Kenneth Traub left Voxware in 1998 vowing to look for a less stressful
job. A co-founder of Voxware in 1994, he had helped it grow from a
four-person firm to a public company with 18,000 square feet on
College Road, and he had watched it flounder, mostly because the
technology, Voice over Internet Protocol (VoIP), was ahead of its
time. "Co-founding and building Voxware was one of the most exciting
experiences of my life," said Traub then.
At the time Traub landed in the job market, the dotcoms had not yet
suffered their decline, and Traub looked at, but turned down, some
promising Internet jobs. "After Voxware – which was exciting but
turned out to be somewhat of a disappointment – I wanted something
more stable and less stressful," he says now.
He was introduced to American Bank Note Holographics (ABNH) by his
investment bankers from Voxware, and he took the job of chief
financial officer for that company, which designs, mass-produces, and
markets secure holograms, for uses ranging from credit cards to seals
on drug packages. As an established company, ABNH was likely to set a
relatively relaxed pace, or so Traub thought.
In fact, ABNH seemed perfect to Traub because it was the polar
opposite of Voxware. Voxware had been a start-up in Traub’s living
room, whereas ABNH’s parent had been founded in 1795 by colonial
leaders such as Paul Revere. Voxware had a brand-new, not-ready-to-be
accepted idea, and ABNH’s technology was in every wallet in the
Western hemisphere. Voxware developed software, and ABNH manufactured
But ABNH resembled Voxware in one very unfortunate way – it was ahead
of its time. Whereas Voxware’s voice over IP had prefigured what would
eventually happen in Internet technology, ABNH, as it turns out, had
precociously pushed the envelope of securities fraud when it went
public as a separate entity from its parent, American Bank Note.
"In 1998 ABNH had been a very successful IPO at $7.50, and when I met
the management, stock was trading at about $18," says Traub in a
telephone interview. "It looked to me like a perfect opportunity. They
hired me as executive vice president and CFO. On my first day of work,
January 12, 1999, together with Deloitte & Touche, I discovered there
had been a fraud."
Since then the chairman of the board, the president, and the CFO have
all been found guilty of violations of securities laws, including
publishing false financial statements. The stock fell from $15 to
under $1. "It was an Enron-like scandal. We were proactively dealing
with many of the issues of Sarbanes-Oxley ahead of our time," says
Traub. Traub, who has an MBA from Harvard, was asked to take over the
company and is now the CEO. His turnaround efforts were so successful
that they were the subject of a case study at Columbia Business
"Today we have no debt, $13 million in cash, no legal problems of any
kind pending or anticipated, and have successfully repositioned the
company as the world leader in product and document security and
authentication," says Traub. "We have been leading in the development
of more sophisticated security solutions, both for authentication and
in addressing homeland security." New products have been developed in
these target markets: transaction cards, identity documents, value
documents (currency), and consumer products, most notably
Last month Traub announced he is moving his company from two locations
(58,000 square feet in Elmsford, New York, and 30,000 feet in
Huntingdon Valley, Pennsylvania) to 134,000 square feet at 2 Applegate
Drive in Robbinsville, taking over the building constructed for the
now-departed McLean Engineering. Traub expects to move in in May, and
he is hiring administrative positions (including a quality manager,
marketing, sales, payables and receivables clerks, and administrative
assistants) plus production positions (embossing operators,
metalizers, and printing press operators). The state has promised
Business Incentive Employment Grants.
Traub looked for a building that was conducive to high quality
manufacturing, had space for clean rooms as well as offices, and had
high security; ABNH had to be the sole occupants. He found it at the
Applegate Drive building constructed by Matrix Development.
John Schulze of Woodbridge-based Schulze Organization located the
space for Traub and negotiated the unusual lease – a sublease for 14
years with options to renew or purchase. "We were able to get an
outstanding deal," says Traub. "Compared to my two other buildings I
am getting 50 percent more space and the total rent is decreasing by
40 percent." The base rent is $555,000 for the first year, increasing
by 1.9 percent each year, but the first seven months are rent free.
Grubb & Ellis represented the landlord, WP Carey.
Traub was represented in the negotiations for real estate and with the
NJEDA by Windells Marx as well as by New York-based Fulbright and
Jaworski. Art Blick from Northwestern Mutual has the firm’s insurance
and benefits business, and Jeff Perlman of Borden Perlman is the agent
for the property and casualty insurance. Creative Marketing Alliance
is handling Traub’s marketing, in part because it also manages the
industry association for transaction cards.
Counting the upgraded equipment, Traub is putting $7 million into his
building and spending $5 million in relocation and severance expenses.
The new location (50 miles from Huntington and 60 miles from
Westchester) enables the company to retain virtually all the employees
from the Pennsylvania facility, and many of those who worked near
Westchester, the administrative headquarters, will move or commute.
