PORTLAND (AP) – Terms of a purchase offer for two Eastern Pulp and Paper Corp. mills fell through Tuesday before they could be formally submitted in federal bankruptcy court, dashing hopes that hundreds of jobs can be salvaged.

Investors finally returned to the bargaining table late in the evening. A hearing was scheduled Wednesday in U.S. Bankruptcy Court on whether to continue with the sale or proceed with abandoning the mills in Lincoln and Brewer.

U.S. Bankruptcy Chief Judge James Haines Jr. issued an order for Paper Acquisitions Corp. of Massachusetts to submit an offer to start the bidding for Eastern Pulp’s mills in Lincoln and Brewer. Further bidding is tentatively planned at an auction for early March.

“For better or worse, right now we have one potential buyer,” said Fred Bopp III, a Portland lawyer representing the trustee of Eastern Pulp’s bankrupt estate. Eastern Pulp’s headquarters are in Amherst, Mass.

The Paper Acquisitions investors are Satish Agrawal of Concord, Mass., a former vice president of Polaroid Corp., and Robb Osinski of Salisbury, Mass. Agrawal had announced interest in Eastern Pulp last week.

Establishing a “stalking horse” bidder is the first step toward putting 750 displaced mill workers back on the job, said Jack Cashman, commissioner of the state Department of Economic and Community Development.

“I think we’re finally at a place where the court knows that there is at least one good buyer out there and has the wherewithal to buy these mills, and put together a decent proposal,” Cashman said.

Eastern Pulp was placed in Chapter 7 liquidation bankruptcy earlier this month.

Kurt Adams, legal counsel for Gov. John Baldacci, said that with Monday’s ruling, abandonment of the mills is not an immediate threat, although it cannot be ruled out indefinitely.

“We’re not done yet,” Adams said. “This is the 50-yard line and we have a long way to go before we have a touchdown.”

Baldacci said he doesn’t consider liquidation of the mills an option. He has pressed to keep them heated while bankruptcy proceedings go on.

Having the mills ready to resume operations makes them more attractive to several prospective buyers who have contacted his office, Baldacci said.

The secured creditors will continue to pay to keep the plants warm for the next day or so, Adams said. After that, Paper Acquisitions will put the first $1 million of the purchase price into keeping the mills heated.

Some money from the $8.5 million purchase price offered Monday will be allocated to secured creditors, the judge said.

Some of Eastern’s secured creditors, who are owed a total of $44 million, stand to lose money and oppose the offer. Unsecured creditors are owed nearly $40 million.

But the attorney for the paperworkers’ union expressed optimism over Monday’s developments.

“There’s a real opportunity here,” said Jonathan Beal, an attorney for the mills’ PACE unions. “We’re very pleased that the abandonment has been postponed, possibly forever.”

AP-ES-02-24-04 2230EST