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/raid1/www/Hosts/bankrupt/TCR_Public/990125.MBXT R O U B L E D C O M P A N Y R E P O R T E R Monday, January 25, 1999, Vol. 3, No. 16 Headlines AMERICA WEST: The Bidding War BRAZOS SPORTSWEAR: Obtains Commitment for $62.5 Million BRUNO'S INC: Seeks To Sell 73 Acres in Birmingham BRUNO'S INC: Trimming Five Georgia Stores CALDOR: Caldor to Wind Down Business COMMERCIAL FINANCIAL: Bank Objects To Protective Order COMMERCIAL FINANCIAL: Court Compels Release COMMERCIAL FINANCIAL: Seeks Agreements With Employees COUNTY SEAT: Files For Reorganization CPM ASSOCIATES: To File Plan of Reorganization CROWN BOOKS: More Time To Assume/Reject Leases DEGEORGE FINANCIAL: Seeks Financing DOMINION BRIDGE: Granted New Extension DOW CORNING: Attorneys Seek More EAGLE CAPITAL: Final Order For Use of Cash Collateral EAGLE PICHER: Announces 1998 Financial Results FOLGER ADAM: Case Closed By Final Decree FRONTIER AIRLINES: Stock Soars To Record High of $7 LOT$OFF: Announces Plans to Sell Retail Assets MIDCON OFFSHORE: LDNG Seeks Hearing For Expert Witnesses MOLTEN METAL: Chapter 11 Trustee Seeks To Reject Contract NEXAR: Reaches Asset-Sale Agreement NU-KOTE: Committee Authorized To Hire Firm PARAGON TRADE: Agreement In Principle With Procter & Gamble PAYLESS CASHWAYS: Preliminary Discussions With New Lenders PITTSBURGH PENGUINS: Marino Accused Of Improper Claim PRIMESTAR: Hughes Confirms $1.82 Billion Acquisition RINCON ISLAND: Seeks More Time For Gas and Oil Leases SERVICE MERCHANDISE: $750 Million Secured Credit Facility SGL CARBON: Committee Seeks Dismissal of Case SHOKUSAN JUTAKU: Asks Banks To Forgive Loan Claims SMARTALK: Being Sold To AT&T For $192.5 M - Cash SUN TV: Seeks Approval of Reconciliation Procedure TMCI ELECTRONICS: Complaint Filed Against Subsidiary USN COMMUNICATIONS: Possible Bankruptcy Filing VALU FOOD: Set To Exit Chapter 11 This Spring ********* AMERICA WEST: The Bidding War ----------------------------- America West Airlines, a low-fare carrier that has become the third-largest airline on the West Coast, could be at the center of a bidding war between three of the nation's top five airlines. A day after No. 1 carrier United Airlines said it was interested in acquiring America West, a source told Reuters on Thursday that Delta, the nation's no. 3 airline, also was interested in a linkup and had held talks with America West. Continental Airlines, meanwhile, said it would assert its rights as owners of a minority stake in America West with the right of first refusal on any shares of America West offered for sale by Texas Pacific Group. Continental and Texas Pacific Group, an investment group led by financier David Bonderman, purchased separate positions in America West in 1994 as America West emerged from bankruptcy reorganization. With its purchase, Continental acquired the right of first refusal in any tender offer of America West shares by Texas Pacific Group, giving Continental priority over another suitor seeking to buy America West shares from Texas Pacific Group. Shares of America West surged 3-11/16 to 23 as Wall Street analysts estimated that a deal to acquire America West could be valued at more than $1 billion. "America West would have to go for more than its recent (stock price) high, which is $31. It could be a $1.4 billion acquisition, if you set a price like $35 a share," said Donaldson Lufkin & Jenrette analyst Jim Higgins. BRAZOS SPORTSWEAR: Obtains Commitment for $62.5 Million -------------------------------------------------------- Brazos Sportswear, Inc. (OTC Bulletin Board: BRZS) announced on January 21, 1999 that the Company and its subsidiaries filed voluntary petitions under Chapter 11 of the Bankruptcy Code with the U.S. Bankruptcy Court for the District of Delaware. Concurrently, Brazos announced that it has received commitments for up to $62.5 million in DIP financing from its existing bank group, led by Fleet Capital Corporation as agent, which Brazos believes will be adequate to fund the Company's operations during the reorganization period. Gilbert C. Osnos, interim president and chief executive officer of Brazos, emphasized that daily operations of the Company's manufacturing facilities, distribution centers and offices will continue as usual, and employees will continue to be paid as they always have. "Vendors will be paid in the ordinary course for goods and services purchased after the filing date," Mr. Osnos said. "Over the past few months, the Company has made a number of tough decisions, including the planned closure of our Cincinnati licensed product manufacturing facility and the disposal of excess inventory. While the Company has made progress in its turnaround efforts, management and the board of directors have determined that Brazos must take immediate steps to reorganize its operations, and at the same time restructure its debt obligations to create a capital structure that will ensure that sufficient resources are available to fund the Company's operations. "After reviewing the various alternatives available, we concluded that utilizing the Chapter 11 process to complete our financial restructuring is in the best interests of the Company and its various constituents," Mr. Osnos said. "This action will allow the Company to achieve its restructuring objectives in an orderly, timely manner." He said BT Alex. Brown Incorporated, retained by Brazos Sportswear in November 1998, continues as the Company's financial advisor during the restructuring period. Richard Redden, a principal of OSNOS & Company, has been named executive vice president and acting chief operating officer of Brazos. Brazos Sportswear, Inc., designs, produces and markets moderately priced sportswear. Headquartered in Cincinnati, Ohio, it operates manufacturing, distribution and sales facilities in 12 states. BRUNO'S INC: Seeks To Sell 73 Acres in Birmingham ------------------------------------------------- PWS Holding Corporation and Bruno's Inc. et al., debtors, seek authorization to sell 73.57 acres of undeveloped real property located in Birmingham, Alabama. This parcel represents the excess land remaining after construction of the debtors' corporate headquarters and a warehouse related to the debtors' operations in 1986. Brookmont Realty has agreed to pay $50,000 as a deposit and $2,892,800 at closing for the parcel. Both the buyer's and seller's brokers are each entitled to $73,570 as a brokerage fee. A hearing will be held on January 28, 1999 before The Honorable Sue L. Robinson of the United States District Court for the District of Delaware at 844 King Street, 6th Floor, Wilmington, Delaware 19801. BRUNO'S INC: Trimming Five Georgia Stores ----------------------------------------- The Atlanta Journal/Constitution reports on January 21, 1999 that Bruno's Inc. is closing or selling 14 stores in Alabama, Georgia and Florida in an effort to improve its financial footing as it reorganizes in federal bankruptcy court. The company said Wednesday six stores in Alabama, five in Georgia and three in Florida will be closed if a buyer is not found in about three