He stole my company. Could he steal yours?

In the frantic pursuit of one’s dream, an entrepreneur might not always be on the lookout for ambush attempts. That doesn’t mean they are not there. And the more successful the business becomes, the more likely it is to be the target of a hostile takeover.

I should know. I ran a successful business. Well, it was a start-up, but the orders were coming in. We had CVS lined up. We had Walmart lined up. Walgreens was lining up, too, when … my business was stolen from me.

I made some mistakes, and those cost me dearly. I avoided some traps, and that was my saving grace, why I am still in the ring taking and giving punches.

I don’t want somebody to steal your company from you. Let me share with you the lessons I learned the hard way.

DATELINE: 2007

The pain! The unspeakable pain, like a big rubber band snapping. It was a freak accident, but it tore my medial collateral ligament (MCL) and my anterior cruciate ligament (ACL). My MCL was torn right off the bone. But what you really need to know is that I was in unspeakable pain.

Have you any idea how many companies were founded by unspeakable pain?

At the time, I was working for a health-related IT company. I was flying from one city to another, pitching senior executives of large health plans, Medicare and Medicaid, and state Medicaid programs.

I spent a lot of time in the air. I passed through airport security over and over and over.

Do you know what happens when the TSA sees that your knee brace sets off bells and alarms? They offer a friendly strip-search, just in case “you may have razor blades taped on the back of the brace…” As if it wasn’t bad enough that the swelling hurt. And that the swelling caused the brace to “pop” (more pain). And that the popping brace caused the Velcro straps to cut into the back of my leg (more pain).

Pain and swelling were the problem, but what was the solution? I needed something to reduce the swelling. It had to be odorless (you don’t want to stink on a plane) and would stay cool for hours.

DATELINE: 2008

So I created Arctic Ease, a solution to my problem. Like any good entrepreneur, I identified a market larger than one person. I knew I could help people suffering from arthritis, strains, sprains and injuries. The products we began creating would potentially prevent brain damage from cardiac arrest, drug overdoses, strokes, traumatic injuries and surgeries. We also thought we could prevent heat-related injuries and deaths.

From my own pain, a solution came to help so many other people avoid pain.

But first, we had to get a few things right. Every start-up has to have these five essentials:

  • Good saleable product(s)
  • A strong team
  • An effective marketing plan
  • Legal protection
  • Access to capital

I wish I could say that we did everything right. We did set things up legally for growth. Summetria, LLC, was founded as a holding company. All patents, trademarks and other intellectual property were in Summetria’s hands. This would allow us to roll out several companies, each with its own line of products targeting different niches. We had the legal covered.

I invested ~$2 million over two years — my entire life savings, including my IRAs. By 2009, we had equity! We had the capital covered.

DATELINE: August, 2009

And we had manufacturing covered. Well, at first. After a lengthy search for the right facility, I got the keys to our new Phoenixville, PA, plant in my hands. But it was just a building.

The first employee I hired was to help prepare the building for business: making repairs, epoxying the floor, painting walls and making space for the custom-built production lines we would soon be ordering.

DATELINE: September, 2009

I found substrate, or material, thanks to Dennis James of Antex Knitting Mills in California. When dipped in the right chemicals, it becomes the Arctic Ease cold wrap. It was clean and white and just the right absorbency.

DATELINE: November, 2009

I met our future COO. He had begun packaging small items for his father’s business at the kitchen table. That company became a top contract manufacturer for pharmaceuticals, cosmetics and consumer products. He became CEO after his fathers death. They had been manufacturing and packaging toothpaste, lotions and pharmaceuticals for decades.

We talked about his ability to help build a state-of-the-art production facility. He introduced me to his sister, who had managed production and operations at the family business. He also introduced me to an engineer he said could build and repair any production equipment. At the time, he didn’t say anything about breaking or modifying any production equipment. When asked directly about any history of FDA actions in his past, he replied that the family contract manufacturing business never had any FDA issues.

I was excited. We had a production team.

I had just made two huge mistakes. First in hiring them. It seemed like getting a whole team in one shot was a huge efficiency. But it is better to assemble your own team, so that it is your team, rather than bring on people whose loyalties will be first to each other and second to the company.

The second mistake was offering 9 percent of the company’s stock as part of the deal.

DATELINE: July 16, 2010

We ordered a custom-built treatment line and equipment to convert these master rolls into individual sized Arctic Ease Cold Wraps. Ironically, this machine from Azco had been built to make paper towels and toilet paper rolls. It could handle small roll conversion with hundreds of starts and stops each day. We soon discovered that the treatment line was twice as fast as the converting line, so we bought another converting line.

Until the equipment was delivered, we were the machines. We hand-dipped the substrate with enthusiasm. We used laundry racks for drying. We cooked the chemical solution in crock pots. We used aquarium pH test kits.

We used the first product to:

  • display at trade shows
  • pitch stores for retail stocking
  • sponsor the Chicago Marathon and the Philadelphia Marathon

It was the marathons that brought the first challenge. We needed 80,000 samples to stuff the swag bags. That was the exciting part!

