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   Technology Stocksdivine interVentures, Inc. (DVIN)


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To: Glenn Petersen who wrote (231)3/2/2003 2:30:08 PM
From: Glenn Petersen
   of 246
 
Divine saga leaves some richer--in experience

By Barbara Rose

Tribune staff reporter

siliconinvestor.com

March 2, 2003

In the summer of 1999, while the U.S. stock market defied gravity, the Internet's true believers were convinced technology had ushered in an age of unparalleled opportunity.

No local figure represented this new religion more conspicuously than Andrew "Flip" Filipowski, whose gift for salesmanship and network of well-placed friends--including Mayor Richard Daley--gave him a platform to promote a company that promised to make Chicago a high-tech capital.

"We want to make Silicon Valley a real bad choice" for starting a business, he told a standing-room-only crowd of professionals and CEOs at a meeting for prospective investors in Lisle in 1999.

How his plan played out over the next 3 1/2 years at Divine Inc., which filed for Chapter 11 bankruptcy Tuesday after losing nearly $1 billion, reveals as much about Chicago's aspirations and the national fallout from an investing bubble as it does about Divine's 52-year-old founder.

Filipowski filled a void in a region that feared getting left behind. He seeded scores of ventures that failed, leaving Chicago to shrug off Divine's legacy of losses.

But some of the entrepreneurs he backed persevered, personally richer from their experience.

"I didn't benefit financially, but I saw the company I founded grow and prosper," said Nate Weersing, who quit Divine two years ago to join Chicago's SEI Information Technology Inc. "That's the positive legacy."

It took a larger-than-life persona to mobilize Chicago's eager strivers. And Filipowski, a rebellious son of Polish immigrants and a workaholic with a flair for the dramatic, filled the bill.

Fresh from having sold his public software firm, Platinum Technology International, for $3.5 billion in what was then the industry's biggest merger, he had both cash and credibility.

While scores of entrepreneurs came to him in 1999 for financing, the corporate elite, from William Wrigley Jr. to Tellabs CEO Michael Birck, put millions of their personal wealth on the line.

Major corporations like Microsoft Corp.--now one of Divine's biggest unsecured creditors, owed $1.9 million--invested hundreds of millions in Divine's initial public offering on the gamble that they would recoup their equity in future sales to the start-up.

For his part, Filipowski invested about $30 million of his $290 million from Platinum's sale.

"It wasn't just Flip making a promise" to boost Chicago's fortunes, said Karen Andre, Filipowski's former marketing director. "It was the market being receptive to a leader who would go out there and pave the way."

Results off target

By the time Divine ran through most of its cash late last year, the company little resembled Filipowski's vision.

Most of its start-ups had failed, and the larger companies acquired during Filipowski's bottom-fishing binge all were located outside Chicago: a Web hosting company in Texas, a telemarketing software firm in Georgia, a now-bankrupt library subscription management service in Massachusetts.

Despite buying some well-regarded products and services and a workforce of more than 3,000 at peak, Divine made little impact on the fragmented market niche on which Filipowski focused: helping corporations manage information and customer relationships.

The leading candidate to buy its assets, private equity firm GTCR Golder Rauner LLC, is likely to break Divine into two or three of the companies Divine bought, then sell or close the others.

"No one took on anything as massive as Divine tried," said Andrew Schroepfer, president of Tier 1 Research in Plymouth, Minn. "[But] they acquired too many weaker companies in too many different industries."

At Filipowski's 1999 meeting in Lisle, he held his audience for more than one hour, describing his plans while standing next to a rendering of Divine's original logo, a Japanese fish called a koi.

"When we go through life we want to leave a trace, a sort of legacy," he said, "like the trace a koi leaves in a pond."


Divine's most immediate legacy is shareholder losses and layoffs--an estimated 500 employees in February alone, leaving 1,748 worldwide.

Its stock, which likely will be worthless when Divine's bankruptcy reorganization is complete, remained at 7 cents Friday.

