Posted by
ryuzaki0
on from the what-happened-to-the-netwinder dept.
halo8 writes: "There is a story on the Ottawa Citizen about Rebel.Com - how they were private, went public during the tech boom, made millons, spent millons (buying james dean logo and rebel.com address). See part I and part II.
Slashdotted, Part II
by
artemis67
·
· Score: 0, Redundant
Still trying to get Part I, but here's Part II:
Rebel without a company: Part II
In Too Deep: Mac Brown had the world by the tail two years ago, when Michael Cowpland sold him a promising but rising computer business. In the end, Brown lost a company he had spent 12 years building. And half-a-dozen of Ottawa's biggest tech stars took hits along with him
James Bagnall
The Ottawa Citizen
Monday, September 10, 2001
Close associates advised him not to take the assignment but in August, Kelly announced that he would. However, Kelly made it clear he could afford to spend no more than 20 hours a week as ceo. What was needed, he said, was a full-time president and he had someone in mind -- Solly Patrontasch, a senior partner at Accenture, one of the globe's largest consulting groups. Kelly and Patrontasch had chaired the United Way campaign in Ottawa in successive years. They knew and respected each other.
Kelly introduced Patrontasch to Rebel's 180 employees in early October. The two mounted a slide show offering a very bullish future for the company. Kelly predicted annual sales would move up sharply over the next five years, with nearly half the total accounted for by sales of NetWinder products. Kelly also acknowledged the contribution of Mansfield, who would now become an advisor to the new president. That arrangement had a lot of employees scratching their heads. It was soon very clear Mansfield and Patrontasch did not get along. Mansfield says Patrontasch made a point of not inviting him to management meetings.
Kelly knew that his sales projections depended mightily on two things -- getting sales channels in place and raising more money. "The strategy for distributing NetWinder products was virtually non-existent," he says. Accordingly, one of Kelly's first moves was to hire three management consultants from Toronto-based Futurus Management. The hired guns, all with extensive experience at consumer goods giant Proctor & Gamble, were to come up with a program for creating sales channels for Rebel.
Patrontasch, for his part, immersed himself in the day-to-day operations and began to impose some order on what had been a freewheeling environment.
But Kelly and Patrontasch weren't prepared for the perilous state of Rebel's finances. The first week Kelly spent on the job, he was stunned to discover that Rebel had already chewed up the $9 million proceeds of its January, 2000 private placement. Worse, HSBC's banking arm informed him it was would lend Rebel $5 million but only if Kelly and Bryden kicked in some significant money of their own. Kelly coughed up $750,000 in a secured loan while Bryden bought $450,000 worth of Rebel stock. HSBC contributed $2.5 million, with the second $2.5 million due later in the fall.
Kelly was so concerned about Rebel's finances he declined to take a salary, thereby winding up as one of the company's more significant unsecured creditors.
Rebel's financial woes were worse than they needed to be. Before Kelly signed on as chief executive, Brown's family members -- including his father and three siblings -- sold an estimated half million of their Rebel shares to Ottawa investors at $10 each between February and April, 2000, according to Mac. On one hand, the move indicated there was phenomenal investor interest in Rebel shares. After all, the $10 price gave the company an implied value of more than $200 million.
But this was an illusion. Because it was a private sale, no prospectus was required detailing the company's affairs. The buyers of those shares were taking a lot on faith. There were two other problems with the sale: First, it set a price Brown was reluctant to sell below; second, it may have denied Rebel the opportunity to promote a share offering of its own -- whatever demand existed in Ottawa for Rebel's shares, may have already been met.
In any case, HSBC wasn't convinced Rebel was ready for a share offering. It was too soon after the January round and the stock markets began sliding about the same time the Brown family members got their cheques.
Whatever the reason for Rebel's financial weakness, Kelly received another shock in November when he learned that HSBC did not intend to make its second $2.5-million payment. He was so furious he threatened to sue HSBC. "I felt HSBC had enticed me and Bryden to invest money in the company on the basis of them committing $5 million," says Kelly. Later, Kelly would change his mind about suing. "The company's best interest was not to pursue that as a basis for getting adequate financing," says Bryden.
David Hunter, a senior executive with HSBC Capital declined an interview. "I'm not comfortable giving you specifics of our particular arrangement," he says. However, Mansfield says HSBC Capital did have the option to withhold the second payment, depending on Rebel's balance sheet performance. "They had reserved the right to say no in the event of material adverse change," Mansfield says. Kelly agrees but adds, "HSBC confirmed the second payment after they had the (balance sheet) information in their hands."