weeks. About 338 full-time employees and 411 part-time employees are affected. All affected management personnel will be considered for positions at other Bruno's locations, officials said. After the 14 stores are divested, Bruno's will own 149 stores in Alabama, Mississippi, Florida and Georgia. The Birmingham-based chain filed for Chapter 11 bankruptcy protection in February 1998. Georgia stores that will be sold, or closed if a buyer can't be found, are: FoodMax on West Ward Street, Douglas; FoodMax stores on Milgen Road and Sidney-Simons Boulevard, Columbus; and FoodMax stores on Napier Square and Northside Drive, Macon. CALDOR: Caldor to Wind Down Business ------------------------------------ The Caldor Corporation today announced that its Board of Directors has determined it will proceed with an orderly wind-down of the Company's business, subject to Bankruptcy Court approval. Caldor and its Board, over an extended period of time, explored a wide range of alternatives for maximizing value for the Company's constituencies, including most recently through the Court-ordered mediation process. While Caldor made progress, ultimately, its performance did not enable it to overcome the vigorous opposition from certain of its pre-petition secured creditors, which made impossible the development of a viable and confirmable plan of reorganization. Thus, the Company was left with no alternative but an orderly wind-down and liquidation of its business, including the closure of all 145 of its stores. The Company plans to dispose of its inventory through Going-Out-Of-Business sales which are expected to begin within several weeks and to be completed by mid-May. The Company expects to retain many of its store-based Associates through this process. In addition, the Company will seek a Court order to proceed with the sale of its real estate. The Company is continuing to work with BankBoston and its bank group. Warren D. Feldberg, Chairman and Chief Executive officer, said, "It is with great sadness and disappointment that we announce the decision to close down Caldor's business. Our 20,000 Associates have worked extremely hard in an effort to reposition and strengthen the Company. We accomplished a great deal over the course of the last several years. However, given the nature of our capital structure and the shortfall to our performance goals, the Board had no alternative but to conclude that this was the most appropriate course of action under these circumstances. I'd like to thank all of our Associates for their hard work and commitment, and, as well, our vendors and lending group, led by BankBoston Retail Finance, for their strong support during this difficult process." The Caldor Corporation, with annual sales of approximately $2.5 billion and approximately 20,000 Associates, currently operates 145 stores in nine East Coast states. The Company filed for Chapter 11 on September 18, 1995. COMMERCIAL FINANCIAL: Bank Objects To Protective Order ------------------------------------------------------ NationsBank, NA, a creditor of Commercial Financial Services, Inc. supplements its objection tot he motion of Commercial Financial Services Inc. for entry of a protective order. The debtors filed a motion for entry of a protective order requesting that the court enter a blanket protective order governing any information disclosed by or on behalf of the debtors and unilaterally designated by them as "confidential." NationsBank objects to the restriction of the disclosure of services report prepared by PricewaterhouseCoopers LLP, and states that at a minimum, the report should be disclosed to all holders of asset-backed securities. The bank also states that if there should be a protective order, it should be far narrower in scope than the debtors' proposed protective order and the interim order. The bank proposes an alternative protective order that does not contain the global release language requested by the debtors, as such a release is not appropriate. COMMERCIAL FINANCIAL: Court Compels Release ------------------------------------------- The Daily Bankruptcy Review reports on January 22, 1999 that the court issued both a protective order and an order compelling Commercial Financial Services Inc. to produce the scope of services report prepared by PricewaterhouseCoopers LLC ("PWC"). However, members of the official creditors' and asset-backed securities' committees who elect to get the report must comply with certain conditions, including a prohibition on selling or assigning any claims against CFS or its affiliates or trading CFS related securities, including notes or asset-backed bonds, as CFS had requested, according to the order. (ABI 22-Jan- 99) COMMERCIAL FINANCIAL: Seeks Agreements With Employees ----------------------------------------------------- Commercial Financial Services, Inc. ("CFS") requests that the court enter an order authorizing CFS to enter into certain letter agreements regarding certain executory contracts between CFS and certain key management employees to assume certain pre-petition indemnification agreements between CFS and certain managers, to approve indemnification agreement s with the balance of the managers, and to submit in camera a list of employees whose annual base salaries exceed $75,000. Certain of the managers will take significant salary reductions. The managers will agree not to draw on the cash collateralized letters of credit which support their management retention agreements until certain dates specified in the letter agreements. In return for the agreement CFS and the Official Committees will not pursue any alleged claims or disputes relating to the retention agreements, and in the case of Mr. Colberg, will release him from any bankruptcy causes of action with respect to his management retention agreement. CFS states that the letter agreements are in the best interests of the estate and its creditors and that they will provide substantial cost savings to CFS and as a result of the salary reductions. COUNTY SEAT: Files For Reorganization ------------------------------------- County Seat Stores, Inc. announced that it and CSS Trade Names, Inc. a wholly-owned subsidiary, filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code. The filings, which were made in the United States Bankruptcy Court for the Southern District of New York, will enable the company to conduct business as usual under protection of the Court while it develops a plan to reduce and reorganize its debt and strengthen its financial position. County Seat also announced that it has obtained a $70 million debtor-in-possession financing commitment, including a $50 million sub-limit for letters of credit, from BankBoston Retail Finance Inc. The company has also received an additional $5 million debtor-in- possession financing commitment from BackBay Capital Funding, LLC. Upon court approval, these financings will enable the company to meet future inventory needs and fulfill obligations associated with operating its business, including payroll and the prompt payment for merchandise received subsequent to the filing. "The decision