Online incentive marketer CoolSavings could see up to $15 million in new capital, through a deal with media firm Landmark Communications that will involve chief executive Stephen Golden leaving the firm’s management.
Through the deal, the cash-strapped Chicago-based firm will receive a loan of $5 million from Norfolk, Va.-based Landmark, an owner of several regional print, Web, cable and broadcasting outlets, including The Weather Channel.
CoolSavings can also receive up to $10 million in cash from the media firm by selling preferred stock at about $0.16 per share — if certain criteria are met, including shareholder approval of some fairly lengthy stock and control concessions.
That’s a much-needed cash infusion — in March, the company said it didn’t have enough money to keep going without outside assistance, and was on track to burn through the last of its cash sometime in the next several weeks.
But the capital comes at a hefty price. In return for the $5 million loan, CoolSavings issued Landmark warrants to purchase up to 7.8 million shares (or 19.9 percent) of its common stock, at $0.01 per share. At press time, the value of the stock covered by the warrants is about $2.9 million. If and when CoolSavings receives the equity funding — which will come in two, $5 million stages — those warrants become exercisable for 10 million shares of common stock, at $0.50 per share.
After all is said and done, Landmark will own preferred stock convertible into common stock equal to about 49 percent of the CoolSavings’ shares.
When it provides the first chunk of equity financing, Landmark also will gain the right to designate and elect a majority of the seats on the CoolSavings board of directors. Additionally, there’s a stipulation that Landmark has the option to purchase more preferred stock at $0.16 per share — giving it still more clout in the company.
Landmark’s rise to control in the company is accompanied by the departure of Golden, who not only founded the firm in 1997, but served as its chairman, CEO and president from then until January, when he ceded the president title to sales chief Matthew Moog.
The company did not officially disclose whether the resignation of Golden — who owns a significant stake in the company — was a condition of the funding, but sources close to the company say this was indeed the case. Separately, chief financial officer Paul Case also announced his resignation. It is not known of Case’s leaving was also a condition or otherwise related to the funding agreement.
CoolSavings did say that Golden would remain on the board of directors, however.
Taking Golden’s place as CEO will be president Matthew Moog, who also receives a seat on the board through the arrangement. Case will be replaced in a temporary capacity by senior vice president and controller Laurie Streling.
Also through the board jostling, board member Richard Rogel, an early investor, becomes the non-executive chairman.
While Moog said the funding meets CoolSavings’ “foreseeable” cash needs, Landmark meanwhile said it planned to make CoolSavings the start of a direct marketing business.
“We believe in the power of Internet-based direct marketing, and believe CoolSavings is in a great position to succeed in this area,” said Rusty Friddell, who is executive vice president of Landmark, which also owns an outdoor advertising firm.
“CoolSavings has demonstrated penetration and traction with brick and mortar as well as e-commerce retailers, and has attained near critical mass of active shoppers in their member base. These achievements, on top of a technologically sound infrastructure, present an attractive opportunity for long-term growth potential,” Friddell said.