/raid1/www/Hosts/bankrupt/TCR

/raid1/www/Hosts/bankrupt/TCR_Public/020809.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, August 9, 2002, Vol. 6, No. 157 Headlines 3TEC ENERGY: Working Capital Deficit Narrows to $4 Million ANC RENTAL: Signing up Brusniak Harrison as Special Tax Counsel ACCRUE SOFTWARE: Explores Strategic Options to Raise New Capital ADELPHIA BUSINESS: BellSouth & Sprint Want Adequate Assurance ADELPHIA COMMS: Look for Century's Schedules on Sept. 23, 2002 AGRIFOS FERTILIZER: Wants to Reimburse Pegasus' $250K Expenses AMCAST INDUSTRIAL: Posts Improved Results for Fiscal 2002 Q3 AMRESCO INC: Plan of Liquidation Declared Effective Aug. 6, 2002 AQUILA INC: Will Seek Buyer for Midlands Electricity in UK BCE INC: Expects to Sell $2BB of Equity to Finance Bell Buyback BUDGET GROUP: Wants to Honor & Pay Prepetition Tax Obligations CMS ENERGY: 2nd Quarter Results Swing-Down to Net Loss of $75MM CANFIBRE: Raises US$250,000 via Non-Brokered Private Placement CAPITAL LEASE: Fitch Affirms Low Ratings on Classes E, F & G CAROLINA RE: Court Says Deloitte Must Comply with Subpoenas CHESAPEAKE ENERGY: Moody's Assigns B1 Rating to $250MM Sr. Notes CHESAPEAKE ENERGY: Fitch Rates $250M Senior Note Offering at BB- CHESAPEAKE ENERGY: Commences Private Offering of $250MM 9% Notes COEUR D'ALENE: Posts $11 Million Net Loss for Second Quarter CONSECO INC: Fitch Downgrades All Related Corporate Ratings CORRECTIONS CORP: Second Quarter Net Loss Widens to $31 Million DADE BEHRING: Seeks Okay to Hire Kirkland & Ellis as Attorneys ENRON: Court Okays Protocol for Sharing Examiner's Documents FAIRPOINT COMMS: June 30 Balance Sheet Upside-Down by $135 Mill. FLEMING COS.: Declares Quarterly Dividend Payable on December 10 FOAMEX INT'L: Will Host Investor Conference Call on Tuesday FRUIT OF THE LOOM: Trust Wants to Auction 6 Non-Operating Assets GENSYM CORP: Laurence Lytton Discloses 6.8% Equity Stake GLENOIT CORP: Court Sets Disclosure Statement Hearing for Aug 27 HAYES LEMMERZ: Wants to Bring-In Deloitte & Touche as Consultant HOLLYWOOD CASINO: Penn National to Acquire Assets for $780 Mill. ICG COMMS: Supplemental Disclosure Statement to 2nd Amended Plan ITC DELTACOM: Signs Up Hogan & Hartson as Special Corp. Counsel INACOM CORP: Taps McDonald Hopkins as Substitute Special Counsel INTEGRATED HEALTH: Selling 3 Florida Facilities for $4 Million KMART CORP: Court Approves Route 66 License Agreement Assumption KMART CORP: Court OKs Traub Bonacquist as Equity Panel's Counsel LASERSIGHT INC: Commences Trading on Nasdaq SmallCap Today METALS USA: Reliance Steel to Acquire Assets of Two Businesses MICROFORUM: CCAA Plan Declared Effective MICROSTRATEGY INC: Completes Preferred Share Restructuring MIKOHN GAMING: Initiates Strategic Cost-Reduction Measures MOSAIC GROUP: Working Capital Deficiency Tops $24MM at June 30 MOSAIC GROUP: Renews Normal Course Issuer Bid Through TSE NEON COMMS: Disclosure Statement Hearing Convenes on Aug. 20 NEW POWER: Seeks Nod to Hire Arnold & Porter as Special Counsel NORTHERN NATURAL GAS: Fitch Ups Junk Sr. Unsec. Debt Rating to B NYACK HOSPITAL: Fitch Maintains Watch on B+ Revenue Bonds Rating PMA CAPITAL: S&P Assigns Low-B Ratings to Sub. Debt & Preferreds PALADYNE CORP: Independent Auditors Issue Going Concern Opinion PINNACLE: Provides Update on Contemplated New Credit Facility SAFETY-KLEEN: SK Systems Wants to Lease Texas Building as New HQ SPIRET TRUST: S&P Junks Series 2002-1 Certificates Rating TANDYCRAFTS: Says Committee's Objections are Wasteful Strategy TRANSTECHNOLOGY: Completes Senior Debt Refinancing Transaction TRENWICK GROUP: Reports Improved Second Quarter Fin'l Results US INDUSTRIES: Fitch Rates $375 Mill. Senior Secured Notes at B- US PLASTIC LUMBER: Soliciting Approvals of Clean Earth Sale UNITED AIRLINES: Revenue Passenger Miles Drop 12.3% in July UNIVERSAL ACCESS: Shows $14MM Working Capital Deficit at June 30 W.R. GRACE: Sealed Air Transaction Trial Set for September 30 WESTPOINT STEVENS: S.A.C. Capital Discloses 6% Equity Stake WORLDCOM INC: Proposes Uniform Interim Compensation Procedures WORLDCOM: Court Confirms Thornburgh's Appointment as Examiner WORLDCOM: Uncovers Additional $3.3BB Improperly Reported EBITDA XO COMMS: Carl Icahn Extends Tender Offer until August 14 ZIFF DAVIS: Noteholders Accept Terms of Fin'l Restructuring Plan * BOOK REVIEW: The ITT Wars: An Insider's View of Hostile Takeovers ********* 3TEC ENERGY: Working Capital Deficit Narrows to $4 Million ---------------------------------------------------------- 3TEC Energy Corporation (Nasdaq: TTEN) announced record second quarter production. However, lower prices for oil and gas caused net earnings to fall below year ago levels. Second Quarter 2002 Results 3TEC Energy Corporation reported net income to common for the second quarter of 2002 of $2.4 million, excluding special items, compared to net income to common, of $8.8 million for the prior year period, excluding special items. For the quarter ended June 30, 2002, 3TEC reported cash flow from operations of $14.5 million, excluding special items, compared to $20.0 million in the same period in 2001. During the second quarter of 2002, 3TEC produced 6.5 Bcf of gas and 212 Mbbls of oil for an average daily production rate of 71.4 Mmcf of gas and 2.3 Mbls of oil or a combined 85.2 Mmcfe per day. These daily volumes represent an increase of 15% and a decrease of 19%, respectively, over the comparable year ago period. On a gas equivalent basis, 3TEC produced 7.7 Bcfe in the second quarter of 2002, an increase of 8% over the second quarter of 2001. The period-to-period increases were largely due to development drilling in East Texas and recent exploratory successes in the Gulf Coast. Including the effect of derivatives ($4.7 million of cash settlements paid and $2.4 million of put proceeds attributable to the second quarter), the price received on gas sold in the second quarter of 2002 was $3.13 per Mcf, compared to $4.66 per Mcf received in the second quarter of 2001. Oil prices in the second quarter of 2002 were $23.44 per barrel, compared to $24.99 per barrel in the second quarter of 2001. The primary reason for the lower operating results was a weaker hydrocarbon price environment, which was partially offset by higher average daily production volumes. Comparing the second quarter of 2002 to the first quarter of 2002, the average equivalent price, net of derivatives, realized in the second quarter was up $0.71 per Mcfe. On a per Mcfe basis, total production costs also rose during the second quarter primarily due to an increase in production taxes. Lease operating expenses decreased to $0.48 per Mcfe from $0.50 per Mcfe while production taxes increased to $0.29 per Mcfe from $0.17 per Mcfe. The increase in production taxes results from higher gas prices realized in the second quarter, and a higher percentage of the Company's production being subject to Louisiana production taxes. General and administrative expenses increased to $0.32 per Mcfe from $0.30 per Mcfe in the previous quarter. Average daily production for the second quarter grew to 85.2 Mmcfe as compared to 82.1 Mmcfe in the first quarter. 3TEC's bank debt at June 30, 2002 was $99 million and the total debt-to-book capital was 36%. First Half 2002 Results 3TEC reported net income to common, excluding special items, for the six months ended June 30, 2002 of $3.0 million compared to $24.8 million for the prior year period. For the six months ended June 30, 2002, 3TEC reported cash flow from operations, before changes in working capital and deferment of non-period related derivative activities of $24.7 million compared to $47.4 million in the same period in 2001. During the first six months of 2002, 3TEC produced 12.8 Bcf of gas and 395 Mbbls of oil. On a gas equivalent basis, 3TEC produced 15.1 Bcfe in the first half of 2002, an increase of 7% over the first six months of 2001. Average daily production for 2002 grew to 83.6 Mmcfe as compared to 78.0 Mmcfe the prior year. The increases were primarily due to production from development drilling and exploratory successes. Including the effect of derivatives ($3.6 million of cash settlements paid and $2.4 million of put proceeds attributable to the second quarter), the price received on gas sold in the six months ended June 30, 2002 was $2.80 per Mcf, compared to $5.79 per Mcf received in the six months ended June 30, 2001. Oil prices in the first six months of 2002 were $21.17 per barrel, compared to the $26.03 per barrel received in the first six months of 2001. At June 30, 2002, the Company's balance sheet shows that its total current liabilities exceeded its total current assets by about $4 million, as compared to $14 million recorded six months ago. Reconciliation of Special Items For the second quarter of 2002, including special items, 3TEC reported net income to common of $5.1 million in 2002. This compares to net income to common of $13.0 million for the second quarter of 2001. For the six months ended June 30, 2002, including the effects of special items, 3TEC reported a net loss to common of $3.7 million. This compares to net income to common of $29.0 million in the prior year period. 3TEC adopted SFAS No. 133 on January 1, 2001. 3TEC elected not to treat its current open derivatives as hedges for accounting purposes, and instead, recognized the change in fair value of the open positions as well as the actual cash realizations for the period. For the second quarter of 2002, the Company recorded a non-cash derivative fair value gain on open positions of $9.0 million, offset by cash payments of $4.7 million. Additionally, the Company realized a $5.7 million gain from the liquidation of April to October 2002 put options monetized in the first quarter of 2002 and, for purposes of describing the impact of special items only, is allocating these gains to each of the respective production periods. As such, none was attributed to the first quarter, $2.4 million was attributed to the second quarter, and $3.3 million will be attributed over the third and fourth quarters, all pre-tax. 3TEC recorded a non-cash charge to the value of its oil and gas properties of $1.3 million in the second quarter of 2002. 3TEC also recorded a non-cash charge of $0.6 million for abandoned acreage related to its exploratory dry hole in South Texas. Operational Update 3TEC participated in the drilling of 13 wells in the second quarter, seven of which had been completed as producers and five were waiting on pipeline hook-up or completion rigs at quarter- end. Since June 30, 2002, one of those wells has been completed as a producer. Development activity in East Texas has continued to be slower than originally projected due to unfavorable drilling economics caused by lower natural gas prices and high drilling and completion costs. However, 3TEC has continued to enjoy exploratory drilling success in South Louisiana. As previously announced, the Company drilled the #1 Bailey Minerals in St. Mary Parish (the "#1 Bailey") in the first quarter of 2002. Electric logs revealed 100 feet of net pay in the MA-1E sand at 16,122 feet total vertical depth (TVD) and ten feet of net pay in the MA-1D sand at 15,892 feet TVD. The Company has perforated the MA-1E sand, and tested the well at a rate of 10.4 Mmcf and 800 bbls per day using a 14/64 inch choke, with a flowing tubing pressure of 9,586 pounds per square inch (psi) and with a shut-in tubing pressure of 3,390 psi. Pipeline construction has delayed production on the #1 Bailey. The Company now expects initial production from this well to begin during the third quarter. Based on 3D seismic analysis, the Company has identified additional locations in the area with fault blocks similar to the one found at the #1 Bailey. During the third quarter to date, 3TEC has participated in the drilling of four wells. Currently all four are in various stages of completion operations. The Company believes that one of these wells (which is awaiting pipeline hook-up) is an additional exploratory success in South Louisiana. This well, the #1 State Lease 14122 VUA in Chandeleur Sound Block 68, was drilled to a depth of 9,800 feet. 3TEC has logged 39 feet of net pay in the Tex W sand. The well was tested at a daily rate of 10.5 Mmcf on a 26/64 inch choke with a flowing tubing pressure of 2,677 psi, and a shut-in tubing pressure of 10,071 psi. The Company currently projects to have this well online early in the fourth quarter, and is actively evaluating other similar fault blocks in the area. At the end of July 2002, the company conducted an internal review of its reserves. The reserves were evaluated using a three-year NYMEX strip pricing case for oil and gas escalated 3% thereafter starting in 2005. This analysis indicated total proved oil and gas reserves of approximately 300 Bcfe as of July 31, 2002. As of that date, the Company estimates its reserves to be 77% proved developed and 86% natural gas. Based on the results of the internal review, the Company believes that its drilling success through the first seven months of 2002 has improved its reserve position. Through July 31, the Company spent $11.5 million on exploratory drilling and completion costs and estimates it added 27 Bcfe to its proved reserves. This produced a favorable finding and development cost of $0.43 per Mcfe. Based on this success, the Company's Board recently approved increasing the exploratory component of its drilling budget for 2002 from $16 million to $20 million. During the second half of 2002, the Company plans to drill up to five additional exploratory wells South Louisiana in the same general areas where other successful wells have been drilled. Management Comments Floyd C. Wilson, Chairman and Chief Executive Officer of 3TEC, stated, "3TEC Energy Corporation posted solid results for the first half of 2002. Our internal evaluation of net proved reserves of approximately 300 Bcfe at July 31, 2002 indicates that our Company has the ability to grow reserves even in a very unfavorable acquisition environment. We are very encouraged by our drilling results to date and we continue to believe in our ability to add to our inventory of quality drilling sites." 2002 Outlook The following table presents management's estimates for daily production in Mmcfe and expenses per Mcfe for the third and fourth quarters of 2002. Production volume estimates below are based on proved reserves only and do include future exploration or acquisition success. The Company will continue to fund (i) exploratory and developmental drilling from cash flow; and (ii) acquisitions from cash flow, property divestitures, and debt (if needed). For 2002, 3TEC has budgeted approximately $64 million for drilling and completion activities. 3TEC Energy Corporation is engaged in the acquisition, development, production and exploration of oil and natural gas, with properties geographically concentrated in East and South Texas and the Gulf Coast region. ANC RENTAL: Signing up Brusniak Harrison as Special Tax Counsel --------------------------------------------------------------- ANC Rental Corporation, and its debtor-affiliates seek the Court's authority to employ Brusniak Harrison & McCool P.C., as special counsel on property tax protests, administrative appeals, adversary proceedings and related proceedings involving their taxable properties in various states. Bonnie Glantz Fatell, Esq., at Blank Rome Comisky & McCauley LLP, in Wilmington, Delaware, informs the Court that Brusniak will be working with National Tax Resource Group (NTRG) to address and resolve the Debtors' existing and contemplated property tax disputes. Since Brusniak previously worked with NTRG on other matters similar in nature, the Debtors believe that the firm is well qualified and uniquely able to represent them as special counsel in an efficient and timely manner. Ms. Fatell explains that Brusniak will render legal opinions to the Debtors and the NTRG, prepare any necessary documents, and take any other action with respect to the Property Tax Disputes, as well as perform other necessary or desirable legal services for the Debtors. Although the Debtors will separately retain Brusniak, Ms. Fatell says, the firm will look solely to NTRG for payment of its fees in connection with representation at hand. Joseph M. Harrison IV, Esq., a member of the Brusniak Harrison & McCool P.C., assures the Court that none of the firm's attorneys and accountants represent any party-in-interest in the Debtors' Chapter 11 cases. "Brusniak has not represented and will not represent any entities in relation to the Debtors' cases," Mr. Harrison asserts. (ANC Rental Bankruptcy News, Issue No. 17; Bankruptcy Creditors' Service, Inc., 609/392-0900) ACCRUE SOFTWARE: Explores Strategic Options to Raise New Capital ---------------------------------------------------------------- Accrue Software(R), Inc., (Nasdaq:ACRU) has implemented additional cost restructuring programs, including a temporary unpaid leave program for a number of its employees, to conserve working capital and improve liquidity. "The unpaid leave program affects approximately 30 employees in all areas of the company's operations, but does not materially impact Accrue's customer support and services organizations. Most of the affected employees are taking vacation as a result of the program. The Company is continuing to reduce discretionary spending, as it aligns its expenses with revenue," said Jonathan Becher, interim President and Chief Executive Officer of Accrue. The Company also said that management and the Board of Directors continue to actively pursue strategic alternatives for the Company, including sale of all or a portion of the company's operations and the sale of a significant portion of the Company's equity to generate additional capital. Further details of the restructuring programs will be available in the Company's upcoming 10Q for the first quarter of fiscal 2003 ended June 30, 2002. Accrue Software(R), Inc., (NASDAQ: ACRU) is a leading provider of Internet analytics solutions that help companies worldwide understand, influence, and respond to Internet customer behavior. Accrue's products enable companies to increase the effectiveness of Internet marketing and merchandising initiatives, better manage customer interactions across multiple channels, and streamline business operations. With Accrue's solutions, companies transform volumes of complex Internet data into actionable information that executives and managers use to drive key business decisions and improve the return on their Internet investment. Accrue's customers include industry leaders such as Citicorp, Dow Jones & Company, Eastman Kodak, Lands' End, Macy's, Lycos Europe, and Deutsche Telekom. Accrue Software was founded in 1996 and is headquartered in Fremont, California, with regional sales offices throughout the U.S. and international headquarters in Cologne, Germany. Accrue has strategic application and platform partnerships with leading technology companies such as IBM, Oracle, Sun Microsystems, BroadVision, ATG and Vignette. Accrue Software can be reached at 1-888-4ACCRUE or 510-580-4500 and at http://www.accrue.com ADELPHIA BUSINESS: BellSouth & Sprint Want Adequate Assurance ------------------------------------------------------------- Paul M. Rosenblatt, Esq., at Kilpatrick & Stockton LLP, in Atlanta, Georgia, relates that BellSouth provides various telecommunications services to Adelphia Business Solutions, Inc., and its debtor-affiliates. As of the Petition Dates, the ABIZ Debtors owed BellSouth $2,858,434 while the ACOM Debtors owed BellSouth $1,411,290. Mr. Rosenblatt explains that BellSouth purchases various telecommunications services from the Adelphia Debtors, known as "reciprocal compensation". As of the Petition Dates, BellSouth owed to the Adelphia Debtors between $1,000,000 and $2,000,000 in undisputed reciprocal compensation. BellSouth has not paid this amount to the Adelphia Debtors because BellSouth believes that it has a right to offset these amounts against the prepetition amounts the Adelphia Debtors owe to BellSouth. The Adelphia Debtors allege that BellSouth owes over $10,000,000 on account of reciprocal compensation charges. Mr. Rosenblatt doubts if these reciprocal compensation charges have any validity because these charges: -- were covered by a prior settlement, -- contain improper "tandem" switching charges, -- were calculated based upon improper jurisdictions, or -- are for unverifiable minutes of usage. BellSouth is unable to determine if it has adequate assurance in light of the Debtors' new business plan because the Debtors have not yet released the details of their new business plan to BellSouth in the context of this Section 366 adequate assurance determination. Pending a review of the Debtors' revised business plan, BellSouth reserves its rights on all issues related to adequate assurance. Mr. Rosenblatt notes that during the months of May and June 2002, the Adelphia Debtors operated at a loss in $11,744,065 and $7,378,420. Mr. Rosenblatt makes these additional observations: * The provision in the ABIZ adequate assurance motion requiring the Debtors to provide to BellSouth weekly flash reports of the Adelphia Debtors' available cash and postpetition financing availability should also reflect accrued and unpaid administrative expenses. At the recent hearing on the Beal debtor-in-possession financing, it was stated that there currently exists $4 million in accrued and unpaid professional fees. The amount of accrued and unpaid administrative expenses is a crucial factor in determining the true amount of available cash. * The Beal debtor-in-possession financing includes a waiver of the provisions of Section 506(c). In the event that there is a liquidation, BellSouth should not be forced to provide service to the Adelphia Debtors without receiving prepayment for the services. In the event the liquidation value fails to exceed the amount of the outstanding debt owed to Beal, BellSouth will have provided services to the estate for the benefit of Beal but the Debtors will be prohibited from seeking to surcharge the value of the collateral to pay BellSouth for the services it provided for the sole benefit of Beal, and the Debtors will lack the resources to pay BellSouth for these services. (2) Sprint Gary I. Selinger, Esq., at Solomon Green & Ostrow P.C., in New York, states that contrary to the ABIZ Debtors' representations, the ABIZ Debtors have not timely paid the undisputed charges for postpetition service. Sprint delivered a notice of nonpayment on July 12, 2002. To date, no payment has been received. Mr. Selinger notes that the ABIZ Debtors are presently past due in payment to the Sprint Entities, for more than $1,800,000 in long distance service and almost $800,000 in local exchange service. All of these long distance and local services, roughly $2,600,000 worth, has been rendered to the ABIZ Debtors since their Chapter 11 filings. Sprint's experience with the ABIZ Debtors will be repeated if this Court does not require the ABIZ Debtors to provide more security, in the form of deposits or prepayments. In addition, based on the evidence at the hearing on the ABIZ Debtors' motion for approval of postpetition financing on July 17, 2002, the ABIZ Debtors are in dire financial condition that "adequate assurance of payment" for either group of ABIZ Debtors requires no less than deposits or prepayments. Mere promises to pay timely in the future are simply inadequate to this task. Similarly, Mr. Selinger observes that the consolidated Monthly Operating Statements filed in these cases indicate continued losses and financial deterioration. The Sprint Entities contend that the ABIZ Debtors should be required to provide adequate assurance of payment in the form of deposits or prepayments. In the alternative, if the ABIZ Debtors fail to immediately provide adequate assurance of payment, the Sprint Entities assert that cause exists to modify the automatic stay to permit the Sprint Entities to immediately cease providing the Services, and to terminate the Agreements. Accordingly, the Sprint Entities seek additional assurance of payment in the form of: * an immediate cash deposit in the amount of the amount presently due for postpetition service, together with payments thereafter pursuant to the terms of the Agreements, or, in the alternative, weekly prepayments by wire transfer to the Sprint Entities of the expected weekly usage on Wednesday of each week for the following week of Services; both alternatives subject to modification in light of post- petition actual usage and without reduction in payments due to disputes asserted by ABIZ Debtors prior to written agreement by the Sprint Entities or a final order of the Court sustaining these disputes; * immediate payment by wire transfer to the Sprint Entities of the greater of all post-petition amounts charged by the Sprint Entities, if any, which have not yet been paid; or an amount equal to the weekly prepayment, for the period from the Petition Date to the commencement of the weekly prepayments; * the entry of an order directing that if the ABIZ Debtors fail to timely make any payments due under the order entered by this Court, or to perform any of the other terms and conditions set forth in the Agreements, the Sprint Entities shall have the right to terminate service to the ABIZ Debtors immediately and without further order of the Court, and to the extent necessary, modifying the automatic stay of Section 362 of the Bankruptcy Code to permit the Sprint Entities to exercise the rights and remedies under the Agreements, including termination of the same; and * the entry of an order, lifting the automatic stay to permit the Sprint Entities to offset all prepetition amounts owing to ABIZ Debtors by the Sprint Entities, if any, against all pre-petition amounts owing by ABIZ Debtors to the Sprint Entities. (Adelphia Bankruptcy News, Issue No. 13; Bankruptcy Creditors' Service, Inc., 609/392-0900) ADELPHIA COMMS: Look for Century's Schedules on Sept. 23, 2002 -------------------------------------------------------------- Anthony Vasallo, Esq., at Willkie Farr & Gallagher in New York, advises that Century's chapter 11 cases has been consolidated under Adelphia Communications' chapter 11 case. Accordingly, Century will file its schedules of assets and liabilities and statements of financial affairs on September 23, 2002. (Adelphia Bankruptcy News, Issue No. 13; Bankruptcy Creditors' Service, Inc., 609/392-0900) Adelphia Communications' 9.375% bonds due 2009 (ADEL09USR2), DebtTraders reports, are trading at 42 cents-on-the-dollar. See http://www.debttraders.com/price.cfm?dt_sec_ticker=ADEL09USR2 for real-time bond pricing. AGRIFOS FERTILIZER: Wants to Reimburse Pegasus' $250K Expenses -------------------------------------------------------------- Agrifos Fertilizer LP and its debtor-affiliates ask the U.S. Bankruptcy Court for the Southern District of Texas for authority to reimburse Pegasus Capital Advisors, LP's due diligence expenses. The Debtors filed their respective plans of reorganization with the Court. Agrifos Fertilizer LP, Agrifos Fertilizer GP LLC, and Agrifos Fertilizer LP LLC filed a joint plan of reorganization. The Fertilizer Debtors point out that they have been making significant progress towards finalizing deals with potential plan participants. Pegasus Capital Advisors, LP has been very useful in performing initial review of the Fertilizer Debtors' business, in connection to the Fertilizer Debtors' primary objective to secure a commitment for new capital. Pegasus indicated that it intends to go forward with its evaluation, provided the Fertilizer Debtors will provide Pegasus with an expense reimbursement of up to $250,000. The Fertilizer Debtors assert that the Expense Reimbursement is reasonable and necessary to allow Pegasus the ability to undertake its due diligence and secure the required capital infusion for the Fertilizer Debtors. The Debtors wants the Court to grant them authority to reimburse Pegasus for up to $250,000 of its actual expenses incurred in connection with its evaluation of its potential participation as an equity investor in the Fertilizer Debtors. The Debtors are producers of phosphate fertilizers that operate a 600,000 thousand ton per year phosphate fertilizer processing plant in Pasadena, Texas and a 1.2 million ton per year phosphate rock mine located in Nichols, Florida. They filed for chapter 11 protection on May 8, 2001. Christopher Adams, Esq., and H. Rey Stroube, III, Esq., at Akin, Gump, Strauss, Hauer & Feld, LLP represent the Debtors in their restructuring efforts. AMCAST INDUSTRIAL: Posts Improved Results for Fiscal 2002 Q3 ------------------------------------------------------------ Amcast Industrial Corporation is a leading manufacturer of technology-intensive metal products. Its two business segments are Flow Control Products, a leading supplier of copper and brass fittings for the industrial, commercial, and residential construction markets, and Engineered Components, a leading supplier of aluminum wheels and aluminum components for automotive original equipment manufacturers in North America as well as a leading supplier of light-alloy wheels for automotive original equipment manufacturers and aftermarket applications in Europe. Consolidated net sales of $151.4 million in the fiscal 2002 third quarter increased by $15.2 million, or 11.2%, from $136.2 million in the fiscal 2001 third quarter. The volume increase was driven by the Company's Engineered Component segment. Aluminum components and global wheels sales accounted for the increase related to volume over the prior year-quarter. This volume increase offset the decline in the Flow Control Products volume due to competitive market pressures. Price and product mix negatively affected sales in the fiscal 2002 third quarter compared with the third quarter of fiscal 2001. Flow Control Products continue to experience a decline in price due to competitive market pressure and product mix. For Engineered Components, there was a decrease in raw material costs which was passed through by contract to the customer. Consolidated sales also increased because Casting Technology Company is now reported in the Company's consolidated figures; whereas in the fiscal 2001 third quarter, CTC's activity was accounted for by the equity method. If CTC were consolidated in the prior year, sales would have increased by 4.8%. By segment, Engineered Components sales increased by 17.7% and Flow Control sales decreased by 4.9% compared with the third quarter of fiscal 2001. If CTC were consolidated in the third quarter of fiscal 2001, Engineered Components sales would have increased by 8.5%. For the first nine months of fiscal 2002, consolidated net sales increased by 6.7% to $423.6 million compared with $397.1 million in the first nine months of fiscal 2001. For the first nine months of fiscal 2002, overall volume, price, and product mix increased over the same period a year ago. This increase was reflective of higher and more profitable sales in the Engineered Component segment. As stated above, CTC is now reported in the Company's consolidated figures; whereas in the first nine months of fiscal 2001, CTC's activity was accounted for using the equity method. By segment, Engineered Components sales increased by 13.3% compared with the first nine months of fiscal 2001. If CTC were consolidated in the first nine months of fiscal 2001, Engineered Components sales would have increased by 3.6%. Flow Control Products sales decreased by 9.7%. Flow Control Products volume declined due to increased market competition and weakness in commercial and industrial construction markets. A decline in Flow Control Products sales due to pricing, primarily due to lower copper prices and also to competitive market pressures, was offset by improved volume and product mix in the Engineered Components products. Gross profit for the fiscal 2002 third quarter increased by 2.7 times to $16.3 million, or 10.8% of sales, compared with $6.1 million, or 4.5% of sales, for the same period a year ago. For the first nine months of fiscal 2002, gross profit increased by 17.1% to $37.9 million, or 8.9% of sales, compared with $32.3 million, or 8.1% of sales, for the first nine months of fiscal 2001. Excluding unusual items recorded in fiscal 2001, gross profit for the fiscal 2002 third quarter increased by 50.7%, or $5.5 million, and gross profit for the first nine months of fiscal 2002 increased by 2.2%, or $0.8 million, compared with the same periods a year ago. The gross profit increase is due to U.S. automotive sales of new aluminum components and wheel products and improved manufacturing efficiency in the U.S. automotive operations, partly offset by new product launch costs at the Richmond facility. Wheel manufacturing, operating at near capacity, benefited from higher sales volume with an improved price and product mix. The Amcast Production System, a streamlined, more efficient manufacturing approach, increased gross profit by reducing manufacturing costs. APS should continue to benefit gross profit as more of the Amcast workforce becomes certified. Selling, general and administrative expenses for the third quarter of fiscal 2002 were $13.4 million, or 8.9% of sales, compared with $24.4 million, or 17.9% of sales, in the third quarter of fiscal 2001. For the first nine months of fiscal 2002, SG&A expenses were $40.8 million, or 9.6% of sales, compared with $52.4 million, or 13.2% of sales, for the same period a year ago. The decrease in SG&A is primarily due to expenses recorded of $10.8 million in the third quarter and $13.8 million the first nine months of fiscal 2001 for unusual items. These unusual items consisted of legal and other professional fees for debt refinancing due to the Company's default on non-monetary debt covenants and a strategic alternative review, various asset reserves and write-downs, severance expenses for senior management changes, and increased workers compensation and other reserves for previously-closed facilities. Excluding unusual items, fiscal 2001 third quarter SG&A was 10.0% of sales and fiscal 2001 nine month SG&A was 9.7% of sales. Increased SG&A in the fiscal 2002 third quarter for ERP implementation costs, a lower pension benefit, and $0.4 million by consolidating CTC, was partly offset by a continuing cost reduction program. During the fiscal 2002 third quarter, the Company revaluated its employee vacation practice and reduced its vacation liability by $1.6 million to properly reflect the pay-as-you-go vacation policy. Also during the quarter, the Company amended its postretirement benefits and terminated postretirement