Company: Optiva
Inc. 500 Ranking: #2, 1996; #1, 1997; #81, 1998; #426, 1999
Cause of IPO death: The fatal distraction of an ongoing lawsuit
Cost incurred: $500,000

Water has always played an important role at Optiva Corp. The company's best-selling Sonicare toothbrush (to date, its only product) relies on sound waves traveling through water to erode plaque. Water is also a symbol in company folklore; for many years Optiva's manufacturing plant was separated from the rest of the company's operations by a creek that periodically flooded over, making employees' treks back and forth, well, an adventure.

Water -- in this case, liquidity -- was very much on the mind of CEO David Giuliani by the time Optiva topped the Inc. 500 list in October 1997. There were longtime investors (who had poured nearly $500,000 into the company in 1990) to consider, but Optiva also needed more cash to properly roll out new products in the U.S. retail channel as well as overseas. Finally, in May 1998 the company filed its S-1 registration papers with plans for a summer initial public offering managed by Hambrecht & Quist and PaineWebber. The offering was expected to raise some $30 million for Optiva.

The prospectus warned the world of the usual risks inherent in investing in a one-product company whose rivals are larger and better known. One of the risk factors not deemed material was the threat of a major lawsuit. But such a suit was exactly what Optiva faced not long after the ink dried on its S-1 papers. In the summer of 1998, Gillette announced it was suing Optiva for false-advertising claims made against its Braun unit.

The timing was curious. For years Optiva and Braun had each challenged the other's product claims, but always quietly, out of court. As the market stakes increased, the war of words in print advertising escalated to a level of surprising belligerence. (For example, Optiva ads that ran in national consumer magazines claimed that using the competing Braun product wouldn't prevent the growth of bacteria that might contribute to heart disease, stroke, low birth weight, and other life-threatening conditions.) "It wasn't a style of engagement that we started," says Giuliani, "but we certainly responded to it." Even so, the two companies had always hashed out their advertising complaints in hearings held before "judges" at the National Advertising Division of the Council of Better Business Bureaus. Optiva had won more times than it had lost.

Then came the lawsuit in June 1998. "It was," says Giuliani, "a surprise." And a deadly distraction. Optiva's small management team was suddenly diverted from preparing for the public markets to defending itself in a court of law. One of the first things Optiva did was eat its words. A letter went out to 220,000 dentists and hygienists retracting a key advertising claim that Sonicare reduces the worst kind of bacteria, a finding that was based on a scientific study that turned out to be wrong, Giuliani says.

The road show went on hold indefinitely as the suit dragged on for seven months. About a month before the verdict, Optiva quietly withdrew its S-1 registration. The timing, Giuliani insists, was merely coincidental. "Pulling the IPO paperwork was not a big event; it was simply a clerical cleanup."

Optiva lost the lawsuit, and a jury awarded Braun $2.5 million in damages. Optiva decided to fight the verdict. As for the IPO, the last nail was already in the coffin. To this day, however, Giuliani won't say the lawsuit killed the IPO. He's still sorting out the fallout from the court battle. One thing is certain: Optiva's sales haven't suffered much. In 1998 revenues increased 30%, to $133 million. Profits remain a healthy 10% plus. And cash flow is plentiful.

Is there hope for an IPO down the road? A downturn in Internet stocks could help Optiva's prospects. "Money is always looking for the next place to go," Giuliani notes optimistically. He reports that, IPO or no IPO, he still loves teaching Optiva's 90-minute company course on stock options and eagerly anticipates employees' questions.

Optiva has begun distribution in Japan, and its Japanese partners were on hand when Optiva baptized its new corporate headquarters, in April, in a ceremony "straight out of our water history," says the CEO. Water from the old site's Richards Creek and the new site's Snoqualmie River was combined with Japanese sake. Water will no doubt remain an important symbol for the company -- even if for now Optiva's stock is still not liquid.

Susan Greco is a senior writer at Inc.