Upside remembered

But for some entrepreneurs, the legacy is positive.

Weersing, the SEI executive, was 27 in 2000 when the company he cofounded in 1997, Westbound Consulting LLC, was running short of money.

The firm offered lower-cost services using programmers in India, but despite the booming market for information technology consulting, it was too small to compete for corporate contracts.

Divine came along, offering Weersing and his partner $1 million to expand.

"There aren't a lot of places to learn how to deploy $1 million when you're 27 years old," Weersing said. "Divine helped entrepreneurs make real decisions with real money behind those decisions."

Weersing, now based in London, is drawing on his Westbound experience while opening a European operation for SEI.

Westbound, meanwhile, survives as part of Divine, which operates a sizeable programming center in India.

Other entrepreneurs are among Divine's biggest unsecured creditors. Several around the country are owed six-figure severance payments, representing Divine's buyouts of employment contracts that they negotiated when selling their companies to Divine for stock during its merger binge.

Chicago's Paul Cooper and Peter Prokopowitz left Divine in December, leaving behind the technology and customers they developed since 1996 at software firm Perceptual Robotics Inc., which operates Web cameras for corporate customers.

Filipowski was an early investor in PRI. Divine bought a stake in 1999 and acquired the remainder in 2001.

"I think of Divine as a caricature of the whole Internet bubble," Prokopowitz said. "It's not what will take Chicago to the forefront of the high-tech world.

"[What will] is the collection of entrepreneurs. You can't look to somebody like Flip to make it happen for us."

Filipowski and his longtime chief financial officer, Michael Cullinane, have been unavailable for interviews in recent weeks.

Divine is facing big legal problems, including a suit claiming the company illegally diverted $74 million from its now-bankrupt library subscription subsidiary, RoweCom Inc.

A settlement is considered likely, but the RoweCom claim complicates Divine's reorganization and sale.

Meanwhile, it's never wise to count Filipowski out.

An inveterate entrepreneur, his business ventures include Blue Rhino Corp., a hot Nasdaq company that lets customers exchange their propane grill cylinders at convenience stores and other outlets.

Blue Rhino is set to soon launch a new product, SkeeterVac, which uses propane to attract and kill mosquitoes.

On the day Divine filed bankruptcy, Blue Rhino was anything but blue. It reported a net profit for the quarter ended Jan. 31, and sales were up 50 percent.


Copyright © 2003, Chicago Tribune

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To: Glenn Petersen who wrote (232)3/2/2003 7:20:52 PM
From: Sr K
   of 246
 
?? Its stock, which likely will be worthless when Divine's bankruptcy reorganization is complete, remained at 7 cents Friday.

DVINQ closed down 28% at 5 cents. DVIN had last traded at 7 cents.

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To: Sr K who wrote (233)3/2/2003 10:05:40 PM
From: Glenn Petersen
   of 246
 
I have met Barbara Rose and details are not her strong point. I am surprised that her editor did not catch the error. Interesting that Filipowski only put in 10% of his net worth. No tag day for Flip.

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To: Sr K who wrote (233)3/4/2003 4:42:52 PM
From: Glenn Petersen
   of 246
 
Divine faces federal probe

Grand jury wants to determine fate of libraries' cash


By Barbara Rose
Tribune staff reporter

March 4, 2003

chicagotribune.com

A federal grand jury is investigating Divine Inc., Chicago's one-time technology darling, to determine what happened to $65 million in customer payments, documents obtained by the Tribune show.

The criminal investigation threatens to complicate the difficult legal and financial problems facing Divine and its chief executive, Andrew "Flip" Filipowski.

Divine filed for bankruptcy Feb. 25 and is trying to sell its major businesses.

The $65 million is money that Divine's RoweCom Inc. subsidiary says it collected last year from libraries across the country to forward to publishers for magazine subscriptions.

But librarians were alerted to a problem in December when they began missing issues and getting calls from publishers about lapsed subscriptions.

