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| | 06/15/2010 |
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| | The May Report: 6/15/2010: Motricity, Inc. to price Wednesday night with 6.75 million shares at $14 to $16; Advanced Equities, Inc. and its clients is the largest common stock shareholder will own about 24% after the IPO and will be paid about $2MM for its advisory services in four rounds of funding; Wake me when it's over -- or a funny thing happened on the way to a tech event
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| | June 15, 2010
The May Report: 6/15/2010: Motricity, Inc. to price Wednesday night with 6.75 million shares at $14 to $16; Advanced Equities, Inc. and its clients is the largest common stock shareholder will own about 24% after the IPO and will be paid about $2MM for its advisory services in four rounds of funding; Wake me when it's over -- or a funny thing happened on the way to a tech event
Editor and publisher: ron@themayreport.com, ronaldmay@aol.com, www.themayreport.com , 773-525-3944.
If you missed an article, go here: http://www.tmronline.com/A55951/tmrarticles.nsf/vwFullNewsletter
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GP Ventures is focused on mergers and acquisition advisory services for technology companies in sectors such as Electronics, Equipment, IT services, EMS, Software, PCBs, Defense, Distribution.
Some current programs include:
1) Acquisition program for publicly-traded IT Services company seeking $10-50 million
managed services, data center, IT testing company acquisitions
2) Sell-side program for $68 million Asian Plastics Contract Manufacturer
3) Acquisition program for private equity-backed PC Board Manufacturer seeking $5-30
million PCB acquisitions
4) Sell-side program for 20 million euro Distributor of Fiber Optic Components
Please contact Tom Kastner at GP Ventures (www.gp-ventures.com) for more information:
tomk@gp-ventures.com, 847-431-3993
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TABLE OF CONTENTS
The Scoop section:
-- Briefly noted, by Ron May
-- Motricity goes public, possibly Wednesday night, by Ron May
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Briefly noted, by Ron May
Wake me up when it is over -- or a funny thing happened on the way to a tech event.
I cannot make this up. I went to the Ignite Chicago meeting last Wednesday evening, arriving about 5:15pm. I have been operating on the idea that events held on the 15th floor of 200 S. Wacker that are not being organized or hosted by the ITA are open to my attendance. I went to a TBIF meeting there and Jason Jacobsohn and Jed Abernethy have made it clear that they have no issue with my presence there. But this time, Terry Howerton was there and when he saw me, he scurried over to suggest that we go to his office down the hall for a little chat. Well, needless to say, that chat went well into the evening and it was about 9:30pm before we left an empty office space. Our conversation covered a lot of ground.
Here is the info. on the Ignite Chicago event and I will look at the presentations since I "missed it."
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Subject: Ignite Chicago
Date: 6/11/2010 5:09:37 P.M. Central Daylight Time
From: avelo@emotioncorporation.com
To: ronaldmay@aol.com
Hi Ron,
Here's the link: http://ignitechi.org/
Haven't checked but was told the presentations were to be uploaded here.
You should reach out to Stella regarding attendance figures.
Hope this helps.
Regards,
Avelo
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May again. At the end of the evening, I was completely wiped out. I felt like I had been thrown into a washing machine for four plus hours.
I have a great deal of correspondence with the two guys from Kansas City who came forward about Terry and I will publish all that material including the latest installment from Deepthroat which I got last week.
But we need a bit of a breather here to regroup and rethink what we are doing.
One of the problems here is that a statement was made in a letter I received that turns out to be untrue. Terry Ivan Howerton II is an Eagle scout out of the Springfield, MO. office of the scouts and I personally verified this after about five or six phone calls. Irving, TX, where BSA headquarters is would not provide the info. The Kansas City office for the Boy Scouts told me that he was not on their list of Eagle Scouts and finally when I found out that the correct office to check was Springfield, Mick (a woman) in that office did confirm his Eagle Scout status in January 1990. His certificate says Carl Junction, MO.
Now I know this is getting a bit technical, but it is important. TMR operates under the protective wing of Section 230 of the 1996 Communications Decency Act which protects places like Yahoo! and AOL. According the state courts in Illinois from a case years ago where I was represented by Sachnoff & Weaver (now Reed Smith) in a defamation case, TMR qualifies for the CDA protection, but that protection has some strings attached.
One string is that I cannot just write whatever I want to say when a letter with false info. is printed.
Another string is that I must print all letters unless they are prima facie defamatory. Bad language can also be excised. Hence, whether I like it or not, the Deepthroat letters must be printed in the report.
It is similar to the Pottery Barn rule. Once I jump in on the issue, not only do I "own" it, but I also lose some of the protection of the CDA.
So, since not knowing if Terry was an Eagle scout is not prima facie defamation, a court might decide that I would have to turn over the original email to Terry and his lawyers for examination and they could go after the person or persons who sent the email.
As will become amply evident when all the emails are published, Terry knows very well who sent those emails and who sent the video tape of the investigation of SCOUTER Magazine.
There has been a good of correspondence since those letters appeared in the report and Terry knew from the start who these guys were.
Nonetheless, I must always keep the big picture in mind and not do anything to jeopardize my protected status under the CDA of 1996.
Also, nonetheless, since I did check the issue myself and am not specifically responding to an email sent to TMR, I feel it is only right for me to correct the record.
At the end of this section, I am including a blurb about the relevant section, section 230 of the CDA.
One other correction needs to be made. Terry was not at the June 1, 2010 ITA board meeting because he was in Europe, but he was at the meeting, he told me, on the phone.
I incorrectly wrote that he was a "no show."
Now if Terry Howerton is not enough for me to ruminate about, add this to the mix.
I did mention to Terry that a deal along the lines of the deal I have with a downtown brokerage firm (not to be named here) and the outline of the deal might include some kind of pre-publication review and input and/or a committee of independent people, if that can even be found in Chicago, to look over what I might write and that has to be distinguished from what other people, named or anonymous, write into the report.
1. Was supposed to be witness in Philadelphia for a civil trial involving investors in Efoora which is being deliberated on at this very moment by the 12 person jury in the Court of Common Pleas, Judge Mark I. Bernstein, Case #: September 2007, # 2016. I was listed as a witness for both the plaintiffs and the defense. I was supposed to testify but the lawyer for the defense had issues with my testifying. His issue was that most of my testimony would be hearsay. And the lawyer for the plaintiff is a slickster [Editor's note: Ron May here. A redaction has been made as of 2:08pm on June 17th, 2010]. Gerry Egan had David Grosky testify by phone (5.5 hours) from his prison in Pennsylvania. No video, no documents that Grosky could be shown and the jury in the case had no way to get a feel for Grosky not being able to see him. Here is the tricky part. Last week, Grosky, who had been one of the plaintiffs, was suddenly dropped by Egan as a plaintiff. Now this gets technical but as long as Grosky was a litigant in the case, I would have been able to testify to what Grosky said to me or to someone else in my presence and it would not qualify as hearsay per se. Do I have that right?
Anyway, I was on an emotional roller coaster for several weeks, first a witness, then not a witness, then a witness again and finally at the last minute, not a witness. I am ticked about it but as with all things I will get over it.
I should add that since going on kidney dialysis on July 18, 2005, I have not traveled by plane anywhere and the furthest I have been from Chicago is Rockford for a day and Champaign for a day.
So, I was excited and a bit nervous about the whole thing. I even got some new clothes for the occasion from the Men's Warehouse on Clybourne.
2. I was on the phone about 7:30pm Monday night with someone discussing the Philly situation and the buzzer to my apartment went off. I figured it was Marcin Chojnowski, who is typing the cards while Anna is gallivanting around Europe with her good friend, or BFF, Sofia.
A tall, slender man with a goatee came to the door and handed me some papers. He told me that he did not need a signature. Since the date on the papers was June 14th, he got me on the first try.
I was served! Not for the first time and surely not for the last. Dan Camphausen is suing me and Doreen Schweitzer for defamation, me for libel and Doreen for slander. She called me on February 9th and I reported what she said, so going back to the CDA, I don't have that as a fig leaf for cover here. The case is in Federal Court, case number 1:10-cv-03605 under Judge Amy J. St. Eve. it is a federal case because Dan Camphausen lives in Wisconsin and Doreen and I live in Illinois. I have 21 days to respond.
3. OK, if that is not enough, last night I found out about Motricity going public in the next few days. That kept me up till 2:30am reading the S-1s.
4. How many other topics hath I?
-- The Census hiring situation at $18.25 an hour including pay for training time.
-- A UAL flight attendant who told me she goes back to work in 2012 after a few years of furlough and she still gets full health bennies and flight bennies during the furlough.
-- Brad Jonas of Powell's bookstore on Barack Obama (btw, he had to charge something for the remainders of Dreams of My Father so he charged Obama's campaign $1 a book but it cost him $.22 a book -- he said he was embarrassed to tell the Obama people that he got them so cheap)
-- And a book Jonas gave me called Culture of Opportunity http://www.amazon.com/Culture-Opportunity-Obamas-Chicago-Politics/dp/156663833X about Obama's Hyde Park and the history of Hyde Park and the University of Chicago by Rebecca Janowitz, who is a lawyer with Tom Dart's office and the daughter of the preeminent sociologist, Morris Janowitz.
-- Three mystery writers and their tribulations including the James Bond writer Raymond Benson, www.raymondbenson.com who contracted with the Ian Fleming estate to write several Bond novels after he wrote a non-fiction Bond book in the 1980s; Helen Macie Osterman, www.helenosterman.com; and mystery writer Tony Perona, www.tonyperona.com who is in PR by day.
