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/raid1/www/Hosts/bankrupt/TCR_Public/030718.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, July 18, 2003, Vol. 7, No. 141 Headlines ADVANCED GAMING TECH.: Consummates Merger Deal with MediaWorx AES CORP: Fitch Affirms Ratings and Revises Outlook to Stable AFC ENTERPRISES: S&P Places BB Credit Rating on Watch Negative AGILENT TECHNOLOGIES: Appoints Robert Joss to Board of Directors AIR CANADA: Seabury Soliciting CCAA Exit Financing Proposals ALARIS MEDICAL: Preparing $175MM 14% Senior Sub. Debt Offering AMERICAN CLASSIC: Panel OKs Effective Date Extension to Aug. 19 AMR CORP: Loss Narrows to $4 Million a Day in Second Quarter ANC RENTAL: Court Clears Proposed Asset Sale Bidding Procedures ARVINMERITOR INC: Names William R. Newlin to Board of Directors ASSET SECURITIZATION: Fitch Drops 3 Junk Note Class Ratings to D AVAYA INC: Appoints Todd Meister VP for Global Channel Strategy BETA BRANDS: Considering Voluntary Dissolution and Liquidation BMC INDUSTRIES: Receives Additional 60-Day Bank Waiver Extension CALL-NET: AlternaCall Unit Closes Mosaic Performance Acquisition CALPINE: Inks Settlement Pact, Terminating Contracts with Enron CALPINE CORP: Arranges New $500 Million Working Capital Facility CALPINE CORP: Completes $3.3BB Term-Loan & Senior Debt Offering CHAMPION ENTERPRISES: Second-Quarter Results Enter Positive Zone CHARTER COMMS: Taking Actions to Resolve Issues re Bresnan Deal COEUR D'ALENE: Will Publish Second Quarter Results on Thursday CONSECO INC: Files Fourth Amended Plan of Reorganization CONTINENTAL AIRLINES: Joins Sabre Network's DCA 3-Year Option CORRPRO COMPANIES: Sells Asian Operations in Private Transaction CREDIT SUISSE: Fitch Affirms Ratings on Class F, H & I at BB/CCC CROSS MEDIA: Fails to Comply with Nasdaq Listing Requirements CYTO PULSE: Signs-Up Tydings & Rosenberg as Bankruptcy Attorneys DVI INC: Defaults on 9-7/8% Senior Notes Due 2004 ELAN CORP: Fails to Meet SEC Form 20-F Filing Deadline ENCOMPASS SERVICES: Court Approves Stipulation with Microsoft ENRON: Fitch Maintains Ratings Following Bankruptcy Plan Filing ENRON CORP: Gas Liquids Units Settles Claims Dispute with EOTT GLOBAL CROSSING: Committee Hires Greenberg as Special Counsel GRUPO IUSACELL: Default Waiver Extended to August 14, 2003 GRUPO IUSACELL: Appoints Jose Luis Riera as CFO HEADWAY CORP: Gets Nod to Employ Ordinary Course Professionals HUGHES ELECTRONIC: 2nd Quarter Results Show Marked Improvement HUGHES: Agrees to 2000 Asset Sale Purchase Price Adjustment INDIANAPOLIS POWER: Fitch Ups Low-B Senior Unsecured Debt Rating INTEGRATED HEALTH: Wants Lease Decision Time Extended to Sept 30 JACUZZI BRANDS: Fitch Assigns 3 Low-B Facility & Debt Ratings JP MORGAN: Fitch Takes Rating Actions on Series 1999-C8 Notes KMART CORP: Takes Action to Challenge 4 Property Tax Claims KOLATH HOTELS: Case Summary & 20 Largest Unsecured Creditors LAIDLAW INC: Wants to Pay $8.5 Million Fee to Cooper Corporation LEAP WIRELESS: Wants Nod for Utility Security Deposit Requests LENTEK INT'L: Case Summary & 20 Largest Unsecured Creditors LODGENET: June 30, 2003 Net Capital Deficit Balloons to $121MM LORAL SPACE: Commences Trading on Pink Sheets Under LRLSQ Symbol LUCILLE FARMS: Fails to Obtain Waiver of Loan Covenant Default MEGO FINANCIAL: Allan Bentley Appointed as Chapter 11 Trustee MIDWEST AIRLINES: Restructuring Initiatives Save the Day MIRANT CORP: Names Robert Dangremond Chief Restructuring Officer MIRANT: Begins Trading Common Stock & Preferreds on Pink Sheets MIRANT: Wants to Honor Up to $5.2MM of Critical Vendor Claims MOSAIC GROUP: Canadian Court Further Extends CCAA Stay to Aug 15 NATIONAL EQUIPMENT: Looks to FTI Consulting for Financial Advice NATIONAL STEEL: Reaches Settlement Pact on Retirees' Benefits NATIONAL STEEL: Wants to Implement Liquidation Retention Program NEXTEL COMMS: 2nd Quarter Fin'l Results Show Strong Performance NORTHWEST AIRLINES: Joins Sabre Travel DCA Three-Year Option NRG ENERGY: Earns Nod to Continue Existing Investment Practices OWENS & MINOR: Reports Improved Second Quarter 2003 Performance PAC-WEST TELECOMM: Will Publish 2nd Quarter Results on July 30 PACKAGED ICE: Receives Consents to Amend 9.75% Note Indenture PG&E: USGen Gets Interim Nod to Continue Cash Management System PRIME RETAIL: 2 Pref. Shareholders Balk at Proposed Allocation QUANTUM CORP: Appoints CEO Rick Belluzzo as New Board Chairman RECOTON CORP: Completes Sale of Audio Assets to Audiovox Corp. REDBACK NETWORKS: Second Quarter Net Loss Narrows to $51 Million REPRO MED: Taps Meyler to Replace Radin Glass as Ind. Auditors RFP EXPRESS: Retains Hutchinson & Bloodgood as New Accountants ROHN INDUSTRIES: PricewaterhouseCoopers Resigns as