/raid1/www/Hosts/bankrupt/TCR

/raid1/www/Hosts/bankrupt/TCR_Public/020212.mbx T R O U B L E D C O M P A N Y R E P O R T E R Tuesday, February 12, 2002, Vol. 6, No. 30 Headlines ADELPHIA BUSINESS: Myron Kaplan Discloses 5.2% Equity Stake AETNA INDUSTRIES: Case Summary & 20 Largest Unsecured Creditors ARMSTRONG HOLDINGS: Seeks to Expunge Asbestos-Related PD Claims BETHLEHEM STEEL: Plan Filing Exclusive Time Extended to July 31 BLOUNT INC: Weak Financial Profile Prompts S&P to Lower Ratings BURLINGTON: Court Approves Miscellaneous Asset Sale Procedures CARMIKE CINEMAS: S&P Lifts Default Rating Following Emergence CHARMING SHOPPES: S&P Assigns BB- to $375MM Senior Secured Loan CIENA CORP: S&P Revises Outlook to Negative as Revenues Fall COMDISCO INC: Court Okays Mr. Fortgang as Committee's Counsel COVENTRY HEALTH: Offers 8-1/8% Notes to Buy Principal's Stake EINSTEIN/NOAH: Plan Confirmation Hearing Set for March 26, 2002 ENRON CORP: Court Moves Lease Decision Deadline to Year-End ENRON: Law Firm Probes Citigroup's Sale of Credit Linked Notes EXODUS: Committee Gets OK to Hire Pachulski Stang as Co-Counsel FEDERAL-MOGUL: Wants Professor McGovern Appointed as Mediator FLORSHEIM GROUP: Fails to Meet Nasdaq Listing Requirements GLENOIT CORP: Asks Court to Further Extend Exclusive Periods GLOBAL CROSSING: Gets OK to Pay Prepetition Foreign Obligations HARVARD SCIENTIFIC: Inks Deal to Acquire Smart Access Assets IBIZ TECHNOLOGY: Completes Convertible Debentures Restructuring ICG COMMS: DIP Lenders Agree Continued Use of Cash Collateral ICH CORPORATION: Look for Schedules & Statements Around April 6 INSILCO HOLDINGS: Taps Gleacher to Review Strategic Alternatives IT GROUP: Seeks Approval of $6 Million Shaw Group Break-Up Fee INTEGRATED HEALTH: Butler Note Purchase Price Settlement Okayed KMART CORP: Court Okays Trumbull's Appointment as Claims Agent KNOWLES ELECTRONICS: Renegotiates Bank Covenants with Lenders LTV CORP: Retirees Get OK to Hire Watson Wyatt as Consultants LERNOUT & HAUSPIE: Rejecting Dictaphone Employee Pension Plan LOG ON AMERICA: Settles Remaining Preferred Holders' Claims MCLEODUSA INC: Will Be Honoring Prepetition Employee Obligations MERISTAR HOSPITALITY: Completes $200 Million Senior Notes Offer METALS USA: Court Okays Salisbury & Newark Asset Sales to Wells METATEC INT'L: Inks New Long-Term Financing Pact with Bank Group MOONEY AIRCRAFT: Court Allows AASI to Take Over Management NATIONAL GOLF: Lenders Forbear Defaults Under Credit Agreement NATIONSRENT: Committee & UST Balk At Zolfo's $2.5MM Success Fee OWENS CORNING: Seeks Six-Month Exclusivity Extension PHAR-MOR INC: Net Loss Tops $7.8 Million in 2002 2nd Quarter PINNACLE HOLDINGS: S&P Junks Ratings on Likely Bankruptcy Filing PRANDIUM INC: Unit Bolts on Deal to Sell Hamlet Group to Othello PSINET INC: Court Extends Exclusive Plan Filing Time to April 30 RELIANCE GROUP: Obtains 90-Day Extension of Exclusive Periods ROUGE INDUSTRIES: Working Capital Deficit Tops $42MM in Q4 2001 SAFETY-KLEEN: Wants to Expand Arthur Andersen's Audit Engagement SAKS INC: Comparable Store Sales Rise 2.1% in January SHILOH INDUSTRIES: S&P Cuts Ratings Citing Near-Term Concerns STOCKWALK GROUP: Files Chapter 11 Petition with Prepackaged Plan SUN HEALTHCARE: Court Okays Ernst & Young as Debtors' Advisors TESORO PETROLEUM: Fitch Places Debt On Rating Watch Negative TRANSCOM: Union Urges SEC to Probe Comfort Systems Board Member TRISM INC: Sells Assets & Leases to Bed Rock & Tri-State Prop. VELOCITY EXPRESS: No Date Yet for Special Shareholders' Meeting WARNACO GROUP: Wins Nod to Auction Surplus Cut & Sew Equipment WEBB INTERACTIVE: Sells 1.1 Million Shares to Jona for $1.1MM WHEELING-PITTSBURGH: Gets OK to Borrow $5M from State of Ohio ********* ADELPHIA BUSINESS: Myron Kaplan Discloses 5.2% Equity Stake ----------------------------------------------------------- Mr. Myron M. Kaplan is the beneficial owner of 7,005,133 shares of the common stock of Adelphia Business Solutions, Inc., which amount constitutes approximately 5.2% of the total number of shares of common stock outstanding. This is based on Adelphia's Information Statement to Stockholders dated January 8, 2002, which reflected 134,517,284 shares outstanding. Mr. Kaplan has sole power to vote, or direct the voting of, and sole power to dispose of, or direct the disposition of these shares. Adelphia Business Solutions (ABIZ), formerly Hyperion Telecommunications, is building a fiber-optic network to provide integrated communications services to businesses, institutions, and other telecom service providers. The company offers local and long-distance phone service, broadband Internet access, and data networking services. As a result of the economic downturn that hit the telecom industry, ABIZ has cut back on its plan to expand nationally. It reduced its workforce by 8% and sold assets in four states to its parent company, Adelphia Communications, which has announced plans to spin off the 79%- owned subsidiary to Adelphia shareholders. At September 30, 2001, the company reported a working capital deficiency of close to $30 million. AETNA INDUSTRIES: Case Summary & 20 Largest Unsecured Creditors --------------------------------------------------------------- Debtor: Aetna Industries, Inc. a.k.a. Aetna Manufacturing Canada, Ltd. 24331 Sheerwood Ave. PO Box 3067 Centerline, MI 48015 Bankruptcy Case No.: 02-10418 Type of Business: The Company is a leading direct supplier of high quality modules, welded subassemblies and chassis parts used as original equipment components in the North American automobile industry. Chapter 11 Petition Date: February 11, 2002 Court: District of Delaware Judge: Peter J. Walsh Debtors' Counsel: Mark Minuti, Esq. 222 Delaware Ave, Suite 1200 P.O. Box 1266 Wilmington, DE 19899 302 421-6840 Fax : 302 421-5873 Estimated Assets: more than $100 million Estimated Debts: more than $100 million Debtor's 20 Largest Unsecured Creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ Wells Fargo Bank Minnesota, Senior Notes $93,700,000 N.A. Lon LeClair Corporate rust Services Sixth & Marquette: N9303-120 Minneapolis, MN 55479 Tel: 612 667 4803 Daimler-Chrysler Trade Debt $5,997,350 Sarah Abraham 800 Chrysler Drive West Auburn Hills, MI 48325 Tel: 248 576 5741 General Motors Corp. Trade Debt $2,883,522 Michail Duffield Corporate Material Brokering PO Box 78000, Dept 78095 Detroit, MI 48278 Tel: 989 757 7205 Shiloh Industries, Inc. Trade Debt $673,739 Thomas Dugan 5389 West 130th Street Cleveland, OH 44130 Tel: 734 454 4000 Manufacturers Products Trade Debt $633,822 Michael MaGee Department # 114201 PO Box 67000 Detroit, MI 48267 Tel: 810 755 0097 E&E Manufacturing Co. Inc. Trade Debt $616,597 Rose Mary c/o New Liberty Bank PO Box 6447 Plymouth, MI 48170 Tel: 734 457 7600 Treasurer, City of Taxes $386,348 Centerline Kim 7070 E. Ten Mile Road Centerline, MI 48015 Tel: 810 757 6800 Armo-Tool Ltd. Trade Debt $349,353 Danille Herman 9827 Longswoods Road R.R. # 32 London, ON NSP 1 Canada Tel: 513 652 3700 Gleason Holbrook Mfg. Co. Trade Debt $328,332 Don Gleason 36435 Groesbeck Highway Clinton Twp., MI 48035 Tel: 810 791 2320 Ace Packaging systems, Inc. Trade Debt $397,548 Heather Weahue 3746 Collection Center Drive Chicago, IL 60693 Tel: 734 586 9800 11 Powerlasers Limited Trade Debt $318,978 Phil Longaphil 55 confederation Parkway Concord, Ontario L4K4Y Canada Radar Industries Trade Debt $264,866 Rochelle Melcher 28101 Groesbeck Hwy. Roseville, MI 48066 Tel: 810 779 0300 MST Steel Corporation Trade Debt $243,299 Marwood Metal Trade Debt $195,550 Fabrication Limited Detroit Electro-Coating, Trade Debt $193,776 LLC General Electric Capital Trade Debt $188,747 City of Sterling Heights Taxes $176,890 City of Warren Treasurer Taxes $163,050 Melaldyne Trade Debt $149,108 Universal Engineering Trade Debt $129,054 Stamping Limited ARMSTRONG HOLDINGS: Seeks to Expunge Asbestos-Related PD Claims --------------------------------------------------------------- Armstrong Holdings, Inc., and its debtor-affiliates bring an Omnibus Objection to certain asbestos-related property damage claims brought against one or more of the Debtors. The Debtors say that Nitram and Desseaux have no history with asbestos- containing products, and no asbestos-related claims (personal injury or property damage) have been asserted against them as of the Petition Date. Therefore, the primary objector here is AWI. The Debtors ask Judge Newsome to disallow and expunge these asbestos PD claims without prejudice to the Debtors' right to object to any of these claims on any other ground whatsoever. In support of its Objection, AWI repeats its oft-stated claims that its floor-covering products, while containing asbestos, are non-friable and therefore not harmful, and further that there have been very few asbestos-related property damage claims made, and none with merit. When the Debtors filed their Schedules, they listed approximately 182,584 claims, of which only 6 were identified by the Debtors as arising out of or relating to asbestos-related property damage, and all of these were classified by the Debtors as contingent, disputed and unliquidated. The Debtors object to allowance of any of these proofs of claim and ask Judge Randall Newsome to disallow and expunge them in their entirety: Claimant Claim Amount -------- ------------ Division St. Account $5,000,000 Marc Associates $1,000,000 Water St. Associates $1,000,000 Ameritech, Inc. $5,000,000 Banc One $120,000,000 Comerica Bank $12,000,000 Detroit Edison Co. $30,000 Hall Financial Group $15,000,000 Huron View Properties $250,000 Mt. Ebo Venture $1,000,000 Building Co. $500,000 Park Shelton Apartments $1,000,000 Pine & Kearney JV $1,000,000 Port Huran Office Center LLP $1,000,000 Ramco-Gershenson, Inc. $10,000,000 Russ Building Joint Venture $1,000,000 Safeway-Willard Venture $1,000,000 Seven Hanover Associates $1,000,000 Consumers Energy Co. $20,300,000 TG Apartments, LLC $250,000 TG Canton, Inc., & Cherry Hill Condominium Association $250,000 TG Kalamazoo, LLC $250,000 TG Land LLC $250,000 TG Marsham Inc. $250,000 TG Midland LLC $250,000 TG Properties, Inc. $250,000 TG Warren, Inc. $500,000 The Tobin Group $500,000 Trizechaen Office Properties, Inc. $25,000,000 Wayne County $50,000,000 Wezler-Arnon Investment Co. dba Home Depot $1,200,000 Weiler-Benenson 4th Avenue Venture $1,000,000 All of these claimants are represented by Phillip J. Goodman, PC, of Birmingham, Michigan. In addition, the Debtors object to the proofs of claim of: Claimant Claim Amount -------- ------------ California Dept. of General Services $150,650,000 California Dept. of General Services $56,680,000 California Dept. of General Services $150,580,330 Commonwealth of Pennsylvania $42,000,000 State of Louisiana $102,823,663 New York City Housing Authority Unliquidated State of New York Unliquidated Otter Tail Power Company Unliquidated Sealing Equipment Unliquidated State of Kansas Unliquidated University of Pennsylvania $500,000 State of Washington $22,241,842 State of Wyoming $385,720 (Armstrong Bankruptcy News, Issue No. 17; Bankruptcy Creditors' Service, Inc., 609/392-0900) BETHLEHEM STEEL: Plan Filing Exclusive Time Extended to July 31 --------------------------------------------------------------- Judge Lifland extended Bethlehem Steel's exclusive period within which to file a plan until July 31, 2002 and its exclusive period during which to solicit acceptances of that plan through September 30, 2002. (Bethlehem Bankruptcy News, Issue No. 10; Bankruptcy Creditors' Service, Inc., 609/392-0900) BLOUNT INC: Weak Financial Profile Prompts S&P to Lower Ratings --------------------------------------------------------------- Standard & Poor's lowered its corporate credit, senior secured, and subordinated debt ratings on Blount Inc. At the same time, all the ratings were removed from CreditWatch where they were placed October 25, 2001. The outlook is negative. In addition, Standard & Poor's affirmed its bank loan rating on Blount. The company's bank loan is now rated one notch higher than the corporate credit rating, reflecting the facility's senior secured and first priority claim status offering reasonable recovery prospects. The company's $150 million senior secured notes are now rated two notches below the corporate credit rating. The senior notes share equally and ratably in only certain of the assets relative to the bank facility, which has a first priority claim on the company's current assets. Therefore the notes would be in a disadvantaged position in a default situation and full recovery prospects would be unlikely. The downgrades reflect Blount's very weak financial profile, which offsets its strong position for outdoor products, and decent position for industrial products. The rating actions take into account the recent sale of the company's Sporting Equipment Group (SEG), which helped reduce debt, however, the company's debt burden remains onerous, not withstanding the sale. Additionally, Standard & Poor's expects credit protection measures to remain weak over the intermediate term. Blount is the world's largest producer of saw chains and chain- saw guide bars, and a leading producer of forestry equipment. Blount's operating income is down due to the soft pulp and paper markets and depressed timber/industrial equipment markets. Operating income for the first nine months of 2001 was about $64 million (on a pro forma basis, adjusting for the sale of SEG) compared with around $80 million in 2000. As a result, credit protection measures are very weak, with total debt to EBITDA of around 7.5 times and interest coverage slightly above 1x. During 2001, management continued to focus on improving profitability and cash flow by reducing headcount, delaying capital spending, closing facilities, and selling assets. On December 7, 2001, Blount completed the sale of SEG to Alliant Techsystems Inc. for gross proceeds of about $235 million. The company used the proceeds to reduce bank debt by about $170 million. Total debt as of September 2001 was around $880 million. In addition, the company amended its bank credit facility and revised its bank covenants to reflect the sale of SEG. Although Blount's financial flexibility and liquidity have improved due to the recent asset sale, credit measures remain very stretched. Blount's credit measures are expected to remain weak over the intermediate term with total debt to EBITDA in the 7x area and interest coverage in the 1.0x-1.5x range. The bank credit facility is secured by substantially all of the company's assets, offering reasonable prospects for recovery. The company's cash flows were significantly discounted to simulate a default scenario and capitalized at an EBITDA multiple reflective of the market. Under this simulated downside case, collateral value is expected to be sufficient to cover the fully drawn bank facility if a payment default were to occur. Outlook: Negative Blount is expected to improve operating results and cash flow generation as cost savings are realized, and the company's end markets stabilize or improve. Failure to improve operating results, realize cost savings, or a further weakening in the company's end markets could result in increasing liquidity pressures and additional downgrades. Ratings Lowered, Off CreditWatch Blount Inc. TO FROM Corporate credit rating B- B Senior secured debt CCC B Subordinated debt CCC CCC+ Rating Affirmed, Off CreditWatch Blount Inc. Bank loan rating B BURLINGTON: Court Approves Miscellaneous Asset Sale Procedures -------------------------------------------------------------- Burlington Industries, Inc., and its debtor-affiliates obtained Court's approval of uniform procedures to complete asset sales falling within certain specified economic parameters. "The Debtors propose to utilize the Miscellaneous Sale Procedures to obtain more expeditious and cost-effective review by interested parties, in lieu of individual Court approval, of certain sales involving smaller, less-valuable, non-core assets outside the ordinary course of business," explained Rebecca L. Booth, Esq., at Richards, Layton & Finger PA, in Wilmington, Delaware. All other sale transactions outside of the ordinary course of the Debtors' businesses would remain subject to individual Court approval. In general, the Miscellaneous Sale Procedures will apply only to asset sale transactions outside the ordinary course of business involving, in each case: (a) the transfer of: (i) less than $1,000,000 in Net Consideration, on account of the assets to be sold, or (ii) less than $5,000,000 in Net Consideration, if the transaction involves only the transfer of Equipment and the fair market value of each piece of Equipment is less than $150,000; and (b) aggregate cure costs of less than $200,000 in connection with the assumption and assignment of any related executory contracts and unexpired leases. In addition, Ms. Booth continues, parties-in-interest will receive notice of proposed transactions under the Miscellaneous Sale Procedures and have an opportunity to object to such transactions. The Sale Notices would be served on these Interest Parties: (1) the primary parties representing the interests of unsecured creditors of the Debtors' estates (i.e., the U.S. Trustee and counsel to the Creditors' Committee); (2) the primary secured creditors in these cases (i.e., counsel to the Secured Lenders); (3) the other parties with potential interests in the assets at issue (i.e., the known holders of liens, claims, encumbrances and other interests in the assets); and (4) the parties to executory contracts and unexpired leases proposed to be assumed and assigned if any. Furthermore, Ms. Booth adds, the Miscellaneous Sale Procedures also permit the Debtors to engage in certain de minimis asset sales outside of the ordinary course of business without further notice to parties in interest or approval from the Court. Ms. Booth made it clear that the Miscellaneous Sale Procedures specifically were not intended to encompass routine sales of inventory, surplus equipment, production by-products or scrap material that, prior to the Petition Date, the Debtors conducted, and continue to conduct, in the ordinary course of their businesses. The Debtors contended that these Ordinary Course Sales were clearly ordinary course transactions and, therefore, would not require further Court approval or the review of other parties pursuant to the Miscellaneous Sale Procedures. Pursuant to the terms of the Debtors' post-petition financing agreement, the Debtors are prohibited from selling assets "except for: (i) sales of inventory, fixtures and equipment in the ordinary course of business, (ii) dispositions of surplus, obsolete or damaged equipment no longer used in production, (iii) sales of Foreign Factoring Receivables which shall at no time exceed in the aggregate the Dollar equivalent of $15,000,000 based on the applicable Exchange Rate at any time, (iv) sales in arm's length transactions, at fair market value and for cash in an aggregate amount not to exceed $25,000,000, and (v) following the sales permitted by clause (iv) above, sales in arm's length transaction, at fair market value and for cash in an aggregate amount not to exceed an additional $25,000,000." Accordingly, the Miscellaneous Sale Procedures are permitted under the Post-petition Credit Agreement because: (a) sales of any Equipment under the Miscellaneous Sale Procedures generally will qualify as sales of "surplus, obsolete or damaged equipment no longer used in production", and (b) the Debtors currently do not believe that the aggregate amount of other sales consummated under the Miscellaneous Sale Procedures will exceed the limits established by Section 6.11(iv) and (v) of the Post-petition Credit Agreement. (Burlington Bankruptcy News, Issue No. 7; Bankruptcy Creditors' Service, Inc., 609/392-0900) CARMIKE CINEMAS: S&P Lifts Default Rating Following Emergence ------------------------------------------------------------- Standard & Poor's raised its corporate credit rating on Carmike Cinemas Inc., to triple-'C'-plus from 'D'. The current outlook is stable. At the same time, Standard & Poor's assigned its triple-'C'- minus rating to the company's new 10.375% $154 million subordinated notes. All previous issue ratings are withdrawn. The rating actions follow the company's recently completed bankruptcy reorganization and the funding of its new capital structure. Carmike's debt now largely consists of the new subordinated notes and an unrated bank loan consisting of a $50 million revolving line of credit and $231 million in term debt. The ratings reflect Carmike's still-aggressive financial profile, moderately high near-term principal repayments, and improvements in the company's theater circuit. In addition, the ratings incorporate consideration of the still-troubled, but improving, industry operating environment and Standard & Poor's view that Carmike will need to upgrade its theater circuit to maintain and improve its market position. Carmike is the third-largest theater chain based on screen count, with approximately 2,300 screens in 35 states. The quality of Carmike's circuit was improved by the closing of more than 130 of its unprofitable theaters. Nonetheless, Carmike still has a relatively high percentage of older theaters and a low percentage of screens with popular features such as stadium seating. In addition, more than 10% of its venues are second-run theaters that are generally less profitable than first-run locations (many of these will close in the near term). These characteristics make Carmike's circuit more vulnerable to underperformance if faced with new competition and suggest the need for reinvestment. Still, the limited revenue potential of Carmike's markets and the low level of industry building activity provide a degree of insulation in the near term. The company's competitive position benefits from having full access to films at more than 70% of its screens and its cost structure is helped by the lower real estate, rental costs, and salaries of its markets. Total debt to pro forma EBITDA is high at more than 5.5 times at inception and should improve moderately by year-end due to required debt reductions. Pro forma EBITDA coverage of interest expense should exceed 2x in 2002, although EBITDA plus rent (EBITDAR) coverage of interest expense plus rent should be tighter at about 1.4x. Carmike historically generated favorable margins relative to its peers and its pro forma EBITDAR margins of 32.8% for 2002 are modestly higher than historical levels. Pro forma margins should benefit from the company's closure of underperforming theaters, however, profitability in 2002 could be challenged if 2001's favorable industry attendance levels are not maintained, especially given the lingering oversupply of screens. Debt maturities start at relatively high levels and increase modestly over time. These cash obligations could absorb the majority of operationally generated cash, especially if profits fall short of expectations, and limit Carmike's ability to reinvest in its circuit. As a result, it will be important for Carmike to maintain compliance with its financial covenants and availability under its line of credit. Outlook: Stable Ratings stability will depend on Carmike's ability to generate sufficient cash flow to meet its debt repayment schedule, comply with its financial covenants, and gradually improve the quality of its theater circuit. Rating Raised Rating Carmike Cinemas Inc. To From Corporate credit rating CCC+ D Rating Assigned Carmike Cinemas Inc. Rating $154 mil. sr. sub. notes due 2009 CCC- CHARMING SHOPPES: S&P Assigns BB- to $375MM Senior Secured Loan --------------------------------------------------------------- Standard & Poor's assigned its double-'B'-minus rating to Charming Shoppes Inc.'s new $375 million senior secured bank facility. At the same time, Standard & Poor's affirmed its double-'B'-minus corporate credit and single-'B' subordinated debt ratings on the company. The outlook is stable. The credit facility is rated the same as the corporate credit rating. The bank facility consists of a $75 million term loan and a $300 million revolver, and matures on August 16, 2004. Financial covenants include minimum EBITDA and