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/raid1/www/Hosts/bankrupt/TCR_Public/011029.mbx T R O U B L E D C O M P A N Y R E P O R T E R Monday, October 29, 2001, Vol. 5, No. 211 Headlines ALGOMA STEEL: CCAA Protection Extended Until December 10 ALLIED RISER: Nasdaq Halts Delisting, Anticipating Cogent Merger AMAZON.COM: S&P Affirms Junk Rating as Revenue Growth Declines ANACOMP INC: Case Summary & 20 Largest Unsecured Creditors ANACOMP: First Day Motions & Orders Maintain Business as Usual ATMEL CORP: S&P Sees Deterioration, Prompting B and CCC+ Ratings AUSTRIA FUND: Stockholders Approve Proposed Winding-Up Plan BE AEROSPACE: S&P Says Outlook Negative in Aftermath of Sept. 11 BE INC: Seeking Stockholders' Approval of Dissolution Plan BETHLEHEM STEEL: Gets Okay to Pay $57MM Critical Vendor Claims BURNHAM PACIFIC: Amends Agreement to Sell Eighteen Properties COMSTOCK RESOURCES: S&P Concerned About DevX Acquisition Effects CONTINENTAL AIRLINES: Leave Program to Avert Employees Furloughs COVAD COMMS: Asks Court to Set Confirmation Hearing for Dec. 12 COVAD COMMS: Cost Control Efforts Yield Results Improvement CYPRESS SEMICON: Data Networking Stress Spurs S&P Downgrades DONCASTERS LTD: S&P Downgrades Credit Rating a Notch to BB- E-LOT: Expects to Secure Internet Lottery Purchase System Patent ELITE TECHNOLOGIES: Ability to Continue Dubious, Auditors Say EXIDE TECHNOLOGIES: Begins Discussions for Covenants Waiver EXODUS COMMS: Seeks Okay to Give Utilities Adequate Assurance FEDERAL-MOGUL: Wants to Extend Loans to Foreign Subsidiaries FEDERAL-MOGUL: Reaffirms Commitment to National Hot Rod Assoc. FISHER COMMS: Asks Lenders to Waive Default on Credit Facilities FOREST & MARINE: Expects Canadian Lender to Waive Loan Default FRUIT OF THE LOOM: Exclusive Period Hearing Set For November 9 GENERAL BINDING: Seeks Amendment to Credit Facility Agreement HEARME: Liquidation and Winding-Up Proceedings Begin INTEGRATED HEALTH: Court Okays Agreements with Senior Officers LTV CORP: Selling Mining Assets to Cliffs for $25MM + Debts OJSC OIL: S&P Assigns B Rating to Proposed ABN Amro Facility PACIFIC GAS: Will Assume PPA with Cardinal Cogen as Amended POLAROID CORP: Gets Court's Nod to Pay Prepetition Shipping Fees QUALITY STORES: Bankruptcy Filing Has S&P Giving Out D Ratings SAFETY-KLEEN: Signs Employment & Indemnity Pacts with New CAO SIERRA HEALTH: Lenders Waive Covenants re One-Time Charges STARTEC GLOBAL: New Shares Authorized to Firm-Up Debt Workout SUN HEALTHCARE: Court Okays Gazes to Prosecute Avoidance Actions SUNTERRA CORP: Will Make Adjustments to 2000 Earnings Statement SWISSAIR: Seeking Options to Fund Salaries & Severance Benefits TIOGA TECHNOLOGIES: Falls Short of Nasdaq Listing Requirements TRI-NATIONAL: Case Summary & 20 Largest Unsecured Creditors USG CORP: Lower SHEETROCK Prices Contribute to Low Net Earnings UNITED AIRLINES: Flight Attendants Call For Goodwin Replacement UNITRONIX: Must Seek Financing Options to Ensure Continuance W.R. GRACE: Equity Panel Hires Kramer Levin as Lead Counsel WHEELING-PITTSBURGH: Wants Third Extension of Exclusive Periods * BOND PRICING: For the week of October 29 - November 2, 2001 ********* ALGOMA STEEL: CCAA Protection Extended Until December 10 -------------------------------------------------------- Algoma Steel Inc. (TSE: ALG) has been granted an extension of its protection under the Companies' Creditors Arrangement Act to December 10, 2001. That date was chosen to allow time for meetings of creditors to approve Algoma's restructuring plan. Algoma expects to mail materials for the meetings in early November. Algoma Steel Inc., based in Sault Ste. Marie, Ontario, is Canada's third largest integrated steel producer. Revenues are derived primarily from the manufacture and sale of rolled steel products including hot and cold rolled sheet and plate. ALLIED RISER: Nasdaq Halts Delisting, Anticipating Cogent Merger ---------------------------------------------------------------- Allied Riser Communications Corporation (Nasdaq: ARCC) announced that it has notified 19 employees that their employment will be terminated within the next 60 days in contemplation of ARC's pending merger with Cogent Communications Group, Inc. The employees, who comprise approximately 26% of ARC's workforce, will remain with the company through December 21, 2001 unless the merger is completed before that date. In addition, the Nasdaq has notified ARC that delisting proceedings based on the company's non-compliance with the continued listing requirements of the Nasdaq National Market rules will not be initiated at this time in light of the pending Cogent merger. The Nasdaq indicated that the delisting matter would be reinitiated if the merger has not been consummated by January 2, 2002. ARC, headquartered in Dallas, is a provider of data communications services in commercial office buildings across the United States and in Canada. Cogent, headquartered in Washington, D.C., is a privately held next generation optical ISP focused on delivering ultra-high speed Internet access and transport services to businesses in the multi-tenant marketplace and to service providers located in major metropolitan areas across the United States. AMAZON.COM: S&P Affirms Junk Rating as Revenue Growth Declines -------------------------------------------------------------- Standard & Poor's revised its outlook on Amazon.com to negative from stable. At the same time, Standard & Poor's affirmed its single-'B' corporate credit and senior unsecured debt ratings and its triple-'C'-plus subordinated debt rating on the company. The outlook revision is based on Standard & Poor's concern about Amazon's decelerating revenue growth, which makes reversing its historical operating losses much more challenging. In addition, the company's cash position is declining. On a year-over-year basis, Amazon.com reported flat sales in the third quarter of 2001 after only generating 15% revenue growth in the second quarter and 22% in the first quarter, and it has also lowered its guidance for fourth quarter growth. The company's sales grew 68% in 2000 and 169% in 1999. Amazon.com also announced that it expects to have only $550 million of cash and marketable securities at March 31, 2002, which is below Standard & Poor's expectations and is less than the $643 million it had on the balance sheet at March 31, 2001. The ratings on Amazon.com reflect the risks of rapid growth in an evolving marketplace, ongoing operating losses, and a heavy debt burden. These risks are tempered by the company's position as the leading on-line retailer of books and music. Amazon.com has been successful in creating a strong brand, which is critical to the long-term success of any retailer selling goods through the Internet. Its active customer list grew 26% to 23 million in the 12 months ended September 30, 2001, over the same period in 2000. The company expects to report a small profit in the fourth quarter of 2001 on a pro forma basis. However, Standard & Poor's believes the company needs to continue to increase its customer base in a very difficult retail environment in order to reach the critical mass necessary to achieve meaningful positive operating income. The company had sales of $2,979 million over the past 12 months versus funded debt of $2,188 million. Outlook: Negative Ratings could be lowered if significant revenue growth is not evidenced in the near term or if the company does not generate a profit in the fourth quarter on a pro forma basis. Any significant decline in cash could trigger a review of the ratings. ANACOMP INC: Case Summary & 20 Largest Unsecured Creditors ---------------------------------------------------------- Debtor: Anacomp, Inc., an Indiana Corporation 12365 Crosthwaite Circle Poway, CA 92064 Tel: (858) 679-9797 fka DatagraphiX fka docHarbor fka First Image Type of Business: Anacomp is a leading document-management provider, offering a broad range of document- management services. They specialize in using web-based and media-based technologies to provide efficiencies that help its customers maximize the value of their important documents. Chapter 11 Petition Date: October 19, 2001 Court: Southern District of California Bankruptcy Case No.: 01-10821-PB Judge: Peter W. Bowie Debtor's Counsel: Michelle C. Campbell, Esq. Klee, Tuchin, Bogdanoff & Stern LLP 1880 Century Park East, Suite 200 Los Angeles, California 90067 Telephone Number: (310) 407-4000 Facsimile Number: (310) 407-9090 Total Assets: $211,764,000 Total Debts: $469,165,000 Debtor's 20 Largest Unsecured Creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ Franklin Advisers, Inc. Bondholder $101,300,000 777 Mariners Island Blvd. San Mateo, CA 94403 Fred Fromm Phone: (650) 312-3005 Fax: (650) 312-3035 Morgan Stanley Dean Bondholder $42,650,000 Witter Advisors 75 Varick Street 3rd Floor New York, NY 10013 Francisco Ghiglino Phone: (212) 343-8692 Lloyd I. Miller Bondholder $31,395,000 4550 Gordon Drive Naples, FL 34102 Lloyd I. Miller Phone: (941) 262-8577 Fax: (941) 262-8025 Grace Brothers Bondholder $26,700,000 1560 Sherman Ave. Suite 1900 Evanstown, IL 60201 Bradford Whitmore Phone: (847) 733-1230 Fax: (847) 733-0339 Grandview Capital Mgmt. Bondholder $15,920,000 820 Manhattan Ave. Manhattan Beach, CA 90266 Robert Sydow Phone: (310) 376-5274 Fax: (310) 376-5206 Romulus Holdings Bondholder $14,100,000 20 Rock Ridge Circle New Rochelle, NY 10804 Steven Singer Phone: (914) 235-8800 Fax: (914) 235-8849 Alpine Associates Bondholder $12,970,000 100 Union Ave. Cresskill, NJ 07626 Steve Sheldon Phone: (201) 871-2200 Fax: (201) 871-2241 J.H Whitney & Co. Bondholder $10,500,000 177 Broad St., 15th Fl. Stamford, CT 06901 Uma Rickheeram Phone: (203) 973-1496 Fax: (203) 973-1286 SunAmerica, Inc. Bondholder $10,000,000 1 Sunamerica Center Los Angeles, CA 90067 John Lapham Phone: (310) 772-6822 Fax: (310) 772-6078 Commonwealth Advisers, Bondholder $4,020,000 Inc. 247 Florida Street Baton Rouge, LA 70801 Walter Morales Phone: (225) 343-9342 Fax: (225) 343-1645 Lampe, Conway & Co. Bondholder $3,500,000 730 5th Ave. New York, NY 10012 Steve Lampe Phone: (212) 589-8989 Fax: (212) 589-8976 Lincoln Investment Mgmt. Bondholder $3,500,000 200 E. Berry St. Fort Wayne, IN 46802 Amy Gibson Phone: (219) 455-2000 Fax: (219) 455-2200 SKC America Inc. Trade Creditor $3,168,332 307 N. Pastoria Ave. Sunnyvale, CA 94086 Jeff Turner Phone: (800) 421-3516 Fax: (408) 730-9778 Indosuez Capital Asset Bondholder $3,000,000 Adv. 1211 Ave of Americas New York, NY 10036 Richard Hom Phone: (646) 658-2200 Fax: (646) 658-2001 LibertyView Capital Mgmt. Bondholder $2,000,000 101 Hudson St. 37th Fl. Jersey City, NJ 07302 Alan Mark Phone: (201) 200-1199 Fax: (201) 200-1982 Deltec Asset Mgmt. Bondholder $1,500,000 645 5th Ave 18th Fl. New York, NY 10022 Linen Grunder Phone: (212) 546-6298 Fax: (212) 546-6657 Eastman Kodak Co. Trade Creditor $1,424,758 343 State Street Rochester, NY 14650 Mike Barrett Phone: (716) 724-3138 Fax: (716) 724-4501 Highland Capital Mgmt. Bondholder $500,000 6077 Primacy Pkwy. Ste. 228 Memphis, TN 38119 Mark Fleck Phone: (901) 761-9500 Fax: (901) 761-5631 MFS Investment Mgmt. Bondholder $500,000 500 Boylston St. 24th Fl. Boston, MA 02116 Robert Manning Phone: (617) 954-5952 Fax: (617) 954-6604 Xerox Corporation Trade Creditor $78,121 ANACOMP: First Day Motions & Orders Maintain Business as Usual -------------------------------------------------------------- Anacomp, Inc. (OTC Bulletin Board: ANCO), a leading provider of document-management and technical services, announced that it has received Bankruptcy Court approval for a series of court motions that will allow the Company to continue its business without interruption during its voluntary reorganization under Chapter 11. "We are very pleased by the Court's prompt action," said Phil Smoot, President and Chief Executive Officer of Anacomp. "This means we will be able to continue to meet obligations to our suppliers, customers and employees; that day-to-day business will continue uninterrupted; and that we will be able to provide the same high level expertise, courtesy and commitment that our various stakeholders have come to expect from Anacomp." Mr. Smoot added that the judge responsible for Anacomp's bankruptcy case commented that he decided to grant all of the Company's motions -- enabling it to continue business as usual -- because he was impressed by both the completeness and support of Anacomp's bankruptcy filing and was sensitive to the needs of its customers, suppliers and employees. The Court gave approval, among other things, for the Company to maintain normal trade terms with suppliers; to use cash collateral from operations to fund ongoing business activities and meet customer needs during the voluntary Chapter 11 process; and to honor employee wages, salaries and benefits. Anacomp previously announced that it had received final credit approval from its senior lending group, led by Fleet National Bank, on a new term sheet for its revolving credit facility. On October 19th, Anacomp filed its Chapter 11 petition, along with a prepackaged plan of reorganization, in U.S. Bankruptcy Court for the Southern District of California. The Company expects to emerge from the process quickly because the reorganization plan already has been approved unanimously by its voting noteholders and senior lenders. The filing included Anacomp's U.S. operations only. Anacomp, Inc. is a leading provider of document-management and technical services. With global operations backed by more than 30 years of outsourcing experience, Anacomp offers premium services for virtually any business application. Anacomp comprises two business units: Document Solutions (document- management outsource services) and Technical Services (multi- vendor equipment maintenance services, systems and supplies). For more information, visit Anacomp's web site at http://www.anacomp.com ATMEL CORP: S&P Sees Deterioration, Prompting B and CCC+ Ratings ---------------------------------------------------------------- Standard & Poor's assigned its single-'B' corporate credit rating to Atmel Corp. At the same time, Standard & Poor's assigned a triple-'C'-plus rating to Atmel's $512 million zero coupon convertible subordinated debentures due 2021. The outlook is negative. The ratings on San Jose, California-based Atmel reflect weak market conditions, a high cost structure, and substantial near- term cash obligations, offset in part by the company's moderate business diversity and currently good liquidity. Atmel is a leading supplier of commodity "flash" memories and other nonvolatile memory chips, comprising 40% of the company's revenues. Flash memories are used in cell phones, cameras, and other consumer electronic devices. The company has expanded its position in other markets for the past several years through acquisitions and internal development and now also supplies microcontrollers and other complex logic devices, chip-based "smart cards", and radio frequency transcievers. Revenues have declined substantially in the past few quarters, due to the company's high reliance on commodity products. Overall corporate revenues for the September 2001 quarter were $295 million, or 56% of the prior year's level. EBITDA was breakeven for the quarter. By comparison, the company generated $188 million EBITDA on sales of $530 million in the year-earlier quarter. The company's financial performance is heavily influenced by its reliance on "flash" and other commodity memory chips. Memory revenues were $112 million in the September 2001 quarter, while the sector was losing money. By comparison, memory sector revenues were $282 million in the September 2000 quarter, generating $87 million in operating income. Recognizing challenging market conditions and its high cost structure, the company announced a $481 million restructuring charge in September 2001, largely non-cash, to shutter two factories and defer the start of production in a third location. The plan will reduce the workforce by 2,500 positions, or 26%, and is targeted to reduce operating expenses by $600 million annually by the second quarter of 2002. The company is targeting its cost-reduction program to generate positive pretax income on quarterly revenues of $310 million, somewhat above the September level. While net working capital usage is likely to be nominal, operating cash flows could still be very weak. Capital expenditures have been substantial. The company spent $960 million in 2000, including the purchase of two unequipped wafer fabrication buildings and two semiconductor businesses, in addition to one structure acquired in late 1999. Expenditures in the first three quarters of 2001 were $800 million of a planned $900 million annual total, to install wafer fabrication equipment in the acquired sites, upgrade all its factories to make finer-detailed chips, and install equipment to permit development of high-speed radio frequency products. While capital expenditures next year are targeted at about $200 million, the company also has $200 million in current long-term debt and capital lease payments. The company had $670 million cash at Sept. 30, 2001, which is adequate for near-term needs. Management expects cash balances at Dec. 31, 2001, to exceed $500 million. Debt and capitalized leases totaled $1 billion at Sept. 30, 2001. Outlook: Negative While current liquidity is adequate, pre-financing cash flows are expected to remain negative, and access to external financing cannot be assured. Should financial flexibility decrease materially, or if other financial measures weaken further, ratings could be lowered. AUSTRIA FUND: Stockholders Approve Proposed Winding-Up Plan ----------------------------------------------------------- The Austria Fund, Inc. (the "Fund" -- NYSE: OST) announced that at the Special Meeting of Stockholders held on October 24, 2001, the Fund's Stockholders approved the proposed liquidation and dissolution of the Fund. The Fund will, accordingly, cease its business as an investment company and will not engage in any business activities except for the purpose of winding up its business and affairs, preserving the value of its assets, discharging or making reasonable provision for the payment of all of the Fund's liabilities, and distributing its remaining assets to the stockholders in accordance with the Fund's Plan of Liquidation and Dissolution. The Fund's stockholders can expect to receive liquidation distributions, in cash installments, as soon as reasonably practicable. The Fund is a U.S.-registered closed-end management investment company advised by Alliance Capital Management L.P. As of October 19, 2001, the Fund had assets of approximately $42 million. BE AEROSPACE: S&P Says Outlook Negative in Aftermath of Sept. 11 ---------------------------------------------------------------- Standard & Poor's revised its outlook on BE Aerospace Inc. to negative from stable. At the same time, Standard & Poor's affirmed its outstanding ratings on the company. The outlook revision follows BE Aerospace's assessment of the impact on its business in the aftermath of the September 11 terrorist attacks against the U.S. The firm expects volume to be down about 30%, leading to lower earnings and cash flow generation and weaker credit protection measures. In response, BE Aerospace announced a cost-reduction program to adjust capacity by closing five production facilities and cutting workforce by approximately 1,000 employees. Those actions are expected to result in profitable operations in the fiscal year ending February 2003 and break-even performance for second half of current fiscal year ending February 2002, excluding nonrecurring costs and charges. These will consist of cash costs of about $15 million associated with restructuring and noncash charges totaling $75 million to write down certain assets. Current liquidity position is adequate, with cash balances exceeding $100 million and light debt maturities. The ratings on BE Aerospace are supported by its position as the largest participant in the commercial aircraft cabin interior products market, a leading share of that business on business jets, and generally favorable long-term industry fundamentals. Those factors are offset by risks associated with very difficult conditions in the airline industry and relatively high debt levels. In the wake of the September 11 events, commercial aerospace intermediate-term business prospects deteriorated significantly. As a consequence, companies serving the airline sector, such as BE Aerospace, will be adversely affected through fewer new airplane deliveries and reduced demand for higher-margin aftermarket products and services. The firm's large installed base generates demand for recurring retrofit, refurbishment, and spare parts (about 60% of revenues). Outlook: Negative Losses at BE Aerospace's airline customers, a significant anticipated drop in demand for the company's products, and a sizable debt burden could result in a financial profile that would no longer be consistent with the ratings. Ratings Affirmed RATINGS BE Aerospace Inc. Corporate credit rating BB- Senior secured debt BB+ Subordinated debt B BE INC: Seeking Stockholders' Approval of Dissolution Plan ---------------------------------------------------------- Be Incorporated (Nasdaq:BEOS) reported financial results for the quarter ended September 30, 2001. Net revenues for the third quarter of 2001 were $1,135,000. Revenues for the quarter were primarily attributable to fees received from Palm, Inc. for revenue-related consulting services performed under a funding agreement that was entered into August 16, 2001, contemporaneously with the execution and delivery of the asset purchase agreement among Be, Palm and ECA Subsidiary Acquisition Corporation. The Company reported a net loss for the quarter of $0.09 per share excluding non-cash expenses associated with the amortization of deferred compensation. The Company had previously reported a comparable net loss of $0.10 per share for the second quarter and a net loss of $0.12 per share for the third quarter of last year. Including non-cash expenses associated with the amortization of deferred compensation, net loss per share for the third quarter this year was $0.07 per share. On October 9, 2001, the Company announced that a