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/raid1/www/Hosts/bankrupt/TCR_Public/990811.MBX T R O U B L E D C O M P A N Y R E P O R T E R Wednesday, August 11, 1999, Vol. 3, No. 154 Headlines AB AIRLINES: Administrator Optimistic To Find Buyer ALTA GOLD: Temporarily Suspends Mining at Olinghouse AQUA VIE: Expects To Be Publicly Trading Within The Month BMJ MEDICAL: Seeks Extension for Filing Proofs of Claim DANKA BUSINESS SYSTEMS: Sells Facsimile Division FAVORITE BRANDS: Bar Date To File Proofs of Claim FORCENERGY: Seeks Authority To Assume Drilling Contract FORCENERGY: Seeks To Enter Farmout Agreement With Newfield GSS STEEL: Taps Lazard Freres & Co LLC as Investment Banker HAMILTON COUNTY MARINA: Fire Adds Fuel To Bankruptcy Woes HARNISCHFEGER: Taps Winston & Strawn As Special Counsel HECHINGER: Sale of Certain Real Property Located in Niles, IL IRIDIUM: Debt Restructuring with Creditors IRIDIUM: Dim Prospects For Equity Shareholders KENWIN SHOPS: Court Enters Order Confirming Plan LAURIAT'S: Buck-A-Book Is Awarded Five Locations LEATHERMODE: Plan To Emerge With $8 Million From Paragon MERRY-GO-ROUND: Law Firm Had Ties to Ernst & Young MUSTANG RANCH: Brothel Take-Over Leaves Prostitutes Unemployed NATURADE: Court Approves Settlement with Performance Nutrition NEXTWAVE: Federal Judge Rejects FCC Claim PARAGON: Settlement Agreements with P&G and K-C Approved PITTSBURGH PENGUINS: Lemieux's Group Still Cannot Agree on Arena RAYTECH: Announces Second Quarter Results SERVICE MERCHANDISE: Court Finds Sale of BA Pargh Reasonable SERVICE MERCHANDISE: Seeks More Time To Assume/Reject Leases SPECTRAN: Reports Second Quarter/Six Months Results TELETRAC INC: Court Approves Professionals TELECTRAC,INC: Seeks Approval of Stipulation and Relief From Stay THE COSMETIC CENTER: Applies to Retain KPMG Peat Marwick TOWN & COUNTRY: Final Order Authorizing Cash Collateral Use WIRELESS ONE: Seeks Order on First Amended Disclosure Statement ********** AB AIRLINES: Administrator Optimistic To Find Buyer --------------------------------------------------- COMMUTER/REGIONAL AIRLINE NEWS reports on August 9, 1999 Reports that administrators appointed to find a buyer for British short-haul operator AB Airlines are confident the carrier can be sold as going concern "within weeks." On Aug. 3, following the announcement earlier that day of his appointment, Peter Copp of BDO Stoy Hayward, tapped to handle the sale, told C/R News that he had already received approaches from "a number of parties" and that there would be more interest. "I have been inundated with calls," he said. Financial administration in Britain is roughly equivalent to U.S. Chapter 11 bankruptcy protection and occurs "when people can't pay their debts," said Copp. The short-haul carrier was formed after European liberalization began in 1993. In the year to November 1998, AB Airlines lost Pounds 10.8 million (US$16.2 million), following a loss of Pounds 2.2 million (US$3.3 million) over the year. In 1999 so far, it raised Pounds 5 million (US$7.5 million) through slot sales and Pounds 500,000 (US$750,000) from a shareholder's loan, both made without shareholders' approval (C/R News, July 26, 1999). Floated at Pounds 0.95 (US$1.42) in April 1998, AB stock had appreciated to about Pounds 1.20 (US$1.80) before decaying. In recent weeks, it had traded consistently below Pounds 0.20 (US$0.30) before suspension on July 29 at Pounds 0.13 (US$0.20). A plan to raise Pounds 2.35 million ($3.6 million) through an issue of new shares to pay off loans of about Pounds 900,000 (US$1.4 million) and to provide working capital for continued trading was canceled by the underwriter in late July, forcing the decision to enter administration. AB has paid non-refundable deposits on six Boeing 737-700s. Scheduled London Gatwick services to Nice and Shannon continue to be flown with two British Aerospace One-Elevens. A shareholders' meeting was scheduled for late last week. ALTA GOLD: Temporarily Suspends Mining at Olinghouse ---------------------------------------------------- Alta Gold Co. (OTC:ALTAQ) announced on August 9, 1999 that the company has temporarily suspended mining, crushing and milling operations at Olinghouse. The temporary suspension, which involved approximately 75 workers, was necessitated by the company's need to conserve cash pending a hearing by the U.S. Bankruptcy Court set for Aug. 31, 1999, on the company's motion to dismiss its Chapter 11 bankruptcy proceeding. During this temporary suspension, the company will continue to produce gold from heap-leach processing at both Olinghouse and Griffon. Pending a favorable hearing by the U.S. Bankruptcy Court on Aug. 31, 1999, and the successful consummation of a pending sale of an interest in Olinghouse before the end of August, the company intends to restart mining, crushing and milling operations at Olinghouse shortly thereafter. There is no guarantee that the motion to dismiss will be granted or that the sale will be consummated. In the event that the sale does not take place as contemplated, there is also no guarantee that the company will be able to continue in operation. AQUA VIE: Expects To Be Publicly Trading Within The Month --------------------------------------------------------- Aqua Vie Beverage Corporation -- formerly (OTC BB:AVBC), as of 8/6/99 (OTC BB:AVBCE) -- was one of hundreds of companies to whose stock symbol an "E" was appended on 8/6/99. Aqua Vie announced today that it expects to be in compliance with a Securities and Exchange regulations requiring companies to be fully reporting in order to be publicly traded on the OTC Bulletin Board. The "E" appended to the stock symbol indicates that a security will be ineligible for quotation and subject to removal from the OTC Bulletin Board 30 calendar days from the date the "E" is appended (60 days if denoted with a plus sign ("+"), 90 days if denoted with two plus signs ("++")), unless the National Association of Securities Dealers (NASD) is notified that the company is current with regard to its public reporting requirements pursuant to the regulations. "While the company had hoped to have its filing completed prior to August 6 (the date on which the "E" was appended to its stock symbol), circumstances relating to Aqua Vie's emergence from bankruptcy have complicated the reporting process. However, Aqua Vie is preparing documentation and we intend to be in compliance within the 30-day time frame," said Thomas Gillespie, president of Aqua Vie Beverage Corporation. BMJ MEDICAL: Seeks Extension for Filing Proofs of Claim ------------------------------------------------------- The debtors, BMJ Medical Management, Inc., et al., seek court authority to extend the deadline for the debtors to file proofs of claim on behalf of creditors for an additional two months, through and including October 6, 1999. DANKA BUSINESS SYSTEMS: Sells Facsimile Division ------------------------------------------------- Danka Business Systems PLC completed the sale of its facsimile business, Omnifax to Xerox Corporation for $45 million in cash. Included in the sale are the EBS and dex Business Systems divisions of Omnifax. For the twelve months