-- This is all from the Dearborn Street book fair where I did wheel myself around.
-- More on South Shore bank and the sweetheart deal there.
-- CBOE prices
-- And much, much more.
I would say my plate is more than full. Most people who live with this kind of stress are at least making $300K a year. I have to say that anywhere I go, no mater what pile of sh** I step in, the legal system is somehow staring me in the face. I cannot escape it.
BTW, congrats to Jerry Mitchell and his new wife. Jerry married on Saturday, June 12th, and no, I did not know the date, the time or the location. Jerry's wife, whose name I don't know, is Chinese and is probably about 50 years old so this is a case of an old man of 72, but fit as a fiddle (Jerry lost about 60 lbs and is into natural foods and medicines now), robbing the cradle.
Another person in the tech community whom I have known for many years, but who insisted that I not write about his wedding on May 29th at the Peninsula Hotel for about 150 people is 45 and his wife is 40. They met 18 months ago dancing in Grant Park. I don't know about his wife, but this is his first marriage, and hopefully his last.
Here is the info. on the CDA and Section 230.
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http://www.citmedialaw.org/legal-guide/immunity-online-publishers-under-communications-decency-act
Immunity for Online Publishers Under the Communications Decency Act
This page provides some background on section 230 of the Communications Decency Act ("Section 230") and highlights the types of claims and online activities it covers as well as the types of activities that might fall outside Section 230's immunity provisions.
For general information on legal liability associated with publishing the content of others, see the section on Publishing the Statements and Content of Others in this guide.
Background on Publisher and Distributor Liability
Under standard common-law principles, a person who publishes a defamatory statement by another bears the same liability for the statement as if he or she had initially created it. Thus, a book publisher or a newspaper publisher can be held liable for anything that appears within its pages. The theory behind this "publisher" liability is that a publisher has the knowledge, opportunity, and ability to exercise editorial control over the content of its publications.
Distributor liability is much more limited. Newsstands, bookstores, and libraries are generally not held liable for the content of the material that they distribute. The concern is that it would be impossible for distributors to read every publication before they sell or distribute it, and that as a result, distributors would engage in excessive self-censorship. In addition, it would be very hard for distributors to know whether something is actionable defamation; after all, speech must be false to be defamatory.
Not surprisingly, the first websites to be sued for defamation based on the statements of others argued that they were merely distributors, and not publishers, of the content on their sites. One of the first such cases was Cubby v. CompuServe, Inc., 776 F.Supp. 135 (S.D.N.Y. 1991). CompuServe provided subscribers with access to over 150 specialty electronic "forums" that were run by third parties. When CompuServe was sued over allegedly defamatory statements that appeared in the "Rumorville" forum, it argued that it should be treated like a distributor because it did not review the contents of the bulletin board before it appeared on CompuServe's site. The court agreed and dismissed the case against CompuServe.
Four years later, a New York state court came to the opposite conclusion when faced with a website that held itself out as a "family friendly" computer network. In Stratton Oakmont v. Prodigy, 23 Media L. Rep. 1794 (N.Y. Sup. Ct. 1995), the court held that because Prodigy was exercising editorial control over the messages that appeared on its bulletin boards through its content guidelines and software screening program, Prodigy was more like a "publisher" than a "distributor" and therefore fully liable for all of the content on its site.
The perverse upshot of the CompuServe and Stratton decisions was that any effort by an online information provider to restrict or edit user-submitted content on its site faced a much higher risk of liability if it failed to eliminate all defamatory material than if it simply didn't try to control or edit the content of third parties at all.
The Communications Decency Act
This prompted Congress to pass the Communications Decency Act in 1996. The Act contains deceptively simple language under the heading "Protection for Good Samaritan blocking and screening of offensive material":
No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.
Section 230 further provides that "[n]o cause of action may be brought and no liability may be imposed under any State or local law that is inconsistent with this section."
Websites Covered by Section 230
Is an "interactive computer service" some special type of website? No. For purposes of Section 230, an
"interactive computer service" means any information service, system, or access software provider that provides or enables computer access by multiple users to a computer server.
Most courts have held that through these provisions, Congress granted interactive services of all types, including blogs, forums, and listservs, immunity from tort liability so long as the information is provided by a third party.
As a result of Section 230, Internet publishers are treated differently from publishers in print, television, and radio. Let's look at these difference in more detail.
Claims Covered by Section 230
Section 230 has most frequently been applied to bar defamation-based claims. In the typical case, a plaintiff who believes she has been defamed sues both the author of the statement and the website that provided a forum or otherwise passively hosted the material. Courts have held with virtual unanimity that such claims against a website are barred by Section 230.
But immunity under Section 230 is not limited to defamation or speech-based torts. Courts have applied Section 230 immunity to bar claims such as invasion of privacy, misappropriation, and most recently in a case brought against MySpace (Doe v. MySpace, 474 F.Supp.2d 843 (W.D. Tex. 2007)), a claim asserting that MySpace was negligent for failing to implement age verification procedures and to protect a fourteen-year old from sexual predators.
However, Section 230 explicitly exempts from its coverage criminal law, communications privacy law, and "intellectual property claims." In interpreting these exclusions, courts agree that Congress meant to exclude federal intellectual property claims, such as copyright and trademark, but they disagree whether state-law intellectual property claims (or claims that arguably could be classified as intellectual property claims, such as the right of publicity) are also exempted from the broad immunity protection Section 230 provides.
Finally, Section 230 does not immunize the actual creator of content. The author of a defamatory statement, whether he is a blogger, commenter, or anything else, remains just as responsible for his online statements as he would be for his offline statements.
Online Activities Covered by Section 230
Courts have consistently held that exercising traditional editorial functions over user-submitted content, such as deciding whether to publish, remove, or edit material, is immunized under Section 230. As one moves farther away from these basic functions, immunity may still exist, but the analysis becomes more fact-specific. We analyze in detail the types of activites that are covered by Section 230 and those activities that fall outside its protections in the Online Activities Covered by Section 230 and Online Activities Not Covered by Section 230 pages of this legal guide. (We strongly advise that you review these pages if your activities extend beyond traditional editorial functions.)
Summary
Section 230 of the Communications Decency Act grants interactive online services of all types, including blogs, forums, and listservs, broad immunity from tort liability so long as the information at issue is provided by a third party. Relatively few court decisions, however, have analyzed the scope of this immunity in the context of "mixed content" that is created jointly by the operator of the interactive service and a third party through significant editing of content or the shaping of content by submission forms and drop-downs.
So what are the practical things you can take away from this guide? Here are five:
1. If you passively host third-party content, you will be fully protected under Section 230.
2. If you exercise traditional editorial functions over user submitted content, such as deciding whether to publish, remove, or edit material, you will not lose your immunity unless your edits materially alter the meaning of the content.
3. If you pre-screen objectionable content or correct, edit, or remove content, you will not lose your immunity.
4. If you encourage or pay third-parties to create or submit content, you will not lose your immunity.
5. If you use drop-down forms or multiple-choice questionnaires, you should be cautious of allowing users to submit information through these forms that might be deemed illegal.
To follow recent developments in the law concerning these immunity provisions, see our Section 230 summary page, where you will find background on Section 230, links to our legal guide materials, and feeds showing recent legal threats from our database, blog posts, and news.
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and this summary of Section 230:
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http://www.citmedialaw.org/section-230
This page provides an overview of section 230 of the Communications Decency Act ("Section 230"), an important federal law that provides legal protections to operators of websites and other types of interactive computer services. This page also collects information involving Section 230 from across the Citizen Media Law Project website. You will find background information on Section 230 as well as listings of recent blog posts, lawsuits, and news.
Section 230 Basics:
* Section 230 grants interactive online services of all types, including news websites, blogs, forums, and listservs, broad immunity from certain types of legal liability stemming from content created by others.
* This immunity covers defamation and privacy claims, as well as negligence and other tort claims associated with publication. See the Risks Associated with Publication section of our legal guide for more information on the legal claims online publishers may face.
* You will not lose this immunity even if you edit the content, whether for accuracy or civility, so long as your edits do not materially alter the meaning of the original content. We analyze in detail the types of activities that are covered by Section 230 and those activities that fall outside its protections in the Online Activities Covered by Section 230 and Online Activities Not Covered by Section 230 pages of our legal guide.
* Section 230 does not apply to copyright infringement claims and other intellectual property claims. For information on protecting yourself from these types of claims, see the section on Protecting Yourself Against Copyright Claims Based on User Content in our legal guide.
Of course, the list above is merely a summary of this important law. We have a lot more information on Section 230 in our legal guide. We suggest you begin by reading the page on Immunity for Online Publishers Under the Communications Decency Act or check out the resources we've compiled at the bottom of this page.
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Motricity goes public, possibly Wednesday night, by Ron May
I got a call earlier Monday evening from an observer of the local scene who thought that TMR readers might want to know that Motricity, Inc. is going public under the symbol MOTR on the NASDAQ.
Key facts relating to AEI.
-- They raised a lot of money for Motricity, including over the last four rounds, Series F, G, H, and I.
-- Keith Daubenspeck was on the board until January of this year
-- They (and by that I mean AEI AND its clients in all the LLCs they have formed) are the largest shareholder of common stock with about 28.6% of the stock before the IPO and about 23.7% of the stock after the dilution of the IPO
-- Carl Icahn and entities associated with him are second in ownership and two VC firms, Technology Crossover Ventures, and funds affiliated with New Enterprise Associates Inc come in 3rd and 4th.