Special Meeting of its stockholders would be held on November 12, 2001. Be's stockholders are being asked to vote on (1) the proposed sale of substantially all of Be's intellectual property and other technology assets to ECA Subsidiary Acquisition Corporation, a wholly owned subsidiary of Palm, Inc., and (2) the subsequent plan of dissolution for Be. Be's management and board of directors urge Be's stockholders to vote for each of the proposals as soon as possible. Both proposals need to be approved by a majority of the outstanding shares of common stock. Stockholders who fail to return their proxy cards or fail to vote via phone or the internet will have the same effect as voting AGAINST the asset sale and the dissolution. If either the asset sale or the dissolution is not approved, it is likely that Be will file for, or will be forced to resort to, bankruptcy protection. Founded in 1990, Be Inc. creates software solutions that enable rich media and Web experiences on personal computers and Internet appliances. Be's headquarters are in Menlo Park, California. It is publicly traded on the Nasdaq National Market under the symbol BEOS. Be can be found on the Web at http://www.be.com BETHLEHEM STEEL: Gets Okay to Pay $57MM Critical Vendor Claims -------------------------------------------------------------- Bethlehem Steel Corporation seeks the Court's authority: (a) to pay, in their sole discretion, the pre-petition claims of certain critical vendors and service providers, and (b) for applicable banks and other financial institutions to receive, process, and pay any and all checks and other transfers related to such claims. Regulatory Compliance Claims The Debtors rely on a number of service providers to assist the Debtors in complying with environmental and governmental laws and regulations. Jeffrey L. Tanenbaum, Esq., at Weil, Gotshal & Manges, LLP, in New York, reports that as of the Petition Date, certain regulatory compliance vendors had outstanding claims for services previously provided to the Debtors. Mr. Tanenbaum tells Judge Lifland that if the regulatory compliance claims are not paid, some of the vendors may refuse to perform post-petition services for the Debtors or may delay performance for a period of time. This could result in the Debtors' noncompliance with government regulations, Mr. Tanenbaum warns, which in turn could cause the government to attempt to levy significant fines or penalties against the Debtors or seek to enjoin the Debtors' operations. The Debtors cannot afford the potentially irreparable damage to their businesses that would be caused by adverse governmental action for regulatory noncompliance, Mr. Tanenbaum says. Thus, the Debtors believe that their ability to pay the regulatory compliance vendors is essential to their reorganization efforts. Single Source Vendor Claims Certain essential raw materials, supplies, and other services required to manufacture the Debtors' products are available only from a single supplier, Mr. Tanenbaum relates further. According to Mr. Tanenbaum, the Debtors do not have any viable alternatives to obtain substitute goods or services from other suppliers: (a) In some cases, any change in provider would require customer approval and would result in a production slowdown. (b) In other cases, alternate suppliers cannot provide the single source goods that meet the Debtors' requirements for quality, quantity of reliability -- or cannot ensure availability on a cost-efficient and timely basis in the appropriate geographic areas. For that reason, the Debtors need the authority, in their discretion, to satisfy the pre-petition claims of the single source vendors to ensure that these essential single source goods will continue to be available without interruption. Small Business Claims The Debtors also utilize a number of small, local businesses in their day-to-day operations to perform essential specialized maintenance, operational and manufacturing services at certain of the Debtors' manufacturing facilities, Mr. Tanenbaum informs the Court. Because of the specialized nature of the services provided by the small business vendors, Mr. Tanenbaum claims, the Debtors have no readily available substitute vendors to provide these services. Moreover, Mr. Tanenbaum notes, the small business vendors may not be able to absorb losses resulting from the Debtors' failure to pay outstanding small business claims on ordinary business terms. Accordingly, Mr. Tanenbaum tells Judge Lifland, any delay in paying the small business claims could force these small business vendors into bankruptcy or out of business. This would eliminate the Debtors' sources of certain key supplies and services and jeopardize the Debtors' ability to maintain operations and reorganize successfully, Mr. Tanenbaum points out. Roughly speaking, the total amount of critical vendor claims reaches $57,000,000, broken down thus: Type of Claim Amount ------------- ------ Regulatory Compliance Claims $ 3,000,000 Single Source Vendor Claims 50,000,000 Small Business Claims 4,000,000 Paying the critical vendor claims is necessary to ensure that the Debtors continue to receive essential services without interruption, Mr. Tanenbaum contends. This will allow the Debtors to preserve critical relationships with their customers and preserve their going concern value to the greatest extent possible. By contrast, Mr. Tanenbaum remarks, failure to grant the relief sought would severely impede the Debtors' ability to obtain essential services, operate their businesses and effectuate a successful reorganization. The Debtors propose to condition payment on such terms that will ensure that the holder of such claim will continue to supply goods or services to the Debtors after the Petition Date on pre- petition terms, Mr. Tanenbaum advises. Moreover, Mr. Tanenbaum adds, the Debtors intend to sue their discretion to pay only those amounts necessary to aid the Debtors' reorganization. * * * Convinced by the Debtors' arguments, Judge Lifland authorized the Debtors to pay the critical vendor claims, provided that the total amount of any such payment shall not exceed $30,000,000 for the 10 days following the Petition Date, subject to further order of the Court. (Bethlehem Bankruptcy News, Issue No. 2; Bankruptcy Creditors' Service, Inc., 609/392-0900) BURNHAM PACIFIC: Amends Agreement to Sell Eighteen Properties ------------------------------------------------------------- Burnham Pacific Properties, Inc. (NYSE: BPP) announced that its agreement to sell eighteen properties to Pacific Retail, L.P. has been amended. Under the terms of the amendment, the parties agreed to extend the deadline by which Pacific Retail may terminate the agreement as to specific properties, if specific conditions are not satisfied, from October 15, 2001 to November 15, 2001, and to extend the expected closing date, which may be further extended under certain circumstances, from October 31, 2001 to November 30, 2001. In addition, the earnest money deposit paid by Pacific Retail was increased from $2.5 million to $2.75 million. Burnham Pacific Properties, Inc. is a real estate investment trust (REIT) that focuses on retail real estate. More information on Burnham may be obtained by visiting the Company's web site at http://www.burnhampacific.com Pacific Retail, L.P. is owned by affiliates of P. O'B. Montgomery & Company and Apollo Real Estate Advisors. P. O'B. Montgomery & Company, based in Dallas, Texas, is an owner, operator and developer of neighborhood and community shopping centers, currently owning and operating approximately 2.5 million square feet of shopping centers. Apollo Real Estate Advisors is a real estate investment firm with extensive experience in all facets of real estate ownership, development and management. Since its inception in 1993, Apollo through its real estate investment funds has invested over $3.7 billion of equity in over 190 transactions with an aggregate purchase price of $9.5 billion. P. O'B. Montgomery and Apollo currently jointly own and operate 18 shopping centers. The agreement between Burnham and Pacific Retail provides that Pacific Retail will assign the agreement before closing to a venture expected to include P. O'B. Montgomery, Apollo and GE Capital Corporation. COMSTOCK RESOURCES: S&P Concerned About DevX Acquisition Effects ---------------------------------------------------------------- Standard & Poor's placed its ratings for Comstock Resources Inc. on CreditWatch with negative implications and placed the ratings on DevX Energy Inc. on CreditWatch with positive implications following the announcement that Comstock intends to purchase DevX for $93 million cash and $50 million assumed debt. The $143 million all-debt acquisition of DevX will bring a deterioration of Comstock's financial profile back to the levels seen in the trough of 1999. Although the current second quarter results are quite robust, the future commodity price outlook could bring a marked change, especially in 2002. Based on Standard and Poor's estimates, Comstock's EBITDA interest coverage would fall back to the low-to-mid single digits and funds from operations to total debt would run in the mid-to-high teens depending on commodity pricing. While the company today appears to have sufficient liquidity to meet debt service and reserve replacement requirements in the near-to- intermediate term, the company could require meaningful external financing in the next year if prices plunge, given the company's lack of commodity price hedges. Standard & Poor's will resolve the CreditWatch listing after further consultation with Comstock's management regarding its future growth strategy and funding needs. The decision to either affirm or downgrade Comstock's ratings will ultimately depend on Standard and Poor's assessment of the company's likely future cash burn rate and available financial resources. At the same time Standard & Poor's will resolve the CreditWatch listing on DevX Energy. Ratings Placed on CreditWatch with Negative Implications Comstock Resources Inc. Corporate credit rating B+ Senior secured debt BB Senior unsecured debt B Ratings Placed on CreditWatch with Positive Implications DevX Energy Inc. Corporate credit rating B Senior unsecured debt B CONTINENTAL AIRLINES: Leave Program to Avert Employees Furloughs ---------------------------------------------------------------- Continental Airlines (NYSE: CAL) expects to prevent approximately 3,500 furloughs due to the continued success of the company's voluntary employee leave and early retirement programs. The number of employees who have opted for the Company Offered Leave of Absence (COLA) and early retirement programs is equal to approximately 30 percent of the estimated 12,000 furloughs originally announced by Continental in September. Continental introduced its COLA program in an effort to avert as many employee furloughs as possible after announcing that the company would reduce systemwide capacity by 20 percent and would furlough employees due to the schedule reduction. "It is rewarding to see so many employees participate in programs that preserve the jobs of co-workers and support Continental through a period of industry crisis and recovery," said Gordon Bethune, Continental's chairman and chief executive officer. "While these programs do not make our remaining furloughs any less painful, they have substantially reduced their number." COLA volunteers may accept full-time work elsewhere while continuing to receive benefits during an unpaid leave of up to one year. Benefits include the option to continue insurance benefits at company rates, continuing travel privileges and credit for time on COLA toward company seniority and the employee retirement program. In addition to COLA participants, a smaller number of eligible employees elected to take retirement packages. Continental also said a series of outplacement seminars/workshops sponsored by the company drew a total of more than 2,500 employees in cities including Houston, Cleveland, Newark, Denver and Los Angeles. The company is continuing to work closely with state agencies, outplacement firms and hiring authorities from more than 250 companies to assist with placement of furloughed employees. Continental Airlines is the fifth largest airline in the U.S., offering more than 1,900 departures daily to 122 domestic and 89 international destinations. Operating hubs in Newark, Houston, Cleveland and Guam, Continental serves more international cities than any other U.S. carrier, including extensive service throughout the Americas, Europe and Asia. For more information, visit http://www.continental.com COVAD COMMS: Asks Court to Set Confirmation Hearing for Dec. 12 --------------------------------------------------------------- Christopher J. Lhulier, Esq., at Pachulski Stang Ziehl Young & Jones, in Wilmington, Delaware, relates that due to a change of conditions and circumstances, Covad Communications Group, Inc. submits modifications to the dates and deadlines requested in the earlier Motion. The Debtor requests that: A. The confirmation hearing for the Debtor's amended Plan of Reorganization be scheduled for December 12, 2001, or a date as soon as the Court calendar permits. B. The Debtor proposes that October 31, 2001 be established as the date by which the Confirmation Hearing Notice and other appropriate notices will be served on the claimants who are not entitled to vote on the Plan and the Solicitation Packages, and who have filed on or prior to October 29, 2001 proofs of claims not scheduled as contingent, unliquidated, or disputed. The Debtor also proposes that November 7, 2001 be the date by which the Record Holders of the equity securities and notes must serve the beneficial holders of the same with the appropriated materials. C. The Debtor proposes that November 7, 2001 be established as the date by which the Debtor must have published the Confirmation Hearing Notice as set forth in the Motion. D. The Debtor proposes that November 15, 2001 be set as the date by which it or any other interested party must have filed objections to claims for voting purposes. It further requests that December 6, 2001 be set as the date by which any creditor holding a claim to which an objection has been filed must file a 3018 Motion seeking allowance of its claim for voting purposes, and that December 10, 2001 be the deadline for the Debtor or other interested party to respond to such Motions. E. The Debtor requests that December 5, 2001 be established as the deadline by which ballots must have been received by the Balloting Agent and any objections to the Plan must have been filed. Additionally, Mr. Lhulier tells the Court that due to the passage of time, parts of the Motion dealing with later identified creditors and voting rights of Litigation Plaintiffs are no longer applicable and should be disregarded. (Covad Bankruptcy News, Issue No. 9; Bankruptcy Creditors' Service, Inc., 609/392-0900) COVAD COMMS: Cost Control Efforts Yield Results Improvement ----------------------------------------------------------- Covad Communications (OTCBB: COVD), the leading national broadband services provider utilizing DSL (Digital Subscriber Line) technology, announced operating statistics as of September 30, 2001. Covad has approximately 346,000 lines in service on its network, a four percent increase from June 30, 2001. The company delivered this net increase of 13,000 lines during the quarter after disconnecting or migrating the lines that were formerly on the Bluestar network. This increase is also after the continued disconnection of subscribers from some of Covad's financially troubled resellers. Approximately 52 percent of Covad's total lines are business lines and 48 percent are consumer or residential lines. Covad's wholesale channel represents 96 percent of Covad's total lines while its direct channel efforts represent four percent. Thirteen percent of Covad's total lines are served through resellers for whom Covad recognizes revenue only when it is paid, a one percent reduction from the previous quarter. Several cost reduction initiatives implemented during the first nine months of this year reduced Covad's cash usage in the quarter to a monthly average of less than $25 million, resulting in a cash balance at the end of the quarter of approximately $460 million, including cash reserved for the anticipated settlement of claims in its bankruptcy proceeding. Covad expects its monthly cash usage to continue to improve during the fourth quarter, extending Covad's current cash resources into the third quarter of 2002. With this reduced cash usage coupled with its projected additional subscriber additions, Covad projects its future capital requirement to fully fund the business to positive cash flow has been reduced to less than $100 million. Covad's cost cutting initiatives include the previously announced shutdown of its Bluestar subsidiary, closing or consolidating office facilities, and improving operational efficiencies through such initiatives as line sharing and self installation. Covad has continuously streamlined its business, including workforce attrition and targeted workforce reductions, resulting in a significant reduction of Sales, General & Administrative costs (SG&A). The company will continue to review all aspects of the business and make changes where appropriate. "We are pleased with the progress we have made to lower our capital needs through continued growth in subscribers, ongoing cost reduction measures and anticipated savings from operational initiatives." said Charles E. Hoffman, Covad CEO and president. "Our line count has increased in a difficult economic environment, which demonstrates that demand for broadband is still solid. I am especially pleased that in these tough times we have improved our major operating metrics including installation intervals, mean time to repair and network availability." Covad is the leading national broadband service provider of high-speed Internet and network access utilizing Digital Subscriber Line (DSL) technology. It offers DSL, IP and dial-up services through Internet Service Providers, telecommunications carriers, enterprises, affinity groups, PC OEMs and ASPs to small and medium-sized businesses and home users. Covad services are currently available across the United States in 94 of the top Metropolitan Statistical Areas (MSAs). Covad's network currently covers more than 40 million homes and business and reaches approximately 40 to 45 percent of all US homes and businesses. Corporate headquarters is located at 4250 Burton Drive, Santa Clara, CA 95054. Web site: http://www.covad.com CYPRESS SEMICON: Data Networking Stress Spurs S&P Downgrades ------------------------------------------------------------ Standard & Poor's lowered Cypress Semiconductor Corp.'s corporate credit rating to double-'B'-minus from double-'B' and lowered its rating on the company's subordinated debt to single- 'B' from single-'B'-plus. The outlook is stable. The action recognizes ongoing stresses in the data networking market, leading to debt protection measures that are likely to remain subpar for the former rating over the next several quarters. San Jose, California-based Cypress Semiconductor manufactures specialty memory, timing, and logic semiconductors for the networking, wireless, and computing markets. While the company has strengthened its product portfolio through internal development and acquisitions in the last several quarters, a high percentage of Cypress' revenues are subject to severe pricing pressures and volatile demand. Data networking sector sales in the September 2001 quarter declined 30% sequentially from the June 2001 quarter; sector performance is not expected to improve materially in the near- to intermediate-term. The company experienced strong seasonal demand for its personal computer embedded clocks and interface chips, and a modest improvement in sales of wireless handset memory chips, while wireless infrastructure chip sales declined. Recognizing depressed conditions, Cypress took a $312 million (largely noncash) restructuring charge in the September 2001 quarter. The charge covered the writedown of underutilized manufacturing assets and product inventories, as well as goodwill from an optical components acquisition made in mid-2000. Overall sales totaled $180 million in the September 2001 quarter, down only 3% sequentially from June but only one-half of the September 2000 level. September 2001 quarterly EBITDA was $35 million, compared with $156 million in the September 2000 quarter (when networking sector demand was robust). Currently depressed profitability also reflects pricing pressures, low factory utilization, and higher expenses due to recent acquisitions. Cypress expects that revenue growth will resume in the December quarter, albeit from depressed levels. Annualized debt to EBITDA in the September 2001 quarter was about 4.0 times. Although operating profitability should improve somewhat, debt to EBITDA is not likely to return to the levels seen in late 2000 for an extended time. Cypress had cash and financial assets totaling $467 million at September 30, 2001, following a $225 million cash acquisition earlier in the quarter, while debt and capitalized operating leases totaled $620 million. Outlook: Stable While stressed conditions in Cypress' end markets could continue to result in volatile operating profitability, the company's financial performance over the course of the business cycle is expected to remain within the parameters of the current rating. DONCASTERS LTD: S&P Downgrades Credit Rating a Notch to BB- ----------------------------------------------------------- Standard & Poor's lowered its long-term corporate credit rating on U.K.