to file was a difficult one," said Brett Forman, Chief Operating Officer of County Seat Stores. "We believe that, notwithstanding the severe liquidity problems that we have encountered over the past few months, County Seat's business and future prospects remain fundamentally strong." He continued, "We are confident that, with the liquidity provided by the $75 million of DIP financing facilities and the breathing room that court protection under Chapter 11 will afford, County Seat will ultimately emerge from Chapter 11 a stronger company." The company has been unable to overcome severe liquidity problems relating, in large part, to an approximate 12% decline in same-stores sales for the 1998 third-quarter. The company encountered significant disruptions in the flow of merchandise as a result of problems with the installation and integration of a new management information system (MIS) and the relocation of the company's distribution center from Minnesota to Baltimore. To insure that stores had fall and winter merchandise on a timely basis, the company was forced to stop shipping spring and summer merchandise earlier than planned, to significantly discount merchandise to make room in the stores for fall and winter merchandise, and to ship fall and winter merchandise earlier than planned. The financial results for the company's third quarter created defaults and limited availability under the company's working capital facility. While the company attempted to alleviate liquidity problems by raising funds through a private offering of new debt and or equity securities during the latter part of 1998, the required amount of new funds could not be obtained. "We believe that we have identified and substantially rectified the problems associated with our management information system and the relocation of our distribution center," Forman said. "Additionally, in October 1998, we instituted a new merchandising strategy based on a maximum price point of $14.99 for most of the company's merchandise. We have already seen positive results from these steps. Comparable sales for the months of October through December 1998 increased by 7.4%." County Seat operates 418 stores in 41 states in the eastern, midwestern and southern regions of the United States. The company reported in its Form 10-Q for the quarter ended October 31, 1998, that Levi Strauss & Co. had terminated its license pursuant to which the company operated its Levi Outlet stores and the company had entered into a non-binding letter of intent to sell the assets associated with those stores to a third party. While that third party has recently expressed the intention of not going forward at this time, negotiations are continuing. If a definitive agreement can be reached, the company intends to seek expedited Bankruptcy Court approval of that sale. If an agreement cannot be reached, the company intends to proceed on an expedited basis to dispose of its Levi's Outlet stores. CPM ASSOCIATES: To File Plan of Reorganization ---------------------------------------------- On January 21, 1999 Interactive Multimedia Network, Inc., (OTC BB:IMNI) announced that a Chapter 11 petition has been filed by CPM Associates, Inc. (CPM) a New Hampshire corporation, of which IMNI has acquired an 80% interest. This filing was necessitated by a breakdown of negotiations with the lead lender to CPM. CPM has filed a Lender Liability lawsuit against the bank in the New Hampshire court system in an effort to recover the extensive losses and damages that CPM has suffered from the misconduct of the bank. By virtue of this filing and soon to be submitted plan of reorganization, CPM will be given the opportunity to potentially re-establish normalized relationships with the many vendors and clients that are a vital part of CPM's future. William J. Poleatewich, Jr., President of CPM, looks at the reorganization as a necessary pro-active step in over coming CPM's ill-fated previous bank relationship and the first step in potentially finalizing a relationship with a large regional bank, which is interested in possibly becoming the lead lender for a reorganized CPM. CPM's intent is to move through its reorganization as quickly as the process will allow. Several of the larger creditors have expressed favorable responses to preliminary discussions on moving forward with ongoing relationships with CPM and view the recent acquisition of an 80% interest by IMNI as positive. The current clients of CPM have responded in a manner that leads CPM's management to believe that, as long as the clients' jobs are not adversely affected by the proposed plan of reorganization then these clients will not oppose this plan of action. IMNI intends to aid CPM in every permissible manner to move CPM through this period and on to a profitable future. Safe Harbor Disclosure CROWN BOOKS: More Time To Assume/Reject Leases ---------------------------------------------- On January 11, 1999, the court entered an order enlarging and extending the debtors' time to elect to assume, assume and assign or reject the leases of the debtor, through and including April 12, 1999. The court excepted two leases at Sheffield, Chicago, Illinois and Rolling Hills Estates, Los Angeles County, California. With respect to those two locations, the time is extended to and including such time as an order on the objections filed by American National Bank as Trustee and Federal Realty Investment Trust is entered by the court. DEGEORGE FINANCIAL: Seeks Financing ----------------------------------- DeGeorge Financial Corporation (DEGE) announced on January 21, 1999 that, due to a dispute with its principal source of working capital, Residential Funding Corporation, a unit of General Motors Acceptance Corporation ("RFC"), it has been forced to seek an alternate source of financing. Severe liquidity problems brought on by the cutoff of funding from RFC have forced the Company to close or scale down facilities in Boca Raton, Heathrow, Jupiter and Sarasota, Florida; Carlsbad, California and Minnetonka, Minnesota. As a result of these operational cutbacks, the Company has reduced its work force by approximately 225 employees. The Company has also been informed by Peter R. DeGeorge, its Chairman of the Board and Chief Executive Officer, that he is withdrawing his proposal to take the Company private as a result of the Company's financing problems. RFC has suspended its purchasing of construction loans under the Construction Loan Purchase and Servicing Agreement between RFC and DeGeorge Financial Corporation. RFC has also told the Company that it does not presently intend to renew the Construction Loan Purchase and Servicing Agreement, which expires on June 1, 1999. The Company approached its funding limit of $300 million with RFC in December of 1998. Negotiations concerning an increase in the funding commitment or an interim arrangement have broken down. RFC has refused to permit additional borrowing up to the credit limit as paydowns occur. On January 15, 1999, RFC sued the Company and its principal subsidiaries in Minnesota state court seeking injunctive relief and more