-- AEI may be legally deemed a statutory underwriter because it will be receiving payments associated with the IPO.
-- In 2007, NEA put in $36MM and AEI put in $20MM in escrow to help facilitate the InfoSpace Mobile Acquisition
-- There has been some confusion in my mind about what AEI will be paid for its work on the IPO, but the best guess is this section in the conflict of interest section of the S-1.
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Because of this beneficial ownership and because we agreed to pay Advanced Equities, Inc. an advisory fee of up to $2 million in connection with this offering, Advanced Equities, Inc. may be deemed a statutory underwriter. Since Advanced Equities, Inc.'s affiliates beneficially own more than 10% of our company, the underwriters are deemed to have a "conflict of interest" under Rule 2720 of the Conduct Rules of the National Association of Securities Dealers, Inc., which are overseen by the Financial Industry Regulatory Authority, Inc. Accordingly, this offering is being conducted in compliance with the applicable provisions of Rule 2720. Pursuant to that rule, the appointment of a "qualified independent underwriter" (as such term is defined in Rule 2720)
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May again. The figure $16.8MM appears in the prospectus, but on further scrutiny, it looks like that this not a fee being paid to AEI. The more likely figure is $2MM which is found in the Conflict section. AEI may have been paid for previous raises and that is the best I can do without the help of the Great Dick Reck who must be still asleep because he did not get back to me.
-- While we do know the percentage of ownership that AEI has, we don't see anything in the prospectus that I could find that shows the price of acquisition of that ownership -- in other words, the stock prices at each Series of financing.
Other little facts from the prospectus:
Motricity has 355 employees as of March 31, 2010.
For the years ended December 31, 2005, 2006, 2007, 2008, and 2009, we had net losses of approximately $22.5 million, $55.2 million, $77.9 million, $78.0 million and $16.3 million, respectively. For the three months ended and as of March 31, 2010, we had a net loss of approximately $1.5 million and an accumulated deficit of approximately $313.7 million.
For ease of reading, I have bolded some of the references to AEI and Keith Daubenspeck. I tried to do them all but got too tired.
From the S-1 which was filed on June 2, 2010 and the amendment to the S-1 filed on June 7, 2010.
http://www.sec.gov/Archives/edgar/data/1336691/000119312510133378/ds1a.htm
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This is an initial public offering of shares of common stock of Motricity, Inc. Motricity is offering 6,750,000 shares in this offering.
Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $14.00 and $16.00. We have applied to list our common stock on the NASDAQ Global Market under the symbol "MOTR".
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The underwriters are:
J.P. Morgan
Goldman, Sachs & Co.
Deutsche Bank Securities
RBC Capital Markets
Baird
Needham & Company, LLC
Pacific Crest Securities
Here is the overview of the firm directly from the prospectus:
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PROSPECTUS SUMMARY
This summary highlights key information contained elsewhere in this prospectus. It does not contain all of the information that you should consider in making your investment decision. For a more complete understanding of us and this offering, you should read and consider the entire prospectus, including the information set forth under "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and related notes thereto before deciding whether to invest in our common stock. Except as otherwise required by the context, references to "Company," "we," "us" and "our" are to Motricity, Inc. We use the term "wireless carrier" throughout this prospectus for simplicity, and by its use we intend to reference traditional carriers that provide mobile services over their own network as well as non-carrier mobile service providers that provide mobile services over the networks of others. We also use the phrases "4 of the top 10 global wireless carriers" and "4 of the top 10 global wireless data providers"; both refer to 4 of the top 10 wireless carriers by total wireless data revenue.
Motricity
Overview
We are a leading provider of mobile data solutions that enable wireless carriers to deliver high value mobile data services to their subscribers. We provide a comprehensive suite of hosted, managed service offerings, which include services to access the Internet using a mobile device, services to market and distribute a wide range of mobile content and applications, messaging services and billing support and settlement services. These services enable wireless carriers to deliver customized, carrier-branded mobile data services. Our mCore service delivery platform provides the tools for mobile subscribers to easily locate and access personally relevant and location-based content and services, engage in social networking and download content and applications. We also leverage our data-rich insights into subscriber behavior and our user interface expertise to provide a highly personalized mobile data experience and targeted mobile marketing solutions. By enabling wireless carriers to deliver a personalized subscriber experience, we enhance their ability to attract and retain mobile subscribers, increase the average revenue per user for mobile data services, or mobile data ARPU, and reduce network overhead and operating costs. We also facilitate effective monetization for mobile content and application providers by making it easier for them to reach millions of targeted subscribers with customized offerings.
Our mCore platform provides mobile subscribers with access to over 30 million unique pieces of third-party content or applications that we optimize and deliver to over 2,000 different mobile phone models, ranging from entry level feature phones to smartphones. We have access to more than 200 million mobile subscribers through our customers, and we currently provide mobile data services to approximately 35 million of these subscribers monthly. Our operations are predominantly based in the U.S., with international operations in the United Kingdom, the Netherlands, Indonesia and Singapore. Our customers include 4 of the top 10 global wireless carriers based on total wireless data revenue: Verizon Wireless, AT&T, Sprint and T-Mobile USA. Since 2005, Motricity has generated over $2.5 billion in gross revenue for our carrier customers through the sale of content and applications and powered over 50 billion page views through access to the mobile Internet. For the year ended December 31, 2009, we generated revenue of $113.7 million and incurred a net loss of $16.3 million. For the twelve months ended March 31, 2010, we generated revenue of $119.5 million and incurred a net loss of $10.9 million.
Industry Background
An extensive mobile data services ecosystem has developed, consisting of numerous industry participants including wireless carriers, mobile device manufacturers, operating system developers,
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and mobile content and application providers. This ecosystem is changing rapidly as new mobile devices and operating systems are introduced into the market, new mobile content and applications are developed, and as mobile subscribers demand an enhanced and personalized subscriber experience. Today's mobile subscribers expect their mobile device to be able to do more than make phone calls or send a text message-they want to be able to access information, check email, keep up with their social networks, and download the latest content and applications.
Wireless carriers operate in a highly competitive market and face growing challenges to attract and retain mobile subscribers and increase total mobile data ARPU. Historically, many wireless carriers provided mobile data services directly to their mobile subscribers through internally developed proprietary solutions. Over time, the wireless ecosystem has become increasingly complex, with evolving technologies and a proliferation of mobile devices running different operating systems. Accordingly, it has become more difficult for wireless carriers to manage the rapid evolution of this wireless data ecosystem on their own. Additionally, the growth dynamics of the mobile data services market has attracted non-carrier participants, including Apple and Google, into the market, threatening carriers ability to monetize their significant marketing and capital investments. These relatively new entrants are offering access to mobile content and applications through their own solutions and are capturing an increasing portion of the market.
The Motricity Solution
Through our mCore service delivery platform, we provide a comprehensive suite of managed service offerings to access the Internet using a mobile device, to market and distribute a wide range of mobile content and applications, and for messaging services and billing support and settlement, which deliver numerous benefits to the following participants in the mobile data ecosystem:
Wireless Carriers. We use customizable, modular solutions that help wireless carriers rapidly develop, deploy and bill for mobile data services. Our managed services platform reduces wireless carrier network overhead and operating costs, and simplifies the relationships between wireless carriers and content and application providers.
Mobile Content and Application Providers. We facilitate effective monetization for mobile content and application providers by providing access to millions of mobile subscribers on a targeted and non-targeted basis across carriers. Our mCore platform also facilitates user-friendly uploading of content and applications, ensures efficient billing and settlement, and provides quality assurance for delivery of mobile content and applications.
Mobile Subscribers. Wireless carriers can select from some or all of our services to construct and deliver a customized, carrier-branded, and highly personalized mobile data experience that allows their mobile subscribers to easily locate and access personally relevant, location-based content and services, engage in social networking, and download, send and receive digital media. In addition, the mCore service delivery platform allows mobile subscribers to manage the content and applications that they use most frequently.
Our Strengths
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Strong Relationships with Wireless Carriers. We have been an integral partner with our wireless carrier customers, assisting them with key phases of their mobile data services strategies, including design, development, deployment, provisioning, management, billing and customer support.
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Deep Integration within the Mobile Data Ecosystem. Through our deep integration with our wireless carrier customers' systems, and our integration with a growing number of content and
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application providers, we facilitate the delivery of an enhanced mobile data experience to our customers' mobile subscribers.
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Highly Scalable Platform. Our mCore service delivery platform has been built using flexible modular architecture that enables wireless carriers to deliver a highly scalable and highly reliable, carrier-branded subscriber experience.
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Comprehensive Expertise in Managed Service Operations. Through the delivery of MaaS, Mobile as a Service™, solution, we develop, implement and operate a very large and complex managed service environment, servicing approximately 35 million non-messaging based users monthly across multiple carriers and geographies with a carrier-grade level of quality and reliability.
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Expansive Device Portfolio and Onboarding Process. We customize, test and maintain highly personalized mobile data experiences for an ever-expanding population of mobile devices ranging from entry level feature phones to smartphones utilizing advanced operating systems such as Symbian, Blackberry, Android, Windows Mobile and webOS.
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Significant Insights into Subscriber Behavior and Effective User Experiences. Our mCore platform can capture a wide range of subscriber behavior and usage patterns across multiple carriers.
