Pirate Cove: Chapter 13
Debt? What Debt?
Three Months Later
As the year drew to a close, it had become clear that something was definitely amiss at Southport Lane. Nothing in particular stood out. Well, actually lots of things stood out. But after a while you become desensitized to day to day ridiculousness. In distressed situations, it is almost never one thing that brings the place down. It is usually a confluence of factors that leads you to that conclusion.
But after the Jesus with a Telescope on Mars meeting, I became much more cautious and I became much more formal in my dealings with the folks at Southport.
Elliot Spitzer had a famous line when he was New York Attorney General. It went, “Never write when you can speak, never speak when you can nod, and never, ever use e-mail.”
I had that line seared into my psyche after being deposed for five hours over a four-word e-mail — “that’s a good thing” — in 2002.
But with Southport, I went in the opposite direction. I began to communicate almost exclusively by e-mail. I wanted a written record. I still have it. All of it.
Why? As a wise old lawyer (my brother, Tom) told me years ago, “the paper trail is the case in litigation.” And I was sure that at some point there would be litigation involved.
As summer drifted into fall and fall slipped into winter, Alex also became increasingly erratic. There were still a lot of problems at the vineyard and when it came to major decisions — the vineyard is Alex’s baby don’t forget — I needed to run them by Alex.
For example, Alex had commissioned Peter, the branding consultant, to redecorate the vineyard house. By July, that cost had ballooned to $93,343 and some of the vendors were getting itchy to get paid.
What’s worse, is that Peter contracted these vendors personally. That meant the vendor checks had to cover these costs had to be made out to Peter. Before I arrived, Peter went directly to Alex and Alex authorized payment.
Now Peter had to submit those invoices — from him still — to me. I then had to go to Southport to get them paid. Southport was now — properly so — asking for more documentation. That was fine with me. It made sense. But as much as I liked Peter, he and documentation were not close friends at the time. So, I had a lot of tap dancing to do to get those bills paid. Which they all did.
High on my list? The preferred stock issued in August was still only some ink on a piece of copy paper. No documents. No state filings. Nothin. Yet it was the only document representing $1.2 million spent by Southport for the benefit of the vineyard. That is $1.2 million over and above the $12.75 million Southport paid for the vineyard less than 6 months earlier.
Now, my normal line of problem resolution was to contact Daniel first. But he kicked the problem up to Darren, the general counsel. I found it difficult to get Darrens attention. But when I did on this issue, he kicked it up to Alex.
Finally, when I got to Alex on the issue in late September, he told me he was rethinking the entire preferred issue. He had an idea on how he could get the preferred to trade on an exchange.
After a theoretical discussion on how to make that work. He ended the call with no resolution.
Now remember, I am still trying to get the vineyards financial statements audited. The preferred issue would never fly with them, though. But Alex didn’t seem to care.
Alex was also sending late night flame throwing e-mails to the auditors. He accused them of everything from sheer incompetence to padding the bills. The next morning the auditors first call was always to me. That was fun. After a while I just agreed with the auditors. They were right and Alex was unreasonable.
My hands were tied on so many issues at the vineyard.
For example, we had almost six years of finished product inventory on hand. That is around 20,000 cases of wine in the warehouse. As it was fall and harvest was in full swing, in a month or two it would be seven years.
I got my start in the steel manufacturing business. As a result, I always viewed excess inventory as dead money. I didn’t care that it was wine and the wine romantics thought it appreciated in value over time.
Every time, I walked into that warehouse I saw dead dollars signs. I also saw one less time that I would have to ask Southport for money to cover payroll. I even explored selling it to foreign exporters for cheap.
But no. Alex stated that we would need all that inventory for when we would be selling 50,000 cases per year. Yeah, right. We were selling 3,700 cases a year at the time.
Alex’s girlfriends’ best friend was on the payroll too. She was listed as a salesperson. Now, she was a lovely kid. But she was getting $3,000 a month for a no-show job. She probably sold a little bit of wine here or there. But still.
Finally, three phone calls stick out to me as evidence that Alex and Southport were becoming more and more unstable.
First, my wife and I were in Holliston, MA at our sons’ football game on a Friday night in November. It was the state playoffs. Holliston was undefeated so far that year and my sons’ team was ahead at the half. It was about 8:30pm and the third quarter had just started when my phone rang. It was Alex. I let it go into voice mail.
Then he called again. I let it go into voice mail. This time he left a message. It was vile. It was unhinged.
A moment later he called a third time. Like an idiot I answered.
Alex ripped into me in a way I don’t think anyone in my life ever has. My immediate impression was that he was drunk or high. He was spitting mad. And when I say spitting, you could hear him spitting into the phone.
I walked away from my wife and headed towards the endzone where no one could hear. I decided to keep my mouth shut and let him spew.
The Super Bowl was being held at the Meadowlands in a few months and somehow Alex heard that I had signed up Lieb Cellars to sponsor an event in New York City in a run up to the game on Sunday. He was right. I did .
I have a good friend, Kristen Kuliga who is a football players agent and sports marketing guru. She has her fingers in more pro sports related things than you could count.
