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/raid1/www/Hosts/bankrupt/TCR_Public/980930.MBXT R O U B L E D C O M P A N Y R E P O R T E R Wednesday, September 30, 1998, Vol. 2, No. 191 Headlines AHERF: Bidder Pulls $460 Million Offer ACME METALS: Case Summary & 20 Largest Creditors ACME METALS: Seeks Relief Under Chapter 11 BRUNO'S: Comparable Store Sales Drop 13.7% CELLPRO: Announces Asset Sale and Resignation of CEO COMPREHENSIVE HOME HEALTH CARE: Forced Into Bankruptcy HILLS STORES: Poor Operating Results HOMEOWNERS MORTGAGE: Seeks Authority to Sell Assets KIA MOTORS: 3rd Auction May Be Sweeter LOT$OFF: Plans To Maximize Shareholder Value MARVEL ENTERTAINMENT: Minority Shareholders Can Lose MERIS LABORATORIES: Milbank, Tweed Leads Sale NATURAL GAS VEHICLE: Case Summary & 20 Largest Creditors PHILIPPINE AIRLINES: To Resume Flying Next Week PINNACLE BRANDS: Seeks Approval of Asset Purchase Agreement PINNACLE BRANDS: Status of Case SMITH CORONA: Financial Results For Fourth Quarter SUNBELT NURSERY: Seeks To Employ Real Estate Brokers THE CARE GROUP: Case Summary & 20 Largest Creditors UNISON HEALTHCARE: Kremser Group Objects to Plan VENATOR GROUP: Selling 357-Store German Woolworth's WESTMORELAND COAL: Fights The Funds ********* AHERF: Bidder Pulls $460 Million Offer -------------------------------------- If creditors of the Allegheny Health Education and Research Foundation's eight bankrupt Philadelphia hospitals were disappointed with the dearth of written bids in U.S. Bankruptcy Court Friday, they must have become despondent yesterday. In a development that could sharply reduce the money available to pay creditors' claims, Nashville, Tenn.-based Vanguard Health Systems, the only formal bidder for all eight AHERF institutions, rescinded its $460 million cash offer, citing a decline in the hospitals' admission rate, and uncertainty over the future of their academic hub, the Allegheny University of the Health Sciences. In filings that were made public in court yesterday, AHERF and its bankrupt subsidiaries listed debts of $1.5 billion - about $200 million more than they estimated when they filed for protection from creditors in July. Not only will a lower sale price mean less money to spread among creditors, the higher debt figure means more claims to pay. Several lawyers have privately said the less money there is to pay creditors, the more likely it is they will find a way to bring AHERF's Western Pennsylvania hospitals, including Allegheny General, into the proceedings. The foundation continues to maintain that those hospitals, which are not in bankruptcy, are financially separate and immune to the proceedings. As the case started, even the most optimistic scenario would have left creditors with only about 54 cents for each dollar they were owed. The only other bidder for any of the hospitals, Temple University, put in a $12.5 million cash offer for St. Christopher's Hospital for Children, an institution that is widely viewed as the crown jewel of AHERF's Philadelphia operations and one that officials thought would fetch between $92 million and $100 million. At a bankruptcy court hearing that was intended to set up bidding procedures for an auction of the hospitals today, AHERF attorney Lee Powar told Judge M. Bruce McCullough that the Vanguard offer was "no long a viable transaction." He said AHERF and its creditors would continue negotiating with the for-profit health care concern and other potential bidders in an attempt to obtain an agreement the foundation could recommend to the court this morning. Powar said Vanguard told AHERF it believed the value of the hospitals had fallen because of a sharp decline in the number of patients they treat. AHERF spokesman Tom Chakurda later confirmed that admissions at the hospitals were off by 14 percent for June, July and August compared with the same period a year ago. The hospitals have suffered patient losses partly because some of their highest- volume physicians have left. An attorney for Vanguard declined to indicate how much the company believed the value of the hospitals has declined or how much less it would offer. He did say the reduction would be substantial. AHERF's Powar also said the unsettled fate of Allegheny University of the Health Sciences had influenced Vanguard's decision. On Friday, Tenet Healthcare Corp. cited concerns about the lack of a viable financial plan for the university in its decision not to submit a written bid for the AHERF hospitals. It had been Vanguard's only known rival for all eight institutions and had earlier made a preliminary offer of $465 million. One possibility is that the university, which serves as the academic hub for the hospitals and gives them some of their value, will be reorganized by Zurbrugg Health Foundation, a heretofore unheard of AHERF subsidiary that is not part of the massive bankruptcy. AHERF said on Friday that Zurbrugg had submitted a bid for the university. That offer was not available in court documents yesterday. Powar declined to say how Zurbrugg would fund such a reorganization. He said it does have some assets, primarily real estate, but declined to elaborate.(Pittsburgh Post Gazette - 09/29/98) ACME METALS: Case Summary & 20 Largest Creditors -------------------------------------------------- Debtor: Acme Metals Incorporated 13500 South Perry Avenue Riverdale, Illinois 60827 Type of business: The debtor is an integrated, iron and steel producer and fabricator, manufacturing flat-rolled steel, including sheet to strip steel, steel strapping and strapping tools, and steel tube and pipe. Court: District of Delaware Case No.: 98-2179 Filed: 09/28/98 Chapter: 11 Debtor's Counsel: Laura Davis Jones Young Conaway Stargatt & Taylor, LLP 11th Floor, Rodney Square North P.O. Box 391 Wilmington, Delaware 19899-0391 (302) 571-6600 Total Assets: approx. $813,713,000 Total Liabilities: approx. $541,163,000 No. of shares of preferred stock 0 0 No. of shares of common stock 11,677,520 over 500 20 Largest Unsecured Creditors: Name Amount ---- ------ State Street Bank and Trust Co. $52,623,000 Brown Brothers