.

2.       CUSTOMER BASE ACQUISITIONS

         On June 28, 1996, the Company entered into a purchase agreement (as
amended on January 27, 1997, the "Purchase Agreement") with PSINet Inc.
("PSINet"), pursuant to which the Company agreed to acquire certain of the
tangible and intangible assets and rights related to the consumer dial-up
Internet access services provided by PSINet in the United States, including (i)
certain of PSINet's individual subscriber accounts and (ii) the lease for a
customer support call center near Harrisburg, Pennsylvania (the "Harrisburg
Facility"), and all related telephone switches and other equipment (the
"Assets") for $12,929,000 (excluding accrued interest and increases in principal
amount under the First and Second PSINet Notes previously paid by the Company)
(the "Purchase Price"). In connection with fixing the aggregate amount of the
Purchase Price, the Company and PSINet amended the Second PSINet Note to, among
other things, reduce the principal amount owed thereunder to $3,078,000, an
amount equal to the remaining balance of the Purchase Price as of January 24,
1997. As amended, the Second PSINet Note no longer accrued interest, was payable
over a two-year period, and was discounted for financial statement purposes
using the same rate of interest (Prime + 3%) as the prior PSINet Notes. The
Company accreted the difference between the principal and total payable amount
of $3,078,000 over the two years of the note.

         In connection with the PSINet transaction, the parties also entered
into a network services agreement (as amended, the "Services Agreement") which
enables MindSpring to offer nationwide Internet access through PSINet's network
of over 200 points of presence ("POPs"). The term of the Services Agreement is 5
years commencing on June 28, 1996 and is automatically renewable annually
thereafter unless either party notifies the other in writing not less than 12
months prior to the end of such 5-year period or any 12-month extension thereof.
Either party may terminate the Services Agreement at any time upon 60 days'
written notice without penalty. The Company and PSINet amended the Services
Agreement effective January 1, 1997 to provide for certain discounts to the
monthly service fees which otherwise would have been payable by the Company to
PSINet. The Company 


                                     F-9
<PAGE>   65

earned credits of $2,000,000 and $2,050,000 during 1998 and 1997, respectively,
and the discounts are reflected as reductions of cost of revenue. This
arrangement ended in October 1998.

         On September 10, 1998, MindSpring entered into an Asset Purchase
Agreement with America Online, Inc. ("AOL") and Spry, Inc. ("Spry"), a wholly
owned subsidiary of AOL, to purchase certain assets used in connection with the
consumer dial-up Internet access business operated by Spry (the "Spry
Agreement"). Pursuant to the Spry Agreement, MindSpring acquired Spry's
subscriber base of individual Internet access customers in the United States and
Canada as well as various assets used in serving those customers, including a
customer support facility and a network operations facility in Seattle,
Washington. MindSpring also acquired all rights held by Spry to the "Spry" name.
The acquisition was closed on October 15, 1998 and in accordance with the
agreement MindSpring paid the initial payment of $25,000,000 in cash to AOL The
ultimate purchase price for these assets was based primarily upon the number of
acquired subscribers who remain active with MindSpring as continuing users in
good standing as of December 31, 1998. The Company has calculated the final
purchase price to be approximately $32,000,000 and has accordingly accrued an
additional $7,000,000 in the accompanying balance sheet. The transaction is
being accounted for as a purchase. See Note 10 for further discussion.

3.       STOCKHOLDERS' EQUITY

         At the annual meeting of stockholders in May 1998 the Company voted to
approve and adopt an amendment to Article 4 of the Company's Amended and
Restated Certificate of Incorporation to increase the number of authorized
shares of $.01 par value common stock from 15,000,000 to 60,000,000 and to
eliminate the Company's Class C Preferred Stock.

         STOCK SPLIT

         On June 24, 1998 the Company effected a three-for-one stock split of
the outstanding shares of common stock in the form of a stock dividend.
Accordingly, all data shown in the accompanying financial statements and notes
has been retroactively adjusted to reflect the stock split.

