And what do we know about Andrew Mason, Groupon’s president (and arguably a moustache-free version of the dashing Rhett Butler)? Well, thanks to the 598-page* amended S-1 that it filed with the SEC at 5:15 p.m. last Friday, we now know about Mason’s employment agreements with the company. They are Exhibits 10.6 and 10.7 to the S-1/A; although the former document contains the interesting numbers, the latter one (an amendment dated December 15, 2010) provides some severance protection if Groupon ushers Mason to the door without cause. Beyond the details (which we’ll get to in a minute), we thought it was particularly interesting that it took this long for those contracts to see the light of day, given that Groupon filed its first S-1 back in early June.

Mason’s Employment Agreement, dated November 1, 2009, has a five-year term. It gave him a starting base salary of $180,000 per year, which rose to a minimum of $207,000 in 2010. And – since the agreement assured Mason that his salary would be reviewed every year “for possible increase (but not decrease)” and that his paycheck “shall be increased by no less than fifteen percent (15%) per annum” – he could already be earning much more than that, with another raise just a couple of months away. Of course, as with most fast-growing companies, it’s really about the stock, and Mason’s agreement spells out buckets of that: 300,000 Class A shares of restricted stock.

Given that various estimates value the company at $20 billion, that’s a nice little cushion.

Ditto for former Chief Operating Officer, Rob Solomon, whose Employment Agreement was attached as Exhibit 10.9 to the S-1/A. Solomon’s agreement started March 15, 2010 and would have run through March 15, 2014 – but for his abrupt departure last March. Besides a base salary of $350,000 and eligibility for a performance bonus of up to 33% of his salary, Solomon also got 685,000 stock options, which he could purchase “at the fair market value of the company’s stock options determined in accordance with GAAP, which… [as of March, 2010 was] estimated not to exceed $3.00/share.” An important section in his employment agreement added:

“In the event that Solomon’s employment with the Company is terminated, Solomon shall have ninety (90) days following such termination to exercise any vested Options;…”

Because Solomon resigned after March 16, 2011 (the date upon which 171,250 of the shares vested) and he got an additional 90 days after that in which to exercise stock options, he may also get to exercise the 42,813 shares that are scheduled to vest on June 16, 2011. Assuming that he has exercised – or does exercise – some or all of the vested options, he will become an even wealthier man.

Between the jittery market and Groupon’s need to get things in order before it goes public, it will probably be a few more weeks or months before that can happen. And there will certainly be many more stories about this highly-anticipated public offering. However, unlike the famous line that Rhett delivers to Scarlett just before he leaves her, it seems that everyone gives a damn about what shall become of Groupon.

Image source: Gone With the Wind

*The length of Groupon’s filing pales when compared to Margaret Mitchell’s classic book; a quick search of editions available on Amazon range between 960 and 1048 pages.

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Risk avoidance is critical in the current market environment. Over on FootnotedPro, we shine a spotlight on potential problems well in advance of the market. For more information or to inquire about a trial subscription, contact Todd Serpico.

]]> http://www.footnoted.com/ipo/burying-our-noses-in-groupons-page-turner/feed/ 0 http://www.footnoted.com/ipo/the-footnoted-jobs-program/ http://www.footnoted.com/ipo/the-footnoted-jobs-program/#comments Fri, 09 Sep 2011 14:03:56 +0000 Michelle Leder http://www.footnoted.com/?p=6359 We try to stay away from politics for the most part, though of course that’s often difficult given that the SEC’s commissioners are appointed by the President and its budget is dictated by Congress. But we couldn’t help ourselves after catching a line in President Obama’s jobs speech (PDF) last night. In fact, we even started a bit of a twitter war with the regulation-is-the-root-of-all-evil crowd.

First, here’s the line that caused our ears to perk up like the Pets.com dog:

“We’re also planning to cut away the red tape that prevents too many rapidly-growing start-up companies from raising capital and going public.”

While this was less than 25 words in a speech that (as prepared) was just over 4,000 words, we couldn’t help but wonder: is the current system really preventing good companies from going public? Granted, we don’t tend to focus on IPOs here at footnoted. But we’ve certainly read our share of S-1s over the years (and the many amendments that are often tacked on before a company actually goes public)  and I suppose that if we wanted to (and Morningstar added a few zeros to my budget) we could do a footnoted spin-off site that did nothing but IPOs. Maybe — and this is being super-ambitious here – we could even take it public!