tangible net worth. The facility is secured by the company's merchandise inventory, furniture, fixtures, and certain real properties and other assets. The revolving facility is subject to borrowing limitations based on eligible inventory and the value of certain real property, and a three-year term loan. Standard & Poor's assessed the value of the company's discrete assets based on the market values using outside appraisals, the assets' potential to retain value over time, and an orderly liquidation scenario. Although the bank facility derives strength from its secured position, under a simulated default scenario it is uncertain that the collateral value would be sufficient to cover the entire loan. The ratings on Charming Shoppes reflect the company's high business risk, given its participation in the highly competitive and volatile specialty apparel industry. This is mitigated, somewhat, by the company's good credit protection measures. Charming Shoppes operates more than 2,400 women's specialty apparel stores in 48 states, primarily under the names Fashion Bug, Fashion Bug Plus, Catherine's Plus Sizes, and Lane Bryant. After a period of consistent sales and profit growth, Charming Shoppes' sales were impacted by the weakening economy, resulting in a comparable-store sales decline of 4.0% in 2001 and a decline in its operating margin to 13.1% for the trailing 12 months ended Nov. 3, 2001, from 15.2% in the same period the previous year. The margin erosion is due to the lack of sales leverage, higher promotional activity, and an increase in occupancy expense. Still, the company's operating results have improved since 1998. Same-store sales advanced 0.5% in 2000 on top of increases of 8.7% in 1999 and 3.2% in 1998. In recent years, management has closed underperforming stores, improved product sourcing, streamlined distribution functions, and realigned the pricing and merchandise strategy to better target its lower- to middle-income Fashion Bug customer. The company announced in January 2002 its plans to close its Added Dimension/Answer chain (77 stores) and 130 underperforming Fashion Bug stores. In addition, the company has targeted the faster-growing large-size women's apparel segment, expanding its plus-size Fashion Bug business with the acquisitions of Catherines Stores, Modern Woman, and Lane Bryant. Credit protection measures remain good, with EBITDA coverage of interest 4.7 times and funds from operations to total debt of 23.2%. Leverage is moderate with total debt to EBITDA at 3.1x. Financial flexibility is provided by a $375 million secured credit facility, of which $111 million was available as of November 3, 2001. Outlook: Stable Cash flow protection measures are expected to remain satisfactory for the rating category as the company's operating performance should remain relatively stable due to its position in the faster-growing large-size women's specialty apparel segment. CIENA CORP: S&P Revises Outlook to Negative as Revenues Fall ------------------------------------------------------------ Standard & Poor's said that it affirmed its single-'B'-plus corporate credit and senior unsecured debt ratings on Ciena Corp. The ratings outlook is revised to negative from stable, reflecting a substantially larger-than-expected decline in revenues for the quarter ended January 31, 2002, and likely further revenue declines in a highly uncertain telecommunications market. Ratings continue to reflect Linthicum, Maryland-based Ciena's narrow business position, substantial leverage, and the risks of continuing technology evolution, offset by the company's good financial flexibility. Ciena, which provides optical transport systems, principally used in long-haul networks, remains heavily reliant on a very limited customer base, with two customers representing more than 50% of the company's sales in the fiscal year ended October 31, 2001. Sales have been declining since the peak $458 million reached in the July 2001 quarter. On February 5, 2002, the company revised its guidance for the January 2002 quarter's revenue to $160 million, from earlier expectations of about $240 million; final results will be announced on February 21, 2002. Significantly, the January quarter had historically been relatively strong, as service providers renewed their capital expense budgets, but that was not the case this year. Currently, the company expects revenues for the April quarter to be flat to lower than January levels, although conditions remain unclear. While the company is restructuring to reduce its workforce by about 12%, it will still report an operating loss for fiscal 2002. Operating cash flows for the year are now expected to be negative, compared to previous breakeven guidance, as the company continues to invest in its metropolitan fiber-optic technologies. Still, with about $1.4 billion in cash, the company's financial flexibility should remain sufficient for operating requirements during the current year. Outlook: Negative The company's substantial reliance on a very limited customer base and highly uncertain business conditions could lead to significant further declines in revenues. Should conditions not stabilize in the next few quarters, ratings could be lowered. COMDISCO INC: Court Okays Mr. Fortgang as Committee's Counsel ------------------------------------------------------------- The Official Committee of Unsecured Creditors of Comdisco, Inc., and its debtor-affiliates obtained Court's approval to retain Chaim J. Fortgang as its counsel in these chapter 11 cases, on an hourly basis at a rate of $750 per hour. Among the professional services Mr. Fortgang may be called to render are: (a) advisory, strategy and decision-making associated with negotiating the proposed sale transactions in conjunction with other advisors; (b) advising the Committee with respect to a plan of reorganization which may be proposed; (c) advocating the Committee's position in pleadings and in court appearances; (d) representing the Committee with respect to other transactions which may be proposed; (e) assisting in the examination of the Debtors' affairs and review of the Debtors' operations; and (f) attending hearings, and generally advocating positions and performing other professional services which further the interests of the creditors represented by the Committee. Mr. Fortgang will work closely with Latham & Watkins -- the Committee's proposed co-counsel -- so as not to duplicate efforts on behalf of the Committee. The Committee intends to reimburse Mr. Fortgang of actual expenses incurred in connection with the case that are not fixed and routine overhead expenses. Among other things, these expenses include: telephone and telecopier toll and other charges, mail and express mail charges, special or hand delivery charges, document processing, photocopying charges, travel charges, expenses for "working meals", computerized research, and transcription costs. ( (Comdisco Bankruptcy News, Issue No. 20; Bankruptcy Creditors' Service, Inc., 609/392-0900) COVENTRY HEALTH: Offers 8-1/8% Notes to Buy Principal's Stake ------------------------------------------------------------- Principal Health Care, Inc. is selling 7,000,000 shares of Coventry Health Care, Inc.'s common stock. Coventry Health Care will not receive any proceeds from the sale of the shares by Principal. Principal has granted the underwriters an option to purchase up to 1,050,000 additional shares of common stock to cover over-allotments. Coventry's common stock is listed on the New York Stock Exchange under the symbol "CVH." The last reported sale price of the common stock on the New York Stock Exchange on January 28, 2002, was $20.15 per share. Concurrently with this offering of common stock, Coventry Health Care is offering, pursuant to a separate offering memorandum, $175.0 million aggregate principal amount of its 8-1/8% senior notes due 2012 to qualified institutional buyers under Rule 144A under the Securities Act of 1933, as amended, and to persons outside the United States pursuant to Regulation S under the Securities Act. The Company will use the net proceeds from the offering of the senior notes and cash on hand to purchase the 7,053,487 shares of its common stock that currently are owned by Principal and are not being sold in this offering and a warrant owned by Principal to purchase up to 3,072,423 shares of Coventry Health Care's common stock. The closing of this offering of common stock is conditioned upon the substantially concurrent closing of the offering of the senior notes and the purchase, from Principal, of the shares of Coventry Health Care's common stock and the warrant. Created in 1998 when Coventry Corporation acquired Principal Financial Group's health care unit (doubling its size), the firm provides managed health care services to almost 1.5 million enrollees in about 15 states, primarily in the Midwest and Mid- Atlantic regions. Its plans include point of service, HMOs, and PPOs, as well as Medicare and Medicaid products. The company also administers self-insured health plans for large employers. Coventry has acquired Wellpath, a subsidiary of Duke University Health Systems. Principal Life Insurance, a unit of Principal Financial, owns more than 25% of the firm. At September 30, 2001, the company had a working capital deficiency of $186 million. EINSTEIN/NOAH: Plan Confirmation Hearing Set for March 26, 2002 --------------------------------------------------------------- New World Restaurant Group, Inc. (OTC Bulletin Board: NWCI.OB) announced that it had reached agreement on February 5 in the U.S. Bankruptcy Court, District of Arizona, to support confirmation of a modified Plan of Reorganization presented by the administrator appointed to wind up the bankruptcy estates of ENBC, Inc. (formerly known as Einstein/Noah Bagel Corp.) and its majority owned subsidiary ENBP, L.P. (formerly known as Einstein/Noah Bagel Partners, L.P.). In addition, the other principal parties in the case have announced their support for the Plan, and the Court has scheduled a confirmation hearing for March 26, at which time the Plan is expected to be confirmed. As a result, New World has withdrawn its previous plan. "We are very pleased to report on this agreement which sets the stage for a speedy resolution of the estates," said New World General Counsel Michael Konig. New World is a leading company in the 'fast/quick casual' sandwich industry. The Company operates stores primarily under the Einstein Bros and Noah's New York Bagels brands and primarily franchises stores under the Manhattan Bagel and Chesapeake Bagel Bakery brands. As of October 2, 2001, the Company's retail system consisted of 494 company-owned stores and 294 franchised and licensed stores. The Company also operates three dough production facilities and one coffee roasting plant. ENRON CORP: Court Moves Lease Decision Deadline to Year-End ----------------------------------------------------------- Judge Gonzalez extended the period within which Enron Corporation and its debtor-affiliates may decide whether to assume, assume and assign, or reject Unexpired Leases to December 31, 2002 -- except for a lease agreement with Silicon Valley Telecom Exchange LLC. Judge Gonzalez intends to issue a separate order regarding the Silicon Valley Lease. (Enron Bankruptcy News, Issue No. 12; Bankruptcy Creditors' Service, Inc., 609/392-0900) ENRON: Law Firm Probes Citigroup's Sale of Credit Linked Notes -------------------------------------------------------------- The law firm of Wechsler Harwood Halebian & Feffer LLP is investigating reports that Citigroup Inc., may have misled investors as to Enron's true financial condition in connection with Citigroup's sale of $1.4 billion in credit-linked notes which were directly tied to Enron's financial condition and performance. Citigroup sold the $1.4 billion of notes in order to protect Citigroup's huge lending liability position with Enron Corp. The notes were sold between August 2000 and May 2001. The largest sale of the notes occurred in May 2001 when $885 million were issued. Under the terms of the notes, upon Enron's bankruptcy, the funds that purchasers invested to acquire the notes became the property of Citigroup, and note purchasers were relegated to Citigroup's position as a creditor in the Enron bankruptcy proceeding. As a tier one lender to Enron, Citigroup was likely privy to negative and adverse Enron financial information not available to other investors at the same time that the notes were sold, and Citigroup may have protected its own financial position at the expense of note purchasers who will likely suffer very substantial losses. Wechsler Harwood is seeking additional information concerning these issues, and information as to what note purchasers were told with respect to Enron's financial condition. Wechsler Harwood is active in major litigations pending in federal and state courts throughout the United States and has taken a leading role in many important actions on behalf of defrauded shareholders and investors. The Wechsler Harwood Web site -- http://www.whhf.com-- has more information about the firm. If you would like to discuss the matter further or have any additional information please contact John Halebian, Esq. at jhalebian@whhf.com, or contact: Wechsler Harwood Halebian & Feffer LLP 488 Madison Avenue 8th Floor New York, New York 10022 Phone: 877-935-7400 (Toll Free) Attention: Ramon Pinon, IV, Wechsler Harwood Shareholder Relations Department rpinoniv@whhf.com DebtTraders reports that Enron Corp.'s 9.125% bonds due 2003 (ENRON2) are trading between 16 and 18.5. See http://www.debttraders.com/price.cfm?dt_sec_ticker=ENRON2for real-time bond pricing. EXODUS: Committee Gets OK to Hire Pachulski Stang as Co-Counsel --------------------------------------------------------------- The Official Committee of Unsecured Creditors of Exodus Communications, Inc., and its debtor-affiliates obtained approval of the Court with an order authorizing the employment and retention of Pachulski Stang Ziehl Young & Jones P.C. as its co-counsel in the above-captioned cases nunc pro tunc to October 11, 2001. The Committee wanted to retain Pachulski as its attorneys because of the firm's extensive experience and knowledge in the field of debtors' and creditors' rights and business reorganizations under chapter 11 of the Bankruptcy Code and because of the firm's expertise, experience, and knowledge practicing before this Court. Thus, the Committee received approval of the nunc pro tunc retention of Pachulski as it commenced work on several matters requiring immediate attention in connection with the Debtors' chapter 11 cases, including reviewing the first day orders and commenting on the Debtors' ongoing bankruptcy proceedings, immediately upon its retention on October 11, 2001. The Committee anticipates that Pachulski will assist by: A. serving as Delaware counsel to the Committee; B. preparing necessary applications, motions, answers, orders, reports and other legal papers on behalf of the Committee; C. appearing in court to present necessary motions, applications and pleadings and to otherwise protect the interests of the Committee; and D. performing all other legal services for the Committee that may be necessary and proper in these proceedings. The principal attorneys and paralegals presently designated to represent the Committee and their current standard hourly rates are: Laura Davis Jones $550 James E. O'Neill 375 Michael P. Migliore 215 Timothy M. O'Brien 105 (Exodus Bankruptcy News, Issue No. 13; Bankruptcy Creditors' Service, Inc., 609/392-0900) FEDERAL-MOGUL: Wants Professor McGovern Appointed as Mediator ------------------------------------------------------------- Federal-Mogul Corporation, its debtor-affiliates and the Official Committee of Asbestos Claimants move the Court to appoint Professor Francis McGovern as Mediator and direct that Prof. McGovern report back to the Court on the status of the mediation process. James E. O'Neill, Esq., at Pachulski Stang Ziehl Young & Jones P.C. in Wilmington, Delaware, submits that Professor Francis E. McGovern is well-qualified to serve as mediator in these cases and has significant experience in mass tort cases. Prof. McGovern is presently serving as a mediator in the Babcock & Wilcox asbestos-related bankruptcy cases and has served as a special master, court expert, or other neutral party in numerous mass tort cases, including Johns-Manville, UNR, National Gypsum, Celotex Corporation, Dow Corning and A.H. Robbins. The Debtors and the Asbestos Claimants' Committee believe that Prof. McGovern's experience makes him well-qualified to serve as mediator in Federal-Mogul's chapter 11 cases. Mr. O'Neill tells the Court that the Debtors don't think mediation will adversely affect or delay any litigation or proceedings in the Court and assure the Court that the pendency of the mediation will not be used by any party as an excuse to postpone any matter that the parties may choose to litigate before the Court. Further, in no event will the mediator be limited in the performance of his duties by the fact that a given matter in these cases may be pending before either the District Court or Bankruptcy Court. Mr. O'Neill submits that the Debtors and the Asbestos Committee intend for the mediator to report to the District Court and Bankruptcy Court on the status of mediation but in no event will the mediator disclose the details of any settlement discussions. Unsecured Creditors' Committee Objects The Official Committee of Unsecured Creditors objects to the Motion to appoint mediator in these cases because of the issue of confidentiality. The Unsecured Creditors' Committee seeks clarification that the Confidentiality of the Mediation Proceedings is fully applicable to the requested mediation and that nothing in the motion or proposed order detracts from or modifies the confidentiality requirement of Local Rule 9019-3. Eric M. Sutty, Esq., at The Bayard Firm, in Wilmington, Delaware, explains that the Committee wants to be certain that both the substance and the details of any settlement discussions are held in confidence. If Prof. McGovern is permitted to disclose the substance of settlement discussions, the Committee fears that disclosure would hurt negotiations and hobble the mediation process. (Federal-Mogul Bankruptcy News, Issue No. 10; Bankruptcy Creditors' Service, Inc., 609/392-0900) FLORSHEIM GROUP: Fails to Meet Nasdaq Listing Requirements ---------------------------------------------------------- Florsheim Group Inc. (Nasdaq:FLSC), said it has received notice from Nasdaq Stock Market, Inc., indicating that the Company fails to comply with the net tangible assets, market capitalization, and net income requirements for continued listing on the Nasdaq SmallCap Market, as set forth in Marketplace Rule 4310(c)(2)(B), and that the Company's common stock is subject to delisting. Nasdaq further advised that the Company's common stock will be delisted at the opening of business on February 12, 2002. The Company meets the eligibility criteria to have its common stock quoted on the OTC Bulletin Board (OTCBB), and the common stock may be quoted on the OCTBB following delisting from the Nasdaq SmallCap Market. The OTCBB is a regulated quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter securities. Information regarding the OTCBB can be found on the internet at http://www.otcbb.com Florsheim Group Inc., designs, markets, and sources a diverse and extensive range of products in the middle to upper price range of the men's quality footwear market. Florsheim distributes its products in more than 6,000 department stores and specialty store locations worldwide, through approximately 122 company-operated specialty and outlet stores and 43 licensed stores worldwide. DebtTraders reports that Florsheim Group Inc.'s 12.750% bonds due 2002 (FLSC1) are trading between 21 and 22. See http://www.debttraders.com/price.cfm?dt_sec_ticker=FLSC1for real-time bond pricing. GLENOIT CORP: Asks Court to Further Extend Exclusive Periods ------------------------------------------------------------ Glenoit Corporation and its Debtor-Affiliates asks the U.S. Bankruptcy Court for the District of Delaware to expand their exclusive period during which to file a chapter 11 plan through February 25, 2002. The Debtors point out that they're asking for this extension solely to finalize and obtain consensus on their plan. Before seeking this extension, the Debtors circulated a draft plan to the Secured Lenders and the Unofficial Noteholders Committee. The Debtors remind the Court that their counsels have also discussed the terms of the plan with the U.S. Trustee. However, the Secured Lenders and the Unofficial Noteholders Committee have both requested a few additional weeks to review the plan. A hearing on this Motion is scheduled for February 21, 2002. Headquartered in New York City, Glenoit Corporation is a domestic manufacturer of small rugs, knit pile fabrics and an importer and manufacturer of home products such as quilts, comforters, shams, shower curtains, table linens, pillows and pillowcases with operations in North Carolina, Ohio, California and Canada. The Company filed for Chapter 11 protection on August 8, 2000. Joel A. Waite at Young, Conaway, Stargatt & Taylor represents the Debtors in their restructuring efforts. GLOBAL CROSSING: Gets OK to Pay Prepetition Foreign Obligations --------------------------------------------------------------- Global Crossing Ltd., and its debtor-affiliates sought and obtained authority to pay approximately $25,000,000 of pre- petition obligations owed to those Foreign Creditors the Debtors reasonably determine lack minimum contacts with the United States. Michael F. Walsh, Esq., at Weil Gotshal & Manges LLP in New York, New York, relates that to effectively operate the Network and provide seamless communications services to their customers in the multitude of countries outside of the United States, the Debtors order and receive goods and services from vendors, service providers, landlords and governments in each jurisdiction in which they operate outside of the United States. The goods and services provided by the Foreign Creditors allow the Debtors' to sell service, maintain the Network, and administer the Debtors' properties around the world. The Debtors estimate that, as of the Commencement Date, they have $25,000,000 in outstanding obligations to Foreign Creditors for goods and services received and taxes owed in the prepetition period. Mr. Walsh explains that the Global Crossing Network has been engineered from conception to be a seamless, broadband, global city to city integrated network. The integrated global reach of the Debtors' Network is the key component of the Debtors' business plan, as it distinguishes Global Crossing from its competitors, and upon which the Debtors' assets derive their ultimate value. Mr. Walsh fears that the failure to satisfy the obligations of certain Foreign Creditors could have a ruinous effect upon the Debtors' efforts to reorganize. Although section 362 of the Bankruptcy Code provides that the filing of a chapter 11 petition "operates as a stay, applicable to all entities," of creditor remedies, the power of a United States court to enforce its jurisdiction against an entity without a presence in the United States is dubious. Indeed, in the circumstances of these cases, as many of the Foreign Creditors lack minimum contacts with the United States, the Court will be unable to prevent such Foreign Creditors from acting in contravention of and violating the Automatic Stay by pursuing remedies against the Debtors' property located outside of the United States. Absent payment of prepetition obligations, Mr. Walsh submits that certain Foreign Creditors will likely cease providing the services necessary to maintain operation of the Debtors' Network until their claims are paid in full. Furthermore, Foreign Creditors may: A. take enforcement action under local law, B. move to revoke the licenses held by the Debtors and their affiliates, B. seize the Debtors' assets located in foreign countries, D. bring civil and, in some cases, even criminal actions against the Debtors' officers and directors. Without