-based specialized component manufacturer Doncasters Ltd. to double-'B'-minus from double-'B'. The rating was withdrawn from CreditWatch, where it was placed on May 1, 2001, and the company was assigned a negative outlook. At the same time, Standard & Poor's withdrew the rating at the company's request, following the recent redemption of all its publicly traded debt. The lowering of the rating reflects concern that Doncasters' sales to the civil aerospace and auto industries are likely to be significantly negatively affected by the current slowdown in these markets. The rating was on CreditWatch with negative implications, as future prospects for the industry are uncertain, and weaker-than-currently-expected performance could have led to a ratings review. E-LOT: Expects to Secure Internet Lottery Purchase System Patent ---------------------------------------------------------------- eLOT, Inc. announced that it has received a notice of allowance of a patent covering a system and method for purchasing and receiving state lottery tickets over the Internet from the U.S. Patent and Trademark Office. eLOT has submitted the formal drawings and paid the issue fee required for the patent to be granted and expects it to be granted within 60 days. eLOT, Inc. is a leading application service provider of Internet marketing and advertising technology for state and international lotteries. The company and its eLottery Inc. subsidiary filed for reorganization under Chapter 11 of the federal bankruptcy code on October 15, 2001, and plan to file a complete reorganization plan by the end of the calendar year. In addition to the patent allowance letter, the company announced the following developments that occurred at World Meet 2001, the combined World Lottery Association and North American Association of State and Provincial Lotteries' trade show in New Mexico, October 11-15: * Demonstrated its newly created "pre-paid" card solution - -- which enables Internet lottery games to be purchased at the conventional retail location (much like a long distance telephone card) and then played at home via the Internet. * Demonstration of the "eIDverifier" system, an Internet identification technology developed by Equifax, Inc. that eLOT would market as a part of its online service to overcome border control and eligibility concerns about state lottery ticket sales on the Internet. * Demonstration of a biometric password system that can determine the identity of an online lottery ticket purchaser. eLOT, Inc. -- http://www.elottery.com-- is a leading application service provider of Internet marketing and advertising technology for lotteries. The company offers online transaction and information systems to lottery operators, including the Jamaica Lottery. The Company's eLottoNet unit keeps players informed of lottery results with a free e-mail notification service. eLOT also owns DM360, which operates a collection of promotion and direct marketing Web sites. ELITE TECHNOLOGIES: Ability to Continue Dubious, Auditors Say ------------------------------------------------------------- Kirschner & Associates, P.C. had served as the auditor of Elite Technologies Inc.'s financial statements for the fiscal year ended May 31, 2000. Effective May 9, 2001, Kirschner & Associates, P.C. resigned from the engagement. Effective July 20, 2001, the Company engaged the firm of Israel and Ricardo Blanco, CPAs to act as the its independent certified public accountant. The Company's Board of Directors ratified the change to Israel and Ricardo Blanco, CPAs in July 2001. The audit report of Kirschner & Associates, P.C. on the Company's financial statements for the year ended May 31, 2000 included an explanatory paragraph that described substantial doubt about the Company's ability to continue as a going concern. On July 1, 2001 the Company signed a stock purchase agreement with World Touch Communications, Inc. This newly acquired, start up, company provides an integrated suite of high quality, low- cost international telecommunications services to large and small businesses, including voice-over IP (VolP), call back, prepaid calling cards, and prepaid cell phones. This acquisition was structured as a stock for stock purchase and was accounted for utilizing the purchase method of accounting. The consideration for purchase was 750,000 shares of the Registrants common stock. See pro-forma financial statements for further analysis. As of the balance sheet date of August 31, 2001 the balance sheet of World-Touch Communications, Inc. was included as a consolidated subsidiary. Effective September 5, 2001 the Company announced that it signed a Letter of Intent to acquire 100% of Infoactiv, Inc. a Boston MA based company. Initial timelines were such that, pending due diligence procedures, a closing could take place by September 30, 2001. The Company has since received an extension through the end of October 2001. Three-Month Period Ended August 31, 2001 Revenues: Revenues from operations for the first quarter ended August 31, 2001 increased by $378,368 from $3,630,818 for the same period August 31, 2000. This increase is primarily from increased market penetration. Cost of Sales: Cost of sales for the first quarter ended August 31, 2001 increase by $629,405 from $2,968,113 for the same period August 31, 2000. Increase between periods is strictly a function of increased sales between periods. Salaries, Wages and Benefits: Salaries, Wages and Benefits decreased by $133,800 from $328,101 for the same period August 31, 2000. The decrease is due to staffing efficiencies. Other Operating Expenses: For the first quarter ended August 31, 2001 other operating expenses increased by $111,428 from 493,246 for the same period August 31, 2000. The above changes stem from cost enhancements and an eye toward cost containment. Depreciation and Amortization: The Company depreciates its assets, including goodwill, on a straight-line basis over three to five years. Depreciation and amortization expense decreased $34,814 from $373,958 over the previous quarter then ended August 31, 2000. Stock based compensation: The increase of $191,900 between periods is due to the issuance of Company stock to both employees and consulting personnel. Investment banking fees: The decrease of $ 1,584,031 between periods is due to the non-issuance of Company stock during the current reporting period for purposes of investment banking. Net Loss. Net losses decreased by $1,176,637 from $2,118,344 for the same period ended August 31, 2000. The net change between periods is the cumulative function of all described changes as noted above. Considering the current economic slowdown, the Company expects a downtick with respect to revenues for the period ending November 30, 2001. Management is currently proactive in evaluating new marketing strategies to help mitigate this possibility. Elite Technologies, Inc. is a full service technology company offering information technology services to small, medium and large enterprises. IT services involve the facilitation of the flow of information within a company or between a company and external sources. These services typically involve computer hardware, software and "integration" efforts to allow diverse systems to communicate with one another. Elite was founded as a Georgia corporation in 1996 under the name Intuitive Technology Consultants, Inc. In July 1998, ITC Acquisition Group, LLP, consisting of management of ITC, acquired a majority interest, through a reverse merger, in CONCAP, Inc. On April 22, 1999, the Company changed its name to Elite Technologies, Inc. EXIDE TECHNOLOGIES: Begins Discussions for Covenants Waiver ----------------------------------------------------------- Exide Technologies (NYSE: EX), the global leader in stored electrical-energy solutions, commenced discussions with its lenders regarding a waiver of certain September 30 loan agreement covenants. The Company also has delayed its earnings announcement for the second fiscal quarter to November 8, 2001. "We have not yet completed the closing of our books for the second quarter, but we expect results to be lower than originally expected. As a result, we currently are seeking a waiver of certain financial covenants," said Craig H. Muhlhauser, President and Chief Executive Officer. "Operating results have been affected by a further slowdown in the telecommunications market and higher production and logistics costs related to trying to meet unexpected demand in our North American Transportation business." Exide Technologies will conduct a listen-only analyst and investor call to discuss second quarter results of fiscal 2002 on November 9, 2001, at 10:00 a.m. Eastern Daylight Time (EDT). The call will be available to investors in real-time, listen- only format on the Internet at http://www.exide.comand http://www.streetevents.com The call will be repeated on these two sites from November 9, 2001 at 1:00 p.m. EDT to November 16, 2001 at 11:59 p.m. EDT. Exide Technologies is the world's largest industrial and transportation battery producer and recycler, with operations in 89 countries. Industrial applications include network-power batteries for telecommunications systems, fuel-cell load leveling, electric utilities, railroads, photovoltaic (solar-power related) and uninterruptible power supply (UPS) markets; and motive-power batteries for a broad range of equipment uses, including lift trucks, mining vehicles and commercial vehicles. Transportation uses include automotive, heavy-duty truck, agricultural, marine and other batteries, as well as new technologies being developed for hybrid vehicles and new 42-volt automotive applications. The company supplies both aftermarket and original-equipment transportation customers. Further information about Exide Technologies, its financial results and other information can be found at http://www.exide.com EXODUS COMMS: Seeks Okay to Give Utilities Adequate Assurance ------------------------------------------------------------- Uninterrupted utility services are critical to Exodus Communications, Inc.'s ability to sustain their operations during the pendency of their chapter 11 cases. In the normal conduct of their businesses, the Debtors use gas, water, electric, telecommunications and other services provided by Utility Companies. Any interruption of these services would severely disrupt the Debtors' day-to-day operations resulting in an inability to provide services to customers which could result in customers leaving Exodus and a reduction in revenue. By motion, the Debtors seek entry of an order establishing procedures for determining requests for additional adequate assurance of payment. Specifically, the Debtors seek immediate entry of an order: A. providing that Utility Companies are prohibited from altering, refusing or discontinuing services on account of unpaid pre-petition invoices or pre-petition claims; B. establishing a procedure for Utility Companies to request that the Debtors provide adequate assurance of future payment; C. authorizing, but not obligating, payment of pre-petition amounts owing to a Utility Company and, providing that if a Utility Company accepts such payment, the Utility Company shall be deemed to be adequately assured of future payment and to have waived any right to seek additional adequate assurances in the form of a deposit or otherwise; D. providing that if a Utility Company timely and properly requests from the Debtors additional adequate assurance that the Debtors believe is unreasonable, and if the Debtors are unable to resolve the request consensually with the Utility Company, then upon the request of the Utility Company, the Debtors shall file a motion for determination of adequate assurance of payment and set such motion for hearing at the next regularly-scheduled omnibus hearing occurring more than 20 days after the date of such request, unless another hearing date is agreed to by the parties or ordered by the Court; E. providing that any Utility Company having made a request for additional adequate assurance of payment shall be deemed to have adequate assurance of payment until the Court enters a final order in connection with such a request finding that the Utility Company is not adequately assured of future payment; and F. providing that any Utility Company that does not timely and in writing request additional adequate assurance of payment shall be deemed to be adequately assured of payment. The Debtors also request authority to pay any pre-petition amounts owed to the Utility Companies in lieu of making deposits and request that any Utility Company accepting such payment on account of pre-petition claims be deemed to be adequately assured and to have waived any right to additional adequate assurance, in the form of a deposit or otherwise. Finally, the Debtors request that Utility Companies be required to include with any request for additional adequate assurance a summary of the Debtors' payment history relevant to the affected accounts, a list of security held by the Utility Company to secure payment of utility services, and the average monthly charge for utility services for the affected accounts. David R. Hurst, Esq., at Skadden Aprs Slate Meagher & Flom, LLP, in Wilmington, Delaware, relates that the Debtors maintained favorable payment histories with all of the Utility Companies pre-petition, consistently making payments on a regular and timely basis. To their knowledge, there were no significant defaults or arrearages with respect to any utility bill as of the petition date, nor have there been any such defaults. In fact, Mr. Hurst contends that virtually all of the Debtors' utility bills are current. The Debtors submit that their payment history with respect to pre-petition utility bills, their demonstrated ability to pay future utility bills and the administrative expense priority together constitute adequate assurance to the Utility Companies of payment for all future services. Recognizing the right of each Utility Company to request adequate assurance, the Debtors propose that Utility Companies be afforded 30 days from the date of an order granting this Motion to make a request to the Debtors for additional adequate assurance. Mr. Hurst requests that Utility Companies making such requests be required to include with any request for additional adequate assurance a summary of the Debtors' payment history relevant to the affected account, a list of security held by each Utility Company to secure payment of utility services for the affected account, and the average monthly charge for utility service for the affected account. If the Debtors are unable to resolve the request consensually with the Utility Company and upon the request of the Utility, Mr. Hurst tells the Court that the Debtors will file a motion for determination of adequate assurance of payment and set such Motion for hearing at the next regularly-scheduled omnibus hearing occurring more than 20 days after the date of such request, unless another hearing date is agreed to by the parties or ordered by the Court. If a Determination Motion is filed or a Determination Hearing scheduled, Mr. Hurst asks the Court to deem the Utility adequately assured until entry of a final order finding that the Utility Company is not adequately assured. The Debtors further request that any Utility Company that does not timely request additional adequate assurance be deemed to have adequate assurance. Mr. Hurst states that the proposed order provides that the Debtors will serve notice and a copy of the Order on all Utility Companies. Any Utility Company not currently listed but subsequently identified will be afforded 30 days from the date of such service to make a request to the Debtors for additional adequate assurance. Concurrently with such service, Mr. Hurst says the Debtors would file with the Court a supplement adding the name of the Utility Company so served. The procedure would avoid the need for requests to modify or amend any order granting this Motion, affords any such subsequently identified Utility Companies their due process rights. Mr. Hurst submits that the Debtors' payment history, coupled with their ability to pay future utility bills as they come due from future revenues and their proposed DIP financing, constitute adequate assurance of payment for future utility services. In addition, many Utility Companies already have deposits, which provide assurance. In any event, the Debtors seek authority, but not the obligation, to pay any outstanding pre-petition arrearages in lieu of issuing a security deposit. (Exodus Bankruptcy News, Issue No. 4; Bankruptcy Creditors' Service, Inc., 609/392-0900) FEDERAL-MOGUL: Wants to Extend Loans to Foreign Subsidiaries ------------------------------------------------------------ Immediately prior to the Petition Date, Federal-Mogul Corp's Non-Debtor Foreign Subsidiaries funded their operations through a combination of intercompany loans and limited-term stand-alone credit facilities in certain countries including Belgium, France, Germany, Italy, South Africa, and Switzerland. The aggregate amount of the stand-alone credit facilities as of the petition date was approximately $150,000,000, of which a sizeable portion had already been drawn. The Debtors cannot be certain that the Stand-Alone Facilities that have funded the Non-Debtor Foreign Subsidiaries in part in the past will remain in place in the wake of the commencement of these chapter 11 cases due to their discretionary nature. It is possible that certain of the lending institutions with whom the Stand-Alone Facilities are maintained will reduce or eliminate the availability of such facilities to the Subsidiaries as a result of the Debtors' bankruptcy filing. Moreover, the filing of the Debtors' chapter 11 petitions greatly decreases the possibility that the Subsidiaries would be able to locate replacement financing on terms acceptable to them. Thus, the Debtors seek authority from the Court to extend loans to their subsidiaries, none of which is or is expected to become the subject of an insolvency proceeding, to ensure that such subsidiaries have adequate liquidity available to them after the Petition Date. The Debtors submit that the relief sought herein is necessary for the successful administration of the Debtors' businesses during the initial period of these chapter 11 cases and for the preservation of the value of the stock and assets of the Debtors' subsidiaries, which are substantial assets of the Debtors' internationally-integrated businesses. James O'Neill, Esq., at Pachulski Stang Ziehl Young & Jones P.C. in Wilmington, Delaware, states that the Debtors will try to maintain the existing Stand-Alone Facilities but if one or more of the stand alone credit facility is terminated, J.P. Morgan Chase has committed to assist the Debtors in their efforts to replace the terminated facility with a new stand-alone facility. Mr. O'Neill contends that it is critical that the Debtors be granted the flexibility to loan funds to the Subsidiaries, if and to the extent that any of the existing Stand-Alone Facilities are terminated or otherwise restricted. By doing so, Mr. O'Neil asserts that the Debtors will continue the ordinary pre-petition practice between themselves and the Subsidiaries, which provided an essential source of working capital for the latter entities. In addition, the Debtors would be able to replace the $150,000,000 that might be removed from the Subsidiaries' credit availability. While the Debtors are hopeful that none of the Stand-Alone Facilities will be terminated or restricted during the period prior to the Final Hearing, Mr. O'Neill expects that borrowings could reach $150,000,000 during the Interim Period. Any loans extended by the Debtors to their non-debtor affiliates will be demand facilities. Further, Mr. O'Neill contends that the obligation to repay any such loan will be secured by such assets of the borrowing Excluded Subsidiary as are acceptable to the DIP Agent. Without the granting of such relief, the Debtors submit that the Excluded Subsidiaries may not have adequate funding to continue their business operations in the same manner as they were conducted pre-petition. Mr. O'Neill explains that some or all of the Subsidiaries might be forced to temporarily or permanently cease or scale back their businesses as a result of decreased working capital. Such an outcome would have a devastating effect on the value of the Excluded Subsidiaries stock and assets, Mr. O'Neill adds, which constitute a major portion of the value of the Federal- Mogul Entities' combined business. Moreover, Mr. O'Neill believes that scaling back the Debtors' operations might be perceived by the Debtors' suppliers and customers globally as a sign of weakness in the Debtors' global business, with resulting negative effects on these chapter 11 cases. The Debtors submit that continuation of intercompany loans to the Excluded Subsidiaries is the best means by which to maintain the value and continued efficient operation of the Debtors' business and assets. The Debtors also seek authority for the U.S. Debtors to make loans as may be necessary to the English Debtors and those Subsidiaries that do not enjoy Stand-Alone Facilities, to ensure the availability of adequate working capital to Federal-Mogul's subsidiaries that lack access to independent financing. The Debtors are informed that under applicable English law governing the administration of the insolvency proceedings respecting the Debtors' English subsidiaries, there are significant limits to the Administrator's ability to loan funds between corporations that are the subject of administration proceedings. Accordingly, Mr. O'Neill submits that the most practicable manner for ensuring that these subsidiaries have adequate working capital is for the Debtors to make direct intercompany loans to such subsidiaries as necessary, subject to the terms of the Debtors' post-petition financing facility. The Debtors do not anticipate that T&N Limited, the largest and most significant of Federal-Mogul's English subsidiaries, will require any funding from the U.S. Debtors after the first 90 days of these chapter 11 cases. Mr. O'Neill believes that it is possible that two additional English Debtors Federal-Mogul Ignition (U.K.) Limited and Federal-Mogul Sealing Systems Limited, may require modest working capital loans in order to operate their businesses. The Debtors do not anticipate that these loans will exceed $25 million. Mr. O'Neill informs the Court that advances to the English Debtors will be made on a revolving credit basis in a company-by-company fashion and will be secured by assets of the respective English Debtor that are acceptable to the DIP Agent and in accordance with the terms of the DIP Facility. In addition, any loans extended by the Debtors to