SEC Company Response from Groupon, Inc. (GRPN) (CIK 0001490281) (GRPN) — Sep 16, 2011
Groupon, Inc. (GRPN) (CIK 0001490281)
Date: Sept. 16, 2011 · CIK: 0001490281 · Accession: 0001047469-11-008103
AI Filing Summary & Sentiment
File numbers found in text: 333-174661
Letter
VIA EDGAR AND E-MAIL Division of Corporation Finance Registration Statement on Form S-1 filed on June 2, 2011 Amendment No. 1 filed on July 14, 2011 Amendment No. 2 filed on August 10, 2011 File No. 333-174661
Dear Mr. Spirgel:
On behalf of Groupon, Inc. (the "Company"), set forth below are the responses of the Company to certain comments of the Staff raised during (i) a telephone call on September 6, 2011 between the Staff and Winston & Strawn LLP, the Company's outside legal counsel, relating to an internal memorandum dated August 25, 2011 that was sent via e-mail by Andrew Mason, the Company's Chief Executive Officer, to certain employees of the Company, (ii) a telephone call on September 8, 2011 among the Staff, representatives of the Company, Ernst & Young LLP, the Company's independent auditors, and Winston & Strawn LLP relating to the Company's financial statement presentation and (iii) a telephone call on September 13, 2011 among the Staff, representatives of the Company, Ernst & Young LLP and Winston & Strawn LLP relating to the repurchase by the Company of certain shares of Company common stock.
I.Andrew Mason's August 25, 2011 E-mail to Employees
A.Introduction
The Staff has requested that the Company furnish additional legal analysis as to whether Andrew Mason's August 25, 2011 e-mail to certain employees of the Company constituted a violation of Section 5 of the Securities Act of 1933, as amended (the "Securities Act"). Section 5(b)(1) of the Securities Act provides that it is unlawful for any person, directly or indirectly, to use any prospectus relating to any security with respect to which a registration statement has been filed, unless such prospectus meets the requirements of Section 10 of the Securities Act. Section 2(a)(10) of the Securities Act defines "prospectus" to include any written, radio or television offer or a confirmation of the sale of a security. Section 2(a)(3) of the Securities Act defines the term "offer" as "every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, for value."
The following sets forth the Company's analysis of the applicable rules and regulations of the Securities and Exchange Commission (the "Commission") and concludes that Mr. Mason's e-mail to employees did not constitute an "offer" and therefore did not violate Section 5(b)(1) of the Securities Act. The Company respectfully submits that Mr. Mason's e-mail does not constitute an "offer" as the term is technically defined under the Securities Act or as the term has been more broadly interpreted by the Commission because it was not an attempt by the Company to market, sell or dispose of securities. Rather, the e-mail was a direct communication with employees of factual business information of the type permitted by the applicable rules and regulations of the Commission. As discussed below, the Company
recognizes, however, that in view of the inadvertent dissemination to the public of the internal communication, additional disclosures in its prospectus are appropriate to ensure that prospective investors do not rely on the communication in isolation without the more complete disclosures contained in the prospectus.
B.Mr. Mason's e-mail does not violate Section 5 because it does not constitute an "offer" as that term is defined under the Securities Act or interpreted by the Commission.
Mr. Mason's e-mail does not constitute an "offer" as such term is defined under the Securities Act or interpreted by the Commission. As noted above, Section 2(a)(3) of the Securities Act defines the term "offer" as "every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, for value." Mr. Mason's e-mail makes no reference to the terms of the proposed offering, the manner or timing by which the Company expects to dispose of securities, the names of the underwriters, how to participate in the offering or the potential returns or benefits to investors in the offering and includes no other language that would normally be considered as constituting an "offer." The Company recognizes, however, that the Commission expanded what constitutes an "offer" beyond the definition in Section 2(a)(3) of the Securities Act, stating in Securities Act Release No. 33-3844 ("Release No. 3844")1 that:
"The publication of information and statements, and publicity efforts, generally, made in advance of a proposed financing, although not couched in terms of an express offer, may in fact contribute to conditioning the public mind or arousing public interest in the issuer or in the securities of an issuer in a manner which raises a serious question whether the publicity is not in fact part of the selling effort."
