Chapter 56: Lone Star Systems

May 11, 1995, Chicago, Illinois

I was in the office early on Thursday morning. I’d driven in alone, as I would leave my car at Meigs and wouldn’t be back in time to get Jessica at Cook County. Elyse and Michelle had arrived about fifteen minutes earlier than usual, and just past 8:00am, our meeting and conference call started. There were three people on vacation, which couldn’t be helped. They’d find out at some future point.

“I’m sorry to get you Western Region folks out of bed early,” I said. “But this really couldn’t wait. Yesterday afternoon, at 3:00pm Central Time, NIKA agreed to acquire Lone Star Systems, our largest competitor.”

There were gasps, stunned looks, and lots of ‘Wows!’ and ‘Holy shits!’ just as I’d expected. I paused for a few seconds, then continued.

“Cindi will be sending out a press release at 8:30am, as will Lone Star. The press releases will call it a merger, but rest assured NIKA is buying Lone Star. The NIKA Board of Directors will continue exactly as it is, as will our management. Those of you who own shares, either directly or via our ESOP, will not see your shares diluted or reduced in value in any way. In a few minutes, Elyse will explain how we’re paying for this and what that means for our financials.

“We have a LOT of work to do in the next thirty days. In that time, we need to complete what’s called ‘due diligence’ which involves a top-to-bottom review of Lone Star to ensure we’re getting what we agreed to pay for. Many of you are going to be involved, and you may find yourself in Dallas, Reno, or the Raleigh-Durham area. That means we’ll all have to pick up the workload to ensure we don’t damage our customers during this time.

“I also want to state unequivocally that nobody who works for NIKA will see their position eliminated or their role reduced. There may well be redundancies between NIKA and Lone Star, but you have my word that you, as NIKA employees, will NOT be made redundant. Period. In fact, there will be a number of opportunities for promotions or expanded responsibilities, if you so desire. I can’t tell you exactly what those will be just yet, but I will let you know.

“Now a word of caution. Please do NOT engage in spreading rumors. I am sure you’ll hear all kinds of wild rumors and stories, from a multitude of sources. Let me be blunt - if you do not hear it from me or the senior management team, do NOT believe it. And by that I mean me, Elyse, Cindi, Julia, Dave, Michelle, and Kimmy. Those are your only sources for official information at this time. If you are contacted by the Press, please refer them to Cindi. Nobody, other than Cindi, is authorized to speak to them.

“I’m going to turn this over to Elyse to give you a brief explanation of how the deal is being financed. I believe in complete transparency, and a good number of you are shareholders, and deserve to hear this. You will, if you are vested in your shares, have the opportunity to vote at a shareholders’ meeting in about four weeks, where the deal will be formally approved. And the last thing I’m going to say is that Cindi, Julia, Kimmy, and I are heading to Dallas later this morning to talk to the Lone Star staff.

“I am sorry, but I won’t be able to take questions now. I’ll do my best to keep you all informed of the progress and any important details. Elyse?”

I stepped aside and Elyse took the spot where I’d been standing and explained the financing we were receiving, though she didn’t specifically name Spurgeon Capital, and explained how preferred stock worked, how it related to common stock, and how it would affect our profitability. She took questions, but limited them to explaining financial terms and concepts, and when she finished, I ended the meeting and headed upstairs with Penny hot on my heels.

“How can you do stuff like that without telling the shareholders?” Penny demanded.

“Because the Board is elected by the shareholders to act in their interest,” I replied firmly. “That’s how corporations work. You will, as you heard me say, get to vote ‘yes’ or ‘no’ on the deal once we complete the due diligence and the Board makes a recommendation.”

“But you have more than 50% of the shares so your vote is the only one that counts!”

I nodded, “That’s true. In the end, though, I can only do what the Board approves. I’d have to replace them if I didn’t agree with them, and I have only thought about that on one single occasion in nearly ten years.”

“Over that silly non-compete?”

“Yes. But the principle was that they wanted me to force everyone to sign under threat of being terminated. I refused. They knew I would replace them. Technically, they could fire me, but then I’d just call an emergency shareholder meeting and remove the entire board. Joyce and my dad would have to be put back on, but I would just have added seven board members I trusted to do what I wanted and they couldn’t have stopped me. You would have been one of them!”

“So why not just do what you want?”

I chuckled, “That’s the same debate I’ve had with Samantha many times. Heck, you should understand why. You and I have a serious propensity to get into trouble when we don’t listen to good advice. I have the Board for a reason. And usually I listen to them. But could you see me threatening someone’s job in that way?”

“Not a chance!”

“Which was my point. In the end, everyone signed simply because I asked them to.”

“Of course! You take great care of all of us. But what about the Lone Star team?”

“That’s what we have to figure out, starting today.”

May 11, 1995, Aboard the Gulfstream en route to Dallas, Texas

Three hours later, Cindi, Julia, Kimmy, and I were on the Gulfstream somewhere over southern Illinois.

