Mile High Comics Seeking Federal Intervention
in Comics Distribution

March 16, 1999

United States Department of Justice
Anti-trust Division
Washington, DC

Dear Mr. Mucchetti:

Thank you very much for taking the time to return my call. I know that the issue of anti-trust violations within as small a market as the world of comics is not as important as many of the issues that you and your colleagues face each day. But I am acting as the representative for a constituency of nearly 3,000 small retailers. We are the survivors of a group that once numbered over 10,000 retailers, worldwide. Due to the severe recession in the world of comics since 1993, we have seen literally thousands of friends and peers forced into insolvency and bankruptcy. But through grit and determination we have managed to hang on, hoping against hope for the dawning of a revival in interest in comics and related materials.

After five years of waiting, and severe financial distress for many of us, we are now seeing a rebirth in demand for comics that is unprecedented in the history of the field. In just the past three years we have seen demand for comics and related collectibles explode on the Internet. With a low-cost method for reaching potential consumers worldwide, even the most humble comics retailer has the opportunity to create sales that were previously impossible to achieve.

For a few comics retailers, such as Mile High Comics, that have always been in the mail order fulfillment business, the growth from the Internet has been the dawn of a new age. Our Internet sales were $30,000 in 1997, $800,000 in 1998, and are projected to be in excess of $3,000,000 in 1999. To keep this positive cycle going, we are reinvesting every penny received from these sales into building our fulfillment operations into everything an individual consumer could ever desire. In this manner we hope to grow demand for both new and collector comics back to the boom levels of 1993, and even beyond.

But now all our efforts, and the combined efforts of all our friends have been cast into shadow by the actions of our exclusive supplier. In a process about which we are still learning, Diamond Comic Distributors, and owner Steve Geppi, have conspired to co-opt a substantial portion of the retailing of comics from his/their own customers. Beginning by foreclosing on the credit line of the largest independent comics retailer on the Internet (www.anotheruniverse.com) in late September, Diamond has now announced that they have agreed to an "exclusive" fulfillment agreement with an Internet start-up company called Next Planet Over. This operation is to be run out of Diamond's Sparta, Illinois warehouse facility (formerly?) owned by Next Planet Over principal (Chairman/CEO?) Milton Griepp. Diamond's arrangement with Next Planet Over guarantees that Diamond will not fulfill individual Internet orders for any other Diamond account for a period of two years. In addition, Diamond owner Steve Geppi has revealed that as a part of the contract with Next Planet Over, either Diamond, or Mr. Geppi personally, have been granted the right to purchase an equity interest in Next Planet Over.

Complicating matters even further, Diamond has revealed that they are seeking to sell anotheruniverse.com. But they are indicating that they have received only a "lowball" offer from Next Planet Over. Given that anotheruniverse.com founder Steve Milo (who remains in management) has publicly stated that the anotheruniverse.com Internet mailing list exceeds 400,000 individuals, this would give Next Planet Over extraordinary critical mass with which to capture a substantial portion of the Internet market for comics and related goods from existing retailers. Additionally, while existing comics Internet retailers would be impacted, this would also act to draw some volume away from the mom-and-pop storefront retailers who have yet to develop Internet marketing activities. With many of them barely hanging on, it seem reasonable to assume that even a 5% decline in volume would lead to the demise of even more small retailers. Ironically, the death knell could very well come from a withdrawal of credit from the Diamond credit department.

What really makes this process particularly repugnant is that all comics retailers are forced to purchase exclusively from Diamond. Were it possible for us to move our wholesale business away from Diamond, then this process might (while still a betrayal of relationships going back decades in some cases) have some moral validity. But for Diamond and/or Steve Geppi to conspire to enter the retailing field of comics, while simultaneously acting as a monopoly supplier to all comics shops, is beyond belief. I can only equate it to an animal that would eat it's own young. I am repulsed by Diamond's manipulative and deceitful machinations to steal my business, and that of my weaker friends and peers. Steve Geppi is already a multi-millionaire, with complete ownership of Diamond (1998 sales $220 Million), Baltimore Magazine, several small comics publications, and a substantial ownership in the Baltimore Orioles baseball team. How much is enough? Does he have to steal the business of his loyal customers, most of whom have sales under $200,000 per year?

In closing, let me ask you to please redirect some of the energy of your department into helping us. None of us individually have the resources to battle Diamond, and even as a group we are very weak. The recession used up just about all of our cash resources, and most of us are still burdened by debt accumulated during the bad days. But we can see the good times just around the corner. We're working seventy and eighty hour weeks trying to revive our businesses. But Steve Geppi and his cronies have the power to smash us down just as we are about to regain our financial strength. Please don't let him destroy the future we've all worked so hard to achieve.

Sincerely,

Charles W. Rozanski,
President - Mile High Comics, Inc.

United States Department of Justice
Anti-trust Division
Washington, DC

March 26, 1999

Dear Mr. Mucchetti:

As promised, I have put together a chronology of my interactions with Steve Geppi in regard to his ownership of anotheruniverse.com. This history is quite lengthy, and for that I apologize in advance, but I tried throughout my efforts to find solutions to the conflicts I believe are inherent to Mr. Geppi's owning anotheruniverse.com to document our dialogs. While I hoped very much that I could persuade Mr. Geppi to seek positive and constructive solutions to the dilemma of his owning a major comics retailing entity, while simultaneously being the monopoly supplier to the competitors of that entity, I had my doubts as to the likelihood of my success. Therefore, I kept a very careful record of our discussions.Those records now allow me to provide you with a chronology of events from my perspective.

PRELIMINARY EVENTS

To begin, I was first made aware that anotheruniverse.com was in financial distress through a press release from the company dated July 7, 1998. In that release it was revealed that founder Steve Milo was selling 9% of the company to Vicon Fiberoptics. More importantly, Vicon was granted three of five seats on the board of directors of anotheruniverse.com for this investment. Given that under normal circumstances 9% ownership of the company should not have given control, I contacted sources within anotheruniverse.com to find out more. I was told that Vicon was a company substantially owned by a Mr. Jim Leonard. He had previously made an investment in anotheruniverse.com privately, and was expanding his position through an investment from Vicon. His combined investment, plus a poor bargaining position by the company, is what allowed him to take control.

The next news report that I heard was in September of 1998. At that time rumors began circulating (later confirmed to be correct) that anotheruniverse.com had been placed on "hold" by the Diamond Comic Distributors credit department. When their staff tried to pick up their books at their Diamond warehouse, they were told they could not have them until further payments were made. This disruption of their weekly comics shipment could have been catastrophic for their business. All comics retailers have consumers waiting for their shipments on Wednesdays, and any inability to deliver books on that day causes some consumers to switch their business to other retailers. Fortunately for anotheruniverse.com, they were able to "make arrangements" with the Diamond credit department by noon of that day, and get their books out just in time. But being placed on "hold," even very temporarily, by the Diamond credit department alerted all other creditors of anotheruniverse.com that they were experiencing cash-flow difficulties.

At the end of September I attended the world book show in Frankfurt, Germany. Upon my return in early October I learned from friends that Steve Geppi had personally intervened in the anotheruniverse.com credit situation, stepping in to purchase majority control from Milo and Leonard in exchange for payment of anotheruniverse.com's debts to Diamond, and many other comics publishers.

This development came as a severe shock to me. For the previous 18 years, despite overtures from myself and many others, Steve Geppi adamantly refused to be involved in the retailing of comics. The only exception to this policy was maintaining the original Geppi's Comic World retail stores that he had established prior to creating Diamond Comic Distributors. Steve Geppi made it clear to me repeatedly during the years of our friendship that any expansion of retailing on his part would be a complete conflict of interest relative to his ownership of Diamond.

What made the news of Steve Geppi taking control of anotheruniverse.com particularly unfathomable was that the Diamond credit department had foreclosed on so many retailers in the past. To the best of my knowledge, there was never a situation prior to anotheruniverse.com where Diamond, or Steve Geppi, had stepped in to purchase a retailer. When Mile High Comics, Inc. experienced cashflow difficulties during the lean years of 1993 through 1997, Diamond did at times grant us extended credit, but they would never entertain taking an equity position in Mile High Comics, Inc. During 1998, in particular, Diamond was very aggressive in forcing not only complete repayment of all backdebt, but also a very strict adherence to our trade terms.