life insurance for all retirees, except for those under contractual agreements. This amendment decreased the Company's postretirement obligation by $0.9 million. The benefits of these SG&A adjustments were largely offset by new product launch costs at the Richmond plant; thus, the combined effect did not have a significant impact on the Company's fiscal 2002 third quarter operating income. Effective June 5, 2001, the Company purchased the remaining 40% interest in CTC, its joint venture with Izumi Industries, bringing total ownership to 100%. The purchase price was approximately $4.0 million of which $1.6 million is payable in annual installments over the next four years. The Company paid $0.4 million in the fiscal 2002 third quarter. The acquisition was accounted for by the purchase method; accordingly, the cost of the acquisition was allocated on the basis of the estimated fair market value of the assets acquired and liabilities assumed. No goodwill resulted from the transaction. The pro forma effect of the acquisition on the results of operations is not material. Interest expense was $4.2 million and $13.2 million for the third quarter and first nine months of fiscal 2002, compared with $4.6 million and $11.1 million, respectively, for the same periods of fiscal 2001. The quarterly decrease in interest expense is due to lower average interest rates and reduced debt levels. The increase in interest expense for the first nine months of fiscal 2002 is primarily due to higher debt levels, receivables financing, and including CTC's interest expense in the Company's consolidated totals. The Company's effective tax rate is impacted by operations in various domestic and foreign tax jurisdictions. For fiscal 2002 and 2001, the income tax benefit due to pre-tax losses was offset by additional tax expense at the Company's Italian operation. Italian tax law requires the Company add back certain items resulting in a tax profit even though the operation is in a loss position for book purposes. The tax rate for the fiscal 2002 third quarter was 36.0% plus an Italian tax expense of $0.6 million, compared with a tax rate of 37.0% plus an Italian tax expense of $1.2 million in the fiscal 2001 third quarter. The tax rate for the first nine months of fiscal 2002 was 36.0% plus an Italian tax expense of $2.2 million, compared with a tax rate of 37.9% plus an Italian tax expense of $1.9 million for the same period a year ago. The tax rate also includes a valuation allowance that partially reserves against deferred tax assets related to tax loss carryforwards of the Company's Italian operations. Flow Control Products - Net sales for the Flow Control Products segment decreased by 4.9% to $37.4 million for the fiscal 2002 third quarter, compared with $39.3 million for the same period of fiscal 2001. For the first nine months of fiscal 2002, sales decreased by 9.7% to $103.3 million, compared with $114.4 million for the first nine months of fiscal 2001. Sales volume decreased by 2.8% for the fiscal 2002 third quarter, and by 8.0% for the first nine months of fiscal 2002. Price and mix together declined by 4.1% for the fiscal 2002 third quarter, and by 3.7% for the first nine months of fiscal 2002. Operating income in the fiscal 2002 third quarter was $2.5 million, compared with a loss $3.3 million (income of $2.0 million excluding unusual items) for the same period of fiscal 2001. For the first nine months of fiscal 2002, operating income was $5.1 million, compared with $4.1 million ($9.6 million excluding unusual items) for the same period of fiscal 2001. Excluding unusual items in 2001, the operating income decrease was primarily due to lower sales volume, competitive market pricing, and the cost to implement an ERP system. The reduced vacation liability to properly reflect the pay-as-you-go vacation policy contributed $0.6 million to fiscal 2002 third quarter segment income. Engineered Components - Net sales for the Engineered Components segment increased by 17.7% to $114.1 million for the fiscal 2002 third quarter, compared with $96.9 million for the same period of fiscal 2001. For the first nine months of fiscal 2002 sales increased by 13.3% to $320.2 million, compared with $282.7 million for the first nine months of fiscal 2001. Sales volume increased by 12.0% for the third quarter of fiscal 2002, and 3.9% for the first nine months of fiscal 2002. Product mix decreased sales by 0.7% for the fiscal 2002 third quarter and increased sales by 2.7% for the first nine months of fiscal 2002. Consolidating CTC in the second quarter and first nine months of fiscal 2002 increased sales by 6.2% and 5.2% respectively. Operating income in the fiscal 2002 third quarter was $1.3 million, compared with a loss of $8.5 million ($2.5 million loss excluding unusual items) for the same period of fiscal 2001. For the first nine months of fiscal 2002, the operating loss was $3.0 million, compared with a loss of $11.2 million ($5.3 million loss excluding unusual items) for the same period of fiscal 2001. Excluding unusual items in 2001, the increase in operating income was primarily due to the Company's U.S. operations due to improved operating efficiencies, higher sales volume, and a favorable price and product mix. The reduced vacation liability to properly reflect the pay-as-you-go vacation policy contributed $1.0 million to fiscal 2002 third quarter segment income. * * * As reported in Troubled Company Reporter's July 19, 2002, edition, Amcast Industrial Corporation, (NYSE:AIZ) successfully negotiated a restructuring of its credit facilities with its bank-lending group and senior note holders. As restructured, the bank credit facilities have been continued through September 14, 2003, and a required $12.5 million prepayment under the senior notes has been deferred until maturity in November 2003. After restructuring, long-term debt at the end of the fiscal third quarter was $160.4 million. This reduced short-term debt to $25.4 million, or 13.7% of total obligations. AMRESCO INC: Plan of Liquidation Declared Effective Aug. 6, 2002 ---------------------------------------------------------------- AMRESCO, Inc., (OTC Pink Sheets: AMMBQ) announced that the First Amended Joint Plan of Liquidation of the Company and several of the Company's subsidiaries became effective on August 6, 2002. The Plan was confirmed by the United States Bankruptcy Court for the Northern District of Texas, Dallas Division, on July 23, 2002 in connection with AMRESCO's bankruptcy proceedings under Chapter 11 of Title 11 of the United States Code (Case no. 01- 35327-SAF-11). On August 7, 2002, the Company, along with its subsidiaries involved in the bankruptcy proceedings, transferred all right, title and interest in any and all assets that they have or may have (including the Company's ownership interests in its subsidiaries) to a trust established on behalf of the Company's creditors. The trust will liquidate and distribute these assets to the creditors of the Company and its subsidiaries in accordance with the provisions of the Plan. J. Gregg Pritchard has been named as the initial trustee of the trust. Mr. Pritchard has also been appointed to serve as the President and as the sole member of the board of directors of the Company and its subsidiaries. All shares of the Company's common stock, and all other options, warrants and other rights and interests related to the Company's common stock were automatically cancelled upon the effective date of the Plan. Accordingly, all certificates formerly representing shares of common stock or other equity interests in the Company are null, void and of no effect. Similarly, all series of the Company's senior subordinated notes were automatically cancelled. In exchange, holders of these notes will be issued non-transferable beneficial interests in the liquidating trust, which will represent the right to receive certain payments in accordance with the terms of the trust. AMRESCO will not continue its business operations upon the conclusion of its bankruptcy proceedings. Accordingly, the Company and its subsidiaries will be dissolved as soon as is reasonably practicable, and their separate corporate existence will be terminated. AQUILA INC: Will Seek Buyer for Midlands Electricity in UK ---------------------------------------------------------- Aquila, Inc., (NYSE: ILA) announced that it would seek a buyer for its 79.9 percent of the shares of Avon Energy Partners Holding Company, the holding company for Midlands Electricity plc, operating as Aquila Networks in the United Kingdom. Aquila acquired majority interest in Avon Energy Partners Holding Company from FirstEnergy Corp., (NYSE: FE) in May and has been managing Midlands since that time. FirstEnergy, owner of the remaining 20.1 percent interest in Avon Energy Partners Holding Company, already has announced its intent to sell its position in the utility. "Since announcing our intent to sell $1 billion in assets, we've had inquiries related to our entire asset portfolio. In the case of Midlands Electricity, we've received a sufficient number of serious inquiries that have led us to initiate a bid process," said Robert K. Green, president and chief executive officer of Aquila. "To date we have made significant progress in our efforts to sell $1 billion in assets. The sale of Midlands would take Aquila well beyond our $1 billion target." The company expects the bidding process for Midlands to be concluded in October, with a decision on the bids by mid- October. Midlands Electricity serves 2.3 million customers in the city of Birmingham and parts of Staffordshire, Gloucestershire, Shropshire, Hereford and Worcester. For the year ended March 2001, Midlands Electricity sales totaled approximately $570 million and its earnings before interest and taxes totaled about $275 million. Based in Kansas City, Missouri, Aquila operates electricity and natural gas distribution networks serving more than six million customers in seven states and in Canada, the United Kingdom, New Zealand and Australia. The company also owns and operates power generation and mid-stream natural gas assets. At March 31, 2002, Aquila had total assets of $12.3 billion. More information is available at http://www.aquila.com * * * As reported in Troubled Company Reporter's Wednesday edition, Aquila Inc.'s current liquidity position is sufficient relative to scheduled upcoming payments. Cash on hand was approximately $207 million as of the first quarter 2002, and Aquila has about $570 million of available capacity under its bank lines. Aquila's credit facilities consist of a 364-day $325 million tranche that expires in April 2003, and a three-year $325 million tranche that expires in April 2005. Aquila recently completed a $280 million equity issuance and a $500 million senior unsecured note offering, the proceeds of which were used to refinance $675 million of 2002 maturing debt. Other near-term uses of funds include the $150 million repayment of a bridge loan related to the acquisition of Midlands, due in December 2002, and $63 million of common stock dividends, to be paid in September and December 2002. Fitch will continue to monitor Aquila's progress in winding down its energy market exposures, reducing staff and operating expenses, and monetizing non-core assets. Aquila's future credit profile will depend upon which ILA assets or businesses are sold, which are retained, and the amount of debt leverage remaining after the dispositions. Fitch currently rates Aquila as follows: senior unsecured 'BBB-', preferred stock 'BB+', and commercial paper 'F3'. The Rating Outlook is Stable. BCE INC: Expects to Sell $2BB of Equity to Finance Bell Buyback --------------------------------------------------------------- BCE Inc., (TSX, NYSE: BCE) announced that, further to its August 1st, 2002 shelf prospectus filing, it has signed an underwriting agreement in connection with a public offering of BCE common shares, at a price of $24.45 per share, for total gross proceeds of approximately $2 billion assuming full exercise of the over- allotment option. A major portion of the offer was subscribed by the accounts managed by certain of the Capital Group International, Inc. investment management companies and funds managed by Capital Research and Management Company. The net proceeds resulting from the sale of the common share offering will be used to pay part of the acquisition price of SBC Communications Inc.'s indirect minority interest in Bell Canada. The closing of the offering is scheduled to occur on August 12, 2002, and is subject to certain conditions set forth in the underwriting agreement. The common equity offering was placed by a syndicate of underwriters with RBC Capital Markets acting as lead manager and global book runner, Scotia Capital, co-lead and Canadian co-book runner, Credit Suisse First Boston, co-lead and US co-book runner and BMO Nesbitt Burns, co-lead manager. Common shares offered outside the United States to non-US persons will not be registered under the US Securities Act. The portion of the common shares to be sold in the United States or in circumstances where registration of the common shares is required has been registered under a registration statement filed with the US Securities and Exchange Commission. A copy of the prospectus and related prospectus supplement may be obtained from RBC Capital Markets, 1 Place Ville Marie, Suite 300, Montreal, Quebec H3B 4R8. BCE is Canada's largest communications company. It has 24 million customer connections through the wireline, wireless, data/Internet and satellite services it provides, largely under the Bell brand. * * * As reported in the April 24, 2002 edition of Troubled Company Reporter, Bell Canada International Inc.'s December 31, 2001 balance sheet shows that the company has a working capital deficit of about C$900 million. BUDGET GROUP: Wants to Honor & Pay Prepetition Tax Obligations -------------------------------------------------------------- Budget Group Inc., and its debtor-affiliates ask the Court to authorize, but not direct, them to pay the relevant taxing authorities the accrued and unpaid sales taxes, use Taxes and surcharges, real and personal property taxes, franchise taxes, foreign taxes, and any other taxes that the Debtors' directors, officers or employees may be personally liable. Edward J. Kosmowski, Esq., at Young Conaway Stargatt & Taylor LLP, in Wilmington, Delaware, informs the Court the Debtors have outstanding obligations for all the taxes. As of the Petition Date, the Debtors owe the taxing authorities: Sales Taxes, Use Taxes and Surcharges $16,163,000 Real and Personal Property Taxes 885,100 Franchise Taxes 115,000 Foreign Taxes 132,141 Mr. Kosmowski assures the Court that none of the Debtors' creditors will be prejudiced by the payment of these taxes to the relevant authorities at this time since the taxes and surcharges are entitled to priority status pursuant to Section 507(a)(8) of the Bankruptcy Code. Besides, these taxes must be paid in full under any Reorganization Plan. The timing of payment would even be beneficial to the Debtors' estates since it will avoid the accrual of interest or penalty charges on the claims, Mr. Kosmowski adds. Mr. Kosmowski fears that non-payment of taxes could cause the authorities to impose sanctions on, or engage, the Debtors in costly actions. Sales Taxes constitute so-called "trust fund" taxes that are required to be collected from third parties and held in trust for payment to the taxing authorities. In many cases, sales and use taxes are administered by the same taxing authorities, and are collected and enforced in the same manner. Although only few of the states expressly treat Use Taxes as Trust Taxes, many of the taxing authorities assert various penalties and enforcement actions as if use taxes constituted sales taxes. Nevertheless, Mr. Kosmowski tells the Court that given the large number of sales and use tax filings the Debtors prepare each year, it would be extremely costly for the Debtors' estates to resolve any disputes and defend any actions arising from the issue on whether use taxes are entitled to be treated the same way as sales taxes. The Debtors have been informed that certain taxing authorities may cause the Debtors to be audited or suspend the Debtors' authority to conduct business or take other corporate actions if the franchise taxes are not paid. The Debtors submit over 250 different franchise tax filings each year. Mr. Kosmowski notes that the Debtors' handling of these audits or suspensions would be extremely disruptive to their business operations and unnecessarily divert the attention away from the reorganization process. Mr. Kosmowski adds that some of these States might attempt to hold the Debtors' officers, directors and employees personally liable for nonpayment. The potential lawsuits, Mr. Kosmowski says, would prove to be extremely distracting to: -- the Debtors, -- the named individuals, whose attention to the Debtors' Chapter 11 cases is required, and -- the Court, which might be asked to entertain various motions seeking injunctions with respect to the potential State Court actions. The Debtors must also pay the taxes assessed on their real property leases in England. Mr. Kosmowski informs the Court that the English taxing authorities there may cause a local bailiff to confiscate the Debtors' assets equal to the amount of tax due, or if no assets are available for confiscation, cause the bailiff to cut-off the Debtors' access to the buildings. But Mr. Kosmowski makes it clear that this Motion is not meant to impair the Debtors' ability to contest the taxes or surcharges owing to the various taxing authorities. Accordingly, the Debtors also ask the Court to direct banks and financial institutions to process and pay all of the Debtors' deposits, wire transfers and checks that were not cleared prior to the Petition Date involving the payment of the taxes. The Debtors further seek the Court's permission to reissue any check, which was drawn in payment of any prepetition tax that was not cleared by a bank or financial institution. (Budget Group Bankruptcy News, Issue No. 2; Bankruptcy Creditors' Service, Inc., 609/392-0900) Budget Group Inc.'s 9.125% bonds due 2006 (BD06USR1) are trading at 14 cents-on-the-dollar, DebtTraders reports. See http://www.debttraders.com/price.cfm?dt_sec_ticker=BD06USR1for real-time bond pricing. CMS ENERGY: 2nd Quarter Results Swing-Down to Net Loss of $75MM --------------------------------------------------------------- CMS Energy Corporation (NYSE: CMS) announced a second quarter consolidated net loss of $75 million compared to second quarter 2001 consolidated net income of $53 million. Operating net income for the second quarter was $59 million compared to $35 million in the second quarter of 2001. Operating net income excludes the effects of non-recurring events such as gains on asset sales ($21 million), losses on discontinued operations of CMS Oil and Gas and CMS Viron ($141 million), restructuring costs and expenses related to early debt retirement. Operating net income reflects strong results from Consumers Energy's electric and gas utility businesses including reduced power supply costs due to an extended refueling outage in 2001 at the Palisades nuclear plant, favorable weather effects on natural gas and electric deliveries, improved earnings at CMS Energy's independent power plants and the benefits from mark- to-market accounting of long-term natural gas fuel supply contracts at the Midland Cogeneration Venture. "Based on the second quarter results and the current outlook for the remainder of year, we are reaffirming our $1.50 to $1.55 per share guidance for operating net income for the full year," said Ken Whipple, CMS Energy chairman and chief executive officer. Second quarter operating revenue totaled $2.4 billion, versus $2.2 billion in the second quarter of 2001. For the first six months of 2002, consolidated net income was $314 million, compared to $162 million in 2001. Operating net income for the same period was $134 million compared to $143 million, respectively. Operating net income excludes the effects of non-recurring events such as gains on asset sales ($35 million), income from discontinued operations ($169 million), restructuring costs ($7 million), expenses related to early debt retirement ($8 million) and a goodwill accounting change write-off ($9 million). Operating revenue for the first six months of 2002 totaled $4.8 billion compared to $5.0 billion in the first half of 2001. Operating net income of CMS Energy's utility business, Consumers Energy, was $58 million for the second quarter, up 100 percent from $29 million in the second quarter of 2001. Cool temperatures in May, the tenth coldest May on record in Michigan, helped to increase natural gas deliveries by 8.3 billion cubic feet during the quarter versus the second quarter of 2001. Natural gas deliveries were 65.3 billion cubic feet, up 14.7 percent from the same period last year. Warmer-than- normal temperatures during June helped total electric deliveries for the quarter to increase by 133 gigawatt-hours versus the second quarter of last year. Electric deliveries were 9,410 gigawatt-hours, up 1.4 percent from the second quarter of 2001. Second quarter operating net income of the natural gas transmission business was $13 million, down seven percent from $14 million in the same period last year, due to lower earnings from liquefied natural gas operations reflecting fixed contract rates compared to higher spot rates in the second quarter last year, as well as expropriation and devaluation issues in Argentina. These were partially offset by lower fixed costs reflecting debt retirement and lower operating costs. Independent power production operating net income in the second quarter totaled $48 million, up 167 percent from $18 million in the same period last year, due to improved plant performance and increased earnings from the Midland Cogeneration Venture reflecting mark-to-market accounting for long- term natural gas fuel supply contracts, lower steam costs at the Dearborn Industrial Generation plant and higher earnings from international plants. These were partially offset by expropriation and devaluation issues in Argentina. Marketing, services and trading reported an operating net loss in the second quarter of $18 million, as compared to operating net income of $33 million in the same period last year, primarily reflecting credit constraints which adversely affected sales contract origination and power and gas trading margins. Significant second quarter developments in the CMS Energy asset sale program included: * Closing of the sale of Consumers Energy's electric transmission system for approximately $290 million to Washington, D.C.-based Trans-Elect, the first transaction of its kind in the U.S.; * Closing of the sale of CMS Oil and Gas Company's coal bed methane holdings in the Powder River Basin of Wyoming and Montana for $101 million to XTO Energy of Fort Worth, TX,; * Closing of the sale of CMS Generation's 47.5 percent equity interest in Toledo Power Co. in the Philippines for $10 million to Mirant, and; * Announcement of a definitive agreement and letter of intent, which together provide for the sale of CMS Oil and Gas for approximately $232 million. CMS Energy also announced it is exploring the sale of its domestic pipeline and field services businesses in order to accelerate balance sheet improvement and enhance financial flexibility. The assets being considered for sale include the Panhandle and Trunkline interstate natural gas pipelines, the LNG receiving terminal at Lake Charles, La., CMS Field Services' gas gathering and processing assets and CMS Energy's one-third ownership interest in Guardian Pipeline. These are in addition to CMS Energy's previously announced plans to sell its one-third ownership interest in Centennial Pipeline LLP, an interstate refined petroleum products pipeline. CMS Energy Corporation is an integrated energy company, which has as its primary business operations an electric and natural gas utility, natural gas pipeline systems, independent power generation, and energy marketing, services and trading. For more information on CMS Energy, please visit its Web site at http://www.cmsenergy.com * * * As reported in Troubled Company Reporter's July 17, 2002, edition, Fitch downgraded the ratings of CMS Energy and its subsidiaries Consumers Energy Co., and CMS Panhandle Eastern Pipe Line Co. The senior unsecured debt rating of CMS has been lowered to 'BB-' from 'BB+'. The downgrades of Consumers and PEPL reflect Fitch's notching criteria with respect to parent and subsidiary ratings. CMS, Consumers and PEPL will remain on Rating Watch Negative, where they were originally placed on June 11, 2002 due to concerns surrounding CMS' weak liquidity position, high parent debt levels, and limited financial flexibility. CMS' market access continues to be constrained by the company's need to restate its 2000 and 2001 financial statements to eliminate the effects of 'wash trades' with other energy companies. While Consumers and PEPL are fundamentally sound, the companies' financial condition and credit ratings may be adversely affected by the financial stress of their parent. The Negative Rating Watch will remain in place pending a meeting with CMS management within the next several weeks to review the company's updated business plan. Ratings lowered and maintained on Rating Watch Negative CMS Energy --Senior unsecured debt to 'BB-' from 'BB+'; --Preferred stock/trust preferred securities to 'B-' from 'BB-'. Consumers Energy --Senior secured debt to 'BBB' from 'BBB+'; --Senior unsecured debt to 'BB+' from 'BBB'; --Preferred stock/trust preferred securities to 'BB-' from 'BB+'. Consumers Power Financing Trust I --Trust preferred securities to 'BB-' from 'BB+'. PEPL --Senior unsecured debt to 'BB+' from 'BBB'. CANFIBRE: Raises US$250,000 via Non-Brokered Private Placement -------------------------------------------------------------- The CanFibre Group Ltd., (TSX Venture Exchange: YCF), a producer of high-quality, high-margin specialty Medium Density Fibreboard products, has completed a non-brokered private placement of 1,771,129 common shares at a price of US$0.142 (Cdn $0.22) per common share for gross proceeds to CanFibre of US$251,386 (Cdn $389,648). The capital will be used primarily for working capital purposes in the Company's CanFibre of Lackawanna LLC operations. Four members of CanFibre's management team were investors in the private placement including Christopher Carl investing US$50,000 and three other officers of the company also investing a total of US$50,000. The securities will be subject to a standard 4 month hold period as prescribed by the TSX. The securities offered will not be registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from such registration requirements. Operations in Lackawanna continue to improve dramatically with respect to total output, quality of product, average selling prices and improvements in working capital. CanFibre of Lackawanna continues to work with its secured creditors to negotiate terms that will result in new capital being invested in to the facility in return for an agreement to reduce certain requirements of the debt. CanFibre has also been successful in improving its working capital by arranging with a large number of customers to remit payment within 48 hours. This replaces the need to generate cash under the more expensive Santarosa agreement announced June 18, 2002 and accordingly, no cash has been funded under that agreement. "While the private placement is not large compared to the value of the Lackawanna facility, the fact that operations have improved sufficiently to attract new investors, including management, is significant," says Chris Carl, President of CanFibre. "We still have a lot of work to do to bring Lackawanna back to the level of operation originally intended for the facility but the advancements made in recent weeks and months have been excellent. The effort put forth by CanFibre's management and employees has been nothing short of extraordinary and our confidence that such efforts will result in the long term success of the company is growing every day." The private placement was approved by CanFibre's Board of Directors. It should be noted that David Carbonaro resigned as a Director effective July 3, 2002 to avoid potential conflict of interest as Mr. Carbonaro is now assisting CanFibre directly in some of its financing efforts. Mr. Carbonaro continues to act as corporate counsel for CanFibre. The CanFibre Group Ltd., is engaged in the worldwide development and operation of manufacturing plants to produce high quality wood panel products such as medium density fibreboard from environmentally sensitive wood sources including the use of 100% recycled dry waste wood normally destined for landfill. CanFibre's ALLGREEN(R) MDF is North America's first 100% "green" panel board. The CanFibre Group derives competitive advantage by locating in urban areas close to the waste wood fibre supply and close to end use customers as well as through the use of patented pressing technology that allows CanFibre to produce a series of specialty products that can not be produced economically by conventional producers. ALLGREEN(R) MDF and CanFibre MDF are marketed through wholesale distributors, manufacturers and retailers throughout North America. Visit http://www.canfibre.comfor more information about the company. * * * As reported in Troubled Company Reporter's June 20, 2002, edition, CanFibre of Lackawanna is currently in default of its bonds because it has not made interest payments that were due December 1, 2001 and June 1, 2002. Provided that CanFibre continues to meet its ongoing working capital requirements, no action is expected by the bondholders that would result in any kind of acceleration of the bonds. In addition, CanFibre and its bondholders are engaged in good-faith discussions to determine ways to cure the default. CAPITAL LEASE: Fitch Affirms Low Ratings on Classes E, F & G ------------------------------------------------------------ Capital Lease Funding Securitization LP corporate credit-backed pass-through certificates, series 1997-CTL-1 $2.9 million class A-1, $40.4 million class A-2, $17.8 million class A-3 and the interest only class IO are affirmed at 'AAA' by Fitch Ratings. In addition, Fitch affirms the following classes: $15.5 million class B at 'AA', $15.5 million class C at 'A', $6.1 million class D at 'BBB-', $6.8 million class E at 'BB-', $1.9 million class F at 'B-' and $1.3 million class G at 'CCC'. In conjunction with the affirmations, classes D, E and F are also removed from Rating Watch Negative. The rating affirmations follow Fitch's annual review of the transaction, which closed in January 1997. The decision to remove classes D, E and F from Rating Watch Negative is the result of Fitch's internal evaluation of Circuit City Stores, Inc. completed in June. Loans with leases guaranteed by Circuit City make up 16% of the pool by balance. The ratings of this transaction are highly sensitive to the movements of the corporate credit ratings of the underlying tenants, which Fitch closely monitors. The transaction benefits from fully amortizing loans to credit tenants, of which 65% are investment grade rated. The transaction continues to perform with no delinquencies or specially serviced loans. Other credit tenants in the pool are CVS (20%), Blue Cross/Blue Shield of Texas (16%), Rite Aid (11%), Tandy Corp., (7%) and various others. Fitch continues to have concerns with the concentration as only 30 loans in the pool. However each property is leased to a tenant on a triple net or double net basis, requiring each tenant to pay for the operating costs of the property. Fitch also has concerns that 35% of the underlying loans are guaranteed by leases to below investment grade tenants. The deterioration of the credits has been factored into the ratings assigned to each class. Fitch will continue to monitor the transaction and the ratings of the underlying credit tenants. CAROLINA RE: Court Says Deloitte Must Comply with Subpoenas ----------------------------------------------------------- The Honorable Judge Burton R. Lifland of the U.S. Bankruptcy Court for the Southern District of New York denied Deloitte & Touche LLP's motion to quash subpoenas served by Carolina Reinsurance Limited's Liquidators. Although Carolina Re is incorporated in Bermuda, it operated from North Carolina, and most of the audit work was performed in the United States. Ms. Kristan Meehan, (in Deloitte's Hartford, Connecticut office) was a manager on certain of Carolina Re's audits and Mr. John Slusarski provided actuarial services with the audits of Fortress Re and Carolina Re. Following the production of the requested documents -- pursuant to the Preliminary Injunction Order -- the Joint Liquidators subpoenaed Ms. Meehan and Mr. Slusarski for depositions. Deloitte asked the Court to quash the subpoenas issued to its employees, claiming that: (1) the depositions are being sought for an improper purpose which is to try to establish a claim against Deloitte; and (2) in the context of a 304 ancillary proceeding, United States courts cannot order discovery beyond that which would be available in the home court, and that a Bermuda court would not permit depositions under these circumstances. Judge Lifland finds that the investigation of potential claims on behalf of a debtor is not an improper use of Rule 2004 discovery. Rule 2004 provides that "courts have the authority to order examinations with respect to the financial matters of debtors as well as other matters affecting the administration of the estate." Moreover, the Court reminds that Section 304 intends to provide U.S. Courts with broad authority and flexibility to enable foreign representatives to administer assets located in the United States. The Court acknowledges that the liquidation of Carolina Re is a laborious process and the financial affairs of Carolina Re are complex. According to the Joint Liquidators, many of the documents pertaining to the financial matters are unclear and require further explanation and interpretation. Section 195 gives a Bermuda court the power to summon before it any person the court deems capable of "giving information concerning the [insolvent] company." The information and knowledge the Deloitte employees maintain are essential to this investigation, the Court contends. The Court further explains that the Joint Liquidators' action is consistent with their powers and duties entrusted by the Bermuda Court, section 304 of the