/raid1/www/Hosts/bankrupt/TCR

/raid1/www/Hosts/bankrupt/TCR_Public/971215.MBX T R O U B L E D C O M P A N Y R E P O R T E R Monday, December 15, 1997, Vol. 1, No. 79 Headlines ALPHASTAR: Seeks Authority to Reject Leases BRADLEES: Seeks Financing and 6-Month Exclusivity Extension DALFORT AVIATION: Singapore Company To Buy Dalfort DOW CORNING: Committees State Positions on Procedures DOW CORNING: Seeks Compromise with Unione Italiane DOW CORNING: Seeks Disallowance of Duplicative Claims DOW CORNING: Granite State Wants Access to Proofs of Claim FIDELITY BANCORP: Takes Charge On Reliance Acceptance Notes FOXMEYER: The Aftermath - McKesson's New Merger GROSSMAN'S: Canton to Emerge By End of the Year GROSSMAN'S: Seeks to Estimate Claims and Distribute Cash HARVARD INDUSTRIES: Seeks to Close Auto Parts Plant MAIDENFORM: Seeks to Reject Leases MEDNET: Seek Time to Assume or Reject Lease MIDCOM: Adequate Assurance to Sprint MOLTEN METAL: Oak Ridge Operations Not Affected MOUNTAIN AIR: Lost Ruling Could Mean Loss of 1 of 5 Planes PEGASUS GOLD: Pegasus Gold Australia Files TODAY'S MAN: Modifications to Plan -------- ALPHASTAR: Seeks Authority to Reject Leases ------------------------------------------- AlphaStar Television Network Inc. and Tee-Comm Distribution Inc., debtors, seek authorization to reject certain unexpired leases of non-residential real property. On November 27, 1997, Champion Holding Company was the purchaser of substantially all of the debtor's assets. Due to the sale, the debtors will have no need for the leases they are currently seeking authority to reject. The leases include a 10,804 square foot warehouse space in Tanawanda, New York, a warehouse in Puerto Rico, and warehouse storage in Waipahu, Hawaii. BRADLEES: Seeks Financing and 6-Month Exclusivity Extension ----------------------------------------------------------- Bradlees, Inc. which last month reported its first profitable quarter since the end of fiscal 1994 today said it has successfully negotiated a new $250 million financing facility with a bank group led by BankBoston, N.A. The new facility consists of an up to 18 month $250 million debtor-in- possession (DIP) revolving facility and an up to three year $250 million post-bankruptcy revolving credit facility. The facility, which is subject to bankruptcy court approval, would provide Bradlees with increased liquidity, as well as enhanced borrowing capacity, acceptable financial covenants and lower financing costs. It would replace the current $200 million DIP facility, due to expire June 28, 1998. Additionally, Bradlees said it has filed a motion, supported by the Official Committee of Unsecured Creditors, seeking bankruptcy court approval of a six-month extension through August 3, 1998 of its exclusive right to propose and file a plan of reorganization. The company also said it plans to close an additional underperforming store in North Attleboro, Mass., in February 1998 and sell the owned property to a third party, subject to bankruptcy court approval. Bradlees had originally hoped to conclude the sale agreement earlier this month in conjunction with a December 2 announcement concerning the closing of five stores. Following the six closings, the company will operate 103 stores in seven states. Peter Thorner, Bradlees Chairman and Chief Executive Officer, said, "We are pleased to report that Bradlees is in its healthiest position since entering Chapter 11 and the new $250 million facility will further strengthen our financial position. We intend to use the extended exclusivity period to develop and file a consensual plan of reorganization. "Since the beginning of 1997, we have made significant progress in stabilizing operations and implementing numerous programs designed to allow the company to successfully reorganize and emerge from bankruptcy. We have refocused our merchandising and marketing strategies, built a team of seasoned retail executives, and delivered significantly improved year-to-date operating results compared with the same period last year. We are focused on three key merchandise lines moderately priced apparel for the family, home goods and selective hardlines merchandise and on quality and fashion, especially in apparel and home goods, as a way to differentiate Bradlees from the competition." Bradlees is a leading regional discount retailer with annual total sales of more than $1.6 billion. DALFORT AVIATION: Singapore Company To Buy Dalfort --------------------------------------------------- The Fort Worth Star-Telegram reported on December 11, 1997 that Dalfort Aviation, one of the companies involved in the legal fight over expanding flights at Dallas Love Field, will be bought by Singapore Technologies Aerospace, a spokeswoman for the Singapore-based aircraft maintenance company said last night. Shirley Tan, manager of corporate communications for Singapore Technologies Aerospace, said in a telephone interview that details of the transaction are not final, "but we think we should be able to make a formal announcement within a few days." Tan said she expects no problems in closing the deal. "There's just a few loose ends to be tied up," she said. Dalfort owner Bruce Leadbetter, a founder and major backer of Legend Airlines, which plans to offer long-haul jet service from Love Field, was out of town and unavailable to comment last night. Company spokesman Roger Myers would neither confirm nor deny that the Love Field-based Dalfort is up for sale. Dalfort is the last remaining vestige of Braniff International Airlines, which went bankrupt and ceased operations in 1982. Braniff was acquired and restarted in 1984 by an investment group led by Chicago financier Jay Pritzker. The reborn Braniff struggled and in 1988 the Pritzker group sold the airline, which ultimately failed. But the Pritzker group retained the maintenance division and renamed it Dalfort. Leadbetter, a Dallas businessman who had been a part of the Pritzker investment group, bought Dalfort in 1993. DOW CORNING: Committees State Positions on Procedures ----------------------------------------------------- The Dow Corning News Issue #50, published by Bankruptcy Creditors' Service, reported on the responses of the Committees to the debtor's motion to establish procedures applicable to claim objections. The Committee of Unsecured Creditors registered its position on the debtor's motion to establish procedures applicable to claim objections. The Committee generally supports the Debtor's Motion because it perceives, in the light of the filing of more than 700,000 proofs of claim, the need for establishment of procedures to govern the claim objection process fairly and