The case study of the turn-around, presented by Columbia professor
Laura B. Resnikoff, depicted Traub at the moment when he decided to
turn a corporate crisis into a personal opportunity. Three weeks after
he came on board as CFO, the ABNH board asked him to take the post of
In considering his options, he realized that, though his path to the
corner office would be littered with obstacles, he could stake out the
traditional position of the turnaround king: He could honestly say he
had not caused the company’s problems. "He figured that if things did
not go well, he knew that he was not responsible for the problems.
However, if he could successfully turn the company around, he would
get the credit for its survival," says the case study. Most important,
Traub knew how to fight in the trenches.
Traub grew up on Long Island, where his parents owned a furniture
store. He graduated from Emory University in 1983, then went to
Harvard for his MBA. Before founding Voxware he had been vice
president of finance for Trans-Resources Inc., a diversified
multinational holding company which provided some of the seed
investment for Voxware.
At Voxware Traub developed the business plan that positioned Voxware
as a pioneer in the Internet audio, telephony and multimedia markets.
Before the IPO he landed four private equity financings from such
investors as Intel and Netscape. Just before it went public, raising
$20 million in 1996, Voxware changed its business plan from focusing
on consumer CD-ROM products to concentrating on Internet telephones.
Traub negotiated and signed more than 100 license agreements with such
clients as Netscape, Microsoft, AOL, IBM, Oracle, Apple, Walt Disney,
Worldcom, Nokia, and Lucent.
To the company’s chagrin it found that, though other concepts on the
Internet had prospered, the growth of Internet telephony lagged far
behind expectations. Meanwhile Voxware had expanded to 58,000 square
feet and was burning money at $1 million per quarter.
Late in 1997 Bathsheba Malsheen replaced the co-founding CEO and
changed the business plan yet again. The following spring, Voxware had
dropped from 92 people to under 50 people, and stock had dropped to
from $7.50 to just under $3.
Traub left Voxware then, but he retained the confidence of the
financial community. "Kenny has been a competent CFO in so far as any
CFO could have an influence on Voxware’s position," said analyst Bruce
Carlsmith of Montgomery Securities (U.S. 1, May 6, 1998). "People
cognizant of the story know that the issues the company faces are more
endemic to the industry and what they are trying to do than issues of
leadership. The IP telephony market has not yet taken off, and where
it has, they haven’t yet used Voxware’s technology."
One of Voxware’s investment bankers (which included Montgomery
Securities, Alex Brown, and Oppenheimer) recommended him for the job
of CFO at ABNH. Traub lives in the Princeton area, is married to an
attorney, and has two daughters, and though the commute to Elmsford
might have seemed daunting, at least the job would not require the
killer hours that Voxware had needed. Or so he must have thought.
The market opportunities for ABNH looked good. ABNH had helped create
the market for secure holograms when, in the 1980s, credit cards began
using them to fend off counterfeits made on the new color copiers. A
hologram is a laser-generated, three-dimensional reproductions of an
image produced on a two-dimensional surface. By controlling the
diffraction of light, they can add depth, color, and movement to
two-dimensional photographs. The tiny hologram – 40,000 of them would
fit in a shoebox – is used for secure products, such as credit cards
and drivers’ licenses, but can also be used for non-secure products,
such as greeting cards and advertising.
ABNH has done non-secure holograms for magazines such as the National
Geographic and Sports Illustrated, but when Traub took over, the major
card manufacturers (Visa and MasterCard) represented most of its
revenues. ABNH has virtually all of the MasterCard business and the
majority of the Visa business; it can produce more than 20 million
holograms per week or close to 1 billion per year.
The parent company, American Bank Notes (ABN), had been the original
engraver and printer of U.S. currency, but when the U.S. Bureau of
Engraving and Printing took over that function, it turned to printing
bank notes and security certificates. With its secure manufacturing
protocols in place, it was natural for ABN to go into the burgeoning
hologram business, and it established ABNH in 1981 as a wholly-owned
subsidiary. Though security printing grew less and less profitable,
the parent company continued to expand, depending on ABNH for cash
flow. When ABN needed to refinance its debt, it took ABNH public and
kept the cash that the IPO produced. The Columbia case study points
out that this spin-off "was greeted by the market with skepticism,"
and that the price was lowered twice.
Priced at $8.50 per share, the 1998 IPO netted nearly $108 million,
but none of this went to ABNH, so ABNH had to get bank loans to keep
operating. The company was advised to hire a credible CFO if the stock
were to continue to climb.
Traub, the new CFO, was hired to separate out the internal systems –
accounting, purchasing, and human resources – from the parent company.
