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/raid1/www/Hosts/bankrupt/TCR_Public/990916.MBX T R O U B L E D C O M P A N Y R E P O R T E R Thursday, September 16, 1999, Vol. 3, No. 179 Headlines AAMES FINANCIAL: Overview Of Operations During Fiscal Year ACTION INDUSTRIES: Announces Resolution To Involuntary Petition APS TECHNOLOGIES: Proceeds With Suit Against Drive Maker CRIIMI MAE: Dividend To Be Paid in New Series of Preferred Stock GULF STATES STEEL: Ernst & Young, LLP Out, Arthur Andersen LLP In HARVARD INDUSTRIES: Agrees To Sell Unit To Hutchinson For $115M HARVEY ELECTRONICS: 43.5% Of Common Stock Acquired IMAGYN MEDICAL: DIP Shows Loss In Month Of July INTERNATIONAL TOURIST ENTERTAINMENT: Announces Special Meeting LATTICE SEMICONDUCTOR: Seligman Fund Holds 14.12% Of Stock MARYLAND PERSONAL PHYSICIANS: Files Chapter 11 MASCO CORP: British, U.S. & Cayman Islands Interests Hold Stock MERCURY AIR: Reports Increased Revenue for 4th Quarter MFC BANCORP LTD: Baupost Group Owns Over One Million Shares MONTGOMERY WARD: Waiting For a Profit NEW WORLD COFFEE: Investment In 5.25% Of Stock By BET Associates NEWCARE HEALTH: Seeks Court Okay to Auction All Its Assets PACIFIC INTERNATIONAL: Signs Agreement for $1 Million Financing PACIFIC LINEN: Closing Stores; Hundreds Out of Work PASADENA YMCA: Shuts Its Doors; Atty General Investigating PERENNIAL HEALTH: Reports $5.7M Loss For Year PLAY BY PLAY TOYS: Heartland Advisors Reports Holding No Stock PLUMA: Seeks To Extend Exclusivity SINGER: Brazilian Branch Declares Bankruptcy TELEPAD: Motion For Status Conference Order TRANSTEXAS: Applies To Employ State Tax Consultants UNIHEALTH: To Sell Six Physician Organizations VENCOR: Approval of First-day Orders VENCOR: Condensed Consolidated Balance Sheet WORLDWIDE DIRECT: Seeks Approval of Sale of Certain Inventory ********** AAMES FINANCIAL: Overview Of Operations During Fiscal Year ---------------------------------------------------------- Aames Financial Corporation, a leader in subprime home equity lending, reports a net loss of $248 million from operations for the fiscal year ended June 30, 1999. Part of the loss has been attributed by the company to the effects of a $194 million write down in the second quarter to reflect revaluation of residual assets on its balance sheet. The company also announces that as part of its new loan disposition strategy, it successfully completed a $400 million mortgage loan securitization in August, which represents its first securitization since the quarter ended September 30, 1998. Mani Sadeghi, Aames' Chief Executive Officer, stated, "Most importantly the company obtained an equity investment commitment from Capital Z Financial Services Fund, II, L.P. to invest up to $126.5 million in the company, of which $101.5 million has already been received. This equity investment paved the way to recapitalizing the company and making necessary adjustments to our balance sheet." "In addition to the operational actions taken, management adjusted the assumptions used to value its residual assets during the second fiscal quarter ended December 31, 1998, reflecting negative market conditions, as well as new FASB guidelines, recording a $194 million write down on these assets. Finally, the results for the year include a prolonged period during which the company was effectively precluded from its traditional financing source, the asset backed securities market. From September, 1998 through the end of the past fiscal year, the company relied on whole loan sales. Gains recorded from whole loan sales are generally lower than the gains recorded for securitizations. "Our goal going forward is to focus origination activities in our core franchises while implementing a balanced funding strategy using securitization and whole loan sales. The successful completion last month of our first securitization in three quarters represents a significant step in that direction," Sadeghi added. Aames Financial Corportion reported a net loss of $248 million, for the fiscal year ended June 30, 1999, compared to net income of $28 million, for the fiscal year ended June 30, 1998. Total revenue for the year, including the effects of the $194 million write down in the second quarter, was a loss of $16.2 million, as compared to income of $266 million in fiscal 1998. The write down of residual assets was caused in part by negative market conditions which adversely affected the prepayment, loss and discount rate assumptions historically applied by the company in estimating the value of its residual assets. The company also changed to the "cash-out" method from the "cash-in" method for the treatment of credit enhancements relating to securitizations in accordance with new FASB guidelines. While the total amount of the revenue recognized over the term of the securitization is the same under either method, the cash-out method results in lower initial gains and higher subsequent loan service revenues. Revenue for the year excluding the write-down was $170 million, down 36% from 1998, reflecting the company's reliance on whole-loan sales for cash during the last three fiscal quarters of 1999. The decrease in total revenue also reflects the lower gains on sale resulting from the $13.5 million hedge losses on the company's $650 million securitization closed in the quarter ended September 30, 1998. The company sold $1.89 billion of loans in the fiscal year ended June 30, 1999, compared to $2.45 billion in the prior year. Of the total amount of loans sold during the year, $650 million were sold in securitizations and $1.24 billion in whole loan sales for cash, compared to $2.03 billion in securitizations and $416 million in whole loan sales in the prior year. The company did not complete a securitization during the quarters ended December 31, 1998, March 31, 1999, and June 30, 1999. In August 1999, the company completed a securitization of $400 million of mortgage loans. A significant amount of the loans sold in the August securitization were comprised of loans held for sale as of June 30, 1999. Total loan production for the year in the company's core retail and broker production channels increased by $215 million over 1998's totals. Neil Kornswiet, Aames President, noted, "Loan production growth was hindered by the company's restricted warehouse capacity during the middle part of the year. Our retail production increased from $636 million in 1998 to $770 million in 1999. The company's decentralized retail network, which commenced operations in March 1998 contributed to this growth. Broker production increased from $1.1 billion in 1998 to $1.2 billion in 1999. Correspondent