Background


Letter from John McKimm 
to 
Dennis Jewitt, Chief Restructuring Officer of Brainhunter


February 22, 2010

Breakwall Financial
Chief Restructuring Officer
80 Richmond Street West, Suite 1104
Toronto, Ontario
M5K 2A4
Attention: Dennis Jewitt, President
Via Email

Dear Mr. Jewitt:

Re:  Brainhunter Transaction

Mr. Jewitt, my previous response to your email was brief, largely because of timing.  However, I did promise you a more detailed response when time permitted. 

JEWITT’S CONCERNS:

In your email to me you noted the following concerns:
  1. Bidding Parties and their agents may not have discussions with employees of Brainhunter without consent from Brainhunter.
  2. My emails suggest I have an association with a potential bidder and I will be back involved in the business in February.
  3. Any bidding party with who I might be associated as an agent may be precluded from bidding and may have liability for breach of its NDA.  

My response per 1, 2 and 3: The insider bid sponsored by Raj Singh, the presiding CEO, at the time of your email, had the benefit of much inside information and in fact his costs were being paid for by the Company, putting all other bidders at a disadvantage.  And now you want to discredit bidders because of an association with me, the only party in this whole process who is actually concerned about getting the best value possible for stakeholders.  I am curious, Mr. Jewitt, how you think a bidding party who has signed an NDA, and has access supposedly, to all information could breach their NDA by dealing with me.  Do you think I have information that is not otherwise available?  I built the company Mr. Jewitt.  There is very little of any information on the data side I am not intimately familiar with.  My value to buyers is my ability to interpret the information provided by the insiders, who have done everything they can do to present the information in a negative light.  My perspective aids the buyer’s understanding, making it more likely the buyer will be part of the bidding process.  It seemed you did not want other bidders other than Mr. Singh’s insider bid.  The question is why not?  Was it not your responsibility to promote alternative bids?  Why would you deter other bidders who were prepared to bid more than Raj Singh's insider bid?

4.         You want me to retract my statements if they are not true.  My response: All of my statements are true.

5.         You want me to refrain from communicating to employees of Brainhunter as my emails are inappropriate and provoke anxiety to the recipients.  My response: Many of the Brainhunter employees, in particular senior employees, have called me over the past number of months because they are very concerned.  They did not trust the senior management team, in particular Raj Singh, Sam D’Aurizio, Terry Bullock and Perry Henningson.  The events of Monday, January 11, 2010, where a seven year employee and one of the top sales people was terminated with no severance; benefits were cut off immediately and she was escorted from the office without even having the opportunity to take her personal possessions, was very disturbing for many people.  This comes after Sam D’Aurizio and Terry Bullock told employees in a meeting that CCAA allows anyone to be terminated without severance.  Naturally, this caused great concern, Mr. Jewitt.  

      People called me because they trusted me and knew this sort of disgusting activity would never occur under my watch. They wanted to know the truth.  I would always do my best to treat people fairly.  My email to senior employees was intended to comfort them that a deal was in the works that would be good for the Company.  Of course, it was likely to be upsetting to Raj, Sam and Terry and perhaps Perry Henningson.  You should also be aware, Mr. Jewitt, that no terminations were to be made without the prior approval of the Deloitte Monitor.  It is fact, confirmed by the Monitor’s discussion with legal counsel, that the Monitor had no knowledge of the termination of the single mom.  In fact, the Monitor was upset that the termination took place without his approval.

      For the record, Mr. Jewitt, many of the employees of Brainhunter are my friends with whom I share close relationships.  I can speak to whoever I please, anytime I please, about whatever I please.  If employees call me, I would give them honest answers as I have always done, and treat them with the integrity and respect they deserve; unlike select members of the senior management team and yourself who have a habit of ranting and raving and providing them answers that caused more harm than good. 

           In any event, my communication to employees has been minimal.  However, I would suggest many found my comments comforting.  Those that didn’t were likely uncomfortable because of their actions. 

6.         You want me to disclose the identity of the bidder or bidders.  My comments:  I have no obligation to disclose the potential buyers I am talking to.  If you, the management, the Board of Directors, and other advisors were doing what you were all paid to do, I would not have to look for buyers, you would have already identified them.

