Draft Outline Negotiation: 60-90 minutes
Alberto Rossi’s Interests:
1.
2.
3.
4.
5.
Control
Leave something to family
Co-Op model vs. direct trade
Jonathan under contract
Non-compete and Joanna’s consulting time
Joanna’s Interests:
1.
2.
3.
4.
5.
Starting another coffee business
Jonathan’s position and salary
Keeping direct trade model
Reputation
Money
Things to remember:
Darren: Handle the explanation (convincing the other side). Be secretary and record all points of
agreement in the chat.
William: Handle final decision-making. Play bad cop. It’s okay to call their proposal ridiculous.
Meeting Organization:
A.
B.
Introductions and Rapport Building
(a) What did you do over Spring Break that you wouldn’t have otherwise been
able to do?
(b) How do you feel about this negotiation experience so far?
(c) What was your favorite part of EAP II?
(d) Let’s talk about our interests:
(1) Summarize Alberto’s main goals.
(2) Ask for summary of VLCR’s main goals.
Start strong: Is this really a merger of equals?
(a) Why do you think SCC and VLCR are of equal value?
(1) Answer: $12M is close to $15M.
(2) Response: What about revenue stream?
(A) VLCR has two locations producing $4M annually.
(i)
That’s approx. $2M per location.
(ii)
Less than $2M if you factor in the USD Coffee Cart.
(B) SCC has seven locations producing close to the same amount.
(3) So again. . . how does $2M per location with two locations equate to
seven locations producing almost $2M per location?
(4) Property.
(A) VLCR owns two properties outright.
(i)
That’s $8M in assets.
(ii)
Owning property assures predictability and stability.
(iii)
But owning property doesn’t produce revenue.
(iv)
Owning property only protects against bankruptcy.
(5) The point: We want help buying out SCC minority shareholders. We’re
willing to agree this is merger of equals if . . .
1
C.
D.
E.
F.
(A) Help finance $3M to make up the difference in valuation; and
(B) Help finance an additional $2M from difference in location
revenues.
(C) Newco gets assurance, stability, and predictability in dealing with
only Alberto (and Sophia) instead of minority shareholders.
Direct Trade vs. Co-op.
(a) Can you supply nine locations with a direct trade model?
(1) What is Joanna planning to do with her future side business?
(2) Liquidated damages: $ 50K weekly.
(b) Lead-in to control of stock and Board.
Stock ownership and Board of Directors: Will be time-consuming to sort out.
(a) Make-up of Board: Seek clarification: VLCR redlined out Sophia.
(b) Managers: Agreed Sophia is CFO, Alberto is CEO, and Jonathan is COO
(big change). Do we want to incorporate responsibilities to each position?
(c) Stock ownership. Stock control gives Alberto more control over future.
(d) Voting decision:
(1) Buying property: (Alberto: stock)
(2) Business loans: (Sophia: Board)
(3) Laying off employees (10% or more): (Who cares?);
(4) USD Coffee Cart: (Jonathan: Board);
(5) Supply chain model: (Jonathan + Sophia: Board);
(6) Contracts with suppliers (Jonathan + Sophia: Board );
(7) Buying or selling a coffee shop (unanimous: Board);
(8) Election of Board Member (Alberto: stock);
(9) Dividends (Sophia: Board);
(10) Termination of Executive/Manager (unanimous);: Board).
(11) Significant transactions affecting ownership (Alberto).
(e) *Probably need a break to regroup during IV.
Jonathan’s continued employment
(a) Under contract: He has never operated nine coffee locations;
(1) Good for Jonathan: promotion in responsibilities;
(2) Good for SCC: Jonathan will ensure consistency in operations.
(b) Alberto cannot see paying Jonathan $125K, which is almost as much as
he makes.
(c) We can meet in the middle.
(1) One year renewable contract at close to $125K.
(2) Good-faith showing of willingness to negotiate.
Other employees
(a) How do you see onboarding employees?
(b) Question: How do you justify employees from two stores earning higher
wages than the 110 employees in Orange County?
(c) Proposal: Offer VLCR employees stake in new company in exchange for
pay cuts.
(d) Other employees should have option to continue with Newco.
(1) At prevailing wage; or
(2) Small severance (2 weeks salary).
2
G.
H.
I.
J.
K.
Joanna’s role in Newco.
(a) What role does Joanna see herself in?
(b) What are her future plans and how do those plans affect Newco?
(1) Non-compete: Be candid: We want continued relationship with Joanna
and want assurances Joanna will not act in conflict with Newco.
(2) Consulting role: How do you feel about our redlined proposal: 10 hours
weekly at $250/hour on-call whenever Alberto wants. Role on Board is
not hourly consulting!
Other integration of business.
