April 10, 2000
Florida Jury Awards $12.7 Million to Three
Sick Smokers
In a verdict that set the stage for a
potentially massive punitive damages award, a Florida jury ruled on
Friday that America's cigarette makers injured three sick smokers and
awarded them a total of $12.7 million in compensatory damages, the
highest yet in a U.S. sick-smokers case, Reuters reported. Within weeks,
punitive damages for hundreds of thousands of other ailing smokers in
Florida will be decided, which could total as much as $300 billion. The
verdict is the latest blow to America's tobacco companies in a
class-action trial that began in October 1998 and which some say could
push some of the nation's biggest corporations into bankruptcy. The same
jury ruled last year that cigarette makers sold defective products that
sickened smokers. Friday's awards may be trimmed, since the four men and
two men of the jury ruled that the three were each 15 to 25 percent
responsible for their illnesses after smoking collectively for more than
a century. Previously, the highest compensatory damages awarded by a
U.S. jury in a sick-smoker case were $1.72 million to a California
housewife last month. Lawyers for the plaintiffs in the Engle
class action, named for a Miami Beach pediatrician with emphysema, had
asked the tobacco companies to pay about $13 million for lost wages,
suffering and other personal injuries. Lawyers for the tobacco companies
expressed disappointment at the verdict, which analysts said showed the
lessening appeal of the traditional industry defense that sick smokers
had only themselves to blame. 'We have never believed that this jury
would award damages to hundreds of thousands of smokers that these
people know nothing about,' said Philip Morris attorney Dan Webb.
Tobacco lawyers argued during the compensatory damages trial that
millions of Americans had quit smoking, that the health risks of
cigarettes were clear to all three, and that other factors such as
sawdust could have caused the injuries. But Edward Sweda, senior
attorney at the Tobacco Products Liability Project at Northeastern
University, welcomed the verdict as another step toward punishing
tobacco companies. 'It holds accountable the tobacco companies for their
misconduct over the past two generations,' he said.
AutoInfo Inc. Announces New Disclosure
Statement Hearing Date
AutoInfo Inc., Stamford, Conn., announced on Friday that the hearing
held on Thursday to consider compliance with the disclosure requirement
was adjourned and rescheduled, according to a newswire report. The court
and other interested parties raised issues regarding the adequacy of the
disclosure statement, and the company said it intends to address these
issues in an amended disclosure statement. 'We anticipate that the
amended disclosure statement will satisfy the issues raised by all
interested parties,' said William Wunderlich, president and chief
financial officer of AutoInfo. 'We are hopeful that the acceptance of
the disclosure statement will lead to the timely confirmation of our
reorganization plan so that we may proceed toward the consummation of a
transaction in our continuing efforts to restore shareholder value.' A
hearing to consider the amended disclosure statement is scheduled to be
held before Hon. Adlai S. Hardin Jr. in the U.S. Bankruptcy Court
for the Eastern District of New York in White Plains.
SSA to Sell Assets to Gores Technology
Subsidiary
Chicago's Gores Technology Group, an international technology and
management company, and software and services provider System Software
Associates (SSA) Inc. announced on Friday that SSA has agreed to sell
substantially all of its assets to a newly formed subsidiary of Gores
Technology for a total of approximately $52 million in cash and 25
percent of the common stock, according to a newswire report. The
companies intend to effect the sale through a voluntary chapter 11
bankruptcy proceeding to be filed on or about April 14, not including
SSA's subsidiaries. 'We are very pleased to be adding SSA to the Gores
family of technology companies. We place a high importance on the
current and potential value of SSA's extensive customer base, skilled
professionals, strong portfolio of SSA and partner software and
services, and significant international operations. We intend to focus
on the future growth and development of the company,' Alec Gores,
chairman of Gores Technology, stated. 'This transaction is the result of
an intense and thorough evaluation of all of SSA's strategic
alternatives by our advisors, Houlihan, Lokey, Howard & Zukin,
senior management and the SSA Board,' said Robert R. Carpenter, chairman
and chief executive officer of SSA. 'We believe that our combined
resources will both allow us to continue to serve our customers without
interruption, and enable us to continue to build upon our combined
strengths after completion of the sale.' SSA anticipates that it will be
required to use all of the cash received upon closing of the sale to pay
SSA's senior secured lenders and administrative claims in bankruptcy,
leaving 25 percent of the common stock of the newly formed subsidiary
available for claims of unsecured creditors of SSA in bankruptcy. SSA
does not expect any distribution to be made to holders of its equity
securities. It is anticipated that the sale will close within 45-60
days, subject to bankruptcy court approval and approval of SSA's senior
secured lenders.
