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Technology Stocks : OneMain.com (ONEM) -- Ignore unavailable to you. Want to Upgrade?

To: Mohan Marette who wrote (430)	5/28/1999 4:25:00 PM
From: Jeffrey Lee	Read Replies (1) \| Respond to of 614

DJ Ladenburg's Squali Sees Net Downturn Sparking ISP Deals NEW YORK (Dow Jones)--The recent downturn in Internet stocks could spark some consolidation among Internet service providers, according to Ladenburg Thalmann analyst Youssef Squali. "This new environment, we believe, will trigger a round of consolidation among Internet service providers with the clear winners being those ISPs with strong balance sheets," he wrote in a Thursday research note. He said Earthlink Network Inc. (ELNK), which has $350 million in cash, and Mindspring Enterprises Inc. (MSPG), which has $380 million in cash, "now find themselves in a strong financial position and best poised to make cash/stock deals to acquire private ISPs." He also said second-tier public ISPs, like Prodigy Communications Corp. (PRGY) and OneMain.com Inc. (ONEM), "offer good acquisition targets for first tier players."

To: Mohan Marette who wrote (430)	5/29/1999 10:14:00 PM
From: Glenn Petersen	Respond to of 614

I suspect that one of the concerns that has been hanging over ONEM has been the amount of the contingent payments that will be due to the former owners of the ISPs that ONEM acquired. The amount for the majority of these payments will not be calculated until the end of the second quarter. From the S-1: sec.gov "In addition to the purchase price paid at the closing of our IPO, we have agreed to pay to the former owners of our initial 17 ISPs, other than SunLink, Inc. and TGF Technologies, Inc., an amount based on a percentage generally equal to 10% to 20% of the amount, if any, by which the total revenues for that ISP for the 12 months ending June 30, 1999 exceed its annualized revenues for the three months ended June 30, 1998. In the case of JPS.Net Corporation, this amount equals 50% of the amount by which its total revenues for the 12 months ending September 30, 1999 exceed its annualized revenues for the three months ended September 30, 1998. In most cases, the ISP must have at least a 5% EBITDA margin for the 12 months ending June 30, 1999 to be entitled to this additional consideration. "EBITDA" means earnings or losses before interest, taxes, depreciation and amortization. We must pay any amounts owing to these former ISP owners based on this calculation prior to December 31, 1999 and may make payments in cash or in stock at our option or, in one case, at the option of the former owners of that ISP. In addition, on June 30, 1999, we will grant additional options to former owners, employees and affiliates of our initial 17 ISPs. For each of these ISPs, other than TGF Technologies, we will grant options to purchase a number of shares of common stock equal to the greater of: ----20 times the incremental revenues for the ISP for the 12 months ending June 30, 1999 in excess of the annualized revenues for the ISP for the three months ended June 30, 1998, divided by $1,000; or ----five times the incremental increase in the number of subscribers for the ISP at June 30, 1999 compared to June 30, 1998. For TGF Technologies, we will grant options to purchase a number of shares of common stock equal to the greater of: ----20 times its incremental revenues for the six months ending June 30, 1999 in excess of its annualized revenues for the three months ended December 31, 1998 divided by $1,000; or ----five times the incremental increase in its number of subscribers at June 30, 1999 compared to December 31, 1998. The exercise price of these options will equal the fair market value of our common stock at June 30, 1999, and the options will vest one-third on each of June 30, 2005, 2006 and 2007, and may vest earlier based on the performance of each ISP."

To: Mohan Marette who wrote (430)	5/29/1999 11:16:00 PM
From: Glenn Petersen	Respond to of 614

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.