         COMMON STOCK

         In June 1998, the Company issued 3,000,000 shares at a public offering
price of $17.67. The total proceeds of the offering, net of underwriting
discounts and offering expenses, were approximately $49,756,000.

         In December 1998, the Company issued 2,300,000 shares at a public
offering price of $57.00. The total proceeds of the offering, net of
underwriting discounts and offering expenses, were approximately $124,784,000.

4.       STOCK-BASED COMPENSATION PLANS

         EMPLOYEE STOCK OPTION PLAN

         Under the Company's 1995 Stock Option Plan, as amended (the "Stock
Option Plan"), 3,000,000 shares of common stock are reserved and authorized for
issuance upon the exercise of options. All employees of the Company are eligible
to receive options under the Stock Option Plan. The compensation committee of
the Board of Directors administers the Stock Option Plan. Options granted under
the Stock Option Plan are intended to qualify as incentive stock options under
Section 422 of the Internal Revenue Code of 1986, as amended. Options generally
become exercisable as follows: (i) 50% of the options become exercisable two
years after the date of grant or, in certain cases, the commencement date of the
holder's employment; (ii) an additional 25% of the options become exercisable
three years after the date of grant or, in certain cases, the commencement date
of the holder's employment; and (iii) the remaining 25% of the options become
exercisable four years after the date of grant or, in certain cases, the
commencement date of the holder's employment. Except as noted in the next
sentence, all options were granted at an exercise price equal to the estimated
fair value of the common stock on the dates of grant as determined by the Board
of Directors based on equity transactions and other analyses. Options granted to
holders of 10% or more of the outstanding common stock were granted at an
exercise price equal to 110% of the estimated fair value of the common stock on
the dates of grant as determined by the Board of Directors based on equity


                                     F-10
<PAGE>   66

transactions and other analyses. The options expire ten years from the date of
grant or, in certain circumstances, the commencement date of the option holder's
employment.

         DIRECTORS' STOCK OPTION PLAN

         Under the Company's Directors' Stock Option Plan (the "Directors'
Plan"), adopted in December 1995, 210,000 shares of common stock are authorized
for issuance to nonemployee directors (in the form of 30,000 options per
director) upon their initial election or appointment to the board or, in the
case of directors who joined the board prior to the creation of the Directors'
Plan, upon the adoption of the Directors' Plan by the Board of Directors. The
Directors' Plan, as amended by the Board of Directors on March 25, 1998 and
approved by the stockholders on May 20, 1998, provides for discretionary option
grants. 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. All options were granted at an exercise price equal to the estimated fair
value of the common stock at the dates of grant as determined by the Board of
Directors based upon equity transactions and other analyses. The options expire
ten years from the date of grant.

         STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123

         During 1995, the Financial Accounting Standards Board issued SFAS No.
123, which defines a fair value-based method of accounting for an employee stock
option or similar equity instrument and encourages all entities to adopt that
method of accounting for all of their employee stock-based compensation plans.
However, it also allows an entity to continue to measure compensation cost for
those plans using the method of accounting prescribed by APB No. 25. Entities
electing to remain with the accounting in APB No. 25 must make pro forma
disclosures of net income and, if presented, earnings per share as if the fair
value-based method of accounting defined in this statement had been applied.

         The Company has elected to account for its stock-based compensation
plans under APB No. 25; however, the Company has computed for pro forma
disclosure purposes the value of all options granted during 1998, 1997, and 1996
using the Black-Scholes option-pricing model as prescribed by SFAS No. 123 using
the following weighted average assumptions used for grants in 1998, 1997, and
1996:

<TABLE>
<CAPTION>
                                                  1998                  1997                  1996
                                             ----------------    -------------------    ------------------
<S>                                             <C>                    <C>                   <C> 
          Risk-free interest rate                       5.3%                   6.4%                  6.4%
          Expected dividend yield                         0%                     0%                    0%
          Expected lives                           3.5 years              3.5 years             3.5 years
          Expected volatility                          95.0%                  58.4%                 69.3%
</TABLE>