Harriman & Co. $33,500,000 Morgan Stanley & Co. $22,967,000 Chase Bank of Texas NA $22,750,000 Investors Bank & Trust $20,000,000 Boston Safe Deposit and Trust Co. $15,740,000 Nations Banc Montgomery Securities $6,360,000 The Interlake Corporation $6,000,000 Bank of New York $4,500,000 Cleveland Cliffs Iron Co. $4,000,000 Nesbitt Burns Inc. $3,500,000 U.S. Bank National Ass'n. $2,400,000 Merrill Lynch, Pierce, Fenner $2,125,000 Fiduciary Trust Co. Int'l. $2,000,000 Prudential Securities Custody $2,000,000 Chase Manhattan Bank $1,500,000 Prudential Securities Incorporated $1,248,000 Commonwealth Edison $1,200,000 Citicorp Securities, Inc. $1,000,000 AK Steel Company $1,100,000 ACME METALS: Seeks Relief Under Chapter 11 ------------------------------------------ Acme Metals Inc. says that it and its wholly owned subsidiaries, Acme Steel Co., Acme Packaging Corp., Alpha Tube Corp., Alabama Metallurgical Corp., Acme Steel Company International Inc., have filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. Company officials also said that it has entered into an agreement in principle, subject to bankruptcy court approval, with BankAmerica Business Credit Inc., a subsidiary of Bank of America National Trust & Savings Association, to obtain postpetition debtor-in-possession financing. The agreement is for a 24 month working capital facility that will provide a secured line of credit up to $100 million to fund short term cash needs. The company said it believes that such funds, together with current cash on hand will provide the liquidity for normal day-to-day operations, including honoring all postpetition trade and employee obligations. Acme Metals said it filed its voluntary petitions for reorganization under Chapter 11 after management determined that action was required at this time to preserve the operational strength and assets of the company's businesses while their debt is restructured. Stephen D. Bennett, president and CEO said, ''The decision to enter the Chapter 11 reorganization process was a very difficult step for us to take. We carefully considered all the alternatives and what effect such a reorganization would have on our shareholders, employees, customers, creditors, vendors and on the community and, on balance, we believe this was the best course available to us. ''Our business will continue and we intend to reorganize and exit Chapter 11 as soon as possible,'' he added. BRUNO'S: Comparable Store Sales Drop 13.7% ------------------------------------------ Bruno's comparable-store sales continued to plummet during the second quarter,falling 13.7% on top of an 8.7% decline last year. (F&D Reports 28-Sept-98) CELLPRO: Announces Asset Sale and Resignation of CEO ---------------------------------------------------- CellPro, Incorporated (Nasdaq:CPRO) announced that it has executed a letter of intent to sell essentially all of its intangible assets and intellectual property to Nexell Therapeutics, Inc., a subsidiary of VIMRx Pharmaceuticals, Inc., for $3 million in VIMRx registered securities. CellPro also agreed to appoint Baxter Healthcare Corporation as its exclusive worldwide distributor of a limited number of disposable kits for its CEPRATE SC Stem Cell Concentration System. Additionally, the company has agreed to settle all issues remaining outstanding in its ongoing patent litigation with Baxter, John Hopkins University and Becton Dickinson & Company for payments totaling approximately $15.6 million. The letter of intent contemplates that CellPro will discontinue all operations other than the manufacturing and service functions necessary to support a limited quantity of CEPRATE SC kits, intended to ensure the medical community has continued access to stem cell selection technology. The letter of intent also contemplates that consummation of the sale transaction will be conditioned upon court approval of bankruptcy plan of reorganization to be filed promptly after execution of definitive agreements. In connection with the announcements made today, CellPro will discontinue its European operations. Workforce reductions resulting from the announced transactions will affect approximately 93 employees worldwide, and include the resignation of Rick Murdock, President and Chief Executive Officer. The biotech company also has settled all issues remaining in its patent litigation with Baxter Healthcare Corp., John Hopkins University and Becton Dickinson & Co. and will pay about $15.6 million. In August a U.S. appeals court ruled CellPro has infringed patents during the development of a bone marrow transplant system, according to Reuters. COMPREHENSIVE HOME HEALTH CARE: Forced Into Bankruptcy ------------------------------------------------------ In an unusual move that affects a class-action federal lawsuit, Medshares Inc. forced a financially bleeding home health care company it manages into Chapter 11 bankruptcy last week. The involuntary bankruptcy petition automatically halts the lawsuit filed against Wilmington- based Comprehensive Home Health Care, Memphis-based Medshares and eight other companies. Employees of Comprehensive sued in U.S. District Court in Wilmington in August on behalf of all employees in North Carolina who lost insurance benefits for two months this year after Medshares took over management of Comprehensive's operations in the Carolinas. Medshares filed its petition for involuntary Chapter 11 on Sept. 18. Bankruptcy lawyers said that's a rare procedure made even more unusual because both the creditor, Medshares, and Comprehensive are defendants in a pending lawsuit. Lawyers who specialize in bankruptcies said the action automatically halts all lawsuits against Comprehensive. Chapter 11 filings typically are used to protect a business from claims while it reorganizes itself and continues to operate. But it's not clear whether the bankruptcy in this case was a move Medshares made to protect itself from the lawsuit. "We're hoping that it is not," said Joel Rhine, a Wilmington lawyer representing the employees. "We're going to try to give them the benefit of the bargain until we determine