Manchester Inc. Announces Agreement on Continued Funding During Bankruptcy and Agreement...

Manchester Inc. Announces Agreement on Continued Funding During Bankruptcy and
Agreement to A Proposed Plan to Exit Bankruptcy

DALLAS, April 7, 2008 /PRNewswire-FirstCall/ -- Manchester Inc.
(OTC Bulletin Board: MNCS) announced an agreement to fund company operations
during bankruptcy and acceptance of a proposal (the "Proposal") by its senior
lender, Palm Beach Multi-Strategy Fund, L.P. ("Palm Beach") which if approved
by the Bankruptcy Court, would result in Manchester being reorganized and
exiting bankruptcy within a few months. Rick Gaines, Manchester's CEO, stated
that the agreement announced today was reached after a flurry of litigation
involving Manchester and Palm Beach. As part of that agreement, the Proposal
for reorganization was also accepted. This Proposal was announced on April 4,
2008 in a joint press release by Manchester and Palm Beach.
On March 25, 2008, Manchester filed an adversarial proceeding (equivalent
to the filing of a lawsuit) in the United States Bankruptcy Court for the
Northern District of Texas, Dallas Division, Docket Nos. 08-30703; 08-30704;
08-30705; 08-30706; 08-30707; 08-30708; 08-30709; and 08-307010 (the
"Proceeding") against B. Scott Olson, Esq., J. Steven Cammack, Thomas L.
Gervais (Olson, Cammack and Gervais manage the Fund and are managing partners
of affiliates of the Fund), Bruce F. Prevost, David W. Harrold (Prevost and
Harrold are managing partners of affiliates of the Fund) Scott Maggard, Jason
Micheletto (Maggard and Micheletto are officers of affiliates of the Fund and
involved in day to day management of the Fund) the Fund, Palm Beach Links
Capital , L.P., PBL Holdings, LLC, Links Business Capital, GP, LLC, Palm Beach
Capital Management, LLC, PBL Servicing, Rick Stanley (former CEO of
Manchester) and Tony Hamlin (former Chief Accounting Officer of Manchester).
The Proceeding asserted a number of claims against Palm Beach and its
affiliates including interference with the contractual relations with
employees and in particular with Rick Stanley and Tony Hamlin, fraud, and
inequitable conduct including efforts to frustrate Manchester's reorganization
efforts among other claims. The Proceeding also asserted claims against Rick
Stanley and Tony Hamlin for breach of fiduciary duty among other claims.
On March 14, 2008, the Fund filed suit against the Richard Gaines
(Manchester's CEO and a director) and Lawrence Taylor (Manchester's CFO) as
well as the other member of Manchester's Board of Directors in the District
Court Dallas County, 95th District, Docket No. 08-02844. This suit alleges
among other things that the defendants have breached their fiduciary duties
and fraudulent inducement of the Fund to act or withhold from acting. The
Company does not believe these claims have any merit. If the Proposal is not
consummated, the Company will vigorously defend this action.
Palm Beach brought a separate lawsuit against a shareholder and others
(the "Shareholder Suit"). The shareholder and others filed counterclaims
against Palm Beach and all the same defendants Manchester sued in the
Proceeding. The claims of the shareholder contain claims that are related to
some of the same claims asserted by Manchester and arise from some of the same
transactions at issue in the Proceeding.
At the time Manchester filed for bankruptcy, it received temporary
permission to use the cash proceeds of Palm Beach's collateral until April 2,
2008. At the time of filing bankruptcy, Manchester had a stated goal of
exiting bankruptcy with all creditors paid and the equity of its shareholders
preserved. To develop a plan to achieve that goal, Manchester had to obtain
alternative financing to permit it time to develop an exit strategy that could
achieve its stated goal. However, as the April 2, 2008 deadline for use of
cash collateral approached, it had not put in place all the elements of Debtor
in Possession financing it needed in order to operate without using cash
collateral. Proposals made by Palm Beach for financing or reorganizing
Manchester were rejected as unacceptable. However, a few days before the
hearing date, Palm Beach made a proposal for exiting bankruptcy that was a
significant improvement over previous proposals. The Proposal offered a
different level payment to unsecured creditors and avoided the possibility
that Manchester would be forced into liquidation and the likelihood that
unsecured creditors would receive little or nothing. The Board of Directors
of Manchester accepted the Proposal and agreed to an interim cash collateral
order. The agreed cash collateral order provides for (1) Manchester to
continue to use cash collateral for operations, and (2) for Palm Beach to
provide up to a $10 million line of credit, if necessary, with interest at the
prime rate, to support operations until the plan of reorganization contained
in the proposal was acted upon by the Bankruptcy Court.
The Proposal includes the following elements. Manchester and Palm Beach
are to develop a plan of reorganization (the "POR") pursuant to which
Manchester would emerge from bankruptcy. The proposed POR contains the
following principal provisions. First, Palm Beach would convert all of its
debt for all the equity in Manchester thereby eliminating the existing
shareholders' equity. Second, Palm Beach would deposit $3 million to, in
part, satisfy the approximately $34 million in anticipated claims of unsecured
creditors, and, in part, to fund the expenses of Manchester's bankruptcy
estates in connection with the plan approval process. Third, Palm Beach would
deposit $200,000 in a Litigation Trust to be used to prosecute such claims and
litigations as the trustee and the unsecured creditors shall determine.
Fourth, $500,000 available from Manchester operations during the bankruptcy
will be added to the $3 million deposit to increase the amount for unsecured
creditors and administrative expenses to a total of $3.5 million. Fifth, all
litigation between Manchester, its officers and directors and Palm Beach and
its affiliates would be settled. Sixth, the Shareholder Suit would also be
settled. Seventh, upon the deposit of the $3 million described above, Rick
Stanley, Manchester's former CEO, and Tony Hamlin, Manchester's former Chief
Accounting Officer, would return to work for Manchester during the bankruptcy
as Chief Operating Officer and Chief Accounting Officer, respectively, both
reporting to the current Board of Directors in the same manner as any other
employee.
Implementation of the Proposal is contingent on achieving a number of
milestones and factors, including (1) deposit of $3 million by about April 30,
2008, (2) provision of the $10 million DIP financing, and (3) adoption and
approval of the POR. It is anticipated that the proposed POR will be
completed by April 16, 2008. Assuming, things move as anticipated, Manchester
will exit bankruptcy by early to mid June, 2008.
If the milestones described above are not satisfied, the Proposal will not
be implemented. At this time, Manchester has not independently verified that
Palm Beach has the funds on hand or the ability to raise the funds to make the
$3 million deposit, provide the $10 million line of credit or the $200,000
deposit called for in the Proposal. The Proposal also calls for the
settlement of the Shareholder Suit. Manchester has no ability to cause the
shareholder involved in that suit to settle his claims. Were the Shareholder
Suit not settled, it is unknown whether the Proposal will remain in place.
Any shareholder, creditor or any other person has the right to petition
the Bankruptcy Court to permit them to offer an alternative plan of
reorganization. In furtherance of its fiduciary duties, Manchester's Board of
Directors remains obligated to consider any better alternative to the Proposal
that may arise.
For more information please go to http://www.manchesterinc.net
SOURCE Manchester Inc.

Chantelle Hardy, Communications Director of Manchester Inc., +1-214-402-6903,
cjhardy@manchesterinc.net