The one time where Steve Geppi personally helped us was when he entered into an arrangement with me in 1995 for a joint venture to market over 500 pieces of original artwork I owned by artist Edgar Church. This joint venture was created to help us pay off a Mile High Comics backdebt to Diamond of $306,000. But, as far as I know, Steve entered into this venture as much because he was seeking the artwork for his own collection, than to actualize a sale of the artwork. After four years, Steve has never sold a single piece of art, or run any ads offering any of the artwork for sale. Nor did he ever sign the original joint venture agreement he asked me draw up. My assumption is that he plans to keep the artwork (eventually) as payment of the debt. But since the time I delivered the artwork, he has never communicated his intentions to me. My gratitude to Steve Geppi for agreeing to this joint venture at a time when we were so desperately in need of help is the main reason why I have waited so long to speak out on the issues of Steve entering into retailing of comics. I felt that I owed Steve for the very existence of my company, and thus needed to grant him every benefit of the doubt in regard to his actions with anotheruniverse.com. I also believed, rather naively I suppose, that Steve had truly stepped into the anotheruniverse.com situation only with great reluctance, and only with the best of the industry in mind. I no longer believe that to be the case.

The spin put on the anotheruniverse.com purchase by Geppi was that the company was too large to allow to fail. With a reported 3% market share of industry new comics volume, plus debts supposedly well in excess of a million dollars, there is no doubt that there would have been a significant impact from anotheruniverse.com's failure. To the best of my knowledge, though, Diamond made no attempt to find alternate funding for the company. Nor was there any attempt made to sell some, or all, of the assets of the company to other Diamond accounts. Steve Geppi unilaterally made the personal decision to step in, and instantly become the largest retailer in comics. More importantly, by stepping in, Steve Geppi gained personal control of the largest electronic mailing list of comics consumers in the world. This list has extraordinary value, as the Internet side of comics retailing is the only area which is currently experiencing significant growth. The costs of producing this list were obviously beyond the means of anotheruniverse.com, since they bankrupted themselves creating it. But possession of this list (reportedly in excess of 400,000 buyers) clearly provides a well capitalized company the opportunity to aggressively expand retailing of comics on the Internet.

TRIP TO BALTIMORE - NOVEMBER 11TH AND 12TH

Having Steve Geppi in this position was intolerable to me and to all the retailers with whom I discussed the matter. There was a consensus among those with whom I spoke that there was no way that severe conflicts of interest could be avoided between Diamond's servicing of their 4,000 independent retailers, and Steve Geppi's anotheruniverse.com. I spoke with representatives of Marvel and DC, Diamond's largest suppliers, and made sure that they understood my concerns. I also spoke with representatives of Dark Horse Comics, Image Comics, and our local Diamond representative. They, in turn, passed on the issues I raised to Diamond, and Steve Geppi.

In late October I received a call from Steve Geppi. I had considered Steve Geppi a personal friend for the previous twenty-one years, and had supported him in many of the difficult decisions that had to be made during the difficult days of comics distribution. I made it clear, however, in my discussions with Steve on that day that his taking an active ownership role in comics retailing was unacceptable to me, and all other comics retailers. I pointed out to him, that while he may not have heard directly from many of my peers, that there was a universal underlying feeling that he had betrayed the very retailers upon whom he relied for Diamond's success. No one I knew believed the representations that were being put forth that he had simply stepped in for the good of the industry. Instead, everyone with whom I spoke was of the belief that Diamond was about to make a major move into the retailing of comics on the Internet.

Steve assured me that Internet retailing was not his intent in taking over anotheruniverse.com. He repeated the company line that he had only stepped in to save the industry, and several publishers in particular, from having very painful credit losses. He stated that he wished that he hadn't gotten into the situation in the first place, as "no good deed goes unpunished." I agreed that he made a mistake, and asked if he would be willing to discuss a range of alternatives that would either eliminate his ownership of anotheruniverse.com, or change the company from a competitor to existing retailers to a potential ally. Steve was very receptive to having discussions on these matters and invited me to Baltimore.

On November 11th and 12th I spent over 15 hours with Steve Geppi discussing anotheruniverse.com, the Internet and its potential, and the world of comics. Given our long-standing friendship, and Steve's seemingly conciliatory attitude, I was very frank and forthcoming. I stated quite clearly the objections that retailers had to his ownership of anotheruniverse.com, but indicated that I would be willing to help in any way possible to reverse this situation into something more positive for the world of comics. During these discussions the question arose of whether it would be viable for me to contribute some, or all, of the operating divisions of Mile High Comics, Inc. into a new Internet marketing company. On the first day I was receptive to this idea, but after sleeping on it, I decided that I would have to be very careful in negotiating away the fruits of 29 years of my life. I told Steve that I would give it some thought, and get back to him.

I did tell Steve Geppi during these discussions that I had been approached earlier in the year by Milton Griepp, former owner of Capital City Distributing, about purchasing our N.I.C.E. new comics subscription club. I pointed out to Steve that I turned Milton down because I felt that to be a full service Internet comics retailer that I needed to keep a position in the new comics end of things, even if the margins were far better in backlist. Steve failed to reveal to me at this time that he, too, was in negotiations with Milton, and had reportedly already struck a deal with him to set up an Internet retailer that would compete with all comics retailers, including Mile High Comics. I only discovered this fact during the past week.

In the meanwhile, however, I approached Steve from the perspective of being a spokesperson for all comics retailers. I made many suggestions about how anotheruniverse.com could be turned into an Internet "portal," providing access for all retailers to the huge untapped market for comics and related goods on the Internet, in exchange for access fees paid to anotheruniverse.com. I pointed out to Steve that his control of the anotheruniverse.com's mailing list could be turned very quickly into a tool for rebuilding the fortunes of the very accounts who relied on him for their weekly new comics shipments. He agreed that finding ways to help his retailers was very important. But he stated that any potential solutions were difficult because 1) he still had partners in anotheruniverse.com and they would have to agree to any such plans, and 2) he felt that he had no one with the vision to run anotheruniverse.com in a way that he felt could maximize the benefit possible from the Internet. Knowing many of the players he had on staff, I agreed that they either had more pressing existing responsibilities, or just didn't have the personal abilities for such a task. We spoke for a considerable time about his desire to have me participate in the process, and I once again agreed to consider the matter.

We then spent hours discussing what methods could be employed to utilize the anotheruniverse.com mailing list to help comics retailers without diminishing the value of that asset. I thought I came up with several good suggestions based on the positive responses I received from Steve. Perhaps I was once again being incredibly naive, but I really believed that Steve Geppi was sincere in trying to find solutions to his conflict of interest. Upon parting for the airport I agreed to send Steve a summary of our discussions, listing specific suggestions. I also agreed to continue to consider being a part of the process.

BALTIMORE TRIP E-MAIL SUMMARY #1

On Monday, November 16th, I sent Steve Geppi the following e-mail:

Subject: Summary
Date: Mon, 16 Nov 1998 12:41:47-0700
From: Chuck Rozanski
Organization: http://www.milehighcomics.com
To: gsteve@diamondcomics.com

Dear Steve:

Thanks for being patient. Friday was far too crazy for me to constructively reflect on our discussions. Rather than summarize in an incorrect manner, I thought it far wiser to wait until today. That decision also allowed me a weekend of contemplation, which was also quite helpful.

My first thought in regard to our discussions was the clear realization that we were dealing with two separate, but linked issues. The first being resolution of the conflict of interest between your purchase of anotheruniverse.com, and your owning Diamond Distribution. Analyzing and summarizing those discussions will be the primary topic of this e-mail. The other discussions we had, in regard to further interactions between anotheruniverse.com and milehighcomics.com, will be the subject of a separate letter. Given the potential open nature of the Internet, I prefer that summary to be sent using a different medium. I will contact you about that later today.

