|Kelly Teal Blog|
Kelly Teal, senior editor of Channel Partners, relies on nearly 10 years of reporting on telecommunications business, regulation and the channels for her perspectives on industry trends.
In Bankruptcy, TNCI’s Agent-Equity Plan Suffers Misperceptions
There seems to be some confusion among partners about the status of bankrupt TNCI's agent equity plan. One reader commented on Wednesday, "It's hard to believe all of that 'agent equity' is going to survive bankruptcy. So many 'new' shares will be issued to settle debts that dilution will wipe them clean." But that isn't what is set to happen with TNCI's reorganization and it's important to clarify any misperceptions about the equity plan.
The key is that there is no equity stake to pay out. TNCI's agent equity plan only applies in the event of M&A, and that's been the case since the equity plan was instituted four years ago.
As Brian Twomey, president and CEO of TNCI, explained in an interview with Channel Partners on Feb. 7, this bankruptcy does not resemble a reorganization with a typical equity structure. If TNCI engages in a merger or acquisition, agents then, based on their revenue and the transaction's value, will be able to take advantage of the equity plan. "Nothing changes here because [agents] don't have equity," he said. "Nothing's taken away."
Bill Power confirmed this. Power heads the Agent Alliance, which initiated the agent equity plan with TNCI in 2008. He said TNCI intends to honor agents' equity rights if the company emerges from bankruptcy. (If TNCI is sold during the bankruptcy – and there is a small chance of that – then there are contractual provisions that would protect agents if the buyer breached the equity agreement, he said.)
"Bottom line, the agents have an equity opportunity no matter how this thing goes," said Power, who also told Josh Long, Channel Partners' business reporter, that agents' total equity stake in the company is a "very complex formula" based in part on the agents' billing base and the price that TNCI would fetch for the company.
That should alleviate concerns about the equity setup. And, you have to give TNCI some credit. The company has remained in constant contact with its active partners and has continued to pay commissions throughout the Chapter 11 process. Don't forget, the company sells solely through the indirect channel. That alone is more than enough motivation for TNCI to keep agents' interests intact. As Twomey put it, "If we don't take care of [agents], nobody is going to take care of the business we are managing, so that's got to be our primary focus."