Divine placed RoweCom in bankruptcy in late January, and the subsidiary sued Divine for alleged fraud, charging that its parent had illegally diverted millions from its business.

Divine, which denied the charges, said it spent the libraries' money on RoweCom's operations and debt and couldn't arrange a loan to pay publishers.

In February, libraries began receiving federal subpoenas for their records in connection with a grand jury investigation, according to copies of the subpoenas obtained by the Tribune.

Assistant U.S. Atty. Kaarina Salovaara, who sought the library records, declined to comment, as did a spokesman for the U.S. attorney's office in Chicago.

Divine's general counsel, Jude Sullivan, did not return calls Monday seeking comment.

Although the missing payments prompted a civil fraud complaint against Divine in late December by New York's attorney general on behalf of a Buffalo library, the subpoenas are the first indication of a criminal investigation.

Several library managers said Monday that they were contacted in February by postmaster general officials in conjunction with the investigation. Legal experts say the postmaster general's involvement suggests the investigation is centering on possible wire fraud.

Libraries initially were asked in early February to deliver their RoweCom records to a federal economic-crimes unit in Boston, but the matter later was moved to Chicago.

Salovaara's subpoenas, dated Feb. 12, asked for records to be delivered to U.S. District Court in Chicago last week.

"We don't want our money back," said Morag Boyd, bibliographic services manager at the Milner Library at Illinois State University in Normal. "We want the periodicals we contracted for. And we want the publishers to be paid."

The library's experience is typical of RoweCom's creditors, which include government, corporate and university libraries locally and nationwide.

The biggest creditor is the National Institutes of Health Library in Bethesda, Md., which is owed $2.4 million, according to RoweCom's bankruptcy filing.

Milner Library paid about $1.15 million to RoweCom in October 2002 to order subscriptions for about 3,000 newspapers, magazines and scholarly journals, Boyd said.

"In early December we got calls from publishers about our not having renewed," she said.

The library has since determined that only $33,857 of its payments went to publishers.

Major publishers of scholarly journals have agreed to continue providing issues without payment at least through March while negotiations continue about who will pay the remainder of the year's subscriptions.

RoweCom, meanwhile, is being sold to a large competitor, EBSCO Industries Inc.

Divine purchased the financially troubled business in November 2001 when the company was on an acquisition spree. At the time, RoweCom was facing a $40 million shortfall in payments due to publishers in December, and Divine arranged a loan to cover the payments.

RoweCom's suit alleges that by the spring of 2002, Divine had decided it no longer would invest to keep RoweCom going as a viable business.

The suit alleges that RoweCom's employees were instructed to offer discounts to libraries that paid cash in advance--months before payments were due to publishers. RoweCom collected more than $65 million in payments last year through Nov. 30, the suit alleges, even though Divine "had no intention to pay those obligations."

At the same time, the suit alleges, Divine diverted nearly $74 million from RoweCom's operations during the period from April through December 2002.

Divine denied the suit's allegations and said it intends to defend itself. A reply to the complaint is due Thursday.

Sullivan, Divine's general counsel, was RoweCom's sole director. He told the Tribune in January that the money RoweCom alleges was diverted illegally went to pay off RoweCom's substantial obligations.

Sullivan said Divine inherited a shortfall of at least $54 million. "I'm not sure we fully understood the financial situation it was in," he said.

Divine realized it had a cash flow problem in September, Sullivan said, and the company tried unsuccessfully to arrange short-term financing, as it had the previous year. He said Divine stopped taking orders in December when it was clear the company would not be able to meet RoweCom's obligations.

Copyright © 2003, Chicago Tribune

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To: Glenn Petersen who wrote (235)3/4/2003 9:34:50 PM
From: dave rose
   of 246
 
<<Divine faces federal problem>>>

Do you think they will get him? I mean Andrew "Flip" Filipowski.

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To: dave rose who wrote (236)4/11/2003 7:52:14 PM
From: Glenn Petersen
   of 246
 
Do you think they will get him?

