Softbank woes rattle clients of Web ad firm

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Management turnover, lawsuits, growing client concerns and bad publicity are casting a shadow over Softbank Interactive Marketing.

The Internet ad rep company has lost virtually all its top executives since its Dec. 31 acquisition by Zulu-tek. The latest to leave are Exec VP Ted West and executive VP-sales, Chief Financial Officer Lawrence Howorth, who resigned on March 6.

OTHER HIGH-LEVEL EXITS

Their departures follow those of Chairman Andy Batkin; CEO Caroline Vanderlip; Senior VP-Client Acquisition Bob Colvin, who has since filed a lawsuit against his former employer; and the entire 14-person European staff.

The changes--and uncertainty surrounding SIM--are troubling key clients such as Netscape Communications Corp. and Mapquest.

"We do not know what Zulu-tek has planned, or what they have been doing," said Mark Evans, general manager of advertising for Netscape.

`DIDN'T FEEL COMFORTABLE'

Mr. West, a founding member of SIM's management team, said he left because "we didn't feel comfortable the business was being moved forward in a manner that promised the greatest success."

Echoed Gordon Simpson, former director of European operations: "We had concerns about the way the operations were being run, and about the financial stability of the ongoing business."

LACK OF FINANCIAL SUPPORT

Mr. Simpson said the new owners failed to provide adequate financial support for the European operation, contributing to the loss of its biggest client, Altavista.telia, which is now suing Zulu-tek in London's High Court.

Dan Winblad, AltaVista Northern Europe's product manager, said the lawsuit was filed in late February after Zulu-tek failed to pay revenues earned for ads placed on the AltaVista site during the last quarter of 1997. A copy of the lawsuit was unavailable at press time.

"We were working very well with Gordon Simpson and Softbank Interactive Marketing Europe. The problems started when Zulu-tek bought SIM," Mr. Winblad said.

In other legal action, Mr. Colvin filed a suit against Softbank Interactive Marketing and Zulu-tek seeking $200,000 for past work performed. The suit, filed late last month in Los Angeles Superior Court, seeks to freeze the bank accounts of both Zulu-tek and SIM, said Kirsten Spira, partner with McNamara & Spira, Santa Monica, Calif., attorney for Mr. Colvin.

HAYTON'S ROLE

Also proving worrisome for SIM are questions about the role of Pattinson Hayton, believed to be one of Zulu-tek's key advisers. Mr. Hayton had a judgment totaling $3.7 million entered against him in 1997 on a fraud claim by Colorado software company Apogee, and was fined by a federal court in 1988 for violating an order to file documents with the Securities & Exchange Commission. Mr. Hayton has denied he has an ownership interest in Zulu-tek and said he has no involvement in the day-to-day operations of either Zulu-tek or SIM.

But Mr. Simpson said Mr. Hayton "quite clearly called the shots. In meetings we had, it was quite clear Pat was in charge of Zulu-tek."

Mr. West said reports of Mr. Hayton's past financial troubles concerned SIM staff and clients.

"The pattern of Hayton that existed [with regard to past dealings] was of concern," Mr. West said.

CLIENT BACKLASH

SIM is now facing a backlash by some of its key clients, which said they are concerned the new owners have made no attempt to contact them.

Last week, Zulu-tek named a new president-chief operating officer, Kevin Rogers, who previously was president of the LapTop Solutions division of Enhanced Services, Houston.

Zulu-tek has also reportedly hired Steve Lair, previously CEO of Enhanced Services, as its CEO, according to SIM clients who have been told of the shift. And Zulu-tek reportedly named Tom Burgess VP-sales and marketing, from his previous position as president at echoMedia, a software company owned by Zulu-tek.

SIM and Zulu-tek did not return phone calls by press time.

NETSCAPE CONCERNS

Netscape's Mr. Evans said what concerns him more than the executive turnover is the quality of support he will continue to get from SIM's sales reps.

"There's a lot of consternation about the situation there," he said.

However, Netscape's relationship going forward with SIM will be based to a large extent on how it redefines its Web site strategy, Mr. Evans added.

Netscape is talking to various industry partners and "evaluating our options," said Lynn Carpenter, director of Web site marketing for Netscape. She declined to give further details.

"I'm very concerned," said John Durham, national advertising sales manager for Mapquest, which is in contract negotiations to determine if SIM will continue to be its exclusive Internet sales rep.

When asked who was involved in the negotiations, Mr. Durham responded, "That's the question I want to know right now. I don't know who the new people are. They haven't contacted us."

Other clients of SIM, which reported $50 million in revenues last year, include ZDNet, Playboy.com and Hotmail.

Contributing: Rick E. Bruner, Julianna Koranteng

Copyright March 1998, Crain Communications Inc.

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