As regards the current conflict of interest situation between your ownership of anotheruniverse.com and Diamond Comic Distributors, I believe that we agreed that utilizing the capacities of anotheruniverse.com to aid Direct Market retailers was critical to acceptance of your purchase by members of the industry. Specifically, it is incumbent upon you to provide members of the industry access to the mailing lists and website traffic of anotheruniverse.com. If I recall correctly, potential programs of aid included:

1) Connecting the Comic Book Locator Service to anotheruniverse.com (already done)

2) Improving on the Comic Book Locator Service by adding a database on the anotheruniverse.com site detailing the street address of every Direct Market retailer, and connecting that program to a mapping site, such as mapquest.com

3) Creating a centralized link program for Direct Market retailers with sites already on the Internet

4) Offering use of the anotheruniverse.com e-mailing list for local promotions by Direct Market retailers, such as autograph signings, or special sales

5) Offering use of mailing labels from anotheruniverse.com's traditional mailing list for both local promotions, and mail order promotions

6) Assuring competing mail order companies access to product information from the publishers at the same time as it is received by Diamond and/or anotheruniverse.com

In addition to these programs, I believe we also agreed that something was going to have to be done to address the specific conflicts between anotheruniverse.com and existing Internet and/or mail order retailers. We never did, however, actually come to any agreement in this area. That does not diminish, however, the need to address the individual concerns of largr retailers such as Mile High Comics, Westfield, Lone Star Comics, M & M, and East Coast Comics. Each of these companies has invested a great deal into developing the mail order market for comics and related products. While there are certainly other companies that are negatively impacted by your potential aggressive operation of anotheruniverse.com, these five stand out as immediate potential victims. I am open to your suggestions as to what to do in this area. My proposals would be as follows:

1) Expanded exposure (beyond a mention in the "links" area) on the anotheruniverse.com site

2) A link exchange program on the home pages between anotheruniverse.com and these retailers

3) Reciprocal exchanges of e-mail mailing lists

Our only other area of discussion in regard to how to resolve the conflict of interest was in regard to promotions featuring exclusive product created for anotheruniverse.com. You told me that, effective as quickly as it could be done, all products created for anotheruniverse.com would be offered to all Diamond Comic Distributors customers at the same time as offered to the general public. I believe this is an absolute if you wish your purchase of anotheruniverse.com to gain any measure of acceptance from Direct Market retailers.

My final thought in this summary is the need to take into account the legal ramifications of any possible conflict resolutions. I am most certainly not versed in the intricacies of Anti-trust law. What may seem a reasonable accommodation between anotheruniverse.com and other Direct Market parties, could actually be held to be illegal. I absolutely would never knowingly suggest such a violation. What I do suggest is for you to consult with your legal advisors, and see what can be done to help the Direct Market retailers negatively effected by your purchase of anotheruniverse.com. While all of my suggestions may not be able to be implemented, I think it fair to say that we are at least striving to find a way out of what is an otherwise unpleasant conflict of interest.

Thanks again for taking so much time out of your busy schedule to meet with me about these matters. Your investment of time is a clear reflection of the sincerity of your desire to see these issues resolved in the best interests of all parties, and the Direct Market as a whole. Let's hope we can find a formula that works for everyone involved.

All the best!

Chuck Rozanski

BALTIMORE TRIP E-MAIL SUMMARY #2

After sending this e-mail, I consulted with my investment banker, Eric Brachfeld of McFarland Dewey & Co. of New York, about the advisability (and potential pitfalls) of contributing some, or all, of Mile High Comics, Inc. into the anotheruniverse.com ownership group. Eric counseled me that one of the worst situations to be in is to be minority stockholder in a privately-held company. He made clear to me that you are completely at the mercy of the rest of the owners. As an alternative, he suggested that we find a third party institutional, or venture capital, investor willing to put in up to $10 million for a majority interest in the combined companies. This would allow for far more working capital, and would also put all of the owners in the same position of being minority partners. It certainly didn't eliminate the possibility of ownership clashes among the partners, but it did insert a theoretically disinterested third party into the process. I agreed that, if I were to decide to participate, this would be the least dangerous way to go. I made clear to Eric, however, that I was still dubious if such an arrangement were for me, or that it would be considered legal by the Justice Department. Since I had already told Steve Geppi, though, that I would consider the matter, I would offer this alternative. If it was accepted, then I would work to transform anotheruniverse.com into a growth vehicle for the entire world of comics. I doubted very seriously, however, that our proposal would be accepted. I just couldn't see Steve Geppi giving up control.

I then sent Steve Geppi the following letter by Federal Express on November 17th:

Dear Steve:

My apology for the delay in this letter, but life has been just crazy. Yesterday I had to quickly work out a deal for taking possession of the Fantasy Works store, as Mark's mother wanted to close the deal immediately. I got it done, but it certainly threw me behind on delivering on this promised summary of our discussions of last week. Again, I apologize for my delay.

To summarize our discussions, you felt your taking control of anotheruniverse.com was an absolute necessity in order to prevent a significant percentage of the current Direct Market from disappearing. You also felt a responsibility to the creditors of anotheruniverse.com, and the publishers who would have been negatively impacted by the demise of anotheruniverse.com.

My position was (and remains) that your purchase of anotheruniverse.com is a direct conflict of interest between yourself as exclusive distributor to the Direct Market, and all comics retailers. I particularly perceived a conflict with mail order and/or Internet retailers such as Mile High Comics.

While we shared a mutual understanding of each other's positions, we continued to disagree on the subject of the regulatory impact of your actions. You expressed a great deal of confidence that your purchase of anotheruniverse.com would survive the scrutiny of the U.S. Justice Department. I continue to have my doubts. I do know, however, that you have prevailed in previous situations of a similar nature (such as Titan Dist.). Given those previous successes, it was clear to me that I should go forward with the belief that you would again prevail in such litigation or regulatory oversight. The ability of anotheruniverse.com to dominate the Internet market for comics upon the receipt of the capital of Steve Geppi, and the infrastructure of Diamond Distributing (firewalls not withstanding) was glaringly obvious. What was also obvious, however, was that anotheruniverse.com had been operating with negative cash flow. In contrast, Mile High Comics is very profitable, and cash-flow positive. Given that such a transaction would be legal, merging the two companies in some fashion would seem to make the most sense.

The proposals we discussed over the two days included the following:

1) A purchase by anotheruniverse.com of the N.I.C.E. subscription division of Mile High Comics, Inc.

2) A purchase by anotheruniverse.com of all the operating divisions and assets of Mile High Comics, inc.

3) A merger between anotheruniverse.com and Mile High Comics, Inc., with stock in the combined entity being split between the contributing parties.

At the end of the discussions, I felt most inclined toward Mile High Comics selling the N.I.C.E. subscription division for a combination of cash, assumption of liabilities, and a small equity position in anotheruniverse.com. Critical to this decision, however, was also the belief that this would grant to Mile High Comics, Inc. the right to a permanent link button on the home page of anotheruniverse.com, and the right to utilization of another universe.com's e-mailing list for back issue promotions. Simply put, Mile High Comics would get out of new comics sales (except trade paperback discount promotions) through the mail, and anotheruniverse.com would grant to Mile High Comics the designation of preferred back issue supplier on it's home page.

In my mind that is a bare bones summary of our 15 hours of discussions. Certainly there were many other issues we covered, such as our mutual realization that the comics industry as we know it today is shifting a significant volme of commerce to the Internet. We also both wish to save the comics industry by utilizing our companies to provide offsetting sales volume vis-a-vis the current rash of closures of Direct Market retail stores. These mutual goals are actually the foundation of our discussions of cooperation, and lead me to believe that we can somehow create a legal synergy between our two companies that can be a whole far greater than the sum of the parts.

But how to go forward? That was the question we never addressed during our discussions. After giving the matter a great deal of thought, I think the following issues need to be addressed:

1) We need to work out a price. I don't know if that can be done. Unlike most of your past acquisitions, this is not a distress sale. In fact, it is just the opposite. I consider N.I.C.E. (or all of Mile High Comics) to be a very desirable asset. Anticipate that you will have to pay a premium for this asset. But you will be receiving the only ongoing subscription program currently available in the world of comics.

2) Corporate compatibility is another grave question. That is the primary issue that backed me away from the idea of merging together. I have never worked for anyone else, and I have a different operating style than what I have seen evidenced by either you, or Steve Milo. Selling N.I.C.E. would be a way of my staying independent, while testing the waters of joint interaction. If those interactions proved smooth and congenial, then discussions about combining the back issue division, and the retail stores, of Mile High Comics into anotheruniverse.com could certainly be considered.

3) I need an indemnification from any expenses that might arise from any legal or regulatory review of any deal to which we might mutually agree.

I also need the right to direct the defense. Given your success with past judicial review, this indemnification should be of no consequence.

At this point I need to break some new ground. While all of the above deals with our previous discussions, I need to make you aware that those same discussions have prompted me to explore other options. In particular, I have held discussions with Eric Brachfeld of McFarland Dewey& Co. You met Eric in 1993 at your last retailer conference. Eric has helped me a great deal over the past few years, including setting up a key banking relationship which helped Mile High Comics weather the bad times in the comics industry.