than $88 million in damages. RFC has also taken steps to provide servicing to approximately 2,100 of the Company's customers whose contracts RFC purchased pursuant to the funding arrangement. The Company is cooperating in this effort so as to minimize the impact to the customers of any transition in servicing. Peter R. DeGeorge commented, "We are dismayed that Residential Funding continues to pursue a course of action which we believe harms our customers and RFC as well. Since this agreement is our principal source of working capital, their action has created a liquidity problem for us. We are currently pursuing other options for financing our business and funding the continued servicing of our customers. In the interim we intend to cooperate fully with RFC so as to minimize the disruption to our customers. We believe that their lawsuit is without merit. Because of this immediate financing problem, my pending proposal to take the Company private is being withdrawn." DeGeorge Financial Corporation provides access to home ownership for people who lack a sufficient down payment or sufficient income to support the purchase of the home they desire through conventional mortgage programs. Through its packaging of financial services and customer support, the Company enables its customers to reduce the cost of home construction by eliminating the general contractor, the intent of which is to create an equity position that serves as the down payment for permanent financing upon the conclusion of the home construction process. DOMINION BRIDGE: Granted New Extension -------------------------------------- Dominion Bridge Corporation and its subsidiaries (Cedar Group of Canada and Davie Industries Inc.) were granted a new delay, until February 10, 1999, to file their Proposal to their respective creditors, pursuant to notices of intention filed on August 11, 1998, under the Bankruptcy and Insolvency Act. DOW CORNING: Attorneys Seek More -------------------------------- Attorneys representing non-American women in the Dow Corning Corp. bankruptcy case are raising questions about fairness in the payment plan for breast implant claims. The attorneys representing South Korean and Brazilian women are among those in U.S. Bankruptcy Court in Bay City this week seeking to amend a proposed $3.2 billion payment schedule included in Dow Corning's $4.5 billion reorganization plan. Other attorneys arguing for amendments before Judge Arthur Spector include those representing the children of American women who were allegedly harmed because they nursed after their mothers got breast implants. Dow Corning claims there's no proof that its implants and child health problems are connected. It also disputes claims that non-ruptured implants harm women, but wants to settle the controversy with a settlement. The company, the world's largest manufacturer of silicone gel breast implants before they were taken off the market in 1992, is arguing against changing the reorganization plan hammered out last year with its major creditors and attorneys for most women with implant claims. Dow Corning lead attorney Barbara Houser told Spector the plan is essentially cast in stone. The proposed settlement would provide $12,000 to $300,000 for each of the estimated 179,000 eligible women worldwide. U.S. women would receive more than others. Payments for Brazilian, South Korean and South African women would be about one-third the U.S. payout. Attorneys say their overseas clients deserve at least 60 percent of what U.S. women would get. Copyright 1999 by United Press International. EAGLE CAPITAL: Final Order For Use of Cash Collateral ----------------------------------------------------- The court entered an order on December 15, 1998 authorizing the debtor, Eagle Capital Mortgage, Ltd. to use the cash collateral of Heller Financial, Inc., Bank One Texas, NA, and Bank United, a federal savings bank, to pay certain expenses. The debtor received authority to use Lenders' Cash Collateral in the amount of $1.8 million through December 31, 1998 and approved the proposed terms of adequate protection for the lenders' interest on unspecified terms; and approved authority to surcharge the lenders' collateral. The lenders assert secured claims against the debtor in excess of $60 million. The debtor is authorized to spend $1,237,686 for items provided in the budget for December 1998 through February 1999. As adequate protection of the lenders' interest in the pre- petition collateral and cash collateral, each lender is granted automatically perfected first priority replacement liens and security interests in and upon all of the unencumbered properties and assets of the debtor, real or personal, and those assets described in each particular lenders' own prepetition loan documents. EAGLE PICHER: Announces 1998 Financial Results ---------------------------------------------- Eagle-Picher Holdings, Inc., the parent company of Eagle- Picher Industries, Inc., announced that sales for the year ended November 30, 1998 were $851.8 million compared to $906.1 million for the year ended November 30, 1997. Earnings before interest expense, income taxes, depreciation and amortization, certain one-time management compensation expenses and other non-cash charges ("EBITDA") were $114.4 million compared to $104.1 million in the prior year. EBITDA is used as a means of comparison, rather than operating income, because the results of operations are not comparable due to the accounting effects of the acquisition of the Company by Granaria Holdings B.V. on February 24, 1998 (the "Acquisition"). The Company accounted for the Acquisition using the purchase method of accounting which requires that assets and liabilities are restated at fair value and the excess of the purchase price over the fair value of the net assets is recognized as goodwill. Therefore, the depreciation and amortization included in the determination of operating income is not comparable for the periods before and after the Acquisition. In addition, the Company has divested itself of several divisions ("Divested Divisions") since emerging from bankruptcy on November 29, 1996. Sales for the years ended November 30, 1998 and 1997 were $826.1 million and $794.8 million, respectively, or an increase of 4%, after excluding the Divested Divisions. EBITDA, excluding that of Divested Divisions, increased from $99.9 million in 1997 to $114.1 million in 1998, or 14%. The Company completed the sale of its Trim Division in December 1998 for $14.5 million. This transaction did not have a material impact on earnings. FOLGER ADAM: Case Closed By Final Decree ---------------------------------------- The debtors, Folger Adam Company, the William Bayley Company and Stewart-Decatur Security Systems, Inc., debtors, seeking a final decree closing the Chapter 11 cases, the court ordered that the cases are closed as of December 30, 1998. FRONTIER AIRLINES: Stock Soars To Record High of $7 --------------------------------------------------- The Rocky Mountain News reports on January 20, 1999 that Frontier Airlines, (FRNT: Nasdaq) $7, up 63 cents. Frontier Airlines' stock shot to a record high Tuesday as the Denver-based carrier made an early escape from debt used to defeat a low-fare rival. The stock closed at $7 a share on the Nasdaq exchange. Frontier's steady climb from a 52-week low a year ago represents a 250 percent return for investors over the past year. With the early payoff of a $5 million loan from Greenwich, Conn.