MUST Read if you plan to invest:
Great read on this company and the reason it is trading the way it is.
Unraveling the tangled tale of BrandPartners
Friday, May 7, 2010
By Bob Sanders
[CORRECTED] Rochester-based BrandPartners Group Inc. shut its doors last month — throwing more than 80 people out of work – because it couldn’t pay millions owed to Kuwaiti lenders on a high-interest loan arranged nearly a decade ago by a former chief executive who later committed suicide, according to current chief executive James Brooks.
Brooks, speaking out for the first time since the company shut its doors, blamed TD Bank for not helping the company obtain other financing.
“TD Bank is at fault for everything that happened recently, but this problem didn’t develop in the last three months,” Brooks told NHBR. “This problem has been going on for nine years. They were ready to put this thing in bankruptcy. This company should have been dead in 2002 or 2003. It was a mess.”
TD Bank spokesperson Jennifer Morneau would not respond to specifics about BrandPartners, citing confidentially, but she said, “TD Bank does our best to support our business customers. It is in our best interest to see that they succeed.”
BrandPartners was responding to an investigation by NHBR into the public records of the company, whose stock is still traded over the counter for less than penny a share. Here are few of the major facts:
• BrandPartners shut it doors on April 16, the day after a more than $7 million payment was due to a British Virgin Islands company that carried the 18 percent loan for nine years. (Brooks said that the money came from Kuwaiti lenders.)
• The loan is the reason that Brooks “intended to drain BrandPartners of all significant assets, thus leaving an empty shell for BrandPartners’ creditors and shareholders,” charges a suit filed last December in federal court. Brooks said that statement was a “slanderous lie” made by a disgruntled employee.
• The company lost at least $18 million over the past four years, and as of Oct. 31 had $341,000 in cash and at least $6.8 million in current liabilities. Indeed, $10 million of the company’s $15 million in assets was “goodwill,” without which the company would have a negative equity.
• BrandPartners acquired two companies in early 2010, paid Brooks more than $500,000 in compensation last year, and up to last year was paying the chair of the board’s audit and compensation committee $180,000 annually in consulting fees on top of his board salary.
• BrandPartners raised hopes in February — two months before it shut it doors — saying in a filing with the Securities and Exchange Commission that it had $4.6 million in new agreements and $930,000 in letters of intent.
• The company furloughed 30 workers in March, putting it under the threshold level of 75, so it did not have to give any notice to workers under the state’s new WARN law. The state Department of Labor is investigating whether the company complied with that law.
• BrandPartners shut down even though it had connections to well-known billionaire families. Its largest stockholder was and still could be Robert S. Trump (brother of developer and television personality Donald Trump) and last year it signed a strategic alliance with Rockefeller Consulting Group/Insight Capitalists, led by Mark Rockefeller, son of the late New York Gov. Nelson Rockefeller.
The deeper anyone looks into this company’s apparent demise, the more mysteries pop up — mysteries that are difficult to solve, since many of those involved could not be reached or did not return phone calls.
Several said they were worried about Brooks suing them. For his part, Brooks said that he is the victim of “tremendous lies.”
Trump ties
BrandPartners was not a fly-by-night operation by any means.
The Rochester company – then named Willey Brothers — was founded by Thomas P. and James Willey in 1983 to create retail environments for banks. In January 2001, they sold it for $35.7 million to the BrandPartners firm led by Jeffrey Silverman, a successful, but somewhat notorious, businessman.
Silverman, whose father reportedly sent him to nursery school in a limousine, at 21 was the youngest member of the New York Stock Exchange and got caught up in a tabloid triangle that brought down New York Chief Judge Sol Wachtler.
When Silverman bought BrandPartners from Robert Trump, he was fresh off the sale of Ply Gem for a $100 million profit.
(According to latest proxy statement, as of March 2009, Robert Trump still had 11.5 percent interest in BrandPartners, making him the largest shareholder. There is no record of his sale of any stock, and attempts to leave messages at Trump Management Co. in Brooklyn, or his brother’s The Trump Organization were not successful. Brooks said that Trump is just an investor and has shown no interest in salvaging the company.)