Accountants ROSSBOROUGH-RENACOR: UST Appoints Official Creditors' Committee SEALY CORP: June 1, 2003 Balance Sheet Upside-Down by $90 Mill. SPIEGEL GROUP: Asks Court to Approve Key Employee Retention Plan STERLING: Fitch Affirms Ratings After Acquisition Announcement STEWART ENT.: Fitch Affirms Facilities & Debt Ratings at BB+/BB- SUNLAND ENTERTAINMENT: Lewak Greenbaum Airs Going Concern Doubt TRANSTECHNOLOGY: June 29 Net Capital Deficit Narrows to $5 Mill. TRANSWITCH CORP: Reports $12 Million Net Loss for Second Quarter UNITED AIRLINES: Fifth Third Gets Blessing to Make IAA Payments UNITED DEFENSE: Fitch Affirms BB Rating on Sr. Credit Facilities UPC POLSKA: Signs-Up BSI as Court Claims and Noticing Agent VENTURE HOLDINGS: Wants Exclusivity Extended to September 24 WEIRTON STEEL: Committee Wins Nod to Hire Blank Rome as Counsel WHEELING: Court Approves US EPA & Coast Guard Claim Settlement WORLD WIRELESS: Court Freezes Assets of Major Shareholder Group WORLDCOM INC: Pushing for Approval of Qwest Settlement Agreement * Joseph S. Wu Joins Sheppard Mullin in San Diego as Partner * BOOK REVIEW: Risk, Uncertainty and Profit ********* ADVANCED GAMING TECH.: Consummates Merger Deal with MediaWorx ------------------------------------------------------------- On July 1, 2003, Advanced Gaming Technology, Inc. effected the Merger transaction described below. As a result of the Merger, Advanced Gaming Technology issued 4,250,000 shares of common stock and 3,500,000 shares of Series A Preferred Stock of the Company in consideration for all of the acquired company. Subsequent to the Merger, there were 5,274,305 shares of the Company's common stock outstanding and 3,500,000 shares of its preferred A stock, convertible into 5 common shares for each convertible share and having full voting rights equal to their converted number of shares. Two entities control 5% or more of the outstanding shares of Advanced Gaming Technology, Inc.: Preferred Name Common Shares Shares * ---- ------------- --------- Diamond Capital, LLC 2,000,000 1,750,000 Quest Capital Resources, LLC 2,000,000 1,750,000 * Preferred Shares are convertible into 5 common shares for each convertible share and have full voting rights equal to their converted number of shares The Merger Transaction MediaWorx Acquisition Company, LLC, a Nevada limited liability company and wholly owned subsidiary of Advanced Gaming Technology, Inc., merged with and into Advanced Capital Services, L.L.C., a Nevada limited liability company, with MWAC being the surviving corporation and continuing its existence under the laws of the State of Nevada. Articles of Merger were filed with the State of Nevada on July 1, 2003, being the Effective Date of the Merger. The consideration paid to the members of ACLLC by Advanced Gaming Technology for the Merger was 4,000,000 shares of Company common stock and 3,500,000 shares of its Preferred Series A Stock. Going Concern Uncertainty As reported in Troubled Company Reporter's June 10, 2003 edition, Advanced Gaming Technology, Inc. said its financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which contemplates the Company as a going concern. However, the Company has sustained substantial operating losses in recent years and has used substantial amounts of working capital in its operations. Realization of a major portion of the assets reflected on the Company's balance sheet is dependent upon continued operations of the Company which, in turn, is dependent upon the Company's ability to meet its financing requirements and succeed in its future operations. Management believes that actions presently being taken to revise the Company's operating and financial requirements provide them with the opportunity for the Company to continue as a going concern. As the Company now has no operations, it is evaluating the options available to it. Cash Strain The Company has a cash balance of $9,968. The Company will require additional capital to continue operations. There is no assurance that capital will be available. Management is considering all options including sale, merger, reverse merger or dissolution of the Company. Any such transaction could have a significant negative impact on current shareholders. Management has again elected to defer payment of salaries and wages until some future time. AES CORP: Fitch Affirms Ratings and Revises Outlook to Stable ------------------------------------------------------------- Fitch Ratings has affirmed the existing ratings of The AES Corp. as follows: AES -- Senior secured bank debt 'BB'; -- Senior secured notes collateralized by first priority lien 'BB'; -- Senior unsecured debt 'B'; -- Senior and junior subordinated debt 'B-'; AES Trust III -- Trust preferred