“The Lone Star sales team is going to be useless for thirty days,” Cindi said. “And then some.”

“I know, but I don’t think we can accelerate the due diligence. Did you have an idea of what you want to do with your sales team?”

“I think a lot depends on what we’re doing with regard to expanding our consulting business.”

“Dallas and the Raleigh-Durham area are obvious targets,” Julia said. “I’m not so sure about Reno.”

“If we do that,” Cindi said thoughtfully, “I could see hiring three salespeople. More than that and we’d be oversaturated. We’re developing new business at a good rate now, and we don’t want to see commissions reduced for any existing team members.”

“I’ll want you to go to Raleigh-Durham and Reno, Cindi,” I said. “There are sales staff and support staff in both of those offices.”

“I think we’ll need to keep their support infrastructure exactly the same for at least a year,” Cindi said. “A lot depends on how we decide to integrate the Lone Star customers.”

“We’ll know more when we see the code,” Julia said. “I talked to Dave about getting some senior people down to Dallas next week. Whatever we decide, it’s going to play havoc with delivery schedules, but I don’t see any option.”

“How bad?” I asked.

“We’ll need to make up two weeks in the schedule somewhere along the way. Well, three, probably, because you’re basically out of action for the duration.”

“I wish that wasn’t the case. You do have Claire coming on board in two weeks, and Dave is in the final stages of hiring a programmer. We can slip the medical software if we need to. They actually complain more about new releases than they do about lack of new features.”

“Someday we’ll go to that well once too often,” Cindi said. “But right now, I have to agree. The major law firms are champing at the bit for the multi-office system.”

“How are Brenda and Sam doing on the database merge utility?” I asked.

“Don’t ask,” Julia said, shaking her head. “We have sample data from three firms and in all three databases we’ve found differences in how they entered client names between their offices. Matching them, and ensuring we have the correct records tied together is nightmarish. They’re making improvements, but I suspect there will still be quite a bit of manual work which will need to be done.”

“I saw Kajri’s design for the manual merge screens,” I said. “We’ll at least be able to have the customer do some of that matching.”

“I think we need to call out a line item in our conversion proposals for ‘custom manual database merges’,” Julia said.

“You and Cindi work it out. But let’s make sure we get the automated merging as close to complete as possible.”

“Steve, what’s the straight scoop on the staff? Not what you’re going to say to them.”

“It’s what I said this morning - we have to identify redundancies. If we double the customer base, we have to add to our existing staff. The two areas where there are huge questions are sales, as we discussed, and development. I’ve made no decisions in either case, though I’ll admit we won’t need their entire development team. But until we talk to everyone and decide what to do with the Lone Star software, nothing changes.”

“Some people are going to leave, for sure,” Julia said.

“Yes, and our goal is to quickly identify the good people who have the right attitude. I do have one thing I need you to give serious thought to. The VP of Software Development will leave on June 9th, along with the VP of Sales and the President; that’s part of the deal. We’ll need someone to run the Lone Star Development team.”

“This is off the cuff, but thinking about our succession plans, I’d say Terry, but I can’t afford to have him leave Zo’s team right now, and can’t afford to introduce ANY stress with Penny, given she’s on the same team. The next person I’d suggest would be Debbie Jones. She’s been with us nearly from the beginning, doesn’t have kids, and is used to traveling.”

“I’d be OK with that choice,” I replied. “She did a great job at Waukesha all those years ago. The only fly in the ointment is that if we significantly expand the consulting teams, we’re going to need regional managers, and she’d be an obvious choice.”

“That will take time,” Cindi said. “How long do you think we’ll need someone to manage the Lone Star team?”

I couldn’t tell her the first answer that came to mind - about two weeks. I had to, at least publicly, act as if Dante didn’t exist. Until he pulled the trigger, it had to be ‘business as usual’.

“That depends on how we decide to proceed,” I said. “And using someone from the consulting team makes sense because she’s used to assignments with somewhat unpredictable end dates. Don’t say anything, yet. But those are the kinds of things we’ll need to think of.”

“If you keep Dallas and Raleigh, will they be managed by Zeke and Mario, respectively?”

“For now, I’d say yes. I don’t think it makes sense to break up the regions. In the short term, Lone Star will be managed as a division of NIKA, and I’ll have to act as divisional manager with help from Kimmy and Michelle.”

“Anything you need!” Kimmy said, looking up from her pad where she’d been taking notes.

May 11, 1995, Dallas, Texas

“Team,” Manny Nuñez said, “I’d like to introduce Steve Adams, Cindi Spanos, Julia Kallas, and Kimmy Bradford from NIKA. Steve?”

“Thanks, Manny,” I replied. “Good afternoon everyone! I’m sure all of you were surprised by the merger announcement this morning. We came down to meet all of you and spend some time talking to you before the due diligence process begins on Monday. I want to reassure you that what will become the Lone Star Division of NIKA is an important part of the company. Our two firms are similar in size, and Cindi, who is our Senior Vice President of Sales and Support, reports that Lone Star and NIKA split competitive deals almost equally. That tells us you have something valuable to offer potential customers, and which those customers will expect us to continue to provide.