My discussions with Eric centered on the current value of N.I.C.E. Given the present frenzy for Internet companies of all kinds, I was curious if Eric could give me any feedback on the public and/or private market for a company like Mile High Comics. Of necessity, I made Eric aware of the gist of our discussions, and asked him for advice on how to proceed.

Not surprisingly, Eric saw opportunities that I had missed. He suggested merging the two companies in their entirety, bringing in an outside source of capital, and working quickly to create a package that would have the credibility for an IPO. I find this very intriguing. The biggest benefit I see in such a transaction would be the elimination of the control issue. As I told you in Timonium, I have no interest in having a minority interest in a privately-held company. I'm only in on a merger if a) I'm given operating control, and b) I am assured that a disinterested third party provides institutional oversight. Under those circumstances the lure of a huge payoff from an IPO compels me to set aside my fears and throw everything into the pot.

Does this scenario sound at all interesting to you? Eric believes there could be substantial interest from an institutional investor in financing such a deal. His best guess is that as much as $10 million might be available. With my system and reputation, and your drive and contacts, we could put together quite a company. What an interesting day this has turned out to be...

Please give all these matters some thought, and get back to me. I've already got my staff deriving operating costs for N.I.C.E. from the past three years, if that's the way we choose to go. Or that same information could be used to sell an institutional investor. Whatever. I'm ready to deal for donuts. Are you? If so, get back to me. We'll keep working on this until a deal is made.

All the best!

Chuck

COMICS RETAILER LETTER

After sending these two letters I waited for Steve to respond. Soon after I sent the letters I was in contact with Clyde Durkee of East Coast Comics. Clyde had been extremely upset about the anotheruniverse.com purchase by Geppi, and wanted to know if I had contacted anyone at the Justice Department. I told him that I had not, and that I was trying to work out some sort of solution with Steve. Clyde told me it he didn't believe that I had any chance of convincing Steve Geppi of any compromise. He believed that Steve was already committed to Internet retailing of comics, and that my meetings with Steve were just a way of his delaying any public protest on my part until it was too late for such a protest to have any meaningful impact. I agreed that my chances were slim, but that I at least had to give reasonable dialog a try. Clyde then asked me if I had yet spoken to the folks he had contacted at the Justice Department. I told him I hadn't received a call as of yet, but that I would certainly be willing to discuss the matter with anyone who called. A couple of days later you gave me a call. I told you everything I knew at that time, and made you aware that my attempts to mitigate the impact of Geppi's ownership of anotheruniverse.com went so far as proposing to sacrifice some, or all, of Mile High Comics in order to gain operational control of the merged entity. In the end, even my attempts to beat them by joining them didn't work... As I've discovered recently, they had a deal put together with Next Planet Over before I even flew to Baltimore. Steve was apparently just fishing to see if he could pick up N.I.C.E. on the cheap. When I asked for real money, control, legal indemnification, and benefits for other retailers, I was eliminated from any consideration. Given what I know today, I couldn't be more thankful.

A few weeks later, on December 15th, I received a copy of the latest issue of COMICS RETAILER. This magazine is the primary news medium for retailers in the comics and gaming world. Almost all of of these retailers, in some degree, were dependent on Diamond for their supplies of new product. Inside I found a savage denunciation of Diamond by Brian Hibbs, a columnist for the magazine, and long-time comics retailer. I was not surprised to see this editorial, as Brian can write very well, and fears no one. He and I had spoken about the conflict of interest between Diamond and Steve Geppi's ownership of anotheruniverse.com prior to my receiving the invitation from Steve Geppi to meet in Baltimore. I expressed to him at that time that I was firmly opposed to Geppi's ownership of anotheruniverse.com, and that I would appreciate his support in denouncing the situation. Essentially, he wrote his fiery column with my urging and support. Brian did the entire comics world a great favor by speaking out.

Given that I was still waiting for any kind of a reply from Steve Geppi to any of my suggestions, I was at a loss as to what to do. It had been four weeks of total silence. I knew Steve had other issues to deal with in his broad collection of enterprises, but I could also see that time was drifting away in which to make a public protest. Four weeks of waiting seemed long enough. In the end, I decided to compromise. I wrote the vociferous letter of support for Brian's condemnation of Steve Geppi's ownership of anotheruniverse.com to COMICS RETAILER, but then I sent it first to Steve Geppi. The text of that e-mail follows on December 15, 1998:

Subject: Comics Retailer Dialog
Date: Tue, 15 Dec 1998 14:06:14-0700
From: Chuck Rozanski
Organization: http://www.milehighcomics.com
To: gsteve@diamondcomics.com

Dear Steve:

Below please find a letter of comment I have written in response to Brian Hibb's column in the latest issue of COMICS RETAILER. I wrote this letter with a great deal of reluctance, as it returns me to a purely adversarial position in regard to your purchase of anotheruniverse.com. At this point in time, however, I feel that I have no choice. Your complete lack of response to my overtures for compromise solutions leaves me at a loss. What happened? You said you were going to get back to me, and you have not replied in any manner. Given the frank and open nature of our discussions of last month, I felt that I owed you one last chance to prove me wrong. I'm withholding this letter from submission until Wednesday, December16th. Please respond before the end of that day so we can get our discussions back on track.

Sincerely,

Chuck

Many thanks to Brian Hibbs for speaking out (COMICS RETAILER #82) on the subject of the Diamond/Geppi takeover of anotheruniverse.com. Brian seems to be one of the few folks who clearly recognizes danger to all Direct Market retailers posed by having Steve Geppi in control of not only all comics distributing, but also the largest Internet retailing presence.

How do I know that the Diamond/anotheruniverse.com merger is a danger to Direct Market retailers? Because I'm also marketing aggressively on the Internet. I've seen what this new marketing tool can do, and I will state for the record that any Direct Market retailer who doesn't think that the Internet is negatively effecting their business is a fool. Our Internet business has grown from a trickle in 1997, to the second-largest division in Mile High Comics in 1998. I am currently projecting that our Internet sales alone in 1999, will be greater than all the sales that Mile High Comics generated (two mail order divisions plus six retail stores) in 1997. It should be clear that not all of that business is coming from existing customers. A substantial portion of our increased sales volume is coming from consumers who are diverting purchasing income from existing Direct Market retailers. If anyone tries to tell you otherwise about Internet marketing of comics, they're lying.

I am passing along this candid report of our progress because I think it's important for Direct Market retailers to really understand the potential implications of Steve Geppi owning anotheruniverse.com. When I compete against you, it's a long-time mail order retailer converting to a new technology. The Internet may be more efficient, and I may be very aggressive in utilizing its benefits, but I'm basically continuing to operate in the same niche which I've occupied in the world of comics for decades. Mail order fulfillment of comics product will always exist, and I think it helps prevent abuses by retailers who are either inefficient, or who try to take advantage of having a regional monopoly. We offer consumers an alternative, but have no particular critical advantage. Postage costs, and the time delay of shipping, will usually preclude us from siphoning business away from well-run retail stores. I also recognize that any of you could decide to compete with us at any time you want. In fact, hundreds of retailers have set up competing websites to ours. No big deal. Retailers competing with other retailers is critical to open and fair markets.

Where I have a big problem is with our monopoly supplier deciding to bail out an inefficient retailer, and to co-opt the strengths of that retailer to compete unfairly. While Steve Geppi has publicly declared that there will be a "firewall" between Diamond and anotheruniverse.com, I think it is completely unrealistic to believe that any such separation will actually hold up. Diamond has already placed a direct link on anotheruniverse.com's home page for the Diamond International Gallery. With the gallery currently adding Silver Age back issues to its inventory, the markets that anotheruniverse.com currently addresses grow greater each day. With over 400,000 unique visitors per month to the anotheruniverse.com website, is there any doubt that Steve Geppi can now reach the vast majority of the retail base of the entire Direct Market with a single mass e-mailing? How many of your customers can he reach while you're sleeping?

Worse yet, how much critical advantage will anotheruniverse.com gain from being a part of the Diamond "family?" The publishers send Diamond upcoming publishing plans months ahead of when retailers ever see them. Will having that information in advance help anotheruniverse.com? Or will the folks at Diamond really withhold exciting news from their "sister" company? What about allocations of limited products? How do we know that there's going to be an even split? Then there's the subject of inventory availability information. Wouldn't you like to know when a book is down to its last couple of copies in the Sparta warehouse? How about reorders? Remainders & closeouts? Freight costs? Billing? Access to publishers? Exclusives? Autograph signings? All issues where being owned by the owner of Diamond can be very helpful.