Bankruptcy Code and Rule 2004 of the Federal Rules of Bankruptcy Procedure. Moreover, the Court believes that Deloitte's request for help in explaining Carolina Re's substantial losses is not oppressive, and trusts that the Bermuda Court would concede that the requirements of the Joint Liquidators outweigh any perceived oppression to the two Deloitte employees. CHESAPEAKE ENERGY: Moody's Assigns B1 Rating to $250MM Sr. Notes ---------------------------------------------------------------- Moody's Investors Service took several rating actions on Chesapeake Energy Corporation. Rating Assigned * B1 - $250 million senior unsecured notes, due 2012. Ratings Affirmed * B1 - $108 million 7.875% senior unsecured notes, due 2004, * B1 - $250 million 8.375% senior unsecured notes, due 2008, * B1 - 800 million 8.125% senior unsecured notes, due 2011, * B1 - $143 million 8.5% senior unsecured notes, due 2012, * Caa1 - $150 million 6.75% convertible preferred, * B1 - Senior Implied Rating, * B2 - Unsecured Issuer Rating. Ratings outlook is positive. Proceeds from the $250 million notes will be used to repay outstanding debts and fund three pending acquisitions. Although limited by a high financial leverage, the ratings reflect growth in Chesapeake's asset base, and its intensified focus on its core assets and reduced reliance on its noncore and short-lived assets. Chesapeake Energy Corporation, headquartered in Oklahoma City, Oklahoma, is an independent exploration and production company. CHESAPEAKE ENERGY: Fitch Rates $250M Senior Note Offering at BB- ---------------------------------------------------------------- Fitch Ratings has assigned a 'BB-' rating to Chesapeake Energy's $250 million senior note offering. Fitch maintains its 'BB+' rating on its senior secured bank facility and a 'B' rating on its convertible preferred stock. The Rating Outlook for Chesapeake is Stable. Chesapeake Energy priced $250 million of senior notes. The net proceeds from this offering will be used for funding three pending acquisitions totaling $132 million and to repay bank debt recently incurred to purchase $43 million of senior notes due in 2004 and to purchase $38 million of natural gas properties in Oklahoma. Remaining net proceeds will be used for general corporate purposes, including the funding of future acquisitions. This transaction follows the $150 million convertible preferred offering in November 2001 and the pricing of $250 million of 8.375% senior notes completed in late October. The proceeds from those two offerings were also used to fund several 'tuck-in' acquisitions. Chesapeake expects to add as much as 125 Bcfe of proved reserves consisting primarily of Mid-Continent developed natural gas reserves with initial average daily natural gas production of approximately 28,000 Mcfe. This would increase reserves by approximately 6.7% and daily production by about 6%. The valuation of the three transactions is about $1.35 per Mcfe. The ratings reflect Chesapeake's long-lived, focused natural gas reserve base, the likelihood of increased production through its recent acquisitions and its modest credit profile, which assumes equity funding to help balance past and future transactions. Chesapeake's proved reserves, pro forma for potential acquisitions are more than 2.0 Tcfe, which provide a reserve life in excess of 10 years. Additionally, approximately 90% of Chesapeake's proved reserves are natural gas and are primarily located in the very familiar Mid Continent region. In fact, Chesapeake's last six significant acquisitions have all been in the Mid-Continent region where it has a significant amount of infrastructure in place and has had proven success. Fitch expects Chesapeake to achieve synergies through its recent acquisitions and to expand upon the current production that each of its potential acquisitions is currently realizing. Chesapeake has generated credit metrics consistent with its rating over the last 12 months. Coverages, as measured by EBITDA-to-interest, are greater than 4.0 times for the latest 12-month period, and debt-to-EBITDA is approximately 3.0x. Chesapeake's present debt on both an absolute ($1.5 billion pro forma for proposed offering) and a proven barrel of oil equivalent ($4.38 per BOE pro forma for acquisitions and bond offering) basis is high for the rating. Fitch expects these measures to improve in the intermediate term from any internally generated cash flow and through an equity-related transaction in the future. Chesapeake is an Oklahoma City-based company whose primary focus is the exploration, production and development of natural gas. Chesapeake began operations in 1989 and completed its initial public offering in 1993. Its proved reserves are predominantly natural gas (91%), mostly proved developed (71%), and are based in North America. Its operations are concentrated in the Mid- Continent (86% of assets and 75% of production), the Gulf Coast and the Permian Basin. The company has been active in increasing its natural gas reserve base by making acquisitions within its core areas of operation as well as through the drillbit. CHESAPEAKE ENERGY: Commences Private Offering of $250MM 9% Notes ---------------------------------------------------------------- Chesapeake Energy Corporation (NYSE: CHK) has priced a private offering of $250 million senior notes due 2012, which will carry an interest rate coupon of 9.0%. The senior notes were priced at 98.389% to yield 9.25%. The senior notes being sold by Chesapeake will not be registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The senior notes will be eligible for trading under Rule 144A. Closing of the senior notes offering is expected to occur on August 12, 2002, and is subject to satisfaction of customary closing conditions. The net proceeds from this offering will be used for funding three pending acquisitions totaling $132 million and to repay bank debt recently incurred to purchase $43 million of senior notes due in 2004 and to purchase $38 million of natural gas properties in Oklahoma from The Williams Companies. Remaining net proceeds will be used for general corporate purposes, including the possible funding of future acquisitions. Chesapeake Energy Corporation is one of the 10 largest independent natural gas producers in the U.S. Headquartered in Oklahoma City, the company's operations are focused on exploratory and developmental drilling and producing property acquisitions in the Mid-Continent region of the United States. The company's Internet address is http://www.chkenergy.com Chesapeake Energy Corp's 8.5% bonds due 2012 (CHK12USR1), DebtTraders says, are trading at 99 cents-on-the-dollar. See http://www.debttraders.com/price.cfm?dt_sec_ticker=CHK12USR1for real-time bond pricing. COEUR D'ALENE: Posts $11 Million Net Loss for Second Quarter ------------------------------------------------------------ Coeur d'Alene Mines Corporation (NYSE:CDE), reported results for the second quarter ended June 30, 2002: 2002 Second Quarter Highlights -- Generated positive cash flow from operating activities -- Commenced production at new, low-cost Cerro Bayo (Chile) and Martha (Argentina) mines -- Produced a record 3.3 million ounces of silver during the quarter and 6.2 million ounces of silver during the first six months of 2002 -- 28% and 19% higher than the comparable periods last year, respectively -- Achieved consolidated silver cash costs of $3.34 per ounce during the second quarter, compared to $3.75 per ounce in last year's second quarter and $3.85 per ounce during the first quarter of this year -- Increased percentage of total revenues derived from silver to 63%, up from 56% during last year's second quarter -- Retired 6% Debentures and secured $16.0 million of new financing -- Met all New York Stock Exchange listing requirements Dennis E. Wheeler, Chairman, President, and Chief Executive Officer, said, "The end of the second quarter marked the beginning of the 'New Coeur.' For the full year, we remain on track to produce a record 15.0 million ounces of silver, representing a 40% increase over last year, at a consolidated average cash cost of approximately $2.95 per ounce. Our new generation of low-cost mines, Cerro Bayo and Martha, were successfully brought on-stream by our operations group during the quarter. These mines will fuel continued decreases in our operating costs and will generate considerable positive cash flow throughout the remainder of the year. In addition, we continue to experience significant silver production and reduced cash costs at our existing operations in Nevada and Idaho. Second quarter company-wide cash costs were 13% lower than the first quarter and we expect continued reduction in our cash costs throughout the remainder of the year. Our balance sheet has been strengthened, providing us with improved financial and strategic flexibility going forward. With improving silver and gold prices, continued reductions in our operating costs, dramatic silver production growth, and substantial exploration potential near our existing operations, we remain enthusiastic about our future." Financial Summary For the second quarter, Coeur d'Alene Mines Corporation (NYSE:CDE) generated $0.1 million of positive cash flow from operations compared with negative cash flow from operations of $10.0 million in the second quarter of 2001 and negative cash flow of $5.5 million in the first quarter of 2002. For the first six months of 2002, Coeur reported negative cash flow from operations of $5.4 million compared to negative cash flow from operations of $16.0 million for the first six months of 2001. For the quarter, Coeur preliminarily reports a net loss of $10.9 million. This compares to a net loss during the second quarter of 2001 of $3.6 million. For the first six months of 2002, Coeur preliminarily reports a net loss of $22.8 million. This compares to a net loss of $11.7 million for the first six months of 2001. The above net loss amounts may be required to be adjusted prior to finalization of Coeur's financial statements as a result of a possible accounting change that may be announced by FASB. The Company has recently learned that the accounting for any conversion of convertible debt on terms other than the original conversion terms is currently being rediscussed by FASB and additional clarification is expected shortly. The result may be that the Company will have to adjust, possibly retroactively, the determination of its debt extinguishment gains and losses prior to issuing the Company's Form 10 Q for the second quarter of 2002. If an adjustment is necessary, it would likely substantially increase reported debt extinguishment expense. However, it is not expected the adjustment would materially affect Coeur's shareholders' equity. The increase in cash flow is primarily due to the following factors: -- Increased silver production -- Coeur increased its silver production 28% during the second quarter to a record 3.3 million ounces. During the quarter, silver production from Coeur Silver Valley increased 34%, while silver production from Coeur's Rochester mine increased 10% over 2001 second quarter levels. -- Lower operating costs -- Overall silver cash costs for the second quarter decreased to $3.34 per ounce, down from $3.75 per ounce during the second quarter of 2001 and a significant reduction from 2002 first quarter's cash costs of $3.85 per ounce. Rochester's cash costs were reduced 24% to $2.81 per ounce during the second quarter compared to the first quarter. The second quarter cash costs per ounce reflect the Company's adoption of the Gold Institute standard for calculating cash costs per ounce treating gold as a by-product. This calculation reduces cash costs by the revenue generated by gold as a by- product. The prior periods have been calculated to show the comparable cash costs per ounce using this method. -- Higher metals prices -- During the second quarter, Coeur sold its silver production at an average price of $4.82 per ounce compared to an average realized price during the second quarter of 2001 of $4.37 per ounce. For its gold production, Coeur realized an average price of $304 per ounce during the second quarter compared to an average gold price of $273 per ounce during the same period last year. In June 2002, Coeur secured $16.0 million of financing by issuing Series II 13.375% Convertible Senior Subordinated Notes. The proceeds were used to repay the remaining 6% Convertible Subordinated Debentures that matured on June 10, 2002 as well as for general working capital purposes. At June 30, 2002, working capital was $46.7 million, compared with $28.6 million at the end of 2001 and $26.3 million at March 31, 2002. Cash, cash equivalents, and short-term investments (excluding restricted investments) totaled $12.7 million at the end of the second quarter compared to $10.7 million at the end of the first quarter. Coeur d'Alene Mines Corporation is the country's largest silver producer, as well as a significant, low-cost producer of gold. The Company has mining interests in Nevada, Idaho, Alaska, Argentina, Chile and Bolivia. * * * As previously reported, Coeur d'Alene Mines Corporation advised the firm of Arthur Andersen LLP that Arthur Andersen LLP would no longer serve as the Company's independent accounting firm. Arthur Andersen LLP had served in that capacity since October 1999. The Company's determination reflected the fact that on June 15, 2002, the Securities and Exchange Commission announced that Arthur Andersen LLP had informed the Commission that it will cease practicing before the Commission by August 31, 2002. Arthur Andersen's report dated February 15, 2002, stated that the financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001, had been prepared assuming that the Company will continue as a going concern. COHO ENERGY: Court Okays Sale of Oil & Gas Properties for $222MM ---------------------------------------------------------------- Coho Energy, Inc., (OTCBB:CHOH) announced that on August 6, 2002 the U.S. Bankruptcy Court in Dallas approved the sale of essentially all of its oil and gas properties for an aggregate sales price of $222.8 million. The sale price for Coho Energy's oil and gas properties located in Oklahoma and Red River County, Texas to Citation Oil & Gas Corp., was approved in the amount of $172.5 million, an increase of $7 million over the original bid amount. The sale of Coho Energy's oil and gas properties located in Mississippi and Navarro County, Texas to Denbury Resources, Inc., was approved at the original bid amount of $50.3 million. In connection with the sales, Coho Energy is seeking to assign certain related contracts and leases to Citation and Denbury. The property sales are scheduled to be completed on August 29, 2002, subject to completion of title and environmental reviews. The claims of creditors of Coho Energy who have liens against properties sold to Citation and Denbury will attach to the sale proceeds paid to Coho Energy at closing. Those creditors will receive payments on allowed claims in accordance with future orders of the Bankruptcy Court. Since the estimated claims of Coho Energy's creditors in its bankruptcy proceedings aggregate in excess of $335 million, it is unlikely that Coho Energy's shareholders will receive any distribution upon liquidation of the company. Coho Energy intends to file a plan of liquidation following the closing of the sales to Citation and Denbury. Creditors with allowed claims that do not attach to the sale proceeds will receive distributions pursuant to Coho Energy's plan of liquidation after approval by the Bankruptcy Court. CONSECO INC: Fitch Downgrades All Related Corporate Ratings ----------------------------------------------------------- Fitch Ratings has lowered the corporate ratings of Conseco Inc. All Conseco-related corporate ratings (including Conseco Finance Corp.) are placed on Rating Watch Negative. The downgrade of Conseco's corporate fixed income ratings reflect increased uncertainty over Conseco's ability to meet its debt repayment schedule over the next six months. The upcoming debt maturities as of March 31, 2002 are as follows: approximately $200 million optional bank repayment due September 30, 2002, approximately $300 million public debt due October 15, 2002 and approximately $300 million public debt due mid-February 2003. Conseco has executed several asset sales and reinsurance transactions over the last several months to fund debt repayments. Fitch believes the company will require additional asset sales or other cash raising transactions. These efforts will be challenging given the difficult economic environment and the company's limited financial flexibility. The Rating Watch Negative reflects these challenges as well as the potential earnings and capital impact of poorly performing investment markets. With this action, Fitch has equalized the ratings of the senior debt issued in the recent exchange offering with the existing senior debt. Although the existing debt is structurally subordinated to the exchange debt, Fitch believes there is not a material difference in credit quality given the current company fundamentals. Insurer financial strength ratings were placed on Rating Watch Negative reflecting continued downward rating pressure from problems at the holding company. However, Fitch believes the insurance companies have good capital adequacy and liquidity. Conseco Variable Insurance Company (Conseco Variable) remains on Rating Watch Evolving pending completion of its sale to inviva Inc. All ratings placed on Rating Watch Conseco Inc. --Long-term rating, lowered to 'CCC' from 'B-', Negative; --Senior debt issues lowered to 'CCC from 'B-', Negative; * 8.50% senior notes due 2003 * 6.40% senior notes due 2004 * 8.75% senior notes due 2006 * 6.80% senior notes due 2007 * 9.00% senior notes due 2008 * 10.75% senior notes due 2009 --Senior debt issues downgraded to 'CCC' from 'CCC+', Negative; * 8.50% senior notes due 2002 * 6.40% senior notes due 2003 * 8.75% senior notes due 2004 * 6.80% senior notes due 2005 * 9.00% senior notes due 2006 * 10.75% senior notes due 2008 --Preferred stock, lowered to 'CC' from 'CCC', Negative --Short-term rating, lowered to 'C' from 'B', Negative; --Commercial paper rating, lowered to 'C' from 'B', Negative;. Conseco Financing Trust I-VII --Preferred securities, lowered to 'CC' from 'CCC', Negative. Insurer Financial Strength --Bankers Life & Casualty Co., 'BB', Negative; --Conseco Annuity Assurance Co., 'BB', Negative; --Conseco Direct Life Insurance Co., 'BB', Negative; --Conseco Health Insurance Co., 'BB', Negative; --Conseco Life Insurance Co., 'BB', Negative; --Conseco Life Insurance Co. of New York, 'BB', Negative; --Conseco Medical Insurance Co., 'BB', Negative; --Conseco Senior Health Insurance Co., 'BB', Negative; --Conseco Variable Insurance Co., 'BB', Evolving; --Pioneer Life Insurance Co., 'BB', Negative. Conseco Finance Corp. --Senior debt rating 'CCC', Negative; --Short-term rating 'C', Negative. Conseco Inc.'s 10.75% bonds due 2008 (CNC08USR1), DebtTraders reports, are trading at 27. For real-time bond pricing, see http://www.debttraders.com/price.cfm?dt_sec_ticker=CNC08USR1 CORRECTIONS CORP: Second Quarter Net Loss Widens to $31 Million --------------------------------------------------------------- Corrections Corporation of America (NYSE: CXW) announced its operating results for the three and six month periods ended June 30, 2002. For the second quarter of 2002, the Company reported a net loss available to common stockholders of $31.4 million compared with a net loss available to common stockholders of $4.5 million for the second quarter of 2001. For the six months ended June 30, 2002, the Company reported a net loss available to common stockholders of $77.7 million compared with a net loss available to common stockholders of $14.6 million for the comparable prior year period. Results for the second quarter and six months ended June 30, 2002, include the effects of an extraordinary charge of $36.7 million associated with the Company's refinancing of its senior indebtedness. The per diluted share effect of this charge amounted to $1.14 for the three months ended June 30, 2002, and $1.03 for the six months ended June 30, 2002. Excluding the effect of the extraordinary charge, the Company generated net income available to common stockholders of $5.3 million for the three months ended June 30, 2002. Results for the six months ended June 30, 2002, also include the effect of a non-cash charge of $80.3 million for the cumulative effect of a change in accounting for goodwill in accordance with Statement of Financial Accounting Standards No. 142 ("SFAS 142") and a one-time cash income tax benefit of $32.2 million resulting from an income tax change that was signed into law in March. Excluding these transactions, and the effect of the aforementioned extraordinary charge, for the six months ended June 30, 2002, the Company generated net income available to common stockholders of $7.0 million. Cash flow from operations continued to improve, with the Company generating adjusted free cash flow of $18.5 million during the second quarter of 2002, compared with $16.2 million during the second quarter of 2001, representing an 11.3% increase in the adjusted free cash flow per diluted share results. The improvement in adjusted free cash flow was largely due to cash interest savings partially offset by an increase in income tax payments. The cash interest savings were due to significant repayments of debt during 2001, combined with lower interest rates primarily resulting from our successful refinancing. Income tax payments increased for taxes due in the Commonwealth of Puerto Rico. Consolidated revenues for the second quarter of 2002 amounted to $243.3 million, compared with $239.9 million for the second quarter of 2001. Consolidated EBITDA for the second quarter of 2002 was $46.6 million, compared with $48.1 million for the second quarter of 2001. Average compensated occupancy for the second quarter of 2002 was 89.2%, compared with 89.3% for the second quarter of 2001. Commenting on the second quarter results, President and CEO John Ferguson stated, "The Company generated solid operating results during our fiscal second quarter. Adjusted free cash flow per diluted share increased 11.3% over the comparable prior year period, and we generated an operating profit prior to the extraordinary charge related to our successful refinancing. As a result of the refinancing, the Company is now in a positive working capital position." Debt Refinancing As previously disclosed, the Company completed a comprehensive refinancing of its senior debt in May of 2002. The new financing consists of a senior secured bank credit facility in the aggregate amount of $715 million, which includes a revolving credit facility of up to $75 million with a term of four years, a $75 million term loan A with a maturity of four years, and a $565 million term loan B with a maturity of six years. All borrowings under the new senior secured bank credit facility initially bear interest at a base rate plus 2.5%, or LIBOR plus 3.5%, at the Company's option. The refinancing also included the purchase of substantially all of the Company's existing $100 million 12% senior notes, and the issuance of $250 million of seven-year senior notes at 9.875%. As a result of this refinancing and the related early extinguishment of the existing senior secured bank credit facility and senior notes, the Company recorded an extraordinary loss of approximately $36.7 million during the second quarter, which included the write-off of existing deferred loan costs, certain bank fees paid, premiums paid to redeem the 12% senior notes, and certain other costs associated with the refinancing. Discontinued Operations As a result of the previously announced termination of the contracts to manage the Ponce Young Adult Correctional Facility and the Ponce Adult Correctional Facility on May 4, 2002, and the sale of the Company's interest in a juvenile facility on June 28, 2002, in accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the Company has reported the operating results of these facilities as discontinued operations for the three and six months ended June 30, 2002 and 2001. Operating EBITDA/Liquidity EBITDA for the quarter amounted to $46.6 million, while debt service cost for the quarter, excluding non-cash items and costs associated with the refinancing, amounted to approximately $24.7 million. At June 30, 2002, the Company had cash on hand of approximately $65.8 million and $61.2 million available under a $75 million working capital line of credit. Consolidated EBITDA for the second quarter of 2002 was $46.6 million, compared with $48.1 million for the second quarter of 2001. EBITDA for the prior year included the operating results of the Company's Pamlico Correctional Facility, which was sold on June 28, 2001. The sale of this facility, which had been leased to a governmental agency, was the primary reason for the decline in EBITDA from the prior year. Operating margins increased slightly to $11.27 per compensated man-day in the second quarter of 2002 from $10.98 per compensated man-day in the prior year. The operating margin ratio remained essentially unchanged at 22.8% compared with 22.9% in the prior year. Contract Update As previously announced, on May 7, 2002, the Company received notice from the Commonwealth of Puerto Rico terminating the Company's contract to manage the 1,000-bed medium security Guayama Correctional Center. This followed a prior notice from the Commonwealth of Puerto Rico terminating our contracts to manage the Ponce Adult Correctional Facility and the Ponce Young Adult Correctional Facility. Operations of both Ponce facilities were transferred to the Commonwealth of Puerto Rico on May 4, 2002. Operations of the Guayama Correctional Center were transferred to the Commonwealth of Puerto Rico on August 6, 2002. On May 30, 2002, the Company announced a contract award from the Federal Bureau of Prisons to house 1,500 federal detainees at the Company's McRae Correctional Facility located in McRae, Georgia. The initial term of the contract is for three years and includes seven one-year renewal options. Under the provisions of the award, the Company could earn revenues of up to approximately $109 million in the first three years of the contract. The contract with the BOP guarantees at least 95% occupancy on a take-or-pay basis, and is expected to commence late in the fourth quarter of 2002. "Although we were disappointed with the loss of the contracts in Puerto Rico," Ferguson stated, "we nevertheless remain encouraged regarding the overall environment for private correctional services. While the budget difficulties that affect almost every governmental entity present short-term challenges with respect to per-diem rates, the fact remains that these governmental entities are also constrained with respect to funds available for prison construction. We expect little in the way of new prison construction while inmate populations should continue to rise. This demand should lead to higher occupancies and greater profitability for the Company going forward." The Company is the nation's largest owner and operator of privatized correctional and detention facilities and one of the largest prison operators in the United States, behind only the federal government and four states. The Company currently owns 40 correctional, detention and juvenile facilities, three of which are leased to other operators, and one additional facility which is not yet in operation. The Company currently operates 61 facilities (including the McRae, Georgia facility which is anticipated to commence full operations during the fourth quarter of 2002), including 37 company-owned facilities, with a total design capacity of approximately 60,000 beds in 21 states and the District of Columbia. The Company specializes in owning, operating and managing prisons and other correctional facilities and providing inmate residential and prisoner transportation services for governmental agencies. In addition to providing the fundamental residential services relating to inmates, the Company's facilities offer a variety of rehabilitation and educational programs, including basic education, life skills and employment training and substance abuse treatment. These services are intended to reduce recidivism and to prepare inmates for their successful re-entry into society upon their release. The Company also provides health care (including medical, dental and psychiatric services), food services and work and recreational programs. * * * As reported in Troubled Company Reporter's May 10, 2002 edition, Standard & Poor's removed the corporate credit rating on correctional services provider, Corrections Corp. of America, from CreditWatch with positive implications, and raised the rating to 'B+' from 'B'. In addition, the 'CCC+' rating on the company's 12% senior notes and 'B' rating on its $869.4 million credit facility were withdrawn. The outlook on Nashville, Tennessee-based CCA is stable. The rating actions followed the completion of CCA's refinancing, relieving the company of onerous near-term debt. The ratings on CCA reflect the company's high debt leverage, somewhat mitigated by its leading position in the correctional facility management and construction businesses and improved liquidity stemming from the terming-out of its debt maturities. DADE BEHRING: Seeks Okay to Hire Kirkland & Ellis as Attorneys -------------------------------------------------------------- Dade Behring Holdings, Inc., and its debtor-affiliates seek authority from the U.S. Bankruptcy Court for the Northern District of Illinois to retain Kirkland & Ellis as their bankruptcy attorneys, nunc pro tunc to the Petition Date. Dade Behring tells the Court that one of the reasons it chose Kirkland & Ellis is because of the firm's ability to respond to all issues that may arise in these cases -- including issues related to international insolvency law. Kirkland & Ellis will: a) advise the Debtors with respect to their powers and duties as debtors in possession in the continued management and operation of their business and properties; b) attend meetings and negotiate with representatives of creditors and other parties in interest; c) take all necessary action to protect and preserve the Debtors' estates, including the prosecution of actions on the Debtors' behalf, the defense of any action commences against the Debtors are involved, and objections to claims filed against the estates; d) prepare on behalf of the Debtors all motions, applications, answers, orders, reports, and papers necessary to the administration of the estates; e) negotiate and prepare on the Debtors' behalf a plan of reorganization, disclosure statement and all related agreements or documents, and take any necessary action on behalf of the Debtors to obtain confirmation of such plan; f) represent the Debtors in connection with obtaining post petition loans; g) advise the Debtors in connection with any potential sale of assets; h) appear before this Court, any appellate courts, and the United States Trustee and protect the interests of the Debtors' estates before such Courts and the United States Trustee; i) consult with the Debtors regarding tax matters; and j) perform all other necessary legal services and provide all other necessary legal advice to the Debtors in connection with these Chapter 11 cases. Kirkland & Ellis received approximately $4,967,621 for its prepetition services between August 1, 2001 and August 1, 2002. The Debtors will pay Kirkland & Ellis for post-petition services at the Firm's [undisclosed] customary hourly rates. The Debtors comprise the sixth largest manufacturer and distributor of in vitro diagnostic (IVD) products in the world. The Debtors primarily sell diagnostic systems that include instruments, reagents, consumables, service and date management systems. Of the total estimated $20 billion annual global IVD market, the Debtors serve a $12 billion segment targeted primarily at clinical laboratories. The Company filed for chapter 11 protection on August 1, 2002. James Sprayregen, Esq. at Kirkland & Ellis represents the Debtors in their restructuring efforts. ENRON: Court Okays Protocol for Sharing Examiner's Documents ------------------------------------------------------------ Enron Corporation, its debtor-affiliates, the Official Committee of Unsecured Creditors and Enron Corporation Examiner Neal Batson, Esq., are parties to a Court-approved Stipulation that would allow the sharing of the Examiner's documents. The Debtors and the Committee wanted to coordinate and cooperate with the Examiner as he discharges his duties, in an effort to minimize the time and cost to the Debtors' estates in the Examiner's fulfillment of his duties. The parties thus agree, among others, that: (a) Each of the Debtors and the Committee and their respective outside professionals may share with the Examiner documents, as defined in Rule 7034 of the Federal Rules of Bankruptcy Procedure, and legal opinions that may be subject to a privilege or other protection from discovery, including the attorney-client privilege or the work product doctrine. Any Shared Material that consists of documents shall be clearly designated by stamping them "Documents shared pursuant to Stipulation of July 3, 2002. Do not disclose to anyone except pursuant to the terms of the foregoing Stipulation;" (b) Each of the Debtors and the Committee and their outside professionals reserves the right to determine for the Shared Material that will be provided to the Examiner; (c) The sharing of materials is not obligatory and the provision of Shared Material is voluntary. The provision of Shared Material to the Examiner or his professionals shall not constitute grounds for any objection to the Examiner's Investigation or his selection of professionals to assist him; (d) Neither the Debtors nor the Committee, nor their respective outside professionals, intend to waive, in whole or part, the attorney-client privilege, work- product doctrine or any other privilege, right or immunity that the Debtors or the Committee may be entitled to claim or invoke; (e) Shared Material provided to the Examiner shall be held in strict confidence by the Examiner. The Examiner agrees he will not provide Shared Material to any person except as required by applicable law, regulation or legal process. The Shared Material, however, may be provided to: (i) accountants, attorneys, experts, consultants, support staff, and representatives and agents of the Examiner; and (ii) any person or entity authorized in writing to receive