production decreased from $646 million in 1998 to $241 million in 1999 reflecting our decision to eliminate bulk purchases because such loans have performed more poorly than loans originated from our core operations and because we have considered the asking prices for these loans to be unattractive." Compensation expense for the fiscal year ended June 30, 1999, decreased 15.5% to $80.2 million, due primarily to personal reductions on a company-wide basis. General and administrative costs increased $19.9 million, reflecting increased operating costs resulting from expansion of the company's branch network (some of which was later cut back) and a number of non-recurring increases in legal and other professional costs related primarily to the negotiation and closing of the company's equity and debt agreements. The company also recorded a one-time, nonrecurring charge of $37 million during the year related to servicing advances which are recorded as accounts receivable on the company's balance sheet. The charge relates to payments made by the company to the securitization trusts for which it acts as servicer, in accordance with its obligation to advance or loan to the trusts the delinquent interest. The company, as servicer, is entitled to recover these advances from regular monthly cash flows into the trusts. During the year, Aames determined that a portion of these advances were not recoverable from the trusts' monthly cash flows and as a result, accounts receivable were written down by $37 million. During 1999, the company began to explore ways to reduce the cash burden of its servicing advance obligations. During April, the company entered into a sub-servicing arrangement with a third- party servicer with respect to $388 million of loans. The third party servicer also agreed to make future advances on those loans. In June 1999, the company entered into an arrangement with an investment bank to purchase outstanding advances against substantially all the company's pre-1999 securitization trusts and make a significant portion of future servicing advances on those trusts. Aames Financial Corporation currently operates 101 branches serving borrowers in 37 states, plus the District of Columbia. Its broker division operates 35 offices serving 28 states. ACTION INDUSTRIES: Announces Resolution To Involuntary Petition --------------------------------------------------------------- Action Industries, Inc. (OTCBB: AACZ) (the "company") announced that on September 10 the pending involuntary bankruptcy petitions against the company and General Vision Services, Inc. ("GVS"), an affiliate of the company, and the pending motions for appointment of a trustee under Chapter 11 of the Bankruptcy Code were resolved consensually. Under a Stipulation and Order approved by Judge Stuart M. Bernstein of the United States Bankruptcy Court for the Southern District of New York, the Company and GVS have consented to the entry of orders for relief under Chapter 11. Jim Jedrlinic will continue to serve as the chief executive officer of the company and GVS, and shall manage the day-to-day operations of GVS. A management committee composed of Jedrlinic, Shaul Kopelowitz, a director of the company, and Ralph Balsamo of Richard A. Eisner & Co., a New York accounting firm, has been appointed. Any business decisions or transactions outside of the ordinary course of business will be subject to the approval of a majority of the committee and the Bankruptcy Court. The committee is also to conduct a search for a new chief financial officer and a chief operating officer for GVS. The committee will function until a plan for reorganization for the company and GVS is confirmed and becomes effective, or further order of the Bankruptcy Court. Under the Stipulation and Order, for the next ninety days, any plan of reorganization filed by the company and GVS will require the consent of the Official Committee of Unsecured Creditors. If a joint plan is not filed within ninety days, for thirty days immediately thereafter the company and GVS shall have the exclusive right to file plans of reorganization, and to solicit acceptances for sixty days after such filing, unless otherwise ordered by the Bankruptcy Court. Action Industries, Inc., through GVS, is engaged in the retail optical business, providing a full range of vision care products and services through GVS-owned stores and independent panel members. APS TECHNOLOGIES: Proceeds With Suit Against Drive Maker -------------------------------------------------------- The Kansas City Business Journal reports on August 13, 1999 that the bankruptcy estate of APS Technologies, a mail-order company that sold its own line of computer data storage and backup products, is suing the California manufacturer of disk drives the company claims drove it to bankruptcy. APS, which filed for Chapter 11 protection in January 1998, wants to be compensated for thousands of faulty drives supplied by Micropolis Corp., which is also in bankruptcy. A trial is scheduled in Los Angeles in September. Brian Fenimore, a lawyer with Lathrop & Gage who represents the APS bankruptcy estate, said APS's $ 6.9 million unsecured claim against Micropolis is expected to be the largest to go to trial. "Our committee of unsecured creditors, and the debtor, believe it's a meritorious claim and we should get something for it," Fenimore said. APS officials allege that thousands of disk drives the company bought from Micropolis between Aug. 31, 1995, and Nov. 18, 1996, were faulty. APS, which installed the disk drives in its own products, said it received complaints on at least 45 percent of the drives. According to court records, Micropolis resisted APS when it began asking to have the drives repaired or replaced. Micropolis either claimed the drives were not faulty and would not fix them, or, when APS sent the drives to Micropolis to be repaired, Micropolis simply repackaged them without fixing them and returned them, APS's filing states. APS officials allege that some disk drives that were repackaged this way became the source of repeated complaints from customers. ST Chatsworth PTE Ltd. purchased the Micropolis name in March 1996, eight months before the disk drives problems dissipated. The original operation was renamed StreamLogic Corp. According to court records, APS filed a complaint against StreamLogic and the new Micropolis on May 28, 1997. APS sought damages for breach of contract, breach of express warranty and breach of implied warranty from both companies. The company had negotiated a settlement with the new Micropolis and expected to receive approximately $ 2.5 million. But in November 