The Fall of Listworks

Listworks Corp. Inc. vanished one cold afternoon in February but the events leading to its demise actually took more than a year to unfold. And the impact is going to be felt for some time to come.

The end came late on Feb. 2 when employees who hadn’t already resigned or given notice were told the list management/brokerage company was closing and to go home. That announcement came one day after Wells Fargo Bank terminated Listworks’ revolving credit agreement and demanded full payment for the $3.3 million it was owed.

Wells Fargo had provided two loans to help finance the $8.2 million acquisition of Listworks in 2002 by an investment group led by Walter Monzi. Monzi became the chief executive officer, president and a director of the company.

Listworks filed for Chapter 7 bankruptcy Feb. 18, listing debts of more than $9.2 million. Thus, the next act in the drama will take place in bankruptcy court as Wells Fargo and other secured creditors push to collect what they’re owed. It remains to be seen whether there will be a single dime left for list owners and managers.

The reason is that Bankruptcy Court Judge Adlai S. Hardin issued an order April 18 granting Wells Fargo Bank “first priority” in recovering Listworks’ accounts receivable. These were assigned as collateral in loan financing agreements dating back to the firm’s purchase.

“The bank is free to pursue collection, settlement, sale or other recovery of retained bank assets in accordance with the terms of the credit agreement,” the order states. “Because of the secured lien held by the bank, the trustee’s recovery of the maximum amount of proceeds is not likely to yield any amounts for payment to unsecured creditors.”

But list owners due rental money are not likely to go along with that, according to Sanford P. Rosen, an attorney representing Muscular Dystrophy Association Inc., a list management and brokerage client of Listworks and an unsecured creditor. Rosen filed an objection on behalf of the MDA in the bankruptcy court April 28 disputing the bank’s claim to outstanding receivables. Like any list owner, the MDA views the money due it for list rentals — $179,717 — as being its property, not the bank’s.

Rosen added that any parties owed money by Listworks have a right to file a lawsuit in U.S. District Court to receive payment.

The April 18 order authorizes court-appointed bankruptcy trustee Eric C. Kurtzman to pursue recovery of outstanding list brokerage and management receivables for the bank’s benefit. And it prohibits the trustee from settling any list brokerage account for less than 80% of its book value unless agreed to by Wells Fargo in writing.

Kurtzman has asked the court to hire former Listworks CFO John Collins to help collect the outstanding receivables. The bank told the court it’s already collected some receivables owed to Listworks.

Even before the bankruptcy case was filed, Wells Fargo mailed form letters demanding payment from companies that received list management or brokerage services from Listworks. Many companies ignored them, and some questioned whether the bank had acted properly.

“All amounts invoiced to you by Listworks are Wells Fargo’s collateral and are due to Wells Fargo in full,” the Feb. 9 letter states. “You may not withhold any amount for payment to another party, even if Listworks is obligated to make payment to another party.”

After Wells Fargo, the next largest secured creditor identified in court documents is Listworks Holdings Inc., a subordinated “junior” lender whose investors hold 100% of Listworks common stock. It purportedly is owed $1.2 million. Listworks Holdings also claims it has a subordinated lien on all of the company’s assets.

Combined for third place are Robert Givone, a former owner and co-founder of Listworks, and Gina Givone, who are owed $113,602 each. The Givones provided $500,000 in seller financing when Listworks was sold.

Financing of the Listworks takeover in 2002 included a $2.7 million investment equity investment from Ferro Management, mostly from foreign investors. Ferro Management is based at the same Raleigh, NC address as Listworks Holdings, according to bankruptcy papers.

Markus Isenrich, owner and president of Ferro Management and former chairman of Listworks, could not be reached for comment at deadline. Nor could Michael J. Pankow, an attorney with Denver law firm Brownstein Hyatt & Farber P.C., which represents Wells Fargo Bank.

Meanwhile, bankruptcy court documents shed at least some light on the once-successful company’s unraveling.

Financial troubles at Listworks started snowballing last year after gross sales for list brokerage, management and computer services declined by more than $6 million.

Listworks signed an agreement with Wells Fargo that temporarily increased its credit line on July 27. But several key revenue-generating employees left the company within a few months.

Listworks Corp. got in trouble with Wells Fargo for making prohibited payments to Listworks Holdings in April, May and June of last year. This led the bank to find Listworks Corp. in default of its financing terms retroactive to March 31, 2004.

Payments to Listworks Holdings were prohibited under the financing agreement with Wells Fargo unless certain debt service coverage ratios were maintained. The bank said these were not met.

In a Dec. 16, 2004 letter, Wells Fargo notified Listworks a second time that it was in default of its financing agreement. The third and final blow came Feb. 1, when the bank terminated the deal and demanded full payment.

Listworks generated $21.3 million in gross income last year, compared with nearly $27.4 million in 2003, according to papers filed with the U.S. Bankruptcy Court for the Southern District of New York.

But insiders say that only about $5 million of that money — namely, the list management and brokerage commissions on it — actually belonged to Listworks, while the balance belongs to list owners, managers and brokers.

At press time, the bankruptcy court had received more than 400 claims from unsecured creditors. The list companies hit hardest are List Services Corp. ($164,159), Millard Group Inc. ($133,533), Clientlogic Specialists Marketing Services ($111,883), Direct Media Inc. ($103,442), NCRI List Management ($103,268), Mokrynskidirect ($102,972), Macromark Inc. ($98,767), Walter Karl Inc. ($72,416) and American List Counsel Inc. ($48,393).

On the list owners’ side, those owed money by Listworks include the Muscular Dystrophy Association, Christian St. Michael ($158,003), Information Products Inc. ($119,024) and Christian Appalachian Project ($113,864).

The so-called priority unsecured claims are for unpaid wages, salaries and commissions. They include back pay owed to Monzi ($13,163), John Collins ($6,634) and Lisa A. Greene ($11,904).

Greene took about 50 list brokerage clients with her when she left Listworks’ satellite office and co-founded a new firm, Specialized Fundraising Services Inc., last January. Like the satellite office, the new company is based in Spartanburg, SC.

Greene and co-founder Frank Quaranta, a former president of Listworks, raised many eyebrows in the list business when they launched the firm with so many former Listworks clients one week before Listworks closed.

“I was surprised that many companies in one fell swoop made an organized exit. It usually takes a minimum of 60 days to move a client to a new manager,” says Geoff Batrouney, executive vice president of Estee Marketing Group Inc.

Several former Listworks employees now work for Macromark Inc., which also picked up many ex-Listworks clients immediately after Listworks closed. Walter Karl Inc., RMI Direct Marketing Inc., Estee Marketing Group Inc. and Country Marketing Ltd. have also taken on some of Listworks’ old clients.