This Little Piggy (4) Brunch went downhill from there. Michael got the silent treatment from Sandra through the trip home, through the family dinner, and into the early morning commute. Not until the next evening, after the kids were in bed, did Sandra break her silence. “Honey, I’ve been trying to keep an open mind. But I get very bad vibes about you and Bob. It’s like the two of you are from different planets. You’ve worked hard to get where you are. No shortcuts. You’re highly respected at A&J and we’re in the house of our dreams. So what if we don’t have a tennis court and a putting green? What do you really know about Bob? How do you know you can ever trust him?” Michael leaned back in his chair and rubbed his chin as if he were contemplating a new ad campaign, which in a way he was. “This isn’t about Bob. It’s about having it all—the American dream.” “A la Kafka,” glared Sandra. Michael tried another approach. “You’re right. Our life is comfortable, but you and I know it’s built on sand. We spend everything we make. No, I stand corrected. When you take into account our rather significant mortgage payments, we spend considerably more than we make. That’s why we’re always borrowing money and shuffling credit cards to repay revolving loan balances. The way we’re going, it’ll be years before we’ll ever have any money in the bank for a rainy day—like college tuition. All I want is for you and the kids to never have to worry about cash flow again. Is that so wrong?” “Your intention is admirable, dear, but……” “Trust me,” interrupted Michael, “I know Bob’s a bit sleazy, but I’m positive I can manage my way around him. And, I promise once we’ve cashed out, we’ll walk away from Bob and his kind. Forever.” “Suppose it doesn’t work?” “That’s just it,” said Michael, throwing out his hands. “Even if it fails, worst case, I’ll still be young enough to go back into the agency business and I’ll even be more valuable because of my real world ‘business’ experience.” A weakening Sandra replied, “Well...” “Tell you what. Let’s give it one more shot. Why not invite Bob over to our place for a Sunday afternoon barbecue. Check him out on your turf and we’ll see if he passes the old Sandra smell test.” “Okay,” she agreed. “Besides, if we stage this right,” said Michael. “I can lay the groundwork to renegotiate a better compensation package, more equity, a higher base salary.” “I thought you already had a deal?” “Yeah, but it never hurts to squeeze a little more. That’s just good business. When this is made public, I want everybody at A&J green with envy.” Michael also wanted to insure that Sandra loved Bob. So he called Bob to give him a head’s up. “Sandra thinks I’m a great dad. She loves it when people suck up to our kids.” * BOB SHOWED UP AT Michael’s place with yet another stunner—a rare black 1952 Morgan convertible in mint condition. “What a sweet little car,” smiled Sandra, as Bob pulled into the driveway. “Sandra dear,” that’s the first time I’ve ever heard a two hundred and fifty thousand dollar car called sweet!” chuckled the casually dressed Bob. Sandra gulped, and then took Bob on a house tour, without missing a beat. Bob was pleasantly surprised at the forty-five-foot living room, the seventy-foot kidney shaped pool with trickling waterfall, the five-room cabana with fully equipped kitchen and the indoor hot tub. But what really impressed him was the wine cellar carved out of solid granite in the basement of the 240-year-old section of the house. As they walked down to the pool area, Michael’s sons, Mark and Matt, were playing one-on-one on the basketball court at the far end of the tennis court. “Hey fellas, come here. I want you to meet somebody,” waved Michael. Bob got Michael’s signal. “Looks like you guys enjoy basketball?” “Are you that rich guy?” asked Mark innocently. Sandra was horrified. “Mark….” “What’s the matter? What did I say?” “Enough,” said Sandra. “Say hello to dad’s friend, Mr. Goldstrom.” “Mark, I’m not only rich,” smiled Bob, “I used to play basketball.” “Really. How about a little two-on-two?” suggested Mark with a confident smile. “You and my dad against Matt and me?” “Michael, you up for the challenge?” Michael nodded. Moments later, Bob returned from his car with a small yellow canvas athletic bag. Bob slipped into two giant blue kneepads like he intended to dive after balls all over the court. The boys laughed. They should have known better. “Michael, let your sons take the ball out first.” He said with a wink. “I’ll guard Mark, you take Matt.” “Got it,” agreed Michael. Mark inbounded to his brother. Michael tried to guard his son as he drove to the basket. Bob did a nice job of fronting him, but Matt casually