He also hoped to float a secondary stock offering that could fund
His plans cratered on his first day on the job. When the scandal
broke, the board fired the president and made Traub president,
reporting to the CEO. "The company had no cash, was in default on its
$5.5 million in bank debt and was facing significant, complicated
securities litigation," says Traub. "We were both defendants and
adversaries with our former parent. The Securities and Exchange
Commission and the U.S. Attorney’s Office were conducting
Companies dealing in security products have reputations to maintain,
and they are particularly vulnerable to scandal. "The reason why you
have a hologram on your credit card is to protect against fraud," says
Traub. "Our suppliers cut off credit, customers were canceling
contracts, and employees were quitting." Reorganizing, he laid off
40 of the company’s 130 employees. One by one, he succeeded in having
every member of the board resign, and he replaced them. Then he
prevailed on the CEO to resign and terminated every member of the
management team, filling two key positions with former "untainted"
employees. A former chairman and president of ABNH, Salvatore "Sal"
D’Amato, came out of retirement to add credibility to the executive
lineup. D’Amato, a mechanical engineer, had been with the company from
1983 to 1990; Traub named him chairman of the board and chief
technology officer. Similarly, Russell LaCoste, vice president of
sales in the 1980s, rejoined the team.
But banks still wanted their money, vendors wanted payment, and
customers didn’t want to place orders with a company that might file
for bankruptcy. So Traub persuaded the banks that it was in their best
interest to let him keep operating the company. He asked for working
capital to finish work-in-progress inventory, and he also aggressively
sought asset-based lenders. He and his team met with each of the major
customers to gain their confidence. He met obligations to the crucial
vendors. For the non-crucial vendors, he and the banks worked out
discount payments of cents on the dollar.
The key to survival, he says now, was keeping things in perspective
and managing one task at a time: "There were so many issues to deal
with that we needed to sequentially manage each challenge as it came
Traub did the turnaround from 1999 to 2001, and after September 11,
his company’s growth was fueled, in part, by the growth in the
security market. For his products, Traub distinguishes between overt,
covert, and forensic security. "The overt security is what you
recognize, things you can see in the hologram image that are unique,
such as movement and depth. Covert images require additional special
equipment that incorporates what you can’t see. Deeper down, we
incorporate forensic information specific for law enforcement, to
catalog the counterfeits and facilitate the prosecution of criminals."
The biggest boost to ABNH’s recovery was a major investment, $9.3
million, from Crane & Co., the chief supplier of paper to the U.S.
Bureau of Engraving. Established in 1801 and run by a
seventh-generation family member, Crane owns 18 percent of ABNH and is
its partner on leading-edge products – making holograms for currency
in some foreign countries, including Bulgaria. The two companies hope
the United States will add holography to its currency – by adding
optically variable window threads – and they anticipate bidding for
Another reason why Crane’s investment was crucial to Traub is that he
set up a manufacturing facility inside Crane’s building in Dalton,
Massachusetts. Now that he is combining his production lines in New
York and Pennsylvania, the Crane site can function as a redundant
Traub notes that he faced the crisis in 1999, managed the turnaround
through 2001, stabilized the business through 2003, and started to
rebuild it in 2004. "What we are doing now is addressing the legacy of
inefficiency, having two disjointed manufacturing facilities, where
the primary manufacturing facility in Pennsylvania was remote from
corporate marketing and design in New York. Under the past management
there had been very little investment in modernizing the
When ABNH opened on the New York Stock Exchange in 1998 at $9, it had
gone as high as $18, and when the scandal broke it traded below $1.
For 1999 there were no financial statements, and it was relegated to
the Pink Sheets. It has been moved to the OTC Bulletin Board and
traded recently at just under $3. Traub plans to wait until the stock
reaches the Nasdaq minimum of $5 before trying to move to Nasdaq.
In contrast, the parent company, which had reaped all the proceeds of
the IPO, filed bankruptcy under the weight of the scandal. It has
reorganized and is substantially smaller.
"Now we are financially strong and have succeeded in penetrating
significant new markets. Now we can confidently invest and can build a
much stronger and more capable infrastructure to deliver next
generation security solutions at a time when the demand for security
solutions is escalating," says Traub. "This move is really the next
step in the turnaround and rebuilding of this company."
After all the problems with the turnaround, and all the prolonged real
estate negotiations, Traub was nearly stymied in his desire to move to
New Jersey because, it seems, the state has a law that no company with
the word "bank" in its name that is not a bank can operate here. "They
presented me with two choices, change your name or don’t move here. I
told them, ‘I have 200 years of good will in this name, and if that is
your position, I will move elsewhere.’" The governor’s office assisted
with the legislature that amended the law.
American Bank Note Holographics Inc. (ABHH.OB), 399
Boulevard, Elmsford NY 10523. Moving to 2 Applegate Drive,
Robbinsville 08691. Kenneth Traub, CEO. 914-593-0809. Www.abnh.com