         The total value of options granted during 1998, 1997, and 1996 was
computed as approximately $38,679,000, $3,735,000 and $601,000, respectively,
which would be amortized on a pro forma basis over the four-year vesting period
of the options. If the Company had accounted for these plans in accordance with
SFAS No. 123, the Company's net income (loss) and pro forma net income (loss)
per share for the years ended December 31, 1998, 1997 and 1996 would have been
as follows:


                                     F-11
<PAGE>   67

<TABLE>
<CAPTION>
                    (In Thousands Except Per Share Data)          As Reported          Pro Forma
                                                               -----------------    ---------------
<S>                                                            <C>                  <C>
                    1996
                    Net loss                                   $     (7,612)        $    (7,836)
                    Net loss per share                         $      (0.48)        $     (0.50)

                    1997
                    Net loss                                   $     (4,083)        $    (5,402)
                    Net loss per share                         $      (0.18)        $     (0.24)

                    1998
                    Net income                                 $     10,544         $     2,291
                    Net  income per diluted share              $       0.41         $      0.09
</TABLE>

         A summary of the status of the Company's two stock options plans at
December 31, 1998, 1997 and 1996 and changes during the years then ended are
presented in the following table:

<TABLE>
<CAPTION>
                                                                                            Weighted
                                                                                             Average
                                                                           Shares           Price Per
                                                                       (In Thousands)         Share
                                                                       ---------------    --------------

<S>                                                                   <C>                  <C>
                    December 31, 1995                                           1,071             $0.62

                    Grants                                                        756              2.87

                    Exercised                                                     (3)              0.21

                    Forfeitures                                                  (90)              2.01
                                                                       ---------------

                    December 31, 1996                                           1,734              1.53

                    Grants                                                        453              4.21

                    Exercised                                                   (171)              0.29

                    Forfeitures                                                 (174)              3.12
                                                                       ---------------

                    December 31, 1997                                           1,842              2.15

                    Grants                                                        861             37.53

                    Exercised                                                   (382)              1.53

                    Forfeitures                                                 (198)              7.96
                                                                       ---------------

                    December 31, 1998                                           2,123             16.10
                                                                       ===============
                    Weighted average fair value of options

                        granted in 1998                                        $   45
                                                                       ===============
</TABLE>


         The following table summarizes the number of options outstanding by
year of grant:

<TABLE>
<CAPTION>

                                                                                                            Weighted
                                         Number                                                              Average
                     Year                  Of                   Exercise             Weighted               Remaining
                      Of                 Shares                  Price                Average              Contractual
                    Grant            (In Thousands)              Range                 Price                  Life
                ---------------     ------------------     -------------------     --------------        ----------------
<S>                                       <C>                  <C>                    <C>                  <C>
                     1998                  808                   $10.94-60.69             $38.59            9.6 years
                     1997                  341                    2.33 - 9.71               4.40               8.4
                     1996                  388                      2.13-4.13               2.79               7.6
                     1995                  586                      0.21-2.13               0.67               6.5
</TABLE>

         The following table summarizes the options exercisable as of December
31, 1998, 1997 and 1996:


                                     F-12
<PAGE>   68

<TABLE>
<CAPTION>
                                                                                       Weighted
                                               Number                                   Average
                                                 of                Weighted            Remaining
                                               Shares               Average           Contractual
                        As of              (In Thousands)            Price               Life
                  ------------------      -----------------       ------------       --------------
<S>                                       <C>                  <C>                    <C>
                  Dec. 31, 1998                 537                  $1.16             6.8 years
                  Dec. 31, 1997                 366                  $0.73                7.5
                  Dec. 31, 1996                 210                  0.21                 8.1
</TABLE>

         EMPLOYEE BENEFIT PLAN

         The Company has a savings plan (the "Savings Plan") that qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under the Savings Plan, participating employees may defer a portion of their
pretax earnings, up to the Internal Revenue Service annual contribution limit.
Annually, the Company determines whether to make a discretionary matching
contribution equal to a percentage, determined by the Company, of the employee's
deferred compensation contribution. The Company has not made any matching
contributions to the Savings Plan.