1997, the new Micropolis filed for Chapter 11 bankruptcy and settlement talks were terminated. StreamLogic filed for bankruptcy in June 1997 and reorganized in March 1998. APS had claimed that it was owed $ 6.7 million by StreamLogic. But Fenimore said APS settled that claim for approximately $ 3.5 million. Fenimore said APS expects to collect 10 cents to 20 cents on the dollar from the StreamLogic bankruptcy estate. When APS filed for bankruptcy 1 1/2 years ago, the company reported assets of $ 12.3 million and liabilities of $ 12.8 million. The assets of APS were sold to Oregon-based La Cie Ltd. in March 1998. The company is still operating in Kansas City under the APS name. CRIIMI MAE: Dividend To Be Paid in New Series of Preferred Stock ---------------------------------------------------------------- The board of directors of CRIIMI MAE Inc. (NYSE: CMM) yesterday, September 14, 1999, declared a dividend for common shareholders of record as of October 20, 1999. The dividend will be payable on November 5, 1999 in up to an aggregate of 1.61 million shares of a new series of $10 Face Value Series F Redeemable Cumulative Dividend Preferred Stock (the "Series F Dividend Preferred Stock") (NYSE: CMM-PrF). The distribution is designed to satisfy the Company's remaining federal income tax obligation for the 1998 tax year. Holders of record of each share of CRIIMI MAE common stock will be entitled to receive 3/100ths of a share of the new Series F Dividend Preferred Stock (i.e., three shares of Series F Dividend Preferred Stock for every 100 shares of common stock held). Series F Dividend Preferred Stock will be issued in whole shares, with shareholders receiving cash from a transfer agent for their fractional share interests at a price equal to the average sales price of all aggregated fractional shares sold by the transfer agent, less transaction costs. The Series F Dividend Preferred Stock will be convertible into shares of common stock during two, 10-business day windows: the first commencing on November 15, 1999, and the second commencing on January 21, 2000. Conversions will be based on the volume-weighted average of the sale prices of the common stock for the 10-trading days prior to the date converted, subject to a floor of 50% of the volume-weighted average of the sale prices of the common stock on November 5, 1999. At the end of the second conversion period, February 4, 2000, all conversion rights of Series F Dividend Preferred stockholders will expire. The Series F Dividend Preferred Stock provides for cash dividends at an annual fixed rate of 12%. The first dividend will be paid no earlier than the end of the calendar quarter in which the Company's anticipated plan of reorganization becomes effective, and no more than quarterly thereafter. Series F Dividend Preferred Stock is redeemable at the Company's option after November 5, 2000 at a price of $10.00 per preferred share plus accrued dividends. On October 5, 1998, CRIIMI MAE Inc. and two affiliates filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Before filing for reorganization, the Company had been actively involved in acquiring, originating, securitizing and servicing multi- family and commercial mortgages and mortgage related assets throughout the United States. Since filing for Chapter 11 protection, CRIIMI MAE has suspended its loan origination, loan securitization and CMBS acquisition businesses. The Company continues to hold a substantial portfolio of subordinated CMBS and, through its servicing affiliate, acts as a servicer for its own as well as third party securitizations. While the Company is in bankruptcy, the symbol for the Series F Dividend Preferred Stock will appear as QCMM Pr F on the NYSE tape. GULF STATES STEEL: Ernst & Young, LLP Out, Arthur Andersen LLP In ----------------------------------------------------------------- On September 2, 1999, Ernst & Young, LLP resigned as Gulf States Steel Inc.'s independent accountant. Ernst & Young's report on the company's financial statements for the fiscal year ended October 31, 1998 included an explanatory paragraph describing an uncertainty regarding Gulf States Steel's ability to continue as a going concern. On September 3, 1999, the company engaged Arthur Andersen LLP as its independent accountant. HARVARD INDUSTRIES: Agrees To Sell Unit To Hutchinson For $115M --------------------------------------------------------------- The Detroit News reports on September 14, 1999 that Harvard Industries Inc., an auto parts supplier to Ford Motor Co. and General Motors Corp., agreed to sell a unit that makes rubber seals for cars to France's Hutchinson SA for $ 115 million in cash to pay off debt. Harvard said in May that it might sell its Kingston-Warren unit, which also makes weather stripping and plastic seals, and use the proceeds for long-term debt and acquisitions. Lebanon, N.J.-based Harvard emerged from Chapter 11 bankruptcy last year, and is selling unprofitable parts units to focus on more profitable sales to aerospace and construction-equipment makers. Kingston-Warren, based in Farmington Hills, has 1,300 employees and factories in Virginia, New Hampshire and Tennessee. HARVEY ELECTRONICS: 43.5% Of Common Stock Acquired -------------------------------------------------- Harvey Acquisition Company, LLC has acquired 1,422,034 shares of common stock of Harvey Electronics Inc. with sole voting and dispositive power thereupon. The number of shares held represents 43.5% of the outstanding shares of common stock of Harvey Electronics Inc. Michael E. Recca, member of and sole manager of Harvey Acquisition Company, LLC holds sole voting and dispositive power over 8,333 shares of Harvey Electronics common stock, and shares the voting and dispositive power on the 1,422,034 shares mentioned above. Taken totally this gives Mr. Recca 43.6% of the outstanding shares of common stock of the company. IMAGYN MEDICAL: DIP Shows Loss In Month Of July ----------------------------------------------- Since filing for Chapter 11 bankruptcy protection Imagyn Medical Technologies, Inc. have operated as debtors-in-possession. As such the company has filed its most recent monthly financial statement. For the month of July 1999 the company reported revenues of $2,994 with net losses of $2,813. INTERNATIONAL TOURIST ENTERTAINMENT: Announces Special Meeting -------------------------------------------------------------- A special meeting of stockholders of International Tourist Entertainment Corporation, will be held on Saturday, October 16, 1999, at 12:30 p.m. local time, in the "Remember When Theater" at the company's facility at 3562 Shepherd of the