continuance of the Debtors' foreign operations, Mr. Walsh claims that the Debtors will be unable to operate their Network and will cause large segments of the Debtors' Network to "go dark," cutting service to entire areas of the world and thereby destroying the value of the Network. Uninterrupted foreign operations are thus essential to the maintenance of the Debtors' global Network. If the value of the Debtors' assets is to be preserved, the Debtors must be allowed to fund and maintain foreign operations. Failure to fund such operations will result in the systematic dismemberment of the Debtors' Network and will preclude any ability to reorganize. The Debtors believe that it is in the best interest of their estates, creditors, and other parties in interest, including the Debtors' customers, to satisfy obligations to Foreign Creditors lacking minimum contacts with the United States. In light of the substantial, immediate, and irreparable harm to the Debtors' business operations if certain Foreign Creditors are not paid, the Debtors submit that cause exists for the entry of an order authorizing such payment. Mr. Walsh contends that the amounts that the Debtors propose to pay are reasonable in relation to the size and importance of the Debtors' overall foreign operations. Mr. Walsh asserts that the satisfaction of obligations owed to certain of the Debtors' Foreign Creditors is absolutely crucial to the preservation and protection of the Debtors' estates, and ultimately to a successful reorganization. Without the support of their Foreign Creditors, the interests of all creditors will suffer immeasurably as the value of the Debtors' estates is likely to suffer drastic diminution. (Global Crossing Bankruptcy News, Issue No. 2; Bankruptcy Creditors' Service, Inc., 609/392- 0900) HARVARD SCIENTIFIC: Inks Deal to Acquire Smart Access Assets ------------------------------------------------------------ Harvard Scientific Corp. (OTC Bulletin Board: VGEN), said that it has entered into a letter of intent to acquire all issued and outstanding shares of Smart Access, Inc., an airport security company founded in 1984 to provide state-of-the-art security for airports and commercial establishments. To date, Smart Access has installed access control systems for: both international and regional airports, manufacturing facilities, correctional facilities, chemical and industrial plants, hospitals, government facilities, utility companies, medical facilities, newspaper offices, police stations, courthouses, business offices, universities, banks and credit unions. More information about Smart Access can be found at http://www.smartaccess.com Commenting on the Letter of Intent, Harvard Scientific Corp's Secretary and Treasurer Hank Higginbotham stated, "The letter of intent is the first step in our plan of reorganization out of bankruptcy which will be submitted to the Court for its review and approval. We are very pleased to work with Smart Access on this acquisition. Smart Access' reputation as a leader and innovator in the industry, combined with their strategic business model for the future, provides our shareholders and creditors an excellent platform for future sales and profits." Mehdi Daryadel, Majority Owner of Smart Access, Inc., stated, "This merger potentially provides a tremendous value to the current shareholders and creditors of Harvard and should enable Smart Access to raise the capital necessary to enterprise on the rapidly growing need for security throughout the world. Smart Access designs and manufacturers both simple and complex micro controller-based access and security systems for commercial establishments and airports. They are an industry leader in innovative electronic security products featuring fully integrated card access and computer-based identification badging systems. Smart Access continues to lead the way in technology with their newly developed twelve-channel fiber-optic multiplexer and digital, self-healing fiber-optic modems. Their Access Control Manager (ACM) is a multi-user software, running in a Microsoftr Windows environment that offers complete control of access, monitoring and response of alarms. The user-friendly system also provides a sophisticated computer-based photo identification badging system, as well as an integrated personnel manager that stores a photo of each individual, his/her employer and other pertinent information. IBIZ TECHNOLOGY: Completes Convertible Debentures Restructuring --------------------------------------------------------------- iBIZ Technology has completed its move to a new facility and debt restructuring with its Convertible Debenture holders. In an effort to continue to bring costs in line with revenue, iBIZ has moved its headquarters and product fulfillment center to a new facility located at 2238 West Lone Cactus Drive, #200, Phoenix, Arizona 85027. The established iBIZ phone numbers will remain the same. Additionally, the Convertible Debenture holders have agreed to a floor and standstill agreement in an effort to stabilize the price per share on the iBIZ Common Stock. Ken Schilling, President and CEO commented, "Since March of 2001, iBIZ, like most technology companies has been impacted by the down turn in the economy. We watched the broadband industry collapse, which ultimately led to the sale of our data center in December of last year. Combined with consumption falling and investment capital drying up, our directors have helped iBIZ drastically reduce expenses as well as restructure debt in an effort to bring value to our share price and shareholder base." Schilling further commented, "Our facility move combined with the sale of the data center, the elimination of two officer positions, a substantial reduction in the existing officers salaries, the Convertible Debt restructuring and new money coming into the company puts iBIZ in a position to take full advantage the PDA industry, which is currently experiencing tremendous growth potential. We have reduced overhead by 75 percent of what it was just a few months ago. Additionally, the iBIZ brand has been established and through this restructuring of overhead and debt, iBIZ is now completely focused on exploiting the tremendous progress we've had in the past and establishing ourselves as a leader in the PDA accessory market. iBIZ is a leading manufacturer and distributor of accessories for personal digital assistant and hand-held devices. iBIZ is recognized for innovative, high-quality, competitively priced products available through major retailers. For more information on iBIZ products and services, go to http://www.ibizcorp.comor email sales@ibizcorp.com, or call to 1-800 234-0707. For further information please contact Mark Perkins, iBIZ Executive Vice President, +1-623-492-9200. ICG COMMS: DIP Lenders Agree Continued Use of Cash Collateral ------------------------------------------------------------- ICG Communications, Inc., and its debtor-affiliates present Judge Peter Walsh with a Stipulation continuing adequate protection and authorizing their continued use of cash collateral under the $200 million Credit Agreement dated August 1999. The budget attached to the previous order only covered the period from November 18, 2000, through December 31, 2001. The Debtors want to continue their previous agreement with their prepetition lenders to use cash collateral, and have drafted a new budget. The revised budget indicates that the intercompany lease payments for the months of January 2002 and February 2002 are to be accrued rather than paid. However, nothing in this stipulation is to be construed as an agreement by or waiver by the prepetition lenders to the nonpayment of these amounts. The Debtors and the Lenders agree that the Debtors may continue to use cash collateral for ordinary budget purposes up to the date of the hearing on approval of the Debtors' disclosure statement. The Debtors agree to pay all unpaid out-of-pocket costs of the Lenders, including professional fees, incurred in connection with the Credit Agreement. This agreement terminates, unless renewed by agreement of the parties or by motion and order, on February 15, 2002. (ICG Communications Bankruptcy News, Issue No. 17; Bankruptcy Creditors' Service, Inc., 609/392-0900) ICH CORPORATION: Look for Schedules & Statements Around April 6 --------------------------------------------------------------- ICH Corporation and its debtor-affiliates ask the U.S. Bankruptcy Court for the Southern District of New York for an extension, through April 6, 2002, to file their schedules of assets and liabilities, schedules of executory contracts and unexpired leases and statement of financial affairs. The Debtors tell the Court that because of the scope of their businesses, the complexity of their financial affairs, the limited staffing available to perform the required internal review of its accounts and affairs and the press of the Debtors' businesses incident to the commencement of these cases, its impossible for them to assemble all of the information necessary to complete and file their Schedules and Statements. The Debtors assure the Court that they recognize the importance of assembling this information and that they intend to complete their respective Schedules and Statements as quickly as possible. ICH Corporation filed for chapter 11 protection on February 05, 2002. Peter D. Wolfson, Esq. at Sonnenschein Nath & Rosenthal represents the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed an estimated debts and assets of $50 million to $100 million. INSILCO HOLDINGS: Taps Gleacher to Review Strategic Alternatives ---------------------------------------------------------------- Insilco Holding Co. (OTCBB:INSL) stated that it expects to report fourth quarter 2001 sales of $51.2 million and EBITDA of $0.5 million. The Company expects to report an operating loss for the quarter of $60.9 million, and a loss from continuing operations of $72.4 million. The Company's operating results will include $3.5 million in charges relating to severance incurred and asset write-downs taken under the Company's cost reduction plans, and $53.0 million in goodwill impairment charges relating to certain of the Company's acquisitions. The Company stated that it expects to be in compliance with its credit facility covenants as of year-end 2001. The Company plans to report fourth quarter results the week of March 4, 2002. The Company also stated that it has initiated a review of its strategic alternatives. Gleacher & Co. LLC has been retained by the Company to assist management and the Board of Directors in the review. Insilco Holding Co., through its wholly-owned subsidiary Insilco Technologies, Inc., is a leading global manufacturer and developer of a broad range of magnetic interface products, cable assemblies, wire harnesses, fiber optic assemblies and subassemblies, high-speed data transmission connectors, power transformers and planar magnetic products, and highly engineered, precision stamped metal components. Insilco maintains more than 1.5 million square feet of manufacturing space and has 21 locations throughout the United States, Canada, Mexico, China, Northern Ireland, Ireland and the Dominican Republic serving the telecommunications, networking, computer, electronics, automotive and medical markets. At the end of June 2001, the company had a total shareholders' equity deficit of about $309 million. For more information visit our sites at http://www.insilco.comor http://www.insilcotechnologies.com IT GROUP: Seeks Approval of $6 Million Shaw Group Break-Up Fee -------------------------------------------------------------- The Shaw Group, Inc., has expended, and likely will continue to expend, considerable time, money and energy pursuing the Asset Sale and has engaged in extended arm's-length and good faith negotiations. In recognition of this expenditure of time, energy and resources, and the benefits of securing a stalking horse or minimum bid, The IT Group, Inc., and its debtor- affiliates have agreed to provide the Bidding Protections to Shaw. Specifically, the Bidding Protections: (i) require Court approval the Break-Up Fee and Expense Reimbursement in the amount of $6,000,000, (ii) provide that Shaw's claim to the Break-Up Fee and Expense Reimbursement be entitled to superpriority Administrative claim treatment in these Cases, senior to All other superpriority claims, (iii) establish a date by which initial Qualified Bids must be submitted, (iv) establish the Sale Hearing procedures for an auction at which only Qualified Bidders who have previously submitted a Qualified Bid may bid, (v) set the minimum incremental bid amount at the Auction at $2,000,000, (vi) require the Debtors to promptly provide a copy of any Qualified Bid to Shaw and to any Qualified Bidder who has submitted a Qualified Bid and (vii) provide that notwithstanding the definition of "Qualified Bidder" the Prepetition Lenders of the Debtors may not credit bid. The secured debt of the Debtors held by such lenders. The Bidding Protections, David S. Kurtz, Esq., at Skadden, Arps, Slate, Meagher & Flom, argues, were a material inducement for, and a condition of, Shaw's entry into the Agreement. The Debtors believe that they are fair and reasonable in view of among other things (a) the intensive analysis, due diligence investigation, and negotiation undertaken by Shaw in connection with the Asset Sale and (b) the fact that the efforts of Shaw have increased the chances that the Debtors will receive the highest and best offer for the Assets, to the benefit of the Debtors, their estates, their creditors, and all other parties in interest. Shaw is unwilling to commit to hold open its offer to purchase the Assets under the terms of the Agreement unless the Procedures Order authorizes payment of the Break-Up Fee and Expense Reimbursement. Thus, absent entry of the Procedures Order and approval of the Bidding Protections, the Debtors may lose the opportunity to obtain what they believe to be the highest and best, and perhaps the only, available offer for the Assets. The Debtors thus request that the Court authorize payment of the Break-Up Fee and Expense Reimbursement pursuant to the terms and conditions of the Agreement to compensate Shaw for serving as a "stalking horse" whose bid will be subject to higher or better offers. The Debtors and Shaw believe that the Bidding Protections are reasonable, given the benefits to the estates of having a definitive Agreement and the risk to Shaw that a third-party offer ultimately may be accepted, and that the Bidding Protections are necessary to preserve and enhance the value of the Debtors' estates. Mr. Kurtz argues that bidding incentives encourage a potential purchaser to invest the requisite time, money and effort to negotiate with a debtor and perform the necessary due diligence attendant to the acquisition of a debtor's assets, despite the inherent risks and uncertainties of the chapter 11 process. Historically, bankruptcy courts have approved bidding incentives similar to the Bidding Protections under the "business judgment rule," which proscribes judicial second-guessing of the actions of a corporation's board of directors taken in good faith and in the exercise of honest judgment. See, e.g., In re 995 Fifth Ave. Associates, L.P., 96 B.R. 24, 28 (Bankr. S.D.N.Y. 1992) (bidding incentives may "be legitimately necessary to convince a white knight to enter the bidding by providing some form of compensation for the risks it is undertaking") (citation omitted); In re Integrated Resources, 147 B.R. 650, 657-58 (S.D.N.Y. 1992), appeal dismissed, 3 F.3d 49 (2d Cir. 1993) (establishing three basic factors for determining whether to permit such fees in bankruptcy: "whether (1) relationship of parties who negotiated break-up fee is tainted by self-dealing or manipulation; (2) whether fee hampers, rather than encourages, bidding; and (3) amount of fee is unreasonable relative to purchase price"). Recently, the United States Court of Appeals for the Third Circuit established standards for determining the appropriateness of bidding incentives in the bankruptcy context. In Calpine Corp. v. O'Brien Envtl. Energy, Inc. (In re O'Brien Envtl. Energy, Inc.), 181 F.3d 527 (3d Cir. 1999), the Court held that even though bidding incentives are measured against a business judgment standard in nonbankruptcy transactions, the administrative expense provisions of Bankruptcy Code section 503(b) govern in the bankruptcy context. Accordingly, to be approved, bidding incentives must provide some benefit to the debtor's estate. See Id. at 533. The O'Brien Court identified at least two instances in which bidding incentives may provide benefit to the estate. First, benefit may be found if "assurance of a break-up fee promoted more competitive bidding, such as by inducing a bid that otherwise would not have been made and without which bidding would have been limited." Id. at 537. Second, where the availability of bidding incentives induce a bidder to research the value of the debtor and submit a bid that serves as a minimum or floor bid on which other bidders can rely, "the bidder may have provided a benefit to the estate by increasing the likelihood that the price at which the debtor is sold will reflect its true worth." Id. Under the "business judgment rule" and more importantly, under the Third Circuit's "administrative expense" standard, the Bidding Protections pass muster. The Agreement and the Bidding Protections are the product of extended good faith, arm's-length negotiations between the Debtors and Shaw. They are fair and reasonable in amount, particularly in view of Shaw's efforts to date, the risk to Shaw of being used as a "stalking horse," and the stabilizing effect that the execution of the Agreement is expected to have on the Debtors' business (thereby preserving value for creditors and increasing the likelihood of additional bidding). Further, the Bidding Protections already have encouraged competitive bidding, in that Shaw would not have entered into the Agreement without these provisions. The Bidding Protections thus have "induc[ed] a bid that otherwise would not have been made and without which bidding would [be] limited." Similarly, Shaw's offer, which was formulated only after an expedited, but substantial due diligence review of the Assets and their value, provides a minimum bid on which other bidders can rely, thereby "increasing the likelihood that the price at which the [Assets will be] sold will reflect [their] true worth." Finally, the mere existence of the Bidding Protections permits the Debtors to insist that competing bids for the Assets be materially higher or otherwise better than the Agreement, a clear benefit to the Debtors' estates. (IT Group Bankruptcy News, Issue No. 3; Bankruptcy Creditors' Service, Inc., 609/392- 0900) INTEGRATED HEALTH: Butler Note Purchase Price Settlement Okayed --------------------------------------------------------------- Integrated Health Services, Inc., and its debtor-affiliates including Community Care of America of Alabama, Inc., obtained the Court's approval of a Settlement Agreement, by and among: (i) IHS, (ii) CCA, and (iii) South Butler Medical Services, L.L.C. resolving a dispute over the purchase price for the Georgiana Doctors Hospital that SBMS purchased from CCA in 1997 before CCA became affiliated with IHS. The Hospital Purchase Agreement provided for an aggregate purchase price of $3,140,000 a portion of which consisted of a $1,500,000 promissory note executed by SBMS in favor of CCA. Subsequent to the SBMS/CCA Transaction, IHS acquired the stock of CCA and certain related entities. SBMS has asserted that grounds exist for a reduction in the Purchase Price under the Asset Purchase Agreement, and that such grounds constitute a defense to the collection of the Note. In essence, SBMS contends that the financial condition of the Hospital may not have been fairly and accurately represented to SBMS in connection with the Hospital Purchase. The Debtors take the position that they disagree with SMBS's position regarding the existence of a defense to collection of the Note, but in view of the protracted process, expense and uncertainty involved if the issue is resolved by litigation, they have concluded that a consensual resolution of this issue pursuant to the Settlement Agreement should be more beneficial to the estate. Pursuant to the Settlement Agreement, SBMS would pay the sum of $700,000 in exchange for a full release and satisfaction of any obligations under the Note. The Debtors note that the proposed settlement is particularly beneficial in view of the collectibility, or rather, uncollectibility of the Note. In 1997, when IHS acquired CCA, IHS deemed the Note uncollectible and established an accounting reserve accordingly. IHS continues to believe that the Note must be deemed uncollectible for accounting purposes based on the following reasons: -- Without the cooperation of the principals of SMBS pursuant to the Settlement Agreement, the Note is more than likely uncollectible. -- The collectibility of the Note is in large part a function of the financial performance of the Hospital, which is a small facility of only 22 beds located in a rural county in southern Alabama with a population of approximately 20,000 people. There are competing facilities in the areas and moreover, the value of the Hospital is dependent upon the continuing involvement of one of the SBMS principals, who is the primary admitting and attending physician for the Hospital. -- SBMS is highly leveraged, such that the Note is subordinate to a $1,800,000 line of credit (the PBT Credit Line) from Peoples Bank and Trust (PBT), of which approximately $1,500,000 has been drawn down and remains currently outstanding. -- The Note has a balloon payment which comes due in June 2002, and at such time as the Note comes due, SBMS may not be financially capable of paying the Note in full, repaying the PBT Credit Line, and continuing to fund the Hospital's operations. -- The Debtors have determined that the assets of SBMS are not sufficient to repay the Note. Moreover, there is also no reasonable likelihood that the financial performance or condition of SBMS, and therefore the collectibility of the Note, could or would be significantly improved in the future. -- Significantly, the PBT Credit Line is personally guaranteed by the principals of SBMS, who have indicated that, due to their personal guarantees of the PBT Credit Line, they would opt to pay off the PBT Credit Line and cease operations at the Hospital, rather than cause SMBS to satisfy its obligations under the Note. (Integrated Health Bankruptcy News, Issue No. 28; Bankruptcy Creditors' Service, Inc., 609/392-0900) KMART CORP: Court Okays Trumbull's Appointment as Claims Agent -------------------------------------------------------------- Kmart Corporation, and its debtor-affiliates sought and obtained a Court order: (1) approving an agreement with Trumbull Services LLC, and (2) appointing Trumbull as claims and noticing agent of the Bankruptcy Court. According to Kmart CEO Charles C. Conaway, the Debtors have identified several hundred thousand creditors, potential creditors and other parties-in-interest to whom certain notices, including notice of the commencement of the Chapter 11 cases, and voting documents, must be sent. "But the Clerk of the Bankruptcy Court for the Northern District of Illinois Eastern Division is not equipped to efficiently and effectively docket and maintain the extremely large number of proofs of claim that likely will be filed in these cases," Mr. Conaway observes. The sheer magnitude of the Debtors' creditor body makes it impracticable for the Clerk's Office to undertake that task and send notices to the creditors and other parties-in-interest, Mr. Conaway notes. That's why, Mr. Conaway explains, the Debtors decided to engage an independent third party to act as an agent of the Court in order to accomplish the process of receiving, docketing, maintaining, photocopying and transmitting proofs of claim in these cases. The Debtors also anticipate that the solicitation of votes on their reorganization plan will necessitate the forwarding of ballots, disclosure statements, and