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/raid1/www/Hosts/bankrupt/TCR_Public/980508.MBXT R O U B L E D C O M P A N Y R E P O R T E R Friday, May 8, 1998, Vol. 2, No. 92 Headlines 2CONNECT EXPRESS: Merger Agreement with Bobby Allison AR ACCESSORIES: Wallet Works Acquired by Wilsons ALLIANCE ENTERTAINMENT: Exclusivity Extended Through May 20 BANK OF AMERICA: US Supreme Court to Hear Ownership Issue CGE FORD: Filed Liquidating Reorganization Plan CONTEMPORARY INDUSTRIES: Seeks Order to Sell Assets GAYLORD COMPANIES: United Magazine Company Plan GAYLORD COMPANIES: Bookstore Debtors' Second Amended Plan GREATE BAY HOTEL: Bank Trustee Objects to Tax Counsel HAGERSTOWN FIBER: SBCCS Seeks Relief from Automatic Stay HALLA GROUP: Mando Machinery Workers Go on Strike KIA MOTORS: Ford May Increase Its Stake KIWI INTERNATIONAL: Four Companies in Talks to Acquire Kiwi MANHATTAN BAGEL: Seeks Rejection of Six Leases NAL-FINANCIAL: Interim Agreement with Trusts Gets Approval PAN AM: Until May 20 to Complete Deal with Guilford PEGASUS GOLD: Proposed Order Approving Severance Program SAMSUNG GROUP: To Reduce Core Businesses VENTURE STORES: Hilco/Great American Won Auction DLS CAPITAL PARTNERS: Bond Pricing for Week of May 4, 1998 ********* 2CONNECT EXPRESS: Merger Agreement with Bobby Allison ----------------------------------------------------- 2Connect Express, Inc. announced that it has executed a Merger Agreement with Bobby Allison Cellular Systems of Florida, Inc., whereby Bobby Allison will merge with and into a newly formed subsidiary of 2Connect after 2Connect emerges from bankruptcy. 2Connect has liquidated all excess inventory, fixtures and equipment, reduced its overhead to skeleton levels, and filed a Plan of Reorganization and Disclosure Statement with the court, preparatory to the aforementioned merger. The merger is dependent on, among other things, confirmation by the court of the Plan of Reorganization and the execution of a letter of intent for additional financing. Upon completion of additional financing, for which there are no current commitments or indications of interest, it is anticipated that 20% of the combined entity will be owned by current shareholders of 2Connect, 35% by principals of Bobby Allison and 45% by new investors, some of which may also be existing shareholders. AR ACCESSORIES: Wallet Works Acquired by Wilsons ------------------------------------------------ Wilsons The Leather Experts Inc. the leading specialty retailer of leather apparel and accessories, announced they were the successful bidder for the inventory and store fixtures of 40 retail stores located in 22 states and the trademarks of the Wallet Works(TM), Inc. at a bankruptcy auction sale held in Milwaukee. The purchase price of $5.2 million included substantially all the assets of Wallet Works, Inc. including inventory. The sale was approved by the United States Bankruptcy Court for the Eastern District of Wisconsin and is expected to close early next week. The sale of assets was undertaken with the approval of all creditors to maintain the underlying business while maximizing the repayment to creditors. ALLIANCE ENTERTAINMENT: Exclusivity Extended Through May 20 ----------------------------------------------------------- The court yesterday extended Alliance Entertainment Corp's exclusive periods to file a reorganization plan and solicit plan acceptances through May 20 and July 20, respectively. Meanwhile, the company is still in talks with potential purchasers of Concord Records Inc. and expects to present a stalking horse bid for the unit in two to three weeks. (Federal Filings Inc. 7-May-1998) BANK OF AMERICA: US Supreme Court to Hear Ownership Issue --------------------------------------------------------- The U.S. Supreme Court will resolve a long-standing dispute over the rights of bankrupt debtors to retain ownership of their reorganized company even though creditors haven't been fully paid off. Heeding calls from insurers, bankers and others, the high court agreed Monday to hear an appeal of a lower court decision that gave shareholders the exclusive right to purchase equity in the reorganized companies. Courts around the country have been split for years over the exclusivity issue, which arises most frequently with failed real estate ventures. Bankers and insurers want the high court to award ownership of bankrupt companies to unpaid creditors and let them decide whether to sell to the former owners. Lenders argue that, by giving exclusive purchasing rights to shareholders, courts often allow them to pay less for it than a company is worth. The so-called new-value exception is designed to encourage new investments that will improve the chances the company will be able to pay off its debts under a bankruptcy reorganization plan. The high court now will decide whether to endorse strict adherence to the absolute priority rule, allow the exception for new investments, or stake out a middle ground -- possibly allowing shareholders to purchase their stake through a competitive bidding process. In the instant case the Chicago-based Seventh Circuit