February 1 – February 8, 2007 Edition

AMS Submits
‘Stalking Horse’
Deal to Court

NEW YORK, NY/1/31/2007—In a court hearing today as part of continuing proceedings for bankrupt American Marketing Services (AMS), the company reported to the court that it now has three, not two, offers to buy the company, and it is seeking to close what is a considered to be a “stalking horse” deal with one of these. The names of the companies were not released.

A “stalking horse” deal can be defined as a sham candidate put forward to conceal the candidacy of another or to divide the opposition.

AMS basically asked the U.S. Bankruptcy Court in Delaware to approve a process by which the company’s sale will be open to other bidders, and potentially lead to an auction. Another court hearing must first be held before others can bid.

Wells Fargo Foothill, AMS’s primary lender, said last week it would give AMS one more opportunity to close a valid sale. The alternative would be for the company to liquidate, a move firmly supported by the Unsecured Creditors’ Committee.

In today’s hearing, the Court postponed until next week hearings on administrative orders on financing, original set for today. In that hearing AMS seeks final approval to a $75 million debtor-in-possession credit facility for AMS’s primary lender Wells Fargo Foothill, a move also strongly opposed by the Unsecured Creditors’ Committee. The Committee has stated in Court documents that AMS should use Foothill’s cash to immediately liquidate or sell its assets. The group objects to the terms of the DIP offer, which imposes unrealistic deadlines on a sale of the company and favors Foothill.

PGW, AMS’s distribution arm, likely will be taken over by Perseus Books Group, which has offered to pay affected publishers 70 cents on the dollar for their losses if they assign their accounts to Perseus. Publishers have until February 7 to register any objections and Perseus must have 65% of the pre-petition claims agree to hand over their contracts from PGW to Perseus. Avalon and Grove/Atlantic, two of PGW’s biggest clients, have agreed to assign their accounts to Perseus, which has received positive replies from about 40 publishers. If Perseus can meet the threshold and there are no objections by February 7, they will assume the PGW contract. The hearing for that step in the proceedings is set for February 12.

AMS’s largest creditors include Random House, Simon & Schuster, Penguin Putnam, Hachette Book Group, HarperCollins, and about 36 smaller publishers. Other creditors could number in the thousands.