efficiently. The Commercial Committee states that the majority of the procedures contemplated by the Motion will facilitate that goal. However, the Commercial Committee raises some issues it believes require some clarification and offers, as well, some specific suggestions for modification of the procedures proffered by the Debtors. In this connection, the Commercial Committee points out that the Debtor does not detail how the claim objection process it proposes would be coordinated with the settlement process embodied in the Commercial Claims Order. In this Order, the Commercial Committee reserves the right to seek, (by motion, stipulation or otherwise) implementation of additional or alternative procedures fixing the allowed amount of commercial claims in advance of plan confirmation. The Commercial Committee wants the Commercial Claims Order expressly preserved in any Order approving the Debtor's Motion. Further, the Commercial Committee observes that while the Debtor states that the requirements for Responses to the Omnibus Implant Objection will not be governed by the claim procedures it seeks, the Debtor does not similarly carve out any exception with respect to the content of Responses to Claim Objection No. 2 through Claim Objection No. 7. It is unclear, therefore, what procedures the Debtor envisions governing Claim Objection Nos. 2 through 7; the Commercial Committee wants the Debtor to clarify its intention regarding these Claim Objections. The Commercial Committee also suggests some minor modifications to the procedures contemplated by the Debtor: 1. Admission of Counsel: Claimants' counsel should be admitted prior to or at the Initial Status Conference so that counsel need not travel to Michigan prior to the Initial Status Conference. 2. Contents of Initial Response: The requirement that a personal injury claimant make a statement in the Initial Response as to his or her willingness to submit to the "core" jurisdiction of the Bankruptcy Court possibly should be eliminated as inappropriate. The goal of this deletion is to avoid the possibility that the issue of whether allowance or disallowance of a personal injury tort claim is or is not a core matter, may result in unnecessary litigation about the nature and scope of a tort claimant's jury trial right. 3. Advanced Settings: To ensure that claimants have sufficient time to respond to an objection, an objector should be required to serve the notice of setting of the Initial Conference and the objection at least 45 days prior to the Initial Conference; and the claimant should have at least 30 days from service of the objection and notice of the Initial Conference to file and serve a Response. 4. Style of Objections: The Daticon claim number to which the objection relates should be identified in the caption of the objection. If the objection is an omnibus objection, an addendum listing the Daticon claim numbers should be affixed to the objection. 5. Service of Discovery Pleadings: A Notice Party should be served with all discovery pleadings related to a contested claim(s) if the Notice Party informs the party or parties seeking discovery, or respective counsel, of its desire to be served with discovery pleadings. The Tort Claimants' Committee presents its Principal Objections to the Debtor's Motion to Establish Procedures Applicable to Claim Objections: 1. Establishing procedures for omnibus form objections to personal injury and wrongful death claims is premature. In the context of this objection, the Tort Committee observes that the Court has under advisement the issue of whether it has the power to rule on the Debtor's omnibus summary judgment motion on disease claims. Since the filing of this objection, however, Judge Spector has decided that the summary judgment motion is a core proceeding which the Bankruptcy Court may legally hear and determine. The Tort Committee, however, considered the possibility that Judge Spector might decide he has such jurisdiction before ruling on the Tort Committee's objection and states that even if the Court decides it has such jurisdiction, it still would be more prudent not to exercise such power at this juncture of the case. By such reasoning, the Tort Committee argues, its position that it is premature to establish procedures for the claim objections remains intact. 2. Administrative proceedings to address the Debtor's more than 700,000 claim objections are potentially in conflict with possibly similar proceedings before District Judges Hood and Pointer. Since the District Court is currently evaluating procedures to be implemented for liquidation of personal injury and wrongful death claims against the Debtor's shareholders, the procedures regarding liquidation of personal injury claims against the Debtor should be coordinated with these matters. 3. The MDL District Court is in the midst of proceedings involving a National Science Panel. Determinations there may have some application to the liquidation of the Debtor's tort liability. It therefore seems pointless at this time, argues the Tort Committee, to design and implement procedures for liquidation of these claims without the involvement of the Michigan District Court. Nonetheless, the Tort Committee recognizes that the Court may decide to grant the Debtor's premise that procedures for handling claim objections are reasonable at this time. Some of more salient objections set forth by the Tort Committee to the Debtor's procedures in their current form are: 1. The Debtor's procedures for Docketing and Administering Claim Objections, generally, should be modified so that, wherever logistically possible, they take into account and attempt to remedy the geographical disadvantages and difficulties experienced by many unrepresented or under- financed, yet represented, claimants. 2. The Debtor's proposal that it be permitted to file piecemeal omnibus objections to claims, using "common issues" as a basis to summarily resolve a vast number of claims, should be modified. Claims should not be litigated piecemeal, thereby requiring under-financed claimants to repeatedly respond and/or appear on multiple occasions in a far away bankruptcy court to litigate the merits of their claims: Claims and defenses should be tried in toto. 3. Procedures should be implemented, when practicable, to allow parties to appear at procedural hearings telephonically, given the difficulties and expense of attending multiple hearings before the bankruptcy court. Procedures of this sort are routine in many courts and promote efficiency and fairness. 4. Individual Claimants represented by a single attorney could be heard collectively. 