Hills Expressway, Branson, Missouri 65616. In addition to the matters to be acted upon at the meeting there will be a report with respect to the progress of the company and an opportunity for stockholders to ask questions. The Notice of Special Meeting of Stockholders and Information Statement may be found at http://www.sec.gov/cgi-bin/srch- edgar?0000096313-99-000137 on the Internet, free of charge. LATTICE SEMICONDUCTOR: Seligman Fund Holds 14.12% Of Stock ----------------------------------------------------------- J. & W. Seligman & Co. Incorporated, as investment adviser for Seligman Communications and Information Fund, Inc., beneficially owns 3,351,546 shares of common stock of Lattice Semiconductor Inc. The shares reported here as belonging to J. & W. Seligman & Co., Inc. include those shares separately reported below by the Fund. The corporation holds shared voting power with William C. Morris on 3,309,750 shares and shared dispositive power with Mr. Morris on the total number of 3,351,546. This amount represents 14.12% of the outstanding shares of common stock of Lattice Semiconductor Inc. William C. Morris, as the owner of a majority of the outstanding voting securities of J. & W. Seligman & Co. Incorporated, is deemed to beneficially own the shares reported here. As a result, the shares reported as beneficially owned by William C. Morris include those shares separately reported as belonging to J. & W.Seligman & Co., Inc. Seligman Communications & Information Fund, Inc. holds shared voting and dispositive power over 2,370,000 shares representing 9.98% of the outstanding common stock of Lattice Semiconductor. MARYLAND PERSONAL PHYSICIANS: Files Chapter 11 ---------------------------------------------- Maryland Personal Physicians Inc., a Baltimore-based doctors group that serves a large portion of central Maryland, filed for chapter 11 protection last week, The Baltimore Business Journal reported. The group cited reduced Medicare reimbursements and the crash of the Medicare HMO industry. During the past year, the group has had losses of more than $7 million. Maryland Personal Physicians is the third Baltimore-area physician practice management group to face serious financial problems in the last year. Doctors Health Inc., Owings Mills, Md., filed for bankruptcy last November, and Flagship Health, the local affiliate of Physicians Quality Care Inc., has been dissolving since April. (ABI 15-Sept-99) MASCO CORP: British, U.S. & Cayman Islands Interests Hold Stock --------------------------------------------------------------- Buckingham Limited Partnership, Cabinets Today, Inc., Windsor Trust and Malcolm S. Healey share voting and dispositive power over 26,173,979, or 5.9%, of the outstanding common stock of Masco Corporation. The Beverley Settlement has sole voting and dispositive power on 15,456,337 shares, representing 3.5% of the outstanding shares of common stock. Malcolm S. Healey is a citizen of the United Kingdom (British), the Windsor Trust, Cabinets Today, Inc. and Buckingham Limited Partnership claim Ohio registry, while The Beverley Settlement is in the Cayman Islands. Cabinets Today, Inc., as the general partner of Buckingham, Windsor Trust, a trust established for the benefit of Malcolm Healey and the sole shareholder of Cabinets Today, Inc., and Malcolm S. Healey, the grantor of Windsor Trust may be deemed to beneficially own, and to share voting and dispositive power in respect of the 26,173,979 shares held by Buckingham. The Beverley Settlement, a trust established for the benefit of Malcolm Healey's children, holding 15,456,337 shares of common stock, causes Mr. Healey to be deemed beneficial owner of the 15,456,337 shares held by The Beverley Settlement. However, Mr. Healey and each of the other Buckingham reporting entities disclaim beneficial ownership as to the shares of common stock held by The Beverley Settlement and The Beverley Settlement disclaims beneficial ownership as to the shares of common stock held by Buckingham. MERCURY AIR: Reports Increased Revenue for 4th Quarter ------------------------------------------------------ Mercury Air Group, Inc. (Amex: MAX; PCX) announced today that revenue for the 1999 fourth quarter was $61,767,000, up 24.6% from $49,571,000 for the same quarter of fiscal 1998. Net income in the fourth quarter ended June 30, 1999 was $1,564,000, or $0.24 per share basic and $0.18 per share diluted, compared to $1,779,000, or $0.25 per share basic and $0.18 per share diluted for the fourth quarter of fiscal 1998. Net income for fiscal 1999 was $5,939,000, or $0.89 per share of common stock basic and $0.68 per share diluted, up from net income for fiscal 1998 of $3,027,000, or $0.42 per share basic and $0.38 per share diluted. Results for last year, fiscal 1998, were impacted by the bankruptcy of a major customer. Gross margins for the fiscal 1999 were 14.3% of revenue, up from 11.7% in fiscal 1998 and 8.3% in fiscal 1997. Net income in the fiscal 1999 fourth quarter includes an extraordinary charge of $228,000, or $0.03 per share basic and $0.02 per share diluted related primarily to repurchases during the quarter in the open market of the Company's 7-3/4% Convertible Subordinated Debentures due February 1, 2006. Net income in fiscal 1999 includes an extraordinary charge of $483,000, or $0.07 per share basic and $0.05 per share diluted related primarily to these Debenture repurchases during the year. For the fiscal year ended June 30, 1999, revenue was $224,675,000 compared to revenue of $240,111,000 for fiscal 1998. Revenue for 1999 was impacted by lower fuel prices and lower volume of fuel sold throughout the year, partially offset by revenue increases in fixed base operations, cargo operations, government contract services and the company's airline information technology software company. "We are proud to report that the revenue increases we posted in the fourth quarter of fiscal 1999 represent a revenue increase in every sector of our Mercury family of businesses," said Seymour Kahn, Chairman of the Board of Mercury Air Group, Inc., adding, "The higher gross margins we achieved for the fiscal year resulted from our ability to add value to our customers while managing for internal growth and profitability." Joseph A. Czyzyk, President and CEO of Mercury, added, "Our service businesses, including fixed base operations, cargo operations, government contracts and information technology, continue to gain growing importance in their overall contribution to Mercury's operating income." Mercury Air Group, Inc. is a worldwide provider of aviation petroleum products, cargo services, aviation information