(a) USD Coffee Cart (if not addressed by Board/stockholder decisions);
(1) Is keeping the USD Coffee Cart important to VLCR?
(2) Does the USD Coffee Cart have any added-value?
(b) Patti’s Pastry partnership (if not addressed by Board/stockholder
decisions): VLCR to negotiate liquidated damages for breaches in supply.
(1) Patti’s pastries are expensive.
(2) Cannot be easily substituted.
(3) Patti’s is a local San Diego merchant.
(c) Contracts supporting direct-trade model;
(1) Relate back to supply chain.
(2) Express our concerns with supplying nine locations.
(d) Insurance policies.
(1) Why do you want to negotiate the insurance policies as part of Newco
contract?
(2) These should be shared costs.
(3) Response: SCC is a large operation and splitting costs equally is
unfair.
(4) Answer: Revenue stream of nine locations should adequately cover
insurance policies.
Reps and Warranties.
(a) Explain provisions: choice of law; forum selection; arbitration; nontermination of agreement; and costs.
(b) Arbitration: Important to us because Joanna presumably has lots of money
to litigate.
Misc.: no changes in redlining. Presumed to be agreed upon.
(a) Confidentiality;
(b) Exclusivity: (open to fill in date);
(c) Fees and Expenses;
(d) Non-binding nature.
Approvals: no significant changes in redlining. Presumed to be agreed upon.
3
Section Ref.
“Merger of
Equals”
Our Position
SCC more
valuable than
VLCR
Their Position
$12M is
equivalent to
$15M
Stock
Ownership
(III.)
SCC wants
51% voting
control
VLCR wants
50/50 split
Board of
Directors (IV.)
SCC wants
majority voting
control
Managements
(IV.)
SCC wants
Alberto (CEO)
and Sophia
(CFO).
VLCR to allow
control over
minor
decisions (2-0).
VLCR to allow
Joanna Jones
non-voting
board seat but
wants
Jonathon on
Board.
VLCR wants
Jonathan COO
(without
contract) and
Joanna as
CMO and
general
counsel.
Cooperation
and
Integration of
Business (IX.)
Co-Op is more
reliable supply
chain.
Direct trade is
important to
Joanna.
Control (III.,
IV., VII., IX).
Alberto should
have veto
power to settle
disputes.
Alberto should
not have all
control.
Employment
agreements
(V.)
Jonathan
needs to be
under contract.
They pay
employees
more money
4
Comments
Owning
property is not
important. SCC
revenues dwarf
VLCR
Must be
different
amounts of
control for final
decisionmaking power.
Must negotiate
points of stock
and Board
control
Is Jonathan
worth it? Must
draw line
between
executive
decisions and
those requiring
Board
approval.
Is Joanna’s
coffee growing
business going
to give us the
supply chain?
Divide control
between stock
ownership and
Board of
Directors.
Jonathan has
no experience
as COO.
BATNA
SCC: Alberto
does not have
control over
any one area.
SCC: noncontrolling vote
in both stock
ownership and
Board
decisionmaking power.
SCC: All major
decisionmaking left to
area where
Alberto has
little control.
SCC: Jonathan
with no
contract?
None.
Alberto’s family
has control
over neither
stock nor
Board.
Cannot
contract
Jonathan for
Big business is
economies of
scale: pay
employees no
more than
prevailing rate.
We want
Joanna and we
want to control
her hours.
and want to
retain
everyone.
Pay
accordingly for
Joanna’s
experience,
time, expertise.
Concede
during
business hours
Name and
location (VII.)
VLCR; Orange
County
VL≻ San
Diego
Indicate type of
business in
name: “Coffee
Roasters”.
Reps and
Warranties
(X.)
Integration
(IX.)
Agreed.
USD Coffee
Cart; Patti’s
Pastries; other
contracts and
insurance
policies.
Agreed.
Approvals
(VIII.)
Reps and
Warranties
(X.)
Agreed.
Choice of law,
forum,
arbitration
before suit.
Costs. Nontermination of
agreement if
arbitration.
Agreed.
Agreed.
All costs to be
shared for
insurance
policies. VLCR
has existing
relationship.
They should
negotiate
liquidated
damages with
Patti’s pastries.
Integrate equal
reps and
warranties.
Agreed.
Agreed.
Consulting
agreement
(VI.)
Misc. (XI.)
Approvals
(VIII.)
Agreed.
5
five years at
$125K. If no
contract, we
cannot agree
to pay $125K.
Same
provisions.
30 days.
Long-enough
contract to
incorporate
VLCR
business
model into
SCC locations.
Must
incorporate
VLCR’s brand
name: VL&SC,
a VLCR
company
Liquidated
damages for
Patti’s pastries
(VLCR has
existing
relationship).
No other
BATNA.
None.
None.
None.
6