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Issue Date: Vol. 43, No. 10, October 2003, Posted On: 10/8/2003

Rowe Receives Court Approval: First Day Motions Grant Cash Collateral, DIP Financing And Sale Closing Date

Nick Montano

GRAND RAPIDS, MI - Rowe International announced that it has received approval from the U.S. Bankruptcy Court for the Western District of Michigan for a series of the company's "first day" motions.

Following a hearing held on September 26, the court approved, among other things, motions related to debtor-in possession (DIP) financing; the use of collateral cash allowing Rowe to continue as an ongoing concern; the bidding process and requirements related to the sale of Rowe's assets; and deadlines for events and actions leading to the closing of the sale of Rowe on November 11.

According to J. Douglas Johnson, Rowe's chairman and CEO, Rowe's pre-petition banks, creditors and a creditors' committee (a body of unsecured creditors set up by the Justice Department's U.S. Trustee Program to ensure the integrity of the bankruptcy system) agreed with the day's motions.

"This was a very good day for Rowe," Johnson told VT. "If an agreement had not been reached, the reorganization and sale of Rowe would have been delayed."

Rowe filed a voluntary petition for protection under Chapter 11 of the U.S. Bankruptcy Code on August 29 to facilitate the sale of the company's assets to Alexander Enterprises Inc., an affiliate of the Alpha Private Equity Group, designated by the court as the "stalking horse," meaning other qualified bidders will have the opportunity to submit higher and better offers (see VT, Sept.).

According to Johnson, other qualified bidders will have to offer $750,000 more than APEG's initial asset purchase agreement. Qualified bidders have a deadline of October 10 to submit financial materials to support their competing bids and on October 30; a court hearing will approve the sale of Rowe.

"By mid-November the process will be over and a new owner will have closed," Johnson said. "Most importantly, a new, debt-free Rowe will emerge."

Johnson met with Rowe's distributors in September during AMOA International Expo to explain the reorganization process and some of reasons behind it. The chief executive said that he was brought in by Rowe's pre-petition bank group to find an exit for them and, initially, Johnson thought the bank group would invest more in order for the company to develop initiatives, which would help attract new investors.

The chief executive cited two past ownership transactions that left the company with a pre-petition debt load of $80 million. In 1989, he observed, Merrill Lynch Capital Partners acquired the company in a leveraged buyout, which eventually generated a secured debt load that reached as high as $190 million. In 1998, a bank group organized by Tri-Link Investment Trust, a unit of Nomura Holdings America, bought the debt at a discount.

"In the spring of this year," Johnson said, "Rowe began to show an upside. Potential investors liked the company's prospects and management, but they were concerned with Rowe's contingent liabilities and balance sheet. So all offers were subject to Rowe's filing for Chapter 11, and the old banks agreed."

In the first quarter of this year, Rowe sold its vending machine business, which Johnson described as "unprofitable," to Automatic Products international ltd. The company also announced plans to retain its long-established and profitable currency changer business, devoting full resources to rebuilding it. And in the spring, Rowe announced plans to build a global digital entertainment network, revealing an advanced client/server system that it has designed for the purpose.

Johnson also used the distributor meeting as an opportunity to introduce Eric Hanson, an APEG principal.

For his part, Hanson told distributors that Rowe's mistake was not to seek Chapter 11 reorganization earlier. "We see the business as an opportunity to move more into digital," he said. "Rowe has a known life and we are obligated to buy it by contract. So Rowe is going to continue and emerge as a much stronger company."

Alpha Private Equity Group is a privately held investment company focusing on small to middle market companies that have a defendable niche, value-added products and services, strong management and attractive growth potential in the U.S. and in Europe. The company maintains offices in New York City and Miami.

Rowe International Inc. is the oldest and largest manufacturer of CD and Internet-enabled digital jukeboxes, with an estimated 65% share of the domestic and international jukebox market. Rowe is also ranked as the number two manufacturers of bill changers.

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