/raid1/www/Hosts/bankrupt/TCR

/raid1/www/Hosts/bankrupt/TCR_Public/990827.MBX T R O U B L E D C O M P A N Y R E P O R T E R Friday, August 27, 1999, Vol. 3, No. 166 Headlines ACCESS BEYOND: Trustee Authorized To Retain Pepper Hamilton ACME METALS: Order Further Extends Exclusive Periods AMERICAN GAMING: Reports Sale of Gold Coast Barge AMERICAN GAMING: Reports Second Quarter Results ARM FINANCIAL: Without Buyer Going Concern In Doubt CBS TELENOTICIAS: Lays Off 1/4 of Workers - Files Bankruptcy CONXUS COMMUNICATIONS: Liquidating After 3 Months CROWN BOOKS: Confirmation Hearing Set DOW CORNING: Foreign Claimants Want to Change Their Vote DOW CORNING: Nevada Claimants File Motion For Sanctions ELDER BEERMAN: Dissident Shareholder Pushes For Change EUROWEB: Acquiring Slovakian Networks/1999 Net Losses Reported FWT,INC: Noteholders Committee Taps Chanin and Company GIBSON GREETINGS: Company Expects Loss Due To Competition GOLDEN BOOKS: Montreal Firm To Purchase Printing Business HARNISCHFEGER: Court Considering the Employ of PwC HARNISCHFEGER: Seeks To Employ American Appraisal Assoc. PARAGON: Files Plan of Reorganization PHONETEL: Too Much Debt and Too Optimistic About Future Revenues ROYAL KUNIA: Company Owned By Horita Files Chapter 11 RUSSELL CORP: Bottom-line Shows Loss Due To Non-Recurring Charges SANTA FE GAMING: 66.3% Of Company Owned by Lowden SILICON GRAPHICS: Chairman and Chief Executive Belluzzo Resigns SOUTHERN PACIFIC FUNDING: Ocwen Transfer May Set Record STUART ENTERTAINMENT: Bankruptcy Filed/Plan Outlined STARTER: Schottenstein Sees Big Dollar Signs SUCCESS HOLDINGS: Meeting of Creditors SUN TV: Seeks Order Granting Extension of Exclusivity THORN APPLE VALLEY: IBP Completes Acquisition TONI MARONI'S: Files for Chapter 11 Protection ********** ACCESS BEYOND: Trustee Authorized To Retain Pepper Hamilton ----------------------------------------------------------- The US Bankruptcy Court for the District of Delaware entered an order on August 3, 1999, authorizing the Trustee in the case of Access Beyond Technologies, Inc. n/k/a Hayes Corporation (Hong Kong) Limited, et al. to retain and employ Pepper Hamilton LLP to represent him during the winding up of these Chapter 11 cases. ACME METALS: Order Further Extends Exclusive Periods ---------------------------------------------------- In the case of Acme Metals Incorporated, and its debtor affiliates, the US Bankruptcy Court for the District of Delaware entered an order on August 9, 1999 extending the Exclusive Proposal Period to and including September 30, 1999 and extending the Exclusive Solicitation Period to and including November 30, 1999. AMERICAN GAMING: Reports Sale of Gold Coast Barge ------------------------------------------------- American Gaming & Entertainment, Ltd. (the "Company") reported on Form 8-K that on August 10, 1999, the Company, with the concurrence of AMGAM Associates ("AMGAM"), American Gaming and Resorts of Mississippi, Inc. ("AGRM") (each a wholly-owned subsidiary of the Company), the Committee for the Unsecured Creditors of AMGAM, the Committee for the Unsecured Creditors of AGRM, IGT, and Shamrock Holdings Group, Inc. (collectively with AGEL, the "AGEL Group") sold the Gold Coast Barge to The President Riverboat Casino-Mississippi, Inc. ("Purchaser"). Pursuant to the sale agreement (the "Agreement"), the Purchaser paid $1,000,000 and delivered a promissory note in the amount of $5,827,500 to the Payment Agent (as defined below). As previously disclosed in the June 1999 10-Q, an affiliate of the Purchaser had been chartering the Gold Coast Barge from the Company and the purchase price for the Gold Coast Barge was calculated as $5,000,000 plus all remaining charter payments. As of June 30, 1999, the Company depreciated the Gold Coast Barge to a book value of $6,827,500. Accordingly, the Company will not recognize any gain or loss upon the sale. As previously disclosed in the June 1999 10-Q, Shamrock orally notified the Company in 1998 that any payments to be disbursed to the Company and/or Shamrock pursuant to the Plan should be paid to Shamrock to reduce the Company's indebtedness to Shamrock. The Company's Common Stock is traded on the OTC Bulletin Board under the symbol "AGEL". AMERICAN GAMING: Reports Second Quarter Results ----------------------------------------------- Aug. 25, 1999--American Gaming & Entertainment, Ltd. reported in its Form 10-QSB for the period ended June 30, 1999 that net income for common stockholders for the three months ended June 30, 1999 was approximately $946,000 or $ 0.08 per share as compared a net loss for common stockholders of $2,410,000 or ($ 0.19) per share for the three months ended June 30, 1998, based upon a weighted average number of 12,532,102 common shares outstanding for each period. For the three months ended June 30, 1998, the Company recorded revenues of approximately $256,000 attributable to its interest in a riverboat gaming and entertainment complex in Rising Sun, Indiana. For the six months ended June 30, 1998, the Company recorded revenues of approximately $ 445,000 attributable to the Rising Sun Interest. For the six months ended June 30, 1999, the Company depreciated the Gold Coast Barge to its purchase price. ARM FINANCIAL: Without Buyer Going Concern In Doubt --------------------------------------------------- If ARM Financial Group Inc. is unable to find a suitable buyer for its subsidiaries or its businesses or receive a significant infusion of capital from investors, the company's ability to continue as a going concern is in substantial doubt. The company will not have have adequate levels of capital to service its obligations, including the $38 million in debt financing and $75 million of preferred stock, without the emergence of a buyer or investor and, as a result, is exploring all options available to it, including a possible bankruptcy filing at the holding company level. (The Daily Bankruptcy Review and ABI - August 26, 1999) CBS TELENOTICIAS: Lays Off 1/4 of Workers - Files Bankruptcy -------------------------------------------------------------- CBS Telenoticias, the financially plagued Spanish-and Portuguese- language news and information network started by CBS but now controlled by Mexico-based Grupo Medcom, has filed for federal bankruptcy protection in Miami. The Chapter 11 reorganization petition came only days after CBS Telenoticias laid off 77 