Posted on Thu, May. 15, 2008

Profile from Oct. 8, 2000: Junior hits the jackpot

A KENTUCKY BASKETBALL-CHAMP-TURNED-ENTREPRENEUR NOW SCORES ON WALL STREET: HE CAN GAIN OR LOSE $100 MILLION IN A DAY. HIS STOCK IS WORTH $500 MILLION.

By John Stamper

HERALD-LEADER BUSINESS WRITER

Editor's note: This story was published on Oct. 8, 2000, on the front page of the Lexington Herald-Leader.

Charles "Junior" Johnson stands comatose on the New York trading floor of Prudential Securities. The frenzied young men shouting orders from tiny cubicles throughout the crowded room have melted from his reality.

The businessman's blue eyes are fixed on the number scrolling across the stock ticker a few feet above his mop of blond hair.

PPRO: $27

The price of PurchasePro.com stock has more than doubled in the first 10 seconds of trading on the NASDAQ stock exchange, from $12 to $27.

It's 9:30 a.m. on Sept. 14, 1999, and the PurchasePro roller coaster is whipping around its first turn.

As chairman, CEO and owner of about 4.2 million shares of PurchasePro, the stock's first tick is a victory that makes Johnson want to crumple to the floor and cry with unbridled bliss.

The last time Junior Johnson had this feeling in his gut was March 17, 1979. On that night, the 165-pound, 6-foot kid led Lafayette High School to the state basketball championship in a 62-52 drubbing of Christian County.

As the Generals' point guard, he scored 25 points and pulled down eight rebounds.

After the net was yanked from the rim and placed around his sweaty neck, Johnson collapsed into a chair on the hardwood floor of Rupp Arena and cried.

Just like that night, when his teammates surrounded their hero on the basketball court, a group of Kentucky natives huddled around their charismatic leader on the New York trading floor.

"It was the exact same feeling I had standing at the foul line of the state tournament," Johnson said, describing his minute of financial glory. "I didn't have any words for the moment. I almost just had to sit down and cry."

How this man bootstrapped himself from the Bluegrass to Wall Street is a story that stands out even in the wacky world of Internet startups.

Hard work was a major ingredient, but false teeth, proper exercise techniques and high-stakes gambling all played a part.

