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Technology Stocks : divine interVentures, Inc. (DVIN) -- Ignore unavailable to you. Want to Upgrade?

To: stockman_scott who wrote (217)8/17/2002 8:58:19 AM
From: Glenn Petersen  Respond to of 246
More cash out the door:

Divine buys stock from top shareholder in option deal

By Barbara Rose
Tribune staff reporter

August 17, 2002

Divine Inc.'s biggest shareholder sold about one-third of his holdings to Divine shareholders two months ago at $13.25 per share--well above the fair-market price at the time--under an agreement negotiated when Divine bought his publicly traded software company last year.

Former eShare Communications Inc. Chief Executive Aleksander Szlam, now an officer at Divine, exercised "put" options in June to sell 455,520 of his Divine shares back to the company for $6.24 million, according to Divine's recent quarterly report with the Securities and Exchange Commission.

Divine's stock, which closed Friday at $2.76, traded between $2.87 and $5.21 during June.

Szlam's options were a way for the former CEO, whose partnership owned 49 percent of eShare, to hedge against a drop in Divine's stock price. A put option gives the holder the right to sell at a designated price during a designated period.

Szlam's agreement--disclosed last year when shareholders of both companies approved the buyout--allowed him to begin exercising his options as early as December and to sell the remainder within 12 months starting in April.

Divine, in turn, had "call" options to buy Szlam's shares on favorable terms to Divine if the company's stock price had risen instead of fallen.

Divine's shares plummeted 57 percent, from $34 to $14.50 on a split-adjusted basis, from the time the eShare buyout was announced in July 2001 to when shareholders approved the deal last October. Since the buyout's approval Oct. 19, they've fallen an additional 81 percent.

Divine's payment to Szlam--a longtime associate of Divine founder and CEO Andrew "Flip" Filipowski--comes at a time when the Chicago-based software and services firm can ill afford the cash outlay.

Divine spent $24.9 million more on operations than it took in during the second quarter, reducing its cash on hand to $55.1 million as of June 30, including $22.9 million in cash infusions in May and June from private equity firm Oak Investment Partners.

A pending merger with Internet consultancy Viant Corp. is expected to bring in about $20 million from Viant's treasury, and Oak has a pending agreement to provide Divine an additional $38 million.

Divine originally expected to break even by June, but the software industry's continuing slump in sales coupled with costs associated with Divine's acquisition spree last year have produced more red ink.

Divine reported a $50.3 million operating loss in the second quarter on revenue of $163.6 million.

"The biggest challenge we have is to get customers to commit," Chief Financial Officer Michael Cullinane said Friday. "

The former eShare is among Divine's bigger revenue generators. The firm, based in Norcross, Ga., specializes in customer relationship software including systems that operate call centers.

Before Szlam exercised his put options in June, he owned about 1.4 million Divine shares, split-adjusted, or 7.6 percent of the company--about twice the holdings of Filipowski, who owns 3.7 percent, according to Divine's proxy report in April.

Szlam, a chief strategy officer, couldn't be reached Friday at his office in Georgia.

Szlam and Filipowski served on one another's boards at eShare and at Divine's predecessor, Divine Interventures, where they sat on one another's compensation committees. Such relationships, while not uncommon, are frowned on by shareholder advocates.

Copyright © 2002, Chicago Tribune

To: stockman_scott who wrote (217)8/26/2002 3:33:56 PM
From: Glenn Petersen  Respond to of 246
Without deals, cash crisis looms at Divine

Singed: Divine CEO Andrew "Flip" Filipowski and his team still need to cool the firm's current "burn rate."

August 26, 2002
By Julie Johnsson

It's crunch time for Chicago's Divine Inc., the Internet incubator turned software developer and professional services company.

After racking up total net losses of more than $1 billion since 1999, Divine now faces a cash shortage.

Unless it can close two pending transactions that would give it $73.6 million in additional funds, the company is on pace to run out of cash next month, recent federal filings show.

Even if those deals are consummated, Divine is racing the clock.