Things were now starting to get desperate. Kelly and Patrontasch had concluded that Rebel's two main businesses -- the services unit and the NetWinder group -- should be separated and sold. Kelly argued this should be done in two stages. He told the board Rebel should first sell its services group and use the estimated $10 million to $15 million in net proceeds to eliminate Rebel's growing debt and other obligations. The second stage would be to sell a portion of the NetWinder unit and use those proceeds to finance the continued R&D and sales development of its products.
A lot needed to go right. Prospective buyers and investors weren't in a rush to examine the two parts of Rebel's business. It didn't help that Brown and Mansfield were pursuing their own agenda. Neither was impressed by the conservative corporate culture that Kelly was trying to impose. They grew convinced that Bryden's hired guns were working on financing options designed to squeeze out Brown, a sensitive issue since the Rebel founder owned a bare majority of the firm's shares. Any attempt to raise new money would make him a minority shareholder. Brown appeared concerned that a new deal might be contingent upon him leaving the firm.
At one point Brown accused Bryden of trying to seize control of Rebel. The allegation, which was aired at a Rebel board meeting in late 2000 or early 2001, appears to have been triggered by an approach Bryden had made to senior management at Corel. Bryden says he intended to see if Corel was interested in buying more shares as part of a potential venture capital round. "It is pretty usual that entrepreneurs like Mac -- even when they ask for help -- will quickly misinterpret real action to try to help," says Bryden. "They see it instead as action to take advantage of a weakness."
Bryden offered to leave the board, saying he had other things to do with his life, but Brown backed down, saying he "may have misinterpreted" Bryden's money raising efforts.
Maybe so, but Brown began his own hunt for investors in California, Boston, New York, Toronto and Ottawa. He says he and Mansfield made pitches to dozens of venture capital firms and other potential investors. There was no real method to the search. "Mac just took out his rolodex and began calling," says a top Rebel executive.
Locally, he called on BitFlash chief executive Antoine Paquin and offered him a seat on Rebel's board. Paquin declined. Conrad Lewis and Ken Wigglesworth, principals with Eagle One Ventures, were approached for financing. "It was not a situation that fitted what we do," says Lewis. In the first meeting with March Networks' chief executive Terence Matthews, Brown talked up the value of his NetWinder unit, then offered Matthews a Rebel board seat. Matthews told him bluntly he couldn't accept because there was someone on Rebel's board he didn't like. Brown offered to get rid of the board member on the spot -- even though he didn't know who the offending person was. Matthews noted shrewdly "Well then he'd know I don't like him, wouldn't he?"
Matthews spoke again with Brown near yearend 2000, largely at the urging of Pat Beirne, a former Corel executive who had been instrumental in developing the NetWinder but who was (and still is) helping Matthews evaluate new technologies. Talks continued into the new year.
in search of the big bucks
Kelly meanwhile was meeting with literally dozens of Canada-based financiers to shore up Rebel's balance sheet. But he was faced with a conundrum. Rebel's need for cash was immediate but the only way to pry money quickly from venture capitalists was to ask for a small amount, say $5 million. The instant the venture firm's partners examined Rebel's financial position, however, they realized Rebel required substantially more capital. And that meant they needed a lot more time to evaluate any investment of that magnitude.
Late in 2000 Mansfield began pursuing an overseas buyer for the NetWinder business. Rebel's sales team had made a cold call earlier that year to California-based FX Palo Alto Laboratories, a unit of Fuji Xerox of Tokyo.
FXPAL had been evaluating the NetWinder technology since mid-summer, 2000 and now was showing signs of interest. Mansfield boarded a plane to Tokyo in December and met with the top Japanese officials including Hideaki Takahashi, the deputy chairman of Fuji Xerox. When Mansfield returned to Ottawa, he told Kelly and Patrontasch that Fuji Xerox wanted a deal. He was greeted with skepticism and found it understandable. "Mac had been everywhere saying 'here's a deal', 'here's a deal'," says Mansfield, "and he had become like the boy who cried 'wolf'." Mansfield decided to pursue a possible investment from Fuji Xerox on his own.