5.       RELATED-PARTY TRANSACTIONS

         The Company has entered into certain business relationships with
several subsidiaries and affiliates of ITC Holding Company, Inc. ("ITC
Holding"). 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. ("ITC/\DeltaCom"), a related
party through relationships with ITC Holding. Long-distance charges from
ITC/\DeltaCom totaled approximately $3,672,000, $1,942,000 and $677,000 for the
years ended December 31, 1998, 1997 and 1996, respectively.


                                     F-13
<PAGE>   69

6.       DEBT

         The Company's only debt obligation for the periods presented is a
promissory note issued in connection with the PSINet transaction. The final
payment on this note was made in December 1998.

<TABLE>
<CAPTION>

                                                                       1998                1997
                                                                  ----------------    ---------------
                                                                           (In Thousands)
<S>                                                               <C>                 <C>
                  PSINet Note, due October, 1998                  $         -                 $2,043
                  Less  current maturities                                  -                (2,043)
                                                                  ----------------    ---------------

                  Long-term obligations                           $        -              $        -
                                                                  ================    ===============
</TABLE>

         The carrying value of the PSINet Note approximated the market value as
of December 31, 1997.

7.       COMMITMENTS AND CONTINGENCIES

         LEASES

         The Company leases certain equipment under agreements, which are
classified as capital leases. These leases have original terms of three years or
less and contain bargain purchase options at the end of the original lease
terms. The Company also has operating leases, which relate to the lease of
office and equipment space. Rental expense attributable to these operating
leases was approximately $1,953,000, $1,420,000 and $519,000 for the year ended
December 31, 1998, 1997 and 1996, respectively.

         At December 31, 1998, the Company's capital lease obligations and
minimum rental commitments under non-cancelable operating leases with initial or
remaining terms of more than one year were as follows:

<TABLE>
<CAPTION>

                                                                Capital               Operating
                                                                 Leases                Leases
                                                             ---------------       ----------------
                                                                       (In Thousands)

<S>                                                               <C>                 <C>
                    1999                                             $3,103                 $3,385
                    2000                                              2,595                  3,392
                    2001                                                  -                  1,441
                    2002                                                  -                    829
                    2003 and thereafter                                   -                    963
                                                             ---------------       ----------------
                       Total minimum lease payments                   5,698                $10,010
                                                                                   ================
                    Amounts representing interest                     (579)
                                                             ---------------
                    Present value of net minimum
                       payments                                       5,119
                    Current portion                                 (2,695)
                                                             ---------------
                    Long-term capitalized lease
                       obligations                                   $2,424
                                                             ===============
</TABLE>

         LEGAL PROCEEDINGS

         The Company is subject to legal proceedings and claims that arise in
the ordinary course of business. As of December 31, 1998, management is not
aware of any asserted or pending litigation or claims against the Company that
would have a material adverse effect on the Company's financial condition,
results of operations or liquidity.



                                     F-14
<PAGE>   70

8.       INCOME TAXES

         The provision for income taxes is attributable to:

<TABLE>
<CAPTION>

                                                               1998                1997                1996
                                                         -----------------    ----------------    ---------------
                                                                             (In Thousands)
<S>                                                     <C>                 <C>                   <C>
      Current                                            $          3,000     $            -      $           -
      Deferred                                                        654             (1,574)            (2,915)
      Increase in (reversal of) valuation allowance                (5,198)             1,574              2,915
                                                         -----------------    ----------------    ---------------
         Income tax provision (benefit)                  $         (1,544)    $            -      $           -
                                                         =================    ================    ===============
</TABLE>

         A reconciliation of the income tax provision (benefit) computed at
statutory tax rates to the income tax benefit for the year ended December 31,
1998, 1997 and 1996 is as follows:

<TABLE>
<CAPTION>
                                                                 1998         1997         1996
                                                                --------     --------     --------
<S>                                                               <C>         <C>          <C>
                Income tax benefit at statutory rate                34%        (34)%        (34)%
                State income taxes, net of federal benefit            4          (4)          (4)
                Other                                                 2            0            0
                Valuation allowance                                (57)           38           38
                                                                --------     --------     --------
                      Total income tax provision (benefit)        (17)%           0%           0%
                                                                ========     ========     ========
</TABLE>

         Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The significant
components of the Company's deferred tax assets and liabilities as of December
31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>

                                                                  1998              1997
                                                               ------------   -----------------
                                                                      (In Thousands)
<S>                                                            <C>         <C>
               Deferred tax assets:
                 Net operating loss carryforwards              $         -     $         3,866
                 Acquired customer base                              3,902               1,742
                 Deferred revenue                                    2,221                 835
                 Allowance for doubtful accounts                       465                 285
                 Prepaid revenue                                       608                   -
                 Accrued vacation                                      371                   -
                 Other accrued liabilities                               -                 126
                                                               ------------   -----------------
                    Total deferred tax assets                        7,567               6,854
                                                               ------------   -----------------
               Deferred tax liabilities:
                 Depreciation                                      (2,779)             (1,608)
                 Other                                               (244)                (48)
                                                               ------------   -----------------
                    Total deferred tax liabilities                 (3,023)             (1,656)
                                                               ------------   -----------------

               Net deferred tax asset                                4,544               5,198

               Valuation allowance for deferred tax assets               -             (5,198)
                                                               ------------   -----------------
               Net deferred taxes                              $    4,544     $             -
                                                               ============   =================
</TABLE>

         The Company's net operating loss carryforwards will expire between 2009
and 2012 unless utilized. Due to the fact that prior to 1998 the Company
incurred losses since inception, the Company did not recognize the income tax
benefit of the net operating loss carryforwards. Management provided a 100%
valuation reserve against its net deferred tax asset, consisting primarily of
net operating loss carryforwards. Management reviewed this position based on the
net income generated in 1998 as well as the projections of future income and
determined that it was more likely than not that the deferred tax assets would
be realized. Accordingly, the Company reversed its entire valuation allowance in
1998. In addition, the Company's ability to recognize the benefit from the net



                                     F-15
<PAGE>   71

operating loss carryforwards could be limited under Section 382 of the Internal
Revenue Code if ownership of the Company changes by more than 50%, as defined.

9.       QUARTERLY FINANCIAL DATA (UNAUDITED)

         The following is a summary of the unaudited quarterly results for 1998,
1997, and 1996:

                  (In Thousands Except Per Share Data)

<TABLE>
<CAPTION>
                                                   Operating              Net             Net Income
      Quarter Ended              Revenue         Income (Loss)       Income (Loss)       (Loss) Per Share
    ----------------------    -------------     ----------------    ---------------- ---------------------
                                                                                       Basic     Diluted
<S>                           <C>               <C>                 <C>              <C>         <C>    
    December 31, 1998         $    39,534       $      1,299        $       3,679    $     .14   $   .13
    September 30, 1998             28,695              3,440                3,985          .15       .15
    June 30, 1998                  25,060              1,994                2,020          .09       .08
    March 31, 1998                 21,384              1,053                  860          .04       .04

    December 31, 1997         $    17,209       $        646        $         498    $     .02   $   .02
    September 30, 1997             13,967              (465)                (626)        (.03)     (.03)
    June 30, 1997                  11,600            (1,421)              (1,430)        (.06)     (.06)
    March 31, 1997                  9,780            (2,505)              (2,525)        (.11)     (.11)

    December 31, 1996         $     8,524       $    (2,378)        $     (2,411)    $   (.11)   $ (.11)
    September 30, 1996              5,301            (2,601)              (2,702)        (.18)     (.18)
    June 30, 1996                   2,495            (1,577)              (1,460)        (.10)     (.10)
    March 31, 1996                  1,812              (966)              (1,039)        (.10)     (.10)
</TABLE>

               See Note 1 for a discussion of earnings per share.