whether they are trying to hide." "That would be an interesting motive," said Al Butler Jr., a Wilmington bankruptcy lawyer who acts as a trustee in other cases. Mr. Butler is not connected to this case, but he said Medshares benefits from the automatic stay now slapped on the lawsuit. "Obviously we're disappointed by any delays that could cause our clients, however there are a substantial number of defendants that have liability in this case," Mr. Rhine said. The lawsuit alleges employees were left with medical bills when payments to company insurance plans stopped. The employees allege the companies conspired to take payroll deductions for benefit plans and use them for other business ventures. The lawsuit is intended to cover Comprehensive employees across the state and alleges the problem began when Medshares took over management of the Wilmington company on April 1.The lawsuit alleges fraud, negligence, breach of contract, theft and racketeering. Though halting the lawsuit is one effect of the Chapter 11 bankruptcy, there are others. Comprehensive has been in a state of financial crisis since last year. Going into bankruptcy may allow the company to operate while it reorganizes to get back on its feet. Meanwhile, the company has taken other, internal steps. Three days before the bankruptcy filing, Comprehensive management notified employees that a 3.1 percent across- the-board pay cut would become effective Sept. 16, according to a company memo. The memo said the action was necessary because monthly visits, a measure of business volume in the home care industry, "have been steadily declining" by as much 50 percent in the last three fiscal quarters. According to Mr. Butler, the trustee in this case will have to make one of three recommendations to a bankruptcy judge: * Dismiss the petition, putting Comprehensive and Medshares back in their previous legal and financial positions. * Convert the bankruptcy from Chapter 11 to Chapter 7, which would mean liquidation of Comprehensive and an end to the company. * Convert the involuntary Chapter 11 petition to a permanent Chapter 11 bankruptcy, which could still allow a lawsuit to move forward but protect the companies from legal and financial claims against them. Mr. Butler said that in both the Chapter 7 and Chapter 11 scenarios, the action "would have a real chilling effect on the plaintiff." It's possible the employees would have to weigh the benefit of pursuing a lawsuit in those situations against the company's assets and the legal complications. (Morning Star Wilmington - 09/26/98) HILLS STORES: Poor Operating Results ------------------------------------ Hills Stores Company's poor operating results have reversed any optimism expressed by factors and analysts earlier in the year. Proof is found in the precipitous decline in the price of the Company's 12.5% Senior Notes. In early July the Notes were hovering around $100, but have since plummeted to $42. (F&D Reports 28-Sept-98) HOMEOWNERS MORTGAGE: Seeks Authority to Sell Assets --------------------------------------------------- The debtor, Homeowners Mortgage & Equity, Inc., is seeking authority to sell FHA Title I Loans by private sale. As a result of cooperative efforts between the debtor and Guaranty Federal Bank, the debtor agreed to market certain loans under the "Warehouse Line." The debtor had a warehouse line of credit with Guaranty Federal Bank, FSB which allowed the debtor to borrow 100% of the face amount of the loans up to an aggregate indebtedness of $20 million. The debtor negotiated a contract with Paladin Financial, Inc. for the sale of certain FHA Title I Loans securing the Warehouse Line. The purchase price paid by Paladin will be 90% of the unpaid principal balance existing on the Loans at the date of closing plus accrued interest on each Loan up to the date of closing, plus the amount of any FHA insurance premiums. The prospective purchaser, Paladin, has conditioned its obligation to purchase the loans on a closing date no later than September 28, 1998. KIA MOTORS: 3rd Auction May Be Sweeter -------------------------------------- Creditor banks said Monday they would sweeten the terms of a third auction to sell off bankrupt Kia Motors Corp., presumably by swallowing more of its debt. An official at Kia's largest creditor, state-run Korea Development Bank, said officials want to make sure the automaker is sold this time, following two previous failed auctions. Various news media said the banks had agreed to write off up to $3.2 billion of Kia's $8.4-billion debt. They earlier had agreed to write off $2.1 billion, but that didn't satisfy potential buyers who wanted further debt reductions. (Detroit News; 09/29/98) LOT$OFF: Plans To Maximize Shareholder Value -------------------------------------------- LOT$OFF Corporation (OTC BB:LOTS) announced its plans to "maximize shareholder value," including "collecting on significant judgments with respect to important litigation brought by the Company." CEO Charles "Hop" Fuhrmann stated that "the Company is clearly focused on collecting on the substantial award obtained as a result of a jury verdict against Chase Manhattan Bank" (NYSE:CMB). "We have been very patient in trying to reach satisfactory resolution with defendant Chase; we intend to vigorously pursue collection of the award for our shareholders." As previously reported, the Company has received a jury verdict and substantial judgments in its favor from a lawsuit related to certain parties' breaches of contractual obligations to purchase 1,500,000 shares of its predecessor's common stock and actions in misappropriating and removing these shares from an escrow account prior to payment for such shares. In November 1994, the Company's predecessor received subscriptions for approximately 1,810,000 shares of its common stock in a Regulation S offering to qualified investors. Net proceeds of approximately $861,000 were received from the sale of 310,000 shares, and the Company recorded a subscription receivable for the purchase agreements for 1,500,000 shares for which proceeds were never received. On