convertibles 'CCC+'. AES Trust VII -- Trust preferred convertibles 'CCC+'. Fitch has also assigned a 'B+' rating to AES' recently raised $1.8 billion junior secured notes collateralized by a second priority lien. The collateral package pledged to AES' secured debts consists of all of the capital stock of AES' material domestic subsidiaries and 65% of the capital stock of AES' foreign subsidiaries. In addition, Fitch revised AES' Rating Outlook to Stable from Negative. The newly assigned 'B+' rating of AES' junior secured debt reflects the strong residual asset coverage available for the holders of these instruments, after considering the structurally senior claims of AES subsidiaries' individual debts and higher ranking claims of AES Corp's parent-level first priority senior secured bank debt and senior secured notes. However, Fitch notes that the benefit of the junior secured position is offset in part by the right AES has retained to prepay other more junior classes of debts before repaying the new junior secured debt. AES has the option to pay down other higher coupon senior unsecured, subordinated, or trust preferred convertible debts ahead of the junior secured notes. The rating affirmation of other debt classes reflects the expectation that AES will complete the recently announced $1 billion senior secured bank credit facilities (New Secured Bank Facilities) by the end of this month and use the proceeds to redeem the outstandings under the existing senior secured bank facilities (Old Secured Bank Facilities) closed in December 2002. The proposed new secured bank facilities will contain similar terms and conditions compared to those governing the Old Secured Bank Facilities, including the cash sweep mechanism from asset sales. As a result, Fitch expects to rate the New Secured Bank Facilities 'BB'. The revision of the Outlook to Stable from Negative reflects the improvement in AES' financial position since Fitch's last review of the company in February 2003. Over the past six months, AES has executed $990 million of planned assets sales, issued $340 million of equity and raised $1.8 billion of private placements, and it has used proceeds from these sources to repurchase debt at a discount and pay down bank and public market debt. As a result, AES has reduced gross debt by over $400 million during the financial year to June and expects this amount to grow to over $1 billion by the end of 2003. At the same time, AES has extended its maturity schedule with no major maturities until December 2005 and with the anticipated completion of the New Bank Credit Facility, would extend this further to 2007-2008. Interest expense is also expected to decrease meaningfully with lower interest rate debt refinancing and debt reduction, a key factor given thin interest coverage at the parent level. Offsetting the improvements in liquidity and leverage above is potential volatility in AES parent operating cash flow (POCF). With gradual improvement of the economic situation in Latin America, the company expects slight and moderate improvement in South America and the Caribbean region, respectively, in the next two years. Fitch's ratings anticipate only modest recovery in these areas compared to current performance. Overall, AES' credit metrics are expected to improve as the impact of lower interest costs and a degree of deleveraging feed through, although they are anticipated to remain consistent with the 'B' category. Parent Debt to POCF ratio is projected to decline to the 6.0-7.0 times range with POCF to Interest ratio approaching 2.0x in the next year. AES is also projected to have sufficient liquidity that is consistent with its rating category. The AES Corp., founded in 1981, is among the world's largest power developers. It generates and distributes electricity and is also a retail marketer of heat and electricity. AES owns or has an interest in 182 plants, with more than 63,000 megawatts, in 31 countries and also distributes electricity in 11 countries through 21 distribution companies. AFC ENTERPRISES: S&P Places BB Credit Rating on Watch Negative -------------------------------------------------------------- Standard & Poor's Ratings Services placed its 'BB' corporate credit and senior secured bank loan ratings of AFC Enterprises Inc., on CreditWatch with negative implications. The rating action follows AFC's announcement that it would miss the NASDAQ's July 16 deadline for filing its 2002 10-K annual report. AFC is a quick-service restaurant operator. "Standard & Poor's is concerned that a further delay by AFC in filing its financial statements could result in a violation of its debt agreements," said credit analyst Robert Lichtenstein. The company will miss the deadline in