There’s certainly lots of raw material to choose from: since the beginning of the year, there have been 757 S-1s filed with the SEC and it’s not uncommon for an S-1 to be several hundred pages long. That doesn’t include  S-1/As. (LinkedIn (LNKD) for example, filed six of those before going public). We’ve also read plenty of comment letters and seen other investigations from the SEC seeking to clean up some of the seemingly insignificant details when high profile companies (hello, Groupon) file to go public. And then there are those delicious reverse-mergers that seem to take the really crappy companies public and serve them up to ordinary investors.

We took a quick skim of S-1s that have been filed over the past 10 years and there hasn’t been any shortage that we’re able to document. For the same 8 month period last year, just over 800 S-1s were filed. In 2009, a much more difficult year in IPO-ville, that number was 410. Keep in mind that counting S-1s isn’t a precise way to measure IPO activity since some companies file, but later withdraw. Or they file for a secondary offering or go public via a reverse merger.

The fact is that for every Amazon (AMZN) and Google (GOOG) and Apple (AAPL) that go public and make a lot of money for ordinary investors, there’s hundreds that meet a much different fate. They rise on the buzz only to peter out. The filings are full of these examples. Pets.com, anyone? Cord Blood America? The Globe.com? Webvan? How many more do we need to list in order to make our point?

So the idea that it needs to be easier for companies to go public is simply laughable. Our friend, Sam Antar, the former CFO of electronics chain Crazy Eddie (another winning IPO!) who now runs the White Collar Fraud site puts it succinctly with this tweet: “If I were still a white collar criminal, I’d support Obama’s call to make it easier for more companies to go public.”

If this admittedly small part of Obama’s plan does wind up passing, it could very well create at least a few more jobs for people like us who slog through the fineprint filed with the SEC, trying to separate the good from the bad and the even worse! (Not to mention the plaintiff’s bar). Perhaps we can even recycle the Pets.com logo and call it the footnoted jobs program!

Noon update: A helpful reader pointed us to the fact sheet that the White House put out with more precise details on the President’s proposal, which sounds infinitely better than what we heard last night. Here’s the key sentence:

As part of the President’s Startup America initiative, the Administration will work with the SEC to conduct a comprehensive review of securities regulations from the perspective of these small companies to reduce the regulatory burdens on small business capital formation in ways that are consistent with investor protection, including expanding “crowdfunding” opportunities and increasing mini-offerings.

We still think that there are still better ways — short of going public — for smaller companies to access capital to grow. And there’s already significantly lower barriers when a company is below a certain size, like reduced filing requirements, longer deadlines to file, etc. But this additional detail sure sounds a lot better to us than last night’s making it easier for companies to go public line.

Image source: Wikepedia Commons

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Risk avoidance is critical in the current market environment. Over on FootnotedPro, we shine a spotlight on potential problems well in advance of the market. For more information or to inquire about a trial subscription, contact Todd Serpico.

United Online also owns FTD.com, a German service called StayFriends, and bargain Internet-access outfits NetZero and Juno, all of which seem very Web 1.0. But it was this 8-K that reminded us of Classmates.com’s ill-fated IPO — the one that got canceled in 2007 because, frankly, it was overpriced and investors weren’t all that interested.

Only now, it seems, is everyone over at United Online finally coming to terms with the fact that, no, there will not be a gonzo Classmates.com IPO that makes everyone rich and (more or less) happy at age 26. Of course, the filing didn’t put it that way. Here’s how UNTD put it:

“Mr. Goldston and Classmates Media Corporation … terminated the employment agreement between them dated August 22, 2007, as amended and restated.  Mr. Goldston and CMC entered into this agreement in contemplation of an initial public offering of CMC, which was not consummated.  Mr. Goldston continues to serve as CMC’s Chairman and Chief Executive Officer.”

We like how that last sentence is there as if to reassure everyone — Goldston included, presumably, though we’d understand if it left shareholders a little disappointed.

Left unsaid is that the old agreement, signed in early April 2007, was probably drafted with a lucrative IPO in mind. Beyond salary, bonus and five weeks of vacation, he essentially got gobs of restricted stock: 750,000 shares, due to vest on February 15 — of next year. At the time, it looked something like $10.4 million — and oodles more with a successful IPO. At today’s stock price, it looks more like just under $5 million.