people, nearly a quarter of its work force. Earlier reports of financial trouble included late paychecks, unreimbursed expenses and disconnected phones in at least one of its bureaus (B&C, July 12). Sources say CBS Telenoticias President Manuel Abud tried to rally the remaining troops at the announcement of the layoffs and the bankruptcy. "[W]e sure that this action will help us in achieving our key goals of creating a powerful and successful action plan for the company, and in refocusing our business strategy and operations," said Abud. Strategies include trying to do more with less, and searching for new revenue streams. The company said it might also look for a new partner, presumably one with cash. And there had been reports of a possible deal with Brazilian TV interests prior to the bankruptcy filing. CBS maintains that as a passive investor, it would be inappropriate for it to comment. The round-the-clock Latin American network and programming service, started by CBS, targeted Spanish-language Latin markets beginning in 1994, and later added a Portuguese-language service targeting Brazil. In late 1998, Medcom bought 70% of the network. Current and former employees trace their problems to CBS' diminished role, and some have told B&C they are planning or considering lawsuits for money they say they are owed. CONXUS COMMUNICATIONS: Liquidating After 3 Months ------------------------------------------------- Communications Daily reports on August 26, 1999, that Conxus Communications decided to liquidate 3 months after seeking Chapter 11 reorganization. As of 5:00 pm on Friday, their voice mail pagers will no longer be serviced. The Pocketalk service was available in Dallas and Fort Worth, San Francisco, Los Angeles, Philadelphia, Boston, New York, Washington, Atlanta, Houston, Chicago and some areas in southern Florida. The company had earlier arranged more than $135 million in financing through note sales before seeking Chapter 11protection. Originally, it had planned to reorganize and continued to operate as debtor in possession, arranging financing for continuing operation. The FCC, which issued licenses in both PCS and specialized mobile radio spectrum, is among several key creditors, along with Arch Communications, Glenayre, Metrocall and Motorola, which provided Pocketalk customer units. The Company, as PCS Development Group-designated entity with 40% discount, bid $151.5 million for 5 regional licenses in FCC's narrowband PCS auction in 1994 (CD Nov 9/94 p2). Conxus, which started service in 1997, reduced work force in April, leaving it with few employees in key markets, analysts said. In a speech last year to a conference on disabilities, FCC Chmn. Kennard cited Pocketalk as new technology to give disabled people access to advanced technologies. CROWN BOOKS: Confirmation Hearing Set ------------------------------------- On September 22, 1999, at 10:00 AM a hearing will commence before the Honorable Roderick R. McKelvie in the J. Caleb Boggs Federal Building, 844 King Street, Wilmington, Delaware 19801 to consider confirmation of the First Amended Joint Chapter 11 Plan of Reorganization. The plan provides of the distribution of New Common Stock to holders of Allowed Class 2 Claims and cash to holders of Allowed 3 Claims. Under the plan, Class 4 Interests and Class 5 interests in the debtors will be extinguished. DOW CORNING: Foreign Claimants Want to Change Their Vote -------------------------------------------------------- The Breast Implant Litigation Reporter stated on August 10, 1999 that foreign breast implant claimants from Mexico and Vietnam have told the U.S. Bankruptcy Court for the Eastern District of Michigan that Dow Corning Corp. has resolved their objection to its $4.5 billion reorganization plan. The movants, 251 from Mexico and 262 from Vietnam, have filed a motion to change their rejecting votes to accepting votes. Most foreign claimants fall within Class 6.2, whose members received a settlement similar to the one made to domestic claimants, except that the maximum amount of recovery under each option is only 35% of the amount offered to a domestic claimant. A majority of the Class 6.2 claimants voted to accept Dow Corning's reorganization plan but the class vote as a whole fell short of the two-thirds vote required by Chapter 11 of the U.S. Code Sec. 1126(d) to constitute an accepting class. If the court grants the motion, Class 6.2 converts from a rejecting class to an accepting class. The movants originally submitted ballots rejecting the plan, claiming that its product identification requirements were too stringent for them to meet. Specifically, they asserted that because of the paucity of medical records in their countries due to war or natural disaster, they faced significant obstacles in satisfying the plan's criteria for proving their breast implants were manufactured by Dow Corning. The claimants' representatives, Harold V. Sullivan II of Torrance, CA, and Francisco Rivera Duarte of Mexico, told the court in a written objection to Dow Corning's revised disclosure statement that in Vietnam, most records were destroyed by war or by the doctors themselves when the communists came to power in 1975. In Mexico, due to tax concerns of the doctors, there are scant records as well. In sum, the foreign claimants in Class 6.2 have been offered a new "Limited Disease Payment Option" equal to 30% of the amount payable to a domestic claimant under the Disease Payment Option I Schedule. Domestic claimants will receive a base payment of $10,000 for mild disability to $50,000 for the most severe disability pursuant to Disease Payment Option I. Foreign claimants in Class 6.2 have the option of electing a limited expedited payment of $750. U.S. Bankruptcy Court Judge Arthur J. Spector has held that since modification of Dow Corning's Chapter 11 reorganization plan does not adversely change the treatment of the claim of any creditors within Class 6.2, made up of certain foreign claimants, no further re-balloting of the class will be ordered and the court will deem the class to have accepted the plan. DOW CORNING: Nevada Claimants File Motion For Sanctions ------------------------------------------------------- A report in The Breast Implant Litigation Reproter on August 10, 1999 states that breast implant claimants from Nevada have filed a motion against the joint proponents of Dow Corning Corp.'s