/raid1/www/Hosts/bankrupt/TCR_Public/971204.MBX
T R O U B L E D C O M P A N Y R E P O R T E R
Thursday, December 4, 1997, Vol. 1, No. 72
Headlines
APPLIANCE RECYCLING: Dismissal of Subsidiary's Chapter 11
DOW CORNING: No Class Action in Louisiana
FLOWIND: Seeks Order for Overbid Procedures
LEVITZ FURNITURE: Seeks Extension of Exclusivity
LEVITZ FURNITURE: Desires Employee Retention Program
LOT$OFF: Substantial Increase in Comparable Store Sales
LOUISE'S TRATTORIA: Seeks Authority to Employ Counsel
MOLTEN METAL: Files Chapter 11
PAYLESS CASHWAYS: Exchanging Old Securities for New Stock
PHOENIX INFORMATION: Seeks Protection Under Chapter 11
PINNACLE MICRO: May Have To Seek Bankruptcy Protection
SMITH TECHNOLOGY: Committee Seeks to Employ Accountant
WESTERN PACIFIC: Hunt and GFI Object to DIP Financing
WESTERN PACIFIC: More Objections to DIP Financing
APPLIANCE RECYCLING: Dismissal of Subsidiary's Chapter 11
---------------------------------------------------------
Appliance Recycling Centers of America, Inc. (Nasdaq: ARCI)
today announced that the United States Bankruptcy Court has
dismissed the Chapter 11 proceeding for ARCA's California
subsidiary, Appliance Recycling Centers of America -
California, Inc. (ARCA California), effective November 26,
1997.
As a result of a lawsuit filed by its minority shareholder,
ARCA California had previously filed a voluntary petition
for relief seeking reorganization under the Federal
Bankruptcy Act. ARCA reached an equitable settlement in
its dispute with the minority shareholder in early
November. Under terms of the settlement, the Company
acquired the minority shareholder's ownership position,
making ARCA California a 100%-owned subsidiary of ARCA.
ARCA, the nation's largest recycler of major household
appliances, provides an integrated range of collection,
reuse and recycling services.
DOW CORNING: No Class Action in Louisiana
------------------------------------------
Civil Judge Yada Magee in the nation's first class-action
lawsuit over silicone breast implants ruled Tuesday that
only the eight original plaintiffs can try to win damages
from Dow Chemical Co, not the 1,800 women who were once
part of the class. The judge said in her decision that
there are too many differences in the cases for the lawsuit
to remain a class action. McGee said: "There are simply too
many individual issues due to the fact that members of the
class were implanted with various types of breast implants,
at different times in varying degrees and the implants have
caused different diseases."
The ruling comes three months after a jury decided Dow
Chemical was negligent in testing silicone for implants,
lied about the possible risks and plotted with Dow Corning
Corp. to hide potential health dangers. And since the
implants were put in over a 30-year period, different legal
standards had to be used for each plaintiff, the judge
wrote.
John Musser, a spokesman for Dow Chemical, said the ruling
was a victory for the company since it means 1,800 cases
will not be included in the damage phase of the trial.
John G. Scriven, vice president of Dow Chemical, said in a
statement the women can pursue their claims in Dow
Corning's bankruptcy reorganization, now under way in
Michigan.
Dawn Barrios, lead attorney for the women, played down the
decision as a "procedural ruling" that does not affect the
rights of the women who must now sue individually. She said
an appeal was planned. "We have fought for more than five
years for these women," Barrios said. "We have won major
battles. And we will not rest until each Louisiana woman
has her day in court."
Attorneys on both sides said the decision also means that
subsequent breast implant lawsuits will lose their class-
action status. The class-action status of the lawsuit has
been challenged four times. Magee had twice upheld its
class action status, before reversing herself in this
latest ruling.
It is not the first time the judge has reversed herself in
the case. At one point during the trial, Magee declared a
mistrial, saying a lawyer for the women had used improper
eye contact with jurors and inappropriate body
language and other courtroom antics. But she reversed
herself the next day, choosing instead to fine the lawyer
and a second plaintiffs' attorney.
