Here's something that, on the surface, looks bad. But near the end, you see that SIM was having tremendous problems before Zulu took control of the company. Note the comment from the Netscape spokesperson, near the end.
Softbank lawsuit is latest problem
for ad network
Founding execs seek $200 million from former
parent and Ziff-Davis
by Kate Maddox
A $200 million lawsuit filed by the founding executives of Softbank
Interactive Marketing against its former parent Softbank Holdings
and Softbank subsidiary Ziff-Davis is the latest problem for the
interactive advertising company since its sale to Zulu-tek in
December.
Some clients of the former SIM network, which has been renamed
ZuluMedia, are worried about the lawsuit and surrounding
publicity.
"All of the news from the press about the company concerns us,
and we hope to have those concerns addressed," said Mark
Evans, advertising general manager of Netscape Communications
Corp., a ZuluMedia client that was scheduled to meet with new
leadership at Zulu-tek late last week.
UPHEAVAL SINCE TAKEOVER
"I'm surprised they have any clients at this point, given the disarray
and chaos they've been in," said Peter Storck, group director of
online advertising at Jupiter Communications, pointing to other
legal action and management upheaval since the Zulu-tek
takeover. One advertising manager familiar with the ZuluMedia
sales operations said that of the previous 20-plus sales force, only
a handful of sales reps remain.
A Zulu-tek spokesman declined to comment, noting the company
is not a defendant in the suit.
The $200 million suit was filed April 17 in New York Supreme
Court, New York, by Andrew Batkin, former chairman of SIM;
Lawrence Howorth, former exec VP-chief financial officer;
Edward West, former exec VP-business development; and
Robert Colvin, former senior VP-client acquisition. All are still
minority shareholders in SIM, but left the company following its
takeover by Zulu-tek.
The former SIM executives seek to recover damages for lost
compensation and business opportunities resulting from
"fraudulent, conflict-ridden and irresponsible actions" of the
defendants, according to the lawsuit.
Also named in the suit as defendants are Eric Hippeau,
chairman-CEO of Ziff-Davis; Jeffrey Ballowe, former president of
marketing and development of Ziff-Davis' Interactive Media
divisions; and Masayoshi Son, president and majority shareholder
of Softbank Corp., parent of Softbank Holdings.
Malcolm Morris, senior-VP and general counsel for Ziff-Davis,
said, "All of the defendants believe the suit is without merit,
especially with respect to Ziff-Davis, which never held an
ownership interest in Softbank Interactive."
The plaintiffs claim mismanagement by Softbank and Ziff-Davis
executives kept them, their clients and stockholders from realizing
the full potential of the Internet ad network.
"We felt we were stripped of the opportunity to build the company
we started and reap the financial benefits," said Mr. Batkin.
The former SIM executives said in the lawsuit they all agreed to
participate in the formation of SIM following promises made by
the defendants that the company would be a "multidimensional
interactive services company that would provide its services to a
wide variety of Web site providers."
'CONSTRICTED NETWORK'S ABILITY'
However, the plaintiffs argue in the suit, "Virtually from the
moment SIM was formed, the defendants . . . embarked upon a
calculated and deliberate scheme to control the operations and
management of SIM in a manner consistent with their own best
interests, rather than in the best interests of SIM and its other
shareholders."
The former SIM executives said in the claim that Softbank
Holdings and Ziff-Davis used the ad network primarily to
represent Ziff's ZDNet Web site and that of Yahoo!, in which
Softbank owned a 38% interest. This "constricted" the network's
ability to serve its other clients, the plaintiffs said.
COMPETITIVE BUSINESS MODEL
However, said Mr. Evans at Netscape, "The entire business model
of a third-party rep firm is competitive up and down the line." He
said he's been satisfied with the sales business he's been receiving
from ZuluMedia, which represents Netscape on a non-exclusive
basis.
Since its takeover of Softbank, bad publicity has surrounded the
company. One of Zulu-tek's financial advisers, Pattinson Hayton,
has been fined for failing to file Securities & Exchange Commission
documents and had a $3.7 million judgment on a fraud claim by a
Colorado software marketer.
The plaintiffs, who failed in an attempt to buy back control of
SIM, said "Softbank sold [SIM's] stock to a company [Zulu-tek]
whose inappropriateness as a purchaser was obvious for all to
see."
Even before the takeover, the ad network was having trouble
fulfilling its promises to at least some clients.
"We bought this great concept, but the things they promised never
materialized," said an ad sales manager for a former SIM client.
Copyright April 1998, Crain Communications Inc. |