ended March 31, 1999, Omnifax and its divisions reported revenue of over $110 million and over $13 million in operating profit. Omnifax, headquartered in Austin, Texas, has offices throughout the United States and over 600 employees. Danka Business Systems PLC headquartered in London, England and St. Petersburg, Florida is one of the world's largest independent suppliers of office imaging equipment and related services, parts and supplies. Danka provides office products and services in thirty countries around the world. FAVORITE BRANDS: Bar Date To File Proofs of Claim ------------------------------------------------- The US Bankruptcy Court for the District of Delaware entered an order establishing September 30, 1999 as the last date to file proofs of claim for the purpose of asserting claims against the debtors, Favorite Brands International Holding Corp. and its debtor affiliates. FORCENERGY: Seeks Authority To Assume Drilling Contract ------------------------------------------------------- The debtor, Forcenergy, Inc. seeks authority to assume an amended drilling contract with Pool Company. Pool asserts that the debtor is currently in default under the Drilling Contract. The debtor negotiated a new drilling rate of $16,000 per day, which reflects a sharing of the savings to the estate from not paying "mob" and "demob" charges. The debtor was also able to negotiate a substantial reduction in standby charges. In return, the debtor agreed to cure the arrears under the Drilling Contract by giving Pool a promissory note in the amount of $3.63 million, payable without interest. The debtor has considered alternatives to the amended contract and believes that it is the best agreement available to the debtor and its bankruptcy estate. If the Drilling Contract were to be rejected, Pool would asserta a claim of approximately $7.6 million against the bankruptcy estate, would seek to enforce its mineral contractor's liens, and would claim administrative priority for post-petition services under the Drilling Contract. FORCENERGY: Seeks To Enter Farmout Agreement With Newfield ---------------------------------------------------------- The debtor, Forcenergy, Inc. seeks court authorization to enter into a farmout agreement with Newfield Exploration Company providing for, among other things, Newfield earning the right to an assignment of Forcenergy's and Forcenergy Onshore Inc.'s interest in certain oil and gas leases. Under the terms of the Agreement, Forcenergy and Onshore will grant to Newfield the right to earn as assignment of Forcenergy's and Onshore's undivided 41.667% leasehold interest in certain oil and gas leases in Saint Martin Parish, Louisiana. GSS STEEL: Taps Lazard Freres & Co LLC as Investment Banker ----------------------------------------------------------- The debtor, Gulf States Steel, Inc. of Alabama seeks authorization to retain Lazard Freres & Co. LLC as investment banker to the debtor. The firm will provide the following services: A review and analysis of the debtor's business, operations and financial projections, with the results communicated to the company in writing and/or orally; Evaluating the debtor's debt capacity in light of its projected cash flows; Assisting in the determination of an appropriate capital structure for the debtor; Determining a range of values for the debtor on a going concern basis; Advising the debtor on tactics and strategies for negotiating with the holders of the debtor's existing debt obligations; Rendering financial advice to the debtor and participating in meetings or negotiations with Lenders in connection with any restructuring of the debtor's existing debt obligations; Advising the debtor on the timing, nature and terms of any new securities, other consideration, or other inducements to be offered pursuant to any restructuring; Advising and assisting the debtor in evaluating potential capital markets transactions, including public or private debtor or equity offerings by the debtor, and, on behalf of the debtor, evaluating and contacting potential sources of capital as the debtor may designate, and assisting the debtor in negotiating such a financial transaction; Assisting the debtor in preparing documentation required in connection with the restructuring of the debtor's existing debt obligations; Assisting the debtor in identifying and evaluating candidates for a potential Business Combination, advising the Company in connection with negotiations and aiding in the consummation of a Business Combination, including the undertaking of any appropriate f8nancial analysis in connection therewith; Advising and attending meetings of the debtor's Board of Directors and its respective committees;' Providing testimony as necessary in any proceeding before the Bankruptcy Court, and providing general restructuring advice. The firm will be paid the sum of $100,000 plus a monthly fee of $100,000 is payable on August 5, 1999 and on the fifth day of each month thereafter. In addition, the sum of $250,000 in two equal payments in recognition of the substantial contribution provided by Lazard in arranging the DIP facility, a cash fee based on the Aggregate Consideration, a placement fee or underwriting spread as a percentage of the gross proceeds raised in a Financing Transaction, and a cash fee equal to .75% of Existing Debt Obligations upon the completion of a successful reorganization less the total amounts actually paid to Lazard (the first $100,000 and the monthly fees paid). HAMILTON COUNTY MARINA: Fire Adds Fuel To Bankruptcy Woes --------------------------------------------------------- A fire Monday at a Hamilton County marina consumed 25 boats, sinking the craft in Chickamauga Lake and raising concerns about a possible fuel spill in the thousands of gallons, investigators said. Damages were expected to be in the hundreds of thousands of dollars since the fire hit several massive houseboats. One was carrying about 600 gallons of diesel fuel when it sank. The blaze was under control within 2 hours and crews immediately set out floating booms to contain any oil. The sunken boats could hold between 3,000 and 4,000 gallons of fuel total, but investigators believe the tanks were not full and the fire burned off some of the oil, Tittle said. The Environmental Protection Agency was overseeing the cleanup. Investigators from the Bureau of Alcohol, Tobacco and Firearms and county detectives were trying to learn how the fire started. The marina went into Chapter 11 Bankruptcy last year and is the subject of an $8 million lawsuit filed by Atlanta investors who bought into the property, the Chattanooga Times and Chattanooga Free Press reported last month. The investors claim an accounting firm failed to report wrongdoing by the marina's former manager. They said he hid the fact that the marina was in serious financial trouble. HARNISCHFEGER: Taps Winston & Strawn As Special Counsel ------------------------------------------------------- Since 1997, Chicago-based Winston & Strawn has served as special counsel to the Debtors, assisting in the negotiation of equipment supply and construction contracts. Consequently, W&S is uniquely familiar with the