One would hope, though it is doubtful. They can't even get their bankruptcy filings done correctly.

chicagotribune.com

Judge warns Divine management

Company misses deadline; trustee may be appointed


By Barbara Rose
Tribune staff reporter

April 11, 2003

The judge overseeing Divine Inc.'s bankruptcy has threatened to oust the software company's managers and appoint a federal trustee to oversee its reorganization if the firm doesn't meet a court-ordered deadline Friday.

The reprimand came in a strongly worded order this week from U.S. Bankruptcy Judge Joan Feeney in Boston, where Divine filed for Chapter 11 protection in late February.

Divine was required to file a statement of its assets and liabilities and other information about its financial affairs, complete with affidavits from corporate officers, within 15 days of its bankruptcy filing.

Divine asked for an extension in March, which is not uncommon in bankruptcies, according to attorneys. But it's rare for a company to miss an extended deadline without explaining why more time is needed and requesting another extension, the attorneys said.

In Divine's case, the company's lawyers failed not only to ask for more time when the extended deadline passed on April 3, they filed incomplete information four days later, on April 7, according to Feeney's order.

Divine's behavior raises "numerous possible adverse inferences, including mismanagement or incompetence," Feeney's order states.

Mismanagement is grounds for appointing a trustee to run Divine's reorganization--an action that Feeney said she will take "without further notice or a hearing" if Divine fails to complete its filings by Friday.

"It's a threat, and a pretty strong threat," said Chicago bankruptcy attorney Lawrence Snider of Mayer Brown Rowe & Maw.

Snider and other attorneys said the judge's response, given the circumstances, would not be unusual.

"Judges become very perturbed when you start ignoring deadlines," said bankruptcy attorney August Pilati of Chicago's Gesas, Pilati, Gesas and Golin Ltd.

Calls to Divine's bankruptcy attorneys at Latham & Watkins in Chicago and Mintz, Levin, Cohn, Ferris, Glovsky and Popco in Boston were not returned Thursday.

Divine spokeswoman Susan Burke said, "It remains our policy not to respond to inquiries about this process."

Feeney's order came as Divine was headed toward an auction of its assets and sale of the company next week.

Feeney postponed a decision this week on Divine's request to hold the events on April 17 and 18.

Copyright © 2003, Chicago Tribune

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To: dave rose who wrote (236)5/11/2003 8:49:43 AM
From: Glenn Petersen
   of 246
 
Investors angry over Flip's flops

Tech entrepreneur faces a steep climb back after Divine's stunning collapse shreds his credibility


May 12, 2003
By Julie Johnsson

chicagobusiness.com

The first time Andrew "Flip" Filipowski lost a company, his ouster played out as farce.

When an estranged business partner appeared at Naperville-based DBMS Inc. on a March morning in 1987 with armed security guards to eject Mr. Filipowski from the premises, the habitually tardy CEO hadn't arrived yet.

"They had to summon him from home so they could escort him out," recalls Richard Reck, a former financial adviser to Mr. Filipowski.

Comic relief is notably absent from the iconoclastic entrepreneur's latest misadventure, the collapse of Chicago-based Internet-incubator-turned-software-industry-roll-up-vehicle Divine Inc. Bankruptcy Court proceedings in Boston have parceled out what remains of Divine in an auction that pointedly excluded Mr. Filipowski from the bidding.

A more striking difference this time around is the scope of collateral damage and the difficulty Mr. Filipowski will face mounting another comeback.

Mr. Filipowski left DBMS as a relative unknown with one embittered ex-partner. Little stood in his way as he quickly re-established his software business, launching Platinum Technology Inc. a month later with a workforce of 20 programmers hired away from DBMS. He soon took Platinum public and sold it a decade later in a $3.6-billion deal that netted him $200 million and set the stage for Divine.

The bitter and the loyal

Divine's collapse, by contrast, was one of the most spectacular flameouts of the dot.com era, reverberating throughout the private- and public-equity markets and scorching the highest levels of Chicago's financial elite as it vaporized $1 billion in investors' money.