Chapter 11 reorganization plan for sanctions for breach of applicable rules governing the plan's confirmation hearing, charging them with contacting one of the women's expert witnesses and "suggesting or at the very least implying that it might not be wise or prudent for said expert to testify in the bankruptcy proceeding." The Nevada women, who object to the plan's $400 million cap on litigation funds, identified Dr. Douglas Shanklin on their expert witness list submitted to the court prior to the plan confirmation hearing. According to the Nevada objectors, Dr. Shanklin was prepared to testify about disease causation related to silicone gel breast implants to establish the valuation of tort claims. On July 6, during the first week of the confirmation hearing, Dr. Shanklin reaffirmed his commitment to testify on their behalf, say the Nevada objectors. One day later, he notified the objectors' attorneys that he was reluctant to testify. Dr. Shanklin's reluctance was due to a telephone call allegedly initiated by the plan proponents' agent, attorney Ernie Hornsby, the objectors claim. Hornsby is a friend and colleague of Shanklin and is also counsel for numerous tort claimants who support the reorganization plan. It is undisputed that Ed Blizzard, a representative of the Tort Claimant's Committee, contacted Hornsby and asked him to call Shanklin. The Nevada objectors say Hornsby informed Shanklin that "Al Levin, a fellow sympathetic M.D. breast implant expert, had been 'gagged' by the court." The women say Hornsby was referring to U.S. Bankruptcy Court Judge Arthur J. Spector's July 2 decision that Dr. Levin, who is also actively participating in the bankruptcy hearing as counsel for certain Texas claimants, was precluded from testifying on the merits of the plan. The objectors assert that the call, which they characterize as "improper and unethical," was made in an attempt to influence Shanklin's decision to testify. The Nevada objectors' motion is baseless, say the plan proponents, who claim that Shanklin never agreed to testify in the first place and that the motion for sanctions is a ruse to make a last-minute witness substitution due to the objectors' inability to garner Shanklin's cooperation. The women charge the proponents with violations of the ABA Model Rules of Professional Conduct, "civility principles" established by the bankruptcy court, the Federal Rules of Civil Procedure, the U.S. Code and the Disciplinary Rules of the Model Rules of Professional Conduct. ELDER BEERMAN: Dissident Shareholder Pushes For Change ------------------------------------------------------ The Cincinnati Enquirer reports on August 19, 1999 that A dissident shareholder of Elder-Beerman Stores Corp. who is pressuring the company to change management or sell said Wednesday he has support of the owners of 58 percent of the retailer's stock. "I have yet to speak to an institutional or major owner who is opposed to what I'm trying to do," said David Nierenberg, who says Dayton-based Elder- Beerman must make dramatic changes to improve operations. Mr. Nierenberg, through his D3 Family Fund and some foreign investors, has acquired 5.3 percent of the shares of the retailer since June. They own 845, 000 shares. Mr. Nierenberg argues that Elder-Beerman's management has made numerous mistakes in projecting its earnings expectations and running the business. Specifically, he said earnings have come in below expectation in three of the past four quarters and that store sales have been soft. In an Aug. 11 filing with the Securities and Exchange Commission, Mr. Nierenberg said he wanted the company to replace management or put itself up for sale. Those managers are Chief Executive Frederick Mershad and President, Chief Financial Officer and Chief Operating Officer John Muskovich. On Wednesday Mr. Nierenberg also said he'd be open to other ideas. "The company should not continue to be managed on the same course by the same people any longer," he said. "I'm all ears (to other notions) but the magnitude of the change in my opinion has to be dramatic." Elder-Beerman is not a stranger to financial setbacks. The company in late 1997 emerged from Chapter 11 bankruptcy protection after filing in fall 1995. Since then, it acquired Stone & Thomas department stores, expanded into Pennsylvania for the first time and it opened its largest store ever in Dayton Mall. EUROWEB: Acquiring Slovakian Networks/1999 Net Losses Reported -------------------------------------------------------------- Euroweb International Corporation, a Delaware corporation organized on November 9, 1992,in its financial report for the 3 months ended June 30, 1999 shows consolidated net sales revenue of $71,528 as compared to $455,100 for the same period in 1998. Net loss for the second quarter was $232,811 as compared to the 1998 second quarter net loss of $102,292. For the six months ended June 30, 1999 the company sustained a net loss of $322,955 with no increase of revenue over the second quarter 1999. For comparison, the six months ended June 30, 1998 showed a net loss of $369,512 on net revenues of $840,000. For historical perspective it will be remembered the company, on January 2, 1997, acquired three Hungarian Internet service companies for a purchase price of approximately $1,913,000. The company operated the Internet service companies through its wholly-owned subsidiary, Euroweb Rt. In July 1999, the company entered into agreements to purchase the following interests in Internet service providers: All of the outstanding stock of EUnet Slovakia, located in the Slovak Republic, for $800,000 consisting of $400,000 in cash and $400,000 in shares of the company's common stock (200,000 shares at $2 per share), all of the outstanding stock of Global Network Services, located in the Slovak Republic, for $1,200,000 consisting of $700,000 in cash and $500,000 in shares of the company's common stock (250,000 shares at $2 per share), 80% of the outstanding stock of Bohemia Net, a.s., located in the Czech Republic, for $1,080,000 consisting of $530,000 in cash and $550,000 in shares of the company's common stock (275,000 shares at $2 per share), (The agreement grants the company an option to purchase the remaining 20% for $410,000 in cash and $410,000 in shares of the company's common stock), 70% of the outstanding stock of Dodo, s.r.o. Kosice, located in the Slovak Republic, for $550,000 consisting of $350,000 in cash and $200,000 in shares of the company's common stock (100,000 shares at $2 per share). As of August 12, 1999, all of the acquisitions described above are subject to completion of satisfactory due diligence procedures. Euroweb International is currently seeking to acquire other Internet service providers in central and eastern Europe. FWT,INC: Noteholders Committee Taps Chanin and Company ------------------------------------------------------ The Official Committee of Noteholders of FWT, Inc. seeks authorization to retain and employ Chanin and Company LLC as its financial advisors. The firm will provide the following services: Advise and assist the committee in its analysis and monitoring of the debtor's business, operations, properties, financial condition and prospects; Advise the Noteholders Committee on the current state of the restructuring market and assist and advise the committee in developing a general strategy for accomplishing a proposed restructuring; Assist and advise the Noteholders Committee with implementing a plan of restructuring with the debtor Assist and advise the Noteholders Committee with developing a strategy with respect to recapitalization and/or merger and acquisition options for the debtor; Negotiate on behalf of the Noteholders Committee nay and all aspects of the restructuring; Attend Noteholders Committee meetings and court hearings as may be required in their role as financial advisors to the Noteholders Committee; and Assist with such other merger and acquisition and financial advisory services as may be requested by the Noteholders Committee and its counsel. Chanin requests payment of a work fee of $150,000 plus a transaction fee at the conclusion of an offer in connection with a restructuring in an amount equal to 2% of the Recovery. GIBSON GREETINGS: Company Expects Loss Due To Competition --------------------------------------------------------- Gibson Greetings, Inc. operates in a highly competitive industry dominated by two companies. The company's mass-merchandiser customer base, which typically operates on low margins, is particularly susceptible to financial constraints and to offers of more favorable terms from competitors of the company which have significantly greater financial resources. As a result, Gibson Greetings has, for some time, faced strong competitive pressures with regard to both price and terms of sale. It is anticipated that these pressures will continue and contribute to the company reporting a loss for full-year 1999. Gibson Greetings is in the process of investing approximately $35 million to implement a major management information systems plan to replace core business applications which support sales and customer services, procurement and manufacturing, distribution and finance with Enterprise Resource Planning software. While the primary purpose of the ERP software, according to Gibson Greetings, is to add functionality and efficiency to the company's business processes, installation of the software is also expected to address Year 2000 issues associated with the software being replaced. The company reported a net loss in both the second quarter and six-month period ended June 30, 1999. Loss for the quarter was $24,385 on net revenue of $61,030; while in the six-month period net loss was $27,792 on revenues of $144,498. In the 1998 second quarter and six-month comparable periods the company showed a net income of $5,572 in the quarter on revenues of $104,977, and a net loss of $3,343 on net revenues of $206,726 in the six-month period. GOLDEN BOOKS: Montreal Firm To Purchase Printing Business --------------------------------------------------------- The Milwaukee Journal Sentinel reports on August 24, 1999 that Montreal-based Artech Capital plans to purchase a printing business owned by financially distressed Golden Books Family Entertainment Inc. The deal would allow about 200 Golden Books employees in Sturtevant to retain their jobs and gain a 1% ownership stake in the operation. The deal calls for Artech to use the facility to print books for large publishing companies, and it ends months of uncertainty surrounding the 466,000-square-foot plant and its employees. The plant employed about 1,000 people as recently as three years ago. Artech, a commercial printing company, has manufacturing facilities in Canada and France. "We will use the plant and the employees to focus on the commercial publishing book business, primarily concentrating on the large publishers across the U.S. and Europe," said Mark Patenaude, Artech's chief executive officer. "We will be adding to our sales force and purchasing a considerable amount of new equipment." Financial terms of the sale were not disclosed. The deal must be approved by the federal bankruptcy court that is reviewing Golden Books' bankruptcy filing. Golden Books' general counsel, Philip Galanes, emphasized that the companies have not reached a final agreement. Still, the tentative accord between Golden Books, its workers and Artech clears the way for the workers to keep their jobs. Golden Books filed in February for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Company executives say the reorganization should be completed soon. The company's Sturtevant printing business is running well below its capacity. All three major printing unions at Golden Books voted for the deal Friday, with 90% of the workers supporting it, said Madison labor attorney Ed Garvey, who represented the workers. Garvey said the deal would recognize the workers' collective bargaining agreements with some modifications. The labor package offers workers the same health insurance, recognizes seniority and gives the employees 1% of the plant's annual gross profits. HARNISCHFEGER: Considering the Employ of PwC -------------------------------------------- In connection with consideration of the Debtors' motion to excuse PricewaterhouseCoopers' compliance with maintaining strict audit- related time records, Judge Walsh took the opportunity to talk about the terms of PwC Securities' engagement. Judge Walsh observed that the Court was not provided with a copy of the engagement letter under which PwC Securities is providing financial advisory services to the Debtors when the Debtors filed their employment application the first day. Accordingly, in light of his recent ruling in In re Dailey