While sales are growing — the company tallied revenues of $163.6 million during the second quarter, a 12% gain over the previous quarter — it must jam the brakes on spending this fall to remain in business. If spending continues at its present pace, Divine would run through the funds it anticipates receiving through the two pending deals by early next year.

But CEO Andrew "Flip" Filipowski and his management team have shown little inclination to ratchet down costs during the company's brief history.

They couldn't be reached for interviews. But a spokeswoman insists Divine is on pace to achieve positive cash flow, for the first time, by early 2003. She notes that the second-quarter operating loss was $20 million lower than the first-quarter loss of $70.4 million, adding that the company expects to "significantly reduce" operating losses over the next two quarters.

"We have a solid strategy in place to ensure that we achieve our goal of profitability by the first quarter (of) 2003, and are executing that plan," she adds.

Shareholders are less sanguine. Divine's shares were trading at $2.87 as of noon Friday, down 85% for the year. The stock price would have to top $200 for those who bought shares at its July 2000 initial public offering to recoup their original investment, factoring in the firm's recent 1-for-25 reverse stock split.

"It's pretty disappointing," says Paul Foster, a strategist at Chicago's Mercury Trading Inc., an options derivative trading house. A bargain hunter who scouts distressed companies, Mr. Foster invested in Divine in April. "Is there going to be a bottom where shareholders get anything, or will it just go to zero?"

As of June 30, Divine had $55.1 million in cash and short-term securities, but only $29.9 million of that amount was unrestricted cash. The software company spent, on average, $21.5 million per month on operating activities during the second quarter. Unless it significantly lowered this "burn rate" over the summer, Divine will deplete its existing cash in September.

Counting on Oak

However, the company is counting on a $38.5-million infusion from Palo Alto, Calif.-based Oak Investment Partners, which would control a 45% stake in Divine. Oak invested $22.9 million in May, paying $6 per share for 22,941 shares of convertible preferred stock.

That price proved steep as Divine's stock slid sharply over the summer, causing Oak to postpone the planned closing for a second such placement as it negotiated a lower conversion price to reflect the stock drop.

And Divine's cash stash will swell to about $100 million if it also closes a long-awaited purchase of Boston e-consultancy Viant Inc. by the end of September, as planned.

That deal has been renegotiated twice since it was announced last spring, with much of the windfall that Divine had initially anticipated now going to Viant shareholders, a new filing with the Securities and Exchange Commission reveals.

The filing reports that Divine was forced to sweeten its terms after other bidders offered to pay Viant shareholders multiples of the $24-million cash dividend originally promised by Divine. The Chicago company would have pocketed about $92 million of Viant's cash.

Recovery in time?

Under the latest terms, Viant shareholders will receive a $72.5-million cash distribution from their company, while Divine's take shrinks to $35.1 million. Industry observers say that Divine likely won' t see much of a boost from the Viant deal beyond the cash infusion since other consulting mergers have proven difficult to integrate and have provided poor returns.

"It's still a tough market for software and consulting services, (though) it's getting better," says Tom Rodenhauser, a consulting industry analyst based in Keene, N.H. "But will it get better in time for these people to pull out of a tailspin? It's hard to say."

©2002 by Crain Communications Inc.

To: stockman_scott who wrote (217)1/17/2003 2:01:20 PM
From: Glenn Petersen  Read Replies (1) | Respond to of 246
Divine unit suit: Libraries may lose $50 million

Robert Manor and Rob Kaiser, Tribune staff reporters

January 17, 2003

Thousands of libraries across the country may be out $50 million after a subsidiary of Chicago-based Divine Inc. accepted their money last year to buy periodicals but failed to pay the publishers.

Public, corporate and university libraries could soon see their subscriptions to magazines--ranging from Time to the Journal of Solid State Chemistry--cut off.

Divine executives said Thursday that the subscription service collected money from at least 3,500 libraries but spent the cash on operating costs and debt payments at the subsidiary. There was not enough left to pay the publishers and Divine could not get a loan to keep the subscriptions coming, executives said.

The Divine subsidiary, called RoweCom or sometimes referred to by its former name, Faxon, aggregates periodical subscriptions from libraries and orders them from publishers. A large library can order as many as 40,000 different publications.

