The weary chief executive was just days away from a heady occasion. John Becker's software firm, Axent Technologies Inc. of Rockville, was about to sell shares to the public for the first time. He was meeting with a grueling procession of investors, gutting out the traditional "roadshow" that precedes an initial public offering.
Then, through the fog of sleep deprivation, things got surreal: His secretary was saying something about the Fonz, who was trying to reach Becker on the phone because he wanted a piece of the IPO. Yes, the Fonz, a k a Arthur Fonzarelli, the self-assured leather from "Happy Days." Or at least the guy who played him on TV, actor Henry Winkler.
This is not an apocryphal story about the bull-market '90s. Winkler had an angle to work--even though he'd never met Becker before. Hot IPO deals are seemingly everywhere, and would-be investors are dogging CEOs with increasing chutzpah. This includes aging television stars with rusting fame to leverage.
Becker's secretary was beside herself. "Henry Winkler is looking for you," she told Becker after tracking down her boss on the road. He found time to call Winkler back "only because I thought it was a joke," he said.
It was not. The two men spoke for about 15 minutes. Winkler was "incredibly nice and incredibly pleasant," Becker recalls, sounding oddly star struck for a man of 41. Winkler explained that his wife, Stacey, was "fascinated by the Internet" and that she had been reading up on Axent. It looked like a promising play.
Winkler then popped the question: Uh, could he and Stacey maybe get on Axent's "friends and family" list? This is the select roster of people who can purchase company stock at an IPO's opening price. Shares of newly public companies--especially buzz-generating technology firms such as Axent--often spike higher in initial trading. So purchasing shares at the official opening price can be a coveted right, one that is controlled tightly by company executives and the investment bankers who manage their IPOs.
In most cases, these lists are dominated by company employees and clients. The shares are given out as plums to those who have been--or might be--important to the company's success. In addition, "friends and family," as the name suggests, extends to people with special connections to the company. The father of the chief financial officer, for example, or the boyfriend of a lead banker.
But the roster of supplicants inevitably will include those with no self-respecting claim to "friends and family" status. Known in some circles as "IPO whores," the species might include the CEO's third-grade teacher, the CFO's long-ago barber or the receptionist's obscure second cousin. They often emerge from the fringes just before IPOs, say executives who have endured such advances.
"The whole process brought chutzpah to a whole new level for me," said Rob McGovern, chief executive of CareerBuilder of Reston, which held its IPO last month. McGovern heard from a number of his high school classmates from his native Pennsylvania. "I'm 37, so this is going back about 20 years," he said. "Everyone wanted to get in on friends and family. And suddenly we were best friends."
Newly re-materializing "best friends" can include people the executive has never met before but whose name might hold some luster, such as Henry Winkler. Becker, himself a big "Happy Days" fan, figured he couldn't just tell the Fonz to "sit on it." He gave Winkler "50 or 100 shares, I'm not sure exactly how many."
Either way, "I'll bet he flipped," Becker said, meaning Winkler sold at a quick profit shortly after Axent's April 1996 IPO. Axent shares were initially priced at $14 and rose quickly to $24.
Reached through his publicist, Winkler would not comment about his dealings with Axent except to say he has only a vague recollection of calling someone at the company. It's not known if he makes a common practice of such calls, although some bankers say he and other celebrities are reputed to do so.
"The Winklers do not discuss their investments or their finances," said the publicist, Richard Grant. Grant confirms that Stacey Winkler is indeed "fascinated" by the Internet. ("Henry, on the other hand, knows zip about the Internet," Grant said).
It's also clear that while Stacey is the investor brains of the household, Henry holds the star power that gets them in the door. He sent four autographed Fonzie photos to Axent's Rockville headquarters after the IPO.
Those who have been around IPOs have their legions of "friends and family" tales, and many are not flattering to humanity.
They often involve nasty instances of greed, nerve and--inevitably--people feeling slighted. As IPOs approach, CEOs often appoint staff members whose prime responsibility is to process "friends and family" share requests.
Ultimately, top company officials and bankers decide who gets in, who does not and who gets how much. These are stressful decisions--sort of an executive analog to making a wedding invitation list--and they are often made just before a stock debuts, when tension is high and senses are raw.
"Companies have hundreds of requests that usually the CEO and CFO have to decide on when they are very busy and mentally exhausted," said Gene Riechers, who heads the venture capital group at Friedman, Billings, Ramsey Group Inc. in Arlington. Often, he said, "the allocations get screwed up and feelings get hurt."