The billion-dollar man

Within a few months of that day on Wall Street, PurchasePro would trade at $175, becoming the 5th best-performing initial public offering of 1999. Johnson has gained more than $100 million in a single day, and he has lost more than $100 million on a few others. His wealth expanded to more than $1 billion at one point, making him the least known (if not only) billionaire from Kentucky. As of Friday, his 21 percent share of Las Vegas-based PurchasePro.com was worth about $500 million. The stock closed at $69.19. Since he hasn't sold a single share of PurchasePro stock, Johnson's wealth is still all on paper. It could disappear, or double, tomorrow. But that hasn't stopped the mile-a-minute talker from living the flashy life he loves. After PurchasePro went public, he put up 2.5 million shares of his stock as security for a $100 million line of personal credit. He's spent $44 million so far. Johnson now has his own 10-seat jet, more Armani suits than most people have socks, a fitness room that rivals any Gold's Gym and a backyard swimming pool that overlooks the Las Vegas golf course where Tiger Woods won his second PGA tournament. Last November, he flew several Lexington friends to a multi-million dollar IPO party in Las Vegas. Lexington Catholic High School Athletic Director Danny Haney, who attended the party, said that at the bash, Johnson gave away 15 Rolex watches and a vacation to Hawaii, among other favors. Others in Lexington, who took a risk by investing in PurchasePro when it was nothing but a dream, have seen their wealth leap alongside Johnson's. At least five Kentucky investors have gained more than $10 million each from selling PurchasePro stock. And Johnson came to town shortly after the IPO and donated $2.1 million to build a new gymnasium at Lexington Catholic. What magical feats does PurchasePro perform to create all this cash? Put very simply, PurchasePro helps businesses buy and sell things on Web sites. Like a big, interactive Yellow Pages, the idea is to get millions of businesses worldwide to pay about $75 a month to put their catalog of products on PurchasePro's online network of e-marketplaces. About 30,000 businesses are on board so far. As of June 30, PurchasePro had lost $37.5 million in cash and $69.1 million more in "paper-only" transactions. It has never turned a profit since starting in 1996. Despite those losses, investors, betting on PurchasePro's future, continue to support the stock. 'He was a nerd' Money and glory weren't always part of Johnson's life, but an unrelenting work ethic has been. Born Dec. 2, 1961, to Charles and Donna Johnson, he grew up in a modest ranch-style home on Sage Road. Charles Johnson Sr. was a Lexington policeman. Johnson's sister, Debbie Thornberry, remembers a little brother who loved two things: basketball and tattling on her. "He was a nerd," she said. "He really was." Single-mindedness was an early trademark. His mother had to threaten punishment to make a 9-year-old Junior stop practicing basketball. Childhood neighbor Kip Kornett recalled nights when Johnson would bounce his basketball for hours after Kornett had gone to bed. Johnson still stays up after most people are snoozing. He sleeps about four hours a night, devoting his long waking hours to PurchasePro. He attributes his never-ending energy to attention deficit hyperactivity disorder. "You might say I get a lot of miles per gallon," he said. "I was always willing to do what it took to win." With his relentless practice, little Junior soon had his own solo act during half time at UK basketball games. He spun five balls at once -- one on each hand and foot, and one from a pencil in his mouth. Johnson has pretty much stayed in the spotlight ever since. 3 high schools in 4 years High school was a turbulent time for Johnson. The small kid with a love for practical jokes spent 9th grade at one school, 10th and 11th at another and graduated from a third. After his freshman year at Lexington Catholic, Johnson's family moved to Scott County, where he dominated the basketball court and baseball field. He was quick on the court, once scoring 42 points in a single game. But by the fall of 1978, his parents were divorced. Johnson moved with his mom back to Lexington, where he ran Lafayette Coach Jock Sutherland's "jailhouse junk" defense alongside future NBA player Dirk Minniefield. Sutherland recalled a headstrong player who didn't like to follow instructions, but always came through in the clutch. "I was hard on him," Sutherland said. "He would have liked to knock me out a few times, but he knew better. I wrote him a letter a couple months ago and said, 'If I knew you were going to get so rich, I would have been a little easier on you.'" Johnson's parents remained friends during the year, leading to rumors they had separated only to help their son's basketball career. "Only in Kentucky would they assume your parents got divorced so you could play basketball," Johnson said. "My heart was broken and ripped out." But life went on, and 45 days after winning the state basketball championship he scored a scholarship to play ball at the University of Cincinnati. "Junior is the type of player we need in Cincinnati to run our team," Bearcats coach Ed Badger wrote in a press release at the time. And Johnson did just that. He dished out 258 assists and scored 466 points in his four years at UC, graduating with a degree in marketing. A sales job with Procter and Gamble in Cedar Rapids, Iowa, came next, but after six months he knew the constraints of a large corporation weren't for him. Johnson was ready to apply for law school in 1985 when he got a piece of news that would change his course in life: Charles Johnson Sr. had lung cancer. Family Johnson's father had left the Lexington police force in 1976 to pursue his own entrepreneurial dreams, starting Johnson Safety and Security. Junior Johnson joined his father after leaving P&G, hawking safety equipment and providing security officers to Lexington businesses. The two had never been close, but being in business together changed all that. "He really became my best friend," Johnson said. "Gosh, I would give up all of this if I could spend one more day with my dad. I wish he were here to get on a jet or watch PurchasePro's ticker go by on CNBC." Charles Johnson Sr. died April 29, 1986. At the funeral, friends and family remember a son who was able to transform grief into an eloquent speech of love. "He got up and just talked about his dad, and it was breathtaking," Haney recalled. "He said things most people couldn't say at a time like that. Everyone was crying." Although he works non-stop, family has remained at the forefront of Johnson's life. When his niece turned eight last year, he sent her on a $1,000 shopping spree at FAO Schwartz in New York, where she designed her own Barbie doll. Johnson took his sister and mom on a 10-day trip to Europe in August. His mother, who has remarried and now lives in Las Vegas, got a mammoth diamond ring after PurchasePro went public, and she got a Jaguar for her birthday this year. "You measure a man by how he treats his mother, and by that standard Junior puts us all to shame," said Gene Kilroy, a family friend and executive director of marketing at MGM Grand in Las Vegas. "She wants for nothing." There was once a third woman in Johnson's family. In 1984, when Johnson was 23, he met Rebecca Young while working out at the Lexington Athletic Club. They married in 1989, but were divorced by September 1992. Young, now remarried, declined to comment for this story. Johnson said the divorce was amicable. "We literally settled things in 30 minutes at McDonald's," he said. "I grew up in a Christian family, so that wasn't a very good time in my life. I felt like I had a scarlet letter on my forehead." Gambling and glitz

Though struggling at home, Johnson was thriving in his career. He had turned his father's 30-employee security business into an 800-employee operation with $8 million a year in sales.

