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T R O U B L E D C O M P A N Y R E P O R T E R
Thursday, November 20, 1997, Vol. 1, No. 63
Headlines
ARROW TRANSPORTATION: Applies To Employ Auctioneer
BIG RIVERS: PacifiCorp Replies to Objection to Consolidation
CAMBEX: Committee Seeks to Retain Price Waterhouse
ERD WASTE: Announces Approved Financing
FLOWIND: Seeks Extension To Assume or Reject Leases
GUY F. ATKINSON: Seeks Extension of Exclusivity
JAY JACOBS: New Proposal for Recapitalization
MANHATTAN BAGEL: Files for Chapter 11 Protection
MIDCON OFFSHORE: Seeks to Employ Accountants
MONTGOMERY WARD: Gross Margin Rate Improvement
ORGANIK TECHNOLOGIES: Files for Chapter 11 Protection
PAYLESS CASHWAYS: Plan Confirmed
POCKET: Clash Over Payment of Interim Fees
POCKET: U.S. Trustee Backs Committee Appointments
TAKUGIN TEITO: Files Bankruptcy in Japan
WESTERN PACIFIC: Receives Financing Offer
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ARROW TRANSPORTATION: Applies To Employ Auctioneer
--------------------------------------------------
The debtor-in-possession, Arrow Transportation Co. of
Delaware, applies to the court for an order approving the
employment of The Ash Organization Inc., d/b/a Wershow-Ash-
Lewis to conduct both a sealed bid sale and an auction for
debtor and authorizing the payment of a 10 percent
commission plus expenses not exceed $19,000.
The debtor shall receive a five percent buyer's premium on
all individual sales that shall be applied as a credit
against the Ash Organization's reimbursable expenses.
With respect to property subject to the liens of Mellon US
Leasing, Mellon shall pay auctioneer's fees on the same
basis and shall not seek reimbursement of such costs from
debtor unless there is a subsequent determination that it is
oversecured.
BIG RIVERS: PacifiCorp Replies to Objection to Consolidation
------------------------------------------------------------
PacifiCorp Entities is seeking to consolidate its two
pending appeals, one to disqualify the bankruptcy judge and
remove the examiner, the Disqualification Appeal and its
separate appeal of the Confirmation order.
Big Rivers, LG&E Energy Corp., The Rural Utilities Service,
The Bank of New York, The Chase Manhahattan Bank, Alcan
Aluminum Corporation and NSA Inc. argue that the
Confirmation Order Appeal and the Disqualification Appeal
lack common isues of law and fact. PacifiCorp states that
the Appellees (Big Rivers and LG&E) are simply mistaken.
PacifiCorp states that the Disqualification Appeal squarely
raises the issue of the propriety of admitted ex parte
contacts and seeks review of the failure of the bankruptcy
judge to recuse himself and remove the examiner because of
those contacts. Similarly, Pacificorp states, the same
issue is central to the Confirmation Order Appeal. That is,
the issue of whether the improper ex parte contacts between
the bankruptcy judge and the examiner so tainted the entire
proceedings that the Confirmation Order must be reversed.
PacifiCorp's entire legal theory on appeal hinges on the
Examiner's active involvement in fostering the auction which
produced the transaction with LG&E on which the plan was
based, the Examiner's financial incentives associated with
the LG&E transaction, (i.e. the $4 million fee that the
Examiner is now seeking), and the central role the ex parte
contacts played in achieving this result.
Pacificorp argues that the consolidation will promote
convenience and judicial economy.
CAMBEX: Committee Seeks to Retain Price Waterhouse
--------------------------------------------------
The Official Committee of Unsecured Creditors of Cambex
Corporation is seeking the entry of an order authorizing the
Committee to employ the firm of Price Waterhouse LLP for the
purpose of providing financial and accounting services to
the Committee. Price Waterhouse will bill the estate for
its customary reimbursements and at its customary hourly
rates which range from $325-$395 for a partner or director
to $60-$75 for a paraprofessional.