"The night after we priced, I spent four hours going through our list and trying to make the math add up," said Raul Fernandez, chief executive of Proxicom Inc., a Reston Web services firm that held its IPO in April.
There is an "accepted IPO etiquette" that people should always follow, he said. It involves "being grateful just to participate, no matter what you get."
This would not include a prospective Proxicom client in Florida. He received an allotment of 2,000 shares, a decent chunk of the 225,000 shares Proxicom had set aside for non-employee "friends and family." On the first day of trading, the stock rose $6.50 above its $13 offering price. (Proxicom shares closed at $19.12 1/2 on Friday.) If the client sold at the top, first-day price, that would make a one-day windfall of $13,000.
But the guy in Florida was not satisfied. He had wanted 5,000 shares, and he called the company to complain the day after the IPO. He said something about how the bankers "didn't understand who [he] was," Fernandez recounts. "It was kind of a buzz-kill." Fernandez also heard from a long-ago co-worker whom he hadn't spoken to in four years. He was a former Republican congressman from the Midwest--he last served during the Ford administration, Fernandez said--and he called Proxicom's CFO a few days before trading commenced.
"He said, 'I'm Congressman So-and-So, and I know Raul,' " Fernandez said. The CFO, Ken Tarpey, sent him a special "friends and family" form to fill out, which he photocopied and distributed to several friends.
"That was over the line," Fernandez said. The former congressman was given 200 shares; his friends got nothing.
Friends-and-family allotments are not just executive nuisances, however. The shares can be useful currency in tight situations. In the middle of his roadshow, for instance, Fernandez chipped a tooth, and it made it hard for him to enunciate during investor presentations. He couldn't get an emergency appointment with his own dentist, but the dentist of his assistant agreed to see him early on a Saturday. The dentist got 500 shares for his trouble.
Many of the more shameless friends-and-family queries seem to involve doctors. A few weeks before his roadshow was to begin in September 1997, Tim Davenport, the chief executive of Best Software Inc. in Reston, was in the Falls Church office of a podiatrist he had never seen before. Davenport's feet had been killing him for a year, and he figured he should get them checked out before the roadshow. As Davenport lay on his back, the podiatrist held his feet three feet over his head and diagnosed tendon problems.
Then, after some discussion, it became apparent what Davenport did for a living and that his IPO was coming up. The podiatrist got down to business.
"He excitedly claimed that he had just heard about our upcoming IPO on the radio news during his drive to work," Davenport said. The podiatrist was "very direct" in asking for shares, the CEO said. The answer?
"How do you say no to a doctor who has your aching feet held over your head?" Davenport asks. The podiatrist got a few hundred shares.
Regis McKenna, a venture capitalist and longtime Silicon Valley marketing guru who has been close to many IPOs, had a case of tennis elbow a few years ago. He went to an orthopedist for a cortisone shot--never saw him before--and was promptly hit up for shares. McKenna politely said no. "The guy continued to send me e-mails regularly," McKenna said.
Won't You Share With Me?
When word got out that Proxicom of Reston was about to launch its initial public offering, chief executive Raul Fernandez received a range of requests for shares at the offering price; among those who asked, and received, some of the 225,000 shares set aside for "friends and family":
The prospective client.
He wanted 5,000 shares but got 2,000 instead. He wasn't happy. One-day windfall: $13,000.
The former congressman.
He was once a co-worker of Fernandez's, but hadn't spoken to him in four years. He got 200 shares. One-day windfall: $1,300.
The emergency dentist.
He didn't know Fernandez, but he made an emergency repair on the CEO's chipped tooth. He got 500 shares. One-day windfall: $3,250.
Raul Fernandez the jeweler is not related to and had never spoken
to Raul Fernandez the CEO. But he thought it was an opportune time to call. He got 200 shares. One-day windfall: $1,300.
The stock rose 50 percent on April 20, its first day of trading, from the $13 offering price to $19.50. Yesterday it closed at $19.12A
SOURCES: News reports, Bloomberg News
CAPTION: Raul Fernandez, owner and president of Express Jewelers of Arlington
CAPTION: While reserving IPO shares for "friends and family," Axent Technologies CEO John Becker gained some new friends, including Henry "The Fonz" Winkler.