DATELINE: July, 2010

Heavy machinery rumbled in: mix tanks, pumps, a commercial boiler and industrial air compressors among them. Meanwhile, custom-built control panels were being assembled for the mix tanks.

We began discussions with both CVS pharmacy chain and SuperValu grocery chain for national retail stocking. This is the moment that makes an entrepreneur almost as giddy as seeing the first product roll off the lines.

DATELINE: August, 2010

Our COO felt we needed a part-time Quality Assurance person on the team, so we hired the one who had previously run the QA Department of the former family business.

DATELINE: September 1, 2010

SuperValu sent us their purchase orders.

DATELINE: September, 2010

Both the treatment line and the converting line arrived. It was time to test the equipment and work out the kinks. It took a while. The first product was not suitable for sale.

While in final pricing discussions with CVS, the chain suddenly stopped buying new products. In fact, they returned stock to existing suppliers. As disheartening as this was, it turned out to be a blessing in disguise.

DATELINE: October, 2010

Dennis recommended changing substrate supplier. Our treatment line could handle 60" material, but we were running only 48" material through it. We could boost production by 25 percent by using a North Carolina mill he knew. Dennis brought Ray Starker in as his partner, in the event that anything ever happened to Dennis we would be covered with supply of the wider substrate.

DATELINE: November 21, 2010

The Philadelphia Marathon had arrived. We were sponsors. In the post-race massage tent, we prepared to wrap the runners. But as we opened one after the other of our packages, I was heartbroken. All had grown mold.

Back in Phoenixville, we scrubbed everything with bleach: the floors, the walls, the ventilation system, the machines. We found that the biocide used at the new substrate mill might have been an issue, and when that was corrected, the mold issue was fixed.

But there were other problems:

  • Some wraps had mold-like finger prints.
  • Packages had water in the bottom.
  • Wraps had excess gel.

Our COO was to take it up with the production team. Meanwhile, we opened the wraps and removed the gel from the package before heading into meetings with retail buyers.

DATELINE: December 31, 2010

Our start-up made $275,000 in 2010, on the strength of orders from SuperValu, Amazon.com, DrugStore.com and some regional pharmacy chains. So much turmoil, but still a successful first year.

DATELINE: 2011

We established the Arctic Ease brand through a very simple strategy and a lot of elbow grease. Every weekend, we hit the road. From Thursday to Sunday, we set up tents at finish lines, wrapping sore runners. Bloggers began to write about us, and runners came to know us.

We spent the rest of the week at medical events, trade shows and meeting retailers. The results were impressive, and the list of stores that agreed to stock Arctic Ease still takes my breath away:

  • CVS.com
  • Academy Sports
  • McKesson Canada
  • Overwaitea Foods
  • Kohl & Frisch Wholesalers,
  • Kinney Drugs
  • AHOLD grocery banner stores
  • Giant Eagle
  • Meijer
  • Value Drug Stores
  • Shoppers Drug Mart
  • Dunham Sports
  • Imperil Distributors
  • Dick Sporting Goods
  • Cardinal Health
  • Dik Drugs
  • London Drugs
  • Sears.com

DATELINE: June, 2011

Based on consumer feedback, I decided to introduce red, blue, black and pink wraps with the Arctic Ease logo on them.

DATELINE: July, 2011

I began pitching the two top hospital buying groups, VHA and Novation. 2011 was the year that Arctic Ease would go mainstream.

DATELINE: September, 2011

We filed for EU certification to expand our market overseas.

DATELINE: October 30, 2011

Back in June, we knew we would need more capital if we were to make and ship so much product. So Dennis introduced me to Bill Cohen of Dillon Yarn. His reaction would remain with me for a long time:

“This is the best use of cotton that I’ve seen in a long time.”

It took several meetings with Bill, Dennis, Ray and Mitch Weinberger of Costar, LLC., but finally a $3 million capital raise was arranged through Costar.

DATELINE: November, 2011

The first blue sports wraps rolled off the line. It was an exciting moment. As an entrepreneur, can you imagine the thrill to hold in your hands the first of a new product?

DATELINE: December 31, 2011

We ended the year with sales of $575,000. Not bad for a second year of operations.

The Devil is in the details

DATELINE: January, 2012

November’s euphoria was short-lived. There were serious quality control issues. Many of the first run colored wraps were defective.

I opened a black-colored wrap when meeting a marketing agency to find a watery, moldy mess. The next day, I asked our COO to quarantine the entire pallet.

“I’ll take care of it,” he said.

The next day, the pallet disappeared.

On January 11, our QA man did an acceptable quality limits (AQL) test on three lots. Based on those results, our COO informed me that our product was acceptable.

19 days later, he did another round of AQL tests. This time, lots were failing at rates of 34–86%

Suddenly we were missing something essential: good saleable products. I was crestfallen.

DATELINE: January 31, 2012

I asked our COO about how the bulk liquids in the manufacturing were processed. He blamed the problem on the “manufacturing, dyeing, printing or application of the biocide”.

‘….The root cause lies within the production process and needs to be addressed on their end (meaning the mill). There is nothing Arctic Ease can do to fix their problem. More importantly, we have been not been provided any identifiable test to flag the problem, prior to going into production here. Bottom line, we are at the mercy of finding out there is a problem after it’s too late.’

