pjbooks Chapter 266 Equity Dispute
Chapter 266 Equity Dispute
Chapter 266 Equity Dispute
Ernst's style of doing things is quite decisive. After spending two days in Los Angeles enjoying the company of two beautiful sisters, he...
Upon receiving Wenger's notification, he immediately rushed to San Jose.
Because this shareholders' meeting involved such a major event as the company's IPO, even Henry Paulson attended in person.
The meeting started off exceptionally smoothly.
When Ernst proposed the equity restructuring plan for Leap Games, everyone voted in favor, and the plan was implemented with a perfect unanimous approval, which made many people secretly breathe a sigh of relief.
Just when they thought the rest of the agenda would go smoothly, the first problem quickly came to the fore: employee stock ownership.
"No, 20% is absolutely not acceptable! This employee stock option pool is set too high; I absolutely disagree."
The conference room fell silent instantly; everyone was stunned.
The representatives from Wall Street looked at each other, their eyes filled with confusion and bewilderment.
They never expected that the first person to dare to openly oppose Ernst would be Massim.
Massim's sudden defection left the Wall Street representatives completely bewildered. Were they in cahoots? This plot twist was too fast; they were a bit confused.
However, after a brief moment of confusion, they quickly came to their senses.
Now is not the time to dwell on the relationship between Massim and Ernst. The most urgent task is to stand up for Massim and unite with him.
The 20% employee stock option pool far exceeded their expectations. If this plan is implemented, their interests will be greatly reduced.
The Citibank representative cleared his throat, trying to make his tone as tactful as possible: "Ernst, 20% of employee stock options is indeed too much. It's not in line with industry norms. I hope you'll reconsider and we can discuss a more reasonable ratio."
The current equity structure of YueDong Games is quite simple.
Silicon Valley investment funds hold a 10.5% stake, with 6.5% acquired during the Series A funding round and the remaining 4% obtained decisively when Ernst cashed out.
Citigroup followed closely behind with an 8.5% stake. It had acquired 6.5% during the Series A funding round and then took another 2% during the cash-out phase.
Goldman Sachs holds a 6.6% stake. It was a follow-on investor in the Series A funding round, initially acquiring a 3.6% stake, and later added another 3% when it cashed out.
Morgan Stanley's situation is slightly worse, with only a 4.6% stake. Like Goldman Sachs, it chose to co-invest in the Series A funding round, but it was arguably the biggest loser in the last cash-out operation.
Not only did they spend a high price to buy shares, but they also only received 1% in the end.
There's also the Boston consortium, which holds a 10% stake. These shares were transferred to them by Ernst. If calculated based on the valuation Ernst made when he cashed out last time, the Boston consortium's return on these shares has exceeded 65%.
Finally, there are the remaining shares held by Ernst himself, accounting for 59.8%.
Based on 20% of employee stock options, and referring to the valuation of $58.2 billion in the last cash-out, each 1% of the stock means that shareholders would have to contribute $1164 million worth of stock to the employee equity pool.
This is no small sum; even Morgan Stanley, which holds the fewest shares, would have to contribute $5354 million worth of stock.
For Silicon Valley investment funds, the Boston consortium, and Citigroup, which hold even larger stakes, the cost was over $100 million.
For these shrewd investors, such an investment is clearly unacceptable; such a large-scale employee option pool simply does not align with their interests.
Despite the opposition from the crowd, Ernst showed no intention of backing down.
He slowly straightened his back, his expression now carrying a sense of righteous indignation.
His gaze swept over the shareholders present, and he said firmly, "I hope you understand one thing: YueDong Games has grown from a small team on the verge of bankruptcy to a company with more than 800 employees. This growth is not due to the accumulation of capital, but to the hard work and dedication of all its employees."
His meaning was very clear: the biggest contributor to Yuedong's achievements today is not the investors present here. In fact, you could say that when you invested, you were taking advantage of the company's good development to pick up bargains.
If you're here to get a bargain, you should show sincerity in doing so. You shouldn't be so petty about employee rights.
"I admit it," Henry Paulson, after all, was a man who had seen a lot in his life. He nodded first, seemingly agreeing with Ernst's words.
But then he changed the subject, saying, "But we also understand that the core solutions for several of the most popular games from Leap Games were proposed by you."
"In other words, YueDong Games has not made many outstanding contributions in terms of independent creation. The few games they have independently created and developed are still in the production stage. Whether they can truly gain market recognition and prove their strength remains to be seen."
The implication is that since the company's core creativity comes from Ernst, the employees' contributions don't seem as indispensable as Ernst claims, and a 20% employee stock option pool is indeed a bit too high.
