Chicago Tribune Barbara Rose Column
May 10, 2001 (Chicago Tribune - Knight Ridder/Tribune Business News via COMTEX) -- MAD, SAD WORLD FOR MARCHFIRST EX-CFO, BANK: It's rarely a good sign when a chief financial officer quits.
That's why departing CFOs usually leave quietly, like guests slipping out a back door.
Not so with Michael Salvati, the CFO MarchFirst Inc. recruited when the now-bankrupt Internet consultancy couldn't pay its bills two months ago.
Unlike most CFOs, Salvati took pains to make his exit dramatic. And he wanted to make his reasons for quitting crystal clear.
The resignation letter he faxed to MarchFirst's board from a London hotel at 3 a.m. on April 24 is unusual. For starters, it's the only handwritten document among hundreds of pages filed in MarchFirst's bankruptcy.
In it, Salvati's anger rings loud and clear, despite the thin veneer of civility that keeps legal proceedings orderly when people get really hot.
It's as though he jumped to his feet during a difficult moment in a chess match and belched loudly in his opponent's face before tipping over the board.
To understand his apparent aim -- to chastise MarchFirst's biggest creditor, American National Bank, while vindicating himself and MarchFirst's board -- requires some history.
Salvati is, by all accounts, a cool professional. His specialty is workouts--a euphemism for making the best of a situation when a business heads south.
Banks give their workout units names like specialized asset department and managed asset department. The acronyms are appropriate: SAD and MAD.
By the time MarchFirst hired Salvati on March 5, American National was feeling sad and mad.
Who could blame the bank? Its prospects for recovering $53 million it had loaned MarchFirst didn't look good.
But the bank reasoned that if it worked with Salvati, it stood a better chance of getting more money back than if it forced MarchFirst into bankruptcy.
So the bank agreed to extend its March 15 loan due date in exchange for certain pledges, while Salvati set to work to raise money by selling business units here and abroad.
By early April, the bank had been paid $13 million, and it had been granted liens on all MarchFirst assets--giving it first dibs ahead of a raft of smaller unsecured creditors.
But there was a catch. A big one. The bank's agreement stipulated that it couldn't "perfect" the liens until April 13, a process that makes them legally valid.
Just one day before the bank could stake its claims, MarchFirst declared bankruptcy, leaving American National owed more than $40 million.
That made the bank even sadder. And a lot madder.
The legal wrangling escalated. Arguments extended to such issues as whether the bank would object to MarchFirst paying "stay bonuses" promised executives to keep them from quitting, or covering medical claims that were incurred but not filed prior to the bankruptcy.
Salvati also had lined up deals to sell MarchFirst operations in Europe, which weren't included in the bankruptcy. He had more than a passing interest in seeing those deals close.
Salvati stood to get a percentage of the sale proceeds, according to sources familiar with the matter.
But the sales required the bank's cooperation. And the bank was mad.
Judging by his letter, Salvati was equally angry. He sat down in the predawn hours in Room 533 of London's Hotel InterContinental to end the unpleasant checkmate by resigning.
"I have attempted to reach a consensus ... with American National Bank," his letter states, but the bank's "response has been contentious and threatening to me personally and to the company."
A bank spokesman said the lender can't comment on matters involving customers. But Salvati's words suggest that the bank threatened to sue him and MarchFirst's board. Salvati, for his part, didn't return calls seeking comment.
When he declared "game over," MarchFirst's board bowed out, too. The company converted its Chapter 11 bankruptcy to Chapter 7. A court-appointed trustee will manage the liquidation.
It's unclear whether the pending deals will be consummated or how much money the bank and other creditors will get.
But one thing is clear. Everybody is mad.
By Barbara Rose
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(c) 2001, Chicago Tribune. Distributed by Knight Ridder/Tribune Business News.
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