“And that means we are not going to make any radical changes in the short term. Will things change? Obviously, because we’ll need to integrate so we are able to work closely together. And equally obviously, in any current competitive deals, we’ll need to figure out which system best serves the customer’s need and provide that system. Our joint press releases this morning reiterated both firms’ focus on providing excellent customer support and that must be our continued focus.

“Now, I’m sure some, if not most, of you are aware of NIKA’s purchase of Boston Legal Systems several years ago. The circumstances of that deal were very different. BLS was failing and unprofitable; Lone Star is successful and profitable. That was an asset purchase; this is a merger. Granted, the NIKA Board and senior management will remain in charge because your Board and senior management were brought in by the Dallas Capital Partners.

“Everyone else will have the same job on June 12th as they have today. We want all of you to stay. We want you to be part of the team. Your service here will count day for day as service at NIKA, entitling you to the same benefits as any current NIKA employee with the same length of service. Your vacation, sick time, and other leave will carry over, and be adjusted, going back to January 1st, to match NIKA’s, but won’t be reduced if they happen to exceed what we offer. All of you will be eligible for a full bonus share, paid in June of 1996.

“It’s very important that all of you, and all of us, keep our focus on the customers we work for. And yes, you heard that right. All of us, including me, work for the customers. I may be the CEO, but in the end, the final say on everything we do comes from our customers. They don’t have to stay with us if we aren’t meeting their needs, and if they don’t stay, we don’t have a business. If we can keep our eyes on the customers, we’ll all be successful.

“Finally, I want to discourage you from listening to rumors, no matter where you hear them or from whom you hear them. If you don’t hear it from Manny, or one of us, or Elyse Clarke, our CFO, or Michelle York, our office manager, don’t believe it. And please, please do not answer inquiries from the Press. Direct all of those to Cindi or Manny. We need a unified message and we need our customers to hear a unified message.

“In conclusion, I’m excited for our future, and look forward to great success by the largest, by far, legal software firm in North America. I will take questions, though I hope you’ll understand if I need to defer answering some of them.”

“Mr. Adams,” a young woman with short-cropped hair, who had been frowning during my speech, called out. “Are you saying all of us have guaranteed jobs?”

I smiled, “Your name and role are... ?”

“Vickie. I do accounts receivable.”

“Hi, Vickie. First of all, please, everyone, call me Steve. We are very informal and it helps communicate that we’re all on one team. Second, while I can’t make any guarantees, it is our intention to find a role in the merged firms for everyone. In the short term, and by that I mean three to six months, I can’t imagine making any changes because of how badly it would disrupt operations at Lone Star, which is not something that would help us be successful.

“That said, in your specific case, I think it’s obvious that at some point, we’ll want to integrate our accounting systems. Elyse will determine how that’s done. But if you think about it, we’ve merged two equally-sized firms. And that has doubled the workload. Any drastic reductions would hurt our customers. We won’t do that. So, while I can’t make any specific guarantees for the long term, please don’t think there is any intention or plans for layoffs. NIKA has never done that and I have no intention of doing that. OK?”

“Thanks,” she said, her frown having changed to a smile.

“Wally Schmidt. I’m a developer. Are you saying you intend to continue to offer both systems for the long term?”

“Hi, Wally. First, I should have mentioned earlier that I’m a developer myself, and if I could, I’d spend all my time coding. Unfortunately, things haven’t worked that way for me. With regard to your question, I’m saying our customers, and by that I mean Lone Star’s and NIKA’s, will dictate what we do. Your customers are expecting bug fixes, and you have a new release due to be delivered August 1st. I am NOT changing that. It would be a complete disservice to all of Lone Star’s customers. As for the long-term, Julia, who’s our CTO, and Dave, our Vice President of Development, will work with both sales and support teams and determine the best way forward.”

“Thanks,” he said, nodding.

“This is Max Barker,” a deep, booming voice said over the speakerphone. “I do telephone support and installations and I’m in Reno. Are you planning to keep all the offices open long-term?”

“Hi Max. I don’t have an answer to that question at the moment. We need to complete our due diligence before I can speak intelligently about that topic. What I will say, though, is I will not do anything to harm the customers. I know I’m starting to sound like a broken record, but if you think about what that means, it means we don’t do anything without considering how it impacts those customers.

“NIKA has offices in Pittsburgh and Colorado Springs, as well as a small satellite office in Los Angeles. We also have staff in San Francisco and New York City, though they are consultants or on-site support staff who work from home. Lone Star has offices in Raleigh and Reno, as well as Dallas. I do not see any possibility of making any changes before the end of the year, and changes wouldn’t be made without advance discussion, in which all of you would be involved. NIKA is very open and transparent, and except in situations such as negotiating this merger, our staff is fully informed and fully involved in decisions before they are made.”