Soon he also owned several video stores and fitness centers in Lexington, Louisville and Cincinnati.

During that time, Johnson and his friend Royce Pulliam, who owns several gyms in Kentucky and Ohio, had begun taking regular vacations in Las Vegas.

The high-stakes gambling, glitzy shows and beautiful women suited Johnson.

Beneath his flamboyant persona, though, is a health nut who says alcohol has never touched his lips. Instead, he's constantly sipping water and cranberry juice.

His daily routine also includes an hour of weight lifting and exercise. That has played a crucial role in the history of PurchasePro.

While he and Pulliam were working out in The Spa at The Mirage Resorts one afternoon in 1992, Johnson met a new friend.

Steve Wynn, CEO of Mirage Resorts Inc. at the time, just happened to be exercising in his hotel that day. For whatever reason, one of the most powerful men in Las Vegas struck up a conversation about proper exercise techniques with Johnson and Pulliam.

"I told him we were going to dinner at Kokomo's that night and he said he might come by and join us, and sure enough he did," Pulliam said.

Through Wynn, Johnson heard about a man named Russell Pike, who was building a company that put the catalogs of hotel suppliers on CD-ROM.

Johnson said he, Pulliam and two other Lexington businessmen sank about $1 million into the company in 1995.

However, the company was soon in bankruptcy. By the summer of 1996, Johnson had lost at least $250,000 on the deal.