1Publication of Information Prior to or After the Effective Date of a Registration Statement, Securities Act Release No. 33-3844, 22 Fed. Reg. 8359 (Oct. 8, 1957).
The Company submits that under this guidance, and consistent with subsequent pronouncements by the Commission, Mr. Mason's e-mail is not within this more expansive definition of "offer" because it did not constitute a publication or publicity effort that was part of a "selling effort," nor was it designed to "contribute to conditioning the public mind or arousing public interest in the issuer or in the securities of an issuer."
Mr. Mason's e-mail was not a publication or publicity effort. As discussed above, it was a confidential communication not intended for public release, and it contained reminders to refrain from discussing any aspects of the Company's business during the registration process.2 Further, the e-mail was not part of any "selling effort." Again, as discussed above, no part of the offering will be directed to employees, and the e-mail did not discuss the terms of the proposed offering, the manner or timing by which the Company
2In Release No. 33-3844, the Commission articulated examples of "publicity efforts" that constituted offers in violation of Section 5. Id. One such example concerned promoters and prospective underwriters of a mining company in the development stage who "arranged for a series of press releases describing the activities of the company, its proposed program of development of its properties, estimates of ore reserves and plans for a processing plant." Id. Another concerned a prospective underwriter who distributed a brochure that "described in glowing generalities the future possibilities for use of a mineral [to be explored for] and the profit potential to investors" in the industry. Id. Both of the aforementioned examples describe communications that were calculated to reach a broad, public audience. Unlike a press release and a deliberately distributed brochure, Mr. Mason's e-mail was a private communication to employees that was never intended to reach the public and thus cannot be deemed to be part of a publicity or selling effort.
expects to dispose of securities, the names of the underwriters, how to participate in the offering or the potential returns or benefits to investors in the offering.3
3The publication of specific terms of and information about an offering, even unaccompanied by an explicit offer to purchase securities, has been held to be an offer in violation of Section 5. In In re Carl M. Loeb, Rhoades & Co., the Commission found a Section 5 violation where a communication by an issuer was of a type that would stimulate public interest in an offering. 1959 WL 59531 (1959). In Loeb, Rhoades, the co-managing underwriters issued press releases concerning the issuer, a real estate development company, which described the property involved and the company's development plans in general terms, outlined the proposed securities offering, and mentioned the names of the two managing underwriters. Although the releases did not directly offer to sell any securities, the Commission concluded that publicity of that type and in that situation "must be presumed to set in motion or to be a part of the distribution process and therefore to involve an offer to sell or a solicitation of an offer to buy . . . securities." Id. at *6. Focusing on the more extensive of the releases and the resultant publicity, the Commission found that "such release and publicity was of a character calculated, by arousing and stimulating investor and dealer interest in [the] securities . . ., to set in motion the processes of distribution." Id. Mr. Mason's e-mail did not contain any language explicitly offering to sell the Company's securities, nor did it contain any of the specific offering information contained in the Loeb, Rhoades communication. The lack of specific offering information in Mr. Mason's e-mail, coupled with the fact that it was a private communication not intended for public distribution, supports the conclusion that the e-mail was not of the type that was calculated to arouse and stimulate investor interest and thus did not involve an offer.
The Company further submits to the Staff that Mr. Mason's e-mail (whether before or after the leak) did not and will not contribute to conditioning the public mind or market or arousing the public interest in the Company or its securities because of the extraordinarily high degree of media scrutiny and attention to which the Company has been, and continues to be, subject. In this regard, the Company notes that the release of the e-mail did not have any meaningful impact on the level or nature of the media coverage concerning the Company or the offering. Indeed, although the leaked e-mail attracted media attention, a Google news search of "Groupon initial public offering" for the weeks before (August 17, 2011 through August 24, 2011) and after (August 25, 2011 through September 1, 2011) the release of Mr. Mason's e-mail returned approximately 1,690 and 1,320 results, respectively, reflecting that media attention actually declined following the dissemination of Mr. Mason's e-mail. When viewed in the context of the magnitude of media attention about the Company and the offering, Mr. Mason's e-mail did not have the effect of arousing public interest in the Company in any meaningful respect. As a result, the Company respectfully submits that Mr. Mason's e-mail is not a violation of Section 5 in that it does not constitute an "offer" as the term is defined under the Securities Act or as the term has been more broadly interpreted by the Commission.