Mr. Filipowski strained, and in some cases snapped, relations with longtime supporters he once counted on to finance his ventures.

"He's burned a lot of bridges," says Mark Tebbe, a former Divine director and investor.

Also working against Mr. Filipowski as he ponders his next move is the reputation he earned at Divine and Platinum for enriching himself while public shareholders earned subpar returns. Adding more tarnish to his résumé is the grand jury investigation of certain transactions involving a Divine subsidiary.

Mr. Filipowski didn't return calls seeking comment for this article, but friends say the 52-year-old is already mulling his next venture, probably a software company. He likely will base future operations in North Carolina, where he has lived in recent years and where he co-owns a minor league baseball team and runs a publicly traded propane gas company, Blue Rhino Corp., with his brother-in-law, Billy D. Prim.

Mr. Filipowski will bring considerable strengths to any new enterprise. He still has a huge fortune and the charisma to captivate a roomful of prospective investors. Indeed, a core of loyalists stands ready to back the ponytailed college dropout in whatever he might undertake.

"I consider Flip to be an outstanding individual and if he needs me for support, I'm there for him," says Craig Duchossois, president of Elmhurst-based Duchossois Industries Inc. An early investor in Platinum and Divine, Mr. Duchossois has served as a director on all four publicly traded companies founded by Mr. Filipowski.

It seems clear that Mr. Filipowski has the wherewithal to launch another business. The test will come when he needs to tap a broader circle of investors to give a new venture the financial fuel it will need to grow. That's when he'll confront the bitter legacy of Divine.

"I've lost everything; it's over and that's it," says Aleksander Szlam, who invested $1 million in Divine before it went public. Mr. Szlam for a time was also Divine's largest stakeholder; he owned 35 million shares last year, after selling his Georgia company, eshare communications Inc., to the Chicago software and services firm. "Twenty-four years of my life is gone — every patent, every invention."

To fund Divine, Mr. Filipowski leaned heavily on contacts cultivated through the Young Presidents' Organization (YPO), a global executives group. YPO members invested about $31 million, led by William Wrigley Jr., who plunged $17 million into the high-profile Internet startup.

In the dot.com delirium of 1999 and early 2000, a stake in Divine became the hottest financial ticket in town, and the group of investors eventually included such notables as Michael Birck, CEO of Naperville-based Tellabs Inc., and Chicago-based insurer Aon Corp.

But the original conception of Divine as a launching pad for Internet companies soon proved to be little more than a fantasy. Mr. Filipowski managed to push through an initial public offering (IPO) in July 2000 — after Internet stocks had crashed — but the company quickly spiraled downward.

Recasting Divine as a consolidator of struggling software firms didn't stop the slide, and Divine landed in Bankruptcy Court earlier this year.

The meltdown spared neither public shareholders nor the gilt-edged private investor group Mr. Filipowski had assembled before Divine's IPO.

"He lost a lot of money from a lot of big-name investors who I don't think he'll ever see again," says William Weaver, partner at Chicago law firm Sachnoff & Weaver.

Mr. Filipowski's success in attracting private investors to any future venture will largely depend on his ability to dangle the carrot of an eventual IPO cash-out. But the institutional money managers who control access to the public markets are still nursing wounds from previous investments in Mr. Filipowski's companies.

Two of the public companies he launched, Divine and Naper-ville-based music company Platinum Entertainment Inc., wound up in bankruptcy. Even Platinum Technology, his most successful venture, produced paltry returns for public investors.

Lucrative eleventh-hour grants

In its years as a public company, 1991 through 1999, Oakbrook Terrace-based Platinum saw its shares appreciate 184%, far less than the 344% gain for the Standard & Poor's 500 Index and the 1,499% rise in S&P's index of system software company stocks.

"You'll be hard-pressed to find a lot of investors who were terribly impressed with (Mr. Filipowski's) performance from a value-adding perspective," says Drew Cupps of Cupps Capital Management LLC in Chicago, who invested in Platinum shares as a money manager at Milwaukee-based mutual fund powerhouse Strong Capital Management Inc.