5. A claims objection docket should be established by the Clerk of the Court for each individual claim objection and not for categories of claim objections. Because the pleadings and documents in any particular claim objection may multiply as the litigation proceeds, it is essential that separate dockets be maintained with respect to each claim objection proceeding to insure the orderly administration of the case and issues involved. 6. A preliminary audit of claimant addresses of record should be implemented and a report made to the Court to insure appropriate procedures have been followed by the Claims Docketing Agent with respect to change of address information. The mass mailings to date indicate that numerous claimants have moved; the Tort Committee has received various individual reports that change of address information was properly submitted yet notices were not received. 7. The initial response should simply admit or deny the statement in the Omnibus Objection. The contents of the initial response required by the Debtor's procedures are unduly burdensome and excessively stringent given what is contemplated by the Federal Rules of Procedure. 8. The Initial Report should be served on the Notice Parties and upon the claimant as well. The claimant should have the opportunity to appear at the Initial Conference by telephone in order to allow a fair opportunity to be heard if substantive matters are addressed regarding procedures or allowance of the claim. Service of the proposed scheduling order upon the claimants should be not less than 20 to 30 days before the Initial Conference. 9. The Debtor's suggested mediations should be conducted regionally at locations throughout the country in order to minimize the difficulties and expense of travel. A panel of proposed mediators should be selected jointly by the Debtors and the Committees. 10. Before disallowance or reduction of a claim occurs on the basis of failure to file a response, the Debtor should first certify and submit proof of service upon the claimant by registered or certified mail. An affidavit of service should be presented to the Court evidencing that service has, in fact, been effected on a claimant in a conclusive rather than presumptive basis. 11. Adopting the general settlement procedures described in the Commercial Claims Order is acceptable subject to further review of the amounts which comprise the current thresholds The Tort Committee expresses its willingness to discuss these thresholds with the Debtor and other official committees in an attempt to reach a resolution. The Tort Committee concludes that the implementation of procedures regarding adjudication of the personal injury and wrongful death claims is premature. However, to the extent procedures are implemented, then these modifications, among others, should be provided in order to allow the claims to be processed in an orderly, equitable manner. DOW CORNING: Seeks Compromise with Unione Italiane -------------------------------------------------- The Debtor explains that its insurance under a number of excess liability insurance policies, purchased by the Debtor and Dow Chemical from Unione Italiana Reinsurance Company of America, entitle it, among other things, to reimbursement of certain costs incurred in connection with defending the Breast Implant Claims. The Debtor and Unione disagree as to the extent of coverage afforded by the Excess Policies for the Breast Implant Claims. Litigation ensued; and, in the Michigan Litigation before Judge Colombo, Jr., the Debtor sought to recover past expenditures for defending or satisfying Breast Implant Claims. The misrepresentation defense lodged by Unione and other insurers to the effect that the Debtor intentionally or innocently misrepresented or concealed material facts about the risks of silicone breast implants was defeated, resulting in judgment for the Debtor. Unione and the other insurers appealed. The Debtor and Unione have reached an agreement to compromise and settle their disputes. The principal terms of the Settlement Agreement, as summarized, are: (a)Unione will pay the Debtor $1,440,000 in U.S. dollars within 10 days after approval of the Settlement Agreement. (b)In consideration of Unione's payment, the Debtor will provide three releases: 1.A release of Unione under the Policies with respect to Breast Implant Claims and claims resulting from other implant devices; 2. A release of the products liability limits of the Policies; and 3. a waiver of other claims arising out of the Breast Implant Claims, including, e.g., consequential damages claims. This waiver releases Unione from other possible claims not only by the Debtor but also by Dow Chemical and other insureds (like certain implant surgeons). (c)The Debtor will try to obtain from other settling insurers their waivers of any contribution or other claims such insurers may have against Unione with respect to Breast Implant Claims. (d)Unione will make payments under the Policies without recourse to the Debtor or other insurers (to the extent that other insurers release Unione). Additionally, the Debtor will reduce the amountof any judgment against other excess insurers by the amount of any contribution or indemnity award against Unione by such other insurer. (e)The Debtor will use its best efforts to include in any plan of reorganization a channeling injunction to protect Unione from additional third-party claims on policies released pursuant to the settlement. (f) Following approval of the Settlement Agreement, Unione and the Debtor will file a stipulation of dismissal of their claims against one another in the Michigan Litigation. DOW CORNING: Seeks Disallowance of Duplicative Claims ----------------------------------------------------- Issue #50 of the Dow Corning News, published by Bankruptcy Creditors' Service reports that the Debtor is seeking disallowance of implant claims that are duplicative of one or more Implant Claims. The Debtor explains that the genesis of such duplication arises from a situation in which the individual implant claimant filed a Supplemental Proof of Claim which mistakenly duplicated her/his individual Proof of Claim, rather than filing it for a family member of the implant claimant. Under the procedures for docketing claims followed by DSI, implant recipients who filled out the Supplemental Proof of Claim in this mistaken manner, and filed it, now have one or more duplicate individual claim(s). Disallowance of such Duplicate Supplemental Claims will rectify duplication Disallowing the Duplicate Supplemental Claims will not in any way impact the rights of the duplicate claim filers to assert their surviving individual