Shared Material by the Party producing same. Nothing in the Stipulation shall prohibit the Examiner or his professionals from using or disclosing in any manner any factual information contained within the Shared Material. The treatment of the legal opinions shall not preclude the Examiner from reaching any conclusion or opinion, consistent or inconsistent with, in connection with the Examiner's Investigation, nor shall it preclude the Examiner from disclosing any opinion or conclusion the Examiner may reach; (f) The Debtors and the Committee are not prohibited, restricted or limited from providing or disclosing to any other person or entity, without notice and at the sole discretion of each, the Shared Material or information contained in Shared Material that they have provided to the Examiner; (g) The Examiner may challenge the propriety of the designation of any materials marked as Shared Material. If the Examiner desires to challenge a Shared Material designation, he will file an application with the Court, in camera, challenging the Shared Material designation of documents provided hereunder. The Party who produced the documents and made the designation shall have 10 business days to either remove the designation or oppose the Examiner's application; and (h) The Stipulation applies only to documents created on or after December 2, 2001. (Enron Bankruptcy News, Issue No. 38; Bankruptcy Creditors' Service, Inc., 609/392-0900) Enron Corp.'s 9.125% bonds due 2003 (ENRN03USR1) are trading at 11.5 cents-on-the-dollar, DebtTraders reports. See http://www.debttraders.com/price.cfm?dt_sec_ticker=ENRN03USR1 for real-time bond pricing. FAIRPOINT COMMS: June 30 Balance Sheet Upside-Down by $135 Mill. ---------------------------------------------------------------- FairPoint Communications, Inc., announced its financial results for the six-month period ended June 30, 2002 and its second- quarter results for the three-month period ended June 30, 2002. Highlights of FairPoint's financial results from continuing operations include: * Consolidated revenues increased 0.4 percent to $115.2 million compared to the comparable six-month period ended June 30, 2001. * Consolidated EBITDA was $60.3 million, a $2.5 million decrease compared to the six-month period ended June 30, 2001 after recording a $1.9 million bad debt reserve and a $5.6 million asset write down. Excluding the effect of the asset write down expense, the consolidated EBITDA from continuing operations was $65.9 million, a 5.0 percent increase. * RLEC EBITDA was $65.3 million, a $3.0 million increase compared to the six-month period ended June 30, 2001, after recording the $1.9 million bad debt reserve expense. * Consolidated revenues decreased 1.8 percent to $56.8 million for the three-month period ended June 30, 2002, while RLEC revenues remained unchanged at $55.7 million. * RLEC EBITDA was $31.0 million, a 2.1 percent increase for the three-month period ended June 30, 2002 compared to the same period in 2001. Results for the six month period ended June 30, 2002 FairPoint reported consolidated revenues from continuing operations of $115.2 million, a 0.4 percent increase compared to $114.7 million for the six months ended June 30, 2001. The rural local exchange carrier companies' revenues of $110.7 million were unchanged from the same period in 2001. The Company's Carrier Services group, a provider of wholesale long distance services, reported revenues of $4.5 million, a 9.8 percent increase compared to $4.1 million for the same period in 2001. Consolidated earnings before interest, taxes, depreciation and amortization, and non-cash stock-based compensation (EBITDA) from continuing operations was $60.3 million for the six-month period ended June 30, 2002 compared to $62.8 million for the same period in 2001. RLEC EBITDA was $65.3 million, a 4.8 percent increase from $62.3 million for the same period in 2001. The Carrier Services group reported EBITDA of $0.6 million in the first six months of 2002, an increase of $0.2 million compared to the same period in 2001. The consolidated EBITDA from continuing operations was negatively impacted by: (i) A $1.9 million bad debt reserve for amounts due from an inter-exchange carrier, which recently filed for bankruptcy protection; and (ii) A $5.6 million asset write down in value of marketable securities on the shares held in ChoiceOne Communications Inc., by FairPoint Communication Solutions Corp. These two expenses were recorded in the second-quarter ended June 30, 2002. The consolidated EBITDA from continuing operations adjusted for the asset write down was $65.9 million, a 5.0 percent increase over the six-month period ended June 30, 2001. FairPoint reported a consolidated net loss from continuing operations of $1.7 million compared to a $9.6 million loss for the same period in 2001. Contributing to the year over year improvement was a reduction in interest expense and the Company has also implemented SFAS 142, Goodwill and Other Intangible Assets, and has discontinued the amortization of goodwill resulting in a decrease in amortization expense of $6.1 million for the six months ended June 30, 2002, compared to the same period in 2001. FairPoint Communications, Inc.'s June 30, 2002, balance sheet shows a working capital deficit of about $17 million, and a total shareholders' equity deficit of about $135 million. In November 2001, the Company decided to discontinue the CLEC operations of its wholly owned subsidiary, FairPoint Communications Solutions Corp. In December 2001, the Company completed the sale of certain of its Northwest CLEC assets to Advanced Telcom, Inc., and the sale of certain of its Northeast assets to Choice One Communications Inc. and certain of Choice One's affiliates. As a result of these transactions and the transition of all FairPoint Solutions customers to other service providers, FairPoint Solutions completed the disposition of its CLEC operations in April 2002. The operating results of FairPoint Solutions CLEC operations are presented in FairPoint's financial statements as discontinued operations. In May 2002, FairPoint Solutions entered into a debt restructure agreement with its lender group. The debt restructure agreement provided for: (i) A $5 million payment to satisfy $7.0 million of outstanding debt; (ii) The conversion of approximately $93.9 million of loans into the Company's Series A Preferred Stock; and (iii) The remaining loans and obligations were converted to $27.9 million of new term loans. Additional details of the debt restructure agreement are outlined in the Company's first quarter SEC Form 10-Q filed May 14, 2002. This report may be obtained through the Company's web site, http://www.fairpoint.comunder Investor Relations / SEC Filings. Results for the second quarter ended June 30, 2002 FairPoint reported second-quarter consolidated revenues from continuing operations of $56.8 million, a 1.7 percent decrease compared to $57.8 million for the three months ended June 30, 2001. The RLEC companies reported revenues of $55.7 million, unchanged from the year-ago period. The Carrier Services group reported revenues of $1.1 million, a decrease of $1.1 million from a year ago. This decrease was attributed to the loss of customers as a result of an increase in an underlying carrier's rates during the first-quarter 2002. Consolidated earnings before interest, taxes, depreciation and amortization, and non-cash stock-based compensation (EBITDA) from continuing operations were $25.5 million in the second- quarter 2002, a 16.7 percent decrease from $30.6 million for the same period in 2001. The consolidated EBITDA from continuing operations after adjusting for the write down of marketable securities was $31.1 million, a 1.6 percent increase over the three-month period ended June 30, 2001. RLEC EBITDA was $31.0 million, a 2.1 percent increase from $30.4 million for the same period in 2001. The Carrier Services group reported EBITDA of $0.1 million in the second-quarter of 2002, a decrease of $0.1 million for the same period in 2001. FairPoint reported a consolidated net loss from continuing operations after taxes of $7.2 million in the second-quarter 2002 compared with a loss of $3.2 million for the same period in 2001. FairPoint Communications, Inc., is one of the leading providers of telecommunications services to rural communities across the country. Incorporated in 1991, the Company's mission is to acquire and operate telecommunications companies that set the standard of excellence for the delivery of service to rural communities. Today, FairPoint owns and operates 29 rural local exchange companies located in 18 states. The Company serves customers with more than 245,000 access lines and offers an array of services including local voice, long distance, data and Internet. FLEMING COS.: Declares Quarterly Dividend Payable on December 10 ---------------------------------------------------------------- Fleming Companies, Inc., (NYSE: FLM) declared a quarterly dividend of two cents per share of common stock, payable December 10, 2002, to shareholders of record on November 20, 2002. With its national, multi-tier supply chain network, Fleming is the #1 supplier of consumer package goods to retailers of all sizes and formats in the United States. Fleming serves nearly 50,000 retail locations, including supermarkets, convenience stores, supercenters, discount stores, concessions, limited assortment, drug, specialty, casinos, gift shops, military commissaries and exchanges, and more. In addition, Fleming is the nation's leading distributor to Hispanic markets. Fleming also has a growing presence in value retailing, operating 110 stores under the Food4Less and Rainbow Foods banners and 17 stores under the Yes!Less banner. To learn more about Fleming, visit its Web site at http://www.fleming.com. * * * As reported in Troubled Company Reporter's June 24, 2002, edition, Standard & Poor's affirmed its double-'B' corporate credit rating on Fleming Cos. Inc., and raised its rating on Core-Mark International Inc.'s subordinated debt to single-'B'- plus (Fleming's level) from single-'B' following the completion of Fleming's acquisition of Core-Mark. The subordinated debt rating on Core-Mark was also removed from CreditWatch and the double-'B'-minus corporate credit rating on the company was withdrawn. The outlook on Fleming is negative. Lewisville, Texas-based Fleming had $2.2 billion total debt outstanding as of April 20, 2002. FOAMEX INT'L: Will Host Investor Conference Call on Tuesday ----------------------------------------------------------- Foamex International Inc., (Nasdaq: FMXI) will host a dial-in conference call on Tuesday, August 13, 2002 at 10:00 a.m. (EDT), to discuss Foamex's 2002 second quarter results. Individuals can access the call by dialing 888-458-9977 (U.S. and Canada) and 712-271-3820 (International). Foamex, headquartered in Linwood, PA, is the world's leading producer of comfort cushioning for bedding, furniture, carpet cushion and automotive markets. The Company also manufactures high-performance polymers for diverse applications in the industrial, aerospace, defense, electronics and computer industries as well as filtration and acoustical applications for the home. For more information visit the Foamex Web site at http://www.foamex.com In its March 31, 2002 balance sheet, Foamex International recorded a total shareholders' equity deficit of about $173 million. FRUIT OF THE LOOM: Trust Wants to Auction 6 Non-Operating Assets ---------------------------------------------------------------- Fruit of the Loom, Ltd.'s Liquidation Trust asks Judge Walsh's permission to auction these Non-Operating Real Properties: Location Address Description ------------------- ---------------------- ----------- Aliceville, Alabama 315 Alabama Street, SW Cotton Mill Winfield, Alabama 135 Mallard Road Cotton Mill Jacksonville, Alabama 404 Alexandria Road, NW Yarns Mill Frankfort, Kentucky Rte 3 $ Hey 421 S Industrial St. Martinville, Louisiana 261 Main Highway Manufacturing Trois Rivieres, Quebec 3200 Cumberland Street Industrial Risa M. Rosenberg, Esq., at Milbank, Tweed, Hadley & McCloy, informs the Court that the Non-Operating Real Properties have been idle for over a year. Before the Effective Date, Fruit of the Loom marketed each of the properties through its network of potential purchasers, the independent real estate broker community, and through local, regional and state economic development agencies. On May 18, 2001, Fruit of the Loom obtained the Court's approval for an auction of some of the Non- Operating Real Properties. Unfortunately, that auction did not result in acceptable bids for these properties. In each instance, the Debtors' and FOL Trust's marketing efforts did not yield any offers to purchase or otherwise acquire the properties in a manner that would maximize their value. FOL Trust estimates that the aggregate annual holding costs associated with the Non-Operating Real Properties is $3,500,000, which consists of costs for: -- minimal utility services, -- property taxes, -- maintenance, -- site security, and -- insurance for each property. Holding the facilities through the traditional marketing period for similar industrial properties, estimated to be 18-24 months, would therefore cost the FOL Trust $5,250,000 to $7,000,000. However, in light of the previous unsuccessful marketing efforts, which included a traditional sales approach, there is no assurance that the FOL Trust would ultimately consummate sales transactions for each of the properties. Ms. Rosenberg points out that the Auction and Bidding Procedures mandate that a hearing be scheduled before this Court as soon as is practicable following the auction of the last Non-Operating Real Property, but no later than the first scheduled omnibus hearing following the auction. The hearing will confirm the Trust's compliance with the Auction and Bidding Procedures and each winning bidder -- or second bidder as the case may be -- as the purchaser. The sale and transfer of each Non-Operating Real Property, free and clear of all interests, liens, claims, and encumbrances pursuant to section 363(f) of the Bankruptcy Code, will be also be tackled at the hearing. As a part of its efforts to liquidate assets consistent with the terms of the Plan, FOL Trust has determined that the prompt sale of the Non-Operating Real Properties would best maximize value for the benefit of the creditors and the estates. Given the lackluster results of the Debtor's marketing efforts before the Effective Date, FOL Trust contends that marketing and selling the non-operating Real Properties in accordance with the Auction and Bidding Procedures will yield the highest possible price for the properties and is the most expeditious manner for their liquidation. FOL Trust informs the Court that the sale of the Non-Operating Real Properties pursuant to the Auction and Bidding Procedures represents a sound and reasonable exercise of its business judgment. The salient terms of the Auction and Bidding Procedures are: -- Bidders must send the original set of the Required Bid Documents, including the Deposit, to the FOL Trust Auctioneer so it is received by the September 30, 2002, 4:00 P.M. EST Bid Deadline; -- The address of the Auctioneer is: FOL Trust Auctioneer Keen Realty, LLC 60 Cutter Mill Road, Suite 407 Great Neck, New York 11201-3104 -- A copy of the Required Bid Documents must also be sent to: Milbank, Tweed, Hadley & McCloy LLP Attn: Risa Rosenberg, Esq. 1 Chase Manhattan Plaza, 56th Floor New York, New York 10005; and Avidity Partners, LLC as Trustee for FOL Trust Attn: John Ray 280 Shuman Boulevard, Suite 170 Naperville, Illinois 60563 -- Unless waived by FOL Trust, only bidders that have submitted qualified bids by the bid deadline shall be eligible to participate in the auction. An auction will be held and will be open only to Qualified Bidders. -- If there are questions regarding the procedures, please contact Keen's on-site staff or call Keen at (816) 482-2700. (Fruit of the Loom Bankruptcy News, Issue No. 58; Bankruptcy Creditors' Service, Inc., 609/392- 0900) GENSYM CORP: Laurence Lytton Discloses 6.8% Equity Stake -------------------------------------------------------- Laurence W. Lytton of Scarsdale, NY beneficially owns 443,275 shares of the common stock of Gensym Corporation, representing 6.8% of the outstanding common stock of Gensym. Mr. Lytton holds sole power to vote or to direct the vote of, and sole power to dispose or to direct the disposition of the 443,275 shares held. Gensym Corporation -- http://www.gensym.com-- is a provider of software products and services that enable organizations to automate aspects of their operations that have historically required the direct attention of human experts. Gensym's product and service offerings are all based on or relate to Gensym's flagship product G2, which can emulate the reasoning of human experts as they assess, diagnose, and respond to unusual operating situations or as they seek to optimize operations. At March 31, 2002, Gensym Corp.'s balance sheet shows a working capital deficit of about $1.2 million. Its total shareholders' equity swings-up to $37,000 from a deficit of $436,000 at December 31, 2001. GLENOIT CORP: Court Sets Disclosure Statement Hearing for Aug 27 ---------------------------------------------------------------- The U.S. Bankruptcy Court for the District of Delaware will convene a hearing to consider the adequacy of the Disclosure Statement prepared by Glenoit Corporation and its debtor- affiliates' in support of the Debtors' First Amended Joint Plan of Reorganization. The hearing will be held in Chicago, Illinois on August 27, 2002 at 2:00 p.m. prevailing central time before The Honorable Ronald A. Barliant in the United States Court House, Court Room 742, 219 South Dearborn Street, Chicago, Illinois 60604. Written objections to the Disclosure Statement, to be deemed timely-filed, must be in by August 20, 2002, received by: i) co-counsel to the Debtors Alston & Bird LLP Attn: Matthew Levin, Esq. 1201 West Peachtree Street Atlanta, Georgia 30329 Phone: 404-881-7000, Facsimile: 404-881-7777 and Young Conaway Stargatt & Taylor LLP Attn: Joel A. Waite, Esq. The Brandywine Building, 1000 West Street 17th Floor, P.O. Box 391 Wilmington, Delaware 19899 Phone: 302-571-6600, Facsimile: 302-571-1253; ii) counsel to the Agent Kramer Levin Naftalis & Frankel LLP Attn: David Feldman, Esq. 919 Third Avenue, New York New York 10022 Phone: 212-715-9100, Facsimile: 212-715-8000, iii) counsel to the Unofficial Noteholders Committee Stroock & Stroock & Lavan LLP Attn: Wendell Adair, Esq. 180 Maiden Lane, New York New York 10038-4982 Phone: 212-806-5400, Facsimile: 212-806-6006 and iv) the Office of the United States Trustee Attn: Don Beskrone, 844 King Street Suite 2313, Wilmington, Delaware 19801 Phone: 302-573-6491, Facsimile: 302-573-6497. HAYES LEMMERZ: Wants to Bring-In Deloitte & Touche as Consultant ---------------------------------------------------------------- Prior to the Petition Date, Hayes Lemmerz International, Inc., and its debtor-affiliates retained Arthur Andersen LLP to assist them in designing and implementing a revised compensation strategy to retain key employees and executives during their Chapter 11 cases. Hayes-Lemmerz Chief Restructuring Officer Kenneth A. Hiltz informs the Court that Nick Bubnovich was the engagement partner at Arthur Andersen in charge of the Hayes relationship. Ron Rosenthal, who was an associate at Arthur Andersen, assisted Mr. Bubnovich. While at Arthur Andersen, Messrs. Bubnovich and Rosenthal assisted the Debtors in all facets of the development of the Debtors' critical employee retention program. As a result, both men have extensive knowledge of the Debtors' employee compensation practices and procedures. On May 8, 2002, Mr. Hiltz recounts that Messrs. Bubnovich and Rosenthal left Arthur Andersen and transferred their practices to Deloitte & Touche. Accordingly, the Debtors terminated Arthur Andersen's employment. By this application, the Debtors seek the Court's authority to retain Deloitte & Touche effective May 8, 2002 to assist them to design and implement a revised compensation strategy to retain key employees and executives during the Debtors' Chapter 11 cases, in accordance with the terms of an engagement letter dated June 26, 2002. The Debtors specifically want to continue utilizing the services of Messrs. Bubnovich and Rosenthal. The Debtors also seek to retain Deloitte & Touche effective March 1, 2002 to continue to perform certain expatriate tax services in accordance with an engagement letter dated March 21, 2002. Mr. Hiltz relates that Deloitte & Touche is well-qualified to act as the Debtors' Employee Compensation Consultant in light of its considerable expertise in assisting companies both inside and outside of bankruptcy. Pursuant to the Employee Compensation Engagement Letter, Deloitte & Touche will: A. assist in the design of a retention bonus program for executives and key employees; B. compare the proposed retention program to competitive practice; C. assist in the formulation of a communications strategy regarding any new or revised compensation programs; D. provide compensation consulting services as requested, and E. provide expert testimony as required. Pursuant to the Tax Services Engagement Letter, Deloitte & Touche is expected to: 1. prepare Federal and state income tax returns and host country income tax returns for eligible expatriate employees of the Debtors; 2. provide tax briefings to eligible expatriate employees; 3. calculate tax equalization calculations for eligible expatriate employees; 4. provide services on miscellaneous compliance matters that may arise; and 5. provide general advisory services upon the Debtors' request. Mr. Hiltz assets that Deloitte & Touche's professional services are necessary in the ongoing operation and management of the Debtors' businesses and assets, as well as to the Debtors' restructuring efforts under Chapter 11 of the Bankruptcy Code. Mr. Bubnovich assures the Court that Deloitte & Touche's officers and employees do not have any connection with the Debtors, their creditors, or any other party in interest, or their respective attorneys or accountants. The firm is a "disinterested person" under Section 101(14) of the Bankruptcy Code. Mr. Bubnovich asserts that Deloitte & Touche does not hold or represent interests adverse to the Debtor's estates. However, Mr. Bubnovich reports that Deloitte currently provides or has provided services to these parties in matters unrelated to these cases: A. Secured Creditors: CIBC, Credit Suisse First Boston, Merill Lynch, ABN Amro Bank, Alliance Capital, AMEX, Banca Nazionale del Lavoro Spa, Bank Leumi, Bank of America, Bank of Montreal, Bank of New York, Bank of Nova Scotia, Bank of Tokyo-Mitsubishi, Bank One, Bear Sterns Asset Management, BNP Paribas, Citibank, Comerica Bank, Conseco, Credit Agricole Indosuez, Credit Industrial Et Commercial, Credit Lyonnais, Dai-Ichi Kangyo Bank Ltd., Fleet National Bank, Fuji Bank Ltd., Goldman Sachs, ING Capital, Mellon Bank N.A., Michigan National Bank, Natexis Banque, Octagon, Pilgrim, Sterling, Sun America, Provident Bank, and Wachovia Bank; B. Bondholders: ABN Amro Securities LLC, American Express Trust Company, Bank of America Securities LLC, Bank of New York, Bankers Trust Co., Bear Sterns Securities Corp., Bank One Trust Co. N.A., Brown Brothers Harriman & Co., Charles Schwab & Co. Inc., Chase Manhattan Bank, Citibank N.A., City National Bank, Commerzbank Capital Markets Corp., Credit Suisse First Boston Corp., Deutsche Bank AG, Edward D. Jones & Co., Fifth Thord Bank, First Union National Bank, Goldman Sachs & Co., Investors Bank & Trust, J.P. Morgan Securities, Legg Mason Wood Walker Inc., Lehman Brothers Inc., McDonald Investments Inc., Mercantile-Safe Deposit & Trust Co., Mizhuho Trust & Banking Co. (USA), Merrill Lynch Pierce Fenner & Smith, Morgan Stanley & Co. Inc., National Financial Services Corp., Northern Trust Co., PNC Bank N.A., Prudential Securities Inc., Salomon Smith Barney Inc., State Street Bank & Trust Co., Sumitomo Trust & Banking Co., Suntrust Bank, Toyo Trust Co. of New York, UBS Painewebber Inc., UBS Warburg LLC, U.S. Bank N.A., and Wachovia Bank N.A.; C. Unsecured Creditors: Alcan Aluminum Corp., Alcoa Automotive Castings, Alcoa Inc., Ann Arbor Machine Co., Borden Chemical, Grede Foundries, Honda of America Mfg. Inc., Industrial Systems Associates Inc., LTV Steel Co., National Steel Corp., Pechiney Sales Corp., PPG Industries Inc., Stelco USA Inc., Vista Metals, Oglebay Norton Industrial Sands Inc., CDP North America Inc., BASF Corp., Missouri Public Service, Delphi Automotive Systems, and Gosiger Inc. Deloitte & Touche's compensation will be based on its customary hourly rates. The firm will also seek reimbursement for reasonable and necessary out-of-pocket expenses. With respect to employee compensation consulting services, the firm's hourly rates range from: Partners $400 - 600 Managers 300 - 400 Senior Associates 200 - 250 Associates 125 - 200 The professional fees that Deloitte will charge for the Tax Services Engagement will be based on a fixed fee, plus reimbursement of for reasonable and necessary out-of-pocket expenses. The current fees that Deloitte will charge the Debtors are: Product/Service Fees --------------------------------------------- ---- U.S. Federal Income Tax Return U.S. Outbound $2,500 U.S. Inbound Transfer Year 2,100 U.S. Inbound 1,800 U.S. State & Local Income Tax Return 350 U.S. Federal & State Filing Extensions No estimated tax calculation required 200 Estimated tax calculation required 360 Annual Tax Equalization 450 Exit Tax Orientation 600 Annual Hypothetical Tax Calculation 450 Entrance Tax Orientation (Host) 750 Preparation of Host Tax Returns 600 - 1,900 Preparation of Federal & State Est. Tax Payments 350 W-7 (ITIN) Processing 450 US Certificate of Coverage Application 250 Deloitte & Touche began serving as the Debtors' Employee Compensation Consultant on May 8, 2002. As of July 25, 2002, the firm estimates that its fees and expenses for employee compensation services rendered on behalf of the Debtors amounts to $20,000. Deloitte & Touche began performing expatriate tax services on March 1, 2002. From that date through July 25, 2002, the firm estimates that its fees and expenses for expatriate tax services rendered on behalf of the Debtors amounts to $5,000. The Debtors have made no postpetition payments to Deloitte & Touche for fees and expenses with respect to employee compensation or expatriate tax services. (Hayes Lemmerz Bankruptcy News, Issue No. 15; Bankruptcy Creditors' Service, Inc., 609/392-0900) Hayes Lemmerz Int'l Inc.'s 11.875% bonds due 2006 (HLMM06USS1) are trading at 67 cents-on-the-dollar, DebtTraders reports. See http://www.debttraders.com/price.cfm?dt_sec_ticker=HLMM06USS1 for real-time bond pricing. HOLLYWOOD CASINO: Penn National to Acquire Assets for $780 Mill. ---------------------------------------------------------------- Penn National Gaming, Inc., (PENN: Nasdaq) has entered into a definitive agreement to acquire Hollywood Casino Corporation (HWD: AMEX) for total consideration of approximately $780 million. The total consideration is net of Hollywood Casino's cash and cash equivalents of approximately $136 million and includes approximately $569 million of long-term debt of Hollywood Casino and its subsidiaries. Under the terms of the agreement, Hollywood Casino will merge with a wholly-owned subsidiary of Penn National, and Hollywood Casino stockholders will receive cash in the amount of $12.75 per share at closing. Hollywood Casino and its subsidiaries own and operate Hollywood- themed casino entertainment facilities in Aurora, Illinois; Tunica, Mississippi; and Shreveport, Louisiana. Following the proposed acquisition of Hollywood Casino, Penn National will own six dockside gaming facilities, a pari-mutuel horse racing facility with slots, a land-based casino, two pari-mutuel horse racing operations and eleven off-track wagering sites and hold a casino management contract for an international casino. The combined company will be the seventh largest public gaming company in the U.S. with annual revenues in excess of $1 billion. Penn National believes the transaction will be accretive to its operating results upon closing based on its analysis of Hollywood Casino's assets and their prospects, as well as expected financial and operating synergies. The transaction has been approved by the Boards of Directors of both Penn National Gaming, Inc., and Hollywood Casino Corporation. The transaction is subject to a vote by stockholders of Hollywood Casino, gaming authorities and other regulatory approvals (including expiration of the applicable Hart-Scott-Rodino waiting period) and other customary closing conditions, and is expected to be consummated in the first half of 2003. Certain stockholders of Hollywood Casino who control approximately 50.3% of its outstanding shares have agreed to vote in favor of the transaction. Commenting on the transaction, Peter M. Carlino, Chief Executive Officer of Penn National, said, "The acquisition of these well established properties represents a significant growth and expansion opportunity for Penn National and is attractive both strategically and financially. The acquisition, which almost doubles our revenue base, is expected to be accretive to our operating results upon closing, builds the critical mass of our gaming operations and further diversifies the geographic reach of our operations without any overlap with our existing properties. "We believe Hollywood's assets will prove to be excellent additions to Penn National. Hollywood Casino's Aurora facility recently completed a major expansion and the company's $230 million Shreveport resort has only been in operation for a year and a half. As a result, neither of these properties will require major near term capital investments to expand or refurbish these facilities. In both cases these properties are viewed as the premier facility in their respective market and have access to major metropolitan feeder markets of Chicago and Dallas. Hollywood Tunica has proven to be a consistent performer with over 500 rooms, ample meeting space, an 18-hole championship golf course and is an attractive destination resort. Like its Aurora and Shreveport counterparts, the Tunica casino is a superior quality facility that will require very modest near-term capital expenditures. Our vision is to blend the successful operating and management disciplines of both companies to generate improved financial performance over prior year periods. Finally, in Hollywood Casino we are acquiring a solid brand with widespread recognition that can be applied to other Penn National assets to drive marketing programs and efficiencies." Edward T. Pratt III, Chairman and Chief Executive Officer of Hollywood Casino Corporation, continued, "The Board and management of Hollywood Casino are very pleased to announce this transaction. The significant value our shareholders will be receiving reflects the culmination of several years of hard work by many dedicated employees of Hollywood. The $12.75 per share purchase price clearly reflects the tremendous value that Hollywood Casino has created for its shareholders. The terms of the transaction provide Hollywood Casino shareholders with a 34% premium to the closing price of our stock on June 27, 2002, the day before we publicly disclosed that the company had been conducting a sale process. We are confident that our superior quality facilities will continue to generate impressive operating results under Penn National. "In addition to being a terrific transaction for our shareholders, we think the merger of our two companies provides our employees with a tremendous opportunity. The combined company will be a large, diversified gaming company with a bright future. We are pleased to note that after the merger our properties will continue to operate under the Hollywood Casino brand. We also understand that Penn National's existing properties plan to adopt the Hollywood Casino name and theme after the merger." Hollywood Casino Corporation owns and operates: - Hollywood Casino - Aurora, arguably the finest gaming and entertainment product in the Chicago marketplace. The 117,000 square foot dockside casino and entertainment facility is located in Aurora, Illinois, approximately 35 miles west of downtown Chicago. The property recently opened a new spectacular dockside casino that replaced its two original, four level riverboat casinos. The dockside casino has 53,000 square feet of gaming space on a single level featuring 1,105 slot machines and 36 table games including the only poker room in Chicago. The property also features the Hollywood Epic Buffet (R), which offers the latest in presentation style cooking, the Fairbanks (R) Steakhouse, the property's gourmet steak restaurant and a high-end player's lounge. - Hollywood Casino - Tunica, a casino, hotel and entertainment complex located in Tunica County, Mississippi, approximately 30 miles south of Memphis, Tennessee. The Tunica Casino was designed to replicate a motion picture sound stage and features a 54,000 square-foot, single-level casino with approximately 1,600 slot machines and 40 table games. The casino includes the Adventure Slots themed gaming area featuring multimedia displays of memorabilia from famous adventure motion pictures and over 200 slot machines. The Tunica Casino's 505- room hotel is currently undergoing an $8 million renovation which is expected to be completed in mid-2003. - Hollywood Casino - Shreveport, a 229,000 square foot entertainment facility located in Shreveport, Louisiana, approximately 180 miles east of Dallas, Texas. The property is Shreveport's first "true" destination resort and is also the market's first highly themed facility, utilizing an art-deco Hollywood theme throughout the property. The Shreveport resort features the largest dockside casino in the Shreveport market, a 403-room, all-suite hotel, an elegant land-based pavilion that includes a sixty-foot high atrium and extensive restaurant and entertainment amenities. The property's dockside casino contains approximately 59,000 square feet of space with approximately 1,422 slot machines and approximately 66 table games. Located in the pavilion are the property's acclaimed Epic Buffet, Hollywood Diner and Fairbanks Steakhouse restaurants and its state-of-the- art spa and fitness center. Penn National has received financing commitments from Bear, Stearns & Co. Inc., and Merrill Lynch & Co., to consummate the transaction which