7.         Many members of senior management have indicated that they would seek alternative employment if I came back.  My comments: And with good reason.  They may not have the choice.

If I have missed any of your concerns, please feel free to correct me.  However, to properly reply to your concerns, I must make a number of additional observations, all factual.  The objective is to give my responses proper context.  

   1.        I am not an agent for the bidders.  However, given that the management and Board of Directors of Brainhunter, including their agents and advisors such as yourself and E&Y Orenda were all supporting the Insider Bid of Mr. Raj Singh, the CEO of Brainhunter, I felt compelled to find a better bid than that of Mr. Singh.  Mr. Singh’s bid proposed to provide no value for shareholders and the majority of creditors, aside from paying out the TD and Roynat and most of the contractors.

   2.        I have had contact with in excess of 8 potential bidders since September, 2009, all initiated by myself as a result of finding out in September that all the candidates to buy Brainhunter that were participating in the E&Y Orenda process in June, 2009 (when I left Brainhunter) were gone.  The September 30, 2009 deadline set by the TD and Roynat was fast approaching and there were no solutions.  As noted previously, the management, Board of Directors, and Advisors were more intent on collecting their compensation and fees and deflecting personal liability rather than finding an alternative to the Raj Singh insider bid.
             I had a huge investment, both financially and otherwise in Brainhunter, as had a number of my friends and business relationships, and everyone stood to lose if nothing was done.  The rumours, back as early as September, 2009, included that the Company was planning to file for CCAA protection and that Raj Singh, the then current CEO, was to buy the Company and leave all the Noteholders, unsecured creditors and common shareholders with nothing.  (For the record, that is the essence of his Stalking Horse Bid that was approved by the courts with the CCAA filing in December, 2009.)  Up to this point, management, yourself, the Board of Directors and other advisors had managed to eliminate all other potential bidders in favor of Raj Singh’s insider bid.

   3.  I have no obligation to disclose any of the parties that I had dialogue with.  My sole objective in my dialogue was to identify and encourage potential buyers to make an offer for Brainhunter.  The intent was to secure more value for the shareholders and creditors of Brainhunter than was available to them through the Raj Singh insider bid.  In fact, Mr. Jewitt, I offered my services to all of the bidders for free.  I further agreed to assist them in any transition and integration if they were the successful bidder.  Without exception, each and every bidder found such an offer very attractive and understood that my assistance would help them significantly reduce their risk.  And Mr. Jewitt, that offer remains outstanding to the successful bidder.  I find it curious that you find my motivation to obtain better value for the Brainhunter Stakeholders a problem.  It is even more curious that you believe any bidder associated with me might be disqualified, even if their bid was a better bid than the insider bid of Raj Singh.


OTHER OBSERVATIONS

Now Mr. Jewitt, let me get on with my observations.  I will do my best to put them in a logical sequence.


Observation #1: John McKimm’s Motivations

I built Brainhunter, Mr. Jewitt from a few hundred thousand dollars in sales to a high of $235.0 million in fiscal 2007.  Brainhunter was my vision and on numerous occasions I put my personal assets on the line to bridge growth financing.  I raised the majority of Brainhunter’s financing.  I hired most of the senior people.  To me the Company was like my child.  I could no more harm this Company than I could harm one of my children.  

My sole purpose for injecting myself back in the Brainhunter transaction in September, 2009 was to do my best to help secure better value for the equity and debt investors who I had raised money from.  It was obvious that Mr. Singh, the CEO, had his own personal agenda, and that did not include Brainhunter investors.  

It was also obvious the Board of Directors were too busy trying to ensure they were protecting themselves from personal liability, E&Y was doing little with the exception of collecting large fees (because the TD Bank forced the Company to keep them engaged).  And you, Mr. Jewitt, as the “Chief Restructuring Officer” had completely overlooked all the obvious and simple restructuring strategies.  