related solicitation materials to many thousands of creditors, as well as the accurate recordation and tabulation of the numerous ballots that are returned by such creditors. Mr. Conaway tells the Court that Trumbull has been selected to assist the Debtors in this process. Trumbull is a data processing firm that specializes in noticing, claims processing, and other administrative tasks in Chapter 11 cases. "Trumbull's assistance will expedite service of Rule 2002 notices, streamline the claims administration process, and permit the Debtors to focus on their reorganization efforts," Mr. Conaway asserts. As claims and noticing agent, Trumbull will: A) Prepare and serve required notices in these Chapter 11 cases including: (1) A notice of the commencement of these Chapter 11 cases and the initial meeting of creditors under section 341(a) of the Bankruptcy Code; (2) a Notice of the claims bar date; (3) Notices of objections to claims; (4) Notices of any hearings on a disclosure statement and confirmation of a plan or plans of reorganization; and (5) Such other miscellaneous notices as the Debtors or the Court may deem necessary or appropriate for an orderly administration of these Chapter 11 cases; B) Within 5 business days after the service of a particular notice, file with the Clerk's Office a certificate or affidavit of service that includes: (1) a copy of the notice served, (2) an alphabetical list of persons on whom the notice was served, along with their addresses, and (3) the date and manner of service. C) Maintain copies of all proofs of claim and proofs of interest filed in these cases; D) Maintain official claims registers in these cases by docketing all proofs of claim and proofs of interest in a claims database that includes these information for each such claim or interest asserted: (1) The name and address of the claimant or interest holder, (2) The date the proof of claim or proof of interest was received by Trumbull or the Court, (3) The claim number assigned to the proof of claim or proof of interest; (4) The asserted amount and classification of the claim; and (5) The applicable Debtor against which the claim or interest is asserted; E) Implement necessary security measures to ensure the completeness and integrity of the claims registers; F) Transmit to the Clerk's Office a copy of the claims registers on a weekly basis, unless requested by the Clerk's Office on a more or less frequent basis; G) Maintain an up-to-date mailing list for all entities that have filed proofs of claim or proofs of interest and make such list available upon request to the Clerk's Office or any party in interest; H) Provide access to the public for examination of copies of the proofs of claim or proofs of interest filed in these cases without charge during regular business hours; I) Record all transfers of claims and provide notice of such transfers as required by Rule 3001(e), if directed to do so by the Court; J) Comply with applicable federal, state, municipal and local statutes, ordinances, rules, regulations, orders and other requirements; K) Provide temporary employees to process claims, as necessary L) Promptly comply with such further conditions and requirements as the Clerk's Office or the Court may at any time prescribe; and M) Provide such other claims processing, noticing, balloting, and related administrative services as may be requested from time to time by the Debtors. In addition, Mr. Conaway continues, the Debtors also want Trumbull to assist them with, among other things: (1) the preparation of their schedules, statements of financial affairs, and master creditor lists, and any amendments thereto; (2) the reconciliation and resolution of claims; and (3) the preparation, mailing and tabulation of ballots of certain creditors for the purpose of voting to accept or reject a plan or plans of reorganization. The Debtors intend to pay Trumbull's fees and expenses in the ordinary course of business. On a monthly basis, Mr. Conaway says, Trumbull will submit to the Office of the United States Trustee copies of the invoices it submits to the Debtors for services rendered. William R. Gruber, Jr., Assistant Vice President of Trumbull Services LLC, assures the Court that: (a) Trumbull will not consider itself employed by the United States government and shall not seek any compensation from the United States government in its capacity as the Claims and Noticing Agent in these Chapter 11 cases; (b) By accepting employment in these Chapter 11 cases, Trumbull waives any rights to receive compensation from the United States government; (c) In its capacity as Claims and Noticing Agent in these Chapter 11 cases, Trumbull will not be an agent of the United States and will not act on behalf of the United States; (d) Trumbull will not misrepresent any fact to the public; and (e) Trumbull will not employ any past or present employees of the Debtors in connection with its work as Claims and Noticing Agent in these Chapter 11 cases. "To the best of my knowledge, neither Trumbull nor its employees represent any interest adverse to the Debtors' estates with respect to the matters upon which the firm is to be engaged," Mr. Gruber swears. Trumbull will charge the Debtors for its services, pursuant to these rates: Schedule of Liability Preparation --------------------------------- Creditor Set-up Via electronic file $180 per hour Manually created creditors 45 per hour Schedule Creation Up to 3 sets $0.25 per page Additional sets $0.10 per page Notice Printing --------------- General Creditor Set up Waived Per page double sided $0.25 per page Acknowledgement Notice $0.15 per card Postage Actual Cost Public Debt and Equity Holders Price based on nature and type of security holders Claims Docketing ---------------- Includes processing, examination, docketing, data entry, etc. $60 per hour Document Management ------------------- Imaging $0.30 per image Clerical $45 per hour Software/Hardware ----------------- Bankruptcy Claims Management System Set up Waived Training Waived Remote Access Includes 3 users (additional users $250 per month) License Fee and Database Storage $0.10 per creditor - $3,000 per month minimum Standard Reporting ------------------ Claims Registers, Service Lists, Schedules, Exhibits, etc. $75 per creation of report Consulting ---------- Clerical 45 per hour Bankruptcy Analyst 60 - 75 per hour Bankruptcy Administration Manager 95 per hour Automation Consultant 95 - 130 per hour Sr. Automation Consultant 135 - 160 per hour Bankruptcy Consultant 165 - 185 per hour Sr. Bankruptcy Consultant 190 - 250 per hour Voting Tabulation and Reports ----------------------------- Per Ballot process charge $0.80 each Disbursements ------------- Issuance Quote prior to printing Expenses -------- Travel Reimbursed at cost Overnight shipping, fax, etc. Reimbursed at cost (Kmart Bankruptcy News, Issue No. 3; Bankruptcy Creditors' Service, Inc., 609/392-0900) KNOWLES ELECTRONICS: Renegotiates Bank Covenants with Lenders ------------------------------------------------------------- Knowles Electronics Holdings, Inc., announced its sales for the fourth quarter and results for the year ended December 31, 2001. The manufacturer of hearing aid components and other products reported fourth quarter sales of $57.1 million, 7% less than the $61.2 million reported for the fourth quarter of 2000. The company's sales for the year totaled $223.7 million, 6% less than the $238.1 million reported for 2000. "Although we were pleased to see continued improvement in the sales of our core products during the fourth quarter, our sales did not meet our expectations," said President and CEO John Zei. The company's KE hearing components Division reported a 8% increase in sales compared to the fourth quarter of 2000, the result of significantly increased orders from the company's largest customer. Yet the gains the company made in the last half of the year did not offset weak sales in first half, and the division's sales were down 1% for the year. Sales of the company's Automotive Components Group Division declined 28% compared to the fourth quarter of 2000 and declined 18% for the year, due to reduced worldwide demand for the SSPI solenoid products used in off-road diesel equipment and the sensors manufactured by the company's Ruf Electronics subsidiary. Two factors account for the 24% decline in the Emkay Division's fourth quarter sales. The consolidation and reorganization of European cable operators in the second half of the year reduced demand for the division's infrared products, which had enjoyed strong sales during the first half of the year. Fourth quarter sales of the division's finished goods declined in comparison to the especially strong sales reported in the fourth quarter of 2000. Emkay's sales were down 5% for the year. The company's results for the full year were affected by unfavorable book to physical inventory adjustments, manufacturing inefficiencies and short-term quality costs related to outsourced material. For the year, EBITDA before restructuring charges reached $56.7 million or 25.3% of sales. In 2000, EBITDA before restructuring expenses totaled $66.8 million, or 28.1% of sales. The company reported a loss of $1.5 million for 2001, compared to a loss of $3.9 million for 2000, when the company recorded an $18 million restructuring charge to consolidate its operations, close five manufacturing facilities and outsource some of its production. "We are disappointed that our success in restructuring and streamlining our operations is not reflected in our current results," said James F. Brace, Executive Vice President and CFO. "Gross margins had the potential to improve by several percentage points as a result of restructuring, but actually improved less than one percent due to the challenges we encountered with inventory, outsourced quality and manufacturing." SG&A expenses increased $6.5 million as the company introduced new products and new product management teams at its Emkay Division and incurred additional non-capitalized expenses associated with the launch of its new enterprise resource planning system. Operating income increased from $37.4 million in 2000 to $43.0 million in 2001, due to the lower restructuring expense in 2001. The company will report full results for the fourth quarter later. The implementation of a new enterprise resource planning system and a related physical inventory identified significant material usage variances and increased levels of slow moving and obsolete inventory at year-end. At the same time, in accordance with generally accepted accounting principles, the company capitalized previously expensed software development costs, and it modified the way it accounts for absorbing overhead into inventory due to the shifting of manufacturing resources. Both of these changes had a positive impact on fourth quarter earnings. The company capitalized $3.3 million of the consulting expenses associated with designing, testing and implementing its new enterprise resource planning system. In addition, the company also changed its method of accounting for inventory from LIFO to FIFO, noting that this change had no impact on the company's income statement for 2001, although 2000 cost of sales, inventory and equity have been restated. The company is reviewing the impact of spreading these fourth quarter adjustments on the full year, to determine what the appropriate changes, if any, are to the previously reported quarterly results. The company expects to report quarterly results in the next four weeks. Lower than anticipated 2001 sales and earnings led the company to renegotiate its agreements with lenders. The new covenants, which took effect on December 31, 2001, permit higher leverage and interest coverage ratios for five quarters. In exchange, the company agreed to pay higher interest rate spreads over LIBOR for the remainder of the agreement. The covenants revert to the original terms of the bank agreement on March 31, 2003. Until then, the company also has agreed to seek the approval of lenders before making acquisitions over a nominal amount, to limit 2002 capital expenditures to no more than $20 million, and to use all cash proceeds from the sale of assets in excess of $10 million to pay down bank debt. The banks agreed to the proposed amendment on December 21, 2001 and the company passed the revised covenants at the end of the fourth quarter. "We expect to be able to meet the revised covenants through 2002," commented Brace. "We are happy to put 2001 behind us," said Zei, "and even though sales remain unpredictable, we are looking forward to 2002. We have solved the problems related to outsourced quality, and we have gained a much better understanding of the factors creating the manufacturing inefficiencies. Meanwhile, our restructuring plan has proven its worth, and our new ERP system is giving us better information to use in running the business." Although the company does not expect the infrared and finished goods products made by its Emkay Division and the diesel solenoids made by SSPI to contribute significantly to its growth, it anticipates continued increases in sales of its core KE Division products. It also plans to increase sales of its Deltek volume controls and new silicon microphone products. Microphones for applications other than hearing aids and far field array products will open new opportunities for growth. To concentrate on these areas, the company expects to complete the planned sale of its Ruf subsidiary by the end of the first half of 2002. "Our strategies are clear, and the operating improvements we have made will enable us to work more profitably and productively," said Zei. "We lead our core markets, and the demand for our products will continue to rise. We are committed to significant improvement in 2002." Knowles Electronics is the world's leading manufacturer of transducers and related components used in hearing aids. The company also manufactures acoustic components used in voice recognition, telephony, and Internet applications as well as automotive solenoids and sensors. In 1999, the European fund management company Doughty Hanson & Co Ltd acquired Knowles. LTV CORP: Retirees Get OK to Hire Watson Wyatt as Consultants ------------------------------------------------------------- The Official Committee of Nonunion and Certain Union Retirees of The LTV Corporation, and its debtor-affiliates asks that Judge Bodoh approve its employment of Watson Wyatt & Co. as a benefits consultant to provide actuarial services. The Committee also asks that Judge Bodoh order that the Debtors are to compensate Watson Wyatt for their services to the Committee. In order for the Committee to meet its obligations as the authorized representative of all retirees receiving benefits not conferred through a CBA, and to be properly advised as to business issues, the Committee wants to hire Watson Wyatt, saying that the Code provides the Committee with the same rights to professional assistance, compensated by the Debtors' estates, as official committees of unsecured creditors and equity security holders. Watson Wyatt will charge for their services on an hourly basis with an average hourly rate of $355. The personnel having primary responsibility for providing services to the Retiree Committee, and their hourly rates, are: Name Hourly Rate ---- ----------- Steven Likovich $425 Susan Bookman $280 David Millington $395 Amy Orendi $255 Derek Aldridge $450 Andrea Sherry $255 Mr. Likovich, an employee of Watson Wyatt, avers that Watson Wyatt has no connection with the Debtors, their creditors, the US Trustee, or any party with an actual or potential interest in the matters before the Retiree Committee. Noting the Debtors' agreement with this Application, Judge Bodoh promptly approves it, subject to the $60,000 cap on the Committee's total costs. (LTV Bankruptcy News, Issue No. 24; Bankruptcy Creditors' Service, Inc., 609/392-00900) LERNOUT & HAUSPIE: Rejecting Dictaphone Employee Pension Plan ------------------------------------------------------------- Dictaphone Corporation asks Judge Wizmur to approve its rejection of the Employee Benefit Plan Trust Agreement between Dictaphone and State Street Bank & Trust Company first signed in September 1995, and amended as recently as February 28, 2001. Creation of Pension Plan In August 1995 Dictaphone was sold by Pitney Bowes, Inc., to Dictaphone Acquisition, Inc. under a Stock Purchase Agreement dated April 25, 1995. On September 22, 1995, the Board of Directors approved the Pension Plan, appointing State Street as its trustee. The Pension Plan was preceded by the Dictaphone Pension Program Plan A, which became effective in January 1976. Under the terms of the PBI APA and as part of the closing of the sale of Dictaphone to PBI, PBI agreed to assume sponsorship of the prior Pension Plan, and Dictaphone agreed to establish a new pension plan for eligible employees. Certain assets and liabilities of the prior Pension Plan were transferred to the new Pension Plan. The Plan's Terms (1) Eligibility. An employee who was a participant in the prior Pension Plan immediately commenced in the Pension Plan as of its effective date. Other employees began participating in the Pension Plan on the first day of the month coinciding with or following the date on which they had completed one year of service with Dictaphone. If former employees were reemployed by Dictaphone and performed an hour of service, they would be considered reemployed if (a) they completed one year of service subsequent to their reemployment; or (b) they had acquired a fully vested, non-forfeitable right to a pension under the Pension Plan during their prior period of employment. (2) Vesting: Upon termination of employment for any reason other than retirement, a participant is entitled to: (i) 0% of the accrued benefit under the Pension Plan vested, if employee has less than five years of service, or (ii) 100% of the accrued benefit under the Pension Plan vested, if employee has more than five years of service. (3) Administration: The general administration of the Pension Plan and the responsibility for carrying out its provisions are placed in certain Committee(s) (as defined in the Pension Plan), which shall have the powers necessary to enable them properly to carry out their duties, subject to the limitations and conditions specified in or imposed by the Pension Plan. Each Committee is designated as the "Plan Administrator" for purposes of ERISA. (4) Trustees: Dictaphone agreed to enter into a trust agreement or agreements providing for the administration of the trust fund in such form and containing such provisions as Dictaphone deemed appropriate, including provisions with respect to the powers and authority of the trustees and the authority of Dictaphone to amend the trust agreement, to terminate the trust, and to settle the account of the trustee on behalf of all persons having an interest in the trust fund. The trustee has exclusive authority and discretion to manage and control the assets of the Pension Plan held by its unless the authority to manage, acquire, or dispose of those assets is delegated to one or more investment managers. The principal and income of the trust fund are to be held and used for the exclusive purpose of providing benefits to retired participants, participants, vested former participants, and their spouses and beneficiaries, and of defraying reasonable expenses of administration of the Pension Plan that are not paid directly by Dictaphone; and the assets of the Pension Plan do not inure to the benefit of Dictaphone except to the extent permitted by the Internal Revenue Code. (5) Termination of Plan or Trust: Dictaphone reserves the right at any time to terminate the Pension Plan. Upon termination or partial termination of the Pension Plan within the meaning of section 411(d)(3) of the IRC, each participant shall be one hundred percent vested in his accrued benefit under the Pension Plan; provided, however, that in the event of a partial termination, the non-forfeitable rights shall be applicable only to the portion of the Pension Plan that is terminated. The Trust shall continue until all assets of the Trust Fund have been distributed in accordance with the terms of the Pension Plan. Distribution from the Trust shall be made at such time and in such manner as the Committee shall determine in accordance with the provisions of the Pension Plan. The Trustee may distribute cash, securities, or other assets in kind and may purchase nontransferable annuity contracts on either an individual or group basis. Settlement Agreement On August 11, 1995, PBI and its principal operating subsidiaries, Pitney Bowes Credit Corporation and Pitney Bowes Management Services, Inc., entered into a Settlement Agreement with the Pension Benefit Guaranty Corporation, Dictaphone, and Dictaphone Acquisition. Pursuant to the Settlement Agreement: * Effective with the closing of the PBI APA, Dictaphone established the Pension Plan, which is covered by Title IV of the Employee Retirement Income Security Act of 1974 for the employees of Dictaphone. * PBI caused the Prior Pension Plan to transfer certain of its assets and liabilities to the Pension Plan. In the event that the Pension Plan pursuant to ERISA section 4041(c), or the PBGC were to determine that the Pension Plan should be terminated pursuant to ERISA section 4042, the PBGC would provide written notice to PBI that the Pension Plan was about to be terminated. * PBI would have the option of assuming the Pension Plan to prevent its termination. PBI would be required to notify the PBGC and Dictaphone within 30 days after receipt of the Termination Notice whether or not PBI intended to exercise its option to assume the Pension Plan. If PBI were to assume the Pension Plan, Dictaphone would immediately take all actions necessary to permit and facilitate the assumption of the Pension Plan by PBI, including amendment of the Pension Plan to effectuate PBI's assumption of it. If the Pension Plan were to terminate other than as a termination in accordance with ERISA section 4041(b), the PBGC could make a demand on Dictaphone for the payment of any termination liability with respect to the Pension Plan. A "demand" for payment may be made by filing a proof of claim in a bankruptcy proceeding. If Dictaphone does not pay to the PBGC the full amount of the termination liability for the Pension Plan following a demand, the PBGC shall certify in writing to PBI and the PBI Principal operating Subsidiaries the amount of the payment due from PBI and its Principal operating Subsidiaries. Within 90 days of their receipt of that certification, PBI and the PBI Principal Operating Subsidiaries would pay to the PBGC in cash the lesser of (a) the unpaid amount of termination liability or (b) the "Guaranteed Amount, which is the excess of (i) 193% of the FAS87 Accumulated Benefit Obligation for the Pension Plan measured as of August 11, 1995, using the same actuarial assumptions as those used to measure the December 31, 1994 ABO disclosed in the Form 10-K filed by PBI with the Securities and Exchange Commission, over (ii) the market value of assets transferred from the Prior Plan as part of the Dictaphone Acquisition; plus interest on the excess until the date of payment by PBI and its principal operating subsidiaries. Dictaphone believes that the Guaranteed Amount is approximately $5.2-5.3 million. New Employee Benefits Program and Freeze of Pension Plan On December 13, 2000, the L&H Group filed its Motion of L&H Group For Order, Under 11 U.S.C. 105 and 363, Approving and Authorizing (1) Implementation of the New Employee Benefit Program and (2) Freeze of the Dictaphone Pension Plan. The Employee Benefit Program Motion was approved by Order of this Court signed on December 20, 2000. The Employee Benefit Program Order allowed Dictaphone to freeze the Pension Plan with respect to existing participants and benefits accrued thereunder and allowed the implementation of the New Employee Benefit Program, which includes medical benefits, dental benefits, life and AD&D insurance, supplemental life and AD&D insurance, short-term disability, long-term disability, and a 401-K plan. Pursuant to section 10.06 of the