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/raid1/www/Hosts/bankrupt/TCR_Public/020628.mbx T R O U B L E D C O M P A N Y R E P O R T E R Friday, June 28, 2002, Vol. 6, No. 127 Headlines 3DO COMPANY: Fails to Comply with Nasdaq Listing Requirements ADELPHIA BUSINESS: Secures $15MM DIP Financing from Beal Capital ADELPHIA BUSINESS: TD Bank Discloses $222 Million Exposure ADELPHIA COMMS: S&P Drops Ratings to D After Chapter 11 Filing ADELPHIA COMMS: Court to Consider Proposed DIP Financing Today ADVANCE AUTO: S&P Upgrades Rating to BB- On Improved Performance ALAMOSA: S&P Puts B- Rating on Watch With Negative Implications ALLIANCE LAUNDRY: S&P Rates Proposed $243MM Bank Facility at B ALTERRA HEALTHCARE: Gets More Time to Meet AMEX Listing Criteria ATLANTIC EXPRESS: S&P Junks Ratings Over Weak Financial Profile AUTOFUND SERVICING: Will Cease Operations Due to Lack of Capital AVADO BRANDS: Makes Interest Payment on 9-3/4% Senior Notes BORDEN CHEMICALS: Court Nixes Committee's Move to Convert Case BREAKAWAY SOLUTIONS: Taps Klehr Harrison as Litigation Counsel BRILLIANT DIGITAL: Gets More Time to Meet AMEX Listing Standards CANAL CAPITAL: Todman & Co. Expresses Going Concern Doubt CLASSIC COMMS: Taps Daniels & Associates as Cable Systems Broker COMMUNITY HEALTH: Fitch Rates $1.25BB Senior Bank Facility at BB COSERV ELECTRIC: Files Disclosure Statement & Plans in Texas COSERV ELECTRIC: Unveils Terms of Chapter 11 Reorganization Plan COVANTA ENERGY: Wants Plan Filing Exclusivity Moved to Nov. 27 DOBSON COMMS: Declares In-Kind Dividend on 13% Preferred Shares DOMINO'S INC: S&P Raises Rating to BB- on Improved Performance E.SPIRE COMMS: Wants Lease Decision Period Stretched to Sept. 30 ENRON CORP: Court Okays Settlement Agreement with Global Risk ENRON CORP: Court Okays Alston & Bird as Neal Batson's Counsel ETOYS INC: Signs-Up Ernst & Young as Bankruptcy Tax Accountants EXIDE: US Trustee Balks At PricewaterhouseCooper's Retention EXODUS COMMS: Gets Okay to Settle Dispute with Lakeside Purchase FLAG TELECOM: Court Okays Appleby Spurling as Bermuda Counsel FOCAL COMMS: S&P Junks Bank Loan & Senior Unsecured Debt Ratings FRIEDE GOLDMAN: Will Auction-Off Halter Marine Assets on July 16 GEMSTAR-TV GUIDE: S&P Affirms BB+ Corporate Credit Rating GENERAL DATACOMM: Taps Fiesner Wolfson for Chase Litigation GLENOIT: Seeks to Extend Solicitation Period Pending Auction GLOBAL CROSSING: Committee Taps Laiken as Actuarial Consultants GREAT LAKES: Violates Nasdaq Continued Listing Requirements GREEN TREE: Fitch Downgrades Certain Transactions to Junk Level GROUP TELECOM: Canadian Court Grants CCAA Protection HAYES LEMMERZ: Gets OK to Settle Schenk Intercompany Receivables HARDWOOD PROPERTIES: Shareholders Approve Liquidation Plan IMMUNE RESPONSE: Appoints Bjorn Lydersen as VP of Manufacturing INTRAWARE INC: May 31 Balance Sheet Upside-Down by $3.4 Million JUPITER MEDIA: Files Proxy Statement Describing Liquidation Plan LOG ON AMERICA: E&Y Doubts Ability to Continue Operations MALAN REALTY: Advises Shareholders to Reject MacKenzie's Offer MANDALAY RESORT: Fitch Holds Low-B Rating Despite Improvements MEDSOLUTIONS INC: Ability to Continue Operations Still Uncertain MENTERGY LTD: Intends to Transfer to Nasdaq SmallCap Market METALS USA: Bags Approval to Hire Colliers Bennett as Broker MORTON INDUSTRIAL: Falls Below Nasdaq Continued Listing Criteria MOTHERS WORK: S&P Rates $125MM Senior Unsecured Notes at B+ NATIONAL STEEL: Asks Court to Lift Stay to Pursue Toyota Setoff NATIONSRENT INC: Plan's Classification & Treatment of Claims NEON COMMS: Seeks Open-Ended Lease Decision Period Extension NETMANAGE INC: Fails to Meet Nasdaq Continued Listing Standards PACIFIC GAS: Pushing for Third Extension of Exclusive Periods PARAGON TRADE: Weyerhaeuser Will Contest Claims in Lawsuit PERSONNEL GROUP: Collects $19.2MM Federal Income Tax Refunds POLAROID CORP: John W. Loose Elected as Chairman of the Board POLAROID CORP: Court to Consider One Equity's Revised Bid Today POWER EFFICIENCY: Lacks Resources to Satisfy Liquidity Needs PSINET INC: Wins Approval to Sell TX Real Property for $11MM+ QSERVE: Seeks $12.5MM Cash Collateral Use to Continue Operations QSERVE COMMS: Case Summary & 20 Largest Unsecured Creditors REGAL ENTERTAINMENT: S&P Assigns BB- Rating to Corporate Credit REPUBLIC TECH: USWA Seeks to Block Pension Plan Terminations SLI INC: Mulling Broad Range of Alternatives to Restructure Debt SAFETY-KLEEN: Sues Onsite Environ. to Recoup $1MM+ Preference SELECT MEDIA: Looks to New Acquisitions to Stem Continued Losses SUN HEALTHCARE: Wants Claims Objection Deadline Moved to Oct. 26 SWEET FACTORY: Wants to Stretch Lease Decision Period to Aug. 12 VERSATEL TELECOM: Wants to Bring-In DF King as Balloting Agent WARNACO GROUP: Court Okays Settlement Pact with GE Capital Corp. WILLIAMS COMMS: Bringing-In Blackstone for Financial Advice WINSTAR COMM: Court Approves DIP Credit Pact Carve-Out Expansion WORLDCOM: Full-Text of the SEC's $3.8 Billion Fraud Suit WORLDCOM: ITXC Chair Disheartened by Improper Acctg. Practices WORLDCOM: Financial Restatement Spurs S&P to Cut Rating to CCC- WORLDCOM: Fitch Junks Sr. Unsecured Ratings on Accounting Issues WORLDCOM: SEC Demands Detailed Report from WorldCom by July 1 XO COMMS: Court Sets Disclosure Statement Hearing for July 19 * BOOK REVIEW: Land Use Policy in the United States ********* 3DO COMPANY: Fails to Comply with Nasdaq Listing Requirements ------------------------------------------------------------- The 3DO Company (Nasdaq: THDO) says it'll return to profitability in the quarter ending June 30, 2002, and expects to beat street estimates for net revenue, net income, and earnings per share. In addition, the company expects to announce final details of a planned credit facility of up to $15 million within a few days. The company also announced that the 120-day period during which preferred stockholders could convert to common stock on favorable terms ended on June 14, 2002. Separately, the company disclosed that because its common stock price has remained below $1.00 per share, it is not currently in compliance with Nasdaq's minimum bid price requirement (Nasdaq Marketplace Rule 4450(a)(5)). The Company received a Nasdaq staff determination indicating non-compliance on June 21, 2002. As a result, its securities are subject to delisting from the Nasdaq National Market. The Company, however, intends to request a hearing regarding the Nasdaq staff determination and will present its plan of action, which may include a reverse stock split, to maintain compliance with the Nasdaq National Market continued listing standards. The request for a hearing will suspend the delisting action until the Nasdaq Listing Qualifications Panel reaches a final decision on the Company's appeal, but there can be no assurance that the Panel will decide in the Company's favor. All planned new product releases will make the June 2002 quarter, including the European releases of the Sven Goran Eriksson soccer games that were successfully timed around England's strong performance in the FIFA World Cup. Back catalog licensing revenue have both been strong during the June quarter. Heroes of Might and Magic(R) IV reached #1 on the PC charts in France, #2 in England, and #2 in the USA during the quarter. Other games including Might and Magic(R) IX, Army Men(R) RTS, and High Heat(TM) Major League Baseball(R) also had good sell- through during the quarter. A rising star for 3DO, High Heat Major League Baseball has tripled its sales from last year to-date and has doubled its market share on the PlayStation(R)2 computer entertainment system from one year ago. The major gaming press unanimously picked High Heat to be the best PC and PlayStation 2 baseball game of 2002, including The Official PlayStation Magazine, Electronic Gaming Monthly, PSE2, PlayStation Magazine, GamePro, Silicon, Gamers.com, Operation Sports, Baseball Sim Central, Game Industry News, Reuters, USA Today Online and the San Francisco Chronicle. "We've right-sized the business and improved our operations," said Trip Hawkins, CEO. "And we have successful games in the channel that have enabled us to be on a consistent reorder basis with our major accounts. As a result we have been able to operate the entire first half of the calendar year without needing new capital infusions, or even the use of a credit line. This Company-wide spending discipline, combined with market growth and the new credit line that we expect to be able to describe in detail shortly, gives us confidence that we will continue to make good financial progress and achieve high growth in revenues and profits next year." The company's preferred stock financing in December, 2001, allowed investors to convert to common at a discount to market for a 120 day period ending June 14, 2002. This feature may have contributed to selling pressure on the stock, including the nearly twenty-fold increase in the cumulative short position on 3DO stock since the financing was closed. With the ending of the favorable conversion period, the conversion price for preferred stock into common stock is now fixed at approximately 78 cents per share, a significant premium to market. As a result, the company believes that holders of preferred stock no longer have any incentive to short 3DO common stock. Conversion at the 78 cent price is permitted at any time until the end of the 3-year conversion period in December, 2004. During the favorable conversion period, through June 14, 2002, approximately 31% of preferred stock was converted to common stock, resulting in the issuance of approximately 7.6 million new shares of common stock. While holders of preferred stock are not obligated to convert their shares, approximately 14.2 million shares of additional common stock would be issued if all shares of preferred stock were converted. Prior to the December financing, the company had approximately 53 million shares of common stock outstanding. "Naturally, we believe that it is not a coincidence that 3DO shares traded under $1.00 per share beginning in February when the registration statement regarding the December 2001 financing became effective," said Hawkins. "Now that it is over, we hope to see buying interest returning to the stock, particularly as we improve our operating performance. We also hope that between our business improvements and a higher stock price, potentially enabled by a reverse stock split, we will attract new interest from small cap investors and remain fully in compliance with the continued listing requirements of the Nasdaq National Market. We've turned an important corner. False rumors and speculation about our prospects have been hurting us, but this news should clear the air. We believe our position and prospects now are better than at any time in the last two years." One such example of false speculation is a recent story claiming that the company had ceased operations in England, which is not true. The company did change its address to 9Z Upper Aughton Road, Southport, Merseyside, UK PR99UZ. The 3DO Company, headquartered in Redwood City, Calif., develops, publishes and distributes interactive entertainment software for personal computers, the Internet and advanced entertainment systems such as the PlayStation(R)2 computer entertainment system, the Nintendo GameCube(TM) and the Game Boy(R) Advance systems. ADELPHIA BUSINESS: Secures $15MM DIP Financing from Beal Capital ---------------------------------------------------------------- Adelphia Business Solutions (ABS) (Pink Sheets: ABIZQ) has entered into an agreement with Beal Capital Markets, Inc., of Plano, Texas in which Beal expresses an interest in providing to ABS a proposed $15 million secured debtor-in-possession credit facility, pending the satisfaction of numerous material conditions, including the negotiation and execution of a definitive agreement and the formal approval of the U.S. Bankruptcy Court. ABS believes that, in conjunction with previous modifications to ABS' business plan, the Credit Facility will provide ABS with the necessary liquidity to emerge from the Chapter 11 process. Under its modified business plan, ABS will continue to conduct business operations in 35 company-owned markets located in the eastern half of the U.S., and in 17 other company-managed markets located throughout the country. Most of the 35 owned markets, which stretch from Vermont to Florida and from Kansas to Texas, are interconnected via a high-speed fiber optic network that permits ABS to offer intercity services and allows for efficient, cross-city use of existing telecommunications technology. "The recent upheaval in the telecommunications industry has dramatically reduced the number of companies in the competitive local exchange arena," notes Bob Guth. "We intend to continue to offer customers a choice and to ensure that competitive forces are in place in the industry. We believe that we have a terrific customer base, committed employees and extremely valuable network assets, and expect that this modest interim funding will see us through the Chapter 11 process toward a fully-funded business plan." "I'd like to thank all of our customers, who stood with us during this period of uncertainty," continued Mr. Guth. "We appreciate the value they place on choice, and sincerely appreciate their commitment to ABS, and to the industry as a whole." ABS expects to continue to offer its full line of products and services, including local voice and data, intercity services, long distance, Internet, and a number of other value-added services including web-hosting and co-location. "We looked very closely at ABS' current results and business plan and we see a profitable core operation with strong customer relationships," notes Ken Springfield of Beal Capital Markets. "We're looking forward to completing our due diligence and developing a mutually beneficial business relationship with the people at Adelphia Business Solutions." Concurrent with this business-restructuring announcement, ABS also announced that, on June 18, 2002, certain of its subsidiaries (those not previously included in the initial group of Chapter 11 cases commenced on March 27, 2002) commenced affiliated Chapter 11 cases under joint administration with the initial group of companies. "This is purely an administrative step for us, providing protection to our DIP lender, and is not indicative of any change in the business status of these operations," stated Mr. Guth. The salient terms of the proposed DIP Financing facility are: Borrowers: Adelphia Business Solutions, Inc. and indirect subsidiaries of ABIZ EXCEPT Adelphia Business Solutions of Pennsylvania, Inc., PECO Hyperion Telecommunications, Susquehanna Adelphia Business Solutions, and Adelphia Business Solutions Capital, Inc. Guarantors: ABIZ-Pennsylvania and ABIZ-Capital DIP Lender: Beal Capital Markets, Inc., or Beal Bank, S.S.B. or any wholly owned affiliate of Beal Bank, S.S.B., as assignee of Beal Capital Markets, Inc. The Facility: The Loan consists of a single-draw term loan credit facility for $15,000,000. The ultimate amount of the Facility will be subject to the DIP Lender's determination of the appraised value of the DIP Collateral. Drawdown: The Loan will be advanced in one drawdown, on the Closing Date. No portion of the Facility shall be available for drawdown after the Closing Date. Use of Proceeds: The DIP Financing shall be used to: * fund post-Closing Date operating expenses of the Borrowers and Guarantors in accordance with, but limited to, the Cash Budget; * fund certain post-petition but pre-Closing Date fees accrued under the Management Services Agreement between ABIZ and Adelphia Communications Corporation, to the extent included in the Cash Budget; and, * pay all fees and expenses as provided under the DIP Loan Agreement. Cash Budget and Business Plan: Prior to the Closing Date, the Borrowers shall have provided to the DIP Lender: * a cash operating budget for the period from July 1, 2002 through June 30, 2003; * a business plan; * other financial information to monitor compliance with the Free Cash Flow Variance. Term: The DIP Loan shall be repaid in full at the earliest to occur of: (a) one year after the Closing Date, but not later than June 30, 2003; (b) the Termination Date; and, (c) the effective date of a plan of reorganization or liquidation for any of the Borrowers. Closing Date: The date upon which all conditions precedent to the making of the initial extension of credit are satisfied. Interest: Loans will bear interest at an annual rate of Wall Street Journal's highest Prime Rate (published on the money section) plus 4% per annum, but in no event less than 12% per annum. In the event of default, the interest rate shall be the non-default rate plus 4% per annum. Interest shall be payable in cash, monthly in arrears. Closing Date Financing Fee: A Closing Fee equal to 6% of the aggregate facility (i.e., $900,000), fully earned as of the Closing Date, shall be paid on the Closing Date to the DIP Lender. Monthly Admin. Fee: A monthly administration fee of $15,000 shall be paid on the Closing Date and the first day of each month thereafter as any portion of the DIP Loan is outstanding. Nature of Fees: Non-refundable under all circumstances. Voluntary Prepayments: Permitted at any time, upon 5 business days' prior written notice and in reasonable increments to be established in the DIP Loan Agreement, without prepayment penalty. Mandatory Repayments: (a) Mandatory repayment of the DIP Loan under the Facility shall be required in an amount equal to 100% of insurance and condemnation proceeds arising from, derived or related to the DIP Collateral. (b) Asset Sales: (1) General Rule: Except for Paydown Permitted Asset Sales and Non-Paydown Permitted Asset Sales, any sale of assets shall be subject to the approval of the DIP Lender. As a condition to for approval, the DIP Lender may require that the net sale proceeds shall be applied to repayment of the DIP Loan. (2) Paydown Permitted Asset Sales: Sale of equipment and inventory of the Borrowers shall be permitted with notice to but without prior approval of the DIP Lender, if: * all sales shall be for fair value, in bona fide arm's-length transactions with third party purchasers; * the gross purchase price for any item must not exceed $500,000, and must be payable entirely in cash at closing; * the net purchase price for any item must equal at least 25% of the net book value of that item; * the sale otherwise must be permitted without further order of the Bankruptcy Court, in accordance with the Omnibus Sale Order; and, * all net proceeds of any sale shall be applied to repayment of the DIP Loan. (3) Non-Paydown Permitted Asset Sales: Sale of assets pertaining to specified non-continuing markets shall be permitted without prior approval of the DIP Lender and without requiring that the net sale proceeds be applied to the repayment of the DIP Loan, if: * all the sales shall be for fair value, in bona fide arm's-length transactions with third party purchasers; * the gross purchase price for any item must not exceed $50,000, and must be payable entirely in cash at closing; * the aggregate gross purchase price of all the sales in any calendar month must not exceed $400,000; and, * all net proceeds shall be retained and applied to the expenses detailed in the Cash Budget. Collateral and Priority: All DIP obligations shall be: (a) Secured (subject to the Carve-Out) by a first priority, fully perfected security interest in and lien on all of the existing and after acquired assets of the Borrowers and the Guarantors; (b) Accorded administrative priority status under Section 364(c)(1) of the Bankruptcy Code, having a superpriority over any and all administrative expenses of the kind specified in Sections 503(b) or 507(b) of the Bankruptcy Code, including any superpriority administrative claims granted the Subordinate DIP Creditors, subject only to the Carve-Out; and, (c) Joint and several among the Borrowers and the Guarantors and senior in right of payment to any obligations owed by the Borrowers or the Guarantors to the Subordinate DIP Creditors under the Subordinate DIP Loan Agreement. All DIP Collateral shall be free and clear of any and all liens, claims and encumbrances, except for: * those in favor of the DIP Lender; * the Permitted Pre-Petition Liens; * the liens granted in favor of the Subordinate DIP Creditors pursuant to the Subordinate DIP Loan Agreement and the April Interim DIP Order; * the Permitted Wachovia Liens; and, * the Permitted Post-Petition Liens Carve-Out: The Lenders agree to a $1,500,000 Carve-Out following termination of the Facility due to default to allow for payment of professional fees incurred in these Cases and unpaid fees pursuant to 28 U.S.C. 1930(a)(6) and any fees payable to the Clerk of the Bankruptcy Court. Collateral Value Covenant: The Borrowers shall maintain DIP Collateral at least equal the greater of: (a) $40,000,000 (subject to reduction as part of paydowns of the DIP Loan); or, (b) an amount equal to 200% of the DIP Obligations then outstanding. Accounts Receivable Covenant: The Borrowers shall maintain, at all times, bona fide accounts receivable in aggregate amounts as the DIP Lender may establish from time to time in its sole discretion. In any case, accounts receivable owing by ABIZ or ACC or the Rigas family, or any of their respective affiliates, shall be ineligible. Wachovia L/Cs: Following the Closing Date, the Borrowers and the Guarantors shall arrange for the $20,000,000 letter of credit issued by Wachovia Bank to the Commonwealth of Pennsylvania in respect of the existing contract between Commonwealth of Pennsylvania and ABIZ-Pennsylvania to be replaced by a letter of credit in like face amount issued by the DIP Lender or its designee. Events of Default: (a) dismissal of any of the Cases or conversion of any of the cases to a chapter 7 case; (b) appointment of a chapter 11 trustee in any of the Cases; (c) the granting of any other claim superpriority status or a lien or security interest equal or superior to that granted to the DIP Lender in any of the Cases; (d) the entry of an order that in any respect stays, reverses, vacates or otherwise modifies the DIP Loan Agreement, any intercreditor and subordination agreement or the Final Order without the prior written consent of the DIP Lender, (e) appointment of an examiner having enlarged powers beyond those set forth under Section 1106(a)(3) and (4) of the Bankruptcy Code; (f) the failure of any of the Borrowers to pay interest or fees when due and that default shall continue for two business days or principal when due; (g) the failure of any of the Borrowers or Guarantors to comply with any negative covenant, collateral covenant, collateral value covenant or accounts receivable covenant or the covenants pertaining to the Permitted Wachovia Liens, (h) the actual or substantive consolidation or combination of any Borrower with any other person (other than a Borrower); (i) the ABIZ/ACC Management Services Agreement shall be terminated or rejected; (j) the failure of any of the Borrowers or Guarantors to perform or comply with any other term or covenant and that default shall continue unremedied for a period of 10 days; (k) any representation or warranty by any of the Borrowers or Guarantors shall be incorrect or misleading in any material respect when made; (l) an unfavorable Free Cash Flow Variance shall occur; and, (m) any other event which constitutes an Event of Default under the Subordinate DIP Loan Agreement. (Adelphia Bankruptcy News, Issue No. 8; Bankruptcy Creditors' Service, Inc., 609/392-0900) ADELPHIA BUSINESS: TD Bank Discloses $222 Million Exposure ---------------------------------------------------------- In response to recent developments and subsequent inquiries, TD Bank Financial Group announced that its total exposure to the Adelphia Group of companies is US$222 million. TDBFG has no direct loan exposure to Adelphia Communications Corp. Exposure is divided among five separate cable operating subsidiaries of Adelphia Communications Corp. which form part of the parent company's Chapter 11 filing. The exposure has been designated impaired with an adequate reserve taken during the current quarter. ADELPHIA COMMS: S&P Drops Ratings to D After Chapter 11 Filing -------------------------------------------------------------- Standard & Poor's lowered its ratings on cable television operator Adelphia Communications Corp.'s senior unsecured debt, subordinated debt, and preferred stock issues to 'D' following the company's Chapter 11 bankruptcy filing. These ratings were also removed from CreditWatch. The corporate credit rating on Coudersport, Pennsylvania-based Adelphia had been lowered to 'D' on May 20, 2002, following a missed interest payment on the company's $500 million 9.375% senior unsecured note issue. Adelphia Communications' 10.875% bonds due 2010 (ADEL10USR1) are quoted at a price of 42.25, says DebtTraders. See http://www.debttraders.com/price.cfm?dt_sec_ticker=ADEL10USR1 for real-time bond pricing. ADELPHIA COMMS: Court to Consider Proposed DIP Financing Today -------------------------------------------------------------- Adelphia Communications Corporation (OTC: ADELA) announced that the U.S. Bankruptcy Court for the Southern District of New York has approved the Company's request for "first day orders," including: -- Immediate authority to pay employees' salaries and wages and to continue to provide health and other employee benefits to them; -- Authority to pay its local franchise authorities pre- petition obligations; and -- Authority to continue to satisfy all of its pre-petition obligations to customers, including with respect to rebates and deposits. The Court also entered various other orders to ensure that the Company has the ability to operate smoothly during the Chapter 11 process. The Company also announced that the Court has set a hearing for Friday, June 28, 2002, for Adelphia's motion for immediate access to $500 million of its $1.5 billion Debtor-in-Possession financing provided by a consortium of bank lenders, led by JPMorgan Chase Bank and Citigroup USA, Inc. Adelphia and more than 200 of its subsidiaries announced earlier that voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code have been filed with the U.S. Bankruptcy Court for the Southern District of New York to restructure the Company's debt and reorganize the business. Adelphia is continuing to supply cable entertainment, high-speed Internet access and other services to its millions of customers without interruption in all of its markets which serve more than 3,500 communities across the nation. Adelphia Communications Corporation, with headquarters in Coudersport, Pennsylvania, is the sixth-largest cable television company in the country. ADVANCE AUTO: S&P Upgrades Rating to BB- On Improved Performance ---------------------------------------------------------------- Standard & Poor's raised corporate credit ratings on Advance Auto Parts Inc. and primary operating subsidiary Advance Stores Co. Inc. to double-'B'-minus from single-'B'-plus based on the company's improved operating performance. The ratings were also removed from CreditWatch, where they had been placed April 26, 2002. The outlook is stable. Roanoke, Virginia-based Advance Auto has about $923 million of rated debt. "Advance Auto has continued to generate strong same-store sales in a challenging economy," Standard & Poor's credit analyst Patrick Jeffrey said. "Free cash flow generation, an $89 million secondary equity offering, and the expected refinancing of a portion of its bank facility have contributed to significant debt reduction since the company completed the acquisition of Discount Auto Parts Inc. in November 2001." Standard & Poor's said it believes Advance's operations will remain stable despite the weakened U.S. economy. It said that, over the long term, the company will need to continue to demonstrate success in paying down debt, improving operating margins, and integrating the remaining Discount Auto stores. Success could eventually result in consideration of a higher rating. Standard & Poor's said Advance's lease-adjusted operating margins improved to 13% in 2001 from 11% in 1999. Margins should improve in 2002 if the company realizes the $30 million of expected synergies from the Discount Auto Parts integration and other operating initiatives. EBITDA coverage of interest is trending at about 3 times and could improve to more than 3x in 2002 if the company continues to improve earnings and reduce debt. Advance achieved strong same-store sales increases of 7.8% in the first quarter of 2002 and 6.2% in 2001, a result of enhanced merchandising and marketing efforts. Total debt to EBITDA is trending in the mid-3x area and could reduce to about 3x in 2002 due to expected reduced debt levels. A $160 million revolving credit facility gives Advance financial flexibility. Debt maturities and term loan amortization are expected to be funded through internally generated cash flow and borrowings under the revolving facility. ALAMOSA: S&P Puts B- Rating on Watch With Negative Implications --------------------------------------------------------------- Standard & Poor's placed its single-'B'-minus corporate credit rating on Alamosa Holdings Inc. on CreditWatch with negative implications due to Standard & Poor's increased concerns over the impact of Alamosa's slowing growth on covenant compliance and liquidity. At the end of the first quarter of 2002, Lubbock, Texas-based Alamosa had about 551,000 subscribers and total debt of about $846 million. The company is a Sprint PCS affiliate that provides wireless services in markets in 15 states with a combined covered population of about 11.5 million. "Alamosa recently reduced its guidance for net subscriber additions for the second quarter of 2002 by 30% to 50% due to competition, reduced additions of sub-prime customers, and a general expectation of slower subscriber growth," Standard & Poor's credit analyst Michael Tsao said. "The lower growth trajectory and intensifying competition may make it challenging for Alamosa to meet the minimum subscriber level under its bank loan covenant, particularly when this tightens in the fourth quarter of 2002. These factors could also narrow the cushion allowed by the total debt-to-EBITDA and EBITDA-to-pro forma debt service coverage covenants for execution risks in 2003." Standard & Poor's said that, aside from the covenant issue, the company has limited liquidity beyond 2002. Alamosa had about $155 million in cash and bank availability at the end of the first quarter of 2002. Standard & Poor's projects that cash usage will likely be in the $80 million area for the remainder of 2002, leaving the company with about $75 million in liquidity at year end. Given industry volatility and that Alamosa is unlikely to generate material free cash flow in 2003, this level of liquidity does not provide a significant margin of safety. Standard & Poor's said the resolution of the CreditWatch listing is dependent on its assessment of Alamosa's ability to meet covenants in 2002 and 2003, and the impact of lower growth on cash flows. ALLIANCE LAUNDRY: S&P Rates Proposed $243MM Bank Facility at B -------------------------------------------------------------- Standard & Poor's assigned its single-'B' senior secured bank loan rating to Alliance Laundry Systems LLC's proposed $243 million bank facility maturing 2007. In addition, Standard & Poor's affirmed its single-'B' corporate credit and triple-'C'-plus subordinated debt ratings on the company and revised its outlook for the company to stable from negative. Standard & Poor's will withdraw its existing single- 'B' senior secured bank loan rating upon closing of the new facility. The outlook revision reflects the refinancing of existing secured bank debt. The new facility includes an extended maturity, a reduced annual amortization schedule, and revised financial covenants. The rating on the bank facilities is the same as the corporate credit rating. The bank facility consists of a $193 million term loan due 2007 and a $50 million revolving credit facility due 2007. All the tangible and intangible assets and the capital stock of the company, as well as each of the company's direct and indirect domestic subsidiaries and first-tier foreign subsidiaries secure the facilities. Although the credit facilities derive strength from their secured position, based on Standard & Poor's simulated default scenario (which incorporates severely distressed cash flows