Chapter 51: Unwarranted Actions

April 13, 1995, Chicago, Illinois

“Jesus, Steve!” Elyse gasped.

“Yeah. We need an emergency call with the Board, and we need to include Samantha. It’s a Thursday, so she’s in the office. Let me get Kimmy to set it up.”

“Hang on! Before you gather the Board, how did you reach that conclusion?”

“If Dante already owns Peach, when did he start talking to Lone Star?”

“It had to be a couple of months ago. I suppose you could complete everything in thirty days if you pulled out all the stops, but sixty is more likely, and ninety would be more typical.”

“Which means what?” I asked.

“He had to start talking to them BEFORE the lawsuits were filed! Jesus!”

“Which explains why he filed suits he can’t win. They’re merely a distraction. Or an enticement. That means his conversation with Lone Star was AFTER he had a definitive agreement with Peach. So why would he talk with them? What else makes sense?”

“But why talk to Jefferson?” Elyse asked.

“Yes, exactly. WHY talk to Jefferson? We’ve been played, and good.”

“But that let you figure out what was going on.”

“Dante was too clever by half. I don’t think he counted on me figuring out the trap.”

“Do you think Lone Star is in on it?”

“I can’t imagine the Board of Directors conspiring with Dante. If the entire development team departs en masse for Peach, and they knew about it, we could rescind the sale, get our money back, and then pick up most of their clients because they’d be out of business.”

“True. But we’d suspect them, obviously.”

“Sure. But why would Dante care? Lone Star would be left holding the bag, so to speak.”

“And all of that stuff with Jefferson was just setting the hook?”

“I think so. But we don’t know the full story just yet. Well, assuming I’m right about the development staff. We don’t know what his move against M&M will be.”

“Is that important?”

“I’m not sure. It might be. And I bet I know how to find out - the engineer who Jennifer replaced.”

“Right! He’ll quit and go to some other firm, and THAT is Dante’s move against M&M.”

“Exactly.”

“What can you do about the development staff?”

“Not much, really. If they don’t have non-competes, then they’d be free to go, and even if they did, enforcing those would be a nightmare. Think about the bad press we’d get about the evil NIKA trying to deny those poor, innocent developers a living. Especially when it would be hard to convince anyone we’d planned to keep them all on staff. I seriously doubt we could get injunctions that kept them from working, and I’m not sure I’d want to.

“And even assuming we could win, if they don’t already have non-compete clauses, then no contract we could sign with Lone Star would force them to stay. Remember, we didn’t have ours until after the incident with Jefferson. If Lone Star hasn’t run into problems, they probably don’t have any. Pretty much anyone we’ve hired recently who came from another firm asked about those non-compete clauses because they’d never seen one.

“Ultimately, I have to believe that Lone Star was set up by Dante. Think about what happens if all the developers leave for Peach. If we were to rescind the deal, Lone Star would be kaput and Dante would have their engineers and could probably buy their code for a song from the bankruptcy court. It wouldn’t be worth our time to try to outbid him. We could go for customers, but if he then hires the support staff, and has the developers and the source code, he has Lone Star for basically the cost of Peach.”

“Holy shit!” Elyse exclaimed, shaking her head in disbelief. “That actually makes sense! And nobody at Lone Star would have to be in on it.”

“BUT,” I mused, “how does he know he can get everyone? He’ll need the ENTIRE team to make it work. Even a couple of junior programmers could maintain the code. But with nobody, it would potentially take weeks for us to untangle everything, or maybe even longer. We have no idea what their code looks like, and we won’t know until the due diligence, which comes after the deal is signed, just as it was with BLS. Dante can execute his plan once the deal is signed, with the development team quitting as soon as the money changes hands.

“Heck, if he simply wants to destroy Lone Star, they could quit as soon as the definitive sale or merger agreement is signed. By the time the due diligence is done, everyone knows Lone Star is history. At that point, why pay full price for Lone Star? Once the news of them quitting leaked, we could get a significant number of their customers without paying Lone Star a dime.”

“You have an idea how; I can see it in your eyes.”