passed behind his back to Mark who waited ten feet from the basket until Bob lumbered over. Mark then passed up an open shot, dribbled under the basket past an outstretched Bob and flicked in a reverse lay-up. “Winners out,” laughed Mark. Bob had been stuffed by a thirteen-year-old kid! The boys ran the same play again. Burned once, a determined Bob turned up his game. Mark couldn’t dribble around him. When he tried to shoot a jumper, Bob blocked the ball with a vengeance. Matt waved Mark into a brief huddle. He recognized adjustments had to be made. I’ll get you the ball, then look for me back door. I’m faster than dad. If Bob doubles back to cover me that should leave you free for an open shot.” Sure enough Matt’s strategy worked, keeping the young boys competitive with men twice their size and three times their age. In the end, Bob and Michael ultimately lost by a basket, but Bob scored points with the kids, just as planned. More importantly he scored big with Sandra. Sandra’s apprehensiveness about Bob’s womanizing began to dissipate as she watched the display of courtside machismo unfold and her sons’ obvious respect for Bob’s competitiveness. After the game, the four sweaty bodies jumped into the pool to cool down while Sandra prepared the barbeque with steaks, burgers, wine and beer. “Great meal,” said Bob. “The steaks were perfect. I must say you guys have a great home,” said Bob pouring it on after the barbecue. “Like living in a park. Who takes care of the place?” “Originally, when we bought the place I naively thought I could,” replied Michael. “But after spending an entire weekend cutting the lawn, common sense took over. Currently, we have a part-time staff of three. Because the main house is over two hundred years old and the grounds are high maintenance, they pretty much work Monday through Saturday. Fact of the matter is, we could use them full time.” And he’d make damn sure Bob made that happen just for starters. ########## Chapter 3. The Employment Contract MICHAEL, DIAMOND, KROTSKY and Bob met at Krotsky’s office at 5 p.m. to review the SEC filing documents including Michael’s employment contract, equity agreement and other deferred compensation programs. Michael had insisted on the end of the day ITI meetings because he wanted things at A&J to appear business as usual. “Michael,” said Krotsky, “I’ve spent most of my day working on the language of the equity agreements and the employment contracts. Robert and Martin are fine with their arrangements, but we need to go over yours to make sure you’re satisfied. As you know, all the these documents will become part of our filing with the SEC, excluding, of course, our agreements with Martin.” “Just a reminder, Michael,” added Krotsky. “Between the time we file with the SEC and the final approval of our prospectus, we are in what’s known as the ‘Quiet Period.’ During this time, the government requires that we provide no details of the filing to anyone. Absolutely no pre-selling allowed.” “No problem. I understand completely.” Michael couldn’t care less. His mission was to secure a bigger basket of goodies for himself. To the greedy and green Michael that primarily meant more cash. Now. “Let’s review the employment contract first, shall we?” continued Krotsky. “A five-year deal with a year one base of two hundred thousand dollars increasing to four hundred thousand in years two and three, and five hundred and fifty thousand in years four and five.” Michael hesitated, as if to feign concern. “Bob I’ve been thinking about the proposed year one base. If it were just me, I could live with it. I understand the long-term rewards. But, as you know, we’ve got a bit of a complication... Sandra. You saw how we live, what she expects. I think she’d make me bale on the deal rather than permit me to take such a salary cut.” “I understand your cash flow issue,” said Bob, annoyed, but not showing it. “But you’re being granted twenty million founder shares. Michael had no idea that Bob had five times that number, plus an equal number of options. Do you have any idea what that’s going to be worth? Assume our stock rises to fifty dollars a share within five years, maybe less. I’ve done that before.” “Michael, I can appreciate Sandra’s position,” said Krotsky putting on his sincere face. “I’ve been married twice myself. Unbeknownst to Michael, Krotsky turned gay after his second wife left for a younger woman. You must realize in transactions of this nature, the investing public’s perception of the deal is critically important. It’s in the best interest of everybody, particularly you and Bob as the primary founders, to be perceived as a frugal management team that understands building