Implant Claim against the Debtor. To the extent that a disallowed Duplicate Supplemental Claim contains information that is not contained in the surviving Implant Claim, this information will be treated as supplemental documentation to the surviving Implant Claim. TORT COMMITTEE'S RESPONSE The Tort Committee, after evaluating the process by which the Duplicate Supplemental Claims have been identified, agrees that these procedures, generally, should have correctly identified the duplicate claims. And the Tort Committee also agrees that the Duplicate Supplemental Claims need to be combined with the surviving Implant Claims as to any new information they may contain and/or eliminated as to the duplicative information they contain. The Tort Committee does have, however, several procedural objections to the manner in which the Debtor chooses to eliminate duplicate claims. The Debtor says it is addressing the Tort Committee's concerns by agreeing that disallowance of the Duplicate Supplemental Claims "shall not waive or prejudice the positions of the Tort Committee or any party with respect to pending or future claims other [than] the identified Duplicate Supplemental Claims regarding the issue of the bankruptcy court's jurisdiction to adjudicate Implant Claims." HEARING BEFORE JUDGE SPECTOR During the course of a Hearing on the Debtor's Motion, Judge Spector said that many of the individual claimants who are objecting to the Debtor's attempt to disallow their supplemental claim forms have requested that the Judge protect their rights during the Hearing. Judge Spector said he is accepting that role; that he reviewed the responses and is ready to consider each response which seems to offer a valid defense one by one with the Debtor's Counsel. Moreover, Judge Spector criticized the failure of appearance by individual claimants' attorneys or their failure to withdraw their clients' duplicative supplemental claims before the hearing date. The Debtor's Counsel explained that 308 of the 32,000 supplemental claims which the Debtor seeks to disallow as duplicative can be considered in a lump as it were. These 308 supplemental claims were filed by Baxter and are duplicative of the entries already entered on the Debtor's Schedule. Judge Spector wondered why the Debtor did not serve notice on Baxter as to this duplication instead of alarming the individual claimants concerning a matter that amounted to a ministerial error. Additionally, he told the Debtor's counsel that the individual 308 claimants should receive explanations concerning the nature of the duplication and assurance that their claims remain intact. In reviewing the remaining responses, Judge Spector identified two errors in the Debtor's review of the supplemental claims: one in which a husband filed a supplemental claim for loss of consortium; and another where the supplemental proof of claim was for the child of the individual claimant. In these instances, Judge Spector overruled the Debtor's request for disallowance of the supplemental claims. Some of the responses raised issues requiring some additional consideration. For example, where the information in the supplemental claim was not duplicative; an instance being where a hospital filed a claim for cost of implant removal. Judge Spector ruled that a hospital is not one of the entities entitled to file a supplemental proof of claim; therefore the Debtor's disallowance was sustained and only the primary claim survived. Judge Spector, in his desire to protect against trampling on the claimants'rights, suggested that the granting of the Debtor's Motion to Disallow could be qualified by the statement that any claimant, within 28 days of entry of the Court's Order, be permitted to present evidence to the Court that what on its face appears to be an improper duplication is something else that should be accepted. However, Judge Spector deferred to the Debtor's Counsel, who said that the Debtor had already considered this avenue and decided it was unnecessary. Accordingly, Judge Spector Granted the Debtor's Motion, subject to the exceptions articulated in Court. DOW CORNING: Granite State Wants Access to Proofs of Claim ---------------------------------------------------------- Granite State Insurance Company wants authorization to obtain access to all proofs of claim and related documents and compilations of data arising from each Implant Claim in which the Debtor asserts that Granite has any obligation to provide a defense for or contribute to the cost of defending such claim. Granite and some other insurance companies provided certain insurance coverage to the Debtor. The Debtor asserts that Granite and the other insurance companies are obligated under these policies to provide the Debtor with defense costs and/or a defense and/or indemnification arising from the Debtor's financial exposure from Implant Claims, particularly those Implant Claims arising from foreign claimants residing outside of the United States and Canada. Granite's access to the documents and data it considers relevant for determining its obligations to the Debtor are confidential under a Bar Order and a similar Blue Cross Order. Granite explains that it will maintain the confidentiality of the documents to which it desires access -- the Foreign Claims Implant Information --; that it and the other similarly positioned insurance companies will use such information only to assess their potential obligations to the Debtor. Granite further states that the Debtor, as well as the Commercial and Physicians' Committees have consented to access by Granite and the other insurance companies to the relevant information for the limited purpose of assessing their obligations and defenses. The Tort Committee has not contested this request, "at least not yet." FIDELITY BANCORP: Takes Charge On Reliance Acceptance Notes ----------------------------------------------------------- Fidelity Bancorp, Inc. (Nasdaq: FBCI) announced that it took a one-time $3 million charge against earnings for the fourth quarter and fiscal year ended September 30,1997 and has restated its previously reported preliminary results of operations. In the announcement of its unaudited year-end results, issued in a press release on October 20, 1997, the Company reported net income was $3.9 million or $l.38 per fully diluted share for the year ended September 30, 1997, compared with $2.1 million or $0.72 per fully diluted share in 1996. Restated, the Company's net income for 1997 was $925,000 or $0.32 per fully diluted share. Complete financial statements are included with the Company's Form 10-K, filed today with the SEC. The one-time, $3 