Chapter 8: Seeking the Eye of the Hurricane

Frank sat back in his office chair. He was waiting for a call from Jim Sweeney and he deserved a few moments' relaxation. The financing package for the R&D program was nearly put together; the forecast was done, and held together well. Soon, he would be able to call Jason Lowell into his office and let him in on it. Until it was done, he had to keep things strictly confidential.

"Maybe, when I tell him about the funding we can kiss and make up," he thought to himself.

He knew that Alvin had issued Jason a pretty harsh verbal flogging, based largely on what Frank had told him. According to Frank's point of view Jason richly deserved it.

"At this level, the boss shouldn't have to scold Vice-Presidents like schoolboys." Maybe Jason would be different after this—the kind of executive everyone expected him to be.

The intercom buzzed. "Mr. Sweeney is on the line," Jeannette's soft voice told him.

Frank picked up the phone.

Frank: "Hello Jim, Frank here."

Sweeney: "Hey, Frank! How's that sexy secretary of yours?"

Frank: "Just as sexy as ever. I'd like to fill you in on the financing arrangements for the R&D program."

Sweeney: "Just what I was hoping to hear. I'm all ears.

Frank: "I think it's a good package. It'll be prime-minus-one; laddered debentures with principal payments starting in three years with maturities in stages over the next seven years after that."

Sweeney: "How much is the package worth?"

Frank: "Four hundred million. We draw on it as we need it. They'll hold the commitment open for three years."

Sweeney: "Who're we doin' business with on this, Frank?"

Frank: "Chase-Morgan is the lead. We deal with them. I think they're planning to lay off part of it—maybe to insurance companies."

Sweeney: "Sounds too good to be true. What am I missing here?"

Frank: "They want a mortgage on the new R&D facility and security interests on any patents. They also want some offsetting deposits. That will tie us up somewhat, in case we want to do a sale and lease-back of the property, or license the patents."

Sweeney: "I see your point."

Frank: "I'm working on these details now. We might have to start that way and renegotiate something later. All-in-all, I think it's the best deal available to us."

Sweeney: "And it cuts out the Wertheim deal!"

Frank: "Not necessarily, but it does de-link the R&D program from Wertheim. They should never have been jammed together in the first place."

Sweeney: "That was Mueller's and Lambert's doing."

Frank: "Alvin asked me to tell you that he's on board with this."

Sweeney: "I couldn't be happier, Frank. When's the closing date?

Frank: "We're just waiting for the SEC to pass on the 10-Q and for our forecast, which looks good. It shouldn't be long."

Sweeney: "Keep me posted. Now I've got to run—plane to catch."

Frank: "Have a good flight."

Frank hung up the phone and left his office to refill his coffee cup. Jeannette saw him and reached out to take his cup from him.

"That's okay, Jeannette; I've got it." He went to the coffee pot hidden in the corner and poured some into his cup. "Jim Sweeney says 'hello'."

"Mr. Sweeney is very charming," Jeannette replied. "I think he enjoys flirting with the secretaries."

"Maybe not all the secretaries, but you're definitely on his A-list."

"Me—how did I get there? I definitely didn't ask to be put on it."

"I think Jim is a guy who appreciates the finer things," Frank said.

"I'll take that as a compliment."

"I would," Frank answered. "Not to change the subject, but..."

"Go right ahead and change the subject, Frank."

"I was wondering if you're planning to go to that pool party Gloria Warner is putting on."

"I was assuming that there would be too much work to do," Jeannette replied. "Most of the girls are all excited over it."

"But, you're not?"

"I've heard the Warners have a pretty nice place. I'm not sure what else is in store."

"Confidentially, they're going to twist your arm to volunteer to give them some free help on the charity foundation."

"I suspected something like that. Is Trudy in on this?"

"In a way," Frank said. "They tried to dump all the clerical work on her and she said that she wouldn't do it alone. She thought that Gloria and the other wives would pitch in, but Gloria came up with this idea, instead. Whether you decide to help them is strictly up to you. For that matter, you can attend or not as you please."

"I'll think about it."