The service in December told the libraries it could not supply them with the publications they had ordered, and said its corporate parent, Divine, would not support the business going forward, according to a RoweCom announcement.

"This is unconscionable, unethical and moving rapidly toward grand larceny," said Susan Davis, head of periodical acquisitions at the State University of New York at Buffalo. Her e-mail, sent to a RoweCom sales representative last month, is part of a lawsuit filed against the company by the New York State attorney general's office.

The university's library had paid RoweCom $1.3 million to subscribe to various periodicals. Asked where the money had gone, a spokesman for the attorney general's office replied, "We are trying to figure that out ourselves."

The university has recovered $500,000 and is demanding the rest of the money.

Thousands of other libraries remain in limbo, with little hard information available.

"What they have been told is RoweCom cannot place their orders for 2003," said Jude Sullivan, general counsel for Divine. He said Divine is trying to sell RoweCom to competitors, which might resolve the problem.

Sullivan gave this explanation for RoweCom's problems: The company would typically receive periodical orders from customers, pay the publishers, and later collect from the libraries. To carry it through, the company would borrow against future payments by the libraries.

But just a year after Divine took over RoweCom, no one would advance the struggling company money. "We were not able to get a line of credit," Sullivan said.

Sullivan said the money the libraries paid to RoweCom was used in other Divine operations having nothing to do with the subscription business, but said other Divine money was used to fund RoweCom.

"We have multiple subsidiaries," Sullivan said. "Was RoweCom money used to fund those operations? I suppose the answer to that is sure, because cash is cash."

On balance, he said, RoweCom received a $10 million subsidy from Divine.<?b>

In its most recent report to the Securities and Exchange Commission, for the quarter ending Sept. 30, 2002, Divine said it had $61 million in cash. Jeff Schultz, chief marketing officer for Divine, would not say whether Divine had considered repaying the libraries itself.

"If the implication is that Divine bought RoweCom for the purpose of taking a lot of orders, not placing them and just siphoning off the cash, that would be absolutely incorrect," Schultz said.

Both men declined to say how RoweCom's problems could affect Divine, which has burned through tens of millions of dollars and never earned a profit.

Many of the libraries consider the expensive, obscure journals, which detail subjects ranging from advances in neurosurgery to sociology, a necessity for professors, students and researchers. Some libraries could be forced to cut other spending to replace needed journals.

"One of the things it may mean for us and other libraries is that we cannot buy as many books this year," said Peter S. Graham, head librarian at Syracuse University, which used RoweCom. He would not disclose his school's losses.

Due to the rising costs of journals, Syracuse trimmed its list of publications from 22,000 to 11,000 over the past 11 years.

"What we're left with is the bare bones of journals that are essential," Graham said. "This is not a matter of casual choice. It's a matter of what's at the center of the faculty's needs."

Without a resolution, many large libraries could be out hundreds of thousands or millions of dollars. But smaller libraries, such as those at hospitals, might be the most affected because of their limited budgets.

"Some of them are afraid this is going to be the end of their libraries," said Ruth Holst, associate Midwest director of the National Network of Libraries of Medicine.

Some libraries were luckier than others.

Doreen Roberts, who runs the library at St. Luke's Hospital in Duluth, Minn., had sent RoweCom $37,000 for subscriptions to 142 publications, then learned of the firm's problems.

"We had sent our check late and I had it stopped," Roberts said.

Kathy Biel, deputy commissioner of finance at the Chicago Public Library, said the library was close to paying RoweCom $1.6 million for the 20,000 periodicals it orders each year.

She said the library was still examining its order with RoweCom on Dec. 18, when the company disclosed it would not be forwarding payments to publishers.

"They didn't get any money from us," Biel said.

Divine did not start out in the subscription business.

The brainchild of entrepreneur Andrew "Flip" Filipowski and with backers like Michael Jordan and Microsoft Corp., Divine was originally called Divine Interventures and sought to propel start-up Internet companies into rich initial public offerings. The company went public in July 2000, but abandoned its business model after the collapse of the dot-com bubble.

It has gone in several directions since then, mainly trying to reposition itself as a software concern that distributes electronic content.