International, Inc., Case No. 99-1233 (PJW), concerning inappropriate limitations on liability and overly-broad indemnification provisions sought by Ernst & Young, Judge Walsh delivered a clear ruling from the bench advising parties-in-interest that the Court does not believe it or any party-in-interest is bound by the terms of the engagement letter to the extent that (i) the engagement letter purports to limit PwC Securities' liability to the fees it collects or (ii) the engagement letter contemplates that the Debtors will indemnify PwC Securities for more than gross negligence or willful misconduct. (Harnischfeger Bankruptcy News Issue 10; Bankruptcy Creditors' Service Inc.) HARNISCHFEGER: Seeks To Employ American Appraisal Assoc. -------------------------------------------------------- Nunc pro tunc to August 16, 1999, the Debtors seek the Court's authority to employ American Appraisal Associates, Inc., to provide an independent, third-party, objective opinion about the value of 25 of the Debtors' owned properties located outside of the United States. AAA agrees to charge the Debtors a flat $675,000 fee, approximately $26,000 per property, for its work, and will bill $225 per hour for attending any conferences, preparation for court testimony, court appearances, and similar services outside the scope of preparing its valuation reports. (Harnischfeger Bankruptcy News Issue 10; Bankruptcy Creditors' Service Inc.) NATIONAL RECORD MART: Annual Meeting Set For September 23rd ----------------------------------------------------------- The 1999 annual meeting of stockholders of National Record Mart, Inc. will be held at the James H. Reed Building, 435 Sixth Avenue, Ninth Floor, Pittsburgh, Pennsylvania 15219, on Thursday, September 23, 1999, at 9:30 a.m. local time. The company's proxy statement describes the business to be transacted at the meeting and provides other information concerning the company. The principal business to be transacted will be election of four directors, ratification of the grant of stock options to William A. Teitelbaum in June 1996 and July 1997, ratification of the appointment of Ernst & Young LLP as independent auditors of the company for the fiscal year ending March 25, 2000 and any other business that may arise. Only stockholders of record at the close of business on August 2, 1999 are entitled to notice of and to vote at the meeting. The proxy statement may be found at http://www.sec.gov/cgi-bin/srch-edgar?0000950128-99-000944 on the Internet, free of charge. PARAGON: Files Plan of Reorganization ------------------------------------- Paragon Trade Brands, Inc. (OTC Bulletin Board: PGNFQ) announced that it filed a stand alone plan of reorganization (the "Plan")on August 24, 1999, with the United States Bankruptcy Court for the Northern District of Georgia. The Plan is supported by the Official Committee of Unsecured Creditors (the "Creditors' Committee") of Paragon. The Plan provides an alternative to the proposal by Wellspring Capital Management LLC ("Wellspring"), a private investment company, to acquire Paragon as part of a plan of reorganization (the "Wellspring Proposal"). The Wellspring Proposal contemplated that Paragon could simultaneously prepare and file a stand alone plan of reorganization. The Plan provides that Paragon's unsecured creditors will receive a pro rata distribution of notes and new common stock to be issued by reorganized Paragon and that current equity will be canceled. If current shareholders approve the Plan, they will receive a combination of warrants and a portion of the proceeds, if any, of claims assigned to a litigation trust. The Plan contains provisions typical of a chapter 11 plan of this nature and provides for new bank financing for working capital for reorganized Paragon. Paragon also announced that it is revising its business plan to reflect second quarter 1999 results and lowered volume growth expectations for the future. As a result of Paragon's reforecasting of its business plan, the Plan, as filed, does not yet specify the amount of value to be distributed. On August 19, 1999, Wellspring delivered a commitment to proceed with the Wellspring Proposal, but Paragon informed Wellspring that the commitment was not acceptable. The parties are continuing their negotiations with respect to this matter. Paragon stated that it remains committed to pursuing a transaction with Wellspring while continuing to welcome other bids in accordance with the Bankruptcy Court-approved procedures. Paragon also reported that the Bankruptcy Court last week granted a limited stay through August 25, 1999 of Paragon's recently approved settlement agreement with Kimberly-Clark Corporation ("K-C") pending a ruling by the District Court on an emergency motion by the Equity Committee which seeks an 80-day stay of the K-C settlement pending an appeal. The parties agreed yesterday to the District Court's direction that a limited stay remain in place until September 3, 1999, to allow the District Court to more fully consider the Equity Committee's motion. Paragon believes that the granting of the limited stay by the District Court is a procedural step in the appeal process that does not alter the substance of the Bankruptcy Court's August 6, 1999 approval of the K-C settlement. The Equity Committee has also filed a notice of appeal of the Bankruptcy Court's August 6, 1999 approval of the Company's settlement with The Procter & Gamble Company ("P&G"). Paragon believes that both the K-C and the P&G settlements will be upheld on appeal. PHONETEL: Too Much Debt and Too Optimistic About Future Revenues ---------------------------------------------------------------- Crain's Cleveland Business reports on August 23, 1999 that shareholders who bet their dollars on a turnaround at PhoneTel Technologies Inc. will all but lose their investments under a plan to reorganize the pay phone company. As part of the plan, PhoneTel will pay its employees and all its vendors. PhoneTel noteholders who control $125 million in debt will trade in those notes for 9.5 million shares, or 95%, of fresh common stock that PhoneTel will issue after it emerges from bankruptcy. The rest of the new common will go to PhoneTel's management and common and preferred shareholders, who will divvy up 500,000 shares. The U.S. Bankruptcy Court in New York still must give its blessing to the plan, which was negotiated