that would trigger a default on payment), it is unclear that the distressed enterprise value would be sufficient to cover the entire loan balance when fully drawn if a default were to occur. For analytical purposes, Standard & Poor's treats receivables sold to the special purpose financing subsidiary as direct debt of Alliance Laundry, while the equipment lease portion of the portfolio is not viewed as company indebtedness. Ripon, Wisconsin-based Alliance Laundry is a leading manufacturer of a full line of stand-alone commercial laundry equipment for sale predominately in the U.S. Its high debt leverage and thin credit protection measures are partially offset by the company's solid market position in the niche commercial laundry equipment market. "As a result of the planned bank refinancing, Alliance Laundry is expected to generate annual discretionary cash flow in excess of its debt amortization requirements during the next few years. Additional financial flexibility is provided by the availability of substantially all of the $50 million revolving credit facility at closing," said Standard & Poor's credit analyst Jean C. Stout. Ms. Stout added, "The company's growth plans and ongoing operating efficiencies should enable Alliance Laundry to sustain credit protection measures appropriate for the rating over the outlook period." Alliance Laundry's heavy debt burden, incurred in connection with the company's 1998 recapitalization, significantly limits the company's financial flexibility to react to its competitor's actions and economic changes. Standard & Poor's has not factored any acquisitions into its rating on the company. ALTERRA HEALTHCARE: Gets More Time to Meet AMEX Listing Criteria ---------------------------------------------------------------- Alterra Healthcare Corporation (AMEX: ALI) was notified on June 19, 2002, that the American Stock Exchange had accepted a plan submitted by Alterra to bring the Company into compliance with AMEX's continued listing standards. As reported in the Company's Form 10-K filed on March 29, 2002, AMEX informed the Company that it had fallen below certain of AMEX's continued listing guidelines and that it was reviewing the Company's listing eligibility. In a March 28, 2002, letter from AMEX, AMEX informed the Company that, based on AMEX's continuing review of the Company's listing eligibility, the Company had fallen below the following continued listing standards set forth in the AMEX Company Guide: Section 1003(a)(i) with shareholders' equity of less than $2.0 million and losses from continuing operations and/or net losses in two of its three most recent fiscal years; Section 1003(a)(ii) with shareholders' equity of less than $4.0 million and losses from continuing operations and/or net losses in three of its four most recent fiscal years; and Section 1003(a)(iv) in that it had sustained losses which are so substantial in relation to its overall operations or its existing financial resources, or its financial condition has become so impaired, that it appears questionable, in the opinion of the Exchange, as to whether the Company will be able to continue operations and/or meet its obligations as they mature. The Company was afforded the opportunity to submit a plan of compliance to the Exchange and on May 7, 2002, the Company submitted its plan of compliance and supporting documentation. On June 19, 2002, the Exchange notified Alterra that it had accepted the Company's plan of compliance and granted the Company an extension of time to regain compliance with the continued listing standards. The Company will be subject to periodic review by Exchange staff during the extension period. Failure to make progress consistent with the Company's plan of compliance or to regain compliance with the continued listing standards by the end of the extension period could result in the Company being delisted from the American Stock Exchange. Alterra offers supportive and selected healthcare services to our nation's frail elderly and is the nation's largest operator of freestanding Alzheimer's/memory care residences. Alterra currently operates in 25 states. The Company's common stock is traded on the American Stock Exchange under the symbol "ALI." As previously reported, Alterra Healthcare has a working capital deficit of $130 million at December 31, 2001. ATLANTIC EXPRESS: S&P Junks Ratings Over Weak Financial Profile --------------------------------------------------------------- Standard & Poor's lowered its corporate credit and senior secured debt ratings on Atlantic Express Transportation Corp. to triple-'C' from single-'B' due to the school bus provider's weakening financial profile and a delayed March (fiscal third quarter) 2002 10-Q filing with the SEC. Ratings remain on CreditWatch with negative implications where they were placed June 14, 2002. Approximately $120 million of rated debt is affected. "Atlantic Express Transportation's credit profile began to weaken in fiscal 2001, and this trend has continued into 2002," said Standard & Poor's credit analyst Betsy Snyder. "In addition, the company has delayed filing its March 2002 10-Q report with the SEC, without any indication of when the filing is expected to occur," the analyst said. In 2001, Atlantic Express Transportation's operating profit narrowed, which combined with higher interest expense due to an increase in outstanding debt, resulted in a wider loss of $7.9 million. This trend has continued in 2002, with the company's loss widening to $10.1 million in the first six months versus $7.2 million in the prior year period. The company has limited financial flexibility due to its privately held status and only $4.4 million available under its $125 million secured revolving credit facility at Dec. 31, 2001 (the latest information available). In addition, the company has indicated that it could have difficulty funding increased insurance and workers' compensation costs through cash on hand, internally generated funds, and external sources through December 2002. The delayed filing of the March 31, 2002, 10-Q report, without explanation, also raises concerns. The rating reflects Atlantic Express Transportation's small size and weak financial profile. Its primary business--close to 80% of revenues--is providing school bus transportation in the U.S. Although it has a strong position in the markets it serves, it is considerably smaller than industry leaders Laidlaw Inc. and FirstGroup PLC, a U.K.-based diversified transportation provider that acquired Ryder System Inc.'s transit operations in September 1999. In addition, National Express Group PLC, another U.K.-based diversified transportation provider, has purchased several large U.S. school bus providers. The U.S. school bus transportation industry has grown, due in large part to outsourcing of student transportation by school districts and the growth in public school enrollment, trends expected to continue. The industry has favorable credit characteristics, including predictable revenues from multiyear contracts and good growth prospects. Atlantic Express also owns Central New York Coach Sales and Service Inc., the largest Blue Bird bus distributor in the U.S. Standard & Poor's will continue to monitor the situation to determine the company's ability to pay interest on its obligations and to survive as a going concern. AUTOFUND SERVICING: Will Cease Operations Due to Lack of Capital ---------------------------------------------------------------- Total revenue of AutoFund Servicing, Inc., the Texas corporation, for the three months ended March 31, 2002, was $316,216 compared to the three months ended March 31, 2001, which was $531,240 and thus a decrease in total revenue, period over period, of $215,024. Total expenses for the three months ended March 31, 2002, was $435,657 compared to the three months ended March 31, 2001, which was $475,360. This is a decrease in expenses of $39,703. Expenses have decreased slightly, however, the decrease is minimal. The net loss for the three months ended March 31, 2002 was $78,830 compared to the three months ended March 31, 2001, which showed a gain of $38,274. Net gain has decreased by $40,556 for this three-month period. On May 29, 2002 Mr. James D. Haggard, Chairman, Sole Director, President and Secretary/Treasurer (Principal Financial and Accounting Officer) sent a letter to all of the company vendors. The letter, in its entirety read as follows; "As of June 5, 2002 AutoFund Servicing, Inc., a Texas corporation, will cease operation. We have exhausted all known avenues in an attempt to raise capital and have been unsuccessful. We truly regret having to take this action but there are no other options." AutoFund Servicing, Inc., the Texas Corporation, was the only source of revenue for the holding company AutoFund Servicing, Inc., the Nevada Corporation. The holding company will now search for a merger candidate in its same industry if possible. AVADO BRANDS: Makes Interest Payment on 9-3/4% Senior Notes ----------------------------------------------------------- Avado Brands, Inc. (OTC Bulletin Board: AVDO) has made its semi- annual interest payment to holders of its 9-3/4% Senior Notes. The interest payment was originally due on June 1, 2002 and as the Company indicated earlier, the payment was made within the 30 day, no-default period provided for under the terms of the Indenture. The Company continues to closely monitor its liquidity position and reiterated its belief that it will be able to make the semi- annual interest payment due to holders of its 11-3/4% Senior Subordinated Notes, which was originally due on June 15, 2002, within the 30 day no-default period provided for under the terms of that Indenture. Avado Brands owns and operates three proprietary brands, comprised of 14 Canyon Cafe restaurants, which are held for sale, 131 Don Pablo's Mexican Kitchens and 74 Hops Restaurant * Bar * Breweries. * * * As reported in Troubled Company Reporter's June 6, 2002 edition, Standard & Poor's lowered its corporate credit rating on casual dining restaurant operator Avado Brands Inc. to 'D' from triple- 'C' and lowered its rating on the company's $125 million 9.75% senior unsecured notes due in 2006 to 'D' from triple-'C' following the company's failure to remit the June 1, 2002, interest payment on those notes. The rating on the $100 million 11.75% subordinated notes was also lowered to single-'C' from double-'C' due to the company's announcement that it intends to delay the June 15, 2002, interest payment on those notes. When that payment is missed, Standard & Poor's will lower the rating on the subordinated notes to 'D'. In addition, the rating on Avado Brands Financing I's convertible preferred securities (TECONS) was lowered to 'D' from single-'C' due to the company's announcement that it had made a one-time payment of accrued interest, equal to $4.25 per share, to holders of its TECONS. This was conditional on the holders of at least 90% of the outstanding TECONS agreeing to convert their securities into shares of common stock of Avado pursuant to the terms of the TECONS. Standard & Poor's views this exchange as coercive because the total value of the equity offered was materially less than the originally contracted amount. BORDEN CHEMICALS: Court Nixes Committee's Move to Convert Case -------------------------------------------------------------- The U.S. Bankruptcy Court for the District of Delaware denied a motion by the Official Committee of Unsecured Creditors of Borden Chemicals and Plastics Operating Limited Partnership's chapter 11 cases to convert the Debtors' cases to proceedings under chapter 7 of the Bankruptcy Code. After reviewing the objections of the Debtors and the responses of the Committee and the U.S. Environmental Protection Agency, the Court finds that it is in best interest of the Debtors and the creditors to continue the restructuring of the Debtors under chapter 11 of the Bankruptcy Code. The Court however, rules that the Debtors shall make informational reports available to the Committee on a weekly basis, detailing the operational status and financial performance of the Debtors' manufacturing facility in Geismar, Louisiana. The Debtors and the Committee will agree upon the terms and contents of the Reports. Additionally, the Debtors shall allow the Committee to conduct reasonable monitoring of the activities at the Geismar Facility. Borden Chemicals and Plastics Operating Limited Partnership, producer PVC resins, filed for chapter 11 protection on April 3, 2001 in the U.S. Bankruptcy Court for the District of Delaware. Michael Lastowski, Esq. at Duane, Morris, & Hecksher represents the Debtors in their restructuring efforts. DebtTraders says that Borden Chemical & Plastics' 9.5% bonds due 2005 (BCPU05USR1), are trading at 5 cents-on-the-dollar. See http://www.debttraders.com/price.cfm?dt_sec_ticker=BCPU05USR1 for real-time bond pricing. BREAKAWAY SOLUTIONS: Taps Klehr Harrison as Litigation Counsel -------------------------------------------------------------- Breakaway Solutions, Inc. wants the U.S. Bankruptcy Court for the District of Delaware to give it authority to employ Klehr, Harrison, Harvey, Branzburg & Ellers LLP as special litigation counsel. The Debtor relates that it needs Klehr Harrison to represent it: i) in connection with certain litigation to collect accounts receivables against PacifiCare Behavioral Health of California, Inc., Netfolio, Inc. and Zone Telecom; ii) against several other defendants in possible litigation to collect accounts receivable; and iii) in possible litigation against the Debtor's former chief financial officer. The Debtor assures the Court that Klehr Harrison will not perform services typically performed by the Debtor's general bankruptcy counsel. The Debtor also seeks approval to pay Klehr Harrison a contingency fee of 35% on any recovery from persons or entities to be pursued in the Litigation, plus reimbursement of actual and necessary expenses incurred. Breakaway Solutions, Inc., which provides collaborative business solutions to its clients, filed for Chapter 11 petition on September 5, 2001 in the U.S. Bankruptcy Court for the District of Delaware. Gary M. Schildhorn, Esq., and Leon R. Barson, Esq., at Adelman Lavine Gold and Levin and Neil B. Glassman, Esq., and Steven M. Yoder, Esq., at The Bayard Firm represent the Debtor in its restructuring efforts. When the company filed for protection from its creditors, it listed $45,319,579 in assets and $25,877,720 in debt. BRILLIANT DIGITAL: Gets More Time to Meet AMEX Listing Standards ---------------------------------------------------------------- Brilliant Digital Entertainment, Inc. (AMEX:BDE), a developer and distributor of rich media advertising technologies and, through its Altnet subsidiary, secure peer to peer solutions, received a notice from the American Stock Exchange Staff on March 28, 2002 indicating that the Company is below certain of the Exchange's continued listing standards. Specifically, the Company has fallen below the following sections of the Amex Company Guide: Section 1003 (a)(i) with shareholders' equity of less than $2,000,000 and losses from continuing operations and/or net losses in two of its three most recent fiscal years; Section 1003 (a)(ii) with shareholders' equity of less than $4,000,000 and losses from continuing operations and/or net losses in three of its four most recent fiscal years; Section (a)(iii) with shareholders' equity of less than $6,000,000 and losses from continuing operations and/or net losses in its five most recent fiscal years; and Section 1003 (a)(iv) in that it has sustained losses which are so substantial in relation to its overall operations or its existing financial resources, or its financial condition has become so impaired that it appears questionable, in the opinion of the Exchange, as to whether the Company will be able to continue operations and/or meet its obligations as they mature. The Company was afforded the opportunity to submit a plan of compliance to the Exchange and on April 30, 2002 presented its plan to the Exchange. On June 19, 2002, the Exchange notified the Company that it accepted the Company's plan of compliance and granted the Company an extension of time to regain compliance with the continued listing standards. The Company will be subject to periodic reviews by the Exchange Staff during the extension period. Failure to make progress consistent with the plan or to regain compliance with the continued listing standards by the end of the extension period could result in the Company being delisted from the American Stock Exchange. Brilliant Digital also announced the election to the Company's Board of Directors at its Annual Stockholders' Meeting, held on Thursday, June 20, of Abe Sher, Mark Dyne, Chairman of the Board of Directors and Kevin Bermeister, President and CEO for terms expiring in 2005. Abe Sher is the newest member of the Board of Directors having served since February 2002. Mr. Sher has been Managing Director of Slingshot Ventures, LLC since 1998 and from May 1998 to June 2001, Mr. Sher served as Executive Vice President of xSides Corp. Mr. Sher also serves as a member of the board of directors of Microlab, Inc., xSides Corp., and VKB, Inc. Kevin Bermeister, President and CEO, commented, "We are thrilled to have someone of the caliber of Abe Sher serve on our Board of Directors. His wealth of experience and contacts in the industry are already proving very valuable to us in many key areas of our business. We look forward to his continued involvement and contribution in the execution of our business plan." Bermeister continued, "We continue to work closely with the American Stock Exchange and are pleased with our progress toward regaining compliance with the Exchange's continued listing requirements. While more work needs to be done, we are optimistic with the progress we are making with our rich media Brilliant Banner advertising and initiatives in the peer to peer space through our Altnet subsidiary." Brilliant Digital Entertainment, Inc. (AMEX:BDE) is a developer of 3D rich media advertising and content creation technologies for the Internet. It sells its b3d Studio content creation and authoring toolset to enable the creation and delivery of interactive, streaming, real-time 3D graphics over the Internet, and licenses its ad serving technology to the content and advertising communities. The b3d Studio toolset is targeted for use by studios, production houses, web content suppliers and advertising agencies to produce entertainment, advertising and music content for consumers distributed over the Internet. Brilliant also licenses its Brilliant Banner ad serving technology to the web based advertising industry. Find out more at http://www.brilliantdigital.com Altnet is the first peer-to-peer network created to give consumers easy access to secure content that originates from content owners. Altnet provides TopSearch, a product that integrates to applications and web sites via the Internet allowing content owners to direct paying customers to their content through search. Altnet also provides cost-effective bandwidth functions for enterprise customers and content owners. Altnet is a subsidiary of Brilliant Digital Entertainment (AMEX:BDE). CANAL CAPITAL: Todman & Co. Expresses Going Concern Doubt --------------------------------------------------------- In its June 4, 2002 Auditors Report on the financial condition of Canal Capital Corporation, the New York firm of Todman & Co., CPA's, P.C., says: "[T]he Company has suffered recurring losses from operations in nine of the last ten years and is obligated to continue making substantial annual contributions to its defined benefit pension plan. All of these matters raise substantial doubt about the Company's ability to continue as a going concern." Canal Capital Corporation is engaged in two distinct businesses the management and further development of its agribusiness related real estate properties located in the midwest and stockyard operations. Real estate operations resulted in operating income of $231,000 and $96,000 for the six month periods ended April 30, 2002 and 2001, respectively. Additionally, real estate operations contributed $711,000 and $490,000 to Canal's revenues for the six month periods ended April 30, 2002 and 2001, respectively. Canal's art sales generated income of $12,000 (net of a decrease in the valuation allowance of $108,000) as compared to a loss of $15,000 for the six month periods ended April 30, 2002 and 2001, respectively. The Company had approximately $857,000 and $1,012,000 of art inventory (at original cost) on consignment with third party dealers at April 30, 2002 and October 31, 2001, respectively. At April 30, 2002, substantially all of Canal's real properties, the stock of certain subsidiaries, the investments and a substantial portion of its art inventories are pledged as collateral. Canal recognized net income of $348,000 for the six month period ended April 30, 2002 as compared to a net loss of $25,000 for the same period in fiscal 2001. After recognition of an unrealized loss on investments held for sale of $0 and $44,000 for the six month periods ended April 30, 2002 and 2001, respectively, the Company recognized comprehensive income of $348,000 and a comprehensive loss of $69,000 for the six month periods ended April 30, 2002 and 2001, respectively. Further, after recognition of preferred stock dividend payments of $156,000 and $144,000 for the six month periods ended April 30, 2002 and 2001, respectively, the Company recognized net income applicable to common stockholders of $192,000 and a net loss applicable to common stockholders of $169,000 for the six month periods ended April 30, 2002 and 2001, respectively. Included in the 2002 results is other income of approximately $323,000 received by Canal as a demutualization compensation payment from an insurance company, from which, Canal had purchased annuity contracts in the early 1980's for certain of its retired stockyards employees. Included in the 2001 results is other income of approximately $143,000 comprised primarily of a damage award Canal received in connection with its lawsuit against a meat packing company in South St. Paul, Minnesota which was subsequently fully reserved at year end due to the financial instability of the debtor. CLASSIC COMMS: Taps Daniels & Associates as Cable Systems Broker ---------------------------------------------------------------- Classic Communications, Inc., and its debtor-affiliates sought and obtained approval from the U.S. Bankruptcy Court for the District of Delaware to hire Daniels & Associates, LP as their Cable Systems Broker. The Debtors chose Daniels as their cable systems broker because of the firm's extensive expertise and knowledge in the cable television industry. This engagement will be limited to brokering the small cable systems. The services that Daniels will render include: a) identifying, contacting, and eliminating interest from prospective purchasers regarding the acquisition by a third party of certain cable systems; b) preparing an informational brochure that describes the cable systems, the Debtors' assets, operations, management, financial condition, and other information; and c) assisting, if requested by the Debtors, in negotiations with prospective purchasers. Daniels will collect a fee equal to 5% of gross sale price for each completed transaction plus reimbursement for all actual out-of-pocket expenses incurred in connection with the services it renders to the Debtors. Classic Communications, Inc., a cable operator focused on non- metropolitan markets in the United States, filed for Chapter 11 petition on November 13, 2001 along with its subsidiaries. Brendan Linehan Shannon, Esq., at Young, Conaway, Stargatt & Taylor represents the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed $711,346,000 in total assets and $641,869,000 in total debts. COMMUNITY HEALTH: Fitch Rates $1.25BB Senior Bank Facility at BB ---------------------------------------------------------------- Fitch Ratings has assigned a 'BB' rating to CHS/Community Health Systems, Inc.'s new $1.25 billion senior secured bank facility. The new bank facilities (maintained at the operating subsidiary level -- CHS/Community Health Systems, Inc.) include a $450 million, 6-year revolving credit facility and a $800 million, 8- year term loan B facility. While the company is not expected to immediately draw on the revolver, proceeds from the term loan will be used to refinance existing debt and fund 2002 acquisitions. The bank facility is secured by a perfected first priority security interest in the capital stock of CHS/Community Health Systems Inc. and all wholly owned subsidiaries. Fitch has also assigned a 'B+' rating to Community Health Systems, Inc.'s (Community's parent company) convertible subordinated notes due 2008. The Rating Outlook is Stable. Fitch anticipates leverage to remain relatively stable as cash from operations will fund acquisitions and capital expenditures, limiting significant increases in borrowing but, conversely, also limiting debt reduction. Additional equity issues are possible. For the 12 months ended March 31, 2002, EBITDA/interest was 3.9 times, with total debt-to-EBITDA of 3.4x. Total debt at March 31, 2002, was approximately $1 billion and lease-adjusted debt-to-adjusted capital was approximately 56%. Community is the largest for-profit, rural hospital management company (in terms of facilities) in the U.S., and third largest in terms of acute care hospitals behind HCA (185 hospitals) and Tenet (115). Community operates 59 hospitals strictly in non- urban or rural markets. The vast majority (86%) of Community's hospitals are the only hospital in their respective market. The rating reflects the validity of the company's business model and it's leading market presence, experienced management and positive industry dynamics offset by modestly high leverage and acquisition-associated risks. The rating further reflects the company's improved capital structure and rebalanced maturity schedule. Community's business model is similar to that of other for- profit hospital management companies that rely on size for efficiencies and market presence for payor leverage. Community employs all of the mechanisms that make the for-profit model successful including standardized/centralized administration, group purchasing, information system leverage, capital investment in facilities, and skilled nurse and technician retention efforts. Its rural focus allows Community to capitalize on a limited payor base and generate better managed care pricing. A Community facility is typically the only provider in a given market and, therefore, has significant leverage when negotiating contracts. In addition, Community's size allows the company to coordinate effective physician recruitment for its facilities. Attracting physicians to rural markets can be difficult; yet, Community and other national chains have the ability to conduct national searches and have the resources to provide a host of incentives in attracting physicians not available to their poorly capitalized competitors. Incentives typically include office space, income guarantees, office management resources and group malpractice insurance rates. Community has grown though acquisitions and Fitch anticipates the company will continue to grow by adding 2-4 non-profit community hospitals per year, typically rural hospitals that are the sole provider in their respective communities. Community has a demonstrated track record of successful acquisitions and has consistently elevated margins at acquired facilities. That said, certain risks inherent with acquired facilities, namely operating risks and any assumed potential liabilities, need to be noted. Favorable industry dynamics further support Community's rating. Reimbursement levels have improved from recent years. Medicare reimbursement is back in-line with traditional levels and third- party payor rates remain favorable. Reimbursement trends will remain favorable for at least the near-to-intermediate term as Medicare rates are essentially established for 2003 and are in- line with industry expectations and the majority of managed care contracts have been signed covering the next fiscal year. Additionally, the legislative environment vis-a-vis health care reimbursement is markedly more favorable than recent experience. Given the damage previous efforts to limit spending did to the industry and the importance of the sector (including political considerations) legislators are unlikely to make significant cuts in health care funding despite anticipated deficit spending. Despite concerns of cuts in some state Medicaid budgets, any impact on Community would likely be immaterial. Favorable demographics and positive utilization trends are also key industry considerations. Cost pressures may strain Community's margin enhancement efforts. Labor costs, although somewhat abated in recent quarters, will continue to be a source of concern and Community may encounter challenges in recruiting nurses to rural markets amid a nationwide skilled-nurse shortage. Other cost pressures stem from increasing pharmaceutical and supply costs and rising insurance premiums. COSERV ELECTRIC: Files Disclosure Statement & Plans in Texas ------------------------------------------------------------ CoServ Electric and eight of its related companies, including the CoServ telephone and cable businesses, announced that plans of reorganization and other related disclosure statements were filed June 24 in the U.S. Bankruptcy Court for the Northern District of Texas. CoServ Realty Holdings, L.P. filed its reorganization plan and disclosure statement June 13. It is anticipated that the CoServ entities currently moving through the reorganization process will emerge from this process before or during the fourth quarter of 2002. The CoServ Electric plan was filed by CoServ Electric, CoServ Utility Holdings, L.P. and CoServ Investments, L.P., and was filed jointly with the National Rural Utilities Cooperative Finance Corporation, embodying the global settlement reached by the parties on May 2, 2002. The CoServ Electric plan provides for the continued existence of the electric cooperative for the benefit of its members, payment in full of all allowed claims of the debtors' estates and the establishment of a $200 million 10- year credit facility for future capital expenditures of the electric cooperative. Exit financing is provided by both CFC and CoBank, ACB, another electric cooperative lending institution. The CoServ Realty plan likewise provides for payment in full to all creditors, including CFC, which will receive a transfer of the debtor's real estate developer loan portfolio. This plan will provide for the continued funding of the developer loans by CFC. The CoServ Telecom plan provides for payment of an estimated 70% of all claims to the creditors of the CoServ telecom companies. The telecom companies previously announced debtor in possession financing from CFC in the amount of $7.8 million, which will provide funding through the end of 2002. If the assets are not sold prior to that time, the ownership of the operations will be transferred to CFC. The customers of CoServ Communications are expected to continue receiving uninterrupted service through this plan. "We will emerge from bankruptcy with a stronger balance sheet, poised for future growth and focused on our core electric business," said Bill McGinnis, president and chief executive officer of CoServ Electric. "This plan is a great outcome for our members and our creditors." For nearly 65 years, CoServ Electric has provided dependable, affordable, electric power to thousands of homes. In 1998, CoServ Electric expanded both its service area and its service offerings to include a broad range of services, including telephone and cable. Further information on CoServ Electric is accessible at http://www.coserv.com COSERV ELECTRIC: Unveils Terms of Chapter 11 Reorganization Plan ---------------------------------------------------------------- Papers were recently filed with the U.S. Bankruptcy Court that will enable Denton County Electric Cooperative (d/b/a CoServ Electric), Corinth, Texas, to emerge from bankruptcy and repay its primary creditor, National Rural Utilities Cooperative Finance Corporation, the entire principal amount of its $1- billion debt. The plan also enables the utility to continue as a not-for- profit cooperative, with a renewed focus on its core