- based Wexford Management LLC, Frontier is essentially debt-free, said Frontier Airlines President Sam Addoms. Arthur H. Amron, 42, Wexford's representative on Frontier's board of directors, resigned after the loan was paid off. Amron will not be replaced, Addoms said. Wexford came through with the loan in December 1997 when Frontier was maneuvering to either buy rival Western Pacific Airlines out of Bankruptcy Court or compete with the Colorado Springs-based carrier that operated on Frontier's Concourse A at Denver International Airport. (Rocky Mountain News - 01/20/99) LOT$OFF: Announces Plans to Sell Retail Assets ---------------------------------------------- San Antonio-based LOT$OFF Corporation (OTC BB:LOTS), which has been aggressively pursuing the merger or sale of all or a part of the Company's retail subsidiaries, announced today that it plans to sell its retail assets. Conversations with a variety of third parties are ongoing, and the Company expects sales to take place within 90 days, with the initial sales, in-store inventories, beginning in the retail subsidiaries' stores early next week. The Company currently intends to solicit bids with respect to the retail subsidiaries' remaining assets. Interested parties should contact CEO Charles "Hop" Fuhrmann. With this strategic decision having been taken, the subsidiaries are no longer buying product for resale, and buying, receiving and distribution personnel have been let go. As a result of this decision, corporate office, distribution and field management staffing has been reduced from 38 to 18 people. While management believed that borrowings available under its revolving credit facility, available trade credit, anticipated proceeds from outstanding litigation, its operating cash flow and its cash on hand would be adequate to finance its operations through fiscal 1999 (January 29), on Jan. 11, 1999, the Company learned that funds anticipated from litigation being pursued in Switzerland would not be immediately forthcoming, which resulted in the necessity for additional external financing and/or the restructuring of its existing financing, including new capital for its retail subsidiaries, the traditionally slow period for retail sales being immediately ahead. MIDCON OFFSHORE: LDNG Seeks Hearing For Expert Witnesses -------------------------------------------------------- Louis Dreyfus Natural Gas Corp. ("LDNG")requests a hearing on Sheila Macdonald, Trustee's, application to employ H.J. Gruy & Associates, Inc. and on her application to employ Mann, Frankrfort, Stein & Lipp, PC. LDNG requests that the court set a hearing on these applications since it states that the Trustee need not retain an engineer when two have been retained already in this case, and the Trustee need not retain an accounting firm when she already ahs retained two other accounting firms. LDNG also questions the effect of the proposed guaranteed payment arrangements on the disinterestedness of the proposed professionals and professionals previously retained. MOLTEN METAL: Chapter 11 Trustee Seeks To Reject Contract --------------------------------------------------------- Stephen S. Gray, Chapter 11 Trustee of Molten Metal Technology, Inc., and its affiliated debtors requests the court to enter an order authorizing the Trustee to reject a certain executory contract for a Procurement/materials Management Agreement between the debtor and Cameron & Barkley company. Based upon the consummation of the sale of the Wet-Waste assets and Q-CEP assets, the Trustee no longer requires the services of CamBar as provided for in the Agreement. NEXAR: Reaches Asset-Sale Agreement ----------------------------------- The Worcester Telegram & Gazette reports on January 22, 1999 Nexar Technologies Inc. has reached an asset-sale agreement with its chief creditor, Nexar lawyer Anthony A. Froio said yesterday. However, Froio said it's conceivable another purchaser for Nexar's assets could materialize before the sale goes to U.S. Bankruptcy Court* Judge James F. Queenan for approval. Under the sales agreement, Nexar would sell its trademark, trade name and patented PC design for $300,000 to publicly held ATEC Group Inc., a Long Island-based computer systems integrator and provider of information technology products with about $200 million in annual revenues. Froio said ATEC also has the option to buy Nexar inventory valued between $400,000 and $500,000. That would make the whole deal worth as much as $800,000, about the same amount that Nexar owes ATEC, according to the lawyer. Nexar filed for bankruptcy protection against its creditors Dec. 17, reporting liabilities of $5.4 million and assets of $4.3 million, including some $3 million in accounts receivable owed Nexar by its customers. The company, whose president and chief executive officer is Worcester native Albert J. Agbay, went public in April 1997 at $9 a share. The stock has been delisted from the Nasdaq Stock Market and is currently quoted at 3.5 cents per share. Since falling into financial difficulty, Nexar has closed its California manufacturing plant, slashed staffing levels and cut management salaries. Most recently Nexar was buying its own computers from ATEC, which contracted with a Canadian company to manufacture Nexar's product. Nexar also has a licensing agreement with ATEC under which ATEC uses Nexar's trade name in return for royalties. For the last several months Nexar has been operating under a borrowing arrangement with ATEC. Under bankruptcy law, Froio said any party protesting the Nexar-ATEC deal has until Feb. 12 to register objections. Other potential purchasers besides ATEC also have until that date to make their offers for Nexar's assets. Meanwhile, Judge Queenan has scheduled a hearing for Feb. 16 at which time he will rule on Nexar's motion asking the court to approve its assets-sale deal to ATEC. Froio said while Nexar has received numerous inquiries over the last several weeks, so far only ATEC has come forward with a firm purchase offer. But now that a deadline has been set for other potential purchasers, Froio said he would not be surprised to see other offers materialize. If a sale does take place, Froio said the proceeds would go first to pay off ATEC, which is Nexar's only secured lender. Any remaining money would go to pay some 175 unsecured creditors who are owed about $4.7 million. Money still owed Nexar's creditors after that would have to come from the company's remaining assets, namely the $3 million in accounts receivable owed to Nexar by its customers. (Telegram Gazette Worcester - 01/22/99) NU-KOTE: Committee Authorized To Hire Firm ------------------------------------------ The Committee of Unsecured Creditors of Nu-Kote International Inc. is