10.       SUBSEQUENT EVENT

         ACQUISITION

         On February 17, 1999, MindSpring acquired certain tangible and
intangible assets and rights used in connection with the Internet services
business operated in the United States by NETCOM On-Line Communication Services,
Inc. ("NETCOM"), a Delaware corporation and an indirect wholly owned subsidiary
of ICG Communications, Inc., including (i) approximately 400,000 of NETCOM's
individual Internet access accounts; (ii) approximately 3,000 dedicated Internet
access accounts; (iii) approximately 18,000 Web hosting accounts; and (iv)
various assets used in serving those subscribers, including leased operations
facilities in San Jose, California and Dallas, Texas and all of NETCOM's rights
to the "NETCOM" name (except in Brazil, Canada and the United Kingdom). The
acquisition was effected pursuant to an Asset Purchase Agreement dated January
5, 1999 between MindSpring and NETCOM. MindSpring paid NETCOM approximately
$245,000,000, including $215,000,000 in cash and $30,000,000 in MindSpring
stock.

         The NETCOM operations outside the United States are not included in
this transaction. In addition, NETCOM (which will change its name in the near
future) will retain all of the assets used in connection with its network
operations. Under a separate network services agreement, NETCOM (operating under
a new corporate name) will sell MindSpring wholesale access to its network. The
agreement has an initial term of one year with an option for a second year on
potentially different terms to be negotiated and accepted by both parties.

         The transaction will be accounted for as a purchase. The purchase price
will be allocated to the underlying assets purchased and liabilities assumed
based on their fair market values at the acquisition date.


                                     F-16
<PAGE>   72

         The following table summarizes the net assets purchased in connection
with the NETCOM and Spry acquisitions and the amount attributable to cost in
excess of net assets acquired in millions:

<TABLE>
<CAPTION>
                                                     NETCOM              Spry
                                                     ------              ----
<S>                                                  <C>                 <C> 
           Working capital                           $(3.0)              $  -
           Property and equipment                     17.2                  -
           Other assets                                0.2                  -
           Acquired customer base                    230.6               32.0
</TABLE>

         The preliminary estimate of net assets represents management's best
estimate based on currently available information; however, such estimate may be
revised up to one year from the acquisition date. Acquired subscriber bases are
amortized over 3 years.

         The following unaudited pro forma condensed statements of operations
(in millions) assumes the NETCOM and Spry acquisitions occurred on January 1,
1997. In the opinion of management, all adjustments necessary to present fairly
such unaudited pro forma condensed statements of operations have been made.

<TABLE>
<CAPTION>
                                                          1998              1997
                                                     ---------------     -----------
<S>                                                  <C>                 <C>   
           Revenue                                   $ 294.9             $250.3
           Net Loss                                   (101.5)            (101.0)
           Net Loss per share                          (3.57)             (3.58)
</TABLE>

         CREDIT FACILITY

         Subsequent to year end, the Company obtained a $100 million secured
revolving credit facility from First Union National Bank and certain other
lenders. The credit facility may be increased to $200 million with the approval
of 51% of the lenders. The credit facility has an interest rate of either the
bank rate plus 25 to 100 basis points (defined as the banks prime rate or the
overnight federal funds rate plus 50 basis points) or LIBOR plus 125-200 basis
points depending upon the ratio of total debt to EBITDA. The facility is
available for 36 months and contains certain restrictive covenants including
certain financial ratios. Additionally, borrowings are secured by all assets and
properties. To complete the NETCOM acquisition, the Company borrowed $80 million
under this facility. The proceeds from any future debt issuances and certain
sales of assets and insurance proceeds must be used to repay any outstanding
borrowings.