I nodded, “The VP of Development is one of the founders. If Dante could co-opt him, he might be able to bring the whole team with him. I don’t know how loyal those folks are, but Dante could probably overpay to make sure he got everyone. A less likely suspect is the venture capital firm, but I’d be shocked by that. I lean heavily towards Dante having a deal of some kind with the founder who is VP of Software Development.”

“What if we make the deal contingent on the founder staying?”

“Same problem. He quits, along with the rest of the team and goes to Peach. He expects us to rescind the deal and we’re back to Dante buying it out of bankruptcy court. Or we go to court, which, as my dear friend Jamie likes to say, is a crapshoot.”

“So, what do we do? Walk away?”

“I think there’s a way to find out if the VC firm knows about this, and to protect ourselves. What if we put the payouts to the shareholders in escrow, they only get paid if the deal isn’t rescinded in three months? And with a non-compete in the purchase agreement for all the shareholders or they don’t get paid. If the VC firm is in on it, they’ll balk.”

“And the VC holds 51% of the shares which could be voted, so they could force the sale.”

“Exactly. And they are the ones who will negotiate the deal. The only option the two Founders would have would be to buy the VC’s shares. I’m betting they can’t lay their hands on that kind of cash.”

“OK, but what about just forgetting about the development team and putting our people in?”

“IF the code is OK, during due diligence, we could probably do that. If it’s difficult to maintain, undocumented spaghetti code, that’s a different kettle of fish. And if none of their team is left to help, we’ll be going into that blind. And, as I said, if we walk away because the code is bad, Lone Star has to either make a statement denying they are for sale, or find a buyer - any buyer.”

“Dante.”

I nodded, “Dante. He gets Lone Star at a serious discount. Heck, if we walk away, and they announce there is no sale, AND their development team leaves for Peach, it’s the same scenario as if we rescind the deal after we close. In a sense, Dante doesn’t need us except for being a stalking horse. Anyone could actually play the role. If we do it, and it distracts us, so much the better. No matter what happens, if the developers leave and we don’t buy them, he gets what he wants.”

“So then what?”

“I’m thinking,” I said.

I closed my eyes and took several deep breaths and a light bulb went on.

“I’ve got it! We structure the deal so that Patent Partners LLC buys the source code as a separate transaction, at the same time as we sign the definitive sale or merger agreement. PP LLC agrees to license the software back to Lone Star at a nominal cost, without any rights which would transfer to a new owner or which are available at a bankruptcy sale.”

Elyse clapped her hands and rubbed them together, “And Dante is well and truly fucked! He gets the developers if he wants them, but not the main guy, and he can’t get the software under any circumstances. The worst possible scenario is that the LLC sells the software back to Lone Star if we rescind the deal, but only if Lone Star is a going concern.”

“Exactly,” I grinned. “Of course, this assumes my initial theory is correct.”

“What else could it be? It IS the only thing that makes sense.”

“We’re still faced with potentially having to maintain the code with nobody on staff who knows anything about it.”

“And we can’t recruit one of their developers now because the memorandum of understanding forbids poaching, including sixty days after a failed sale or merger, unless they materially breach.”

“Yes. Everything depends on the code review. We’ll write into the offer that the code has to be properly documented, and there has to be a clearly defined build and release process which we can duplicate. It will cost some money, but I’d want to send Sam, Kajri, Brenda, Dave, and Zo to look at the code and documentation. If this works, we’ll make it all back in spades. If not, I think we’ll make up part of it from the deals Cindi has been winning because of the rumors.”

“So THEN what does Dante do?”

“He can run Peach and make a nice, but small, profit. They do OK, according to Cindi. I suppose he’d focus on whatever scheme he has against M&M, and look for some way to hurt us in the future.”

“You want to go through with this?”

I smiled, “I want Dante to feel like he’s been fucked by an elephant dick with no lube.”

“Nice image,” Elyse laughed. “Not!”

“Sorry,” I chuckled. “That doesn’t mean I’m saying we’re going through with it. We still have a lot of work to do.”