million charge taken by the Company was based on its determination that certain subordinated notes held in its investment portfolio are other than temporarily impaired and have no readily discernible market value. The notes were acquired by the Company in 1994 from Cole Taylor Financial Group, Inc., when Cole Taylor was the parent company for both a consumer finance company and a Chicago- area bank. Earlier this year, Cole Taylor's bank subsidiary was "spun-off" to certain Cole Taylor shareholders in exchange for stock and certain assets. The notes remained as obligations of the surviving company, which is now known as Reliance Acceptance Group, Inc. (RACC) and is the parent company for the consumer finance company. As reported in the Company's November 21, 1997 press release, the notes have a par value and cost basis of $3 million, and were estimated to have a value of $2.25 million when the Company issued its October 20, 1997 press release announcing preliminary earnings for the quarter and fiscal year ended September 30, 1997. At the time, this reduction in value had not been charged against earnings because, based on then available information and generally accepted accounting principles, the notes were considered to be temporarily impaired. On November 14, 1997, RACC filed a Form 10-Q with the SEC in which RACC reported, among other things, substantial additions to its loan loss reserves, increasing delinquencies and repossession losses, a severe decline in its net interest margin, continuing defaults under senior credit agreements, a lack of future funding sources, and the imposition of substantial restrictions by senior lenders. In addition, RACC reported that it is seeking a buyer and that bankruptcy is likely under certain circumstances. Duff & Phelps Credit Rating Co. thereafter downgraded its rating on RACC's subordinated notes to CCC (Triple C). The Company has evaluated currently available information about RACC's present circumstances and future prospects in an effort to assess impairment and to place a value on the notes in the context of a possible RACC liquidation, sale and/or bankruptcy. The Company has concluded that the impairment is other than temporary, and that a complete write-down of the notes is appropriate, because of RACC's worsening condition, the fact that the notes are subordinate to the senior debt and are structurally subordinate to the other obligations of RACC's finance company subsidiary, and the substantial uncertainties that exist regarding ultimate realization of the asset. According to Raymond S. Stolarczyk, the Company's chairman and chief executive officer, "There is no reason to believe, based upon currently available information, that the Company will obtain any near term recovery on the principal balance of the notes in the context of a liquidation, sale and/or bankruptcy of RACC." He added that "a buyer for RACC has not surfaced, and RACC appears to be in a liquidation mode now, having reported that it has no present ability to originate new receivables, and is limited to using its net cash flow to pay down its senior lenders and to spending under a weekly budget preapproved by its senior lenders." "Under these circumstances," Stolarczyk said, "the Company decided that the most appropriate course of action is to assign no value to the notes, prepare a tax plan to realize as much tax benefit from the charge as possible and work with other subordinated debenture holders to closely monitor developments concerning RACC. We will also continue to explore and pursue alternatives for realizing a recovery on this investment," he said. "Clearly we are disappointed that this investment has blemished an otherwise record year," Stolarczyk added. "In any case, this is a very unique situation. We initially invested in a bank holding company and through events beyond our control, we now have instead an investment in a leveraged finance company. I am confident that this event will not affect our core operations or our ability to build earnings and shareholder value for our investors." Fidelity Bancorp, Inc. is the holding company for Fidelity Federal Savings Bank, which provides retail banking services through five full-service locations in Chicago, Franklin Park and Schaumburg. Fidelity's stock is traded on the Nasdaq National Market System under the symbol "FBCI." FOXMEYER: The Aftermath - McKesson's New Merger ----------------------------------------------- The Investor's Business Daily reported on December 11, 1997 that McKesson Corp. is taking steps to ensure it remains the nation's largest drug wholesaler. The company announced a deal in September to buy No. 4 AmeriSource Health Corp. for $1.72 billion in stock and assumption of AmeriSource's $532.3 million in long-term debt. The combined McKesson-AmeriSource would have more than $22 billion in annual sales from drugs, mostly in the U.S. That would boost McKesson's share of the $64 billion drug distribution market to 34% from 22%, says David Risinger of Morgan Stanley, Dean Witter, Discovery & Co. The Federal Trade Commission is reviewing the deal and expects to weigh in by early next year. With or without the deal, McKesson should fare well next year, says Lawrence Marsh of Salomon Brothers Inc. Earnings gains would be 33% should the AmeriSource deal go through and 25% if it gets rejected, he says. The proposed McKesson-AmeriSource merger came several weeks after No. 3 Cardinal Health Inc. agreed in August to buy No. 2 Bergen Brunswig Corp. for about $3 billion in stock and assume $386 million in that company's debt. The McKesson-AmeriSource deal would pre-empt Cardinal- Brunswig's claim to the No. 1 distributor spot. If the Cardinal-Brunswig merger takes place, that combined company would have 31% market share, Risinger says. The FTC is reviewing the deal. The motivation for both McKesson and Cardinal is the same: get bigger to meet managed care's demand to reduce costs. Both companies think bulk allows them to deal on equal terms with ever larger drug suppliers and clients. McKesson, meanwhile, has sold several disparate businesses that distracted management from focusing on key health-care sales, Risinger says. The company, while reshuffling its portfolio, continues to improve operations. It boosted results at its core domestic drug distribution unit during the second quarter ended Sept. 30 while digesting FoxMeyer Drug Co. McKesson bought the assets of the bankrupt drug distributor last year for $598 million. The operating margin on drug distribution sales, excluding revenues from FoxMeyer, grew to 1.92% in the quarter from 1.71% the year prior, Risinger says. At the same time, the