Early in the new year, things were beginning to look promising. Patrontasch tapped his Accenture network and found receptive former colleagues at Xwave, the computer systems integration arm of Halifax-based Aliant Inc. Rebel and Xwave executive met face to face for the first time on Jan. 19. Xwave signed a letter of intent within days to acquire Rebel's computer services unit for $13 million plus.
The Xwave engineers and managers began examining the property in more detail. For the first time, Patrontasch was starting to feel like he was in control of things. In early March, he caught wind that Brown and Mansfield were set to fly to Japan for more detailed talks with Fuji Xerox. He and other managers pressed Kelly into going along.
It was an uneasy threesome. Kelly felt like the uninvited guest while Brown was continuing to play other business angles.
Even as he boarded the plane to Tokyo, Brown made one last call to Matthews and asked if he wanted to buy NetWinder. Brown said now was the time to do it because he was on his way to see Fuji Xerox. Matthews declined, citing disagreements among his advisors.
The meetings with Fuji Xerox started off well but, while they were still in Tokyo, the Rebel executives learned Xwave had pulled out. Xwave's parent company, Aliant, had put a temporary hold on all acquisition activity until it could be sure it had properly absorbed its recent purchases. Rebel wasn't being singled out, in other words, but that hardly mattered. The company's two-stage plan for recovery was in jeopardy. Now everything appeared to rest with a deal with Fuji Xerox.
Brown and Kelly told Fuji Xerox of the Xwave decision. The Japanese recognized immediately that their bargaining clout had improved. But there was now a third party at the talks -- Rebel's creditors. Rebel had been spending millions more on the NetWinder unit than it had been getting back in the form of sales. The result was Rebel's debt was becoming a supreme burden. In March, secured creditors alone were owed probably close to $10 million. While Fuji Xerox's proposed investment was significant it wouldn't be enough to cover the debt. The Japanese firm didn't want to put in money and have it go to Rebel's other creditors. So, absent Rebel's ability to find another buyer for its services unit on short notice, any deal involving Fuji Xerox would have to involve the creditors.
Kelly says at one point Rebel contemplated doing the Fuji Xerox negotiations from the protection of a voluntary receivership, where the competing claims would be worked out.
But Kelly and Fuji Xerox came up with a plan for avoiding this drastic action, at least temporarily. Here's how it was meant to work: Rebel would spin off a separate, debt-free Netwinder unit, called Newco. Fuji Xerox would then invest $7.8 million ($5 million U.S.) for a one-third share of Newco, giving the unit an implied value of $23.4 million. Rebel's existing shareholders would be given two-thirds of Newco. The new, debt-free company would then do additional share offerings when new capital was required.
The negotiators on all sides believed that the presence of Fuji Xerox would make it relatively easy to attract fresh investors. Even so, Fuji Xerox proposed a series of staggered payments, timed to coincide with Rebel's ability to meet its obligations. According to Rebel officials familiar with the deal, Rebel would get $1 million U.S. in exchange for the right to license Netwinder technology and manufacture the associated hardware. Newco would get $2 million U.S. upon its successful restructuring; and Fuji Xerox would kick in the final $2 million U.S. to Newco later.
At heart, the deal recognized that Rebel was already insolvent but it at least offered some hope its creditors would see a return on their investment, esepcially if Newco proved successful. Negotiations over the details continued through the spring.
Patrontasch, meanwhile, was trying desperately to extract some cash out of Rebel's services unit. When the Xwave proposal collapsed, the former Accenture partner tried to orchestrate a management buyout. The managers of the services unit, along with outside investors identified by Patrontasch, would buy the business from Rebel and run it themselves.
But as Patrontasch began a more detailed examination of the unit, he became increasingly concerned about its underlying strength. Key people were already leaving and the value of companies in the services sector generally was dropping. The buyout wouldn't work. In mid-April, he informed Rebel's board he would resign. His last day there was Apr. 23, when he told one employee he planned to spend the summer at home.
Within days of Patrontasch's departure, Bryden, too, was gone. "I left because the company was controlled by [Mac]," says Bryden, "For the board to be effective, Mac has to be willing to work through the board. If I couldn't be effective, I would rather not be there with the responsibility." Colin Beaumont resigned months earlier for similar reasons. Goudie also quit in April and returned to his former job at the Ottawa Senators.
Kelly, though, stayed the course, albeit with some distractions. In June, he and his brother Hubert bought EDS Innovations from EDS Canada and renamed it NexInnovations. Since NexInnovations competed against Rebel's services unit, Kelly would absent himself from discussions involving that part of the business.