Ernst clearly disagreed with this statement, and he directly countered, saying bluntly, "But you can't deny their contributions either."
"During the critical development phase of Counter-Strike last year, Ryan Ruiz and the entire creative team worked tirelessly for two consecutive months. Which of those employees didn't sleep at the company? Many didn't even take a day off during that period. Even with family conflicts and pressure, they still stuck to the front line of work. Don't they deserve recognition for all of this?"
The shareholders present secretly scoffed. They thought it sounded impressive, but that was because most positions at YueDong Games had adopted a flexible work system, making employees' working hours relatively flexible. The so-called sleeping at the company was just because some people didn't want to go home to pay their dues, or they simply used overtime as an excuse to play games all night at the company.
They didn't deny that the employees did work hard at times, but it was definitely not as Ernst described, that they were working day and night.
“I don’t object to their hard work, nor am I saying they don’t deserve better rewards.” Massim leaned forward, lowering his voice, “But 20% is outrageous. The industry standard is at most 8%, you’re breaking the rules.”
"That's the usual practice in traditional industries," Ernst interrupted Massim without hesitation, his tone laced with disdain.
"But that's the truth, all companies do it," Massim's voice suddenly rose a few decibels, clearly provoked by Ernst's rebuttal.
Ernst even stood up from his seat, exuding an aura of authority: "But we are a game company, a technology company."
"You can look into the tech companies in Silicon Valley. Which publicly listed companies strictly follow the so-called conventions for employee stock options? The industry convention is a maximum of 8%? In Silicon Valley, that's just the minimum standard for employee stock options at those tech companies."
Massim, not to be outdone, also stood up, looking rather agitated, as if a fight was about to break out at any moment.
"But you should also know that those Silicon Valley tech companies all give employee stock options first, and then raise funds in multiple rounds. After several rounds of dilution, which company's employee stock pool still exceeds 5%?"
"But Leap Games is different. Its development path is different from those Silicon Valley companies, and we will go public directly next."
Ernst refused to back down, and the two argued back and forth, neither willing to yield. The atmosphere in the conference room instantly became tense, as if the air itself had frozen.
For a moment, the conference room fell into a deathly silence, with only the faint sound of air flowing from the air conditioner vents.
At this critical moment, Michael Moritz stepped forward, cleared his throat, and said, "How about this, I'll come up with a proposal for you all to consider. Let's set up the employee stock option pool at 8%, which is the highest in the industry."
"However, we can add some additional clauses, such as if the company's business development and stock price reach the expected targets three years after the listing, we can add another 2% of the equity to the employee option pool."
"Of course, to fulfill Ernst's original intention of protecting employee rights, we can also provide a substantial cash reward as an employee bonus. What do you all think of this plan?"
The Wall Street representatives felt this was a good compromise: the 8% employee stock option pool was within their acceptable range, the subsequent 2% had performance evaluation as a threshold, the risk was controllable, and with a cash bonus, it both gave Ernst face and protected their core interests.
They all expressed that they had no objections, and their eyes turned to Ernst, waiting for his response.
Ernst remained silent for a moment, not immediately objecting, which was seen by everyone as almost tacit approval.
Seeing this, Henry Paulson immediately pressed his advantage, saying, "Since everyone seems to agree on this plan, let's go with it. Now, let's discuss how much cash to distribute to the employees."
Massim spoke again, "How about ten million dollars?"
Before anyone else could voice their opinion, Ernst's voice came straight at them: "Are you trying to fob us off? Ten million dollars to get rid of over eight hundred employees? At least eighty million dollars, not a penny less." This time, the other investors exchanged glances and didn't object. They had to compromise, didn't they?
With $80 million, and considering that YueDong Games currently has over 800 employees, that's an average bonus of $100,000 per employee, which is quite a substantial amount.
But they would be very willing to exchange the $8000 million for 10% of the shares.
The final agreement was an 8% employee stock option pool plus $8000 million in cash bonuses, with 2% of the stock options subject to performance-based clauses.
By the time all the details were finalized, it was already past four in the afternoon.
Several hours of intense negotiations left everyone exhausted.
Ernst still seemed to be a bit angry. He flicked his sleeves, stood up, and announced the end of the meeting, saying that the rest could be discussed tomorrow. Then he left the meeting room without looking back.
As everyone watched him storm off, they shrugged helplessly, indicating that that was that for today.
However, as Henry Paulson prepared to leave by car, he suddenly felt a pang of unease when he saw Massim's seemingly calm yet strange expression not far away. Something felt off.