Pension Plan and in accordance with the Employee Benefit Program Order, the Chief Executive officer of Dictaphone, Phillippe Bodson, adopted a Resolution of Chief Executive officer, dated as of January 31, 2001, which froze benefit accruals under the Pension Plan. Subsequently, effective as of February 28, 2001, the Pension Plan was amended by a Second Amendment, which implemented the foregoing resolution by amending the eligibility requirement of the Pension Plan to read: "[A]fter February 28, 2001 no Employee shall commence participation in the [Pension] Plan." The Pension Plan currently covers approximately 2600 current and former employees, of which approximately 1730 are active (current) employees, approximately 230 are retired and drawing benefits, and approximately 640 are inactive employees (i.e., former employees who have not retired) who have vested rights under the Pension Plan. Annual Projected Contributions To Pension Plan If the Pension Plan is not rejected, the minimum required contribution of Dictaphone for 2001 will be $326,078.00, to be paid on or before September 13, 2002. The minimum required contribution for 2002 will be based on the market value of the assets of the Pension Plan as of December 31, 2001, including the contribution receivable for 2001 that is payable in September 2002. Based on the 2001 results, Dictaphone has preliminarily estimated that quarterly contributions in the amount of $81,520.00 will be due 2002, for an estimated total payment of $325,000. If the current liability funded ratio is not 80% or more on January 1, 2002, an additional funding charge of $3 to $5 million will have to paid. In 2003 and subsequent years, the current liability funded percentage will have to be 90% in order to avoid additional funding charges. PBGC's Claim For Termination Liability The PBGC has filed proofs of claim against Dictaphone, L&H NV, and L&H Holdings. The P13GC asserts that if the Pension Plan is terminated during the pendency of these cases, Dictaphone and all of its "control group" (as defined in 29 U.S.C. S 1301(a)(14)) members (i.e., L&H NV and L&H Holdings) will be jointly and severally liable on: (1) Unfunded benefit liabilities of the Pension Plan under 29 U.S.C. S 1362(b) that the PBGC claims asserts will be approximately $13.8 million (Dictaphone disputes the amount of this claim); (2) Unpaid minimum funding contributions as may be necessary to satisfy the minimum funding requirements under 26 U.S.C. S 412(c)(11) and 29 U.S.C. 1082(c)(11) (this claim is contingent and unliquidated); and (3) Unpaid premiums under 29 U.S.C. 1307(a) that may become due under the Pension Plan (this claim is also contingent and unliquidated). The PBGC also asserts that pursuant to 11 U.S.C. 507(a)(1), its claims (if any) for unpaid postpetition minimum funding contributions and unpaid postpetition premiums will be entitled to administrative priority. Dictaphone has concluded that there is no benefit to its estate and its creditors in continuing the Pension Plan. Dictaphone believes that the New Employee Benefit Program is a more cost- effective, alternative way to ensure that appropriate benefits are provided to its employees. Accordingly, Dictaphone requests the entry of an order, under Bankruptcy Code section 365(a), authorizing it to reject the Pension Plan. Alternatively, if Judge Wizmur determines that the Pension Plan is not an executory contract capable of assumption or rejection, Dictaphone requests that the Court enter an order providing that all claims against Dictaphone arising under or relating to the Pension Plan shall, to the extent allowed, constitute general unsecured claims against Dictaphone that will be treated in accordance with, and discharged under, a confirmed plan of reorganization for Dictaphone. (L&H/Dictaphone Bankruptcy News, Issue No. 18; Bankruptcy Creditors' Service, Inc., 609/392-0900) LOG ON AMERICA: Settles Remaining Preferred Holders' Claims ----------------------------------------------------------- Log On America, Inc. (OTC Bulletin Board: LOAX.OB) -- http://www.loa.com-- which announced the settlement of its litigation with Promethean Asset Management L.L.C. and HFTP Investments, also announced that it has entered into a settlement agreement, which settled all claims with the remaining holders of its Series A Convertible Preferred Stock and their affiliates. This settlement repairs the capital structure of Log On America, preserves shareholder value, and will allow the company to put its complete attention to growing its business. Pursuant to the settlement with the Remaining Holders, the Company will pay the following amounts and issue the following Promissory Note and Convertible Preferred Stock to them: (1) the sum of $500,000 within three business days of the execution of formal settlement documents, which is expected to occur on or about February 28, 2002; (2) $250,000 on or about May 1, 2002; (3) $500,000 on or about August 1, 2002, plus interest at 8% per annum; (4) on or about February 28, 2002, the Company will execute a three year Promissory Note payable to the Remaining Holders in the amount of $1,750,000, which will bear interest in the amount of 9% per annum, paid semi-annually; (5) on or about February 28, 2002, the Company will issue 500,000 shares of its common stock to the Remaining Holders from a partial conversion of the Series A Preferred Stock according to its terms and the balance of the Series A Preferred Stock will be exchanged for the Series C Convertible Preferred Stock described below; and (6) the Company will issue Series C Convertible Preferred Stock to the Remaining Holders with a face value of $1,725,000, repayable in three years in cash or stock at the Company's election, with a conversion price of $1.25 per share and bearing interest at 9% payable semi-annually. In the event that the Company fails to make any of the payments under (1), (2), (3) or (4) within five business days after notice of a default in payment, judgment may be entered against the Company and in favor of the Remaining Holders in the amount of $5,752,775 less any payments made by the Company in accordance with the above provisions. David R. Paolo, the Company's Chairman and CEO, stated: "We are pleased to have fully and finally resolved our disputes with the Remaining Holders. After investigation, we concluded that the Company's factual allegations against the Remaining Holders, including their affiliates and employees, could not be substantiated and, as a result, we believed it was appropriate to enter into the Settlement Agreement." Mr. Paolo continued: "This agreement brings final rest to the capital structure problems that have plagued Log On America over the past 2 years. Log On America will now have a finite capital structure of approximately 12,000,000 shares including conversion of all classes of Preferred Stock and long-term debt of approximately $6,600,000." Log On America is a full service provider of business communication technologies. We deliver a unique end-to-end customer experience from consultation through professional managed services. Our core services include: Business Telephone & Voicemail Systems, Dial-up & High-speed Internet Access, Web site Creation & Hosting, Integrated Voice & Data Services, Server Collocation, Niche ASP Applications, Managed Service Level Agreements, and Network Consultancy, Architecture & Implementation (LAN,WAN,VPN). Our expertise lies in a wide array of business communication solutions all of which may be customized and scaled to the specific needs of your business today and in the future. MCLEODUSA INC: Will Be Honoring Prepetition Employee Obligations ---------------------------------------------------------------- McLeodUSA Inc., seeks an Order from the Bankruptcy Court giving it permission to honor all prepetition employee-related obligations, including: (a) unpaid prepetition wages, fees, and salaries, bonuses, commissions, holiday and vacation pay, and sick leave pay earned prior to the Petition Date; and reimbursable business expenses incurred before the Petition Date; and (b) employee health and welfare benefit claims arising before the Petition Date (including, without limitation, (i) medical, dental, mental health, prescription drug and vision claims under the Debtor's health care plan, COBRA, (ii) term and supplemental life insurance, accidental death and dismemberment, and long and short-term disability insurance, (111) employee assistance program and flexible spending plan, (iv) workers' compensation claims arising before the Petition Date; and (v) pension and other retirement and supplemental retirement benefits). Randall Rings, McLeodUSA's Group Vice President, Secretary and General Counsel, relates that the Debtor employs 176 salaried or hourly employees. Its workforce and that of the Non-Debtor Affiliates, totaled 8,742 employees. All payroll obligations for employees of both Debtor and Non-Debtor Affiliates are satisfied from the Concentration Account maintained by Debtor. Therefore, despite the fact that the Debtor only has 176 employees, the amounts payable by the Debtor from the Concentration Account for Employee Obligations relate to all employees working for the Debtor and Non-Debtor Affiliates. Mr. Rings says the Debtor has endeavored to isolate amounts payable to just its employees. However, due to the interdependent nature of the Debtor's cash management system, the Debtor is unable to provide separate amounts for all categories of compensation and benefits paid to the Debtor's employees and those paid to employees of Non-Debtor Affiliates. The Debtor's salaried employees are paid bi-weekly and currently, while hourly employees are paid either weekly or bi- weekly and in arrears. In addition, Mr. Rings says, during the course of the year, employees accrue vacation, earned leave, personal time and holiday pay which, under certain circumstances, may be paid in the ordinary course of the Debtor's business during the calendar year. Though the Debtor has remained current on its payroll, as of the Petition Date, the Debtor owed its employees compensation in the form of accrued but unpaid wages, salaries, and commissions in the approximately aggregate amount of $147,397.00. The Debtor seeks authority to pay such accrued compensation as it becomes due and owing in the ordinary course. Based on the length of employment, employees may carry a limited amount of vacation days into the following year. The maximum accrual of vacation time for the most senior employee is six weeks. Employees are allowed to carry personal or sick time into the following year. As of the Petition Date, the cash value of the Debtor's employees' accrued vacation time and unused personal and sick leave was less than $1,000,000. The Debtor requests the authority to continue to accrue such vacation and other leave time in the ordinary course and to pay such accrued time to an employee where such payment would become due under the customary and/or contractual terms and conditions of such Employee's employment. Also, it is the Debtor's policy to reimburse employees for certain expenses within the scope of their employment, including expenses for travel, lodging, meals, supplies and other miscellaneous expenses. The Debtor estimates that, as of the Petition Date, less than $50,000 was owed to employees on account of outstanding reimbursable business expenses. The Debtor requests the authority to pay such accrued prepetition reimbursement amounts. Health and Welfare Benefits The Debtor provides self-funded health and welfare benefits to employees including, but not limited to, (i) medical, dental, prescription drug, mental health, and vision claims under the Debtor's health care plans, and COBRA; (ii) term and supplemental life insurance, accidental death and dismemberment coverage, and long and short term disability insurance; and (iii) employee assistance program and flexible spending plans, home and auto plan, and group legal plan. These plans are administered by third parties. The Debtor also provides workers compensation coverage. As of the Petition Date, the Debtor estimates that the aggregate amount owed for these benefits related to claims of its entire workforce is approximately $5,200,000. The Debtor seeks authority to pay the pre-petition amounts and, in its sole discretion in the ordinary course of business, to continue support for such health and welfare benefits during the pendency of its Chapter 11 case. Based on the past year's history, the Debtor estimates that the monthly cost of continuing such benefits for its entire workforce will be approximately $2,600,000, or approximately $275 per employee per month. With 176 employees, the Debtor estimates its monthly cost of continuing the benefits for its employees to be approximately $47,850. Accepting Mr. Rings contention that the Debtor's failure to to honor their pre-petition employee-related obligations will destroy employee morale, resulting in unmanageable employee turnover during the critical stages of the Company's restructuring and may give rise to litigation from employees seeking payment of benefits due them, Judge Katz grants the Debtor's Motion in all respects. (McLeodUSA Bankruptcy News, Issue No. 2; Bankruptcy Creditors' Service, Inc., 609/392-0900) MERISTAR HOSPITALITY: Completes $200 Million Senior Notes Offer --------------------------------------------------------------- MeriStar Hospitality Corporation (NYSE:MHX), the nation's third largest hotel real estate investment trust (REIT), announced that it had completed the sale of $200 million senior, unsecured notes. The 9.125 percent senior notes are an add-on to the company's existing $200 million in senior notes due in January 2011. "The proceeds of the sale will be used to pay down our revolving credit facility," said John Emery, president and chief operating officer. "The sale of the notes continues our effort to replace bank debt that matures in 2003 with longer term, less restrictive debt. We now have an average maturity of 7.3 years, with less than $250 million of maturities through 2006." Lehman Brothers Inc. was the sole book/lead manager for the sale, and Deutsche Banc Alex. Brown, Salomon Smith Barney, and S.G. Cowen were joint-lead managers. Washington, D.C.-based MeriStar Hospitality Corporation owns 112 principally upscale, full-service hotels in major markets and resort locations with 28,597 rooms in 27 states, the District of Columbia and Canada. The company owns hotels under such internationally known brands as Hilton, Sheraton, Marriott, Westin, Radisson and Doubletree. For more information about MeriStar Hospitality Corporation, visit the company's Web site: http://www.meristar.com METALS USA: Court Okays Salisbury & Newark Asset Sales to Wells --------------------------------------------------------------- No competing bidders appeared at the January 29 Auction of Metals USA, Inc.'s Salisbury and Newark assets and the Debtors advised the Court that no other bids were received. Accordingly, Judge Greendyke approves the Debtors' sale of its facilities in Salisbury, North Carolina, and Newark, New Jersey, to Wells Manufacturing Company under the terms of the Asset Purchase Agreement. The approximate $3,000,000 of sale proceeds will be paid to the DIP Lenders in accordance with the DIP Financing Agreement. (Metals USA Bankruptcy News, Issue No. 7; Bankruptcy Creditors' Service, Inc., 609/392-0900) METATEC INT'L: Inks New Long-Term Financing Pact with Bank Group ---------------------------------------------------------------- Metatec International, Inc. (Nasdaq:META) said that it has entered into a new long-term financing agreement with its current bank group, representing yet another key step toward Metatec's goal to return to profitability. The agreement covers approximately $18 million in debt currently outstanding under a term loan and a revolving credit program. The new agreement runs from February 2002 to April 2004. "We regard this agreement as an important vote of confidence in our business plan," said Christopher A. Munro, president and chief executive officer. "Our overall goal remains the same - to return to profitability by focusing on the growth of our supply chain services business while leveraging and properly sizing our core CD-ROM and DVD manufacturing business." Metatec provides supply chain solutions to major corporations in the U.S. and Western Europe through a variety of services including CD-ROM and DVD manufacturing, product packaging, sub- assembly, procurement, warehousing, distribution and returns management. Munro said that Metatec appreciated the banks' support as new financing agreements were worked out. Munro said that the new agreement is the most recent step in a year-long process to restructure the company and return it to profitability. During the past year, Metatec has: -- acquired new business in its supply-chain services operations, -- sold the assets of its California-based manufacturing plant and eliminated $9.5 million in related lease obligations, -- reduced its workforce by 42 percent, and -- reorganized its sales operations into strategic business units to focus on growth within the computer hardware, software, media/publishing, telecommunications and certain industrial markets. Metatec also announced that it will report financial results for the fourth quarter and 2001 that will include certain restructuring charges and asset writedowns expected to be in the range of between $20 million and $25 million. Most of those charges do not affect Metatec's cash position. They include previously announced restructuring charges related to the closing of Metatec's disc manufacturing operations in California and workforce reductions in Dublin. Metatec is also writing down the carrying value of certain impaired assets following management's assessment of all operations, the current economic environment and future estimated cash flows. Metatec said that it continues to evaluate certain elements of the restructuring charges and writedowns, and that it will provide a definitive amount for the charges when its complete audited financial results for 2001 are announced, most likely by mid- March. Munro added that Metatec has completed a thorough analysis of all operations, and he is focusing his full attention on the key strengths that will drive results in 2002. "We have streamlined Metatec to make it stronger and more focused on the supply chain opportunities we have identified while appropriately sizing our CD-ROM manufacturing business," Munro said. "We believe that we have now addressed the major obstacles to our renewed growth and profitability and look forward to continued progress in the coming year." Metatec International enables companies in the computer hardware, software, telecommunications and media/publishing markets to streamline the process of delivering products and information to market by providing technology driven supply chain solutions that increase efficiencies and reduce costs. Technologies include CD-ROM and DVD manufacturing services, a full range of supply chain management services and secure Internet-based software distribution services. Extensive real- time customer-accessible online reporting and tracking systems support all services. Metatec maintains operations in Ohio and The Netherlands. At September 30, 2001, the company had a working capital deficiency of about $16 million. More information about Metatec is available by visiting the company's Web site at http://www.metatec.com http://www.metatec.nland http://www.irbyctc.com MOONEY AIRCRAFT: Court Allows AASI to Take Over Management ---------------------------------------------------------- Advanced Aerodynamics & Structures, Inc. (OTC Bulletin Board: AASI) announced that it has purchased Congress Financial Corp.'s position as senior secured creditor for Mooney Aircraft Corporation of Kerrville, Texas. On February 6th, the US Bankruptcy Court in San Antonio, Texas, approved an operating agreement which allows AASI to manage Mooney while a plan of reorganization is prepared for approval. Mooney has operated under the protection of Chapter 11 bankruptcy since July 2001. AASI, located at Long Beach Airport, CA is developing a line of high performance turboprop aircraft featuring exceptional safety characteristics and ease of flight. Mooney Aircraft Corporation is the world's leading supplier of high performance single engine general aviation aircraft primarily serving business and owner-flown markets. Mooney has produced over 10,000 aircraft since its founding in 1947, and presently has over 8,000 aircraft in operation in the US alone. AASI intends to acquire Mooney Aircraft's assets, and return to full production of the Mooney Aircraft line. The new company formed from AASI and Mooney's assets will operate under the Mooney name. Citing a unique confluence of events including general aviation tort reform, the availability of several top quality general aviation lines, and the continued degradation in the convenience of airline travel following September 11, Roy Norris, the President and CEO of AASI and the former President of Beach Aircraft summarized the Company's position as follows: "We believe that we are on the doorstep of a major new growth phase in small piston engine, turboprop and micro jet aircraft as the only practical alternative for executive travel for companies with $10 to $100 million in sales. All of us at AASI are very excited about this opportunity." He added, "the acquisition of Mooney's assets is the first step in our strategy to become a leading supplier of piston, turboprop and light jet aircraft for the business and owner- flown general aviation markets. It is our intention to accomplish this objective through both the acquisition of existing high quality general aviation product lines and development of revolutionary new aircraft models. We have received financing commitments to carry out the acquisition of Mooney's assets." Mr. Norris indicated that this strategy would include the continued development of the JETCRUZER 500 as the safest and easiest to fly business/owner-flown aircraft available. To enhance the JETCRUZER 500, the Company plans to evolve the airplane's design with the goals of reducing weight and manufacturing costs and introducing new avionics to enhance safety of flight. The Company believes that the redesigned JETCRUZER 500 will be better positioned to serve as a step-up aircraft from Mooney products through the use of similar interior and panel design schemes. AASI estimates that these design changes to the JETCRUZER 500 will require approximately eighteen months followed by an estimated 12-month flight-testing program, culminating in FAA certification. Commercial production at the Kerrville facility will follow. Mr. Norris stated, "As these JETCRUZER 500 design changes are being completed, the Company will fully integrate the AASI and Mooney operations. Our goals are to create a dynamic new general aviation company, return Mooney to full production and create substantial potential for earnings growth for the Company and its shareholders." It is the Company's intention to keep its headquarters, development and marketing activities in its current Long Beach, California airport facility. Upon integration of the product lines, the Long Beach facility will become a major Mooney factory service and delivery center for all of the Company's aircraft models. All manufacturing for the Mooney line, plus future production of the JETCRUZER 500, is planned for Kerrville, Texas. The Company's immediate priority is to restore Mooney spare parts manufacturing and customer support activities to ensure that Mooney operators can obtain spare parts and service for their airplanes. Work will begin immediately to build inventory levels of parts to permit a near term return to new aircraft production. "A significant component of the factors that drove Mooney into bankruptcy was spiraling costs that were passed along as price increases for Mooney's products. Our intentions are to reverse this cost cycle prior to a return to full production," stated Mr. Norris. "We intend to produce a quality product at a competitive price. The rate of our return to full production will be