ERD WASTE: Announces Approved Financing
---------------------------------------
As previously announced, ERD Waste Corp. and its
subsidiaries filed for protection under Chapter 11 of the
United States Code on September 30, 1997 and October 8,
1997 in the United States Bankruptcy Court for the District
of New Jersey.
At a hearing held before the Bankruptcy Court on November
3, 1997, the Court further approved the Company's request
to continue the use of cash collateral and to be provided
post-petition financing from The Chase Manhattan Bank.
Joseph J. Wisneski, the Company's President and Chief
Executive Officer, highlighted the Bank's continuing
support of the Company. "There is an all around renewed
vigor to our operations, capped by the Bank's desire to
work with us towards a "win-win" reorganization, not only
for the Company but also its customers and creditors. Our
focus is on our future and we are excited
about our prospects."
FLOWIND: Seeks Extension To Assume or Reject Leases
---------------------------------------------------
The debtor, Flowind Corporation requests that the court
grant a further extension of 75 days of the period within
which it may assume or reject certain nonresidentail real
property leases, from December 15, 1997 to and including
February 28, 1998.
The debtor claims that it is not in a position to decide
which land righrs to assume and which land rights to reject.
The debtor is currently negotiating gor a sale of its
windfarm assets, and it is unknow whether there will be an
assumption and assingnment of all, or less than all, of the
land rights. Furthermore, the debtor does not presently
have sufficient funds with which to cure the land leases,
howeer, the debtor states that the funds will become
available at some point prior to assumption because the cure
amounts can alwasy be paid form the sale proceeds of the
windfarms. The post-petition rents for use of the lands are
current.
GUY F. ATKINSON: Seeks Extension of Exclusivity
-----------------------------------------------
The debtors Guy F. Atkinson Company of California, a
Delaware corporation, Guy F. Atkinson Company, a Nevada
corporation and Guy F. Atkinson Holdings Ltd., a Canadian
federal corporation, seek an extension of the time within
which the debtors have the exclusive right to file a plan of
reorganization. The debtors have requested an extension for
53 days, until January 30, 1998, and an additional 60 days,
until March 31, 1998, to solicit acceptances to the plan.
The debtors state that their cases are large and complex,
involving an international business including contract,
property, and joint venture rights. The debtors have over
20 subsidiaries, and are involved in project contracts
ranging in dollar amounts from $3 million to over $70
million.
The debtors state that once they have identified a lead
candidate for a sale or business combination, or have
developed a viable alternative, the debtors will work with
the Bonding Companies, the Banks, the Unsecured Creditors
Committee and other parties in interest to negotiate a
transaction as the basis of a Chapter 11 plan.
The debtors state that they have made extraordinary progress
in these cases,and that the termination of the exclusivity
periods could disrupt the sensitive negotiations and due
diligence process in connection with the potential buyers.
The debtors have satisfied and will continue to satisfy
their post petition obligations as they come due.
JAY JACOBS: New Proposal for Recapitalization
---------------------------------------------
On November 18, 1997 Jay Jacob's Inc. announced that it has
received a proposed letter of intent from Cahill, Warnock
& Co., LLC ("Cahill") for a recapitalization of the
company.
Under the proposed recapitalization Cahill will provide
equity financing in the amount of $6.5 million subject to
several conditions including due diligence by Cahill and
the execution of definitive agreements. The anticipated
closing date of this transaction is Dec. 3, 1997.
The recapitalization of the company will occur at the
anticipated closing date and will involve the following
aspects:
Issuance of $4 million of Series A preferred stock and $2.5
million of Series B preferred stock, which will rank senior
to all classes of preferred and common stock of Jay Jacob's
Inc.
The Series B preferred stock will be convertible into
common stock representing 86.25 percent of the common stock
outstanding as of the closing and subject to issuance upon
conversion of the Series B preferred stock.
The payment of $1.5 million in cash and the issuance of $1
million of the company's common stock represents payments
in full for the approximately $2.5 million still owed to
pre-bankruptcy creditors. The proposed recapitalization
will require a change in the plan under which the company
emerged from bankruptcy in November 1995. The company has
applied to the bankruptcy court for approval of the change.