In May, Brown hired Dave Gordon to take on the chore of president. Gordon was a former Newbridge executive who had been responsible for placing orders for Rebel gear. To preserve cash flow, Gordon sacked one-fifth of Rebel's staff. Brown was still working his Rolodex, tapping firms like Eagle One for advice and possible capital, but Fuji Xerox was looking like Rebel's only hope. Negotiations were extremely tedious, not least because the Japanese were going over Rebel's operations with a degree of scrutiny Rebel's engineers found unsettling. When Fuji Xerox revealed July 9 that it would not invest in Rebel, there was disbelief that it was really all over.
Rebel's employees and executives alike had been living so long on the edge, so often in earshot of Brown's soothing words that a deal was nearly here, that it took some time to decompress. Dave Gordon took off to the Canadian North. Bryan Smith retreated to his retirement home near Perth. "I don't want to talk about anything to do with Rebel until summer's over," he says.
Mansfield is still distraught. "I live with the shame of this lost opportunity," he says, "A lot of employees put borrowed money into this company and I encouraged them to think about the opportunity. I will carry this burden for a long, long time."
And Brown? He is putting a good face on things. For weeks after the July 6 bombshell he was busy trying to mount new bids to reclaim his company and save his home. It's still not clear Brown will be able to keep it but, despite everything, he is showing surprisingly little angst. "Every decision I made was the right one at the time," he said in late August. It's a stunning contrast with the assessment of the man who examined his operations from top to bottom this year.
"We didn't push Rebel into insolvency," stresses FXPAL president Jim Baker, "They were headed there full steam ahead; our arrival on the scene only postponed it."
Rebel was headed there for a host of reasons but it all began with a whim. Brown got a call out of the blue from a local legend, Michael Cowpland, and decided to take a chance on something Cowpland had built. What Brown failed to recognize was how completely NetWinder would change his company and his world.
The high tech stars Brown attracted to his cause failed equally to do their due diligence. They accepted the assessment of long time friends that Rebel was a worthy project in part because that was the way it was done. The tech frenzy of the time made the risks seem that much smaller. The efforts of Bryden, Kelly and the others almost certainly kept Rebel alive months longer than it might otherwise have done on its own. But that's small comfort for months of enervating effort and the damage done to their personal wealth, self-esteem and reputation.
Slashdot Mirror
Still trying to get Part I, but here's Part II:
Rebel without a company: Part II
In Too Deep: Mac Brown had the world by the tail two years ago, when Michael Cowpland sold him a promising but rising computer business. In the end, Brown lost a company he had spent 12 years building. And half-a-dozen of Ottawa's biggest tech stars took hits along with him
James Bagnall
The Ottawa Citizen
Monday, September 10, 2001
Close associates advised him not to take the assignment but in August, Kelly announced that he would. However, Kelly made it clear he could afford to spend no more than 20 hours a week as ceo. What was needed, he said, was a full-time president and he had someone in mind -- Solly Patrontasch, a senior partner at Accenture, one of the globe's largest consulting groups. Kelly and Patrontasch had chaired the United Way campaign in Ottawa in successive years. They knew and respected each other.
Kelly introduced Patrontasch to Rebel's 180 employees in early October. The two mounted a slide show offering a very bullish future for the company. Kelly predicted annual sales would move up sharply over the next five years, with nearly half the total accounted for by sales of NetWinder products. Kelly also acknowledged the contribution of Mansfield, who would now become an advisor to the new president. That arrangement had a lot of employees scratching their heads. It was soon very clear Mansfield and Patrontasch did not get along. Mansfield says Patrontasch made a point of not inviting him to management meetings.
Kelly knew that his sales projections depended mightily on two things -- getting sales channels in place and raising more money. "The strategy for distributing NetWinder products was virtually non-existent," he says. Accordingly, one of Kelly's first moves was to hire three management consultants from Toronto-based Futurus Management. The hired guns, all with extensive experience at consumer goods giant Proctor & Gamble, were to come up with a program for creating sales channels for Rebel.
Patrontasch, for his part, immersed himself in the day-to-day operations and began to impose some order on what had been a freewheeling environment.