part because its auditors are expanding the scope of their inquiries into AFC's financial statements related to quarter-end adjustments of reserve and accrual accounts. AFC, which announced in March that it will restate earnings for 2001 and the first three quarters of 2002, has not reported earnings since the third quarter of 2002. AGILENT TECHNOLOGIES: Appoints Robert Joss to Board of Directors ---------------------------------------------------------------- Agilent Technologies Inc. (NYSE:A) announced the appointment of Robert L. Joss to its board of directors. Joss is the dean of the Graduate School of Business at Stanford University, a position he has held since 1999. Prior to joining Stanford, Joss was chief executive officer and managing director of Westpac Banking Corporation, Australia's second largest bank. While at Westpac, Joss was instrumental in refocusing the bank's strategy, modernizing and streamlining operations, and restructuring its culture. Joss spent much of his career with San Francisco-based Wells Fargo Bank, where he held a succession of posts as senior vice president, executive vice president and vice chairman, and was responsible for a variety of areas that included strategy, economics, international, private banking, investment management and government relations. Joss, 62, earned his MBA and Ph.D at Stanford University. He holds a B.A. in economics from the University of Washington. "Bob Joss brings to our board a strong background in international and financial areas, as well as a wealth of executive experience," said Ned Barnholt, Agilent chairman, president and CEO. "I am delighted to welcome Bob and look forward to working with him." Current Agilent board members include Dr. David M. Lawrence, independent lead director, and chairman emeritus, Kaiser Foundation Hospitals; Heidi Kunz, former executive vice president and chief financial officer, Gap Inc.; Robert Herbold, retired executive vice president, Microsoft Corporation; A. Barry Rand, chairman and CEO, Equitant; James Cullen, former president and chief operating officer, Bell Atlantic; Koh Boon Hwee, chairman, Singapore Airlines, and Walter B. Hewlett, independent software developer. Agilent Technologies Inc. (NYSE:A) (S&P, BB Corporate Credit and Senior Note Ratings) is a global technology leader in communications, electronics, life sciences and chemical analysis. The company's 32,000 employees serve customers in more than 110 countries. Agilent had net revenue of $6 billion in fiscal year 2002. Information about Agilent is available on the Web at http://www.agilent.com AIR CANADA: Seabury Soliciting CCAA Exit Financing Proposals ------------------------------------------------------------ Air Canada has commenced the process of soliciting qualified parties to act as equity plan sponsor in its plan of arrangement to assist in funding its emergence from the Companies' Creditors Arrangement Act and to provide the necessary liquidity to execute its business plan. Air Canada's financial advisor, Seabury Securities LLC, New York, has initiated discussions with financial institutions, investment companies and equity funds that have expressed interest in being the plan sponsor in Air Canada's CCAA plan of arrangement. Citigroup Global Markets Inc., has been engaged to assist Air Canada and Seabury with respect to an ancillary process involving a minority investment in Air Canada's wholly-owned affiliate, Aeroplan Limited Partnership, the premier loyalty program in Canada. The Company is targeting to raise approximately CDN$700 million of new equity investment, which, together with approximately CDN$600 million of debt financing to be provided by General Electric Capital Aviation Services, would provide the necessary exit financing for Air Canada's emergence from CCAA targeted for late this year. "The restructuring progress to date is significant as we have now successfully renegotiated contracts with our major labor groups, reached an omnibus agreement with GECAS, our largest financier, and made substantial headway in renegotiating other leases," said Robert Milton, President and Chief Executive Officer. "We are now ready to actively commence the capital restructuring, namely the renegotiation of the company's unsecured debt and the raising of equity capital to provide a stable financial base for the airline once it emerges from CCAA." Qualifying financial institutions, investment companies and equity funds that have expressed interest to date will receive information packages and meet with management over the coming weeks. Other qualified parties interested in participating in the equity solicitation process may apply to do so by contacting a representative of Ernst & Young Inc., the