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Judge allows Circuit City to pay former employees

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[December 06, 2008]  RICHMOND, Va. (AP) -- A U.S. Bankruptcy judge on Friday allowed Circuit City Stores Inc. to continue paying nearly 600 employees laid off at its headquarters before it filed for bankruptcy protection.

CivicPending final order, Judge Kevin Huennekens also gave the nation's second-biggest consumer electronics retailer permission to break about 150 leases at locations where it no longer operates stores, which the company said costs $40 million annually.

Circuit City was in court for a hearing on motions related to its Chapter 11 bankruptcy case. The company filed for protection last month as it faced pressure from vendors and consumers who aren't spending. Its Canadian operations also filed for similar protection.

The committee representing the company's unsecured creditors had asked the judge to cease payroll payments and benefits to 588 employees laid off in early November.

The payments would cost the company about $8 million for the 60 days of wages, half of which already has been paid, Gregg Galardi, an attorney for Circuit City, told the judge.

But Robert J. Feinstein, an attorney representing the committee, argued that while the committee was sympathetic, it was looking out for the best interest of all constituents.

Circuit City had received initial approval last month to pay the workers through January, but Friday's ruling made that decision final.

James A. Marcum, vice chairman and acting president and chief executive, said he was pleased with the judge's decision.

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"These people gave their entire livelihoods to this company," Marcum said after leaving the hearing, adding that it also was critical to the morale of the remaining nearly 30,000 employees.

Huennekens' approval of a motion to let the company break leases in old locations and procedures for claims and auction came after lawyers were able to negotiate specific terms with various landlords.

The judge also approved an agreement between Panasonic and Circuit City on terms of current and future product orders.

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Last month, Circuit City was granted interim approval to secure $1.1 billion in debtor-in-possession loans while it is in bankruptcy protection. Those funds, needed to stock merchandise and pay employees, replace a $1.3 billion asset-backed loan the company had been using. A final decision on that motion is expected at a hearing on Dec. 22.

The company, which said it had $3.4 billion in assets and $2.32 billion in liabilities as of Aug. 31, is hoping to exit court protection by early summer, putting it in a position to find a buyer for the chain or operate as a standalone business.

Marcum said the company is focused on turning Circuit City "back into what it once was," and continues to improve its service experience.

Circuit City, which has posted losses for seven of the last eight quarters, plans to keep operating while it develops a reorganization plan to deal with significant declines in traffic and heightened competition from rival Best Buy Co. and others.

The company announced plans in November to close 155 of its more than 700 U.S. stores by Dec. 31, laying off about 17 percent of its domestic work force, which could affect up to 7,300 people.

The New York Stock Exchange notified the Securities and Exchange Commission on Thursday of its intention to delist Circuit City's common stock on Dec. 15. The exchange had suspended trading of the company's shares when it filed for bankruptcy protection. Circuit City shares have since traded on the over-the-counter Pink Sheets.

[Associated Press; By MICHAEL FELBERBAUM]

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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