But Kelly and Patrontasch weren't prepared for the perilous state of Rebel's finances. The first week Kelly spent on the job, he was stunned to discover that Rebel had already chewed up the $9 million proceeds of its January, 2000 private placement. Worse, HSBC's banking arm informed him it was would lend Rebel $5 million but only if Kelly and Bryden kicked in some significant money of their own. Kelly coughed up $750,000 in a secured loan while Bryden bought $450,000 worth of Rebel stock. HSBC contributed $2.5 million, with the second $2.5 million due later in the fall.
Kelly was so concerned about Rebel's finances he declined to take a salary, thereby winding up as one of the company's more significant unsecured creditors.
Rebel's financial woes were worse than they needed to be. Before Kelly signed on as chief executive, Brown's family members -- including his father and three siblings -- sold an estimated half million of their Rebel shares to Ottawa investors at $10 each between February and April, 2000, according to Mac. On one hand, the move indicated there was phenomenal investor interest in Rebel shares. After all, the $10 price gave the company an implied value of more than $200 million.
But this was an illusion. Because it was a private sale, no prospectus was required detailing the company's affairs. The buyers of those shares were taking a lot on faith. There were two other problems with the sale: First, it set a price Brown was reluctant to sell below; second, it may have denied Rebel the opportunity to promote a share offering of its own -- whatever demand existed in Ottawa for Rebel's shares, may have already been met.
In any case, HSBC wasn't convinced Rebel was ready for a share offering. It was too soon after the January round and the stock markets began sliding about the same time the Brown family members got their cheques.
Whatever the reason for Rebel's financial weakness, Kelly received another shock in November when he learned that HSBC did not intend to make its second $2.5-million payment. He was so furious he threatened to sue HSBC. "I felt HSBC had enticed me and Bryden to invest money in the company on the basis of them committing $5 million," says Kelly. Later, Kelly would change his mind about suing. "The company's best interest was not to pursue that as a basis for getting adequate financing," says Bryden.
David Hunter, a senior executive with HSBC Capital declined an interview. "I'm not comfortable giving you specifics of our particular arrangement," he says. However, Mansfield says HSBC Capital did have the option to withhold the second payment, depending on Rebel's balance sheet performance. "They had reserved the right to say no in the event of material adverse change," Mansfield says. Kelly agrees but adds, "HSBC confirmed the second payment after they had the (balance sheet) information in their hands."
Things were now starting to get desperate. Kelly and Patrontasch had concluded that Rebel's two main businesses -- the services unit and the NetWinder group -- should be separated and sold. Kelly argued this should be done in two stages. He told the board Rebel should first sell its services group and use the estimated $10 million to $15 million in net proceeds to eliminate Rebel's growing debt and other obligations. The second stage would be to sell a portion of the NetWinder unit and use those proceeds to finance the continued R&D and sales development of its products.
A lot needed to go right. Prospective buyers and investors weren't in a rush to examine the two parts of Rebel's business. It didn't help that Brown and Mansfield were pursuing their own agenda. Neither was impressed by the conservative corporate culture that Kelly was trying to impose. They grew convinced that Bryden's hired guns were working on financing options designed to squeeze out Brown, a sensitive issue since the Rebel founder owned a bare majority of the firm's shares. Any attempt to raise new money would make him a minority shareholder. Brown appeared concerned that a new deal might be contingent upon him leaving the firm.
At one point Brown accused Bryden of trying to seize control of Rebel. The allegation, which was aired at a Rebel board meeting in late 2000 or early 2001, appears to have been triggered by an approach Bryden had made to senior management at Corel. Bryden says he intended to see if Corel was interested in buying more shares as part of a potential venture capital round. "It is pretty usual that entrepreneurs like Mac -- even when they ask for help -- will quickly misinterpret real action to try to help," says Bryden. "They see it instead as action to take advantage of a weakness."
Bryden offered to leave the board, saying he had other things to do with his life, but Brown backed down, saying he "may have misinterpreted" Bryden's money raising efforts.
Maybe so, but Brown began his own hunt for investors in California, Boston, New York, Toronto and Ottawa. He says he and Mansfield made pitches to dozens of venture capital firms and other potential investors. There was no real method to the search. "Mac just took out his rolodex and began calling," says a top Rebel executive.