Rex Steffey and William L. Lawrence Jr. will continue as
CEO and President, and Senior VP and CFO, respectively.
Both will be directors of the company upon closing of the
recapitalization. Cahill will have the right to appoint a
majority of the board of directors.
"We are very pleased that Cahill provided a letter of
intent for the recapitalization of Jay Jacob's," said Rex
Steffey. "Upon closing, the recapitalization will
strengthen our balance sheet,complete our obligations under
the Chapter 11 bankruptcy plan and allow for the
implementation of our business plan including increasing
our inventory to meet the demand of our customers and
opening new stores, beginning in spring of 1998."
If the Cahill proposed recapitalization closes as planned,
the previously announced recapitalization with Noari
Capitalization Corp. will not be consummated.
MANHATTAN BAGEL: Files for Chapter 11 Protection
------------------------------------------------
Manhattan Bagel Company, Inc. announced that, as a result
of recent losses and being placed in default by its primary
lender, First Union National Bank, it has filed a voluntary
petition for reorganization under Chapter 11 of the Federal
Bankruptcy Act. The company also disclosed that it is in
the process of revamping its senior management team.
The filing, which was made in the U.S. Bankruptcy Court for
the District of New Jersey in Trenton, will enable
Manhattan Bagel and its franchisees to conduct business as
usual while the company develops a plan of reorganization.
"We are convinced that Manhattan Bagel Company has a viable
core business," the company's senior management commented
in a letter to franchisees. "Chapter 11 bankruptcy
protection was created to provide companies facing
financial difficulties with an opportunity to correct their
problems and move forward while restructuring their debt.
The strong performance of the vast majority of our
franchisees, our ability to efficiently mass-produce
critically-acclaimed products from state-of-the-art
manufacturing plants, our outstanding training and support
systems, and the strong consumer franchise we enjoy in most
of our markets, provide the solid foundation on which
Manhattan Bagel can be restructured. Given this
opportunity, we believe that this company can once
again become a financially viable organization."
The company said that it is in the process of searching for
a new chief executive officer/chief operating officer.
Current chairman and CEO Jack Grumet will serve in the CEO
position until a successor is named. Other members of
senior management including co-founders Jason Gennusa,
president, and Andrew Gennusa, executive vice president and
vice chairman David Goldsmith are expected to assume
different roles after a new CEO/COO joins the company.
The company stated in its petition that, as of September
30, 1997, it had consolidated assets of approximately $40.8
million (unaudited) and consolidated liabilities of
approximately $19 million (unaudited).
With respect to the third quarter loss, the company said it
expects to record charges during this year's third quarter
of approximately $12.6 million for additional reserves and
the writedown of the carrying value of certain assets, the
exact amount of which is still under review. Despite an
increase in revenues, the company also expects to report an
operating loss of approximately $1.6 million for the third
quarter. The additional charges and writedowns, together
with the operating loss, will result in a net loss of
between $1.75 to $2.00 per share for the third quarter.
The company said it is pursuing a number of actions to
improve its operating results. The company has undertaken a
program to sell company-owned stores to franchisees or to
close them. Combined, these locations represent
approximately 9% of the Manhattan Bagel stores now in
operation.
MIDCON OFFSHORE: Trustee Seeks to Employ Accountants
----------------------------------------------------
Sheila A. Macdonald, Chapter 11 Trustee for the estate of
Midcon Offshore, Inc. filed an application to employ
Edwards, Lindoln & Co., P.C. as accountants. The Trustee
wishes to employ Edwards Lincoln to assist with preparation
of monthly operating reports, prepare Midcon's tax returns
assist witht the review and reconciliation of claims and
related objections and other matters not being handled by
Coopers & Lybrand LLP.
As set forth in the Declaration of Anne N. Lincoln of
Edwards Lincoln, the firm had been Midcon's former
accountants, and is intimate with Midcon's books and
records.
Edwards Lincoln has agreed to provide accounting services to
the Trustee at $110.00 per hour plus reimbursement for out-
of-pocket expenses.
