The Stephan Co. - Case Summary

Business Description

The Stephan Company (the “Debtor”) is the holding company for the Stephan Group, a manufacturer and distributor of barber, beauty, and personal care products sold throughout the United States and in select international markets.

• The Debtor holds sole ownership interests in three non-debtor operating subsidiaries: 614 Barber Supply, Inc., Bowman Beauty & Barber Supply, Inc., and Morris Flamingo-Stephan, Inc. (collectively, the “Current Subsidiaries”).

For the year ended 2024, the Stephan Group reported aggregate annual revenue of $9.96 million and a gross profit of $2.87 million, compared to $10.58 million in revenue and $2.65 million in gross profit for 2023.

• As a holding company, the Debtor individually reported no revenue and a net loss of $146,000 in 2024. For the year-to-date in 2025, the Debtor has recorded a net loss of $352,000.

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Corporate History

The Debtor’s predecessor was founded in 1892 in Worcester, Massachusetts, and was recognized as the first men’s hair care company in the United States. In 1952, the company incorporated in Florida, moved its headquarters to Fort Lauderdale, and merged with its predecessor, focusing on barber shop hair tonics and shampoos.

Public Listings and Strategic Shifts

• The Debtor first went public in 1960 but was delisted shortly thereafter due to cultural shifts away from barbershops.
• Under new ownership in the 1980s, the company leveraged underutilized manufacturing capacity by entering into private label agreements, producing products for large retailers such as K-Mart Corp.
• This strategy fueled a period of growth, leading to a relisting on the American Stock Exchange in 1994. By 1997, following a series of acquisitions and deals with major retailers, the Stephan Group reported net sales of $27 million.
• After reaching peak revenues in 1998, the company faced economic shifts that led to declining revenues. In 2009, the Debtor delisted from the American Stock Exchange and began trading on the OTC Pink market.

Acquisition of Old 97 and Corporate Simplification

• In 1988, the Debtor acquired Old 97 Company, a Tampa-based manufacturer of cosmetics, toiletries, and household products. Old 97 also engaged in private label manufacturing, producing hair and skin care products for national brands, including talc products for Gold Bond Co. Inc. and a talc product marketed as “Cashmere Bouquet.”
• Old 97 ceased all manufacturing of talc products prior to being merged into the Debtor in 2016 as part of a corporate simplification initiative to eliminate dormant entities. According to the Debtor, at the time of the merger it was unaware of any potential personal injury claims related to talc.

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Operations Overview

The Debtor is a Florida corporation with a registered office in St. Petersburg, Florida. The Stephan Group’s operations are primarily conducted from a 26,456-square-foot leased facility in Williamsport, Pennsylvania. The Debtor itself has no employees; the Stephan Group’s workforce of approximately 25 individuals is employed by the non-debtor Current Subsidiaries.

Governance and Management

• The Debtor’s board of directors includes Chairman Brian Harper (approx. 13% ownership), Jad Fakhry (approx. 37% ownership), and Joel Getz (approx. 1% ownership). Directors receive a monthly fee of $2,000 and shares pursuant to a 2018 incentive plan.
• Henry Jacobi serves as the Debtor’s CEO and as President and Treasurer of the Current Subsidiaries. He is paid an annual salary by subsidiary Morris Flamingo and receives benefits including a housing stipend, insurance coverage, and annual equity awards.

Cash Management and Intercompany Transactions

• The Stephan Group operates an integrated, centralized cash management system to collect, transfer, and disburse funds. The Debtor’s non-debtor subsidiaries fund the Debtor’s checking account as needed to cover shared expenses such as insurance and legal fees.
• The system includes a checking account for Debtor-specific expenses, an investment account designated for stock repurchases, and a sweep account with M&T Bank.
• The Debtor and its non-debtor subsidiaries engage in ordinary course intercompany transactions, which are tracked as intercompany receivables, payables, notes, or loans. The Debtor benefits from cash transfers from its profitable subsidiaries.

Insurance

• The Debtor maintains various insurance policies for itself and its subsidiaries, including general liability, D&O liability, and workers' compensation. For the 2025-2026 policy period, total premiums are anticipated to be approximately $152,000.

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Prepetition Obligations

As of the petition date, the Debtor’s primary financial obligations consist of guarantees on subsidiary debt and an intercompany loan. The Debtor believes it has no priority claims and is current on all state tax obligations, with its 2024 federal tax return yet to be filed.

Guarantees and Secured Debt

• The Debtor serves as a guarantor for two separate loans between its subsidiaries and M&T Bank. As of the petition date, these loans were not in default.
• The guarantees are secured by all of the Debtor’s money, securities, and other property in the possession or control of M&T Bank and its affiliates.

Intercompany and Unsecured Debt

• The Debtor entered into an Intercompany Note with its subsidiary, Bowman Beauty, dated November 26, 2025, for a loan of $565,947. The funds were used for professional retainers in connection with the Chapter 11 case.
• The Debtor estimates general unsecured claims of approximately $442,288, representing the potential unsecured portion of the M&T Bank loan guarantees.

Other Obligations

• The premium for the Debtor’s D&O insurance policy was financed through a premium financing agreement with IPFS Corporation. The agreement requires eleven monthly payments of $2,846.69 and is secured by any unearned premiums under the policy.

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Events Leading to Bankruptcy

The Debtor’s Chapter 11 filing is driven by mounting mass tort liabilities stemming from its status as an alleged successor to Old 97 Company, rather than by operational distress. The purpose of the filing is to comprehensively resolve all present and future talc-related personal injury liabilities through a section 524(g) trust.

Escalating Talc Litigation

• In 2019, the Debtor was first named as a defendant in lawsuits alleging personal injuries caused by exposure to asbestos-contaminated talc products previously manufactured by Old 97.
• The volume of litigation has since grown to over 700 lawsuits, with more than 500 cases actively pending. While the Debtor believes the claims are without merit and has not been found liable in any case, it has settled 15 cases.
• The Debtor’s defense costs and liabilities have been primarily covered by its insurers, Fireman's Fund Insurance Company (“FFIC”) and Liberty Mutual Insurance Company.

Impending Exhaustion of Insurance Coverage

• The Debtor faces significant potential liability, with projected litigation and settlement costs estimated to be in the tens of millions of dollars or more.
• The primary catalyst for the filing is the anticipated exhaustion of its insurance coverage in the near term. Once coverage is depleted, the Debtor’s existing assets would be insufficient to cover even a fraction of the remaining and future talc-related liabilities, making continued litigation in the tort system unsustainable.

Prepetition Negotiations and Chapter 11 Strategy

• In mid-to-late 2025, the Debtor retained Verrill Dana LLP and Getzler Henrich & Associates LLC to evaluate strategic options, focusing on a bankruptcy filing to channel all talc claims to a trust under sections 105 and 524(g) of the Bankruptcy Code.
• The Debtor reached a settlement agreement with its insurer, FFIC, for a policy buy-back. The proceeds from this agreement are intended to be the primary funding source for the proposed section 524(g) trust.
• The Debtor also initiated discussions with counsel representing the largest groups of talc claimants, leading to the formation of a Prepetition Talc Claimants' Committee to facilitate negotiations toward a consensual plan of reorganization.