The Company respectfully submits that the circumstances of Mr. Mason's e-mail also differ significantly from the situation involving Salesforce.com in which the Commission elected to impose a "cooling off period." In 2004, Salesforce.com planned to go effective with the registration statement relating to its initial public offering when the New York Times published an article featuring the company's chief executive officer. The article was published on the eve of the company's road show and included substantial information about the initial public offering, which was gathered by a reporter who interviewed the company's chief executive officer. Commenting on the situation, in a letter to The Honorable Darrell E. Issa, Chairman of the Committee on Oversight and Government Reform, Mary L. Shapiro, Chairman of the Commission, noted that "[i]t appeared to the [S]taff that the interview was granted . . . in an effort for Salesforce.com or its CEO to communicate with prospective investors through the article, which was
not permitted under the rules."4 As a result, to address impermissible market conditioning, the Commission imposed a cooling-off period for Salesforce.com's initial public offering.
4Letter from Mary L. Shapiro, Chairman of the U.S. Securities and Exchange Commission to The Honorable Darrell E. Issa, Chairman of the Committee on Oversight and Government Reform, United States House of Representatives (April 6, 2001).
In contrast to the situation involving Salesforce.com, the intended audience of Mr. Mason's e-mail consisted solely of employees not in their capacities as investors. In addition, the New York Times article was published during a time when Salesforce.com was actively marketing its offering and appeared to be an effort to arouse the public interest in the offering. By comparison, Mr. Mason's e-mail was impermissibly leaked to and reported in the media significantly in advance of any marketing of the Company's initial public offering and, as a result, did not and will not have the effect of conditioning the public mind for the offering of the Company's securities. Indeed, at the time the e-mail was disseminated to persons outside of the Company, the timing of any marketing initiatives had not even been scheduled.
C.Mr. Mason's e-mail does not violate Section 5 because it is a communication that falls within the safe harbor of Securities Act Rule 169.
In 2005, as part of Securities Offering Reform, the Commission adopted Securities Act Rule 169. Rule 169 provides a safe harbor from the gun jumping provisions of the Securities Act for certain corporate communications by non-reporting issuers such as the Company.5 Under this safe harbor, "factual information about the issuer, its business or financial developments, or other aspects of its business" may be released by an issuer during the pre-filing and waiting periods provided that such information is intended for use by persons other than in their capacities as investors or potential investors.
5Rule 169 is a non-exclusive safe harbor. See Securities Offering Reform, Securities Act Release No. 33-8591, 69 Fed. Reg. 67,392 at n.1 (December 1, 2005). "Whether a communication that falls outside of the safe harbor is an offer is a facts and circumstances determination." Id. at 58.
In order for an issuer to avail itself of this safe harbor, the following criteria must be met:
(1)The issuer has previously released or disseminated such factual business information in the ordinary course of its business;
(2)The timing, manner, and form in which the information is released or disseminated is consistent in material respects with similar past releases or disseminations;
(3)The information is released or disseminated for intended use by persons, such as customers and suppliers, other than in their capacities as investors or potential investors in the issuer's securities, by the issuer's employees or agents who historically have provided such information; and
(4)The issuer is not an investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of the Investment Company Act of 1940.
In addition, the communication may not contain information about the registered offering or be released or disseminated as part of the offering activities in the registered offering.
The Company respectfully submits that Mr. Mason's e-mail satisfies each of the above criteria. Mr. Mason's e-mail was limited to factual business information of the type expressly permitted by Rule 169 and does not contain projections or any other forward-looking information.6 In this regard, the Company would note that the limited financial information included in the e-mail addressed prior or substantially completed periods. The Company would also note that given the purpose of the e-mail—to reassure employees and address unsolicited questions relating to specific statements in the media—it was both necessary and appropriate that Mr. Mason's communication to employees not speak solely in broad ge
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Winston & Strawn LLP
35 West Wacker Drive
Chicago, Illinois 60601
September 16,
2011
VIA EDGAR AND E-MAIL
Mr. Larry
Spirgel
Assistant Director
Division of Corporation Finance
US Securities and Exchange Commission
100 F Street, NE
Mail Stop 3720
Washington, DC 20549-6010
Re:Groupon, Inc.