Debtors' businesses and financial affairs. By this Application, the Debtors ask the Court for permission to permit W&S, nunc pro tunc to June 7, 1999, to continue: (a) advising and assisting the Debtors in the formulation, negotiation and drafting of various documents in connection with construction, purchase and supply contracts, as well as various other agreements in connection with Beloit Corporation and its subsidiaries' operations; (b) advising and assisting the Debtors concerning the negotiation, drafting and review of asset purchases/sales, construction, supply, and other operating agreements; and (c) attending meetings and communicating with vendors, purchasers, suppliers and their respective representatives. Winston & Strawn attorneys present designated to render substantial services on the Debtors' behalf in these cases, and their present hourly rates are: Lawrence R. Desideri $375 Terrv John Malik $370 Howard L. Kruse $340 Richard W. Pearse $340 Thomas Vega-Byrnes $290 Timothy J. Oxley $235 Nancy Lynn Carey $230 Charles A. Lande $185 Ankur Gupta $175 Elizabeth A. Nemeth $155 Jennifer Ancel Reiter $140 (Harnischfeger Bankruptcy News Issue 7; Bankruptcy Creditors' Services Inc.) HECHINGER: Sale of Certain Real Property Located in Niles, IL ------------------------------------------------------------- The debtors, Hechinger Investment Company of Delaware, Inc. et al. seek authorization to sell certain real property located in Niles, Illinois to Costco Wholesale Corporation. The purchase price is $8.4 million. Clear business reasons exist to justify the sale. The debtors state that the sale will enhance the debtors' liquidity and increase the prospects of a successful reorganization. IRIDIUM: Debt Restructuring with Creditors ------------------------------------------ The Washington Post reported on August 10, 1999 that Iridium LLC announced that it is close to reaching an agreement with creditors on restructuring its finances as crucial deadlines approach. The global satellite telephone company is discussing a plan to offer 44 percent of its equity to the holders of $1.45 billion in public debt; this would require Motorola, the largest shareholder, to provide another $400 million in cash to the company. In turn, Motorola would increase its ownership of the company from 18 percent to 25 percent. An extension granted by Iridium's bankers will expire tomorrow, and a $90 million interest payment is due on Sunday as a 30-day grace period expires. If Iridium cannot reach a restructuring agreement, bondholders could force the company into bankruptcy proceedings. Although Iridium has repeatedly said that it does not plan to file for bankruptcy, investors, including Motorola, have presented it as an option. One investor, who asked not to be named, said that a pre-packaged chapter 11 would allow the company to restructure quickly and move ahead. (ABI 10-Aug-99 IRIDIUM: Dim Prospects For Equity Shareholders ---------------------------------------------- SATELLITE NEWS reports on August 9, 1999 that Iridium LLC [IRID], the first global wireless telecommunications business using a low-Earth-orbit satellite communications network, faces a financial crossroads this week that many on Wall Street expect to lead to a financial restructuring that will give the company a chance to gain a marketplace footing. Iridium suffered a blow when The Chase Manhattan Bank sent a July 29 letter to Motorola Inc. [MOT], Iridium's main backer, that claimed it was required to pay $300 million under its guarantee of an Iridium secured credit agreement. In response, Iridium and Motorola officials countered that the secured credit facility's payment guarantee had not been triggered. Savvy Wall Street observers said Chase Manhattan likely took the action to protect legal rights it may have to ensure repayment. Motorola also has guaranteed an additional $50 million in Iridium debt. An encouraging sign is that officials from Motorola and investors in Iridium confirmed last week that "strong progress" is taking place in negotiations to restructure Iridium's finances to avoid bankruptcy and allow the company to operate without a crushing debt load. Concessions are needed from all sides to finalize a deal, but Chase Manhattan, and other banks that lent money to Iridium, likely will suffer the least due to their role as senior creditors, Wall Street sources said. Despite the money center bank's claim, the dispute is not expected to slow talks with investors, creditors and high-yield bond owners to complete a restructuring. Bob Growney, Motorola's president and COO, said during an analysts' meeting in New York this week that "good progress" is occurring in the negotiations to restructure Iridium's finances. But that does not mean Motorola will bankroll Iridium's return to financial stability. Scott Wyman, a Motorola spokesman, confirmed, "We will not provide additional financial support to Iridium unless there is substantial support on the part of the other partners with a financial interest in Iridium." Michelle Lyle, an Iridium spokeswoman, said, "Negotiations are complex, as there are many parties involved that represent many different interests." Interest of $90 million was due on Iridium's $1.4 billion in high-yield bonds on July 15, but the company received an automatic 30-day grace period. The extension on the interest payments to bondholders expires Aug. 15. "Iridium's failure to make that interest payment by Aug. 15, 1999, would result in a default under the indentures relating to the public high-yield debt, the secured credit agreement and the guaranteed credit agreement," according to Motorola's second quarter 10-Q filed Aug. 3. "These defaults could result in defaults under other agreements." No one's interests are served by pushing Iridium into bankruptcy. With a reduced debt structure, the company may be able to recover and ultimately turn a profit, one Wall Street investor said. Indeed, the restructuring negotiations for Motorola are especially dicey. One reason is Motorola is due to receive $3.2 billion from Iridium during the life of various contracts, primarily to operate and maintain the global personal communications system, according to Motorola's latest 10-Q. Those are among the financial obligations Iridium cannot meet. Other covenants several months ago on its $800 million senior secured credit agreement by failing to achieve subscriber and revenue targets. Iridium has received multiple extensions from the banks on interest payments owed under that pact. Iridium's new strategy, announced June 21, includes airtime price reductions of up to 65 percent, a flat per-minute rate for international calls, and a greater emphasis on creating a value proposition for industrial customers who have a defined need for satellite communications. In addition, the company's two product manufacturers, Motorola and Kyocera, have announced significant reductions in the wholesale prices of their satellite phones and other subscriber equipment. Any subscriber revenue that can be generated would be most welcome by Iridium, especially since the company reported earlier this year that its cash needs for 1999 would total $1.65 billion. But not all is bleak. Two highly common scenarios that force bankruptcies are unlikely to occur with Iridium, a Wall Street investor said. Secured creditors, such as banks, have little interest in gaining Iridium's orbiting collateral. Iridium's vendors seem willing to make concessions to give the company "breathing room" rather than force a bankruptcy, he added. Properly restructured, Iridium is a "viable business," the investor said. Some Wall Street observers believe that a "prepackaged bankruptcy" could be the most- efficient way to restructure the company. In prepackaged bankruptcy, all the terms of a restructuring are negotiated before the company files for bankruptcy. That process enables a restructured company to emerge from Chapter 11 quickly. The likelihood of bankruptcy is diminished, but not eliminated, by the shared goal of all the parties to help Iridium restructure and become a profitable business, the investor said. Due to the shared interest, it is possible that the deadlines of Aug. 11 for paying the banks under the secured credit facility and Aug. 15 for satisfying obligations to the bondholders could be missed, without triggering any party to force a bankruptcy, the investor said. The situation now is akin to preparing a tax return as April 15 nears. Motorola's Financial Ties To Iridium: * Owns 18 percent equity stake in Iridium, which might be reduced in the restructuring * Holds $157 million in Iridium bonds * Took a special second-quarter charge of $126 million to write down Iridium bonds * Faces a post-restructuring special charge in the third quarter * Has investments and receivables of $32 million in Iridium gateway companies * Guarantees up to an additional $350 million of Iridium debt * Deferred $399 million in payments Iridium owed Motorola to operate and maintain Iridium's 66-satellite constellation * Awaits $95 million in additional Iridium payments, apart from the deferred amount * Retains $762 million in Iridium inventory, manufacturing equipment and buildings Source: Motorola's Second Quarter 10-Q Iridium's Bank Facilities Are: * An $800 million senior secured credit agreement that requires interest payments Aug.11 * A fully used $750 million senior credit agreement that is guaranteed by Motorola. Most of this facility matures Dec. 31, 2000, while the remainder is due Dec. 31, 2001. KENWIN SHOPS: Court Enters Order Confirming Plan ------------------------------------------------ The US Bankruptcy Court for the Southern District of New York entered an order on July 28, 1999 confirming the debtors' modified first amended plan of reorganization and substantively consolidating the debtors' Chapter 11 cases. LAURIAT'S: Buck-A-Book Is Awarded Five Locations ------------------------------------------------ Boston-based Buck-A-Book,Inc. has just been awarded five locations previously run by Lauriat's/Royal Discount Bookstore. The US Bankruptcy Court approved the assignment of leases on August 5th. The stores are located in Andover, Arlington, and Wakefield, MA and Avon and Cheshire, CT. The transition will take effect by August 15th. Buck-A-Book has invited all store employees to remain with the new company and will use the existing fixtures to maintain continuity in the stores' local communities. Plans are to open the Avon, CT and Wakefield, MA stores the week of August 15 and the Arlington and Andover, MA and Cheshire, CT stores by Labor Day. "We believe Buck-A-Book will be successful in these locations because our formula is dramatically different," said Bruce Moyer, founder and CEO of Buck- A-Book, Inc. "Buck-A-Book is so much more than a bookstore. It's an adventurous and friendly shopping experience offering name brand gifts, toys, greeting cards, music, videos, and software. Of course, customers at Buck-A- Book will always find a great selection of brand new books from every major publisher, from Random House to Simon & Schuster. "We hope to keep the stores' employees," continued Moyer. "These are good book sellers, and we are fortunate to be able to offer them jobs doing what they do best." Buck-A-Book operates 18 stores in addition to the five just acquired, including stores that just opened in Burlington, MA and Vernon, CT. In September, the company will open six stores in Rhode Island, Connecticut, and Massachusetts. The company plans on adding 12-18 stores per year for the next three years as part of their strategic plan. Buck-A-Book was founded in 1991 and has created a unique and friendly shopping experience with a product mix of new books at 50-90 percent off publishers' prices, children's books and educational toys, gifts including a wide selection of candles and picture frames, brand-name greeting cards at steep discounts, and software, videos, and stationery. The stores are approximately 4,000-5,000 square feet in both urban and suburban locations. LEATHERMODE: Plan To Emerge With $8 Million From Paragon -------------------------------------------------------- With his company poised to emerge from Chapter 11 bankruptcy, Leathermode CEO Sevan Aslanyan has a new business plan and an $ 8 million working capital line of credit from Paragon Capital to help it succeed. A confirmation hearing for Leathermode's plan of reorganization is scheduled for September 1. Meanwhile, Paragon, of Needham, Mass., announced today that it will provide the company with the financing it needs to pursue that plan. A seller of high-quality leather goods, Leathermode is headquartered in Burbank, Calif., and operates 20 stores-15 in California, two in Colorado and one each in Arizona, Nevada and Illinois. Locations include outlets and stores in regional malls. The Paragon financing will be used to purchase inventory, pay off $ 3.2 million owed to a previous lender and prepare for new growth. With Aslanyan having become less involved in the company's hands-on retail operations, Leathermode didn't realize a profit during the last two years. "We are highly optimistic," Aslanyan said. "We have a new management team, and I plan to take a much larger role in day-to-day retail operations. We'll consult with Paragon again when we're ready to start our next phase of growth." Leathermode began looking last year at lenders that might fuel its comeback. "We didn't pursue anyone else," Aslanyan said. "I'm comfortable with Paragon because they understand the retail world. When you look at their management, you see their retail backgrounds. They understand what I'm talking about." Aslanyan became interested in the leather business because his father owned a leather apparel store. His father asked Aslanyan to run it with him. Aslanyan eventually took over full responsibility for the store. In 1988, he founded Leathermode with his cousin, Garabet Kocoglu, opening the chain's first store in Montclair, Calif. Aslanyan was drawn to the leather business by its relative stability. He feels that high-quality, traditionally-styled leather apparel is not as susceptible to the ups and downs of retail as the more fashion-driven types of apparel are. "We are pleased to help in the repositioning of Leathermode," said Stewart Cohen, CEO of Paragon Capital. "Our resources