shareholder value comes first, personal reward second. Particularly, in the start-up phase. I might also point out that you do have a generous performance based annual bonus provision which will amount to hundreds of thousands per annum.” “Agreed,” said Michael, getting ready to play cards he didn’t really have. “I’ve always believed in delivering first, getting rewarded second. But, I’ve been around the block, bonuses are discretionary. Bob, you understand my dilemma...” “Okay, okay,” Bob jumped in. “Let’s not cause Sandra to fret. Bump Michael’s year one base to two hundred and fifty thousand dollars. Then just adjust the year two to five numbers proportionately.” That settled, Krotsky pressed forward. “Let’s move on to the earn-out provision of the contract. Basically, as per our previous conversations, your annual bonus will be equal to three percent of the Company’s after-tax profits during the duration of your five-year employment contract. Hmm. The bonus will be payable in ITI stock pegged at the then market price.” “Sounds fine,” said Michael not realizing he had just left tens of millions on the table because Bob’s deal was based on pre-tax profits and pegged to the stock’s original book value price. * Two hours later, Michael was on the Metro North commuter train heading to Connecticut, gloating like a Cheshire cat while Bob, Diamond and Krotsky were jabbering in the elegant, yet cozy atmosphere of La Cote Basque, devouring five-star dinners. “Michael might not be as naive as we originally assumed,” said Bob with his mouth full. “The son-of-a-gun even squeezed a few more bucks out of us. Martin, that’s got to be the first time you were ever the ‘good cop.’” “Robert, stop with the humility. It’s unbecoming,” Diamond laughed. “He got what we penciled in, not a crumb more. I just hope you’re right about this guy. He is really green. The schmuck never asked you for even one more share to offset the offering dilution. Christ, any moron knows this deal is all about equity!” Three crystal goblets gently clinked. “Here’s to Michael.” * HALFWAY THROUGH HIS FRONT DOOR, Michael broke the news. “The deal is almost done,” he declared with a hearty thumbs up. “I took the boys to the cleaners thanks to my Sandra guilt complex negotiation.” “What in the world does that mean?” “Every time they wanted to shut me down, I said I needed more money because of the style to which you had become accustomed!” “You didn’t!” said a horrified Sandra. “That’s an outright lie.” “Aww, don’t worry about it. In business, everybody stretches the truth a little. That’s part of the game.” Sandra smiled. She was starting to selectively ignore certain aspects of the unfolding ITI scenario. “Honey, you know the boys and I had a really good time getting to know Bob. Obviously, he’s got a few warts. But then, don’t we all?” Sandra paused. “What do you mean almost done?” “Basically some papers have to be filed and approved by the government before we can commence operations. Just routine stuff.” Sandra’s conservative instincts reared their head. “What do you do about A&J in the meantime?” “It’s just business as usual. Whatever you do baby, don’t let the cat out of the bag with anybody. Agreed.” “Agreed.” * THE ‘THREE MUSKETEERS’ PLUS DIAMOND AND JOHN reconvened the next evening at Krotsky’s. “The first order of business…the status of our initial public offering,” Bob kicked things off. “Michael, these guys have heard what I’m about to explain, but I think it’s important you know where I’m coming from. To complete my other deals, I functioned exclusively within the conventional investment-banking marketplace, Smith Barney, Goldman Sachs, Merrill Lynch and so on. When they discovered I was executing ‘subject-to’ acquisitions as the basis for a public offering, they were highly skeptical—the marketplace had no basis for valuation.” “Sorry,” Michael cut in. “What is a ‘subject-to’ acquisition?” Diamond huffed as he glanced at the ceiling. “Oh, I thought we discussed this at breakfast when we first met. My mistake,” admitted Bob. “’Subject-to’ simply means we identify an acquisition candidate and then persuade them to sign a contract to sell their business to us on the assumption we will raise the necessary funds to complete the actual purchase. The key is that you must give the acquired business the comfort that you can indeed raise the money. As part of the transaction, the owners provide certified financial statements which you utilize as the basis for creating a consolidated historical and pro forma financial projections, which will in turn create prospective shareholder investment interest.” “Sounds a lot like buying a car or a house with no money down,” said