Locally, he called on BitFlash chief executive Antoine Paquin and offered him a seat on Rebel's board. Paquin declined. Conrad Lewis and Ken Wigglesworth, principals with Eagle One Ventures, were approached for financing. "It was not a situation that fitted what we do," says Lewis. In the first meeting with March Networks' chief executive Terence Matthews, Brown talked up the value of his NetWinder unit, then offered Matthews a Rebel board seat. Matthews told him bluntly he couldn't accept because there was someone on Rebel's board he didn't like. Brown offered to get rid of the board member on the spot -- even though he didn't know who the offending person was. Matthews noted shrewdly "Well then he'd know I don't like him, wouldn't he?"
Matthews spoke again with Brown near yearend 2000, largely at the urging of Pat Beirne, a former Corel executive who had been instrumental in developing the NetWinder but who was (and still is) helping Matthews evaluate new technologies. Talks continued into the new year.
in search of the big bucks
Kelly meanwhile was meeting with literally dozens of Canada-based financiers to shore up Rebel's balance sheet. But he was faced with a conundrum. Rebel's need for cash was immediate but the only way to pry money quickly from venture capitalists was to ask for a small amount, say $5 million. The instant the venture firm's partners examined Rebel's financial position, however, they realized Rebel required substantially more capital. And that meant they needed a lot more time to evaluate any investment of that magnitude.
Late in 2000 Mansfield began pursuing an overseas buyer for the NetWinder business. Rebel's sales team had made a cold call earlier that year to California-based FX Palo Alto Laboratories, a unit of Fuji Xerox of Tokyo.
FXPAL had been evaluating the NetWinder technology since mid-summer, 2000 and now was showing signs of interest. Mansfield boarded a plane to Tokyo in December and met with the top Japanese officials including Hideaki Takahashi, the deputy chairman of Fuji Xerox. When Mansfield returned to Ottawa, he told Kelly and Patrontasch that Fuji Xerox wanted a deal. He was greeted with skepticism and found it understandable. "Mac had been everywhere saying 'here's a deal', 'here's a deal'," says Mansfield, "and he had become like the boy who cried 'wolf'." Mansfield decided to pursue a possible investment from Fuji Xerox on his own.
Early in the new year, things were beginning to look promising. Patrontasch tapped his Accenture network and found receptive former colleagues at Xwave, the computer systems integration arm of Halifax-based Aliant Inc. Rebel and Xwave executive met face to face for the first time on Jan. 19. Xwave signed a letter of intent within days to acquire Rebel's computer services unit for $13 million plus.
The Xwave engineers and managers began examining the property in more detail. For the first time, Patrontasch was starting to feel like he was in control of things. In early March, he caught wind that Brown and Mansfield were set to fly to Japan for more detailed talks with Fuji Xerox. He and other managers pressed Kelly into going along.
It was an uneasy threesome. Kelly felt like the uninvited guest while Brown was continuing to play other business angles.
Even as he boarded the plane to Tokyo, Brown made one last call to Matthews and asked if he wanted to buy NetWinder. Brown said now was the time to do it because he was on his way to see Fuji Xerox. Matthews declined, citing disagreements among his advisors.
The meetings with Fuji Xerox started off well but, while they were still in Tokyo, the Rebel executives learned Xwave had pulled out. Xwave's parent company, Aliant, had put a temporary hold on all acquisition activity until it could be sure it had properly absorbed its recent purchases. Rebel wasn't being singled out, in other words, but that hardly mattered. The company's two-stage plan for recovery was in jeopardy. Now everything appeared to rest with a deal with Fuji Xerox.
Brown and Kelly told Fuji Xerox of the Xwave decision. The Japanese recognized immediately that their bargaining clout had improved. But there was now a third party at the talks -- Rebel's creditors. Rebel had been spending millions more on the NetWinder unit than it had been getting back in the form of sales. The result was Rebel's debt was becoming a supreme burden. In March, secured creditors alone were owed probably close to $10 million. While Fuji Xerox's proposed investment was significant it wouldn't be enough to cover the debt. The Japanese firm didn't want to put in money and have it go to Rebel's other creditors. So, absent Rebel's ability to find another buyer for its services unit on short notice, any deal involving Fuji Xerox would have to involve the creditors.
Kelly says at one point Rebel contemplated doing the Fuji Xerox negotiations from the protection of a voluntary receivership, where the competing claims would be worked out.
But Kelly and Fuji Xerox came up with a plan for avoiding this drastic action, at least temporarily. Here's how it was meant to work: Rebel would spin off a separate, debt-free Netwinder unit, called Newco. Fuji Xerox would then invest $7.8 million ($5 million U.S.) for a one-third share of Newco, giving the unit an implied value of $23.4 million. Rebel's existing shareholders would be given two-thirds of Newco. The new, debt-free company would then do additional share offerings when new capital was required.