modulated by our success in achieving these cost reductions," he added. AASI is being advised by Balfour Advisors, LLC, a New York investment firm which provides financial advisory services to companies. Balfour advised AASI in the acquisition of the secured debt of Congress and is assisting in the reorganization of Mooney Aircraft Corp. "We think this is a tremendous opportunity for this seasoned management team to turnaround a brand name franchise. We look forward for our continued involvement with the Company," said Joseph E. Sarachek, President of Balfour Advisors, LLC. Balfour is actively reviewing additional strategic opportunities for AASI. AASI intends to seek further product line acquisitions in the general aviation industry to complement the existing Mooney and JETCRUZER product lines. NATIONAL GOLF: Lenders Forbear Defaults Under Credit Agreement -------------------------------------------------------------- National Golf Properties, Inc., (NYSE:TEE) confirmed that it was in continuing discussions with various stakeholders, including its primary tenant American Golf Corporation, regarding its restructuring efforts. While there can be no assurance that any transaction will be completed, these discussions include, among other things, a possible combination of National Golf Properties and American Golf. In connection with its restructuring efforts, the Company announced that it had reached a forbearance agreement with certain of its lenders on account of defaults under its $300,000,000 unsecured credit facility. The Company had been in default under its credit facility due to American Golf's non- compliance with a certain fixed charge coverage ratio in the Company's credit facility, defaults under the provisions of American Golf's debt instruments and American Golf's failure to be fully current in its lease payments to National Golf Operating Partnership, L.P. (NGOP), a less-than-wholly-owned affiliate of the Company. Separately, in an effort to increase financial flexibility as it focuses on financing and strategic alternatives, the Company announced its plan to suspend dividend payments on common stock. Additionally, NGOP announced that it was suspending distributions to its common and preferred equity holders. The Company and NGOP intend to review future dividend and distribution decisions on a quarterly basis. National Golf Properties is the largest publicly traded company in the United States specializing in the ownership of golf course properties with 136 golf courses geographically diversified among 23 states. NATIONSRENT: Committee & UST Balk At Zolfo's $2.5MM Success Fee --------------------------------------------------------------- The Official Committee of Unsecured Creditors asks the Court to defer its decision on the portion of the NationsRent Inc., and its debtor-affiliates' application providing for payment of a $2,500,000 Consummation Fee to Zolfo Cooper. Neil B. Glassman, Esq., at The Bayard Firm in Wilmington, Delaware, relates that the Committee and its professionals need additional time to review the application and communicate with the Debtors to determine the exact scope of Zolfo Cooper's retention. The Committee has obtained assurances that the Zolfo will not duplicate work performed by any other professional. The Committee, however, still has concerns including verifying if the Debtors intend to hire other professionals based on the same success fee type of arrangement. Mr. Glassman says the Committee thinks the $2,500,000 Consummation Fee is excessive when considered in light Zolfo's significant hourly rates. The payment criteria is also not adequately defined and additional details about the terms of the Fee Structure is necessary regarding the circumstances giving rise to Zolfo Cooper's entitlement of the Consummation Fee. Zolfo Cooper's engagement provides that the payment of Consummation Fee would be required if the firm succeeds in obtaining: A. A consensual restructuring, compromise or extinguishment of a substantial amount of the Debtors' existing indebtedness; B. A final order approving a Reorganization Plan; C. A sale of substantially all of the Debtors' assets. Mr. Glassman finds those statements too open-ended and sufficiently vague to give rise to disputes. The circumstances leading to such payment, Mr. Glassman says, must be described in more detail and the reference to "substantial amount" of indebtedness must be quantified based on some objective measure. Also, the advance approval of the Consummation Fee inappropriate since based on the circumstances of the Debtors' cases, there is no compelling reason why the Consummation Fee should be approved in advance. Mr. Glassman asserts that the perilous situation brought on by the Consummation Fee is made worse by the fact that Zolfo Cooper has the right to receive payment of such fee twelve months after the termination of the engagement. The Committee thinks the Court should reduce the amount of the Consummation Fee and that the payment of that Fee should be conditioned upon a showing of results by Zolfo Cooper. US Trustee Objects The Acting United States Trustee for Region 3, Donald F. Walton, asks the Court to deny the Debtors' application to employ Zolfo Cooper as consultants. Don A. Beskrone, Esq., in Wilmington, Delaware, states that the services in connection with Zolfo Coopers' engagement do not appear to include investment banking services and thus the firm will not be marketing the Debtors' business for sale. The proposed fee structure, meanwhile, includes payment of Zolfo Coopers' standard rates, which are asserted to be representative of prevailing market rates, ranging up to $625 per hour, as well as the payment of a Consummation Fee of $2,500,000. The proposed fee structure does not contain an agreement whereby Zolfo Coopers would credit all or any portion of its hourly compensation against the Consummation Fee. Mr. Beskrone tells the Court that the US Trustee finds Zolfo Coopers' hourly rates to be at the high end of normal market rates. The US Trustee also finds it is inappropriate to pay the firm a Consummation Fee based upon a sale of the Debtors' business when the description of services to be performed indicate that Zolfo Coopers will not be acting as an investment banker for any sale. Even assuming that the Consummation Fee would otherwise be appropriately awarded to a non-investment banker, Mr. Beskrone states that the Consummation Fee which is based solely upon confirmation of a Chapter 11 Plan or sale of substantially all of the Debtors' assets without tying the amount to the results achieved, would appear to provide Zolfo Coopers a windfall. Every Chapter 11 Case, according to him, involves confirmation of a Plan or a sale of assets unless the case in converted or dismissed. Mr. Breskone adds that the proposed success fee is not structured to provide an incentive for Zolfo Coopers to maximize value for the estate. Instead, it is simply a flat amount that would become payable regardless of how well or poorly the creditors are treated in the Chapter 11 case. Although, upon information and belief, Zolfo Coopers has agreed that the entirety of its fees shall be subject to review under and shall not be subject to the protection provided in its terms of engagement, advance approval of the Consummation Fee is inappropriate. According to Mr. Breskone, the Court should only consider the merits of Zolfo Cooper's request for payment of the Consummation Fee only after the vague payment criteria in the engagement letter have been satisfied. "At this time, there is no way that the Court or parties in interest can make a reasoned judgment as to whether ZC should be paid a Consummation Fee for a reorganization which may ultimately prove unsuccessful," Mr. Breskon says. In addition, Mr. Breskone states that the tail provision of the engagement letter of which would permit Zolfo Coopeers the right to receive payment of the Consummation Fee of 12 months after the termination of its engagement, further militates against advance approval of the Consummation Fee. Mr. Breskone adds that Zolfo Coopers should not receive payment of the Consummation Fee if the sale of the Debtors' assets or the successful reorganization of the Debtors' business result primarily from the efforts of other professionals that may also be entitled to payment of similar success fees or bonuses. (NationsRent Bankruptcy News, Issue No. 5; Bankruptcy Creditors' Service, Inc., 609/392-0900) OWENS CORNING: Seeks Six-Month Exclusivity Extension ---------------------------------------------------- Owens Corning, and its debtor-affiliates request, pursuant to 11 U.S.C. Sec. 1121(d), ask for a third extension of the time during which only Owens Corning may file a plan of reorganization and solicit acceptances of that plan. The Debtors ask for a six-month extension, giving them through and including August 2, 2002 to propose and file a plan and through and including October 3, 2002, to solicit creditors' votes on a plan, all without prejudice to the Company's right to seek further extensions of the Exclusive Periods. Norman L. Pernick, Esq., at Saul Ewing LLP in Wilmington, Delaware, argues that the Exclusive Periods are intended to afford the Debtors a full and fair opportunity to rehabilitate their businesses and to negotiate and propose one or more reorganization plans without the deterioration and disruption of their businesses that might be caused by the filing of competing plans of reorganization by non-debtor parties. Although the Debtors have made significant progress towards reorganization since the Petition Date, the Debtors are seeking to further extend each of the Exclusive Periods by an additional six months in order to afford the Debtors additional time to develop a reorganization plan. Mr. Pernick submits that the Debtors' cases are both exceedingly large and complex with scheduled assets in excess of $14,000,000,000 and scheduled liabilities in excess of $11,000,000,000, and a 16,000 employee workforce. Separate and apart from their size, the Debtors' cases are extremely complex as it involves eighteen debtors and dozens of non-debtor entities, whose assets and business operations are spread throughout the United States and numerous foreign countries. Mr. Pernick adds that these cases have complex inter-creditor issues, involving numerous competing creditor groups such as bond holders, an unsecured bank group, trade creditors and those creditors and other parties holding "present" and "future" asbestos claims. The multiple issues between and among these constituencies add layers of complexity to these cases. Separately, Mr. Pernick points out that the asbestos claims in these cases raise many difficult issues for the Debtors' reorganization. Among other things, due to the number of asbestos claims in these cases, which is expected to number in the hundreds of thousands, the Debtors face huge logistical issues with respect to the establishment of bar dates, associated notice issues and the processing of filed asbestos- related claims. These logistical issues also arise in connection with the Debtors' non-asbestos related claims, which although not as numerous as the Debtors' anticipated asbestos claims are expected to number in the tens of thousands. Mr. Pernick contends that to terminate the Exclusive Periods prematurely would deny the Debtors a meaningful opportunity to negotiate with creditors and propose a confirmable plan and, thus, would be antithetical to the purpose of Chapter 11. Termination of the Exclusive Periods at this time and the concomitant threat of multiple plans could lead to unwarranted confrontations, resulting in increased administrative costs. Mr. Pernick believes that the requested extension of the Exclusive Periods will not prejudice the legitimate interests of any creditor or equity security holder. To the contrary, the extension will further the Debtors' efforts to preserve value and avoid unnecessary and wasteful motion practice. Mr. Pernick asserts that the Debtors should be afforded a full and fair opportunity to negotiate, propose and seek acceptances of a Chapter 11 plan. The Debtors submit that the extension requested herein will increase the likelihood of a greater distribution to creditors than would be possible if the Debtors were required to file a plan prior to having such a full and fair opportunity. Accordingly, the Debtors believe that the requested extension is warranted and, indeed, appropriate under the circumstances. A hearing this request is scheduled for February 25, 2002. (Owens Corning Bankruptcy News, Issue No. 27; Bankruptcy Creditors' Service, Inc., 609/392-0900) PHAR-MOR INC: Net Loss Tops $7.8 Million in 2002 2nd Quarter ------------------------------------------------------------ Phar-Mor, Inc., (OTC: PMORQ) announced the results for its second quarter of fiscal 2002, the thirteen weeks ended December 29, 2001. The Company reported a net loss of $7,007,000 for the thirteen weeks ended December 29, 2001 compared to a net income of $7,842,000 the comparable thirteen weeks ended December 30, 2000. The current quarter results include a credit for reorganization items of $4,849,000 while the prior year results include an extraordinary gain on the early extinguishment of debt of $17,097,000. Comparable store sales for the continuing 74 stores declined 16.4% from $226,481,000 in the thirteen weeks ended December 30, 2000 to $189,361,000 in the thirteen weeks ended December 29, 2001. Comparable store pharmacy sales increased 5.0% while comparable store front-end sales decreased 25.3%. Front-end sales were negatively impacted by interruptions in supply prior to and after the Company's bankruptcy filing on September 24, 2001. The Company did not advertise the first two weeks in October as a result of the difficulty in obtaining sufficient quantities of goods for products featured in its weekly advertising circulars. (For a more detailed discussion of the Company's financial results for the thirteen weeks ended December 29, 2001, please refer to the company's Form 10-Q filed on February 8, 2002, with the Securities and Exchange Commission at http://www.sec.gov). On November 12, 2001 the Company issued its condensed consolidated financial statements for the thirteen weeks ended September 29, 2001. These financial statements included the Company's equity in Chemlink's and Avatex's losses based on information provided by Chemlink and Avatex as of the filing date. Avatex Corporation is the Company's principal shareholder. Subsequent to the issuance of these financial statements, management determined that Chemlink and Avatex recognized additional losses over the amount previously reported to the Company, which was due to an impairment charge recorded against certain patents held by Chemlink. As a result, the Company has restated its condensed consolidated financial statements for the three months ended September 29, 2001 to recognize an additional $2,423,000 of equity in the losses of Chemlink and Avatex, the amount necessary to reduce both of the investments to zero. The Company does not have any commitment to provide future financial support to Chemlink or Avatex, therefore, pursuant to generally accepted accounting principles, the Company will not recognize its equity in any additional losses of Chemlink or Avatex. Phar-Mor is a retail drug store chain operating 74 stores in 8 states. The company filed for Chapter 11 reorganization in the U.S. Bankruptcy Court for the Northern District of Ohio on September 24, 2001. PINNACLE HOLDINGS: S&P Junks Ratings on Likely Bankruptcy Filing ---------------------------------------------------------------- Standard & Poor's lowered its ratings on Pinnacle Holdings Inc. and subsidiary Pinnacle Tower Inc. The ratings remain on CreditWatch with negative implications. The downgrade is based on the company's public statements that it may have to file for bankruptcy protection because Pinnacle Tower's forbearance agreement with senior bank lenders prohibits it from distributing funds to its parent for servicing of interest payments on Pinnacle Holdings' $200 million 5.5% convertible subordinated note issue. Failure to pay interest on the convertible subordinated notes could result in an acceleration of repayment of the notes as well as other debt. Ratings Lowered and Remaining on CreditWatch Negative Pinnacle Holdings Inc. TO FROM Corporate credit rating CC CCC+ Senior unsecured debt C CCC- Pinnacle Towers Inc. $285 mil. secured revolving credit facility* CC CCC+ $125 mil. secured term loan* CC CCC+ $110 mil. secured term loan* CC CCC+ *Guaranteed by Pinnacle Holdings Inc. PRANDIUM INC: Unit Bolts on Deal to Sell Hamlet Group to Othello ---------------------------------------------------------------- Prandium, Inc. (OTC Bulletin Board: PDIM), announced that on February 6, 2002 its wholly owned subsidiary FRI-MRD Corporation terminated the Stock Purchase Agreement between it and Othello Holding Corporation for the sale of The Hamlet Group, Inc., the operator of the 14 unit Hamburger Hamlet restaurant chain. The agreement, executed on October 23, 2001, was terminated in accordance with certain provisions therein. As previously disclosed in its public filings and press releases, Prandium is currently negotiating with certain of its creditors, including Foothill Capital Corporation as the provider of its credit facility, the holders of FRI-MRD Corporation's outstanding long-term debt and some of the holders of Prandium's outstanding long-term debt, to reach agreement on an acceptable capital restructuring of the Company and its subsidiaries and to that end has negotiated and executed a term sheet with an authorized representative of holders of a majority of the FRI-MRD long-term debt. This term sheet requires, as part of the capital restructuring, the sale of the Hamburger Hamlet business and therefore to fulfill the terms of the term sheet, the Company must find an acceptable buyer. Prandium continues to explore and develop opportunities to sell the Hamburger Hamlet business, including to Othello. Although the Company has not met certain deadlines contained in the term sheet, the term sheet has not been terminated by the representative of the FRI-MRD long-term debt holders. As currently contemplated, in addition to the sale of the Hamburger Hamlet business, the restructuring would involve a prearranged or prepackaged plan of reorganization to be implemented through the commencement of cases by Prandium and FRI-MRD Corporation under chapter 11 of the United States Bankruptcy Code. In light of the amount that the Company owes to creditors and the size of the Company's operations, the Company does not anticipate that, under any such prearranged or prepackaged plan, there will be value available for distribution to its current stockholders or the holders of Prandium's 10-7/8% subordinated notes. All restaurants continue operations. Prandium does not currently plan that any prearranged or prepackaged chapter 11 filing would involve any of its operating subsidiaries (Chi-Chi's, Koo Koo Roo and Hamburger Hamlet). The Company believes its available cash balances will provide sufficient financial resources to fully fund operations during the anticipated restructuring period. Prandium continues to support its Koo Koo Roo, Chi-Chi's, and Hamburger Hamlet restaurants (approximately 190 locations) and their customers with the same high quality customer service it has always provided. In addition, Prandium continues to maintain all normal business functions including marketing and concept development activities designed to generate new business. Prandium cannot provide any assurance that it will be able to sell the Hamburger Hamlet business on acceptable terms as required by the FRI-MRD term sheet, that it will be able to reach an acceptable agreement with its creditors on a capital restructuring, on the terms of such an agreement, or on such an agreement's effect on the Company's operations. If the Company cannot reach such an agreement, it will need to consider other alternatives, including, but not limited to, a federal bankruptcy filing without a prearranged or prepackaged reorganization plan. There can be no assurance that the Company would be able to reorganize successfully in such a proceeding. Under any circumstances, the Company does not anticipate that there will be value available for distribution to its current stockholders or the holders of Prandium's 10-7/8% subordinated notes. Prandium operates a portfolio of full-service and fast-casual restaurants including Hamburger Hamlet, Koo Koo Roo, and Chi- Chi's in the United States. Prandium, Inc. is located at 2701 Alton Parkway, Irvine, CA 92606. To contact the Company call (949) 863-8500, or the toll-free investor information line at (888) 288-PRAN, or link to http://www.prandium.com PSINET INC: Court Extends Exclusive Plan Filing Time to April 30 ---------------------------------------------------------------- PSINet, Inc., and its debtor-affiliates sought and obtained a second extension of their exclusive period to file a plan through and including April 30, 2002, and a further extension of their exclusive period to solicit acceptances of that plan through and including July 1, 2002. The Debtors tell Judge Gerber that their personnel and outside advisors have been consumed during the first eight months of these chapter 11 cases with a myriad of issues that have been complex and time intensive. At this juncture, there is genuine and legitimate need for an extension of the exclusive periods, the Debtors represent. Based on the factors that courts examine in granting extensions, the Debtors believe that ample cause exists for the requested extension. First, the PSINet cases are large and complex, involving 26 separate debtors with several thousand creditors and approximately $4.3 billion in estimated indebtedness and non- debtor subsidiaries in numerous countries around the world, the Debtors reiterate. Second, significant progress has been made in these cases toward reorganization, the Debtors submit. The Debtors' attorneys at Wilmer, Cutler tell the Court that the Debtors have worked diligently in their efforts to stabilize their business operations and to implement certain restructuring strategies for the benefit of their estates and creditors. In addition the myriad of issues handled and advancements made in the reorganization process (previously reported in the newsletter), the Debtors draw the Court's attention to certain significant matters which they have addressed: * gaining the support and confidence of their creditor body, * developing an effective restructuring strategy. * exploring a number of different reorganization alternatives including different asset dispositions and stand-alone approaches. * pursuing a dual track approach -- marketing businesses for sale while simultaneously developing and analyzing a stand- alone business plan which could serve as the basis for a plan of reorganization. The Debtors advise that in the upcoming months, they may be in a position to determine whether a potential sale of their business or a stand-alone reorganization is in the best interest of these Chapter 11 estates. With the assistance of their financial advisors, the Debtors have been engaged in an extensive marketing effort for their businesses - both as a world-wide concern and as various regional and business segments. The Debtors will negotiate in good faith with Cogent toward a sale of their U.S. business, but are not bound to enter into a definitive sale agreement with Cogent The Debtors estimate that they have received or will receive approximately $25 million from the sale of various businesses and assets already approved by the Court. The Debtors reassure that they are not seeking to extend the Exclusive Periods to pressure creditors to accede to any reorganization demands and they are paying their debts as they come due. Further, extending the Exclusive Periods in these cases will not prejudice the legitimate interests of any creditor or equity security holder and will afford the parties the opportunity to pursue to fruition the beneficial objectives of a consensual plan of reorganization, the Debtors tell Judge Gerber. The