Registration Statement on Form S-1 filed on June 2, 2011
Amendment No. 1 filed on July 14, 2011
Amendment No. 2 filed on August 10, 2011
File No. 333-174661
Dear
Mr. Spirgel:
On
behalf of Groupon, Inc. (the "Company"), set forth below are the responses of the Company to certain comments of the Staff
raised during (i) a telephone call on September 6, 2011 between the Staff and Winston & Strawn LLP, the Company's outside legal counsel, relating to an internal memorandum
dated August 25, 2011 that was sent via e-mail by Andrew Mason, the Company's Chief Executive Officer, to certain employees of the Company, (ii) a telephone call on
September 8, 2011 among the Staff, representatives of the Company, Ernst & Young LLP, the Company's independent auditors, and Winston & Strawn LLP relating to the
Company's financial statement presentation and (iii) a telephone call on September 13, 2011 among the Staff, representatives of the Company, Ernst & Young LLP and
Winston & Strawn LLP relating to the repurchase by the Company of certain shares of Company common stock.
I.Andrew Mason's August 25, 2011 E-mail to Employees
A.Introduction
The
Staff has requested that the Company furnish additional legal analysis as to whether Andrew Mason's August 25, 2011 e-mail to certain employees of the Company
constituted a violation of Section 5 of the Securities Act of 1933, as amended (the "Securities Act"). Section 5(b)(1) of the Securities
Act provides that it is unlawful for any person, directly or indirectly, to use any prospectus relating to any security with respect to which a registration statement has been filed, unless such
prospectus meets the requirements of Section 10 of the Securities Act. Section 2(a)(10) of the Securities Act defines "prospectus" to include any written, radio or television offer or a
confirmation of
the sale of a security. Section 2(a)(3) of the Securities Act defines the term "offer" as "every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a
security, for value."
The
following sets forth the Company's analysis of the applicable rules and regulations of the Securities and Exchange Commission (the
"Commission") and concludes that Mr. Mason's e-mail to employees did not constitute an "offer" and therefore did not violate
Section 5(b)(1) of the Securities Act. The Company respectfully submits that Mr. Mason's e-mail does not constitute an "offer" as the term is technically defined under the
Securities Act or as the term has been more broadly interpreted by the Commission because it was not an attempt by the Company to market, sell or dispose of securities. Rather, the e-mail
was a direct communication with employees of factual business information of the type permitted by the applicable rules and regulations of the Commission. As discussed below, the Company
recognizes,
however, that in view of the inadvertent dissemination to the public of the internal communication, additional disclosures in its prospectus are appropriate to ensure that prospective
investors do not rely on the communication in isolation without the more complete disclosures contained in the prospectus.
B.Mr. Mason's e-mail does not violate Section 5 because it does not constitute an "offer" as that term is
defined under the Securities Act or interpreted by the Commission.
Mr. Mason's
e-mail does not constitute an "offer" as such term is defined under the Securities Act or interpreted by the Commission. As noted above,
Section 2(a)(3) of the Securities Act defines the term "offer" as "every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, for value."
Mr. Mason's e-mail makes no reference to the terms of the proposed offering, the manner or timing by which the Company expects to dispose of securities, the names of the
underwriters, how to participate in the offering or the potential returns or benefits to investors in the offering and includes no other language that would normally be considered as constituting an
"offer." The Company recognizes, however, that the Commission expanded what constitutes an "offer" beyond the definition in Section 2(a)(3) of the Securities Act, stating in Securities Act
Release No. 33-3844 ("Release No. 3844")1 that:
"The
publication of information and statements, and publicity efforts, generally, made in advance of a proposed financing, although not couched in terms of an express offer, may in fact contribute to
conditioning the public mind or arousing public interest in the issuer or in the securities of an issuer in a manner which raises a serious question whether the publicity is not in fact part of the
selling effort."
1Publication of Information Prior to or After the Effective Date of a Registration Statement,
Securities Act Release No. 33-3844, 22 Fed. Reg. 8359 (Oct. 8, 1957).