Court Appointed Monitor under Air Canada's CCAA proceedings. Air Canada expects to file a Plan of Arrangement in the fall. ALARIS MEDICAL: Preparing $175MM 14% Senior Sub. Debt Offering -------------------------------------------------------------- ALARIS Medical, Inc., a corporation organized and existing under the laws of Delaware, proposes, subject to terms and conditions, to issue and sell to several underwriters an aggregate of $175,000,000 principal amount of the Company's 14% Senior Subordinated Notes due 2011. The Notes will be issued pursuant to the indenture dated June 30, as supplemented by the first supplemental indenture, dated as of the Closing Date, between the Company and The Bank of New York, as trustee. Bear, Stearns & Co. Inc., Citigroup Global Markets Inc., UBS Securities LLC, CIBC World Markets Corp. and Jefferies & Company, Inc. are acting as co-managers in connection with the offering and sale of the Notes. ALARIS Medical Systems Inc. -- whose March 31, 2003 balance sheet shows a total shareholders' equity deficit of about $27 million -- develops practical solutions for medication safety. The company designs, manufactures and markets intravenous medication delivery and infusion therapy devices, needle-free disposables and related monitoring equipment in the United States and internationally. ALARIS Medical Systems' proprietary Guardrails(R) Safety Software, its other "smart" technologies and its "smart" services help to reduce the risks and costs of medication errors, help to safeguard patients and clinicians and also gather and record clinical information for review, analysis and transcription. The company provides its products, professional and technical support and training services to over 5,000 hospital and health care systems, as well as alternative care sites, in more than 120 countries through its direct sales force and distributors. With headquarters in San Diego, ALARIS Medical Systems employs approximately 2,900 people worldwide. Additional information on the company can be found at http://www.alarismed.com AMERICAN CLASSIC: Panel OKs Effective Date Extension to Aug. 19 --------------------------------------------------------------- American Classic Voyages Co., and its debtor-affiliates, through the Court-appointed Plan Administrator, Paul Gunther, and the Official Committee of Unsecured Creditors in ACVC's cases, stipulate and agree to extend the Effective Date of the Confirmed Second Amended Chapter 11 Liquidating Plan. The Parties agree to extend the Plan's Effective Date to August 19, 2003. The Plan provides that it will not become effective unless the Parties execute all documents, instruments and agreements necessary to implement it. In this particular case, all requests for payment of claims by consumer customers for deposits were not returned or reimbursed by the Debtors. Prior to setting a Customer Deposit Claims Bar Date, the Debtors need to file with the Bankruptcy Court amended schedules which, to the best of the Debtors' knowledge, list only those Customers who did not receive reimbursement from a credit card provided, a travel agent, a travel insurer or any other entity. To this end, the Plan Administrator and his staff are in the process of completing their review of the backup documentation and records of various credit card providers, travel agents and travel insurers to determine which Customers received reimbursement from these sources. Absent the extension, the non-occurrence of the Effective Date will result in the termination of the Confirmed Plan. American Classic Voyages Co., the world's largest U.S.-flag cruise company and markets four distinct products that cruise Hawaii, along the coast of North and Central America and on America's inland waterways, filed for chapter 11 protection on October 19, 2001 (Bankr. Del. Case No. 01-10954). Francis A. Monaco Jr., Esq., at Walsh, Monzack & Monaco, P.A., and Jeremy W. Ryan, Esq. at Saul Ewing LLP, represent the Debtors in their restructuring efforts. AMR CORP: Loss Narrows to $4 Million a Day in Second Quarter ------------------------------------------------------------ AMR Corporation (NYSE: AMR) continues making progress in its march to profitability, including reporting improved financial results. For the quarter, AMR reported a net loss of $75 million. Included in this amount are a handful of special items, including a $358 million cash payment from the Transportation Security Administration under the 2003 Emergency Wartime Supplemental Appropriation Act. Excluding special items, AMR reported a net loss of $357 million, or $3.9 million a day. While still a loss, these results represent a sizeable improvement over the second quarter of last year and are