August 14, 2006

In the 1980s, Jim Massey was one of Indianapolis' top bankers. Now, he finds himself in bankruptcy court, the latest former Conseco Inc. director to fall victim to the company's hardball loan-collection tactics.

The Carmel-based insurer last month filed an involuntary bankruptcy petition for Massey, 71, the former president of Merchants National Bank.

"It is just another forum to try to bring an expeditious conclusion to the problem," said Reed Oslan, a partner with the Chicago law firm Kirkland & Ellis who represents Conseco. "Massey's lawyers have played every procedural game."

The "problem" is the $22 million in principal and interest the company says Massey owes on loans he took out in the 1990s to buy company stock that ended up worthless. For more than two years, Conseco has tangled with Massey in other courts in an effort to collect as much on the loans as possible.

Massey, a Conseco director from 1994 to 2000, has raised a range of legal defenses he argues should extricate him from the debt. Massey's bankruptcy attorney, Gary Lynn Hostetler of Hostetler & Kowalik, said he's puzzled by Conseco's move to force bankruptcy and will fight it.

"This is a two-party dispute that does not belong in bankruptcy," he said. "It needs to be resolved in the current litigation."

Massey is one of 11 big borrowers Conseco targeted for collection after it emerged from bankruptcy court in the fall of 2003. Including interest, Conseco says those borrowers rang up $700 million in debt.

The company has reached settlements with all but Massey, former Conseco CEO Stephen Hilbert and three others. All the settlement agreements are confidential except for a deal the company finalized in bankruptcy court last month with Max Bublitz, 50, the former president of Conseco Capital Management, who now works for a San Francisco investment firm.

Under the settlement, Conseco will receive about $930,000, a fraction of the $18 million in principal and interest the company contended Bublitz owed.

Oslan called the deal "a pretty good result." He said it was hard to collect more because for many years Bublitz transferred the bulk of his earnings to his wife. And though Bublitz received $650,000 under a severance agreement he signed when he left the company in 2003, the agreement stipulated that money was off limits.

A Securities and Exchange Commission filing estimates the company will accumulate $50 million, after expenses, from the loan collection effort. That estimate has swelled since the beginning of the year, when the company was estimating $40 million.

"I think our number will be much, much larger," Oslan said. When he launched the loan-collection effort, Oslan predicted it would reap more than $100 million before expenses. He said he still thinks that will be the case.

Smulyan's soured buyout bid

Why did Emmis Communications Corp. Chairman Jeff Smulyan's plan to take the company private go belly up?

Here are two key reasons cited by analysts: The special committee of independent directors considering his $15.25-a-share offer was under intense pressure from major shareholders to extract a higher price.

At the same time, the decline in the stock market since Smulyan unveiled his offer in early May, and a decline in company performance over the same span, left the executive reluctant to sweeten the pot enough to win over the committee.

Indeed, in early July, the company said in a filing with the SEC that radio revenue in its latest quarter was off 6.5 percent percent compared with a year earlier.

In the tough climate, "Jeff was probably unwilling to step up" and offer as much as the committee wanted, said Mark Foster, chief investment officer for Kirr Marbach & Co. in Columbus, Ind.

Colossal deal for Brightpoint

The logistics contract that Brightpoint Inc. announced last week with T-Mobile USA is such a doozy that the Plainfield company will open a 240,000-squarefoot distribution center in Louisville to support it.

The three-year pact represents one of the biggest of its kind ever struck in the wireless phone industry. The new center will be about half the size of a distribution center the company operates in Plainfield that handles 30 million units a year.

Under the deal, Brightpoint will supply phones to T-Mobile distributors, as well as directly to T-Mobile subscribers. The Louisville facility is expected to begin operation in the first quarter of 2007.
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