Debtors indicate that the Committee supports the proposed extension of the Exclusive Periods. (PSINet Bankruptcy News, Issue No. 14; Bankruptcy Creditors' Service, Inc., 609/392-0900) RELIANCE GROUP: Obtains 90-Day Extension of Exclusive Periods ------------------------------------------------------------- Pursuant to Section 1121(b) of the Bankruptcy Code, Reliance Group Holdings, Inc., and Reliance Financial Services sought and obtained an extension of their exclusive periods during which to propose and file a plan of reorganization and solicit creditors' acceptance of that plan. Steven R. Gross, Esq., at Debevoise & Plimption, tells Judge Gonzalez that Reliance has made progress toward formulating a reorganization plan. However, a number of factors have delayed this goal, principally, the time and resources spent responding to the numerous objections and motions filed by the Pennsylvania Insurance Department. Mr. Gross says that the Committees stand by the Debtors in their efforts to defend the estates against "the barrage of litigation launched by the Pennsylvania Insurance Department." This distraction has only recently allowed the Debtors and the Committees the opportunity to resume negotiations about a plan of reorganization. In addition, Mr. Gross asserts that there are complicated tax issues that need resolution. Therefore, the Debtors need additional time to continue negotiations with the Committees and investigate the tax issues. Mr. Gross assures the Court that the purpose of this request is to preserve the value of the estate, not to prejudice creditors. The Debtors have attempted to preserve assets and have kept expenditures for administrative and maintenance expenses as low as possible. The Debtors obtained a 90-day extension of their exclusive periods. This means the Debtors' exclusive period during which to propose and file a plan of reorganization will expire on May 8, 2002, and the Debtors' exclusive solicitation period expires on July 8, 2002. This request is without prejudice to the Debtors' right to seek further extensions. (Reliance Bankruptcy News, Issue No. 19; Bankruptcy Creditors' Service, Inc., 609/392-0900) ROUGE INDUSTRIES: Working Capital Deficit Tops $42MM in Q4 2001 --------------------------------------------------------------- Rouge Industries, Inc. (NYSE: ROU) reported a net loss of $14.1 million, for the fourth quarter of 2001. The fourth quarter loss is net of a one-time gain totaling $25.7 million associated with the settlement of two contractual disputes. In one case, Rouge Steel, the Company's primary operating subsidiary, and Ford Motor Company settled certain claims related to the 1999 Powerhouse explosion. The settlement of these claims and adjustments relating to the Company's remaining obligations resulted in a one-time non-cash profit effect of $17.2 million. The Company also settled a claim related to an energy supply contract, which resulted in a one- time profit and cash flow effect of $8.5 million. Also, at the end of the 2001 fourth quarter, the company's balance sheet showed that its total current liabilities exceeded its total current assets by about $42 million. Shipments in the fourth quarter totaled 619,000 tons, 53,000 tons or 9.4% higher than the fourth quarter of 2000. Sales in the fourth quarter totaled $223.5 million, down $7.2 million or 3.1% from a year ago. Full Year 2001 The Company reported a net loss of $111.5 million for the year ended December 31, 2001. This loss is net of a one-time gain of $88.8 million associated with the settlement of claims relating to the 1999 Powerhouse explosion ($80.3 million) and an energy supply contract ($8.5 million). Shipments and sales in 2001 totaled 2.4 million tons and $923.5 million, down 5.1% and 16.0%, respectively, from 2000. Chairman's Comments "2001 was a year of contradictions for our Company and the U.S. steel industry in general. Although the U.S. experienced its third best automotive sales year, domestic steel industry shipments were down nearly 10% and an increasing number of steel companies sought bankruptcy protection or shut down completely," remarked Carl L. Valdiserri, the Company's chairman and chief executive officer. "The conditions that led to steel company failures were primarily attributable to liquidation-level pricing for steel products caused by the continuing effects of low-priced and unfairly traded steel imports into our country. Now, as we approach the Section 201 remedy decision by the Bush Administration, we have witnessed some semblance of price improvement due to domestic steel company closures and less aggressive actions from importers, which we believe is a temporary and preemptive attempt by foreign producers to mitigate the level and scope of tariffs and quotas that potentially will be imposed on them. "We are encouraged that key members of the domestic steel industry, including major integrated and mini-mill companies, have reached agreement on a proposed restructuring plan that addresses the primary obstacles to consolidation. We are hopeful that the Bush Administration and Congress will give favorable consideration to the elements of this plan in recognition of the painful consequences of inaction. "Despite a very difficult year, we maintained our focus on the needs and expectations of our customers. Rouge Steel led all of its competitors in implementing cost reduction suggestions at one of its largest automotive customers. Our Advanced Materials Engineering group expanded the scope and level of its structural design and analysis capabilities to further improve the cost, quality, weight and safety advantages of steel products in vehicles. Rouge Steel continued to upgrade its strong hot dip galvanized order book and expand its sale of high carbon and alloy products. "I am particularly pleased that through the dedicated efforts of our people, on December 14, 2001, Rouge Steel earned ISO 14001 certification by Lloyd's Register Quality Assurance," added Mr. Valdiserri. ISO 14001 is the internationally recognized standard for environmental management systems, which Ford Motor Company, DaimlerChrysler and General Motors Corporation are now requiring from their leading suppliers. "We are also very proud that Rouge Steel recently received DaimlerChrysler's Director's Award for 2001. The Director's Award is presented to those suppliers that have demonstrated the best overall performance to DaimlerChrysler's Balanced Score Card metrics including Quality, Delivery, Technology and Cost. This is particularly gratifying since it comes barely ten months after being named General Motors Flat Rolled Steel Supplier of the Year for 2000. Both awards signify Rouge Steel's continuing commitment to supplying the best products and services to its customers," concluded Mr. Valdiserri. Double Eagle Update On December 15, 2001, a fire in the upper plating section halted production at Double Eagle Steel Coating Company, a Dearborn based electrogalvanizing line jointly owned and operated by United States Steel Corporation (NYSE: X) and Rouge Steel. All employees were safely evacuated from the facility. Rouge Steel has already made arrangements to reallocate its portion of Double Eagle's production to other domestic coating facilities. The Company does not anticipate any lost sales as a result of the fire. Rouge Steel has an insurance program that provides coverage for damage to property destroyed, interruption of business operations and expenses incurred to minimize the period of disruption to operations. The Company believes that its share of such damages and losses will be substantially covered by its insurance program above a $7.5 million deductible. The Company incurred fire- related expenses totaling $700,000 in the fourth quarter but will not report any insurance recovery until costs incurred are in excess of the deductible. It is expected that this will occur during the first quarter of 2002. At this point, Rouge Steel and U.S. Steel are assessing the damage and determining the costs and time necessary to repair Double Eagle. Once the owners agree on a course of action, a separate announcement will be issued. Liquidity The Company closed on a new credit facility during the fourth quarter of 2001, which provides up to $75 million in additional liquidity to meet the Company's cash requirements in the months ahead. Although this new subordinated agreement was initially set to expire on March 29, 2002, the Company has since reached an agreement to have this facility extended through December 31, 2002. The Company is continuing negotiations with its lender to achieve a further extension into 2003. "The Company's debt at the end of December 2001 totaled $145.5 million, $16.3 million higher than the end of the third quarter and $79.0 million higher than year-end 2000," said Gary P. Latendresse, vice chairman and chief financial officer. "The increase in debt is the result of low steel selling prices, a weakened U.S. economy and less favorable sales mix. We are pleased that we were able to reach a conclusion on certain financing matters and contractual issues late last year. In the first quarter, spot market selling prices have begun to strengthen and sales volumes are at reasonable levels. Although cash will remain a concern, if the Bush Administration implements meaningful and comprehensive Section 201 import restraints in early March, conditions for the domestic steel industry should continue to improve in 2002. We are grateful for our many customers and suppliers who have offered their support and assistance to Rouge Steel during this very difficult period for our Company, our industry and our country," concluded Mr. Latendresse. NYSE Notice The Company also announced that it has been notified by the New York Stock Exchange ("NYSE") that its share price had fallen below the continued listing criteria relating to the minimum share price. The NYSE requires an average closing price of not less than $1.00 per share over a consecutive 30-day trading period. The Company's share price closed under $1.00 from shortly after September 11 until the end of November. Following such notification by the NYSE, the Company is required to return its share price and average share price to above $1.00 within six months or face possible delisting. The Company is currently pursuing alternatives that will bring its share price into compliance with NYSE requirements. However, in the event that the NYSE undertakes delisting procedures with respect to Rouge Industries' shares, the Company believes that an alternate trading venue would be available. The Company's share price closed above $1.00 on December 3, 2001, and, except for December 19, 2001, has remained at or above that level since then. SAFETY-KLEEN: Wants to Expand Arthur Andersen's Audit Engagement ---------------------------------------------------------------- Safety-Kleen Corporation and its related and subsidiary Debtors bring a second Application for an Order further modifying and expanding the Debtors' employment and retention of Arthur Andersen LLP as auditors, accountants and tax advisors to these chapter 11 estates, nunc pro tunc to June 29, 2000, and authorizing Andersen to be compensated retroactively for these additional services. The Debtors remind Judge Walsh that on September 14, 2000, he entered his Order authorizing the nunc pro tunc employment of Andersen as auditors and accounting advisors to the Debtors retroactive to June 29, 2000. In May 2001 the Debtors brought their first Application for an Order expanding and modifying the scope of employment of Andersen as auditors, accounting and tax advisors to the Debtors. By this Application, the Debtors sought to encompass the additional services identified in six engagement letters attached to the Application. These additional services included (i) a review of the processes and supporting systems for the Debtors' various finance, accounting and administrative functions; (ii) development of recommendations for the improvement of these functions; (iii) assistance to the Debtors' staff, as needed, with the implementation of such recommendations; (iv) audit of the Debtors' consolidated balance sheet as of August 31, 2001, together with the related consolidated statements of income and cash flows for the year then ending; (v) review of the quarterly financial information to be included in the Debtors' reports filed with the Securities & Exchange Commission; (vi) providing personnel to assist the Debtors' accounting staff in accumulating and analyzing information required for the completion of the financial statements; (vii) providing personnel to assist the Debtors with various tax-related matters; and (viii) assistance with the preparation of income and property tax returns to be filed in Puerto Rico. On July 19, 2001, Judge Walsh entered his Order granting this Application nunc pro tunc, and declared that Andersen was to be compensated for the additional services in accordance with the terms of the various engagement letters. Subsequent to the entry of the Order granting the Application for expanded services, the Debtors identified three respects in which the order needed to be supplemented. These are: (i) the need to include certain exhibits which were omitted from an attachment to the previous Order approving an expanded scope of employment for Andersen; (ii) to expand Andersen's engagement to include certain audit services to Safety-Kleen Envirosystems Company of Puerto Rico, Inc., and (iii) to clarify the expanded scope order as to reimbursement of certain fees. To that end, on September 28, 2001, the Debtors brought an Application to Supplement Order Expanding Scope of Employment and Retention of Arthur Andersen. After discussions with the United States Trustee, the Debtors submitted a revised Expanded Scope Order which clarified the scope of attorney's fees for which Arthur Andersen could seek reimbursement. This Order has not been entered by Judge Walsh. The Debtors say they are not aware of any pending objections to the Supplemental Application, and await Judge Walsh's entry of their proposed Order. The Debtors have now identified six further areas in which the scope of Arthur Andersen's engagement should be modified and expanded. Accordingly, the Debtors bring this Application seeking an Order further modifying and expanding the scope of Arthur Andersen's engagement. Accounting Assistance First, by an additional Engagement Letter dated March 23, 2001, Arthur Andersen agreed to provide personnel to assist the Debtors' accounting staff's anticipated completion of the work described on or before December 31, 2001. The Debtors have determined that this deadline is not feasible. Accordingly, this Additional Engagement Letter should be amended to extend the deadline for expiration of the engagement until such time as the Debtors determine that their quarterly and annual financial statements for fiscal 2001 and prior periods have been completed. Tax-Related Matters Second, the Additional Engagement Letter dated May 4, 2001, by which Andersen agreed to assist in specified tax-related matters, anticipated completion of the work described on or before December 31, 2001. Again, the Debtors have determined that this deadline is not feasible. Accordingly, this Additional Engagement Letter should be amended to extend the deadline until the earlier of (i) December 31, 2002 and (ii) the date the Debtors confirm a plan of reorganization in these cases. Finance And Accounting Processes Third, the Additional Engagement Letter dated February 1, 2001, provides that for each specific function within finance and accounting for which Arthur Andersen is asked to review and evaluate processes, Arthur Andersen will prepare a rider to this arrangement letter that outlines the detailed scope for that respective effort. Consistent with that letter, Arthur Andersen and the Debtors have prepared and executed such a rider with respect to the next phase of process review to be performed by Arthur Andersen. The Debtors believe that the Form Rider and the review and evaluation described in that Rider are appropriate and consistent with Arthur Andersen's previously approved engagement, and that they and all future riders in substantially the same form as the Form Rider should be approved. Plan And Tax Services Fourth, the Additional Engagement Letter dated March 31, 2001, provided an initial estimate of $3,000,000 for the fees to be incurred in auditing the Debtor's consolidated financial statements for the year ending August 31, 2001. This estimate contemplated that the annual financial statements and supporting audit documentation would be completed by November 2001. This deadline has proven not feasible. The resulting change in timing has increased the overall cost of the engagement, such that fees for the services referred to in the Additional Engagement Letter dated March 31, 2001 are now estimated to be approximately $4,250,000 to $4,750,000, assuming no further changes in timing. The Debtors submit that these audit services remain vitally important to their bankruptcy estates, and request that Judge Walsh confirm Andersen is authorized to continue working on this portion of the engagement consistent with the revised estimate. Tax Implications Of Plan Fifth, the Debtors have now determined that they require assistance and advice regarding the tax implications of any proposed plan of reorganization and other tax-related matters. Arguably, the Plan and Tax Services are within the scope of the Additional Engagement Letter authorizing assistance on tax- related matters. However, to avoid any uncertainty or ambiguity on this issue, the Debtors are seeking confirmation that Andersen is authorized to perform the Plan and Tax Services. The Debtors submit that the Plan and Tax Services are essential, warranted, and appropriate, and that, to the extent necessary, the scope of Arthur Andersen's engagement should be expanded to include such services. Reimbursement of AA's Attorney's Fees The Debtors further submit that Andersen should be reimbursed for the attorneys' fees incurred in connection with the performance of the Plan and Tax Services to the same extent as allowed for the other Additional Services. CSD Audit Services & More Fees The Debtors have determined that they require Andersen's services in connection with the audit of consolidated balance sheets as of August 31, 2001, August 31, 2000, and August 31, 1999 of the Debtors' Chemical Service Division. As the Court is aware, the Debtors are presently pursuing the potential divestiture of certain of the Debtors, significance assets and businesses. The Debtors thus submit that Andersen's employment to perform the CSD Audit Services is necessary and appropriate and should be approved by the Court. The Debtors further submit that Andersen should be reimbursed for the attorneys' fees incurred in connection with the performance of the CSD Audit Services, to the same extent as allowed for the other Additional Services. (Safety-Kleen Bankruptcy News, Issue No. 26; Bankruptcy Creditors' Service, Inc., 609/392-0900) SAKS INC: Comparable Store Sales Rise 2.1% in January ----------------------------------------------------- Retailer Saks Incorporated (NYSE:SKS) announced that comparable store sales for the four weeks ended February 2, 2002 compared to the four weeks ended January 27, 2001 increased 2.1% on a total company basis. On a calendar-adjusted basis, comparing the four weeks ended February 2, 2002 to the four weeks ended February 3, 2001, comparable store sales increased 1.7% on a total company basis. Sales below are in millions and represent sales from owned departments only. On a fiscal calendar basis, for the four weeks ended February 2, 2002 compared to the four weeks ended January 27, 2001, owned sales were: Total Comparable Increase Increase This Year Last Year (Decrease) (Decrease) ------ ------ --- --- SDSG $183.4 $178.0 3.0% 7.9% SFAE 145.1 156.1 (7.0%) (4.4%) ------ ------ --- --- Total $328.5 $334.1 (1.7%) 2.1% On a calendar-adjusted basis, comparing the four weeks ended February 2, 2002 to the four weeks ended February 3, 2001, comparable store sales increases (decreases) were: SDSG 6.5% SFAE (3.9%) ------ Total 1.7% R. Brad Martin, Chairman and Chief Executive Officer of Saks Incorporated, noted, "While January is primarily a clearance- driven period, we are seeing positive momentum at SDSG attributable to the execution of our customer-focused strategies and the diversification of SDSG's market position. SFAE's results reflect an underlying improvement in the sales trends from the depressed levels experienced in prior months. Additionally, the Company achieved its inventory objectives in regard to both level and composition, ending the fiscal year with consolidated comparable store inventories down approximately 9% from last year's levels." Comparable store sales for the Saks Fifth Avenue flagship store in New York City, which represents approximately 7% of total Company sales and approximately 17% of total SFAE sales on a normalized annual basis, declined approximately 3% for January on a fiscal basis and 1% on a calendar-adjusted basis. For the 13 weeks ended February 2, 2002 compared to the thirteen weeks ended January 27, 2001, owned sales were: Total Comparable This Year Last Year (Decrease) (Decrease) -------- -------- --- --- SDSG $1,179.1 $1,267.7 (7.0%) (2.0%) SFAE 715.8 753.3 (5.0%) (3.4%) -------- -------- --- --- Total $1,894.9 $2,021.0 (6.2%) (2.5%) On a year-to-date basis for the 52 weeks ended February 2, 2002 compared to the 52 weeks ended January 27, 2001, owned sales were: Total Comparable This Year Last Year (Decrease) (Decrease) -------- -------- --- --- SDSG $3,601.0 $3,842.6 (6.3%) (2.1%) SFAE 2,419.8 2,603.5 (7.1%) (7.8%) -------- -------- --- --- Total $6,020.8 $6,446.1 (6.6%) (4.5%) Merchandise categories with the best sales performances for SDSG in January were women's apparel (better, moderate, and special sizes), junior's apparel, and children's apparel. Categories with softer sales performances for SDSG in January were soft home, dresses, and intimate apparel. Categories with the best sales performances for SFAE in January were women's contemporary sportswear, bridge women's apparel, bridal, and fine jewelry. Categories with the softest sales performances for SFAE in January were women's designer apparel, outerwear, and men's apparel. Saks Incorporated operates Saks Fifth Avenue Enterprises (SFAE), which consists of 61 Saks Fifth Avenue stores and 51 Saks Off 5th stores. The Company also operates its Saks Department Store Group (SDSG) with 41 Parisian specialty department stores and 202 traditional department stores under the names of Proffitt's, McRae's, Younkers, Herberger's, Carson Pirie Scott, Bergner's, and Boston Store. * * * As reported in the Feb. 1, 2002, edition of Troubled Company Reporter, Standard & Poor's assigned its double-'B'-plus rating to Saks Inc.'s $700 million senior secured bank credit facility that expires in November 2006. At the same time, Standard & Poor's affirmed its double-'B' corporate credit and senior unsecured debt ratings on Saks. The preliminary double-'B' senior unsecured and preliminary single- 'B'-plus subordinated ratings on the company's shelf registration were also affirmed. The outlook is negative. SHILOH INDUSTRIES: S&P Cuts Ratings Citing Near-Term Concerns ------------------------------------------------------------- Standard & Poor's lowered its ratings on Shiloh Industries Inc. At the same time, the ratings remain on CreditWatch with negative implications, where they had been placed December 12, 2001. The rating actions reflect Standard & Poor's increased concern over the company's near-term operating outlook and the belief that the company's financial flexibility has become quite constrained. Shiloh produces blanks, stamped components, and modular assemblies primarily for the North American automotive and heavy-duty truck industry. The company also performs intermediate steel processing for steel producers. The ratings reflect the company's leveraged capital structure, limited financial flexibility, and exposure to cyclical and competitive markets. Shiloh's operating results have come under pressure