commitments are subject to several customary conditions. Lehman Brothers Inc., acted as financial advisor to Penn National Gaming and Goldman, Sachs & Co., served as financial advisor to Hollywood Casino Corporation in the transaction. Penn National Gaming owns and operates Charles Town Races in Charles Town, West Virginia, which presently features 2,587 gaming machines (with approval to offer 3,500 machines); two Mississippi casinos, the Casino Magic hotel, casino, golf resort and marina in Bay St. Louis and the Boomtown Biloxi casino in Biloxi; the Casino Rouge, a riverboat gaming facility in Baton Rouge, Louisiana and the Bullwhackers properties in Black Hawk, Colorado. Penn National also owns two racetracks and eleven off- track wagering facilities in Pennsylvania and the racetrack at Charles Town Races in West Virginia, and operates the Casino Rama, a gaming facility located approximately 90 miles north of Toronto, Canada, pursuant to a management contract. * * * As reported in Troubled Company Reporter's July 2, 2002, edition, Standard & Poor's placed its single-'B' ratings of Hollywood Casino Corp., as well as its single-'B'-minus ratings of Hollywood Casino Shreveport, on CreditWatch with developing implications, which means the ratings could be either raised or lowered. The action follows Hollywood's announcement it has been exploring strategic alternatives with its financial advisor, Goldman Sachs, to maximize shareholder value. Dallas, Texas-based Hollywood Casino owns and operates casino gaming facilities in Aurora, Illinois, Tunica, Mississippi, and Shreveport, Louisiana. The company has about $550 million in consolidated debt outstanding. Over the past several months, the company has conducted an extensive sale process that has resulted in several indications of interest. While the outcome is uncertain, the process is continuing. ICG COMMS: Supplemental Disclosure Statement to 2nd Amended Plan ---------------------------------------------------------------- The salient terms of ICG Communications, Inc., and its debtor- affiliates' Supplemental Disclosure Statement to the Second Amended Joint Plan of Reorganization are: 1. Issuance of New Securities: On the Effective Date, Reorganized ICG will issue for distribution in accord with the terms of the Plan: (i) $59,573,934.83 of New Secured Notes to holders of Allowed Claims in Class S-5; (ii) 8,000,000 shares of New Common Shares to the holders of Allowed Claims in Classes H-4 and S-4; and (iii) the New Holdings Creditor Warrants to holders of Allowed Claims in Class H-4 if Class H-4 accepts the Plan. The issuance of all of these New Securities and their distribution will be exempt from registration under applicable securities laws. 2. Registration Rights Agreement: On the Effective Date, Reorganized ICG will enter into a Registration Rights Agreement with each Allowed Class H-4 or S-4 claims holder: (a) who by virtue of holding New Common Shares and/or its relationship with Reorganized ICG could reasonably be deemed an "underwriter" or "affiliate" of Reorganized ICG, and (b) who requests in writing that Reorganized ICG sign such an agreement. The Registration Rights Agreement may contain certain demand and piggyback registration rights for the benefits of the signatories to it. 3. Exit Financing: On the Effective Date, Reorganized ICG will enter into all necessary and appropriate documentation to obtain the Exit Financing. Specifically, on the Effective Date, Reorganized ICG will enter into the $25,000,000 New Senior Subordinated Term Loan, and in that connection will issue Fee Warrants. "Fee Warrants" are warrants to purchase 200,000 New Common Shares to be issued on the Effective Date by Reorganized ICG to the lenders under the New Senior Subordinated Term Loan. The proceeds of this Loan will be used to repay $25,000,000 million of the Secured Lender Claims. In that connection, Reorganized ICG will also issue to the lenders under the New Senior Subordinated Term Loan the New Nominal Warrants. The "New Nominal Warrants" are warrants to purchase 5% of the New Common Shares to be issued on the Effective Date by Reorganized ICG to these lenders. The issuance of the New Senior Subordinated Term Loan and the notes distributed on that account, as well as the New Nominal Warrants and the Fee Warrants, will not be exempt from registration under the applicable securities laws, and accordingly these securities will have to be registered under the Securities Act or be issued and distributed under an exemption from registration other than under the Bankruptcy Code. 4. Estimated Recoveries Decreased: As a result of: (i) the passage of time since the date of the original Disclosure Statement was drafted, (ii) general changes in the prevailing marketplace for telecommunications company securities, and (iii) revised financial projections for the Reorganized Debtors necessitated in party by the fact that the New Exit Financing provides for $40,000,000 less new funds for the Reorganized Debtors than would have been obtained under the Initial Exit Financing, and (iv) the valuation by the Debtors' investment banker of the Reorganized Debtors' enterprise -- and the securities to be issued under the Modified Plan, which has decreased compared to the valuation set out in the original Disclosure Statement, the estimated value of the recoveries to creditors proposed under the Modified Plan has decreased. 5. Pro Forma Financial Statements for Reorganized ICG: The Consolidated Projected Pro Forma Balance Sheet is as of October 31, 2002, which is the assumed Effective Date of the Modified Plan, and reflects the effects of the transactions described in the Modified Plan. 6. Valuation: MBL has provided a range of value for Reorganized ICG of $250,000,000 to $325,000,000. For purposes of the Consolidated Pro Forma Balance Sheets, a reorganization value of $287,500,000 has been assigned and allocated to the post-bankruptcy assets and liabilities in accord with SFAS 141. The Debtors warn that this estimated reorganization value, as well as its allocation, may be significantly different from the final amounts that will be determined upon the Debtors' emergence from bankruptcy. 7. Effective Date; Plan Terms: The projections on which the Plan is based assume confirmation and that all transactions and settlement agreements contemplated by the Plan will be consummated by the Effective Date of October 31, 2002. 8. Bank Debt: The bank debt is projected to have a $59,600,000 principal balance as of the Effective Date after a $25,000,000 paydown from proceeds of the new Senior Subordinated Term Loan. Interest is assessed as a spread over LIBOR or the bank's prime rate and is assumed at 11% per annum throughout the Plan Period, payable quarterly in arrears. The projections include $2,200,000 of refinancing fees and expenses at the Effective Date. The principal balance of the loan is projected to begin amortizing in 2003 and will mature in 2005. 9. Senior Subordinated Term Rates: The Debtor has projected the issuance of a new $25,000,000 Senior Subordinated Term Loan at the Effective Date. Interest is fixed and payable monthly in arrears at a rate of 14% per annum. The Senior Subordinated Term Loan matures in four years. In addition, total warrants to purchase 673,684 New Common shares of Reorganized ICG will be issued in connection with the Senior Subordinated Term Loan. Warrants to purchase 200,000 New Common shares will have an exercise price equal to the reorganization value assigned to the Debtor. Warrants to purchase 473,684 New Common shares will have an exercise price of $0.01. Both warrant issues will expire, if unexercised, on the fifth anniversary of the Effective Date. The total warrants have a fair market value of $5,300,000, as determined by MBL under its valuation of Reorganized ICG. 10. Other debt: Other debt as of the Effective Date consists primarily of notes issued to vendors and taxing authorities upon the Effective Date and are projected to have a principal balance totaling $30,600,000. Associated interest expense is projected at 7.0% to 10% per annum, payable monthly. The total principal balance is amortized over periods ranging from two to six years. 11. Income taxes: It is assumed that the tax operating losses and other attributes will be sufficient to offset any income tax liabilities incurred during the projection period. As such, there are no projected income tax liabilities. 12. Ability to Service Debt: Based on the projections and subject to the assumptions made, the Debtors project debt service coverage ratios as: 2003 2004 2005 ---- ---- ---- EBITDA/Interest Expense, net 3.2:1 4.3:1 6.0:1 Debt/EBITDA ** 2.4:1 1.6:1 1.2:1 ** Debt in this Debt/EBITDA ratio excludes Deferred Revenue and is computed using average funding debt balances. 13. Funding: The Debtor is projected to have $69,600,000 in cash on the Effective Date to fund the capital program, principal and interest obligations, and working capital requirements over the projection period. The Debtor requires $12,000,000 and $57,000,000 of new debt financing in 2004 and 2005, respectively, to meet funding requirements and to refinance the bank debt due in 2005. (ICG Communications Bankruptcy News, Issue No. 28; Bankruptcy Creditors' Service, Inc4., 609/392-0900) ITC DELTACOM: Signs Up Hogan & Hartson as Special Corp. Counsel --------------------------------------------------------------- ITC Deltacom, Inc., seeks authority from the U.S. Bankruptcy Court for the District of Delaware to retain Hogan & Hartson LLP as special corporate counsel. Hogan is very familiar with the Debtor's business, affairs, and capital structure, having performed substantial services for the Debtor for the past several years with regard to a variety of corporate matters. The Debtor relates that Hogan will be primary counsel on corporate matters. Hogan's services include: - representation in matters relating to compliance with the regulations of the Securities and Exchange Commission, The Nasdaq Stock Market, Inc., the Federal Communications Commission and state public utility and other regulatory authorities with jurisdiction over the Debtor's operations; - representation in administrative and judicial proceedings; representation of the Debtor as creditor in bankruptcy proceedings involving other companies; - representation in matters relating to executive compensation, employee benefits, employment law and corporate governance and maintenance; and - representation in matters relating to operating agreements, credit facilities, securities offerings, financing arrangements and transactions, and acquisitions and dispositions of assets. The Debtor clarifies that Hogan will not act as bankruptcy counsel for the Company. "Hogan will not draft, prosecute, or appear as Debtor's counsel in this Court regarding bankruptcy- related motions or objections, will not represent the Debtor in any actions arising under the Bankruptcy Code and will not participate in the preparation of Debtor's schedules of assets and liabilities or statement of financial affairs," the Debtor explains. Hogan's current standard hourly rates range from: partners $350 to $750 associates $190 to $325 paraprofessionals $90 to $150 ITC Delatacom, Inc., an exempt telecommunications company and a holding company, filed for chapter 11 protection on June 25, 2002. Rebecca L. Booth, Esq., Mark D. Collins, Esq., at Richards, Layton & Finger, P.A., and Martin N. Flics, Esq., Roland Young, Esq., at Latham & Watkins represent the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed $444,891,574 in total assets and $532,381,977 in total debts. INACOM CORP: Taps McDonald Hopkins as Substitute Special Counsel ---------------------------------------------------------------- Inacom Corp., and its debtor-affiliates tells the U.S. Bankruptcy Court for the District of Delaware that they hired McDonald, Hopkins, Burke & Haber Co., LPA as substitute special counsel, and now ask for permission to employ the firm, nunc pro tunc to July 1, 2002. The Debtors are examining and pursuing claims based on preferential and fraudulent transfers under Chapter 5 of the Bankruptcy Code. The Debtors employed Jean R. Robertson, Esq., at Hahn Loeser & Parks LLP to investigate and, if necessary, prosecute on behalf of Debtors' avoidance actions against professionals under Chapter 5 of the Bankruptcy Code. The Court approved that retention. On July 1, 2002, Jean R. Robertson, the lead partner in the representation of the Debtors, joined the law firm of McDonald Hopkins. After consultation and due deliberation, the Debtors determined that for purposes of continuity, it was prudent and appropriate to retain Ms. Robertson and her new firm, McDonald Hopkins, in substitute of Hahn Loeser. McDonald Hopkins' current hourly rates are: Partners $230 - $385 Associates $135 - $225 Legal Assistants $ 90 - $150 Law Clerks $ 70 Inacom Corp., providers of information technology products and technology management services, filed for Chapter 11 petition on June 16, 2000. Laura Davis Jones and Christopher James Lhulier at Pachulski Stang Ziehl Young & Jones PC represent the Debtors in their restructuring efforts. INTEGRATED HEALTH: Selling 3 Florida Facilities for $4 Million -------------------------------------------------------------- Integrated Health Services, Inc., and debtor-affiliates sought and obtained Court approval to divest three skilled nursing facilities in Florida: Facility Location -------- -------- IHS of St. Petersburg 811 Jackson Street N. William and Mary Nursing Center St. Petersburg, Florida IHS of Venice North 408 and 437S Nokomis Avenue Venice, Florida IHS of Central Florida 1900 Mercy Drive Orlando, Florida The St. Petersburg Facility is a 92-bed skilled nursing home owned by Rikad. On the other hand, Florida Life owns the 178- bed Venice Facility. The IHS-Orlando Facility is a 120-bed skilled nursing facility owned by IHS-Orlando. As a group, the Facilities are losing money. Facility EBTDA -------- ----- St. Petersburg Facility 2001 - ($363,625) 2002 - ($293,794) *projected* Venice Facility 2001 - $426,172 2002 - ($117,094) *projected* Orlando Facility 2001 - ($155,999) 2002 - ($433,759) *projected* The Facilities' actual aggregate cash flow for the year 2001 was ($93,452). The Debtors anticipate that cash flow will further decline in 2002 at ($844,646). Although the Debtors own the Premises and the Facilities free and clear of mortgage indebtedness and associated debt service obligations, the Debtors are unable to stop the Facilities' financial hemorrhaging. The Facilities will be sold to three different Buyers pursuant to three Sale Contracts for $4,000,000, free and clear of any Liens, except for the permitted encumbrances set forth in the St. Petersburg Sale Contract. Facility Buyer Price New Operator -------- ----- ----- ------------ St. Petersburg Facility SPRE LLC $1,000,000 SPOP LLC Venice Facility VERE LLC 2,000,000 VEOP LLC IHS-Orlando Facility ORRE LLC 1,000,000 OROP LLC Each Facility will be transferred to a New Operator designated by the Buyer pursuant to a Transfer Agreement. The Transfer Agreements provide for the transfer of assets including the Medicare and Medicaid Provider Agreements, cash, cash equivalents, accounts receivable, notes receivable, capital stock, tax refunds, goodwill, trademarks, service marks, trade secrets. The Transfer Agreements also provide procedures for the post-transition hiring of the Facilities' employees, the transfer of resident trust funds, and the disposition of existing vendor and service provider contracts, prorations of utility charges, real and personal property taxes, and any other items of revenue or expense attributable to the Facilities. The Transfer Agreements permit the New Operators to take an assignment of some or all of the existing vendor and service provider contracts associated with the Facilities' respective operations -- the Operating Contracts. At the Closing of the Transfer Agreements, the Debtors will sell to the New Operators the Facilities' accounts receivable. The purchase price will be: Aging Purchase Price ----- -------------- 0-90 days 85% of the book value Over 90 days 0% of the book value Based on this formula, the Debtors expect to realize an accounts receivable recovery rate over 67.29%. The Debtors believe that, if they were relegated to collecting the Purchased AR after transitioning the Facilities to the New Operators, the estates would likely realize a 37% recovery rate. The Debtors have agreed to assume the Facilities' Medicare Provider Agreements and to simultaneously assign them to the Proposed New Operators. The Cure Letters from the United States Department Of Justice establish the cure amounts under the Medicare Provider Agreements arising as a result of overpayments by Medicare to the Facilities. Only St. Petersburg Facility has a $255,324 cure amount. The Venice and Orlando Facilities had zero cure amounts. The assumption and assignment of the Facilities' Medicare Provider Agreements will be governed by Stipulations by and among the Debtors, the United States of America and the New Operators. The Medicare Stipulations will fix the Medicare Cure Amounts, render the New Operators liable for payment, and -- upon the payment -- release the Debtors and the New Operators from certain additional liabilities in connection with the Medicare Provider Agreements. The New Operators have elected not to take an assignment of the Facilities' Medicaid Provider Agreements. Accordingly, the Debtors are not assuming the Facilities' Medicaid Provider Agreements. At the request of the New Owners, the Debtors have agreed to enter into a Lease and Security Agreement with each New Operator. Upon the Closings of the Transfer Agreements, the Leases become retroactively effective as of June 28, 2002. Each Lease has a fixed-term commencing on June 28, 2002 and ending at 11:59 p.m. on the earlier of: (i) the date of cancellation or termination of a Lease's related Sale Contract or Transfer Agreement, and (ii) August 31, 2002. The Base Rent under each of the Leases is $50,000 per month. A New Operator shall not be entitled to physically possess its Facility until: (i) its related Transfer Agreement has closed, and (ii) its related New Owner has deposited $250,000 with its respective Lessor, as the Security to be held pursuant to the each Lease. (Integrated Health Bankruptcy News, Issue No. 40; Bankruptcy Creditors' Service, Inc., 609/392-0900) KMART CORP: Court Approves Route 66 License Agreement Assumption ---------------------------------------------------------------- Kmart Corporation and its affiliated debtors obtained the Court's authority to assume a License Agreement with Route 66 LP. As previously reported, the License Agreement allows Kmart to use the ROUTE 66 trademark, together with certain related intangible intellectual property, in the development and sale of apparel and sunglasses, excluding clothing and accessories made out of leather. The License Agreement will expire on April 30, 2006. Kmart's exclusive license covers the United States of America, Puerto Rico and the U.S. Virgin Islands. In return, Kmart pays Route 66 a percentage of the F.O.B cost of any License Product. Route 66 also receives an annual minimum royalty. Upon assumption of the license agreement, Kmart will immediately pay an outstanding $2,623,316 prepetition royalty payment. The Route 66 line of products represents a cross-divisional brand offering trend casual clothing and is critical to the Debtors' ongoing business. (Kmart Bankruptcy News, Issue No. 29; Bankruptcy Creditors' Service, Inc., 609/392-0900) KMART CORP: Court OKs Traub Bonacquist as Equity Panel's Counsel ---------------------------------------------------------------- Kmart Corporation's Official Committee of Equity Security Holders obtained Court authority to retain Traub, Bonacquist & Fox LLP as its lead counsel in Kmart's Chapter 11 cases, nunc pro tunc to June 14, 2002. Specifically, Traub Bonacquist will: (a) provide legal advice to the Equity Committee with respect to its duties and powers in these cases; (b) assist the Equity Committee in its investigation of the acts, conduct, assets, liabilities and financial condition of the Debtors, the operation of the Debtors' businesses, the rationalization and disposition of the Debtors' assets, including, but not limited to, any further store closures as and to the extent announced and planned by the Debtors in the future, and any other matter relevant to the cases or to the formulation of a plan; (c) attend meetings and negotiate with the representatives of the Debtors and other constituencies; (d) assist the Equity Committee in the review, analysis and negotiation of any plan of reorganization (and accompanying disclosure statements that may be filed, including, but not limited to any valuation issues that may arise in connection therewith); (e) assist the Equity Committee in its investigation of inter- company relationships and any actions, litigations or other matters that may result therefrom; and (f) assist the Equity Committee, in conjunction with the other interested constituencies in these cases, in the investigation of the action and activities of past and present officers and directors, together with the evaluation of any affirmative claims that may flow therefrom; (g) represent the Equity Committee's interests in the Joint Fee Review Committee established by Order of the Bankruptcy Court; (h) evaluate any valuation attributed by the Debtors or any other constituency to the equity in these cases; (i) prepare necessary motions, applications, answers, objections, orders, reports in support of positions to be taken by the Equity Committee; (j) assist the Equity Committee in its review and evaluation of the Debtors' real estate disposition procedures; (k) assist the Equity Committee in its review, analysis and negotiation of any further modifications to current employee retention programs and bonuses or other similar motions that may be filed in these cases; (l) appearance, as appropriate before the Court, on omnibus hearing dates to protect the interests and voice the positions of the Equity Committee; and (m) assist the Equity Committee in its investigation, review, analysis and commencement of any litigation as appropriate to the preservation and minimization of equity interests in these cases. The Firm will charge for its legal services on an hourly basis at its customary hourly rates: Partner $375 - 595 Counsel 365 Associates 210 - 325 Paralegal/Legal Assistant 65 - 135 Paul Traub, Esq., is the senior member that will oversee the Firm's representation of the Equity Committee. (Kmart Bankruptcy News, Issue No. 29; Bankruptcy Creditors' Service, Inc., 609/392-0900) Kmart Corp.'s 8.20% bonds due 2003 (KM03USR3), DebtTraders reports, are trading at around 30. For real-time bond pricing, see http://www.debttraders.com/price.cfm?dt_sec_ticker=KM03USR3 LASERSIGHT INC: Commences Trading on Nasdaq SmallCap Today ---------------------------------------------------------- LaserSight Incorporated (Nasdaq: LASE) has received notification from the Nasdaq Listings Qualification Panel that effective with the opening of business on August 9, 2002, the Company's Common Stock will be transferred to The Nasdaq SmallCap Market and will no longer be eligible for trading on The Nasdaq National Market. LaserSight's continued listing on The Nasdaq SmallCap Market requires that on or before August 13, 2002, the bid price of the Company's common stock must close at $1.00. However, if the Company is unable to meet that requirement, it may be eligible for an additional 180-day grace period for trading on The Nasdaq SmallCap Market, provided it is able to demonstrate shareholders' equity of at least $5 million, is in compliance with all other requirements for continued listing on The Nasdaq SmallCap Market, and files an application for new listing and the related review on or before August 13, 2002. The Company believes it meets those requirements and plans to file that application on time. LaserSight is a leading supplier of quality technology solutions for laser vision correction and has pioneered its patented precision microspot scanning technology since it was introduced in 1992. Its products include the LaserScan LSX(R) precision microspot scanning system, its international research and development activities related to the Astra family of products used to perform custom ablation procedures known as CustomEyes and its MicroShape(R) family of keratome products. The Astra family of products includes the AstraMax(TM) diagnostic workstation designed to provide precise diagnostic measurements of the eye and CustomEyes CIPTA and AstraPro(TM) software, surgical planning tools that utilize advanced levels of diagnostic measurements for the planning of custom ablation treatments. In the United States, the Company's LaserScan LSX excimer laser system operating at 200 Hz is approved for the LASIK treatment of myopia and myopic astigmatism. The MicroShape family of keratome products includes the UltraShaper(R) durable keratome and UltraEdge(R) keratome blades. METALS USA: Reliance Steel to Acquire Assets of Two Businesses -------------------------------------------------------------- Reliance Steel & Aluminum Co., (NYSE:RS) has signed agreements to acquire from Metals USA, Inc., the assets of two of its businesses. The transactions are subject to the final approval of the U.S. Bankruptcy Court, in connection with Metals USA's bankruptcy filing. These asset purchase agreements are subject to a thirty-day Court required auction process which will conclude by early September 2002. During this period additional offers can be received through the Court process. The businesses include Metals USA Specialty Metals Northwest, Inc. based in Portland, Oregon, with additional divisions in Eugene, Oregon; Kent (Seattle) and Spokane, Washington; Billings, Montana; and Boise, Idaho. This business was formerly known as Pacific Metal Company and is primarily involved in the processing and distribution of aluminum and coated carbon steel products. Sales for this business were $76.2 million for the year ended December 31, 2001. The second business is the Milwaukee, Wisconsin, operation of Metals USA Plates and Shapes Northcentral, Inc. This operation was previously known as Williams Steel & Supply Co., Inc., and processes and distributes mainly carbon steel plate, bar and structural products with 2001 annual sales of $37.4 million. Reliance Steel & Aluminum Co., headquartered in Los Angeles, California, is one of the largest metals service center companies in the United States. Through a network of 90 processing and distribution centers in 25 states and France and South Korea, the Company provides value-added metals processing services and distributes a full line of over 85,000 metal products. These products include galvanized, hot-rolled and cold-finished steel; stainless steel; aluminum; brass; copper; titanium and alloy steel sold to more than 75,000 customers in various industries. MICROFORUM: CCAA Plan Declared Effective ---------------------------------------- Microforum Inc., (TSE: MCF) announced that its Plan of Arrangement or Compromise has been declared effective and accordingly, the Company's protection under the Companies' Creditors Arrangement Act has been lifted effective Wednesday, Augustn 7, 2002. Microforum also announced that it has settled its dispute with Security Service Federal Credit Unit, a former client. SSFCU has agreed to pay Microforum the sum of US$75,000 and each party has agreed to release the other from any liability relating to a work order in accordance with a Master Development and License Agreement dated July 10, 2000 between Microforum and SSFCU. Additional information on the Company's CCAA process can be found on the Company's Web site http://www.microforum.com MICROSTRATEGY INC: Completes Preferred Share Restructuring ---------------------------------------------------------- MicroStrategy(R) Incorporated (Nasdaq: MSTRD), a leading worldwide provider of business intelligence software, has closed its previously announced preferred stock restructuring. "By closing this transaction, we complete an important balance sheet restructuring that we believe is beneficial to holders of our common stock. Our capital structure is now simplified and easier for investors to understand and we have removed a significant source of uncertainty relating to potential future dilution," said MicroStrategy's President and Chief Financial Officer, Eric Brown. On July 30, 2002, MicroStrategy entered into agreements with all of the holders of its Series B preferred stock, Series C preferred stock and Series D preferred stock, pursuant to which MicroStrategy agreed to redeem or exchange all of its outstanding Series B, Series C and Series D preferred stock totaling $75.5 million in stated value. The agreements provided that if the holders converted any shares of preferred stock prior to closing, the number of shares of common stock to be issued at closing would be reduced by the number of shares issued in the conversion. Holders of the preferred stock converted $32.825 million stated value of Series B preferred stock, $24.145 million stated value of Series C preferred stock and all $14.511 million stated value of Series D preferred stock into an aggregate of 695,318 shares of MicroStrategy's Class A common stock. As a result of these conversions, MicroStrategy issued the following consideration in redemption and exchange of the remaining outstanding shares of Series B and Series C preferred stock: * $10 million in cash; * $5 million in promissory notes which bear interest at a rate of 7.5% per annum, payable semi-annually; * 697,728 shares of Class A common stock; and * $20.96 million stated value of Series F preferred stock. As a result of closing this restructuring, there is no longer any outstanding Series B, Series C, or Series D preferred stock. The $20.96 million stated value of newly issued Series F preferred stock is convertible into Class A common stock at a fixed conversion price of $15.00 per share, resulting in a total of 1,397,174 shares of common stock issuable upon the conversion of the Series F preferred stock. The conversion price is not subject to any resets or other adjustments (other than with respect to stock splits and similar transactions). The Series F preferred stock has a two-year maturity and will not pay dividends. At maturity, the Series F preferred stock mandatorily converts into common stock at the fixed conversion price of $15.00 per share. As part of the transactions, the preferred holders have agreed to certain trading limitations on the common stock issued in the exchange until the first anniversary of the closing or the occurrence of certain specified events. Founded in 1989, MicroStrategy is a worldwide leader in the increasingly critical business intelligence software market. Large and small companies alike are harnessing MicroStrategy's business intelligence software to gain vital insights from their data to help them proactively enhance cost-efficiency, productivity and customer relations and optimize revenue- generating strategies. MicroStrategy's business intelligence platform offers exceptional capabilities that provide organizations -- in virtually all facets of their operations -- with user- friendly solutions to their data query, reporting, and advanced analytical needs, and distributes valuable insight on this data to users via Web, wireless, and voice. PC Magazine selected MicroStrategy 7(TM) as the 2001 "Editors' Choice" for business intelligence software. MicroStrategy 7i is a truly integrated, enterprise-class, Web- based business intelligence platform. With MicroStrategy 7i, enterprises can now standardize on one business intelligence platform and deploy high-value business intelligence enterprise- wide. MicroStrategy 7i's configurable query, reporting, and OLAP Web interface is designed to support all users, from casual report viewers to power analysts. MicroStrategy's customer base cuts across industry and sector lines, with over 1,700 enterprise-class customers, including Lowe's Home Improvement Warehouse, AT&T Wireless Group, Wachovia and GlaxoSmithKline. MicroStrategy also has relationships with over 400 systems integrators and application development and platform partners, including IBM, PeopleSoft, Compaq, and JD Edwards. MicroStrategy is listed on Nasdaq under the symbol MSTRD. For more information on the company, or to purchase or demo MicroStrategy's software, please visit MicroStrategy's Web site at http://www.microstrategy.com MicroStrategy, MicroStrategy 7i, and Scalable Business Intelligence Platform Built for the Internet are either trademarks or registered trademarks of MicroStrategy Incorporated in the United States and certain other countries. Other product and company names mentioned herein may be the trademarks of their respective owners. MIKOHN GAMING: Initiates Strategic Cost-Reduction Measures ---------------------------------------------------------- Mikohn Gaming Corporation (NASDAQ:MIKN) announced that as part of an overall review of business operations and operating efficiencies it is reducing its workforce by approximately 15%. Mikohn President, Russ McMeekin said, "As indicated during our second quarter conference call, we are reviewing all areas of our business operations and seeking ways to reduce our cost structure. This workforce reduction was necessary to lower our operating expenses and will result in annualized income statement and cash savings of approximately $5 million to $7 million. In addition, we have made the decision to consolidate our manufacturing and electronics operations to our state-of- the-art manufacturing facility in Hurricane, Utah and anticipate the manufacturing transition to be completed prior to year-end." "As we go forward, we will remain focused on those strategic initiatives necessary to our success. The initiatives announced today are aimed at streamlining our current business model," he concluded. Mikohn is a diversified supplier to the casino gaming industry worldwide, specializing in the development of innovative products with recurring revenue potential. Mikohn develops, manufactures and markets an expanding array of slot games, table games and advanced player tracking and accounting systems for slot machines and table games. The company is also a leader in exciting visual displays and progressive jackpot technology for casinos worldwide. There is a Mikohn product in virtually every casino in the world. For further information, visit the company's Web site at http://www.mikohn.com * * * Standard & Poor's Ratings Services lowered its corporate credit and senior secured debt ratings of Mikohn Gaming Corp., to single-'B'-minus from single-'B'. The ratings remain on CreditWatch where they placed on February 22, 2002, but the implication is revised to negative from developing. The actions followed the announcement by the Las Vegas, Nevada- based slot-machine manufacturer that operating performance during the June 2002 quarter was well below expectations. That weak performance resulted in a violation of bank covenants and a significant decline in credit measures. Mikohn has about $100 million of debt outstanding. The lower ratings also reflect Standard & Poor's concern that Mikohn's liquidity position could further deteriorate if operating performance during the next few quarters does not materially improve. MOSAIC GROUP: Working Capital Deficiency Tops $24MM at June 30 -------------------------------------------------------------- Mosaic Group Inc. (MGX:TSE), the leading independent marketing solutions company with capabilities in Canada, the US and the UK, reported its second quarter 2002 results. During the quarter ended June 30, 2002, the Company's operating activities including working capital changes used $1.0 million in cash flow compared to a use of $5.2 million of cash in the second quarter of 2001. Although, the Company incurred a net loss of $5.2 million during the three months ended June 30, 2002, cash flow from continuing operations after add-back of non-cash charges and before working capital changes was $4.4 million compared to $15.7 million in 2001. The year-over-year reduction in cash flow from operations was mainly due to lower earnings coupled with cash expenditures of $4.0 million relating to restructuring initiatives announced in early 2002. The increase in working capital of $5.4 million during the second quarter of 2002 was lower than the $20.9 million increase in the same period of 2001 largely due to the change in the business mix with the discontinuance of the AT&T Wireless and the WorldCom contracts, the receivables from which have been provided for. The working capital increase of $4.9 million in the first half of 2002 was lower than the $20.0 million increase during the same period in 2001. Financing activities generated $21.5 million of cash flow in the second quarter of 2002 compared with $12.3 million in the second quarter of 2001. As discussed before, on June 13, 2002, Mosaic issued two series of Senior Secured Notes: US$80 million (C$123.2 million) of Series A Notes bearing interest at 7.57% with maturities of US$12.3 million on June 13, 2006, US$30.8 million on June 14, 2007 and US$36.9 million on June 13, 2008; and US$20 million (C$30.8 million) of Series B Notes bearing interest at 7.27% and maturing on June 14, 2007. The proceeds were used to pay down amounts drawn under the Company's Bank Facility. Coincident with this financing, the Company agreed to reduce the commitment level under its Bank Facility from C$253 million to C$125 million by August 15, 2002, and extended the maturity of the senior credit facility to June 13, 2005. During the six months ended June 30, 2002, financing activities generated $60.0 million in cash compared to the use of $1.6 million in the corresponding period of 2001. This generation of cash was primarily due to the Senior Term Notes issued in the second quarter of 2002 and the equity offering completed in March 2002. Proceeds from the common shares offering and the issue of Senior Term Notes were used to reduce the balance owing under the Company's Bank Facility. At June 30, 2002, the Company's balance sheet shows that its total current liabilities eclipsed its total current assets by about $24 million. Investing activities used $19.4 million and $72.1 million of cash during the second quarter and first six months of 2002 compared with $5.9 million and $13.8 million in the corresponding periods of 2001. During the six months ended June 30, 2002, the Company used $52.2 million towards acquisition related contingent consideration payments and acquisition related costs. For the six-month period, Mosaic also made investments in property and equipment of $8.8 million related mainly to the build up of the information technology infrastructure, and invested in other long term assets including the purchase of leads and payments for exclusivity on certain long term contracts. Investments The Company ended the second quarter of 2002 with total assets of $756.3 million, a decrease of 8% from the year ended December 31, 2001. The largest component of this decrease was goodwill, with a value of $521.3 million, a decrease of $68.4 million over last year. This decrease is primarily due to the impairment loss of $75 million taken on goodwill related to the UK and Marketing and Technology divisions as a result of the adoption by the Company, with effect from January 1, 2002, of the new accounting standards applied to acquisition related goodwill and intangible assets. For details refer to note 1(a) to the consolidated financial statements for the period ended June 30, 2002. The other changes in goodwill arise from the following: (a) Acquisition of Mosaic Data Solutions and Secured Promotions LLC, which added $19.1 million to goodwill; (b) The increase in goodwill of $10.0 million arising from the finalization in April 2002 of further contingent consideration relating to the acquisition of Paradigm Direct as detailed in note 5 to the consolidated financial statements for the period ended June 30, 2002; (c) Divestiture of the Irish operations, and adjustments arising from the acquisition of the minority interest in Medium One at lower than its book value, reducing goodwill by $1.6 million; and (d) The impact of the significant weakening of the US dollar in relation to the Canadian dollar at June 30, 2002 compared to December 31, 2001 resulting in a decrease in the recorded amount of goodwill by $20.9 million. Capital Resources Mosaic's long-term debt, including the current portion, at June 30, 2002 was $189.2 million, which included $152 million from Senior Term Notes issued on June 13, 2002 and the balance drawn mainly on the Company's Bank Facility and $7.2 million from a mortgage on its property in the UK. On March 19, 2002, Mosaic completed an underwritten equity offering through the issuance of 13.8 million shares at a gross issue price of $3.80 per share with gross proceeds of $52.4 million and net proceeds of $50.2 million after net-of-tax issue costs. The proceeds from the common share offering were applied towards a reduction in the balance owing under the Bank Facility. With the completion of the share offering in March 2002, the Company amended its credit agreement with the lending syndicate to reduce the committed amount available under the revolving term facility from $300 million to $253 million. In conjunction with the issuance of the Senior Term Notes in June 2002, the Company further amended its credit agreement to reduce the committed amount under its Bank Facility from $253 million to $125 million by August 15, 2002. The term of the Bank Facility was extended to June 2005, and can be extended for a further year on each anniversary of the facility. These facilities were substantially paid down in June 2002 with the proceeds from the issuance of the Senior Term Notes. Mosaic's shareholders' equity was $385.6 million as at June 30, 2002, a decrease of $33.4 million, from $419.0 million at December 31, 2001. This net decrease in shareholders equity resulted from: (a) The charge for goodwill impairment of $75 million relating to the UK and Marketing and Technology divisions, which was accounted for as an adjustment to the retained earnings as at the beginning of 2002; (b) Net loss of $11.8 million during the period and distributions on equity instruments (COPrS) net of income taxes, of $2.6 million; and (c) A net change of $14.6 million in the foreign currency translation adjustment in respect of Mosaic's net investment in self-sustaining foreign operations due to a strengthening of the Canadian dollar in relation to the US dollar; partially offset by; (d) The issuance of $50.2 million in common shares net of issue costs and related income tax benefits, through the equity offering in March 2002; and (e) The net issuance of shares of $3.6 million including $3.3 million on exercise of options by employees, $0.7 million against a contract for services, and a reduction in shares from the repurchase of shares under the Company's Normal Course Issue Bid of $0.4 million. Excluding the COPrS instrument, the Company to date has not paid any dividends on its common shares, and does not intend to do so in 2002. Mosaic Data Solutions During January 2002, the Company acquired Custom Offers LLC, now renamed Mosaic Data Solutions. As part of the acquisition agreement, further contingent consideration ("earnout") could be payable in April 2003 and April 2004 based on the pre-tax earnings of this business for fiscal 2002 and 2003 (less consideration previously paid). The maximum consideration paid in aggregate cannot exceed US$49.9 million (or US$39.9 million net of consideration paid to date) to be settled primarily in shares, with any Mosaic common shares issued subject to a floor price of US$1.80 (approximately C$2.80). Based on fiscal 2002 earnings estimates for Mosaic Data Solutions, the Company may be required to make an earnout payment in April 2003 in the range of US$12 to US$15 million to be settled with the issue of approximately 7 to 8 million common shares (floor price of US$1.80) and the payment of approximately US$3 million in cash. Outstanding Shares At June 30, 2002, Mosaic had approximately 126 million common shares outstanding with the same amount on a diluted basis. For further details refer to note 7 to the consolidated financial statements for the period ended June 30, 2002. Financial Risks and Uncertainties In the normal of business, the financial position and results of operations of the Company are subject to a variety of risks that are set out in detail in the Company's 2001 annual report to shareholders. The major risks and uncertainties include, client and credit risk, workforce related risks, electronic security risks, interest rate risk, foreign currency risk and general commercial risks. The details related to foreign currency risk have been updated below. Foreign currency risk A significant part of the Company's operations are concentrated in self-sustaining operations in the United States and the United Kingdom. The operations in the United States are naturally hedged, as the cash borrowed to pay for the cash component of those acquisitions was borrowed in US dollars with US$100 million held in debt instruments and US$57 million in equity instruments denominated in that currency at June 30, 2002. The Company has entered into a series of short-term foreign currency forward contracts to manage its exposure to movements in the UK pound and the US dollar. The forward contracts are designated as hedges against the UK pound and US dollar receipts under certain long-term client contracts. At June 30, 2002, the Company has entered into pnds stlg 5.7 million of UK pound forward contracts and $20.6 million in US dollar forward contracts for the balance of fiscal 2002. No other currencies are material to Mosaic's operations. MOSAIC GROUP: Renews Normal Course Issuer Bid Through TSE --------------------------------------------------------- Mosaic Group Inc. (MGX:TSE), the leading independent marketing solutions company with capabilities in Canada, the US and the UK, announced that the Toronto Stock Exchange has accepted Mosaic's notice of its intention to renew its Normal Course Issuer Bid through the facilities of the TSE. Under the terms of the renewal, the maximum number of common shares that can be purchased under the bid will be 6,326,548 shares. The number of shares that could be purchased represents 5 percent of Mosaic's 126,529,178 shares outstanding (as of July 22, 2002). Purchases under the bid may commence August 12, 2002 and will terminate August 11, 2003 or on such earlier date as Mosaic may complete its purchases pursuant to the bid. All shares purchased under the bid will be cancelled. The bid is being made because Mosaic believes that it will help reduce the volatility in the public market for its common shares. During the last 12 months, Mosaic purchased 1,112,300 shares through the facilities of the TSE at an average price of $4.07. Mosaic Group Inc., with operations in the United States, Canada, and the United Kingdom, is a world-leading provider of results- driven, measurable marketing solutions for global brands. Mosaic specializes in three functional solutions: Direct Marketing Customer Acquisition and Retention Solutions; Marketing & Technology Solutions; and Sales Solutions & Research, offered as integrated end-to-end solutions. Mosaic differentiates itself by offering solutions steeped in technology, driven by efficiency and providing measurable and sustainable results for our Brand Partners. Mosaic trades on the TSE under the symbol MGX. Further information on Mosaic can be found on its web site at http://www.mosaic.com Mosaic posted a total working capital deficit of about $24 million at June 30, 2002. NEON COMMS: Disclosure Statement Hearing Convenes on Aug. 20 ------------------------------------------------------------ The U.S. Bankruptcy Court for the District Of Delaware will hold a hearing to consider the adequacy of Neon Communications, Inc.'s Disclosure Statement on August 20, 2002. That document explains how the Debtor's chapter 11 plan works and, if approved, will be sent to creditors so that they can make an informed decision about whether to vote to accept or reject the Company's plan. The hearing will convene before the Honorable Peter J. Walsh, at 4:00 p.m. in Courtroom 2B, 824 Market Street, Wilmington, Delaware 19801. Any objection to the approval of the Disclosure Statement must be filed with the Court and must be received no later than August 9, 2002 by: (a) counsel for the Debtors Paul, Hastings, Janofsky & Walker LLP 75 East 55th Street New York, New York 10022 Attn: Madlyn Gleich Primoff, Esq. and Richard J. Bernard, Esq.; (b) co-counsel for the Debtors Pepper Hamilton LLP, 1201 Market Street Suite 1600, Wilmington, Delaware 19899 Attn: David B. Stratton, Esq.; (c) counsel for the ad hoc committee Andrews & Kurth LLP 805 Third Avenue New York, New York 10022-7513; and (d) the Office of the United States Trustee 844 King Street, Suite 2313 Lock Box 35, Wilmington, Delaware 19801. 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 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. NEW POWER: Seeks Nod to Hire Arnold & Porter as Special Counsel --------------------------------------------------------------- New Power Company, and its debtor-affiliates, ask for permission from the U.S. Bankruptcy Court for the Northern District of Georgia to employ and retain Arnold & Porter as Special Counsel to represent the Non-Management Directors of NewPower Holdings, Inc. The Debtors say that the Non-Management Holdings Directors need independent legal advice and counsel about bankruptcy issues, including matters relating to claims for compensation held by the Inside Directors against the Debtors and other bankruptcy matters affecting the Inside Directors individually, as they may arise. Subject to Court approval, the Debtors will compensate A&P at its customary and ordinary hourly rates. A&P will also bill the Debtors for actual and necessary expenses incurred in connection with these cases. A&P's hourly rates currently range from: Partners and Senior Counsel $350 - $595 Associates $195 - $345 Para-Professionals $40 - $130 The Debtors, a provider of electricity and natural gas to residential and small commercial customers in markets that have been deregulated to permit retail competition, filed for chapter 11 protection on June 11, 2002. Paul K. Ferdinands, Esq., at King & Spalding and William M. Goldman, Esq., at Sidley Austin Brown & Wood LLP represent the Debtors in their restructuring efforts. When the Company filed for protection form its creditors, it listed $231,837,000 in assets and $87,936,000 in debts. NORTHERN NATURAL GAS: Fitch Ups Junk Sr. Unsec. Debt Rating to B ---------------------------------------------------------------- Fitch Ratings has upgraded the senior unsecured debt of Northern Natural Gas Co., to 'B' from 'CC'. NNG's senior unsecured debt remains on Rating Watch Positive. Fitch expects to further upgrade NNG's senior unsecured debt into the 'BBB' category pending the sale of NNG from Dynegy Inc., to MidAmerican Energy Holdings Co. NNG has approximately $500 million of senior unsecured debt outstanding. NNG operates a 16,600-mile interstate pipeline that transports natural gas from the Permian Basin in Texas to the upper Midwest. MEHC is a privately owned provider of energy services whose holdings include the 926-mile Kern River Transmission System. On July 29, 2002, it was announced that DYN had agreed to sell NNG to MEHC for $928 million in cash, subject to adjustment for working capital changes. Under the terms of the agreement MEHC will acquire all of the common and preferred stock of NNG and assume $950 million in outstanding debt. Unsecured lenders at NNG are structurally subordinated to a fully-drawn $450 million secured bank facility. In order to provide additional liquidity for Enron Corp. in the weeks prior to its bankruptcy filing, NNG negotiated a $450 million 364-day credit facility secured by NNG's capital stock, a subordinated note from Enron to NNG, and substantially all the other assets of NNG. The secured facility matures in November 2002. NNG's current 'B' rating reflects its position as a wholly owned subsidiary of 'B' rated Dynegy Holdings Inc. NNG's prior 'CC' rating reflected its exposure to Enron Corp. Enron's option to repurchase NNG from DYN expired on June 30, 2002. It is expected that NNG will be operated as a subsidiary of MEHC, which is rated 'BBB', with a Stable Rating Outlook. Approximately 1,100 DYN employees working for NNG will become MidAmerican Energy employees. NNG's prospective rating will be affected by the capital structure that will be adopted by the company following its purchase by MEHC and whether it pays off the $450 million secured loan, elevating unsecured debt to its prior senior status. On a standalone basis NNG historically has demonstrated a strong financial profile and solid market position. The pipeline continues to benefit from strong and consistent cash flow derived from firm contracts with a customer base primarily composed of local utilities and favorable FERC regulation. NNG should generate about $240 million of annual EBITDA. Annual interest associated with its senior unsecured debt is approximately $34.5 million. NYACK HOSPITAL: Fitch Maintains Watch on B+ Revenue Bonds Rating ---------------------------------------------------------------- Fitch Ratings maintains the Rating Watch Negative status on the approximately $24.7 million Dormitory Authority of the State of New York hospital revenue bonds (Nyack Hospital), series 1996, rated 'B+'. Fitch downgraded Nyack Hospital's (Nyack) rating to 'B+' from 'BB+' on Oct. 12, 2001, and maintained the Rating Watch Negative status on the bonds. Maintenance of the bonds on Rating Watch Negative is based on Nyack's perilously low liquidity position, which weakens Nyack's ability to absorb an unforeseen negative event. Rating Watch Negative identifies that the rating may be lowered in the near term. Despite the low liquidity position, Fitch believes that after recent years of heavy losses and concurrent erosion of cash, Nyack's newly placed management team appears to have stabilized operations and begun to demonstrate that the hospital will be viable. Nyack's liquidity has been significantly impaired over the past three years. Nyack reported $1.9 million of unrestricted liquidity as of May 31, 2002, equating to an anemic 6 days cash on hand and 7% cash to debt. In addition, Nyack is a defendant in several lawsuits and a plaintiff in another which could have an adverse impact on operations. A significant adverse judgment could threaten Nyack's ability to remain a going concern. Nyack has not met its bond covenants in the last two years and has received a waiver from the Dormitory Authority as Nyack has retained a consultant to assist in its turnaround efforts. Inclusive of all of its long-term debt obligations, Nyack's maximum annual debt service coverage by EBITDA as of Dec. 31, 2001 was 0.1 times. Nyack's MADS coverage of EBITDA was 1.4x as of May 31, 2002. In addition, Nyack's contract with its nurses union is set to expire on Dec. 31, 2002 and Nyack can ill afford a work stoppage of any duration. Nyack's reported operating losses were $5.7 million in 1999 (negative 4.7% operating margin) and $32.2 million in 2000 (negative 27.5% operating margin). Management attributes that $24.4 million of 2000's operating loss is the result of a six- month nurses' strike that ended in May 2000. Management restated its 1999 and 2000 results after its former auditor withdrew its opinion on the accuracy of its audits that it conducted for 1999 and 2000. After its former auditor resigned from the account, Nyack's new auditor restated Nyack's 2000 balance sheet and performed the 2001 audit. Nyack lost $3.7 million in 2001 (negative 2.9% operating margin), an improvement of $28.5 million over 2000. Through five months of 2002, Nyack has lost $295,000 from operations (negative 0.6% operating margin), despite a slight drop in discharges, as management has renegotiated managed care contracts, realized benefits from cost reduction and efficiency initiatives, and closed certain unprofitable clinical services. Fitch favorably views Nyack's management, which has provided Fitch with timely and accurate information. The new management team started at Nyack beginning in January 2001 with a new chief executive officer, followed in May 2001 with a new chief financial officer, after a six-month period of an interim management team. Fitch believes that Nyack has a solid franchise that should assist in its financial recovery. Nyack continues to maintain a leading market share of about 60% in a favorable service area. Discharges actually increased during the crippling nurses' strike year of 2000 by 1.7% and by 6.3% in 2001, indicating physician and patient loyalty despite capital and equipment needs. Also, net patient accounts receivable were reduced by $1 million, or 5%, to $18.1 million from the end of 2001 to May 31, 2002 through improved collections and trade account payables declined by $4.5 million, or 23%, to $15.3 million, as management continues to work with its vendors to keep the hospital supplied. Days in accounts receivable were 53 days and days in current liabilities were 119 days, as of May 31, 2002. Fitch believes that Nyack's survival rests with management's efforts to continue to improve profitability, handle a myriad of external issues including lawsuits and labor and managed care negotiations, and identifying opportunities to access capital for much needed facility improvements to maintain a competitive balance in the market. Management has indicated that it may seek an affiliation or partner to achieve this goal. Fitch's initial rating of Nyack was 'BBB' in April 1996 in conjunction with the 1996 financing. Fitch lowered its rating to 'BB+' in March of 2001. The rating was lowered to 'B+' in October 2001. The bonds have been on Rating Watch Negative since March 2001. Fitch will continue to closely monitor the operating performance of Nyack. Nyack is a 375-bed staffed hospital located in Nyack, NY, approximately 25 miles north of New York City. Nyack had total revenue of $131 million in fiscal 2001. PMA CAPITAL: S&P Assigns Low-B Ratings to Sub. Debt & Preferreds ---------------------------------------------------------------- Standard & Poor's lowered its counterparty credit and financial strength ratings on U.S.-based reinsurer PMA Capital Insurance Co., and regional primary writers Pennsylvania Manufacturers' Assoc. Insurance Co., Pennsylvania Manufacturers Indemnity Co., and Manufacturers Alliance Insurance Co. (collectively, PMAIG) to single-'A'-minus from single-'A'. At the same time, the ratings were removed from CreditWatch negative, where they had been placed on May 3, 2002. Concurrently, Standard & Poor's issued its triple-'B'-minus counterparty credit rating to the holding company, PMA Capital Corp., in addition to its preliminary triple-'B'-minus senior debt, double-'B'-plus subordinated debt, and double-'B' preferred stock ratings on PMACC's $250 million universal shelf, which was filed on July 18, 2002. The outlook is Negative. "The ratings downgrade reflects the group's continued poor operating performance and marginal interest coverage at the holding company level, which is primarily attributable to operating losses at excess and surplus lines subsidiary Caliber One Insurance Co.," said Standard & Poor's credit analyst Laline Carvalho. "In addition, the group's capital adequacy, albeit strong, has declined compared with previous years. Partially offsetting these factors are PMACIC's and PMAIG's good market position in their respective market segments, hardening market conditions in the companies' lines of business, as well as modest earnings diversification and relatively low debt leverage at the holding company level," Carvalho added. The negative outlook reflects uncertainty related to PMACC's execution of its capital raising initiatives to pay down maturing debt and support strong projected premium growth at the operating companies, as well as the expectation that earnings improvements will not materialize until 2003. PMACC's successful execution of its capital raising initiatives and continued profitability at its ongoing operations will be necessary to return the group's outlook to stable. Although the holding company is expected to post a net loss for 2002, 2003 operating results and interest coverage should improve significantly and be supportive of the rating level as PMACIC and PMAIG are expected to continue producing strong profits and there should be no further earnings drag from Caliber. Consolidated GAAP combined ratios in 2002 and 2003 (excluding Caliber) are expected to be in the 101%-103% range. Consolidated capital adequacy is expected to remain supportive of the rating level at no lower than 145% at year-end 2002. PMACIC is the 12th-largest U.S.-domiciled reinsurer based on policyholders' surplus and the 19th-largest based on net premium writings, while PMAIG has established itself within the top 12 writers of workers' compensation insurance in the majority of its marketing states. In Pennsylvania, PMAIG maintains the largest market share. PALADYNE CORP: Independent Auditors Issue Going Concern Opinion --------------------------------------------------------------- Since the February merger of Paladyne Corporation with e-commerce support centers, inc., Paladyne has provided CRM-based customer and tech support, and outbound telemarketing for business-to-business and business-to-customer needs. The Company's consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Paladyne has cautioned: "As with any new venture, concerns must be considered in light of the normal problems, expenses and complications encountered by entrance into established markets and the competitive environment in which the Company operates." As a consequence the Company's consolidated financial statements do not include, nor does the Company's management feel it necessary to include, any adjustments to reflect any possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern. The Company's independent accountant's report contained a going concern qualification for the year ended August 31, 2001. Revenues for the nine months ended May 31, 2002 and 2001 were $6,999,471 and $3,822,581, respectively; representing a 83% increase in sales. This is due primarily to the May 31, 2001 period containing only four month's revenue due to the timing of the merger with e-com on February 1, 2001. The increase in revenue from 2001 to 2002 was partially offset by a reduction in revenue in 2002 from two large customers of the Company of $785,000 during this nine-month period. All of these revenues were derived entirely from the Company's CRM-based customer and tech support, and outbound telemarketing for business-to- business to business-to-customer operations. These operations began with the purchase of e-com on February 1, 2001. Other revenue for the nine months ended May 31, 2001 were attributable entirely to the discontinued operations relating to the contract software and service center operations and have accordingly been combined into the loss from discontinued operations. Cost of revenues of $3,826,481 and $2,177,114, respectively for the nine months ended May 31, 2002 and 2001 were 55% and 57% of revenue for the periods. The increase in cost of revenues of $1,649,367 from the nine months ended May 31, 2001 to May 31, 2002 is due to the 2001 period reflecting lower revenues due primarily to only four months of activity as discussed above. The increase in cost of revenue from 2001 to 2002, due to more months being reported in 2002, was partially offset by a reduction in revenue in 2002 from two large customers of the Company of $785,000 during this nine-month period Gross profit was $3,172,990 and $1,645,467, respectively for the nine months ended May 31, 2002 and 2001 were 45% and 43% of revenue for the periods. This increase in the gross profit percentage, from 43% to 45%, is due primarily to efficiencies in 2002 and certain cost reductions. Although revenues and the related costs were higher in 2002, this was due to more months of activity rather than greater monthly revenue. The decline in revenue volume from two of the Company's customers was the primary cause of the decline in the gross margin. The net loss for the two nine-month periods, May 31, 2002 and May 31, 2001, was $1,466,843 and $2,829,075, respectively. While the Company has raised capital to meet its working capital requirements in the past, additional financing is required, in order to meet current and projected cash flow deficits from operations. The Company is seeking financing in the form of equity and debt. There are no assurances the Company will be successful in raising the funds required and any equity raises would be substantially dilutive to existing shareholders. In prior periods, the Company has borrowed funds from significant shareholders of the Company to satisfy certain obligations. The Company's independent certified public accountants have stated in their report included in the Company's August 31, 2001 Form 10-KSB, that the Company has incurred operating losses in the last two years, and that the Company is dependent upon management's ability to develop profitable operations. These factors among others may raise substantial doubt about the Company's ability to continue as a going concern. PINNACLE: Provides Update on Contemplated New Credit Facility ------------------------------------------------------------- Pinnacle Holdings Inc., (OTC Pink Sheets: BIGTQ) announced an update regarding the new credit facility being pursued to fund its recently-confirmed bankruptcy plan. As previously announced, the United States Bankruptcy Court for the Southern District of New York entered an order on July 30, 2002 confirming the amended joint plan of reorganization of Pinnacle Holdings and its wholly owned subsidiaries, Pinnacle Towers Inc., Pinnacle Towers III Inc. and Pinnacle San Antonio LLC. It was contemplated that the Plan would be funded by two new sources of capital: (1) an equity investment of up to $205.0 million by Fortress Investment Group, LLC and Greenhill Capital Partners, L.P., pursuant to the terms of the Securities Purchase Agreement entered into as of April 25, 2002, and (2) an approximately $340 million new credit facility. As previously disclosed, the Investors have been pursuing such new credit facility pursuant to a Commitment Letter dated April 25, 2002, from Deutsche Bank Securities Inc. and Bank of America, N.A. issued to the Investors. Since the Court entered the Order confirming the Plan, Pinnacle has been informed by the Investors that the Investors believe that, based on current market conditions, particularly as they relate to extensions of senior credit to companies associated with the telecommunications industry, the new credit facility contemplated by the Commitment Letter may not be able to be consummated on terms commercially acceptable to the Investors. Pinnacle understands from the Investors that the Investors are continuing to pursue financing to consummate the transactions contemplated by the Purchase Agreement. Consequently, Pinnacle continues to monitor these developments and evaluate its options consistent with its obligations under the Purchase Agreement and to Pinnacle's various constituencies. A condition precedent to the consummation of the transactions contemplated by the Purchase Agreement is the receipt of financing on terms not materially different from those set forth in the Commitment Letter. There can be no assurance that financing will be available to satisfy such financing condition. If the closing contemplated by the Purchase Agreement is not consummated on or before August 20, 2002, votes in favor of the Plan could be withdrawn, which could result in the need to re-solicit votes on the Plan. If certain of the terms of any alternative credit facility were to vary materially from those contemplated by the Commitment Letter, Pinnacle might need to re-solicit votes in favor of the Plan, amend the Plan or seek an alternative to the Plan, which could result in Pinnacle's constituencies receiving different consideration than that contemplated by the current Plan of Reorganization. Pinnacle is a provider of communication site rental space in the United States and Canada. At March 31, 2002, Pinnacle owned, managed, leased, or had rights to in excess of 4,000 sites. Pinnacle is headquartered in Sarasota, Florida. For more information on Pinnacle visit its Web site at http://www.pinnacletowers.com Pinnacle Holdings Inc.'s 10% bonds due 2008 (BIGT08USR1), DebtTraders reports, are trading at 26 cents-on-the-dollar. See http://www.debttraders.com/price.cfm?dt_sec_ticker=BIGT08USR1 for real-time bond pricing. SAFETY-KLEEN: SK Systems Wants to Lease Texas Building as New HQ ---------------------------------------------------------------- Michael W. Yurkewicz, Esq., at Skadden Arps Slate Meagher & Flom, in Wilmington, Delaware, tells