In the first phase of the trial, the jury ruled in August
that Dow Chemical had tested silicone, was negligent in its
research, and concealed information about possible dangers
of silicone from the public.
FLOWIND: Seeks Order for Overbid Procedures
-------------------------------------------
A hearing will be held on December 19, 1997 on the motion
of the debtor, Flowind Corporation. The debtor seeks the
entry of an order approving overbid procedures and break-up
fee arrangements for the sale to MNR Energy Systems, Inc.
d/b/a Premier Technologies of FloWind's wind power plant
assets located in the Altamont Pass and Tehachapi Pass
areas of California. The Overbid Procedures, which
include, among other things, a formula for scoring and
comparing competing bids with the proposed transaction, are
designed to test the adequacy of the consideration offered
by MNR for the assets and to maximize the return to the
estate.
As provided in the proposed overbid procedures, the overbid
must include a cash downpayment of no less than $5.7
million, at least $4.2 million of which must be paid with
immediately available funds at or prior to closing. The
overbid must be accompanied by a deposit in the form of a
cashier's or certified check in the amount of $1 million.
The overbid must be accompanied by admissible evidence in
the form of affidavits or declarations satisfactory to
FloWind, and demonstration that the overbidder is able to
perform all obligations under the Asset Purchase and Co-
Development Agreements.
The Term Sheet provides that, if MNR is unable to acquire
the assets because of a successful overbid, then the
successful overbiddder shall pay a break-up fee of $750,000
to the estate, for the benefit of MNR, provided that MNR
has not previously withdrawn its bid for the Assets.
LEVITZ FURNITURE: Seeks Extension of Exclusivity
------------------------------------------------
As reported in Issue 8 of the Levitz Bankruptcy News,
published by Bankruptcy Creditors' Service, Inc., the
Debtors asked for an extension of the exclusive periods
during which they may file one or more plans of
reorganization and solicit acceptances of such plans.
The Debtors' Plan Proposal Period ends on January 3, 1998;
they are asking for an extension of 180 days, until July 2,
1998. The Debtors' Solicitation Period expires on March 4,
1998; they are requesting an 180 days' extension, until
August 31, 1998.
The Debtors told the Court that they believe they have made
significant progress towards rehabilitation during the
relatively brief time these cases have been pending.
However they need an additional 180 days to complete and
preliminarily test a long-term business plan and to develop
a plan of reorganization based on such a business plan.
They also bring to the Court's attention that the DIP
Facility they have obtained has provided the Debtors with
more than adequate working capital to continue operations
without operation and pay their bills.
The Debtors also point out they have closed unprofitable
stores and rejected real property leases which they had
appraised as superfluous and inappropriate to their
restructuring process. The Debtors also cite the size and
complexity of their Chapter 11 cases as additional causes,
recognized in case law, for granting an extension of the
Exclusive Periods.
LEVITZ FURNITURE: Desires Employee Retention Program
-----------------------------------------------------
As reported in Issue 8 of the Levitz Bankruptcy News,
published by the Bankruptcy Creditors' Service, Inc., the
Debtors told the Court that they desire to implement an
Employee Retention Program in order to minimize the
turnover of management and other key employees. The
continued employment of this personnel, they explained,
is critical to the Debtors' business.
The Debtors are disadvantaged in their efforts to retain
executives, because much of their competition offers equity
participation as a substantial portion of their incentive
packages. The Debtors further point out that they
are unable to provide similar long-term equity incentives;
its pension plan has been frozen, and its Senior Employee
Retirement Program is unfunded.
Accordingly, the Debtors believe they must implement the
Retention Program to deter the loss of important employees,
an occurrence that generally leads to additional employee
departures. The Retention Program will cover the Debtors'
123 Key Employees, a category consisting of 7 Key Officers,
13 key employee, 48 managers and professionals, and 55
store managers.
The two-pronged Retention Program should encourage the Key
Employees to remain with the Debtors by providing them with
severance benefits during the course of these cases and
bonuses based on the Debtors' successful reorganization.
The major terms of the proposed Employment Agreements are:
Term: The initial term of the Employment Agreements will
be December 15, 1997 to June 15, 1999, and will be
automatically extended by one year on June 16, 1999, unless
either party gives written notice to the other party at
least 30 days before the Renewal date.