I spoke with our COO. I spoke with Dennis. Nobody had an answer. I knew I needed help now, not in six months. If the COO we had could not fix the problem, I needed somebody who could. I reached out to everybody I knew for somebody with senior manufacturing and/or plant management experience. I had to fix this before we started losing customers or word leaked out to the trade.

I also had to cancel meetings that our broker had set up with national retail buyers. This would mean that shipping to 30,000 retail stores we were poised to supply had to be put on hold.

DATELINE: February, 2012

I called on General William ‘Gus’ Pagonis, a retired three-star Lieutenant General and a member of Summetria’s unpaid advisory board, to help me choose the right candidate. General Pagonis was the director of Logistics during the Gulf War of 1991. He is widely recognized for directing logistics during Desert Storm. I knew I could count on his advice.

DATELINE: February 19, 2012

With General Pagonis’ input, I hired an Executive Vice President (EVP) of Operations.

DATELINE: February 20, 2012

The new EVP was now in charge. He met with every employee and studied each of his or her roles.

DATELINE: March 1, 2012

The COO wasn’t happy that we hired an EVP and he was not very cooperative. At his request he was given the choice of staying on as COO or becoming a consultant. The last we saw of our COO was March 24, when he walked out of the building of his own accord, and yet…he still had a role to play. After all, he and his family now owned about 20 percent of Summetria stock.

DATELINE: March, 2012

We slowed down the plant to 1/8 capacity, with me standing on the treatment line. I did calibrations by hand to ensure that the tension on the substrate would do minimal damage in the treatment process and the right amount of chemicals was applied. Meanwhile, we had other work to do:

  • Repair equipment
  • Attend customer meetings
  • Run an internal investigation
  • Assess how to rebuild our production capabilities

The investigation didn’t take long. It found that:

  • Staff had not been adequately trained.
  • Job responsibilities were often unclear.
  • Poor layout was making inefficient use of space.
  • Incoming substrate was not tested before being processed.
  • Basic pH testing had stopped when we first went into full production.
  • We had incomplete standard operating procedures for quality control.
  • We had no standard operating procedures for production and warehouse operations.
  • Both raw materials and finished product were scattered haphazardly around the plant.
  • We did not have enough production staff, and the COO refused to recruit or interview more.

DATELINE: March 21 2012

The final report read like a horror story, like the perfect storm of events that freed the dinosaurs in Jurassic Park.

· The ‘Birch’ machine was badly damaged.

· Our custom treatment line was badly damaged.

· Wiring, pneumatics and programming had been altered.

· The Azco converting equipment had been rendered inoperable.

· The Birch machine would not run without opening an electrical panel and resetting a 480-volt circuit breaker.

· The latch had been bent to keep the electrical panel door working. This was in a wet area, with a pregnant employee working the machine.

Meanwhile, we engaged a chemist at the Philadelphia U College of Engineering to do some testing on the custom milled substrate. The results made me want to bang my head through my desk. The substrate was acidic.

The mold on the white wraps in November was due to the acidic pH level of the water. When we switched mills from California to North Carolina, we got more acidic water. The biocide fixed most of that problem with the white wraps. Most. The water in the pouches was from the product still breaking down from the low pH level.

When we switched mills to the more acidic water in North Carolina and added dyes to the substrate, the biocide wasn’t enough. The colored wraps got moldy and broke down even faster than the white wraps had.

Had we been testing for pH, as our operating procedures called for — had we even had standard operating procedures — we would have caught this right away.

I reflected on my choice of COO. He had grown up manufacturing toothpaste, cosmetics and pharmaceuticals. PH testing should have been routine for him.

With much of our machinery either inoperable or jerry-rigged unsafely, and pH testing suspended since we went into full production, no wonder we had quality control problems. It was a miracle that we had not had a serious injury on the job.

DATELINE: March 21, 2012

The Board of Directors was no happier than I was to read the report on the cause of our quality problems. The conclusion: we would need to borrow $1 million to repair our custom-built equipment and get it operational, to restart manufacturing, and to operate the plant long enough to get product to market and start earning revenue.

Or we would have to shut down the company, and every one of us lose our investment.

Now we were missing a second essential: access to capital.

DATELINE: April, 2012

That doesn’t mean things weren’t happening. The company executed a cooperative research and development agreement (CRADA) with the US Air Force. It was for a clinical study of how “New Cooling Technology” could enhance battlefield airmen. We agreed on a 3-year research plan and immediately began working on the cooling shirt clinical study and fabrication of test shirts.

DATELINE: May 17, 2012

The engineer detailed in writing all the modifications he had done to damage our equipment. We fired him shortly after that.

Some of the electrical wiring damage to the Azco Equipment and unsaleable Arctic Ease wraps as a result of the damage to the equipment

The Azco team found so much tampering that they were rendered almost speechless.

I spoke with some of the production team members. They knew there was a problem with the black wraps in production. They could feel the difference in the product. They had been threatened; anybody who told me what they saw would be fired.

Remember that Lucifer was an angel, too.

DATELINE: June, 2012

Knowing that the company needed capital to fix the equipment and get it operational, Bill Cohen agreed to meet with the EVP and myself.

