Earthlink 2000 Annual Report Download - page 48

EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. STRATEGIC ALLIANCES AND ACQUISITIONS (CONTINUED) In September 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 approximately 130,000 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 in October 1998 and in
accordance with the agreement, MindSpring paid the initial payment of $25 million in cash to AOL The ultimate purchase price for these assets
was $32 million.
In February 1999, MindSpring completed its acquisition of certain assets used in connection with the United States Internet access and Web
hosting business operated by NETCOM On-Line Communication Services Inc., which subsequently changed its name to ICG Netahead, Inc.
and is a wholly owned subsidiary of ICG Communications, Inc. In this transaction, MindSpring acquired NETCOM's subscriber base of
approximately 408,000 individual Internet access accounts, 25,000 Web hosting accounts, 3,000 dedicated Internet access accounts in the
United States and property and equipment valued at $13.2 million. MindSpring paid NETCOM approximately $245 million, consisting of $215
million in cash and $30 million in MindSpring common stock (752,232 shares, at a price per share of $39.88). MindSpring incurred additional
expenses of approximately $4.2 million in connection with this acquisition.
In January 2000, the Company entered into a multi-year partnership to deliver services to customers of Apple Computer Corporation in the
U.S. Under the terms of the partnership, EarthLink will become the exclusive default ISP in Apple's Internet Setup Software included with all
Apple Macintosh-Registered Trademark- computers sold in the U.S. In addition, Apple purchased 7,083,333 shares of Series C convertible
preferred stock for $200 million. Apple has the right to appoint a member to EarthLink's Board of Directors.
On September 12, 2000, EarthLink completed its acquisition of OneMain.com, Inc. ("OneMain"). The aggregate of acquisition price and costs
incurred to acquire OneMain was approximately $315.0 million. The aggregate purchase price consisted of (i) $155.4 million in cash, (ii)
$200,000 in estimated cash payments in lieu of fractional shares, and (iii) 9,278,298 shares of EarthLink common stock valued at $106.7
million at a closing price of $11.50 on September 11, 2000. In addition, EarthLink assumed capital lease liabilities of $22.1 million and other
net liabilities of $1.8 million. Transaction charges incurred in the acquisition totaled approximately $28.8 million.
The OneMain acquisition was accounted for under the purchase method. Accordingly, the results of OneMain have been included in the
financial results of EarthLink since the date of acquisition. Assets acquired and liabilities assumed have been recorded at their estimated fair
values, and are subject to adjustment when additional information concerning asset and liability valuations is finalized. OneMain's accounting
policies have been conformed to those of EarthLink. Based on an independent appraisal, $189.5 million of the purchase price was attributed to
the approximately 758,000 customers acquired from OneMain. Approximately $5.2 million and $6.3 million of the $315.0 million purchase
price were attributed to the value of the OneMain technologies and assembled work force, respectively. The excess of cost over the estimated
fair value of net assets acquired was $114.0 million and has been allocated to goodwill. All intangible assets acquired in the transaction,
including goodwill, will be
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