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Independence and Neutrality. We are content, network, operating system and mobile device type independent, which enables our interests to be closely aligned with our wireless carrier customers' interests.
Our Growth Strategy
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Focus our efforts on expanding the breadth of our solutions with industry leading participants and leveraging our strong relationships with 4 of the top 10 global wireless carriers;
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Expand our business into developed and emerging international markets such as those in Southeast Asia, India and Latin America;
Ÿ
Advance our technological leadership through the enhancement of the mCore platform, and the introduction of new solutions that increase the total value we provide to our carrier and enterprise customers;
Ÿ
Leverage our core competencies, technologies, and existing market position to broaden our offerings and customer base and advance into new market segments;
Ÿ
Enhance our smartphone solutions to fully capitalize on the extensive capabilities of these devices and their significant market adoption; and
Ÿ
Gain additional scale and technology through opportunistic acquisitions that expand our total market opportunity, provide complementary technologies and solutions, and aid our international expansion efforts.
+++++++++++++++++++++++++++
And here are some risk factors:
+++++++++++++++++++++++++++++++
Risks Related to Our Business and Operations
We depend on a limited number of customers for a substantial portion of our revenues. The loss of a key customer or any significant adverse change in the size or terms of a contract with a key customer could significantly reduce our revenues.
We depend, and expect to continue to depend, on a limited number of significant worldwide wireless carriers for a substantial portion of our revenues. Currently, 4 of the top 10 global wireless carriers use our services. In the event that one or more of these major wireless carriers decides to reduce or stop using our managed and professional services, we could be forced to shift our marketing focus to smaller wireless carriers, which could result in lower revenues than expected and increased business development, marketing and sales expenses. This could cause our business to be less profitable and our results of operations to be adversely affected.
In addition, a change in the timing or size of a purchase by any one of our key customers could result in significant variations in our revenue and operating results. Our operating results for the foreseeable future will continue to depend on our ability to effect sales to a small number of customers. Any revenue growth will depend on our success in selling additional services to our large customers and expanding our customer base to include additional customers that deploy our solutions in large-scale networks serving significant numbers of subscribers.
In 2009, we generated approximately 53% and 20% of our total revenue from contracts with AT&T Mobility LLC and its affiliates, or AT&T, and Verizon Wireless and its affiliates, respectively. For the three months ended March 31, 2010, we generated approximately 40% and 39% of our total revenue from contracts with AT&T and Verizon Wireless, respectively. No other customer accounted for more than 10% of our revenues in 2009 or in the first three months of 2010. Our current five largest customers accounted for approximately 84% of our revenues in 2009 and 90% of our revenues for the three months ended March 31, 2010. Certain of our customer agreements expire in mid to late 2010, including agreements with AT&T and Verizon Wireless. Failure to renew our agreements with AT&T, Verizon Wireless or our other large customers would materially reduce our revenue and have a material adverse effect on our business, operating results and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Overview" and "Business-Customers and Vendors-Customers" for more information.
....
Open mobile phone operating systems and new business models may reduce the wireless carriers' influence over access to mobile data services, and may reduce the total size of our market opportunity.
The majority of our revenue is based on mobile subscribers accessing mobile content and applications through our customers' carrier-branded mobile solutions. However, with the growth of the iPhone and smartphone business models, our customers' services may be bypassed or become inaccessible. These business models, which exclude carrier participation beyond transport, along with the introduction of more mobile phones with open operating systems that allow mobile subscribers to browse the Internet and, in some cases, download applications from sources other than a carrier's branded services, create a risk that some carriers will choose to allow this non-branded Internet access without offering a competitive value-added carrier-branded experience as part of their solution set. These so-called "open operating systems" include Symbian, BlackBerry, Android, Windows Mobile and webOS. We believe wireless carriers need to offer branded services that can compete head-to-head with the new business models and open technologies in order to retain mobile subscribers and increase ARPU. Although our solutions are designed to help wireless carriers deliver a high value, competitive mobile data experience, if mobile subscribers do not find these carrier-branded services compelling, there is a risk that mobile subscribers will use open operating systems to bypass carrier-branded services and access the mobile Internet. It is also possible one or more wireless carriers will adopt a non-carrier branded, third-party web portal model. To the extent this occurs, the total available market opportunity for providing our current services and solutions to carriers may be reduced.
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Our sales cycle can be long, which may make our revenues and operating results less predictable.
Wireless carriers must typically make substantial investments to deploy our mobile data services solution. As a result, the typical sales cycle for our services is long, averaging nine to twelve months per customer. Many of the potential customers for our services have only recently begun to evaluate the benefits of expanding their offerings of mobile services, and many have only recently designated personnel to evaluate, procure and implement new mobile services. We believe that we may be required to spend a significant amount of time and resources educating potential customers on the use and benefits of our services, and in turn, we expect potential customers to spend a significant amount of time performing internal reviews and obtaining authorization to purchase our services. Furthermore, the emerging and evolving nature of mobile data technological standards and services may lead potential customers to postpone purchasing decisions.
We have a history of net operating losses and may continue to suffer losses in the future.
For the years ended December 31, 2005, 2006, 2007, 2008, and 2009, we had net losses of approximately $22.5 million, $55.2 million, $77.9 million, $78.0 million and $16.3 million, respectively. For the three months ended and as of March 31, 2010, we had a net loss of approximately $1.5 million and an accumulated deficit of approximately $313.7 million. If we cannot become profitable, our financial condition will deteriorate, and we may be unable to achieve our business objectives.
We compete with in-house mobile data solutions similar to those we offer.
The mobile data service industry is evolving rapidly to address changing industry standards and the introduction of new technologies and network elements. Wireless carriers are constantly reassessing their approaches to delivering mobile data to their subscribers, and one or more of our customers could decide to deploy an in-house mobile data delivery service solution that competes with our services. Even if the mobile data delivery services offered by a mobile service provider's in-house solution were more limited than those provided by our services, a wireless carrier may elect to accept limited functionality or services in lieu of providing a third party access to its network. An increase in the use of in-house solutions by wireless carriers could have an adverse effect on our business, operating results and financial condition.
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May again. And the risk section goes on and on.
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We believe our long-term success depends, in part, on our ability to expand the sales of our services to customers located outside of the U.S. As a result, our business is susceptible to risks associated with international sales and operations.
In addition to the U.S., we currently operate in the United Kingdom, the Netherlands, Indonesia and Singapore, and we intend to expand our offering of mobile data services into a number of additional international markets in the near future. As a result, we are subject to the additional risks of conducting business outside the U.S., which may include:
Ÿ
increased costs associated with localization of our services, including translations into foreign languages and adaptation to local practices and regulatory requirements;
Ÿ
longer accounts receivable payment cycles and difficulties in collecting accounts receivable;
Ÿ
difficulties managing and staffing international operations;
Ÿ
delays resulting from difficulty in obtaining export licenses, tariffs and other trade barriers and restrictions on export or import of technology;
Ÿ
less stringent intellectual property protections;
Ÿ
unexpected changes in, or impositions of, legislative, regulatory or tax requirements and burdens of complying with a wide variety of foreign laws and other factors beyond our control;
Ÿ
general geopolitical risks in connection with international operations, such as political, social and economic instability;
Ÿ
compliance with anti-corruption and bribery laws, including the Foreign Corrupt Practices Act of 1977;
Ÿ
changes in diplomatic, trade or business relationships;
Ÿ
foreign currency fluctuations that may substantially affect the dollar value of our revenue and costs in foreign markets;
Ÿ
foreign exchange controls that may prevent or limit our ability to repatriate income earned in foreign markets; and
Ÿ
increased financial accounting and reporting burdens.
We have limited experience operating in foreign jurisdictions and are rapidly building our international operations. Operating in international markets requires significant management attention and financial resources. The investment and additional resources required to establish operations and manage growth in other countries may not produce desired levels of revenue or profitability.
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May again. They have been hit by some class action lawsuits:
++++++++++++++++++++++++++
Legal Proceedings
We are a party in five purported class action lawsuits brought against us by individuals on behalf of customers receiving premium content from our content providers. The cases allege that we and our content providers charged consumers for mobile phone content without proper authorization and/or engaged in misleading marketing for premium content. The cases seek unspecified damages. The cases are:
Ÿ
Camellia Walker individually and on behalf of a class of similarly situated individuals v. Motricity, Inc., California Superior Court, Alameda County, filed July 3, 2008;
Ÿ
Susan Rynearson individually and on behalf of a class of similarly situated individuals v. Motricity, Inc., Washington Superior Court, King County, filed April 16, 2008;
Ÿ
Baker v. Sprint and New Motion, Inc. (Motricity is a third-party defendant), Eleventh Judicial Circuit Court, Miami-Dade County, claim against Motricity filed May 29, 2008;
Ÿ
Vicky Stewart individually and on behalf of a class of similarly situated individuals v. New Motion, Inc. and Motricity, Inc., Minnesota District Court, Hennepin County, claim against Motricity filed October 1, 2009; and
Ÿ
Scott Williams, et al, individually and on behalf of a class of similarly situated individuals v. Motricity, Inc., et al, Cook County Circuit Court, claim against Motricity filed March 17, 2010.