We met at Bill’s office to discuss the proposed loan. Here is who else was there:

  • Ray Starker of Costar, Bill Cohen’s proxy on the Summetria Board and co-owner of Miller Ryan Textiles
  • Mitch Weinberger, COO of Dillon Yarn and Costar Board member
  • Dennis James, Substrate supplier, owner of Miller Ryan Textiles and Costar Board member

Bill agreed to loan the company $1 million. We had an angel on the Board!

His condition was that the loan be secured with five percent of my equity in the company as a backstop. He also demanded a personal guarantee from me and a guarantee from Summetria. Uh-oh, maybe not quite an angel.

This was an unusual move, for one Board member to loan a company money with another Board member’s personal guarantee and her equity as a backstop. Bill and Ray also wanted to be kept up to date on developments with the company.

I was not happy doing this. Rebuilding this company would take everything I had. Now, Bill was asking for a personal guarantee. If I walked away, every shareholder would lose it all, the employees would lose their jobs and the trade vendors and our bank would take heavy losses. What choice did I have?

I was willing to work around the clock to keep customers, rebuild internally and come swinging out the gate to get the company back on track.

I went straight from this meeting to the phone. “Come get our machinery. We have money for the repairs.”

But that night, I didn’t sleep well. What price had I paid?

DATELINE: July, 2012

Even as repairs were being made, we could still produce product, albeit on a limited scale. When I was available to manually calibrate the application of the chemical solutions, we were running the machines again.

I was not always available. I began scheduling meetings with national retailers to start stocking by late 2012 and early 2013. We upgraded the packaging of the Arctic Ease cold wraps to a clear plastic bottle as part of our quality control.

DATELINE: July 4, 2012

Featured on the QVC home shopping network at noon, Arctic Ease cold wraps sold out in minutes. With a huge back order to fill, we used the old packaging.

DATELINE: December 17, 2012

The mood at the Board of Directors meeting was upbeat. 2012 had been a rebuilding year. Despite so many setbacks, we made $535,000 in revenue.

The Company was ramping up production, sales and marketing. We had fresh packaging ready, with plans to hit the ground running in the first quarter of 2013. Discussions had begun with a national sporting goods company to commercialize the cooling shirt. And other opportunities were on the horizon.

It was a rare moment of joy and hope. We were all smiling, even me. The wind was finally to our backs.

DATELINE: 2013

On January 2, CVS placed an order for another 4,000 of the 6-piece display units of Arctic Ease Cold wraps. This was followed in rapid succession by orders from:

  • BJs Wholesale
  • Brookstone
  • Select Nutrition
  • Longstreth Sporting goods
  • AAFES (Army- Air Force Exchange Services)
  • Big 5 Corp
  • Bargain Athletics
  • The Golf Warehouse
  • Vitamin Shoppe
  • Hibbetts Sports
  • McKesson USA

Yes, we were on a roll again! From November 2012 to May 2013, we were marketing and selling. First quarter revenues were $1 million. We began shipping to CVS and Walmart and Walgreens national stocking was on its way. We were testing the Arctic Ease cooling shirt with the US Air Force and a major sporting goods company.

Board members were aware of all this. Bill knew about it all.

This is where the “fun” starts.

DATELINE: February 21, 2013

We had already made our first shipment of Arctic Ease cooling wraps to CVS, and we needed to get marketing. We needed bridge financing.

Bill referred the company to his personal investment bankers, Larry Kaplan, founder and Managing Director, Alex Meshechok, Managing Director and Steve Berman, Managing Director of CSG Partners. The company and CSG signed an NDA (non disclosure agreement), as they would need all our financial records to prepare their pitch book. Larry and Alex told us we’ll have the bridge financing in 7–9 days.

DATELINE: March 6, 2013

It’s funny what you discover much later through court discovery.

Alex Meshechok, CSG Partners email to Bill Cohen of Dillon Yarn, Board of Directors member of Arctic Ease, LLC / Summetria, LLC turned over in Discovery

Bill had referred CSG to us, but at no time was he authorized to act on behalf of the company with them. In fact, as a member of the Board of Directors, he was going rogue. For its part, CSG was violating the NDA it had signed.

DATELINE: March 15, 2013

Larry and Alex decided to throw $100,000 of their own money toward the capital raise. They told this only to Bill, not to the company, once more violating the NDA — we found this out through the court discovery process.

Alex Meshechok, CSG Partners email to Bill Cohen adding their personal funds to the Arctic Ease / Summetria capital raise without company knowledge

DATELINE: March 18, 2013

The phone rang. It was Bill on the line. He wanted two new seats added to the Board. He wanted either Larry of CSG and Mitch of Dillon Yarn, or Alex of CSG and Mitch of Dillon Yarn.

No way! It’s a clear conflict of interest to have on the Board an investment banker doing a capital raise for the company. But I was outmanoeuvred.

At the time, I had no idea that both Bill and CSG were negotiating company business behind the company’s back.

DATELINE: March 28, 2013

CSG finally has the pitch book complete. So much for their promise to have financing in place within 7–9 days.