U.S. Court of Appeals invoked the new-value exception in a dispute involving a BankAmerica subsidiary, Bank of America National Trust and Savings Association. The bank sought to recover $93 million owed on a loan it made to a Chicago real estate venture called 203 North LaSalle Street Partnership, which was facing Chapter 11 bankruptcy reorganization. The plan gave the bank about $60 million of the debt. The reorganization allowed the owners of the company to retain their stakes -- and ownership of the building -- if they paid the equivalent of $4.1 million into the business. A federal trial judge upheld the plan over the bank's objections. A divided panel of the Seventh Circuit, which affirmed the ruling, said the U.S. bankruptcy code, though unclear, suggests the new-value exception applies. The court added that the capital infusion "may enhance the value of the business after reorganization." The owners of the Chicago partnership, said the new-value rule will apply only in rare cases because a series of tax and bankruptcy law changes have reduced the incentives for owners of real-estate ventures to resist foreclosure. The case is Bank of America National Trust and Savings Association v. 203 North LaSalle Street Partnership, 97- 1418. (Journal Record - 05/05/98) CGE FORD: Filed Liquidating Reorganization Plan ----------------------------------------------- CGE Ford Heights LLC filed a liquidating reorganization plan on May 4 that allows the indenture trustee for the company's bondholders to chose between two options for the disposal of CGE's Ford Heights, Ill., waste tire-to-energy facility. Under the plan's first option, the idled facility and certain other assets would be transferred to U.S. Bank Trust N.A. (formerly known as First Trust Illinois N.A.), the trustee for $79.6 million of bonds. The second option calls for CGE to sell the facility with the net proceeds used to satisfy all claims, liens and encumbrances. (Federal Filings Inc. 7-May-1998) CONTEMPORARY INDUSTRIES: Seeks Order to Sell Assets --------------------------------------------------- Contemporary Industries Corporation, debtor, seeks a court order authorizing it to sell to Kum & Go LC substantially all of its operating assets. On April 7, 1998, the debtor entered into the agreement with Kum & Go to sell substantially all of its operating assets and assign certain of its leases and executory contracts to Kum & Go. Pursuant to the agreement Kum & Go has agreed to pay: a purchase price of $1.2 million for the headquarters, $11,952,500 as the purchase price for the Owned Stores and the Leased Stores and the Equipment located therein, $3 million as the purchase price for the Franchisee Stores and the Equipment located therein, and as the purchase price for the Inventory, an amount equal to 65% of the market retail price as established by a physical inventory. The debtor states that this sale will minimize administrative expenses, maximize sale values and provide maximum benefit that can be obtained by the creditors. The sale of the assets will be subject to competitive bidding. The auction sale of the assets will be conducted on May 19, 1998. Anyone who intends to submit a bid must deposit $1.6 million in readily available funds. An Initial Bid for the Headquarters, owned stores, Leased Stores and associated Equipment must be in the minimum amount of $13.8 million plus Inventory and Petroleum Products according to formulas in the agreement. GAYLORD COMPANIES: United Magazine Company Plan ----------------------------------------------- Both the United Magazine Company Plan (Unimag Plan) and the Second Amended Plan of The Bookstore Debtors will be considered for confirmation on April 27, 1998. Pursuant to the Unimag Plan the debtor shall cease operations. All property of the estate which Unimag wishes to acquire shall be sold to Unimag. Cash in the amount of $195,000 plus a six year note in the principal amount of $220,000 shall be delivered by Unimag to the Disburing Agent. The Unimag plan didvides holders of Claims and Equity Interests, other than Creditors with unclassified claims, into classes based upon their legal rights and/or interest. Under the terms of the plan, the Treatment of Impaired Classes is as follows: Class 1.1 Greenfield Commercial Credit LLC - Allowed Secured Claim of $235,000 - to be paid in equal monthly deferred payments of principal plus interest. Class 1.2 Ingram Book Company - Allowed Claim- Ingram shall receive equal monthly payments up to $400,000 plus 8% interest over 36 months. Class 1.3 Allowed Secured Claims of Creditors not included in any other class Each holder shall receive full and complete satisfaction of the Allowed Secured Claim in equal monthly payments plus 8% interest, over 3 years. Class 3.1 The Allowed Claim of any general unsecured creditor not included in any other class. Pro rata share of allowed claim. Class 3.2 Unimag Unsecured Claim shall be waived. Class 4.1 The Equity Interests in the debtor - All of the Equity Interest in the debtor shall be extinguished. GAYLORD COMPANIES: Bookstore Debtors' Second Amended Plan --------------------------------------------------------- This Second Amended Plan of Reorganization dated April 1, 1998 is proposed by the debtors, Gaylord Book Company, Sawworth Book Company, Gaylord's Inc. and Gaylord Enterprises, Inc. (The Bookstore Debtors). Both the United Magazine Company Plan (Unimag Plan) and the Second Amended Plan of the Bookstore Debtors will be considered for confirmation on April 27, 1998. The plan provides for the following classes of Claims: Class 1.1 The Greenfield Allowed Secured Claim - This amount is fixed at $235,000. Class 1.2 The Allowed Secured Claims of Creditors not included in any other class. The estimated amount of these claims is $0. Class 2.1 The Allowed Claims of Unsecured creditors entitled to priority. The amount of these claims is $0. Class 3.1 The Allowed Claims of general unsecured creditors in the amount of $1,000 or less. The estimated amount of these claims is $100,000. Class 3.2 The Allowed Claim of any general unsecured creditor not included in any other class. The estimated amount of these claims is $1.2 million. Class 4.1 The Equity interests in debtor shall be extinguished. Following confirmation and the Effective Date, the assets and liabilities of the debtors will be consolidated into Reorganized Gaylord Book Company which will either be debtor Gaylord Book Company itself, or a newly formed entity. Ingram Book Company will make available to Reorganized Gaylord Book Company a line of credit of up to $250,000 based upon 50% of the value of the non-Ingram inventory. In the event of a default in any payment to Ingram, Ingram will have the option to exercise its security interest in the outstanding shares of Reorganized Gaylord Book Company. The plan contemplates a consolidation of the four debtors. The Bookstore operations have been run as a separate line of business. The debtors have proposed to consolidate operations into one entitiy, and the debtors claim that the only alternative to the proposed plan is a Chapter 7 liquidation. This plan and the accompanying disclosure statement do not involve Gaylord Companies, Inc., The Cookstore, Inc. or The Cookstore Worthington, Inc. Those entities will submit a separate plan. GREATE BAY HOTEL: Bank Trustee Objects to Tax Counsel ----------------------------------------------------- State Street Bank and Trust Company, as Trustee for the holders of the 10.78% First Mortgage Notes Due 2004 responds to the application of the debtor, Greate Bay Hotel & Casino, Inc. to employ Rosenblum, Wolf & Lloyd, P.A. as Special Real Property Tax Counsel to GBHC. The Trustee has a direct interest in the real estate taxes affecting the mortgaged premises since the Notes are secured by the property including refunds of real estate taxes. The Trustee does not have sufficient information to assess the advisability of the Application and requests that it be denied except to the extent the reasonableness of the fee arrangement is established, and that any tax refund be held subject to the lien of the Trustee. HAGERSTOWN FIBER: SBCCS Seeks Relief from Automatic Stay -------------------------------------------------------- SBCCS Constructors Joint Venture (SBCCS) is seeking modification of the automatic stay for the purpose of permitting pending arbitration proceedings that are already in an advanced stage, to go forward to judgment. The parties have completed discovery, and SBCCS has filed a motion for Summary Judgment that is pending. Each party has spent in excess of $300,000 on the arbitration proceeding. SBCCS and the debtor entered into an agreement for the design, engineering, procurement and construction services necessary to provide and construct a waste paper pulping and de-inking facility, and a waste water treatment plant, to be located near Hagerstown, Maryland. In consideration of its performance, the debtor, Hagerstown Fiber Limited Partnerhip was to pay SBCCS $131,210,000. SBCCS states that there is cause to grant SBCCS relief from the automatic stay. Allowing the arbitration to proceed will result in a complete resolution of the issues between the parties. Further, SBCCS states that there is a strong federal policy in favor of arbitration, and that is cause to grant relief from the automatic stay. SBCCS claims that even if the court were to apply an exercise of discretion standard, enforcement of the arbitration clause in the EPC contract is appropriate in the circumstances fo this case. The debtor cannot show that there is a specific conflict between enforcing the arbitration clause and the bankruptcy code. HALLA GROUP: Mando Machinery Workers Go on Strike ------------------------------------------------- Workers at Mando Machinery Corp. went on strike Thursday, paralyzing production of South Korea's largest auto parts maker. Some 5,000 workers at seven workplaces across the country laid down tools, calling for payment of arrears in wages worth 50 billion won (37.3 million dollars), a company spokesman told AFP. The workers, demanding the company pay them April wages and 1997 bonuses worth three and half months of monthly salary, filed applications in a bid