any of the English Debtors will be entitled to priority status in the English administration proceedings respecting the borrowing subsidiary as well as an administrative priority in the chapter 11 case of any English Debtor to whom a loan is made. Accordingly, the Debtors submit that there is sound assurance of repayment to the Debtors of any intercompany loan made to any of the English Debtors. The Debtors also seek authority by this Motion to provide limited working capital advances to Subsidiaries that do not enjoy Stand-Alone Facilities, which do not have ready access to independent sources of financing. Mr. O'Neill tells the Court that their corporate affiliates provide the only realistic source of funding, without which it would be necessary for such affiliates to curtail or cease their business. The Debtors anticipate that during the term of the DIP Facility, their need to extend credit to Subsidiaries without Stand-Alone Facilities will not exceed $70,000,000 in the aggregate. Any such advances made to these subsidiaries will be discretionary and repayable upon demand, Mr. O'Neill says, and the repayment obligations in respect of such advances will be secured by such assets of the borrowing Excluded Subsidiary as are acceptable to the DIP Agent. (Federal-Mogul Bankruptcy News, Issue No. 3; Bankruptcy Creditors' Service, Inc., 609/392-0900) FEDERAL-MOGUL: Reaffirms Commitment to National Hot Rod Assoc. -------------------------------------------------------------- Federal-Mogul Corporation (NYSE: FMO) reaffirmed its commitment to the more than 30,000 National Hot Rod Association (NHRA) "sportsman" racers for the 2002 season. The company intends to increase its support of sportsman racers through enhanced low-qualifier and contingency award programs, according to Jay Burkhart, vice president of marketing for Federal-Mogul. "Continuing our strong relationship with NHRA sportsman racers is a priority for Federal-Mogul. We're planning a number of initiatives for 2002 that will strengthen our involvement and focus our support of racers in the sportsman series," Burkhart said. "The bottom line is that Federal-Mogul will remain a strong supporter of the racers who represent the backbone of NHRA competition." The initiatives include enhancing the company's Sealed Power Low Qualifier Award prize purse, boosting the annual cash award at the divisional level. Federal-Mogul also will continue its strong contingency awards programs, which will include Fel-Pro and Speed-Pro. Furthermore, the Sealed Power engine parts brand will continue its status as Official Brand of NHRA. Burkhart said Friday's announcement should eliminate any concerns about Federal-Mogul's continued support of NHRA sportsman racers that may have surfaced after the company filed for financial restructuring in the United States on October 1. The company is restructuring to resolve asbestos claims, thus separating its asbestos liabilities from its true operating potential. "Federal-Mogul is a strong, vibrant company that is committed to growth worldwide," Burkhart said. "As we look ahead to 2002, I'm sure sportsman racers will see that our Sealed Power, Speed- Pro and Fel-Pro brands are going to be even more valuable as marketing partners." Contingency payments for events following the October 1 petition date will be paid in accordance with normal procedures. Year- end championship bonuses will also be paid as originally planned. Headquartered in Southfield, Michigan, Federal-Mogul Corporation is an automotive parts manufacturer providing innovative solutions and systems to global customers in the automotive, small engine, heavy-duty and industrial markets. The company was founded in 1899. Visit the company's Web site at http://www.federal-mogul.comfor more information. FISHER COMMS: Asks Lenders to Waive Default on Credit Facilities ---------------------------------------------------------------- Fisher Communications, Inc. (Nasdaq:FSCI) announced that revenue from broadcast operations of $107,161,000 for the nine months ended September 30, 2001 declined $34,193,000 from the record revenue of $141,354,000 recorded in the same period of 2000. This decline reflects the absence of election year advertising revenue present in 2000, and significant decreases in local and national advertising due to slowing economic conditions compounded by the events of September 11. Real estate revenue increased from $9,633,000 for the first nine months of 2000 to $13,034,000 for the first nine months of 2001, largely due to the opening of Fisher Plaza in spring 2000. Emphasis on cost control resulted in a reduction of overall costs and expenses from $117,823,000 for the first nine months of 2000 to $115,947,000 for the first nine months of 2001. Consolidated net loss for the nine months ended September 30, 2001 was $6,501,000. During the same period last year, the company recorded income of $6,763,000 that included gain from sale of a television station and a parcel of real estate totaling $16,034,000, as well as provision for loss from discontinued milling operations, after tax effects, of $15,377,000. "Current financial conditions and consolidation trends in the broadcasting industry make Fisher's restructuring imperative," said CEO William W. Krippaehne Jr. "Over the past year we've been able to complete the sale of our flour milling assets and initiate major expense reductions that will be reflected in 2002." Broadcast revenue for the three months ended September 30, 2001 was $33,399,000 compared with $46,492,000 for the third quarter of 2000, and real estate revenue was $4,427,000 versus $3,386,000 for the third quarter of 2000. Costs and expenses for the third quarter of 2001 totaled $38,364,000, compared with $39,262,000 for the comparable period in 2000. Consolidated net loss for the third quarter of 2001 was $3,666,000, compared with a net loss of $847,000 for the comparable period in 2000. Third quarter 2000 results included gain from sale of a television station and a parcel of real estate totaling $16,034,000, as well as provision for loss from discontinued milling operations, after tax effects, of $14,166,000. As a result of the financial performance for the current year, as of September 30, 2001, the company was in default of certain financial covenants required by credit facilities maintained with lenders. The company is negotiating new facilities and has requested that current lenders waive the default. Fisher Communications, Inc. is a Seattle-based communications and media company focused on creating, aggregating, and distributing information and entertainment to a broad range of audiences. Its 12 network-affiliated television stations are located in the Northwest and Southeast, and its 26 radio stations broadcast in Washington, Oregon, and Montana. Other media operations include Fisher Entertainment, a program production and distribution business, as well as Fisher Pathways, a satellite and fiber transmission provider. Fisher also specializes in the design and operation of innovative commercial properties, of which Fisher Plaza is the prime example. FOREST & MARINE: Expects Canadian Lender to Waive Loan Default -------------------------------------------------------------- Forest & Marine Group (The Partnership) said that further to its Press Release of April 2, 2001, during fiscal 2001, suffered a significant loan loss of $4,608,000 (of which $3,600,000 was charged against the general loan loss provision) due to the business failure of two logging contractors to whom the Partnership had loaned funds. The primary loss is attributable to one forestry related borrower located in Squamish, BC. The borrower had entered into a long-term chipping facility contract with a major pulp mill and had been issued a development permit by the town council to operate the facility. The zoning on the chipping facility premises at the time was "light industrial" but subsequent public opposition and a court ruling required the property to be re-zoned "heavy industrial". This rezoning process covered a longer than anticipated period, during which time both the pulp mill and the borrower invested a considerable amount of money in site preparation and equipment. The Partnership loaned the borrower substantial funds for working capital during this period. Approximately 10 months into the project, the pulp mill withdrew from the project due to public opposition and the Partnership appointed a receiver for the borrower to enable it to realize on its security. Realization of the security resulted in a deficiency with respect to the repayment of the loans. As such, and after provision for future possible loan losses, net earnings of the Partnership for 2001 declined to $307,870.00. In the years from inception to the reorganization of the Forest & Marine Group in 1993, credit losses totaled $52,223. Subsequent to the 1993 reorganization, the Partnership incurred twelve (12) losses amounting in aggregate to approximately $6,584,559. Of this $6,584,559, $4,700,000 was incurred during fiscal 2001. A general loan loss reserve for principal of $2,400,000.00 and a general loan loss reserve for interest of $465,000.00 was made in the financial statements to July 14, 2001. A general provision is made against doubtful loans which cannot be determined on a loan by loan basis, but which is required to absorb losses which may occur in the future. Management considers the current provision for loan losses to be sufficient to cover expected loan losses for fiscal 2002. The write-off of the two loans resulted in a default of the covenants of the Partnership's credit facility with a major Canadian chartered bank as at July 14, 2001. As at August 31, 2001, the Partnership had a credit facility of $64,000,000 which had been drawn to $54,367,803. The credit facility is for a one- year term and is renewable each year for a further one-year term at the request of the Partnership and on approval by the bank. The credit facility will expire on November 30, 2001. The Partnership has obtained from the bank a waiver on these loan covenants as at July 14, 2001, subject to formal documentation satisfactory to the bank, and the Partnership does not expect the bank to require immediate repayment of the credit facilities, thus enabling it to continue as a going concern. The Partnership is currently in negotiations with the bank with respect to the annual renewal of the credit facilities and has been offered a renewal with specific terms and conditions still to be negotiated. In the event that a renewal term is not agreed to between the parties, the Partnership has the ability to convert the credit facility into a revolving term loan whereby the amount then outstanding will be repaid in monthly installments equal to 1/36th of the amount outstanding as at the termination of the credit facility, or such other amount as may be agreed. As set out in the audited Consolidated Financial Statements of the Partnership for each of the years in the five-year period ended July 14, 2001, as at December 31, 2000, the Partnership made a semi-annual distribution of 609,249 Class A Units of the Partnership to the Trust based on the Trust's estimated share of the Partnership's income for the period July 15, 2000 to December 31, 2000. This estimate exceeded the Trust's actual entitlement to earnings of the Partnership for the year ended July 14, 2001 due to the loan loss discussed above. For the year ended July 14, 2001, the Trust's entitlement of net earnings of the Partnership amounted to $73,019.00. As a result, 536,230 Class A Units have been issued to the Trust in excess of the Trust's entitlement to income of the Partnership. No further distributions will be made by the Trust to unitholders until the Trust's share of the over-allocation, which aggregate $536,230, has been fully recovered. As at the date of this release, approximately $314,248 has been recovered and, based on expected earnings, it is anticipated that the over-distribution will be fully recovered by November 30, 2001. The Partnership's interim financial statements for the first quarter ended September 30, 2001 will be available within the next week and preliminary results indicate net year to date earnings of $1 million. The Forest & Marine Group operates as a Limited Partnership primarily engaged in financing heavy mobile equipment, helicopters, tugs and barges utilized in the British Columbia forest products and marine industries, as well as other non- forestry businesses such as supermarkets and food distribution, small commercial airlines, fishing and processing plants and wholesale glass distributors. The Partnership, the Trust and the Company are all Reporting Issuers under the British Columbia Securities Act. The Company is also a Reporting Company under the British Columbia Company Act, whose shares are traded on the Canadian Venture Exchange. FRUIT OF THE LOOM: Exclusive Period Hearing Set For November 9 -------------------------------------------------------------- DDJ Capital Management, Lehman Brothers and Mariner Investments object to any further extension of Fruit of the Loom, Ltd.'s exclusive period during which to solicit acceptances of a plan. Bruce Bennett, Esq., at Hennigan, Bennett & Dorman, in Los Angeles, tells Judge Walsh that his Bondholder-clients' objection contains confidential material and should be held under seal. While some of the information the Bondholders rely on is based on public news reports, some is not yet public. Judge Walsh will convene a hearing on Nov. 9 to consider whether the Debtors' exclusive period during which to solicit acceptances of its plan should be preserved, terminated or modified. Consistent with Local Rule 9006-2, the Debtors' solicitation period is extended through the conclusion of that hearing. (Fruit of the Loom Bankruptcy News, Issue No. 39; Bankruptcy Creditors' Service, Inc., 609/392-0900) GENERAL BINDING: Seeks Amendment to Credit Facility Agreement ------------------------------------------------------------- General Binding Corporation (Nasdaq: GBND) reported sales of $197.0 million for its third quarter ending September 30, 2001, compared to sales of $228.2 million for the same period last year. Net income, before special charges, was $0.06 per share for the quarter, equal to the $0.06 per share earned in the third quarter of 2000. Interest and other expenses were down $3.4 million compared to last year, favorably impacting earnings for the quarter. Included in results for the quarter are restructuring and operating expense charges totaling $1.3 million related to the shutdown of operations in Poland and workforce reductions in the Company's Document Finishing Group and Asia/Pacific operations. The prior year results include other charges of $1.6 million related to supply chain management and corporate strategy consulting projects. Cash flow as measured by adjusted EBITDA (earnings before interest, taxes, depreciation, amortization and certain special items) was $19.4 million, compared to adjusted EBITDA of $24.7 million for the same period last year. Total debt at the end of the quarter was $376 million, an improvement of $31 million from the $407 million balance at the beginning of the year. Operating income in the Company's primary business groups was negatively impacted by revenue softness in three product categories. Writing boards and equipment sales were down as weak business capital spending adversely affected demand for these products. Additionally, continued weakness in the publishing market resulted in slower sales of commercial laminating films. Other product categories, including recurring supplies and service (which account for nearly 60% of GBC's total revenues), were roughly flat to last year. Operating results for the Company's Europe Group improved by $1.6 million due to lower infrastructure expenses resulting from restructuring activities initiated late last year. Facility Rationalization Earlier this month, the Company announced the closure of a manufacturing facility in Ashland, Mississippi. Production will be transferred from the Ashland facility to Company facilities in Booneville, Mississippi and Nuevo Laredo, Mexico. This initiative will result in restructuring charges of $3-$3.5 million in the fourth quarter of 2001, primarily related to severance and facility write-down expenses. When completed by late-2002, the Company expects to achieve annualized savings of up to $5 million from the rationalization effort. Outlook "We continue to maintain all of our strong, leading market positions across our businesses," said Dennis Martin, Chairman of the Board. "Our lower financial results for the quarter are primarily linked to the adverse affect of the economy on sales of certain products, particularly those that are capital- related. This has had the greatest impact in our Office Products Group, which accounted for over two-thirds of GBC's shortfall in sales. As a result, we do not expect much improvement in our business in the near term given the current economic outlook. Despite the weaker sales however, we continue to manage the controllable areas of our business fairly well, and we continue to generate free cash flow and reduce our outstanding debt." "Longer term, we remain confident that we can materially enhance the Company's overall profitability by successfully building off of the solid base that the company created last year after completing an initial phase of cost reduction and rationalization programs. We are currently leveraging the knowledge gained from these programs and other best practice disciplines to finalize a comprehensive set of new initiatives in each of our businesses. The goal of this thorough review is to significantly reduce costs and intensify the focus on our profitable businesses by further streamlining and simplifying our product lines, customer bases and business processes. We have initiated several of these programs already this year, including several workforce reduction initiatives and the rationalization of operations in Germany, Poland and Ashland, Mississippi. We expect to announce additional initiatives in upcoming quarters." Refinancing The Company is currently negotiating an amendment to its bank revolving credit facility to extend the upcoming January 13, 2002 maturity date for the facility. An amendment may include higher interest rates payable to the lenders commensurate with facilities of similar credit profiles. The Company is currently in compliance with all of the financial covenants in its credit facility. Nine-Month Results For the first nine months of 2001, sales were $606.1 million, compared to $692.6 million for the same period last year. Net income for the period, before special items, was $0.09 per share, compared to net income for the same period last year of $0.13 per share. Special items, before taxes, totaled $8.3 million and $3.7 million, or $0.45 per share and $0.07 per share after taxes, for the nine-month periods of 2001 and 2000, respectively. HEARME: Liquidation and Winding-Up Proceedings Begin ---------------------------------------------------- HearMe (OTCBB:HEAR), announced that its stockholders have approved the Company's Plan of Liquidation and Dissolution offered for vote at the Annual Meeting of Stockholders held October 22, 2001 in the Sheraton Sunnyvale Hotel, 1111 N. Mathilda Avenue, Sunnyvale, California. As a result, the Company is proceeding with the sale of all of its assets and thereafter intends to return any remaining capital to the stockholders. Among other matters, HearMe stockholders also elected six directors of the Company. A copy of the proxy materials previously mailed to shareholders can be accessed online at the SEC's Web site located at www.sec.gov or through various other Web sites offering access to SEC filing materials. On July 30, 2001, HearMe announced plans for an orderly wind down of business operations, including a potential sale of the assets and settlement of liabilities, with the objective of returning any remaining capital to stockholders. HearMe common stock is now trading on the OTC Bulletin Board under the symbol HEAR.OB. HearMe (OTCBB:HEAR) developed VoIP application technologies that deliver increased productivity and flexibility in communication via next generation communications networks. The Company's PC- to-phone, phone-to-phone, and PC-to-PC VoIP application platform offers innovative technology and turnkey applications that simplify the process of bringing differentiated, enhanced communications services to market. Communications services supported or enhanced by HearMe technology include VoIP-based conferencing, VoIP Calling, and VoIP-enabled customer relationship management (CRM). Founded in 1995, HearMe is located in Mountain View, California, and is located on the Internet at http://www.hearme.com INTEGRATED HEALTH: Court Okays Agreements with Senior Officers -------------------------------------------------------------- Integrated Health Services, Inc. sought and obtained the Court's authority to enter into new employment agreements with certain of their senior officers who otherwise have not been covered by the Debtors' post-petition actions regarding employment matters while employment matters concerning many of the Debtors' executive vice presidents and senior vice presidents who received loans, as well as those of employees below the officer level have been taken care of. With many in the former group, that is, executive vice presidents and senior vice presidents who received loans from the Debtors prior to the IHS bankruptcy, the Debtors entered into post-petition employment agreements which dealt with, among other things, the tax ramifications the Debtors' forgiveness of the officer loans caused by the departure of Robert Elkins (the former chief executive officer of the Debtors) as well as issues pertaining to severance, indemnification, non-competition, non- solicitation of the Debtors' employees and other critical employee related issues (collectively, the Critical Employee Issues). Many of these issues were previously addressed in the officers' pre-petition employment contracts with the Debtors. With the latter group, that is, employees below the officer level, the Debtors received approval for a severance program which primarily dealt with. Other