If you have the experience you are reputed to have (as per the Delta Capital website), then missing these strategies certainly raises some serious questions regarding your personal motivations.  Or perhaps, it is possible you are just plain incompetent, however, that is a hard one for me to believe.  In due course, we may discover your true motivations.  However, in the short term, suffice it to say you wanted to protect your $50,000 per month fee as long as possible and collect a success fee and in doing so, a CCAA process was the best approach to guarantee you these fees.  I would guess Mr. Jewitt, your services since July, 2009 to closing may cost Brainhunter in excess of $800,000. And the value you have brought is difficult for me to discern.  The facts suggest, Mr. Jewitt, your advice and actions directly cost Brainhunter stakeholders millions of dollars in losses, losses that did not have to result.

To conclude Observation #1 on my motivations, the facts would suggest that I was the only party truly concerned about the welfare of the shareholders, creditors and employees.  I was also the only one not getting paid by anyone.  Between Mr. Singh who had his own personal agenda, your fees, E&Y Orenda fees, the fees for TD and Roynat, including their legal representation, the Board of Directors fees, the legal counsel for the Special Committee of the Board and now the Monitor and their legal advisors, the costs to the Company were well in excess of $350,000 per month.  I find this absolutely disgusting.  

As we all know, Mr. Jewitt, the CCAA process is a process where there is absolutely no accountability for costs.  All advisors and legal counsel are guaranteed their fees and, unfortunately, there is no one to oversee or object to such fees.  It is a true rape and pillage of the value of a business at the expense of shareholders and creditors.  I believe that the court documents, Mr. Jewitt, put the total CCAA costs at over $3,000,000.  Disgusting!  And to think the Special Committee and Board of Directors of the company approved this process, it is outrageous!!


Observation #2: As Chief Restructuring Officer, what were the alternatives to CCAA?

Now, Mr. Jewitt I think the answer to this question will be very interesting.  Before I articulate my opinion as to the Alternative, please let me provide you my background, which I hope will add to the credibility of my opinion.  Please note the following:

“I have worked and invested throughout North America, Africa, South America, Western Europe, Eastern Europe and Russia, India, China, Middle East and the Caribbean.  I have extensive banking experience, much of it in Special Loans.  I have raised in excess of $600.0 million (debt, equity, quasi-equity) for companies where I was involved as a significant investor, officer and/or director or agent.  I have executed in excess of 100 M&A transactions, including over 35 that were insolvencies.  I am as familiar with the strategies and the legal process in the insolvency area as any practitioner in the country.  The Company I had before Brainhunter was Daedalian.  I got involved when the Company was in Special Loans at Scotiabank and losing millions.  Within 16 months, I had totally restructured the Company, strategically, operationally and financially and sold it for $29.0 million in the same year it had losses of $7.0 million. I have had  numerous other successful restructuring situations. 
In the late eighties, early nineties I had numerous publications on insolvencies and provided educational seminars for special loans groups of banks and with the CBV association on how to deal with valuation in an insolvency.  My academic background, Mr. Jewitt, is a double major in economics and accounting, a Masters in Business, a Bachelor of Laws, FCSI, and numerous certificates in specialized areas.  I graduated all university programs in the top 10% of my class.  I have created and built many companies.  Financially, Brainhunter is a black eye for me, largely because I had $10.0 million too much debt going into the 2008 economic environment.  However, it was my only black eye in over ten years of deals.”

Now, Mr. Jewitt, it seems to me that I have the experience to comment on restructuring strategies.  In this regard, one obvious restructuring strategy, even for the most junior practitioners in the area, would be:

THE FACTS

Debt 
  • TD - operating credit facility of $26.0 million. Utilization in the $12.0 to $20.0 million range.
  • Roynat – term loan approximately $5.5 million.
  • Noteholders – approximately $11.0 million.
  • Accounts Payable Contractors – $15.0 to $18.0 million.
  • Accounts Payable Other – maximum of $1.0 million, the majority payable over a period of months and years.
  • Leases – operating and property leases payable over time.

Assets
  • Accounts Receivable – in excess of $30.0 million, all extremely high quality.

Base of Business
  • Over $200.0 million of annual sales with a backlog and expected renewals in excess of $300.0 million. 
  • An extremely attractive, well-established client base. 
  • A leading technology platform on the books for $2.0 million with almost $14.0 million invested.