Compensation: An Executive is entitled to receive Base
Salary, and a bonus if applicable.
Severance: An Executive is not entitled to severance pay
if the Employment Agreement is terminated by (i) the
Executive's death, (ii) the Company because of the
Executive's lengthy disability, (iii) the Company for
Cause, or (iv) the Executive for other than Good Reason.
If an Executive is entitled to severance pay, he will
receive his Base Salary and benefits for 18 months after
Date of Termination, subject to mitigation over the last
nine months if the Executive obtains other employment. If
termination occurs on or within 18 months of a Change
in Control, the Executive will receive a lump sum amount
equal to 1 1/2 times his annual base salary, with no
reduction for subsequent employment.
Noncompetition Requirement: During the 18 month severance
period or during the one year following termination of an
Executive for Cause or other than Good Reason, the
Executive may not, absent written consent, participate in
any way with a business that competes with any of the
Company's retail stores unless such business is located
more than 50 miles distant from any of the Company's retail
stores as of the Date Termination.
Change of Control: A Change in Control occurs when, among
other things, a person becomes the beneficial owner of
securities representing 50% of LFI's or the Company's
voting power.
Indemnification: The Debtors will indemnify the Executives
to the full extent permitted by law and the Debtors' by-
laws.
Proposed Severance for Other Key Employees: Under the
proposed Retention Program, 116 Key Employees, including
selected managers, professionals and key executives, will
be entitled to receive severance pay if they are
terminated by the Debtors for any reason other than death,
disability or cause. They will be entitled to receive
severance pay equal to the greater
of one week of pay for each year of such Key Employee's
continuous service to the Debtors and ten weeks of pay.
Senior Management Emergence Bonus: Under the proposed
Retention Program, the Senior Management Emergence Bonus
will be distributed to Key Officers Michael Bozic (Chief
Executive Officer) and Robert Homler (President of
Merchandise/Marketing), the Senior Management. They will
receive 50% in cash and 50% in the same securities to be
distributed to general unsecured creditors under a
reorganization plan supported by the Committee.
The aggregate amount of the Senior Management Bonus
available for distribution to Senior Management will be
equal to 1.40% of the amount by which the value as of the
consummation date of distributions to be made under the
Plan on account of general unsecured claims and equity
interests in the Debtors exceed the estimated market value
of such claims as of the Petition Date, but in no case less
than 25% of Senior Management's aggregate current annual
salaries, or $250,000. The Debtors' financial advisor have
agreed with the Committee's advisors as to the method for
calculating the amount of the Senior Management Bonus.
The aggregate amount of the Senior Management Bonus will be
subject to adjustment by a factor based on the date the
Debtors file a reorganization plan that is supported by the
Creditors' Committee. The Adjustment Factor will increase
or decrease the aggregate amount of the Senior Management
Bonus by as much as 125% or 75%, respectively, depending on
the date when the Debtors actually file such a pan.
Individual Emergence Bonuses: The Retention Program also
contemplates distribution of an individual Emergence Bonus
to 121 Key Employees who are key officers, executives,
managers, professionals and store managers of the
Debtors, outside of Senior Management:
Key Employees 103 20% of annual base salary
Key Employees 13 42.5% of annual base salary
Key Officers 4 75% of annual base salary
Key Officer Edward Zimmer 100% of annual base salary
The Debtors estimate that the total cost of providing an
Emergence Bonus to each of these 121 Key Employees will be
approximately $2,450,000. The total cost of the Employee
Retention Program is justified by the long-term benefits
that the Debtors expect to realize by reducing unwanted
resignations and avoiding the dangerous business
disruptions caused by resignation that can undermine the
Debtors' Chapter 11 cases.
LOT$OFF: Substantial Increase in Comparable Store Sales
-------------------------------------------------------
San Antonio based LOT$0FF Corporation (OTC Bulletin Board:
LOTS and LOTSP) announced today that its comparable store
sales figures were up 44.3% for the four week period ended
November 28, 1997. In making such announcement, CEO Charles
"Hop" Fuhrmann reminded investors that last year's sales
were achieved at a time of low store inventories and the
lack of resources to promote customer traffic due to the
Company's Chapter 11 filing on October 9, 1996.