company boosted domestic drug sales by 18.5% year- over-year, excluding FoxMeyer's contribution. FoxMeyer had '96 sales of about $3.7 billion. McKesson's second-quarter domestic drug sales were $3.54 billion, or 80% of total revenue. Pharmacies accounted for about two-thirds of drug purchases. Going forward, the company is poised to save $120 million a year following the AmeriSource merger. Much of that will come with the planned shutdown of 28 warehouses. McKesson has generated consolidation-related savings before. The company, through Sept. 30, had cut $38 million of the $80 million in redundant costs tied to the purchase of FoxMeyer. The rest will be gone by July, McKesson CEO Mark Pulido recently said. "We believe the merger with AmeriSource should follow the same pattern as FoxMeyer with significant earnings per share accretion and growth rate acceleration," Risinger said. Analysts credit recent gains to Pulido, who became president in May '96 and CEO this April. Under him, McKesson has sold noncore businesses and replaced them with complementary ones. Pulido, former CEO of Sandoz Pharmaceuticals, "has invigorated McKesson and has it on a clearly focused strategy devoted to health- care supply management," said Donald Spindel, an analyst with A.G. Edwards & Sons Inc. Following the FoxMeyer purchase, McKesson bought General Medical Inc. for about $775 million in February. General Medical, with about $1.8 billion in annual sales, is one of the nation's top suppliers of medical-surgical supplies. McKesson's sales of noncore assets include: * Millbrook Distribution Services Inc. and the AquaVend vended water business, both in March '97 for book value. Millbrook supplies food stores and other retailers with general merchandise, health and beauty aids and specialty food items. * A 55% interest in Armor All Products Corp. to Clorox Co. for $221.9 million in December 1996. Armor All makes car and home-related finish protection products. McKesson began its recent divestiture effort in November '94 when it sold its PCS Health Systems unit, the country's's largest third- party processor of prescription claims, to Eli Lilly & Co. GROSSMAN'S: Canton to Emerge By End of the Year ----------------------------------------------- With the approval of Grossman's Inc.'s reorganization plan, the bankruptcy court paved the way for the Canton building supply chain to emerge from Chapter 11 protection by the end of this year. Unsecured creditors of Grossman's with qualified claims of more than $25,000 will be paid out of an "unsecured recovery pool," plus they will get half the stock in the reorganized company. Jeld-Wen Inc., a maker of window and door products, is co-sponsor of the reorganization plan and will provide $8.65 million for distribution to unsecured creditors. A subsidiary of Wenco Industries, Jeld-Wen will also provide funding for the ongoing operation of Grossman's, taking ownership of the other 50 percent stake in the company. Grossman's, Jeld-Wen and the Official Committee of Unsecured Creditors have filed a motion with the court to make an initial 14 cent payout from the pool to qualified unsecured creditors. Further payouts are possible, the company said. Dirck K. Iacobelli, interim vice president and chief financial officer, said no further store closings are planned, and it will continue to be business as usual at remaining Grossman's outlets. Last year, Grossman's fired some 1,600 workers and shuttered 60 full- service retail stores. Facing a cash crunch, Grossman's filed for bankruptcy protection in April. GROSSMAN'S: Seeks to Estimate Claims and Distribute Cash -------------------------------------------------------- Grossman's Inc., GRS Holding Company, Inc. and GRS Realty Company, Inc., debtors filed a joint motion with Jeld-Wen and the Official Creditors Committee to estimate Class 7 and Class 8 claims and to authorize a cash distribution of 14% to holders of allowed Class 8 claims and to approve a cash reserve amount. Based upon the claims processing efforts, it appears that the total amount of allowed unsecured claims and allowed convenience claims is likely to exceed $46.2 million. Accordingly, the movants have agreeed to cap payouts at $8.645 million, pursuant to which all holders of Allowed Class 8 Claims shall receive a pro rata share of an unsecured recovery pool. The movants are requesting that the court estimate that Class 7 and 8 claims do not exceed the reserve amount of $58.235 million and that the court authorize cash distributions to holders of allowed Class 8 claims in the amount equivalent to 14% of their allowed claims; and that the court approve as reasonable the cash reserve amount established for remaining distributions. The debtors claim that this reserve mechanism has been approved by other bankruptcy courts and will permit creditors with fixed, liquidated, and undisputed claims to receive a substantial portion of their pro rata share of the unsecured recovery pool without waiting for the complete resolution of all claim disputes. HARVARD INDUSTRIES: Seeks to Close Auto Parts Plant ---------------------------------------------------- Harvard Industries, Inc. announced it will seek the approval of the U.S. Bankruptcy Court for the District of Delaware to stop producing exterior rear view mirrors and exterior door handles for the automobile industry and close its manufacturing facility in Bolivar, Tenn. An exact date for the closing of the facility, known as the Harman plant, has not been set, but will probably be sometime after February 1998, according to Richard T. Dawson, Harvard's senior vice president for law and administration. "For the past two years, the Harman plant has experienced a steady erosion of its business base," Dawson said. "It is unlikely that the base will improve significantly enough to warrant continued operations. We have tried to sell the plant, but negotiations some of which continued until late last week have failed to produce an acceptable deal." Harvard Industries' customers in the automotive industry will make arrangements to obtain rear view mirrors and door handles from other suppliers, and Dawson said Harvard will continue to supply the parts during that transition period, a period expected to last little more than 90 days. The future of the Harman facility has not been decided, but Dawson said the company is negotiating with a company that has interest in the building and equipment. The company would manufacture products unrelated to any products made previously at the Harman plant, according to Dawson. "At this time, there is no way of knowing whether those negotiations will be fruitful," Dawson said. "If