and expertise are a perfect match for what they are trying to accomplish. We continue our commitment to providing value-added resources to the specialty retail segment. Leathermode is poised to enjoy great success. We are happy to have a part in their exciting journey." "We are very optimistic about this company's future," said Andrew Moser, Paragon President and COO. "Leathermode should now have the added liquidity it needs to make strides in its financial performance, procure new goods and take advantage of opportunities in the marketplace." Leathermode provides fine leather products. Stores specialize in coats but also offer handbags, brief cases and luggage. Many of the goods available at Leathermode are not typically found in department stores. Most of Leathermode's products are made of soft lamb leather, and stores offer some private label goods. MERRY-GO-ROUND: Law Firm Had Ties to Ernst & Young -------------------------------------------------- Several years after Merry-Go-Round Enterprises Inc. finally filed for bankruptcy protection and ultimately went out of business, with claims of more than $200 million unpaid, a relationship between the company's law firm, Swidler & Berlin (now called Swidler Berlin Shereff Friedman LLP) and Ernst & Young has come to light, The Wall Street Journal reported. In 1993, financially troubled Merry-Go-Round, a clothing retailer that catered to the teen market, sought advice from its law firm; the attorneys recommended bringing in consultants from Ernst &Young, but the consultants did not recommend bankruptcy, and instead conducted studies for months, produced financial projections and developed a cost-savings proposal. The plan did not work, and the company's losses escalated while consultants' fees grew. A bankruptcy trustee subsequently brought in to liquidate the company filed a suit against Ernst & Young, alleging fraud, incompetence and misrepresentations to the bankruptcy court. Last April, just before the trial was to begin, E&Y settled the case; it would pay $185 million. During the liquidation proceedings, the trustee found that E&Y was a major client of Swidler & Berlin, but neither party disclosed this when Merry-Go- Round filed chapter 11 in January 1994. E&Y also failed to disclose that it had a business relationship with the landlord of some of the Merry-Go-Round stores that likely would have been closed early in the process. E&Y did not admit any wrongdoing in the settlement and said that "other parties bear substantial responsibility." (ABI 10-Aug-99) MUSTANG RANCH: Brothel Take-Over Leaves Prostitutes Unemployed -------------------------------------------------------------- After more than two decades of trying to padlock the infamous Mustang Ranch, the government took over the brothel Monday in an almost anticlimactic surrender of keys to federal agents. Amid a crush of media and curious onlookers, the employees -- custodians, cashiers and prostitutes -- left the pink stucco ranch throughout the day with boxes and suitcases. Some of the working girls drove off in Cadillacs and BMWs. After working as a prostitute at the Mustang for five months, a woman who only identified herself as Dawn said she was considering a job offer at the Kit Kat Ranch east of Carson City. "I don't see why it closed. It's not necessary. It's ridiculous," she said, holding a vase of roses and carnations. The property -- 104 rooms on a 440-acre ranch just east of Reno -- was handed over at 5 p.m., but the corporation that owns the brothel ceased business at 10:30 a.m. after the last bank deposit, said U.S. Customs Agent Ron Meseberg. He wouldn't say how much business the brothel did over the weekend, but added, "They did quite well in the last week." Prostitution is legal in 12 of Nevada's 17 counties, including Storey County where the Mustang Ranch opened 32 years ago. But the government has long contended that the brothel's original owner paid off local officials and skirted taxes. Guilty verdicts against the brothel's parent companies and manager in a federal fraud and racketeering trial last month ended the government's crusade to shut it down. James Collie, chief Internal Revenue Service investigator for the southwestern United States, said the government intended to shut the Mustang Ranch down and leave it shut down until a court determines if there are valid claims against the property. "There is no intention of the government to operate it as a brothel," he said. The court-ordered closure would be the second time the government has taken over the Mustang Ranch. The government first shut it down in 1990 after owner Joe Conforte declared bankruptcy, then auctioned the ranch off to recover some of the $13 million in back taxes the IRS said Conforte owed. Victory Perry, the only bidder, bought it for $1.49 million on behalf of Mustang Properties Inc., and the bordello reopened in 1992. Conforte was on the lam from tax authorities at the time. The government contends that Mustang Properties was simply a paper company set up by Conforte to continue profiting from the Mustang Ranch. Perry's brother, Conforte lawyer Peter Perry, was a key witness in the trial that resulted in Monday's closure. At the trial, prosecutors alleged that the ranch's parent companies, A.G.E. Corp. and A.G.E. Enterprises, which took over the ranch from Mustang Properties, and former Storey County Commissioner and Mustang manager Shirley Colletti conspired to conceal the fact that Conforte continued to own the $5 million-a- year brothel illegally. Both companies and Colletti were convicted of fraud and racketeering. Testimony at the trial alleged that Conforte remained on retainer with the Mustang management as a $10,000-a-month consultant and that 10 times that amount was siphoned from the brothel to South America, where Conforte is believed to be living. NATURADE: Court Approves Settlement with Performance Nutrition -------------------------------------------------------------- Naturade Inc. reported on August 9, 1999 that the Bankruptcy Court for the Northern District of Texas has approved its previously announced settlement agreement with Performance Nutrition Inc. for between $1,774,000 and $2 million, which is a reduction from the original judgment of $2,774,000. It is expected that the parties will consummate the agreement before the end of the month. Two years ago Performance Nutrition filed chapter 11 in Dallas and filed a motion to sell its assets to Naturade. (ABI 10-Aug-99) NEXTWAVE: Federal Judge Rejects FCC Claim ----------------------------------------- According to the Mobile Communications Report, August 9, 1999, Monday Bankrupt C-block bidder won some relief when 2nd court ruled against FCC, saying C-block licenses were overvalued in Commission's auction and reduced company's debt to less than quarter of amount it committed to in auction. U.S. Dist. Court in White Plains, N.Y., dismissed FCC claims that bankruptcy judge shouldn't have cut value of NextWave's PCS licenses by 75%. Judge Charles Brieant said July 27 that U.S. Bankruptcy Court, also in Southern Dist. of N.Y., properly decided that NextWave, biggest C-block bidder that now is in bankruptcy