MONTGOMERY WARD: Gross Margin Rate Improvement
----------------------------------------------
Montgomery Ward and Co., Incorporated announced a full six-
point improvement in gross margin rate for the third
quarter of 1997 from the first six months of 1997. Total
revenues for the quarter ended September 30, 1997 decreased
26% to $1.16 billion from $1.57 billion for the third
quarter of 1996.
Revenues for The Signature Group, the Company's direct
response marketing subsidiary, increased 12% to $214
million from $191 million in the third quarter of 1996.
The Company reported an operating loss of $194 million for
the third quarter versus a loss of $48 million for the
comparable 1996 period.
The results for the third quarter include reorganization
costs of $582 associated with the Company's Chapter 11
filing, the closing of 44 Lechmere and Electric Avenue &
More stores, the closing of 47 underperforming full line
Montgomery Ward stores and the restructuring of the
Company's contractual agreement with ValueVision
International, Inc.
Revenues for the period were impacted by the closure of
Montgomery Ward's specialty stores, Lechmere and Electric
Avenue & More, temporary interruptions in the flow of
goods, decreased advertising, reduced credit card mailers
and letters and the Company's exit from the personal
computer business and other product areas.
The Company also noted that as of the end of the third
quarter it had not drawn on its $1 billion DIP facility,
leaving Wards in a strong cash position with ample
liquidity for the holiday and 1998 selling seasons.
"Management has acted quickly in determining and
implementing the necessary changes to Wards' business,
which is evidenced by the margin improvements and
reflected in the restructuring charges," said Roger Goddu,
Chairman and CEO. "We believe that moving swiftly with
these initiatives and putting the difficult decisions
behind us enables all of our associates to focus on the
important task at hand restoring Wards to profitability."
"In a quarter which was heavily impacted by costs
pertaining to our decision to seek bankruptcy protection
and to our initial restructuring activities, we are
encouraged by the dramatic improvement shown in margin rate
and the revenue growth of The Signature Group," added John
Workman, Executive Vice President, Corporate Restructuring.
Montgomery Ward also announced that it has been given
approval by the United States Bankruptcy Court in Delaware
to exit its leases on eleven vacant properties. The
properties, which were the subject of long-term lease
agreements, include former warehouses, product service
centers and retail facilities. The sites are located in a
number of states across the country including Illinois,
Tennessee, Minnesota and Pennsylvania.
"Our ability to shed a number of properties for which the
company has no further need provides us with significant
cost reductions, now and in the future," said Spencer
Heine, President Montgomery Ward Properties and Executive
Vice President, Secretary and General Counsel.
Upon the completion of its announced store closings,
Montgomery Ward will operate 295 full line stores in 37
states.
ORGANIK TECHNOLOGIES: Files For Chapter 11 Protection
------------------------------------------------------
Organik Technologies, Inc. announced today that it filed
for protection of the Bankruptcy Laws by filing a Chapter
11 Proceeding. Daniel Lezak, President of Organik, stated
that the filing was done late yesterday and that this was a
follow up of the action that was announced by the Board of
Directors some time ago. Lezak stated that a Plan of
Reorganization will be presented to the creditors and the
shareholders before the end of December, 1997.
Organik has been in the business of manufacturing a
specialized cotton, using its protected formula, that is
super soft and shrink proof. The production facilities are
located in Central America and may be activated as
part of the Plan.
PAYLESS CASHWAYS: Plan Confirmed
--------------------------------
Payless Cashways, Inc., the nation's fifth largest retailer
of building materials and home improvement products,
announced yesterday that the U.S. Bankruptcy Court for
the Western District of Missouri has confirmed the Company's
First Amended Plan of Reorganization. The Court's
confirmation of Payless Cashways' Plan clears the way for
the Company's emergence from a voluntary Chapter 11
proceeding on December 3, 1997.
Confirmation of the Plan came at the conclusion of a hearing
to assure that all reorganization requirements had been met
under the Bankruptcy Code, which included acceptance by the
requisite majority of creditor and shareholder classes.