authorized to employ the law firm of Greenebaum Doll & McDonald PLLC under a general retainer. PARAGON TRADE: Agreement In Principle With Procter & Gamble ----------------------------------------------------------- Paragon Trade Brands, Inc. (NYSE: PTB) announced that it has reached an agreement in principle with The Procter & Gamble Company with respect to all patent disputes between the two companies. The agreement provides the basis for resolution of all of P&G's claims in Paragon's chapter 11 case, including all outstanding issues surrounding the December 30, 1997 patent judgment issued against Paragon by the Delaware District Court, as well as providing patent licenses to cover future sales by Paragon of its diaper and training pant products. In connection with the agreement, documents are being jointly filed today by Paragon and P&G with the Federal Circuit Court of Appeals and the Delaware District Court requesting a stay of Paragon's appeal of the Delaware judgment and a stay of P&G's subsequent contempt motion, pending approval of the settlement by the Bankruptcy Court. According to Paragon, the agreement with P&G is a critical component in resolving the outstanding claims against the Company and moving forward with a plan to emerge from chapter 11. The agreement remains subject to final documentation and Bankruptcy Court approval. Paragon reported that it is working diligently with P&G to finalize the documentation in order to be in a position to file shortly a motion in the Bankruptcy Court seeking approval of the settlement. The parties have agreed that, upon approval of the settlement by the Bankruptcy Court becoming final, Paragon will withdraw with prejudice its appeal and P&G will withdraw with prejudice its contempt motion. As previously reported, the Delaware District Court issued its judgment on December 30, 1997 finding that P&G's two patents related to the "inner leg gather" feature of a diaper were valid and infringed by Paragon's Ultra diapers. Damages in the amount of approximately $178.4 million and an injunction were entered against Paragon in the Delaware Court. As a result of the P&G judgment, Paragon filed for relief under chapter 11 of the Bankruptcy Code on January 6, 1998. Paragon further reported that it continues to pursue settlement of the claims asserted by Kimberly-Clark Corporation in Paragon's chapter 11 case and believes that considerable progress is being made. PAYLESS CASHWAYS: Preliminary Discussions With New Lenders ---------------------------------------------------------- Payless Cashways, Inc. (OTC Bulletin Board: PCSH), the Kansas City-based building materials and finishing products retailer, announced today that it is in preliminary discussions with new, as well as existing lenders regarding restructuring a major portion of its 1997 Credit Agreement. No final decision has been made. Payless continues to improve its operating results, and additional lending opportunities that are beneficial to the Company have become available. In December 1997, the Company emerged from bankruptcy with $424 million of long- term debt and highly restrictive covenants. During 1998, the Company reduced that debt by approximately $86 million, primarily through the sale of real estate. Long-term debt at November 28, 1998, the Company's fiscal year end, was $336.5 million. Millard E. Barron, President and Chief Executive Officer, commented, "Performance at Payless Cashways, Inc. continues to improve. Our year-end results and three consecutive profitable quarters demonstrate that our strategy is on target. Payless Cashways is more attractive to investment now, and that makes it possible for us to pursue new financing alternatives given the current favorable market conditions." PITTSBURGH PENGUINS: Marino Accused Of Improper Claim ----------------------------------------------------- The Pittsburgh Post-Gazette reports on January 21, 1999 that creditors in the Penguins' bankruptcy yesterday accused team co-owner Roger Marino of improperly claiming that the team owes him $37 million. They also asked for an investigation of payments by the team to the owners in the year leading up to the bankruptcy. Joel M. Walker, a lawyer representing the team's unsecured creditors, said Marino, who paid a reported $40 million for half of the franchise in April 1997, was buying a share of the team, not making a loan. Unsecured creditors food vendors, service firms and players, including retired superstar Mario Lemieux - are objecting to Marino being listed among creditors in documents the team filed in U.S. Bankruptcy Court. Walker said for Marino to classify his purchase money as a loan improperly gives him higher priority in recovering money in the bankruptcy proceedings. In bankruptcy cases, secured creditors such as banks are first in line for repayment, followed by the unsecured creditors. Owners come last. In a court filing, Walker called the reported loans a "wrongful attempt" by Marino "to manufacture claims against" Pittsburgh Hockey Associates, the ownership partnership for the team. The team's attorney, Robert G. Sable, said he had not seen the filing and could not comment. Also yesterday, creditors asked U.S. Bankruptcy Judge Bernard Markovitz to let them investigate payments made by the team to the owners in the 12 months before the team filed for bankruptcy. Sable said he had not seen that filing, either. Walker said in the filing that financial statements showed co- owner Howard Baldwin got $500,000 prior to the bankruptcy filing. He said Marino and Semamor Enterprises, owned by Morris Belzberg, another Penguins co-owner, also got payments from a November 1997 refinancing. Walker would not say how much Belzberg's company received. In a related matter, on Tuesday, Marino and the Penguins dropped their efforts to renew discussions with officials in other cities interested in wooing the Penguins. The Public Auditorium Authority and SMG, the Civic Arena landlord, obtained a court order barring any such talks after learning that Marino and other team officials had visited or had contacts with officials about a possible move. The Penguins agreed in 1997 to remain at the Civic Arena at least through the 2007 season in exchange for $12.9 million in publicly funded improvements to the facility. A hearing had been scheduled for tomorrow on the Penguins' bid to dissolve the court order. The Penguins denied any intention to move the team. Sable said the team now intends to negotiate with SMG rather than trying to force the issue in court. Daniel Shapira, the attorney for SMG, said he thought the team dropped the matter after reading the objections by SMG and the auditorium authority, a city- county agency that owns the Civic Arena. They argued that if the Penguins resumed talks with other cities, ticket sales would plummet and the team's financial recovery efforts would be obliterated. The auditorium authority and SMG noted an attendance falloff that followed the city's threats to lock the team out of the arena for nonpayment of amusement taxes last fall. In a petition filed in November, the team said it lost $200,000 in ticket sales when City Councilman Jim Ferlo proposed locking the arena. The team subsequently reached agreement with the city to pay the taxes, but is awaiting Markovitz's approval. PRIMESTAR: Hughes Confirms $1.82 Billion Acquisition ---------------------------------------------------- Satellite Today reports on January 22, 1999 that Primestar Inc. [TSATA] stock was in a freefall today on news that it is being acquired by Hughes Electronics Corp. [GMH] for $1.82 billion. Primestar's 2.3 million subscribers, its medium-power business, and related Tempo high-power satellite assets will be transferred to Hughes' DBS subsidiary DirecTv Inc. in two separate transactions. The deal immediately caused panic among Primestar investors, who today were dumping shares because the purchase price barely covers the company's debt. At our deadline shares were trading at $1.19, down more than 50 percent on yesterday's closing price of $2.56. Nearly 27 million Primestar shares had been traded, compared to an average daily trade of 1 million shares. A Primestar takeover has been imminent since MCI WorldCom [WCOM] and News Corp. [NWS] reneged on a deal to sell Primestar their high- power DBS assets (ST, 10/15). That effectively knocked the last nail in Primestar's coffin, and, as we first reported in Satellite Today (ST, 10/16), immediately made DirecTv the merger favorite. MCI WorldCom and News Corp.'s decision to sell their high-power slots to EchoStar Communications Corp. [DISH] in a $1.1 billion share swap (ST, 11/30) only served to propel rumors of a coming DirecTv deal. Hughes will part with approximately $1.32 billion in the form of $1.1 billion in cash and about 4.871 million Hughes shares to get Primestar's medium-power DBS business. Hughes also will pay $500 million cash for Primestar's Tempo high-power satellite assets. Those transactions will provide DirecTv with 11 high-power DBS frequencies on the Tempo satellite at 119 degrees W; a second Tempo satellite, which already is built and could be launched or used as a back- up satellite; and increased revenues immediately from more than 2.3 million existing Primestar customers. Unfortunately for holders of the TSATA stock, Hughes will not assume any of Primestar's debt. "Shareholders should drop the stock like a hot rock ... there is going to be a fire sale and you never make money at a fire sale," said Marc Crossman, vice president of J.P. Morgan. "There is no equity value in TSATA any more. Primestar has about $1.8 billion in debt all-in, so the company is going bankrupt after this." "Hughes is buying the satellites for $500 million and the debt related to those satellites, that TCI Satellite Entertainment has, is $575 million, so [Hughes is] getting a discounted debt," he explained. Expect disgruntled investors to file lawsuits in relation to the deal during the coming weeks. The resulting combination of DirecTv, Primestar and U.S. Satellite Broadcasting Corp. [USSB] (USSB) which last month agreed a $1.3 billion merger with Hughes (ST, 12/14), will strengthen DirecTv's position as the DBS industry leader and effectively turn the U.S. marketplace into a two horse race. Assuming all the Primestar and USSB subscribers agree to stick with DirecTv, the Hughes unit should have more than 7 million U.S. subscribers. EchoStar with 2 million subscribers (see story below), is likely to rev up its advertising and marketing machines though, especially where Primestar subscribers are involved. Copyright Phillips Publishing, Inc. RINCON ISLAND: Seeks More Time For Gas and Oil Leases ----------------------------------------------------- While the debtor, Rincon Island Limited Partnership does not believe that its oil and gas interest and the operating agreements fall with the scope of Section 365(d)(4) of the Bankruptcy Code, out of caution, the debtor seeks an extension through and including the confirmation of a plan of reorganization in which to assume, assume and assign, or reject the oil and gas interests, the operating agreements and any other unexpired nonresidential real property leases under which the debtor may be a lessee. The debtor states that these interests are the primary assets of the estate, that the debtor is current on its postpetition obligations under the interests and the operating agreements and that the debtor is diligently evaluating the interests and the requested extension is for a reasonable time. SERVICE MERCHANDISE: $750 Million Secured Credit Facility --------------------------------------------------------- Service Merchandise Company, Inc. (NYSE: SME) announced on January 22, 1999 that it has obtained a 30-month, $750 million secured credit facility from Citibank and BankBoston Retail Finance. The asset-based facility consists of a $150 million term loan and a $600 million revolving line, subject to a borrowing base limitation and other customary limitations and conditions contained in such facilities. The new financing facility will be used primarily to replace the Company's existing bank facility. The new financing facility is the first step in an out-of- court restructuring designed to stabilize the Company as a plan is developed to address the Company's financial and operational challenges. The credit agreement requires the Company to present an operating plan within the next 120 days. Service Merchandise is a national retailer of fine jewelry, gift and home products. The Brentwood, Tenn.-based Company employs approximately 25,000 associates and operates 347 stores in 34 states. SGL CARBON: Committee Seeks Dismissal of Case --------------------------------------------- The Official Committee of Unsecured Creditors filed a motion for an order dismissing the Chapter 11 petition of SGL Carbon Corporation. A hearing on the motion will be held in the District Court before the Honorable Joseph J. Farnan on February 17, 1999. SHOKUSAN JUTAKU: Asks Banks To Forgive Loan Claims -------------------------------------------------- Shokusan Jutaku Sogo Co. said Friday it has asked creditor financial institutions to forgive their claims on loans totaling 65 billion yen. The request is part of a management rehabilitation plan, the major home builder said. Sanwa Bank announced the same day it will give up its claim on 59.7 billion yen in loans to Shokusan. Shokusan also plans to raise 3.3 billion yen through allotment of new shares to Secom Co. and two other firms. Announcing the rehabilitation plan at a press conference, Kyoichi Nane, president of Shokusan Jutaku Sogo, said his company has been hit hard by plunging orders since a steep fall in its stock price late last year. Nane said he will step down at the end of June to take responsibility for the company's trouble. The rationalization plan also includes a workforce cut of 670 by the end of March, retreat from the real estate business and sale of assets worth 100 billion yen. Faced with falling demand for homes, Shokusan registered pretax losses for the seventh consecutive year through fiscal 1997 which ended in March 1998. It had interest-bearing debts totaling 87.3 billion yen at the end of fiscal 1997. (Kyodo