Judge Walsh that as part of the overall plan to restructure and rebuild the company, Safety- Kleen Corp., and its debtor-affiliates have focused on streamlining their operations, divesting themselves of certain assets, including the Chemical Services Division, overhauling and improving their financial reporting systems, and generally reducing operating expenditures. Part of this effort involved an extensive and thorough analysis to determine whether relocating their corporate headquarters to another metropolitan area would facilitate the Debtors' emergence from bankruptcy as a healthier and more competitive organization. Toward that end, the Debtors hired the Staubach Company, an international real estate strategy and services firm with offices in the United States and Canada that provides solutions for companies undergoing change and offers advice in connection with site location and strategic planning for businesses' relocation. Staubach completed a confidential, weighted evaluation of Columbia, South Carolina, and four alternative cities -- Atlanta, Charlotte, Chicago and Dallas -- across five criteria: labor force, real estate, transportation, quality of life, and business climate, which includes tax incentives and the overall cost of doing business. Staubach and the Debtors' professionals then assisted the Debtors in analyzing the results of the evaluation and other subjective and intangible costs and benefits of relocating their corporate headquarters. After evaluating all of the proposed locations, with the approval of the Board of Directors, and after discussions with both the Secured Lenders and the Creditors' Committee, the Debtors decided to move the company's headquarters to Dallas, Texas. Dallas provides: -- a significantly larger and more experienced labor pool, -- inexpensive real estate, -- extensive transportation access to all of the Branch Sales and Service's Division field locations, -- a generally attractive opportunity for recruiting talent, and -- potential tax advantages. By this Motion, Safety-Kleen Corporation and Safety Kleen Systems, Inc., seek the Court's authority to enter into a lease of non-residential real property located at 5400 Legacy Drive in Plano, Texas, known as the "5400 Building", from EDS Information Services LLC, a Delaware limited liability company. The Lease The Lease, dated July 30, 2002, covers 109,526 rentable square feet of space, being the entire Building 3 located at 5400 Legacy Drive. The lease also includes the use of some office furniture. The salient terms of the Lease are: (1) Term: October 1, 2002 to September 30, 2012; (2) Rent: Base rent will be $1,757,892.30 per year, payable in $146,491.03 per month. Base rent includes all costs related to the operation, management, repair, maintenance and replacement costs. By December 1 of each calendar year, commencing December 1, 2003, or as soon after that date as is reasonably possible, Landlord will give Tenant written notice of the Landlord's estimate of Additional Rent for the following calendar year. The Tenant will pay to the Landlord on January 1, 2004, and on the first day of each calendar month thereafter during the term of this Lease an amount equal to 1/12th of the estimated Additional Rent for the applicable calendar year; (3) Security Deposit: $146,491.03; (4) Indemnification: Tenant will indemnify, defend and hold Landlord harmless from all claims arising from Tenant's use of the premises or the conduct of its business, or from any activity, work or things done, permitted or suffered by Tenant in and about the premises, the building, the campus or the common area, except injury to persons or damages to property caused by the negligence or willful misconduct of Landlord or Landlord's representatives or any other tenant or other tenant's contractor, agent, representative, or employee, and from and against all costs, reasonable attorney's fees, expenses, losses or liabilities incurred in or about such claim or any action, suit or proceeding brought thereon. Tenant shall further indemnify, defend and hold Landlord harmless from all claims arising from any breach or default in the performance of any obligation to be performed by Tenant under the terms of this Lease or arising from any act, neglect, fault or omission of Tenant or its agents, representatives to employees, and from and against all costs, reasonable attorney's fees, expenses or liabilities incurred in or about such claim or any action or proceeding brought thereon; and (5) Option to Renew: Provided Tenant is not then in default under the Leases (beyond the expiration of any applicable notice, cure or grace period), and upon no more than 270 and no less than 180 days' prior written notice before the expiration of this Lease, Tenant shall have the option to extend and renew the premises, for one additional period of five years upon the same terms and conditions as in this Lease. Ordinary-Course Transaction The Debtors believe that entry into and performance under the Lease constitutes a transaction in the ordinary course of business that does not require court approval. Nevertheless, out of an abundance of caution and because Safety-Kleen's future expenditures for the relocation of its headquarters to Dallas, Texas, and office space rent are matters important to its creditors and other parties-in-interest in these Chapter 11 cases, the Debtors believe it is appropriate to file this Motion with the Court. (Safety-Kleen Bankruptcy News, Issue No. 43; Bankruptcy Creditors' Service, Inc., 609/392-0900) SPIRET TRUST: S&P Junks Series 2002-1 Certificates Rating --------------------------------------------------------- Standard & Poor's Ratings Services lowered its rating on SPIRET Trust's series 2002-1 certificates to triple-'C'-minus from single-'B'. The lowered rating follows the lowering of FC CBO Ltd./FC CBO Corp.'s second priority senior notes rating on Aug. 1, 2002. SPIRET Trust is a swap-dependent synthetic transaction that is weak-linked to the underlying collateral, FC CBO Ltd./FC CBO Corp.'s second priority senior notes. The lowered rating reflects the credit quality of the underlying securities issued by FC CBO Ltd./FC CBO Corp. Rating Lowered SPIRET Trust $4 million trust certs series 2002-1 Class Rating To From Certs CCC- B TANDYCRAFTS: Says Committee's Objections are Wasteful Strategy -------------------------------------------------------------- Tandycrafts, Inc., and its debtor-affiliates delivered its response to the Official Committee of Unsecured Creditors' objections. The Debtors believe that the Committee's recent flurry of motions: i) A motion to retain an environmental consultant to investigate certain levels of contaminants that were identified in Phase I testing at the Debtors' Texas facility in order to ascertain what actions, if any, may be required of the Debtors and what potential liabilities, if any, may exist. The cost for this proposed engagement is not expected to exceed $18,000. ii) A motion to authorize the Debtors to sell certain accounts receivable owed by Kmart Corporation through secondary market sales. iii) A motion to extend, for three months through July 2002, the $15,000 monthly payment to Imperial Capital, LLC, the Debtors' investment banker, which has been providing ongoing services to the Debtors and their estates in pursuing and negotiating potential third-party plan and/or asset sale transactions. are unnecessary and wasteful. "The Committee suddenly, in a glaring effort to exert pressure on the parties to obtain greater concessions in plan of reorganization discussions, has now apparently embarked on a risky and wasteful strategy of objecting to each and every motion filed by the Debtors," Tandycrafts tells the U.S. Bankruptcy Court for the District of Delaware. The Debtors believe that the Committee's objection focuses less on the substance of any relief sought, and more on a consistent rehash of the Committee's purported dissatisfaction with the plan of reorganization process. In their defense, the Debtors tell the Court that: i) The Debtors argue that they have no equity in the Ft. Worth Property and this property is not necessary to their reorganization. They must then simply abandon the Ft. Property to the Banks in exchange for a credit against the Banks' pre-petition claim. However, as the Committee should be aware, the Debtors cannot just abandon the Ft. Worth Property without further investigation of the conditions described. The Debtors relate to the Court that the maximum cost to the Debtors' estates in retaining ESC is estimated at approximately $18,000. ii) The Debtors tell the Court that had the Committee requested information or attempted to discuss any parameters, they would have given them short notice period and opportunity to object prior to any sale of the Kmart Receivable. The Debtors point out that they have a fiduciary duty to obtain the highest and best value for all assets of their estates, including the Kmart Receivable. Because Kmart is itself a Chapter 11 debtor, there can be no assurance on the recovery of the Kmart Receivable. iii) The Committee suggests that because the initial introduction of the third-party was made through JH Cohn rather than Imperial, that Imperial should not be compensated for its efforts in assisting the Debtors with the negotiations. The Debtors assert that Imperial is the firm that has marketed the Debtors' assets and is negotiating any potential transaction. Tandycrafts, a leading manufacturer and marketer of picture frames, mirrors and other wall decor products, filed for chapter 11 protection on May 15, 2001. Mark E. Felger, Esq., at Cozen and O'Connor, represents the Debtors in their restructuring efforts. Michael L. Vild, Esq., at The Bayard Firm and Jeffrey D. Prol, Esq. at Lowenstein Sandler PC serve as counsel to the Official Unsecured Creditors Committee. When the Company filed for protection from its creditors, it listed assets of $64,559,000 and debts of $56,370,000. TRANSTECHNOLOGY: Completes Senior Debt Refinancing Transaction -------------------------------------------------------------- TransTechnology Corporation (NYSE:TT) has completed the refinancing of its senior debt through a new $34 million senior credit facility provided by The CIT Group/Business Credit, Inc. and Ableco Finance LLC. The new, three-year credit facility is in the form of a $13.5 million revolving line of credit and $6.5 million term loan from CIT and a $14 million term loan from Ableco. Joseph F. Spanier, Chief Financial Officer of TransTechnology, said, "As a result of this refinancing, TransTechnology is no longer operating under a forbearance agreement with either its senior or subordinated lenders. The new credit facility carries a weighted average interest rate 50 basis points below our previous senior debt, which rate did not include the impact of various fees and expenses we were required to carry under the forbearance agreement. Just prior to the completion of this refinancing, we also closed out the interest rate swap contracts which had been required under our previous senior credit facilities and retired the $2.4 million liability for our exposure on those contracts. Simultaneous with the completion of the new senior credit facility, the company and the holders of its subordinated notes amended the subordinated debt agreement so as to eliminate any violations of covenants under that agreement. Our current debt position consists of $27.6 million of senior debt and $80 million of subordinated debt." The company also announced that it had completed the sale of its Brazilian retaining ring for a purchase price of $742,000, paid $325,000 in cash with the balance by installment payments. The company will also be repaid $258,000 of debt due it from the Brazilian unit. The company announced that the relocation of its corporate office from rented space in Liberty Corner, New Jersey to its Breeze Eastern facility in Union, New Jersey had been completed, finalizing the corporate office restructuring begun last year. TransTechnology Corporation -- http://www.transtechnology.com-- headquartered in Union, New Jersey, is the world's leading designer of helicopter rescue hoists, cargo hooks, and aircraft engine nacelle hold open rods through its Breeze Eastern and Norco operations with over 300 people at its facilities in New Jersey and Connecticut. Revenues for the fiscal year ended March 31, 2002 were $72.3 million. TRENWICK GROUP: Reports Improved Second Quarter Fin'l Results ------------------------------------------------------------- Trenwick Group Ltd., reported a 30% increase in gross premium writings in the second quarter of 2002 and a 31% increase in gross premium writings in the first half of 2002, compared to the same periods last year. Trenwick reported operating income of $6.5 million for the second quarter of 2002 and an operating loss of $7.6 million for the first half of 2002. Trenwick's operating results for the first half of 2002 were adversely affected by approximately $21.8 million of loss development related to the September 11th terrorist attacks. Trenwick previously reported $23.0 million of adverse development in the first quarter. Results of Lloyd's Syndicates in runoff included in Trenwick's operating results for the 2002 second quarter and first half of 2002 were losses of $0.9 million and $4.8 million, respectively. Trenwick reported second quarter 2002 net income of $3.8 million compared to a net loss of $50.8 million for the second quarter of 2001. For the first six months of 2002, Trenwick reported a net loss of $50.8 million compared to a net loss of $31.9 million for the first six months of 2001. The results for the first six months of 2002 included a charge of $41.7 million for the cumulative effect of the change in accounting for goodwill, which resulted from Trenwick's adoption of a new accounting standard effective January 1, 2002. Also included in the results of both the second quarter and first six months of 2002 is a charge of $4.2 million (net of commission income of $2.8 million) related to the previously reported sale of the property catastrophe business of Trenwick's Bermuda subsidiary, LaSalle Re Limited. The charge includes the effect of structuring the sale as a reinsurance transaction, causing related expenses to be recognized in the current quarter while additional proceeds will be recognized over the duration of the reinsured LaSalle contracts. This transaction reduced net income for both the second quarter and first six months of 2002 by $0.11 per share. As of June 30, 2002, Trenwick's consolidated common shareholders' equity totaled $445.6 million compared to $498.3 million at December 31, 2001. The decrease in consolidated shareholders' equity resulted mainly from the write down of all of Trenwick's goodwill from the Trenwick-LaSalle business combination completed in 2000 as a result of the adoption of a new accounting standard. As of June 30, 2002, Trenwick has no goodwill on its balance sheet and its GAAP and tangible book values are the same. Core Operating Results Trenwick produced core operating income of $7.4 million in the second quarter of 2002 and a core operating loss of $2.7 million in the first half of 2002. Trenwick defines core operating income as income excluding realized investment gains or losses, cumulative effects of accounting changes, restructuring costs, operating results of certain Lloyd's syndicates in runoff and the charge related to the sale of LaSalle's in-force property catastrophe reinsurance business. Gross premium writings totaled $442.1 million for the second quarter of 2002, an increase of 30% compared to $339.6 million for the second quarter of 2001. The increase in gross premium writings was attributable to the combination of new business and rate increases experienced in all principal segments of the group's operations. Net premium writings totaled $255.9 million for the second quarter of 2002, an increase of 4% compared to $244.9 million for the second quarter of 2001. In connection with the sale of LaSalle's business as at April 1, 2002, Trenwick effected a 100% quota share reinsurance agreement on LaSalle's in-force property catastrophe business, which served to decrease net written premiums by $50.7 million during the quarter. Absent this transaction, net written premiums for the second quarter of 2002 were $306.6 million, or 25% higher than the same period in 2001. Trenwick's combined loss and expense ratio for the quarter ended June 30, 2002 was 104.4% compared to a combined loss and expense ratio of 141.7% for the quarter ended June 30, 2001. Trenwick's combined loss and expense ratio for the first six months of 2002 was 109.2% compared to a combined loss and expense ratio of 124.4% for the first six months of 2001. The higher ratios in 2001 were mainly attributable to the loss reserve strengthening recorded during the second quarter of 2001 and losses relating to Tropical Storm Allison and the sinking of the Petrobras oil rig. Trenwick's net investment income was $27.9 million in the second quarter of 2002 compared to $33.2 million for the second quarter of 2001. For the first half of 2002, Trenwick's net investment income was $57.1 million compared to $65.4 million for the first half of 2001. This decrease in investment income results from an overall decline in fixed income market yields in 2002 compared to 2001. Trenwick posted after-tax net realized investment gains of $4.3 million in the quarter ended June 30, 2002, compared to after- tax net realized investment gains of $1.8 million for the quarter ended June 30, 2001. During the first six months of 2002, Trenwick posted after-tax net realized investment gains of $5.4 million, compared to $9.6 million of after-tax net realized investment gains posted during the first six months of 2001. The higher 2001 net realized investment gains reflect actions taken to reposition Trenwick's debt securities portfolio from municipal securities to corporate securities partially offset by losses on the sale of equity securities in the first quarter of 2001. Trenwick has only 1% of its investment portfolio invested in equity securities as at June 30, 2002 and had no material write down of its debt or equity portfolios as a result of credit issues during the first half of 2002. As previously announced, during the second quarter of 2002, Trenwick significantly reduced its debt from $291.3 million at December 31, 2001 to $91.6 million at June 30, 2002 by repaying in full the $195.2 million term loan under its bank credit facility. This loan repayment will serve to reduce interest expense for the remainder of 2002 by approximately $4.6 million. As of June 30, 2002, Trenwick's debt to total capital ratio was 13.5%. Trenwick's cash used in operations for the second quarter of 2002 was $18.8 million compared to cash used in operations of $0.5 million for the same period last year. The increase in cash used in operations in the second quarter of 2002 resulted from the recording of four months of underwriting cash flow from Trenwick's Lloyd's operations in the quarter. The inclusion of the additional month was the result of the implementation of a new financial reporting system, which eliminated a one month financial reporting lag at Trenwick's Lloyd's operations. The effect of the financial reporting change was to cause an uneven distribution of reported cash flow between the first and second quarters of 2002. Trenwick's cash provided by operations for the first half of 2002 was $57.9 million compared to cash used in operations of $15.4 million for the same period last year. The significant improvement in cash flow for the first half of 2002 from the same period last year results principally from an increase in premium writings and cash from payments received during the first quarter as a result of the reinsurance to close for the 1999 year of accounts on its Lloyd's syndicates. Cash from investing activities during the second quarter of 2002 was $252.6 million, an increase of $319.6 million over 2001. Cash for financing activities was $199.3 million during the second quarter of 2002, $211.4 million greater than the same period in 2001. Both the fluctuations in cash from investing activities and cash for financing activities result from the sale of investments, the majority of the proceeds from which were used to repay Trenwick's term loan of approximately $195.2 million. Accounting Standard Effective January 1, 2002, Trenwick adopted a new standard which suspended systematic goodwill amortization and instead uses periodic tests for goodwill recoverability. Trenwick's Bermuda holding company, LaSalle Re Holdings Limited, has credited the negative goodwill balance of $11.6 million and using a combination of market value and cash flow tests, Trenwick recorded a write down of all $53.2 million of the remaining goodwill. Both actions have been recorded as a cumulative effect of an accounting change as of January 1, 2002. Trenwick is a Bermuda-based specialty insurance and reinsurance underwriting organization with three principal businesses operating through its subsidiaries located in the United States, the United Kingdom and Bermuda. Trenwick's reinsurance business provides treaty reinsurance to insurers of property and casualty risks from offices in the United States and Bermuda. Trenwick's international operations underwrite specialty insurance as well as treaty and facultative reinsurance on a worldwide basis through its London insurer and at Lloyd's. Trenwick's U.S. specialty program insurance business underwrites U.S. property and casualty insurance through specialty program administrators. * * * As reported in Tuesday Edition of Troubled Company Reporter, Standard & Poor's Ratings Services lowered its counterparty credit ratings on Trenwick Group Ltd., and related holding companies to double-'B' from triple-'B'-minus to reflect their reduced business position following declines in the operating companies' performance and the opinion that in the event of constraints in available capital, management will prioritize the distribution of resources among its various operations. Standard & Poor's also said that it lowered the ratings on Insurance Corp., of NY; Dakota Specialty Insurance Co., its wholly owned subsidiary; Trenwick International Ltd.; and Chartwell Insurance Co., because it is no longer giving ratings credit for support from other group members. In addition, Standard & Poor's affirmed its ratings on Trenwick America Reinsurance Corp. and LaSalle Re Ltd. Standard & Poor's also withdrew its ratings on Chartwell Re Corp., at management's request. The outlook on all these companies is negative. US INDUSTRIES: Fitch Rates $375 Mill. Senior Secured Notes at B- ---------------------------------------------------------------- Fitch's 'B-' rating on US Industries, Inc.'s $375 million senior secured notes, with USI American Holdings, Inc., and USI Global Corporation as co-obligors, remains on Rating Watch Negative. The notes are guaranteed by USI Atlantic Corp. On August 5, 2002, USI announced that it had signed an agreement to sell SiTeco, its European lighting division for 120 million Euros. The transaction is expected to close by the end of this month. Post this transaction, USI will have substantially completed its asset sale program, generating proceeds to be used for debt reduction of almost $700 million. As a result, cumulative reductions of the company's senior debt will be satisfied through October 15, 2002, however, the bank facilities mature on November 30, 2002 and additional asset sales or cash flow generation will not be sufficient to satisfy the company's obligation at that time. USI is negotiating with its bank group to extend the November 30, 2002 due date of the bank facilities. Pro forma for the divestiture of SiTeco, USI will have about $400 million outstanding under its bank facilities. The Rating Watch Negative recognizes that an unfavorable outcome regarding the company's ability to restructure its bank facilities could lead to default. Fitch will continue to closely monitor the company's ability to meet scheduled debt reductions as well as extend the maturities on its debt. US PLASTIC LUMBER: Soliciting Approvals of Clean Earth Sale ----------------------------------------------------------- U.S. Plastic Lumber Corp. (Nasdaq:USPL), has mailed its proxy statement to stockholders of USPL to solicit their approval of the sale of Clean Earth, Inc., its environmental services and recycling division, to CEI Holding Corporation, a corporation recently formed by Eos Partners, L.P., and Bank of America Capital Investors, two private equity investment groups that collectively manage over $2.5 billion of capital. USPL previously announced its agreement to sell Clean Earth, Inc., to the Purchaser on June 17, 2002. USPL has established August 27, 2002 as the Special Stockholders Meeting Date for the stockholders to vote on the Clean Earth sale transaction. Although, the closing of this transaction is subject to the completion of certain conditions to closing which have yet to be satisfied, including but not limited to stockholder approval, USPL and Purchaser have established August 28, 2002 as the closing date for the sale. * * * As reported in Troubled Company Reporter's June 19, 2002, edition, USPL signed a Second Supplemental Forbearance Agreement with its Senior Lenders in connection with USPL's Senior Credit Facility extending the forbearance period from May 31, 2002 to August 31, 2002 to allow the Company adequate time to close the CEI sale transaction. The Forbearance Agreement permits USPL to defer the principal and interest payments until the earlier of the CEI sale transaction or August 31, 2002. USPL also announced that it has signed a First Amendment to Forbearance and Modification Agreement with the GE Capital syndicate group extending the Forbearance Period, deferring interest and principal payments through the earlier of the (i) the closing of the CEI sale transaction or (ii) July 31, 2002. UNITED AIRLINES: Revenue Passenger Miles Drop 12.3% in July ----------------------------------------------------------- United Airlines (NYSE: UAL) total scheduled revenue passenger miles (RPMs) fell 12.3 percent in July vs. the comparable month in 2001, on a capacity decrease of 13.1 percent. The carrier's passenger load factor came in at 77.3 percent, up slightly from 76.5 percent a year ago. United operates more than 1,900 flights a day on a route network that spans the globe. News releases and other information about United may be found at the company's Web site at http://www.united.com * * * As reported in Troubled Company Reporter's July 16, 2002 edition, the International Association of Machinists (IAM) of UAL Corp., (B/Watch Dev) unit United Air Lines Inc., (B/Watch Dev) announced on July 9, 2002, that it formally rejected management's proposal for a 10% wage reduction. Standard & Poor's ratings for both entities, which were lowered to their current level June 28, 2002, remain on CreditWatch with developing implications. "The IAM action represents a serious setback for United's effort to cut its operating costs and seek a $1.8 billion federal loan guaranty," said Standard & Poor's credit analyst Philip Baggaley. Although United, the second-largest airline in the world, has reached a tentative concessionary agreement with its pilots union, that agreement is contingent on a pilot member vote, receiving a federal loan guaranty, "equitable and meaningful participation.by UAL's other labor groups," and other conditions. Although noncontract employees are to make concessions as part of the cost-cutting program, it appears that the pilots would expect one or both of the two employee groups (mechanics and ground service employees) represented by the IAM to participate in wage concessions, as well (the flight attendants have, from the beginning, indicated no willingness to discuss concessions). The IAM stated that it was "unwise to begin discussions" with outgoing interim CEO Jack Creighton, implying a further, possibly lengthy, delay in addressing this part of United's operating cost problem. UNIVERSAL ACCESS: Shows $14MM Working Capital Deficit at June 30 ---------------------------------------------------------------- Universal Access Global Holdings Inc., (Nasdaq: UAXS) announced its results for the second quarter ended June 30, 2002. Although quarterly results were affected by telecom industry bankruptcies, the company made further progress on cost reductions and cash burn. "We successfully weathered the bankruptcies of two large customers in the second quarter," said Patrick Shutt, Chairman and CEO of Universal Access. "We have taken actions to mitigate our risk with customers that have sought bankruptcy protection to date and believe that, while there are no guarantees, there is less risk with our other large customers. Our quarterly cash burn declined by 30%. We also made good progress on cost reductions in the four areas we identified in our last quarterly report: people, services, real estate and vendors." Second Quarter Operating Results and Cash For the quarter ended June 30, 2002, revenues decreased 17% sequentially to $24.1 million from $29.1 million in the first quarter of 2002. Bankruptcy filings by two large customers accounted for the majority of the decline. These bankruptcies also created a margin drag as the company was required to cover circuit costs after revenues were discontinued. Gross profit for the second quarter was $4.0 million, down 49% sequentially from $7.9 million in the first quarter. Gross margin was 16.0% versus 27.1% in the preceding quarter. On a normalized basis without these effects, second quarter gross margin would have been 32%, on-par with a similarly adjusted first quarter. Due to continuing deterioration in the telecom industry and the expected effect on the company going forward, during the quarter Universal Access recorded a one-time charge of $50.5 million related to the impairment and write-down of assets, primarily its UTX assets and goodwill. Operations and administration expense (excluding stock compensation) in the second quarter was $19.7 million compared to $15.5 million in the first quarter. This included non-cash adjustments of $3.8 million related to notes receivable, accrued expenses and an equipment lease. In addition, $3.1 million of bad debt expense was recorded. Operating and administration expense excluding these items was $12.8 million for the quarter. The EBITDA loss (excluding stock-based compensation and impairment charges) for the second quarter was $15.8 million compared to $7.6 million in the preceding quarter, and the net loss was $72.1 million versus $12.6 million in the first quarter. For the first half of 2002, revenues were $53.2 million, down 5% from $56.0 million in the first half of 2001. The company finished the quarter with $30.3 million in cash (including cash, cash equivalents, short-term investments and restricted cash) compared to $42.8 million at the end of Q1. Second quarter cash burn was $12.5 million, a 30% reduction from the first quarter's burn of $17.9 million. Of the $12.5 million, $2.9 million was used to retire a capital lease. The second quarter operating cash burn exit rate was under $2 million per month. The Company's June 30, 2002, balance sheet, shows that its total current liabilities exceeded its total current assets by about $14 million. "The company previously stated that it would reduce SG&A to $4 million per month by early in the third quarter, and we have done this," said Randy Lay, Universal Access' CFO. "With additional cost reductions still in process, we are confident we have control over our costs and cash and can survive during this period of turmoil in the telecom industry." Universal Access was founded in October 1997 with the vision of enabling a more cohesive data communications network fabric. The company's primary business is to serve as telecom carriers' and service providers' outsourced partner for off-net connectivity and related services. Universal Access more quickly interconnects the existing long-haul and local assets of many different network carriers and is thus able to accelerate carriers' revenues, facilitate the outsourcing of operating costs and reduce capital expenditures for network extensions and build-outs. Universal Access Global Holdings Inc., (Nasdaq: UAXS) is headquartered in Chicago. Additional information is available on the company's Web site at http://www.universalaccess.net W.R. GRACE: Sealed Air Transaction Trial Set for September 30 ------------------------------------------------------------- The drama continues to unfold as the Official Asbestos Committees appointed in W.R. Grace's chapter 11 cases continues to challenge the propriety and avoidability of transactions that resulted in assets being sold to Sealed Air Corporation. Recently, the Official Committee of Asbestos Personal Injury Claimants of W.R. Grace and the Official Committee of Asbestos Property Damage Claimants of W.R. Grace asked Judge Wolin to determine: (i) the choice of law, and (ii) the applicable standard for determining insolvency in this adversary proceeding. Choice of Law Brad N. Friedman, Esq., at Milberg Weiss Bershad Hynes & Lerach LLP, argues that any choice-of-law analysis will result in the application of the Uniform Fraudulent Transfer Act because each of the three states with primary contacts to this matter -- i.e., New Jersey, Delaware and Florida -- had enacted virtually identical versions of the Uniform Act prior to the fraudulent transfer at issue. Thus, Mr. Friedman asserts, there exists only a "false conflict", which obviates an express choice-of-law finding. Nevertheless, if the Court determines that a specific finding must be made, Mr. Friedman contends that the law to be applied should be that of New Jersey, the primary place of business of Old Sealed Air, Grace-1998 -- which renamed itself New Sealed Air, and Cryovac. Insolvency Standard The Uniform Act provides, in pertinent part: A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation. Mr. Friedman points out that the Uniform Act's definition of insolvency sets forth a straightforward assets-minus-liabilities test for measuring insolvency: a debtor is insolvent when "the sum of the debtor's debts is greater than all of the debtor's assets at fair valuation." Thus, under the plain language of the controlling Uniform Act, Mr. Friedman says, the test is whether Grace-Conn became insolvent as a result of the Sealed Air transfers. To apply the test in this case, Mr. Friedman explains, the parties would present evidence concerning the most accurate estimations