to impound Mando's assets until they are paid off. Mando Machinery is a subsidiary of the Halla Group, which collapsed in December last year. The company was declared insolvent on December 6 and was allowed temporary court protection on April 15 to enable it to negotiate with creditors to reschedule debts. (Agence France Presse - 05/07/98) KIA MOTORS: Ford May Increase Its Stake --------------------------------------- Ford Motor Co. will consider increasing its 16.9- percent stake in troubled South Korean carmaker Kia Motors Corp., a senior Ford official said Wednesday. But Wayne Booker, a Ford vice-chairman, said any new investment must be preceded by a further restructuring of Kia, which filed for bankruptcy last summer with $10 billion in debt. Booker told Industry and Energy Minister Park Tae-young about the U.S. automaker's plans at a meeting Wednesday, ministry officials said. (Detroit News - 05/07/98) KIWI INTERNATIONAL: Four Companies in Talks to Acquire Kiwi ----------------------------------------------------------- Four companies are in talks to acquire the Newark, N.J.- based airline's parent company, Kiwi International Holdings, just 10 months after it teetered on the edge of bankruptcy. Kiwi International Holdings spokesman Rob Kulat said two of the company's investors, Kiwi Holdings Inc. and Aviation Industries Inc., are negotiating, as is Coventry Industries Corp., a holding company that owns manufacturing, industrial fabrication, employee staffing and consumer-products units. A fourth, unidentified company is also negotiating for the carrier. Kiwi International Air Lines was in bankruptcy-court protection when it was purchased by Baltimore physician Charles Edwards in July 1997 for $16 million. Since then, the carrier has trimmed unprofitable routes such as those to Las Vegas and Tampa. MANHATTAN BAGEL: Seeks Rejection of Six Leases ---------------------------------------------- The debtors, Manhattan Bagel Company, Inc., and I & J Bagel, Inc. seek approval of the rejection of their leases for certain of their company-owned stores. The store locations are in Manchester, Connecticut, Newington, Connecticut, Alpharetta, Georgia, Irvine, California, Midland Park, New Jersey and Maderia, Ohio. As part of the process of analyzing their business affairs, the debtor has rejected certain leases for which buyers can not be found and where it would not be cost effective to assign such leases. The rejection of these leases is for sound business purposes based upon the debtors' sound business judgment. NAL-FINANCIAL: Interim Agreement with Trusts Gets Approval ---------------------------------------------------------- NAL Financial Group Inc. announced Wednesday that the interim agreement between NAL Acceptance Corp., the company's wholly owned subsidiary, and several securitization trusts has received final approval by the Bankruptcy Court. The company and several of its subsidiaries filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code on March 23, 1998. Mercedes Padin, general counsel to the company, stated, "Since our filing, we have been negotiating with the securitization trusts to ensure NAL received reasonable servicing fees for the work it performs on behalf of these trusts. As we previously stated, this agreement will provide the company with above-market servicing income for 98 days. "This income will assist the company as it strives to reorganize. In return, the securitization trusts receive vital, uninterrupted servicing of portfolios containing approximately $220 million in non-prime auto loans. These trusts are an important part of our reorganizational efforts and we hope to promptly commence negotiations with representatives of the trusts for long-term servicing agreements." The company also announced that it has engaged William B. Dyer as its interim chief executive officer. Dyer is the former president and chief operating officer of Auto Lenders Acceptance Corp., a subsidiary of Fortis Inc., and has over 10 years of experience in the non-prime auto finance industry. Andrew Combs, vice president of finance was made chief operating officer of the corporation. Combs stated, "We are delighted to have Bill join our company. His knowledge, expertise and outstanding reputation in our industry will be of immense help as we prepare our reorganizational plan and negotiate with creditors." Dyer's engagement as CEO of the company and its subsidiaries and affiliates is subject to approval by the Bankruptcy Court. PAN AM: Until May 20 to Complete Deal with Guilford --------------------------------------------------- Timothy Mellon's Guilford Transportation Industries has presented a plan in Miami bankruptcy court to buy Pan American World Airways for $28 million. Guilford and Pan Am have until a May 20 court appearance to complete the deal, although other offers for the airline will be accepted. A lawyer for Wexford Management LLC, a Greenwich, Conn., operator of hedge funds, told the Judge A. Jay Cristol that Wexford had tried in late April to open deal talks with Pan Am's managers and may yet make a counterbid for Pan Am's