Another terrible issue is insider knowledge of your sales. I am very uncomfortable with the thought that all of my orders are being turned in to Diamond, now that they're my competitor. Why should they know how well I did with a given Internet promotion, when they are running competing promotions? Do you really want anotheruniverse.com to know what's selling well in your area? Certainly I don't believe that there will be a wholesale transfer of information between Diamond and anotheruniverse.com. But leaks will occur. Generalized information can be passed between individuals (hey, did you hear that Mile High blew out X number of Crisis hardbacks?) without Diamond management ever even being aware that there's a problem. They may want a "firewall," but I doubt if it will be very effective.

The point I'm making is that Diamond is supposed to be the arbiter of fairness in our industry. They are supposed to make sure that all retailers get the same trade terms and benefits. Up to this point I think they've done a pretty good job. But I also believe that when they have a huge Internet retailer as an associated company, the potential for abuse is so far-reaching that it seems almost impossible (no matter the best intentions of Steve Geppi), that ethical lines will not be crossed. Crossing those lines, in turn, destroys Diamond's ability to continue in its role as the arbiter of fairness for the comics industry. Considering that they have a monopoly on comics supply, this is a huge problem.

In an attempt to find a resolution to this problem, I flew to Baltimore last month, and met with Steve Geppi for two days. During our meetings I stressed that I was wearing two hats. First I was (obviously) representing the interests of Mile High Comics. I also made it clear, however, that I was very concerned for all retailers in the Direct market, and how Steve's acquisition of anotheruniverse.com would impact everyone's business. During those discussions I went to great lengths to explore a wide range of options as to how to minimize the negative impact of anotheruniverse.com on both Mile High Comics, and the Direct Market as a whole.

Summarizing our discussions isn't easy, but suffice it to say that I came away from the discussions feeling that Steve was sympathetic to my concerns. He asked me to write down a list of the ideas we had discussed, and send them to him the next day. Among those ideas were open access to anotheruniverse.com's Internet mailing list (for local promotions), open links between anotheruniverse.com's website and other retailer websites, and mailing label availability for retailers seeking to do local print mailings. I also sought a free listing on the anotheruniverse.com's website of all Diamond accounts attached to a map program (such as Mapquest) that would allow a consumer to get precise street directions to every retailer in the country.

These ideas were designed to mitigate, not eliminate the conflict of interest issues presented by joint ownership. I have to point out, however, that I only took this approach when it was made clear to me that Steve Geppi never intended to ever let anotheruniverse.com get away from his ownership. Divestiture of anotheruniverse.com is the actual best solution. Then Diamond's hands would be once again clean, and the conflict of interest issue would be moot.. But that's not going to happen. Steve Geppi clearly understands that a substantial portion of the future of comics retailing is on the Internet, and he intends to dominate that niche. If you have any doubt of that fact, just ask yourself the question: have you ever seen Steve Geppi enter into any venture without going all-out to win? Understanding that factor made me realize that I had better prepare for an unprecedented blitz of Internet competition from anotheruniverse.com. Steve Milo may have been an inefficient competitor, but Steve Geppi has the resources, and the skill, to cause great harm to Mile High Comics, and every other retailer in the Direct Market. Assuming he will not, out of some sense of past friendship or obligation, is foolishness Predators predate. They kill in order to live. That's how the world works.

Suffice it to say, my trip to Baltimore was a waste. Three weeks after sending my list of suggestions, I have heard squat from Steve Geppi. His pleasant words aside, I have not seen a single substantive change that resulted from the expenditure of my time. But, in the meantime, I have had a long, and very interesting discussion with lawyers from the US Justice Department. They are far more interested in this conflict of interest situation than anyone involved in the transaction wants you to know. Not surprisingly, they think that Steve Geppi's joint ownership of Diamond and anotheruniverse.com may actually be in violation of certain United States anti-trust laws. Maybe. I don't know. I do know that similar issues were raised a few years ago in Britain when Diamond bought Titan. Diamond litigated, and Diamond won. I fully expect them to win again. That would leave us on our own.

In closing, let me state that I have been amazed at the lack of negative reaction to this blatant betrayal of the trust between Steve Geppi and the Direct Market. Have all you retailers in the Direct Market become so numb from all the negative news of past years that you are meekly willing to accept having your monopoly comics supplier wooing your customers 24 hours a day? What happened to the firebrands of years gone by? Did the initiators of this devil's pact pick just the right time to shove through this catastrophically bad deal? Pardon me, but what is going on? Why is no one speaking out? Have you really bought into the glib explanations of how this isn't going to effect you? Are you too busy trying to survive to care? Whatever the case, you've been warned. Speak out now, or forever face the consequences of your silence. That's all I have to say.

LETTER TO BRIAN HIBBS

After sending this letter, I knew that any chances of my becoming a part of the process were over. But that was fine by me. The more time that passed since my meetings with Steve Geppi in Baltimore, the less I thought I could work from within anotheruniverse.com to effect change for the Direct Market as a whole. Steve had me believing in him during those meetings, because I wanted to believe. When you've known someone for a couple of decades, and you've believed them to be your friend, it's easy to be fooled into thinking that they're working with you toward a goal you think is very important. But after four weeks of reflection, I came to understand that I had just been played for a fool. I knew something was going on, but as of yet I didn't know what. In any event, any possibility of Steve Geppi getting any part of Mile High Comics from me was now gone. All I wanted was for Steve to make some kind of public statement of how he was going to mitigate the damage to comics retailers of his ownership of anotheruniverse.com.

The day after sending the letter to Steve, he gave me a call. I ignored the question of interaction between our companies and focused purely on what he was going to do to help all retailers. He said he was still aware that he needed to announce some changes, but needed more time. He also asked me for more feedback on potential mitigations. I agreed to this, and said that I would write a letter to Brian Hibbs, and send him a copy. My hope was that he would read the suggestions (which were really very limited) and endorse at least a few of them. Here is the letter I sent to Brian Hibbs on December 18, 1998:

Subject: Comics Retailer Editorial
Date: Fri, 18 Dec 1998 14:11:29-0700
From: Chuck Rozanski
Organization: http://www.milehighcomics.com
To: comixexperience@compuserve.com, gsteve@diamondcomics.com

Dear Brian:

I read with great pleasure your editorial on Steve Geppi's acquisition of anotheruniverse.com. I asked you to join me in bring to the attention of other retailers the potential negative ramifications of that acquisition, and you came through wonderfully. Not only was your column accurate and insightful, but it also was fun to read, and very well written. I passed it around among my executive team, and they all thought you did a great job.

That having been said, I need to bring you up to speed on some discussions that are presently underway between myself and Steve Geppi. I initiated these discussions with Steve to see what kinds of programs might be created to mitigate the potential damage that his ownership of anotheruniverse.com might cause. To this point, the discussions have not borne any fruit. But I view maintaining a constructive dialog as being a far cry better than simply taking a purely antagonistic stance. At least for now... To set the stage, it would clearly be best if Steve followed your suggestion, and sold off anotheruniverse.com as quickly as possible. That would be an immediate solution for everyone involved. But this is a very complicated issue. Steve Geppi does not own all of anotheruniverse.com. He has a majority of the stock, but also has minority stockholders who have a substantial say. That wouldn't be an impediment to selling the company, but it does somewhat limit his maneuverability. He has to find a buyer who is willing to buy the company as is, reimburse him for the Diamond debt, and either buy out the minority shareholders, or accept them as part of the deal. I don't think that is going to happen. Companies are usually purchased when they have a great market niche, linked with high-quality management. That doesn't exist with anotheruniverse.com. Steve Milo is quite clever as a marketer, but he is a also very poor manager. His people skills are nonexistent, and he spends far too much time dreaming about the future, and not enough time working to maintain good operations in the present. Their niche is also very poor. Aside from the obscene profits they've made by manipulating the gullible into buying their inflated "collectibles," they deal primarily in high-risk, low margin, popular culture items with very short periods of popularity. Who wants in on that kind of a deal? That's why Steve Geppi is in a quandary. He recognizes that he should sell, and he probably would sell if he could find a buyer. But who the hell wants that turkey? Honestly, I wouldn't take it. While the mailing list is extremely valuable, the negatives far outweigh that single positive. Anotheruniverse.com is a clunker. That's why I don't believe Steve Geppi is going to sell any time soon..

