To: Glenn Petersen who wrote ( 214) 5/30/2002 4:13:27 PM From: stockman_scott Read Replies (1) | Respond to of 246 Big names in Divine bailout By James Evans Crain's Business Chicago May 30, 2002 Some well-known investors, including Fidelity's Peter Lynch and Oak Investment Partners, are bailing out cash-strapped Divine Inc. by ponying up about $70 million in venture capital funding. "One hundred percent of these funds will be utilized to make sure that . . . Divine will be around," said Andrew "Flip" Filipowski, chairman and CEO of the struggling Chicago-based Internet consultancy and software firm. In addition to the cash infusion, Mr. Filipowski said Divine made another round of jobs cuts during the past few weeks in order to slash its annual expenses by an additional $40 million. About 300 jobs were eliminated this time, following 700 layoffs—nearly 18% of its total employees—which Divine made earlier this year so it could cut $45 million in annual expenses (ChicagoBusiness.com, May 2.) The company now has about 3,000 employees, about 600 less than it reported at the beginning of the year. The number of total employees hasn't dropped more this year because of Divine's many acquisitions, a spokeswoman said. Mr. Filipowski says Divine will receive a total of $61 million in two installments from a group led by Connecticut-based venture capital firm Oak Investment Partners. The investors agreed to immediately purchase $23 million in Divine preferred stock that can later be converted into 3.8 million shares of common stock. Those same investors will purchase an additional $38 million in stock, or 6.3 million shares, pending shareholder approval. After that, the investors will receive warrants to purchase another $9.5 million in stock, or 1.5 million shares. In addition to Oak Investment Partners, Peter Lynch, vice-chairman of Boston-based Fidelity Management & Research Co., and other unnamed investors will contribute several million dollars more. Mr. Filipowski declined to say how much money he personally would funnel into Divine. The money will be used to help shore up operations and help Divine reach its goal of recording a profit by the fourth quarter—something it's never done. The investments could be risky, particularly given heavy losses at the company since its inception in 1999. Divine's first-quarter loss rose 8% to $70.8 million, compared with $65.5 million for the same period last year. For 2001, the company posted a loss of $369.8 million. As of March 31, the firm had $39.96 million in cash and cash equivalents, and $38.1 million in restricted cash. Oak Investment Partners and the other investors will now control a 30% ownership stake in Divine, Mr. Filipowski said, adding that Oak Investment Partners gets a spot on Divine's 12-seat board, with the option to take another board position at a later date. Following the venture capital announcement, Divine shares were up $1, or 24%, to $5.15 in afternoon trading Thursday. Yesterday, the first trading day following Divine's 1-for-25 reverse stock split, shares closed at $4.15.