Feb. 21, 1995, a lawsuit (Case No. SA-95-CA-0159) was filed in the United States District Court in San Antonio, Texas, against certain companies and individuals in connection with the theft of the 1,500,000 shares of common stock which certain of the defendants had agreed to purchase at $3.65 per share. Among other counts, the lawsuit alleged breaches of contracts, securities fraud, conspiracy and conversion. The conversion claim related to actions of the defendants in the transferring, selling and trading of the shares despite the fact that the defendants had never paid for such shares. The lawsuit sought recovery of actual and punitive damages and pre- and post- judgment interest. On Oct. 14, 1997, the trial of this case began, and, on Nov. 20, 1997, at the close of evidence, the Company obtained a jury verdict against Chase Manhattan Bank on its claim of conversion in the amount of $150, 975,000, representing $12,975,000 in actual damages and $138,000,000 in punitive damages. On Nov. 21, 1997, the Company moved the court to enter a final judgment against Chase in the amount of $148,575,000, which reflects the jury's verdict, minus a credit for another defendant's prior settlement amount. On Dec. 4, 1997, the court entered a judgment against Chase in the Company's favor for $148,575,000, plus costs of court, pre-judgment interest on $12,975,000 at 10% per annum from Nov. 18, 1994, until Dec. 4, 1997, and post- judgment interest on the entire judgment amount at 5.42% from Dec. 4, 1997. Subsequently, Chase filed five post-judgment motions with the court: motion for new trial; motion to alter or amend the judgment; renewed motion for judgment as a matter of law; motion to apply a settlement credit and motion for leave to conduct oral deposition; and motion for hearing. On Feb. 23, 1998, the court, having considered such motions, the supplements to such motions, the response of the Company to such motions and the entire record in the cause, denied all of Chase's post-judgment motions. Chase appealed the judgment entered by the court to the Fifth Circuit Court of Appeals in New Orleans. The Fifth Circuit Court of Appeals requested and arranged a pre- hearing conference among the parties in New Orleans on May 14, 1998. The parties were unable to reach a resolution at such conference, and, while discussions have continued, there is no sign of resolution by settlement. On Aug. 6, 1998, Chase filed its appeal brief with the Fifth Circuit Court of Appeals, and the Company has until Oct. 8, 1998, to file its response. In addition to the verdict against Chase, the Company obtained a $30, 000,000 default judgment against Yanni Koutsoubos on its claims for violation of Section 10b-5 of the Securities Exchange Act and common law fraud on Nov. 20, 1997. Such judgment represents $10,000,000 in actual damages and $20,000,000 in punitive damages. On April 6, 1998, the court entered default judgments against Betafid S. A., Andalucian Villas (Forty-Eight) Limited, Arnass Limited and Brocimast Enterprises Limited on the Company's claims for violations of Section 10b-5 of the Securities Exchange Act and common law fraud. Such judgments total $114,375,000, plus pre-judgment interest on $12,975,000 at 10% per annum from Nov. 18, 1994, until April 6, 1998 and post-judgment interest on the entire amount at 5.31% from April 6, 1998. As stated above, the Company intends to vigorously pursue the substantial judgment obtained against defendant Chase in the above matter. The Company, based upon advice from counsel, believes that it will obtain a favorable result in the appeal of the judgment against defendant Chase referenced in the above proceeding. To the extent reasonable, the Company intends to vigorously pursue the collection of the sums owing to the Company as per the judgments that have been obtained against the other defendants, especially Mr. Koutsoubos, although the collection of these judgments is uncertain. The Company is represented by counsel in these matters on a contingency fee basis. MARVEL ENTERTAINMENT: Minority Shareholders Can Lose ---------------------------------------------------- It reads like a story line lifted from a comic book: two superheroes do battle, blurring the line between virtue and villainy. In the process they lay waste to their surroundings and a few innocent bystanders are rubbed out. For Marvel Entertainment Group Inc., this was no fantasy. The superheroes at war were billionaire financiers and sometime corporate raiders Ronald Perelman and Carl Icahn. In their legal struggle for control of comic-book king Marvel, two of the world's richest men may have speeded its demise. The innocent bystanders in this story were the common shareholders of Marvel stock. The saga at the company, which is guardian of such heroes as Spider Man, culminated this month in a court-adjudicated settlement that will see Marvel merge with New York's Toy Biz Inc. It raises questions about what happens to minority shareholders when powerful investors buy into a company. Such investors as Perelman and Icahn tend to arrive on the scene when a company is in trouble or undervalued in some way. For seriously troubled firms like Philip Services Corp. and Sunbeam Corp., other shareholders may see them as avenging angels. But as the Marvel story shows, investing alongside them can be hell. In the case of Marvel, Icahn's High River LP owned about US$40 million of the company's bonds, which pitted him against equity- holder Perelman for control of the flailing company. Icahn contested a reorganization by Perelman, which he said would diminish bondholders' investment, and eventually seized control of the company's equity, which had been offered as collateral on the bonds. His first move was to send Perelman packing and try to take control of Marvel himself. The protracted legal fight was resolved only when the court appointed a trustee to help steer the company through bankruptcy protection. That trustee, retired judge John Gibbons, had to satisfy dozens of constituents. In the end, the bondholders got paid in cash and stock in the newly formed