Court to decide two aspects of dispute between Moniker founder Monte Cahn and his former employer.
Monte Cahn and Oversee.net will square off in court on January 24, but it will be a limited non-jury trial over just a couple aspects of Cahn’s breach of contract claim.
The trial will seek to address two issues:
1. Oversee’s treatment of the Oversee EBITDA performance goal under Cahn’s bonus plan
2. Who counts as “TrafficClub customers” for determining if Cahn met his goal for domain monetization
Trial briefs submitted by the respective parties shed more light on the history of Moniker as well as Oversee.net’s performance in recent years.
Seevast sells Moniker to Oversee.net
Monte Cahn sold Moniker to Seevast (called Kanoodle at the time) in 2005. Seevast thought it would go public or be sold within a couple years. Cahn had a provision in the sale that would allow him to ask for Moniker to be sold again in two years if that didn’t happen.
After Seevast bought Moniker, Cahn stayed on with the company. It generated $3.6M in EBITDA in 2006 and $4.1M in 2007, according to Cahn.
After two years the Seevast exit did not materialize, so Cahn asked Seevast to put Moniker up for sale.
A number of companies made firm offers for Moniker, Cahn says, including Tucows, Sedo, Millennium, Baker Capital and two other private equity companies in addition to Oversee. Oversee’s initial offer was $50M. It ultimately paid $24.1M, according to Cahn.
Cahn says $10M of the price reduction was to help fund a Management Incentive Program (MIP).
Oversee characterizes the MIP as basically an earn out for Moniker employees. Cahn was to identify its participants each year by January 15, but Oversee.net says he didn’t.
The MIP covered four areas: Oversee.net’s overall performance, TrafficClub (domain monetization), domain sales, and registrar.
Overall Oversee.net performance
Is Cahn owed money under the MIP for Oversee.net’s overall performance?
Although the financial goals in the MIP for Moniker’s segments were determined when the plan was signed, the overall Oversee goal was left as “TBD”. The board would determine the goal each year.
Oversee’s board never set goals for the MIP. Because of this, Cahn says he should be held to the same EBITDA goals as the rest of senior management. Oversee claims that during negotiations of the MIP it demanded that it retain discretion to set different EBITDA goals under the MIP than for other senior management. The company says that, although it never set those goals for Cahn, doing so would have been an “idle act”. The goals would have been for improving financial conditions, but Oversee.net’s condition weakened shortly after the acquisition. It also points out that Cahn never consulted with the board or asked it to set the goal.
According to Cahn’s filing, in 2009 and 2010 Oversee.net’s EBITDA goal for senior management was around $24M each year, and Cahn says it topped this goal slightly each year.
Oversee.net also created an alternative plan for Cahn, under which he received bonuses in 2008 and 2009. It contends that Cahn could receive a bonus under either the MIP or the new plan each year, but not both.
Cahn says he deserves a bonus of $3.2M for Oversee hitting the EBITDA goals.
DomainSponsor and TrafficClub
DomainSponsor and TrafficClub have an interesting history.
TrafficClub was Moniker’s split-test parking system, which rotated traffic amongst many parking companies to figure out which domains earned the most on each system.
Before Oversee.net acquired Moniker there was a spat between the two companies with regards to TrafficClub. DomainSponsor pulled out of the TrafficClub program and reached out to TrafficClub customers to convince them to bring their business to DomainSponsor.
The Oversee.net acquisition surprised some in the industry because of this previous disagreement.
Shortly after buying Moniker, Oversee.net shut down TrafficClub.
At issue is how much (if any) Cahn is owed for his work bringing in new DomainSponsor customers and/or bringing on more revenue from existing ones.
Cahn says he worked hard to bring new clients to DomainSponsor or get existing ones to expand their business. He convinced Mike Berkens to transfer his entire portfolio. He also struck a deal with Jan Barta to advance $3M to him that would be paid off by monetizing domains. He also says he brought on traffic from clients such as Rick Schwartz, Tucows, and Marchex.
Cahn says that Oversee.net didn’t track the revenue he brought in to the new combined TrafficClub/DomainSponsor correctly. (It’s worth noting that Cahn originally was to run the Moniker division at Oversee, but later was given responsibility for DomainSponsor.)
There’s also a disagreement about which customers should be counted toward Cahn’s goal, and the court will decide that in this case. Cahn says the incentive plan includes customers that were on DomainSponsor (but not TrafficClub) when he joined Oversee but whose business Cahn grew after arriving. Oversee.net disagrees, saying the plan does not include these customers.
According to Cahn, DomainSponsor/TrafficClub’s gross profit was $51.7M in 2009 and $37.3M in 2010. That’s an interesting number to benchmark the fall in domain parking during that time.
Cahn says Oversee owes him $1.6M related to TrafficClub.
I think this gives a fair overview of what both sides are arguing. But the details are nuanced, and this summary by no means covers every point of fact the two parties will argue in court. It’s now up to a judge to decide.