technology and support services to international and domestic commercial airlines, general aviation and U.S. government aircraft. Mercury was founded in 1956 by three members of the American Volunteer Group in China, better known as the AVG Flying Tigers. MFC BANCORP LTD: Baupost Group Owns Over One Million Shares ----------------------------------------------------------- The Baupost Group, L.L.C. reports holding sole voting and dispositive power over 1,248,350 shares of common stock of MFC Bancorp Ltd., representing 10.35% of the outstanding shares of common stock of the company. Baupost also reports that SAK Corporation and Seth A. Klarman hold no beneficial ownership in the stock. The Baupost Group, L.L.C. is a registered investment adviser. SAK Corporation is the Manager of The Baupost Group, L.L.C. and Seth A. Klarman, as the sole Director of SAK Corporation and a controlling person of Baupost Group, L.L.C., may be deemed to have beneficial ownership under Section 13(d) of the securities beneficially owned by Baupost Group, L.L.C. The stock includes securities purchased on behalf of a registered investment company and various limited partnerships. MONTGOMERY WARD: Waiting For a Profit ------------------------------------- The Chicago Tribune reports on September 15, 1999 that Montgomery Ward is repositioning itself after emerging from bankruptcy. The article states that Roger Goddu, CEO, won't be happy until the company posts a profit. Goddu's cautiousness is well-founded, retail experts say. The retailer's first-quarter loss of $106 million was a big disappointment considering Wards' efforts to improve merchandise and clean up its stores. Wards didn't release its second-quarter numbers because it is now 100 percent owned by GE Capital Corp., which doesn't break out numbers for individual units. In fact, no further financial reports on Wards will be forthcoming. The job of repositioning merchandise hasn't been easy. Many of the brand-name apparel-makers that Wards would like to carry have turned it down, worried that being associated with Wards would hurt their reputations. But Wards is winning some converts. Manufacturers such as Bassett Furniture Industries Inc. and Broyhill Furniture Co. are selling the chain their latest Mission-style and French country looks. Recliners, once a Wards mainstay, are still available, but their presence is being downplayed in favor of a more contemporary look. The retailer's sales associates are doing a good job of selling high-end home entertainment systems instead of the small, commodity-end TV sets that Wards used to push in its weekly ad circulars. Heading into the important holiday season, Wards will have 43 remodeled stores finished, at a cost of $1 million to $2 million apiece. And by the first half of 2000, nearly a third of Wards' 252 stores, which do half the chain's volume, will be sporting a new look. Not even Goddu believes that GE Capital--the financial-services arm of General Electric Co. that typically invests in high- growth, high-return businesses--wants to own the retail chain for long. "This isn't a fit," Goddu admits. But a viable exit strategy isn't handy. No investment banker would try to take Wards public in its present money-losing condition. Selling it to another retailer wouldn't fly for the same reason. That leaves GE Capital with little choice but to run Wards for the foreseeable future. That's OK with GE Capital, said spokesman John Oliver. NEW WORLD COFFEE: Investment In 5.25% Of Stock By BET Associates ----------------------------------------------------------------- BET Associates, L.P. holds 538,095 shares of the common stock of New World Coffee Manhattan Bagel Inc, representing 5.25% of the outstanding common stock of the company. BET has sole voting and dispositive power over the shares. Bruce E. Toll also has sole voting and dispositive power over the 538,095 shares, and additionally beneficially owns, with sole voting and dispositive power, another 19,250 shares. The total number of shares held by Mr. Toll represent 5.44% of the outstanding shares of common stock of the company. Mr. Toll is the sole member of BRU LLC, a Delaware limited liability company, which is the sole general partner of BET. The principal business of BET is investing in businesses. Mr. Toll's principal occupation is as Vice-Chairman of Toll Brothers Inc., a publicly-traded company engaged primarily in the business of developing and constructing residential real estate. On November 19, 1998, BET entered into a Term Loan Agreement with New World Coffee, under the terms of which BET agreed, subject to the satisfaction of certain conditions, to loan $5 million to the company. By the terms of the Agreement, BET received (1) 250,000 shares of New World's common stock on or about November 19, 1998; 250,000 shares of the company's common stock on or about February 19, 1999; 250,000 shares of the company's common stock on or about May 19, 1999; and 250,000 shares of the company's common stock on or about August 19, 1999; (2) 76,190 shares of the company's common stock on or about August 19, 1999; and (3) a warrant to purchase 1,000,000 shares of the company's common stock. On July 16, 1999, BET transferred the Warrant to Jack I. Zalkind. Effective as of August 24, 1999, New World implemented a one-for- two combination of the company's common stock (a reverse stock split) which reduced the outstanding number of the its shares of common stock by one-half. As a result and as of August 30, 1999, BET held 538,095 shares of the company's common stock in accord with the Agreement. On August 30, 1999, New World repaid BET under the Agreement and the Agreement was terminated. On July 14, 1999, Mr. Toll purchased 11,000 shares and 27,500 shares of New World's common stock through two separate brokers' transactions. Following the reverse stock split, Mr. Toll held a total of 19,250 shares of the common stock as a result of the brokers' transactions. BET and Mr. Toll indicate they have acquired the 557,345 shares of New World's common stock for investment purposes and intend to evaluate the performance of such securities as an investment in the ordinary course of business. The Agreement provided that BET could nominate one designee to New World's Board of Directors. In March of 1999, Mr. Tannenbaum was nominated by BET and elected to the company's Board of Directors. NEWCARE HEALTH: Seeks Court Okay to Auction All Its Assets ---------------------------------------------------------- Following five days of emergency hearings, Newcare Health Corp. is asking the court to approve an auction of substantially all of the company's