electric distribution business. In summary, the plans call for Denton County Electric Cooperative to repay $601 million in debt to CFC; to turn over to CFC its real estate lending portfolio--currently totaling approximately $365 million outstanding--as well as other equity interests and realty holdings; and to sell its telecommunications assets, with the net proceeds being paid to CFC. The general terms of the plans are as follows: Electric Denton County Electric Cooperative will refocus on its core electric distribution business. -- Denton County EC's debt obligations, totaling $601 million, will be restructured to fully amortize the principal over a 35-year period, although at an impaired yield. -- These obligations will be secured by all of Denton County EC's assets. -- CFC will provide secured financing for necessary capital expenditures, within certain agreed-upon limitations, to ensure continued electric service delivery to Denton County EC's current and future members. -- Unsecured creditor claims will be settled. -- Once Denton County EC emerges from bankruptcy, significant changes will be made to its executive management. Telecommunications Denton County Electric Cooperative will sell all of its telecommunications assets or transfer them to an entity designated by CFC. -- The Court has appointed a Chief Restructuring Officer, designated by CFC, to manage the operations of Denton County EC's telecommunications holdings and to maximize the value of the telecommunications assets in a sale, the net proceeds of which will be paid to CFC. -- Should a sale not take place on the later of the telecom plan's effective date or September 30, 2002--on terms satisfactory to CFC--the telecommunications assets will be transferred to an entity designated by CFC in order to effectuate their sale. -- CFC will continue to fund its previously approved debtor-in-possession loan commitments to the telecommunications holdings. -- Unsecured creditors will receive a partial settlement. Realty An entity designated by CFC will take possession of and manage all of Denton County Electric Cooperative's real estate lending portfolio and realty holdings. -- All of Denton County EC's real estate lending portfolio, with a current outstanding principal balance of approximately $365 million, will transfer to an entity designated by CFC. -- Denton County EC will transfer to CFC certain realty holdings and equity interests in the realty portfolio. -- CFC will honor Denton County EC's existing financing commitments to the real estate projects in the portfolio, but will not engage in any new real estate lending. -- Denton County EC will transfer to CFC all real estate loans under their existing terms, which include interest rates that are higher than what CFC charges its member electric cooperatives. Under the plans, all parties will end all litigation against each other. It is expected that Denton County Electric Cooperative will emerge from bankruptcy and that these plans will become effective by September 30, 2002. The plans are subject to the review and approval of the U.S. Bankruptcy Court. CFC is a not-for-profit finance cooperative that serves the nation's more than 1,000 electric cooperatives and their subsidiaries. With more than $20 billion in assets, CFC provides its member-owners with an assured source of low-cost capital and state-of-the-art financial products and services. COVANTA ENERGY: Wants Plan Filing Exclusivity Moved to Nov. 27 -------------------------------------------------------------- Covanta Energy Corporation and its debtor-affiliates ask the Court to extend their exclusive period to file a plan of reorganization through and including November 27, 2002. Furthermore, the Debtors ask the Court to extend their exclusive period to solicit acceptances of that plan through and including January 26, 2003. Deborah M. Buell, Esq., at Cleary, Gottlieb, Steen & Hamilton, in New York, relates that since Petition Date, the Debtors and their professionals have take several key steps towards a successful and consensual resolution of the Chapter 11 cases, like: (a) stabilizing the workforce and preserving vital customer, vendor and service provided relationships; (b) negotiating and obtaining Court approval, over numerous objections, of the Debtors' postpetition credit facility to provide adequate liquidity to fund their operations in these proceedings; (c) obtaining Court approval, over numerous objections, for the use of cash collateral; (d) filing of their voluminous schedules and statement of affairs; (e) pursing the sales or pre-sale marketing efforts for non-core assets; (f) engaging in an adversary proceeding relating to a substantial sublease with the city of Anaheim, in connection with the potential disposition of that asset; (g) spending substantial time with the creditors' representatives in order to provide diligence and background on the Debtors' and their financial issues; (h) engaging in discussions and providing of diligence to KKR and other potential acquirors in connection with a potential offer; (i) getting Court approval to implement a restructuring for its non-debtor subsidiary Covanta Power Pacific, Inc.; (j) initiated several adversary proceedings; (k) preparation for the development and negotiation of a Plan; (l) initial development of a five-year business plan; (m) continue working with KKR in a manner consistent with the Letter of Intent; and (n) begin a comprehensive evaluation of all the various property leases. Even though substantial progress has been made, Ms. Buell contends that the Debtors need additional time to permit them to develop and negotiate with the major constituencies to develop a Plan and Disclosure Statement that would enable the Debtors to successfully emerge from these Chapter 11 proceedings. Moreover, Ms. Buell adds, "these cases are complicated cases, involving more than 120 debtors, many thousands of creditors and many hundreds of millions of liabilities." Ms. Buell assures the Court that the extension 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 Plan. (Covanta Bankruptcy News, Issue No. 8; Bankruptcy Creditors' Service, Inc., 609/392-0900) DOBSON COMMS: Declares In-Kind Dividend on 13% Preferred Shares --------------------------------------------------------------- Dobson Communications Corporation (Nasdaq:DCEL) declared an in- kind dividend on its outstanding 13% Senior Exchangeable Preferred Stock. The dividend will be payable on August 1, 2002 to holders of record at the close of business on July 15, 2002. The CUSIP number for the 13% Senior Exchangeable Preferred Stock is 256072 50 5. Holders of shares of 13% Senior Exchangeable Preferred Stock will receive 0.03322 additional shares of 13% Senior Exchangeable Preferred Stock for each share held on the record date. The dividend covers the period May 1, 2002 through July 31, 2002. The dividends have an annual rate of 13% on the $1,000 per share liquidation preference value of the preferred stock. Dobson Communications is a leading provider of wireless phone services to rural markets in the United States. Headquartered in Oklahoma City, the Company owns or manages wireless operations in 17 states. For additional information on the Company and its operations, please visit its Web site at http://www.dobson.net At March 31, 2002, Dobson Communications reported having a total shareholders' equity deficit of about $266 million. DOMINO'S INC: S&P Raises Rating to BB- on Improved Performance -------------------------------------------------------------- Standard & Poor's raised its corporate credit rating on pizza delivery company Domino's Inc. to double-'B'-minus from single- 'B'-plus based on the company's improved operating performance and credit protection measures. The outlook is stable. Ann Arbor, Michigan-based Domino's had $640 million total debt outstanding as of March 24, 2002. "Systemwide sales increased 6.8% to $3.8 billion in 2001 while same-store sales for domestic franchise stores, which represent about 60% of Domino's store base, rose 8.0% in the first quarter of 2002 following a gain of 3.6% in all of 2001," Standard & Poor's credit analyst Robert Lichtenstein said. "Moreover, operating margins expanded to 15.4% for the 12 months ended March 24, 2002, from 14.4% in the comparable period of 2001." Standard & Poor's said the company's profits have increased as a result of franchise unit expansion and new promotions and product introductions. This, in turn, resulted in improved credit protection measures, with EBITDA coverage of interest for the 12 months ended March 24, 2002, at 2.6 times, up from 2.0x in the comparable period of 2001. Standard & Poor's said the ratings on Domino's reflect its participation in the highly competitive pizza industry, a narrow product focus, and a significant debt burden. These factors are partially mitigated by the company's strong brand identity, simple and cost-efficient operating system, and improved profitability. The company's highly leveraged capital structure is the result of its 1998 recapitalization. For the 12 months ended March 24, 2002, total debt to EBITDA declined to 3.8x from 4.6x. Liquidity is provided by a $100 million revolving credit facility, of which $82.6 million was available as of March 24, 2002. E.SPIRE COMMS: Wants Lease Decision Period Stretched to Sept. 30 ---------------------------------------------------------------- To continue the orderly wind-down of their businesses, e.spire Communications, Inc., along with its debtor-affiliates, asks the U.S. Bankruptcy Court for the District of Delaware for a fourth extension of their lease decision period. The Debtors wish to stretch the time period within which they must decide to assume, assume and assign, or reject their unexpired nonresidential real property leases through September 30, 2002. The Debtors point out that currently they have approximately 75 unexpired leases of nonresidential real property. Most of the remaining Leases are either for space that has not yet been assigned to the Buyer, or is not part of the assets purchased by the Buyer. The latter are spaces used by the Debtors for conducting the operation and monitoring their switch equipment, addressing customer issues and conducting administrative, corporate sales functions that comprise their remaining business operation. The Debtors explain that these leases are integral to the Debtors' continued operations as they seek to close on the sale approved by the Sale Motion, and wind down their remaining operations, post-sale. e.spire Communications, Inc. is a facilities-based integrated communications provider, offering traditional local and long distance internet access throughout the United States. The Company filed for chapter 11 protection on March 22, 2001. Domenic E. Pacitti, Esq., Maria Aprile Sawczuk, Esq. and Mark Minuti at Saul Ewing LLP represents the Debtors in their bankruptcy cases. ENRON CORP: Court Okays Settlement Agreement with Global Risk ------------------------------------------------------------- Pursuant to Rule 9019 of the Federal Rules of Bankruptcy Procedure, Enron Corporation and Enron Global Markets LLC obtained the Court's approval of its settlement agreement with Global Risk Strategies (Bermuda) Ltd. Global Risk Strategies (Bermuda), Ltd. is a Bermudian company formed August 29, 2001. Its owners are: 25% - Global Risk Trading (Bermuda) Ltd. 75% - Enron (Bermuda) Ltd., a Bermudian company that is indirectly owned 100% by Enron Global Markets. Melanie Gray, Esq., at Weil, Gotshal & Manges LLP, in New York, tells the Court that Global Risk Strategies Ltd.'s business has been the trading of insurance claims, primarily through the purchase of claims against solvent and insolvent insurance companies and the subsequent prosecution of those claims. "Global Risk Strategies Ltd. continues to operate this business, albeit in a wind-down phase, and neither it nor Enron Bermuda is party to any insolvency proceeding," Ms. Gray relates. According to Ms. Gray, the rights and obligations of Enron Bermuda and Global Risk Trading with respect to Global Risk Strategies Ltd. are governed by a Shareholders Agreement dated September 5, 2001. Ms. Gray explains that the Shareholders Agreement provides for Enron Bermuda to make working capital loans and transaction loans (for the purchase of insurance claims or otherwise to fund approved transactions) to Global Risk Strategies Ltd. In the event Enron Bermuda fails to fund a working capital loan or transaction loan), then the Shareholders Agreement is deemed terminated and Global Risk Strategies Ltd. must liquidate its existing transactions. "Repayment to Enron Bermuda of such Funding Obligations are given the first priority out of such liquidation proceeds," Ms. Gray says. Since the inception of Global Risk Strategies Ltd., Ms. Gray estimates that Enron Bermuda has funded approximately $6,500,000 in Funding Obligations. The Funding Obligations are secured by a guaranty dated September 5, 2001 from Enron Corp. made for the benefit of Global Risk Trading, pursuant to which Enron irrevocably and unconditionally guaranteed the timely payment when due of the Funding Obligations. In November 2001, Ms. Gray recalls that a transaction loan obligation in the amount of $85,000 came due that Enron Bermuda did not fund. This prompted Global Risk Trading to send Enron Bermuda a demand notice. Still, Enron Bermuda did not comply within the following seven-day cure period. Since that time, Ms. Gray relates, Global Risk Strategies Ltd. has been in a wind-down phase. "This means it must liquidate its existing insurance claims and transactions," Ms. Gray explains. Global Risk Trading is not at all happy with the developments. Ms. Gray tells the Court Global Risk Trading has alleged that it was fraudulently induced to enter into the Shareholders Agreement relating to the formation of Global Risk Strategies Ltd., and that it suffered loss as a result. Moreover, Ms. Gray says, Global Risk Trading has threatened action against Enron Bermuda, Enron and Enron Global Markets in relation to such claims. On the other hand, Enron Bermuda, Enron and Enron Global Markets continue to dispute such allegations. To resolve these outstanding disputes, Global Risk Trading and certain of its principals and affiliates, and Enron Bermuda and certain of its parent entities, including Enron and Enron Global Markets have negotiated a settlement agreement. The salient terms of the Settlement Agreement are: (a) Enron Bermuda is to receive no less than $3,000,000 from Global Risk Strategies Ltd., $2,000,000 of which is immediately payable upon the effectiveness of the Settlement Agreement. The remaining payment is to be the greater of: (i) 75% of the liquidation proceeds of certain defined assets of Global Risk Strategies Ltd., as collected from the date of the signing of the Settlement Agreement and April 30th, 2003, or (ii) $1,000,000. The additional $1,000,000 will be secured by a first fixed charge over the remaining insurance claims or their proceeds; (b) The Global Risk Trading Parties and the Enron Parties completely and fully release each other from all claims of any kind relating to Global Risk Strategies Ltd., with exceptions. In particular: Enron Bermuda forgives repayment of the Funding Obligations (in consideration for the payment received), the Enron guaranty is terminated, and the Enron Parties and all of their affiliated entities are completely released from any allegations of fraud or misconduct (pursuant to the general release provided); and (c) Certain express covenants of the Settlement Agreement are carved out of and survive the general mutual release, such as the forward payment obligation to Enron Bermuda, certain confidentiality and non-disparagement covenants, and record-keeping covenants. (Enron Bankruptcy News, Issue No. 33; Bankruptcy Creditors' Service, Inc., 609/392-0900) Enron Corp.'s 9.125% bonds due 2003 (ENRON2), says DebtTraders, are quoted at a price of 12.5. For real-time bond pricing, see http://www.debttraders.com/price.cfm?dt_sec_ticker=ENRON2 ENRON CORP: Court Okays Alston & Bird as Neal Batson's Counsel -------------------------------------------------------------- Enron Corporation Examiner, Neal Batson, obtained the Court's authority to retain Alston & Bird LLP as his legal counsel in these Chapter 11 cases, nunc pro tunc to May 28, 2002. Mr. Batson expects Alston & Bird to: (a) take all necessary actions to assist the Examiner in his examination; (b) prepare on behalf of the Examiner all reports, pleadings, applications and other necessary documents in the discharge of the Examiner's duties; (c) assist the Examiner in the other tasks that may be directed to be undertaken by the Court; and (d) perform all other necessary legal services in connection with the Case. In return for its services, Alston & Bird will be compensated pursuant to its standard hourly rates, which are subject to periodic adjustments to reflect economic and other conditions: Partners $330-620 Counsel 275-550 Associates 170-375 Paraprofessionals 105-235 It is the firm's policy to charge its clients in all areas of practice for all expenses incurred in connection with the client's cases. The expenses charged to clients include, among other things, long distance telephone charges, telecopier charges, mail and express mail charges, special or hand delivery charges, document processing, photocopying charges, travel expenses, computerized research, transcription costs, as well as non-ordinary overhead expenses like secretarial and other overtime. (Enron Bankruptcy News, Issue No. 33; Bankruptcy Creditors' Service, Inc., 609/392-0900) ETOYS INC: Signs-Up Ernst & Young as Bankruptcy Tax Accountants --------------------------------------------------------------- The U.S. Bankruptcy Court for the District of Delaware approved a request by eToys, Inc. and its affiliated debtors to employ Ernst & Young LLP as their Tax Accountants. Ernst & Young will render tax accounting services as needed throughout the course of these Chapter 11 cases, including: a. preparing the United States Consolidated Income Tax Return, Form 1120 for the Debtors for the year ended March 31, 2001; and b. preparing the 2001 state and local income and franchise tax returns for the Debtors. The Debtors clarify that this scope of services may be broadened as the need arises. Ernst & Young will be compensated in accordance with its customary hourly rates charged to this engagement and as agreed with the Debtors are: Tax Compliance Standard Hourly Rates --------------------- Principals $510 Practice Coordinator $435 Senior Engagement Coordinator $390 Manager $320 Technical Leader $235 Specialist $207 Staff $155 Paraprofessional $106 Intern $75 Tax Consulting Standard Hourly Rates --------------------- Partners $510-600 Principals $510-540 Senior Managers $495-510 Managers $390-400 Seniors $265-300 Staff $200-210 eToys, Inc., now known as EBC I Inc, operated a web-based toy retailer based in Los Angeles, California. The Company filed a Chapter 11 Petition on March 7, 2001. When the company filed for protection from its creditors, it listed $416,932,000 in assets and $285,018,000 in debt. eToys sold its assets and name to toy retailer KB Toys. The Company's SEC report on February 28, 2002, the Debtors listed 32,091,918 in total assets and 192,396,702 in total liabilities. Robert J. Dehney, Esq., at Morris, Nichols, Arsht & Tunnell and Howard Steinberg, Esq., at Irell & Manella represent the Debtors as they wind-up their financial affairs. EXIDE: US Trustee Balks At PricewaterhouseCooper's Retention ------------------------------------------------------------ The U.S. Trustee objects to Exide Technologies' bid to hire PricewaterhouseCoopers because: A. The scope of services as set forth in the Application is extremely broad, encompassing a panoply of accounting, auditing, consulting, tax assistance and tax planning services. B. It is a matter of common knowledge that the performance of consulting services by auditing firms, including but not limited to PwC, is currently a matter of great public concern. Indeed, on February 5, 2002, one of PwC's competitors, Arthur Andersen LLP, announced that former Federal Reserve Chairman Paul Volcker had been appointed to chair an independent oversight board "with authority to mandate changes in Andersen's auditing processes." On February 6, 2002, Andersen released a letter from its CEO summarizing certain interim changes that Andersen was immediately implementing in its engagement policies, including refraining from assignments in which Andersen would be performing both auditing and consulting services. C. In a statement issued on February 14, 2002, Mr. Volcker summarized the concerns that led to the appointment of the oversight board. On the subject of combined auditing and consulting engagements, Mr. Volcker noted, "Large and profitable consulting assignments may, even subconsciously, affect auditor judgment." D. Significant elements of the consulting and non-audit work PWC proposes to perform for the Debtors appear to constitute internal audit services as well as general accounting and consulting services. E. As a result, the UST believes that the terms of the proposed engagement are of questionable propriety even outside of bankruptcy (leaving aside the question whether they were appropriate in the past). PwC should not be permitted to perform a combination of services in a bankruptcy case (where the level of scrutiny should be heightened rather than relaxed) when the propriety of such a combination of services is now called into question by accounting professionals and where the services to be performed may require PwC to review not only its own post-petition work but also audit, tax and consulting work that it performed for the Debtors pre- petition. F. The Application and the attached Affidavit of John Kiely in support of the Application indicate that PwC performed audit, tax and consulting services for the Debtors and a number of their subsidiaries pre-petition. The Kiely Affidavit also states that PwC is not a creditor of the Debtors. However, the Application provides information regarding pre-petition payments made to PwC, even during the course of the ongoing engagement described in the engagement letter annexed to the Application. The payments may have been avoidable preferences which would create an interest adverse to the estates, precluding the necessary finding that PwC is a disinterested person and therefore precluding employment of PWC. Employment of PwC for any purpose pursuant to 11 U.S.C. Section 327(a) should not be approved until PwC produces sufficient information to demonstrate that it is in fact a disinterested person. (Exide Bankruptcy News, Issue No. 6; Bankruptcy Creditors' Service, Inc., 609/392-0900) DebtTraders reports that Exide Technologies' 10% bonds due 2005 (EXIDE2) are trading at about 15. See http://www.debttraders.com/price.cfm?dt_sec_ticker=EXIDE2for real-time bond pricing. EXODUS COMMS: Gets Okay to Settle Dispute with Lakeside Purchase ---------------------------------------------------------------- Exodus Communications, Inc., and its debtor-affiliates sought and obtained the entry of an Order approving a stipulation with Lakeside Purchase, LLC to resolve Lakeside's objection for the removal of personal property at 350 Cermak in Chicago, Illinois. Mark S. Chehi, Esq., at Skadden, Arps, Slate, Meagher & Flom LLP in Wilmington, Delaware, tells the Court that the Debtors had, on January 24, 2002, served a Sale Notice on the personal property attached to the Site pursuant to the Miscellaneous Assets Sale Order. Lakeside had filed an objection to this Order on February 14, 2002. The lease was originally entered into between Global Crossing subsidiaries Frontier Corporation, FrontierGlobalCenter, Inc. (predecessors-in-interest to debtor GlobalCenter, Inc.) and 350 East Cermak, LLC (predecessor-in- interest to Lakeside). The pertinent terms of the stipulation are: A. The Debtors agree to reject the Lease effective February 28, 2002. The Debtors agree to pay the sum of $1,250,000,00 by wire transfer to Lakeside; B. Lakeside is entitled to retain any and all payments or deposits made after September 26, 2001 on account of the Lease. This is including any rent or security deposit paid by the Debtors or Global Crossing Ltd., is in full satisfaction of any rent and any other obligations owed to Lakeside under the Lease accruing from September 26, 2001 through February 28, 2002. But if Global Crossing, the Official Committee of Unsecured Creditors in the Global Crossing bankruptcy cases, any estate representative, or any other party acting on behalf of the Global Crossing, obtain a judgment requiring Lakeside to return any security deposit or rent paid by Global Crossing Ltd., then Lakeside will, in the Debtors' cases, have an allowed administrative expense claim in the amount of the returned security deposit or rent; C. In lieu of the Proof of Claim of Lakeside dated April 10, 2002 on file with the Court, the Debtors and Lakeside agree that Lakeside will have these allowed general unsecured claims: a. $153,157 for unpaid operating expenses for 2000 and 2001; b. $3,000,000 with respect to the mechanics liens, including lienholders' attorneys' fees, court costs and expenses, and interest payable to lienholders in resolution of the mechanic's liens; c. $500,000 for attorneys' fees, court costs and expenses to the extent actually paid by Lakeside (which Lakeside will establish by submitting evidence of payment to the Debtors or Plan Administrator as the case may be) in its defense of and resolution of the mechanic's liens; d. the actual amount paid by Lakeside to unaffiliated lienholders for attorneys' fees, court costs, expenses, and interest that are not included in the amount of $3,000,000 described in (b); and, e. in the event that additional mechanics liens are filed against Lakeside and the Site that relate to the premises leased to the Debtors, the Debtors agree that Lakeside's allowed general unsecured claims will be increased by (i) the total amount of payments made by Lakeside to the lienholders to obtain releases of the Additional Liens, and (ii) the amount of attorneys' fees paid by Lakeside in its defense of that Additional Liens; The Debtors agree that the claims described in (d) and (e) are not Disputed Claims as defined in the Debtors' Reorganization Plan; D. By June 10, 2002, the Debtors will have conveyed all of the Debtors' right, title and interest in and to the Personal Property listed in the Sale Notice. This includes all other tenant improvements and other personal property located at the Site, including, without limitation, raised flooring, equipment racks and system furniture on an "as is-where is" basis. The Debtors wil assign any warranties provided by third parties with respect to the Property that can be assigned by the Debtors at no cost or expense to the estates; E. Provided that no appeal of the approval of the stipulation has been filed with the Court, Lakeside releases and discharges the Debtors and their estates from any and all claims that Lakeside may have with respect to the Lease, including, without limitation, any claims for rejection damages and administrative rent claims; F. In the event that the Debtors, the Official Committee of Unsecured Creditors, any estate representative, or any other party on behalf of the Debtors' estates assert any cause of action against Lakeside, the claims released will be resurrected in that the Resurrected Claims can be asserted defensively. This can occur even after the confirmation of the Reorganization Plan and despite any discharge that may be granted by the Court. This can be done by way of setoff, recoupment, counterclaim provided that Lakeside's ability to assert the Resurrected Claims is expressly reserved and Lakeside need not take any further action in the Debtors' cases to preserve the ability to assert the Resurrected Claims; and, G. By June 15, 2002, the Debtors would have delivered any and all "as built" plans and CAD drawings with respect to the Site currently in the Debtors' possession. The Debtors will have its contractors and agents provide access to and copies of the CAD drawings to Lakeside at no further cost or expense to the Estates. (Exodus Bankruptcy News, Issue No. 20; Bankruptcy Creditors' Service, Inc., 609/392-0900) Exodus Communications Inc.'s 11.625% bonds due 2010 (EXDS3) are trading at about 17.75, DebtTraders reports. See http://www.debttraders.com/price.cfm?dt_sec_ticker=EXDS3for real-time bond pricing. FLAG TELECOM: Court Okays Appleby Spurling as Bermuda Counsel ------------------------------------------------------------- Judge Allan L. Gropper grants FLAG Telecom Holdings Limited and its debtor-affiliates interim authority to employ Appleby, Spurling & Kempe as special Bermuda counsel effective April 12, 2002. The interim Order follows the withdrawal of the Objection of the FLAG Telecom Holdings Ltd. noteholders. The Objection relates to the allocation among the Debtors of costs in retaining Appleby. In a second Order, Judge Gropper makes clear that the note- holders may still object to the retention of Appleby on the grounds that FTHL's interests are adverse to that of the other Debtors and therefore it requires a separate counsel. That Objection, however, cannot form the basis for objecting to Appleby's application for compensation. * * * As previously reported, the Debtors expect Appleby to provide the services sought, among them: (a) representing the Debtors in the provisional liquidation proceedings in Bermuda, including filing various applications and motions and instructing counsel, including where appropriate, Queen's Counsel with respect to Court appearances; (b) identifying issues under Bermuda law that will arise in the provisional liquidation and during the course of these Chapter 11 proceedings, and counseling the Debtors with regard to the issues; (c) coordinating as necessary with the Debtors' United States counsel with respect to the Debtors' Chapter 11 cases; (d) continuing with the representation of FLAG Limited in relation to ongoing litigation that was commenced in the Supreme Court of Bermuda in 1998. (Appleby currently represents FLAG Ltd. in a declaratory action that it commenced against Nicholas Reda and Jamal Abdul-Jalil. The Declaratory Action was commenced in the Supreme Court of Bermuda in 1998 with Judgment being entered on 23 March 2000. There have been subsequent appeals of that decision and it is currently being determined before the Judicial Committee of the Privy Council in the United Kingdom. The Privy Council hearing commenced the week of 15 April 2002.) (e) providing such other services relating to issues arising under Bermuda law as the Debtors reasonably request from time to time with respect to the reorganization of its business. Compensation Appleby bills for its services on an hourly basis: Partners $425 to $525 per hour Associates $200 to $475 per hour Paralegals $150 to $200 per hour The partners, counsels, associates and paralegals currently expected to work on the engagement are: Professional Compensation ------------ ------------- John Riihiluoma $500 per hour Peter Bubenzer $500 per hour Jennifer Fraser $475 per hour Geoffrey Bell $425 per hour Susan Davis $275 per hour Jeremy Leese $420 per hour Bal Bhullar $390 per hour Ian Stone $470 per hour Arabella di Iorio $425 per hour Dianne Alleyne $200 per hour Appleby will be reimbursed for out of pocket expenses, such as travel expenses, duplicating charges, computer and research charges, messenger services and telephone charges. (Flag Telecom Bankruptcy News, Issue No. 10; Bankruptcy Creditors' Service, Inc., 609/392-0900) FOCAL COMMS: S&P Junks Bank Loan & Senior Unsecured Debt Ratings ---------------------------------------------------------------- Standard & Poor's assigned its triple-'C' bank loan rating to integrated communications service provider Focal Communications Corp.'s senior secured credit facility and assigned its double- 'C' rating to the company's senior unsecured debt. The company completed a comprehensive recapitalization plan on October 26, 2001. A triple-'C' corporate credit rating was also assigned to the company. The outlook is developing. As of March 31, 2002, Chicago, Illinois-based Focal had total debt outstanding of about $477 million, including $103 million of convertible notes. The company offers voice and data services to large enterprise and Internet service provider (ISP) customers in 22 metropolitan markets. "The