NetChannel in fiscal crisis

Negotiations for the sale of NetChannel to America Online have stalled, throwing the Net access company into fiscal crisis and putting dozens of jobs in jeopardy.

The deal could be resuscitated, sources said, but many of the company's roughly 100 employees are confused and concerned about their fate. The San Francisco-based company provides Internet access through television set-top boxes.

Some NetChannel workers think they already have been let go, at least for today. In a staff meeting this morning, employees said they were told by company executives to pack their personal belongings, return any company equipment, turn in their office keys, and come back tomorrow to get their paychecks.

The workers also said they were told that NetChannel eventually may be forced to file for Chapter 11 bankruptcy protection. Under Chapter 11, a company continues to operate while it draws up a debt-repayment plan.

"I was stunned when I actually heard it, but nothing [management] said surprised me," said one worker, who cleaned out her desk along with others today.

NetChannel chief executive Philip Monego denied that anyone had been laid off, saying no pink slips have been handed out. His explanation: "I gave them the option to clean up their personal affairs at the company. We have been very open about the need to raise money. When we asked people to be part of the success of our company, we made sure they knew of the challenges so they could decide if they wanted to be part of it or not be part of it."

Employees at NetChannel's San Francisco headquarters said they were called into a conference room today by Monego, who made the announcement. Workers at NetChannel Studios, a production and engineering facility in Atlanta, Georgia, and NetChannel Europe, a NetChannel subsidiary in London, were connected through a conference call.

NetChannel chairman David Atkinson confirmed that the company's board of directors is considering a Chapter 11 bankruptcy filing but said no final decision has been made. Monego said a bankruptcy filing was an option but was not imminent.

"There are certainly viable parts of the business left, and we need to refocus some parts of the business model," Atkinson said. "The opportunity in the marketplace is still clearly there. We could take some of the intellectual property, our subscriber base, and relationships with key partners and redeploy them in a more focused way."

Monego and Atkinson declined to comment on any possible deal with America Online. AOL spokewoman Tricia Primrose also had no comment.

Privately held NetChannel provides Net access through TV set-top boxes. These devices are becoming more common but have yet to gain any wide market acceptance. NetChannel was founded in May 1996 by Atkinson, formerly of AT&T, and Monego, former CEO of Yahoo.

In November, NetChannel struck an agreement with AOL that called for the online giant to keep funding the start-up until an acquisition was completed, said one source familiar with the talks. The deal prohibited NetChannel from seeking other investment partners, the source added.

Earlier this month, however, AOL withdrew its agreement and indicated that it would put together a revised buyout plan by mid-March. That did not materialize, and negotiations broke off late yesterday.

But the deal could be revived. Monego's actions at today's staff meeting have brought AOL back to the bargaining table, a NetChannel source said.