nursing homes and increase the amount of Newcare's post-petition financing by $3 million in order to pursue the auction. A proposed order was submitted to the U.S. Bankruptcy Court in Worcester, Mass., this morning. (The Daily Bankruptcy Review and ABI September 15, 1999) PACIFIC INTERNATIONAL: Signs Agreement for $1 Million Financing --------------------------------------------------------------- Pacific International Enterprises Inc., Long Beach, Calif., announced that it has reached a conditional preliminary agreement with a lender and is working to finalize documents to secure a $1 million line of credit based on account receivable financing and advances against letters of credit. CFO Anthony D. Broughton said that the company expects to file a motion within several days for court approval on the financing. Pacific International, which manufactures sports boards, filed chapter 11 last week. (ABI 15-Sept-99) PACIFIC LINEN: Closing Stores; Hundreds Out of Work --------------------------------------------------- The National Post(formerly The Financial Post) reports on September 14, 1999 that Pacific Linen, Canada's largest specialty bed and bath chain, is closing its 19 stores in Canada and another 10 in the United States, putting hundreds of people out of work. Liquidators will be coming into the chain's stores over the coming weeks to clear merchandise at the Seattle, Wash.-based chain, which operates stores in Canada from British Columbia to Ontario. 'We've been told that we are to clear the stores of merchandise,' said Claire Tookey of Century Services Inc., a liquidator based in Calgary, which is acting as an agent for a U.S.-based liquidator, Universal Capital Group of Minneapolis. Ms. Tookey said she doesn't know exactly how many employees will be affected, but given that there are '19 stores in Canada, the number should be significant, perhaps three or four hundred.' A representative of Pacific Linen confirmed the store closings but referred other questions to the liquidator. Michael Catain of Universal Capital said an announcement will be coming this week. Pacific Linen opened its latest store less than a year ago in Ajax, Ont. It was meant to be the prototype for future stores in the Canadian market. Despite being a U.S.-based company, it had plans to focus its growth in Canada. One source suggested the firm has been having financial problems recently, despite an infusion of cash and a restructuring after Pacific Linen came out of bankruptcy protection in December, 1997. 'They haven't been paying their bills to us in a long, long time,' said the source, who works for one of the chain's suppliers. Industry analysts suggested that Pacific Linen's woes stem from the tremendous growth in the big-box bath and linen stores, especially the growth of category-killer chains like Bed, Bath and Beyond. The decision to close the chain, which was founded in 1980, comes less than two years after Pacific Linen came out of Chapter 11 bankruptcy protection under new management. Blaming its woes on a large chunk of poorly chosen real estate, Pacific Linen was forced to close a number of stores and seek shelter in April, 1996, from creditors after amassing $32.1-million (US) in debt. It was acquired by veteran U.S. retailer Scott Hessler and was given an infusion of $8.5-million as part of the court-approved reorganization. Canadian specialty retailer Dylex Ltd. had a 4% stake in Pacific, but a spokesman said the company gave up its position during the first restructuring. PASADENA YMCA: Shuts Its Doors; Atty General Investigating ---------------------------------------------------------- The California Attorney General's office is investigating the Pasadena Family YMCA, which has shut its doors amid increasing debt, The Los Angeles Times reported. The Attorney General's charity division seized the Y's computer records last month, and 25 of the 26 board members resigned. YMCA officials blame the financial problems on excessive spending by former CEO James B. Black during his tenure, including an inoperative $400,000 computer system, an 18-person corporate office in downtown Pasadena, executive retreats and leased Ford Crown Victoria, which Black still drives, although he left the Y three months ago. He said the lease was part of a retirement package he negotiated, and he has it until November. After he left on June 3, an audit team came in to review the records. The $1 million in debt was announced at an Aug. 19 meeting of the YMCA, and that's when the 25 board members resigned. (ABI 15-Sept-99) PERENNIAL HEALTH: Reports $5.7M Loss For Year --------------------------------------------- Perennial Health Systems, Inc. (OTC Bulletin Board: PHSS), an owner/operator of skilled nursing facilities and an independent provider of various therapy services to long-term care providers, today announced results for its fourth quarter and year ended May 31, 1999. The Company reported a net loss of $5,714,000, or 43 cents per share, for the year ended May 31, 1999 compared with net income of $615,000, or 5 cents per share, for the prior year. Revenue for the year was $13,694,000 versus $18,687,000 last year. The Company reported a fourth quarter net loss of $4,797,000, or 36 cents per share, versus a net loss of $206,000, or 1 cent per share, in 1998. For the quarter, revenue was $3,219,000 compared with $4,310,000 a year ago. Management attributed the losses for the year and fourth quarter to significant bad debt write-offs and the change to the federal government's Prospective Payment System (PPS) for Medicare reimbursement. PPS generally provides a standard payment with certain limitations rather than the former cost-based system. According to David W. Lester, Perennial's chief financial officer, the Company wrote off or provided an allowance for nearly $4 million in uncollectible accounts during the fourth quarter of 1999. The write-offs were the result of several large customers, including three that filed for protection under bankruptcy statutes, that were unable to pay Perennial. The Company also wrote off nearly $700,000 in unrecoverable intangible costs and provided for over $400,000 in litigation settlement costs. Lester said, "The Company has been negatively impacted by the Medicare reimbursement changes imposed by the new PPS upon providers of skilled nursing home services. Most of our collection issues have been a direct result of several therapy services customers (skilled nursing facilities) not being able to react quickly enough to PPS. As a result, many of them faced financial difficulties, which has created problems for us when collecting for those