rating on Focal reflects the very high business risk profile of the competitive local exchange carrier (CLEC) industry and the company's weak financial position," Standard & Poor's credit analyst Rosemarie Kalinowski said. "In addition, ISPs represent about 40% of the company's revenue mix. Although this percent has declined over the past few quarters, the company has experienced a significant amount of line churn because a good degree of ISPs continue to have financial difficulties." "The high line churn of ISPs, along with slower growth in the enterprise business segment, contributed to a low 1% growth in net lines installed in the first quarter of 2002 compared with 6% growth in the fourth quarter of 2001," Ms. Kalinowski added. Standard & Poor's said a developing outlook indicates that a company's rating could be raised or lowered depending on certain factors. It said the rating on Focal could be raised over the next year if cash flow measures and its competitive position improve. However, the rating could be lowered if Focal's plan to increase enterprise customers and significantly improve cash flow does not materialize. Standard & Poor's said Focal's $225 million amended secured bank facility, which matures in 2007, is rated the same as the corporate credit rating because of the likelihood of meaningful recovery of principal in event of default or bankruptcy. The company's liquidity position as of March 31, 2002, included about $70 million of cash and $35 million availability under the bank facility. If Focal meets bank covenants through March 31, 2003, then the remaining $95 million under the bank facility will be available. FRIEDE GOLDMAN: Will Auction-Off Halter Marine Assets on July 16 ---------------------------------------------------------------- Friede Goldman Halter, Inc. (OTCBB:FGHLQ) received milestone dates from the U.S Bankruptcy Court regarding the sale of Halter Marine. The Court auction date has been set for July 16, 2002 with the sale hearing to take place on July 23, 2002. A copy of the procedures for participating in the auction is available from counsel for the Selling Debtors, Douglas G. Walter, Andrews & Kurth, Mayor, Day, Caldwell & Keeton, 600 Travis, Suite 4200, Houston, Texas 77002. The sale contemplates an agreement for the purchase of all the operating assets and properties of Halter, including the assets at Halter Pascagoula, Halter Moss Point, Moss Point Marine, Halter Port Bienville, Halter Lockport, and Halter Gulfport East including the Corporate Headquarters, Gulfport Central and Three Rivers. The closing is expected to take place in early August 2002. "There have been a number of parties considering Halter for possible inclusion in their operating platforms because of its strong market presence," said Jack Stone, Principal, Glass & Associates, Inc. and Chief Restructuring Advisor to FGH. "We're pleased with this interest; the sale of Halter Marine is a major step in providing a return to the creditors. The continued loyalty of the employees, customers and suppliers has made this possible." Friede Goldman Halter is a leader in the design and manufacture of equipment for the maritime and offshore energy industries. Its core operating units are Friede Goldman Offshore (construction, upgrade and repair of drilling units, mobile production units and offshore construction equipment) and Halter Marine, Inc. (a significant domestic and international designer and builder of small and medium sized vessels for the government, commercial, and energy markets). GEMSTAR-TV GUIDE: S&P Affirms BB+ Corporate Credit Rating --------------------------------------------------------- Standard & Poor's has revised its outlook on Gemstar TV Guide International Inc. to negative from stable based on concerns about increased competition the company could face following an unfavorable court determination. Standard & Poor's said that its double-'B'-plus corporate credit rating on Pasadena, California-based Gemstar is affirmed. The company currently has $303 million in debt outstanding. Standard & Poor's said that it believes Gemstar could face increasing competition following an initial determination by the U.S. International Trade Commission (ITC) that the patents of Gemstar have not been infringed by rival guides included as a part of imported set-top cable-television boxes. The ITC also ruled that the company misused one of the patents that was found to be unenforceable for failure to name a co-inventor. The ITC judge did uphold the validity of all patents in the suit. "The ruling potentially undermines the company's position as industry leader in developing and licensing TV programming guide technology, its ability to win new or renew existing contracts, and generate revenues from its technology and interactive programming guides (IPG) in line with expectations," said Standard & Poor's credit analyst Alyse Michaelson. She added that, "The company may now have to transition to a more product- oriented, marketing-driven, and customer-centric operating model given that the foundation for a legal strategy has weakened." Ongoing patent infringement litigation and the potential for future management instability exacerbate Standard & Poor's concerns. Standard & Poor's said that its ratings on the company could be lowered if it does not continue to gain traction in its technology, licensing and IPG businesses, and maintain its cash cushion. GENERAL DATACOMM: Taps Fiesner Wolfson for Chase Litigation ----------------------------------------------------------- On or about April 30, 2002, JP Morgan Chase Bank, et al. initiated a complaint in foreclosure upon General Datacomm Industries, Inc.'s property in Middlebury, Connecticut. In this connection, General Datacomm Industries, Inc. and its debtor-affiliates ask permission from the U.S. Bankruptcy Court for the District of Delaware to employ Feiner Wolfson LLC as Counsel in connection with the JP Morgan Chase Bank V. General Datacomm Industries, Inc. pending in the Superior Court for the Judicial District of Waterbury, Connecticut. The Debtors believe that Fiesner Wolfson is well-qualified and able to provide the needed services to the Debtors' in a cost- effective, efficient, and timely manner. Subject to court approval, the Debtors propose to compensate Fiesner Wolfson on an hourly basis, plus reimbursement of actual, necessary expense and other charges incurred by the firm. The principal attorney designated to represent the Debtors is Mr. John M. Wolfson and his current standard hourly rate is $235 per hour. Fiesner Wolfson estimates that its compensation and reimbursement expenses will not $35,000. Due to the limited nature of this representation, Fiesner Wolfson will submit detailed time records to the Debtors, the Office of the United States Trustee and counsel for the Committee in lieu of filing monthly fee applications with this Court. General DataComm Industries, Inc. is a worldwide provider of wide area networking and telecommunications products and services. The Company filed for Chapter 11 protection on November 2, 2001. James L. Patton, Esq., Joel A. Walte, Esq. and Michael R. Nestor, Esq., represent the Debtors in their restructuring effort. When the Company filed for protection from its creditors, it listed $64,000,000 in assets and $94,000,000 in debts. GLENOIT: Seeks to Extend Solicitation Period Pending Auction ------------------------------------------------------------ Glenoit Corporation and its debtor-affiliates move to enlarge the time period within which they have an exclusive right to solicit acceptances of a chapter 11 plan and file a Disclosure Statement. After two months of negotiations, Galaxy Enterprise Corp., the agent for the Debtors' Secured Lenders, the Office of the United States Trustee, and certain individual Secured Lenders, the parties have agreed on a form of order governing the auction procedures for the sale of the Debtors remaining two operating divisions. The Debtors intend to convene an auction on August 5, 2002. Until then, the Debtors intend to use the next two months to work with other interested buyers in order to convene a successful, competitive auction. In the meantime, the Debtors assure the Court that they will also work on two other plan alternatives, depending on the results of the auction. Many of the Secured Lenders have expressed a willingness to convert some of their debt to equity under the Plan, and the Debtors are highly confident they could confirm such a Plan quickly, if the auction is not successful. However, in the event that the auction is successful, the Debtors intend to prepare a liquidating Plan and accompanying Disclosure Statement which will be promptly filed, the Debtors explain. Due to the fact that they do not yet know which of these options will resolve the case, the Debtors contend that it is not efficient or productive to complete a Disclosure Statement at this time. In this connection, the Debtors seek an extension, until September 10, 2002 to file a Disclosure Statement with respect to the Plan, and to solicit acceptances of the Plan. 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, Esq. at Young, Conaway, Stargatt & Taylor represents the Debtors in their restructuring efforts. GLOBAL CROSSING: Committee Taps Laiken as Actuarial Consultants --------------------------------------------------------------- Global Crossing Ltd.'s Official Committee of Unsecured Creditors sought and obtained Court approval authorizing them to retain Laiken Associates Inc. as actuarial consultants, nunc pro tunc to April 22, 2002. The general nature of services that Laiken will perform for the Committee may include the following: A. Assist the Committee to determine and analyze the value of accrued liabilities of the Frontier Corp. Plan for Employees Pension & Death Benefits and determination of their actuarial surplus; B. Assist the Committee in reviewing and analyzing actuarial reports, valuations, financial data, and other materials concerning the Plan; C. Attend and advise at meetings with the Committee and its Counsel; D. Attend meetings with the Debtors and their representatives and advisors; E. As may be agreed to by Laiken and subject to a separate engagement letter, as appropriate, render expert testimony on behalf of the Committee; and F. Provide other services as may be requested by the Committee and as agreed to by Laiken. Subject to Court approval, Laiken intends to charge for its professional services on an hourly basis in accordance with its ordinary customary hourly rates in effect on the date the services are rendered and seek reimbursement of reasonable expenses. Laiken's regular hourly rates are: Level Range of Rates ----------------------- -------------- Officers $350 to $450 Senior Managers/Actuary $250 to $350 Actuary $200 to $300 Consultants $175 to $250 Leslie M. Laiken, an Officer of Laiken Associates Inc., assures the Court that Laiken neither holds nor represents any interest adverse to the Debtors or their estates in matters for which it is to be retained. According, Laiken is a "disinterested person" as defined in the Bankruptcy Code. (Global Crossing Bankruptcy News, Issue No. 13; Bankruptcy Creditors' Service, Inc., 609/392-0900) DebtTraders says that Global Crossing Holdings Ltd.'s 9.625% bonds due 2008 (GBLX3) are trading at about 1.625. See http://www.debttraders.com/price.cfm?dt_sec_ticker=GBLX3for real-time bond pricing. GREAT LAKES: Violates Nasdaq Continued Listing Requirements ----------------------------------------------------------- Great Lakes Aviation, Ltd. (Nasdaq: GLUX) has received notice from Nasdaq that it intends to delist the Company's securities from the Nasdaq SmallCap Market at the opening of business on June 28, 2002, due to non-compliance with applicable continued listing criteria for either the minimum net tangible assets or minimum stockholders' equity as stated in Marketplace Rule 4310(C)(2)(B). In response to the notice, Great Lakes Aviation has requested a hearing before a Nasdaq Listings Qualification Panel to contest the delisting of its shares from the Nasdaq SmallCap Market. The hearing request will stay the delisting of Great Lakes Aviation's securities pending the Nasdaq Listing Qualification Panel's decision. The company intends to submit a specific plan in oral and written presentations to Nasdaq that includes a significant financial restructuring of the company and also enables the company to attain compliance with the listing criteria. Nasdaq may not accept Great Lakes Aviation's arguments in favor of continued listing, in which case, Great Lakes Aviation's securities would be delisted and no longer be able to be traded in the Nasdaq SmallCap Market. If Great Lakes Aviation's securities do not continue to be listed on the Nasdaq SmallCap Market, such securities would become subject to certain rules of the SEC relating to "penny stocks." Such rules require broker-dealers to make a suitability determination for purchasers and to receive the purchaser's prior written consent for a purchase transaction, thus restricting the ability to purchase or sell the securities in the open market. Additionally, trading, if any, would be conducted in the over-the-counter market in the so-called "pink sheets" or on the OTC Bulletin Board, which was established for securities that do not meet the Nasdaq listing requirements. Selling Great Lakes Aviation shares would be more difficult because transactions could be delayed, and security analyst and news media coverage of Great Lakes Aviation may be reduced. These factors could result in lower prices and larger spreads in the bid and ask prices for Great Lakes Aviation shares. GREEN TREE: Fitch Downgrades Certain Transactions to Junk Level --------------------------------------------------------------- Fitch Ratings has downgraded the limited guaranty class of the Green Tree Recreational, Equipment and Consumer Trusts listed below to 'CCC'. Interest and principal on the class B certificates of each noted series are guaranteed by Conseco Finance Corp. (CFC), whose senior unsecured rating is currently 'CCC'. The rating actions are in response to declining excess spread and continued use of guaranty payments to support the classes listed below, and therefore link the credit risk profile of CFC to the security ratings. Green Tree Recreational, Equipment and Consumer Trust: --Series 1996 B asset backed-certificates to 'CCC' from 'B'; --Series 1996 C asset backed-certificates to 'CCC' from 'B'; --Series 1996 D asset backed-certificates to 'CCC' from 'B'; --Series 1997 A asset backed-certificates to 'CCC' from 'B'; --Series 1997 B class B certificates to 'CCC' from 'B'; --Series 1997 C class B certificates to 'CCC' from 'B'; --Series 1997 D asset backed-certificates to 'CCC' from 'B'; --Series 1998 A class B-C, B-H certificates to 'CCC' from 'B'; GROUP TELECOM: Canadian Court Grants CCAA Protection ---------------------------------------------------- GT Group Telecom Inc. has sought and obtained from the Ontario Superior Court of Justice an order granting it and its affiliates protection under the Companies' Creditors Arrangement Act. The effect of the Order is to stay all proceedings against the Company and to suspend payments in respect of any debt obligations existing on or before today's date pending development of a restructuring plan. The Order provides for an initial period of 30 days' protection, subject to further extension by the Court, and permits the Company to operate its business in the ordinary course. PricewaterhouseCoopers Inc. has been appointed by the Court to act as the Company's monitor. The Company will also be initiating ancillary filing in the United States. Dan Milliard, Interim Chairman and Chief Executive Officer of Group Telecom, said "Obtaining the CCAA Order permits the Company to continue providing uninterrupted service to our customers while allowing additional time to negotiate a restructuring plan with our stakeholders. The Company has ample liquidity to permit us to carry on our business in the ordinary course during the restructuring period, including providing service to our customers, paying for goods and services supplied after the date of the Order and the on- going payment of wages and benefits to employees." The Company currently has sufficient cash to allow it to continue to provide service to customers in an uninterrupted way during the CCAA period. The Company is continuing discussions with its lenders with the objective of negotiating a successful restructuring of its debt and operations. As Group Telecom works through this restructuring process, it will reduce its overall employee headcount by approximately 360 employees and tightly manage capital expenditures. These cost savings are designed to significantly reduce its use of cash in order to position the company for a successful restructuring. Group Telecom also confirms the resignation from its Board of Directors of Messrs. Jim Shaw, Ron Rogers and Michael D'Avella that was announced by Shaw Communications Inc. on June 19, 2002 and Mr. Leo Hindery Jr. effective June 24, 2002. Group Telecom is Canada's largest independent, facilities-based telecommunications provider, with a national fibre-optic network linked by 454,125 strand kilometres of fibre-optics, at March 31, 2002. Group Telecom's unique backbone architecture is built with technologies such as Gigabit Ethernet for delivery of enhanced network performance and Synchronous Optical Network (SONET) for the highest level of network reliability. Group Telecom offers next-generation high-speed data, Internet, application and voice services, delivering enhanced communication solutions to Canadian businesses. Group Telecom operates with local offices in 17 markets across nine provinces in Canada. Group Telecom's national office is in Toronto. GT Group Telecom's 13.25% bonds due 2010 (GTGR10CAR1) are quoted at a price of 6. For real-time bond pricing, see http://www.debttraders.com/price.cfm?dt_sec_ticker=GTGR10CAR1 HAYES LEMMERZ: Gets OK to Settle Schenk Intercompany Receivables ---------------------------------------------------------------- Hayes Lemmerz International, Inc., and its debtor-affiliates submit this motion, under 11 U.S.C. Section 363 and Federal Rule of Bankruptcy Procedure 9019, obtained Court authority to compromise and settle two inter-company loans receivable. These are owed to Debtors Hayes and HLI (Europe), Ltd. by Hayes Lemmerz Schenk GmbH, a non-Debtor subsidiary of the Debtors located and incorporated in Germany. Schenk is a multi-niche manufacturer of aluminum and magnesium castings using high pressure die casting, permanent mold casting (gravity, tilt pour and low pressure) as well as sand casting processes. Schenk's manufacturing operations consist of a single foundry located in Maulbronn, Germany. Schenk specializes in complex, non-ferrous castings and produces a wide variety of more than 250 products, which include aluminum automotive and motorbike castings, aluminum housings for electrical and power transmission companies, and specialty sand castings made of both aluminum and magnesium. Schenk supplies castings to more than 50 customers, consisting primarily of automotive original equipment manufacturers (OEMs), automotive OEM suppliers, and power transmission companies. Automotive clients, both OEMs and suppliers to OEMs, accounted for the majority of Schenk's sales in 2001. Schenk is a wholly-owned indirect subsidiary of Hayes. Its capital stock is owned entirely by Hayes Lemmerz Fabricated Holdings B.V. -- not a Debtor in these cases. Fabricated Holdings is 40% owned by Hayes Lemmerz International - California, Inc. and 60% owned by HLI Europe. Both of these companies are wholly-owned direct subsidiaries of Hayes and Debtors in these cases. Hayes acquired Schenk in September 2000, in connection the German insolvency proceedings of Schenk's then parent, to provide Hayes with a manufacturing base from which to bring its domestic manufacturing technology to Europe. However, since its acquisition, Schenk has failed to obtain a single European customer order utilizing such technology. Moreover, Schenk has consistently lost money and generated negative cash flow. In fiscal 2001, the business generated negative EBITDA and negative cash flow. In sum, Schenk simply is not the strategic asset it was anticipated to be at the time of its acquisition. Because of its inability to generate positive cash flow, Schenk required, and continues to require, significant cash infusions from Hayes. Prior to the commencement of these cases, Hayes and HLI Europe extended inter-company loans to Schenk to fund its operations. As of the Petition Date, Schenk owed the principal amounts of approximately 4,600,000 Euros to Hayes and 3,200,000 Euros to HLI Europe. Under German law, as of the Petition Date, these loans (in the aggregate amount of 8,400,000 Euros including accrued interest of approximately 500,000 Euros) were pari passu with Schenk's other unsecured creditors. In late February or early March of this year, it became apparent to Hayes that Schenk was facing a technical insolvency when the inter-company debts owed to Hayes and HLI Europe were considered. Under German law, an insolvency event might have forced Schenk to immediately commence an insolvency proceeding in Germany. A Schenk insolvency event could have had adverse consequences to Hayes' European operations. Thus, in late March, Hayes and HLI Europe, after obtaining the consent of the Creditors Committee and the Debtors' pre- and post-petition secured lenders, agreed to subordinate 3,200,000 Euros of their 8,600,000 Euro loans receivable to the claims of Schenk's general unsecured creditors. Additionally, on March 1, 2002, Schenk's largest credit insurance provider stopped issuing credit insurance on behalf of Schenk. As a result, Schenk's key aluminum suppliers immediately placed Schenk on cash on delivery terms, and Schenk's short-term cash requirements immediately increased significantly. Thus, on March 15, 2002, the Debtors, specifically HLI Europe, made loans in the amount of 650,000 Euros, as permitted under their DIP financing facility, in order that Schenk could continue its operations until such time as Hayes could locate a purchaser for Schenk and consummate a sale. In connection with such loan, Schenk entered into guarantee, collateral and pledge agreements with the DIP lenders, whereby certain assets of Schenk were pledged to these lenders. Hayes also provided a letter of credit in the approximate aggregate amount of 600,000 Euros to Schenk's credit insurance supplier to allow such insurance supplier to continue to insure vendors' receivables from Schenk in amounts up to 1,500,000 Euros. Notwithstanding Schenk's difficulties, and the issues discussed above, facing Hayes' European operations generally, Hayes is pleased with the recent performance of its European operations. Hayes' management believes the European operations are performing well and exceeding plan projections. Other than Schenk, Hayes currently has no near-term business unit sales or marketplace exits planned for any of its European operations. (Hayes Lemmerz Bankruptcy News, Issue No. 13; Bankruptcy Creditors' Service, Inc., 609/392-0900) HARDWOOD PROPERTIES: Shareholders Approve Liquidation Plan ---------------------------------------------------------- Hardwood Properties Ltd. (TSX:HWP) announced that its shareholders have unanimously approved the plan for the voluntary liquidation and dissolution of the corporation that was previously announced on May 21, 2002. As announced at that time, the plan provides that Hardwood will first complete the sale of its remaining real estate assets, terminate all of its employees, satisfy all of its known and quantified obligations, and otherwise wind-down and liquidate its business. Hardwood will then distribute to its shareholders all of its cash on hand (less a reserve in an amount sufficient to satisfy both ongoing costs of maintaining its corporate existence until final dissolution and any contingent or unknown and unaccounted for liabilities). Upon the directors being satisfied that all obligations of the Corporation have been satisfied, Hardwood will be dissolved. The plan also provides the directors of the Corporation with the discretion to not dissolve the Corporation if a suitable business or new shareholder group through which the Corporation could be revitalized is identified. Hardwood Properties Ltd. is a Calgary based real estate company that specializes in the acquisition, re-construction, management and sale of multi-family residential properties. IMMUNE RESPONSE: Appoints Bjorn Lydersen as VP of Manufacturing --------------------------------------------------------------- The Immune Response Corporation (Nasdaq: IMNR) announced Bjorn (Ken) Lydersen, Ph.D. has joined the Company as vice president of Manufacturing Operations, a position under which he will oversee all production of products, including REMUNE(R), and manufacturing facilities in King of Prussia, Pennsylvania. "Ken brings over 28 years of experience as a scientist, researcher and medical manufacturing expert. We are fortunate to attract such a talented and knowledgeable professional to oversee our manufacturing efforts," said Dr. Dennis Carlo, president and chief executive officer for The Immune Response Corporation. "We are especially interested in having Ken step in and begin the process of ensuring that production of REMUNE(R) can move as quickly and efficiently as possible when the opportunity to do so comes." "This is an exciting opportunity for me. I look forward to being involved in the production of a product such as REMUNE(R) that may play an important role in the treatment of HIV-1 infection," Lydersen said. Previously, Dr. Lydersen served as vice president of research and development for Irvine Scientific from 1994-99. Before that, Lydersen was director of in vitro antibody production for Hybritech Inc., a biotechnology company acquired by Eli Lilly & Co. He also served as manager of research and development for KC Biologicals, and a senior research scientist for Corning Glass Works. Most recently he served in several consulting roles for biotechnology firms, medical journals and scientific forums. Dr. Lydersen is the editor of two books that are widely used as teaching tools at various universities, entitled "Large Scale Cell Culture Technology" and "Engineering Handbook of Biotechnology". Dr. Lydersen received his doctorate in biophysics from Pennsylvania State University, and his master's degree in industrial management and bachelor's degree in mechanical engineering from Clarkson College of Technology. Co-founded by medical pioneer, Dr. Jonas Salk and based in Carlsbad, California, The Immune Response Corporation is a biopharmaceutical company developing immune-based therapies designed to treat HIV, autoimmune diseases and cancer. The Company also develops and holds patents on several technologies that can be applied to genes in order to increase gene expression or effectiveness, making it useful in a wide range of therapeutic applications for a variety of disorders. Company information also is available at http://www.imnr.com * * * As reported in Troubled Company Reporter's June 20, 2002 edition, The Immune Response Corporation (Nasdaq: IMNR) announced an agreement with Transamerica Technology Finance Corporation to restructure its existing equipment loans, in effect curing the existing default under those loans and limiting the circumstances which can serve as the basis for any future default, as part of an effort to solidify the Company's finances. The original equipment loan was used primarily to acquire equipment in the Company's Pennsylvania manufacturing facility and was primarily collateralized by the equipment on premises. The restructured agreement affects $1.5 million of the Company's outstanding debt. Pursuant to the agreements signed with Transamerica, the Company is obligated to pay Transamerica milestone payments upon receipt by the Company of proceeds from a certain number of financing activities. The payments would reduce the Company's existing Transamerica debt. The Company also remains obligated to make its scheduled debt payments to Transamerica until all the debt and interest has been paid in full. Additionally, the Company granted to Transamerica a security interest in the Company's assets, including its intellectual property, subject to an existing security interest in the intellectual property. INTRAWARE INC: May 31 Balance Sheet Upside-Down by $3.4 Million --------------------------------------------------------------- Intraware Inc. (NASDAQ: ITRA), a leading provider of global electronic software delivery and management (ESDM) solutions, announced financial results for the first quarter of fiscal year 2003. Before a warrant charge associated with the sale of the Asset Management software business, total revenues for the first quarter of FY 2003 were $5.4 million. After the warrant charge, total revenues for the first quarter of FY 2003 were $4.5 million compared to $14.0 million in the previous quarter and $15.3 million in the first quarter of FY 2002. The decline in total revenues is the result of the above mentioned warrant charge as well as an anticipated $8.6 million decline in revenues recognized from the discontinued third party software resale business. Before the warrant charge, gross profit for the first quarter of FY 2003 was $3.1 million. After the warrant charge, total gross profit of FY 2003 was $2.2 million compared to $4.1 million in the previous quarter ended February 28, 2002, and $5.4 million in the first quarter of FY 2002. Gross profit from online services and technology was $1.6 million in the first quarter of FY 2003, compared to $2.9 million in the quarter ended February 28, 2002, and $3.0 million in the first quarter of FY 2002. The majority of gross profit came from the ESDM business. Gross profit margins totaled 48% in the first quarter of FY 2003, compared to 29% in the previous quarter, and 35% in the first quarter of FY 2002. The net loss attributable to common stockholders was $6.8 million for the quarter ended May 31, 2002, compared to a net loss attributable to common stockholders of $7.8 million for the same quarter a year earlier and a net loss attributable to common stockholders of $4.5 million for the immediately preceding quarter ended February 28, 2002. At its May 31, 2002 balance sheet, Intraware has a working capital deficit of about $3 million, and a total shareholders' equity deficit of about $3.4 million. "We are very pleased with our accomplishments this quarter," said Peter Jackson, president and CEO. "During the first quarter of FY 2003, we sold our IT Asset Management software business to Computer Associates International, Inc. while continuing to execute on our ESDM business strategy and expand our SubscribeNet(R) customer base. In addition, we raised $3.9 million in a private placement, which combined with the sale to CA, allowed us to convert or pay off all our outstanding debt and increase our cash balance." "We are now well positioned to take advantage of the opportunities before us in the growing ESDM market," said the company's CFO, Wendy Nieto. "With the sale of the Asset Management software business, the additional financing, and continued stringent cost controls, we have dramatically strengthened our financial position." Business Outlook As previously announced, the company expects its total revenues for FY 2003 to be between $14 and $16 million before any warrant charges, and expects gross profit margins of 60% in the second quarter of FY 2003 and 61% for the full fiscal year. Loss from operations, which includes stock option compensation, is expected to be between $3.2 and $2.9 million for the second quarter of FY 2003. For the full fiscal year, loss from operations, which includes stock option compensation, restructuring, impairment of long-lived assets, and amortization of intangibles is expected to be between $12.7 and $11.7 million. Subsequent to completion of the company's first quarter financial review, the company is revising its loss from operations guidance to reflect the classification of the gain on sale associated with the sale of the Asset Management software business from operating expenses to non-operating income and expenses. The company expects net loss per share attributable to common shareholders to be between $0.08 and $0.09 for the second quarter of FY 2003 and between $0.26 and $0.29 for FY 2003. "We are now