"Why don't you go? Gloria's bound to put out a first-class spread, and you've sure earned an extra day off. Just be sure not to get roped into something that you don't want to do."

"I'll remember that," Jeannette promised.

"Or, I could find a project for you so you would have an excuse," Frank offered.

"Hey Frank, wait up—I need to speak with you." Frank recognized Tyler Smith's voice. He turned and saw Tyler marching toward him wearing a stern expression.

"C'mon in; get yourself a coffee," Frank said.

Tyler was right on Frank's heels, ignoring the offer of coffee, as they disappeared behind the office door.

"I take it you haven't heard," Tyler said as they made their way to Frank's desk.

"Heard what?"

"Get on the internet. Take a look at our stock price," Tyler replied.

Frank turned to his computer and logged in. As soon as he was on the stock quotations page he typed in WC, the ticker symbol for Western Chemical.

"Geez, what do you make of it, Tyler?"

"You don't know the half of it," Tyler warned.

Frank wasn't sure he wanted to know more. Western Chemical stock, which closed at forty-eight dollars the day before, had fallen to thirty-three. Trading in Western stock had been halted by the exchange.

"What's the other half?" Frank asked.

"Short interest tripled at the opening bell. There's been very large trading in out-of-the- money put options. At least they were out-of—the-money at the opening bell. It's triggered a tremendous sell-off."

"I didn't think we had a lot of short interest," Frank pointed out.

"We don't—that's why it tripled so easily."

"This is crazy," Frank protested. "There's no reason for this—unless..."

"Mr. Anthony Graziano is on the line, Frank," Jeannette interrupted through the intercom. Graziano was the Chairman of the Stock Exchange. Frank had met him briefly on two social occasions during his Controller days.

"Stay right here, Tyler. I might need you," Frank said. "I'm going to put him on the speaker phone after I let him know."

Frank picked up the phone and spoke to his caller for a few seconds. He pressed the speaker button and hung up the phone.

Frank: Hello Tony; can you hear me? I have Tyler Smith here with me. He is our General Counsel and Corporate Secretary.

Graziano: How do you do, Tyler. Listen, Frank! We've had to suspend trading in Western to allow a cool-off. You were down over thirty percent during the first hour of trading.

Frank: We're just finding out now. We have no idea...

Graziano: There are rumors all around that you're pulling back your stock offering. Some think your 10-Q went south. Others say that you're pulling the plug on your R&D. In this market all you have to do is light a fire cracker and people think it's a cannon.

Frank: Neither of those are true, Tony. We put the registration on the shelf because the market's so low. We've got alternate financing for our R&D nearly in place—we just need the 10-Q. After that gets out on the street, everyone will see that we're in good shape.

Graziano: I'm probably talking out of school, Frank. The SEC told us that they're suspending acceptance of the 10-Q.

Frank: That's crazy! They have no reason. Then, we will have to put the brakes on our R&D because the financing will be held up.

Graziano: I'm just the messenger. They think that there's insider trading going on. That's why they haven't called you yet. They're talking about an investigation.

Frank: Oh, for crissake...

Graziano: You can't blame them. First they get the shelf registration and the 10-Q and on the same day the rumors start flying, and all this short trading. You can't blame them for being suspicious.

Frank: It's obvious there's some manipulation going on, but we have no idea...

Graziano: Bottom line is that we can only keep your stock on hold for a limited time. If we free it now, it could go into the twenties.

Frank: How long have we got?

Graziano: I can give you until three, Eastern Time. I know that's only two o'clock your time. It's the best I can do. Sellers have to be able to put their trades through before the Market closes today, if that's what they want to do. I need a statement from Western for publication. Give us something that will calm the market down.

Frank: We'll put something together ASAP and get it on the wire to you.

Graziano: Good luck on this Frank. Let me know what I do to help. Good-bye.

Frank turned to Tyler. "We've got to move fast, Tyler. Can you clear your desk and help me on this?"

"What do you think happened, Frank? Who would let this get out?"

"We'll figure that out later," Frank answered. "Right now we have no time for that."

"What do want me to do?"

