hackoff.com: Chapter 12 - In Play, February 26 - May 28, 2002

Larry, Donna, and Dom are discussing outsourcing to Jenin Associates. Larry has explained that they work very cheaply and are willing to do a trial job with payment depending on satisfactory completion.

“You know, Larry, a year ago I would’ve been against it on principle,” says Dom. “I mean it is easier for me to control all the programming if it’s done here. And there isn’t a better team anywhere. Price-per-hour doesn’t mean a lot either, because we know a good programmer can be fifty times as productive as a mediocre coder. And bad programmers are a negative — they take you backwards…”

“But?” asks Donna gently.

“But, there’s more work for the core group here than it can do. Monitored Service needs lots of tweaks. Staying ahead of the hackers is a bigger and bigger job, even for us. I’d take some relief if we can get it. And I know the pressure we’re under; I do understand that we have to manage for profitability…”

“You hardly sound like a phreak, anymore,” says Larry. “Phreaks don’t ‘manage for profitability’. You sure you can still do your job?”

Dom pauses, looks, sees Larry is smiling. “Yeah, well, way it happens. There’s no one could do it better. But, you know, I do understand this profitability thing. When the rules of a game change, they change. Can’t just whine about it. Got to learn the new rules fast and win. Nothing new about that. So, anyway, I can see doing the outsourcing thing. Even willing to believe we could manage these guys remotely wherever they are. Hope they don’t strap on a belt in the middle of a job and go blow themselves up at a bus stop.”

“Supposed to be, we give them jobs, they don’t feel like blowing themselves up anymore,” says Larry. “At least it’s supposed to work that way.”

“So now Dom’s ‘managing for profitability’ and Larry’s a do-gooder,” says Donna. “This mean everybody’s growing up? Might not be fun to work around here anymore.”

“Seriously, Donna,” says Dom.

“It’s okay Dom. I was just kidding. I like working with you guys. I like where we’re going with this. I just wanted to give you some shit for old time’s sake. Go ahead with what you were saying; don’t pay any attention to me.”

“So,” says Dom. “I can see doing this, I really can; but…”

“Smart guy once told me ‘disregard everything before the “but”’,” says Larry. “What do you really want to say?”

“Security’s the problem. I mean we can’t lose control of any of the source code. We can’t have anybody outside knowing how the shit works. Too dangerous. What’s to stop these guys, once they know how we do it, from turning into super-hackers, financing a whole jihad by raiding our customers. Nothing against them but…”

”I even worry about the code here,” says Larry. “I know what you’re saying. So what could they do without any source code?”

“Here’s what I’ve been thinking,” says Dom. “It’s like you’re reading my mind. There is stuff could be done without the source code. There’s UI and administrative stuff that I give the newbies before I have real confidence we’ll want to keep ‘em. Don’t need the source code for that.”

“Even having them do the UI scares me,” says Larry. “Sure, we don’t show them the source code and that’s good. But it runs at the customer sites so suppose there’s a Trojan horse in it? Suppose they can use that to open a back door?”

“Right. Had the same thought. So that leaves the administrative stuff that runs here. The crap for Donna — no offense. We already make sure there’s no connection between the administrative systems and the security systems. They’re on different networks that don’t talk to each other.”

“Right,” says Larry. “That’s safe, but do we have enough of the administrative stuff to make a difference? Is it worth doing? I don’t think so.”

“You’d be surprised,” says Donna. “There’s stuff I don’t even ask for that could help us control expenses, collect bills, analyze customers, measure marketing, control salesmen — well, maybe control salesmen. Anyway, I don’t ask for it because I know Dom hasn’t got the horses to do it with what else’s on his plate. And there’s gonna be more we have to do because of Sarbanes-Oxley. I think we can find some administrative jobs to try them out on and, if they’re good and cheap, there’s more.”

“When I think about it,” says Dom. “There’s some UI they could do, too. The stuff for the website. That’s in its own firewall; doesn’t run at customer sites. Doesn’t run here either. If they’re good at the administrative stuff we could give them some of that.”

“Dom,” says Larry. “I really appreciate the way you’re thinking. I want you to do one more thing for me, though.”

“Sure, Lar, what?”

“Put your hacker hat back on. Be as bad as you can. Think if there’s any way we can get burned, or our customers can get burned from this. If you were the guys in Jenin, how could you use this to crack us? Tomorrow, if you can’t think of anything we can’t guard against, then we’ll give it a try.”

“You got it,” says Dom. “Gotta go play racquetball. See ya.”

“Since when did Dom play racquetball?” asks Donna.

“Beats me,” says Larry. “Used to not want to be in the court because of the claustrophobia but he got over that. Says it’s a new game.”

“He’s saying that a lot lately.”

“Yeah, but still a game. Once a hacker, always a hacker.”

“What about you?”

“I was never really a hacker — not like Dom,” says Larry. “I play my games. I was good. Dom is the true hacker.”

“Whatever,” says Donna. “Whatever’s going on is good. I think maybe you’re right: we can get out of being in play. We can make all this work. It just takes a little longer than we thought. It’s starting to be fun again.”

“Glad you feel that way,” says Larry. “Keep it up.”