Before I mention the specific proposals I made to Steve Geppi, I need to define the two sets of discussions presently underway. First, I am negotiating for Mile High Comics, and other mail order/Internet retailers. These retailers are immediately impacted by any actions taken to revive anotheruniverse.com. The second set of discussions are more specific to the concerns raised in your column about the impact of the marketing programs of anotheruniverse.com on comics retailers in general, and how Steve Geppi/Diamond need to alter what's being done so as to not damage the customers of Diamond. This discussions are certainly not mutually exclusive, but they do cover different areas of concern

In regard to the existing Internet retailers, I think it should be clear that having Steve Geppi own anotheruniverse.com has a far greater immediate impact on those entities than it does storefront retailers. We've gone from having a flamboyant, but poorly managed online competitor, to having the largest available pool of both working capital, and managerial talent, in the comics industry brought to bear against our own online marketing programs. This is a chilling and depressing turn of events. Particularly since we've trusted Steve Geppi for so many years as our primary supplier supplier. To find an equitable middle ground, I have suggested the following:

1) Anotheruniverse.com should immediately provide links on its home page to other online comics retailers. While this should be a very open program, special emphasis should be given to Mile High, Westfield, M&M, Lone Star, Dave's Comics, and any other retailer who has already expended considerable funds to build a shopping cart/secure server e-commerce capability. I am not suggesting, however, that this program should be free. Retailers who avail themselves of this opportunity should be willing to pay for this exposure, just if they were dealing with any other e-commerce referral point. Mile High typically pays a referral commission of 10-15% of the gross from orders referred from another site.

2) Anotheruniverse.com should provide its news programming (Mania Magazine) as a free download to all comics website capable of hosting that information. In exchange, anotheruniverse.com should receive a link, and credit for the information. But it is critical that consumers not have to leave the website that they're on to gain this news information.

3) Anotheruniverse.com should work to transform itself from a company that markets goods, to a services company. Specifically, Anotheruniverse.com should become a centralized Internet "portal" for all comics fans. In this way the company binds the online Direct Market together, instead of competing against it. Reasonable utilization fees could make this a more profitable venture than existing operations.

4) My final proposal for existing fulfillment companies would be free access to the Another Universe printed mailing list. While Mile High wouldn't have any interest in this program, guys like Clyde Durkee (East Coast Comics), who are not online, would really find it useful.

In regard to traditional storefront retail comics operations, I am suggesting the following:

1) First, and foremost, anotheruniverse.com e-mail list has to be used to aggressively drive business into stores. This is easy to do, as I am already increasing traffic to my California Mega-Store by sending e-mailings to consumers in that region whenever we have a sale or special event at the store. If Diamond retailers could utilize the anotheruniverse.com e-mail list to build their local traffic, I think such a program would go a long way toward helping offset the cannibalization of the Direct Market caused by the existing anotheruniverse.com marketing programs. This will require either Diamond, or anotheruniverse.com, to create an operating department to manage such mailings, but minimal utilization fees could easily cover the costs of that department. A similar program program could also be made available using paper mailing labels.

2) Anotheruniverse.com should reduce its programs of producing limited "collectibles." At the very least, any collectibles produced by anotheruniverse.com should be made available for advance order from Diamond. The marketing to consumers should also be toned down in its hype.

3) A geographic listing of all Diamond accounts should be put on the anotheruniverse.com website. This listing should be connected to both a map provider (such as mapquest.com), and a store profile database. In this database retailers should be provided with the opportunity to provide personal profiles of the owner and/or staff, and pictures of the store. While this puts Diamond at risk of potential competitors accessing its customer lists, the enormous benefits of sending desperately -needed traffic to its customer base should be a substantial offset to that risk. I'm assuming also that Diamond would charge a small fee for this service. This would continue the process of anotheruniverse.com selling services, rather than products.

That's it for now. Steve and I talked about many other possible solutions, but these are the ones that spring right to mind. I think you'll agree that at least some of them would be very beneficial to the industry as a whole. Sort of a lemons/lemonade analogy. But, I have to be candid. While Steve Geppi and I have discussed all of these solutions, and more, nothing has yet come from those discussions. Steve is still sitting on the fence deciding what to do. Certainly having minority stockholders makes any decision difficult. But I also think that the fact that he sees the potential in the e-commerce business also clouds the picture.What makes it really difficult is that my discussions with Steve have made it clear that no one on his staff has the vision of the potential of e-commerce, linked with good operations skills, to help him make well-reasoned decisions. He has Internet visionaries who can't operate day-to-day, and he has great operations folks (in Diamond) who really don't have the vision needed to run an e-commerce company. This breaks down his usual decision-making process of consulting with knowledgeable advisors. Heaven only knows when he'll finally start working to repair the enormous damage to his personal reputation (as your column clearly illustrates) that this acquisition has caused. It's my opinion that he better begin soon.

In closing let me inform you that I've asked (begged) Steve to personally give you a call. Not, most certainly to try and convince you that his purchase of anotheruniverse.com was a good idea. Perish the thought. I just think it's a good idea that you hear from him that he's sincere about trying to find solutions to this difficult matter, Steve is a great communicator. I think he'll easily convince you that he's very concerned about all this negativity. Then we'll both just have to wait and see what he actually ends up doing to resolve these thorny issues.

All the best!

Chuck Rozanski

Sadly, despite his personal promise to me to do so, Steve Geppi never called Brian Hibbs. Of my suggested changes, the only one that went into effect was the wholesaling of specialty publications from anotheruniverse.com to all Diamond accounts. By last week (almost three months after his pledge to take action) Steve Geppi had not done anything. Nor had he ever called me back. Instead he went forward with Milton Griepp and his associates to establish a relationship by which NextPlanetOver.com would become the first Internet retailer whose fulfillment would be handled exclusively by Diamond.

ANOTHERUNIVERSE.COM COMPETITION E-MAIL

One of the issues of concern that I discussed with Steve Geppi during our meetings of early November was my concern that the managers at anotheruniverse.com would begin copying the marketing plans of milehighcomics.com. Steve assured me that if this were to occur, all I needed to do was to contact him directly, and he would work to resolve the issue. I told him that I understood that ideas within a market are freely interchangeable between competitors, but that I would consider it a serious breach of faith between us if his managers at anotheruniverse.com tried to resolve their own difficulties by simply copying everything we were doing. He said he understood completely, and would make sure that anotheruniverse.com would behave in an exemplary fashion. Soon after sending him the Brian Hibbs e-mail, my staff pointed out to me that anotheruniverse.com was now discounting upcoming trade paperback items from the DIAMOND PREVIEWS magazine in their weekly e-mail messages to their consumers. This was a marketing program we had already had in place for some time. I wasn't terribly upset by this revelation, as I was not entirely sure that anotheruniverse.com hadn't had a similar program in the past. But my assumption was that they had not, so I sent Steve Geppi the following e-mail on January 6, 1999:

Subject: anotheruniverse.com sale program
Date: Wed, 06 Jan 1999 14:47:20-0700
From: Chuck Rozanski
Organization: http://www.milehighcomics.com
To: gsteve@diamondcomics.com, pbrandle@ix.netcom.com

Steve:

I just wanted to bring to your attention that there is a continuing pattern of anotheruniverse.com having e-mail sales that bear striking similarities to ours, right in the very next week. If you check out our mailings to you, and then check your own mailings, I think you'll see what I mean by a disturbing pattern. I thought you told me you were going to look into this situation?

Chuck

DC COMICS RETAILER MEETING - BALTIMORE

On March 12-14th DC Comics hosted approximately 65 comics retailers at its annual RRP meeting. This event was begun about seven years ago as a method for DC creative and marketing staff to interact directly with a select group of retailers in order to gain perspectives and ideas about how to produce, and sell, their comics. Mile High Comics was selected to participate in this program five years ago, and either I, or William Murakami our VP of Retail Operations, have attended each meeting since that time.

Complicating matters for this year was the fact that the meeting was to be held in Baltimore, and was going to include close interaction with the Diamond executive team. Given that I had now been waiting for nearly four months for Steve Geppi to keep his promise to implement programs to mitigate his ownership of anotheruniverse.com, I was very reluctant to attend this gathering. Were it not for the fact that I had non-refundable tickets, I would have stayed home. My frustration with Steve Geppi, and my belief that I had been lied to simply in order to gain my silence, made me not want to even be in the same room as the man. In the end, however, I decided that I had to go. Not just to participate in the normal interactions at the RRP (which are quite educational), but also to explain to my fellow retailers why I had never spoken out about the anotheruniverse.com purchase. I felt a particular debt to Brian Hibbs (who was also attending) for not having gone forth with my original letter to COMICS RETAILER magazine.