With Goldston’s new contract, he has job security through December 21, 2015 (and extending for another year each year unless one side ends it), and a guaranteed salary of $952,970, plus a target bonus of that much again (and potentially more — the 8-K doesn’t indicate that there’s any upper limit).

It’s not immediately clear what happens to all that restricted stock — United Online only filed a summary of the agreement, not the actual document, and doesn’t address the award at all; presumably it’s still there, waiting for him to cash it in this February.

No doubt, as he does so, he’ll smile wistfully at what might have been. His shareholders have been doing that for years.

Image source: Classmates.com

If you don’t follow Tesla, it’s the company that sells sporty electric cars with the line that “…an electric car need not be a driving sacrifice.”  Up until now, a Tesla has cost more than $100,000. But the Model S, which Tesla wants to build at its Fremont, California manufacturing plant, will be released in 2012 for the comparatively low price of $49,900.  Tesla expects demand for the Model S to be good, and it has plans to roll out an even less expensive electric car a few years down the road.

While reading the amended registration statement that Tesla filed June 15, we noticed that this month, Tesla identified a costly error that related to some stock options the company granted in the 4th quarter of 2009. Some of the options vested immediately, and Tesla stated:

“We erroneously accounted for the expense on a straight-line basis over the term of the award, while expense recognition should always be at least commensurate with the number of awards vesting during the period. As a result, selling, general and administrative expenses and net loss for the year ended December 31, 2009 were understated by $2.7 million.”

Tesla added that the error didn’t impact the value of the stock options; and since those are a non-cash item, the error also won’t impact the net cash figure stated for operating activities.

Although it characterized the error as a serious one, Tesla said it didn’t constitute a material weakness. It explained the difference as follows:

“…We also evaluated this control deficiency in the context of our internal control over financial reporting and based on the magnitude, nature and extent of the error, determined that such deficiency would be considered a significant deficiency. A significant deficiency is a deficiency or a combination of deficiencies, in internal control over financial reporting, that is less severe than a material weakness, yet important enough to merit attention by those responsible for the oversight of the company’s financial reporting.”

The company plans to correct the error by recording an additional stock-based compensation expense of $2.4 million for the three-month period that ends June 30, 2010.

Hopefully the accountants will soon work out any remaining bugs, and Tesla can start on its journey to profitability.

Image source: jurvetson via Flickr

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Well, yesterday those numbers became a lot clearer because FriendFinder, filed this S-1. Quite frankly, we would have expected them to file it today — given that it’s Christmas and the SEC is closed on Friday, so it would have been easier to bury. What the numbers show is that there’s an awful lot of bored suburbanites out there (and people who live in the city and rural areas too). The filing shows that there are 1 million people who pay about $19 a month for access to the adult sites. Revenues were $244 million for the first nine months of the year.

Lots of other bloggers — including many who don’t normally read SEC filings — have been all over this story (see here and here among others) and the S-1 does make for fascinating reading, especially the part that warns about the company’s ability to continue as a going concern. But at 469 pages, it’s a lot to get through.

My guess is that bored suburbanites notwithstanding, this will probably never actually go public. After all, they’ve been talking about it since March and it doesn’t seem like a great time for any IPOs, let alone a controversial one with some tough numbers. But I’ve been wrong before.

Clearly, this is in the running for one of the more interesting pre-Christmas filings. Still, judging by the pace of filings today, my guess is there will be more. We’ll be back on Monday with a look at those.

Controversial CEO Dov Charney is currently dealing with one lawsuit alleging sexual harassment and wrongful termination. According to the filing, the lawsuit has been stayed, but a potentially bigger problem is that the company that provides D&O insurance is saying it’s not obligated to cover the lawsuit because it alleges that American Apparel provided “false representations” when it took out the insurance policy. While the dispute with Navigators Insurance had been disclosed in the past, there’s greater details in the current filing.

The K also discloses three additional complaints with the EEOC and various state and local agencies, but provides few details to really assess the severity of the claims. For example, the filing notes that “Mr. Diorio claims that the Company unlawfully discriminated against him based upon his race, sex, gender, color and/or national origin” on Feb. 15 and gives a file number, but doesn’t say whether Diorio is an employee, a customer, or someone else. That’s also true for the two other new complaints: names and file numbers are provided, but not much else.

