As noted in my prior post, there are two components to the additional payments that ONEM will owe to the former owners of the 17 ISPs that were acquired. Rather than labor through the individual contracts, I am going to assume that the compensation paid to each of the former owners is identical.
The first component, to be paid in either cash or stock, is an amount based on a percentage (10% to 20%) of the amount by which the total revenues for each ISP for the 12 months ending June 30, 1999 exceeds its annualized revenues for the three month period ending June 30, 1998.
The annualized aggregate revenues for the 17 ISPs for the quarter ending June 30, 1998 were $52.825 MM. For the three months periods ending September 30, 1998, December 31, 1998 and March 31, 1999, these ISPs reported aggregate revenues of $15.082 MM, $16.927 MM and $17,968 MM, respectively. If you assume that the revenues for the quarter ending June 30, 1999 approximate $20.0 MM, the total revenues for the twelve month period will approximate $70.0 MM. Subtract the base amount ($52.825 MM), multiply by 15% and you come up with additional compensation of approximately $2.6 MM. Not bad. Additionally, no compensation is due unless the ISP has maintained an EBITDA margin equal to at least 5%. For the three month and nine month period ending March 31, 1999, the EBITDA percentage for ONEM was 4.3% and (1.0%), respectively.
The second piece of the compensation consists of additional options to be priced at the fair market value of ONEM at June 30, 1999. The amount of the options to be issued is the greater of two calculations, both of which use the June 30, 1998 quarter as a base. 0ne is tied to revenue growth and the second is tied to subscriber growth. The second calculation is the one that is going to apply.
The 17 ISPs had a total of 235,742 subscribers at June 30, 1998 and 370,839 subscribers at March 31, 1999. Assume there are 415,000 subscribers at June 30, 1999, subtract the 235,742 and multiply by 5. That would give the former owners of the ISPs options on approximately 900,000 shares. These options do not begin to vest until June 30, 2005.
All things considered, I would not be too concerned about the additional consideration. The above is obviously JMHO and I welcome any comments. Hopefully, I have not missed anything major.
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