a sale can be negotiated, we do not know whether new operations at the Harman plant will provide job opportunities for the current work force." Harvard's Harman plant employs approximately 385 workers. Harvard Industries, a major producer of OEM automotive parts and accessories, filed for protection under Chapter 11 of the U.S. Bankruptcy Code last May. The company recently sold the Kingway material handling division of its Kingston-Warren subsidiary to Stanwich Acquisition Corp. for about $18 million. The Harman plant closing and the Kingway sale are all part of Harvard's evaluation of its non-core business elements, Dawson said. "Harvard is continuing to look closely at its operations and is committed to concentrating on the growth possibilities of its core business," Dawson said. "When our restructuring is completed, Harvard Industries will once again be a leader in the automotive OEM industry." Harvard Industries, Inc. designs, develops and manufactures a broad range of components for original equipment manufacturers that produce cars and light trucks in North America and abroad. MAIDENFORM: Seeks to Reject Leases ---------------------------------- Maidenform Worldwide, Inc., Maidenform, Inc., and NCC Industries, Inc., seek to reject certain leases of nonresidential real property. The debtors are parties to approximately eight-nine unexpired leases of nonresidential real property, eight relate to retail outlet stores and nine are used as offices and for warehousing and manufacturing. After reviewing and analyzing the leases, the debtors close sixteen of their outlet stores and distribution center. Three additional outlet stores are of little or no value to their estates. Therefore, the debtors have determined in their sound business judgment to close these stores and reject the related leases. The stores are located in Tilton, New Hampshire, Worcester, Massachusetts and Burlington, North Carolina. MEDNET: Seek Time to Assume or Reject Lease ------------------------------------------- Mednet, MPC Corporation, Medi-Mail, Inc. and Medi-Claim Inc., debtors seek an order extending the time to assume or reject a lease, "the Las Vegas lease" between Rocky Mountain Bank Note Co., n/k/a John A. Harland and Medi- mail, Inc. for property located in Las Vegas, Nevada. The current deadline for assumption or rejection of the lease is December 29, 1997. The debtors seek to extend the time for 60 days, through and including February 28, 1998. The debtors state in support of their request that they have formulated their Chapter 11 plan, however they are uncertain whether they will continue to operate their businesses out of the Las Vegas Property or another site. The debtors have made numerous leasehold improvements over the years to the Las Vegas Property, and making a hasty decision to assume or reject the Las Vegas Lease could result in the loss of a valuable asset of the estate and will provide a windfall to a lessor. All of the debtors' operations are conducted out of its Las Vegas, Nevada facility. In addition, the debtors state that they have been concentrating on negotiations with Bergen Brunswig Drug Company and Foothill Capital Corporation concerning post-petition financing and use of cash collateral. MIDCOM: Parties and Court Agree on Payment to Sprint ------------------------------------------------------ On December 5, 1997, the court entered an order reflecting the agreement of the parties to the debtor's proposal for adequate assurance of payment to Sprint Communication Company L.P. the debtor, Midcom Communications, Inc. is a reseller of Sprint long distance service. Just prior to the filing, the debtor's monthly usage under the resale agreement approximated $4 million. As adequate assurance of paynment, Midcom shall pay to Sprint weekly in advance the sum of $925,000, and Sprint will determine the exact amount owed on the fifteenth of each month. The Committee has until December 12, 1997 to file a written objection to this agreed order. MOLTEN METAL: Oak Ridge Operations Not Affected ----------------------------------------------- The Knoxville News Sentinel reported on December 4, 1997 that Molten Metal Technology, which owns two waste- processing plants in Oak Ridge, filed Wednesday for bankruptcy protection in Boston as part of the company's efforts to remedy an ailing financial condition. Michele Perry, a Molten Metal spokeswoman, said there would be no immediate impact on the Oak Ridge plants as a result of Wednesday's action in Massachusetts. The Oak Ridge facilities, which process and recycle components from radioactive wastes, employ about 150 people. "It's business as usual in Oak Ridge," Perry said. "Nothing has really changed." Molten Metal filed for reorganization under Chapter 11 of the Federal Bankruptcy Code. In a prepared statement, F. Gordon Bitter, the company's chief executive officer, said, "We will continue to operate our nuclear services business, and our priority is to continue to offer the highest quality service to our customers. "The Chapter 11 filing will enable us to conserve cash while continuing to seek financing and strategic partners to help us pursue our other target markets. The filing also permits the company to devote its existing resources to enhancing the value of our business." The bankruptcy filing is the latest fallout from the controversy surrounding Molten Metal's operations, its political contributions and contract relationship with the U.S. Department of Energy. A congressional panel investigated contributions from Molten Metal and its former chairman, William Haney III, to Vice President Al Gore and questioned whether the political donations were linked to DOE's funding of Molten Metal's technology research programs. The company has denied any wrongdoing and said the evidence showed that "no influence was exerted" in extending Molten Metal's contract with DOE. Molten Metal has blamed its financial woes in part on the congressional probe and widespread news reports of the company's problems. The two Oak Ridge plants are a key part of Molten Metal's nuclear services business unit, and Perry emphasized again Wednesday those facilities are a priority because they generate revenues. The company last week announced the layoff of 33 workers in Oak Ridge. That followed an earlier reduction of 14 full-time jobs and several contractor positions. Molten Metal's Q-CEP Facility on Bear Creek Road processes resins from nuclear power plants. The firm also sells casks and other waste-related equipment to the nuclear industry. Molten Metal also owns a Mixed-Waste Recycling Center in Oak Ridge's Commerce Park. It is the legacy of the