than these two groups, the Debtors have a number of senior vice presidents and managing directors who are vital to their ongoing business (the Critical Senior Officers). The Critical Senior Officers did not have loans from the Debtors. Some, but not all, entered into pre-petition employment contracts with the Debtors. The Critical Senior Officers have asked the Debtors to confirm their employment status with them and, specifically, to address the Critical Employee Issues. Certain Critical Senior Officers, who had entered into prepetition employment contracts, are seeking to clarify the severance aspects of their employment arrangements with the Debtors. The Debtors are desirous of doing so, as well as to clarify the non-solicitation and non- competition aspects of their employment with respect to certain Critical Senior Officers that did not enter into pre-petition employment contracts with the Debtors. The Debtors believe that the Critical Senior Officers are crucial to the IHS reorganization efforts and that it is imperative that such officers remain with the Debtors through the reorganization, and are properly motivated and incentivized. To address uncertainty with respect to the Critical Employee Issues and to promote and maintain strong morale among these key personnel, the Debtors have determined that it is necessary to enter into post-petition Employment Agreements with them. The Debtors have negotiated or are near the end of the negotiations regarding Employment Agreements with respect to the following seventeen Critical Senior Officers: * Allen, Jerry E., * Battee, Cheryl C., * Box, Matthew, * Boehringer, Kell M., * Duplantis, Patrick, * Friedman, Toni-Jean Lisa, * Lekas, Pamela L., * Lee, Rebecca A., * Pompeo, Kirk, * Lyon, Terri A., * McDonald, Karen L., * Mercier, Murry, * Mignone, Thomas F., * Palinkas, Pamela A., * Phillips, Jeanne M., * Wiederstein, Michael, * Wilson, Michael L. Specifically, the Employment Agreements: (1) modify the Critical Senior Officers' severance benefits, all on substantially similar terms to one another, (2) with respect to certain Critical Senior Officers that entered into pre-petition agreements with the Debtors, establish that the Employment Agreements supercede any such pre-petition agreements and, therefore, govern all the rights and obligations of the parties and (3) establish uniform non-solicitation and non-competition provisions with respect to the Critical Senior Officers. The Proposed Post-Petition Employment Agreements Specifically, although variations exist, all of the Employment Agreements provide for a term of two years, substantially uniform confidentiality, and other uniform provisions, plus specific terms of salary and benefits with respect to each officer. In addition, the Employment Agreements include the following key provisions: (A) Severance The Debtors are obligated to pay severance and benefits to the Critical Senior Officers if the company terminates the Critical Senior Officers "without cause". Though the severance amounts vary by Critical Senior Officer, for most officers, they generally equal 6 months of base salary plus up to an additional 6 months in the event that the Critical Senior Officer is unable to find a comparable position within such period of time after termination. At this stage in the Debtors' negotiations with the Critical Senior Officers, all of the Employment Agreements have a stated term of two years except for the agreement with respect to Pam Lekas, a Senior Vice President with the Debtors. Ms. Lekas' Employment Agreement, unless otherwise terminated by the other terms of the agreement, shall terminate when the Debtors determine, in their discretion, that the Claims Administration Process is substantially completed. (B) Indemnification The Employment Agreements provide for indemnification of each Critical Senior Officer to the fullest extent permitted by Delaware law. This provision is consistent with the indemnification provision in the Debtors' other post-petition employment agreements. (C) Non-Solicitation and Non-Pirating During the term of the Employment Agreements and for a period of two years following the termination or natural expiration of same, the Critical Senior Officers may not, without express written consent, attempt to (i) solicit, divert or take away any of the Debtors' employees, clients or customers, or (ii) hire, entice or persuade any of the Debtors' employees, clients or customers to alter or terminate their relationship with the Debtors. (D) Non-Competition During the term of the Employment Agreements and for the period of one year following the Critical Senior Officer's termination or resignation, such Critical Senior Officer agrees not to compete with the Debtors' business without the Debtors' written consent. This provision is consistent with the non-competition provisions in the Debtors other post-petition employment agreements. (E) Mutual Release Critical Senior Officer acknowledges that Critical Senior Officer has no claims arising out of or relating to his previous employment agreements with the Debtors and the Debtors acknowledges that it knows of no claims arising out of or relating to Critical Senior Officer's previous employment agreements with the Debtors. Excepted from the scope of the Debtors' release of the Critical Senior Officers are any claims arising out of or relating to any of the following: (i) violations of law by Critical Senior Officer; or (ii) any matter as to which Senior Officer did not act in good faith and/or in a manner Critical Senior Officer reasonably believed to be in the Debtors' best interests. The Debtors tell the Court that the salient terms of the Employment Agreements have been discussed with the Creditors' Committee and copies of the executed Employment Agreements will be given to the Creditors' Committee and the United States Department of Justice. The Debtors submit that the entry into the Employment Agreements substantially under the terms described is essential to preserve and maximize the value of the Debtors' estates. The Debtors believe that the relief requested is essential to maintaining a motivated and dedicated workforce, and that the relief requested herein is designed to do so. The Debtors believe that entering into the Employment Agreements is within the ordinary course of the Debtors' business and, as such, does not require any further order of the Court but have filed the instant Motion out of an abundance of caution. (Integrated Health Bankruptcy News, Issue No. 21; Bankruptcy Creditors' Service, Inc., 609/392-0900) LTV CORP: Selling Mining Assets to Cliffs for $25MM + Debts ----------------------------------------------------------- Subject to any higher and better offers that may come forward at the November 14 Auction, LTV Steel Mining Company, and its partners Youngstown Erie Corporation, Erie B Corporation and Erie I Corporation, ask Judge Bodoh for an order: (i) approving the Asset Purchase Agreement; and (ii) authorizing LTVSMC, and all of its partners, Youngstown Erie Corporation, Erie B Corporation and Erie I Corporation, to: (a) sell substantially all of their assets free and clear of liens, claims and other encumbrances to Cliffs Erie, LLC and Rainy River Energy Corporation - Taconite Harbor or the successful bidder for the Assets at the Auction; (b) assume and assign to the Buyer certain related unexpired leases, effective as of the date of the principal closing of the sale of the Assets to the Purchasers or the Buyer; and (c) reject other related executory contracts and unexpired leases, effective as of the Closing Date; (iii) establishing the cure amounts required to cure any monetary defaults under the Assumed Contracts; and (iv) approving the State Master Agreement, the related Release, and the Transition Services Agreement. The Purchasers' Relationships with the Debtors The Debtors tell Judge Bodoh that, as noted in their Motion for bid procedure approval, the proposed Purchasers of the Assets are Cliffs and RRTH. Cliffs and RRTH, through its affiliate Minnesota Power, have a longstanding relationship with LTVSMC. In fact, Cliffs Mining Company and LTVSMC entered into a contract whereby CMC has managed the daily operations of the Mine. Cliffs is also affiliated with Cleveland-Cliffs, Inc., the chair of the Unsecured Creditors Committee. The Debtors assure Judge Bodoh that this fact, however, has in no way undermined the arm's length nature of the Asset Purchase Agreement. Further, Cliffs' familiarity with the Assets has allowed the sale to proceed expeditiously. On October 8, 2001, the sellers entered into the Asset Purchase Agreement with the Purchasers. Assets to be Sold and Liabilities to be Assumed Pursuant to the Asset Purchase Agreement, Sellers shall sell substantially all of the assets of LTVSMC, including principally a mine, a power plant and related assets. Further, the Purchasers shall be assuming certain liabilities of LTVSMC and LTVSMC shall be released from certain liabilities pursuant to the State Master Agreement. Purchase Price The total Purchase Price for the Acquired Assets to be paid at the Closings shall be the sum of (i) Twenty-five Million Dollars, payable in equal shares by Cliffs and RRTK and (ii) the assumption of the Assumed Liabilities. The Purchase Price is to be paid as follows: (a) $24,500,000 to be paid at the Principal Closing, with Cliffs to pay $11,875,000 and RRTH to pay $11,375,000, and (b) $500,000 to be paid by RRTH at the Transmission Assets Closing. The Principal Closing encompasses the closing of the purchase and sale of all of the Acquired Assets and the Assumed Liabilities, except for the Transmission Assts. The Transmission Assets Closing encompasses the closing of the purchase and sale of he Transmission Facilities, which include a 148k V transmission line, associated towers, and 138k V transmission equipment. In accordance with the terms of the Debtors' postpetition financing documents, 50% of the cash portion of the Purchase Price must be used to permanently reduce the Debtors' postpetition financing obligations. The Debtors may retain the remaining amount of the cash portion of the Purchase Price for operating expenses or make further payments on account of their postpetition financing obligations. Exemption from Taxes Finally, the Sellers seek the exemption from state and local stamp, transfer, and other similar recording taxes for the transfer of the Assets to the Buyer, pursuant to the Bankruptcy Code, because the transfer (a) includes substantially all of the Sellers' assets and (b) is an important component of the Debtors' restructuring. Courts have held that an exemption the Bankruptcy Code is appropriate where, as here, (a) the sale is of substantially all of the assets of the debtors or (b) is essential to, or an important component of, the chapter 11 process. Approval of the State Master Agreement and Related Stipulation On October 8, 2001, an agreement was entered into by the State Of Minnesota, Minnesota Iron Range Resources and Rehabilitation, Minnesota Department of Natural Resources, Minnesota Pollution Control Agency and Minnesota Department Of Revenue, Cliffs Erie, LLC, Cleveland-Cliffs Inc., Minnesota Power, an operating division of Allete, Inc., Rainy River Energy Corporation - Taconite Harbor, LTV Steel Mining Company and LTV Steel Company, Inc.. As a material inducement for each of the parties to the Asset Purchase Agreement to enter into and perform their obligations under the Asset Purchase Agreement and the State Master Agreement, the State and the Departments have agreed to enter into the State Master Agreement in order to evidence the State's and the Departments' binding commitment to: (i) promptly transfer or cause the transfer of the Permits; (ii) support the transfer of permits not within its control; and (iii) support approvals necessary and related to the transactions contemplated by the Asset Purchase Agreement. The State and the Departments have agreed to provide LTVSMC and LTV Steel with a release releasing LTVSMC and LTV Steel from all liabilities of LTVSMC and LTV Steel to the State as of the Principal Closing Date under: (i) the Permits; (ii) the leases to be assigned and surrendered to the State and then reissued to CE and RRTH ; (iii) the LTV Steel Mining Company Draft Closure Plan as filed by LTVSMC on February 26, 200 1, and as it will be modified by CE in compliance with comments of the DNR and the PCA as set forth in a letter to LTVSMC dated June 18, 2001; and (iv) all expenses including attorneys' and consultants' fees incurred by the State in collecting any amounts owed, or in enforcing any responsibilities or requirements of (i),(ii) and (iii). The State and the Departments have further agreed not to assert any claim that the taconite production, sales, use and withholding tax obligations of LTVSMC will burden the Acquired Assets in the hands of either CE or RRTK nor assert a claim against CE or RRTH for the sales, use, and withholding tax obligations of LTVSMC or the taconite production taxes which are the subject of the claims of the Revenue Department against LTVSMC. In exchange for this promise, LTVSMC and its affiliated Debtors in Possession agree not to oppose or contest in any way the Revenue Department's characterization of its claims for taconite production taxes for tax years 2000, 2001, and 2002 as priority unsecured claims, and further agree not to oppose or contest in any way the Revenue Department's determination of the principal amounts of its taconite production taxes for the tax years 2000 and 2001, to the extent that such determination does not exceed $14,767,634 for the 2000 tax year and $10,099,739 for the 2001 tax year. Pursuant to the Asset Purchase Agreement and the State Master Agreement, CE and RRTH have agreed to assume respectively the Permits, the Reissued Leases, and CE has agreed to assume the Closure Plan Obligations. The obligations assumed by CE and RRTH under the State Master Agreement shall not include: (i) any obligation of LTVSMC for taconite production taxes assessed under Minnesota law, or (ii) sales, use, or withholding tax obligations of LTVSMC. CCI agrees to provide the Departments at the Principal Closing with a guaranty of CE's obligations in respect of the Closure Plan obligations. As an inducement to the Departments to enter into the State Master Agreement, CE and RRTH have each agreed to grant an option to the ERRR to enable the ERRR to acquire certain Real Property to be acquired by CE and RRTK respectively, under the Asset Purchase Agreement. The State Master Agreement and the Stipulation are in the best interest of the Debtors' estates and their creditors and should be approved by this Court. To the extent the State Master Agreement and Stipulation represent a settlement and compromise of a dispute between Debtors and the State of Minnesota or its agencies, Bankruptcy Rule 9019(a) provides that "after notice and a hearing, the court may approve a compromise and settlement." Some courts have held that the appropriate factors to consider include: (a) the probability of success in the litigation; (b) the difficulties, if any, to be encountered in the matter of collection; (c) the complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it; (d) the paramount interest of the creditors and a proper deference to their reasonable views in the premises. The environmental releases provided to LTVSMC in the Asset Purchase Agreement are of great benefit to the Debtors' estates and are integral to the successful sale of the Assets. Approval of the Transition Services Agreement In connection with the Asset Purchase Agreement, LTVSMC and Cliffs Mining Company have entered into the Employee Benefits Administration and Transition Services Agreement. CMC had been providing management services to LTVSMC pursuant to a management agreement between LTVSMC and CMC, dated May 26, 1993, which Sellers now seek to reject pursuant to this Motion and in accordance with the terms of the Asset Purchase Agreement. Sellers have agreed to reimburse CMC for the direct costs and expenses incurred by CMC and its affiliates in providing services pursuant to the Transition Services Agreement plus an additional amount equal to 25% of the Direct Costs. LTVSMC has also agreed to indemnify CMC, its officers, directors, employees and agents for any and all expenses, liabilities, losses or damages, other than Assumed Liabilities, arising out of or in connection with the performance of CMC's obligations under the Management Agreement prior to the Principal Closing Date. Sellers will require certain services of CMC to enable them to wind up their activities at the Mine. Given CMC's familiarity with the Mine and its management, Sellers believe the performance of these services by CMC represents the most cost- effective alternative. Accordingly, it is the Sellers' informed business judgment that the Transition Services Agreement is in the best interests of the Debtors' estates and should be approved by the Court. (LTV Bankruptcy News, Issue No. 16; Bankruptcy Creditors' Service, Inc., 609/392-00900) OJSC OIL: S&P Assigns B Rating to Proposed ABN Amro Facility ------------------------------------------------------------ Standard & Poor's assigned its single-'B' corporate credit rating to OJSC Oil Co. Rosneft. At the same time, Standard & Poor's assigned its single-'B' rating to the proposed loan participation notes to be issued by ABN AMRO Bank (Luxembourg) S.A. for the sole purpose of financing its loan to Rosneft. The outlook is stable. Standard & Poor's ratings on Rosneft, a large, integrated Russian oil and gas company, reflect the company's sizable operations and good prospects for cost-competitive production growth over the intermediate to long terms. However, these strengths are offset by its concentration of operations in Russia, somewhat aggressive debt leverage, and likely large free operating cash flow deficits for the next several years as it invests to increase production and modernize its refineries. Rosneft is owned by the Russian Federation and represents its largest holding in the sector. Although Standard & Poor's recognizes that such ownership may provide the company with competitive advantages, it does not assume that the current ownership structure will persist indefinitely or that the Russian Federation will provide financial assistance to Rosneft. Therefore, Standard & Poor's has not equalized the ratings of Rosneft and those of its shareholder. Companies participating in the oil and gas industry are exposed to a number of risks, including those presented by the need to economically replace depleting oil and gas reserves; accessing sufficient capital to explore for new reserves and develop them; and to overcome these challenges against a backdrop of highly cyclical and volatile commodity prices. In addition, companies participating in the Russian oil and gas industry are exposed to a number of political and operating risks, including: * Changing tax and export regimes, * A slow and difficult bureaucracy that can substantially delay approval times for new production sharing agreements, * Domestic prices that are below world markets due to inadequate export infrastructure, * Vulnerability to domestic inflation without commensurate foreign exchange or domestic price relief, * Inconsistent access to external capital, * Uncertain access to export pipeline infrastructure, and * High and possibly increasing costs of accessing such transportation assets. During the downturn of 1998 and 1999, companies also attempted to exploit bankruptcy proceedings to win control of sizable assets at values below market (and a significant subsidiary of Rosneft was the target of such efforts), were forced to sell to bankrupt or uncreditworthy entities, and were occasionally compensated through noncash transactions. Although Russia is undertaking reforms that may reduce these risks over the long term, many of these risks may recur. Furthermore, diminishment of these risks is not perfectly correlated to improvement in the credit ratings of the Russian Federation. Rosneft (through its operating subsidiaries, of which the most important are Purneftegas and Sakhalinmorneftegas) is a large, integrated company with exploration and production ("upstream"; 66% of 2000 EBITDA) and refining and marketing ("downstream"; 34%) operations. Rosneft's sizable proved reserves total 138.9 million tons of crude oil (1.02 billion barrels; 60% developed) and 25.2 billion cubic meters of natural gas (64% developed). Almost all of the company's proved reserves are in Russia, but the company hopes to achieve better geographic diversification by investing internationally. About 53% of Rosneft's crude oil production and 91% of its nonassociated natural gas production in 2000 were exported. Rosneft's proved reserves, which have been audited by a highly regarded reserve engineering firm, exclude very sizable resources associated with new projects off Sakhalin Island that will be developed on a nonrecourse basis. As production sharing agreements for these fields are finalized and these massive resources are booked as proved reserves, Rosneft's reserve life of about 10.6 years and 6.4 years on a proved developed basis, which are about average for the industry, should greatly improve. Rosneft's oil reserves generally are of high gravity (or "light") and are low in sulfur. Rosneft would benefit if pipeline regulations were changed to limit tacit subsidies provided by light producers to those producing sulfur-laden and heavy crude oils. Rosneft's natural gas reserve life of 8.4 years (for nonassociated natural gas) understates the company's true natural gas resource and production capacity because of constrained access to infrastructure and markets. However, commercialization of its vast natural gas resources could prove to be a major business opportunity for Rosneft as industry bottlenecks are removed. Recently signed joint venture agreements with Gazprom should help these initiatives. Rosneft's upstream cash operating costs are about average, with cash production costs at less than $6.00 per barrel of oil (assigning no costs to natural gas production). This cost estimate excludes high direct and indirect taxes paid by Rosneft on its production from the