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Sunday, July 16, 2000 - Page updated at 12:00 AM

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Still searching for Brigadoon

Seattle Times Eastside business reporter

Even when their employees were living on tuna and rice, their creditors were cutting them off for ignoring millions in debt and their investors were fuming that they'd been swindled, the leaders of Brigadoon.com said they'd be a great success.

Employees and investors started out optimistic, and they had good reason. Back in the Paleozoic era of the Internet as we know it - spring 1995 - Brigadoon.com was building a reputation for an ingenious business plan to deliver Internet service.

The vision was to capitalize on the Internet revolution by nobly connecting schools and nonprofits to the Internet free while giving schools a fee for every new paying customer they encouraged to sign up - parents, teachers, friends.

But the company discovered it could not deliver. It posted a more than $10 million operating loss while attracting millions from nearly 200 accredited investors from around the world. It hired more than 110 employees at one point and ordered expensive equipment.

The company even persuaded Microsoft to feature it, along with a few other Internet service providers, in a very visible promotional spot on the Windows 95 computer desktop screen. Brigadoon.com executives flew to Internet conferences around the country. The company had highly ranked customer service. It wanted to get huge, go public and worry later about making a profit and paying bills.

But trouble started early.

The investors' money didn't last. The equipment couldn't handle all the demand from customers. The company couldn't keep its billing records straight. Customers bailed because of busy signals and slow service, and big creditors got angry in a hurry. Employees stuck around on promises by company Chairman and Chief Executive Officer John Hansen that better times were surely ahead.

They weren't.

The company landed in bankruptcy court in the spring of 1998, and several employees sued for back wages. Since then, Brigadoon.com has reorganized. It hasn't followed plans to repay its debt, but it has been able to raise millions for its new venture, Fanz.net. The company is a shell of what it once was, with a defunct Web site and seven employees.

Now, experts predict a similar crushing of Internet dreams as venture capitalists take a harder look at plans for profit and Brigadoon.com's meltdown resonates.

"They had a killer business plan," said Bruce Davey, a former chief financial officer for the company. "It was really a heck of an idea. They just could not execute it. They never could."

Hansen said he thinks many other Internet businesses will feel the same pain and experience the gnawing second-guessing.

"The business atmosphere has changed a lot toward a focus on profit before growth," Hansen said. "If I had to do it today, I would lean more toward stronger financial performance before growth."

`Anything is possible'

Brigadoon.com was born out of Hansen's idea to get into the Internet service provider business when it was still young and AOL was not a household name. The company was named and partly inspired by "Brigadoon," a Broadway show and 1954 movie starring Gene Kelly in which a man falls in love with a woman from a magical Scottish village that appears to the outside world once a century.

At the end of the show, the two end up together, against all odds. One of Hansen's favorite lines from the film inspired the company's motto: "When you care enough, anything is possible."

Former employees and investors say Hansen and his partner, Bill Parker, cared, believed and had a vision. Hansen, an engineer with vast technical knowledge of the Internet, is described by former employees and investors as charismatic, optimistic and a constant tinkerer. But they also say a mix of bad decisions, irresponsible spending, broken promises and unrealistic projections tore apart a talented, hard-working team of employees.

The hopes were so high and the disintegration so traumatic that former employees still have an electronic mailing list for "Brigadoon survivors." Contributors to the list have chided the company for misleading them and for not following through on promises to pay them. In one message a former employee called it "Brink-O-Doom."

Hansen said it was difficult to put employees through hard times, but, ever the optimist, he said he still thinks the company has a future. It recently agreed to sell a minority stake in Fanz.net for $4.5 million in stock in Telecom Wireless, an over-the-counter merger-and-acquisitions company.

Hansen said the sale will allow creditors to get paid and shareholders to get some money back, which rarely happens when a company is forced into bankruptcy court.

"If there is really a story about Brigadoon, it is that dedication and hard work can succeed against large companies and long, long odds," Hansen said. "This little band of employees that just never gave up, managed to succeed when everyone else had given up.

"Sure, there are things - if I had 20/20 hindsight - that I would've done differently," Hansen said. "Business is mistakes. Every business out there makes a bunch. You just hope at the end of the day you can move on."

Hansen wouldn't discuss specific bad decisions the company made, but others quickly point them out.

King County Councilman David Irons Jr., who was Brigadoon.com's chief operating officer from 1995 to 1997, recalls how Hansen spent five months and more than $10,000 toying with a new logo. Irons says the company once spent $25,000 to send four executives to the 1996 Comdex Internet trade show while employees weren't getting paid.

Before Christmas 1996, Hansen promised employees they'd be paid, but he failed to follow through when an investor backed out. Irons said he was furious and put $50,000 on his credit card to make payroll. Irons said he later quit because of Hansen's free spending.

Alex Popoff, a former Brigadoon.com vice president for product development who now works at Microsoft, remembers how the company spent $6,000 on mouse pads while employee payroll checks were bouncing.