Saleable Divisions
  • The engineering business could easily be sold for $3.0 to $4.0 million, cash.
  • Treklogic had a buyer which I introduced before I left that was willing to pay $6.0 to $7.0 million, cash, for the Company.
  • The ATS business that could have easily been sold for $1.0 million.

Other Assets
  • A national platform for doing business.
  • Tax loss carry forwards in excess of $10.0 million.

Profitability
  • I had cut $5.2 million of cost structure before I left.  At a minimum, the EBITDA of Brainhunter should have started tracking in excess of $4.5 million if the Company was operating normally without onerous fees imposed by Special Loans bankers and advisors including their legal counsel.

THE ALTERNATIVE TO CCAA 

The situation that existed when I left was as detailed above.  So, Mr. Jewitt, what would you do if you were coming to late August and it did not look like the sale of the Company was likely?  Before answering, Mr. Jewitt, I would like to remind you that the Morrison / ROI financing Mr. Singh proposed to use to fund his bid, was negotiated and approved by the Brainhunter Board in the fall of 2008.  The reason the financing was not done at that time is because it was not enough to payout the TD, Roynat and the Noteholders and still leave a reasonable buffer to run the business.  However, Morrison Financial had provided financing to Brainhunter before and was extremely comfortable with the security.  In fact, they were willing to loan up to 85% of billed accounts receivable and 70% of unbilled accounts receivable.  At $32.0 million of Accounts Receivable, this would be a line of at least $27.0 million, easily enough to pay out the TD and Roynat and leave a buffer for operations.

Now, Mr. Jewitt, let me see if the following proposal makes sense:
  • Availability Required to Pay Down the TD and Roynat – A range of $17.5 million to approximately $23.0 million, utilization of the Morrison / ROI facility would repay TD and Roynat removing Brainhunter out of Special Loans
  • Accounts Payable for Contractors – just keeps rolling over.  No new cash required.
  • All other Payables and Leases – paid in the normal course of business, continue to reduce costs by subletting excess space.
  • Sale of Treklogic and Engineering Division – easily raises $8.0 million to $10.0 million.

Now this leaves the $11.0 million of Notes Payable.  What does one do? The obvious solution would be to negotiate a deal with the noteholders to convert to a Par Value Preferred Share Convertible into say 60% of Brainhunter. Build in a redemption plan tied to EBITDA and the sale of select assets.  Move to sell Protec, Treklogic and/or the ATS business.  Agree to divide the proceeds between reducing the Morrison/ROI debt and the redemption of the Preferred Shares.  I can absolutely guarantee, Mr. Jewitt that this type of restructuring could have been executed simply and quickly and without the millions of dollars of lost value that resulted with the CCAA process, which you as Chief Restructuring Officer, recommended.  This process would have cost less than $250,000 versus the $3,000,000 plus cost of the CCAA process.

The results of my proposed Plan of Arrangement would be:
  1. TD and Roynat gets paid out.
  2. Accounts Payable all get paid.
  3. Leases get dealt with over time.
  4. Noteholders get full value or better over time via payouts from asset sales or equity value.
  5. Shareholders are left with at least 40% of the Company.
  6. The employee’s jobs are protected.
  7. Brainhunter has a clean balance sheet where the only debt aside from normal payables is the operating credit facility secured by Accounts Receivable.
  8. Brainhunter has a standalone future and the runway to restore itself to significant positive cash flow.  If a decision is subsequently made to sell, the sale can be from a position of strength, not weakness as created by CCAA process.

Now, Mr. Jewitt, I would ask you, how is it a man of your declared expertise and natural intelligence did not come up with such an easily executable strategy?  You were being paid $50,000 per month to provide the Board of Directors and management with financial restructuring advice.  And the best you can come up with is CCAA?  Very curious Mr. Jewitt.  Also, Mr. Jewitt, it is very, very curious to me how the Special Committee Chair, Mr. Paul Benson, also a man of great natural intelligence and extensive expertise could recommend and approve a CCAA.  I would ask you, Mr. Jewitt, if it has anything to do with the fact Mr. Benson is your partner in Delta Capital?  I would also ask if he shared in any of your fees?  Do you think Mr. Jewitt, that Mr. Benson might be in conflict of interest here?  Did both of you breach your Fiduciary Duty?  Finally, Mr. Jewitt, it is also beyond me to understand how such an experienced Board of Directors would approve a CCAA process vs a Plan of Arrangement.