solely focused on the rapidly growing ESDM market and are positioned to garner additional market share within this sector," stated Mr. Jackson. "Our SubscribeNet business model is based almost completely on recurring revenues, and we have a very loyal customer base. We are much more financially sound today than we were 12 months ago, and we have already seen the benefits of a stronger balance sheet through a growing sales pipeline and recent SubscribeNet sales. Our primary objectives for this fiscal year are to grow our SubscribeNet business and to become cash flow positive, and I believe we are on our way to achieving both of those goals." Intraware, Inc. is a leading provider of global electronic software delivery and management (ESDM) solutions for software publishers worldwide. Intraware's unique and innovative delivery management solutions have attracted strategic relationships with industry leaders such as CorpSoft, Inc. and Sun Microsystems, Inc. Intraware's IT management solutions power business-to- business technology providers including: Business Objects SA, Documentum Inc., E.piphany Inc., Hyperion Software Inc., PeopleSoft Inc. and RSA Security Inc. Intraware is headquartered in Orinda, California, and can be reached at 888.797.9773 or http://www.intraware.com JUPITER MEDIA: Files Proxy Statement Describing Liquidation Plan ---------------------------------------------------------------- Jupiter Media Metrix Inc. (Nasdaq: JMXI) has filed a preliminary proxy statement with the Securities and Exchange Commission related to its previously announced sale of the assets of its Jupiter Research and Events businesses as well as a proposed plan, approved by the company's board of directors on June 25, 2002, to liquidate and dissolve the company. As a Delaware corporation, Jupiter Media Metrix must obtain stockholder approval for the asset sale and the plan of dissolution and liquidation. The date of the stockholder meeting will be announced following the filing of the definitive proxy statement with the SEC. Pursuant to Delaware law, Jupiter Media Metrix will remain in existence as a non-operating entity for three years following the date that the company files a certificate of dissolution in Delaware. The company will work expeditiously to complete the sale of the Jupiter Research and Events businesses and any remaining assets, satisfy outstanding obligations, and maximize any distributions to its stockholders. Currently, the company is unable to predict the precise nature, amount, or timing of any distribution. Jupiter Media Metrix will also seek stockholder approval to change its corporate name to JMXI, Inc., as required under the previously announced agreements for the sales of its Media Metrix audience measurement business and Jupiter Research and Events businesses. "In February, we announced our plan to explore options that would improve our financial position and ensure that Jupiter Media Metrix' valuable brands and products remained in the marketplace," said Robert Becker, chief executive officer of Jupiter Media Metrix. "We are pleased with the progress we have made in that regard and now believe that the dissolution of the company is in the best interest of our stockholders." As part of a management transition plan, the company also announced that Jean Robinson would resign as Jupiter Media Metrix' chief financial officer, effective June 28, 2002. LOG ON AMERICA: E&Y Doubts Ability to Continue Operations --------------------------------------------------------- "[T]he Company has incurred significant operating losses and has a working capital and stockholders deficit. These conditions raise substantial doubt about the Company's ability to continue as a going concern," Ernst & Young LLP says in its opinion about Log On America Inc.'s financial statements for the year ending May 31, 2002. Log On America is a Northeast regional Information/Internet service provider and competitive local exchange carrier. It has been providing Internet access services to its customers since its incorporation in 1992. Initially it attracted and continues to attract many of its customers by providing them Internet access. Services include high-speed data and Internet service and local exchange service. Revenues decreased by approximately $1.67 million, or 13%, to approximately $11.02 million for the year ended December 31, 2001 as compared to approximately $12.70 million for the comparable period in 2000. The decrease in revenues is due primarily to a reduction in the number of residential dial-up customers serviced for the full year compared to last year. This decrease was partially offset by a growth in commercial revenues and a growth in business solution revenues. Specifically, revenues for residential revenues line decreased by approximately $2.65 million, or 23%, to approximately $8.69 million for the year ended December 31, 2001 as compared to approximately $11.34 million for the comparable period in 2000. This decrease was due to the sale of the Company's residential voice customers during 2001 and attrition associated with its residential dial up base. While residential revenues decreased, this decrease was partially offset by an increase in commercial revenues. Revenues for the commercial revenue line increased by approximately $784 thousand, or 98%, to approximately $1.58 million for the year ended December 31, 2001 as compared to approximately $798 thousand for the comparable period in 2000. This increase was due to a more focused commercial sales effort and an expansion of sales efforts to existing customers along with an aggressive marketing campaign in both Rhode Island and Maine. Finally, Log On America also recognized a slight increase in revenues from the sale of business solutions to commercial customers. These revenues increased by approximately $168 thousand, or 29%, to approximately $744 thousand for the year ended December 31, 2001 as compared to approximately $576 thousand for the comparable period in 2000. This increase was due to the recognition of a full year of revenues from this unit during 2001 versus only 10 months during 2000. As of December 31, 2001, the Company had an accumulated operating deficit of approximately $53.94 million and cash and cash equivalents of approximately $638 thousand. Net cash used in operating activities was approximately $9.84 million and approximately $15.44 million for the years ended December 31, 2001 and 2000, respectively. The net cash used in operations was primarily lower in 2001 compared to 2000 due to lower network costs, lower marketing costs and lower personnel. The management of Log On America believes that existing capital resources will not be sufficient to fund operating deficits through 2002. In addition, if the Company misses any of its scheduled payments to its Preferred Shareholders it would be in default, accelerating all monies owed. If this occurred Log On America does not have the resources or ability to make those payments. If it is unsuccessful in managing its accounts payables with its major vendors, the Company faces potential network shutdowns and service interruptions that could cause material customer churn and loss of business. Based on all these factors, Log On America may not have sufficient funds to continue as a going concern through December 31, 2002, unless it raises additional capital through an equity or debt financing, which may or not be available to it or may not be available to it at acceptable terms. MALAN REALTY: Advises Shareholders to Reject MacKenzie's Offer -------------------------------------------------------------- Malan Realty Investors, Inc. (NYSE: MAL), a self-administered real estate investment trust (REIT), is advising shareholders to reject an unsolicited offer by MacKenzie Patterson, Inc. to purchase up to 84,000 shares of Malan's outstanding common stock. The offer, which Malan believes was first made on June 13, 2002 and amended June 25, 2002, is at a price substantially lower than the market price on the New York Stock Exchange. According to an offer obtained by Malan and a subsequent news release issued by MacKenzie on June 24, 2002, MacKenzie is offering $4.65 per share, less distributions paid after May 30, 2002, for the Malan stock, substantially below the closing price of Malan's common stock on June 25, 2002, of $5.45. The offer is said to expire on July 17, 2002, according to the news release. Malan Realty Investors filed a preliminary proxy statement with the Securities and Exchange Commission last week outlining its proposed plan of liquidation to be voted on by shareholders at its annual meeting, tentatively scheduled for August 28, 2002. Contained in the proxy statement is the company's estimate of net proceeds of liquidation to be distributed to shareholders, which is expected to range from $4.75 to $8.50 per share. "We continue to believe that $8.00 per share is a realistic expectation of net proceeds to be distributed in liquidation," said Jeffrey Lewis, president and chief executive officer of Malan Realty Investors. "Even if a shareholder were not inclined to wait out the liquidation process, based on the current trading prices, he or she could do substantially better than the MacKenzie offer by selling in the open market" continued Lewis. Lewis urged shareholders to review Malan's preliminary proxy statement before making a decision to tender shares to MacKenzie. The preliminary proxy statement is available at the SEC's Web site http://www.sec.govand the company's Web site at http://www.malanreit.com The company said it has had no contact with MacKenzie regarding the tender offer, either prior to or after the announcement of the offer, and it became aware of the offer through inquiries from brokers and through press releases issued by MacKenzie. Neither Malan nor its officers and directors have any affiliation with MacKenzie. Malan Realty Investors, Inc. owns and manages properties that are leased primarily to national and regional retail companies. The company owns a portfolio of 57 properties located in nine states that contains an aggregate of approximately 5.4 million square feet of gross leasable area. MANDALAY RESORT: Fitch Holds Low-B Rating Despite Improvements -------------------------------------------------------------- Fitch Ratings has affirmed the 'BB+' rating on Mandalay Resort Group's (NYSE: MBG) senior debt and the 'BB-' rating on the company's senior subordinated debt. The rating action affects approximately $2.1 billion in debt securities. Fitch has also assigned a 'BB+' rating to the company's $1.1 billion senior unsecured bank credit facility. The Rating Outlook has been revised to Stable from Negative. The revised Rating Outlook reflects the improving operating fundamentals on the Las Vegas Strip, where MBG derives approximately two-thirds of its EBITDA, and continued solid performances at the company's gaming properties in Chicago (in spite of the expected increase in tax rates) and Detroit. Las Vegas visitor volumes, airline passenger traffic, gaming revenues and occupancy and room rates have all shown meaningful improvement since the fourth quarter of 2001. While MBG's operating results during the first quarter of 2003 remained below the comparable period last year, they have improved significantly since the events of September 11th. MBG's major capital spending plans over the next two years include a $235 million, 1.8 million square foot convention center, a $225 million new hotel tower development at the Mandalay Bay and a $30 million retail connector bridge between the Mandalay Bay and Luxor properties. Although the vast majority of these discretionary capital expenditures will be funded by internally generated funds, the heavy level of expenditures will require access to external capital. In addition, cash flow will be directed towards the settlement of a $100 million forward equity contract. Although debt levels are expected to increase moderately, increasing cash flow and equity accumulation should improve credit protection measures. Credit concerns include a concentration of cash flows in Nevada, high debt levels, and aggressive share repurchases. In addition, MBG's earnings could become more volatile with an increased dependence on room rates, convention visitation, entertainment and upscale retail and dining to drive profitability. MEDSOLUTIONS INC: Ability to Continue Operations Still Uncertain ---------------------------------------------------------------- MedSolutions, Inc. was incorporated in Tezas in 1993, and through its wholly owned subsidiary, EnviroClean Management Services, Inc., collects, transports and disposes of regulated medical waste in north and south Texas. The Company has incurred consolidated net losses. Additionally, the Company has significant deficits in both working capital and stockholders' equity. Further, the Company is delinquent in paying its payroll taxes to the IRS. These factors, raise substantial doubt about the Company's ability to continue as a going concern. Revenues were $1,208,592 for the three months ended March 31, 2002 (unaudited). The Company derives its revenues from services to two principal types of customers: (i) long-term care facilities, outpatient clinics, medical and dental offices, municipal entities and other smaller-quantity generators of regulated medical waste; and (ii) hospitals, blood banks, pharmaceutical manufacturers and other larger-quantity generators of regulated medical waste. Substantially all of the Company's services are provided under customer contracts specifying either scheduled or on-call regulated medical waste management services, or both. Contracts with "secondary waste generators" customers generally provide for annual price increases and have an automatic renewal provision unless the customer notifies MedSolutions prior to completion of the contract. Contracts with hospitals and other "primary waste generators" customers, which may run for more than one year, typically include price escalator provisions, which allow for price increases generally tied to an inflation index or set at a fixed percentage. As of March 31, 2002, the Company served approximately 800 customers. Company revenues increased $321,693, or 36.3%, to $1,208,592 during the three months ended March 31, 2002 from $886,899 during the three months ended March 31, 2001. The increase in revenue from 2001 was due to increased volume of medical waste processed. Net losses were $205,168 during the three months ended March 31,2002 and management does not believe the existing cash position and cash flow from operations will enable the Company to satisfy current cash requirements. MedSolutions will be required to obtain additional financing to implement its business plan. Historically, the Company has met cash requirements from a combination of revenues from operations (which by themselves have been insufficient to meet such requirements), shareholder loans and advances, and proceeds from the sale of debt and equity securities. The following factors raise substantial doubt about the Company's ability to continue as a going concern. The Company incurred consolidated net losses of $1,907,861 and $2,473,923 for the years ended December 31, 2001 and 2000, respectively, which losses have continued into the first quarter of 2002. Additionally, the Company has significant deficits in both working capital and stockholders' equity at December 31, 2001 and March 31, 2002. Further, although current with its payroll taxes for the year 2002, EMSI has a substantial payroll tax obligation for the years ended December 31, 2001 and 2000, which continues to accrue interest. Historically, shareholders of the Company have funded cash flow deficits. However, the shareholders are under no specific funding obligation. As a means of providing working capital and funding for a proposed financing, the Company has received, from private placements of the Company's common stock, approximately $857,273, $731,767, and $634,164 during the years ended December 31, 2000, 2001, and the three months ended March 31, 2002, respectively. The largest shareholder loaned the Company $55,000 in 2001. Also, the Company President has advanced funds for working capital from time to time totaling $262,721 through December 31, 2001, and an additional $110,000 during the three months ended March 31, 2002. There is no assurance that such private placement funding and loans and advances will continue to satisfy cash needs. During the year ended December 31, 2001, sales of services to 24 customers represented approximately 83.1% of total revenues, including sales to UTMB, which amounted to approximately 24.7% of total revenues. A loss of any of these customers could reduce revenues, increase losses from operations and limit Company ability to achieve profitability. MedSolutions has outstanding liabilities and debt of approximately $3,342,909 at March 31, 2002. Its current rate of revenue may be insufficient to enable it to repay debt upon maturity. In the event that it cannot generate sufficient revenue and it is unable to finance the repayment of debt, the Company could be sued or face judgments against it which could result in a loss of assets and a discontinuation of operations. At March 31, 2002, the Company's working capital deficit was $2,125,338 compared to a working capital deficit of $2,642,775 at December 31, 2001. The decrease in working capital deficit was primarily due to an increase in cash offset by a slight reduction in accounts receivable and prepaid insurance and a decrease in bank overdraft and accounts payable. MENTERGY LTD: Intends to Transfer to Nasdaq SmallCap Market ----------------------------------------------------------- Mentergy(TM), Ltd. (Nasdaq:MNTE) has applied to Nasdaq for a transfer to Nasdaq's Small Cap Market. Mentergy had received a letter from Nasdaq informing Mentergy that Nasdaq intends to delist Mentergy's Ordinary Shares from trading on the Nasdaq National Market because Mentergy's publicly held shares have failed to maintain a minimum market value of $5,000,000 as required by Nasdaq rules. Mentergy will continue to be subject to the reporting requirements of the Securities and Exchange Commission. Mentergy, Ltd. (Nasdaq:MNTE), formerly Gilat Communications, Ltd. (Nasdaq:GICOF), is a global e-Learning company, providing e-Learning products, consulting, and courseware development services for large enterprises. With over 21 years of expertise in the learning industry, Mentergy assists businesses worldwide to make a cost-effective shift from traditional learning to a blended e-Learning approach. Mentergy Ltd.'s North American operations comprise of the Allen Communication Learning Services division and the LearnLinc Live e-Learning division (Mentergy, Inc.), in addition to John Bryce Training in Israel and Europe, and a global sales and marketing operation that includes Mentergy Europe. For more information about the company, visit http://www.mentergy.com METALS USA: Bags Approval to Hire Colliers Bennett as Broker ------------------------------------------------------------ Metals USA, Inc., and its debtor-affiliates obtained approval to employ and retain real estate brokerage firm Colliers, Bennett & Kahnweiler, Inc., to assist in marketing non-residential real property located in Butler, Indiana. The Butler Property is a production facility owned by Debtor Metals USA Flat Rolled Central Inc. At the Petition Date, the Debtor leased the facility to a company known as Paragon. Paragon had wanted to purchase the property from the Debtors. However, Paragon is no longer a viable purchaser and has vacated the property. The Debtors also hires Colliers, pursuant to Section 327(a) of the Bankruptcy Code, to list the Butler Property for sale and to perform marketing services for the Debtors in these Chapter 11 cases. The Debtors seek to compensate Colliers for its brokerage services by paying from the proceeds of the sale of the property a commission of 6% of the first $500,000 of the sales price and 5% of the sales price in excess of $500,000, without the necessity of further application or authority from the Court. Mr. Black submits that the Debtors are familiar with the professional standing and reputation of Colliers as an experienced realty-marketing firm associated with the Society of Industrial and Office Realtors. It is thus well qualified to market industrial facilities like the Butler Property. (Metals USA Bankruptcy News, Issue No. 14; Bankruptcy Creditors' Service, Inc., 609/392-0900) MORTON INDUSTRIAL: Falls Below Nasdaq Continued Listing Criteria ---------------------------------------------------------------- Morton Industrial Group, Inc. (Nasdaq: MGRP), a leading contract manufacturing supplier to large industrial original equipment manufacturers (OEMs), has been notified by the Nasdaq Listing Qualifications Department that its securities would be delisted from the Nasdaq SmallCap Market for the Company's inability to comply with the net tangible assets/stockholders' equity/market capitalization/net income requirement for continued listing on Nasdaq in accordance with the NASD Rule 4310(C)(2)(B). The Company intends to appeal the Staff's determination. NASD Rule 4310(C)(2)(B) requires the Company to have a minimum of $2,000,000 in net tangible assets or $2,500,000 in stockholders' equity or a market capitalization of $35,000,000 or $500,000 of net income from continuing operations for the most recently completed fiscal year or two of the three most recently completed fiscal years. NASD Rule 4820(a) allows for the Company to request an oral hearing before a Nasdaq Listing Qualifications Panel to appeal the Staff's determination. The time and place of such a hearing will be determined by the Panel. Pursuant to the same NASD Rule 4820(a), a request for a hearing will stay the scheduled delisting of the Company's securities pending the Panel's determination. If the Panel does not grant the relief that the Company will request at the oral hearing, the Company's securities could be delisted from the Nasdaq without further notice. Should the Company's securities cease to be listed on the Nasdaq, the Company's securities may continue to be listed on the Over-the-Counter Bulletin Board Market. William D. Morton, Chairman and Chief Executive Officer of Morton Industrial Group, Inc. stated: "This potential delisting from the Nasdaq SmallCap Market results primarily from the financial impact of last year's drastic reduction in demand from our customers. We are pleased that our 2001 Restructuring Plan, which has continued into 2002 using Six Sigma methodologies, has significantly lowered our operating costs. That effort coupled with numerous new customer awards causes us to believe that we are favorably positioned to return to profitability as the economic climate changes favorably for our customers." Morton Industrial Group, Inc. is a supplier of highly engineered metal and plastic components and subassemblies for large industrial original equipment manufacturers. The Company provides large industrial original equipment manufacturers with a wide range of services including design, prototype development, precision tool making and production of metal fabrications and plastic component parts. The Company's eleven manufacturing facilities employ approximately 1800 in the Midwestern and Southeastern United States and are strategically located near our customers' manufacturing and assembly facilities. Morton's principal customers include B/E Aerospace, Bombardier, Caterpillar Inc., Compaq Computer Corporation, Deere & Company, EMC Corp., GE Appliances, and Honda of America Mfg., Inc. MOTHERS WORK: S&P Rates $125MM Senior Unsecured Notes at B+ ----------------------------------------------------------- Standard & Poor's revised its outlook on maternity clothing retailer Mothers Work Inc. to positive from stable based on the strengthening of the company's balance sheet and credit protect measures. In addition, a single-'B'-plus rating was assigned to the company's proposed $125 million senior unsecured notes due in 2010. The single-'B'-plus corporate credit rating on Mothers Work was also affirmed. The Philadelphia, Pennsylvania-based company had $119 million of funded debt outstanding as of March 31, 2002. "The company's balance sheet and credit protection measures have strengthened as a result of its proposed debt and equity offerings and its improved operating performance," Standard & Poor's credit analyst Diane Shand said. "The new securities replace higher-priced debt and lengthen the company's unsecured debt maturity to 2008 from 2005." Standard & Poor's said the company's EBITDA coverage of interest expense is currently 2.2 times and is expected to improve significantly over the next few years due to lower interest expense and continued improvement in operating performance. Mothers Work's debt burden is high, with total debt to EBITDA at 3.9x. Liquidity is provided by a $56 million revolving credit facility due in 2004, and lack of near-term maturities. As of March 31, 2002, the company had $33 million available under its credit facility. NATIONAL STEEL: Asks Court to Lift Stay to Pursue Toyota Setoff --------------------------------------------------------------- Prior to the Petition Date, National Steel Corporation, its debtor-affiliates and Toyota Tsusho America, Inc. entered into a series of agreements wherein Toyota provided toll work to the Debtors, and the Debtors provided Toyota with steel products. "As of the Petition Date, the Debtors owed Toyota $503,898 and Toyota in turn owed the Debtors $4,563,631 under the Contracts," Mark A. Berkoff, Esq., at Piper Marbury Rudnick & Wolfe, in Chicago, Illinois, says. In a Court-approved stipulation, both parties agree that: -- the Debtors' prepetition claim is $4,563,631; -- Toyota's prepetition claim is $503,898; -- effective upon entry of an order and this stipulation, the automatic stay is modified to permit Toyota to accomplish the setoff. As a result of this setoff, Toyota is indebted to the Debtors in the prepetition amount of approximately $4,059,733; -- Toyota will pay the Debtors within two business days of Toyota's receipt of a copy of this stipulation, duly approved by the Court; -- upon payment of the prepetition Toyota debt, the Debtors and Toyota release each other of all claims relating to the prepetition claim. However, the release will not bar Toyota from asserting a claim as to a Customer Program; and -- the Debtors consent to the lifting of the automatic stay for the limited purpose of allowing the setoff. (National Steel Bankruptcy News, Issue No. 10; Bankruptcy Creditors' Service, Inc., 609/392-0900) NATIONSRENT INC: Plan's Classification & Treatment of Claims ------------------------------------------------------------ In accordance with Bankruptcy Code Section 1122, NationsRent Inc.'s Plan provides for the classification of Classes of Claims and Equity Interests. Section 1122(a) permits a plan to place a claim or an interest in a particular class only if the claim or interest is substantially similar to the other claims or interests in that class. Additionally, in accordance with Section 1123(a)(1) of the Bankruptcy Code, Administrative Claims and Priority Tax Claims have not been classified. NationsRent believes that its classification of Claims and Equity Interests under the Plan is appropriate and consistent with applicable law: Class Description Treatment ----- ----------- --------- N/A Administrative Claims Paid in full in Cash N/A Priority tax claims Holders will receive deferred cash payments over a period not to exceed six years from the date of assessment of that claim on the unpaid portion of each allowed priority tax claim. 1 Bank Loan Claims -- Impaired. On the Effective Date, Estimated amount of holder of an Allowed Bank Loan Claims: $762,000,000 Claim will be entitled to receive or retain its Pro Rata share of: a. $196,700,000 in cash which includes $547,500,000 paid as adequate protection prior to the Effective Date; b. 100% of the New Common Stock, subject to dilution through the issuance of stock under the Senior Management Incentive Program and the issuance of stock upon the exercise of the Warrants; and c. $150,000,000 in principal amount of the New Medium Term Notes. Estimated Percent Recovery: 59% 2 Other Secured Claims Debtors will decide as to the -- Estimated amount of treatment of an Allowed claim: of claims: $46,900,000 Option A: Unimpaired. Paid in full in cash unless the holder agrees to less favorable treatment; Option B: Unimpaired. Allowed Claims will be reinstated; Option C: Impaired. Holder will receive, and the Debtors will release and transfer to the holder, the collateral securing the Allowed Claims; Option D: Impaired. Allowed Claims will receive a promissory note, secured by a first priority security interest in the applicable collateral, in the aggregate principal amount of that Allowed Claims, payable in annual installments over the term of the useful life of the collateral and bearing an interest rate per annum. Estimated Percent Recovery: 100% 3 Unsecured Priority Impaired. Paid in cash equal to Claims -- Estimated the amount of the claim. Amount of claims: Estimated Percent recovery: 100% $6,500,000 4 General Unsecured Impaired. Holder will receive Claims -- unsecured pro rata share of the Warrants. Claims not otherwise Classified in 3, 5, 6, including claims on account of the Old Senior Subordinated Notes and the Deficiency claims. Estimated amount of claims: $787,400,000 5 Inter-company Claims Impaired. No property will be -- inter-company claims distributed to or retained by that are not admin. holder. Debtors holding this claims claim will be deemed to have accepted the Plan. 6 Penalty Claims Impaired. No property will be -- claims against the distributed to or retained by Debtors for fine, holders. penalty, or forfeiture, or for multiple, exemplary or punitive damages to the extent that these Claims are not compensation for the holder's actual pecuniary loss. 7 NationsRent Subsidiary Unimpaired. Allowed interests Debtors Old Stock will be reinstated. Estimated Interests -- Interests percent recovery: 100% on account of Old Stock of the NationsRent Subsidiary Debtors. 