possible of Grace-Conn's assets and liabilities immediately after the transfer occurred. Despite the clear language of the Uniform Act, the defendants have asserted that they are entitled to the protection of a "reasonableness" safe harbor. According to the defendants, so long as Grace-1998's estimations of Grace-Conn's liability -- and, consequently, its insolvency -- were "reasonable" when made, the Sealed Air transfers cannot be considered constructively fraudulent under the Uniform Act. The Committees argue that the defendants' position is contrary to law and logic. "It is plain on the face of the statute that there is no reasonableness safe harbor," Mr. Friedman asserts. Indeed, the very language of the Uniform Act demonstrates the fallacy of the defendants' position. In two of the three provisions of the Uniform Act dealing with constructive fraudulent transfer, reasonableness is an express factor. However, in Section 5 of the Uniform Act, the only section at issue here, the legislatures of New Jersey, Delaware and Florida omitted any reference to reasonableness. Clearly, then, the states knew how to include the term reasonable, and they also knew how to exclude it. Admittedly, the standard to be applied in these proceedings is a question of first impression. There are no published opinions that address the particular issue here, i.e., how the future cost of a debtor's existing mass tort liability arising from a pre-existing, known, and extensively litigated exposure should be accounted for in a solvency analysis under Section 5 of the Uniform Act. The Committees contend that the straightforward language of the Uniform Act, analogous case law, and overarching public policy considerations as to who should bear the burden of erroneous estimates dictate that the standard proposed by the Committees -- the best possible estimate of Grace-Conn's actual liabilities as of the transfer date, based on the most accurate information available -- should be applied by this Court. Sealed Air and Cryovac Respond David R. Hurst, Esq., at Skadden Arps Slate Meagher & Flom, in Wilmington, Delaware, acknowledge that, under the choice of law analysis, the Uniform Fraudulent Transfer Act applies. However, to the extent that a finding as to the law of a specific state applies, Mr. Hurst argues that it should be Delaware, not New Jersey. "This is the state of incorporation of W. R. Grace, Sealed Air, and Cryovac at the time of the 1998 transaction," Mr. Hurst points out. Judge Wolin Decides After examining the laws of New Jersey and of Delaware, District Judge Wolin finds no material difference between the laws of these two states. Both have enacted versions of the UFTA that are identical in relevant part. Judge Wolin says he will apply the Uniform Fraudulent Transfer Act to this adversary proceeding. The question of whether the liability represented by the post- 1998 claims surge should be included in the assessment of W. R. Grace's 1998 insolvency is a key -- perhaps the key -- issue in this case. The difference in result, depending on which theory is adopted, may be dramatic. Judge Wolin further rules that, subject to certain conditions and findings, an asbestos claim filed after the transfer date may be considered in determining the Debtors' solvency in this case. Constructive Fraud Only Section 4(a)(1) of the UFTA states that a transfer is fraudulent "if the debtor made the transfer or incurred the obligation . . . with actual intent to hinder, delay or defraud any creditor of the debtor." This is obviously the definition of actual fraud, not constructive fraud. To avoid premature expenditure of resources on this branch of the case, Judge Wolin bars discovery into the parties' intent. There are two sections of the UFTA that may be considered "constructive" fraud, and each involves two elements. The first element is common to both: the debtor did not receive reasonably equivalent value in the accused transaction. The second element deals generally with the debtor's insolvency, but varies between the two sections. Section 4(a)(2) requires the debtor's lack of reasonably equivalent value, and that the debtor: "was engaged or was about to engage in a business or transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction, or intended to incur, or believed or reasonably should have believed that he [or she] would incur debts beyond his [or her] ability to pay as they become due." By contrast, the second solvency element is stated simply. A transfer is fraudulent if reasonably equivalent value is missing and the debtor was insolvent at the time, or became insolvent as a result of the transfer or obligation. This is a strict balance-sheet test: a debtor is insolvent if its debts exceed its assets. Both Sections 4 and 5 protect creditors from transfers that diminish the value of the debtor's remaining estate, regardless of any truly fraudulent intent. Judge Wolin contends that "constructive" fraudulent conveyance comfortably covers this concept under either section. However, Judge Wolin notes that Section 5's definition of insolvency is the broader of the two. If the plaintiffs choose to aim solely at Section 5 alone, that is the section, which the defendants must defend. Therefore, Judge Wolin adopts the Section 5 standard in his opinion. Determining the Liabilities Judge Wolin notes that the real dispute is this: the defendants contend that the liabilities which should be considered to determine the debtor's solvency on the transaction date are those that were known on that date or those that the debtor reasonably should have known about at that time, while the plaintiffs argue that Section 5 insolvency is determined by the actual liabilities of the debtor, net of assets. What the debtor may have known about those liabilities on the transfer date, reasonably or otherwise, is not at issue to the plaintiffs. According to Judge Wolin, the importance of this issue stems from the mass toxic tort nature of the Debtors' primary liability. Under the Defendants' theory, W. R. Grace's liabilities in 1998 would include then-existing asbestos claims and a reasonable estimate of claims in the future. Reasonableness would turn on the legitimacy of the method by which the 1998 claims rate was extrapolated into the future. However, the Defendants have repeatedly represented that W. R. Grace experienced a substantial increase in asbestos claims after 1998, and that it was this spike in claims that eventually drove the company into bankruptcy. Determining the standard for proving insolvency under Section 5 will determine to what extent the post-1998 claims should be considered in calculating Grace's solvency on the transaction date. The difference in result, depending on which theory is adopted, may be dramatic. Judge Wolin disagrees with the Defendants' assertion that a finding of insolvency under the UFTA rests on the reasonableness of the debtor's estimate of its own solvency, both with respect to contingent future events, and then existing financial circumstances. "The clear thrust of case law is whether the debtor was insolvent on the transaction date without regard to what it may have thought, reasonably or otherwise," Judge Wolin explains. In Judge Wolin's view, the initial question is whether the post- 1998 claimants possessed a "right to payment"; i.e., a claim for UFTA purposes, on the transaction date, even if they did not assert the claim until later. Judge Wolin believes that the broad definition of claim in the statute begs the question: "when does the right to payment arise, or put another way, when does the claim become enforceable? The issue is one of state law, Judge Wolin says. It is reasonable, Judge Wolin notes, that of the tens of thousands of persons making claims for asbestos injury against W. R. Grace after the 1998 transfer date, most of them had viable claims against the company prior to that time. "Asbestos had not been manufactured or employed in industry for many years before 1998, so any person with a post-1998 claim must have been exposed long before the transfer date," Judge Wolin observes. That exposure would lead to long-term, serious health effects with long latency periods that have been common knowledge for 20 to, perhaps, 30 years. Judge Wolin therefore rules that these claimants had a "right to payment", and thus a claim, for purposes of the solvency analysis of the UFTA on the transfer date. "It does not matter that the claimants themselves may not have been aware of their own claims in 1998. A cause of action may exist before its owner is aware of it," Judge Wolin says. Judge Wolin also rejects the Defendants' assertion that the post-1998 claims were contingent, and therefore subject to discounting by the reasonable probability that the contingency would not arise. According to Judge Wolin, it is difficult to discern what extrinsic event was left to occur as of 1998 to make W. R. Grace liable for asbestos injuries to the post-1998 claimants. The formal claim is not extrinsic to the underlying liability, nor is it an event creating liability where none existed before. To hold otherwise would be to say that unknown claims are always contingent. "Even claims, which are defeasible through later acts or omissions of the claimants, does not mean they were never claims in the sense of possessing a right to payment," Judge Wolin says. Moreover, Judge Wolin notes that the Defendants took an "ill- considered detour" in arguing orally the issue of whether transferee paid equivalent value to argue that their expectations in exploiting a legal tax avoidance device in the transaction should be protected. Here, where the creditors are alleged to be personal injury victims, this argument rings particularly hollow. Judge Wolin relates that the creditors have their debtor forced on them; plainly, the commercial expectations involved in corporate tax avoidance must take second place. Conversely, Judge Wolin says, the purposes of the fraudulent conveyance statute to prevent debtors from placing assets beyond the reach of their creditors is only more acute where the creditors are personal injury claimants. According to Judge Wolin, torts like personal injury from asbestos exposure raise considerations with respect to timing that requires careful consideration from the courts. "The reality is that asbestos, like tobacco, has been a societal scourge for more than a generation. W. R. Grace knew it had a serious and open-ended asbestos liability problem for years before the transaction at issue here," Judge Wolin says. Moreover, the asset transferred away is alleged to have been a substantial part of Grace's portfolio. Firms with well-established legacies of mass-tort liability should realize that the transfers for less than equivalent value may harm their tort claimants-creditors should prognostications of future claims be inaccurate. These firms are in a "special position" with respect to creditor transactions. Transactions, including legitimate tax avoidance, must take the reality of the companies' existing liability and the inherent difficulty in defining that liability's scope into consideration. Trial and Issues Judge Wolin has set a trial for September 30, 2002, dealing only with a limited set of issues like: (1) the Sealed Air transaction; (2) the allegations of constructive fraudulent conveyance. Post-1998 claims will be included in the solvency analysis of W.R. Grace for this constructive fraudulent conveyance proceeding. (W.R. Grace Bankruptcy News, Issue No. 26; Bankruptcy Creditors' Service, Inc., 609/392-0900) WESTPOINT STEVENS: S.A.C. Capital Discloses 6% Equity Stake ----------------------------------------------------------- The securities reported on here are held by S.A.C. Capital Associates, LLC, an Anguillan limited liability company. Pursuant to investment agreements, SAC Capital Advisors and SAC Capital Management share all investment and voting power with respect to the securities held by SAC Capital Associates. Accordingly, SAC Capital Advisors and SAC Capital Management may be deemed to be the beneficial owner of the securities covered in this item. Steven A. Cohen is (i) the President and Chief Executive Officer of SAC Capital Advisors, the Managing Member of which is a corporation wholly owned by Mr. Cohen, and (ii) the owner, directly and through a wholly owned subsidiary, of 100% of the membership interests of SAC Capital Management. Accordingly, Mr. Cohen may be deemed to be the beneficial owner of the securities covered by this statement. Mr. Cohen disclaims beneficial ownership of any of the securities covered by this statement. The amount beneficially owned is 2,959,300 shares of the common stock of WestPoint Stevens, Inc., representing 6.0% of the outstanding shares of that class. Each of the entities mentioned above shares power to vote or to direct the vote of, and shares the power to dispose or to direct the disposition of the entire number of shares reported. The firm is the #1 US maker of bed linens and bath towels and also makes comforters, blankets, pillows, table covers, and window trimmings. It makes the Martex, Utica, Stevens, Lady Pepperell, Grand Patrician, and Vellux brands, as well as the Martha Stewart bed and bath lines; other licensed brands include Ralph Lauren, Disney, and Joe Boxer. Department stores, mass retailers, and bed and bath stores are its main customers. (Federated, J.C. Penney, Kmart, Sears, and Target account for more than half of sales.) It also has nearly 60 outlet stores. Chairman and CEO Holcombe Green controls 8% of WestPoint Stevens. At June 30, 2002, Westpoint Steven's balance sheet shows a total shareholders' equity deficit of about $758 million. WORLDCOM INC: Proposes Uniform Interim Compensation Procedures -------------------------------------------------------------- Worldcom Inc., and its debtor-affiliates ask the Court's authority to establish an orderly, regular process for allowance and payment of compensation and reimbursement for attorneys and other professionals in the Debtors' cases. Lori R. Fife, Esq., at Weil, Gotshal & Manges LLP, in New York, refers to Section 331 of the Bankruptcy Code, which entitles retained professionals to submit applications for interim compensation and reimbursement of expenses every 120 days, or more often if the Court permits. Ms. Fife also cites the Standing Order in the Bankruptcy Court for the Southern District of New York that was issued by former Chief Judge Tina L. Brozman on January 24, 2000 establishing procedures for monthly compensation and reimbursement of expenses of professionals. The Debtors propose this structure for the payment of compensation and reimbursement of professionals' expenses: (a) On or before the 30th day of each month after the month for which compensation is sought, each professional seeking compensation will serve a monthly statement, by hand or overnight delivery on: (i) WorldCom, Inc., 1133 19th Street, Washington, D.C. 20035 (Attn: Michael Salsbury); (ii) Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153 (Attn: Marcia L. Goldstein, Esq.); (iii) Attorneys for the Debtors' prepetition lenders; (iv) Attorneys for the Debtors' postpetition lenders; (v) Attorneys for any statutory committee appointed in these cases, and (vi) The Office of the United States Trustee for the Southern District of New York, 33 Whitehall Street, 21st Floor, New York, New York 10004 (Attn: Carolyn S. Schwartz, Esq.); (b) The Monthly Statement need not be filed with the Court and a courtesy copy need not be delivered to chambers. The Motion is not intended to alter the fee application requirements outlined in Sections 330 and 331 of the Bankruptcy Code. Professionals are still required to serve and file interim and final applications for approval of fees and expenses in accordance with the relevant provisions of the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure and the Local Rules for the New York Bankruptcy Court; (c) Each Monthly Statement must contain a list of the individuals and their respective titles who provided services during the statement period, their respective billing rates, in the case of attorneys, their respective years of graduation from law school and, to the extent applicable, the aggregate hours spent by each individual, a reasonably detailed breakdown of the disbursements incurred and contemporaneously maintained time entries for each individual in increments of 1/10 of an hour; (d) Each person receiving a statement will have at least 15 days after its receipt to review it and, in the event that he or she has an objection to the compensation or reimbursement sought in a particular statement, he or she shall, by no later than the 45th day after the month for which compensation is sought, serve upon the professional whose statement is objected to, and the other persons identified in this Motion to receive Monthly Statements, a written Notice Of Objection To Fee Statement, articulating the nature of the objection and the amount of fees or expenses at issue; (e) At the expiration of the 45-day period, the Debtors shall promptly pay 80% of the fees and 100% of the expenses identified in each Monthly Statement to which no objection has been served in accordance with this procedure; (f) If the Debtors receive an objection to a particular Monthly Statement, they shall withhold payment of that portion of the Monthly Statement to which the objection is directed and promptly pay the remainder of the fees and disbursements in the allowed percentages; (g) Similarly, if the parties to an objection are able to resolve their dispute after the service of a Notice Of Objection To Fee Statement and if the party whose Monthly Statement was objected to serves on all of the parties a statement indicating that the objection is withdrawn and describing in detail the terms of the resolution, then the Debtors shall promptly pay that portion of the Monthly Statement which is no longer subject to an objection; (h) All objections that are not resolved by the parties shall be preserved and presented to the Court at the next interim or final fee application hearing to be heard by the Court; (i) The service of an objection shall not prejudice the objecting party's right to object to any fee application made to the Court in accordance with the Bankruptcy Code on any ground whether raised in the objection or not. Furthermore, the decision by any party not to object to a Monthly Statement shall not be a waiver of any kind or prejudice that party's right to object to any fee application subsequently made to the Court in accordance with the Bankruptcy Code; (j) Every 120 days, but no more than every 150 days or such specific date set by the Court, each of the professionals shall serve and file with the Court, in accordance with General Order M-182 (which can be found at http://www.nysb.uscourts.gov), an application for interim or final Court approval and allowance of the compensation and reimbursement of expenses requested; (k) Any professional who fails to file an application seeking approval of compensation and expenses previously paid under the Motion when due shall be ineligible to receive further monthly payments of fees or reimbursement of expenses as provided herein until further Order of the Court and may be required to disgorge any fees paid since retention or the last fee application, whichever is later; (l) While an application is pending or while an Order finds that payment of compensation or reimbursement of expenses was improper as to a particular statement, the professional shall not be disqualified from future payment of compensation or reimbursement of expenses unless otherwise ordered by the Court; (m) Neither the payment of, nor the failure to pay, in whole or in part, monthly compensation and reimbursement shall have any effect on the Court's interim or final allowance of compensation and reimbursement of expenses of any professionals; and (n) The attorney for any statutory committee may, in accordance with the foregoing procedure for monthly compensation and reimbursement of professionals, collect and submit statements of expenses, with supporting vouchers, from members of the committee he or she represents so long as the reimbursement requests comply with the Court's Administrative Orders dated June 24, 1991 and April 21, 1995. The Debtors propose that each professional whose retention has been approved by the Court be allowed to seek compensation and reimbursement of expenses for work performed during the period beginning on the date of the professional's retention and ending on August 31, 2002. It is further proposed that the first 120- day fee application period conclude on November 30, 2002. The proposed procedures, Ms. Fife contends, will enable the Debtors to closely monitor the costs of administration, forecast level cash flows, and implement efficient cash management procedures. The procedures will also allow the Court and the key parties-in-interest, including the U.S. Trustee, to insure the reasonability and the necessity of the compensation and reimbursement sought. Debtors Will Reimburse Committee Members, Too The Debtors also intend to reimburse reasonable out-of-pocket expenses incurred by members of any statutory committees appointed in the Debtors' cases. The same interim compensation procedures will apply. (Worldcom Bankruptcy News, Issue No. 3; Bankruptcy Creditors' Service, Inc., 609/392-0900) WORLDCOM: Court Confirms Thornburgh's Appointment as Examiner ------------------------------------------------------------- Richard Thornburgh, Of Counsel to Kirkpatrick & Lockhart LLP and former United States Attorney General, has been confirmed by the U.S. Bankruptcy Court for the Southern District of New York as the Examiner in the WorldCom bankruptcy proceedings. Thornburgh has been affiliated with K&L continuously since 1959, except during periods of public service (including terms as Governor of Pennsylvania, U.S. Attorney General, and Under-Secretary-General of the United Nations). The U.S. Trustee's office requested Thornburgh's appointment in papers filed with the bankruptcy court on Thursday, August 1st. Judge Arthur J. Gonzalez signed an order confirming the appointment on Tuesday, August 6th. According to an earlier order that granted the U.S. Trustee the power to appoint an Examiner, Thornburgh's role will be to " ... investigate any allegations of fraud, dishonesty, incompetence, misconduct, mismanagement or irregularity in the arrangement of the affairs of (WorldCom) ... " by that company's current or former management, and to prepare a report to the Bankruptcy Court. The Court directed the Examiner to coordinate with, and avoid duplication of, any investigations being conducted by the U.S. Securities and Exchange Commission, Department of Justice and other governmental agencies. Kirkpatrick & Lockhart is a national law firm with more than 650 lawyers in Boston, Dallas, Harrisburg, Los Angeles, Miami, Newark, New York, Pittsburgh, San Francisco, and Washington. K&L serves a dynamic and growing clientele in regional, national and international markets, currently representing over half of the Fortune 500. The firm's practice embraces three major areas -- litigation, corporate and regulatory -- and related fields. For mote information, please visit http://www.kl.com WORLDCOM: Uncovers Additional $3.3BB Improperly Reported EBITDA --------------------------------------------------------------- WorldCom, Inc., announced that its ongoing internal review of its financial statements has discovered an additional $3.3 billion in improperly reported earnings before interest, taxes, depreciation and amortization (EBITDA) for 1999, 2000, 2001 and first quarter 2002. This amount is in addition to the previously reported $3.8 billion in overstated EBITDA in the year 2001 and first quarter 2002. As a result, WorldCom intends to restate its financial statements for 2000. Previously the company announced that it intends to restate its financial statements for 2001 and first quarter 2002. The resulting changes are summarized in a financial chart below. WorldCom is continuing its internal financial investigation. Investors and creditors should be aware that additional amounts of improperly reported EBITDA and pretax income may be discovered and announced. Until KPMG LLP, the company's newly appointed external auditors, is able to complete an audit of 2000, 2001 and 2002, the total impact on previously reported financial statements cannot be known. The company intends to continue to expeditiously announce unaudited changes to previously reported financial statements if it discovers additional issues. The amounts disclosed have previously been disclosed to the SEC and other investigative authorities. WorldCom also announced it expects to record further write-offs of assets previously reported, including the likelihood that it may determine all existing goodwill and other intangible assets, currently recorded as $50.6 billion, should be written off when restated 2000, 2001 and 2002 financials are released. The company will also reevaluate the carrying value of existing property, plant and equipment as to possible impairment of historic values previously reported. However, until the company's audit of previously reported asset values is complete it cannot determine with certainty the amount of its ultimate write-offs. WorldCom has notified Andersen LLP, which audited the company's financial statements until May 2002, of the results of this review. WorldCom will issue unaudited financial statements for 2000, 2001 and the first quarter of 2002 as soon as practicable. WorldCom, Inc., (WCOEQ, MCWEQ) is a pre-eminent global communications provider for the digital generation, operating in more than 65 countries. With one of the most expansive, wholly- owned IP networks in the world, WorldCom provides innovative data and Internet services for businesses to communicate in today's market. In April 2002, WorldCom launched The Neighborhood built by MCI - the industry's first truly any- distance, all- inclusive local and long-distance offering to consumers for one fixed monthly price. For more information, go to http://www.worldcom.com DebtTraders reports that Worldcom Inc.'s 11.25% bonds due 2007 (WCOM07USA1) are trading at 22.5 cents-on-the-dollar. See http://www.debttraders.com/price.cfm?dt_sec_ticker=WCOM07USA1 for real-time bond pricing. XO COMMS: Carl Icahn Extends Tender Offer until August 14 --------------------------------------------------------- High River Limited Partnership, an affiliate of Carl C. Icahn, is extending the expiration date of its tender offer for up to $331 million in principal amount of Senior Secured Loans of XO Communications, Inc. until 5:00 pm, New York City time, on August 14, 2002, unless the Offer is extended to a later date and time. Approximately $24.5 million in principal amount of Senior Secured Loans of XO Communications, Inc. have been tendered pursuant to the tender offer as of the close of business on August 6, 2002. ZIFF DAVIS: Noteholders Accept Terms of Fin'l Restructuring Plan ---------------------------------------------------------------- Ziff Davis Media Inc., announced that as of August 6, 2002, holders representing 95.1% of the aggregate principal amount of its $250.0 million of 12.0% Senior Subordinated Notes due 2010, have formally accepted the terms of its financial restructuring plan under which the Company would reduce its Senior Notes by approximately $155.0 million and its cash debt service requirements over the next several years by over $30.0 million annually by exchanging cash and new securities for the Senior Notes. In addition, the Company announced that it has reached agreement in principle with holders of 100.0% of the outstanding loans under its Senior Credit Facility regarding a proposed amended and restated credit agreement. Willis Stein & Partners III, L.P. and certain of its affiliates agreed to purchase for $720,000 from a tendering bondholder certain equity securities of Ziff Davis Holdings Inc. that will be issued to that bondholder in the Exchange Offer. The WS&P purchase is contingent upon the completion of the Exchange Offer. The Company also announced that the Exchange Offer has been extended through 5:00 p.m. (New York City Time) today, August 9, 2002. Ziff Davis Media Inc., is a special interest media company focused on the technology and game markets. In the United States, the company publishes 9 industry leading business and consumer publications: PC Magazine, eWEEK, Baseline, CIO Insight, Electronic Gaming Monthly, Xbox Nation, Official U.S. PlayStation Magazine, Computer Gaming World and GameNow. There are 45 foreign editions of Ziff Davis Media's publications distributed in 76 countries worldwide. In addition to producing companion sites for all of its magazines, the company develops tech enthusiast sites such as ExtremeTech.com. Ziff Davis Media provides custom publishing and end-to-end marketing solutions through its Integrated Media Group, industry analyses through Ziff Davis Market Experts and produces seminars and webcasts. For more information, visit http://www.ziffdavis.com * BOOK REVIEW: The ITT Wars: An Insider's View of Hostile Takeovers --------------------------------------------------------- Author: Rand Araskog Publisher: Beard Books Soft cover: 236 pages List Price: $34.95 Review by Gail Owens Hoelscher Buy a copy for yourself and one for a colleague on-line at: http://amazon.com/exec/obidos/ASIN/1893122832/internetbankrupt This book was originally published in 1989 when the author was Chairman and Chief Executive Officer of ITT Corporation, a $25 billion conglomerate with more than 100,000 employees and operations spanning the globe with an amazing array of businesses: insurance, hotels, and industrial, automotive, and forest products. ITT owned Sheraton Hotels, Caesars Gaming, one half of Madison Square Garden and its cable network, and the New York Knickerbockers basketball and the New York Rangers hockey teams. The corporation had rebounded from its troubles of the previous two decades. Araskog was made CEO in 1978 to make sense of years of wild acquisition and growth. Under Harold Geneen, successor to ITT's founder and champion of "growth as business strategy," ITT's sales had grown from $930 million in 1961 to $8 billion in 1970 and $22 billion in 1979. It had made more than 250 acquisitions and had 2,000 working units. (It once acquired some 20 companies in one month). ITT's troubles began in 1966, when it tried to acquire ABC. National sentiment against conglomerates had become endemic; the merger became its target and was eventually abandoned. Next came a variety of allegations, some true, some false, all well publicized: funding of Salvador Allende's opponents in Chile's 1970 presidential elections; influence peddling in the Nixon White House; underwriting the 1972 Republican National Convention. ITT's poor handling of several antitrust cases was also making headlines. Then came recession in 1973. ITT's stock plummeted from 60 in early 1973 to 12 in late 1974. Geneen found himself under fire and, in Araskog's words, the "succession wars" among top ITT officers began. Geneen was forced out in 1977, and Araskog, head of ITT's Aerospace, Electronics, Components, and Energy Group, with more than $1 billion in sales, won the CEO prize a year later. Araskog inherited a debt-ridden corporation. He instituted a plan of coherent divesting and reorganization of the company into more manageable segments, but was cut short by one of the first hostile bids by outside financial interests of the 1980s, by businessmen Jay Pritzker and Philip Anschutz. This book is the insider's story of that bid. The ITT Wars reads like a "Who's Who" of U.S. corporations in the 1970s and 1980s. Araskog knew everyone. His writing reflects his direct, passionate, and focused management style. He speaks of wars, attacks, enemies within, personal loyalty, betrayal, and love for his company and colleagues. In the book's closing sentences, Araskog says, "We fought when the odds were against us. We won, and ITT remains one of the most exciting companies of the twentieth century. We hope to keep the wagon train moving into the twenty-first century and not have to think about making a circle again. Once is enough." Araskog wrote a preface and postlogue for the Beard Books edition, and provides us with ten years of perspective as well as insights into what came next. In 1994, he orchestrated the breakup of ITT into five publicly traded companies. Wagon circling began again in early 1997 when Hilton Hotels made a hostile takeover offer for ITT Corporation. Araskog eventually settled for a second-best victory, negotiating a friendly merger with The Starwood Corporation, in which ITT shareholders became majority owners of Starwood and Westin Hotels, with the management of Starwood assuming management of the merged entity. Today Mr. Araskog continues to serve on the boards of the four corporations created from ITT, as well as on the boards of Shell Oil Company and Dow Jones, Inc. He heads up his own investment company with headquarters on Worth Avenue, in Palm Beach, Florida. ********* 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. Our objective is to share information, not make markets in publicly traded securities. Nothing in the TCR constitutes an offer or solicitation to buy or sell any security of any kind. It is likely that some entity affiliated with a TCR editor holds some position in the issuers' public debt and equity securities about which we report. A list of Meetings, Conferences and Seminars appears in each Wednesday's edition of the TCR. Submissions about insolvency- related conferences are encouraged. Send announcements to conferences@bankrupt.com. Bond pricing, appearing in each Thursday's edition of the TCR, is provided by DebtTraders in New York. DebtTraders is a specialist in global high yield securities, providing clients unparalleled services in the identification, assessment, and sourcing of attractive high yield debt investments. For more information on institutional services, contact Scott Johnson at 1-212-247-5300. To view our research and find out about private client accounts, contact Peter Fitzpatrick at 1-212-247-3800. 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. Villavelez and Peter A. Chapman, Editors. Copyright 2002. All rights reserved. ISSN: 1520-9474. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR subscription rate is $625 for 6 months delivered via e- mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. For subscription information, contact Christopher Beard at 240/629-3300. *** End of Transmission ***