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The emerging daycare company did not stop with merely adding more sites. To qualify for listing on a publicly traded stock exchange, a company must have a minimum amount of assets on its books. In an attempt to grow more quickly and meet the requirements, Mack went on a real estate buying spree. The company quickly absorbed a half-dozen properties in the area, he says, including a 21,000-square-foot office building and an empty lot on Arapahoe Road.

Other companies, some of which had only loose links to child care, were courted by Child Care Centers as well. JSP Productions, a video company, was approached for a merger, as was a Denver-based baby-stroller manufacturer. CCCNA also began negotiations aimed at acquiring Branson Entertainment, a Scottsdale, Arizona, company that intends to stage a production of Forever Plaid in Branson, Missouri, and Check-Mart, a string of check-cashing outlets.

Each time Child Care Centers of North America purchased something, it turned to the same low-cost financing. The company offered little or no cash, but promised stock from when the company began trading publicly, which Mack and Polevoy said would be in early 1992. As a result, CCCNA rapidly ballooned in size while spending virtually no money.

Despite its cash-light acquisition approach, CCCNA soon ran into money problems. As 1992 progressed, it became apparent the public stock offering that Mack and Polevoy promised their investors would happen in the spring was not going to appear anytime soon.

By the beginning of the year the company was forced to raise more money and, in exchange, promise more stock to investors. In early 1992, Mack says, he convinced private investors to pony up another $140,000. Toward the end of the year the company scared up $600,000 more in what was described to investors as short-term financing.

The financing has turned long-term, however, and many investors remain bitter toward Mack. "He was always ready and willing to make a promise and then, promise made, boom, he's off and running," says one investor. "I don't care to do business with Mr. Mack anymore."

Another investor, engineer Gary McKay, says an acquaintance convinced him to contribute $25,000 to the short-term financing by promising high returns and the lure of lucrative stock in the company. "It was," McKay says today, "one of the worst decisions I ever made."

Like Lee Thomas, McKay says he had bad feelings from the beginning, especially about Mack. Unlike Thomas, McKay went ahead and, in November 1992, signed over his money. He says that in exchange for the one-year loan, the deal called for him to receive a piece of the company's real estate as security--something he's still waiting for.

"I naively walked away from the table without that security, with their promise to do it later," he says. To make matters worse, when it came time to be repaid, McKay claims that Mack became scarce. "I had to call him and say, `Well, Don, I'm ready to get my money back now,'" he recalls.

Today McKay, who still hasn't seen his short-term loan repaid, says he's not optimistic about the future of Child Care Centers of North America. "If these guys had stuck to the knitting and done child care, they'd be okay," says McKay. "But they're deal men, and they continuously ran around trying to do deals and acquisitions that have nothing to do with child care. They've talked about more damn deals in the past year than there are on the planet."

Mack replies that McKay lacks the fortitude to stick out his investment. "He's one of these wishy-washy investors who got nervous," he says. He adds that when McKay agreed to lend the $25,000, there was no mention of securing the loan with any real estate.

end of part 1

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Eric Dexheimer
Contact: Eric Dexheimer