DATELINE: April 2, 2013

Larry wrote me on how well the capital raise was going, despite being well past the 7–9 days promised. “We received 100K in verbal commitments yesterday and another 100k today.” Unbeknownst to me, half of that was their own money.

The Angel turns out to be a thief!

DATELINE: April 5, 2013

Bill’s lawyer, Alan Rubin, and the company lawyer, J. Kurt Kline, joined Alex and me on a conference call. Alan wanted to put the company into bankruptcy. Talk about being blindsided!

Alex agreed, just three days after his partner had said, “Capital raise is going well.” This was both shocking and a breach of fiduciary duty, and I said as much.

DATELINE: April 8, 2013

Just three days after saying that the company should be in bankruptcy, Alex emailed me that “the financing process is going well.” In fact, he had so many commitments already and potentials lined up that “…we may be discuss either increasing the round a bit or cutting people back.”

Confused? I sure was.

DATELINE: April 12, 2013

I had to terminate the VP of Sales again; (Bill would later rehire and fire him), for violating company policy, not to mention turning in a very poor performance. He sold just $100,000 of product in the time I sold $1 million. Why is it so hard to put together a strong team?

As this was relevant to a capital raise, now even further past the 7–9 days promised, I called Steve Berman at CSG Partners to let him know. Violating the NDA, Steve called Bill and Mitch, who then called me. This was the first real hint I had that unauthorized and unethical discussions might be taking place.

Was I frustrated? No kidding! Nobody seemed to be playing by the rules.

Was I worried? Probably a little. Too many people talking behind my back and the company’s back when they shouldn’t be is not usually a good sign. I was probably not worried enough…yet.

DATELINE: April 16, 2013

I listened to Steve’s voicemail message. “… the capital raise is on hold until the former COO issue is resolved.” What?

DATELINE: April 17, 2013

My “What?” was soon to be answered.

At CSG and Alan Rubin’s request, Kurt and I met with Steve, Alan, Bill and Mitch at Alan’s office at Cole Schotz, his law firm. Steve and Alan explained that the “new shareholders” wanted Bill to guarantee their participation. They wanted their shares to be Class A shares. They never presented a term sheet or any details of who or what these investors were, nor the amount of capital they would be investing.

Steve and Alan then tried to sell Kurt and me on some pretty fantastic clauses to the capital raise. This was to be convertible debt with Bill as the holder of the note. The note included a personal guarantee from me for all funds. Yes, I was to be personally on the hook for whatever they were concocting.

Later on that day Alan, as Bill’s counsel, emailed Kurt, as corporate counsel, a release for every Board Member to execute, authorizing Bill to buy all the shares held by the former COO and his family. That was 20 percent of the company. He wanted the paperwork returned by April 18, 2013. This was an internal sale between shareholders and a Board Member, and the company had no opinion on it.

But how did this delay the capital raise?

DATELINE: April 18, 2013

All of the Board members executed the release that Alan had forwarded, so Kurt returned them to Alan.

DATELINE: April 23, 2013

My palms were sweaty. The bridge financing that CSG partners was supposed to have had in place by February was still nowhere in sight. I emailed Steve at CSG. I told him that on May 1, I had to make a do or die decision for marketing activities in order to preserve cash flow to cover payroll, rent, overhead, etc.

“Can I share this email with my cohorts and with Billy & Mitch?”

Why, I wondered. Neither of them had anything to do with the capital raise. It was none of their business. In my mind, some of the dots were starting to connect.

DATELINE: April 29, 2013

Another aggressive move? Alan emailed Kurt a new operating agreement and the convertible note, as well as personal guarantees and pledges that he and Bill want me to execute.

I read the document. I shook my head in disbelief more than once as I went through it. There were terms that nobody would ever agree to for instance, it required a personal guarantee from me, with an acceleration clause with odious terms, along with a company guarantee and a pre-set valuation. This was highly unusual. Convertible debt very, very rarely has a pre-set valuation., for many reasons

  • The whole point of convertible debt is to be used when the valuation is uncertain.
  • Convertible debt is short term in nature.
  • Convertible debt is normally for insignificant dollar amounts.
  • It has no guarantees, personal or other.
  • The valuation is set when a capital raise is done. The venture capital firm taking part in a capital raise then sets the company valuation.

Nobody I’ve talked to has ever heard of personally guaranteed convertible debt. Some call this a set-up for a fool. I call it indentured slavery. Even if I were to die, I would have to keep working for him. No thank you.

Here are some of the other terms Bill was demanding:

  • The Board would be given the right to dilute shareholders or take their shares and give them to any party they wanted to, including Class A appointed Board Members (e.g. Board Members from CSG Partners and others Cohen appointed to the Board).
  • The Manager of the company would need Board approval for everything, including but not limited to, trivial items such as hiring a vendor to empty the company dumpsters each week. It would take micromanagement to previously unknown extremes.
  • The Board would set the marketing plan. If their plan failed, I would be held responsible. It sounded like my new title would be Chief Scapegoat.
  • Common Board members could be removed with or without cause, and new Class A Board members appointed at the sole discretion of Majority Holder of the Class A members. That would be Bill.
  • If I were to die or own less than 20 percent of the shares, all Common Board members would lose their seats.