jets, name and route licenses by May 18. NationsBank, owed some $26 million by Pan Am, would get just over $14 million from the all-cash Guilford deal and urged the judge to sign an order giving preliminary approval to the Guilford deal. Timothy Mellon, chairman and a founder of Guilford, said that rival bids were possible but unlikely since none was likely to match his all-cash offer. Mellon said Guilford was eager to take control of Pan Am and hoped to return the airline to scheduled flight service, perhaps to selected Latin American cities and some in the United States. Pan Am may also carry freight, possibly in combination with railroads, he said. (Reuters: Financial-05/06/98) PEGASUS GOLD: Proposed Order Approving Severance Program -------------------------------------------------------- Pegasus Gold Corporation, et al, debtors, submitted to the court proposed findings of fact, conclusions of law and an order for approval of the severance and retention programs for key employees and vacation pay option for all employees. The debtors are seeking an order approving two retention and severance programs for 4 senior executives and 21 key employees. The Official Committee of Unsecured Creditors negotiated modifications to the Initial Program which the debtors accepted. According to Citibank, NA which appeared as agent for the debtors' bank lenders, those lenders support the program. The Committee studied the issue closely and negotiated significant modifications of the Initial Program and supports the program. The members of the Board authorized the Program because it believes in its business judgment, it is in the best interest of the debtors. The debtors have provided evidence that there is a need for such a program, and that they are reasonable. SAMSUNG GROUP: To Reduce Core Businesses ---------------------------------------- Samsung Group, South Korea's second-largest conglomerate in terms of assets, announced a plan Wednesday to restructure itself to weather the nation's financial crisis by reducing its "core businesses" from 10 to four or five while looking for $5 billion in foreign investment. The plan identified electronics, finance and "services" as core businesses but avoided the question of the future of its most troubled entity, Samsung Motor Co. The group said it will attempt to reduce its debt-to- equity ratio from the current level of about 350 percent to 124 percent in the next five years while paying off about 29 trillion won ($21.55 billion) in debts. The company said it was negotiating to sell some businesses to General Electric Co. and Hewlett-Packard Corp. of the United States. All the plan said about Samsung Motor, a multibillion- dollar investment that has produced 20,000 cars since beginning production this year, was that it was in the midst of negotiations aimed at "attracting foreign funds in strategic cooperation with foreign motor companies." Samsung Motor's search for a foreign investor has encountered problems similar to those of many other South Korean companies eager for an infusion of capital from abroad.(International Herald Tribune 05/07/98) VENTURE STORES: Hilco/Great American Won Auction ------------------------------------------------- The joint venture of Hilco/Great American Group II LLC and Gordon Brothers Retail Partners LLC won yesterday's auction for the right to conduct Venture's going-out-of-business sales after increasing the minimum guaranteed return to 52.75%. A number of liquidators participated in the six- hour auction, including a joint venture of, among others, the Ozer Group L.L.C., the Nassi Group L.L.C., and ALCO Capital Group. Last month, the retailer accepted the Hilco venture's initial bid, which guaranteed a minimum 49% return on the sale of at least $350 million in inventory at the retailer's 73 stores. (Federal Filings Inc. 7-May-1998) DLS CAPITAL PARTNERS: Bond Pricing for Week of May 4, 1998 ---------------------------------------------------------- The following are indicated prices for selected issues: Amer Telecasting 0/14 1/2 '04 24 - 26 Asia Pulp & Paper 11 3/4 '05 89 - 91 APS 11 7/8 '06 18 - 20 (f) Boston Chicken 7 3/4 '04 43 - 45 Bradlees 11 '02 1 - 2 (f) Brunos 10 1/2 '05 22 - 23 (f) CAI Wireless 12 1/4 '02 19 - 21 Cityscape 12 3/4 '04 46 - 48 (f) E&S Holdings 10 3/8 '06 82 - 83 Grand Union 12 '04 59 - 60 (f) Greate Bay 10 7/8 '04 86 - 87 (f) Harrah's Jazz 14 1/4 '01 30 - 32 (f) Hechinger 9.45 '12 79 - 80 Hills 12 1/2 '03 92 1/2 - 93 1/2 Levitz 9 5/8 '03 49 - 51(f) Liggett 11 1/2 '99 75 - 77 Mobilemedia 9 3/8 '07 17 - 19 (f) Penn Traffic 9 5/8 '05 47 - 48 Royal Oak 11 '06 80 - 82 Service Merchandise 9 '04 76 - 77 Trump Castle 11 3/4 '03 90 - 91 Zenith 6 1/4 '11 43 - 44 ********* The Meetings, Conferences and Seminars column 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 Lexy Mueller, Editors. Copyright 1998. 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. The TCR subscription rate is $575 for six months delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. For subscription information, contact Christopher Beard at 301/951-6400. * * * End of Transmission * * *