The Company's 44 stores historically stocked principally
with family apparel, now carry a majority of non-apparel
merchandise: seasonal items, toys, household products,
cosmetics, housewares and giftware, home furnishings,
shelf-stable food products, luggage, footwear, stationery,
health and beauty aids, sporting goods, automotive,
greeting cards, jewelry, books, party goods, pet supplies
and hardware, among others. The Company continues to
maintain a healthy showing of basic, family apparel
products in its LOT$OFF stores.
The actual merchandise mix fluctuates by category, by
season and by store based on customer needs and buying
trends, demographics and the availability of products at
close-out prices. This merchandising concept is designed
to appeal to value-conscious shoppers and other "bargain
hunters," and management is hopeful its continued
implementation will lead to increased store traffic and
improved operating results.
The Company reported a loss of $7.5 million (including
$500,000 of reorganization expenses) and net sales of $31.7
million for the first thirty-nine weeks of fiscal 1998
ended October 31, 1997 (as compared to a net loss of $15.7
million and net sales of $91.2 million for the comparable
prior fiscal year period). The Company operated a weighted
average of 41.4 stores in the most recent period as
compared to 94.0 in the comparable prior year period.
Comparable store sales figures for the thirty-nine week
period were down 23.9% from the prior year period.
LOT$OFF Corporation (formerly 50-OFF Stores, Inc.) emerged
from bankruptcy on June 16, 1997 and recently announced a
substantial jury verdict in its favor in important
litigation with Chase Manhattan Bank and other defendants
in the United States District Court in San Antonio.
LOUISE'S TRATTORIA: Seeks Authority to Employ Counsel
-----------------------------------------------------
Louise's Trattoria, Inc., debtor, seeks court approval to
employ Friedman, Heller & Enriquez, LLP as special
litigation counsel.
There was an attorney, Paul H. Samuels, who was retained to
defend a certain claim in fraud filed against the debtor
and the President of the debtor, William Chait. The court
determined that there was a conflict of interest in the
debtor's employment of Samuels, because he also represented
Chait personally. A jury trial on the claim in fraud is
scheduled for February, and the debtor seeks to employ the
law firm immediately in order to represent the debtor in
the upcoming matter.
The fee arrangement provides an hourly fee of $300 per hour
for Mr. Heller, and $250 for associates who may also work
on the case. An advance retainer of $5,000 was requested.
A hearing will be held on December 16, 1997.
MOLTEN METAL: Files Chapter 11
------------------------------
Molten Metal Technology, Inc.(Nasdaq: MLTN) announced today
it has filed for reorganization under Chapter 11
of the Federal Bankruptcy Code together with four
affiliates: MMT of Tennessee Inc., MMT Federal Holdings,
Inc., M4 Environmental Management Inc., and M4
Environmental L.P. The filing took place this morning at
the federal bankruptcy court in Boston, Mass.
"We will continue to operate our nuclear services business
and our priority is to continue to offer the highest
quality service to our customers," said F. Gordon Bitter,
chief executive officer of Molten Metal Technology.
As previously reported, the company has engaged The
Blackstone Group, an investment banking firm, to review a
range of strategic alternatives, including obtaining
financing, developing strategic partnerships, or the
possible sale of all or a portion of the company's assets.
Discussions are underway with a number of potentially
interested financial institutions and partners, and the
company believes this Chapter 11 filing will provide
additional time and opportunity to seek to successfully
consummate one or more transactions.
"The Chapter 11 filing will enable us to conserve cash
while continuing to seek financing and strategic partners
to help us pursue our other target markets," said Bitter.
"The filing also permits the company to devote its existing
resources to enhancing the value of our business." The
company has retained Cohn & Kelakos LLP of Boston as its
Chapter 11 counsel.