I was not about to let this go ahead.

DATELINE: May 5, 2013

Have you ever had a moment that sent shivers down your spine? Mine was at the Preakness Hills Golf Club, when Bill asked to meet me. He finally laid some of his cards on the table.

“My friends like your bandages better than my mouthwash, so I’m taking it.”

He told me that our former COO and his family would accept $600,000 — $700,000. The other investors would get nothing.

Bill just told me he would steal my company, and everybody else’s shares, too. He expected me to sign the documents he had sent the previous week, plus an agreement giving Gavin/Solmanese access to all company records.

I backed up. “I’ll sic Alan on you,” he threatened.

What was strange is that Bill knew it would take Board approval to buy the company. Yet he never expressed his intent to the Board, nor did he ask for the right to have a third party evaluate the company. Bill also had a fiduciary duty to the company and other shareholders that he seemed to be overlooking.

DATELINE: May 6, 2013

This time it was a phone call. “CSG Partners is no longer working for you.”

What? Bill had no authority to fire them or accept a termination from them. I still have no idea what happened, but CSG Partners stopped raising capital for Summetria.

DATELINE: May 7, 2013

Another email from Alan. Bill was resigning from the company's Board of Directors. What?!?

Things were happening just too fast, and I was at a loss to understand Bill’s game.

DATELINE: May 8, 2013

Another email from Alan, this time to Kurt, the company lawyer. “I had a chance to speak with Bill. He is in complete agreement with my assessment. Bill would like Carol to stay and continue to work to make the company succeed. Her inducement would be some form of salary and equity incentive.”

He followed up with: “Summetria satisfies its obligation by tendering its assets, subject to existing SBA and factor debts.”

What’s wrong with this picture? First, Bill’s note wasn’t due until May 30th. Second, as an unsecured creditor, he had no legal right to demand the company’s assets. He could go to court if he wished, but secured creditors would be in line before him.

Bill obviously had a game plan, and it went like this. Take notes, everybody; this could happen to your company.

  1. He loaned the company money.
  2. He arranged for the company to raise bridge financing needed to fulfill retail stocking through a company he could influence.
  3. He got the capital raise delayed. And delayed. And delayed. And in the last minute, had the capital raise called off.
  4. With the company in a financial squeeze, before his note was due, he demanded payment of his note…or else the assets of the company.

But I was not about to allow the bully to take everything away from me and the other investors.

Nor was Pat Mullin. Pat had been interested in investing in the company and came in to throw a monkey wrench into Bill’s plans. Creating AE2, LLC, a moniker based on Arctic Ease, he would set his sights on trying to save Summetria.

DATELINE: May 10, 2013

We needed a new lawyer to represent the company against Bill and Alan’s attack. I met with Barry Kleban, and he agreed to help.

Later that day, I contacted the bank to secure my note with a UCC filing. The bank reminded me that my note would now sit behind the factoring company, the bank and the SBA. This had not been the case at the beginning. Less than 6 months earlier, we had brought the factoring company into the picture. Now, I would have to line up behind them.

I sunk back into my chair. How many times had I told the company lawyer and my own lawyer that paying trade creditors had to take priority?

I tossed the UCC filing papers aside. My note and the legal battle with the thief could wait. Paying the trade creditors was required by the Operating Agreement and by law.

Nevertheless, in the days that followed, the company formally signed Barry as legal representation and I signed Robert Lapowsky to represent me.

Nobody becomes an entrepreneur to spend their days tearing their hair out with lawyers. But sometimes, that’s what you get. Sigh, that’s what I got.

DATELINE: May 23, 2013

In a move to let Bill know that he won’t be paid any time soon, Barry wrote Alan that:

‘….absence of a cash infusion, whether in the form of a loan or capital contribution, the Companies will have insufficient funds to honor ongoing payroll obligations and other operational expenses beyond the end of next week.’

The company had diverted its cash flow to defend against Bill’s actions. In other words, Bill, your attacks are keeping you from getting paid.

We laid off staff. Existing inventories would keep us operational on skeletal staff for some time to come.

Alan is at his best when he smells blood. He contacted the bank, a major secured creditor, to tell them we were running out of cash and Bill would like to buy the bank’s notes. However, the bank pointed out that the SBA loans cannot be transferred, only paid off.

A few days later, he contacted our factoring company to buy out their position.

It was fatiguing to read the misrepresentations of my interest in Alan’s emails. Bottom line, I was willing to sell my equity and walk away, if needed. I was not willing to put the company into bankruptcy with Bill as the stalking horse to swoop it up at a bargain, as Alan and Bill wanted. And I was certainly not prepared to remain chained to Bill as an indentured slave for life, still on the hook for the company’s debt.

DATELINE: May 28, 2013

It was time to halt everything. I called our corporate office to cancel all purchase orders. The flow of commerce was about to come to a halt.

Should I be shopping the company around? Can I? I asked both Bob and Barry.

It was time to sell my baby to the highest bidder. Or to any bidder I could find, perhaps. I put together a list of potential suitors. Gridiron Capital headed the list. There were companies that earlier had been interested in licensing our products or investing in the company. There were companies that had inquired earlier about buying it. Gridiron was one of these.