This highly leveraged buy out — good for the Willey brothers – put the company in trouble from the get-go, said Brooks. The company had $14 million in debt from a commercial loan from Fleet Bank. One month after the economy tanked in late 2001 and early 2002, Silverstein turned to the Kuwaitis for a subordinate stopgap loan to prevent the company from going under.
The loan went to Corporate Mezzanine II, LP, a company based in the Virgin Islands.
“We were shutting down … but instead of getting equity in the company, he went out and got this crazy 16 percent loan. It is the most ludicrous thing you can do with a company. It goes against any practice you learn in business school. If you can’t pay back 6 or 8 percent, you don’t go out and get a loan for twice that mount,” Brooks said.
The BrandPartners deal went sour for Silverman for other reasons: untimely investments in an Internet company and a struggling economy.
The stock slipped from $13 a share to under a quarter and Silverman’s own stake plummeted from $6 million to $260,000. Shareholders filed a class action suit and on Sept. 23, 2002, Silverman shot himself in the chest on a fishing pier in Greenwich, Conn., according to police.
Only two months later, BrandPartners announced that Silverman paid himself nearly $400,000 in unauthorized compensation and reimbursements for personal expenses.
Brooks, a Harvard Business School graduate who currently lives in Greenwich, took over the company about a year later.
Destructive loan
Brooks had his own share of troubles. He was senior vice president of operations, business development and legal affairs of Cityspree Inc., an online company — launched in 2000 with about $21 million from the equity arm of the Rothschild family — that offered gift certificates, but Cityspree oversold the certificates, restaurants refused to honor them and the company filed for Chapter 13 bankruptcy in October 2001, which is when Brooks left.
He went on to become a consultant with Getzler & Co., a national management and financial consulting firm specializing in corporate turnaround and restructuring, before joining BrandPartners in 2002 as the chief operating officer, a few months before Silverman killed himself.
Brooks became president of the company in September 2003.
Two years later, BrandPartners acquired another company, Grafico Inc. of Stamford, Conn.
Grafico seemed like a perfect fit, designing interiors of payday loan companies and check-cashing joints, just as BrandPartners did for mainstream banks.
Grafico was a co-signatory on the mezzanine loan, which was continually extended. At the end of March 2009, it went from 16 to 17 percent, with a principal of $7.1 million, and on Sept. 30, 2009, it was up to 18 percent.
BrandPartners knew that this loan could destroy the company and said so in its last annual filing in March 2009, saying that if it did not meet various financial covenants, they may be in default and face a balloon payment that would result in a default.
Similarly, not being able to pay back the $5 million revolving line of credit to the commercial bank – now TD Bank — “would have a materially adverse effect on our ability to maintain our business operations.”
The loan might lead Brooks to shut down the company, charged Frank Beardsworth, BrandPartners’ former executive vice president of merchandising and retail communications.
But everything Beardsworth said should be taken with a grain of salt, since his allegations come in response to a BrandPartners’ lawsuit against Beardsworth.
The suit charged that he and another executive transferred trade secrets to a Pittsburgh competitor he went to work for after resigning in August 2009.
According to the suit, Beardsworth told a co-worker that he would attempt to “bury this company.”
Beardsworth denied the charges, but countered that his resignation was prompted by firings and retaliation after he blew the whistle on Brooks’ alleged plans to kill BrandPartners.
Beardsworth maintained that he had a series of conversations in January 2009 about renegotiating the mezzanine loan. If that failed, he said, Brooks said he would default on the loan, rename BrandPartners and form a new company. He would then move equipment and key employees to that company to continue servicing BrandPartners’ existing clients.
Beardsworth said Brooks even asked him to work on a business plan for the new company and stated “on multiple occasions that he did not care what impact his plan had on BrandPartners’ current investors and/or shareholders,” accounting to the countersuit.