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The class representatives in the above matters, except for the Williams matter, all purchased content from Atrinsic, Inc. d/b/a New Motion, Inc. Atrinsic content is also at issue in several similar lawsuits brought against carriers who have, in turn, sought indemnification from us. Atrinsic has entered into a settlement in a class action not involving us that is expected to release us from most of the claims asserted in the above actions, except for the Williams action, and carrier indemnity claims. Atrinsic received final court approval of its settlement on March 10, 2010. The Williams action involves non-Atrinsic content that the class representatives purchased from certain other content providers and we are currently evaluating the claims.
In addition, we are involved in an unrelated proceeding with Atrinsic, Inc. in which Atrinsic seeks an accounting of sums paid by us and unspecified damages for Atrinsic subscribers whose subscriptions failed to renew due to a technical issue. We have counterclaimed for unpaid minimum fees due under our existing agreement. The case is Atrinsic, Inc. v. Motricity, Inc., AAA arbitration, filed June 25, 2009.
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May again. As of March 31, 2010 they had 355 employees.
And here is the Board of Directors:
++++++++++++++++++++++++
Name
Age Position
Ryan K. Wuerch
42 Chief Executive Officer, Chairman and Founder
Jim Smith
43 President and Chief Operating Officer
Allyn P. Hebner
57 Chief Financial Officer
Richard E. Leigh, Jr.
50 Senior Vice President, General Counsel and Corporate Secretary
James Ryan
44 Chief Strategy and Marketing Officer
Chris Dorr
48 Chief Human Resources Officer
Jeffrey A. Bowden
64 Director
Hunter C. Gary
36 Director
Brett C. Icahn
30 Director
Lady Barbara Judge
62 Director
Suzanne H. King
46 Director
Brian Turner
50 Director
Upon the closing of our initial public offering, Ryan K. Wuerch will resign as Chairman of our board of directors and Lady Barbara Judge will become the Chairperson of our board of directors.
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May again. The rest of this report may be somewhat redundant, but it includes every reference I could find to Advanced Equities, Inc, and/or Keith Daubenspeck who resigned from the Board of Directors earlier this year.
One point of interest may be this:
++++++++++++++++++++++++++
AEI acted as a placement agent in each of our Series F, G, H, and I financing rounds. We entered into placement agent and advisory agreements with AEI for each of those financing rounds (the "AEI Advisory Agreements"). As compensation for those services, we provided AEI with cash in the amount of $16.8 million and warrants to purchase 64,916 shares of common stock at an exercise price of $35.55 per share, warrants to purchase 29,093 shares of common stock at an exercise price of $37.35 per share, and a warrant to purchase 6,340,676 shares of Series I preferred stock at an exercise price of $0.9694 per share. In connection with Series I, AEI surrendered warrants to purchase 93,045 and 29,093 shares of common stock at $35.55 and $37.35 per share, respectively, in exchange for certain fees and warrants included in the amounts above.
+++++++++++++++++++++++++++++
In effect, this saying that AEI will be treated as an underwriter since they were a placement agent in four rounds of financing.
++++++++++++++++++++++
Common stock offered by us
6,750,000 shares
Underwriters' option to purchase shares from the selling stockholders
1,012,500 shares
Total common stock to be outstanding after this offering
38,592,617 shares
Use of proceeds
We estimate that we will receive proceeds of approximately $86.2 million from our offering of our common stock, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, assuming the shares are offered at $15.00 per share, which is the midpoint of the estimated offering price range shown on the front cover page of this prospectus. We plan to use the net proceeds from this offering to fund investments and acquisitions. However, we currently have no commitments with respect to any such investments or acquisitions. In addition, we expect to use up to $1 million to pay a portion of the fees to be paid to Advanced Equities, Inc. for their advisory services provided to us in connection with this offering. One million dollars of the fee was paid previously. See "Use of Proceeds" for additional details. We will not receive any proceeds from the sale of shares by the selling stockholders. See "Principal and Selling Stockholders."
+++++++++++++++++++++++++++++++++
Conflicts of Interest
Affiliates of Advanced Equities, Inc. beneficially own more than 10% of our company. Because of this beneficial ownership and because we agreed to pay Advanced Equities, Inc. an advisory fee of up to $2 million in connection with this offering, Advanced Equities, Inc. may be deemed a statutory underwriter. Since Advanced Equities, Inc.'s affiliates beneficially own more than 10% of our company, the underwriters are deemed to have a "conflict of interest" under Rule 2720 of the Conduct Rules of the National Association of Securities Dealers, Inc., which are overseen by the Financial Industry Regulatory Authority, Inc. Accordingly, this offering is being conducted in compliance with the applicable provisions of Rule 2720. Pursuant to that rule, the appointment of a "qualified independent underwriter" (as such term is defined in Rule 2720) is not necessary in connection with this offering as the members primarily responsible for managing the public offering do not have a conflict of interest, are not affiliates of any member that has a conflict of interest, and meet the requirements of paragraph (f)(12)(E) of Rule 2720.
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beneficially own more than 10% of our company, the underwriters are deemed to have a "conflict of interest" under Rule 2720 of the Conduct Rules of the National Association of Securities Dealers, Inc., which are overseen by the Financial Industry Regulatory Authority, Inc. Accordingly, this offering is being conducted in compliance with the applicable provisions of Rule 2720. Pursuant to that rule, the appointment of a "qualified independent underwriter" (as such term is defined in Rule 2720) is not necessary in connection with this offering as the members primarily responsible for managing the public offering do not have a conflict of interest, are not affiliates of any member that has a conflict of interest, and meet the requirements of paragraph (f)(12)(E) of Rule 2720.
The number of shares of our common stock that will be outstanding after this offering is based on 31,842,617 shares, the number of shares outstanding at March 31, 2010, and unless we specifically state otherwise, the information in this prospectus:
++++++++++++++++++++++++++++++++++++++
Our principal stockholders may exert substantial influence over us and may exercise their control in a manner adverse to your interests.
Upon completion of this offering and assuming no exercise of an option to purchase additional shares by the underwriters, funds affiliated with Advanced Equities, Inc., Koala Holding LP and other entities affiliated with Carl C. Icahn, funds affiliated with Technology Crossover Ventures and New Enterprise Associates, Inc., will own 9,439,226, 4,529,888, 3,222,114 and 3,143,939 shares, respectively, or approximately 23.7%, 11.4%, 8.4% and 8.1%, respectively, of our outstanding common stock. Koala Holding LP owns substantially all of our outstanding shares of Series H preferred stock. Because a limited number of persons may exert substantial influence over us, transactions could be difficult or impossible to complete without the support of those persons. It is possible that these persons will exercise control over us in a manner adverse to your interests.
+++++++++++++++++++++++++++++++++++++
Our management will have broad discretion over the proceeds we receive in this offering and might not apply the proceeds in ways that increase the value of your investment.
Our management will have broad discretion to use our net proceeds from this offering, and you will be relying on their judgment regarding the application of these proceeds. Our management might not apply our net proceeds of this offering in ways that increase the value of your investment. We expect to use the net proceeds from this offering to fund investments in, or acquisitions of, complementary businesses, services or products. However, we currently have no commitments with respect to any such investments or acquisitions. In addition, we expect to use up to $1 million to pay a portion of the fees to be paid to Advanced Equities, Inc. for their advisory services provided to us in connection with this offering. Our management might not be able to yield a significant return, if any, on any investment of these net proceeds. You will not have the opportunity to influence our decisions on how to use our net proceeds from this offering.
+++++++++++++++++++++++++++++++++
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $86.2 million from the sale of 6,750,000 shares of common stock in this offering at the assumed initial public offering price of $15.00 per share, the midpoint of the range set forth on the front cover page of this prospectus, after deducting underwriting commissions and discounts of $7.1 million and estimated expenses of $7.9 million. We will not receive any proceeds from the sale of shares by the selling stockholders. See "Principal and Selling Stockholders."
A $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per share, the midpoint of the range set forth on the front cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by $6.3 million, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
We plan to use the net proceeds of the offering to fund investments in, and acquisitions of, competitive and complementary businesses, products or technologies. We do not, however, have agreements or commitments for any specific investments or acquisitions at this time. In addition, we expect to use up to $1 million to pay a portion of the fees to be paid to Advanced Equities, Inc. for their advisory services provided to us in connection with this offering. One million dollars of the fee was paid previously. See "Certain Relationships and Related Party Transactions-Series F, G, H and I Financing Rounds."
Pending use of the net proceeds from this offering, we intend to invest the remaining net proceeds in short-term, interest-bearing investment grade securities.
+++++++++++++++++++++++++++++++++++++++
The persons currently serving on our board of directors are designated pursuant to the terms of the amended and restated stockholders' agreement entered into in October 2007 with several of our
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significant stockholders, including funds affiliated with Advanced Equities, Inc., New Enterprise Associates, Inc. and Technology Crossover Ventures and Koala Holding LP, an entity beneficially owned by Carl C. Icahn. Pursuant to the amended and restated stockholders' agreement, (i) Ms. Suzanne H. King and Lady Barbara Judge, (ii) Mr. Brian Turner and Mr. Jeffrey A. Bowden, and (iii) Mr. Hunter C. Gary and Mr. Brett C. Icahn serve on our board as designees of investment funds affiliated with New Enterprise Associates, Inc. and Technology Crossover Ventures and Koala Holding LP, respectively. Koala Holding LP, which owns substantially all of our Series H preferred stock, will continue to have the right to appoint two of the seven members of our board of directors after the consummation of this offering. The amended and restated stockholders' agreement will terminate upon completion of this offering. Please see "Certain Relationships and Related Party Transactions-Stockholders' Agreement" for more information.