With a sigh, I picked up the phone.

DATELINE: May 29, 2013

The barbarians at the gate never sleep. Alan emailed Barry to say that he’ll be charging me with vendor fraud. Meanwhile, Gridiron Capital sent the company a letter of intent (LOI). They wanted to buy us!

I didn’t know whether to feel excited that there might be a way out or shattered that there is no way to stay in. I think I felt both.

DATELINE: May 31, 2013

Alan began harassing us for a draft budget based on minimal operations. Bill hoped to acquire us through a fire sale of his own making — a 363 bankruptcy process.

At this point, we had stopped manufacturing, we had stopped marketing and we had stopped selling. The company set up for the sole purpose of giving people pain relief was now doing nothing but negotiating loans and shares and acquisitions. This is not what entrepreneurship is supposed to be about.

I answered the phone. It was Pat Mullin, entering into the picture. “Can you put me in touch with Bill Cohen?” he asked.

DATELINE: June 6, 2013

Through Alan on a conference call with the 3 attorney’s — Barry, Kurt and Bob, Alan outlined a plan in which Bill would buy the company in bankruptcy through Gawi, a new company he would set up. Bill would offer me seven percent equity in his new company for putting the company in bankruptcy. Bill would pay enough to cover the secured debt and as little as possible to everybody else. He was particularly worried that the former COO might still be owed something, and he did not want to pay.

Alan Rubin, Esq of Cole Schotz offer on a conference call with the 2 Corporate Attorneys and my personal attorney of 7% in a Newco owned by Bill Cohen of Dillon Yarn, Investor in Summetria, LLC/Arctic Ease, LLC to put the company(s) into a bankruptcy to rid them of shareholder(s) and pay as little as possible to the unsecured creditors.

I refused. I was not about to hang the unsecured creditors or the other shareholders out to dry, when the Gridiron proposal would pay off all or most of everybody’s debt. Bill was invited to present a letter of intent. He waffled a bit, submitted an LOI, then withdrew his offer the following morning.

DATELINE: June 9, 2013

The company executed the GridIron LOI. We were selling Summetria, and with it, Arctic Ease.

DATELINE: June 18, 2013

With Bill finally out of my life, guess who called me? Apparently, he and his bankers did not have Summetria’s marketing plan. And he wanted it right then and there.

“Get lost, Bill.”

“I’ll be sending my guy to the June 20 meeting with the guy AE2 — Pat Mullin is sending to talk with the VP Operations and QA and meet with you about the company’s marketing details.”

“Do that, Bill, and I’ll have him arrested for trespassing.”

The next day, Pat informed me that his group plans to make an offer to buy the company.

DATELINE: June 26, 2013

Bill raised his offer to the bank. He had at first offered to buy the debt at 20 percent, but he had raised that amount, finally offering to buy its secured debt at par.

DATELINE: July 2, 2013

Bill again offered to buy the assets of Summetria and Arctic Ease. This time he promised to pay off all the secured creditors, but he still planned to leave unsecured creditors penniless.

No dice.

But he did accidentally send this by email to Bob: “Just sent the following to Carol’s attorney. Let’s see if I can take this business away from her, that crazy person.”

DATELINE: July 17, 2013

Unable to work out a plan with Bill, who was really trying to drive us into bankruptcy, AE2 purchased the bank and LSQ (factoring company) interest in the company. Pat Mullin became a secured creditor!

DATELINE: July 23, 2013

Ray Starker made an offer on behalf of Bill. I was somewhat amused to see the email from him. Since when does Ray represent Bill? Not much changed in the offer.

  • Pay off all secured creditors.
  • Screw the unsecured creditors.
  • Pay me $200,000 to close the deal.
  • Pay me another $200,000 to see the company through a 60 day transition.
  • Pay me a 2% commission on out-license sales to a global consumer products company
  • Give a personal release of my guaranty from Bill, as well Bill would receive a liability release from the company and me personally.

I am sure I raised my eyebrows when I read about the possible commission to close some new business. In February, one of the largest consumer products company in the world approached Arctic Ease about a multinational out-license deal of its core product.

We immediately began talks and due diligence for out-licensing of the cooling wrap for the former Soviet block, Asia, the EU and potentially South America. This would have most likely have been a multi-year licensing agreement with a multi-million dollar upfront license fee.

And now Bill wanted me to close this deal for him.

DATELINE: July 29, 2013

Bill bought Summetria’s intellectual property and the assets of Arctic Ease for $3 million. That included a $1.4+ million overage that he wanted to pocket. As Alan would write a couple days later:

“Bill will not agree to ANY payment to unsecured (or alleged secured) creditors ahead of him.”

Alan was frustrated that I was standing in Bill’s way:

“The issue is that carol won’t cause summetria to release bill to facilitate a distribution of excess proceeds and is unwilling to provide a release in her individual capacity”

Much to his chagrin, the sale also excluded its membership interest in Arctic Ease, AE2 refused to sell.

DATELINE: August 13, 2013

Alan Rubin, Bill’s lawyer, told Bob and Barry that he’ll be suing me for the excess funds from the Article 9 sale. He also planned to sue me for fraud for my note. Ha! He said he would not have loaned the company funds to repair the machinery if he had known that I had a secured note, even though I had waived all security interest and never perfected the UCC filing.