Before going off half-cocked, however, I did want to give Steve Geppi yet another chance to fix things. So I sent him the following e-mail on March 10th:

Subject: DC Meeting
Date: Wed, 10 Mar 1999 16:23:21-0700
From: Chuck Rozanski
Organization: http://www.milehighcomics.com
To: gsteve@diamondcomics.com

Dear Steve:

I find myself in the very uncomfortable position of entering a very public forum (the DC RRP meetings) on Friday, in which I will most assuredly will be asked many questions about my perceptions of the ramifications of your purchase of anotheruniverse.com upon the Direct Market. The answers I will be giving to the my fellow retailers in the comics market will be very candid. I don't operate any other way. But this will mean that I will be vociferously criticizing your purchase, and clearly expressing how you seemingly have maneuvered and deceived me into being silent on the issue by repeatedly making representations to me that you are seeking compromise and dialog, but then doing nothing. I will let my peers be the judge of your actions.

Before I go, I wish to make clear to you that despite your own failure to follow through on your representations, I continue to honor my commitment to you to keep only to myself the information you provided me about potential partners of anotheruniverse.com, and other insider information you confided in me. Not even my senior staff have been made aware of this information. This was my commitment to you, and I have kept my word. I only wish you would have kept yours. It would make this trip to Baltimore far less unpleasant.

Sincerely,

Chuck Rozanski,
President - Mile High Comics, Inc.

NEXT PLANET OVER

On March 11th I arrived at the hotel in Baltimore, half-expecting a message to meet with Steve Geppi prior to the beginning of the RRP meetings. No message was waiting. Despite that lack of communication, I decided to still hold back. I had brought with me 5 copies of the e-mails I sent Steve after Brian Hibb's editorial appeared in COMICS RETAILER. This included the original letter to the editor that I had never sent in, plus my letter to Brian explaining how I had an ongoing dialog with Steve, and how I thought that Steve would find some solutions to the conflict of interest issue. My intention was to allow retailers who asked me about why I had never spoken out about Steve Geppi's ownership of anotheruniverse.com to read exactly what I had said to Steve, and to Brian. As I told Steve in my e-mail message of 3/10/99, my goal was to simply let my fellow retailers read the messages, and judge for themselves the appropriateness of Steve Geppi's actions.

I decided, however, to hold back on passing out the copies of the e-mail messages until I was certain that Steve Geppi had no intention of resolving the issues at hand. I resolved that I would keep the copies locked in my briefcase until the morning of March 13th. My reasoning was that I would probably be seeing Steve Geppi on the evening of the 12th. DC and Diamond had arranged that evening to have all the retailers attending the RRP visit the Diamond offices in Timonium for a grand tour. Despite having just been there during my meetings with Steve in November, I decided to go on the tour. I waited in the Diamond visitor's center by myself while everyone else went on the office and gallery tours, figuring that by making myself available privately, that I could perhaps discretely meet with Steve Geppi to discuss if any resolutions had been reached to the conflict of interest issues. After over an hour of waiting with no contact (I did see Steve's private secretary Sammi Cohen early on, but she didn't approach me), I boarded the bus for a group dinner at a restaurant next to Camden Yards Baseball Stadium. By coincidence (I think...) Steve Geppi was seated at the table next to ours. He came by to visit, and was very friendly. He is a consummate politician, and can make you feel remarkably at ease with just a few words and a smile. But all he wanted to discuss was how much he was enjoying bidding for collectibles on ebay.com (which I had turned him on to during our visits in November). No mention was made of my most recent e-mail, or any of the issues he had promised to resolve in November and December.

The next morning I decided I had to act. Several retailers had already questioned me about anotheruniverse.com, and I promised them that if I didn't receive some information to the contrary, that I would let them read my COMICS RETAILER letter (and the letters that followed). On Saturday morning, March 13th, I began letting retailers read my e-mails over breakfast. Faster than I would have imagined, word spread. I was asked if copies of the letters could be made, and I agreed. But I stated that I would not make any more copies myself, as I was at the RRP at the invitation of DC Comics. I was their guest, and I had no intention of giving a copy of a (somewhat) non-DC issue to every retailer attending. But if they wanted to make a copy for themselves, that was fine. By noon I am estimating that ten to fifteen copies were circulating, and that far more retailers than I had originally imagined had read my correspondence with Steve.

The reaction to my letters from the attending retailers at the RRP was universal dismay and anger. I was repeatedly asked how my long-time good friend Steve Geppi could treat me (and by association, all comics retailers) in such a shabby and cavalier fashion. I had no answer to give. The man was as nice as you could be during our meeting at dinner, but had been completely non responsive about any issues of substance for nearly three months. What could I say?

During these discussions the subject of NextPlanetOver.com began to emerge. I cannot remember the exact chronology of discovery, but by the end of the day on Saturday the 13th, most retailers became aware that a new Internet comics retailer was entering the competition. That morning I had sent Mile High Comics VP of Retail Operations William Murakami (who was with me in Baltimore) to a nearby cybercafe to check out the NextPlanetOver.com website. He reported to me that this new company's website was not yet operational, but was reporting that they should be open for business within a short period of time. This new company was reportedly founded by two young gentlemen (David ? & David ?), who were recent Wharton Business School graduates. They were working in association with Milton Griepp, former owner of Capital City Distribution. The same Milton Griepp who tried to buy our N.I.C.E. new comics subscription unit early in 1998. What made this development most disturbing were reports coming from other retailers that Diamond was going to actually be shipping product for Next Planet Over from the Sparta warehouse. This was a totally new issue, and one that had never before been before been even contemplated.

Another rumor circulating was that the website for Next Planet Over had been created by the staff of a newly-formed company in the Diamond family of companies, Diamond Digital Design. This rumor caused several of us to question why Steve Geppi would allow a company he owned to provide the coding for a new company that would clearly be very competitive with anotheruniverse.com. If true, this strange interaction would seemingly only make sense if there was a plan to merge the two companies together... but, like the rumor about Diamond providing fulfillment of Internet orders for Next Planet Over, we had no substantiation. So we decided to just wait until the time allotted by DC on Sunday afternoon for the Diamond executive team, and Steve Geppi, to engage in a question-and-answer session with the attending retailers.

On Saturday evening Paul Levitz, President of DC Comics, happened to wander by the dinner table I shared with eight or ten other retailers. I had been letting retailers at the table read the e-mails I had sent Steve Geppi. I asked him if he, too, wanted to read the e-mails I had sent to Steve Geppi about anotheruniverse.com. I apologized in advance for passing the e-mails around during his conference, but explained that I thought the issues I raised were very important to the future of the entire comics industry. Paul read my e-mails while standing at our table, and indicated that he thought what I was doing was "quite all right." To my surprise, he then went on to say that I raised several valid points, and that there were some he thought I had missed. He then gave me his benediction for me to continue passing the copies of the e-mails around to other retailers.

The next day, Sunday the 14th, the Diamond executive team began arriving for our afternoon meetings. I ran into Roger Fletcher, Diamond VP of Marketing. Roger and I have been friends for many years, as I had participated in the process of hiring him (with Cindy Sherwin, as her replacement) to run the Bud Plant comics distribution warehouse that was located in our headquarters/warehouse building in Denver. After Diamond bought out Bud Plant, Roger worked for Diamond in the Denver area for a couple of years, and then transferred to Diamond headquarters in Timonium, MD.

I made a special point of giving Roger a copy of the e-mail messages well in advance of the question-and-answer meeting with the retailers. I knew that Roger would pass copies of the messages on to the rest of the Diamond team, which was exactly my desire. To that point I still felt that there was great room for compromise, and that this dispute was one between long-time friends. There was no way that I wanted to challenge the Diamond team unfairly. I even went so far as to approach Diamond Executive VP Chuck Parker during one of the breaks to make clear to him that I intended to raise anotheruniverse.com, and Next Planet Over as discussion issues. Chuck acknowledged that there were issues to be discussed, but indicated that I was not understanding all that was involved. I told him that I understood quite well what was involved, including his own personal involvement, and that these were issues that were not about to go away. I told him he needed to understand that I would raise these issues during the question-and-answer period later in the afternoon, and he needed to be prepared.