++++++++++++++++++++++++++++++++++
Change in Control. In connection with a Change in Control, the Compensation Committee may accelerate vesting of outstanding awards under the 2010 LTIP. In addition, such awards will be, in the discretion of the Compensation Committee, (i) assumed and continued or substituted in accordance with applicable law or (ii) purchased by us for an amount equal to the excess of the price of a share of our common stock paid in a Change in Control over the exercise price of the award(s). Under the 2010 LTIP, a "Change in Control" generally means (i) a person becoming the owner of 50% or more of the voting power of the Company's voting securities (other than by acquisitions (a) by the Company or any subsidiary, (b) by any employee benefit plan sponsored or maintained by the Company or any subsidiary, (c) by any underwriter temporarily holding securities pursuant to an offering, (d) pursuant to a "Non-Qualifying Transaction" (as defined in the 2010 LTIP) or (e) by any person that owned 30% or more of the Company's voting securities immediately prior to such transaction); (ii) a change in the majority of the directors of the board during any 24 month period without the consent of a majority of the board, (iii) the consummation of a transaction that requires the approval of the Company's stockholders (other than a Non-Qualifying Transaction); or (iv) the consummation of a sale of all or substantially all of the Company's assets (other than to a person then owning 30% or more of the Company's voting securities). Under the 2010 LTIP, a Change in Control specifically excludes (A) an acquisition of more than 30% of voting securities by the Company which reduces the number of voting securities outstanding, unless after such acquisition a person becomes the beneficial owner of additional voting securities that increases the percentage of outstanding voting securities owned by such person or (B) as the result of either the acquisition of more than 30% of the voting securities or of all or substantially all of the Company's assets by any of the following or their affiliates: Advanced Equities, Inc., Carl C. Icahn, New Enterprise Associates, Inc. or Technology Crossover Ventures.
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Shares
Beneficially
Owned
Prior to
This
Offering(1) Percent Shares Beneficially Owned After
This Offering
Name of Beneficial Owner
Assuming
Underwriters'
Option is Not
Exercised Percent Assuming
Underwriters'
Option is
Exercised in
Full Percent
5% Stockholders:
Funds affiliated with Advanced Equities, Inc.(2)
9,439,226 28.6 % 9,439,226 23.7 % 9,439,226 23.7 %
Entities affiliated with Carl C. Icahn(3)
4,529,888 13.8 % 4,529,888 11.4 % 4,016,310 10.1 %
Funds affiliated with Technology Crossover Ventures(4)
3,222,114 10.1 % 3,222,114 8.4 % 3,047,796 7.9 %
Funds affiliated with New Enterprise Associates Inc.(5)
3,143,939 9.8 % 3,143,939 8.1 % 3,143,939 8.1 %
Executive Officers and Directors:
Ryan K. Wuerch(6)
1,543,191 4.8 % 1,543,191 4.0 % 1,434,852 3.7 %
Jim Smith(7)
400,000 1.3 % 400,000 1.0 % 400,000 1.0 %
Chris Dorr(8)
10,000 * 10,000 * 10,000 *
Allyn P. Hebner(9)
166,666 * 166,666 * 166,666 *
Richard E. Leigh, Jr.(10)
133,333 * 133,333 * 133,333 *
James Ryan(11)
233,333 * 233,333 * 233,333 *
Jeffrey A. Bowden
- - - - - -
132
[Editor's note: May here. No time tonight to fix this table but the upshot is that AEI owns 28.6% of the firm now and after they are diluted by the IPO, they will own 23.7% of Motricity.]
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Includes (a) 439,377 shares issuable upon exercise of warrants held by Advanced Equities, Inc.; 18,514 shares issuable upon exercise of warrants and 482,381 shares held by Advanced Equities Investments XXV, LLC; (b) 9,685 shares issuable upon exercise of a warrant and 155,123 shares held by Advanced Equities Investments XXVI, LLC; (c) 4,501 shares issuable upon exercise of a warrant and 105,889 shares held by Advanced Equities Investments XXXV, LLC; (d) 4,917 shares issuable upon exercise of a warrant and 145,606 shares held by AEI Eastern Investments I, LLC; (e) 48,285 shares issuable upon exercise of a warrant and 1,159,342 shares held by AEI Eastern Investments II, LLC; (f) 6,203 shares issuable upon exercise of a warrant and 146,311 shares held by AEI Eastern Investments III, LLC; (g) 12,292 shares issuable upon exercise of a warrant and 258,034 shares held by AEI Eastern Investments IV, LLC; (h) 3,387 shares issuable upon exercise of a warrant and 58,628 shares held by AEI Trilogy Fund I, LLC; (i) 8,820 shares issuable upon exercise of warrants and 205,135 shares held by AEI 2006 Venture Investments I, LLC; (j) 18,168 shares issuable upon exercise of warrants and 393,868 shares held by AEI 2006 Venture Investments II, LLC; (k) 3,290 shares issuable upon exercise of a warrant and 50,846 shares held by AEI 2006 Venture Investments III, LLC; (l) 2,139 shares issuable upon exercise of a warrant and 38,839 shares held by AEI 2006 Venture Investments IV, LLC; (m) 112,282 shares issuable upon exercise of a warrant and 561,412 shares held by Advanced Equities Triangle Acquisitions I, LLC; (n) 292,233 shares issuable upon exercise of warrants and 1,461,167 shares held by Advanced Equities Triangle Acquisitions II, LLC; (o) 29,966 shares issuable upon exercise of warrants and 149,831 shares held by AEI 2007 Venture Investments III, LLC; (p) 38,800 shares issuable upon exercise of warrants and 194,001 shares held by AEI 2007 Venture Investments IV, LLC; (q) 137,542 shares issuable upon exercise of a warrant and 995,849 shares held by AEI Silicon Valley Fund II, LLC;
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(r) 25,362 shares held by Advanced Equities Motricity Common Investments, I, LLC; (s) 435,239 shares held by Advanced Equities Motricity Common Investments II, LLC; (t) 12,514 shares issuable upon exercise of warrants and 62,570 shares held by Advanced Equities Motricity Series I Investment I, LLC; (u) 347,636 shares held by AEI Wireless, LLC; (v) 663,364 shares held by AEI Wireless II, LLC; and (w) 139,878 shares held by AEI Wireless III, LLC. Keith Daubenspeck and Dwight Badger both possess shared voting and dispositive power over the shares held by the funds affiliated with Advanced Equities, Inc., and disclaim beneficial ownership of these shares except to the extent of their actual, respective pecuniary interest therein, if any.
(3) Includes (a) 962,764 shares issuable upon exercise of warrants and 3,438,553 shares held by Koala Holding LP; and (b) 128,571 shares issuable upon exercise of a warrant held by Icahn Enterprises, L.P. (formerly known as American Real Estate Partners, L.P.). Koala Holding LP and Icahn Enterprises, L.P. are entities controlled by Carl C. Icahn. As such, Mr. Icahn has indirect voting and investment power over these shares and therefore is deemed to beneficially own these shares.
+++++++++++++++++++++++++++++
Registration Rights Agreement
In October 2007, in connection with our Series I financing, we entered into an amended and restated registration rights agreement with certain of our significant stockholders including funds affiliated with Advanced Equities, Inc., Technology Crossover Ventures and New Enterprise Associates, Inc., and Koala Holding LP, an entity beneficially owned by Carl C. Icahn. The then-existing registration rights agreement had been amended to include registration rights for investors in our preferred stock financings prior to 2007.
At any time, the holders of a majority of the registrable securities then outstanding may demand that we register all or a portion of their registrable securities under the Securities Act. "Registrable securities" means shares of common stock acquired directly by an investor, shares of common stock issued upon conversion or redemption of shares of our preferred stock, and shares of common stock issued as a dividend or distribution on our common or preferred stock. Upon a demand for registration, we are obligated to provide notice to certain stockholders of the demand for registration and, upon notice to us, such stockholder may participate in the registration. These holders are entitled to two demand registrations under the terms of the registrations rights agreement, provided that the aggregate value of the registrable shares is at least $10 million. Beginning 180 days after the date of this offering, holders of approximately 27 million shares of our common stock (including 2,188,748 shares of common stock issuable upon the conversion of our Series H preferred stock as of March 31, 2010) will be able to require us to conduct a registered public offering of their shares.
The registration rights agreement also provides holders of registrable securities with the right to participate in any registration of securities that we initiate for our own account with certain limited exceptions. If we propose to file a registration in connection with a public offering of securities we must provide notice to the holders of registrable securities and use our best efforts to include such number of securities as the holders of registrable securities request in writing within 20 days of such notice. If the registration is an underwritten offering, the underwriters may, if they determine it necessary for certain specified reasons, exclude some or all such registrable securities from such registration.
After we become eligible to use Form S-3, the holders of registrable securities shall have the right to request registration on Form S-3 provided that the aggregate value of the registrable shares to be filed on such Form S-3 is at least $10 million. Upon such a demand for registration, we will be obligated to provide notice to certain stockholders of the demand for registration on Form S-3 and, upon notice to us, such stockholder may participate in the registration. These holders are entitled to two demand registrations on Form S-3 under the terms of the registrations rights agreement.
In connection with any registration affected pursuant to the terms of the registration rights agreement, we will be required to pay all of the fees and expenses incurred in connection with such registration. However, the underwriting discounts and selling commissions (if any) payable in respect of registrable securities included in any registration will be paid by the persons who include such registrable securities in any such registration. The registration rights agreement also contains customary cross-indemnification provisions.