Through all this, employees commonly rushed to the bank at noon on Fridays, hoping to cash their paychecks before the money ran out. This happened even as company leaders repeatedly told employees they were going to someday go public and rival AOL in size - and that everyone who hung in there would eventually be rich.

Former employee Robert Taylor, now at Microsoft, said people stuck around because of Hansen's enthusiasm and sincerity, a strong team spirit among employees and a "gold rush" mentality. Plus, he said, enough paychecks did come to sustain optimism.

The optimism faded for Taylor by February 1998, when his wife was pregnant and he worried he wouldn't have health insurance to cover the birth. Many others left at the same time, just before the bankruptcy filing.

"All of the meetings told us how great things were going to be," said Sarah Miller, a former employee. "By the end, though, we had all figured out it was smoke and mirrors. You can't tell a room full of people, `There are no paychecks this week, but things are going to be great,' and have them actually believe it."

All this happened after a promising 1997. In those days, the company was ranked among the top 5 Internet service providers in the nation by CNET, a tech-industry news Web site, for its customer service. It had nearly 20,000 customers in 47 states and a talented team of more than 110 employees.

By February 1998, overspending had caught up with the company. Employees walked out en masse without checks. Creditors turned off the network backbone of the service for unpaid bills. Customers lost service and looked elsewhere.

Brigadoon was forced into Chapter 7 bankruptcy by Pacific Aerospace & Electronics, which had loaned the company money to keep it operating. Six weeks later, the case was converted to a Chapter 11 reorganization, meaning Brigadoon could have a second chance.

Court records from September 1998 list $439,000 in assets - mostly the value of remaining Internet accounts and a little furniture. Its debt was figured at $5.9 million to $8.8 million.

A repayment plan was set up to cover $400,000 in debts, but creditors' attorney Deborah Crabbe said the company has not made its payments. Her clients decided against trying to force liquidation because Brigadoon.com had practically nothing in assets. The creditors figured that "giving it a chance" was the only possible way they'd see any money, she said.

Several people close to Brigadoon.com say there was never a chance. "It was all a perception game," said Popoff, a network product manager at Microsoft. "(Hansen) wanted to make himself look real big. He wanted people to look at Brigadoon and say, `They have sites all over the world, and they're good for education.' "

Hansen said, "We were on a growth plan instead of a profit plan," but he answers his critics by saying that he and a few others backed up their talk by sticking through the hard times.

"When you see (that) a lot of people bought into this - caring people who shed blood, sweat and tears - it was very painful," Hansen said. "The easy way out would have been to close the puppy down and find something else to do. But there was a core group who stayed and said, `Let's see what we can do.' "

Some investors fume that they were misled about the company's prospects, and say federal authorities should investigate Brigadoon.com for investor fraud. Other investors say they accept that they made a bad investment and have written off their losses.

"They had a good idea, they just tried to be more things than you can be when you can't afford what you're doing," said Don Faulkner, an investor from Bothell.

Forging ahead

Even in bankruptcy proceedings, Brigadoon.com continued to push ahead. It tried to attract investors last year and early this year through the new Fanz.net subsidiary. The subsidiary had a similar concept, but instead of building Internet partnerships with schools and nonprofits, it offered free Internet access through Web sites for top radio stations and professional sports teams. Fanz.net was to make money through advertising.

By March, Fanz.net was negotiating with CBS/Infinity radio to give free Internet access nationally.

Despite Brigadoon.com's bankruptcy proceedings and millions of debt, Brigadoon.com co-founder Parker noted in an April memo that America Online had accumulated losses of more than $1 billion before turning a profit in 1998. He wrote that if Fanz.net could raise an additional $12 million, it would become a candidate for an initial public offering. In a February e-mail to shareholders, Parker said the CBS deal could vault Fanz.net into a $300 million to $600 million company by this October.

As it turned out, much of the company's history repeated itself, putting Fanz.net on the brink of bankruptcy.

A group of Taiwanese investors considered investing $10 million in Fanz.net, but with numerous conditions, employees said, including the resignations of Hansen and Parker as directors.

Angry shareholders then battled Hansen and Parker for control of the company's board at a venomous April 29 shareholder meeting in Issaquah. The Taiwanese investors ultimately lost interest.

Meanwhile, Hansen this month said he had reached the $4.5 million stock deal with Telecom Wireless that would pay Brigadoon.com's creditors, give a little back to shareholders, and pump new capital into Fanz.net.

But creditors' attorney Crabbe said she's heard this hopeful tune before and will believe it's real when the checks are written to creditors and they clear. Hansen, 64, said once the deal is done, he's going to retire. The new capital infusion, he said, is a relief and vindication of sorts for him and a few dedicated workers.

Luke Timmerman's phone message number is 206-515-5644.

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Brigadoon at a glance

-- Founded: March 1995

-- Number of employees: Seven, peaked at about 110 in 1997

-- Key founders: John Hansen and Bill Parker

-- Business: Provided Internet service to schools and nonprofit groups and used them to help attract paying customers.

-- Headquarters: Started in Bellevue but moved to Seattle and then Mercer Island

Copyright (c) 2000 Seattle Times Company, All Rights Reserved.

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