partnership of Marvel and Toy Biz. Icahn is also to receive US$3.5 million for legal fees. Holders of Marvel stock, which fell from US$13 in early 1996 to about US18 cents, will receive a range of warrants to purchase shares in the new company. Perelman, through holding company MacAndrews & Forbes, is the second-largest shareholder in appliance maker Sunbeam, having sold it Coleman Co. in March in return for stock. Because the value of that stock subsequently plummeted 80% on news Sunbeam may have overstated its 1997 sales, Perelman had grounds to sue the troubled firm. Instead, Sunbeam offered him 23 million warrants, priced at US$7. That will double his stake in the company to 28%. Even though exercising those warrants represents a 23% dilution, Sunbeam shares rose on the news. That's partly because a crippling lawsuit had been averted, but partly too because investors have confidence in Perelman, analysts say. Those same investors now own stock that will be worth less after the warrants are exercised, yet the stock rose 30% the day the deal was struck - offering quantifiable evidence of their confidence in Perelman. Not all investors cheered Perelman's greater role at Sunbeam, where he has installed a new chief executive and a new board member. "I haven't found that investing along with Ron Perelman has been a successful strategy over time," says Joe Kinnison, money manager at American Express Financial Advisors. "When push comes to shove, Ron gets paid and the rest of us don't." (Financial Post Toronto-08/29/98) MERIS LABORATORIES: Milbank, Tweed Leads Sale --------------------------------------------- The law firm of Milbank, Tweed, Hadley & McCloy obtained bankruptcy court approval of sale and overbid procedures regarding the proposed sale of substantially all the assets of Meris Laboratories, Inc. top Unilab Corporation for approximately $16.5 million. The purchase price consists of a convertible subordinated note for $14 million and $2.52 million in liabilities payable to Meris in equal installments over 72 months. The sale is planned for late October. Meris previously filed a voluntary petition to reorganize under Chapter 11. NATURAL GAS VEHICLE: Case Summary & 20 Largest Creditors -------------------------------------------------------- Debtor: Natural Gas Vehicle Systems, Inc. 5580 Cherry Avenue Long Beach California 90805 Court: District of Delaware Case No.: 98-2163 Filed: 09/24/98 Chapter: 11 Debtor's Counsel: Francis A. Monaco, Jr., Walsh & Monzack, PA 400 Commerce Center 1201 N. Orange Suite 400 Wilmington, Delaware (302) 656-8162 20 Largest Unsecured Creditors: Name Nature Amount ---- ------ ----- Deltec Asset Management corp. Unsec.Noteholder $2.6 M Deltec Asset Management Corp. Unsec.Noteholder $2.5 M Caithness/NCF, LP Unsec.Noteholder $1,316,483 Equitable Resources Energy Unsec. Noteholder $300,000 Pickens Fuel Corp. Unsec. Noteholder $250,000 Green Fuels, Inc. Unsec. Noteholder $232,604 Lindberg Heat Treating Co. Trade Debt $182,967 Riordan & McKinzie Professional Fees $134,439 Orrick, Herrignton Professional Fees $115,000 Spectrulite Consortium Inc. Trade Debt $107,287 Caithness Corporation Unsec. Noteholder $100,000 Norman C. Fawley disputed $98,613 Reed Smith Shaw & McClay Professional fees $91,963 Southland Partners Unsec. Noteholder $61,042 GFI Control Systems, Inc. Trade Debt $6,698 Hoke Controls Trade Debt $45,190 Stern Properties, LP Unsec. Noteholder $42,897 Fawpeas LP Unsec. Noteholder $41,942 CMI/Composite Materials Trade Debt $38,124 KTS Services, Inc. Trade Debt $35,592 PHARMHOUSE CORP: In Default of Requirements for Lender ------------------------------------------------------ Pharmhouse Corp. was in default of its minimum net worth and EBITDA covenant requirements during the second quarter, subsequent to which its lender waived the non-compliance for the quarter. The covenant default is particularly disconcerting since it came only three short months after the Company entered into the facility. (F&D Reports 28- Sept-98) PHILIPPINE AIRLINES: To Resume Flying Next Week ----------------------------------------------- PHILIPPINE Airlines (PAL) said on Monday that it will resume flight operations next week under an agreement brokered by President Joseph Estrada between the management of the debt- ridden airline and its unions. PAL had ceased flying last Wednesday, forcing the U.S. Export-Import Bank to seize two of the airline's Boeing 747- 400s. Its closure severely hampered domestic air traffic, in which it had a near 80% share. Estrada, facing the first crisis of his 91-day presidency, brokered a charter agreement last weekend between a state- run investment firm and Cathay Pacific Airways to cover the shortage of flights and the Hong Kong carrier began flying six daily flights earlier today. Estrada said PAL's ground crew union wrote to him today essentially agreeing to chairman and majority shareholder Lucio Tan's strategy to return the flag carrier to profit and repay its $2.1 billion debt. It calls for a strike-free environment for 10 years in exchange for 3 billion pesos' ($68.3 million) worth of shares representing 20% equity plus proportional board seats. Management will be given leeway to pare the work force to as low as 5,000 from the more than 8,000 workers at present, with early retirement packages offered. The airline has been in receivership for two months after a 22-day pilots' strike forced PAL to suspend debt payments. Estrada said he ordered the country's corporate regulator, the Securities and Exchange Commission, to revise PAL's rehabilitation plan and request to creditors that "since PAL planes are already being confiscated, that it be given a chance to restructure PAL's debts since the union and management have reached an agreement." (Futures World; 09/28/98) PINNACLE BRANDS: Seeks Approval of Asset Purchase Agreement ----------------------------------------------------------- The debtors, Pinnacle Brands, Inc., and its affiliated companies, seek a court order authorizing and approving an asset purchase agreement with Playoff Corporation. The agreement for the