Although Platinum was one of the largest purveyors of software to manage large mainframe computers, its stock was trading below $10 when Mr. Filipowski negotiated the sale of the company to New York-based Computer Associates (CA) in 1999 for $29.25 per share.

The deal proved especially lucrative for Mr. Filipowski. According to merger documents, Platinum issued him an option to purchase 125,000 shares at an exercise price of $13 on Feb. 9, 1999, eight days after it hired an investment bank to pursue strategic alternatives. Mr. Filipowski received another option grant for 675,000 shares, priced at $9.88, on March 26, just three days before Platinum's board approved CA's $29.25-per-share offer.

The eleventh-hour option grants boosted Mr. Filipowski's total take from the merger by $23.4 million. All told, Mr. Filipowski received $193 million in the merger for his Platinum stake. That was in addition to $32.4 million he made cashing in 1.8 million Platinum options between 1990 and 1998, according to federal filings.

Mr. Filipowski further enhanced his haul in the merger by negotiating consulting and non-competition agreements with CA. The consulting deal paid him $2 million over two years, and the non-competition agreement is worth $23 million over eight years.


The terms of the latter applied to Mr. Filipowski in his role as CEO of Divine, limiting the scope of the company's business. In effect, CA held veto power over the company's acquisitions and any other initiative that might infringe on the New York firm's turf.

"CA was not involved with Divine's acquisition plans or strategy," a CA spokesman says, defending the agreements as "common industry practice."

Mr. Filipowski is slated to receive $3 million from CA this year under the agreement as he contemplates his next move. His primary business interest at this point is Blue Rhino. The North Carolina company, which distributes bottles of propane gas for owners of barbecue grills, continues to grow steadily, despite suffering recent hiccups — including a 34% drop in its share price in February as investors questioned its purchase of two entities previously controlled by Mr. Filipowski.

But many in the software industry expect Mr. Filipowski to return, possibly by repurchasing some portion of the Divine business outside the bankruptcy proceeding.

"Failure is just part of the ride" for entrepreneurs like Mr. Filipowski, says Bartlett-based technology consultant John Karnatz, a principal at Market-Path Corp. "Other people would be decimated, but it's just part of the process for them."

©2003 by Crain Communications Inc.

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To: Glenn Petersen who wrote (238)5/12/2003 12:18:21 PM
From: dave rose
   of 246
 
<<<Mr. Filipowski will bring considerable strengths to any new enterprise. He still has a huge fortune and the charisma to captivate a roomful of prospective investors. Indeed, a core of loyalists stands ready to back the ponytailed college dropout in whatever he might undertake.>>

Glenn: Why ain't this guy in jail????? He has millions socked away somewhere.

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To: dave rose who wrote (239)5/12/2003 2:00:22 PM
From: Glenn Petersen
   of 246
 
Why ain't this guy in jail?????

I have not seen any report that Flip is in danger of being criminally prosecuted. I think that a Grand Jury might be looking into RoweCom, so there is still hope. I will keep you posted.

I have never physically met Flip, though I have three points of reference. A former broker of mine cold called Flip many years ago and picked him up as a client. Flip would periodically make trade and not fund his account. My broker had to go out to his house and pick up a check. Flip was also a "friend" of someone I used to work for. Their point of contact was the Young Presidents' Association (YPA). When my former boss had some reversals and called Flip for some non-financial assistance, Flip did not lift a finger.

Lastly, Flip was on the BOD of a company I was involved with. He never attended a meeting in the flesh and eventually was asked to step down. I will say, however, that I have never been in contact with anyone who had Flip's ability to conceptualize and articulate an intricate deal structure.

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To: Glenn Petersen who wrote (20)3/8/2006 12:26:50 AM
From: M0NEYMADE
   of 246
 
Freaking huge vol 1.5M up 114% today

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