Lynch Opposes Sparks' Purchase of Showtime
Exhibit designer claims deal left out other buyers and won't help creditors
By Margo McCall -- Tradeshow Week, 2/28/2005
Sparks Exhibits & Environments thought it had nailed its deal to acquire competitor Showtime Enterprises out of bankruptcy proceedings. But now that another competitor, Lynch Exhibits, has joined Showtime creditors in objecting to the $7.6 million acquisition, the agreement appears to be unraveling.
Lynch and the official committee of unsecured creditors both charge that Showtime failed to publicly market the company to prospective buyers before agreeing to the deal with Sparks, a subsidiary of the publicly traded Marlton Technologies. They also take issue with Sparks being entitled to receive a $475,000 breakup fee should the acquisition not be consummated as planned. Such breakup fees, the parties argue, are typically not allowed during reorganization proceedings.
In addition, Lynch doesn't like what its attorneys called Sparks' "secret option deal" to buy Argosy Investment Partners' secured claims totaling about $4.7 million.
In short, Showtime's agreement "with Sparks is designed to freeze out competition, as opposed to foster or enhance competition and maximize the value paid for the assets," Lynch's attorneys argue in an objection filed Jan. 24 in U.S. Bankruptcy Court in New Jersey.
As it turns out, the Burlington Township, N.J-based Lynch is also interested in buying its bankrupt competitor, which is headquartered in neighboring Paulsboro, N.J. In filing its objection, Lynch offered to make a higher offer for the assets and waive the breakup fee, thus assuring more money to be divvied up by Showtime's unsecured creditors.
Lynch filed its objection shortly after becoming a "party in interest" in Showtime's Chapter 11 filing by purchasing the claim of creditor Bohren's — an agent for United Van Lines.
Attorneys representing the committee of unsecured creditors raised similar objections as Lynch, arguing that, "the court should not allow this sale to go forward irrespective of the bidding procedures because the proposed sale to Sparks is fundamentally unfair."
U.S. Bankruptcy Court Judge Judith Wizmur has ordered that a hearing be held to resolve the objection. Attorneys for Showtime did not return phone calls seeking comment.
The Philadelphia-based Marlton — whose management in 2003 embarked on an expensive and unsuccessful bid to take the company private — revealed Sparks' purchase agreement a day after Showtime's Jan. 12 bankruptcy filing. Marlton Chairman Jeff Harrow said at the time that the two companies had been in merger talks for six months.
Showtime employs 90 people, operates six offices and produces $21 million in annual revenue. According to Showtime's reorganization filing, it ran into trouble when it couldn't secure financing after Wachovia Bank, which is owed $1.8 million, cut off its line of credit. At the time of its Chapter 11 filing, Showtime had $6.4 million in assets, but owed $11.9 million to hundreds of creditors.
In an interview, Harrow said Sparks was eager to take on Showtime employees, including CEO David Sudjian and Executive Vice President Harold Jensen. According to Sparks' required filing with the Securities & Exchange Commission, the company offered them four-year employment agreements with annual salaries of $225,000 and $185,000, as well as performance bonuses and stock options.
Lynch, which in 2003 acquired Folio's museum and exhibits business and Maltbie's tradeshow division, stated in its objection that it "intends to make a higher and better bid for the assets than that proposed by Sparks." However, the employment agreements for Sudjian and Jensen — who according to the filing used to work for Lynch — would have to be renegotiated.
Lynch attorneys also complained that Sparks hadn't yet paid its $500,000 deposit to secure the assets. And at the time the objection was filed, the purchase agreement appeared not to have yet been signed, according to Lynch's objection.
Showtime is not the first exhibit design and production firm to file for recently reorganization. Exhibit Dynamics of Grand Prairie, Texas, filed for Chapter 11 in early 2004, leaving vendors and its financial backer owed more than $30 million. An unrelated Atlantic City company called Showtime Exhibit Builders also filed for bankruptcy in early 2004.