Payless also announced a new nine-member Board of Directors,
which will assume responsibilities December 3rd after the
reorganized Payless Cashways emerges from Chapter 11. The
new directors include:
Peter G. Danis - Interim Chairman of Payless Cashways, Inc.
and President/Chief Executive Officer of Boise Cascade
Office Products Corp.
David M. Chamberlain - Chairman of Genesco, Inc.
H. D. (Harry) Cleberg - President/Chief Executive Officer of
Farmland Industries, Inc.
David G. Gundling - President/Chief Executive Officer of
Hagemeyer Foods N.A., Inc.
Max D. Hopper - Principal of Max D. Hopper Associates, Inc.
Donald E. Roller - Former President/Chief Executive Officer
of U.S. Gypsum Company
David Stanley - Chief Executive Officer of Payless Cashways,
Inc.
Susan M. Stanton - President/Chief Operating Officer of
Payless Cashways, Inc.
Peter M. Wood - Former Managing Director of J.P. Morgan &
Company, Inc.
Under the terms of the plan, holders of secured bank claims
under the Company's pre-petition credit facilities,
estimated at $419.4 million, are expected to receive
approximately $43 million in cash, $278.1 million of new
term notes, and 10.7 million shares of new common stock in
the reorganized Payless Cashways.
Holders of general, allowed unsecured claims, including
trade claims and Senior Subordinated Notes, estimated to
total approximately $311.6 million, will receive
approximately 8.3 million shares of common stock in the
reorganized Company.
The Plan also calls for current common stockholders to
receive 400,000 shares of new common stock approximately one
share of new Payless common stock for each 100 shares of
existing common stock. The new stock is expected to trade
on the Nasdaq National Market under the symbol "PCSH"
beginning December 3rd. It is anticipated that the initial,
partial distribution of new common stock will commence in
December 1997, to holders of allowed claims and interests,
including trade creditors, bondholders, and shareholders.
David Stanley said,"As of the effective date of the Plan,
total liabilities are reduced from $1.1 billion to
approximately $597 million; balance sheet debt is reduced
from $689 million to approximately $426 million. Under the
Plan, interest costs are reduced from more than $60 million
in 1996 to a projected $29 million by 2002."
As part of the restructuring, the Company closed 29
underperforming stores and reduced its workforce by 1,900
reducing operating expenses by approximately $80.3 million
annually. Previously implemented corporate expense
reductions will reduce operating costs by $7 million
annually.
"Looking ahead to the year 2000 and beyond, our industry
will have more participants than just two warehouse
competitors. Nearly one million professional and do-it-
yourself customers shop our 164 stores in 20 states
weekly. In our niche, targeting professionals and DIYers
who prefer a non-warehouse store format, we believe we can
and will be among the best building materials retailers," he
said.
The Company filed its Chapter 11 petition and Plan of
Reorganization in the U.S. Bankruptcy Court for the Western
District of Missouri in Kansas City on July 21, 1997.
As of November 19, 1997, the Company operates 164 building
materials stores in 20 states located in the Midwestern,
Southwestern, Pacific Coast, and Rocky Mountain areas. The
stores operate under the names of Payless Cashways, Furrow,
Lumberjack, Hugh M. Woods, Knox Lumber, and Contractor
Supply.
POCKET: Clash Over Payment of Interim Fees
------------------------------------------
The debtor, Pocket Communications, Inc. replied to the
objection of the DIP lenders to the application of
Whiteford, Taylor & Preston (WT&P)for the allowance of
interim fees and the reimbursement of costs.
The DIP lenders make four objections to the allowance of
fees. They argue that the fees have an excessive amount of
overlapping services, that the debtors should not have
defended themselves whten the DIP Lenders sued them, that
nothing has been accomplished to date and that interim
compensation is inappropriate except in the motst limited
scope.
The debtor refutes the assertion that there has been an
overlap in services, although the debtors are represented by
two different law firms, one for the bankruptcy and one for
matters relating to the FCC. The debtor also points out
that "the DIP Lenders' counsel neglected to mention that
they bilked the estate out of over $300,000 in legal fees
for merely drafting the DIP Loan agreement."