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Stockholders Agreement
In October 2007, in connection with our Series I financing, we entered into an amended and restated stockholders' agreement with several of our significant stockholders, including affiliates of Advanced Equities, Inc., Technology Crossover Ventures and New Enterprise Associates, Inc., and Koala Holding LP, an entity beneficially owned by Carl C. Icahn. As of March 31, 2010, approximately 27 million shares of our common stock (assuming conversion of our outstanding redeemable preferred stock and preferred stock, including 2,188,748 shares of common stock issuable upon the conversion of our Series H preferred stock) were subject to this agreement. The then-existing stockholders' agreement had been amended in connection with our preferred stock financings prior to 2007. The amended and restated stockholders agreement, among other things:
Ÿ
limits the ability of stockholders to transfer our securities, except for certain permitted transfers described therein;
Ÿ
grants a right of first offer with respect to transfers of our securities by employees and other parties to the stockholders' agreement;
Ÿ
provides for certain co-sale rights and tag-along rights; and
Ÿ
provides for voting of shares with respect to the constituency of the board of directors.
In addition, the stockholders' agreement provides that if we receive, after February 23, 2009, a bona fide offer from a third-party to acquire all of our outstanding stock or all or substantially all of our assets we must, subject to certain restrictions described therein, give notice to Koala Holding LP, an entity beneficially owned by Carl C. Icahn, and provide Koala Holding LP with an opportunity to acquire all of our outstanding stock or all or substantially all of our assets on the same terms as such bona fide third-party offeror. This matching right expires 180 days after we provide such notice. If Koala Holding LP does not match the third-party's terms as of the end of this 180-day period, we can accept the third-party offer. This matching right will not apply if such bona fide offer will provide Koala Holding LP with a 50% return on the equity purchased by it in the Series H round.
The amended and restated stockholders' agreement will terminate upon completion of this offering. We believe that the foregoing is a materially complete summary of the amended and restated stockholders agreement. Please see the amended and restated stockholders' agreement, which is filed as an exhibit to the registration statement of which this prospectus is a part, for the complete terms of the agreement.
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Transactions Related to Negotiation of the InfoSpace Mobile Acquisition
In September 2007, funds affiliated with New Enterprise Associates Inc. ("NEA") and Advanced Equities, Inc. ("AEI") and several of its investors deposited $36.5 million and $20 million, respectively, in escrow accounts on our behalf to facilitate our ability to negotiate the acquisition. NEA and AEI are among our principal stockholders. See the section entitled "Principal and Selling Stockholders" for more information. In addition, NEA and AEI earned stand-by deposit fees equal to the difference between the amount actually earned by them on their deposits and the amount they would have earned at a rate of 12% per annum during the period beginning on September 14, 2007 and ending on the date the deposits were returned to them. In consideration of these deposits, we agreed to issue to NEA and AEI warrants to purchase 1,667 shares of common stock per day for every $10 million in escrow, up to 16,667 shares of common stock subject to such warrants for AEI and 85,167 shares of common stock subject to such warrants for NEA. In connection with this transaction, we issued the maximum amount of shares subject to warrants, with an exercise price of $14.54 per share, to NEA and AEI. Due to timing constraints and other circumstances of the Series I financing round, we did not believe that we could obtain similar deposits from non-related parties because they would be unable to adequately evaluate our financial position in time to complete the transaction. As a result, we are unable to determine whether these deposit fees were similar to the fees that would have been charged by non-related parties.
Additionally, in connection with the acquisition, we received consulting services from Koala Holding LP, an entity beneficially owned by Carl C. Icahn, in exchange for cash in the amount of $3 million and warrants to purchase 2,578,915 shares of Series I redeemable preferred stock at an exercise price of $0.9694 per share. The number of shares subject to warrants issued to Koala Holding LP in connection with this transaction was equal to 5% of the 51.6 million shares of Series I redeemable preferred stock previously issued to Koala Holding LP. We believe that the consulting services we received from Koala Holding LP, which included Mr. Icahn's assistance in negotiations with InfoSpace, were unique. As a result, we are unable to determine whether the compensation paid to Koala Holding LP for such consulting services is consistent with fees that would have been charged by a non-related party.
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With respect to both transactions, the exercise price of $0.9694 per share was consistent with the price per share of the Series I financing round, which had been determined by negotiations between members of our management team and our investors. The amount of stock underlying the warrants was determined through negotiations between the respective entities and members of our management team, and ultimately approved by our board of directors. The directors who had been designated by NEA, AEI and Koala Holding LP did not participate in the votes approving the grants to their respective entities.
Series F, G, H, and I Financing Rounds
AEI acted as a placement agent in each of our Series F, G, H, and I financing rounds. We entered into placement agent and advisory agreements with AEI for each of those financing rounds (the "AEI Advisory Agreements"). As compensation for those services, we provided AEI with cash in the amount of $16.8 million and warrants to purchase 64,916 shares of common stock at an exercise price of $35.55 per share, warrants to purchase 29,093 shares of common stock at an exercise price of $37.35 per share, and a warrant to purchase 6,340,676 shares of Series I preferred stock at an exercise price of $0.9694 per share. In connection with Series I, AEI surrendered warrants to purchase 93,045 and 29,093 shares of common stock at $35.55 and $37.35 per share, respectively, in exchange for certain fees and warrants included in the amounts above.
In January 2010, we and AEI entered into an Omnibus Amendment Agreement that amended the AEI Advisory Agreements. The Omnibus Amendment Agreement, among other things, eliminates our obligation to cause (or attempt to cause) AEI to be included as a member of the underwriting syndicate for this offering and obligates AEI and its affiliates to enter into (and use its commercially reasonable efforts to cause individuals or entities who acquired equity securities of Motricity from AEI to enter into) a lock-up agreement in connection with this offering on terms consistent with those described under the heading "Underwriting." In connection with our initial public offering AEI has provided and is providing advisory services to us. In exchange for such advisory services, we agreed to pay AEI an advisory fee of up to $2 million, $1 million payable prior to the consummation of the offering and up to $1 million, $400,000 payable upon the launch of the "road show" in connection with offering and $600,000 payable upon consummation of this offering out of the proceeds of this offering. If the offering is not consummated, the initial $1 million shall be credited against future advisory services, if any.
Series H Preferred Stock
Our Series H preferred stock will become automatically convertible into shares of our common stock in connection with this offering only if the initial public offering price is above $20.35. The terms of our Series H preferred stock had provided that any shares of the Series H preferred stock that remained outstanding as of August of 2011 would then be subject to redemption at the holders' election. Under those terms, depending on the number of shares, if any, of Series H preferred stock remaining outstanding at August 2011, we may have needed to provide up to approximately $52 million to the holders electing redemption at that time. In order to enhance our financial flexibility, our board of directors determined that it was in the best interests of the company and our stockholders to negotiate an extension of the date holders may require such a redemption of their Series H preferred stock. Our chief executive officer, Ryan Wuerch, and Carl C. Icahn, owner of a majority of the Series H preferred stock, negotiated the revised terms, which were approved by a majority of the disinterested directors of our board. Under the revised terms, the Series H preferred stock generally will not be subject to redemption at the election of the holder prior to August 2013. In addition, a forced conversion feature was added that provides that the Series H preferred stock will convert at our option into shares of our common stock if the average closing price over a 90-day period of our common stock is $23.21 per share or higher. In consideration of these revisions a 8% pay-in-kind (non-cash)
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dividend was also provided, which our board of directors concluded was a reasonable given the enhanced financial flexibility provided by the revised terms. For more information, see "Description of Capital Stock-Preferred Stock-Series H Preferred Stock."
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Conflicts of Interest
Affiliates of Advanced Equities, Inc. ("AEI") beneficially own more than 10% of our company. Because of this beneficial ownership and because we agreed to pay AEI an advisory fee of up to $2 million in connection with this offering, AEI may be deemed a statutory underwriter. Since AEI's affiliates beneficially own more than 10% of our company, the underwriters are deemed to have a "conflict of interest" under Rule 2720 of the Conduct Rules of the National Association of Securities Dealers, Inc., which are overseen by the Financial Industry Regulatory Authority, Inc. Accordingly, this offering is being conducted in compliance with the applicable provisions of Rule 2720. Pursuant to that rule, the appointment of a "qualified independent underwriter" (as such term is defined in Rule 2720) is not necessary in connection with this offering as the members primarily responsible for managing the public offering do not have a conflict of interest, are not affiliates of any member that has a conflict of interest, and meet the requirements of paragraph (f)(12)(E) of Rule 2720.
Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for us, for which they received or will receive customary fees and expenses.
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The fair value of our common stock as of the January 1, 2008 and February 7, 2008 grant dates was estimated by the board of directors to be $12.00 per share. Due to the proximity of the acquisition of InfoSpace Mobile in December 2007 to these grants, the issuance of the Series I redeemable preferred stock to a subset of existing and new investors to fund the acquisition was considered the most objective approach to estimating the fair value of our common stock for purposes of these grants. We sold 190.8 million shares of Series I redeemable preferred stock at a price of $0.9694 per share. Each share is convertible into .0667 shares of common stock and has a liquidation preference equal to the $0.9694 issue price plus cumulative unpaid dividends of $0.038776 per annum, whether declared or not. Based on the pre-money valuation associated with the Series I preferred stock issuance of $295 million, which was negotiated between our board of directors and investors participating in the Series I financing round, and the Series I proceeds of $185 million, we estimated the fair value of the common stock to be $12.00 by deducting the liquidation preferences of Series A, B, C, D and E as of such date from the post-money valuation of $480 million and divided by the number of fully diluted shares outstanding as of such date.