Your plan Mr. Jewitt based on the value of Mr. Singh’s bid would result in the following:
  1. Shareholders get no value.
  2. Noteholders stood to lose all of their investment of approximately $11.0 million.
  3. Unsecured payables, excluding the $15.0 million allocated to contractors, would lose between $3.0 and $5.0 million.
  4. Many employees would stand to lose their jobs, a number who would receive no severance.  For example, a single mother who was one of the best performing Brainhunter sales people was dismissed with no severance and no benefits.  Other people under consideration for dismissal without severance included a 58 year old lady who has dedicated 17 years to the Engineering group.  Many other employees have called me with similar concerns.  The dismissal of Lavina Moore, Mr. Jewitt, has cost Mr. Singh and his senior management team being Sam D’Aurizo, Terry Bullock and Perry Henningson a serious loss of confidence.  If I did comeback, this team would have been quickly replaced.  The winning bidder terminated them anyway.  Their type of behavior was unconscionable.  So perhaps, you are right, Mr. Jewitt, various senior management personnel would have been very nervous.  In all cases, they can be easily replaced, and their departure would cause the business no problems.  Management in Ottawa has resulted in the division’s contributions falling from $7.5 million in 2007 to below $4.0 million in 2009.  Mr. D’Aurizo never came close to meeting his budget, not once in the years he worked for me.  All these people reported to Mr. Singh.  Mr. Singh also never met a budget he committed to.
  5. Brainhunter would be lost as a standalone entity and shareholders would have no chance to recover their investment.
  6. The cost of the CCAA process, would be several million dollars (in fact it was over $3.0 million), money that could have gone to creditors and shareholders, when one considers the cost of a Plan of Arrangement to be less than $250,000.
Now, Mr. Jewitt, these two approaches have radically different outcomes for stakeholders.  Value is preserved in my proposed Plan of Arrangement.  In your CCAA proposal, millions of dollars are lost, but you collect over $800,000 of fees.  This certainly raises questions as to your true motivations, if not to your expertise or lack thereof.  I believe it was your personal motivations that drove your CCAA recommendations and the fact you believed no one would hold you accountable.  After all, your partner Paul Benson was Chair of the Special Committee of the Board of Directors of Brainhunter and your buddy, Raj Singh was expected to buy the Company.  This may be construed as a clear breach of your Fiduciary Duty, perhaps even intent to defraud the Company.  I assure you, Mr. Jewitt, you and Mr. Benson will have at some point in the future the opportunity to provide answers to these questions in a court of law. 


Observation #3: What is the meaning of Fiduciary Duty?  Did anyone breach their Fiduciary Duty?

According to the “Legal Dictionary”, Mr. Jewitt, “A Fiduciary Duty imposes the highest duty in law on the party holding the duty – the fiduciary – to act altruistically for the sole benefit of the party (parties) they owe the duty”.

I am certain you are already aware of this, Mr. Jewitt, however to ensure we are on the same page of thought, I would suggest to you the following parties have a “Fiduciary Duty” to the stakeholders, shareholders in particular, but also creditors and employees.
  • Executive Officers – including Mr. Singh as CEO, President and COO, Sam D’Aurizo and Perry Henningson.
  • Directors – including Mr. Singh and all other Directors of Brainhunter.  I might also suggest Special Committee Directors might have a higher standard of duty than regular Directors.  In particular, the Chair of the Special Committee, Paul Benson.
  • Advisors – I would suggest Mr. Jewitt, that as “Chief Restructuring Officer” to the Board and Management you represented yourself as having special expertise that other parties may be relying on to give them professional and expert advice as to the best solution for their problem.  At $50,000/month, or an annualized $600,000 one would expect you to have expertise.  I would also suggest this imposes a Fiduciary Duty on you to provide the best possible advice, commensurate with your represented expertise, (which you so aggressively advertise on the Delta Capital website).
Time will tell if there are other parties who may also have a “Fiduciary Duty” to the Company and its stakeholders.
The question we all need to answer, Mr. Jewitt, is have any of the parties who bear a “Fiduciary Duty” to Brainhunter and its stakeholders, breached their “Fiduciary Duty”?  Again, the legal process over time will determine the answer.