Yamal-Nenetskii Autonomous Region, as well as burdensome transportation costs. Reductions in controllable costs are expected over time as management, which has greatly improved since a change of senior personnel in 1999, continues implementing its best-practices programs and prudent capital-budgeting processes. The impact of management on Rosneft is illustrated (with some help provided by rising oil prices) through a material reduction in inactive wells, a reversal of production declines in 2000, and a sizable increase in proved reserves in 2000. If the company has a compliant pricing and regulatory environment, annual production increases of at least 5% at competitive costs are likely over the next several years--with possibly greater rates achieved if the Sakhalin projects are advanced. Rosneft's downstream operations provide meaningful free cash flow, which should increase after the company completes modernization programs at its refineries. These investment programs are expected to span at least the next five years. In 2000, Rosneft's three refineries (Komsomolsky, Tuapse, and Nefteproduct) operated at a 71.3% utilization rate, which is better than the industry's average of 61.9%, although far below the rates demonstrated by international refiners or even-larger Russian competitors. The Tuapse and Komsomolsky refineries, which are the most significant for Rosneft, benefit from good access to export markets and a fair degree of integration with ongoing and potential upstream operations. (Komsomolsky is connected by pipeline to the Sakhalin fields.) However, the refineries still produce a high degree of low-value fuel oil (about 47% of refined product output) and margins on exports may fall given rising global environmental standards. Upgrading the refineries to produce low-sulfur and higher-value products will require substantial additional capital expenditures although it will likely provide better margins and operating reliability. Rosneft's financial profile is somewhat aggressively leveraged. While a total debt to total capital ratio of 32% would be considered moderate for a U.S. or European oil and gas company, the possibility of cash margin compression and irregular access to capital caused by political and systemic risks related to Russia--in addition to the company's very large minority interest accounts--prompts Standard & Poor's to consider this capital structure somewhat aggressive. Management's financial goals are fairly prudent, with the company attempting to capitalize the company in a manner similar to international competitors. Rosneft's management has been innovative obtaining nonrecourse project financing and other financing for development of its Sakhalin Island assets and more financing arrangements of this type are likely, although such creditors could rank ahead of Rosneft's creditors in the event of a bankruptcy. During the past year, robust oil and gas prices have caused Rosneft's cash flow protection measures to be strong for the rating level, with EBITDAX interest coverage (after adjusting for noncash transactions) covering interest more than 13 times and funds from operations to total debt averaging about 70%. As oil prices revert to more normal levels (without adverse changes in exchange rates, domestic inflation, or real domestic prices), Standard & Poor's expects that credit measures will weaken, but remain fairly strong for the rating level. If conditions similar to those of 1998-1999 were to recur, Rosneft's financial measures would likely be representative of its rating. During the next five years, cash flow from operations is likely to be less than planned capital expenditures ($3.2 billion cumulatively through 2006 based on oil prices of $17 per barrel, excluding $1 billion of funds to be invested on behalf of Rosneft by partners), although Rosneft can defer various capital expenditures associated with growth projects if capital resources become tight. Nevertheless, financial flexibility still is a concern given the company's reliance on short-term and secured debt instruments and the absence of commodity price hedges. Outlook: Stable Changes to Rosneft's credit rating will be influenced by changes in the rating of the Russian Federation, as well as factors peculiar to Rosneft's business and financial profile. An upgrade of Russia's ratings will not necessarily result in an upgrade of Rosneft's ratings without a commensurate improvement in Rosneft's business and financial profile. However, downgrades of Standard & Poor's ratings on Russia will result in downgrades to Rosneft's ratings given heightened transfer and convertibility risks. PACIFIC GAS: Will Assume PPA with Cardinal Cogen as Amended ----------------------------------------------------------- Pursuant to the Court's order providing for procedures to seek proposed assumptions by PG&E of Power Purchase Agreements with Qualifying Facilities (QFs) by Notice rather than Motion, Pacific Gas and Electric Company gives Notice of its intention to assume the Power Purchase Agreement between PG&E and Cardinal Cogen, pursuant to 11 U.S.C. Section 365 and Rules 6006 and 9019 of the Federal Rules of Bankruptcy Procedure. Cardinal operates a power generation facility with the capacity 49.9 Mw. Cardinal is a counter-party to a PPA, which provides for the purchase of power by PG&E from Cardinal. PG&E acknowledges that prior to the commencement of its bankruptcy case, PG&E failed to pay in full the amount due under the PPA, resulting in pre-petition claims for payment to Cardinal in the amount of $11,907,403.81 (the Payables). Cardinal, on the other hand, failed to pay in full the amount due PG&E under several gas transportation and energy accounts prior to the commencement of the PG&E bankruptcy case, resulting in claims for payment to PG&E in the amount of $605,041.60 (the Utility Debt). On June 13, 2001, the CPUC issued Decision No. 01-06-015 (the "Lynch Decision"), whereby QFs under Standard Offer Contracts with PG&E may request that their contracts be modified to replace the energy pricing term with a five-year average fixed price of 5.37 cents/kWh (the "Price Modification"), as proposed in the March 23, 2001 comments of the Independent Energy Producers referred to in Decision No. 01-06-015. On July 14, 2001, PG&E and Cardinal agreed to amend the PPA to replace the energy price term with the CPUC price modification for 5 years (the "PPA Amendment"). PG&E now proposes to enter into an Agreement to assume the PPA (the "Assumption Agreement") on the following general terms: (a) PG&E shall assume the PPA as amended, pursuant to 11 U.S.C. Section 365(b)(1) and (d)(2) and Rules 6006 and 9019 of the Federal Rules of Bankruptcy Procedure; (b) October 18, 2001 shall be the effective date for PG&E's assumption of the PPA, providing that all conditions set forth in the Assumption Agreement are met, and further providing that Cardinal has the right to terminate the Assumption Agreement and PPA Amendment for a 15-day period following the entry of the Bankruptcy Court Order approving the Assumption Agreement, as set forth more fully in the Assumption Agreement; (c) PG&E's payment of $11,302,362.21 (the Payables minus the Utility Debt) on the sooner of several certain dates identified more fully in the Assumption Agreement; (d) Cardinal waives certain potential claims as more fully set forth in the Assumption Agreement, including any claim to receive any difference between a "market rate" and the contract price for energy and capacity delivered to PG&E from and after April 6, 2001 through the effective date for PG&E's assumption of the PPA. PG&E believes that approval of the Assumption Agreement is in the best interest of the estate because it resolves several potential claims against the estate without further litigation. The proposed Assumption Agreement shall be approved by the Court without a hearing unless a party, within 10 days of the service of this Notice, files and serves upon counsel for PG&E and the Official Committee of Unsecured Creditors an objection to the proposed Assumption Agreement, along with any pleadings, declarations or other materials in support of such objection. (Pacific Gas Bankruptcy News, Issue No. 16; Bankruptcy Creditors' Service, Inc., 609/392-0900) POLAROID CORP: Gets Court's Nod to Pay Prepetition Shipping Fees ---------------------------------------------------------------- Polaroid Corporation seeks the Court's authority to pay certain pre-petition shipping charges, import obligations, and related possessory liens. (A) Imported Goods In the ordinary course of business, the Debtors purchase goods, materials, products, supplies and relates items from outside the country where a particular Debtors primarily operates, often at prices lower than the cost of comparable domestic goods. The Debtors' purchase of the imported goods is vital to the Debtors' business operations, Polaroid Chief Administrative Officer of Polaroid Corporation Neal D. Goldman tells Judge Walsh. Without the purchase of imported goods, Mr. Goldman says, the Debtors could not manufacture or sell many of their products under the Polaroid name. In connection with the imported goods, Mr. Goldman relates, the Debtors have certain import expenses, including customs duties, general order penalties, ocean freight, air freight, trucking charges, warehousemen's claims, brokerage fees, detention and demurrage fees, surety bond premiums, consolidation and deconsolidation charges, and the like. Gregg M. Galardi, Esq., at Skadden, Arps, Slate, Meagher & Flom LLP, in Wilmington, Delaware, tells the Court that payment of the import obligations is necessary to obtain possession of the imported goods. Absent payment, Mr. Galardi warns, the Debtors' customs brokers may assert shipper's and warehousemen's liens against the goods. The United States Customs Service may also assert a lien against such goods, Mr. Galardi adds. According to Mr. Galardi, payment of the import obligations will benefit the Debtors' estates because: (a) the Debtors' manufacturing operations might otherwise be disrupted, (b) the eventual sale of the products so imported will generate substantial gross income, (c) forfeiture of goods for which the Debtors have already become indirectly obligated will be avoided, and (d) important customer goodwill, based upon the availability of advertised products, will be protected. (B) Shipping and Distribution In the normal course of business, the Debtors pay certain fees and charges to commercial common carriers and independent regional distributors to ship, transport, store, and deliver goods, materials, products, supplies and related items. Mr. Goldman tells Judge Walsh that the Debtors pre-pay nearly all of their shipping charges. However, Mr. Goldman says, certain shippers and distributors periodically invoice the Debtors in arrears for services rendered. The Debtors seek to pay the pre-petition shipping claims for several reasons: (1) If they are not paid, many independent shippers and distributors may refuse to perform additional services for the Debtors. In such event, the Debtors will incur additional expenses to replace these shippers and distributors, which amounts will likely exceed the amount of unpaid pre-petition shipping claims that the Debtors request permission to pay. (2) Any delays in delivery with respect to goods that may be in the possession of shipper, warehousemen, customs brokers, and distributors will result in the assertion of possessory liens upon the Debtors' property, and could disrupt the Debtors' inventory distribution network to the detriment of the Debtors' operations. (3) Some of the goods at issue may be the subject of advertising programs by the Debtors. If the goods are not made available promptly, the Debtors may frustrate the expectations of their customers and lose customer goodwill. This would be inimical to the Debtors' reorganization efforts. (C) Paying Agent Fees The Debtors utilize Cass Logistic, Inc. and Fritz Companies, Inc. to pay certain shipping charges in the ordinary course of business. According to Mr. Galardi, the Debtors do not have an alternative system in place to pay certain shipping claims absent the use of the paying agents. Therefore, Mr. Galardi contends, the continued use of the paying agents to process invoices in connection with the shipping claims is critical to the Debtors' reorganization. In sum, Mr. Galardi says, paying the shipping claims is critical to maintaining the value of the Debtors' business. Mr. Galardi tells Judge Walsh that the Debtors' ability to sustain their current operations and ultimately to reorganize their business depends upon the Debtors' ability to maintain their distribution network and provide appropriate levels of service and a steady supply of goods to their customers. Absent the relief requested in this motion, Mr. Galardi claims, the Debtors would be required to expend substantial time and resources convincing shippers, distributors, and parties holding goods that they should not assert a lien on or hold goods in transit. Mr. Galardi adds that the attendant disruption to the continuous flow of goods to the Debtors would likely result in a shortage of goods used by the Debtors in their operations. Without the goods, Mr. Galardi contends, the Debtors' business would rapidly deteriorate and their opportunity to achieve a successful reorganization would be seriously jeopardized. Satisfied by the Debtors' arguments, Judge Walsh issues an order: (i) authorizing the Debtors to pay approximately $500,000 in pre-petition shipping and import expenses, (ii) permitting all banks and other financial institutions on which checks with respect to shipping claims that have been or may be drawn to receive, process, honor, and pay any and all such checks, whether presented prior to or after the Petition Date, and (iii) providing that payments made to a third party on account of a pre-petition claim discussed herein be subject to disgorgement in the event that such third party does not continue to provide services to the Debtors during the pendency of these chapter 11 cases on the same terms as existed prior to the Petition Date. By accepting payment, third parties are expected to continue uninterrupted provision of services. If a third party accepts payment but does not continue to provide services to the Debtors, then: (a) any payment relating to this Order made after the Petition Date shall be deemed an avoidable post-petition transfer and therefore, shall be recoverable by the Debtors in cash upon written request; and (b) upon recovery by the Debtors, the claim shall be reinstated as a pre-petition claim in the amount so recovered. However, a third party can contest such treatment by making a written request to the Debtors to schedule a hearing before the Court. Judge Walsh emphasizes that the authority granted to the Debtors' to make payments and honor obligations is subject to any requirements imposed upon the Debtors under any approved debtor-in-possession financing facility or order with respect to the use of pre-petition lenders' cash collateral. (Polaroid Bankruptcy News, Issue No. 2; Bankruptcy Creditors' Service, Inc., 609/392-0900) QUALITY STORES: Bankruptcy Filing Has S&P Giving Out D Ratings -------------------------------------------------------------- Standard & Poor's lowered its corporate credit and senior secured bank loan ratings on Quality Stores Inc. to 'D' from triple-'C' and lowered its senior unsecured debt rating to 'D' from double-'C'. The rating action follows the filing of an involuntary bankruptcy petition for Quality Stores in the U.S. Bankruptcy Court, and the company's failure to make its October interest payment of about $5.8 million on its senior notes. The company is evaluating its options regarding how to continue with the financial and business restructuring, which has been going on for several months. Quality Stores plans to close 133 stores as part of the business restructuring. SAFETY-KLEEN: Signs Employment & Indemnity Pacts with New CAO ------------------------------------------------------------- Safety-Kleen Corporation asks Judge Walsh for authority to enter into an employment agreement and an indemnification agreement with Thomas W. Arnst pursuant to which the Debtors are retaining Mr. Arnst to serve as the Executive Vice President and Chief Administrative Officer of Safety-Kleen Corporation, and are agreeing to indemnify Mr. Arnst. The Debtors tell Judge Walsh their ability to maintain their business operations and preserve value for their estates is dependent upon, among other things, the employment and dedication of a Chief Administrative Officer who possesses relevant experience, knowledge and skills. The Board of Directors determined that a Chief Administrative Officer with strong leadership abilities is critical to the Debtors in their efforts towards a successful restructuring and emergence from bankruptcy. Mr. Arnst is highly qualified to assume the position of Executive Vice President and Chief Administrative Officer of the Debtors. Mr. Arnst has extensive senior management experience in numerous industries. Most recently, Mr. Arnst served as Executive Vice President and Chief Administrative Officer of AmeriServe Food Distribution, Inc., a large food distribution business, and the AFD Fund, the post-confirmation estate of AmeriServe and its affiliated debtors. Mr. Arnst's experience and expertise make him highly qualified for the position of Executive Vice President and Chief Administrative Officer of SKC. Summary Of The Arnst Agreements Upon approval of the Arnst Agreements, Mr. Arnst will serve as Executive Vice President and Chief Administrative Officer of SKC and, as Mr. Arnst may agree to from time to time, in appropriate positions in each subsidiary of SKC, with the duties, functions, responsibilities and authority customarily associated with such position. Mr. Arnst shall report to the Chairman of the Board of Directors, President & Chief Executive Officer of the Company. The salient terms of the Arnst Agreements are: (a) Term and Duties: Mr. Arnst will serve as Executive Vice President and Chief Administrative Officer of SKC through February 8, 2003, unless his employment is earlier terminated. (b) Salary and Bonus: Mr. Arnst shall receive a monthly salary of $50,000. Mr. Arnst also will be entitled to a Retention Fee of $500,000 payable on the first to occur of: (i) the effective date of the confirmation of SKC's plan of reorganization; (ii) SKC's liquidation; (iii) conversion of SKC's proceeding to Chapter 7; (iv) Involuntary Termination of the Executive's employment; or (v) all or substantially all of the Company's, including any debtor affiliate's, assets are sold or disposed of in one or more transactions. In addition, if the events listed in subparagraphs (i), (ii), (iii) or (v) do not occur prior to the completion of the Employment Period and the Executive's employment was not terminated for cause, death or disability, upon the first to occur of the events in subparagraphs (i), (ii), (iii) or (v) herein after the completion of the Employment Period, the Company shall pay Mr. Arnst a cash amount equal to the Retention Fee. (c) Termination: If Mr. Arnst's employment is terminated for cause or he terminates his employment during the Employment Period other than in an Involuntary Termination, the Company shall pay him earned but unpaid compensation. If Mr. Arnst's employment is terminated by an Involuntary Termination, the Company shall pay him earned but unpaid compensation, including the Salary that he would have earned for the remaining months of the Employment Period and the Retention Fee, and shall also provide him the welfare benefits set forth the Agreement during the same period. (d) Indemnification: Mr. Arnst shall be entitled to indemnification to the fullest extent provided to other officers and directors of the Company in accordance with the Certificate of Incorporation, Articles and By-Laws of the Company, but in no event less than the maximum extent permitted under Delaware law. Mr. Arnst will have no liability in his capacity as Executive Vice President and Chief Administrative Officer or in any other capacity contemplated by the Arnst Agreements to any of the Debtors, the Debtors' respective affiliates, and/or any of their respective creditors, shareholders, employees, officers and/or bankruptcy estates, and/or to any superseding trustee appointed with respect to any such estates (whether under Chapter 11 or Chapter 7), and/or any other person or entity for any claim, loss, cost or other damage of any nature, except only to the extent that such liability, claim, loss, cost or other damage is finally adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to have been caused by Mr. Arnst's gross negligence or willful misconduct (and any actions, omissions or other matters taken with Bankruptcy Court approval will conclusively be deemed not to constitute negligence, gross negligence or willful misconduct). Arguably, the Debtors say that entering into contractual arrangements with a chief administrative officer is within the ordinary course of the Debtors' business as contemplated by the Bankruptcy Code. Organizations routinely hire and terminate senior executives. The absence of such a chief administrative officer devoted to achieving a successful reorganization would severely hinder Debtors' ability to emerge from chapter 11 efficiently and effectively. However, the Debtors thought it more appropriate to file and notice the Motion because of the obvious significance and relevance of the Debtors' choice of chief administrative officer to the creditors and interested parties in these chapter 11 cases. Even if retaining a chief administrative officer is not considered to be within the ordinary course of business, the Debtors should be permitted to do so pursuant to sections 105 and 363(b) of the Bankruptcy Code. The Debtors tell Judge Walsh he should authorize the Debtors to employ and indemnify Mr. Arnst outside the ordinary course of business if the Debtors demonstrate a sound business justification for doing so. Once the Debtors articulate a valid business justification, "[t]he business judgment rule 'is a presumption that in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action was in the