8 NationsRent Old Stock Impaired. No property will be Interests -- Interests distributed to or retained by on account of the Old holders. Interests will be Stock of NationsRent terminated as of the Effective Date. Additionally, the Debtors submits that the classification and treatment of allowed claims under the Plan take into consideration all Allowed Secondary Liability Claims which will be treated as follows: A. the Allowed Secondary Liability Claims arising from or related to any Debtors' joint or several liability for the obligations under any allowed claim that is being reinstated under the Plan or executory contract or unexpired lease that is being assumed by and assigned to another Debtor or any other equity, will be reinstated; and, B. holders of all other Allowed Secondary Liability Claims will be entitled to only one distribution in respect of the underlying Allowed Claim. No multiple recovery on account of any Allowed Claim will be permitted. (NationsRent Bankruptcy News, Issue No. 14; Bankruptcy Creditors' Service, Inc., 609/392-0900) DebtTraders says NationsRent Inc.'s 10.375% bonds due 2008 (NATRENT) are quoted at a price of 1. See http://www.debttraders.com/price.cfm?dt_sec_ticker=NATRENTfor real-time bond pricing. NEON COMMS: Seeks Open-Ended Lease Decision Period Extension ------------------------------------------------------------ NEON Communications, Inc. and its debtor-affiliates ask the U.S. Bankruptcy Court for the District of Delaware to give them as much time as they need to decide how to dispose of their unexpired leases. The Debtors want to extend the limited time period imposed under 11 U.S.C. Sec. 365(d)(4) within which to elect to assume, assume and assign, or reject unexpired leases of nonresidential real property leases through the Effective Date of any Plan of reorganization proposed in the Company's chapter 11 cases. The majority of the Debtors' Unexpired Leases are used by the Debtors to operate their offices and Network, and all of the Unexpired Leases are assets of the Debtors' estates. The Debtors remind the Court that the Unexpired Leases are integral to the Debtors' continued operations as they seek to reorganize. Article 10 of the Prepackaged Plan filed by NEON on Day one of its chapter 11 cases provides for assumption of all unexpired leases that are not the subject of a motion or otherwise designated for rejection on or prior to confirmation of the Plan, the Debtors relate. The Debtors argue that this Plan provision would be defeated if the deadlines under the Bankruptcy Code expired prior to the hearing on the confirmation of the Plan or the Effective Date. NEON Communications, Inc. owns certain rights to fiber and all of the outstanding stock of NEON Optica, Inc., which owns and operates a fiber optic network offering the following services. The Company filed for chapter 11 protection on June 25, 2002. David B. Stratton, Esq. at Pepper Hamilton LLP and Madlyn Gleich Primoff, Esq. at Richard Bernard, Esq. represent the Debtors in their restructuring efforts. When the Debtors filed for protection from its creditors, it listed $55,398,648 in assets $19,664,234 in debts. NETMANAGE INC: Fails to Meet Nasdaq Continued Listing Standards --------------------------------------------------------------- NetManage, Inc. (Nasdaq:NETM), experts in host access and integration solutions, announced that it received a Nasdaq staff determination letter dated June 20, 2002 indicating that the Company has not met the minimum bid price requirement for continued listing, as set forth in Marketplace Rule 4450 (a) (5), and that the Company's common stock is therefore subject to delisting from the Nasdaq National Market. The Company has appealed this determination by requesting a hearing before a Nasdaq listing qualifications panel. During the hearing, NetManage will present a comprehensive plan to address the pending delisting action. The hearing has been scheduled for August 1, 2002. The Company has been advised that Nasdaq will not take any action to delist its stock pending the conclusion of that hearing. In anticipation of the Nasdaq listing qualifications hearing, the Company's Board of Directors has approved a reverse stock split of the Company's common stock. The reverse stock split is subject to stockholder approval and will assist the Company in meeting the Nasdaq minimum bid requirement of $1.00 per share. Even if a split is approved by the Company's stockholders, it is the Company's Board of Directors that decides whether a split is actually effected, as well as the timing and magnitude of the split. "We believe it is in the best interests of the stockholders and the Company to remain listed on a national market such as Nasdaq," said Zvi Alon, Chairman, president and CEO of NetManage. Mr. Alon went on to say, "We are strong financially with over $30 million in cash and no debt and we have made significant progress in executing our business plan even under the current poor economic conditions." It is entirely up to the Nasdaq National Market to accept or deny the Company's appeal and there are no guarantees that the appeal will lead to a continued Nasdaq listing. Additional information about NetManage, Inc. is available at the company's Web site at http://www.NetManage.com Founded in 1990, NetManage, Inc. (Nasdaq:NETM), experts in host access and integration solutions, provides software and consulting services to extend and maximize a company's investment in existing legacy systems and applications. NetManage offers a full range of host access and host integration software and services for mid-size and Global 2000 enterprises. NetManage has more than 30,000 customers including 480 of the Fortune 500. NetManage sells and services its products worldwide through its direct sales force, international subsidiaries, and authorized channel partners. NetManage is headquartered in Cupertino and has offices worldwide. PACIFIC GAS: Pushing for Third Extension of Exclusive Periods ------------------------------------------------------------- There are now two Chapter 11 Plans for which the Court has approved the respective Disclosure Statements, proposed by the Pacific Gas and Electric Company Proponents and by CPUC respectively and the solicitation process is underway. If another party were to file a plan at this time, Pacific Gas tells Judge Montail, it would be both confusing and counterproductive. Among other things, it would be impossible for such a plan to be included on the same time track as the PG&E Plan and CPUC Plan, and would serve no useful purpose. Thus, PG&E requests that the Court, pursuant to Bankruptcy Code Section 1121(d) further extend the period during which PG&E maintains plan exclusivity (except with respect to the CPUC) pursuant to Bankruptcy Code Section 1121(c)(3) until December 31, 2002 (or such later date as the Court may order). PG&E submits that there is "cause" to grant the requested extensions pursuant to Bankruptcy Code Section 1121(d). PG&E reminds the Court that the present case is large, involving tens of billions of dollars of assets, and claims of more than 13,000 creditors. In addition, it is exceedingly complex, based on, inter alia, PG&E's status as a utility company subject to a myriad of state and federal statutes, rules and regulations, and an unprecedented energy crisis to grapple with. Moreover, PG&E has already made substantial efforts towards a successful reorganization and there is nothing to suggest that PG&E seeks the requested extensions in order to pressure its creditors to accede to its reorganization demands Gary M. Kaplan of Howard, Rice, Nemerovski, Canady, Falk & Rabkin tells the Court. "Indeed, in view of the alternate CPUC Plan, PG&E would have difficulty pressuring its creditors to accede to its reorganization demands in any event, Mr. Kaplan says, "Rather, PG&E has continued to diligently work the plan confirmation process through a fast track, in an effort to accelerate the resolution of this case for creditors and other interested parties as quickly as possible." The requested extension will protect this process while the PG&E Plan confirmation efforts are concluded, which could take several months, Mr. Kaplan represents. (Pacific Gas Bankruptcy News, Issue No. 39; Bankruptcy Creditors' Service, Inc., 609/392-0900) PARAGON TRADE: Weyerhaeuser Will Contest Claims in Lawsuit ---------------------------------------------------------- Weyerhaeuser Company (NYSE:WY) said that unfair allegations have been made against it in a lawsuit arising out of the bankruptcy of Paragon Trade Brands Inc. and that Weyerhaeuser will vigorously contest the plaintiff's allegations. Weyerhaeuser made the comments after Judge Margaret Murphy, U.S. Bankruptcy Court for the Northern District of Georgia, Atlanta Division, granted the plaintiff's motion for a partial summary judgment holding that Weyerhaeuser is liable to the plaintiff for breaches of warranty. The judge indicated that she intends to enter a written order within approximately 40 days. Weyerhaeuser said that it strongly disagrees with the court's decision and will pursue all available relief. The plaintiff, who is the representative for the bankruptcy estate, has asserted claims against Weyerhaeuser in connection with the sale of Weyerhaeuser's private label diaper business to Paragon in 1993. The plaintiff alleges that Weyerhaeuser breached certain representations and warranties concerning intellectual property rights and assets that were transferred to Paragon. The plaintiff further alleges that Paragon is entitled to indemnification for losses arising from the alleged breaches and claims that Paragon has suffered damages in excess of $400 million. No trial date has been set for the determination of damages. Weyerhaeuser Company, one of the world's largest integrated forest products companies, was incorporated in 1900. In 2001, sales were $14.5 billion. It has offices or operations in 18 countries, with customers worldwide. Weyerhaeuser is principally engaged in the growing and harvesting of timber; the manufacture, distribution and sale of forest products; and real estate construction, development and related activities. Additional information about Weyerhaeuser's businesses, products and practices is available at http://www.weyerhaeuser.com PERSONNEL GROUP: Collects $19.2MM Federal Income Tax Refunds ------------------------------------------------------------ Personnel Group of America, Inc. (NYSE:PGA), a leading information technology and professional staffing services company, announced that it had collected over $19.2 million of federal income tax refunds. PGA President and Chief Financial Officer James C. Hunt said, "As previously announced, we had originally expected to collect $15.0 million to $18.0 million in federal income tax refunds during the third quarter of this year. Our tax team has worked extremely hard to expedite this process and we are delighted to have collected more than we originally anticipated and certainly much sooner than we had planned." Larry Enterline, PGA Chief Executive Officer, added, "We are very pleased with the early receipt of these funds as it gives us even more flexibility in the consideration of potential opportunities to improve the Company's balance sheet. Our objectives now are no different than those behind our cost reduction efforts and the recent bank amendments; we intend to use this money in a manner that will most benefit the collective interests of the Company." Personnel Group of America, Inc. is a nationwide provider of information technology consulting and custom software development services; high-end clerical, accounting and other specialty professional staffing services; and technology systems for human capital management. The Company's IT Services operations now operate under the name "Venturi Technology Partners" and its Commercial Staffing operations are being rebranded "Venturi Staffing Partners" over the balance of 2002. * * * As reported in the May 27, 2002 edition of Troubled Company Reporter, Personnel Group of America announced that with the senior credit facility extensions in place, the company has the time to evaluate a full range of alternatives and select the path it believes most beneficial to the Company. And with that flexibility, the company would not expect to pursue any deleveraging strategies, whether with the CSFB group or otherwise, that did not appropriately balance the improvements in PGA's balance sheet and long-term prospects expected from any specific strategy with the current shareholders' ownership interest. The company is going to work closely with its advisor, UBS Warburg, to examine any alternatives presented to the company by the CSFB group or otherwise. POLAROID CORP: John W. Loose Elected as Chairman of the Board ------------------------------------------------------------- Polaroid Corporation announced that John W. Loose has been elected chairman of the company's board of directors, effective July 1, 2002. He replaces Gary T. DiCamillo, who steps down as chairman but remains as a member of the board of directors. Loose, 60, recently retired from his position as president and chief executive officer of Corning Incorporated, where he had served in a series of progressively responsible positions over the past 38 years. He was elected to the Polaroid board of directors in 1994. "John brings a solid foundation of leadership skills and business experience to the chairman's role. He possesses a broad knowledge of Polaroid and is uniquely qualified to lead the board through the final phase of Chapter 11," said DiCamillo, who has served as chairman of the Polaroid board of directors since 1995. Polaroid Corporation is the worldwide leader in instant imaging. The company supplies instant photographic cameras and films; digital imaging hardware, software and media; secure identification systems; and sunglasses to markets worldwide. Additional information about Polaroid is available on the company's Web site at http://www.polaroid.com DebtTraders says that Polaroid Corporation's 11.5% bonds due 2006 (PRD3) are trading at 1.25. For real-time bond pricing, see http://www.debttraders.com/price.cfm?dt_sec_ticker=PRD3 POLAROID CORP: Court to Consider One Equity's Revised Bid Today --------------------------------------------------------------- Polaroid Corporation will seek final court approval of a revised bid submitted by One Equity Partners to purchase substantially all of its business. A hearing on the proposed transaction is scheduled for 9 a.m. tomorrow at the U.S. Bankruptcy Court in Wilmington, Delaware. The revised bid from One Equity Partners provides for cash consideration of $255 million plus a 35 percent interest in the new company for the benefit of unsecured creditors, significantly more equity than the prior bid. Both the unsecured creditors committee and the company's secured lenders support the proposed sale transaction. Completion of the transaction with One Equity Partners remains subject to final bankruptcy court approval and to certain other closing conditions. Subject to these conditions, the proposed transaction is expected to close by the end of July. While no reorganization plan has been finalized, Polaroid believes, as previously announced, it is unlikely that there will be any recovery for the company's stockholders. One Equity Partners is the private equity arm of Bank One Corporation (NYSE: ONE) and manages $3.5 billion of investments for Bank One, the sixth largest bank holding company in the U.S. Polaroid Corporation is the worldwide leader in instant imaging. The company supplies instant photographic cameras and films; digital imaging hardware, software and media; secure identification systems; and sunglasses to markets worldwide. Additional information about Polaroid is available on the company's Web site at http://www.polaroid.com. POWER EFFICIENCY: Lacks Resources to Satisfy Liquidity Needs ------------------------------------------------------------ Power Efficiency Corporation was incorporated in Delaware on October 19, 1994. From inception through 1997, the Company was a development stage entity that sought to become engaged in the design, development, marketing and sale of proprietary solid state electrical components designed to effectively reduce energy consumption in alternating current induction motors. Alternating current induction motors are commonly found in industrial and commercial facilities throughout the world. On August 7, 2000, the Company executed an Asset Purchase Agreement with Performance Control, L.L.C., a Michigan limited liability company and formerly the largest distributor of the Company's products. Percon was formed on February 15, 1996. Pursuant to the terms and conditions of the Asset Agreement, Power Efficiency acquired Percon's (i) contracts; (ii) inventory; (iii) state and municipal permits, certificates, registrations, licenses and authorizations; (iv) intellectual property, including the name "Performance Control"; (v)goodwill; (vi) accounts receivable; (vii) prepaid expenses; (viii) furniture, fixtures and equipment; (ix)customer lists; and (x) Internet web site located at www.performancecontrol.com in consideration for an aggregate of 1,112,245 newly issued shares of Power Efficiency's common stock, $.001 par value per share. The Company also assumed $438,888 of Percon's liabilities. Revenues for the twelve months ended December 31, 2001, were $633,563 compared to $179,524 for the twelve months ended December 31, 2000, an increase of $454,039, or 253%. The increase in revenues was principally attributable to the increase in sales by the Company's OEM's and major accounts expanding their use of the Company's products. Cost of revenues for the twelve months ended December 31, 2001, increased to $597,018, or 94.2% of revenues, from $157,035, or 87.4% of revenues, for the twelve months ended December 31, 2000. The increase in cost of revenues was primarily due to the increase in revenues and the cost of materials attributable to the acquisition of Percon inventory. Research and development expenses were $242,243, or 38% of revenues, for the twelve months ended December 31, 2001, as compared to $120,429, or 67% of revenues, for the twelve months ended December 31, 2000. The development of automatic safety systems for products with public applications increased research and development costs. Selling, general and administrative expenses decreased to $1,652,404, or 261% of revenues, for the twelve months ended December31, 2001, from $4,255,940, or 2,371% of revenues, for the twelve months ended December31, 2000. The significant decrease in selling, general and administrative expenses was due primarily to the prior year's recognition of compensation expense attributable to the issuance and repricing of options. The options were issued with an exercise price of $2.00 per share, which was below the fair market value of the stock at the time of issuance. The difference between the exercise price and the fair market value was recorded as compensation expense in the amount of $3,649,776. There was an increase in 2001 general expenses due to increases in sales, marketing and administrative personnel from eight to ten. As of December 31, 2001, Power Efficiency had cash and cash equivalents of $35,245. Cash used for operating activities for the twelve months ended December 31, 2001, was $1,107,265 and was $669,184 in 2000. Of the $1,107,265 of cash used for operating activities in 2001, the largest contributing factors were a net loss of $1,863,802, depreciation and amortization of $281,587, additional paid in capital related to write-off of deferred financing costs of $38,502, debt restructuring of $130,000, issuance of stock options of $47,300, decreases in accounts receivable of approximately $103,048, increases in inventory of approximately $83,091 and increases in prepaid expenses and deposits of $9,057. In addition, operating activities reflected a $216,426 increase in accounts payable and accrued expenses and an increase in accrued salaries and payroll taxes of $31,822. Of the $669,184 of net cash used for operating activities in fiscal 2000, the largest contributing factors were a net loss of $4,354,080 and repricing and issuance of stock options of $3,649,776, which were offset by approximately $138,154 in depreciation and amortization and an increase in accounts receivable of approximately $43,916. In addition, there was a decrease in accounts payable and accrued expenses of approximately $106,727 and an increase in accrued salaries and payroll taxes of approximately $14,930. The Company expects to experience growth in its operating expenses, particularly in research and development and selling, general and administrative expenses, for the foreseeable future in order to execute its business strategy. As a result, it anticipates that operating expenses, as well as planned increases in inventory expenditures, will constitute a material use of any cash resources. Since capital resources are insufficient to satisfy the Company's liquidity requirements, management intends to seek to sell additional equity securities or debt securities or obtain debt financing. In December 2000, Power Efficiency obtained an asset-based bank line of credit of up to $750,000, with borrowings secured by all of its assets. Borrowings under the line are based on a formula derived from the levels of the Company's eligible accounts receivable and inventory. The line of credit agreement was extended effective February 1, 2002 until April 30, 2002. This extension was retroactive and occurred after the date of the last Auditor's Report. At the time of this filing, the Company was in default under the terms of the line of credit agreement. Under the agreement, the Company's borrowings may not exceed the amount calculated pursuant to a borrowing formula. Based on the formula, the Company exceeded its borrowing capacity by approximately $132,000 on December 31, 2001. On May 31, 2002, the Company received a letter from Bank One in which Bank One agreed to forebear from taking any collection activity concerning the expired line of credit until June 17, 2002. If an extension of the line of credit was not received by June 17, 2002, the bank has the right under the line of credit agreement to demand immediate payment of all amounts owed. In such an event, it is unlikely the Company would have sufficient available funds to pay Bank One all amounts owed and could be forced to transfer other assets, including inventory and accounts receivable, to Bank One in satisfaction of the debt, which would have a material adverse effect on the future operations, cash flow and liquidity of the Company. Management was attempting to negotiate an extension of the line of credit agreement and was hopeful that the default would be waived or cured. As of December 31, 2001, the Company had suffered recurring losses from operations, current liabilities then exceeded current assets by $650,533, the balance sheet reflected a negative tangible net worth. These matters raise substantial doubt as to the Company's ability to continue as a going concern. PSINET INC: Wins Approval to Sell TX Real Property for $11MM+ ------------------------------------------------------------- PSINet Realty, Inc. obtained Court approval to sell its real property at 1333 Crestside Drive in Coppell, Texas to new buyer The Depository Trust & Clearing Corporation for a purchase price of $11 million. Thus, the Court entered an order approving the payment of a 3% breakup fee to the Buyer as well as other bid protection procedures in advance of the consummation of such sale (the Sale Procedures Order). Also, the Court entered an order approving the sale of the Property to the Buyer under the terms of the Real Property Purchase and Sale Agreement between PSINet Realty Inc. (the Seller) and the Buyer, dated May 21, 2002 (the Purchase Agreement), free and clear of all liens, claims, encumbrances, rights and interests (other than Permitted Exceptions) or to the highest and best bidder (the Sale Order). Pursuant to the Purchase Agreement, the Seller agrees to sell all of its right, title and interest in and to the Property to the Buyer for $11,000,000 subject to certain usual and customary adjustments as specified in the Purchase Agreement. The Sale is also subject to the Buyer being satisfied with the results of its due diligence review. As previously reported, the Property consists of a building of approximately 80,000 square feet of rentable space improved with raised flooring, suppplementai HVAC and redundant fiber network and power to make it suitable for use as a hosting center (the Building), together with approximately 6.527 acres of land, located at 1333 Crestside Drive, Coppell, Texas. The Buyer has placed into escrow cash in the amount of $1,000,000 as the deposit. The material provisions of the Purchase Agreement provide that if the Buyer is satisfied with its due diligence (after a twenty day period that commenced on May 21, 2002), then the entire deposit will be paid to the Seller if the Buyer breaches the Purchase Agreement. Sale Procedures To obtain the greatest value for the Property, the Debtors intend to expose the Property to sale at a public auction. For this purpose, the Debtors request entry of a Sale Procedures Order: (a) authorizing and scheduling a bidding deadline (set for June 11, 2002, at 4:00 p.m. prevailing Eastern time) and an Auction to be held on June 12, 2002, at 10:00 a.m. Eastern time if one or more Competing Bids made in compliance with the Bidding Procedures are received; (b) scheduling a Sale Hearing to be held on or about June 13, 2002, at 9:45 a.m.. Eastern time (depending on the Court's availability) to consider the Sale Order; (c) approving the Bidding Procedures, including a breakup fee; and (d) approving the manner of notice of the Sale, the bidding deadline, the Auction, the Bidding Procedures and the Sale Hearing. To help solicit higher and better offers, the Debtors have retained The Staubach Company - Northeast to help them, among other things, actively market for sale certain of the Debtors' real property assets, including the Property. At the Sale Hearing, the Debtors will request the Court to enter the Sale Order either (i) authorizing the Debtors, if no Qualified Competing Bids have been submitted, to consummate the Purchase Agreement with the Buyer, or (ii) confirming the results of the Auction and approving the sale of the Property to the bidder who has made the highest and best offer, and granting related relief. Bidding Procedures * Qualified Competing Bid The Debtors will consider only Competing Bids that are made in compliance with the Bidding Procedures. To be qualified, a Competing Bid must: (a) be submitted (with a copy to the Committee and the Buyer) on or before the Bidding Deadline; (b) be for the purchase of the entire Property; (c) be in writing in the form of the Purchase Agreement marked to show all changes thereto; and (d) provide for the payment to the Debtors of at least $11,380,000 in cash (the Minimum Overbid) (which reflects the sum of the Buyer's Purchase Price of $11,000,000, plus the Breakup Fee of $330,000, plus an overbid of $50,000). * Auction If a Qualified Competing Bid is submitted prior to the Bidding Deadline, the Debtors will commence the Auction on June 12, 2002, at 10:00 a.m. Eastern time at the offices of Wilmer, Cutler & Pickering, 1600 Tysons Boulevard, 10th Floor, Tysons Corner, Virginia. Only the Buyer and any prospective buyer who has timely submitted a Qualified Competing Bid will be entitled to participate in the Auction. The Buyer will be entitled to make an overbid and to credit bid the amount of the Breakup Fee against any such overbid. At the Auction, bidding will begin with the highest Qualified Competing Bid timely submitted on or before the Bidding Deadline. All subsequent overbids must include additional consideration of at least $50,000 more than the previous bid. The Auction will not conclude until each participating bidder has had the opportunity to submit any additional overbid with full knowledge of the existing highest bid. The Debtors will determine in good faith whether a submitted Competing Bid complies with the Bidding Procedures and whether the Purchase Agreement or a submitted Qualified Competing Bid constitutes the most favorable transaction for the Debtors' estates. The most favorable bid as determined by the Debtors will be submitted to the Court for review and approval at the Sale Hearing. * Breakup Fee. Pursuant to the Bidding Procedures, the Seller shall pay to the Buyer the Breakup Fee in an amount equal to $330,000, which constitutes 3% of the Purchase Price if: (1) the Seller sells the Property to another bidder at or following the Auction pursuant to a Qualified Competing Bid, and (2) the Buyer was not, as of the date set by the Bankruptcy Court for the Auction, itself in breach of any material provision of the Purchase Agreement as to entitle the Debtors not to proceed to closing, and (3) the Buyer's right to terminate the Purchase Agreement has expired or been waived by the Buyer and the Buyer had not, on or prior to the date set by the Bankruptcy Court for the Auction, terminated the Purchase Agreement. Such amount shall be payable within 5 business days of the closing of a sale to the bidder submitting such Qualified Competing Bid. Although the Debtors seek approval of the Breakup Fee at a time when the Buyer is still conducting due diligence, the Buyer will not be entitled to the Breakup Fee unless its due diligence condition has expired or been waived. The Debtors submit that the Breakup Fee is the result of extended, good faith, arm's-length bargaining between the Debtors and the Buyer. The Debtors agreed to the Breakup Fee because, in their considered business judgment, the Debtors believed that the availability of this payment provides a net benefit to the Debtors' estates and that a transaction as favorable could not have been reached without it. The Buyer has indicated that it is unwilling to proceed with the Purchase Agreement unless the Breakup Fee is approved. The Breakup Fee is fair and reasonable, particularly in view of the Buyer's efforts to date to market the Property and the stalking horse risk to which public dissemination of its valuation now exposes it, the Debtors represent. The Buyer's $11,000,000 Purchase Price, once the due diligence conditions are waived or expire, will establish a floor against which other bidders can base their bids without conducting their own expensive due diligence. The Debtors believe that other bidders interested in the Property will be more inclined to bid, and to bid higher than they otherwise would. * Notice The Debtors propose to serve the Motion, the Purchase Agreement, the proposed Sale Order and the Sale Procedures Order on or before June 4, 2002, by overnight courier and/or first-class mail, postage prepaid, upon (i) the Office of the United States Trustee for the Southern District of New York; (ii) counsel for the Buyer; (iii) counsel for the Committee; (iv) all entities (or their counsel) known to have asserted any lien, claim, right of refusal, encumbrance or other interest of any kind whatsoever in or upon the Property; (v) all federal, state and local regulatory or taxing authorities or recording offices which have a reasonably known interest in the relief requested by the Motion; (vi) all parties known to have expressed a bona fide interest in acquiring the Property; (vii) the Internal Revenue Service; (viii) all entities who have filed a notice of appearance and request for service of papers in the Debtors' cases; and (ix) each indenture trustee of the Debtors. The Debtors submit that such notice constitutes good and sufficient notice under the circumstances. (PSINet Bankruptcy News, Issue No. 24; Bankruptcy Creditors' Service, Inc., 609/392-0900) QSERVE: Seeks $12.5MM Cash Collateral Use to Continue Operations ---------------------------------------------------------------- Bankrupt qServe Communications Inc., an engineering company serving the broadband and wireless industries, is expected to win the right for the emergency use of $12.5 million in cash collateral so the debtor can continue to fund operations, reported The Daily Deal. Chief Judge Arthur Federman of the U.S. Bankruptcy Court for the Western District of Missouri indicated on June 25, Tuesday that he would approve the critical post-petition funding if qServe makes changes he requested, according to The Deal. According to the online newspaper, the company wants Federman to approve the interim use of its $3.25 million credit facility with J.P. Morgan Chase & Co. and Comerica Bank, as well as a $9.275 million secured note with Finova Mezzanine Capital Inc. of Phoenix, documents show. Lee's Summit, Missouri-based qServe sought chapter 11 bankruptcy protection on June 21, listing its cash flow at a negative $50,550 as of last weekend and projected a negative cash flow of $268,765 for July, documents show, reported The Deal. The company estimated debt at $16 million and assets of up to $10 million, and listed Talisman Capital as lead investor. (ABI World, June 26, 2002) QSERVE COMMS: Case Summary & 20 Largest Unsecured Creditors ----------------------------------------------------------- Debtor: qServe Communications, Inc. 401 SE Fleetway Drive Lee's Summit, Missouri 64081 fka Skyfield Tower, Inc. fka New Digital Corporation fka United Tower, Inc. Bankruptcy Case No.: 02-43265 Chapter 11 Petition Date: June 21, 2002 Court: Western District of Missouri (Kansas City) Judge: Jerry W. Venters Debtor's Counsel: John Joseph Cruciani, Esq. Lentz & Clark, PA 9260 Glenwood P.O. Box 12167 Overland Park, KS 66282 913-648-0600 Fax : 913-648-0664 Estimated Assets: $1 Million to $10 Million Estimated Debts: $10 Million to $50 Million Debtor's 20 Largest Unsecured Creditors: Entity Nature of Claim Claim Amount ------ --------------- ------------ Jones Walker $34,022 ACM Equipment $35,000 Longfellow Drilling Inc. $37,405 Brookstone Equipment & Service $38,569 Carolina First Bank $39,453 Site Design Services Inc. $42,620 Jack Martin Consulting Contract $44,625 Diversified Thermal Services $53,920 Cigna HealthCare $56,136 Hutton Communications Inc. $56,597 Imperial Premium Finance Insurance Premium $58,871 Inc. Financing Galaxy Tri-State Electric Subcontractor $60,258 Co. PricewaterhouseCoopers $81,201 Carolina First Bank $94,572 Robert Camp Note Payable $98,172 Dave Harris Note Payable $98,172 James R Schumacher Note Payable $98,172 Radio Frequency Systems Inc. $102,360 Costello & Associates $117,201 Insurance Beller Welding & Fabrication $144,279 REGAL ENTERTAINMENT: S&P Assigns BB- Rating to Corporate Credit --------------------------------------------------------------- Standard & Poor's has assigned its double-'B'-minus corporate credit