                                     F-17
<PAGE>   73


            REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULES

We have audited, in accordance with generally accepted auditing standards, the
financial statements of MINDSPRING ENTERPRISES, INC. included in this Form 10-K
and have issued our report thereon dated February 17, 1999. Our audits were
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedule listed in the index is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

                                                     ARTHUR ANDERSEN LLP

Atlanta, Georgia
February 17, 1999







                                      S-1
<PAGE>   74

                 SCHEDULE II - VALUATION OF QUALIFYING ACCOUNTS

                          MINDSPRING ENTERPRISES, INC.
                        VALUATION AND QUALIFYING ACCOUNTS
                      FOR THE YEAR ENDED DECEMBER 31, 1998
                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
             COLUMN A                      COLUMN B                     COLUMN C                  COLUMN D          COLUMN E
---------------------------------     ------------------    -------------------------------   ---------------   ---------------
                                                                       ADDITIONS
                                                            -------------------------------
                                          BALANCE AT          CHARGED TO        CHARGED TO                         BALANCE AT
                                          BEGINNING           COSTS AND           OTHER          DEDUCTIONS           END
            DESCRIPTION                   OF PERIOD            EXPENSES          ACCOUNTS           (a)            OF PERIOD
            -----------               ------------------    -------------     -------------   ---------------   ---------------
<S>                                       <C>               <C>                <C>              <C>                   <C>
DEDUCTION IN THE BALANCE SHEET
  FROM THE ASSET TO WHICH IT
  APPLIES:
Allowance for uncollectible accounts
  Receivable..........................      $751              $3,123             $0               ($2,650)              $1,224
</TABLE>

(a) Represents specific accounts written-off considered to be uncollectible.


                          MINDSPRING ENTERPRISES, INC.
                        VALUATION AND QUALIFYING ACCOUNTS
                      FOR THE YEAR ENDED DECEMBER 31, 1997
                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
             COLUMN A                      COLUMN B                     COLUMN C                  COLUMN D          COLUMN E
---------------------------------     ------------------    -------------------------------   ---------------   ---------------
                                                                       ADDITIONS
                                                            -------------------------------
                                          BALANCE AT          CHARGED TO        CHARGED TO                         BALANCE AT
                                          BEGINNING           COSTS AND           OTHER          DEDUCTIONS           END
            DESCRIPTION                   OF PERIOD            EXPENSES          ACCOUNTS           (a)            OF PERIOD
            -----------               ------------------    -------------     -------------   ---------------   ---------------
<S>                                       <C>               <C>                <C>              <C>                   <C>
DEDUCTION IN THE BALANCE SHEET
  FROM THE ASSET TO WHICH IT
  APPLIES:
Allowance for uncollectible accounts
  Receivable..........................      $386              $1,459             $0               ($1,094)          $751
</TABLE>

(a) Represents specific accounts written-off considered to be uncollectible.


                                     




                                      S-2
<PAGE>   75


<TABLE>
<CAPTION>

                 EXHIBIT                                               EXHIBIT
                 NUMBER                                              DESCRIPTION
                -------------------------------------------------------------------------------------------------------------
<S>                            <C>

                 2.1       --  Asset Purchase Agreement dated as of September 10, 1998 by and among MindSpring
                               Enterprises, Inc., America Online, Inc. and Spry, Inc.  (Filed as Exhibit 2.1 to Current
                               Report on Form 8-K dated September 15, 1998, File No. 0-27890, and incorporated herein by
                               reference.)

                 2.2       --  Asset Purchase Agreement dated as of January 5, 1999 by and between MindSpring
                               Enterprises, Inc. and NETCOM On-Line Communication Services, Inc.  (Filed as Exhibit 2.1
                               to Current Report on Form 8-K dated February 25, 1999, File No. 0-27890, and incorporated
                               herein by reference.)

                 2.3       --  Closing Agreement, dated February 17, 1999, by and between MindSpring Enterprises, Inc.
                               and NETCOM On-Line Communication Services, Inc.  (Filed as Exhibit 2.2 to Current Report
                               on Form 8-K dated February 25, 1999, File No. 0-27890, and incorporated herein by
                               reference.)

                 3.1       --  Amended and Restated Certificate of Incorporation of MindSpring Enterprises, Inc. (Filed
                               as Exhibit 3.1 to Quarterly Report on Form 10-Q/A dated December 7, 1998, File No.
                               0-27890, and incorporated herein by reference.)