News - 01/22/99) SMARTALK: Being Sold To AT&T For $192.5 M - Cash ------------------------------------------------ SmarTalk Tele-Services Inc., a prepaid phone-card company, is being sold to AT&T for $192.5 million in cash. The announcement came as SmarTalk sought protection under federal bankruptcy laws. The deal includes $10 million to keep the company operating until the sale is closed, probably in late March, said AT&T spokeswoman Eileen Connolly. SmarTalk and 19 affiliates filed for Chapter 11 protection in U.S. Bankruptcy Court in Wilmington, Del., listing assets of $406.3 million and debts of $226.9 million, including $150 million in subordinated debt. The deal with AT&T requires approval by the bankruptcy court and regulatory agencies. SmarTalk TeleServices Inc.'s Chapter 11 petition, filed Tuesday, lists assets and liabilities of $406 million and $227 million, respectively. Noting the existence of over 1,000 creditors, the Dublin, Ohio-based prepaid calling card provider estimated that there will be funds available for distribution to unsecured creditors. The respective boards of directors have approved the transaction and the companies expect the sale to close prior to the conclusion of the bankruptcy case in the first quarter of 1999. AT&T also agreed to provide SmarTalk with debtor-in-possession financing. (The Daily Bankruptcy Review and ABI c January 22, 1999) SUN TV: Seeks Approval of Reconciliation Procedure -------------------------------------------------- Sun TV And Appliances Inc. and its corporate parent Sun Television and Appliances, Inc., seek approval of the debtors' procedure for reconciling reclamation claims. Sun TV has received demands from approximately 40 vendors asserting a right of reclamation. The reclamation claims request that Sun TV either return or provide full payment for inventory identified in the claims. The invoice cost of the goods covered by the Reclamation claims exceeds $11.8 million. The Reclamation Schedule calculates the amount of allowed reclamation claims to be approximately $4.618 million. Sun TV will provide a list of reclamation claims to holders. The holders will then have thirty days to dispute the treatment of the claim. Sun TV will have 30 days after receipt of any dispute to resolve the claim. If the holder is not satisfied, the holder may request judicial resolution of a disputed claim. TMCI ELECTRONICS: Complaint Filed Against Subsidiary ---------------------------------------------------- TMCI Electronics, Inc., ("TMCI") (Nasdaq: TMEI), announced that it was notified yesterday that a complaint has been filed by three creditors against Enterprise Industries, Inc., a wholly owned subsidiary, to place it into a Chapter 7 proceeding under the Bankruptcy* Code. TMCI Electronics, Inc. located in San Jose, California, is a contract manufacturer of custom designed fabricated products, a manufacturer of cable and harness, a provider of value-added turnkey assembly services, a manufacturer of metal stamping products, and an electronic part distributor, which are sold to original equipment manufacturers (OEMs) of computers, telecommunications, semiconductor testing, medical testing equipment, and other related markets. The common stock of the Company is listed on the NASDAQ Small Cap Market under the symbol TMEI. USN COMMUNICATIONS: Possible Bankruptcy Filing ---------------------------------------------- As previously reported, on November 18, 1998, the Company issued and sold to Merrill Lynch Global Allocation Fund, Inc. ("MLGAF") a $10.0 million principal amount 17% Senior Secured Note due January 15, 1999. Pursuant to a First Amendment to Note Purchase Agreement, dated as of January 20, 1999, by and between the Company and MLGAF, the 17% Note was cancelled in exchange for a replacement $10.0 million principal amount 17% Senior Secured Note due February 15, 1999, and MLGAF paid to the Company $2.5 million in exchange for a new $2.5 million principal amount 17% Senior Secured Note due February 15, 1999. "The Company has substantial current and ongoing cash needs with respect to both its operations and the maturity of the New 17% Notes on February 15, 1999. While the Company has generally been meeting new obligations incurred by the Company since November 1998 in the ordinary course of business from working capital infusions and cash flow, the Company's recent cash position has resulted in the Company's deferral of payment of certain of its past obligations. The absence of additional capital infusions in the very near term will result in the Company's inability to meet its current and future obligations as they become due, prevent the Company from making payment arrangements with respect to, or otherwise servicing, any material amount of its past-due obligations, raise substantial doubt about the Company's ability to continue as a going concern and may require the Company to seek protection under applicable bankruptcy laws." (States SEC; 01/22/99) VALU FOOD: Set To Exit Chapter 11 This Spring --------------------------------------------- The Baltimore Sun reports on January 22, 1999 that Independent grocer Valu Food is poised to emerge from Chapter 11 bankruptcy by spring and later in the year plans to start remodeling stores and looking for new sites, the chain's president said yesterday. Louis Denrich, in comments to the 265-member Baltimore/Washington Grocery Manufacturers Representatives Inc., sought to reassure many of his suppliers of the chain's viability. The locally owned chain is the sixth-largest in the Baltimore region with 10 supermarkets. It filed for Chapter 11 protection in November, with an estimated $3.5 million owed to its 20 largest creditors. The bankruptcy has allowed the chain to get out of leases and close seven under-performing stores -- four supermarkets and three specialty grocery outlets -- with minimum liability, Denrich said. "Many have written off Valu Food and say we will not make it," Denrich said. "Valu Food will survive. It is a matter of when we emerge, not if." He predicted that by spring, the struggling company would be transformed into a strong and profitable enterprise. Once out of bankruptcy, he plans to seek new financing, possibly by taking his company public. That would enable the chain to upgrade some stores -- at costs that could range from $100,000 to $2 million a store -- and begin looking at expanding in the area, Denrich said. The chain has stores in Baltimore City and in Baltimore, Howard, Cecil, Anne Arundel and Harford counties. Denrich blamed the financial problems -- and declining or flat sales -- on consolidation as well as on unprecedented new competition in the grocery industry. This spring, the company expects to start evaluating which stores are candidates for remodeling or expansion. This year or early next year, the chain plans to upgrade decor and equipment and institute a loyalty marketing program to reward regular shoppers. New stores would likely open in 2000. ********* 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. ISSN 1520-9474. 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 * * *