Bankrupt firm aided by Internet grant
SUMMIT COUNTY – While one Internet company is pursuing plans to erect towers to provide Summit County with improved, high-speed Web access, another company has had trouble keeping existing Internet service online.But beneath the surface, both companies are run by the same man, mired in bankruptcy proceedings with one company and awarded a contract with hundreds of thousands of dollars in taxpayers’ money with the other.Furthermore, an elected official charged with administering the public contract is related to the companies in another way. And, the high-tech entrepreneur who started both the companies stands to gain the most, with plans to merge the two entities and consolidate their employees, assets and customers – obtaining 100 percent ownership of the new firm for himself and family members.Greg Friedman is chief executive officer of Peak Speed Communications. The Summit County Telecommunications Consortium (SCTC) awarded Peak Speed a contract to connect the county’s government agencies and nonprofits with the state’s high-speed data network. Money from the state’s Beanpole Project is paying for the contract, worth about $456,000, plus another $200,000 in existing Internet access fees that Peak Speed will collect from town and county government users.The SCTC comprises local elected officials and staff members from Summit’s four town and county governments.The project is behind schedule. According to the SCTC contract with Peak Speed, the wireless Web service was supposed to be up and running this month. Peak Speed, however, has just begun to seek approval from the county’s planning commissions to erect the six towers necessary for relaying the wireless data signal. Friedman said last week he expects final approval by the end of July and the towers to be standing within 30 days after that.Following Friedman’s first appearance before the Tenmile Planning Commission May 8, SCTC chairman Bernie Zurbriggen said a provision in the contract that outlines charges against Peak Speed for delays – $656 for each day past the deadline – would not be enforced. Zurbriggen said the deadline was contingent on zoning approval for the towers.”The delay has been the result of two factors,” Zurbriggen told the Summit Daily News. “One is the weather. And, we weren’t thinking about having to go through the planning commissions. I should have known better.”Zurbriggen was a commissioner for 12 years with Frisco and the countywide planning commissions.Zurbriggen and Friedman also are aware of the importance of planning commissions through the business of Friedman’s other company, Netbeam.Friedman, along with his wife and other investors, formed Netbeam in Breckenridge in 1999 and began offering wireless Internet service. Zurbriggen was an initial Netbeam investor and corporate director.According to former Netbeam employee Christy Annis (before marrying and changing her name to Christy Morton), the company made a practice of skirting planning and zoning requirements in putting up towers.In Eagle County, the Community Development Department confirmed that Netbeam was caught erecting towers in Eagle County without approval. Department director Keith Montague said Netbeam employees were very cooperative once notified and have since complied with land use codes.Other setbacksand a bailoutNetbeam has experienced recent problems with existing towers, leaving Breckenridge customers without Internet service. The last week of April, employees of Avon-based AGM, the owners of KTUN and KSMT radio stations, removed Netbeam’s equipment from a tower on Gibson Hill. AGM removed the equipment because Netbeam was delinquent in its rent payments.That’s not the story Netbeam customers heard. Customers contacted by the Summit Daily News said Netbeam employees told them, in separate instances, that the tower had been vandalized, equipment had been removed by mistake during cleaning and that problems rested not with the tower but with faulty cables.Friedman initially told the Summit Daily News the tower equipment was removed by mistake during cleaning but later confirmed that the rent had not been paid.”We squared up, and everything got put back,” Friedman said May 9. After that, he clarified his statement and said that a portion of the rent was paid and that he had reached terms with AGM on paying off the balance.Netbeam has had cash-flow problems since early 2001. With a large (albeit disputed) debt to Qwest for equipment, unpaid taxes to Summit County, the state of Colorado and other governments, and mounting concerns from unpaid employees, Netbeam filed for federal Chapter 11 bankruptcy protection in July 2001.This common form of bankruptcy filing frees a company from creditors’ lawsuits while it reorganizes its finances. A reorganization plan must be accepted by a majority of a creditors committee and be ratified by a federal judge.In November 2002, Netbeam and a former board director settled class-action lawsuits over the wage claims. Denver attorney Joe Zonies reached a settlement with Steve Santamaria, a Liberty Satellite and Technology (LSAT) executive who joined Netbeam’s board after LSAT invested in Netbeam to the tune of $2.7 million, according to bankruptcy documents. The settlement was for $150,000. Netbeam’s insurance carrier settled the wage claims for $200,000.Netbeam submitted its fifth plan for reorganization to the U.S. Bankruptcy Court in Denver on April 25, after the committee of creditors responsible for approving the plan rejected the previous four.According to the bankruptcy court documents, Netbeam officials hope the reorganization will work out as follows:- Most directors in Netbeam would give up their interest in the company. Zurbriggen, who reports no longer being a Netbeam officer, would give up his $30,000 investment. The total private investment amounted to about $680,000. The company and investors never signed or recorded the financing agreements.- The largest investor, LSAT, which pumped $2.7 million into Netbeam in 2000, would recoup about $125,000 in the form of a lien on Netbeam assets. LSAT is related to Denver cable TV and telecom investor John Malone, formerly of TCI Cable, now heading Liberty Media.- Other creditors, such as those that provided financing for Netbeam vehicles, already have or will collect their investment through the sale of those vehicles.