purchase has not yet been finalized, however, the total consideration for the Assets is estimated by the debtors to be approximately $10 million. The assets to be sold to the buyer include the inventory accounts receivable, all trademarks and tradenames, and certain other tangible and intangible assets. The buyer will acquire substantially all of the debtors' sports trading cared assets. PINNACLE BRANDS: Status of Case -------------------------------- The debtor, Pinnacle Brands, Inc. was ordered by court to submit a case status letter on behalf of the debtor and its affiliated debtors. During the calendar year ended December 31, 1997, the debtor generated net sale of approximately $124.5 million. As of March 29, 1998, the debtor reported unaudited balance sheet assets of approximately $69 million and unaudited balance sheet liabilities of approximately $300 million. In July, 1998, the court approved the Financing Motion of the debtors on an interim basis, and the final hearing was continued to October 2, 1998. The Creditors' Committee has filed an objection to the financing motion. Shortly prior to the filing Date, each of the major league licensors gave notice to the debtor of the termination of their license agreements. The debtors sought a TRO and preliminary injunction to restrain the baseball and hockey leagues from destroying inventory. The court denied the TRO. Although a Letter of Intent between Toy Biz and the debtor expired by its own terms, the court ordered a Bidding Procedures Order, requiring bids by September 21, 1998 with an auction scheduled for September 25, 1998 and a hearing for the highest bidder set for October 2, 1998. The debtor is seeking a key employee retention and severance program and on September 4, 1998 the Creditors' Committee filed a motion to dismiss the cases. SMITH CORONA: Financial Results For Fourth Quarter -------------------------------------------------- Smith Corona Corp. (Nasdaq:SCCO) Monday announced financial results for the fiscal year and fourth quarter ended June 30, 1998. Concurrently, the company announced a set of key initiatives designed to accelerate new product development, marketing and sales; reduce expenses; and ultimately maximize stockholder value. For the year ended June 30, 1998, the company reported a net loss of $6.6 million, or a loss of $2.36 per share, on sales of $58.9 million, compared with net income of $7.3 million, or $2.96 per diluted share, on sales of $77.3 million. The continuing worldwide sales decline in the company's core electronic typewriter and supplies business was partially offset by $3.8 million in sales of new telecommunications products introduced in 1998. Results in fiscal 1998 reflect an extraordinary gain of $1.2 million and a nonrecurring gain on the sale of manufacturing operations of $3.9 million, while results in fiscal 1997 reflect an extraordinary gain of $8.1 million and benefit plans curtailment gains of $9.9 million. For the fourth quarter ended June 30, 1998, Smith Corona reported a net loss of $4.4 million, or a loss of $1.51 per share, on sales of $12.0 million, compared with net income of $4.9 million, or $1.89 per diluted share, on sales of $16.9 million. Included in last year's fourth quarter is a nonrecurring gain of $6.5 million due to a change in post-retirement benefits. "During the past year, Smith Corona moved away from its manufacturing roots and stepped onto a new road as a marketing and sales organization of technology products targeted primarily to the small office/home office market," stated Peter N. Parts, chairman, president and chief executive officer. "In 1998, we launched 15 new products, and we have several new products in the pipeline, including a PC-phone resulting from a relationship with Mitel Corp. "We continue to believe our key assets are the size of our distribution network and the value of the Smith Corona brand name. Our plan is to rapidly transition Smith Corona from a manufacturing company to a sales and marketing company with strategic growth to come from new products. "To implement this strategy, we intend to institute a series of key initiatives designed to improve Smith Corona's competitive capabilities while creating a lean, efficient and marketing-focused operating structure." The company's restructuring program will encompass the following near-term actions: Reducing operating budgets to fit current and anticipated revenues; Developing the appropriate sales and marketing infrastructure and corporate organization in line with the company's new focus; Eliminating more than 100 positions from the current employee level of approximately 225; Increasing product sourcing by reaching beyond current geographic markets with leading-edge technology partners; and Improving business processes, market access and competitive capabilities by relocating to more efficient facilities and selling or leasing the facility in Cortland. Parts indicated that the development of the new corporate organization would begin immediately and should conclude by fiscal year-end, or June 30, 1999. The company will be initiating contact with area businesses regarding job opportunities for former Smith Corona employees. As a result of the restructuring program, the company will record a first-quarter pre-tax charge of approximately $1.2 million primarily related to employee severance. Parts indicated that the "entire management team, from middle managers on up," has developed a business strategy that identifies key growth areas in product sourcing, sales and marketing, operational effectiveness, human resource development, and future business opportunities. "We have created a complete framework for growth that incorporates the best thinking and greatest expertise, both inside and outside the company," he affirmed. "This is a well-defined road map with the kinds of line-action items and metrics to guide the company's future. I believe that the steps we are taking will position Smith Corona for successful, profitable growth." Smith Corona has attracted new management talent in recent months to fill positions in marketing, purchasing and sales to fit the company's changing needs. Additionally, at the senior management level, the company Monday named Martin D. Wilson, vice president/controller, to the position of senior vice president and chief financial officer, effective Oct. 1. Wilson, 38, replaces John A. Piontkowski, who resigned from the company but will continue to work with Smith Corona on a consulting basis. SMITH CORONA: To Cut Almost 45% of Workforce -------------------------------------------- Smith Corona Corp. said Monday it would cut almost 45 percent of its workforce due to continuing declines in its core electric typewriter business. Its decision to cut more than 100 jobs from its current level of about 225 is part of a plan to move away from manufacturing to marketing and sales of technology products primarily for small offices. Cortland, N.Y.