“I suppose the next thing to do is have Kimmy arrange the meeting.”

“Actually, would you do that? I want to call Melissa.”

“What are you going to tell her?”

“Just to follow the lead. I’ll give her Katya’s phone number. It’ll take no more than a couple of days to find out where the guy is. Then we can formulate a strategy to deal with that situation. I promised Melissa we’d find a way to prevent Dante from fucking us.”

“Let me go ask Kimmy to get started. You want Samantha on the call, right?”

“Yes,” I said. “And it’s an emergency. If we only get four, I’m fine with it, so long as we get Joyce and my dad.”

“Got it.”

She left and I sat down at her desk and dialed M&M and was put right through to Melissa.

“I think I figured out a way to find out what Dante is trying to do to you.”

“What?”

“I’m going to give you the number of a friend of mine. She’s ex-KGB, and works for a security firm. Call her, tell her you’re my friend and you have an urgent request. Make sure you tell her that ‘Stepa Rayevich’ said to charge it against my retainer. She’ll know the request is legit. What you want her to do is to find out where your former engineer is working.”

“We know that!”

“Do we? I bet you anything you care to wager he doesn’t work there anymore. And wherever he works now is Dante’s new firm.”

“But how?”

“I’ll explain later. I need to talk to my Board of Directors before I say any more.”

“So you figured out how he’s trying to get you?”

“I think so.”

“That’s great news!” Melissa laughed. “Because once we stop him from fucking me, we start fucking each other!”

I laughed, “Me and my big mouth. One step at a time, Melissa. Let’s focus on the important stuff.”

“You’re just no fun!” she teased.

“I am going to KILL Penny!” I muttered for perhaps the hundredth time in the past month.

I gave Melissa Katya’s full name and number, and after we hung up, I went to my office and stopped by Kimmy’s desk.

“Your dad is available any time today,” Elyse said. “She’s calling Joyce now.”

“OK. Let me know.

I went to my desk and picked up the last of the ‘major’ bug reports. Once I fixed the bug, I could send the code to Elizabeth and Eve to test, and if it passed, then Dave could arrange to have it integrated into a future release. While I was working, Elyse let me know Kimmy had everyone but Beth and the call was set for 11:00am. She’d keep trying Beth, but if she couldn’t get her, we’d go ahead anyway. I found, and fixed, the bug about five minutes before the meeting, which gave me just enough time to duck into my private bathroom. I went straight from there to the conference room.

“I’m sorry for the short notice,” I said when everyone except Beth was on the line. “We’re missing Doctor Pater, but it couldn’t be helped. I have some news, and a theory about that news. The news is that Dante Puccini bought Peach Legal in Atlanta. They aren’t a direct competitor, as they focus mostly on one-lawyer shops and their server is a beefed-up PC which also serves as the primary workstation. It’s inexpensive and does the job, and we’ve even sent a few sole-practitioners their way when those firms had sticker shock at the price of our ‘light’ and ‘small office’ licenses.”

“So why would Dante buy that firm?” Doctor Barton asked.

“Funny you should ask,” I said with a small laugh. “I have a theory. I think we’ve been set up. Dante never intended to buy Lone Star. They’re the poison pill. He always intended to buy Peach. In fact, in order for him to have bought Peach, he had to have started the process before he filed any of the suits, and long before he first spoke to Lone Star.”

“He WANTED you to try to buy Lone Star?” Doctor Barton asked, obviously confused. “What am I missing?”

“I think he either has already arranged to, or plans to, hire the entire Lone Star Development team as soon as the ink is dry on our purchase agreement. And have them quit as soon as the money changes hands. Or, possibly even before.”

There were gasps and several comments of ‘No way!’

“How do you know this, Son?” my dad asked.

“Dad, Jefferson HAD to be a setup, an enticement. I’m sure Dante already owned Peach when he called Jefferson the first time. He also talked to Art Drake about custom programming. He was reasonably sure those guys would call me, and he knew they had called when I placed my call to Brad at Lone Star and Joyce placed her call to Manny Nuñez. After that, Dante calls Jefferson again, and tells him about Peach Legal, but only AFTER we begin talking seriously to Lone Star.”