                 3.2       --  Certificate of Amendment to Amended and Restated Certificate of Incorporation of
                               MindSpring Enterprises, Inc.  (Filed as Exhibit 3.2 to Quarterly Report on Form 10-Q/A
                               dated December 7, 1998, File No. 0-27890, and incorporated herein by reference.)

                 3.3       --  Amended and Restated Bylaws of MindSpring Enterprises, Inc. (Filed as Exhibit 3(b) to
                               Quarterly Report on Form 10-Q/A dated August 30, 1996, File No. 0-27890, and incorporated
                               herein by reference.)

                10.1       --  Support Agreement entered into as of April 1996 between Sykes Enterprises,
                               Incorporated and NETCOM On-Line Communication Services, Inc.

                10.2       --  Lease Agreement between Park West E-3 Associates and NETCOM On-Line Communication
                               Services, Inc., a Delaware Corporation, dated February 23, 1996.

                10.3       --  Credit Agreement dated as of February 17, 1999 by and among MindSpring Enterprises, Inc.,
                               as Borrower, the Lenders referred to herein, First Union Capital Markets Corp., as
                               Arranger and First Union National Bank, as Administrative Agent.  (Filed as Exhibit 10.1
                               to Current Report on Form 8-K dated February 25, 1999, File No. 0-27890, and incorporated
                               herein by reference.)

                10.4       --  Guaranty and Collateral Agreement made by MindSpring Enterprises, Inc. and the other
                               Grantors party hereto in favor of First Union National Bank, as Administrative Agent.
                               (Filed as Exhibit 10.2 to Current Report on Form 8-K dated February 25, 1999, File No.
                               0-27890, and incorporated herein by reference.)

                10.5       --  Lease Agreement commencing on November 1, 1995 between West Peachtree Point Partners,
                               L.P. and MindSpring Enterprises, Inc.  (Filed as Exhibit 10(j) to Initial Form S-1, and
                               incorporated herein by reference.)

                10.6       --  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.  (Filed as Exhibit 10(cc) to Initial Form S-1, and
                               incorporated herein by reference.)

                10.7       --  MindSpring Enterprises, Inc. 1995 Stock Option Plan, as amended.

                10.8       --  Form of Stock Option Agreement.  (Filed as Exhibit 10(v) to Initial Form S-1, and
                               incorporated herein by reference.)

                10.9       --  MindSpring Enterprises, Inc. 1995 Directors Stock Option Plan, as amended.

                10.10      --  Form of Director Stock Option Agreement, as amended.  (Filed as Exhibit 10(x) to
                               Initial Form S-1, and incorporated herein by reference.)

                10.11      --  Form of MindSpring Director or Officer Indemnity Agreement.  (Filed as Exhibit 10(dd) to
                               Initial Form S-1, and incorporated herein by reference.)

                10.12      --  Master Services Agreement dated July 15, 1996 between BellSouth Telecommunications, Inc.
                               and MindSpring Enterprises, Inc.  (Filed as Exhibit 10(cc) to the October 1996 S-1, and
                               incorporated herein by reference.)

                10.13      --  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.

                10.14      --  Lease Agreement effective as of January 1, 1997 by and between CMS Peachtree, L.P. and
                               MindSpring Enterprises, Inc.  (Filed as Exhibit 10(hh) to Annual Report on Form 10-K
                               dated March 26, 1997, File No. 0-27890, and incorporated herein by reference.)

                10.15      --  Amendment dated June 6, 1997 to Master Services Agreement dated July 15, 1996 between
                               BellSouth Telecommunications, Inc. and MindSpring Enterprises, Inc. (Filed as Exhibit 10.1 to
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                               Quarterly Report on Form 10-Q dated August 14, 1997, File No. 0-27890, and incorporated
                               herein by reference).

                10.16      --  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) (Filed as Exhibit 10.2 to Quarterly Report on Form 10-Q dated
                               August 14, 1997, File No. 0-27890, and incorporated herein by reference).

                11.1       --  Statement regarding Computation of Per Share Earnings.

                23.1       --  Consent of Arthur Andersen LLP

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