-based Smith Corona said it would take a $1.2 million pretax charge in the first quarter of 1999 primarily related to employee severance. The company said it would reduce operating budgets to fit current and anticipated revenues, and would relocate, selling or leasing its Cortland, N.Y., facility. The company unveiled the restructuring as it reported a net loss for the fourth quarter ended June 30 of $4.4 million, or a loss of $1.51 per share, on sales of $12 million. Last year it had net income of $4.9 million, or $1.89 per diluted share, on sales of $16.9 million. The company stopped making typewriters in November, 1997, and now outsources the manufacture of Smith Corona products. The company has expanded from typewriters to products such as wireless phones, fax machines and personal electronic organizers. Smith Corona stock was not trading Monday. It closed Friday at $2.75 on Nasdaq. SUNBELT NURSERY: Seeks To Employ Real Estate Brokers ---------------------------------------------------- Sunbelt Nursery Group, Inc. applied to the court to employ CB Richard Ellis, Inc. as real estate brokers THE CARE GROUP: Case Summary & 20 Largest Creditors -------------------------------------------------- Debtor: The Care Group, Inc. 267 Park Avenue South Suite 12A New York, NY 10010 Type of business: Debtor is in the home health care and mail order medication business. Court: Western District of Texas - Austin Division Case No.: 98-13247FM Filed: 09/15/98 Chapter: 11 Debtor's Counsel: Vincent L. Hazen Hazen & Terrill 111 Congress Avenue Suite 500 Austin, Tx. 78701 (512) 477-3997 Total Assets: $5,200,000 Total Liabilities: $14,000,000 No. of shares of preferred stock 0 0 No. of shares of common stock 15,000,000 299 20 Largest Unsecured Creditors: Name Nature Amount ---- ------ ------ Jack Gutkin Trade Debt $475,000 United Healthcare Trade Debt $347,000 McDermott Will & Emery Trade Debt $173,946 Deloitte & Touche Trade Debt $140,000 M. Parisi & Son construction Trade Debt $84,854 B. Braun Medical Trade debt $21,835 Bergen Brunsweig Trade Debt $27,034 Bio Compression Systems Trade Debt $62,857 Nellcor Puritan Bennett Trade Debt $27,076 Equity Dynamics Trade Debt $59,000 Financial Support Trade Debt $32,045 Health Coalition Trade Debt $24,581 Healthcare Financial Staffing Trade Debt $22,012 Izanus Homecare Trade Debt $36,187 Cogen Technologies Trade Debt $18,636 McKesson General Medical Trade Debt $49,349 Medical Specialties Trade Debt $78,247 Medic PRN Trade Debt $30,047 Meeker, Sharkey, & McBean Trade Debt $56,000 Jenkins & Gilcrest Trade Debt $50,000 UNISON HEALTHCARE: Kremser Group Objects to Plan ------------------------------------------------ The Kremser Group, ("Kremser") a creditor of the debtor files an objection to the joint plan of reorganization. Kremser states that the information in the Disclosure Statement is inadequate, and that the liquidation analysis is inadequate and inaccurate. Kremser states that the Disclosue Statement fails to provide creditors with information regarding the assets and liabilities of each of the individual debtors, it fails to adequately analyze alternatives to the plan, and it fails to provide any information regarding the nature and amount of administarative and professional fees that will be reimbursed under the plan. VENATOR GROUP: Selling 357-Store German Woolworth's ---------------------------------------------------- Venator Group is selling its 357-store German Woolworth's operations for $552 million to a management-led team backed by London-based Electra Fleming. In connection with the transaction, Venator Group expects to receive after tax, net proceeds of $440 million and an after-tax gain on discontinued operations of approximately $16 million. In 1997, the division generated sales of approximately $1.3 billion and operating income before non-recurring items of approximately $16 million. The sale comes a week after it announced it will close its Kinney and Footquarters footwear chains, which the Company said would allow it to "strategically focus" on its most productive operations. (F&D Reports 28-Sept-98) WESTMORELAND COAL: Fights The Funds ----------------------------------- For the past two years, Westmoreland Coal has been involved in the fight for its life against the United Mine Workers of America 1992 Benefit Plan, the UMWA 1974 Pension Trust, and the UMWA Combined Benefit Fund, all of which are collectively known as "the Funds." The last round of its Chapter 11 bankruptcy, which began Dec. 23, 1996, and was precipitated by the amount Westmoreland owed the Funds, was expected to have been fought last week when competing plans for reorganization were heard before the bankruptcy judge. But, Westmoreland instead filed for a dismissal of the case, prompting more briefs and a continuance to October. The dismissal motion cited "exceptional improvement in {Westmoreland's} financial condition ... and substantial changes in the law since the filing of these cases..." Westmoreland's second quarter report looks significantly stronger than in the prior year period. The company reported net income of $36.3 million, compared to a net loss of $554,000 for the same quarter in 1997; operating income of $46.5 million, compared to operating income