Brooks heatedly denied this ever happened.
Beardsworth said that he thought that gutting the company would be unethical, and possibly illegal, and sent an e-mail to other executives, who brought the matter to members of the board, including Clifford Brune.
Brune, who lives in Forest Hills, Ill., heads the audit and compensation committee. Brune not only collected $42,000 as a stipend for sitting on the board and heading the committees, he receives $15,000 a month as a consultant. That should add up to $180,000 a year, but according to the company’s latest proxy, his additional consulting fees total $230,000.
Despite assurances that there would be no retaliation, several of the complaining executives were fired after the board meeting, and Brooks told Beardsworth the only reason he wasn’t included was that he might be considered a whistleblower, according to the countersuit.
Still, Beardsworth said he was harassed and told to call Brune to “clear the air” and say he was confused by Brooks’ plans. Beardsworth said he refused to do so and felt he had no choice but to resign in August 2009. (Five months later, the company announced that Brune would not stand for election to the board.)
“Brune has no disagreements on any matter relating to the Company’s operations, policies or practices or the general direction of the Company,” according to the proxy announcing the decision.
Approaching deadline
Meanwhile the mezzanine loan kept hanging over the company’s head. Although it wasn’t officially due until Oct. 29, 2010, the company did not meet conditions that would prevent it from being called in. At each amendment, the task became more difficult, with either the payback amount, the interest rate or the number of stock warrants issued increasing. In January, the loan deadline was set to March 15.
It was at this time that the company decided to acquire two other firms, the first being Store in a Box, a Chicago firm formed in 2007 to set up interiors for new retail franchises, such as Jenny Craig and Old Navy.
The company did not reveal how much it paid for Store in a Box – and the filings that would normally have that information were never disclosed.
Store in a Box chief executive Bruce Olans, now back in Chicago and trying to rebuild his company, would also not comment.
“When they went I went,” was all Olans would say. “Store in a Box is operating again.”
The other major company “launched” by BrandPartners was EnergyServicePartners, which seeks to compete with Siemens, Honeywell and Johnson Controls for stimulus money. But this is another mystery. The company – an energy audit and conservation implementation business — was headed by Mark R. Hahn, according to a BrandPartners press release issued in February.
Hahn – who NHBR was unable to track down -- previously worked for Atlantic Energy Solutions, which is being traded on the Pink Sheets under the ticker AESO.PK. EnergyServicePartners, which also worked out of Saratoga Springs, N.Y., merged with Atlantic Energy.
In any case, before it went down, the BrandPartners Web site listed Jim Brooks as chief executive of the EnergyServicePartners, and Hahn is not mentioned.
Currently, it is unclear how to reach EnergyServicePartners, or whether it still exists.
Meanwhile, some executives were putting forward various proposals in an attempt to save the company, according to several people in the company.
One person described it as a “coup” attempt. Brooks even stepped down for a short period, sources said. In March, shortly after the March 15 deadline, the company laid off 30 employees in what has been describes as the “St. Patrick’s Day massacre.” But the layoffs were to no avail, and after a meeting with the bank, the company learned that the loans would no longer be extended.
Exactly when that word came is not clear, but the company apparently knew something was going on beforehand because more than four dozen trucks were on hand to ship materials for the interiors of various banks the very next day, according to several sources.
Most workers – though expecting that something was up – only learned that they would be laid off on their last day, April 16.
Meanwhile, BrandPartners’ stock continued to be traded Over-The-Counter, though its ticker symbol BPTR.OB, has been extended to BPTRE.OB, to indicate that the company is behind in its filings. It has a 30-day grace period to submit the filings.
Who would buy a company under such circumstances?
“There is a whole industry for distressed companies,” said one person from the OTC market who asked not to be identified. “If they buy it cheap enough, they may hope to squeeze some assets out of it.”
On May 3, BrandPartners shares were trading for a half a penny, a 50 percent decline from the previous close of one cent.