The debtor states that a great deal has been accomplished to
date, and that the professional fees incurred were
reasonable, necessary and have clearly benefited the estate.
POCKET: U.S. Trustee Backs Committee Appointments
-------------------------------------------------
In the Chapter 11 case of Pocket Communications, Inc., the
U.S. Trustee opposes the Motion of National Telecom to (1)
Reconstitute the Official Committee of Unsecured Creditors;
and (2) Disqualify Committee Counsel
The U.S. Trustee argues that the Committee as currently
constituted is adequately representative of the kinds of
claims that it is supposed to represent. In addition, Booz
Allen's and CE Capital's Equity Interest in Pocket do not
disqualify them from serving on the Committee, as National
Telecom alleged.
Furthermore, the U.S. Trustee states that the motion of
NatTel to reconstitue the Committee should be denied as
untimely, since NatTel did not raise the issue for seven
months, after the Committee had met, retained counsel, and
been actively involved in the Chapter 11 case.
TAKUGIN TEITO: Files Bankruptcy in Japan
----------------------------------------
Takugin Teito Shoken, a nonbank affiliate of the failed
Hokkaido Takushoku Bank (Takugin ) has applied to the
Sapporo regional courts for voluntary bankruptcy. Total
losses are 539.1 billion yen. Excess liabilities are 205.2
billion yen. Takugin had been supporting the securities
firm for four years. The peak lending balance in March 1994
was 528.1 billion yen, and the sales balance was 180.3
billion yen. But after the bubble collapsed and land
prices tumbled, the firm's performance worsened.
The ratio of nonperforming loans, including the loan
balance, to sales reached about 60%. For five years, the
firm posted losses. Thus, when channels to support funds
from outside the group were squeezed, Takugin stepped in.
WESTERN PACIFIC: Receives Financing Offer
-----------------------------------------
Western Pacific Airlines announced that it has filed a
motion with the United States Bankruptcy Court for the
District of Colorado in Denver for approval of proposed
"debtor in possession" ("DIP") and reorganization
financing. The financing would be provided by New York-
based Smith Management Company ("SMC") and calls for an
initial DIP loan of $10 million on or before December 4,
1997 to be used to pay a portion of the airline's post-
petition aircraft lease obligations and to provide general
working capital.
At the airline's option, up to an additional $20 million of
DIP financing would be available on or after December 20,
1997 to be used as general working capital.
Pursuant to the proposal, to provide for the airline's
emergence from Chapter 11, SMC would provide a total
investment of $40 to $50 million which will be used to
repay the DIP financing, fund a plan of reorganization,
provide working capital and to make an equity contribution
to the reorganized Company in exchange for all or
substantially all of the equity of the reorganized
airline. Both investments are subject to negotiation of
final documentation, additional due diligence and Court and
creditor approval.
Western Pacific President and Chief Executive Officer
Robert A. Peiser, said, "We are delighted with the vote of
confidence that the SMC investment provides, especially in
light of its airline expertise. Their analysis and the
resultant investment confirms our belief in the Denver
strategy and we look forward to working together."
SMC is a private, diversified investment management firm
located in New York, New York. In January 1996, through
its affiliate, Airline Investors Partnership, L.P., SMC
made a controlling investment in Hawaiian Airlines, Inc.
(ASE; PSE: HA), the nation's twelfth largest air carrier.
John W. Adams, President of Smith Management Company,
serves as Chairman of the Board of Hawaiian Airlines, Inc.
Adams said, "From prior business associations, we have come
to respect Bob Peiser's management talents and his past
performance strengthens our willingness to invest in
Western Pacific. The analysis and due diligence we
have conducted to date lead us to believe Western Pacific
presents a business opportunity with significant
potential."
Under the terms of the agreement, SMC will designate two
members to Western Pacific's Board of Directors and retain
the right to nominate two additional directors at a later
time.
Peiser continued, "While DIP financing is extremely
important, it is the commitment for exit financing that
provides the foundation for Western Pacific's future. This
investment will provide us with the necessary time and
stability in Denver needed in order to realize the full
potential of our business strategy.
--------
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