dramatically better than the $1.04 billion net loss AMR recorded in this year's first quarter. AMR made significant progress over the course of the second quarter. April was a difficult month for the company, with lackluster demand due to the war in Iraq and the outbreak of SARS. In May, however, AMR reported positive operating cash flow driven by year-over-year improvements in unit revenue and the implementation of its new labor agreements. These trends continued in June, and AMR achieved a modest profit for the month. "Clearly, the tremendous strides we've been able to achieve have been the result of the unprecedented labor and nonlabor agreements we reached in May," said Gerard Arpey, AMR's president and CEO. "The sacrifice of our employee groups is evident in the dramatically improved performance we've seen over the past months. But, while we're encouraged, we must keep in mind that we're operating in peak summer season right now, and the winter months will be more challenging. We have a lot of work to do before we're able to achieve sustained profitability at acceptable levels." The company's cash position also improved during the quarter, with a total cash and short-term investments balance on June 30 of $2.4 billion (including $550 million in restricted cash and short-term investments), an increase of $555 million compared to the comparable balance at the end of the first quarter. Since June 30, AMR has completed a $250 million aircraft financing, bringing the total balance to $2.7 billion as of today. As noted earlier, the company's second-quarter financial results included several special items -- both gains and losses -- resulting mostly from the company's restructuring efforts. In addition, in keeping with the provisions of SFAS 109, AMR's second quarter 2003 results do not reflect a benefit for federal and state income taxes. Conversely, AMR's second quarter 2002 results did reflect a tax benefit. To provide better comparability, after adjusting for these items, the company recorded a loss of $357 million this quarter, or $2.26 per share, versus a loss of $720 million, or $4.64 per share, in the second quarter of last year. Shares in AMR trade north of $11 per share at press time. Turnaround Plan Gains Momentum "We have set a firm course with our Turnaround Plan, and are taking additional steps today to make American an even more vibrant competitor," Arpey said. "When we launched the Turnaround Plan in May, we said we were going to measure all of our future decisions by its four primary objectives. We are doing just that. And while some of these decisions are painful, they are also absolutely critical to our future." As previously announced, American's fleet, which already has 57 fewer airplanes in revenue service than a year ago, will shrink another 57 airplanes by summer 2004. At that point, the airline's fleet will be roughly the same size it was in mid-2000. This projected fleet size prompted, in part, a review of American's network and operational efficiency. After weeks of careful study, American has decided to reduce the size of its St. Louis hub. "We are going to make it a smaller hub that will primarily cater to the people who live, work, or do business there," Arpey said. "Our other options were far less palatable, including the extreme of simply making St. Louis a spoke city with service only to our other hubs. Our current plan allows us to provide key services for the local community while strengthening our hubs at Chicago and Dallas/Fort Worth." Arpey also acknowledged the support for the airline and genuine concern for the community shown by government officials and local business leaders during American's decision-making process, particularly St. Louis Mayor Francis Slay, County Executive Buzz Westfall and Missouri Governor Bob Holden. Between American, American Eagle and the AmericanConnection carriers, St. Louis will offer 207 flights a day to 68 cities after the change, which is effective Nov. 1. American will maintain its pilot and flight attendant bases there. More information on American's new hub schedule in St. Louis can be found in the fact sheet below. The efficiency review also concluded that the airline had too much domestic Reservations capacity, even though it had closed two Reservations facilities earlier this year. Accordingly, the airline will close its St. Louis Reservations office effective Sept. 15. Arpey said the decisions affecting St. Louis were "extremely difficult but vital to American's future." And he said he "truly regretted" the impact this would have on former TWA employees. American will make available a variety of support services to employees impacted by the closing of the St. Louis Reservations office