with creditors six months prior to PhoneTel's July 14 Chapter 11 bankruptcy filing. A hearing before the court is set for Sept. 2. In March, PhoneTel had 18.7 million common shares outstanding. Holders of old PhoneTel common stock will trade in their stock for markedly fewer shares of the new stock. However, preferred stockholders will receive 722,200 three-year warrants to buy PhoneTel stock at $10.50 a share. If the court approves the plan, the noteholders will elect a new five-person board, which will include PhoneTel's former chairman, Peter Graff. The new board will decide the direction of the company, including where it will be headquartered and any new management or operational changes, said Lee Powar, an attorney representing PhoneTel in the bankruptcy case. Mr. Powar said despite the bankruptcy, PhoneTel's basic business is sound and is generating enough cash to keep operations running. "The whole purpose of (the bankruptcy filing) was to reorganize the capital structure of the company," Mr. Powar said. He said the company overestimated future revenues and took on too much debt when it acquired more than 11 pay phone companies in four years. Mr. Powar said PhoneTel executives also expected higher reimbursement payments from long-distance companies for calls made from its pay phones using long-distance 1-800 numbers and calling cards. But the Federal Communications Commission later reduced the required amount for those so-called "dial-around" calls. ROYAL KUNIA: Company Owned By Horita Files Chapter 11 ----------------------------------------------------- A company owned by prominent developer Herbert Horita filed for Chapter 11 bankruptcy protection Tuesday. The filing in U.S. Bankruptcy Court by Royal Kunia Apartments Inc. halted a foreclosure auction scheduled for Wednesday in Circuit Court. A 25-acre parcel of the Royal Kunia housing project on Oahu was to be sold. The foreclosure was sought by several banks that loaned money to the company developing the Oahu housing project. The banks, including Bank of Hawaii, said they are owed about $ 30 million. In its filing, the company said it has assets of $ 31.5 million and debts of nearly $ 68 million. The housing project was begun in 1991, with 1,900 units to be constructed during the first phase. So far, fewer than half have been built. RUSSELL CORP: Bottom-line Shows Loss Due To Non-Recurring Charges ----------------------------------------------------------------- Russell Corporation, in making it financial report for the quarter ending July 4, 1999 indicates net income of $1,443 on net revenues of $260,449. The six-months ending on that date showed a net loss of $12,908 on net revenues of $493,626. In the second quarter of 1998 net revenues were shown as $271,824 with a net income of $6,560. The six- month period of 1998 had net revenues of $528,053 with net income of $8,409. The results of operations for the twenty-six weeks ended July 4, 1999, are said by the company to be not necessarily indicative of the results to be expected for the full year. The financial statements for the twenty-six weeks ended July 4, 1999, include non-recurring charges of approximately $37,517,000 on a pre-tax basis related primarily to severance accruals, asset impairments, the relocation of certain personnel to Atlanta, and a djustments to depreciation expense related to assets involved in the company's restructuring plans. Results for the current quarter include restructuring and reorganization charges and other unusual expenses as part of the company's previously announced multi-year strategic plan. This plan was announced on July 22, 1998, and details of the plan are more fully discussed in the 1998 Annual Report to Shareholders. Charges in the current quarter amounted to $4.4 million of restructuring and reorganization expenses and $3.2 million of other unusual charges. SANTA FE GAMING: 66.3% Of Company Owned by Lowden ------------------------------------------------- Paul W. Lowden holds sole voting and dispositive power over 4,348,069 (rounded up to the nearest whole share) shares of common stock of Santa Fe Gaming Corporation, representing 66.3% beneficial ownership in the company. Mr. Lowden reports that purchase of common stock made by him were made for investment purposes only and that from time to time he may purchase additional shares of common stock in the open market or in privately negotiated transactions. Because of his beneficial ownership of 66.3% of the outstanding shares of common stock of the company, Mr. Lowden has the power to initiate plans or proposals with far reaching consequences for the company. While Mr. Lowden indicates he currently has no such plans or proposals, it is conceivable that he could, in the future, develop and implement a plan or proposal which would result in compelling occurrences. He additionally has the right to acquire 359,510 of the shares under stock options which have been granted to him under the company's employee stock option plan and which are currently exercisable. Prior to the reorganization of the company, Mr. Lowden beneficially owned approximately 73% of Sahara Resorts and less than 1% of the outstanding units representing economics and certain other rights in the partnership. In the reorganization, Mr. Lowden's ownership interests in Sahara Resorts and the partnership were converted into 2,521,875 shares or 50.9%, of the company's common stock. In February 1994, the company declared a 25% stock dividend with respect to all outstanding common stock and since September 30, 1993, Mr. Lowden has acquired beneficial ownership of 998,292.93 shares of common stock through a stock dividend, 401(k) purchases, purchases in open market transactions and through grants of employee incentive stock options. In addition, Mr. Lowden disposed of 252,178 shares through contributions to LICO and disposition of 401(k) shares. Mr. Lowden is the 100% shareholder of LICO, which is a shareholder of Santa Fe Gaming. Due to Mr. Lowden's relationship to LICO, he is deemed to be the indirect beneficial owner of common stock purchased by LICO. Since September 30, 1993, LICO acquired 1,274,079 shares of common stock through open market transactions, stock dividends, contributions to capital from Mr. Lowden individually, contributions to capital from Mr. and Mrs. Lowden jointly and contributions to capital from Mrs. Lowden individually. During