The negotiators on all sides believed that the presence of Fuji Xerox would make it relatively easy to attract fresh investors. Even so, Fuji Xerox proposed a series of staggered payments, timed to coincide with Rebel's ability to meet its obligations. According to Rebel officials familiar with the deal, Rebel would get $1 million U.S. in exchange for the right to license Netwinder technology and manufacture the associated hardware. Newco would get $2 million U.S. upon its successful restructuring; and Fuji Xerox would kick in the final $2 million U.S. to Newco later.
At heart, the deal recognized that Rebel was already insolvent but it at least offered some hope its creditors would see a return on their investment, esepcially if Newco proved successful. Negotiations over the details continued through the spring.
Patrontasch, meanwhile, was trying desperately to extract some cash out of Rebel's services unit. When the Xwave proposal collapsed, the former Accenture partner tried to orchestrate a management buyout. The managers of the services unit, along with outside investors identified by Patrontasch, would buy the business from Rebel and run it themselves.
But as Patrontasch began a more detailed examination of the unit, he became increasingly concerned about its underlying strength. Key people were already leaving and the value of companies in the services sector generally was dropping. The buyout wouldn't work. In mid-April, he informed Rebel's board he would resign. His last day there was Apr. 23, when he told one employee he planned to spend the summer at home.
Within days of Patrontasch's departure, Bryden, too, was gone. "I left because the company was controlled by [Mac]," says Bryden, "For the board to be effective, Mac has to be willing to work through the board. If I couldn't be effective, I would rather not be there with the responsibility." Colin Beaumont resigned months earlier for similar reasons. Goudie also quit in April and returned to his former job at the Ottawa Senators.
Kelly, though, stayed the course, albeit with some distractions. In June, he and his brother Hubert bought EDS Innovations from EDS Canada and renamed it NexInnovations. Since NexInnovations competed against Rebel's services unit, Kelly would absent himself from discussions involving that part of the business.
In May, Brown hired Dave Gordon to take on the chore of president. Gordon was a former Newbridge executive who had been responsible for placing orders for Rebel gear. To preserve cash flow, Gordon sacked one-fifth of Rebel's staff. Brown was still working his Rolodex, tapping firms like Eagle One for advice and possible capital, but Fuji Xerox was looking like Rebel's only hope. Negotiations were extremely tedious, not least because the Japanese were going over Rebel's operations with a degree of scrutiny Rebel's engineers found unsettling. When Fuji Xerox revealed July 9 that it would not invest in Rebel, there was disbelief that it was really all over.
Rebel's employees and executives alike had been living so long on the edge, so often in earshot of Brown's soothing words that a deal was nearly here, that it took some time to decompress. Dave Gordon took off to the Canadian North. Bryan Smith retreated to his retirement home near Perth. "I don't want to talk about anything to do with Rebel until summer's over," he says.
Mansfield is still distraught. "I live with the shame of this lost opportunity," he says, "A lot of employees put borrowed money into this company and I encouraged them to think about the opportunity. I will carry this burden for a long, long time."
And Brown? He is putting a good face on things. For weeks after the July 6 bombshell he was busy trying to mount new bids to reclaim his company and save his home. It's still not clear Brown will be able to keep it but, despite everything, he is showing surprisingly little angst. "Every decision I made was the right one at the time," he said in late August. It's a stunning contrast with the assessment of the man who examined his operations from top to bottom this year.
"We didn't push Rebel into insolvency," stresses FXPAL president Jim Baker, "They were headed there full steam ahead; our arrival on the scene only postponed it."
Rebel was headed there for a host of reasons but it all began with a whim. Brown got a call out of the blue from a local legend, Michael Cowpland, and decided to take a chance on something Cowpland had built. What Brown failed to recognize was how completely NetWinder would change his company and his world.
The high tech stars Brown attracted to his cause failed equally to do their due diligence. They accepted the assessment of long time friends that Rebel was a worthy project in part because that was the way it was done. The tech frenzy of the time made the risks seem that much smaller. The efforts of Bryden, Kelly and the others almost certainly kept Rebel alive months longer than it might otherwise have done on its own. But that's small comfort for months of enervating effort and the damage done to their personal wealth, self-esteem and reputation.
©Copyright 2001The Ottawa Citizen