rating to motion picture exhibitor Regal Entertainment Group (REG). REG was recently formed to consolidate the ownership of Regal Cinemas Inc., United Artists Theatres Co., and Edwards Theatres Inc. Standard & Poor's noted that its ratings on the new entity are analyzed on a consolidated basis to reflect the closer business and financial ties between these companies. As a result, the corporate credit rating on Regal Cinemas Inc. is being raised to double-'B'-minus from single-'B'-plus to reflect the improved credit profile of the consolidated entity. United Artists and Edwards are unrated. The outlook is stable. REG is the largest movie theater operator in the U.S. with 5,886 screens in 561 theaters located in 36 states. The Knoxville, Tennessee-based company currently has approximately $732 million in debt outstanding. "The integration of the three circuits has been very quick and should accelerate the realization of cash flow benefits resulting from reducing corporate overhead, consolidating vendor contracts for concessions, and other economies of scale," according to Standard & Poor's analyst Steve Wilkinson. He added, "In addition, the financial profile of the combined entity has improved as a result of a net reduction in debt of $280 million and preferred stock of $70 million with proceeds from the company's initial public equity offering and excess cash balances." Standard & Poor's said that its ratings reflect REG's geographically diverse and relatively modern theater circuit, the expectation that the consolidated entity will generate favorable margins relative to its peers, and the company's improved, but still somewhat aggressive, financial profile. Standard & Poor's said that ratings stability relies on REG delivering consistent operating performance and maintaining financial policies that preserve its current credit profile. REPUBLIC TECH: USWA Seeks to Block Pension Plan Terminations ------------------------------------------------------------ The United Steelworkers of America filed a motion Tuesday in the U.S. District Court for the Northern District of Ohio seeking to intervene as a party to oppose the termination of two pension plans that cover USWA members at Republic Technologies International. Without any advance notice to either RTI or the USWA, the Pension Benefit Guaranty Corporation asked the Court to terminate four defined pension plans sponsored by the company effective June 14, 2002, one month prior to the expected closure of all RTI facilities. This action, if approved, would deny "shutdown" benefits to employees with 15, 20 or more years of service to the company. "It is an unconscionable act of greed for the PBGC to attempt to deny our members these benefits," stated USWA international president Leo W. Gerard. "The money necessary to pay ``shutdown' benefits at RTI pales in comparison to its $7.7 billion surplus. Given that the PBGC has allowed shutdown benefits at LTV and CSC, there is no reason for them to treat RTI workers differently." RTI, operating under a voluntary Chapter 11 petition filed on April 2, 2002, is looking to sell its assets in a court- supervised auction, which is expected to take place on July 9, 2002. This anticipated sale of assets and shuttering of other plants gives RTI employees who qualify the right to receive benefits as defined by the pension plans. The Steelworkers are challenging the preemptive termination date because the Union believes that PBGC is seeking to avoid paying out claims that have already been earned by its members and funded for with premiums paid by the company. The PBGC claim that the preemptive termination date is needed to protect the interests of the plan's participants is flawed reasoning at best according to the USWA. The principal reason employers and unions establish and maintain defined benefit plans is to provide employees certainty and security when their working days are over. The negotiated agreements made by RTI and the USWA have been specifically designed to account for the risks and uncertainties associated with steel industry employment. In particular, the plans for USWA-represented employees at RTI promise a "shutdown" benefit. The shutdown benefit enables a worker meeting certain age and service requirements to begin receiving pension benefits after the shutdown, rather than having to wait to reach a specified retirement age. SLI INC: Mulling Broad Range of Alternatives to Restructure Debt ---------------------------------------------------------------- SLI, Inc. (NYSE: SLI), one of the world's largest vertically integrated lighting manufacturers, held its Annual Stockholders Meeting on June 20, 2002. At the Annual Meeting, the Company discussed the status of its Second Amended and Restated Credit Agreement. Frank M. Ward, Chairman and CEO commented, "There can be no assurances that lenders will agree to a long-term amendment to cure several existing and potential future defaults and implement a revised set of financial covenants by the end of the current waiver period." Mr. Ward also indicated that the board of directors and management are currently considering with the Company's professional advisors a broad range of alternatives for restructuring the Company's debt. SLI Inc., based in Canton, MA, is a vertically integrated designer, manufacturer and seller of lighting systems, which are comprised of lamps and fixtures. The company offers a complete range of lamps (incandescent, fluorescent, compact fluorescent, high intensity discharge, halogen, miniature incandescent, neon, LED and special lamps). They also offer a comprehensive range of fixtures. The company serves a diverse international customer base and markets, has 37 plants in 12 countries and operates throughout the world. SLI, Inc., is also the #1 global supplier of miniature lighting products for automotive instrumentation. SAFETY-KLEEN: Sues Onsite Environ. to Recoup $1MM+ Preference ------------------------------------------------------------- Safety-Kleen Services, represented by Jeffrey C. Wisler of Connolly Bove Lodge & Hutz of Wilmington, brings suit against Onsite Environmental Staffing and other Onsite Companies to avoid and recover transfers of money and property alleged to be preferential under the Bankruptcy Code. The Debtors say money and property was transferred to Onsite on dates in March, April, May and June, 2000, within 90 days of the Petition Date, in at least amounts totaling $1,059,672. These transfers were on account of an antecedent debt owed by one or more of the Debtors to Onsite, and the transferring Debtors were insolvent at the times of the transfers. As a result of these transfers, Onsite received more than it would have received if these cases were liquidating proceedings under chapter 7 of the Bankruptcy Code, the transfers had not been made, and Onsite received a distribution from the resulting bankruptcy estate. In the alternative, the Debtors say that Services received less than a reasonably equivalent value in exchange for the transfers, and was insolvent at the time of the transfers, or became insolvent as a result of the transfers. In either event, the Debtors want to recover the transfers and ask for judgment against Onsite in the amount of $1,059,672, plus pre- and post-judgment interest, and their costs. Further, the Debtors want Onsite's claims against these estates disallowed if Onsite refuses to return the transfers. (Safety- Kleen Bankruptcy News, Issue No. 40; Bankruptcy Creditors' Service, Inc., 609/392-0900) SELECT MEDIA: Looks to New Acquisitions to Stem Continued Losses ---------------------------------------------------------------- Select Media Communications Inc., a New York integrated media company, was organized in September 1981. On October 13, 1995, the Company filed a voluntary petition for reorganization pursuant to Chapter 11 of Title 11 of the United States Bankruptcy Code. The petition was filed in the United States Bankruptcy Court for Southern District of New York and its plan of reorganization was confirmed on August 28, 1997. In the period from the Company's bankruptcy filing in October 1995 until September 1998, the Company was essentially dormant. In September 1998, the Company reactivated its marketing efforts and began marketing its vignette products to advertisers. On January 18, 2000, the Company purchased all of the issued and outstanding common stock of Sigma Sound Services, Inc. under the terms of a stock purchase agreement. The Company determined that effective April 1, 2001 control of Sigma became temporary when the Company defaulted on various payments due to the former owner of Sigma. The Company negotiated a settlement of this matter in which the ownership of Sigma reverted back to the former owner. Select Media is actively pursuing the acquisition of content providers, production and post-production houses to become a vertically integrated provider and distributor of video/television programming and recorded music. The Company currently has two pending acquisitions. The Company incurred a net loss of $515,071 for the three-month period ended March 31, 2002, and, as of that date, the Company's current liabilities exceeded its current assets by $6,572,722. Management of the Company is developing a plan to reduce its liabilities and raise equity capital for acquisitions through the issuance of additional common stock through private or public offerings conforming to the requirements of the Securities Acts. The Company has received a best efforts letter of intent from Lloyds Bahamas Securities, Ltd. for an additional $3 million in financing once the Company's common stock is eligible for quotation on the OTC Bulletin Board, which occurred on April 20, 2001. Additionally, in November 2001, the Company entered into an agreement for a $20,000,000 Private Equity Line of Credit. There can be no assurance that such financings will be completed or, if completed, be on favorable terms. Under this plan the Company intends to use any funds raised to fund operations and to make strategic acquisitions through cash and stock transactions. Management hopes that these acquisitions will enable the Company to generate positive cash flows from operations. If the Company is unable to raise the appropriate funds it will not be able to make any acquisitions nor will the Company be able to continue to fund operations. There can be no assurances that the Company will be successful in its attempts to raise sufficient capital essential to its survival. Additionally, the Company has already significantly curtailed its operations and is currently unable to pay many of its obligations. To the extent that the Company is unable to generate or raise the necessary operating capital it will become necessary to cease operations. These matters raise substantial doubt about the Company's ability to continue as a going concern. SUN HEALTHCARE: Wants Claims Objection Deadline Moved to Oct. 26 ---------------------------------------------------------------- Pursuant to the Plan of Reorganization, the Reorganized Sun Healthcare Group, Inc. and its debtor-affiliates have until June 28, 2002 to object to the claims filed against them. To date, Mark D. Collins, Esq., at Richards, Layton & Finger, in Wilmington, Delaware, relates that the Reorganized Debtors have filed 23 Omnibus Objections, systematically categorized as: (a) duplicate and amended superceded claims, (b) claims based on ownership of common stock, (c) claims for which no amount is due, (d) postpetition claims, (e) claims not reflected in the Debtors' books and records, (f) claims that have been settled, (g) duplicate, amended and superceded claims, (h) claims which were released, and (i) claims that should be reclassified as unsecured claims. However, Mr. Collins tells Judge Walrath that the Reorganized Debtors need more time to complete their evaluation of all outstanding Claims. Accordingly, pursuant to Sections 105 and 502 of the Bankruptcy Code, Bankruptcy Rule 3007 and Section 7.1 of the Plan, the Reorganized Debtors ask the Court to extend the deadline through and including October 26, 2002. Mr. Collins assures Judge Walrath that the extension is not sought to delay or prejudice the Claimants. On the contrary, the Reorganized Debtors will continue to diligently review, analyze and timely resolve the remaining claims. (Sun Healthcare Bankruptcy News, Issue No. 39; Bankruptcy Creditors' Service, Inc., 609/392-0900) SWEET FACTORY: Wants to Stretch Lease Decision Period to Aug. 12 ---------------------------------------------------------------- Sweet Factory Group, Inc., and its debtor-affiliates seeks to extend the time to determine what to do with their unexpired nonresidential real property leases. The Debtors want the U.S. Bankruptcy Court for the District of Delaware to give them until the earlier of the Effective Date of the Plan and August 12, 2002. It's impossible, the Debtors suggest, to make intelligent decisions about whether to assume, assume and assign or reject unexpired leases at this juncture. Concomitant with the confirmation of the Amended Plan, the Debtors declare that they are in the process of selling substantially all of their assets, pursuant to which the Debtors shall sell, assign, and otherwise transfer to RDR Group all their operating assets including certain leases. The Debtors anticipate the transaction will culminate in July. The Debtors' Amended Plan provides for the final disposition of all remaining leases. Sweet Factory Group Inc. filed for chapter 11 protection on November 15, 2001 in the U.S. Bankruptcy Court for the District of Delaware. Laura Davis Jones at Pachulski, Stang, Ziehl Young & Jones represents the Debtors in their restructuring efforts. VERSATEL TELECOM: Wants to Bring-In DF King as Balloting Agent -------------------------------------------------------------- Versatel Telecom International, N.V., seeks to employ DF King & Co., Inc., as its ballot and information agent, nunc pro tunc to June 19, 2002. DF King was previously engaged as the Debtor's Information Agent in connection with an exchange offer. The Debtor contends that the size and magnitude of its creditor body makes it impracticable for the office of the Clerk of the United States Bankruptcy Court for the Southern District of New York to serve notice efficiently and effectively. The Debtor believes that the most effective and efficient manner of noticing its creditors, is for the Debtor to engage an independent third party to act as an agent of the Court. As Ballot and Information Agent, DF King is expected to: a) relieve the Clerk's Office of all noticing under any applicable rule of bankruptcy procedure; b) file with the Clerk's Office a certificate of service, within 5 days after each service, which includes a copy of the notice, a list of persons to whom it was mailed, and the date mailed; c) maintain an up-to-date mailing list for all entities that have requested service of pleadings in this case, which list shall be available upon request of the Clerk's Office; d) comply, in all material respects, with applicable state, municipal and local laws and rules, orders, regulations and requirements of Federal Government Departments and Bureaus; e) make all original documents available to the Clerk's Office on an expedited, immediate basis; f) provide advice to the Debtor and their other professionals regarding all aspects of the Plan solicitation process; g) mail voting documents to creditors and equity security holders, if necessary; h) receive and examine all ballots and master ballots cast by creditors and equity security holders; i) tabulate all ballots and master ballots received prior to the voting deadline in accordance with established procedures and prepare a vote certificate for filing with the court; and j) promptly complying with such further conditions and requirements as the Clerk's Office may prescribe. The Debtor states that DF King has received a retainer of $23,400 for services to be rendered and expenses to be incurred. DF King will hold this retainer and will apply it to its fees for prepetition services only as approved by the Court, the Debtor assures the Court. Versatel Telecom International, N.V. provides broadband Internet and telecommunications services including voice and data services, dedicated Internet access services, customized telecommunication solutions and Internet-enabled applications in The Netherlands, Belgium and northwest Germany. The Debtor filed for chapter 11 protection on June 19, 2002. Douglas P. Bartner, Esq. at Shearman & Sterling represents the Debtor in its restructuring efforts. When the Company filed for protection from its creditors, it listed $2,017,758,399 in total assets and $1,605,897,821 in total debts. Versatel Telecom BV's 13.25% bonds due 2008 (VERT08NLR2) are quoted at a price of 25. For real-time bond pricing, see http://www.debttraders.com/price.cfm?dt_sec_ticker=VERT08NLR2 WARNACO GROUP: Court Okays Settlement Pact with GE Capital Corp. ---------------------------------------------------------------- The Warnaco Group, Inc., and its debtor-affiliates obtained the Court's authority to enter into a Settlement Agreement with GE Capital Corporation and to approve the terms of their Settlement Agreement in relation to their disputes over the 1994 and 1997 Master Leases Agreements. The terms of the Settlement Agreement are: (a) GE Capital will have an allowed secured claim in the amount of $15,200,000, known as 1997 Lease Indebtedness, payable on the terms set forth herein, with respect to amounts due under the 1997 Master Lease Agreement; (b) Warnaco will have a credit against the 1997 Lease Indebtedness equal to the amount of all prior post- petition rental and other payments in cash or in kind to GE Capital during the course of the Debtors' Chapter 11 cases; (c) Warnaco will pay GE Capital $550,000 per month through confirmation date of the Debtors' plan or plans of reorganization, and $750,000 thereafter, without interest, until the 1997 Lease Indebtedness is paid in full -- the Secured Payments; (d) The Debtors will have the right to sell any of their divisions or subsidiaries, free and clear of all liens and claims of GE Capital. Upon the closing of any sale, GE Capital will be paid the percentage of the then outstanding 1997 Lease Indebtedness: Sale of the first Business: 25% of the remaining balance of 1997 Lease Indebtedness Sale of the second Business: 33-1/3% of the remaining balance of 1997 Lease Indebtedness Sale of the third Business: 50% of the remaining balance of 1997 Lease Indebtedness Sale of fourth Business: 100% of remaining balance of 1997 Lease Indebtedness In addition, subject to payments having been made, the monthly Secured Payments will also be reduced by the percentage applicable to the sale of the Business, which includes Ralph Lauren, Calvin Klein Underwear, Calvin Klein Jeans, Warner's/Olga and Authentic Fitness Corporation; (e) GE Capital will have an allowed general unsecured claim of $33,557,667 with respect to the 1997 Master Lease Agreement; (f) With respect to the 1994 Master Lease Agreement, the parties have agreed that: (1) Warnaco will assume the agreement and make a cure payment of $211,820 plus any amounts due from and after May 13, 2002; (2) Warnaco will continue to make the required payments with respect to certain schedules of the 1994 Master Lease Agreement; and (3) Warnaco will have the option, with respect to any Schedule of the 1994 Master Lease Agreement, to acquire the equipment in each Schedule at the then- applicable Stipulated Loss Value specified under the Schedule; (g) GE Capital will have a final allowed general unsecured claim in both Warnaco's and Warnaco Group's Chapter 11 cases in the amount of $3,632,495 with respect to the Helicopter Lease, minus any net rental payments and any net sale proceeds received by GE Capital on account of GE Capital's lease or sale of the Helicopter; (h) The claims of GE Capital with respect to the Aircraft Lease, Claims Nos. 1822 and 1823, will be disallowed and expunged in their entirety; and (i) Except as set forth in the Settlement Agreement, including the claims GE Capital will respect to the Exempted Claims, the Settlement will constitute a mutual release of all claims between the Debtors and the Commercial Leasing Division of GE Capital with respect to any Master Lease Agreement or leasing arrangements with any of the Debtors. (Warnaco Bankruptcy News, Issue No. 27; Bankruptcy Creditors' Service, Inc., 609/392- 0900) WILLIAMS COMMS: Bringing-In Blackstone for Financial Advice ----------------------------------------------------------- Williams Communications Group, Inc., and its debtor-affiliates desire to retain and employ The Blackstone Group, L.P. as their financial advisor in these Chapter 11 cases nunc pro tunc to the Petition Date. The proposed retention will be pursuant to the letter and indemnification agreements, dated June 3, 2002, between the Debtors and Blackstone. Scott Schubert, Chief Financial Officer of Williams Communications Group, tells the Court that the Company has determined, with the size of their operations and the complexity of their financial difficulties, they need to employ experienced advisors to render financial advisory and other related services in connection with the Chapter 11 cases. "The Debtors have selected Blackstone as their financial advisor because of Blackstone's diverse experience, knowledge and reputation in the restructuring field, understanding of the issues involved in Chapter 11 cases, and because the Debtors believe that Blackstone possesses the requisite resources and is well qualified to provide the financial advisory services that will be required here," Mr. Schubert claims. Blackstone has served as financial advisor to debtors or other constituencies in many of the largest Chapter 11 cases in the United States, including American Banknote Corp., AMF Bowling Worldwide, Inc., American Pad & Paper Company, Arch Wireless, Inc., Babcock & Wilcox Company, Best Products, Big V Supermarkets, The Caldor Corp., Chiquita Brands International, ContiFinancial Corp., Dow Corning Corp., Enron Corp., Evans Products, Global Crossing, Ltd., Globalstar L.P., Goss Holdings, Inc., Harnischfeger Industries, Hills Department Stores, 5 Indesco International, Inc., The Leslie Fay Companies, Levitz Furniture, Inc., Loehmann's, Inc., LTV Corporation, Marvel Entertainment Group, Inc., MobileMedia Corp., Montgomery Ward Holding Co. (GECC), Motorola, Inc. (in the restructuring of Iridium LLC), Paragon Trade Brands, Inc., The Penn Traffic Company, Phar-Mor, Inc., Premium Standard Farms, Inc., R.H. Macy & Co., The Singer Company N.V., and Vencor, Inc. Mr. Schubert informs the Court that the Debtors retained Blackstone as of November 1, 2001 to serve as their financial advisor in connection with their restructuring efforts. Since then Blackstone has developed extensive knowledge of the Debtors' businesses, operations and financial condition. Hence, upon approval of its retention, Blackstone will continue to provide these professional services to the Debtors: A. Assist in the evaluation of the Company's businesses and prospects; B. Assist in revising and updating the Company's long-term business plan and related financial projections; C. Assist in raising additional capital to consummate a plan of reorganization for the purpose of implementing a Restructuring; D. Assist in the development of financial data and presentations to the Company's Board of Directors and holders of the Company's obligations; E. Meet, at the Company's request, with the Company's Board of Directors to discuss the Restructuring and its financial implications; F. Analyze various restructuring scenarios and the potential impact of these scenarios on the Company; G. Prepare all necessary valuation analyses in connection with confirmation of a plan of reorganization for the Debtors; H. Provide testimony in the Chapter 11 case; I. Provide strategic advice with regard to restructuring of the Company's Obligations and consummation of a plan of reorganization; and, J. Provide other advisory services as are customarily provided in connection with the analysis and negotiation of a Restructuring, as requested and mutually agreed. Mr. Schubert submits that Blackstone will be compensated according to this fee structure: A. until the earlier of consummation of the Plan and a termination of the Letter Agreement, a monthly advisory fee in the amount of $200,000. The first two Monthly Fees are payable upon execution of the Letter Agreement by both parties for the months of May and June 2002, and additional installments of the Monthly Fee are payable in advance on the first day of each month; B. a Capital fee of $6,000,000 as payment for raising additional material capital to consummate the Plan on terms approved by Williams Communications Group's (WCG) Board of Directors, and consistent with implementing the Qualifying Investment agreement, dated April 19, 2002, among WCG, Williams Communications LLC (WCL) and certain of WCG's note holders and certain of WCL's lenders. The Capital Fee is due and payable upon the earliest of: a. execution of a binding commitment, subject to customary conditions and termination events, between the Company and the investor; b. receipt of consent from the Required Lenders for payment of the Capital Fee; and, c. consummation of the Plan; C. a Restructuring Fee of $12,000,000 due and payable upon consummation of the Plan. It is understood that, if no Capital Fee is payable, but a Plan of Reorganization is still consummated, Blackstone will be entitled to receive only 50% of the Restructuring Fee upon consummation of the Plan. The Capital Fee and Restructuring Fee will be paid in cash promptly when due; and, D. reimbursement of all necessary and reasonable out-of-pocket expenses incurred in connection with this engagement. Additionally, Mr. Schubert identifies Blackstone's professionals who will be responsible for providing professional services to the Debtors: Timothy Coleman, Senior Managing Director; Michael Hoffman, Senior Managing Director; Elias Dokas, Vice President; Shervin Korangy, Vice President; Mark Buschmann, Associate; Rakesh Chawla, Associate; Erica Tsai, Analyst; and Birche Fishback, Analyst. Mr. Schubert further states that Williams Communications, LLC, the nondebtor subsidiary of WCG, is financially responsible for payment of Blackstone's compensation and reimbursement. This arrangement excuses Blackstone from being required to file fee applications. As stated by Mr. Schubert, Blackstone has provided Restructuring Advisory Services to WCL and the Debtors since November 1, 2001, and has been paid for those services on a monthly basis in accordance with the Letter Agreement. To date, Blackstone has received $7,200,000 for Restructuring Advisory Services rendered and $98,680 in expense reimbursements. Prior to the Petition Date, Blackstone received a $50,000 advance to be maintained against unbilled out-of-pocket expenses incurred in connection with the Restructuring Advisory Services and will credit the advance as of the Petition Date against expenses incurred thereafter. Furthermore, Mr. Schubert relates that, prior to its current engagement, Blackstone was on retainer for other financial advisory services from August 1999 to August 2001 and advised WCG on the sale of its business units, Williams Communications Solutions and Williams Communications Canada. In the one-year period preceding these Chapter 11 cases, Blackstone received a total of $4,475,195 on account of these Financial Advisory Services. The Debtors do not owe Blackstone any amount for prepetition services. As to potential conflicts of interests with regards to the retention of Blackstone, Timothy R. Coleman, its Senior Managing Director, discloses that he has consulted a member of the firm of Simpson Thacher & Bartlett for the preparation of Mr. Coleman's verified statement concerning this retention. Simpson Thacher serves as counsel to an individual Lender under the Amended Credit Agreement dated as of September 8, 1999 the Debtors and their lenders. Simpson Thacher is Blackstone's principal outside counsel. In additional, Mr. Coleman admits that his firm has also worked or has existing relationships with affiliates of Credit Suisse First Boston and The Chase Manhattan Bank. Those relationships, however, will not interfere with or impair Blackstone's representation of the Debtors in these Chapter 11 Cases. Blackstone had also been retained to advise Winstar Communications, Inc., Global Crossing Ltd. and Flag Telecom Holdings Ltd. in their respective Chapter 11 cases. These entities are either customers or competitors of the Debtors. (Williams Bankruptcy News, Issue No. 6; Bankruptcy Creditors' Service, Inc., 609/392-0900) DebtTraders says that Williams Communications Group Inc.'s 10.875% bonds due 2009 (WCG2) are trading at about 13. See http://www.debttraders.com/price.cfm?dt_sec_ticker=WCG2for real-time bond pricing. WINSTAR COMM: Court Approves DIP Credit Pact Carve-Out Expansion ---------------------------------------------------------------- According to Rebecca L. Booth, Esq., at Richards Layton & Finger LLP in Wilmington, Delaware, Lucent Technologies does not object to the relief requested per se by Winstar Communications, Inc.'s Trustee. Lucent, however, wants to make sure that the Trustee is not seeking to use Lucent's collateral to pay the carve-out obligations and asks the Court to approve the Debtors' motion with the explicit prohibition on the Debtors for making any payments on the carve-out obligations using Lucent's collateral. Lucent holds a secured claim against the Debtors' estates and has a valid and perfected security interest against a substantial portion of the Debtors' assets. Although the Trustee does not appear to be seeking authority to pay the carve-out obligations at this time and appears to only want to pay the carve-out obligations from the DIP Lenders' collateral, Ms. Booth maintains that Lucent is still registering its objection as the DIP Lenders' and Lucent's respective secured rights and interests in the sale proceeds have not yet been determined. The portion of the sales proceeds constituting the DIP Lenders' collateral is not known at this time. * * * Judge Akard rules that the Carve-Out of the Lien granted by the Court securing the obligations of the Debtors under the DIP Facility is expanded. The Carve-Out will now include (i) unpaid salaries, severance and all other amounts payable to the Employees, (ii) the cost of the bond required by the Office of the United States Trustee, (iii) the agreed $300,000 flat fee payable to the Trustee in connection with the amounts collected in these cases through and including March 20, 2002, and (iv) the 3% commission for the Trustee of all successful recoveries for the Debtors estates for the duration of these cases. The Carve-out will also include unpaid fees and expenses of Impala Partners LLC, Shearman & Sterling and Young, Conaway Stargatt & Taylor, PricewaterhouseCoopers, the Chapter 7 Trustee, Kay Scholer LLP and Fox, Rothschild, O'Brien & Frankel, LLP, Parente Randolph, LLC, Bankruptcy Services LLC and all other professionals retained by the Trustee necessary for the Trustee's efficient and expeditious administration of the Debtors' estates. (Winstar Bankruptcy News, Issue No. 29; Bankruptcy Creditors' Service, Inc., 609/392-0900) WORLDCOM: Full-Text of the SEC's $3.8 Billion Fraud Suit -------------------------------------------------------- UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK ------------------------------------x : Securities and Exchange Commission : 450 Fifth Street, N.W. : Washington, D.C. 20539 : Civil Action No. ________ : Plaintiff : : COMPLAINT v. : (Securities Fraud) : WORLDCOM, INC. : : Defendant. : ------------------------------------x The Securities and Exchange Commission ("the Commission") alleges for its Complaint as follows: 1. From at least the first quarter of 2001 through the first quarter of 2002, defendant WorldCom Inc. ("WorldCom") defrauded investors. In a scheme directed and approved by its senior management, WorldCom disguised its true operating performance by using undisclosed and improper accounting that materially overstated its income before income taxes and minority interests by approximately $3.055 billion in 2001 and $797 million during the first quarter of 2002. 