reorganization, could use "avoidance remedy" to reduce its obligation to $1.02 billion from $4.74 billion it committed to in high bids on 63 licenses. FCC said high-bid total should have been used to value obligation. Brieant acted on FCC's appeal of series of decisions by Bankruptcy Court Judge Adlai Hardin earlier this year. NextWave sought Chapter 11 bankruptcy protection in June last year. FCC Gen. Counsel Christopher Wright said agency is reviewing decision and hasn't determined "appropriate course of action to take." NextWave had challenged Commission's right to recover "fraudulently incurred obligation," referring to bid price that NextWave offered in 1996 auction. NextWave argued that bid was inflated, and thus "fraudulently incurred," and said that fact became evident when much lower prices were offered in later D-, E-, and F-block auction. Lower valuation sought by NextWave and approved by bankruptcy judge was based on bids in follow-up auction. Brieant also rejected FCC argument that Bankruptcy Court and U.S. Dist. Court don't have jurisdiction to review Commission's actions. FCC said only U.S. Appeals Courts can review its regulatory actions. Bankruptcy Court said this case is different because FCC is acting as creditor not regulator, and Brieant agreed, saying: "The regulations outlining the steps to be taken by the FCC in the event of a default in payment of the installment notes are provisions of a contract between creditor and debtor. As such, they are subject to revision and adjustment pursuant to the Bankruptcy Code... Congress could have exempted but did not exempt the FCC from the Bankruptcy Code." Brieant also rejected FCC claim that Bankruptcy Court failed to weigh damage that results if courts allow spectrum licensees "to avoid critical provisions of their regulatory agreement with the FCC by declaring bankruptcy." He said allowing NextWave to keep its licenses "promotes rapid deployment of technology without the delay of re-auction and development of a new network by another company." He pointed out that Congress made clear that "maximizing revenue" shouldn't be FCC's objective. Based on lower value of spectrum in later PCS auctions, "the FCC is recovering more than the value of the spectrum and should not now be trying to maximize revenue by trying to recover the winning bid," he said. Brieant disputed FCC's contention that NextWave decision would undermine auction process by encouraging companies to bid high and then seek bankruptcy protection. "Bankruptcy is bad business," judge said. C-block auction was "disaster" for all bidders, he said, with winning bidders either in bankruptcy or paying "outrageously inflated prices" for spectrum. "Those who bid but did not win are lucky, not hurt," Brieant said. NextWave already has made down payment of $474 million so its final obligation is $548.8 million, judge said. PARAGON: Settlement Agreements with P&G and K-C Approved --------------------------------------------------------- Paragon Trade Brands, Inc. (OTC Bulletin Board: PGNFQ) announced that the Bankruptcy Court for the Northern District of Georgia has approved Paragon's settlement agreements with The Procter & Gamble Company (NYSE: PG) (P&G) and Kimberly-Clark Corporation (NYSE: KMB) (K-C). The approval of the two agreements will assist the Company in moving forward with the formulation and filing of a stand-alone plan of reorganization that embodies the terms of the settlements. At the same time, Paragon expects to pursue the auction process approved by the Bankruptcy Court in connection with a proposed investment by Wellspring Capital Management LLC to acquire Paragon as part of a plan of reorganization. Pursuant to the Bankruptcy Court's order, competing bids to the Wellspring proposal are due no later than August 30, 1999 and an auction is scheduled to take place on September 2, 1999. Announcing its results for the quarter ended June 27, 1999, Paragon reported a loss of $8.4 million, or $.70 per share, compared to net earnings of $3.4 million, or $.28 per share for the second quarter of 1998. Net sales for the quarter were $117.8 million, compared to $127.0 million for the second quarter of 1998. Earnings before interest, taxes, depreciation and amortization and bankruptcy costs (EBITDA) for the second quarter totaled $3.4 million. For the six months ended June 27, 1999, the Company reported a loss of $15.6 million or $1.31 per share, compared to net earnings of $9.4 million or $.79 per share, for the same period last year. Net sales for the six months were $244.1 million, compared to $265.3 million for the same period last year. EBITDA for the six months ended June 27, 1999 totaled $6.2 million. The Company believes that the decrease in sales was due to a number of factors, including increased consumer preference for premium priced products in a strong overall economy, increased consumer preference for the mechanical closure system offered by one of the national brand competitors and increased pricing and promotional pressures by all of the Company's competitors. While the Company has been developing products to compete effectively with these trends, the startup and rollout have taken longer and cost more than expected. In addition, operating results were impacted by higher unit fixed costs resulting from lower volume, by royalty payments to P&G and K-C under the terms of the respective license agreements, and by expenses associated with the closing of the Company's manufacturing facility in Brampton, Ontario. Selling, General and Administrative (SG&A) expense was negatively impacted by increased promotional, information technology and sales and marketing expenses. In addition, depreciation and amortization charges included in SG&A increased over the same period last year as a result of the installation by the Company in November 1998 of the SAP R-3 enterprise resource planning system. In early July 1999, the Bankruptcy Court approved modifications to the terms of the Company's $75 million debtor-in-possession credit facility with the Chase Manhattan Bank extending the facility's maturity date to March 26, 2000. Commenting on the second quarter results, Chief Executive Officer, Bobby Abraham, said, "The second quarter results were weaker than we anticipated due to lower volume from delayed new product rollouts, higher costs related to new products, startup inefficiencies and royalties payable to P&G and K-C. Despite these factors, we have not had to draw on our $75 million credit facility with the Chase Manhattan Bank." Mr. Abraham added, "We believe that a number of initiatives the Company has in place, including our rollout of a new mechanical closure system and Destination Store Brand programs scheduled to launch in the second half of the year, will help us grow sales volume during the second half of 1999. In addition, the Bankruptcy Court's approval of the settlement agreements, which will assist the Company in moving forward with a plan for emergence from Chapter 11, should also have a positive impact on our ability to attract new customers." Paragon Trade Brands' stock, which has been delisted by the New York Stock Exchange and now trades