"First get on the horn with Al Crossman at Briggs and Day. Tell them what's going on. We've got to get that 10-Q released. That's priority number one! It might take legal maneuvering to force the SEC to shake it loose. After that, can you draft a statement that we can release to the public—something that says that we're in good shape and no one should worry. It should have Alvin's and my name on it."

"Should I say anything about the shelf registration?"

"Cover that with Crossman. In the meantime, "I'm going to fill Alvin in before he starts getting calls. After that, I'll call the outside auditors. Their name's on that 10-Q, too."

Frank flipped the switch on the intercom. "Jeannette, would you call Alvin's secretary and ask if I can see him right away? Then call Larry Bates and tell him to stand by. I want to see him right after I meet with Alvin."

Frank was in Alvin's office, sitting in front of his desk.

"I don't believe this," Alvin mumbled, his face in his hands. "Who would do something like this?"

"I don't know," Frank answered. "That can't be our priority right now.

"What should we be doing?" Alvin asked as he looked up at Frank.

"We've got to calm our big investors before the stock opens up for trading again," Frank said. "That would be US Equity Mutual and CGEPT." The former was a mutual fund company; the later a state government employees' pension trust. "They've probably got trading programs that are set to dump as many of our shares as they can the moment trading opens back up. We've got to convince them to hold off. That will help stabilize things."

But this so unfair," Alvin protested. "There's no reason for this..."

"You're correct, Alvin, but it's happening."

"Well, what if they do sell? Sooner or later they'd be sorry. We can't help it if they can't..."

"Our stock will tank—even more than it already has—and the loose shares will get picked up for a song by LBO takeover artists. How would you like KKR acquiring five percent of the company overnight? I don't think we can let that happen."

"I see now," Alvin sighed. "You'd better stay here with me while I make the calls."

"I suggest putting them on the speaker-phone," Frank said. Alvin pressed the intercom switch and asked his secretary to place the first call.

The conversation with US Equity Mutual went well. They had been waiting for a call and accepted Frank's explanation. They agreed to disengage their sell program and hold fast. Alvin's confidence improved after they hung up. He and Frank sipped on their coffees while Alvin's secretary put through the call to CGEPT.

"A lot of times those California guys can be aggravating with their laid-back attitudes," Frank said with a chuckle. "This time, it's working out for us."

Alvin laughed with him. "It's funny," he said, "they seemed to be very accommodating. Just between us, when the Board was deciding whether to appoint you as CFO, they lobbied to select someone else."

"Ancient history now. They're stuck with me."

"For what it's worth," Alvin continued, "the CGEPT people were one of those backing you."

Soon they were on the speaker phone with Murray Shoreham. He was Chief Investment Officer of CGEPT.

"So, what's gong on here?" Shoreham demanded.

Frank explained about the shelf registration and the financing of the R&D.

"That doesn't explain all this short interest," Shoreham insisted.

"It looks like security was broken and someone is taking advantage," Alvin said.

"Well, why isn't the 10-Q out?" Shoreham asked. "It should have been out today."

"The SEC is holding it up. They haven't said why, but we think they're preparing an investigation of potential insider trading."

"So, they leave you dangling in the wind. The price of your shares tanks and they launch an investigation and then say 'see what a good job we're doing'.

"Sounds pretty accurate," Frank replied.

"Look, guys," Shoreham said, "I'd like to help you out, but I've got to dump your shares. We've got our criteria..."

"The 10-Q will bear us out," Frank argued. "We have our lawyers working on getting it freed up now."

"Let me see the 10-Q, then," Shoreham insisted. "Wire me a copy."

"You know we can't do that," Frank answered.

"I know—I know..."

"US Equity has already agreed to hold off," Frank blurted out.

"You're not supposed to tell me that, either," Shoreham pointed out.

"It slipped out," Frank replied. "You didn't hear me say it."

The line went silent for a quarter of a minute.

"I'll hold off overnight," Shoreham conceded. "I'll be in Houston in the morning. Have someone pick me up at the airport and bring me to your place."

"No problem," Frank said. "Have your secretary call mine with the flight number."

"See you tomorrow," Shoreham said, and then hung up the phone.

"It looks like things are falling into place," Alvin said as he sat back in his chair.