In early 2008, following the closing of the acquisition of InfoSpace Mobile in December 2007, we finalized our plans to integrate the business and initiated implementation of the plans, including relocating our headquarters to Bellevue, Washington. Significant progress was also made during that period toward the eventual disposition of the discontinued business lines. We updated our financial forecasts as of April 2008 based on the progress made in the integration process, the additional knowledge of the InfoSpace Mobile business gained and initiatives undertaken to increase revenues and reduce operating expenses of the combined business.
We engaged an independent third-party valuation firm to assist the board of directors in performing a contemporaneous valuation of our common stock as of April 30, 2008, for stock option grants. The enterprise value was calculated by using an asset-based approach, a market-based approach, determined primarily by the recent issuance of the Series I redeemable preferred stock, and an income-based approach. After considering these methods, we relied primarily on the income-based approach utilizing the discounted cash flow method to determine enterprise value. The discounted cash flow analysis incorporated three different scenarios based on different exit or terminal values, each incorporating three different market condition assumptions which were probability weighted. Assumptions utilized in each discounted cash flow scenario were:
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The following table sets forth information regarding our executive officers and directors, including their ages and positions, as of May 31, 2010. All of our directors hold office for the remainder of the full term in which the new directorship was created or the vacancy occurred and until their successors are duly elected and qualified. Executive officers serve at the request of the board of directors. Other than as described below, there are no family relationships between our directors and executive officers.
Name
Age
Position
Ryan K. Wuerch
42 Chief Executive Officer, Chairman and Founder
Jim Smith
43 President and Chief Operating Officer
Allyn P. Hebner
57 Chief Financial Officer
Richard E. Leigh, Jr.
50 Senior Vice President, General Counsel and Corporate Secretary
James Ryan
44 Chief Strategy and Marketing Officer
Chris Dorr
48 Chief Human Resources Officer
Jeffrey A. Bowden
64 Director
Hunter C. Gary
36 Director
Brett C. Icahn
30 Director
Lady Barbara Judge
62 Director
Suzanne H. King
46 Director
Brian Turner
50 Director
Upon the closing of our initial public offering, Ryan K. Wuerch will resign as Chairman of our board of directors and Lady Barbara Judge will become the Chairperson of our board of directors.
The composition of the committees of our board of directors as of the date of this prospectus is set forth below. An "X" indicates membership; a "C" indicates that the director serves as chairperson of the committee.
[Editor's note: May here. It is my understanding that Keith Daubenspeck was on the BOD, but has resigned. That may have to do with rules regarding the locu up of one's stock after the IPO. It is already 180 days and if Keith were on the board it might be longer.
But Keith was on the board, as far as I can determine:
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Compensation Committee Interlocks and Insider Participation
Keith G. Daubenspeck, Hunter C. Gary, Suzanne H. King and David Limp served as members of our compensation committee in the last fiscal year. None of them is or has at any time been one of our officers or employees. None of our executive officers serves as a member of the compensation committee or board of directors of any other entity that has an executive officer serving as a member of our board of directors or compensation committee.
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May again. Here it is. Keith resigned on January 11, 2010:
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On or about August 24, 2009, David Limp resigned as chairperson of the Compensation Committee and subsequently resigned from our board of directors and ceased to serve as a member of the Compensation Committee on November 16, 2009. On January 11, 2010, Keith Daubenspeck resigned from our board of directors and ceased to serve as a member of the Compensation Committee. Lady Barbara Judge was elected to our board of directors on January 11, 2010 and appointed to the Compensation Committee. Effective as of January 13, 2010, Hunter Gary was elected as chairperson by the Compensation Committee, in accordance with the Compensation Committee Charter. On February 12, 2010, Suzanne King resigned as a member of the Compensation Committee and Brian Turner was appointed to the Compensation Committee.
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Director Compensation
To date, we have provided cash compensation to non-employee directors (other than directors receiving compensation from and appointed by our principal stockholders, including entities beneficially owned by Carl C. Icahn and funds affiliated with New Enterprises Associates, Inc. and Technology Crossover Ventures) for their services as directors or members of committees of the board of directors. We have reimbursed and will continue to reimburse such non-employee directors for their reasonable expenses incurred in attending meetings of our board of directors and committees of the board of directors.
In accordance with our Compensation Committee Charter, our Compensation Committee has adopted a compensation program for such non-employee directors, or the "Non-Employee Director Compensation Policy." Pursuant to the Non-Employee Director Compensation Policy for fiscal year 2009 and earlier, each member of our board of directors who was not our employee and had not received compensation from, and had not been appointed by, one of our principal stockholders, generally received the following cash compensation for board services, as applicable:
Ÿ
$30,000 per year for service as a Board member, paid in equal quarterly installments;
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$1,000 meeting fee for formal board meetings;
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$12,500 per year for service as chairperson of the Audit Committee and $7,500 per year for service as chairperson of the Compensation Committee or the Nominating & Corporate Governance Committee; and
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a one time grant of 166,666 stock options upon joining the board to vest 25% on the first anniversary of the date of grant with the remaining portion vesting in pro-rata equal monthly installments over the following three-year period.
As of December 22, 2009, the Compensation Committee had approved and recommended to the board of directors, which subsequently approved, board compensation effective for 2010 which provided, among other things, for a grant of 8,000 shares of restricted stock, to vest in three equal installments, upon a director's initial election to the board of directors. Upon commencement of their service to the board of directors, each of Mr. Turner and Ms. Judge received a grant of 8,000 shares of restricted stock, to vest in equal installments over three years.
On April 4, 2010, the Compensation Committee approved changes and recommended to the board of directors, which subsequently approved, in board compensation effective for 2010 that are deemed to be competitive with the market for non-employee director's compensation. Such non-employee board members shall receive the following cash compensation: $30,000 annually; the chairperson of the board will receive an additional fee earned of $20,000; the chairperson of each of the Audit Committee and Compensation Committee will receive an additional $15,000 and the chairperson of the Nominating & Corporate Governance Committee will receive an additional $10,000. Members of any committee, excluding the chair position, will receive an additional $5,000. In addition, the Compensation Committee approved and recommended to the board of directors, which subsequently approved, the granting of restricted stock equal in value to $140,000 to each non-employee director as part of their annual compensation. The Compensation Committee approved and recommended to the board of directors, which subsequently approved, the increase of the restricted stock award from $120,000 to $140,000 in value to compensate the non-employee directors for the additional responsibilities associated with the Company's stock becoming publicly traded. The non-employee director compensation policy also provides that non-employee directors must own shares of the Company equal to four times their cash retainer within five years of joining our board of directors. Subsequent annual grants of equity to such non-employee members of the board, if any, will be made on May 1 of each year in conjunction with the annual meeting of the Company's stockholders. In accordance with our non-employee director compensation policy, on May 18, 2010, the Compensation
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Committee recommended that the board of directors approve a restricted stock grant equal in value to $140,000 to Mr. Bowden in consideration of his election to the board of directors, and a restricted stock grant equal in value to $140,000 to each of Mr. Turner and Lady Judge, respectively, in consideration of their service to the Company, with the number of shares to be granted based on the initial public offering price per share of our common stock or, in the event that the offering does not occur on or prior to July 1, 2010, the fair market value of our common stock on July 1, 2010. Such restricted stock awards will vest on the first anniversary of their grant date, subject to accelerated vesting in the event of a "change in control" (as such term is defined in the 2010 LTIP).
Below is a summary table of what our 2009 non-employee board members (other than directors receiving compensation from and appointed by our principal stockholders) have received through December 31, 2009.
Name(1)
Fees Earned
or Paid in
Cash
($) Stock
Awards
($) Option
Awards
($)(2) Non-Equity
Incentive Plan
Compensation
($) All Other
Compensation
($) Total
($)
Raymond L. Lawless
43,973 - 102,650 (3) - - 146,623
David Limp
34,692 - - - - 34,692
Rick White
30,212 - - - - 30,212
Jonathan Miller
32,429 - - - - 32,429
Sohail Qadri
4,505 - - - - 4,505
Brian Turner
3,310 - - - - 3,310
(1) Individuals who served as directors during 2009 but who did not receive compensation for their service on the board include: Suzanne King, Hunter Gary, Keith Daubenspeck, Carl Icahn and Ryan Wuerch.
(2) Represents FASB ASC 718 grant date fair value.
(3) Mr. Lawless's option awards granted in 2009 began vesting on August 7, 2008 and vest over a four-year period with 25% vesting on the first anniversary of August 7, 2008 and the remaining portion of the option vesting in pro-rata equal monthly installments over the remaining three-year period. Mr. Lawless's options were granted with a vesting commencement date of August 7, 2008 because the Compensation Committee originally approved the option grant in August 2008, but did not formally grant the options to Mr. Lawless until February 5, 2009. As a result of the delayed timing of the grant, the Compensation Committee determined that it was appropriate for the grant to commence vesting from the time when it was initially approved.
Following the completion of this offering, all of our directors will be eligible to participate in our 2010 LTIP and their compensatory equity grants will be granted under, and subject to the terms of, the 2010 LTIP.
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END OF REPORT
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