Divine bought RoweCom for stock worth $10 million in November 2001.

Copyright © 2003, Chicago Tribune

To: stockman_scott who wrote (217)8/20/2006 9:22:19 AM
From: Glenn Petersen  Respond to of 246
Just in case anyone has been worrying about Flip...

And to his former investors: "To investors, large and small, I would do anything on the planet to eliminate their loss, help them regain it. I wish that penance was available in some rational way,

Terry Savage talks with Flip Filipowski

August 20, 2006


He's ba-ack!

Flip Filipowski, who more than any other individual dramatized Chicago's Internet aspirations, has survived a billion dollar bankruptcy of his publicly held Chicago-based divine inc. and a personal downfall that left him with a significantly diminished fortune.

Of course, he started with the $3.5 billion he made by selling his startup software company, Platinum technology, in 1999 -- an unheard of sum for a young entrepreneur at the time.

His official bio barely mentions the existence of divine -- always spelled with a small "d" -- or that Andrew J. "Flip" Filipowski was a CEO who raised $1 billion from the public in the fateful summer of 2000. That money disappeared into bankruptcy along with millions more invested earlier at pre-IPO prices by well-known Chicagoans including Bill Wrigley Jr. and Michael Jordan. And Mayor Daley approved a $14 million subsidy for Filipowski to build a dot-com incubator on Goose Island.

Filipowski's "Internet zaibatsu" concept of melding a few dozen small companies into one mutually supporting organization incinerated virtually every operating unit within the zaibatsu when the Internet bubble burst in 2000.

How does Filipowski describe himself today?

"Somewhat humbled, but seasoned, scarred, a little older, hopefully wiser. . . . Never have I been more certain that life is just full of ups and downs, and that you sometimes have to end up reflecting back and saying that the downs, as tough as they are, are almost as bittersweet as the ups -- from the standpoint that they define your life, like scars on furniture make them into antiques as a result of the damage."

At age 55, his beard is more silver-and-gray than it was in 2000, but his ponytail retains its natural dark-brown color, and the attitude is only moderately subdued. There are still undertones of the bold warrior who defied corporate America when I interviewed him at the top of the Internet bubble in April 2000.

At the time he said, "Look, the fact is companies die. They die like human beings do. And they're supposed to die to make room for the next generation."

In that interview, he cited Sears as a prime example of a company that should die -- and in hindsight, he was right. And also was right about his belief in the accelerating pace of change in the economy.

At the time, he was lionized by some for his tech-inspired vision, and resented by others for his, well, just about everything, from his name to his ponytail to his all-black dress ensemble, to his know-it-all attitude.

So when Flip's public relations handler called to let me know that Flip was ready for a follow-up interview, I was ready to hear him out. After all, as Flip also said in 2000, "The bubble moves, and you gotta move with it."

Like many of you, I wondered where he'd moved.

Though he has great affection for his native Chicago, where he was raised on the North Side by his Polish-born parents, Flip has lived and worked in North Carolina for the last two decades, including the divine era. He returns only infrequently to Chicago, where he maintains a residence, as well as some investments in real estate. And he's the sole owner of Mastro Auctions Inc., based in Burr Ridge, an international leader in sports and Americana memorabilia auctions.

His main effort is as executive chairman and CEO of SilkRoad equity, a Winston-Salem-based holding company that includes more than a dozen ventures, standing alone as their own businesses but also doing business with each other in the Internet zaibatsu model resurrected.

He describes the SilkRoad technology unit as "an outsourcing firm that will handle the [personnel] recruiting process by using its technology to predict success in the hiring process, cultivate talent to make employees as productive as possible, and handle all aspects of training and 'provisioning' -- such as laptops, Blackberries and other technology needs -- for a client company's employees."

In other words, I ask, you're sort of an outsourced HR department for client companies?

I'm greeted by a withering silence. Then: "We now have over 500 companies using the product, and we have been adding new customers at a faster rate than any of our competitors, and our suite of products has been judged by Gartner [a research organization] to be as good as exists in the marketplace, and I feel we have a shot at being one of the, if not the leading offerer in the hot market that is today in the HR space."