When our son tore his ACL in his last game of the season. She got us in with the Patriots and NE Revolution medical group. Reid had his knee operated at the facility next to Gillette Stadium. The waiting room looked directly onto the playing field.
Kristen had arranged for us to be a sponsor of a week-long wine and beer tasting event. It was located right next to Madison Square Garden. We would be the wine sponsor. Our wines and only our wines would be served.
It was a great deal for us. The sponsorship was free — with all the attendant publicity. Even better, we got to sell our wine to the event — albeit at a deeply discounted price.
Whoever told Alex of the event failed to tell him the terms. He called screaming that he heard I was paying $10,000 for sponsorship and giving the wine away for free.
The exact opposite was true.
After letting him go off for what felt like most of the 3rd quarter, I finally told him the actual terms of the sponsorship. When I was done, the phone went silent for a few seconds. He then said, “Oh! Good job!” and hung up.
A week later he called on another matter. It was like the previous Friday scream fest never occurred. He was perfectly pleasant. Then he told me in no uncertain terms, “I am appointing you to the board of Massive Interactive. You will represent Southport.”
I had heard of them through Jeff. It was his deal. This was awkward.
Now, I didn’t have the faintest idea what they did. I knew that they were in London and they were a tech company. I didn’t even get a chance to ask about them before he hung up. A few minutes later the corporate resolution came via e-mail appointing me to the board.
Less than a week earlier he was calling me a fucking idiot. Now he is appointing me to the board of another company.
This was getting kooky.
In early December I received a call from Rob McGraw. I liked Rob. He was very smart. In the few interactions I had with him he came across as a rational voice in an increasingly irrational place.
But I wasn’t prepared for this.
Rob wasn’t much for chit chat in my brief experience. He got right to the point and asked point-blank, “Hey, what is your plan to repay the vineyards debt?”
Confused, I answered, “Debt? What debt? There is the preferred stock — technically — but there is no debt. We are at the tail end of an audit… there is no debt here!”
That is when he told me, “The vineyard has $25 million in debt. We need a plan for how you are going to pay it back?”
“Rob!” I continued, “There is no debt on our books. Southport owns this place free and clear! We have had auditors and an audit prep firm here for over 6 months. There is no debt. This has to be a mistake.”
He was insistent. I was dumfounded.
The conversation ended pretty much there. He insisted the vineyard owed $25 million. I was sure it didn’t. He didn’t offer details. He wouldn’t even tell me who held the debt.
This had to be a mix-up. Weird stuff regularly happened at Southport which no one could or would explain. But my position was clear. There was no debt.
2013 ended with Alex and me alone out at the vineyard’s estate house. Alex had been there for a few days between Christmas and New Year’s.
He had chartered a private jet to fly his girlfriend and her mother and thier dog to Long Island for few days. I got there at about 1:00pm on December 30th. The girlfriend, mother and dog had left earlier in the day. Back on the private jet I presume.
When I showed up, I was happy the house wasn’t a pigsty. I chalk that up to Alex having his girlfriend and mother visiting.
Alex had told me he was leaving the next morning to head back to the city. Good. I had a fair amount on my agenda and many issues were coming to a head. All required Alex’s sign off.
Even more important Alex had given me permission to have my wife and two sons out to stay at the house for New Years Eve. As long as nobody went into “his room.” That was weird.
Once Alex was gone, my wife and two sons (ages 15 and 18) showed up. Our son, Reid, was still on crutches awaiting surgery in early January. The vineyard house had huge couches (Reid is 6'7") so he would be very comfortable. Besides, he needed a change of scenery. He had been stuck inside our house since his injury in November. Alex, our oldest had already finished his first semester of college.
Once they arrived, I was looking forward to a fun New Years Eve of good food, good wine and cut-throat card games.
But before the fun could begin, there was business to attend to. I had a long list of open items I needed to run by Alex who was in an extremely gregarious mood. He was also chain smoking cigars from his humidor in the wine cellar.
First, we executed the merger documents between the vineyard entities and Premium Beverage Group Inc, (“PBEV”). Alex signed as the seller. I as President of PBEV signed as the buyer. The vineyards were now a public company and I was the Chairman, President and Chief Executive Officer.
Alex found that worthy of opening a good bottle of wine. I suspect it was not his first of the day. He offered me a cigar. But I passed. Cigars and I have a long and antagonistic history.
Next, I needed to nail down the documentation from the preferred stock we issued in August. To my surprise and great relief… he told me he was going to cancel it and issue common stock in its place.
Fine with me. Cleaner too. Cross that off the list.
Finally, I told him about my call from Rob McGraw a few weeks earlier. So, I asked Alex straight out.
“Does the vineyard have $25 million in debt to repay? We are a public company now. That changes everything from a valuation perspective,” I said.
Alex’s response was memorable.
“Richard, whoever told you that there is $25 million in debt here doesn’t know what they are talking about! There is no debt.”
Oh boy. If I only knew
Next: I hate my insurance companies.
LinkedIn: Richard D Bailey