From the beginning of the question-and-answer session, it was clear that the Diamond executive team was very wary of allowing retailers to ask questions. They began the session by announcing that they had many written questions which had been submitted by retailers on a questionnaire that they had distributed in advance of the meeting, and that they would start by answering only these written questions. At the end of that time, they would allow a period of fifteen minutes, up to half an hour, for general questions from the retailers in the room. The time passed quickly, and when the time came for open questions, Chuck Parker, Executive VP of Diamond made note of the fact that I had raised concerns about anotheruniverse.com, and I would now be allowed to speak.

I then gave an impassioned speech in which I pleaded for understanding among all parties. I expressed my opinion that the world of comics was very small, and that many of us had been friends for decades. But that even among friends that there could be strong differences in opinion. I felt strongly that this was one of those cases. The fact that Steve Geppi had taken a majority ownership role in anotheruniverse.com, while remaining as the owner of Diamond, the sole-source distributor for most new comics, was in my opinion wrong. I stated that as comics retailers we needed Steve Geppi to either divest himself of anotheruniverse.com as quickly as possible, or to show immediate plans for creating benefit to his captive retailers resulting from his ownership of anotheruniverse.com. I also asked the Diamond team to clarify the relationship between Diamond and Next Planet Over. I requested assurances that Next Planet Over would be receiving no preferential treatment above that afforded to all Diamond retailers.

The next two hours were the most intense I have ever experienced in a public forum. The Diamond executive team initially gave some answers that glossed over the issues. For a few moments it appeared that this tactic would be successful, but then a more militant group of retailers, led by Steve Snell of Gun Dog Comics, began asking very pointed questions. By this time Steve Geppi had joined the Diamond executive team (Chuck Parker - Executive VP, Bill Shanes - Purchasing VP, Cindy Sherwin - Operations VP, and Roger Fletcher - Marketing VP) on the stage, and tried to help answer the questions. Twice he was asked if he owned any stock in Next Planet Over, and twice he denied having any ownership. But when questioned about his ownership a third time, and asked specifically asked if he had an option to buy into Next Planet Over at any time, he stated that the contract did allow for him to purchase stock in Next Planet Over at a later date.

Another point that was denied by the Diamond executive team was that Diamond Digital Design had anything to do with creating the Next Planet Over website. Supposedly the designers who created the barnesandnoble.com site worked for Next Planet Over. That seemed very strange to me, however, as the company that did the original work for barnesandnoble.com (Reach Networks of NYC) was negotiating with me to build our website (in exchange for a percentage of the gross) until late 1996, when they were absorbed by a firm in Silicon Valley. As far as I know, those folks haven't been involved in comics for years... This is an issue that has yet to be confirmed or denied.

When the issue of Steve Geppi's majority ownership of anotheruniverse.com came up, Chuck Parker stated that there were ongoing efforts to sell the company, but that only one "low-ball" offer had been received. I cannot recall specifically if it was stated, or merely implied, that this offer was from Next Planet Over. I had other retailers tell me that it was stated, but I missed that part of the explanation. Given the fact, however, that the fulfillment system being created by Diamond for Next Planet Over replicates in Sparta what anotheruniverse.com was operating out of their warehouse on the East Coast, it stretches the imagination to assume that the Diamond staff would design and implement an Internet fulfillment system for comics products that provides an entirely new company strategic advantage over a company that their boss is supposedly trying to sell. Wouldn't it at least make more sense to get the sale done, first? But if, on the other hand, a Next Planet Over purchase offer for anotheruniverse.com were to be confirmed, then the nightmarish possibility of unification of an entity with Diamond's fulfillment capability, and anotheruniverse.com's mailing list of 400,000 consumers, would be completely possible. Given the fact that the secret deal drawn up for Next Planet Over would give that company significant strategic advantage over anotheruniverse.com, merging the two companies together seems the only logical conclusion to draw.

In specific, what was revealed about Next Planet Over during these discussions was that Diamond had secretly negotiated a deal with the principals of Next Planet Over to provide them with an exclusive Internet fulfillment service from the huge Diamond warehouse in Sparta, IL. This deal was exclusive to them for two years, and precluded Diamond from offering a similar service to any of its existing retailers. Next Planet Over would also be allowed to store inventory in the Sparta warehouse that it owned, in order for Diamond to ship their Internet orders even more efficiently. This inventory would include everything Next Planet Over wished to sell, including backlist comics.

When questioned about the methodology of how Next Planet Over would purchase stock from the Diamond Star System backlist inventory stored in the Sparta warehouse, Chuck Parker explained that Diamond would treat all orders from Next Planet Over as reorders, fill them immediately, and then allow the standard 35% reorder discount.

At this point Paul Levitz (who had been listening to all this silently) interrupted the Diamond team. He pointed out that the DC product stored in the Sparta warehouse still technically belonged to DC, and as such could not be sold in this fashion. He pointed out that allowing Next Planet Over immediate access to available inventory in the Sparta warehouse, while requiring all other comics retailers to place reorders by phone, was a violation of DC's contract with Diamond. He contended the following had to be done to keep the spirit of fairness doctrine that DC so strongly advocated in place:

1) Next Planet Over would have to wait the average time that all Diamond accounts have to wait to receive a reorder.

2) Next Planet Over would have to be charged a freight charge equal to the average cost that any other Diamond retail account would have to pay.

3) Next Planet Over would have to pay a $10 reorder fee for each reorder they placed, after the first one (each Diamond account is allowed one free reorder per week).

When Paul Levitz finished speaking Steve Geppi and the Diamond executives appeared to be in shock. They claimed in their defense that the contract had been written by Larry Swanson, Diamond's Chief Financial Officer, and that they really didn't know all the details of what it said. They also said the contract had been in process for many months, and alluded to the fact that negotiations had lasted an extensive period of time, and that many changes had been made.

This revelation left me stunned. It now seemed clear that my worst fears were being confirmed. I had to admit that Clyde Durkee might have been right all along when he predicted that Steve Geppi would tell me anything he thought I wanted to hear in order to keep me silent on his ownership of anotheruniverse.com. My trip to Baltimore in November, at Steve Geppi's invitation, now appeared to never have had any chance of success. During the time that Steve Geppi and I spent fifteen hours together discussing how to constructively resolve the issues relating to his ownership of anotheruniverse.com, he apparently already had his staff secretly negotiating yet another preferential deal for a comics retailing entity in which he had an option to purchase stock.

This was the moment that I realized that my personal relationship with Steve Geppi was over. For twenty-two years Steve and I had worked together, and I thought we were friends. There had been previous times when I saw him engage in questionable behavior, but I always rationalized in my mind that he was a good man, and that we all have to make allowances for the weaknesses and human frailty of our friends. So I forgave him his transgressions over, and over again. But to lead me into believing he was negotiating constructive solutions to the anotheruniverse.com ownership dilemma in good faith, while simultaneously making arrangements to create an entity that would directly, and unfairly, compete with his captive retailers, is beyond my capacity of acceptance or rationalization. Perhaps others can forgive this kind of behavior. I cannot.

This was the point at which I decided I had no choice but to petition you, and your division of the United States Department of Justice, for relief. It was, and is, my opinion that a sole-source supplier engaging in competition against his captive retailers is a possible violation of the anti-trust laws set up by the Congress. Since Steve Geppi and his Diamond team are going forward with their plans to provide Next Planet Over with strategic advantage over the community of their existing retailers, even after hearing a unified call from a representative group of those retailers for them to stop, it seems clear that this issue cannot be resolved by reasonable dialog from within. It now appears that the only resolution to this conflict of interest can come from the courts. At his point I leave it up to you, and the members of your team, to decide if there is a case to be brought against Steve Geppi and Diamond Comic Distributors, Inc..

Please understand, however, that I harbor no false illusions. In the end, Steve Geppi may win out even in litigation. He is very clever, has powerful allies, and his legal team is very resourceful. I know that by taking the lead in contacting you that I am placing myself in a position of never being able to expect any favors, or mercy, from Steve Geppi, or Diamond, ever again. But I could never respect myself again if I didn't at least ask you to try to stop them. That's why I finally came to the difficult decision of writing to you for help.

Your assistance in this matter would be most appreciated by me, and certainly by at least the vast majority of the 3,000 independent comics retailers of America.

Sincerely,

Charles W. Rozanski,
President - Mile High Comics, Inc.