Newsweek Investigation at Colt
Reveals Mismanagement
According to a Newsweek magazine investigation, Donald Zilkha,
who bought gunmaker Colt Manufacturing Co., blames a proliferation of
lawsuits for bringing down the legendary company to the brink of
bankruptcy; however, interviews with current and former executives at
Colt shows Colt's management, outsiders to the gun industry, didn't
understand that the street handguns that they were uncomfortable to
manufacture were also the guns that were keeping the industry alive,
according to a newswire report. 'I just don't think there was an
affinity with the final customer,' a Colt board member said. 'I don't
believe we were the kind of ownership or board that was capable of
running a gun company.' Among the facts revealed by the Newsweek
investigation are that at one point, Zilkha and his partner secretly put
up $1 million of their own money so that Colt could quickly build 1,100
modified assault rifles for the civilian market, although the guns are
banned in several states; its former CEO became obsessed with the 'smart
gun,' a high-tech weapon that could only be fired by its owner, and
spent weeks in South Africa unsuccessfully negotiating to buy Vector, a
gun manufacturer that was selling guns to outlaw nations like Libya; and
that there was evidence that employees were stealing guns and products
from the plant.
Medical Resources Announces Filing of
Reorganization Plan
Medical Resources Inc., Hackensack, N.J., reported on Friday that it
had filed a pre-negotiated reorganization plan under chapter 11 in
connection with the company's previously announced
agreement-in-principle to convert $75 million of its senior notes into
common stock, according to a newswire report. Under the plan, which
applies only to Medical Resources and not to any of its operating
subsidiaries or affiliates, the holders of the senior notes and the
company's primary medical equipment lender are to receive approximately
90 percent of the reorganized company's common stock. 'The
reorganization, which is expected to be completed in 60 to 90 days, will
greatly reduce the company's debt load and, therefore, strengthen our
business,' said Geoffrey A. Whynot, Medical Resource's co-chief
executive officer. 'Since we expect to continue to meet all of our trade
credit and operating obligations in the ordinary course, there will be
no disruption with respect to physician, vendor or employee
relationships.'
VF to Acquire North Face Sports Company
A day after The North Face said it might be forced to file for
bankruptcy, the sportswear and outdoor equipment maker announced on
Friday that it will be acquired by apparel company VF Corp. for about
$25 million, according to the Associated Press. The agreement calls for
VF to acquire all 12.7 million shares of North Face for about $2 per
share. On Thursday, North Face said in a statement that its financial
condition raised 'substantial doubt about its ability to continue as a
going concern.' VF Corp., based in Greensboro, N.C, owns such brands as
Lee, Wrangler, Jantzen, Lily of France and JanSport. 'By acquiring the
North Face, VF adds a global dimension to its growing portfolio of
strong outdoor lifestyle brands,' said Mackey McDonald, VF chairman and
chief executive officer. The North Face, based in San Leandro, Calif.,
makes clothing and products for climbers, mountaineers, backpackers and
skiers.
Philip Services Successfully Completes
Financial Reorganization
Philip Services Corp., Hamilton, Ont., announced on Friday that it
has completed its financial reorganization and that Philip Services
Corp., the newly restructured company incorporated in Delaware, has
successfully emerged from chapter 11 of the U.S. Bankruptcy Code and the
Companies Creditors' Arrangement Act in Canada, according to a newswire
report. 'We have emerged with renewed financial stability and the
strength of over 12,000 employees, a service network that spans North
America, and a loyal client and supplier base,' said Anthony Fernandes,
president and chief executive officer. Through the financial
reorganization and proceeds from the prior sale of assets, the company's
senior secured debt has been reduced from more than $1 billion to $235
million and $100 million in secured convertible payment-in-kind debt.
