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Friday, August 4, 2000

Liberty House’s
plan disputed

Owner JMB Realty says
the reorganization proposal puts
too low a value on the business

By Russ Lynch

Liberty House and its creditors and lenders have proposed a reorganization plan they say could have the company clear of its 2-year-old bankruptcy and virtually free of debt by the end of November.

Liberty House However, the retailer's owner, JMB Realty Corp., in Chicago, said today it will object to the plan because the value it sets on the business is too low.

Dan Murray, an attorney for JMB, said his company will go before Bankruptcy Judge Lloyd King in Honolulu Monday to argue that an impartial mediator should be appointed to help resolve differences that remain among the parties.

Liberty House Inc. management said yesterday in federal bankruptcy court in Honolulu that the plan gives unsecured creditors the option of receiving 90 percent of what is owed them -- 40 percent in cash and 50 percent in the form of a noninterest-bearing note. The unsecured creditors also would have the option of receiving shares in Liberty House to fulfill their claims.

The main secured creditors, led by Bank of America, would be able to convert all of their claims into Liberty House common stock.

According to Liberty House attorney Bruce Bennett, the bankruptcy could be wrapped up by the end of November, allowing the retailer to enter the holiday selling season unencumbered.

"I am guardedly optimistic," he said today.

The plan is set to be heard by U.S. Bankruptcy Judge Lloyd King on Sept. 7. If approved for circulation, it will be sent to creditors for a vote.

But JMB, which on Monday will ask the court to appoint a mediator seeking to find agreement among all parties on o reorganization plan, suggested litigation over the valuation of the company could dash hopes for closing the bankruptcy before the end of this year.

"We started down this path once before," with Liberty House and JMB both filing their own plans, and the dispute continued, Murray said. The only solution is to appoint a mediator to listen to both sides and work out a solution, he said.

Liberty House filed for Chapter 11 bankruptcy reorganization in March 1998. Disputes between owner JMB and the retailer chain's main creditors have dragged the case out and have cost Liberty House more than $9 million in legal and professional fees.

The reorganization plan proposes a new five-member board of directors for Liberty House. John Monahan, Liberty House president and chief executive officer would be on the board, which would also include Hawaii real estate developer Duncan MacNaughton.

"The plan is the result of extensive negotiations and cooperation among the parties and reflects their collective desire to resolve the bankruptcy case," Bruce Bennett, Liberty House's lead counsel in the reorganization effort, said in a statement issued yesterday. He called the plan a practical and effective way for Liberty House to get out of bankruptcy with a sound capital structure.

Monahan said the retailer "has been ready to emerge from Chapter 11 for some 18 months now."

"We believe the plan produces the best possible outcome for all constituencies," he said.

JMB's attorney, however, said there are several steps to go through and JMB disagrees with the $190 million value the latest plan sets for the company. JMB had earlier estimated the value at about $285 million.

"We do believe that Liberty House has been grossly undervalued by the lenders and as a consequence we cannot support their plan," Murray said.

He said the plan has just been filed so he has not had time to respond officially to the court. "There may be objections to the adequacy of the disclosure," he said.

Under the new plan proposal, Liberty House employees would be offered bonuses of an extra week's pay or additional vacation, with no layoffs or changes in the work force, Bennett said.

Star-Bulletin staff writer Peter Wagner
contributed to this report.

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