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ANALYSIS: Cowpland&#039s exit too little, too late for Corel shareholders

Corel Chairman and CEO Michael Cowpland finally did something right Tuesday when he announced his resignation from both posts at the Canadian software developer. Most shareholders would argue the unceremonious departure comes several years too late.

Cowpland, 56, built the company from the ground up and took it public in 1992. He was an anomaly among technology executives, choosing to live a flamboyant lifestyle with his equally ostentatious wife, Marlen, at his side.

They made headlines in the gossip pages on a regular basis in Ottawa while the company that gave them license to enjoy their lavish lifestyle rotted from the head down.

What was once an amusing little side note became a slap in the face to investors who watched Corel lose hundreds of millions of dollars in market capitalization while the Cowplands frolicked from party to party, seemingly oblivious to the fact that their company hadn't turned out a significant product since CorelDRAW in 1989.

Perhaps it was the Brit in him that allowed Cowpland to keep smiling while his company, his fortune and his reputation crumbled around him.

Cowpland exits

On Tuesday, Cowpland finally put himself and Corel investors out of their misery when he stepped down to pursue "startup opportunities" in the still unproven Linux arena.

In the release, Corel made it clear that Cowpland would no longer be involved in the day-to-day operations of the company, but would stay on as a director and technology advisor.

Executive Vice President and Chief Technology Officer Derek Burney will serve as interim CEO and president until a replacement is found, a process that we can only assume is already under way.

"I am looking forward to dedicating more time to start-up ventures in the Linux arena," Cowpland said in the release. "I will continue to work closely with Corel and its affiliates and I have total confidence in Derek's ability to carry the company forward with vision, leadership and focus."

Corel also said director William Davis had resigned for personal reasons. James Baillie was named as the company's new chairman and Larry O'Brien was added to the board of directors. These two will serve with fellow director Hunter Grant and CFO John Blaine on something the company described as a "Board Committee."

Wanted: New CEO

One of the first priorities of this new "committee" will be to find a new CEO who can quickly erase the legacy Cowpland left behind.

Corel shareholders had become numb to the company's constant failings. Profit warnings and earnings misses were invariably followed up by more profit warnings and layoffs.

In its latest quarter, Corel posted yet another disappointing quarter, losing $23.6 million, or 36 cents a share, on sales of $36.6 million.

Not surprisingly, Corel said it would cut 320 employees, or 21 percent of its workforce, in an attempt to cut its operating costs as well as make itself more attractive to a potential buyer.

At the time, Cowpland made a typically empty concession when he said he would forgo his salary, estimated at around $200,000, to show everyone was tightening their belts.

I guess when you're trying to trim more than $40 million in annual operating expenses, $200,000 is something.

Somewhere in the deep recesses of his mind, Cowpland probably thought he was doing the honorable thing.

The case against Cowpland

Leading up to this point, Cowpland watched a proposed merger with Inprise/Borland (Nasdaq: INPR) go up in flames.

More damning were some serious insider trading allegations brought against Cowpland by Ontario securities regulators.

After a 13-month investigation, securities officials claimed Cowpland sold $20.4 million in Corel stock in mid-August 1997, one month before the company warned of an "unexpected" quarterly loss.

Of course, Corel shares went into the tank shortly thereafter. And didn't recover for more than two years.

Securities officials said Cowpland sold 2.4 million Corel shares -- nearly 25 percent of his holdings -- through his private holding company, MCJC Holdings Inc., after he learned that Corel would fall short of its forecast sales for the third quarter of fiscal 1997.

Cowpland denies the allegations but the damage was already done.

Corel shares briefly recovered in December, mainly due to the Linux hype that drove the likes of Red Hat (Nasdaq: RHAT) and VA Linux Systems (Nasdaq: LNUX) to levels they've never seen since.

But it didn't take long for Corel to disappoint its investors again, missing analysts' estimates in its first and second quarters and warning of more pain ahead.

The stock finally bottomed out at 2 13/16 a share earlier this month.

Controversy the norm

It's almost as if Cowpland went out of his way to destroy the company that he worked so hard to create.

Back in 1997, when all this alleged insider trading is said to have gone down, the Cowplands showed up at something called the Corel Draw Gala. Keep in mind, this is eight years after the software was released, showing just hard these people tried to cling to their one-hit success.

Anyway, Marlen Cowpland made quite a splash in a floor-length gown that was, according to the Ottawa Citizen, made of silver lame, accented with what the designer calls an organza "insert."

"That insert began in a point on the left side of her neckline, and expanded across her cleavage to reveal the middle of Mrs. Cowpland's torso. The see-through slash continued towards her right, exposing her entire right hip, buttock and her whole leg."

At the time, the Cowplands must have been feeling like a little more than $20.4 million bucks. And Marlen was downright chipper.

"Michael said if the stock goes up, next year he'll buy me the other half of the dress," she said at the time.

Well, it's safe to assume Mrs. Cowpland got the other half of that dress. But it had nothing to do with the stock price appreciating.

Meanwhile Corel shareholders and most of its employees were left naked.