Observation #4: What were the motivations of Raj Singh, then current CEO of Brainhunter?

I think, Mr. Jewitt, it is important for everyone to understand the motivations of Mr. Singh.  First, let me provide some background on Mr. Singh:

1.    I acquired Mr. Singh’s company “Brainhunter” in April, 2003.  This Company was bordering on insolvency.  He had raised approximately $12.0 million of venture capital and was down to $0.6 million with no sustainable business model.  He did, however, have the beginnings of a technology platform called TalentFlow, which was primarily Careersite technology with Applicant Tracking and Job Board capability.  I believed the platform had potential.  Also, Mr. Singh had experience in staffing from spending a number of years with Procom, one of the largest staffing companies in Canada.  I believed Mr. Singh would be a good partner to build a technology driven staffing business.

2.   During his tenure, Mr. Singh never met a budget be it a revenue target, an EBITDA target, R&D deliverables including time frames, costs and functionality.

  Mr. Singh was a good salesperson and could speak well.  He did understand what clients wanted and was very convincing in his presentations.  Unfortunately, he was not a good manager and the people that reported to him did not trust him and indicated this to me on numerous occasions, including senior management people who reported to him.  When I left in June, 2009, Sam D’Aurizio told me that now he would have to write everything down.  This was a reference to Raj’s “convenient memory”.  Obviously, if what you said was true about senior management leaving if I came back, Sam had a change of heart or felt he was caught in the middle.  Remember, if he got fired during the CCAA process, he would get no severance.  I would suggest, Mr. Jewitt, the senior management did not trust Raj and were afraid for their jobs.  As a result they made compromises.  At least with me, they always knew they would be treated fairly.  There was no such comfort with Raj.

3.    Raj asked for the COO title.  I gave it to him despite resistance from each and every Board member.  The pre-existing Board, almost without exception did not believe Raj added operational value.  In June, 2007, I set up the CIO office and totally reorganized the R&D and delivery team, taking direct responsibility away from Raj.  His temper tantrum lasted several weeks.  Subsequently, I reorganized the accountability of Treklogic so that I would not be continually negatively surprised by results.  Raj would tell me we were on target.  At the last minute, I would find out we had short falls and he was always quick to blame his subordinates.  Again, he didn’t speak to me for several weeks and complained to the Board.  I revamped the budget process to gain better visibility on results.  I sold the Job board business because I no longer trusted Raj’s advice and direction.  On numerous occasions, I had to intervene in transactions that were bordering on disaster (E.g. Associados deal where we stood to lose $180K until I totally renegotiated and rewrote the contract).  There are numerous situations of this nature.  Several Directors told me to fire him.  Throughout, Raj continually complained to the Board of Directors that I interfered with him doing his job.  Unfortunately, I had no choice, and I should have fired him in 2007.

4.    There were numerous instances where Raj did his best to have me removed as CEO.  In September, 2008, there was a major confrontation, all well documented.  Raj lost.  In December, 2008, Raj engaged a financial advisor without the formal approval of the Board to find a backer for him to buy the Company.   I found out in January, 2009, when E&Y Orenda made a call on a private equity firm who was confused as to what was going on.  Raj had told them he had the support of the Board and that I had agreed to step aside, all statements that were untrue, but all statements that I have documented.

5.    Most recently, according to Gary Singh, a retail broker at Canaccord, Raj organized the sale of approximately 4.2 million or 9% of the shares of Brainhunter from a major shareholder, Crossbow, to a group of investors of Gary Singh’s.  As a result, Gary launched a shareholder battle to remove me as Chairman/CEO and to remove the existing Board, a Board where virtually every Director had a major investment in Brainhunter.  Gary Singh, during the process for control of the Company, made numerous representations about his ability to finance the Company and improve the share price.  He did nothing.  Gary Singh's Directors who he supported for the new Brainhunter Board of Directors made decisions resulting in massive losses for stakeholders that did not need to result.  Gary Singh subsequently, told one of the Noteholders that Raj had lied to him.  Gary Singh’s clients, apparently, bought the shares based on representations by Raj.  Now it looks like they have lost 100% of their total investment.  The new Brainhunter Board of Directors, with Don McCreesh as Chairman, a Director who was also previously asked to step down, left a disaster in their wake.  Don McCreesh was a close business associate of Gary Singh.  He was originally introduced to Brainhunter by Raj Singh.

