By Christopher Zinsli
Of DOW JONES VENTUREWIRE
Automatic Data Processing Inc. (ADP) is at odds with a company
preparing for an IPO over whether ADP deserves a $2.7 million stake
in the private company, according to the IPO applicant's latest
prospectus.
Cornerstone OnDemand Inc. said it doesn't believe ADP earned
warrants to purchase stock in the private company under a 2009
reseller agreement, but the publicly traded business process
outsourcing company believes it does because it met the pact's
sales targets.
The companies signed a distribution agreement in May 2009 under
which ADP would sell Cornerstone's workforce software. The
partnership, billed by Cornerstone at the time as "the industry's
largest reseller deal," gave ADP warrants to purchase shares of
Cornerstone if it met annual sales targets, according to the
prospectus.
Cornerstone, which registered for an initial public offering in
September, said it notified ADP it hadn't met the sales targets for
the year ended June 30. Last month ADP told Cornerstone it believes
it met the lowest tier of sales targets, which would entitle ADP to
purchase about $2.7 million worth of Cornerstone shares, the
prospectus said.
Cornerstone, based in Santa Monica, Calif., said it believes
ADP's position is without merit and discussions between the
companies are ongoing. The matter has the potential to escalate to
arbitration or litigation if it isn't resolved independently,
Cornerstone said.
Cornerstone's general counsel declined to comment further,
citing Securities and Exchange Commission quiet-period rules for
pre-IPO companies. ADP didn't respond to a request for comment.
The performance incentives, if met, will be meted out on an
annual basis through 2014 or until Cornerstone is acquired or until
three years after it completes an IPO. Cornerstone said it believes
ADP isn't likely to earn the warrants for the second contract year,
which ends June 30, 2011.
Cornerstone also said in the prospectus that it intends to list
its common stock on the Nasdaq Global Market under the symbol CSOD.
Goldman Sachs & Co. and Barclays Capital are the offering's
lead underwriters.
Cornerstone sells software to develop and train employees. It
generated $32.6 million in revenue in the first three quarters of
the year, up 54% from the same period last year. But the company
has incurred losses since inception. Net losses for the first nine
months of this year were $31.5 million. Its accumulated deficit
stood at $79.9 million as of Sept. 30.
The company has been supported by investors including Bessemer
Venture Partners, Meritech Capital Partners and Bay Partners, which
remain its largest outside shareholders.
(This story was also published in Dow Jones VentureWire, a daily
publication that covers news about start-ups and venture
capital.)
-By Christopher Zinsli, Dow Jones VentureWire; 212-416-2034;
christopher.zinsli@dowjones.com