of $3 million for the second quarter 1997; and an increase in sales of coal from its subsidiary Westmoreland Resources Inc. to 1.63 million tons from 1.56 million tons sold during the same period last year. The improvement in financial status comes primarily from the restructuring of the Rensselaer Cogeneration Project with the Niagara Mohawk Power Corp., which netted Westmoreland approximately $30 million in cash. The "changes in the law" refer to two cases in which coal companies have used differing arguments to limit or remove their liability under the 1992 Coal Act. The Coal Act established a statutory obligation to fund lifetime healthcare benefits for retirees of the coal industry. The case of Kenneth A. Rushton, trustee of the estate of Sunnyside Coal Co. vs. the Funds changed the premiums to administrative taxes that are due and payable on a current basis, even throughout the bankruptcy process--whether it is a Chapter 11 reorganization or a Chapter 7 liquidation. Because of this decision, Westmoreland no longer has the $146.1 million debt to the 1992 Plan for present and future premiums. Instead, it owes a smaller sum plus security and interest, which it said it couldn't pay in 1996--but can pay now. The Funds disagree with this decision. They say Westmoreland should still have to pay the $146.1 million debt--instead of the lesser amount that it now can and must pay--rather than allowing the bankruptcy judge to overrule the earlier decision. Westmoreland's dismissal brief says the company will "immediately pay in full all undisputed claims, in cash, with interest; provide security as is required by ... the Coal Act, (approximately $20.8 million) by the dismissal date; meet all of its presently foreseeable obligations, including future premiums {assessed by the funds}; and reinvest a significant residual cash balance in new opportunities in an effort to increase the company's value..." According to the Funds' briefs, they also believe that dismissal would be better than conversion to a liquidation of the company. A plan for liquidation was filed by The Equity Committee, which formed in June to file a competing plan or reorganization that benefits shareholders. While Westmoreland says it has the means to pay its obligations and comply with the Coal Act, the Funds are "suspicious and skeptical." "... there is considerable reason for suspicion and skepticism about Westmoreland's most recent turnabout," says the brief in opposition to Westmoreland's dismissal motion. "This case has demonstrated Westmoreland's devotion to whatever theory is likely to serve its interests at any particular time, without regard to the consistency of its positions." The briefs say that if the dismissal is the preferred option of the court, that significant conditions should be placed on Westmoreland to ensure its compliance with the dismissal and the Coal Act, including "additional collateral to secure future payment." The Funds want to further limit Westmoreland's ability to continue to try to reduce its premiums by limiting "Westmoreland's ability to relitigate issues decided during the bankruptcy, including the proper legal characterization of Coal Act premiums, constitutionality of the Coal Act, and Westmoreland's claims concerning the use of Medicare- risk plans to reduce Coal Act premiums." Westmoreland has stated publicly and to the court that it plans to continue to litigate certain points regarding its heritage costs. Also, it believes that the decision in the case of Eastern Enterprises will cause significant rewriting or amendment of the Coal Act. Under the Coal Act, Eastern Enterprises was assigned beneficiaries as a "super reachback" company, which means that it was in the coal business and employed certain workers longer than any other coal company and thus was responsible for the lifetime benefits of these workers and their dependents. Eastern fought the assignment of 1,000 beneficiaries along with the debt of millions of dollars to take care of them. Eastern said the assessment violated the "Takings" and the "Due Process of Law" clauses of the U.S. Constitution. The U.S. Supreme Court decided in favor of Eastern, saying that the case met the three criteria of the "Takings" clause. The three criteria are, "the economic impact of the regulation, its interference with reasonable investment backed expectations, and the character of the governmental action." Eastern's economic impact was substantial--$50 million to $100 million. Because it had been out of the coal business for so long, it had no way of figuring such a large liability into its investment- backed expectations. The Justices further went on to say that they did not feel a need to address the "Due Process of Law" issue, but a dissenting opinion said that this clause was a better reason to rule in favor of Eastern. The Funds believe that this small part of the Coal Act can be severed from the statute without impacting the Act, the Funds, or the obligation of other coal companies such as Westmoreland. Thus, no sweeping changes or amendments loom on the horizon to reduce Westmoreland's obligations. In the meantime, Westmoreland continues to look for other opportunities to improve its bottom line in order to continue as a going concern and meet their obligations to their retirees and workers. And they await the decisions being made in courtrooms across the country, including the bankruptcy court in Denver. (Copyright Colorado Springs Business Journal Inc. Sep 14, 1998 Coast Business Gulfport - 09/14/98) ********* The Meetings, Conferences and Seminars column appears in the TCR each Tuesday. Submissions via e-mail to conferences@bankrupt.com are encouraged. Bond pricing, appearing each Friday, is supplied by DLS Capital Partners, Dallas, Texas. S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter is a daily newsletter, co- published by Bankruptcy Creditors' Service, Inc., Princeton, NJ, and Beard Group, Inc., Washington, DC. Debra Brennan and Lexy Mueller, Editors. Copyright 1998. All rights reserved. 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 * * *