I agreed to step down when approached by the original Brainhunter Board. They were responding to Gary Singh's threats.  Gary Singh supported Raj Singh as the new CEO.  Don McCreesh was his representative as Chairman.  

At that time, my partner was just diagnosed with cancer; and I felt a shareholder battle would only destroy value for the stakeholders.  I also  believed the E&Y process would result in a buyer for the Company and by September, 2009, the stakeholders would get the best value available.  As we all know today, this did not happen.  With me gone, the old Board gone and a new Board who were totally na├»ve to the business, Raj had a free reign to position things as he wished.  Also, with you as the Chief Restructuring Officer, he had an ally.  The result, as we see today, was a CCAA process, costing over $3,000,000 which cost stakeholders additional millions of dollars in losses.  These losses would never had occurred under a Plan of Arrangement. 

Now Mr. Jewitt, I would suggest to you Mr. Singh’s sole motivation was to ensure he bought the Company as cheaply as possible.  Mr. Singh and his backers quickly came to the conclusion they needed CCAA process to do so.  All he had to do was ensure no other buyers came to the table during the time period to September 30, 2009, and during the subsequent period of time it took the Board to initiate the CCAA process and have his Stalking Horse bid approved.  Of course you were necessary to that process.  I would ask, Mr. Jewitt, how closely were you allied with Mr. Singh?  Did you stand to share in the new company if Raj’s insider bid was successful?  Did Paul Benson stand to share in the new company?  I have many more questions for you Mr. Jewitt (and for Mr. Benson), which I am certain you will have the opportunity to answer in due course.

I would think, Mr. Jewitt, if one could prove the details as described, the conclusion would have to be that Raj Singh had one motivation, which was to acquire Brainhunter for himself, no matter the cost to others and without regard to his “Fiduciary Duty”.  I also think, Mr. Jewitt, that the Board of Directors and yourself also have a number of serious liability issues, as a result of your collective actions and decisions.

I suggest to you, Mr. Jewitt, I have the evidence to prove liability, and through the course of discoveries additional evidence will come to light.  In this regard, please note:
  1. The President of one global company told me they finally passed on Brainhunter because they could not get the due diligence material they needed during the summer.
  2. A number of potential bidders in the E&Y process all complained about the lack of responsiveness of the Company in providing due diligence information.  In fact, the bid date was extended as a result.
  3. Raj said no to a company who was interested in buying Brainhunter in the summer (prior to September 30) because they didn’t like his deal of 49% for Raj for investing $1.0 million and 51% to the Company for investing $10.0 million.  Seems obvious why they did not go along with Raj’s deal.  This was the Company who subsequently acquired Brainhunter for less money than they would have paid in the summer of 2009.
  4. In a private meeting, the result of which I have confirmed in an email, Raj told an investor that I brought to the table that he would take the key management people and major clients if the investor tried to buy the Company.  This party will give evidence to this effect if subpoenaed.  As noted, I have an email to this effect from that party.
  5. In a discovery, under oath, testimony was given that Raj tried to convince another investor to wait until he acquired the Company and then they could do a deal on the assets the investor was interested in.  Raj told the investor “let’s not bid up the value of the Company”.
  6. Mr. Raj Singh himself, under oath in discovery, provided very conflicting testimony.  I have the Discovery transcript, which will be made available in due course.
  7. The Plan of Arrangement strategy outlined in this response was clearly outlined to Raj Singh before I left Brainhunter in June, 2009, as a viable alternative in case the Company was not sold in the E&Y process by Sept 30, 2009.  I indicated if he needed to execute such a strategy I would help him get the Noteholders onside.  As is evident by Mr. Singh’s stalking horse bid and the CCAA process, Mr. Singh clearly ignored my very specific Plan of Arrangement alternative.  Instead, he chose, supported by the Board and yourself, to use the Morrison / ROI financing to try to buy the Company for himself and in the process destroy million of dollars of value for stakeholders to whom he clearly owed a “Fiduciary Duty”.  Mr. Singh had a clear choice.  It is obvious the choice he made was in favour of his personal agenda at the expense of the stakeholders to which he owed this Fiduciary Duty.
  8. Mr. Singh signed a deal with his acquisition company to sell Treklogic to NuSoft, a Chinese company.  The funds were to be used as part of his purchase price.  Mr. Singh could have sold Treklogic in the summer of 2009 to the same buyer for a much higher price.  Again, he made a choice which favoured his personal agenda. You, Mr. Jewitt, and the Board of Directors of Brainhunter had knowledge of this transaction.