The
Company submits that under this guidance, and consistent with subsequent pronouncements by the Commission, Mr. Mason's e-mail is not within this more expansive
definition of "offer" because it did not constitute a publication or publicity effort that was part of a "selling effort," nor was it designed to "contribute to conditioning the public mind or
arousing public interest in the issuer or in the securities of an issuer."
Mr. Mason's
e-mail was not a publication or publicity effort. As discussed above, it was a confidential communication not intended for public release, and it contained
reminders to refrain from discussing any aspects of the Company's business during the registration process.2 Further, the e-mail was not part of any "selling effort." Again,
as discussed above, no part of the offering will be directed to employees, and the e-mail did not discuss the terms of the proposed offering, the manner or timing by which the Company
2In
Release No. 33-3844, the Commission articulated examples of "publicity efforts" that constituted offers in violation of
Section 5. Id. One such example concerned promoters and prospective underwriters of a mining company in the development stage who "arranged for a
series of press releases describing the activities of the company, its proposed program of development of its properties, estimates of ore reserves and plans for a processing plant." Id. Another
concerned a prospective underwriter who distributed a brochure that "described in glowing generalities the future possibilities for use of a
mineral [to be explored for] and the profit potential to investors" in the industry. Id. Both of the aforementioned examples
describe communications that were calculated to reach a broad, public audience. Unlike a press release and a deliberately distributed brochure, Mr. Mason's e-mail was a private
communication to employees that was never intended to reach the public and thus cannot be deemed to be part of a publicity or selling effort.
2
expects
to dispose of securities, the names of the underwriters, how to participate in the offering or the potential returns or benefits to investors in the offering.3
3The
publication of specific terms of and information about an offering, even unaccompanied by an explicit offer to purchase securities, has been
held to be an offer in violation of Section 5. In In re Carl M. Loeb, Rhoades & Co., the Commission found a Section 5
violation where a communication by an issuer was of a type that would stimulate public interest in an offering. 1959 WL 59531 (1959). In Loeb, Rhoades,
the co-managing underwriters issued press releases concerning the issuer, a real estate development company, which described the property involved and the company's development plans in
general terms, outlined the proposed securities offering, and mentioned the names of the two managing underwriters. Although the releases did not directly offer to sell any securities, the Commission
concluded that publicity of that type and in that situation "must be presumed to set in motion or to be a part of the distribution process and therefore to involve an offer to sell or a solicitation
of an offer to buy . . . securities." Id. at *6. Focusing on the more extensive of the releases and the resultant publicity, the Commission found that
"such release and publicity was of a character calculated, by arousing and stimulating investor and dealer interest in [the] securities . . ., to set in motion the processes of
distribution." Id. Mr. Mason's e-mail did not contain any language explicitly offering to sell the Company's securities, nor did it
contain any of the specific offering information contained in the Loeb, Rhoades communication. The lack of specific offering information in
Mr. Mason's e-mail, coupled with the fact that it was a private communication not intended for public distribution, supports the conclusion that the e-mail was not of
the type that was calculated to arouse and stimulate investor interest and thus did not involve an offer.
The
Company further submits to the Staff that Mr. Mason's e-mail (whether before or after the leak) did not and will not contribute to conditioning the public mind or
market or arousing the public interest in the Company or its securities because of the extraordinarily high degree of media scrutiny and attention to which the Company has been, and continues to be,
subject. In this regard, the Company notes that the release of the e-mail did not have any meaningful impact on the level or nature of the media coverage concerning the Company or the
offering. Indeed, although the leaked e-mail attracted media attention, a Google news search of "Groupon initial public offering" for the weeks before (August 17, 2011 through August 24,
2011) and after (August 25, 2011 through September 1, 2011) the release of Mr. Mason's e-mail returned approximately 1,690 and 1,320 results, respectively, reflecting
that media attention actually declined following the dissemination of Mr. Mason's e-mail. When viewed in the context of the magnitude of media attention about the Company and the
offering, Mr. Mason's e-mail did not have the effect of arousing public interest in the Company in any meaningful respect. As a result, the Company respectfully submits that
Mr. Mason's e-mail is not a violation of Section 5 in that it does not constitute an "offer" as the term is defined under the Securities Act or as the term has been more
broadly interpreted by the Commission.