this period of time, LICO also sold 185,000 shares of common stock in three open market transactions. Santa Fe Gaming Corporation, formerly known as Sahara Gaming Corporation, a publicly traded Nevada corporation, is the successor corporation of two affiliates, Sahara Resorts, a Nevada corporation, and Sahara Casino Partners. L.P., a Delaware limited partnership, which combined in a business combination in September 1993 (the "Reorganization"). In September 1993, the partnership was converted into corporate form through the merger of the partnership with and into Sahara Gaming, as a result of which Sahara Gaming was the surviving entity, and Sahara Resorts was merged into Sahara Merger Corp., a Nevada corporation wholly-owned by Sahara Gaming, as a result of which Sahara Resorts was the surviving corporation wholly-owned by Sahara Gaming. At the time of the reorganization, Sahara Resorts was the holding company for a majority interest in the partnership and its operations. As a result of the reorganization, Sahara Gaming succeeded to all of the assets and liabilities of the partnership and Sahara Resorts and was the successor issuer of Sahara Resorts. In 1996, Sahara Gaming changed its name to Santa Fe Gaming Corporation. SILICON GRAPHICS: Chairman and Chief Executive Belluzzo Resigns --------------------------------------------------------------- The Milwaukee Journal Sentinel reports on August 24, 1999 that Silicon Graphics Chairman and Chief Executive Rick Belluzzo resigned after a largely unsuccessful 19-month effort to restore the ailing maker of computer workstations to health. SOUTHERN PACIFIC FUNDING: Ocwen Transfer May Set Record ------------------------------------------------------- The National Mortgage News reports on August 23, 1999 that West Palm Beach, FL-Ocwen Financial Corp. has entered into a contract with Southern Pacific Funding Corp., to service 17,660 subprime loans with a principal balance of $ 1.3 billion. According to an Ocwen spokesman, the transference of this amount of subprime servicing is possibly the largest ever. The loans will be serviced in Ocwen's National Servicing Center in Orlando, Fla. The spokesman said that the center has the capacity for 900 loan consultants and currently has 300 consultants in the center. "Now that the loans have been boarded, we have begun the administration process. Our ability to implement a seamless transition results from the advanced servicing platform that we put into place several years ago. This platform offers our customers several benefits, including lower delinquency rates,compression of loan resolution timelines, efficient management of third-party costs and selection of optimal loan resolution strategies," said the chairman and chief executive officer of Ocwen, William C. Erbey. At this point Ocwen is servicing only the 17,660 loans, and cannot say whether the company will take on more loans from SPFC to service. SPFC, Lake Oswego, Ore., filed for Chapter 11 bankruptcy protection last fall. STUART ENTERTAINMENT: Bankruptcy Filed/Plan Outlined ---------------------------------------------------- On August 13, 1999, Stuart Entertainment, Inc. filed a petition for reorganization under Chapter 11 in the United States Bankruptcy Court for the District of Delaware. Prior to the August 13 Chapter 11 filing, the company had reached an agreement-in-principle with certain of the holders of its $100 million 12-1/2% Senior Subordinated Notes due 2004, with respect to a consensual restructuring of the company's debt and equity. Under the agreement, dated May 21, 1999, upon effectiveness of the Plan of Reorganization the notes, including principal, interest, fees and other charges, will be cancelled and in exchange the noteholders will receive, pro-rata, one hundred percent (100%) of the common stock to be authorized under the company's amended and restated certificate of incorporation to be filed with the Delaware Secretary of State after Bankruptcy Court approval of the Plan, subject to dilution of approximately 10% on a fully diluted basis by shares reserved for issuance under options to be issued to the company's executive management. The existing common stock of the company will be cancelled and, in exchange, the holders will receive, subject to approval by the Bankruptcy Court, a pro-rata portion of $150,000 in cash. Under the Plan, all persons who hold, together with all affiliates of such persons, $500,000 or less in principal amount of notes, or who elect to reduce their holdings to $500,000, will receive a cash payment equal to 25% of the noteholder's allowed claim in lieu of new common stock, unless the noteholder elects to receive new common stock. Stuart Entertainment may fund up to an aggregate of $3 million of such cash payments, with the remainder to be funded by the largest holder of the notes in accordance with a Standby Funding Commitment. Under the Standby Commitment, the largest holder of the notes will receive, in exchange for any such funding provided, an allowed claim as a noteholder, thus entitling such holder to an additional pro rata distribution of new common stock under the Plan. The agreement provides for certain key executive officers of the company to receive vested options to purchase four percent (4%) of the outstanding new common stock, and performance based options to purchase six percent (6%) of the outstanding new common stock as of the effective date of the Plan on a fully diluted basis. These percentages are subject to increase based on the amount of the company funding, and the accretive effect thereof, in accordance with a formula set forth in the Plan. The noteholders have agreed to support the payment of all trade claims in the ordinary course of the company's business. As a result, the company's trade creditors will not be impaired or negatively impacted by the consensual restructuring. The Plan filed with the Bankruptcy Court is subject to numerous conditions, including that the Plan be confirmed by the Bankruptcy Court, that Stuart have sufficient cash on the effective date to make all cash payments required to be made under the Plan, that Stuart receive all required regulatory approvals, and that there is no order, decree or ruling by any court or governmental body having jurisdiction, restraining or enjoining the consummation of the Plan. However, there is no assurance that the consensual