company's M4 Environmental partnership with Lockheed Martin. The partnership was dissolved earlier this year. Perry said Wednesday that waste operations had slowed at the recycling center because of staff reductions. When waste loads are processed there, workers from the other Oak Ridge plant are brought in to help run the equipment, she said. MOUNTAIN AIR: Lost Ruling Could Mean Loss of 1 of 5 Planes ---------------------------------------------------------- The DEnver Post reported on December 11, 1997 that a federal bankruptcy judge ruled Wednesday that the Dornier aircraft company can take back one of five turboprop planes from Mountain Air Express, the commuter airline that flies out of Denver. MAX, as the carrier is known, filed for Chapter 11 bankruptcy early last month because of a cash crunch it suffered following the earlier bankruptcy of Western Pacific Airlines. WestPac owns 57 percent of MAX, which flies to Colorado Springs, Aspen, Kansas City, Tulsa and Oklahoma City from Denver International Airport with its fleet of five 32-seat Dornier turboprops. Dornier attorney Susan Martineau said the aircraft company is expected to decide as early as today if it will try to get the plane back from MAX. The court ruled that MAX did not have an enforceable contract to lease the aircraft. Dornier also says MAX should return the other four planes it leases because the airline has defaulted on lease payments. U.S. Bankruptcy Judge Sidney Brooks has yet to rule on this claim. MAX President Tom McClain said he's confident the airline will retain use of all five planes in the coming weeks as the carrier plans its reorganization from bankruptcy. Despite Brooks' ruling on the fifth plane, MAX expects to keep using the aircraft, either by successfully negotiating a deal or by filing an appeal. PEGASUS GOLD: Pegasus Gold Australia Files ------------------------------------------ On December 11, 1997, Pegasus Gold Inc. (PGU - AMEX, TSE, ME) (the "Company") announced its wholly owned subsidiary Pegasus Gold Australia Pty Ltd has voluntarily appointed Administrators of that company in Australia. The Administrators are Peter Geroff and Gregory Moloney of Ferrier Hodgson of Brisbane. The firm specializes in insolvencies. The appointment of Administrators follows the decision to suspend operations at Pegasus Gold Australia's Mt. Todd gold mine, located near Katherine in the Northern Territory of Australia, and place the mine on care and maintenance effective November 15, 1997. Pegasus Gold Inc. has concluded that it is not in the best interests of all stakeholders to continue to fund significant operating losses of its Australian subsidiary. By suspending operations at Mt. Todd, along with the appointment of Administrators, the Company is endeavoring to protect both the Mt. Todd assets and the funds advanced by the Company to Pegasus Gold Australia, pending the determination of restructuring proposals. The Administrators have advised that under Australian law they are required to provide Pegasus Gold Australia's creditors with a report about its business, property, affairs and financial circumstances as well as their recommended course of action. Peter Geroff, one of the Administrators, and a partner in the specialist insolvency firm of Ferrier Hodgson said "the intention of the Administrators while performing a review of the whole of Pegasus Gold Australia operations, is to continue to keep all stakeholders fully informed, including the current employees of the Pegasus Gold Australia as well as the Jawoyn people (the traditional Aboriginal owners of the land upon which the Mt. Todd Mine is situated) with whom the Company has always had an excellent relationship. After that review," Geroff continued, "the Administrators will discuss proposals with creditors of Pegasus Gold Australia, and liaise with Pegasus Gold Inc. and its banking group." Pegasus Gold Australia Pty Ltd is a wholly owned subsidiary of Pegasus Gold Inc., an international gold mining company headquartered in Spokane, Washington. Pegasus, a Canadian company by incorporation, currently produces about 500,000 ounces of gold from operations in North America as well as Australia. The Company carries out exploration internationally through offices located in Mendoza, Argentina; Kalgoorlie, Australia; Itaituba, Brazil; Santiago, Chile; and Panama City, Panama. The common shares of Pegasus are traded under the symbol PGU on the American, Toronto and Montreal stock exchanges. Options on the Company's common shares are traded on the Chicago Board Options Exchange and the Montreal Exchange. TODAY'S MAN: Modifications to Plan ---------------------------------- The debtors seek approval of non-material modifications and enhancements to Clss-6 General Unsecured Creditors. In connection with these modifications the Creditors' Committtee has agreed to support confirmation of the debtors' plan. The modifications are to the defindeed term "iInterest Pool" and "Distributions Under the Plan". The plan has been amended to provide that the cash portion of Unclaimed Distributions to Class 6 Creditors shall be deposited into the Interest Pool and distributed to Class 6 Creditors (who have claimed their distributions) to increase Class 6 creditor redcoveries up to a maximum of 112% of Allowed Claims. In addition, the plan has been amended to provide a "floor" for the Interest Pool to the extent that Allowed Claims in Class 6 exceed the debtors' estimate of 35,217,078 to help insure that creditors receive at least 6% of their Allowed Claim on account of post-petition interest. Notwithstanding the foregoing, the debtors will only be obligated to contribute a maximum of an additional $287,000 after application of unclaimed Cash Distribution to help the distribution to Class 6 Creditors from the Interest Pool reach 6% of their Allowed Claims. Since the amendment is de minimus, and enhances the position of creditors, the debtors seek the entry of the order amending the plan. --------- A list of meetings, conferences and seminars appears in the TCR each Tuesday. Submissions via e-mail to conferences@bankrupt.com are encouraged. Bond pricing, appearing each Friday, is supplied by DLS Capital Partners, Dallas, Texas. S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter is a daily newsletter co- published by Bankruptcy Creditors' Service, Inc., Princeton, NJ, and Beard Group, Inc., Washington DC. Debra Brennan and Rebecca A. Porter, Editors. Copyright 1997. All rights reserved. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re- mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. 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