The
Company respectfully submits that the circumstances of Mr. Mason's e-mail also differ significantly from the situation involving Salesforce.com in which the
Commission elected to impose a "cooling off period." In 2004, Salesforce.com planned to go effective with the registration statement relating to its initial public offering when the New York Times
published an article featuring the company's chief executive officer. The article was published on the eve of the company's road show and
included substantial information about the initial public offering, which was gathered by a reporter who interviewed the company's chief executive officer. Commenting on the situation, in a letter to
The Honorable Darrell E. Issa, Chairman of the Committee on Oversight and Government Reform, Mary L. Shapiro, Chairman of the Commission, noted that "[i]t appeared to the
[S]taff that the interview was granted . . . in an effort for Salesforce.com or its CEO to communicate with prospective investors through the article, which was
3
not
permitted under the rules."4 As a result, to address impermissible market conditioning, the Commission imposed a cooling-off period for Salesforce.com's initial public
offering.
4Letter
from Mary L. Shapiro, Chairman of the U.S. Securities and Exchange Commission to The Honorable Darrell E. Issa, Chairman of
the Committee on Oversight and Government Reform, United States House of Representatives (April 6, 2001).
In
contrast to the situation involving Salesforce.com, the intended audience of Mr. Mason's e-mail consisted solely of employees not in their capacities as investors.
In addition, the New York Times article was published during a time when Salesforce.com was actively marketing its offering and appeared to be an effort
to arouse the public interest in the offering. By comparison, Mr. Mason's e-mail was impermissibly leaked to and reported in the media significantly in advance of any marketing of
the Company's initial public offering and, as a result, did not and will not have the effect of conditioning the public mind for the offering of the Company's securities. Indeed, at the time the
e-mail was disseminated to persons outside of the Company, the timing of any marketing initiatives had not even been scheduled.
C.Mr. Mason's e-mail does not violate Section 5 because it is a communication that falls within the safe
harbor of Securities Act Rule 169.
In
2005, as part of Securities Offering Reform, the Commission adopted Securities Act Rule 169. Rule 169 provides a safe harbor from the gun jumping provisions of the
Securities Act for certain corporate communications by non-reporting issuers such as the Company.5 Under this safe harbor, "factual information about the issuer, its business
or financial developments, or other
aspects of its business" may be released by an issuer during the pre-filing and waiting periods provided that such information is intended for use by persons other than in their capacities
as investors or potential investors.
5Rule 169
is a non-exclusive safe harbor. See Securities Offering Reform,
Securities Act Release No. 33-8591, 69 Fed. Reg. 67,392 at n.1 (December 1, 2005). "Whether a communication that falls outside of the safe harbor is an offer is a facts and
circumstances determination." Id. at 58.
4
In
order for an issuer to avail itself of this safe harbor, the following criteria must be met:
(1)The
issuer has previously released or disseminated such factual business information in the ordinary course of its business;
(2)The
timing, manner, and form in which the information is released or disseminated is consistent in material respects with similar past releases or
disseminations;
(3)The
information is released or disseminated for intended use by persons, such as customers and suppliers, other than in their capacities as investors or
potential investors in the issuer's securities, by the issuer's employees or agents who historically have provided such information; and
(4)The
issuer is not an investment company registered under the Investment Company Act of 1940 or a business development company as defined in
section 2(a)(48) of the Investment Company Act of 1940.
In
addition, the communication may not contain information about the registered offering or be released or disseminated as part of the offering activities in the registered offering.
The
Company respectfully submits that Mr. Mason's e-mail satisfies each of the above criteria. Mr. Mason's e-mail was limited to factual business
information of the type expressly permitted by Rule 169 and does not contain projections or any other forward-looking information.6 In this regard, the Company would note that the
limited financial information included in the e-mail addressed prior or substantially completed periods. The Company would also note that given the purpose of the
e-mail—to reassure employees and address unsolicited questions relating to specific statements in the media—it was both necessary and appropriate that
Mr. Mason's communication to employees not speak solely in broad ge