This is only the beginning of my evidence, Mr. Jewitt.  It can and will be proved in a court of law.  Now my questions to you are “Has Raj Singh breached his Fiduciary Duty to the stakeholders of Brainhunter?  Do you, Mr. Jewitt, as the Chief Restructuring Officer have liability for providing advice that was clearly damaging to many parties which you should have known, given your declared expertise, was not the best solution for stakeholders?  Does the Board of Directors and the Special Committee have liability for not managing the affairs of the Company in a prudent and proper manner?”  Does Paul Benson, the Chair of the Special Committee, have a conflict of interest as your partner in Delta Capital?  Did Mr. Benson share in your fees?  Given Mr. Benson’s declared expertise, as your partner in Delta Capital, why did he support the CCAA process versus a far superior Plan of Arrangement?
I would suggest Mr. Jewitt, these are very interesting questions and I am most interested to see as to the answers as the legal process unfolds.


SUMMARY

In summary, Mr. Jewitt, I would further suggest, as Chief Restructuring Officer, that your Fiduciary Duty should have been to provide advice that delivered the best value to the stakeholders of the Company.  That is securing the best bid possible.  You and other advisors to the Company, including legal counsel to the Special Committee, Mr. Jay Swartz, did on more than one occasion (both verbally and in writing of which I have records) threaten investor groups I introduced and encouraged to bid for the Company.  Your threats have specifically threatened them with liability for working with me in any way.  Your threats and those of Mr. Singh drove away a number of these buyers.  Keep in mind, Mr. Jewitt, I was the Chairman / CEO of Brainhunter.  I build the Company.  There is very little in the data room which would be new information for me.  At most, a few numbers, which were all publicly available on Deloitte’s web site.  I did not breach any Fiduciary Duty and to the best of my knowledge neither did any of the parties I was talking to.

Further, Mr. Jewitt, I believe I am the only one who was truly concerned about the best interests of the Company and stakeholders.  And, unlike the rest of you, nobody was paying me.  Raj Singh, yourself, the Brainhunter Board, E&Y Orenda and your legal advisors have made serious efforts to discredit me, efforts that can easily be characterized as slander and libel.  That has also been well documented.

My number one priority, Mr. Jewitt, was to help get the best deal possible for the Brainhunter stakeholders.  I believe that was what you were getting paid $50,000 per month for.  I was not expecting, nor did I expect, an ongoing role with Brainhunter.  The assumption was that if any of the bidders other than Raj wins, it was highly probable I would provide assistance in transition and integration for a few months.  However, I had and have no such agreements with any party, although I did favour certain parties over others because I believed their deal was better for the stakeholders.
Your actions, Mr. Jewitt, the actions of Executive Management and the Board of Directors, the actions of the Monitor and the Advisors E&Y Orenda, and your respective legal counsel did nothing to add value.  In fact, right up to the day of closing, the actions of all parties mentioned were destroying, not adding value for Brainhunter stakeholders.
My real long term focus as it relates to Brainhunter is ensuring all parties who have breached their “Fiduciary Duty” and whose actions have caused losses for the stakeholders are held accountable in a court of law and that damages are awarded as appropriate.

Regards,

John McKimm

1 comment:

  1. Very well written. Turn the screws on Raj, that filthy piece of $%^&.

    ReplyDelete