Web-based TV ad agency Spot Runner has tried to reassure staffers over the weekend with a memo that could offer a clue as to how it plans to fight WPP Group's $13 million lawsuit accusing the company of securities fraud and breach of contract. WPP, which holds a 3 percent stake in the company, is suing because it was not informed of the sale of Spot Runner shares between Feb. 2006 and March 2008.
The UK ad holding company, which initially bought $10 million worth of shares in Spot Runner as part of its third found back in Aug. 2006, says that if it had known about the earlier share sale, it would never have made an investment. WPP also says that the defendantsit specifically accuses Spot Runner CEO Nick Grouf, co-founder David Waxman and general counsel Peter Huie; as well as investors Bob Pittman, Index Ventures' Danny Rimer Battery Ventures' Roger Lee. The company also alleges that it was defrauded and deceived on additional sales, though it was given the opportunity to sell shares in May 2007 and March 2008but was not informed of a plan to sell shares in Jan. 2008.
In its unsigned memo to employees, obtained by paidContent, Spot Runner identifies WPP as a "sophisticated investor" and that it had "signed various documents acknowledging" the opportunity to sell shares over the past two years. Ultimately, Spot Runner tells staffers that the legal issues should have no impact on its day-to-day operations. The full memo appears after the jump.
As you may have heard, WPP, a minority shareholder (less than 3%) in Spot Runner since 2006, filed a lawsuit against the company and its board members primarily related to the sale of Spot Runner stock and Spot Runner's communications with WPP. This situation is unfortunate, as we appreciate and value the relationships we have with all of our investors and we had hoped for a long and supportive relationship with WPP. We believe these claims are without merit and will vigorously defend against them, including taking all necessary legal action to protect Spot Runner's reputation.
We feel strongly that WPP's complaint contains many baseless accusations and want to give you a broader perspective on the matter. This lawsuit is unrelated to our products and services it is centered on legal agreements entered into with WPP, a sophisticated investor, regarding the way that shareholder stock sales were handled. WPP alleges that Spot Runner's board members failed to disclose to WPP the stock sales by shareholders, allegedly in violation of the board's obligations to stockholders, among other things.
We are confident that Spot Runner complied with all of its obligations under the various shareholder agreements. When these sales occurred, there was overwhelming demand for Spot Runner stock and the company did not want to dilute existing shareholders by issuing new shares. Therefore, the founders (in 2006) and the board members and other preferred shareholders (in 2007 and early 2008) agreed to make room for important, new investors and respond to their desire to invest in Spot Runner by selling their own shares. In 2007 and 2008, WPP and other preferred shareholders were given notice that the sales were occurring, and they had the opportunity to participate in the sales. In fact, WPP signed various documents acknowledging this opportunity.
Spot Runner and all of its employees conduct business with the utmost integrity. Our team, technologies, and products and services are core assets of which we can all be proud. It is because of your hard work that we have come this far. To that end, we continue to drive hard toward successfully launching Project Malibu andrealizing its full potential. You also should know that our board members remain majority shareholders in Spot Runner a concrete sign of their commitment to and confidence in the business.
Our outside counsel will work with the board and management team to develop a formal reply, which ultimately will be filed with the court. These legal proceedings should not affect our day-to-day operations.
We are grateful that we can count on you to remain focused on serving our clients and partners to the best of your abilities.
Thank you again for all that you do for Spot Runner.
By David Kaplan