best interests of the company.'" Mr. Arnst clearly is qualified for the position for which he is being retained. The terms of his employment agreement and the indemnification agreement are necessary to induce him to accept employment with the Debtors and are in the best interests of the Debtors, their estates, creditors and all interested parties. Moreover, the Debtors have determined that the proposed terms of the Arnst Agreements are within the range of those for senior executive officers employed with companies of comparable size, value and reputation. In addition, the prepetition and postpetition lenders have approved the terms proposed in the Arnst Agreements. Accordingly, the Debtors' decision to enter into the Arnst Agreements consistent with the terms set forth herein reflects an exercise of the Debtors' sound business judgment. (Safety-Kleen Bankruptcy News, Issue No. 21; Bankruptcy Creditors' Service, Inc., 609/392-0900) SIERRA HEALTH: Lenders Waive Covenants re One-Time Charges ---------------------------------------------------------- Sierra Health Services Inc. (NYSE:SIE) reported that income for the third quarter of 2001 -- excluding charges relating to the termination of Texas Health Choice L.C. (TXHC) -- was $4 million, compared with $2.7 million, for the third quarter of 2000, and $2.8 million, sequentially. Charges totaling $11.6 million, net of tax effects, were taken during the quarter. Including the charges, net losses were $7.6 million, or 27 cents per share. Revenues for the third quarter were $376 million compared with $377 million for the same period in 2000. According to First Call, analysts had expected the company to post an average third quarter earnings per share of 12 cents. A mixture of cash and non-cash items comprise the quarter's one- time charge. Included are write-downs of all Texas-related assets, accruals for IBNR, receivables, operational contracts and expected higher medical costs for those members who choose to remain until the final exit date. Sierra expects to complete the run out of its Texas HMO operations by April of 2002. As Sierra has exceeded its debt reduction and cash flow goals to date, the company's syndicate of banks has waived covenant restrictions relating to the current one-time charges. No adverse impact to the existing line of credit is expected. The company's medical care ratio was 82.1 percent, an improvement of 120 basis points from the 83.3 percent reported in the third quarter of 2000. The general and administrative expense ratio was 10.2 percent, an increase of 110 basis points from the 9.1 percent reported in the comparable period in 2000. The increases were due largely to the offset of slightly higher military revenues in the third quarter of 2000. Cash flows from operations were $33.4 million. "I am extremely pleased with our continued progress," said Anthony M. Marlon, M.D., chairman and chief executive officer of Sierra. "Our core Nevada operations are outperforming expectations for the year, with new sales in Las Vegas increasing dramatically. Coupled with an excellent quarter for our military operations, we believe that our return to consistent profitability is on track." Same-store commercial membership in Nevada was 168,000, an increase of nearly 20 percent from the 143,000 reported in the third quarter of 2000, and a sequential improvement of 14 percent from 147,000. During the third quarter, the company added several large accounts in Las Vegas, including 14,000 new members affiliated with the Education Support Employees Association (ESEA). Sierra Military Health Services (SMHS) continues its positive trend with contributions to third quarter operating income of $2.6 million, compared with $1.5 million in the prior period. Consistent and timely settlements of contract change orders and health-care bid price adjustments have helped SMHS recognize positive cash flows for the fourth consecutive quarter. SMHS continues to reduce its accounts receivable balance with the Department of Defense, to $34.7 million from $40.4 million sequentially. Early in October, Sierra announced that it planned to exit the Texas market. As part of that plan, TXHC entered into an agreement with AmCare Health Plans Inc., a Houston-based health maintenance organization, to offer replacement coverage to all large and small groups covered by TXHC. The replacement coverage option should be available by early November and Sierra expects most of its nearly 30,000 affected commercial members to transition by the end of 2001. The company has also received approval from the Texas Department of Insurance to withdraw from the state in 180 days, effective April 17, 2002. "Despite our best efforts, the Texas operations continued to lose money," said Marlon. "Sustaining these losses was not possible and I could no longer justify the distraction from our core operations. I am extremely optimistic about the company's financial future now that we are fully focused on our more predictably profitable markets." Sierra Health Services Inc., based in Las Vegas, is a diversified health-care services company that operates health maintenance organizations, indemnity and workers' compensation insurers, military health programs, preferred provider organizations and multispecialty medical groups. Sierra's subsidiaries serve nearly 1.3 million people through health benefit plans for employers, government programs and individuals. As of June 30, the Company's cash amounts to $131.4 million while sort-term debt totals $186.1 million. For more information, visit the company's Web site at http://www.sierrahealth.com. STARTEC GLOBAL: New Shares Authorized to Firm-Up Debt Workout ------------------------------------------------------------- Startec Global Communications Corporation (OTC Bulletin Board: STGC.OB) announced that its stockholders have approved an increase in the Company's authorized common shares to 300 million. The Company is a facilities-based provider of Internet Protocol (IP) communications services, including voice, data and Internet access, which it markets to ethnic residential customers and to enterprises, international long-distance carriers and Internet service providers that communicate and transact with the world's emerging economies. Startec's Board of Directors proposed the increase in authorized common shares in connection with a preliminary and tentative agreement Startec has reached with certain of its bondholders on a plan to eliminate the entire $160 million of the Company's outstanding 12% Senior Notes due in 2008. Of the shares voted, 91 percent were in favor of the Board's proposal. The additional authorized shares give the Company the flexibility necessary to raise additional capital and to finalize and implement the proposed debt restructuring. Startec Global Communications is a facilities-based provider of Internet Protocol, or "IP", communication services, including voice, data and Internet access. Startec markets its services to ethnic residential customers located in major metropolitan areas, and to enterprises, international long-distance carriers and Internet service providers transacting business in the world's emerging economies. The Company provides services through a flexible network of owned and leased facilities, operating and termination agreements, and resale arrangements. The Company has an extensive network of IP gateways, domestic switches, and ownership in undersea fiber-optic cables. SUN HEALTHCARE: Court Okays Gazes to Prosecute Avoidance Actions ---------------------------------------------------------------- Sun Healthcare Group, Inc. obtained the approval of the Court to employ and retain Gazes & Associates LLP as special counsel to commence and prosecute certain avoidance actions. Hence, Gazes will be required to represent the Debtors as special counsel to commence and prosecute certain avoidance actions that are not commenced by RL&F. The Debtors covenant to take appropriate steps to avoid unnecessary and wasteful duplication of legal services among Gazes and RL&F. Gazes seeks compensation for legal services rendered in the Sun cases on a contingency basis, at the rate of 33 1/3% of the gross recoveries (inclusive of interest), plus expenses, on all avoidance actions filed by it in Sun's chapter 11 cases. The Debtors represents that such compensation is appropriate based upon the professional time to be spent by Gazes, the necessity of such services to the administration of the estate, the reasonableness of the time within which the services are to be performed in relation to the results achieved, and the complexity, importance and nature of the problems, issues, or tasks addressed in the Sun Healthcare cases. (Sun Healthcare Bankruptcy News, Issue No. 23 & 24; Bankruptcy Creditors' Service, Inc., 609/392-0900) SUNTERRA CORP: Will Make Adjustments to 2000 Earnings Statement --------------------------------------------------------------- Sunterra Corporation announced that it would make substantial adjustments to its unaudited retained earnings balance at December 31, 2000 as a result of adjustments to be made to the Company's unaudited financial statements for 2000 included in reports previously submitted to the bankruptcy court and filed with the Securities and Exchange Commission (under Form 8-K). The adjustments are the result of an internal review by the Company in conjunction with the preparation of its audited financial statements for the year ended December 31, 2000. The Company, which filed for reorganization under Chapter 11 of the Bankruptcy Code on May 31, 2000, has not issued audited financial statements for any period after the year ended December 31, 1999. Deloitte & Touche LLP was retained as the Company's independent auditor in March 2001. The Company said that the adjustments to its unaudited financial statements for 2000 relate principally to accounting policy changes, asset impairment resulting from the bankruptcy, various year-end closing adjustments and the correction of accounting errors. These adjustments for 2000 are expected to reduce the unaudited retained earnings balance at the end of the 2000 fiscal year by approximately $250 million. Determination of the final adjustment amount is subject to completion of the audit and issuance of the financial statements for 2000, expected to occur in 2002. Lawrence E. Young, the Company's Chief Financial Officer, said that as the Company completes the preparation of its audited 2000 and 2001 financial statements, additional adjustments may prove necessary and that the previously filed unaudited financial statements for periods in 2000 and 2001 should not be relied upon. Mr. Young noted that these accounting adjustments related to previously reported unaudited periods in 2000 and 2001 and did not impact the Company's current business or operations. Sunterra Corporation, the world's largest vacation ownership company, has over 80 resorts throughout North America, Europe, the Caribbean, Hawaii, Latin America and Asia. The Company also manages various condominium resorts and hotels in Hawaii and operates Club Sunterra, a points-based vacation system. The Company and certain of its affiliates continue to operate their businesses as debtors in possession under Chapter 11. The persons who are current senior management of the Company joined the Company after it filed for reorganization in May 2000. SWISSAIR: Seeking Options to Fund Salaries & Severance Benefits --------------------------------------------------------------- The Swissair Group is in the process of serving notice to many of its employees. Approximately 9,000 jobs will be eliminated world-wide, 4,500 of those will affect Switzerland. The financing of salaries (as of November) and severance benefits has not yet been secured for the affected employees of companies in "Nachlassstundung" administration and protection from creditors. The Swissair Group is intensively seeking solutions for the financing of these payments. Companies which are not in "Nachlassstundung" will be financing salaries during the notice period as well as severance benefits stipulated by contract out of the their current operation. The number of jobs to be eliminated in these companies in Switzerland are as follows: Gate Gourmet 300 SR Technics 800 Atraxis 460 Swissport Z�rich 250 others 112 The following companies are in 'Nachlassstundung'; and will reduce the number of jobs as follows: Swissair AG : Pilots 200 Flight Attendants 1,000 Ground personnel 540 Swisscargo 100 Cargologic 190 Flightlease 30 SAirGroup Corporate 410 The financing of the salaries during the notice period for these employees has explicitly not been provided for within the Phoenix Plus plan. Moreover, the court-appointed administrator decided not to consider the contracts of employment of these companies. This means that employees who are given notice by a company in "Nachlassstundung" and released from duties are entitled to salary payments and severance benefits. However, these payments can only be made after the completion of liquidation proceedings which is expected to last several years. These employees will therefore be compelled to claim unemployment benefit already in November. The Swissair Group has been working together intensively with the administrator, the government and banks since October 8, 2001 in an effort to find a solution to support these financial claims in a timely manner. Until now, no solution has been found. The Swissair Group management will do everything in their power to enable a fair solution for everyone. The Swissair Group is working together with Crossair in an effort to offer contracts of employment to as many employees as possible who can be employed in the new Swiss airline. No concrete solutions have been found in this situation either. Until now, potential employees belonging to this group have not yet been served notice. In addition, the administrator has also decided that he will not consider the financing of the "Option 96", a Swissair Group early retirement programme established in 1996. The Swissair Group is also intensively looking for financial solutions to support the claims of these former employees. The Swissair Group would like to thank all of their employees for the admirable loyalty and extraordinary commitment they have displayed during these difficult days of uncertainty. TIOGA TECHNOLOGIES: Falls Short of Nasdaq Listing Requirements -------------------------------------------------------------- Tioga Technologies (NASDAQ: TIGA) announced that on October 17, 2001 it received a Nasdaq Staff Determination indicating that it fails to comply with the minimum level of net tangible assets, stockholders' equity and minimum bid price required for continued listing on the Nasdaq National Market under Marketplace Rules 4450 (a)(3) and (5) and that its securities are, therefore, subject to delisting from The Nasdaq National Market. The Company has requested a hearing before a Nasdaq Listing Qualifications Panel to review the Staff Determination. There can be no assurance the Panel will grant the Company's request for continued listing. Should the request be denied, the Company's ordinary shares may trade on the Over The Counter- Bulletin Board (OTCBB) market following the delisting, if brokers are interested in making a market in the shares. In the event that the Company's appeal is denied, and Tioga's shares are delisted from the Nasdaq National Market within one year following their listing on the Tel Aviv Stock Exchange (TASE), they may also be delisted from the TASE, unless Tioga publishes a prospectus in Israel or otherwise satisfies the TASE listing requirements. Tioga Technologies Ltd. (NASDAQ: TIGA) is a leading provider of standard Ics for broadband communications with expertise in both systems and deployment. Tioga's digital subscriber line (DSL) ICs enable the digital transmission of voice, video and data over standard telephone lines. Tioga develops chips employing a range of DSL technologies including ADSL/G.lite, HDSL, SDSL, and VDSL. Tioga is headquartered in San Jose, California, and maintains its R&D center in Tel Aviv, Israel. For more information, visit the Company Web site at http://www.tiogatech.com TRI-NATIONAL: Case Summary & 20 Largest Unsecured Creditors ----------------------------------------------------------- Debtor: Tri-National Development Corp. 480 Camino Del Rio S., Sutie 140 San Diego, CA 92108 (619) 718-6370 Chapter 11 Petition Date: October 23, 2001 Court: Southern District of California (San Diego) Bankruptcy Case No.: 01-10964-JH Judge: John J. Hargrove Debtor's Counsel: Colin W. Wied, Esq. C. W. Wied Professional Corporation 501 West Broadway Suite 1780 San Diego, CA 92101-8567 Tel: (619) 338-4030 Fax: (619) 338-4022 Email: cww@cwwied.com Estimated Assets: $50 million to $100 million Estimated Liabilities: $10 million to $50 million Debtor's 20 Largest Unsecured Creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ Guy O. Keller IRA Promissory note $436,922 7120 Cypress Ln Charlotte, NC 28210-2469 (704) 643-5409 Villa Serena 1,200,000 shares $317,000 2043 Dairy Rd. of Debtor's stock (36,000 Attn: Eugenio Lopez now worth $36,000 secured) San Ysidro, CA 92173 (619) 690-3912 Commercial Money Center Judgment $265,757 Richard A. Solomon, Esq. 12555 High Bluff Dr., Ste. 260 San Diego, CA 92130 Harvey Burton Judgment $250,000 Investment Funding Associates 10920 SW 62 Ave. Miami, FL 33156 (305) 665-9960 George E. DeBlanc-IRA Promissory note $247,195 Larry Franklin K. Brown Promissory notes $241,099 Betty B. Brown- IRA Promissory notes $221,562 Samuel McNeil-IRA Promissory note $212,590 Albert J. Fabulich Promissory notes $195,163 Randall I. Williams TTEE Promissory note $192,713 Darlene L. Faustine Trust Promissory notes $156,713 Johanna F. Hollender Promissory notes $139,156 Norman H. McLaughlin Promissory notes $137,347 Arleigh M. Lee Promissory note $135,537 Brenda Wilson Promissory note $134,929 Hugo Cianciulli Promissory note $127,524 Lynn Olyha Faust Promissory note $127,819 Edmond L. Rey, Trustee Promissory notes $127,368 Roberta I. Backman- IRA Promissory note $124,058 Rudolph & Ruth Hardee Promissory notes $120,110 USG CORP: Lower SHEETROCK Prices Contribute to Low Net Earnings --------------------------------------------------------------- USG Corporation (NYSE: USG) reported third quarter 2001 net sales of $842 million and net earnings of $27 million. This compared with net sales of $956 million and net earnings of $65 million in the third quarter last year. This year's third quarter results benefited from the reversal of certain restructuring-related charges taken last year. The reversals increased net earnings by $7 million in the quarter. The decline in sales and earnings was primarily due to lower selling prices for SHEETROCK brand gypsum wallboard sold by USG's United States Gypsum Company subsidiary. Prices have fallen considerably over the past two years as the gypsum wallboard industry has added significant amounts of new capacity. Market conditions did improve somewhat during the third quarter as demand grew and some excess industry capacity closed, allowing the company to raise prices for the first time since the end of 1999. "The U.S. gypsum wallboard market was stronger in the third quarter than in the first half of the year," stated William C. Foote, USG Corporation Chairman, CEO and President. "As the leading domestic producer and distributor of gypsum wallboard, this was a plus for USG." Looking ahead, the Corporation is watching closely to see what happens to commercial construction and whether the strength in the housing market is sustainable. USG subsidiaries are major suppliers to both markets. There is definitely a slowdown underway in commercial construction and there have been some signs of softness in the housing market. "A slowdown in these markets would translate into lower levels of demand for USG products and cause renewed pressure on gypsum wallboard pricing, and on margins in USG's other businesses," said Foote. Net sales for the first nine months of 2001 were $2,474 million, versus net sales of $2,940 million for the same period in 2000. Net earnings for the first nine months were $25 million compared to $264 million for that period last year. North American Gypsum USG's North American gypsum business recorded net sales of $504 million and operating profit of $27 million in the third quarter. This compared with net sales and operating profit of $575 million and $78 million, respectively, in the third quarter last year. Significantly lower realized prices for this business's primary product, Sheetrock brand gypsum wallboard, more than offset the benefits of higher shipments and lower production costs for that product line, leading to the lower results. United States Gypsum Company realized third quarter 2001 net sales of $459 million and operating profit of $13 million. This compared with net sales and operating profit of $528 million and $64 million, respectively, in the third quarter last year. U.S. Gypsum's nationwide average realized price of wallboard was $82.25 per thousand square feet during the third quarter, 32 percent lower than the average of $121.13 achieved in the third quarter last year. Prices, which had fallen for six consecutive quarters, began to improve during the third quarter this year. Improved market conditions enabled the company to implement several price increases during the quarter leading to a 14 percent improvement in its average price compared to the second quarter this year. The average realized price in September was about $92 per thousand square feet compared with $68 per thousand square feet in June of this year. U.S. Gypsum shipped 2.7 billion square feet of Sheetrock brand gypsum wallboard in the third quarter. This is an all-time record level of shipments, and 10 percent more than in the third quarter of 2000. For the first nine months this year, shipments totaled 7.4 billion square feet, up 7 percent from the same period last year. U.S. Gypsum's wallboard plants operated at 97 percent of capacity in the third quarter compared to 93 percent last year. The company estimates that the industry as a whole operated at 86 percent of capacity during the quarter. The gypsum business of Canada-based CGC Inc. reported third quarter 