But it’s the last disclosure under legal proceedings that leaves us with even more questions: “On Feb. 4, 2008, the Company received a request from the Securities and Exchange Commission to voluntarily provide certain information for the period between the announcement and the closing of the acquisition.” That kind of sounds like an informal request for information, but it’s hard to be sure from the disclosure on what the SEC is looking for. In any event, it’s clearly another distraction for the company.

Though we missed this in the earlier S-1s, mostly because we don’t pay enough attention to them, footnoted intern Rohan Poojara caught it in this filing from yesterday. The list of Shaw’s perks, which also include an apartment in the Bay Area, a car, and a gross-up cost ArcSight $220K last year, or more than 50% of Shaw’s $400K in salary. The biggest chunk — just over $100K — was for the gross-up.

While the apartment and the gross-up aren’t that unusual, it’s the yacht club that really stands out. A quick scan of registration statements for the past year shows that Shaw is in a club of one: no other CEO of a newly public company is getting their employer to pick up their yacht club membership. A further search of proxy statements for all companies from the past year goes even further: no other company has disclosed paying for a yacht club for their CEO or any other top executive. The yacht club, we’re guessing, is in Cabo, since both Montana and Cupertino, where ArcSight is based, aren’t exactly yacht-accessible.

BTW — my friends at Docu-Drama have their own interesting find from ArcSight’s debut: the CIA’s venture firm, In-Q-Tel sold about 215,330 shares at the $9 offering price yesterday. In-Q-Tel still owns about 1 million shares.

Granted, none of these underwriters are exactly household names. But you do have to wonder what would prompt two to jump ship. Of course, that wasn’t the only change in Friday’s filing. Gulfstream also reduced the size of the offering to 800,000 shares, down from 1 million shares initially and 1.2 million in an amended filing in October. And the price of the IPO came down to $9 a share, from the $10 to $13 range initially talked about. Friday also saw a change in the offering costs to $2.60 a share from the $1.97 noted earlier. All of this means that instead of  $8.4 million in proceeds, the company only expects to get $5.1 million, which hardly seems worth the cost of all of these amended filings.

Then again, if ferrying people around Florida doesn’t work, there’s always work for the Defense Department, which isn’t as sensitive to things like people defaulting on their mortgages. As the company notes in its filing, in June 2006, it began a long-term contract with Computer Sciences Corp. (CSC) offering two to three flights daily between West Palm Beach and Andros Island in the Bahamas, which required a special certification from the DoD.

Given all that activity — there were five separate SEC filings from the company yesterday — it’s understandable that this 8-K on the resignation of Managing Director Phillip Burnaman might not have attracted much notice. Burnaman had been in charge of NewStar’s Structured Products, which according to the slides released yesterday, represents the smallest piece of NewStar’s portfolio. Still, the company didn’t provide any details on why Burnaham was stepping down — not even for personal reasons. But there may be a hint from this sentence in his online bio: “Mr. Burnaman has been involved with mortgage-backed, asset-backed and real estate-related securities since 1984.” (Ed note: NewStar wasted no time on Thursday taking the bio down, so we had to turn to archive.org to change the link). The lack of attention seems particularly strange because just last month, NewStar issued this release on the resignation of one of its directors.

Since going public last December at $17, NewStar’s stock has continued to decline. The separation agreement attached to yesterday’s 8-K provides Burnaman with a $450K payment and a few other goodies, including accelerated vesting of options. As earlier filings note, Burnaman is also the head of the audit committee for California Coastal Communities (CALC), another stock that has dropped sharply this year.

So even piecing the filings together, investors seem to only be getting part of the story here.

Fast forward to this summer, when 3Com announced plans to spin off TippingPoint via an IPO, though for some strange reason, it never filed an 8-K announcing its plans, even though it announced its fourth quarter earnings that same day. There’s also been additional talk in some of 3Com’s filings, including in the proxy filed yesterday, which noted that the company is continuing to cover TippingPoint President James Hamilton’s housing, commuting costs and gross up through fiscal 2008 “in light of the need to retain his services while the Company contemplates strategic options for the TippingPoint business unit.”

So far, at least, there hasn’t been an S-1 that’s surfaced. But there has been an interesting trail of comment letters, including this one that was sent on June 1 and which talks about 3Com’s accounting for TippingPoint. The issue appears to have been resolved, judging by a follow-up letter from the SEC on June 19. Still, it was only a week later than 3Com announced its plans to spin-off TippingPoint. Coincidence? Perhaps. Or maybe, it’s just taken that long to admit to an expensive mistake.