over the counter, closed unchanged Monday at 62 1/2 cents. The stock is down 71 percent since the beginning of the year, and is well off its 52-week high of $ 6.50, set Jan. 27. PITTSBURGH PENGUINS: Lemieux's Group Still Cannot Agree on Arena ---------------------------------------------------------------- Mario Lemieux's group of investors seeking to buy the Pittsburgh Penguins still has not reached an agreement on concessions that would release the team from paying millions owed to the city and county for improvements to the Civic Arena, the Associated Press reported. Lemieux last week received his second extension from the bankruptcy court on finalizing the deal. Allegheny County Commissioner Bob Cranmer has objected to some of the concessions and is reluctant to agree to using taxpayers' money to pay the debt. The team amassed about $120 million in debt when Howard Baldwin and Roger Marino, the team's owners, took over; Baldwin took over in 1991, and Marino became a co-owner six years later. A spokesperson for Lemieux's group said the group is confident an agreement will be reached and that the sale may be able to close as early as next week. (ABI 10-Aug-99) RAYTECH: Announces Second Quarter Results ----------------------------------------- Aug. 9, 1999--Raytech Corporation (NYSE: RAY) today announced net income for the thirteen-week period ended July 4, 1999 of $ 5.33 million or $ 1.56 per basic share as compared with $ 5.98 million or $1.75 per basic share for the corresponding period in 1998. For the twenty-six-week period, net income amounted to $ 9.83 million or $ 2.87 per basic share compared with net income of $ 10.14 million or $ 3.00 per basic share for the same period in 1998. The results reflect higher pretax income for both the thirteen- and twenty-six-week periods of $ 7.8 million for the thirteen-week period and $ 15.4 million for the twenty-six-week period as compared to $ 7.7 million and $ 15.0 million in 1998, respectively. The improved pretax income was offset by higher taxes and a larger minority interest in earnings of a subsidiary, the combination of which served to reduce basic earnings per share and diluted earnings per share by $ .23. Net Sales Up 3.5% for Quarter, Up 5.3% Year-to-Date Worldwide net sales rose 3.5 percent for the thirteen-week period ended July 4, 1999 to $ 65.8 million as compared to $ 63.6 for the same period in the prior year. Net sales for the 26- week period ended July 4, 1999 of $ 133.2 million reflects an increase of 5.3 percent over reported sales of $ 126.5 million in the corresponding period for 1998. Increased sales were driven by new products and new markets in the Aftermarket segment and the Wet Friction segments, specifically the automotive original equipment market. The new products accounted for in excess of 60 percent of the increase in sales. "In one of the most intensely competitive markets for auto suppliers in recent history, our operations continued the growth momentum from 1998, posting a 5.3% sales increase over last year. The introduction of new products and our intense focus on producing quality products have been the driving forces in our sales growth," said Raytech President and Chief Executive Officer Albert A. Canosa. The increase in Aftermarket sales resulted from increased sales in the basic product offerings and new sales of dry friction products in North America. Sales in the segment increased $ 4.6 million or 16 percent over the same period in 1998. Wet friction sales increased $ 3.2 million or 4 percent over the same period in 1998. Sales of new products to New Venture Gear in support of the Jeep Grand Cherokee represented a significant portion of the increased sales year-over-year. Overall, sales to the automotive original equipment market increased $ 8.9 million. The sales growth was reduced by declines in sales of agricultural products and other heavy duty products do primarily to the impact of low commodity prices for farm products, causing a reduction in farm income. The Dry Friction segment reported sales $ 1.1 million lower than the same period in the prior year. The sluggish European economy accounts for substantially all of the sales decrease. The Company has been under the protection of the U.S. Bankruptcy Court relating to asbestos personal injury and environmental liabilities since March 1989. The ultimate liability of the Company with respect to asbestos-related, environmental or other claims cannot presently be determined. Raytech Corporation is headquartered in Shelton, Connecticut, with operations serving world markets for energy absorption and power transmission products, as well as custom-engineered components. SERVICE MERCHANDISE: Court Finds Sale of BA Pargh Reasonable ------------------------------------------------------------ In 1978, Service Merchandise purchased B.A. Pargh Company, Inc., an office machine wholesaler and office supply distributor. B.A. Pargh distributes catalogs to resellers and small businesses. For the Fiscal Year ending January 3, 1999, B.A. Pargh generated $1.1 million in earnings on $60.5 million in sales. Because B.A. Pargh offers no synergy with Service Merchandise's jewelry, gift and home decor retailing operations, the Debtors determined that it would be best to divest itself of B.A. Pargh's assets. Through Deloitte & Touche, the Debtors shopped the chain to logical purchasers. That process identified 58 strategic buyers, 196 financial buyers; attracted 30 tire-kickers that translated into 3 competing bidders; and culminated in an agreement to sell substantially all of B.A. Pargh's assets to BAPCO, LLC, an entity formed by Bernard A. Pargh, B.A. Pargh's founder and currently serving as B.A. Pargh's President. The Debtors make it clear to the Court that Mr. Pargh had no opportunity to negotiate with competitive bidders or influence the Debtors' management in making their decision about what constituted the highest and best offer for B.A. Pargh's assets. BAPCO offers: (a) 55% of the face amount of all Trade Accounts Receivable; (b) 55% of the book value of all Inventory; and (c) assumption of all pre-petition and post-petition liabilities incurred by B.A. Pargh. The Debtors estimate the value of BAPCO's offer to be $6,700,000. Additionally, Mr. Pargh will grant the Debtors a broad release of any and all claims he may hold against their Estates. For 6 months following the closing of the sale, BAPCO will be permitted to use B.A. Pargh's warehouse and office rent free. Thereafter, BAPCO will pay $12,500 per month for Warehouse Rent until April 1, 2000, and $7,000 per month for Office Rent up to December 31, 2000. Through April 1, 2000, the Debtors and BAPCO will share warehouse employees, with BAPCO reimbursing the Debtors for actual labor costs. Given the evidentiary record established in this matter, Judge Paine found that the sale of these assets was a reasonable exercise of the Debtors' business judgment and the BAPCO offer represents the highest and best price for the assets. Accordingly, Judge Paine Granted the Debtors' Motion in all respects. (SERVICE MERCHANDISE BANKRUPTCY NEWS Issue 8; Bankruptcy Creditors Services Inc.) SERVICE MERCHANDISE: Seeks More Time To Assume/Reject Leases ------------------------------------------------------------ The debtor is seeking additional time to assume or reject outstanding leases of nonresidential property. According to Judge Paine, "There is considerable value in the Unexpired Leases for both the Go-Forward Stores . . . and the Closing Stores . . . that needs to be maximized for the benefit of the Debtors in order to reorganize." "The Debtors have diligently hired experts," Judge Paine observed, "to value and market the Unexpired Leases and the proof is unrebutted that the Debtors are expeditiously and aggressively marketing such leases at this time. Notwithstanding the inconvenience and uncertainty in the near future to the landlords as the Debtors market the Unexpired leases, [the] landlords will be protected by the payment of rent. . . ." Accordingly, Judge Paine ordered that the Debtors' time within which to decide whether to assume or reject non-residential real property leases is extended: * through confirmation of a plan of reorganization with respect to Go-Forward Stores leased from Non-Objecting Landlords; * through March 31, 2000, with respect to Go-Forward Stores leased from Objecting Landlords; * through March 31, 2000 with respect to Closing Stores leased from Non- Objecting Landlords; and * through September 28, 1999 with respect to Closing Stores leased from Objecting Landlords. These extensions, Judge Paine made clear, are without prejudice to the right of any Landlord to move the court to reduce the extension. (SERVICE MERCHANDISE BANKRUPTCY NEWS Issue 8; Bankruptcy Creditors Services Inc.) SPECTRAN: Reports Second Quarter/Six Months Results ---------------------------------------------------- SpecTran Corporation, which develops, manufactures and markets glass optical fibers and value-added fiber optic products, in reporting results for the second quarter and six months ended June 30, 1999, showed second quarter revenues of $22,587,000, up 38 percent from revenues of $16,358,000 for the same period a year ago. Operating income was $1,763,000, up from the operating loss of $2,371,000 incurred during the same period in 1998. The 1998 operating loss included one-time charges, including inventory write- downs at SpecTran Specialty. In the second quarter of 1999, due primarily to tax losses associated with the sale of its interest in General Photonics, the company's joint venture with General Cable, SpecTran incurred a net loss of $621,000, compared with a net loss of $1,383,000 for the same period a year ago. For the first six months of 1999, SpecTran incurred a net loss of $389,000 compared with a net loss of $518,000 for the first half of 1998. Revenues for the first half of 1999 were $42,966,000, up 36 percent from the $31,471,000 achieved in the same period in 1998. Commenting on the company's results, SpecTran chairman and CEO, Charles B. Harrison, said, "During the second quarter, SpecTran sold its interest in General Photonics, SpecTran's joint venture with General Cable Corporation, to BICC General Cable, Inc. for $2,367,200. As part of the transaction, General Photonics repaid a loan to SpecTran for $325,000 and BICC General Cable purchased approximately 30,000 kilometers of optical fiber from SpecTran's CFT subsidiary. The sale resulted in an after-tax book loss of $237,000 on SpecTran's interest in the joint venture and a one-time tax liability of $1,099,000, both of which adversely affect this quarter's and the first half's results. Other income, as compared to last year, was adversely affected by the elimination of the Corning supply contract settlement at the end of 1998, coupled with the increased interest expense in 1999 associated with servicing our debt. "On July 15, 1999 SpecTran announced it entered into an Agreement of Merger with Lucent Technologies for $64 million or $9 a share, plus the assumption by Lucent of $35 million of SpecTran's debt, in an all-cash tender offer. Tender offer letters were mailed to SpecTran's shareholders of record on July 21, 1999 and are valid until August 17, 1999, unless extended. It is expected that the transaction will be completed by the end of the quarter ending September 30, 1999. SpecTran's board of directors unanimously approved the tender offer and the merger and determined that the terms of the tender offer and the merger are fair to and in the best interests of SpecTran's stockholders and unanimously recommends that all SpecTran stockholders accept the tender offer and tender their shares to the purchaser pursuant to the terms of the tender offer," Harrison concluded. For global communications markets, SpecTran manufactures standard fiber and cable as well as special performance fiber and cable. The company's application specific optical fiber and cable products also serve industrial, aerospace and medical markets worldwide. TELETRAC INC: Court Approves Professionals ------------------------------------------ The US Bankruptcy Court for the District of Delaware entered an order authorizing the employment and retention of Arthur Andersen LLP as auditor for the debtor, Teletrac, Inc. By separate order the court authorized the employment and retention of PricewaterhouseCoopers LLP as financial advisor for the debtor. TELECTRAC,INC: Seeks Approval of Stipulation and Relief From Stay ----------------------------------------------------------------- The debtor, Teletrac, Inc. and Norwest Bank Minnesota, NA as Indenture Trustee for the holders of the debtor's 14% Senior Notes due 2007 in the original principal amount of $105 million jointly seek approval of a stipulation and order granting relief from the stay. They seek approval of the stipulation for Norwest to exercise its rights and remedies as a secured creditor and to realize upon certain collateral securing the obligations of the debtor to the note holders. THE COSMETIC CENTER: Applies to Retain KPMG Peat Marwick -------------------------------------------------------- The debtor, The Cosmetic Center, Inc., seeks authorization to retain and employ KPMG Peat Marwick, LLP as the debtor's tax return preparer. The debtor anticipates that the firm will prepare Cosmetics' state and federal corporate tax returns for the tax year ending December 26, 1998. KPMG will prepare cosmetics' federal tax return as well as approximately 54 state and city corporate income/franchise tax returns. The debtor has agreed to pay KPMG compensation in the amount of $42,000 plus expenses. TOWN & COUNTRY: Final Order Authorizing Cash Collateral Use ----------------------------------------------------------- The US Bankruptcy Court for the District of Massachusetts Eastern Division entered a final order authorizing the use of cash collateral and approving a stipulation with secured creditors concerning the use of collateral. WIRELESS ONE: Seeks Order on First Amended Disclosure Statement --------------------------------------------------------------- The debtor, Wireless One, Inc. seeks court approval of its first amended Disclosure Statement. ********** 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 and Lexy Mueller, 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 * * *