restructuring provided for in the agreement and the Plan will be finalized or that any restructuring which is contemplated will not be on terms materially different from those contained in the agreement and the Plan. STARTER: Schottenstein Sees Big Dollar Signs -------------------------------------------- Columbus-based Schottenstein Stores Corp. will make a lot of money when it sells $200 million in Starter athletic apparel at deeply discounted prices through its Schottenstein and Value City Department Stores. But it also hopes to make money through a 20 percent ownership in a new licensing firm that wants to market the Starter trademark to apparel manufacturers. And if it is successful in talks with major sports leagues and colleges, it would make more money every time a piece of next- generation Starter apparel bearing the name of some sports teams is sold. A consortium of investors, led by Indianapolis-based Logo Athletic Inc. and Schottenstein Stores, walked away from U.S. Bankruptcy Court with the trademark and apparel inventory of Connecticut-based Starter Corp. after agreeing July 15 to pay $ 46 million for those assets. A lower offer by New York-based Haddad Apparel Inc. had been approved by the court, but a bidding war broke out and Haddad took a $ 750,000 breakup fee rather than match the $46 million offer. Tom Shine, president of Logo Athletic, said the group ended up paying "significantly less" than it had expected. Schottenstein Stores put up $25 million for Starter's inventory, which will be sold at its department stores. The other investors - including Logo Athletic Sol Werdiger of Outer Stuff Ltd., Franco Apparel Group and Parthenon Capital of Boston - paid $ 21 million for the rights to Starter's trademark. They will create and jointly own an entity that would license the Starter trademark to apparel and accessories makers, including themselves. Logo Athletic will sell menswear under the Starter name, Outer Stuff will market kids apparel and Franco Apparel will sell baby and toddler products. Michael Broidy, vice president of corporate affairs for Schottenstein Stores, said the retailer was most interested in the $200 million in inventory included in the consortium's bid. But the company is also interested in retailing Official Starter inventory in the future. The goal for the new company is to make Official Starter an international brand, Broidy said. Net proceeds from the $ 46 million sale would be shared by banks that held liens on Starter Corp. But pro sports leagues and other unsecured creditors likely would split several million dollars from the sale of additional Starter assets, including about $ 6 million to $ 8 million owed to Starter by other companies. SUCCESS HOLDINGS: Meeting of Creditors -------------------------------------- A meeting of creditors will be held on September 28, 1999 at 2:00 PM at the office of the US Trustee, 80 Broad Street, Second Floor, New York, NY. SUN TV: Seeks Order Granting Extension of Exclusivity ----------------------------------------------------- The debtors, Sun TV and Appliances, Inc. and Sun Television and Appliances, Inc. seek an order granting extension of periods to file plan and solicit acceptances thereto. Sun TV seeks a brief extension of 30 days through September 30, 1999 for the Filing Period and November 29, 1999 for the Solicitation Period. The debtors seek a brief extension to ensure that Sun TV has the opportunity to finalize the disclosure statement and liquidating plan. The debtor alleges that its case is large and complex, that its management has been diligent in administering the cases, and that there is neither a need for - nor would there be any likely benefit from any other party's controlling the distribution, under a plan, of the proceeds from Sun TV's asset sales. THORN APPLE VALLEY: IBP Completes Acquisition --------------------------------------------- On August 25, 1999, IBP, Inc. completed the acquisition of Thorn Apple Valley (TAV), a Michigan based meat processing company. IBP officials in June entered into a letter of intent to buy TAV, which filed for bankruptcy earlier this year. A federal bankruptcy judge approved and confirmed plans for the transaction in July. Effective today, TAV will be operated as a subsidiary of IBP. "Thorn Apple Valley is the latest step in our further efforts aimed at a more manufactured, higher margin product mix," according to Robert L. Peterson, IBP chairman and chief executive officer. "This acquisition is a great complement to our other value-added businesses. Already we have begun the process and started the investment to move beyond the challenges of the past. Specific initiatives to improve product quality, to ensure product safety, and to achieve state-of-the-art manufacturing are underway. We are firmly committed to TAV's customers." In the transaction, IBP purchased certain assets of TAV for $ 117.5 million in cash and assumption of debt. With inventory and receivables valued at $ 50 million, IBP's investment in brand names, trademarks and fixed assets is approximately $ 67.5 million. Operating facilities included in the purchase are further processing plants in Ponca City, Oklahoma; Forrest City, Arkansas; Holly Ridge, North Carolina, Grand Rapids, Michigan and Detroit, Michigan. Thorn Apple Valley produces bacon, hot dogs, lunch meats, hams and sausage and manages national brand names such as Thorn Apple Valley(R), Corn King(R), Colonial(R), Wilson Certified(R) and Cavanaugh Lake View Farms(R). TONI MARONI'S: Files for Chapter 11 Protection ---------------------------------------------- Bellevue, Wash.-based Toni Maroni's pizza chain has filed for chapter 11 protection, according to The Seattle Post- Intelligencer. Founder and President Tony Rivera said the filing was precipitated by a failed agreement with Blockbuster, which either would have acquired the chain or allowed Maroni's to install pizza stands in many of its video rental stores. The company has assets of $772,000 and liabilities of $2.1 million, and eight to 10 people will be laid off. The company has 12 locations in Washington and five in California. ********** 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 in each Friday edition of the TCR, is provided 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, Yvonne L. Metzler, Editors. Copyright 1999. 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 * * *