2001 net sales of $53 million which equaled last year's third quarter. Operating profit of $6 million declined from $9 million in last year's third quarter. Net sales for CGC were unchanged as increased shipments of wallboard offset the impact of lower realized selling prices. Operating profit declined due to the combination of lower prices and higher unit costs for wallboard. Worldwide Ceilings USG's worldwide ceilings business recorded net sales of $168 million and operating profit of $10 million in the third quarter. This compared with net sales and operating profit of $183 million and $18 million, respectively, in the third quarter of 2000. The results reflect weakness in market conditions for ceiling products worldwide, as the slowdown experienced previously in international markets spread to North America. USG's domestic ceilings subsidiary, USG Interiors, had operating profit of $9 million in the third quarter, compared with $17 million in the third quarter last year. Lower shipments of both ceiling tile and grid products were the primary reason that operating profit declined. Work on many major commercial construction projects slowed during the quarter, and some were suspended indefinitely, as job cutbacks and a slowing economy lessened the need for new or renovated office and retail space. The ceilings business of Canada-based CGC contributed $2 million in operating profit, $1 million higher than last year. USG International had a loss of $1 million, compared to a breakeven performance in the third quarter of 2000. Building Products Distribution L&W Supply, USG's building products distribution subsidiary, reported third quarter 2001 net sales of $294 million, compared to $346 million in the same period a year ago. The decline in revenues was almost entirely due to significantly lower selling prices for wallboard, its largest single product line. Operating profit for L&W Supply was $16 million in the quarter versus $33 million in the third quarter of 2000. The decline in profitability was largely due to lower margins on gypsum wallboard sales, as well as reduced sales and margins on complementary building products. As of September 30, 2001, L&W operated 189 locations in the U.S. distributing a variety of gypsum, ceiling and other related building materials. Other Consolidated Information Third quarter 2001 selling and administrative expenses decreased $4 million, or 5 percent, year-over-year, principally due to lower levels of expenses for marketing programs and travel. Selling and administrative expenses were 8.2 percent of net sales in the third quarter, which was the same rate experienced for all of 2000. Capital expenditures for the third quarter and first nine months of 2001 were $18 million and $75 million, respectively. Expenditures for the same periods last year were $78 million and $310 million. Capital spending is lower in 2001 due to the completion of a major strategic investment program. For the third quarter, USG's Chapter 11 reorganization expenses reflected $2 million of interest income earned by the USG companies in Chapter 11, offset by $1 million of legal and financial advisory fees. Under SOP 90-7, interest income earned on cash accumulated as a result of the Chapter 11 filing is recorded as an offset to Chapter 11 reorganization expenses. During the quarter USG reversed $9 million of previously recorded restructuring reserves to reflect changes from previous estimates for, and the scope of, restructuring activities undertaken. Additionally, USG reversed restructuring-related inventory reserves totaling $3 million to cost of products sold because the sale or use of certain affected inventory exceeded expectations. These two items had the effect of increasing operating profit by $12 million and net earnings by $7 million in the quarter. As of September 30, 2001, USG had $395 million of cash and cash equivalents on hand, up from $304 million as of June 30, 2001, and $70 million as of December 31, 2000. There have been no borrowings on the company's debtor-in-possession (DIP) financing facility. USG and its principal domestic subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in Delaware on June 25, 2001. This action was taken to resolve asbestos-related claims in a fair and equitable manner, to protect the long-term value of their businesses and to maintain their leadership positions in their markets. USG Corporation is a Fortune 500 company with subsidiaries that are market leaders in their key product groups: gypsum wallboard, joint compound, cement board and related gypsum products; ceiling tile and grid; and building products distribution. For more information about USG Corporation, visit the USG home page at http://www.usg.com UNITED AIRLINES: Flight Attendants Call For Goodwin Replacement --------------------------------------------------------------- United Airlines flight attendants continue to send letters to the airline's Board of Directors asking them to save the venerable airline and replace CEO Jim Goodwin before more damage is done. The following statement was issued Friday by flight attendant representative Linda Farrow, president of the United Master Executive Council of the Association of Flight Attendants, AFL- CIO. "Flight attendants began calling for Goodwin to step down over a week ago. The IAM has now made their wishes clear that it's time for a new leader for our airline. That means an overwhelming majority of United Airlines' employees have lost faith in our CEO. "Employee relations are at an all-time low. For Goodwin to continue as our company's leader would further hurt employee morale, and we need every employee working to fix the problems created by current management and the disastrous events of September 11. "Our airline has been dramatically hurt by current management's focus on making deals -- the failed merger with US Airways, the multi-million dollar funding and creation of NewVentures and its subsequent purchase of MyPoints.com, and the creation of Avolar -- that have taken the focus from the business of running the airline. If history is our best teacher, then Goodwin has failed that subject, as well. He should have learned from former United CEO Richard Ferris' failed experiment with Allegius in the mid 1980's that changed the airline's focus and made running the greatest airline in the world secondary to the pursuit of other business ventures, including the purchase of Hertz and Westin Hotels. "When Goodwin took the reins, our airline was poised as the strongest, biggest, and best airline in the world. Now we're the laughing stock of Wall Street. The perception is we're a company with no direction, as evidenced by our stock and bond ratings. "Flight attendants have been writing letters to the UAL Board of Directors over the past week, asking for Goodwin to be replaced. We now call on the Board to take advantage of the fact that they're meeting, and get the process of finding a replacement moving forward now." The letters flight attendants are sending to UAL's Board can be seen at http://www.unitedafa.org More than 50,000 flight attendants, including the 26,000 United flight attendants, join together to form AFA, the world's largest flight attendant union. Visit at http://www.afanet.org UNITRONIX: Must Seek Financing Options to Ensure Continuance ------------------------------------------------------------ Unitronix Corporation does not have adequate cash reserves to meet its future cash requirements. The Company is seeking to raise additional working capital through debt or equity financing. The Company's ability to continue as a going concern will depend upon successful completion of such financing and on its ability to market its inventory. The Company does not expect to have to purchase any property or equipment over the next year that cannot be financed in the ordinary course of business. Total revenue for the year decreased by 31% from the year ended June 30, 2000 to the year ended June 30, 2001. Revenue from software related services decreased by 33% as customers continue to migrate to other ERP systems, thus eliminating their need for PRAXA maintenance and support services. Management expects the migration of PRAXA users to other systems to continue. The sale of tenement maps and related services by EnerSource Mapping, Inc., formerly a majority owned subsidiary of the Company that started operating on February 1, 2000, contributed approximately $26,000 to fiscal year 2001 revenues, an 18% decrease from the previous fiscal year. The Company's interest in this subsidiary was sold to the minority shareholder in April, 2001. The Company sustained a loss from operations of $211,006 in fiscal year 2001 as compared with a loss from operations of $331,522 in fiscal 2000, primarily due to its 31% decrease in revenues. Interactive Mining Technologies and its majority- owned subsidiary, EnerSource Mapping, experienced a loss from operations of approximately $215,000, while the PRAXA software business recorded an operating profit of $3,500. The Company realized a nonrecurring, non-operating gain of $214,286 from the sale of IMT's interest in Enersource Mapping, Inc. This gain is a partial recovery of the funds that the Company and its shareholders had invested in the start-up and ongoing operation of Enersource Mapping, Inc. W.R. GRACE: Equity Panel Hires Kramer Levin as Lead Counsel ----------------------------------------------------------- The Official Committee of Equity Holders of W. R. Grace & Co. asks Judge Farnan to approve their employment of the law firm of Kramer Levin Naftalis & Frankel LLP as the Committee's counsel, retroactively to the Committee's formation on July 18, 2001. The Committee states that Kramer Levin is expected to render such legal services as the Committee may consider desirable to discharge the Committee's responsibilities and further the interests of the Committee's constituents in these cases. In addition to acting as primary spokesman for the Committee, it is expected that Kramer Levin's services will include, without limitation, assisting, advising and representing the Committee with respect to the following matters: (a) The administration of these cases and the exercise of oversight with respect to the Debtors' affairs including all issues arising from the Debtors, the Committee or these Chapter 11 cases; (b) Preparation on behalf of the Committee of necessary applications, motions, memoranda, orders, reports and other legal papers; (c) Appearances in Court, appearances at statutory meetings of creditors, and appearances at other meetings, as necessary to represent the interests of the Committee; (d) The negotiation, formulation, drafting and confirmation of a plan or plans of reorganization and matters related thereto; (e) Such investigation, if any, as the Committee may desire concerning, among other things, the assets, liabilities, financial condition and operating issues concerning the Debtors that may be relevant to these Chapter 11 cases; (f) Such communication with the Committee's constituents and others as the Committee may consider desirable in furtherance of its responsibilities; and (g) The performance of all of the Committee's duties and powers under the Bankruptcy Code and the Bankruptcy Rules and the performance of such other services as are in the interests of those represented by the Committee. Kramer Levin has indicated its willingness to serve as counsel to the Committee and to receive compensation and reimbursement in accordance with its standard billing practices for services rendered and expenses incurred on behalf of the Committee, in accordance with the provisions of the Bankruptcy Code or as otherwise ordered by the Court. The firm's billing practices and rates are consistent with those generally governing Kramer Levin's representation of its other clients. The principal attorneys expected to represent the Committee in this matter and their current hourly rates are: Professional Hourly Rate ------------ ----------- Thomas Moers Mayer $515 Philip Bentley $425 Robert T. Schmidt $425 Catherine Finnerty $325 Amy Caton $280 In addition, other attorneys and paraprofessionals may from time to time provide services to the Committee in connection with these bankruptcy proceedings. The range of Kramer Levin's hourly rates for Kramer Levin's attorneys and legal assistants is as follows: Partners $400-$575 Counsel $420-$575 Associates $200-$410 Legal Assistants $140-$165 Mr. Mayer, a member of the firm, avers to Judge Farnan that he and the firm are disinterested parties who neither hold nor represent any interest adverse to the Committee or these estates in the matters for which approval of employment is sought. However, in the interests of full disclosure, Mr. Mayer advises Judge Farnan that in connection with this proposed retention, he caused the names of the Debtors, their principals, their subsidiaries, the significant creditors of the Debtors and other significant parties to be input into Kramer Levin's conflict check database to determine whether Kramer Levin has connections to such parties and if so, whether such connections relate in any way to the proposed representation of the Committee in this case. In addition, the list of such parties was circulated by electronic mail to all Kramer Levin attorneys to determine whether any attorney has any relationship with any such party. Based on this review process, it appears that Kramer Levin does not hold or represent an interest that is adverse to the Debtors' estates and is a disinterested person who does not hold or represent any interest adverse to and has no connection (subject to the disclosures set forth below) with the Debtors herein, their creditors or any party-in-interest herein in the matters upon which Kramer Levin is to be retained. Accordingly, Mr. Mayer believes Kramer Levin to be a "disinterested person" within the meaning of the Bankruptcy Code, subject to the following disclosures: (a) Kramer Levin was retained by Peninsula Partners, L.P., an entity that is now a member of the Committee, both prior to and in connection with matters relating to the Debtors' chapter 11 cases. Peninsula has released Kramer Levin from its [obligation] to represent it individually in order for Kramer Levin to serve as counsel to the Committee. In connection with the representation of Peninsula, Kramer Levin believes it may have completed legal work that is necessary to and will benefit the estates and, accordingly, Kramer Levin reserves its right to request compensation for those services on an administrative expense basis. In addition, Kramer Levin does not believe that it is not disinterested because of its prior representation of Peninsula. (b) In matters unrelated to the Debtors, Kramer Levin has represented creditor committees in the past where certain creditors of the Debtors were members of the committee or were bondholders of the debtors in those cases. These were: The Bank of America, The Bank of New York, Credit Lyonnais, Credit Suisse First Boston and First Union Bank (Official Committee of Unsecured Creditors of Recycling Industries, Inc. and the Official Committee of Unsecured Creditors of Edison Brothers Industries, Inc.). (c) In matters unrelated to the Debtors, Kramer Levin currently represents a 47-member bank group in the chapter 11 case of Owens Coming Corp. The following members of the Owens Coming Bank Group are creditors of the Debtors: The Bank of America, The Bank of New York, Barclays Bank, PLC, Chase Manhattan Bank, Citibank, N.A., Credit Lyonnais, Credit Suisse First Boston, and J.P. Morgan Securities Inc. (d) In matters unrelated to the Debtors, Kramer Levin represents or has represented BNP Paribas (formerly known as Banque Paribas) that participated in, or served as agent bank for, loans in which some banks and financial institution that are creditors of W.R. Grace also served as participants or agent bank, including the following: The Bank of America (participant), The Bank of New York (agent bank), Chase Manhattan Bank (participant), Credit Lyonnais (agent bank), Dresdner Bank (participant), and J.P. Morgan (participant). (e) Kramer Levin formerly represented Wells Rich Green, an advertising agency, in a litigation with a landlord concerning a dispute over restoration costs for the premises upon termination of the lease. The restoration costs included asbestos abatement expenses. The landlord of the premises commenced a separate action and received a judgment against W.R. Grace for the costs of asbestos removal. Wells Rich Green was not a party to the landlord's action. (f) In matters unrelated to the Debtors, Kramer Levin represents or has represented the following creditors of the Debtors or affiliates: The Bank of America (corporate matters, creditors' rights), The Bank of New York (corporate and litigation matters), Bank of Nova Scotia (tax matters), Barclays Bank (corporate matters; bank group), Chase Manhattan Bank (corporate and trust matters), Citibank N.A. (intellectual property, corporate, trust, litigation and tax matters), Citibank International PLC (financing matter), CNA Insurance Co. (litigation matters),Credit Lyonnais (corporate matters), Credit Suisse First Boston Corp. (litigation matters), and HSBC (corporate matters). (g) As part of its practice, Kramer Levin routinely represents buyers and sellers of distressed debt and securities. Kramer Levin has not represented any client in connection with the purchase or sale of the Debtors' bonds and/or debt. One or more clients of the firm may now or later purchase secured or unsecured claims against one or more Debtors. Kramer Levin believes that its representation of such parties in matters unrelated to the Debtors will have no effect on its representation of the Committee in these proceedings. Of course, Kramer Levin will not represent any bank or other entity in the purchase or sale of any debt or securities of the Debtors during Kramer Levin's representation of the Committee herein. (h) The Debtors have numerous creditors and other parties-in-interest. Kramer Levin may have in the past represented, and may presently or in the future represent or be deemed adverse to, creditors or parties-in-interest in addition to those specifically disclosed herein in matters unrelated to these cases. Kramer Levin believes that its representation of such creditors or other parties in such other matters has not and will not affect its representation of the Committee in these proceedings. Mr. Mayer warns that Kramer Levin is a full service law firm with very active creditors' rights, real estate, intellectual property, corporate and litigation practices. Kramer Levin appears in cases, proceedings and transactions involving many different attorneys, accountants, financial consultants and investment bankers, some of which now or may in the future represent claimants or parties in interest in these cases. Kramer Levin has not and will not represent any of such entities in relation to the Debtors in these chapter 11 cases nor have any relationship with any such entity, attorneys, accountants, financial consultants, and investment bankers winch would be adverse to the Committee, the Debtors or their estates. Judge Farnan authorizes this employment retroactively to July 18, 2001. (W.R. Grace Bankruptcy News, Issue No. 13; Bankruptcy Creditors' Service, Inc., 609/392-0900) WHEELING-PITTSBURGH: Wants Third Extension of Exclusive Periods --------------------------------------------------------------- Wheeling-Pittsburgh Steel Corp., the Official Committee of Unsecured Noteholders, and the Official Committee of Unsecured Trade Creditors, present Judge Bodoh with a second stipulation and agreed order extending the time period within which the Debtors may exclusively file a plan of reorganization to and including November 2, 2001, and the time period in which only the Debtor may solicit acceptances of the plan to and including January 2, 2001. By this stipulation, the time periods for the Committees to object or respond to the Debtors' Motion is continued to October 29, 2001. A hearing on the Debtors' Motion is continued to November 1, 2001, at 1:30 p.m. in Youngstown. (Wheeling- Pittsburgh Bankruptcy News, Issue No. 12; Bankruptcy Creditors' Service, Inc., 609/392-0900) * BOND PRICING: For the week of October 29 - November 2, 2001 ------------------------------------------------------------- Following are indicated prices for selected issues: Amresco 9 7/8 '05 24 - 26(f) Asia Pulp & Paper 11 3/4 '05 24 - 26(f) AMR 9 '12 90 - 91 Bethelem Steel 10 3/8 '03 6 - 8(f) Chiquita 9 5/8 '04 77 - 79(f) Conseco 9 '06 52 - 54 Global Crossing 9 1/8 '04 17 - 19 Level III 9 1/8 '04 42 - 44 McLeod 11 3/8 '09 28 - 30 Northwest Airlines 8.70 '07 72 - 74 Owens Corning 7 1/2 '05 35 - 37(f) Revlon 8 5/8 '08 42 - 44 Royal Caribbean 7 1/4 '18 62 - 64 Trump AC 11 1/4 '06 62 - 64 USG 9 1/4 '01 72 - 74(f) Westpoint 7 3/4 '05 32 - 34 Xerox 5 1/4 '03 80 - 82 ********* Bond pricing, appearing in each Monday's edition of the TCR, is provided by DLS Capital Partners in Dallas, Texas. A list of Meetings, Conferences and Seminars appears in each Wednesday's edition of the TCR. Submissions about insolvency- related conferences are encouraged. Send announcements to conferences@bankrupt.com. Each Friday's edition of the TCR includes a review about a book of interest to troubled company professionals. All titles are available at your local bookstore or through Amazon.com. Go to http://www.bankrupt.com/books/to order any title today. For copies of court documents filed in the District of Delaware, please contact Vito at Parcels, Inc., at 302-658-9911. For bankruptcy documents filed in cases pending outside the District of Delaware, contact Ken Troubh at Nationwide Research & Consulting at 207/791-2852. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Trenton, NJ USA, and Beard Group, Inc., Washington, DC USA. Yvonne L. Metzler, Bernadette C. de Roda, Ronald P. Villavelez and Peter A. Chapman, Editors. Copyright 2001. All rights reserved. ISSN: 1520-9474. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR subscription rate is $575 for 6 months delivered via e- mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. For subscription information, contact Christopher Beard at 240/629-3300. *** End of Transmission ***