Manchester Inc. Announces Agreement on Continued Funding During Bankruptcy and Agreement to A Proposed Plan to Exit Bankruptcy
DALLAS, April 7, 2008 /PRNewswire-FirstCall/ -- Manchester Inc. (OTC:MNCS) (BULLETIN BOARD: MNCS) announced an agreement to fund company operations during bankruptcy and acceptance of a proposal (the "Proposal") by its senior lender, Palm Beach Multi-Strategy Fund, L.P. ("Palm Beach") which if approved by the Bankruptcy Court, would result in Manchester being reorganized and exiting bankruptcy within a few months. Rick Gaines, Manchester's CEO, stated that the agreement announced today was reached after a flurry of litigation involving Manchester and Palm Beach. As part of that agreement, the Proposal for reorganization was also accepted. This Proposal was announced on April 4, 2008 in a joint press release by Manchester and Palm Beach.
On March 25, 2008, Manchester filed an adversarial proceeding (equivalent to the filing of a lawsuit) in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division, Docket Nos. 08-30703; 08-30704; 08-30705; 08-30706; 08-30707; 08-30708; 08-30709; and 08-307010 (the "Proceeding") against B. Scott Olson, Esq., J. Steven Cammack, Thomas L. Gervais (Olson, Cammack and Gervais manage the Fund and are managing partners of affiliates of the Fund), Bruce F. Prevost, David W. Harrold (Prevost and Harrold are managing partners of affiliates of the Fund) Scott Maggard, Jason Micheletto (Maggard and Micheletto are officers of affiliates of the Fund and involved in day to day management of the Fund) the Fund, Palm Beach Links Capital , L.P., PBL Holdings, LLC, Links Business Capital, GP, LLC, Palm Beach Capital Management, LLC, PBL Servicing, Rick Stanley (former CEO of Manchester) and Tony Hamlin (former Chief Accounting Officer of Manchester). The Proceeding asserted a number of claims against Palm Beach and its affiliates including interference with the contractual relations with employees and in particular with Rick Stanley and Tony Hamlin, fraud, and inequitable conduct including efforts to frustrate Manchester's reorganization efforts among other claims. The Proceeding also asserted claims against Rick Stanley and Tony Hamlin for breach of fiduciary duty among other claims.
On March 14, 2008, the Fund filed suit against the Richard Gaines (Manchester's CEO and a director) and Lawrence Taylor (Manchester's CFO) as well as the other member of Manchester's Board of Directors in the District Court Dallas County, 95th District, Docket No. 08-02844. This suit alleges among other things that the defendants have breached their fiduciary duties and fraudulent inducement of the Fund to act or withhold from acting. The Company does not believe these claims have any merit. If the Proposal is not consummated, the Company will vigorously defend this action.
Palm Beach brought a separate lawsuit against a shareholder and others (the "Shareholder Suit"). The shareholder and others filed counterclaims against Palm Beach and all the same defendants Manchester sued in the Proceeding. The claims of the shareholder contain claims that are related to some of the same claims asserted by Manchester and arise from some of the same transactions at issue in the Proceeding.
At the time Manchester filed for bankruptcy, it received temporary permission to use the cash proceeds of Palm Beach's collateral until April 2, 2008. At the time of filing bankruptcy, Manchester had a stated goal of exiting bankruptcy with all creditors paid and the equity of its shareholders preserved. To develop a plan to achieve that goal, Manchester had to obtain alternative financing to permit it time to develop an exit strategy that could achieve its stated goal. However, as the April 2, 2008 deadline for use of cash collateral approached, it had not put in place all the elements of Debtor in Possession financing it needed in order to operate without using cash collateral. Proposals made by Palm Beach for financing or reorganizing Manchester were rejected as unacceptable. However, a few days before the hearing date, Palm Beach made a proposal for exiting bankruptcy that was a significant improvement over previous proposals. The Proposal offered a different level payment to unsecured creditors and avoided the possibility that Manchester would be forced into liquidation and the likelihood that unsecured creditors would receive little or nothing. The Board of Directors of Manchester accepted the Proposal and agreed to an interim cash collateral order. The agreed cash collateral order provides for (1) Manchester to continue to use cash collateral for operations, and (2) for Palm Beach to provide up to a $10 million line of credit, if necessary, with interest at the prime rate, to support operations until the plan of reorganization contained in the proposal was acted upon by the Bankruptcy Court.
The Proposal includes the following elements. Manchester and Palm Beach are to develop a plan of reorganization (the "POR") pursuant to which Manchester would emerge from bankruptcy. The proposed POR contains the following principal provisions. First, Palm Beach would convert all of its debt for all the equity in Manchester thereby eliminating the existing shareholders' equity. Second, Palm Beach would deposit $3 million to, in part, satisfy the approximately $34 million in anticipated claims of unsecured creditors, and, in part, to fund the expenses of Manchester's bankruptcy estates in connection with the plan approval process. Third, Palm Beach would deposit $200,000 in a Litigation Trust to be used to prosecute such claims and litigations as the trustee and the unsecured creditors shall determine. Fourth, $500,000 available from Manchester operations during the bankruptcy will be added to the $3 million deposit to increase the amount for unsecured creditors and administrative expenses to a total of $3.5 million. Fifth, all litigation between Manchester, its officers and directors and Palm Beach and its affiliates would be settled. Sixth, the Shareholder Suit would also be settled. Seventh, upon the deposit of the $3 million described above, Rick Stanley, Manchester's former CEO, and Tony Hamlin, Manchester's former Chief Accounting Officer, would return to work for Manchester during the bankruptcy as Chief Operating Officer and Chief Accounting Officer, respectively, both reporting to the current Board of Directors in the same manner as any other employee.
Implementation of the Proposal is contingent on achieving a number of milestones and factors, including (1) deposit of $3 million by about April 30, 2008, (2) provision of the $10 million DIP financing, and (3) adoption and approval of the POR. It is anticipated that the proposed POR will be completed by April 16, 2008. Assuming, things move as anticipated, Manchester will exit bankruptcy by early to mid June, 2008.
If the milestones described above are not satisfied, the Proposal will not be implemented. At this time, Manchester has not independently verified that Palm Beach has the funds on hand or the ability to raise the funds to make the $3 million deposit, provide the $10 million line of credit or the $200,000 deposit called for in the Proposal. The Proposal also calls for the settlement of the Shareholder Suit. Manchester has no ability to cause the shareholder involved in that suit to settle his claims. Were the Shareholder Suit not settled, it is unknown whether the Proposal will remain in place.
Any shareholder, creditor or any other person has the right to petition the Bankruptcy Court to permit them to offer an alternative plan of reorganization. In furtherance of its fiduciary duties, Manchester's Board of Directors remains obligated to consider any better alternative to the Proposal that may arise.
For more information please go to http://www.manchesterinc.net/
DATASOURCE: Manchester Inc.
CONTACT: Chantelle Hardy, Communications Director of Manchester Inc.,
+1-214-402-6903,
Web site: http://www.manchesterinc.net/
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