From:         Donna Langhorne
Sent:         Thursday, March 14 8:52 AM
To:      Larry Lazard; Dom Montain; Rachel Roth
Subject: Meeting with Condor Partners

Larry Lazard and I met with Condor partners at their offices in Manhattan yesterday. Hal Slozik, managing partner, and James Williams, associate, from Condor were there for the whole meeting. Partner Helen Curtis was there for the first half hour. Told us in the beginning that she’d have to leave early.

Slozik was visibly bored during Larry’s pitch. Frequently checked his Blackberry. Curtis paid attention as long as she was there. Williams was the only one to ask questions during the pitch. Most seemed to be just for general understanding. He’s pretty dumb and didn’t understand much.

Curtis did ask if there was anything that differentiated us from antihack. Larry told him about the equity strategy. I told him about our technology lead and patents. Curtis said that he heard that the technology was identical. We showed him the slide again on how we’ve been able to protect our customers faster and better but he said that, as far as they were concerned, they couldn’t see any real differentiation. I pushed on the patents which antihack clearly doesn’t have but Slozik got impatient and said to go on with the presentation, then tuned out again.

At the end, Slozik refocused and asked how much we wanted for the company. Larry told him that’s not the way we’re doing the exercise. He explained that we’re doing the pitch to those who have shown interest, then soliciting expressions of interest including a bid from those who have interest.

Slozik asked how much the company is worth. I told him that depended on what someone was willing to pay but we weren’t going to let it go for a price below what we thought it was worth. Would get best value for shareholders whether that was through a sale of by continuing to run the company.

Slozik asked what was the minimum bid, then. Larry said we’re not answering that question. To some degree depends on what happens with the company in the next couple of months as we look at our own results, which are looking up.

Slozik said he thinks we’re not serious. Either we want to sell or we don’t. He’s heard lots of these pitches and everybody always talks about intangible value but he knows people who come pitch to him are sitting on a business that’s losing value.

Larry said maybe we’re at the wrong place, then, because we’re gaining, not losing value. I pointed out the good things that are happening with cash flow.

Slozik said maybe we are at the wrong place but not from what he hears. He hears we need to get out, be private. Maybe the company succeeds, maybe the assets just get sold. Doesn’t matter to him. He’s not going to buy anything except at a good price and then he’s going to get his money’s worth out of it. That’s what they do. Happy to pass on something if the price is too rich. Never looks back if he does. Doesn’t care if he should have paid more. But, when they buy, 99% of the time they get their money out and more. Don’t forgive themselves if they overpay.

He said he knows someone at Barcourt. He’ll talk to him, find out what he needs to know, then he’ll make a bid or not make a bid.

Larry said he presented the information that’s available for those who want to make an expression of interest. Also pointed out that, since we’re public, more information is available in our filings.

Slozik had Williams show us out.

It is obviously important that Barcourt remember that it is hackoff they are representing here. I don’t know whether there are other dealings between Barcourt and Condor or whether Slozik will actually contact anyone there but Barcourt should not give Condor any additional information without explicit approval from hackoff management.

Donna

From:         Rachel Roth
Sent:         Thursday, March 14 9:52 AM
To:       Larry Lazard; Dom Montain; Donna Langhorne
Subject: RE: Meeting with Condor Partners

Of course, Barcourt is representing hackoff in this transaction. We are fully aware of that. I’ve checked and Condor and Barcourt have been involved in deals together. One of our partners also plays golf with Slozik. Our Chinese wall is firmly in place so, obviously, there is no leakage of information between the teams working with the two entities.

Frankly, I wish I could have been on the call. I am familiar with the way the buy-out firms work and may have been able to make the presentation go more smoothly. Nevertheless, I consider it a good sign that they said they’ll get back to you after checking with Barcourt. They don’t usually say this unless they mean it. Perhaps we’ll learn more about their level of interest when they call us. If so, we’ll be sure to pass it on to you.

From:         Rachel Roth
Sent:         Thursday, March 14 9:58 AM
To:       Larry Lazard
Subject: RE: Meeting with Condor Partners

I don’t want to “rub it in” but I know it was Donna who insisted I not be allowed to accompany you on the call. I really do believe I would have added value with this important prospect. I also resent her insinuation that we might act unethically and reveal inappropriate information to Condor.

From:         Donna Langhorne
Sent:         Thursday, March 14 9:58 AM
To:       Larry Lazard
Subject: RE: Meeting with Condor Partners

Yeah, right, she would’ve made the meeting better. That was just what we didn’t need. Notice that there’s a “Chinese Wall” but they’ll tell us what they hear from Condor. A Chinese Wall means they’ll tell both sides exactly what it’s best for Barcourt to tell us. Maybe we can figure some way to use that to our advantage.

From:         Larry Lazard
Sent:         Thursday, March 14 10:00 AM
To:       Donna Langhorne
Subject: RE: Meeting with Condor Partners

Cool it; she’s doing her job.

From:     Larry Lazard
Sent:     Thursday, March 14 10:01 AM
To:       Rachel Roth
Subject: RE: Meeting with Condor Partners

Cool it; she’s doing her job.

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