- Friedman and his wife, Judith A. Mercer-Friedman, plan to give up their accrued salaries (set by the Netbeam board) of $495,000 and their 22 percent interest in Netbeam in exchange for 100 percent equity in the reorganized company once it merges with Peak Speed. The court rejected an initial motion for the Friedmans’ continued salary, instead approving a $10,000 monthly draw for Greg Friedman and a $7,500 draw for Judith Mercer-Friedman. They had asked for much more – an annual $185,000 and $120,000, respectively.Netbeam needs about $226,000 to make the bankruptcy and to satisfy the claims, according to the court filing, and as of the April 25 filing, had $10,000 on hand.The court documents also shed light on how Netbeam and Peak Speed are now operating – and how the contract won by the latter will help bail out the former. The two companies currently operate out of the same Airport Road office in Breckenridge.Because of credit issues, Netbeam was unable to continue obtaining workers compensation insurance, a legal requirement. So, employees were shifted to Peak Speed. In essence, Peak Speed contracts with Netbeam to provide employees, and Netbeam provides the hardware and infrastructure necessary for Internet service. After July 10, 2001, Netbeam began handing all its new customers over to Peak Speed’s subscriber rolls.Peak Speed also helps keep Netbeam afloat with a revolving line of credit, which Netbeam otherwise would not be able to obtain. The credit line was set at $50,000, despite an objection from the bankruptcy creditors committee, and as of Dec. 31, the outstanding balance was actually $50,868.66, according to the court documents.In addition, the Friedmans plan to pump more cash into the Peak Speed-Netbeam operation and make the bankruptcy plan feasible by obtaining two mortgages on their Breckenridge home. According to the bankruptcy filing, the mortgages would produce an additional $140,000.—An uncertain futureThe merged company’s profitability rests heavily on its ability to attract customers, according to the bankruptcy filing, and thus the contract awarded by the SCTC looms large.Zurbriggen has said multiple times, including a January Summit Daily News story, he recused himself from contract selection process based on his previous relationship to Netbeam. He also said that he thought the two other bids, by Qwest and a Denver company called Brunetti, DEC, were too expensive and unrealistic (an opinion repeated by other consortium officials).According to minutes from the August SCTC meeting when the contract was awarded, five people voted in favor of the deal with Peak Speed, including Zurbriggen.The situation is complicated by the fact that Comcast cable TV, which recently purchased AT&T Broadband, and Qwest are developing similar high-speed Internet access offerings, presenting pending competition for Peak Speed.Currently, Colorado.Net offers both wireless and telephone line DSL high-speed Internet access.There are other possible conflicts of interest. For example, the Breckenridge attorney who is acting as the trustee for the SCTC contract, Royal Daniel III, is also the incorporating attorney for Netbeam and Peak Speed.County officials said May 9 they were concerned about the financial stability of Netbeam and researched the contract before approving it.County Commissioner Gary Lindstrom said he has raised questions about Peak’s viability, but he was assured by staff that it had thoroughly checked out the company. Since the contract was awarded, Lindstrom has again asked for more research to be done.County manager Ron Holliday said “the county attorney did due diligence to see if we wanted to get into bed with any of these companies, and we were satisfied.””Maybe we need to look at it again,” Holliday said.Reid Williams can be reached at (970) 668-3998, ext. 237, or firstname.lastname@example.org.—Netbeam Timeline1999, June – Netbeam begins operation in Summit County, founded by Greg Friedman, his wife Judith A. Mercer-Friedman, other family members and private investors. Based in Breckenridge, the company offers high-speed, wireless Internet access.2000, January – Netbeam executives announce financing has secured $2 million in investments, with as much as $20 million possible thanks to infusions from the former TCI Satellite Entertainment and telecom investor John Malone.2001, May – Numerous Netbeam subscribers complain of lack of Internet service. Company officials report technical problems, but employees report massive layoffs.After a Summit Daily News story reporting the complaints, Netbeam employees in Arizona and Utah, in addition to local workers, report being unpaid.2001, May – Summit County begins receiving grant money from the state to initiate a project to develop telecommunications infrastructure in the county. The Summit County Telecommunications Consortium is charged with carrying out the project.2001, May – Bernie Zurbriggen, chairman of the telecommunications consortium, quits as a board director for Netbeam, foregoing his private financial investment.2001, June – Attorneys file class-action suits against Netbeam and its officers on behalf of employees who claim they are owed back wages and benefits.2001, June – Greg Friedman files papers with the Secretary of State forming Peak Speed Communications, another Internet company. Friedman is listed as the sole director with 1,000 shares of stock.2001, July – Netbeam files for Chapter 11 reorganization in U.S. Bankruptcy Court.2001, August – The Summit County Telecommunications Consortium issues a request for proposals from companies capable of installing high-speed Internet infrastructure. Qwest, Denver-based Brunetti, DEC, and Netbeam submit bids. After consortium members raise concerns about Netbeam’s bankruptcy proceedings, Peak Speed takes over the bid.2001, October – Netbeam continues to operate its Internet service and erects a new transmission tower on Baldy Mountain.2002, August – The Summit County Telecommunications Consortium unanimously votes to award Peak Speed the contract for the Internet project.2002, August – Documents recorded with the Secretary of State’s office show the initial 1,000 shares of Peak Speed stock have increased to 500,000 shares.2002, October – Documents recorded with the Secretary of State’s office show Peak Speed stock shares have increased to 1,000,000 shares.2002, November – Attorneys representing former Netbeam employees in class-action lawsuits reach a $150,000 settlement with a former Netbeam board member and a $200,000 settlement with Netbeam’s insurance carrier.2003, April – Netbeam submits its fifth plan for bankruptcy reorganization. The previous four were rejected by a committee of creditors.2003, May – The initial deadline for substantial completion of the Internet project passes.2003, May – The Friedmans make their first appearance before a planning commission seeking approval to construct two of six towers in the Internet project.2003, July – Expected completion date for construction of the transmission towers in the Internet project.
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