Michael. “Fact is, before me, nobody employed the technique. Since I now have an established track record in ‘subject-to’ offerings, we shouldn’t have any credibility issues with acquisition prospects. I do, however, want to make one change in our financing strategy. I’m suggesting we circumvent conventional investment bankers for this IPO. IB’s are frightfully expensive and nowadays they require too much due diligence, if you know what I mean.” Michael hadn’t the foggiest, but everybody else seemed to, so he kept his mouth shut. “As I was looking around for new sources of financing,” Bob went on, “I discovered a thing called The Pink Sheets. Turns out, there are a whole bunch of small securities firms that quietly raise millions in new capital for startup and early stage companies via IPO’s. My research suggests the typical Pink Sheet IPO is between three and six million, which is about half of what I believe we initially need to raise. Plus, we’re not bogged down with all those bureaucratic reporting requirements.” Since Diamond, Krotsky and Bob had already agreed to the Penny Stock concept, the whole speech was for Michael’s benefit—to make him feel he was part of the process, and to outvote him if he disagreed. “Recently, I was introduced to one of these underwriters in New Jersey, Norwest Securities,” Bob continued, “which I believe might have the potential to raise larger sums. They have one of the largest trading rooms I have ever seen; a good track record in completing IPO’s and in performing the market-maker role post the IPO, which as you can appreciate, is critically important to our ongoing acquisition strategy.” Bob could tell Michael didn’t know his assets from his elbow, so he played teacher. “First let me say, these are not people you and I would ever willingly invite to lunch, but I’d make a deal with the devil if it gets us where we want to go.” They all laughed, but Bob wasn’t kidding. “Seriously, once we’ve completed the first round of financing and get a collection of ‘subject-to’ acquisitions under our belt, we’ll be ready for the prime time investment bankers. In fact, we’ll have an attractive enough proforma revenue base and an operating history to negotiate pretty favorable terms with one of the better quality greedy investment banker bastards.” Krotsky nodded knowingly as Martin sneered. He had seen Bob do this song and dance many times before. “Our goal is to use Norwest to help us raise ten million and make a market in the stock during the critical first year—then dump ‘em. Martin and I have developed a rationale to value the Company at sixty million pre-money, so we only have to offer about fifteen percent to the public for ten million.” “Do you really feel Norwest can put away an offering with such a high startup evaluation?” Michael asked to Bob’s surprise. “Norwest has a hundred plus brokers pitching stock offerings to little investors all over the country, high-pressure telemarketers par excellence,” replied Bob confidently. “They’ll get the word out that we’ve got one hot IPO. Nobody will even ask about the pre-money valuation.” “Sounds like we’re not going after the Internet savvy day trader set?” observed Michael. “So then do I have a motion to approve Norwest Securities as our underwriter?” pushed Krotsky, ignoring a response. “I so move,” said Bob. Diamond seconded. “Robert, perhaps it’s appropriate to explain the terms of the financing to Michael since they are quite favorable to the Company.” Bob winked at Krotsky as they continued their performance. Michael understood the financing arrangement was a done deed. He was happy to play along with the charade. The sixty million dollar valuation meant he was an instant multimillionaire! “Our advisory group suggests we price the shares at ten cents, with a warrant convertible at twenty cents during the next offering,” Bob said talking telephone numbers. “Working backwards, initially we’ll issue six hundred million shares and offer the public one hundred million of those shares.” “Who comprises the advisory group?” asked Michael who didn’t have a clue. “Actually, besides Martin, they are a group of people I’ve worked closely with over the years,” Bob quickly had an answer, which didn’t answer the question. “Names won’t mean anything to you, but you’ll get to meet everybody in due course. The only other financing matter I believe we need to address is Norwest’s request for a pre-launch meeting with their brokers, so we can tell them our story and pump them up before they hit the phones.” “I don’t see any problem with that,” said Krotsky as if cued. “Do you, Michael?” “Michael, just keep in mind we’re in ‘The Quiet Period’ when we meet, so we