“But how does that help him?” Al asked. “He’d have to start from scratch, right?”

“I thought that at first. The end game, if you will, is he hires the development team on the theory that doing so makes it difficult to maintain the code AND makes it look like the VC set us up to make a quick buck on the cash out. It throws the entire deal into question and creates chaos, making Lone Star impossible to manage. He’s betting that would cause us to rescind the deal and get our money back, or kill the deal beforehand. We’d be better off just going after the customers of a now defunct firm.

“I say defunct, because Lone Star is completely screwed in either case and could either be bought for a song or, very likely, go into bankruptcy. That’s even true if we walk away now. If we walk away, they announce they aren’t for sale, and Dante buys out the founder and steals the development team. Lone Star is screwed just as badly, and likely ends up in bankruptcy, or for sale for a song.

“Dante outbids everyone for the source code in the bankruptcy auction, or, more likely, acts as a white knight to ‘save’ Lone Star by buying them for pennies on the dollar. And now, he has the people and the source code. Then he hires their support staff and as sure as night follows day, he has a competitor to NIKA that he created out of whole cloth for next to nothing.”

“Jesus,” Samantha breathed. “That’s just crazy enough to be true, and it’s worthy of the worst greenmailers you’ve ever met in your life!”

“How sure are you, Son?”

“I ran through this with Elyse before we had Kimmy set up the meeting. Hearing myself say it out loud a second time, I’m very sure.”

“What happens if he doesn’t get all the programmers and you don’t rescind the deal?” my dad asked.

“Then he has them begin building the Lone Star system again. Heck, after the ruling in the Apple suit against Microsoft, they could even make a nearly identical user interface and we couldn’t do much about it. It puts a huge roadblock in his way, and adds significant delays, but he could build the new system and eventually begin competing for customers. It’ll take a lot longer, but he can sure be a thorn in my side in a fairly short time.”

“Do you think Lone Star is in on the scheme?” Karl asked.

“No, I don’t. Well, not the VC firm or the members of the Board who aren’t founders. It wouldn’t make sense because they’re going to be left holding the empty bag. It would cost us money, time, and probably some bad PR, which won’t be fatal, but which will give Dante a chance to compete while we sort out the mess. And he has a fighting chance to get the majority of their former customers in that kind of scenario.”

“I’d say Steve is probably right,” Samantha said. “I’m sitting here thinking about how I’d do it, and that is EXACTLY the way you’d strip a company and get their assets for next to nothing. It’s actually brilliant. But Dante missed one thing - Steve is a sneaky bastard and therefore thinks like one! And he’s pretty damned smart for a guy who swears he knows nothing about business.”

“I’ve listened to, and paid attention to, you, Elyse, my dad, Don Joseph, and a host of other people,” I replied.

“It sounds as if we need to cancel the deal,” Joyce said.

“Wait,” Samantha said with a soft laugh. “I bet our CEO has a plan. A sneaky, underhanded plan. Or, in different terms, an idea. An awful idea. Steve has a wonderful, awful idea!”

Everyone laughed.

“Steve as the Grinch?” Kimmy giggled. “I don’t see it.”

“What’s your plan, Son?” my dad asked, ignoring Kimmy’s comment.

“I’m suspicious that one of the founders of Lone Star is either in on it, or is the key to getting the entire staff. And we know the source code has to be the object of Dante’s entire scheme. I have a two-part plan. The first part is that the shareholder payouts are escrowed for three months, and payable only on condition we don’t rescind the deal and they don’t compete with us during that period.”

“Slick,” Samantha said. “That smokes out the VC firm if they’re being duplicitous and ties the hands of the founders. How do you intend to protect the software?”

“We have Patent Partners LLC buy the software from Lone Star before the merger or purchase is completed. If we end up not going through with the deal, the LLC sells the software back to Lone Star for the purchase price. If we do go through with the deal, and have to rescind it for any reason, then Lone Star has a license, at a small royalty rate, to continue using the software, but we keep ownership of the software as a penalty.