On to Vegas On a muggy August day in New York City that year, Johnson was visiting then-girlfriend Gina Tognoni, who plays Kelly Cramer on One Life to Live. (Her mother lives in Lexington.) He was holed up in the soap opera star's apartment, trying to conjure up a way to turn his failed CD-ROM company into something useful, when he began jotting thoughts on a yellow legal pad. By the next day, the idea for PurchasePro was conceived. Johnson hopped a train to Boston where he met Christopher Carton, an old pal who had been manager of Idle Hour Country Club in Lexington. Now Johnson wanted him to help make his dream a reality. Johnson had similar meetings with a half-dozen other people from Kentucky over the next few months. One by one, they agreed to quit their jobs and head for Vegas. Meanwhile, almost everyone told Johnson he was crazy. "Even Steve Wynn said, 'I'll support you 100 percent, but ultimately I don't think this will work as a business,'" Johnson said. Johnson and Carton soon rented a house in Las Vegas. The others, including Geoff Layne, Larry Hancock and Stephen Dawahare, were sharing a cramped two-bedroom apartment by January 1997. Dawahare, whose grandfather founded Dawahare's department stores, said he at first dismissed Johnson's overtures to join PurchasePro. But four hours with Steve Wynn in his private art gallery changed his mind. "We spent about 3 1/2 hours talking about his art and about 10 minutes on PurchasePro, and that was enough for me," said Dawahare, who was 23 at the time. "Two weeks later I dropped everything, put my house up for sale and moved to Vegas." Helping recruit employees was the first of many favors Johnson would get from Wynn. Wynn invested $50,000 in the company, but his real contribution was letting PurchasePro use Mirage Resorts as a testing ground for its software. "Without the credibility of The Mirage, we would have never gotten off the ground," Johnson said. PurchasePro salespeople worked their way through Mirage's accounts receivable files, telling suppliers they would have to use PurchasePro software if they wanted to continue working with the casino-hotel. It was a hard sell back in 1997, when most of those companies didn't have Internet connections. Johnson himself had never used e-mail before starting PurchasePro. But with Wynn's influence, more than 800 suppliers had signed onto the network by year's end. It was an astounding start, but there were still plenty of tough days ahead. Roll the dice By the end of 1997, every PurchasePro executive had poured his life savings into the company, including at least $2.5 million from Johnson. "There was not one red cent that I could get that I have not put into this," Johnson said. "I sold my video stores. I started selling other businesses. I borrowed against my life insurance. I took every penny that I had." Unlike many dot-com startups, PurchasePro wasn't attracting venture capital from Silicon Valley. And who could blame the money men for their disinterest? Everything about this venture was screaming failure. The company's CEO used to run video stores and fitness centers. He talks with a Kentucky twang and sometimes uses bad grammar. He also takes a daily dose of Dexedrine to help control attention deficit hyperactivity disorder. And don't forget that the company's chief operating officer was a country-club manager before taking on e-commerce. But this odd bunch persevered. While the big shots on the coasts ignored Johnson, there were plenty of folks in Kentucky and Las Vegas willing to pony up for PurchasePro. The company raised $6.15 million in its first round of financing in June 1998. A year later, it brought in another $11.55 million. Even with that support, Johnson would sometimes find himself hours away from payroll with no money in the bank. So he headed for the blackjack table. "I did what I had to do, and we met payroll," said Johnson. "Most people are fearful to talk about it, but hey, what a story." Johnson's gambling skills are renowned in Vegas, according to friends and co-workers. Although he said gambling isn't a big part of his life anymore, Johnson's relationships with Las Vegas bigwigs give him access to the city of sin's inner sanctum. On a warm summer evening this year, Johnson drove his Mercedes-Benz S500 into a spot about 20 feet from the towering front entrance of the Venetian, one of Las Vegas' newest and costliest casinos. A security guard approached, telling Johnson and a reporter it was against the rules to park there. "It's OK," Johnson responded, walking past her toward the valet desk. "Oh, hi Junior," the valet said. "Sorry, I didn't see you. I'll take care of it." Johnson said the only gambling he's done since PurchasePro went public was to entertain customers or friends. If investors don't believe him, he has one piece of advice: "Sell the stock. That's what I tell them. You can't work 100 hours a week and do what I do and be a gambler." 'I can whip you' He still gambles, but in a different way. Consider this account Johnson and others give of a meeting with potential investors: Johnson took his seat at the conference table lined with investment bankers, and opened his briefcase. Along with a stack of papers, he pulled out a pair of yellowing false teeth and clanked them on the table. The cadre of stiff suits began twitching uncomfortably. "I take a little piece of my dad with me everywhere I go," said Johnson, playing the part of a Kentucky good ol' boy. "I know you think it's weird and all, but it's important. Every morning I wake up and think of him." The bankers began snickering. But Johnson, who's always planning his next prank, wasn't through. "I don't think it's one bit funny," he said. "You know what, you may be smarter than me but I bet I can whip you." "Oh no, I wasn't laughing," offered one nervous banker. "I'm not making fun." Johnson, who can bench press 300 pounds, erupted in raspy laughter. False teeth and remote-control fart machines are just a couple of tactics Johnson now uses to keep Wall Street interested. It seems to work. Several of the bankers and businessmen Johnson has pitched to are now executives at the company. It wasn't always that easy. A week before Johnson was set to start pitching PurchasePro to potential investors in July 1999, one of the company's major underwriters backed out. Charlie Finney, an internet analyst with Volpe Whelan Brown, told Johnson his company just wasn't ready to go public. "I told him, 'I believe you're sincere, I just believe you're sincerely wrong,'" Johnson said. So Johnson pressed on with the underwriting of Prudential Securities and Jeffries & Co., two second-tier investment banks. To bolster the company's image, Johnson convinced Office Depot CEO David Fuente, with whom PurchasePro had just cut a major deal, to buy 500,000 shares at the IPO. "There was no begging on the knees," Fuente said. "We already believed in PurchasePro, and we thought the public offering just needed a kick in the tail." With Fuente on board, Johnson printed up a new prospectus and headed to New York. He got there on the morning of August 1, a Sunday, and didn't sleep until Tuesday night, when he felt his pitch was finally up to par. Johnson and Geoff Layne, PurchasePro's executive vice president, began meeting with investment bankers on Wednesday, and they hardly took a break until PurchasePro went public six weeks later. "Three years ago we were the Clampetts of the Internet, and now these Kentucky boys don't look too bad," Stephen Dawahare told Layne as PPRO: $27 scrolled across Prudential Securities' stock ticker. 'We plan on winning' Business is like a sport to Johnson, and he knew the company's $50 million IPO was only the first pitch in a long ball game. "To me, the game had just begun, and I still think we're in the early innings," he said. By Friday of the IPO week, Johnson was back in Las Vegas preparing for a meeting with Keith Krach, CEO of Ariba, considered to be the leading business-to-business e-commerce company. As Dawahare recalled, it did not go smoothly: "Krach looks at Junior and says, 'Would you be interested in selling?' He says, 'No, but we might be interested in buying you.' The look on Krach's face was very memorable." The idea was preposterous, of course, since Ariba had a market cap of about $10 billion at the time, compared to PurchasePro's $700 million. But Johnson didn't care. "We're not here to play second to anyone," he said. "We plan on winning this game."