B-198097.OM, APR 2, 1980

B-198097.OM: Apr 2, 1980

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THERE ARE FEW LEGAL QUESTIONS PRESENTED. THE SOLE ISSUE NOW IS THE REASONABLENESS OF THE OFFER IN VIEW OF THE PROBABILITY OF RECOVERY BY OTHER METHODS. WE BELIEVE THE OFFER IS REASONABLE AND SEEK YOUR APPROVAL TO SEND THE MATTER TO JUSTICE WITH OUR ENDORSEMENT FOR ACCEPTANCE. WEST'S ASSETS ARE FULLY SECURED AND THE LIKELIHOOD THAT ASSETS WOULD BE AVAILABLE FOR EXECUTION ON A JUDGMENT IS REMOTE. WE ARE CONVINCED THAT THERE IS LITTLE GROUND TO SUPPORT THIS THEORY. THE DIFFICULTY IN PRESENTING OUR CASE IN COURT COUPLED WITH THE FACT THERE IS NO EVIDENCE THESE ENTITIES HAVE SUFFICIENT ASSETS TO PAY THE CLAIM INDICATES THAT ACCEPTANCE OF THIS LATEST OFFER IS IN THE BEST INTERESTS OF THE UNITED STATES.

B-198097.OM, APR 2, 1980

PRECIS-UNAVAILABLE

GENERAL COUNSEL:

WEST ELECTRONICS, INC., (WEST) HAS OFFERED $52,500 IN COMPROMISE OF THE GOVERNMENT'S CLAIM OF $116,677.66, PLUS APPROXIMATELY $50,000 INTEREST, WHICH AROSE FROM DEFAULT ON TWO AIR FORCE CONTRACTS. AS THE SYNOPSIS IN THE FILE SHOWS, THIS CASE HAS BEEN SUBJECT TO LENGTHY NEGOTIATION. THE JUSTICE DEPARTMENT HAS TWICE REJECTED WEST'S COMPROMISE PROPOSALS AND NOW HAS COPIES OF THE ENTIRE FILE WITH EXCEPTION OF RECENT CORRESPONDENCE. ALTHOUGH WEST HAS ARGUED THAT EQUITABLE CONSIDERATIONS WEIGH HEAVILY IN ITS FAVOR, THERE ARE FEW LEGAL QUESTIONS PRESENTED. THE SOLE ISSUE NOW IS THE REASONABLENESS OF THE OFFER IN VIEW OF THE PROBABILITY OF RECOVERY BY OTHER METHODS. WE BELIEVE THE OFFER IS REASONABLE AND SEEK YOUR APPROVAL TO SEND THE MATTER TO JUSTICE WITH OUR ENDORSEMENT FOR ACCEPTANCE. SEE B-117604 O.M., B-135302-O.M., FEBRUARY 17, 1980.

WEST'S FINANCIAL REPORTS OF 1978 AND 1979 TOGETHER WITH THEIR LETTERS OF DECEMBER 28, 1979, AND FEBRUARY 27, 1980, PRESENT THEIR POSITION. ESSENTIALLY, WEST'S LIABILITIES ($1.3 MILLION) EXCEED ASSETS ($737K) BY $582K. WEST'S PRIMARY LENDER REFUSES LONG TERM FINANCING, IN PART BECAUSE OF THE GOVERNMENT'S CLAIM, AND DEMANDS WEST PAY 4 POINTS OVER PRIME FOR SHORT TERM FINANCING. THE FIRM'S INTEREST EXPENSE IN 1978 EXCEEDED 10 PERCENT OF GROSS RECEIPTS. WEST'S ASSETS ARE FULLY SECURED AND THE LIKELIHOOD THAT ASSETS WOULD BE AVAILABLE FOR EXECUTION ON A JUDGMENT IS REMOTE. ENFORCED RECOVERY WOULD NOT EXCEED THE COMPROMISE OFFER.

IN THE COURSE OF NEGOTIATIONS WE EXPLORED THE POSSIBILITY THAT LIABILITY FOR THIS DEBT MAY EXTEND BEYOND WEST TO CORPORATE AFFILIATES AND SHAREHOLDERS; HOWEVER, WE ARE CONVINCED THAT THERE IS LITTLE GROUND TO SUPPORT THIS THEORY. MOREOVER, EVEN IF LIABILITY DID EXTEND TO OTHERS, THE DIFFICULTY IN PRESENTING OUR CASE IN COURT COUPLED WITH THE FACT THERE IS NO EVIDENCE THESE ENTITIES HAVE SUFFICIENT ASSETS TO PAY THE CLAIM INDICATES THAT ACCEPTANCE OF THIS LATEST OFFER IS IN THE BEST INTERESTS OF THE UNITED STATES.

INDORSEMENT

ASSOCIATE DIRECTOR, FGMS DIVISION-CLAIMS GROUP

RETURNED. THE FILE SHOWS THAT WHILE WEST ELECTRONICS, INC. (WEST), HAS SIGNIFICANTLY IMPROVED ITS FINANCIAL CONDITION IN THE LAST YEAR, THE COMPANY'S LEVEL OF EARNINGS IS STILL ONLY MARGINAL. IN THIS REGARD, WE NOTE THAT WEST BELIEVES IT WILL TAKE AT LEAST 10 YEARS FOR IT TO REPAY THE GOVERNMENT'S CLAIMS EVEN ASSUMING THAT THE COMPANY'S EARNINGS DOUBLE IN THE NEXT 5 YEARS. FURTHERMORE, A PROTRACTED PERIOD OF REPAYMENT IMPOSES A BURDEN ON WEST, POSSIBLY JEOPARDIZING ITS CONTINUED EXISTENCE, BECAUSE A LARGE PORTION OF THE PAYMENTS WILL HAVE TO GO TO PAYING THE ACCUMULATED INTEREST ON THE DEBT. ALTHOUGH THE AMOUNT OFFERED BY WEST IS ONLY ONE- THIRD OF THE GOVERNMENT CLAIM IF INTEREST IS INCLUDED, IT IS APPROXIMATELY 45 PERCENT OF THE ORIGINAL LIABILITY OF $116,677.66.

THE POSSIBILITY THAT LIABILITY CAN BE EXTENDED TO WEST'S CORPORATE AFFILIATES DOES NOT APPEAR TO BE A VIABLE ALTERNATIVE TO ACCEPTANCE OF THE COMPROMISE OFFER IN VIEW OF THE DIFFICULTY OF PREVAILING ON THIS THEORY. MOREOVER, THE HIGH COST OF LITIGATION TO ESTABLISH LIABILITY ON THE PART OF THESE AFFILIATES MUST BE CONSIDERED.

ACCORDINGLY, WE BELIEVE THAT WEST'S COMPROMISE OFFER OF $52,500 TO BE PAID IN A LUMP SUM IS REASONABLE AND CONCUR IN YOUR RECOMMENDATION TO SEND THE MATTER TO THE DEPARTMENT OF JUSTICE FOR ACCEPTANCE.