Flip's enthusiasm for his own creations is clearly undimmed. He explains that his new company grew out of the ashes of a small division of divine. This division, Eprise, was first acquired in the divine bankruptcy by a competitor that subsequently sold some of the assets back to Flip. He was interested in its "content management system," which he built into a service that "replaces the traditional way of managing talent by using Excel spreadsheets and paper files."

Filipowski explains the big difference in his service: "It doesn't require them [client companies] to turn over their HR department. They just get on the Internet and start using the software. They don't have to buy it or install on their computers. . . . The customer just gets a license to have their HR people log on, and get a personalized view of the application for their company, for the purposes of managing their processes.

"It is no longer feeling like a big leap for these companies to outsource. But what really popped our eyes was when sold the concept that you can do customer-relationship management cheaper and better this way than by spending millions with a SAP or Siebel systems. Now we do it for HR."

The concept might be revolutionary, but there's a lot of the same old Flip.

"Right now, my No. 1 objective for SilkRoad technology," he said, "is to be a great fun place to work, and have the kind of reputation -- internally and externally -- that Platinum technology had, where it is the greatest place on the planet for a tech person to work."

While Flip was more than eager to explain his business concept, I was most interested in how his life and attitude had changed -- or not changed -- in the six years since his spectacular fall from grace.

Here's Flip on Flip:

On lessons learned: "The enormous lessons I've learned, I keep to myself, and I cry over them in my pillow. But I don't know how to find the words to share the lessons with someone else."

On feeling guilty: "Of course I do, even when everyone tells you not to feel guilty, I do. Even when everyone else has forgiven you, the only person left is me. . . . The only place where it counts is between my ears. All else is irrelevant. These are sufferings and pain you can only experience yourself."

On being an entrepreneur: "If you have it in you to be an entrepreneur, then you are challenged by the risks and variety of factors that affect your effort . . . . Sometimes you get a great success like Platinum technology, and sometimes a great failure like divine. [This experience] had an enormous impact on my enthusiasm for entrepreneurial activity, and I had to fight tooth and nail to get it [my enthusiasm] back."

On doing things differently: "I've been far more cautious, far more dependent on getting the right talent in the right place, far more interested in risking only my own capital, rather than someone else's."

On the importance of friends and family: "Without friends and family, there's no way to get through this, and I'm deeply indebted to all my friends, many of whom are CEOs, and have given up more than they should have in terms of support and counseling and mentoring. . . . It is impossible to get through a divine without a lot of that. And then it takes an enormous gumption to get back in the saddle and ride again."

And to his former investors: "To investors, large and small, I would do anything on the planet to eliminate their loss, help them regain it. I wish that penance was available in some rational way, but if you read the column you wrote six years ago, everyone at that time -- like, most recently, those in the real estate market, or anywhere else -- we all choose to be venture capitalists, and when we do this, we should know the risks associated with it.

"It doesn't make me feel any better, but the truth is when you take a high risk it's called that because it is!"



Andrew J. "Flip" Filipowski, 55, grew up on Chicago's North Side, reared by his Polish-born parents.

He graduated from St. John's military academy in Delafield, Wis., in 1968, and went on to the University of Illinois at Chicago. He changed jobs several times in his early career, starting as a computer operator at Time Inc., then Motorola Inc., A.B. Dick & Co. and finally moving to software pioneer Cullinet in 1973.

Success came when he started Platinum technology in 1987, and he sold out in 1999 for $3.5 billion -- at the time, a record price for a software company.

He became an angel investor with the creation of Platinum Venture Partners in 1992, and funded Internet and technology startups, including Whittman-Hart, StarMedia and Yesmail. That interest developed into divine interVentures, a grander plan to fund and develop new technology companies.

A diehard entrepreneur, Filipowski, against the advice of his investment bankers, took divine public in July 2000, raising about $1 billion even as the tech market was in meltdown.

In 2002, divine shares traded as high as $18.75. The company filed for bankruptcy in February 2003.

Terry Savage is a registered investment adviser. Her 2000 interview with Filipowski can be read at;