2. By improperly transferring certain costs to its capital accounts, WorldCom falsely portrayed itself as a profitable business during 2001 and the first quarter of 2002. WorldCom's transfer of its costs to its capital accounts violated the established standards of generally accepted accounting principles ("GAAP"). WorldCom's improper transfer of certain costs to its capital accounts was not disclosed to investors in a timely fashion, and misled investors about WorldCom's reported earnings. This improper accounting action was intended to manipulate WorldCom's earnings in the year ending 2001 and in the first quarter of 2002 to keep them in line with estimates by Wall Street analysts. 3. By engaging in this conduct, WorldCom violated the anti- fraud and reporting provisions of the federal securities laws and, unless restrained and enjoined by this Court, will continue to do so. The Commission requests, among other things, that Worldcom be enjoined from further violations of the federal securities laws as alleged herein, and that it pay a monetary penalty. The Fraudulent Scheme 4. WorldCom is a major global communications provider, operating in more than 65 countries. WorldCom provides data transmission and Internet services for businesses, and, through its MCI unit, provides telecommunications services for businesses and consumers. WorldCom became an important player in the telecommunications industry in the 1990s. However, as the economy cooled in 2001, WorldCom's earnings and profits similarly declined, making it difficult to keep WorldCom's earnings in line with expectations by industry analysts. 5. Starting at least in 2001, WorldCom engaged in an improper accounting scheme intended to manipulate its earnings to keep them in line with Wall Street's expectations, and to support WorldCom's stock price. One of WorldCom's major operating expenses was its so-called "line costs." In general, "line costs" represent fees WorldCom paid to third party telecommunication network providers for the right to access the third parties' networks. Under GAAP, these fees must be expensed and may not be capitalized. Nevertheless, beginning at least as early as the first quarter of 2001, WorldCom's senior management improperly directed the transfer of line costs to WorldCom's capital accounts in amounts sufficient to keep WorldCom's earnings in line with the analysts' consensus on WorldCom's earnings. Thus, in this manner, WorldCom materially understated its expenses, and materially overstated its earnings, thereby defrauding investors. 6. As a result of this improper accounting scheme, WorldCom materially underreported its expenses and materially overstated its earnings in its filings with the Commission, specifically, on its Form 10-K for the fiscal year ending on December 31, 2001, and on its Form 10-Q for the quarter ending on March 31, 2002. 7. In particular, WorldCom reported on its Consolidated Statement of Operations contained in its 2001 Form 10-K that its line costs for 2001 totaled $14.739 billion, and that its earnings before income taxes and minority interests totaled $2.393 billion, whereas, in truth and in fact, WorldCom's line costs for that period totaled approximately $17.794 billion, and it suffered a loss of approximately $662 million. 8. Further, WorldCom reported on its Consolidated Statement of Operations contained in its Form 10-Q for the first quarter of 2002 that its line costs for that quarter totaled $3.479 billion, and that its income before income taxes and minority interests totaled $240 million, whereas, in truth and in fact, WorldCom's line costs for that period totaled approximately $4.276 billion and it suffered a loss of approximately $557 million. 9. Worldcom's disclosures in its 2001 Form 10-K and in its Form 10-Q for the first quarter of 2002 failed to include material facts necessary to make the statements made in light of the circumstances in which they were made not misleading. In particular, these filings failed to disclose the company's accounting treatment of its line costs, that such treatment had changed from prior periods, and that the company's line costs were actually increasing substantially as a percentage of its revenues. Jurisdiction 10. The Commission brings this action pursuant to Section 21(d) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. Secs. 78u(d)]. 11. This Court has jurisdiction over this action pursuant to Sections 21(d), and 27 of the Exchange Act [15 U.S.C. Secs. 78u(d) and 78aa]. 12. The defendant, directly and indirectly, has engaged in, and unless restrained and enjoined by this Court will continue to engage in, transactions, acts, practices, and courses of business that violate Sections 10(b) and 13(a) of the Exchange Act [15 U.S.C. Secs. 78j(b) and 78m(a)] and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder [17 C.F.R. 240.10b-5, 240.12b-20, 240.13a-1, and 240.13a-13]. The Defendant 13. WorldCom is a Clinton, Mississippi-based company incorporated in Georgia, which provides a broad range of communications services to both U.S. and non-U.S. based businesses and consumers. WorldCom is a public company whose securities are registered with the Commission pursuant to Section 12(b) of the Exchange Act and it is required to file periodic reports with the Commission pursuant to Section 13 of the Act. Throughout the relevant time period, WorldCom's stock was covered by Wall Street analysts who routinely issued quarterly and annual earnings estimates. Claims For Relief First Claim 14. Paragraphs 1 through 13 above are incorporated herein by this reference. 15. Defendant Worldcom, directly or indirectly, by use of the means or instruments of interstate commerce, or of the mails, or of a facility of a national securities exchange, knowingly or recklessly (a) employed devices, schemes and artifices to defraud; (b) made untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and (c) engaged in acts, transactions, practices, and courses of business which operated or would operate as a fraud or deceit upon the purchasers of securities and upon other persons, in connection with the purchase or sale of a security. 16. Defendant WorldCom, and members of its senior management, knew, should have known, or were reckless in not knowing, that its 2001 Form 10-K, and its Form 10-Q for the first quarter of 2002, including the financial statements contained therein, as filed with the Commission, contained material misstatements and omissions. 17. By reason of the foregoing, WorldCom violated Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5. Second Claim Violation of Section 13(a) of the Exchange Act and Exchange Act Rules 13a-1, 13a-13, and 12b-20 18. Paragraphs 1 through 13 are hereby realleged and incorporated herein by reference as if set forth fully. 19. Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require issuers of registered securities to file with the Commission factually accurate annual and quarterly reports. Exchange Act Rule 12b-20 provides that in addition to the information expressly required to be included in a statement or report, there shall be added such further material information, if any, as may be necessary to make the required statements, in the light of the circumstances under which they are made. not misleading. As a result of the accounting actions set forth above, WorldCom violated Section 13(a) of the Exchange Act and Exchange Act Rule 13a-1, 13a-13, and 12b-20. Prayer for Relief WHEREFORE, the Commission respectfully requests that this Court: Enter Orders: A. Permanently restraining and enjoining WorldCom from violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; B. Permanently restraining and enjoining WorldCom from violating Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder; C. Imposing civil monetary penalties on WorldCom pursuant to Section 21(d) of the Exchange Act [15 U.S.C. Sec. 78u]; D. Prohibiting WorldCom and its affiliates, officers, directors, employees, and agents, from destroying, altering, or removing from the court's jurisdiction any documents relevant to the matters alleged herein; E. Prohibiting WorldCom and its affiliates from making any extraordinary payments to any present or former affiliate, or officer, director, or employee of WorldCom, or its affiliates, including but not limited to any severance payments, bonus payments, or indemnification payments. F. Appointing a corporate monitor to ensure compliance with items D and E, above; and G. Granting such other and additional relief as this Court may deem just and proper. Dated: June 26, 2002 Respectfully submitted, ____________________________ Robert B. Blackburn (RB 1545) Local Counsel for Plaintiff Securities and Exchange Commission Woolworth Building, 13th Floor 233 Broadway New York, New York 10279 (646) 428-1610 (646) 428-1980 (fax) ________________________ Stephen M. Cutler William R. Baker III Charles D. Niemeier Peter H. Bresnan (PB 9168) Arthur S. Lowry (AL 9541) Lawrence A. West Neil Welch Jose Rodriguez Counsel for the Plaintiff Securities and Exchange Commission Stop 9-11 450 Fifth St., N.W. Washington, D.C. 20549 (202) 942-4868 (Lowry) (202) 942-9581 (Fax) WORLDCOM: ITXC Chair Disheartened by Improper Acctg. Practices -------------------------------------------------------------- In light of the significant announcements of accounting issues that have arisen at WorldCom, ITXC Corp. (NASDAQ:ITXC) wishes to communicate to investors, customers and the financial community a current assessment of the impact WorldCom problems, including any potential subsequent bankruptcy filings by WorldCom or its affiliates, are likely to have on ITXC. ITXC's knowledge of WorldCom's exact financial situation is limited to the same public sources available to everyone and may therefore be incomplete. Because of the profound public impact of the news about WorldCom, ITXC is making an exception to its normal policy of not commenting on customer specific details. WorldCom and its affiliate companies worldwide, including the various MCI companies, are among the largest players in the world telecommunications markets. As such, ITXC has significant business relationships with these companies, as a supplier, as a customer and as a competitor. As a supplier to WorldCom, ITXC completes calls worldwide for a number of the WorldCom companies; as a customer of WorldCom, various WorldCom companies provide call termination for ITXC in certain countries and WorldCom also provides some connectivity to the Internet and other services to ITXC. First is the issue of services purchased by ITXC. ITXC anticipates no circumstances in which any long term dislocation could arise from WorldCom's problems. All of ITXC's major systems are redundant with multiple suppliers, and even the exceedingly remote likelihood of shutdowns in some services by WorldCom would have no material long term impact on ITXC's ability to provide services, although it might affect short term capacity, margin or growth. Second is the issue of the impact of WorldCom's disarray and a potential WorldCom bankruptcy on ITXC's future business. ITXC has found, as various customers have gone through reorganization proceedings, that the companies in reorganization can become as good or better customers than they were before the filing, often operating on a prepaid basis with lower credit risk to ITXC. While ITXC has no way of predicting the eventual outcome of WorldCom's woes or whether it will even file for bankruptcy, it is clear that whatever happens to one company, the calls it handles do not go away and will be handled by some other carrier. WorldCom's competitors are also customers of ITXC. ITXC sees disarray as presenting opportunities as well as risks, and believes there is no reason to assume that the disappearance of a particular company would have an adverse impact on overall revenue growth. ITXC does not expect such an eventuality to have an impact on its long term growth. Third is the issue of credit risk. ITXC has carefully monitored WorldCom's credit for some time. Because ITXC has a relationship in which it both sends and receives calls to and from WorldCom companies, by mutual agreement ITXC and WorldCom have engaged in the practice of offsetting monthly amounts owed by one party to the other. The net amount owed at the end of any given day fluctuates considerably, but under no circumstances has the net amount owed by WorldCom ever reached a number that would have any material effect on ITXC's financial position. As of June 25, 2002, current outstanding billings owed to ITXC by WorldCom companies are approximately $3.4 million and current outstanding billings from WorldCom companies to ITXC total approximately $4.8 million. All of these amounts relate to traffic in the current quarter. In the past bankruptcy courts have often honored practices that provided for such offset and considered the debt to be limited to the net amount. On the other hand, it is impossible to predict how a potential bankruptcy court might treat any particular situation; therefore, ITXC must also consider the risk that the court would require full payment of amounts due to WorldCom while granting mere creditor status for amounts owed by them or that courts might parse out the net amounts among the numerous WorldCom companies. It is simply too early to determine the final impact, if any, on ITXC's financial position of the WorldCom situation. To be prudent, and in light of certain outstanding billing disputes with WorldCom companies which predate the recent announcement, ITXC expects to establish a reserve of $1 million relating to the WorldCom situation. The Company will continue to monitor the WorldCom situation and vigorously pursue its positions. The actual amount of the reserve may change. Even in the worst case, assuming bankruptcy by all WorldCom companies and adverse ruling on all offset issues, the resultant loss of approximately $3 million additional would not significantly affect ITXC's financial position going forward. ITXC's Chairman and CEO Tom Evslin said, "We are extremely disappointed that another American company has admittedly engaged in improper accounting practices. It is disheartening to all concerned and to everyone with a stake in the American and world economies. We understand that investors' confidence in American companies and their management has been substantially damaged and must be restored. "I applaud the reported candor of the new WorldCom management in bringing this painful matter to light and wish them and all the thousands of WorldCom employees the best in these trying times. We look forward to continuing to work with WorldCom as a customer and supplier. We will continue our vigilance to assure that our own practices remain completely above board and transparent. We reiterate the statements of principles we made at the time of our annual report and will continue to provide a simple and clear set of financial statements and stand behind their integrity." In four years of operation, ITXC Corp. has become the largest U.S.-based pure wholesale carrier of international phone calls. The Company ranks among the top 15 carriers of any kind in the world based on minutes of international calling. ITXC's customers include all major U.S. carriers as well as leading carriers worldwide. Proprietary ITXC technology has made it possible to build a tier 1 quality call completion network, ITXC.net(SM), in 159 countries (as of May 31, 2002) using the Internet as its backbone. The efficiency of the Company's business model means low prices, low capital requirements, and fast deployment for ITXC's carrier customers. ITXC customers are pleased by the fact that ITXC is EBITDA positive, has no net debt, and a balance sheet as strong as it is simple. ITXC is known as the essential off-net carrier taking calls to and from everywhere a carrier's own network doesn't reach. For more information about ITXC, please visit http://www.itxc.com WORLDCOM: Financial Restatement Spurs S&P to Cut Rating to CCC- --------------------------------------------------------------- Standard & Poor's lowered its long-term corporate credit rating on global communications provider WorldCom Inc. to triple-'C'- minus from single-'B'-plus following the company's announcement that it intends to restate financial statements for 2001 and the first quarter of 2002 due to the overstatement of EBITDA by about $3.8 billion. All ratings remain on CreditWatch with negative implications. Clinton, Missouri-based WorldCom had about $30 billion of total debt outstanding as of March 31, 2002. "The downgrade is based on the high degree of uncertainty surrounding WorldCom's ability to ultimately pay its outstanding debt," Standard & Poor's credit analyst Rosemarie Kalinowski said. "Furthermore, the restatement and the expansion of the SEC investigation could adversely impact the current bank negotiations and the company's ability to retain customers." "These events increase the likelihood of a debt restructuring or Chapter 11 filing near term," Ms. Kalinowski added. Worldcom Inc.'s 10.875% bonds due 2006 (WCOM06USR2) are quoted at 16, DebtTraders says. For real-time bond pricing, see http://www.debttraders.com/price.cfm?dt_sec_ticker=WCOM06USR2 WORLDCOM: Fitch Junks Sr. Unsecured Ratings on Accounting Issues ---------------------------------------------------------------- Fitch Ratings downgraded the senior unsecured ratings of WorldCom to 'CC' from 'B' following WorldCom's announcement of accounting irregularities which overstated net income and cash flow. The 'CC' rating category is defined as high risk with some kind of default probable. As a frame of reference, telecom companies have not fared well vis-a-vis recovery. Over the past year, the average recovery for a defaulted telecom has been 11 cents on the dollar. Fitch Ratings believes the potential fallout from this morning's downgrade, already reflected in a sharp drop in WorldCom bond prices, may be widespread, affecting a diverse group of investors and creditors. With a reported $32 billion debt burden on its books, WorldCom exposure is actively traded and held widely throughout the market. As such, Fitch Ratings is engaging in a coordinated analytical effort, covering banks, insurance companies, suppliers and vendors, financial guarantee providers, structured investments vehicles (SIVs), collateralized debt obligations (CDOs), asset-backed commercial paper (ABCP), asset managers, commercial mortgage backed securities (CMBS), local government investment pools, and active participants in the credit default swap market. Fitch Ratings has already identified $10bln of WorldCom debt held by insurance companies and pension funds. Fitch Ratings will release its findings regarding the credit and rating implications, if any, as it gathers and processes the relevant information. WORLDCOM: SEC Demands Detailed Report from WorldCom by July 1 ------------------------------------------------------------- UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION June 26, 2002 ____________________________ : ORDER REQUIRING THE FILING OF WorldCom, Inc. : A SWORN STATEMENT PURSUANT : TO SECTION 21(a)(1) OF THE File No. HO-09440 : SECURITIES EXCHANGE ACT OF 1934 ____________________________: On March 14, 2002, the Commission authorized a Formal Order of Private Investigation in this matter. Pursuant to Section 21(a)(1) of the Securities Exchange Act of 1934 ("Exchange Act"), the Commission, in its discretion, deems it necessary, in order to determine whether WorldCom, Inc. ("WorldCom"), has violated, is violating, or is about to violate any provision of the Exchange Act, to require WorldCom to file a statement in writing, under oath, describing certain facts and circumstances concerning the matter under investigation. Accordingly, it hereby ORDERED that WorldCom file a statement in writing, under oath, describing in detail the facts and circumstances underlying the events described in and that led to WorldCom's announcement on June 25, 2002 (1) that WorldCom intended to restate its financial statements for 2001 and the first quarter of 2002; (2) that WorldCom had determined that certain transfers from line cost expenses to capital accounts during this period were not made in accordance with generally accepted accounting principles ("GAAP"); (3) that the amount of these transfers was $3.055 billion for 2001 and $797 million for first quarter 2002; and (4) that without these transfers, the company's reported Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") would be reduced to $6.339 billion for 2001 and $1.368 billion for first quarter 2002, and the company would have reported a net loss for 2001 and for the first quarter of 2002. IT IS FURTHER ORDERED that the sworn statement and an electronic copy of it be delivered to the Director of the Division of Enforcement before 8:00 a.m. on July 1, 2002. By the Commission. Jonathan G. Katz Secretary XO COMMS: Court Sets Disclosure Statement Hearing for July 19 ------------------------------------------------------------- According to Section 1125(b) of the Bankruptcy Code, in order to solicit acceptance of the Plan from a holder of a claim or interest, XO Communications, Inc. must first obtain the Court's approval of the Disclosure Statement as containing adequate information. Section 1125(a) of the Bankruptcy Code defines adequate information to mean: "information of a kind, and in sufficient detail . . . that would enable a hypothetical reasonable investor typical of holders of claims or interests of the relevant class to make an informed judgment about the plan." Because the Investment Agreement requires the Debtor to obtain a final and non-appealable order confirming the plan by no later than September 15, 2002 as one of the conditions to the Investors' obligations under that agreement, in an effort to comply with the requirements of this timetable, the Debtor sought and obtained an order to show cause scheduling the Disclosure Statement Hearing on July 19, 2002, at 10:00 a.m. and shortening the notice period established in Bankruptcy Rules 3017 and 2002 by approximately 4 days. On July 19, 2002, at 10:00 a.m., Judge Gonzalez will convene a hearing to consider the entry of the Disclosure Statement Order: (a) finding that the information contained in the Disclosure Statement is "adequate information" as such term is defined in section 1125 of the Bankruptcy Code; (b) approving the Disclosure Statement; (c) authorizing the Debtor, pursuant to section 1125(b) of the Bankruptcy Code, to transmit copies of the Disclosure Statement, the Plan and related documents to all known holders of claims against or interests in the Debtor, and to solicit acceptances of the Plan from the holders of claims against or interests in the Debtor that are being impaired and are not deemed to have rejected the Plan; (d) establishing which classes under the Plan are impaired pursuant to section 1124 of the Bankruptcy Code and will be entitled to vote on the Plan; (e) establishing a date and other directions for service and return of completed ballots; (f) scheduling a hearing to consider confirmation of the Plan (the Confirmation Hearing); (g) establishing a procedure for providing notice of the Confirmation Hearing; (h) fixing a date and specifying the procedure by which objections, if any, to confirmation of the Plan shall be filed with the Court; (i) fixing a record date for determining the identity of holders of claims and interests to be compromised or that are otherwise impaired under the Plan for purposes of providing notice to such holders of the Confirmation Hearing; (j) establishing such other deadlines and procedures as may be appropriate and/or contemplated by the Plan; and (k) granting such other and further relief as the Court may deem just and proper. Bankruptcy Rules 2002(b) and 3017(a) require that the Court shall hold a hearing on not less than 25 days notice by mail to creditors, equity security holders and other parties in interest of a hearing to consider approval of a disclosure statement. Because of the exigency of the relief, pursuant to Bankruptcy Rule 9006, the Court has reduced the period required. Accordingly, the Court directed that, on or before the fourth business day following the entry of the order (June 18, 2002), the Debtor shall serve a conformed copy of the order to show cause, the Motion, the Disclosure Statement and the Plan (as may be amended, modified, or supplemented), and the Disclosure Statement Hearing Notice, as approved, by first-class mail upon: (i) the Office of the United States Trustee for the Southern District of New York; (ii) counsel to the Investors; (iii) counsel to the lenders under the Senior Credit Facility; (iv) each of the Indenture Trustees under XO's indenture agreements; (v) counsel to the two unofficial bondholder committees, and any official committee appointed in this case; (vi) each of the Debtor's top 30 largest unsecured creditors; (vii) the Internal Revenue Service; (viii) the Attorney General of each state in which the Debtor do business; and (ix) the Securities and Exchange Commission. The Court directed the Debtor to serve the Disclosure Statement Hearing Notice on or before the fourth business day following the date of entry of the order to show cause, by first-class mail upon: (i) holders of known claims against and interests in the Debtor as listed on the Debtor's creditor lists filed by the Debtor with its chapter 11 petition; and (ii) all persons that have filed requests for notices in this case pursuant to Bankruptcy Rule 2002 as of the day prior to the date for service of the Disclosure Statement Hearing Notice. The Debtor shall publish the Disclosure Statement Hearing Notice at least once in the national edition of The Wall Street Journal, not later than July 3, 2002. The Court ordered that, responses and objections, if any, to the relief sought in connection with the approval of the Disclosure Statement must be filed with the Court (with a copy to chambers) and served so as to be received no later than July 15, 2002 at 4:00 p.m. (prevailing Eastern Time), by: (i) counsel to the Debtor, Willkie Farr and Gallagher, 787 Seventh Avenue, New York, New York 10019, Attn: Tonny K. Ho, Esq.; (ii) XO Communications, Inc., 11111 Sunset Hills Road, Reston, Virginia 20190, Attn: Gary D. Begeman, Esq.; (iii) counsel to the Investors, Fried Frank Harris Shriver and Jacobson, One New York Plaza, New York, New York 10004, Attn: George B. South III, Esq., and Latham & Watkins, 885 Third Avenue, Suite 1100, New York, New York 10022-4802, Attn: Ms. Shari Siegel, Esq.; (iv) counsel to the lenders under the Senior Credit Facility, Skadden, Arps, Slate, Meagher & Flom, LLP, Four Times Square, New York, New York 10036, Attn: Jay M. Goffman, Esq.; (v) counsel to any official committee of unsecured creditors appointed in this case; and (vi) the Office of the United States Trustee, 33 Whitehall Street, Twenty-First Floor, New York, New York 10004, Attn: Paul Schwartzberg, Esq. If an objection to the disclosure statement is not filed and served as prescribed, the objecting party may be barred from objecting to the adequacy of the Disclosure Statement and may not be heard at the hearing. The record date for determining the identity of each holder of a claim against or an interest in the Debtor that shall receive a copy of the Disclosure Statement Hearing Notice is established as July 12, 2002, at 5:00 p.m. (prevailing Eastern Time). (XO Bankruptcy News, Issue No. 2; Bankruptcy Creditors' Service, Inc., 609/392-0900) * BOOK REVIEW: Land Use Policy in the United States --------------------------------------------------- Author: Howard W. Ottoson Publisher: Beard Books Paperback: US$34.95 Review by Gail Owens Hoelscher Order your personal copy today and one for a colleague at http://amazon.com/exec/obidos/ASIN/1893122832/internetbankrupt In 1962, marking the 100th anniversary of the signing of the Homestead Act by President Lincoln, 20 nationally recognized economists, historians, a political scientist, and a geographer presented papers at the Homestead Centennial Symposium at the University of Nebraska. Their task was to appraise the course that United States land policy had taken since independence. The resulting papers are presented in this book, grouped into five major areas: historical background; social factors influencing U.S. land policy; past, present and future demands for lands in the U.S.; control of land resources; and implications for future land policy. This book begins with a summary of the Homestead Act, its antecedents, the arguments of its supporters and detractors, and its intent versus implementation. The Act offered a quarter section (160 acres) of public land in the West to citizens and intended citizens for a $14 filing fee and an agreement to live on the land for five years. The program ended in 1935. Advocates claimed that frontier lad had no value to the government until it was developed and began generating tax revenue. Opponents feared the Act would lower land valued in the East and pushed for government sale of the land. In practice, states, territories, railroads and investors were able to set aside more land than was eventually handed over to the homesteaders. One paper deals with land policy before 1862. From the start, the U.S. required that "all grants of land by the federal government should embody a description of the land not merely in quality, but in place as defined by relation to an actual survey." This policy avoided countless boundary disputes so vexing to other countries. Perhaps most interesting are the social history chapters: Czechoslovakians pushing wheelbarrows across Nebraska, "Daughters and Sons of the Revolution.(living) next to.Mennonites," and "an illiterate.neighborly with a Greek and a Hebrew scholar from a colony of Russian Jews." Mail-order brides, "defectors from civilization," the importance of the Mason jar, the Jeffersonian dream of a nation of agrarian freeholders, and Santayana's observation that the typical American skitters between visionary idealism and crass materialism, all make for fascinating reading. The land-use policy problems discussed certainly haven't been solved today. And, although land use conflicts in the U.S. haven't always been resolved equitably, "the big step forward taken by the United States during the last one hundred and fifty years in the age-long struggle of man towards the ideals of mutuality and equity has been the working out of a system wherein the sovereign superior who prescribes the working-rules for land use and decision making have become, himself, a collective of the citizenry." A chapter is devoted to the arguments between the family farm ad the "sentiment against concentration of wealth in the hands of a few." The discussion of the Land Grant college system and its contribution to international development closes with a quote from Chester Bowles: "Can we, now the richest people on earth, become creative participants in the unprecedented revolutionary changes of our era, changes that the most privileged people will oppose tooth and nail, but which for the bulk of mankind offer the hopeful prospect of a little more food, a little more opportunity, a doctor for their sick child, and sense of personal dignity?" ********* Monday's edition of the TCR delivers a list of indicative prices for bond issues that reportedly trade well below par. Prices are obtained by TCR editors from a variety of outside sources during the prior week we think are reliable. Those sources may not, however, be complete or accurate. The Monday Bond Pricing table is compiled on the Friday prior to publication. Prices reported are not intended to reflect actual trades. Prices for actual trades are probably different. 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To view our research and find out about private client accounts, contact Peter Fitzpatrick at 1-212-247-3800. Real-time pricing available at http://www.debttraders.com/ Each Friday's edition of the TCR includes a review about a book of interest to troubled company professionals. All titles are available at your local bookstore or through Amazon.com. Go to http://www.bankrupt.com/books/to order any title today. For copies of court documents filed in the District of Delaware, please contact Vito at Parcels, Inc., at 302-658-9911. For bankruptcy documents filed in cases pending outside the District of Delaware, contact Ken Troubh at Nationwide Research & Consulting at 207/791-2852. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Trenton, NJ USA, and Beard Group, Inc., Washington, DC USA. Yvonne L. Metzler, Bernadette C. de Roda, Donnabel C. Salcedo, Ronald P. 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