Based in Waltham, Massachusetts, Molten Metal Technology,
Inc. is an environmental technology company commercializing
pollution prevention and waste recycling methods that are
broadly applicable to a wide variety of hazardous,
non-hazardous, and radioactive wastes. The company's
patented core technology, Catalytic Extraction Processing
(CEP), takes waste and transforms it into reusable
industrial products using a molten metal bath. Quantum-
CEP, an application of the technology designed for
radioactive waste, reduces the volume of radioactive
materials, provides a safe final form for disposal or
storage, and can also produce some reusable industrial
products. The company currently operates two commercial
Quantum-CEP facilities in Oak Ridge, Tenn.
PAYLESS CASHWAYS: Exchanging Old Securities for New Stock
---------------------------------------------------------
In the Chapter 11 case of Payless Cashways, Inc., the Plan
Effective Date is December 2, 1997. The company has issued
the following information with respect to exchanging old
Payless Cashways securities or interests for new stock.
Registered shareholders as of November 26, 1997, should
receive letters of transmittal in December which they
should fill out and return with their stock certificates.
Their new shares will then be issued. Shareholders should
receive approximately one new share (1.0009) for every 100
old shares.
Beneficial shareholders who own their stock in street name
through brokers or other nominees should receive
information about the exchange of their securities from
their brokers or banks.
Registered bondholders as of November 26, 1997, should
receive letters of transmittal in December which they
should fill out and return with their bonds. Because
bondholders are unsecured creditors, they are expected to
receive their stock in a series of partial distributions
over time (their pro rata share of 8,269,329 shares of
common stock, which is currently estimated to be
approximately 25 shares for every $1,000 face value).
Beneficial bondholders who own their bonds in street name
through brokers or other nominees should receive
information about the exchange of their securities from
their brokers or banks.
Holders of allowed, general unsecured claims will receive
their pro rata share of 8,269,329 shares of common stock,
which is currently estimated to be approximately 25 new
shares for each $1,000 of allowed indebtedness. The
initial partial distribution of new common stock is
anticipated to begin in December and continue in a series
of partial distributions over time.
Small claims under $1,000: Those whose claims are under
$1,000 automatically are classified as small claims; they
will receive 25% of their allowed claim in cash in full
satisfaction of their claim. Others, with allowed claims
over $1,000, who at the time of balloting elected the small
claims option, will receive $250 in cash in satisfaction of
their allowed claim after the first of the year.
PHOENIX INFORMATION: Seeks Protection Under Chapter 11
------------------------------------------------------
Phoenix Information Systems Corp. ("Phoenix")(OTC Bulletin
Board: PHXS) announces that after an extensive and
unsuccessful search for permanent financing it has
determined to seek protection under Chapter 11 of the
Bankruptcy Code.
The Company also announces that, subject to court approval,
it has arranged for debtor-in-possession financing and a
sale of all its major assets for $20 million to S-C Phoenix
Partners, a major shareholder. As part of the terms and
conditions of the sale, the Company has agreed to a $1
million breakup fee and a non-solicitation arrangement that
prohibits the Company from actively seeking other buyers or
offers of financing.
PINNACLE MICRO: May Have To Seek Bankruptcy Protection
-------------------------------------------------------
Pinnacle Micro Inc. said it has a severe cash constraint
and may have to seek protection under federal bankruptcy
law if it is unable to find financing to meet its cash
needs. The company made the announcement with the release
of its third-quarter results, which showed a loss of $14.7
million, or $1.02 a share, compared with a $9.1 million, or
$1.15 a share, loss in the year-ago period. Revenues in the
latest quarter fell to $3.3 million from $14.3 million.
It blamed decreased unit sales on increased competition,
its inability to acquire products for sale because of its
lack of financial resources and the end of life for some of
its products.
SMITH TECHNOLOGY: Committee Seeks to Employ Accountant
------------------------------------------------------
The Official Committee of Unsecured Creditors in the
Chapter 11 case of Smith Technology Corporation, et al.,
filed an application for authorization to employ Parente
consulting, a division of Parente, Randolph, Orlando Carey
& Associates.
The Committee has determined that it would be in its best
interest to retain an accountant/consultant and desires to
employ the services of Parente Consulting to assist the
Committee in the investigation of the debtor's financial
affairs and provide other accounting/consulting services as
may be necessary and beneficial to the Committee and the
unsecured creditors. According to the motion, Parente has
extensive experience in the necessary areas, including but
not limited to forensic accounting, federal contracts, and
surety contracts.
