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Ingram Says It Was Misled Into Supporting Crown
Jim Milliot -- 6/29/98
Claims chain is past due on more than $13 million worth of books
In its lawsuit filed against Crown Books and its parent company, Dart Group, earlier this month, Ingram Book Co. charges that because of misleading and/or inaccurate financial information provided by the two parties, as well as a promise by Dart to give Ingram a secondary security interest in Crown's inventory, the wholesaler undertook a number of measures to keep supplying the hard-pressed chain with books.

Among the steps Ingram claimed it took to ship books to Crown: it gave the company a $30-million credit line; established a direct distribution system from Ingram that decreased Crown's inventory and warehouse costs; purchased a larger inventory of books; integrated its computer system with Crown's; and reconfigured its warehousing operations.

Ingram said it based its actions on a Memorandum of Understanding signed in December 1997 by Richard Stone, chairman of Dart and Crown, which included the promise by Dart to provide Ingram with a secondary security interest. Ingram charges that to induce the company to ship books to Crown, Crown faxed a security agreement to Ingram's offices, but refused to give the wholesaler the original signed document, refused to sign financing statements and claimed that the signing of the security agreement had been "a mistake."

In addition, Ingram claims that Crown and Dart officials made misleading statements regarding Crown's financial condition, including statements made by Stone that Crown had not borrowed against an available $25-million credit line and would get its lender to raise its line of credit to $50 millon. Ingram further notes that Dart failed to disclose that auditors had raised a "going concern limitation" with respect to Crown's creditworthiness and failed to reveal that it was in negotiations with Richfood Holdings to sell Dart to Richfood, and that Richfood had no interest in retaining Crown. Ingram also charged Dart with siphoning funds from Crown by charging the company excessive rents for warehouses and stores.

Ingram said that because Crown breached the terms of sale agreed to in the Memorandum of Understanding that called for Crown to pay Ingram's invoices within 31 days, it terminated the Understanding on June 10. As of that date, Dart and Crown were past due on about $10 million of books and soon would be past due on approximately $13.6 millon of books.

Ingram is seeking to have both Dart and Crown held liable for damages and is looking to recover an unspecified amount of money for both compensatory and punitive damages. In addition, Ingram is asking the court to require Dart and Crown to provide Ingram with a secondary security interest in Crown's inventory, and to declare that Dart is responsible for all of Crown's obligations to Ingram.

Crown officials were unavailable for comment on the suit or the many rumors swirling around the troubled chain
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