On 12/5/2012 7:36 AM, Eisboch wrote:


"jps" wrote in message ...

On Tue, 4 Dec 2012 18:41:32 -0500, "Eisboch" wrote:


The bonuses to management and salaries of the hired "turnaround" guy
are peanuts when compared to the overall debt and are very commonplace
in Chapter 7 situations like this. The bankruptcy judge approved
them for reason. The simplistic views of bystanders are
understandable but don't reflect reality.

Except the "turnaround" guy is part of the vulture capital group. Just
another way to suck the bones dry whilst they're screwing the
employees out of their pensions and whatever else they can grab.

Who's to say your idea that it's far more complex isn't just another
view of a "bystander" who doesn't understand how awfully simple it all
is?
-------------------------------------------------------

I am not an expert on the subject but I've had some direct experience. I
was a principle (small, 5% stockholder and employee) in a company that
had venture capital, bank and private (me included) financing. The
company did ok for several years but started coming apart financially in
1986 due to Congress debating tax reforms for over a year. Orders for
equipment were put on hold and some orders were cancelled because the
customers (primarily large commercial and defense contractors) didn't
know how the tax reform debate would affect their bottom lines. Very
similar to what's going on today.

I witnessed up front and personal as the venture capital group installed
a turn around specialist in the company with all the best of intentions.
I can tell you that they view the company strictly through financial
eyes and not from any sense of loyalty to employees or consideration to
their families. They have a hard core attitude that is at odds with the
company's management who typically have some emotions involved and have
no desire to lay people off. The turn around guy, along with
management, has to determine which employees are absolutely necessary
for jobs in progress and for company value for a potential sale or
further investment. It's not a pleasant experience, but it is
necessary. He was doing his job. It tore me apart.

In the end, the bank called the note owed to them and the company went
into involuntary bankruptcy. The primary principle, CEO and president
knew it was coming and skipped town a few weeks before, "on vacation".
He was seriously affected and in a state of acute depression. I
happened to be second in command in the owner's absence and tried
unsuccessfully to contact him when employee's paychecks started
bouncing. I called the bank and learned that all the company's accounts
were frozen. I then called the company's attorneys and was advised to
immediately lay off *all* remaining employees which was not exactly a
wonderful experience. Ultimately, the company was sold in an
"arranged" auction by the bankruptcy court.

That's is the *simplified* version of what happened in this example.
Obviously, there were many more details and gut retching issues during
this horrible experience. I left that company immediately after the
sale and worked as a consultant to a major defense contractor to make
ends meet.
I was then 37 years old.

There was a personal benefit derived from it however. A few years
later, when I started my own company, I swore to never make the
mistakes that I witnessed during this experience. I've mentioned the
company from time to time here in the newsgroup but have never told the
whole story. As a business owner, you may find it interesting, so
here goes:

In January of 1990, I incorporated the company. Like the one that went
bankrupt in 1988, it designed and built high tech capital equipment for
commercial and military applications. Initially the company consisted
of me, my wife (receptionist and book keeper) and a friend from the
previous company. We did all the engineering and design and
subcontracted all the fabrication, machining and heavy construction. We
did the control systems in-house and the final assembly and test.

The only funding was my personal savings of approximately $25,000. We
secured a couple of small contracts from people we knew from the
previous company. I will always be grateful for their support and
confidence that they exhibited at the time. Bigger contracts came along
in short order. These are large dollar value items and they are
typically paid on a "progress payment schedule" that consisted of
several payments over the period of the contract, based on achievement
of specified milestones. I managed the finances essentially by having
the customers finance their own projects.

I never had a bank line of credit or loan and I never borrowed any money
from anyone. We added equipment when we could to do almost all the
fabrication in-house, paid for out of profit, not loans. I also sought
and brought into the company several highly qualified people in
engineering, finance and manufacturing disiplines, giving them all a
stock position as well as a salary.

By the end of 1999, the company had grown to about 70 employees with
revenues of about $17M annually. It came up on the radar screen of some
bigger companies and two of them ended up making formal offers to
acquire it in late 2000.

At the time the physical assets of the company (meaning manufacturing
equipment, engineering equipment, test equipment, etc.) probably
totaled about $500K in value. The rest of the value of the company
was in intellectual property and goodwill.

One of the two companies offered a deal whereby the stockholders in my
company would receive stock in the their company.
My company would become a division of theirs, building equipment only
for them.

The other company offered cash. They wanted to expand the company with
further investments and market our equipment to the industry in general.

Now, I may be uneducated in the ways of business and finance, but I am
not a complete idiot. The company had grown to a point where it needed
the expertise and resources of a larger organization for continued
growth. At this point I still owned 67% of the company and it was
getting more complicated to run. I knew my limits.

So, the company was acquired for a little over $21 million in cash. The
due diligence lasted only about 3 months before closing and every day
that I got up I couldn't believe it was all really happening. We had
no debt, no bank loans and no venture capitalists to pay off. The
proceeds went to the stockholders.

At the time of closing, and after all the adjustments were made for work
in progress, etc., the company had $1.5M in the bank, which we would
retain.

A week before the closing, I called a meeting of all the stockholders
and proposed an employee bonus plan, using this money.
It was unanimously agreed to.

The day after the closing, I called a meeting of all the employees. My
wife had made out checks to everyone. It basically came down to $1,000
for every month or part of a month that the employee had worked for the
company. Several had been with the company for 10 years. The average
was about 6 years. Some received over $120,000. A couple had just
joined the company, but still received at least $1,000.

That day was one of the most satisfying day of my life. Several people
received enough money to pay off their home mortgages. Others now had
the money to buy their first house. It was funny as hell to watch the
reaction when I announced the bonus formula. You could see people
mentally adding up the number of months they had been employed as I
explained how it would work. Meanwhile, my wife was walking around
handing out envelopes with the checks in them to all the employees.
Great day.

As for me, part of the acquisition deal included a three year
"consulting" agreement and non-compete clause. They didn't have to
worry. To this day I have no regrets and absolutely no interest in
getting involved in that industry again.

The only reason I started the goofy guitar shop thing is because I was
starting to drive my poor wife nuts, not having anything of importance
to do.
She's the one who, after looking at my modest collection of guitars,
amplifiers and Hammond B3 organ, suggested I open a "music shop".
I thought that would interesting and have been involved with it for the
past 3 and a half years. I realized however that I was never designed
or cut out to deal in a retail world, so I have turned the shop over to
a friend who is both a musician and a luthier. I stay involved, more
as a hobby and place to go, but he now owns and runs the place. It too
is growing and will be moving to a larger facility early next year.

That's my story and I am sticking to it.


I'm available for adoption. :-)
Mikek