in recent quarters due to softness in its end markets. The company recently named a new CEO and cited this action as a reason for delaying the filing of its 10K for fiscal year 2001 (fiscal year-end is October.) In its notification of the late filing to the SEC, Shiloh also stated that the results of operations of the company for fiscal year 2001 will be significantly worse than the operating results for fiscal year 2000. Specifically, the company stated that it had experienced a significant increase in net loss due to the overall decline in the automotive and heavy truck markets. Previous ratings had been based on an expectation that cost- cutting actions would help offset industry pressures and lead to improved operating results. However, given the company's characterization of fiscal 2001 results and continuing difficult industry fundamentals, Standard & Poor's no longer believes that Shiloh will be able to achieve the expected improvement. Debt to EBITDA at July 31, 2001, was close to 6 times and will likely be higher at fiscal year-end. Shiloh has limited flexibility for dealing with a period of extended industry pressures. In May 2001, Shiloh amended its revolving credit facility. At July 31, 2001, the company was in compliance with covenants and had $72 million in borrowing capacity under its bank lines. However, with the continued softening in Shiloh's end markets in subsequent months, Standard & Poor's believes that liquidity pressures have increased and that the company is probably facing covenant issues. Although Shiloh is public company, it is 56%-owned by MTD Products Inc. (MTD), a private company, and operates as a stand- alone entity. The ratings reflect Shiloh's financial and business profile on a stand-alone basis due to its lack of strategic importance to MTD, the arm's-length relationship between the two companies, Shiloh's independent capitalization, and separate bank agreements. Standard & Poor's will assess Shiloh's financing and investment requirements, sources of liquidity, and earnings and cash generating potential over the near to intermediate term. If it appears that the company will face continued earnings weakness and increased liquidity pressures, the ratings are likely to be lowered again. Ratings Lowered; Remain on CreditWatch Negative Shiloh Industries Inc. TO FROM Corporate credit rating B- BB- Senior secured debt B- BB- STOCKWALK GROUP: Files Chapter 11 Petition with Prepackaged Plan ---------------------------------------------------------------- Stockwalk Group, Inc. (Nasdaq: STOK), filed a reorganization petition under Chapter 11 of the U.S. Bankruptcy Code. Under the proposed plan of reorganization, Stockwalk will pay its creditors 72% of annual net income (as defined in the plan) until all creditors are paid in full. Details are contained in the Plan of Reorganization and Disclosure Statement, which will be filed with the court on February 12, 2002. The plan has the support of a committee of Stockwalk's creditors. David Johnson, the company's chief executive officer, views the reorganization as an opportunity for the company to make a fresh start. "Unfortunately, without the reorganization, the company could not survive and our creditors would only receive pennies on every dollar. However, with this plan in place, the company has a chance to be profitable once again, and the creditors will be the primary beneficiaries of that profitability." Based in Minneapolis, Minn., Stockwalk Group, Inc., is the parent company of Miller Johnson Steichen Kinnard, Inc., a full- service brokerage firm of 300 investment executives in six states; and Stockwalk.com, Inc., an online trading company (AOL keyword: Stockwalk). Stockwalk Group, Inc. common stock trades on the Nasdaq Stock Market under the symbol STOK. Its broker dealer subsidiaries are members of the National Association of Securities Dealers (NASD) and the Securities Investor Protection Corporation (SIPC). For more information, visit http://www.stockwalkgroup.comor contact mkyler@stockwalk.com SUN HEALTHCARE: Court Okays Ernst & Young as Debtors' Advisors -------------------------------------------------------------- Judge Walrath approves Sun Healthcare Group, Inc., and its debtor-affiliates' application to employ Ernst & Young as its medical compliance, risk and quality management advisors nunc pro tunc to November 16, 2001, provided that this portion of the Engagement Letter is deleted and shall be of no force and effect: "Ernst & Yong LLP's total aggregate liability under this Agreement or with respect to the services provided hereunder will be limited to the fees to be received by Ernst & Young LLP under this Agreement. In no event will Ernst & Young LLP be liable for consequential, incidental, indirect, punitive, or special damages, including loss of profits, date, business, or goodwill (collectively, "Excluded Damages"), even if advised of the likelihood of such damages. Recourse with respect to any liability or obligation of Ernst & Young LLP hereunder will be limited to the assets of Ernst & Young LLP, and no one will have recourse against, or will bring a claim against, any partner or employee or Ernst & Young LLP or any of the assets thereof. The provisions of this paragraph (i)will operate for the benefit of, and will be enforceable by, any Ernst & Young LLP International member or affiliated firm that is providing services hereunder with Ernst & Young LLP, and (ii) will apply to SUN and will apply regardless of whether Excluded Damages or liability is based upon breach of contract, tort, failure of essential purpose, or any other basis." Ernst & Young will assist the Debtors in complying with its Corporate Integrity Agreement obligations and that the Firm is expected to: (i) address the Debtors' need for clinical quality improvement by providing comprehensive performance measures which enable quality improvement targets to be identified; (ii) generate facility-specific reports immediately usable by clinical and administrative managers in order to improve facility operations; (iii) address the Debtors' need for corporate integrity by introducing software which will help prevent false claims; (iv) provide reports that assist executives with the identification of strengths and weaknesses of particular facilities, regions and managers; (v) address the Debtors' need for fair reimbursement by helping to identify inaccurate reporting of a patient's clinical status. (Sun Healthcare Bankruptcy News, Issue No. 31; Bankruptcy Creditors' Service, Inc., 609/392-0900) TESORO PETROLEUM: Fitch Places Debt On Rating Watch Negative ------------------------------------------------------------ Fitch Ratings has placed the debt of Tesoro Petroleum Corporation on Rating Watch Negative following the company's announcement it will acquire Valero's 168,000-bpd Golden Eagle refinery and 70 associated marketing sites for $945 million plus working capital estimated at $130 million. The agreement also requires Tesoro to make up to $150 million of contingency payments to Valero if California refining industry margins exceed a certain threshold. Fitch currently rates Tesoro's senior secured revolving credit facility at 'BB+' and the company's subordinated debt 'BB-'. Tesoro's initial plans to finance the acquisition include an issuance of new debt and $250 million of equity. Fitch will continue to review additional details on the transaction, which will be incorporated into Fitch's ratings for the company. Tesoro's debt is being placed on Rating Watch pending the closing, which is expected to occur in April of 2002. A downgrade to the ratings of Tesoro's debt is likely at that time. The addition of Golden Eagle provides Tesoro with a complex refinery in the highly margin state of California. Although Fitch views the acquisition as a significant positive from an operational and geographical diversification standpoint, the acquisition will require the addition of a significant amount of debt. The Golden Eagle acquisition follows closely behind Tesoro's debt financed acquisition of two refineries and associated retail assets from British Petroleum (BP) in September 2001 for approximately $670 million. Tesoro operates five wholly owned refineries with a total combined capacity of 390,000 bpd. Tesoro refocused its business strategy in the late 1990s, becoming primarily a downstream player in the oil industry. The Washington and Hawaii refineries were acquired in 1998 and in late 1999, Tesoro sold its exploration and production assets to EEX Corp., effectively exiting the upstream end of the business. The company sells refined products wholesale or through approximately 675 retail outlets and is beginning to market through the Mirastar brand at Wal-Mart sites in 17 states in the western United States. Tesoro is also the largest operator of marine terminals along the Louisiana and Texas Gulf Coast with 16 terminals and operates several marine terminals on the West Coast as well. TRANSCOM: Union Urges SEC to Probe Comfort Systems Board Member --------------------------------------------------------------- The Sheet Metal Workers' International Association has asked the Securities and Exchange Commission to investigate Comfort Systems USA (NYSE: FIX) for failing to disclose a board position that Steven Harter held with another public company. Harter was elected to the board of Transportation Components, Inc. on October 15, 1999, but this fact was not disclosed in two subsequent Comfort Systems proxy statements. Transportation Components, also known as TransCom USA, filed for Chapter 11 bankruptcy in June 2001. The company was told in February 2001 that it had fallen below the listing criteria for the New York Stock Exchange and was subsequently delisted in May 2001. Harter has been more than just a board member of both companies. Through his firm Notre Capital Ventures, Harter was a main creator of TransCom and Comfort Systems by a process known as a "roll-up." Two other roll-ups founded by Harter's firm have faced similar problems: * The Physicians Resource Group was delisted by the New York Stock Exchange in 1998 and filed for Chapter 11 bankruptcy in early 2000. * Metals USA was delisted from the New York Stock Exchange on November 14, 2001, concurrent with that company's filing for a Chapter 11 bankruptcy. Comfort Systems USA is a leading provider of commercial and industrial heating, ventilation and air conditioning services The Sheet Metal Workers' International Association represents over 150,000 members in the sheet metal industry, including approximately 500 of Comfort Systems employees. TRISM INC: Sells Assets & Leases to Bed Rock & Tri-State Prop. -------------------------------------------------------------- TRISM, Inc. (OTC Bulletin Board: TSMX), formerly the nation's leading transportation company specializing in the transportation of environmental and secured materials such as hazardous waste, explosives, military munitions and radioactive materials, announced that it has sold substantially all of its assets and certain of its executory contracts and leases to Bed Rock, Inc., a Missouri corporation and Tri-State Properties, LLC, a Missouri limited liability company. On December 18, 2001, the Company announced that it had filed a petition for voluntary reorganization of its operations under Chapter 11 with the U.S. Bankruptcy Court for the Western District of Missouri. Since then the Company has operated as debtor-in-possession and continued business as usual pending a sale being approved by the Bankruptcy Court. On January 30, 2002, the U.S. Bankruptcy Court for the Western District of Missouri filed a Second Amended Order Pursuant to Section 363 & 365 of the Bankruptcy Code Authorizing (A) Sale of Certain Assets Free and Clear of Liens, Claims, Interest and Encumbrances, and (B) Assumption and Assignment of Certain Executory Contracts and Leases. The order affects not only TRISM, Inc. but also its various subsidiaries. Pursuant to the Order, on February 5, 2002, the Company sold substantially all of its assets and assigned certain executory contracts and leases to Bed Rock, Inc. and Tri-State Properties, LLC. The Company is now in the process of winding up its business and disposing of its remaining assets in a manner consistent with the best interests of the Company, and as permitted and approved by the Bankruptcy Court. VELOCITY EXPRESS: No Date Yet for Special Shareholders' Meeting --------------------------------------------------------------- Velocity Express Corporation, a Delaware corporation formerly known as United Shipping & Technology, Inc., is preparing to hold a special meeting of its stockholders. The date and time has yet to be announced, however, the meeting will be held in the Bloomington Room at the Radisson South Hotel, 7800 Normandale Blvd., Bloomington, Minnesota, for the following purposes: 1. To approve an amendment to the Company's Certificate of Incorporation to effect a reverse stock split of the Company's outstanding common stock, whereby the Company will issue one new share of common stock in exchange for between two and five shares of the outstanding common stock; 2. To approve an amendment to the Company's Certificate of Incorporation to (i) eliminate the provisions providing for cash redemption of the Company's Series B, Series C and Series D Preferred Stock at a specified date and for redemption of the Company's Preferred Stock at the election of the holder thereof upon a change of control of the Company and (ii) grant to the holders of the Company's Preferred Stock certain approval rights with respect to changes of control of the Company; 3. To approve an amendment to the Company's Certificate of Incorporation to reduce the conversion price for the Company's Series B Preferred Stock to $6.2224 per share, the conversion price for the Company's Series C Preferred Stock to $4.2645 per share, and the conversion price for the Company's Series D Preferred Stock to $0.7912 per share in order to reflect adjustments required by prior dilutive events; 4. To approve an amendment to the Company's Certificate of Incorporation to reduce the conversion prices for the Company's Series B Preferred Stock and Series C Preferred Stock pursuant to an agreement with an investor to $1.3988 per share and $1.3867 per share, respectively; provided that, for purposes of determining the voting rights of the Series B and Series C Preferred Stock, the number of shares of common stock into which such Preferred Stock is convertible will not include any common stock issuable as a result of such reduction in conversion price; and 5. To transact such other business as may properly come before the Meeting or any adjournment or postponement thereof. Only stockholders of record holding shares of the Company's common stock, Series B Convertible Preferred Stock, Series C Convertible Preferred Stock, Series D Convertible Preferred Stock and/or Series F Convertible Preferred Stock at the close of business on January 2, 2002, are entitled to receive notice of, and to vote at, the Meeting. United Shipping and Technology, formerly U-Ship, offers same- day, on-demand delivery service through its main operating subsidiary, Velocity Express. In addition to time-sensitive deliveries, the company provides support services for customers, including logistics, warehousing, on-site services, fleet replacement, and international air courier services. United Shipping and Technology serves the financial, healthcare, and retail industries through 210 locations in the US and Canada using a fleet of some 9,000 vehicles. Investment firm TH Lee Putnam Ventures controls about 33% of United Shipping and Technology. At September 29, 2001, the company had a total shareholders' equity deficit of about $35 million. WARNACO GROUP: Wins Nod to Auction Surplus Cut & Sew Equipment -------------------------------------------------------------- After hearing The Warnaco Group, Inc., and its debtor- affiliates' motion and General Electric Capital Corporation's objection, Judge Bohanon allows the Debtors to auction their surplus cut and sew equipment, provided that: -- Of the Sale Assets sold at the Auctions which are deemed subject to that certain Master Lease Agreement between GE Capital and Warnaco, the Debtors shall transfer to GE Capital no later than 2 business days after receipt thereof: (a) 50% of the proceeds from such sales (minus the applicable buyer's premium paid by the buyer(s) and GE Capital's pro rata share of the reasonable expenses for conducting the Auctions) from those GE Capital Assets subject to the 1997 Lease and which were located outside the United States on the Petition Date, plus (b) 100% of the proceeds of such sales (minus the applicable buyer's premium paid by the buyer(s) and GE Capital's pro rata share of the reasonable expenses for conducting the Auctions) from those GE Capital Assets subject to the 1994 Lease and which were located outside the United States on the Petition Date, plus (c) 100% of the proceeds from such sales (minus the applicable buyer's premium paid by the buyer(s) and GE Capital's pro rata share of the reasonable expenses for conducting the Auctions) from those GE Capital Assets subject to the 1997 Lease or the 1994 Lease and which were located within the United States on the Petition Date, without the Debtors, the Committee or GE Capital waiving any other rights, remedies, claims, actions or defenses that have arisen or may arise in connection the allocation of the proceeds of the sale of the GE Capital Assets at the Auctions. -- GE Capital and the GE Capital Agent shall have the right to review and contest: (a) any or all of the expenses or the pro-ration thereof for reasonableness; and (b) whether any GE Capital Asset is subject to the 1994 Lease or the 1997 Lease. -- Any disputes concerning any expenses that cannot be resolved by the Debtors and GE Capital, shall be submitted to the Court for adjudication. (Warnaco Bankruptcy News, Issue No. 19; Bankruptcy Creditors' Service, Inc., 609/392-0900) WEBB INTERACTIVE: Sells 1.1 Million Shares to Jona for $1.1MM ------------------------------------------------------------- Jona, Inc., has acquired for $1,100,000, 1,100,000 Units of the securities of Webb Interactive Services, Inc., in accordance with the terms of a Securities Purchase Agreement dated January 17, 2002, between the Company and Jona, Inc. Each Unit consists of one share of the Company's common stock and a warrant representing the right to purchase an additional share of common stock at $1.00. In accordance with the terms of the SPA, Jona, Inc. has agreed to acquire an additional 3,900,000 Units for $3,900,000, subject to prior approval by the Company's shareholders. The SPA also grants to Jona, Inc. an option to purchase up to an additional 2,500,000 Units for $2,500,000 on or before August 31, 2002, again subject to prior approval by the Company's shareholders. Pursuant to the terms of the SPA, the Company has agreed to (1) amend its Bylaws to require the unanimous consent and approval of all members of the Board of Directors in attendance at a duly convened meeting of the Board of Directors prior to (i) incurring indebtedness for borrowed money, if such borrowing would result in the Company's then outstanding liability for all such then outstanding borrowings to exceed $1,000,000; (ii) taking any action that results in the redemption of any of the Company's outstanding shares of common stock or preferred stock; (iii) approving any merger, other corporate reorganization, sale of control of the Company or any transaction which substantially all of the assets of the Company are sold; or (iv) approving an amendment to or waiving any of the provisions of the Company's Articles of Incorporation or Bylaws; (2) cause two nominees of Jona, Inc. to be elected to the Company's Board of Directors; and (3) use its best efforts to cause the Jona directors to be elected to the Board of Directors so long as Jona, Inc. beneficially owns 25% or more of the Company's common stock. In connection with the purchase of the Units, Jona, Inc. loaned the Company $900,000 pursuant to the terms of a Promissory Note dated January 17, 2002, bearing interest at the rate of 10% per annum. In addition, in connection with a letter of intent with respect to the purchase of the Units, Jona, Inc. loaned the Company $300,000. All principal and accrued interest under both the Note and the Bridge Loan is due and payable upon demand at any time on or after April 30, 2002. The repayment of the Note and Bridge Loan is secured by an aggregate of 4,800,000 shares of the Company's Series C Convertible Preferred Stock of Jabber, Inc., a subsidiary of the Company. In addition, in connection with the Bridge Loan, Jona, Inc. was issued a warrant to purchase 60,000 shares of the Company's common stock at a current exercise price of $1.00 per share. Concurrent with the purchase of the Units by Jona, Inc. and in lieu of resetting conversion prices for outstanding securities in accordance with their terms, the Company agreed with Castle Creek Technology Partners LLC to exchange up to 2,500 shares of the Company's senior convertible preferred stock and $1,212,192 principal amount of the Company's 10% convertible note payable for an aggregate of up to 4,484 shares of the Company's Series D Junior Convertible Preferred Stock plus warrants to purchase 750,000 shares of the Company's common stock for $1.00 per share and a reduction in the exercise price to $1.00 for warrants for 650,116 shares owned by CC. The Series D Junior Convertible Preferred Stock will be convertible into up to 4,484,000 shares of the Company's common stock. If the senior preferred stock and note had not been amended, in accordance with their terms, they would have been convertible into 3,712,192 shares of the Company's common stock plus CC would have been entitled to additional warrants for 2,500,000 shares at $1.00 per share. The Company intends to use $720,000 of the proceeds received from the second closing of the purchase of the Units as described above to make a repayment of principal on the 10% convertible note, at which time, CC has agreed to exchange the remaining principal balance of the note. Webb Interactive Services' AccelX division helps local businesses establish an e-commerce presence with a suite of XML- based applications for Web site building, lead generation, and customer management. Through its Jabber.com subsidiary, Webb offers an open source instant messaging application. Unlike most of its competitors in the instant messaging market, which focus on consumers, Jabber.com focuses on messaging for businesses and service providers. Webb's services (nearly half of sales) include consulting, implementation, and training. The company's top three customers (VNU Publitec, VetConnect, and Switchboard) collectively account for 65% of sales. At Sept. 30, 2001, the company reported an upside-down balance sheet, showing a total shareholders' equity deficit of about $3 million. WHEELING-PITTSBURGH: Gets OK to Borrow $5M from State of Ohio ------------------------------------------------------------- The Noteholders' Committee incorporates the same warning in response to this Motion as to Wheeling-Pittsburgh Steel Corp., and its debtor-affiliates' Motion to borrow money from the State of Ohio. Judge Bodoh immediately enters an Order providing interim approval of this loan, and scheduling a hearing on entry of a final order later this month. In his Order, Judge Bodoh also authorizes immediate borrowing. (Wheeling-Pittsburgh Bankruptcy News, Issue No. 17; Bankruptcy Creditors' Service, Inc., 609/392-0900) ********* 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. Bond pricing, appearing in each Thursday's edition of the TCR, is provided by DebtTraders in New York. DebtTraders is a specialist in global high yield securities, providing clients unparalleled services in the identification, assessment, and sourcing of attractive high yield debt investments. For more information on institutional services, contact Scott Johnson at 1-212-247-5300. To view our research and find out about private client accounts, contact Peter Fitzpatrick at 1-212-247-3800. 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