The $235 million in senior secured debt will be further reduced to
approximately $190 million once the company completes the sale of its UK
Metals business to Simsmetal Ltd. Class-action suits against the company
have been settled in return for 1.5 percent of the equity in the
restructured company. As part of its financial reorganization, 24
million shares will be issued by the new legal entity, Philip Services
Corp., on a pro rata basis to its secured lenders, unsecured
creditors, existing shareholders, class-action claimants and other
equity claimants. Philip Services is an integrated metals recovery and
industrial services company with operations throughout the United
States, Canada and Europe.
Metrocall Approaches PageNet Once More
Metrocall, Alexandria, Va., is stepping back into the battle for
Paging Network (PageNet), Plano, Texas, after it first approached
PageNet last year, but talks broke down over management control and
performance guarantee issues, according to TheStreet.com. After
it had lost subscribers for six consecutive quarters and missed a recent
interest payment on its credit facility, PageNet agreed in November to
be acquired by Arch Communications, Westboro, Mass. But PageNet also has
the largest paging customer base in the U.S., a lucrative radio spectrum
and a fully built two-way messaging network. Both bidders have licenses
for nationwide networks but haven't completed their systems. Last week,
Metrocall approached PageNet's unsecured creditors, who hold bonds with
a face value of $1.2 billion. An Arch spokesman says the company is
aware of Metrocall's recent bid, but said, 'The Arch/PageNet merger is
on track, and [we] expect it to close sometime this summer.' The
companies expect to receive Federal Communications Commission and
Justice Department approval in May. 'Clearly PageNet is in dire
financial straits, so a deal needs to happen sooner rather than later,'
says Will Power, a wireless telecom analyst with J.C. Bradford in
Nashville, Tenn. 'To the extent that time is of essence, Arch has a
better chance.' If more than 97.5 percent of PageNet bondholders approve
the Arch deal, the company can avoid entering bankruptcy. If more than
two-thirds of PageNet bondholders approve, PageNet will then seek a
pre-packaged bankruptcy. If less than two-thirds vote in favor of the
deal, PageNet may file a conventional bankruptcy, the Arch spokesman
explained.
Former Montreal Businessman Wanted in
International Fraud Case
An international warrant is to be issued for the arrest of a former
Montreal businessman behind one of the most sensational financial
collapses in Canadian history, the Montreal Gazette reported
Saturday. A Canada-wide arrest warrant for Wolfgang Stolzenberg was
sworn out this week, listing 41 allegations of covering about $200
million in losses suffered by Canadian investors in Stolzenberg's
company, federal prosecutor Claude Haccoun said Friday. The $200 million
covers 'just the tip of the iceberg' of the losses suffered by corporate
and private investors in Castor Holdings Ltd., a private Montreal
holding company and real-estate lender, he said. When Castor filed for
bankruptcy in 1992, it left investors with a total of $1.6 billion in
losses. Haccoun said that 'there is more to come' in the way of criminal
charges against Stolzenberg, a former German banker believed to be
living in Darmstadt, Germany. Since there is no extradition treaty
between Canada and Germany, Canadian officials will be asking German
officials to prosecute Stolzenberg as though he were being tried in
Canada for the offenses outlined in the nine-page list of criminal
charges filed in Montreal, Haccoun said. The charges were filed about
eight years after Castor Holdings filed for bankruptcy and about six
years after an investigation involving a dozen countries was launched.
In the fall of 1998, a civil case began, pitting investors and lenders
who lost money in the Castor affair against the accounting firm Coopers
& Lybrand, Castor's auditors. The lawsuit will set the precedent for
42 similar suits involving North American and European investors that
together claim about $1 billion from Coopers & Lybrand. The
plaintiffs allege that Coopers & Lybrand was negligent in approving
Castor's financial statements and issuing other documents that grossly
misrepresented the health of the company and thus led to the
losses.