"So far, so good," Frank answered. "Can you call Jim Sweeney and fill him in? I've still got some things to do."

"Larry Bates says that he's ready any time you are," Jeannette said as Frank appeared from around the corner.

"Ask him to come in right away."

Larry Bates was a tall, gaunt man of about sixty. He had white hair and black-rimmed glasses. He had been Corporate Treasurer for a decade and was happy when Frank acceded to the top financial slot. He appeared in Frank's office and took a chair at the work table.

"Larry, we need to do some contingency planning and we have to do it fast," Frank told him after explaining the crisis. "On one hand, we need to know how much cash we can raise right away if we call in everything and delay whatever outlays we can, plus whatever's on hand."

"Sure, that's not a problem," Larry said.

"Next, we have to know how many of our shares we can legitimately buy in the open market for bona fide needs. You know—stock options, 401k, those types of things. Then we have to match the cost of that with our available cash."

"You're thinking of a buy-back to support the stock price? You're in some dicey legal territory there. Normally, we'd just issue new shares. They're already authorized."

"That's right, but this is a special need and it's only a contingency. It's for the shares we would normally require in due course, anyway."

"For god's sake, be careful, Frank," Bates pleaded. "You're walking on a minefield in your bare feet."

"Larry, I haven't decided on anything. I can't decide one way or the other if I don't have the numbers. Be sure all our ready cash is ready to get consolidated in our Central Account so we can cut a check at a moment'snotice, if we have to."

The older man heaved a sigh. "You'll have the numbers in a few hours. We already have the ability to consolidate with a ninety-minute notice."

Frank headed out of the office with Larry and he made his way to Tyler Smith's office while Larry returned to his own.

"He's expecting you," Smith's secretary said. "Go right in."

"Here's a draft of the press release," Tyler said as Frank took a chair.

"What did Al Crossman have to say?" Frank asked as he skimmed the draft and paced in front of Tyler's desk.

"He agreed with you that we need to get the 10-Q out on the street. That will make most of our problems go away. He's going to make some calls to the SEC in New York, and work his way up from there."

"I've got a few more questions for him," Frank said. "I'm thinking of some Treasury Operations to support the shares."

"Geez, be careful on that. My advice is to forget it. It would be a temporary fix, anyway."

"I'm keeping it on the menu," Frank insisted, "in case we have to take drastic measures. I'm not gonna let the ship sink just because I want to be Mr. Clean."

"Promise me you'll keep it on the back burner for now," Tyler replied. "It might have a reverse-effect, anyway. When the Market figures it out, they'll believe we hit the Panic Button."

"Alright, Tyler," Frank said and slapped Tyler on the back. "You can be my guardian angel."

Tyler's intercom buzzed and his secretary told him that Jeannette was trying to find him.

"She wouldn't chase me down if it wasn't important," Frank said. He picked up Tyler's phone and called her. He scribbled some notes as he spoke and then hung up the phone.

"Jeannette said that an SEC lawyer tried to reach me," Frank said. "Beyond that, she didn't leave a message."

"Get a name?" Tyler asked.

"Yeah, Nadine Persky. Never heard of her."

"Let me see what I can find," Tyler said. "The Attorneys' Directory is on-line." He turned to his computer and typed for a minute. "Here she is; you're not going to like it."

"Give it to me straight," Frank said. "How bad can it be?"

"She's been out of law school for four years," Tyler began. "Vassar undergrad—Phi Beta Kappa. Columbia Law School—Law Review. She went with the SEC right out of Law School."

"Why should that worry me?" Frank asked.

"With those credentials she could have her choice of many positions at any Wall Street firm at a big salary and partnership not too far down the road. You have to ask why she chose to work as a government regulator."

"I'm starting to see your point," Frank said.

"I'm sure she has a picture of Senator Sarbanes somewhere in her office with a vase of flowers under it."

"We've got to deal with it," Frank said. "I better go call her."

"Let me know what she says. I'll call Al Crossman while you're doing that. I've got an idea and I want to run it by him."

Frank hung up the phone after speaking to Nadine Persky. The result of the conversation was unsatisfactory and Frank paused for a moment to ponder all it meant.