services." David V. Hall, Perennial's chairman and CEO, said, "Our goal since the end of fiscal 1999 has been to put these disappointing financial results behind us and move forward." Since the year- end, Perennial has been able to raise short-term working capital and lease a skilled nursing facility in Wisconsin to add to its other profitable facility in Indiana. "We have several potential nursing home acquisitions and leases on the drawing board," Hall added. "By being selective with our acquisition targets, we believe there are some outstanding opportunities as a result of the fallout related to the implementation of PPS." In June 1998, Perennial announced its decision to form a wholly-owned subsidiary, Perennial Health Management, Inc., to acquire, operate and manage the Company's nursing home properties. Several members of Perennial's management team have experience managing and operating nursing homes. Hall said, "We gained a significant advantage by entering the nursing home business when we did because we had an opportunity to study and understand the new reimbursement rules. Our greatest challenge right now, due to the current state of the nursing home industry, is to get the necessary financing in place to close quality deals." Perennial Health Systems is an operator of skilled nursing facilities and an independent provider of various therapy services to long-term care providers in the southeastern United States. PLAY BY PLAY TOYS: Heartland Advisors Reports Holding No Stock -------------------------------------------------------------- Heartland Advisors, Inc., an investment advisor, is reported as no longer holding shares of common stock in the Play By Play Toys and Novelties Inc. company. PLUMA: Seeks To Extend Exclusivity ---------------------------------- The debtor, Pluma Inc., seeks to extend its exclusivity periods for an additional ten days. It is the opinion of the debtor and the Bank Group that all creditor constituencies would best be served liquidating the assets of the debtor in the Chapter 11 proceeding because the realization from the liquidation process would be significantly greater through a confirmed plan of liquidation. The parties need a short period of time to completely resolve any issues that might exist concerning the liquidation budget that is being prepared by consultants to the Bank Group in conjunction with the management of the debtor. This process should be completed no later than September 24, 1999. SINGER: Brazilian Branch Declares Bankruptcy -------------------------------------------- The Brazilian branch of the sewing machines manufacturer Singer disclosed an official statement announcing that it also requested bankruptcy protection proceedings similar to Chapter 11 of the US bankruptcy code. The deliberation follows the measure announced on Monday by the US headquarters of The Singer Company. In the statement, the Brazilian board of directors assesses that the measure adopted in the US is expected to further aggravate the difficulties the company is facing in Brazil. TELEPAD: Motion For Status Conference Order ------------------------------------------- The Chapter 11 trustee of the debtor, Telepad Corporation, Kurt F. Gwynne, seeks a combined hearing on approval of the Disclosure Statement with the Hearing on Confirmation of the plan or, in the alternative, reducing the time periods to allow prompt Disclosure Statement and Confirmation Hearings, and setting September 15, 1999 as the date by which the Trustee Shall solicit acceptances of the plan. TRANSTEXAS: Applies To Employ State Tax Consultants --------------------------------------------------- The debtors Transtexas Gas Corporation, et al. seeks court authority to hire Trinity Petroleum Consultants, Ltd. as state tax consultnats nunc pro tunc. Trinity's fee for its services is 15% of all amounts of state tax refunds or credits received as described in a Consulting Agreement with a maximum fee of $2 million. UNIHEALTH: To Sell Six Physician Organizations ---------------------------------------------- Physician management specialist UniHealth will sell six doctor groups that serve some 650,000 Californians in the latest shakeout of California's managed health-care industry. UniHealth, California's biggest manager of physician groups, announced on Monday that it will sell the medical groups as part of a previously announced plan to become a charitable foundation focusing on health-care education and indigent care. Last year UniHealth sold its hospital business, which included Northridge Hospital Medical Center in Los Angeles. But the sale also comes as a time of financial turmoil for medical groups that provide health care for an estimated 23 million Californians. Within the past year two of the state's largest medical groups, MedPartners Provider Network and FPA Medical Management, have filed for bankruptcy protection. A California Medical Association report released last week predicted that 90 percent of the state's doctor groups were headed for bankruptcy or closure. Since 1996, there have been 115 medical group bankruptcies and closures, the report said. Such groups accept fixed monthly fees from health plans to provide care for patients, but rising medical costs have made it difficult for many to keep costs low enough to turn a profit. "It's been a difficult business everybody who's gotten into it," said Jay Harris, an investment banker at Cain Bros., a San Francisco firm hired to help arrange the sale of UniHealth's six physician groups. The six groups that will be sold include Miramar Medical Management Services in Oxnard, Buena Ventura Medical Management Co. in Ventura, Huntington Provider Management Services in Pasadena, Facey Medical Foundation in Mission Hills, Harriman Jones Management Services Inc. in Long Beach and Beaver Medical Management in Redlands. Four companies already were bidding to buy Huntington Provider, Harris said. Health plans that have contracts with UniHealth, including Cigna Healthcare of California and Aetna U.S. Healthcare, have pledged to make the change to new ownership as simple as possible for patients. "We feel that we will be able to ensure a smooth transition for our members," said Jim Harris, spokesman for Cigna. "Few, if any, of our members will experience any change in primary-care physicians or admission to hospitals." Even so, the sale worried Steve McDermott, chief executive officer of Hill Physicians Medical Group in San Ramon, Calif. "The failure of (UniHealth) to work underscores the complexities and difficulties of organizing providers to manage costs," he said. VENCOR: Approval of First-day Orders ------------------------------------ Sept. 15, 1999--Vencor, Inc. announced that the United States Bankruptcy Court for the District of Delaware (the "Court") entered first day orders granting authority to the Company and its subsidiaries to pay pre-petition and post-petition employee wages, salaries, benefits and other employee obligations. The Court also approved orders granting authority, among other things, to pay pre-petition claims of certain critical vendors, utilities and patient obligations. Until approval of its plan of reorganization, the Company intends to pay post-petition claims of all other vendors and providers in the ordinary course of business. The Court also approved, on an interim basis, the Company's $ 100 million debtor-in-possession financing (the "DIP Financing") with a bank group led by Morgan Guaranty Trust Company of New York. The final hearing on the DIP Financing is scheduled for October 1, 1999. The DIP financing and existing cash flows will be used to fund the Company's ongoing operations during the restructuring. During the restructuring, the Company and Ventas, Inc. (NYSE: VTR) have entered into a stipulation for the payment by the Company of a reduced monthly rent payment of approximately $15.1 million beginning in September. The Stipulation was approved by the Court. The reduced rental payment for September is due on September 16 with the remaining monthly rental payments required to be made on the fifth day of each month or the first business day thereafter. Beginning in September, the difference between the base rent under the Company's existing master leases with Ventas and the reduced monthly rent payment of approximately $ 15.1 million will accrue as an administrative expense, subject to challenge in the Chapter 11 case. Unpaid August rent of approximately $ 18.9 million will constitute a claim by Ventas in the Chapter 11 case. The Stipulation also continues to toll any statutes of limitations or other time constraints in a bankruptcy proceeding for claims that might be asserted by the Company against Ventas. The Stipulation expires on October 31, 1999, but automatically renews for one-month periods unless either party provides a fourteen-day notice of termination. The Stipulation also may be terminated prior to its expiration upon a payment default by the Company, the consummation of the Company's plan of reorganization or the occurrence of certain defaults under the DIP Financing. As previously disclosed, the Company continues to develop its plan of reorganization that includes terms negotiated with key parties, including the Company's bank lenders, subordinated debtholders, and Ventas. In addition, settlement negotiations are continuing with the Department of Justice, acting on behalf of the Health Care Financing Administration and the Department of Health and Human Services' Office of the Inspector General, concerning the government's outstanding claims against the Company, including outstanding routine reimbursement issues. As announced to the Court during the hearings on the first day motions, the Company does believe, that subject to certain conditions including entering into definitive agreements, an overall understanding on the broad economic terms of the Company's plan of reorganization has been reached with these key parties. Vencor, Inc. is a long-term healthcare provider operating nursing centers, hospitals, and ancillary contract services in 46 states. VENCOR: Condensed Consolidated Balance Sheet -------------------------------------------- ASSETS Current assets: Cash and cash equivalents 28,537 Accounts and notes receivable less allowance for loss 454,556 Inventories...... .......... .................... 32,055 Income taxes...................................... 12,073 Other.............................................. 73,950 --------- 601,171 Property and equipment, at cost.................... 793,640 Accumulated depreciation........................... (301,513) ---------- 492,127 Goodwill less accumulated amortization............. 444,826 Investments in affiliates.......................... 15,466 Assets held for sale............................... 23,432 Other.............................................. 73,123 ---------- $1,650,145 ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable....................................... 114,876 Salaries, wages and other compensation............. 144,947 Due to third party payors.......................... 27,080 Other accrued liabilities.......................... 143,879 Long-term debt due within one year................. 8,888 Long-term debt in default classified as current....... 789,609 ---------- 1,229,279 Long-term debt...................................... 76,395 Deferred credits and other liabilities.............. 95,263 Series A preferred stock............................ 1,743 Stockholders' equity: Common stock....................................... 17,598 Capital in excess of par value.................... 664,253 Accumulated deficit......................... (434,386) ---------- 247,465 ---------- $1,650,145 WORLDWIDE DIRECT: Seeks Approval of Sale of Certain Inventory ------------------------------------------------------------- The debtors, Worldwide Direct, Inc., et al., seek court authorization and approval of sale of certain inventory in Framingham, Massachusetts. The inventory is phones and accessories, the Buyer is U.S. Redial, Inc. and the purchase price is $1.25 million. The debtors have received other bids, but have determined that the Buyer's all cash bid with no conditions other than this court's approval represents the best and highest offer that the debtors have received to date for the inventory. While not the highest bid, (some bids were in excess of $2 million), U.S. Redial's bid contains no conditions as the higher bids contained. U.S. Redial's offer is subject to higher bids of at least $50,000 over the next highest bid; the first higher bid must be greater than or equal to $1.3 million. ********** The Meetings, Conferences and Seminars column appears in the TCR each Tuesday. Submissions via e-mail to conferences@bankrupt.com are encouraged. Bond pricing, appearing in each Friday edition of the TCR, is provided by DLS Capital Partners, Dallas, Texas. S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter is a daily newsletter, co- published by Bankruptcy Creditors' Service, Inc., Princeton, NJ, and Beard Group, Inc., Washington, DC. Debra Brennan, Yvonne L. Metzler, Editors. Copyright 1999. All rights reserved. ISSN 1520-9474. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. 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