have to be very careful what we represent to these guys,” said Bob, covering his ass but not Michael’s. “The SEC, as Krotsky advised, has strict guidelines about pre-selling deals.” “If that’s the case,” said Michael, naively wondering about its legality, “wouldn’t it be more appropriate to meet the Norwest brokers after the prospectus is approved?” “Certainly there is a delicate balancing act,” said Bob confidently. “But it’s in the best interests of the Company to get a running start on marketing the offering. Trust me, I know how to handle it.” “Shouldn’t we fill Michael in on the details of our business strategy?” suggested Martin with a yawn. “Good idea, but we’ll have to do it another time,” said Bob, checking his watch. “It’s already 6:30 p.m., and I’m late for a market-maker strategy meeting with one of our advisors.” “You’re not meeting with Jack. Are you, Robert?” asked Krotsky clearly telegraphing his disdain. Bob had rustled the feathers of the typically unflappable Krotsky and needed to smokescreen Michael. This pitch would be a big fat, slow curveball. “Relax. I’m meeting Ray,” said Bob, leaning back in his chair while taking out another cigar and lighting it up as if he didn’t have a care in the world. “You and I know this is the big idea we’ve been searching for since United Medical. I’m not going to let a scumbag like Jack screw things up.” At this point the names Jack and Ray meant nothing to Michael. This would soon change. Krotsky wanted to say something, but restrained himself. His eyes darted around like he was sending a coded message to Bob, a message Michael would understand too late. * THE LIVER TRANSPLANT SURGERY HAD EVERYONE’S adrenalin flowing in the operating room. Forty-four year old John Boscom had waited what seemed like forever as Hepatitis A had ravaged his body. When a donor finally became available his wife, Dorothy, and their two young daughters, Susan and Hillary, were elated but frightened. The doctors had assured the family that the transplant procedure, while complicated and delicate, had been performed successfully many times at Folger’s Mayo Clinic in Rochester, Minnesota, by the very same transplant team that would operate on John. Besides, John’s prognosis looked particularly bright because was he otherwise was in good health and psychologically in good spirits. Sandra and the transplant team had been given ample notice that the donor kidney had been identified and harvested and was on it’s way from the other end of the state. When the organ arrived at 10 A.M., John had already been professionally prepped and sedated, so not a moment had been lost. Fifteen minutes into the surgery, the damaged liver had been skillfully removed. Twenty minutes later the healthy, harvested liver was being sewn into place. Almost immediately excessive bleeding began through one of the clamps holding the sutures. “Nurse, quickly replace that clamp. We’ve got to stop that bleeding. As the surgical team struggled to replace the malfunctioning clamp, the stitches holding the new liver in place split. More bleeding ensued. Eventually, too much bleeding ensued. John’s heart did not have enough blood to pump, so it stopped beating. The transplant team tried every resuscitation procedure they could think of. Nothing worked. John was declared dead at 10:25 A.M. After the doctor broke the news to John’s grieving widow, Sandra entered the waiting room to help console the family. “Why John? screamed Dorothy. “He was such a gentle man. He never hurt anybody. He never did anything wrong. He just wanted to love his kids.” Sandra opened her arms and hugged Dorothy tightly. They both cried. Sandra stayed with the family until the social worker arrived to provide grief consoling. Shortly thereafter, as she sat staring at the wall in her office, the phone rang. “Sandra could you come up to my office,” said Doctor Dinkins. “Right away, doctor.” The impromptu meeting was a pat on the back. “Sandra. You are one hell of a nursing professional. I just want you to know, you and your staff performed admirably. You did everything you could. It’s nobody’s fault. We all did our best.” * DINNER THAT EVENING WAS A STUDY IN CONTRASTS. Sandra was quiet as a church mouse while Michael was like the town crier brimming with news. “Things are progressing nicely on the ITI front. We met today. The financing strategy is complete. The initial evaluation will be sixty million. Do you know what that means?” A distracted Sandra tried to participate. “No, what?” “That means we’re multi-millionaires. To say nothing of all the other contract goodies I’ve negotiated.” Sandra nodded. “That’s nice.”
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