But he was just trying to bully me and the company into granting liability releases — and force me to return to help him.

“Not going to happen, Bill. Not going to happen.”

In other words, he had planned to bring down the company from the start. And now I would not and could not release him from potential liability.

But his suit froze the funds the company would have needed to pay a law firm to file a breech of fiduciary duty and fraud suit against him. At least for a while. Unfortunately, it also meant that no bonafide trade vendor could be paid, either.

DATELINE: August 29, 2013

AE2 counsel forwarded a copy of its Interpleader Complaint, filed in the Superior Court of Delaware in New Castle County. As a result, the $1.4 million overage funds were deposited with the court.

DATELINE: September 4 2013

Alan and Bob traded a series of emails. Bob informed Alan:

“As I am sure will come as no surprise, Carol would not support Costar as a replacement managing member. Also, if she resigns, I would point out that many of the factors which would have led to her decision were controlled by your client (i.e., no compensation, no funds to pay counsel, suit to preclude distribution of excess proceeds from the Article 9 sale to the borrower). I don’t think your client can deprive Carol of the practical ability to function as managing member and then complain when she resigns. Nor do I think your client can leverage a forced resignation into the appointment of a new managing member of his choosing. With all due respect, I think the solution, here, is to either accept the last version of the distribution agreement (which, I think, reflects a very reasonable approach by Carol and would result in her continuing as managing member) or to take her up on her offer to sell her claims and equity.”

DATELINE: September 5, 2013

That’s it! I’ve had enough. I resigned as managing member.

And the fun begins again. Bill and Alan began devising as many lawsuits as he could to file against me, hoping one would stick. He had wanted me to stay on to do his bidding, to be his Girl Friday, and to bring him the relationships I had worked so hard to build and release him from all liability for his, Alan, CSG’s and others actions. No way, it wasn’t going to happen. Tough!

DATELINE: September 13, 2013

Oh, and no, Alan, I won’t sign your non-compete agreement.

“She can pay it from all her future earnings of any kind, making Bill her effective senior partner, or she can seek refuge in bankruptcy. That may, or may not work, but it will make for interesting discussions with future investors/employers.”

And No Alan, I won’t file a personal bankruptcy; if I did, all the other shareholders would be hurt further. In my opinion, this was what Bill and you have been after in an attempt to limit the legal liability of your collective actions.

DATELINE: September 23, 2013

I filed a motion in Delaware court for a receiver to wrap up the company’s affairs in an orderly fashion

DATELINE: October 3, 2013

Bill filed a motion in Delaware court to dismiss the AE2 interpleader.

Several shareholders, including myself, then filed suit against Bill and Mitch individually, and against Costar, Gawi and CSG for breech of fiduciary duty, breech of contract, fraud, negligent misrepresentation, negligence/mismanagement and aiding and abetting.

CSG, Costar, Gawi, Weinberger and Bill then countersued. The Delaware courtroom will be one busy place.

But, wait. The Delaware courthouse was about to get even more crowded. Our former COO and his family decided to sue Bill for breech of contract, since he broke his commitment to buy their shares. Then he filed suit against both Bill and me for removing him from the company, even though the company never fired him.

DATELINE: Autumn, 2013

The pain that began in my knees set me on an adventure in entrepreneurship. That adventure had led me through a roller coaster of emotions. Exhilaration. Surprise. Frustration. Anger. Confusion. Pride. Determination. Disgust.

And now, pain again. Excruciating pain that no Arctic Ease could sooth. I suspect it was the stress of this ordeal that gave me chest pains, that lead to an ER visit in November, followed by surgery in January 2014. Then it was back to the hospital in February for more surgery, this time infected with strain-resistant, gram-negative sepsis.

The surgery in February was followed by 18 months of medication and something close to bed rest; I was ready to take on the challenges of the world. But the world didn’t stop turning while I was in medical exile.

DATELINE: February 14, 2014

Three unsecured creditors filed an involuntary bankruptcy petition. They were owed a piece of the $1.4 million that Bill and the company were wrangling over. The result? A bankruptcy trustee was appointed, who in theory should ensure that ~$450,000 of accounts payable are paid, and that the rest is distributed to shareholders.

DATELINE: August 14, 2014

I turned over thousands of documents and all the emails between lawyers to the Bankruptcy counsel. The Bankruptcy counsel made it clear that no one was allowed to use or have these documents — this would result in the inability to put on an adequate defense in Bill’s lawsuit against me.

And the clock ticks.

And the clock ticks.

And the clock ticks.

Today, the company still exists. It’s a shell, as it cannot make or sell anything. All its money is sitting with the bankruptcy trustee, who has done nothing since being appointed over two years and a half years ago.

All the lawsuits will come due soon, and then the documentation will tell the whole story. Some people are in for a surprise. What? You want to know what story the documents will tell? Well, if I told you, it wouldn’t be a surprise, would it?

Found this post useful? Kindly tap the ❤ button below! :)

One clap, two clap, three clap, forty?

By clapping more or less, you can signal to us which stories really stand out.