The hourly rates range from $185-$235 for principals to $50
for paraprofessionals.
WESTERN PACIFIC: Hunt and GFI Object to DIP Financing
-----------------------------------------------------
Hunt Petroleum Co. and GFI Company are secured creditors of
Western Pacific Airlines, Inc., and they have added their
objections to the growing number of others, opposing the
debtor's motion for an order to obtain post-petition
financing.
Hunt Petroleum and GFI (Hunt/GFI) submit that the motion is
"fatally defective both procedurally and as a matter of
substance." The creditors complain that they have not
received full financing agreements as required, but rather
a "term sheet", which is incomplete and subject to
documentation acceptable to Smith Management Company. In
addition, they state that substantively some of the terms
of the DIP financing that the debtor seeks to obtain from
Smith Management Company are directly in conflict with, and
if approved would be severely detrimental to, the interests
and rights of Hunt and GFI.
That is, the debtor's proposal could effectively extinguish
Hunt/GFI's priority claim and improperly grant Smith a
superior lien in Hunt/GFI's collateral without providing
Hunt/GFI the level of adequate protection which is required
when the court considers a priming lien.
The creditors claim that Smith has a "virtual free-look and
right to walk away at each stage of the financing." Most
important the creditors state that the debtor cannot
demonstrate that Smith's initial tranche of l$10 million
will, in the absence of the second tranche and the exit
financing, salvage or even sustain the debtor's operation
for more than a few weeks beyond the December 4, 1997
deadline.
They also state that the $1 million break up fee is
excessive. Hunt and GFI claim request that the motion be
denied or in the alternative, that the DIP financing should
be conditioned on Hunt/GFI retaining its existing rights
and collateral, including the provision of adequate
protection to Hunt/GFI in the amount of a t least $10.5
million.
WESTERN PACIFIC: More Objections to DIP Financing
-------------------------------------------------
Mercury Air Group, Inc. and CCA Financial Inc. object to
the proposed DIP financing of Western Pacific Airlines,
Inc.
Mercury Air Group, Inc. and CCA Financial Inc. both state
that the proposed DIP financing contains a provision for a
"super priority."
In order to protect vendors of goods and services during
the administrative period of the Chapter 11, Mercury and
CCA Financial state that there should be a "carve out" for
all goods and services provided, in the ordinary course of
the debtors' business.
KG Aircraft Leasing Co., Ltd. states that it objects to the
proposed DIP financing because in the Term Sheet the debtor
proposes to grant Smith Management Company a security
interest in the aircraft leases.
KG leasing has a lease for a Boeing aircraft and three
engines. None of the leases have been assumed by the
debtor and therefore may not be assigned as collateral or
otherwise. Furthermore, KG Aircraft states that the leases
are not subject to assignment either as collateral or
otherwise without its consent. KG Leasing has not given
its consent and will not give its consent for assignment
for purposes of security, as such assignment would be
prejudicial to KG Leasing for various reasons, by virtue of
possible foreclosure by an non-certificated airline.
KG Leasing also objects to the "super priority," inasmuch
as it would "prime" any lease payments which would be due
and owing to KG as a cost and expense of administration.
And any proposed priority should contain a "carve out" for
any payments made in the ordinary course of business for
aircraft leasing payments or reserves during administration
of the estate.
-------------
The Meetings, Conferences and Seminars column appears
in the TCR each Tuesday. Submissions via e-mail to
conferences@bankrupt.com are encouraged.
Bond pricing, appearing each Friday, is supplied by DLS
Capital Partners, Dallas, Texas.
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc.,
Princeton, NJ, and Beard Group, Inc., Washington DC.
Debra Brennan and Rebecca A. Porter, Editors.
Copyright 1997. All rights reserved. This material is
copyrighted and any commercial use, resale or publication
in any form (including e-mail forwarding, electronic re-
mailing and photocopying) is strictly prohibited without
prior written permission of the publishers. Information
contained herein is obtained from sources believed to be
reliable, but is not guaranteed.
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 is $25 each. For subscription
information, contact Christopher Beard at 301/951-6400.
* * * End of Transmission * * *