and to employees at American's St. Louis airport operation who may be displaced by the schedule changes. Additionally, the airline has been looking at how it schedules maintenance work at its three major maintenance bases. That portion of the study is ongoing. American expects to announce its decision on this issue by the fall. As reported in Troubled Company Reporter's June 24, 2003 edition, Standard & Poor's Ratings Services raised its ratings of AMR Corp. (B-/Negative/--) and subsidiary American Airlines Inc., (B-/Negative/--), including raising the corporate credit ratings of each to 'B-' from 'CCC'. The ratings were removed from CreditWatch, where they were placed with developing implications on March 28, 2003. S&P says the outlook is negative. AMR's balance sheet shows that the carrier is insolvent with liabilities exceeding assets by more than $100 million. ANC RENTAL: Court Clears Proposed Asset Sale Bidding Procedures --------------------------------------------------------------- The ANC Rental Debtors, in conjunction with Cerberus, developed procedures designed to enhance the bidding process, not chill other bids, maximize value and flush-out the highest and best bid for substantially all of ANC's assets. Bidders desiring to bid against Cerberus must: 1. execute a confidentiality agreement customary for transactions of this type, in form and substance satisfactory to the Debtors and no more favorable to the Potential Bidder than that delivered by CAR Acquisition Company; 2. provide the Debtors with: a. current audited financial statements of the Potential Bidder, or unaudited financial statements satisfactory in form and substance to the Debtors after consultation with the Secured Creditors and the Committee; or b. if the Potential Bidder is an entity formed for the purpose of acquiring the Acquired Assets of the Debtors, Financial Statements of the equity holder of the Potential Bidder who will either guarantee the obligations of the Potential Bidder or provide other form of financial disclosure or credit-quality support information or enhancement acceptable to the Debtors and their advisors; and 3. deliver to the Debtors a preliminary, non-binding proposal regarding: a. the purchase price range; b. any assets expected to be excluded; c. the structure and financing of the transaction; d. any anticipated regulatory requirements; e. any conditions to closing it may wish to impose in addition to those set forth in the Agreement; and f. the nature and extent of additional due diligence it may wish to conduct. Those Persons satisfying these initial requirements will qualify as Potential Bidders. If, after receipt of these items, the Debtors determine in their business judgment that the Potential Bidder has the financial capability to consummate the purchase of the Acquired Assets on or before December 31, 2003, the Debtors will notify the Potential Bidder in writing that it is a Qualified Bidder. As soon as practicable, after notifying a Potential Bidder of its Qualified Bidder status, the Debtors will provide to the Qualified Bidder: 1. access to the same confidential materials provided by the Debtors to CAR Acquisition Company containing general and financial information relevant to the Acquired Assets and other information as the Qualified Bidder may reasonably ask; and 2. a copy of the Agreement, marked to delete references to the Termination Fee which is payable only to CAR Acquisition Company. The Debtors will only consider Qualified Bids from Qualified Bidders. To be a "Qualified Bid," the bid must, among other things: 1. be a "Bid", meaning one or more letters from one or more Persons whom the Board of Directors of the Debtors has determined in the exercise of its fiduciary duties, and after consultation with the Secured Creditors and the Committee, are financially able to consummate the purchase of the Acquired Assets stating that: a. the Qualified Bidder offers to purchase all or a portion of the Acquired Assets on the terms and conditions set forth in a copy of Definitive Sale Documentation, marked to show those amendments and modifications to the Definitive Sale Documentation, including, but not limited to, price and the time of closing, that the Qualified Bidder proposes; b. the Qualified Bidder is prepared to enter into and consummate the transaction not later than December 31, 2003; and c. each Qualified Bidder's offer is binding until the closing of a purchase of the Acquired Assets; 2. be a proposal which the Debtors determine, in the good faith opinion of their Board or managers, as the case may be, and after consultation with the Debtors' independent financial advisor, the Secured Creditors and the Committee, is not materially more burdensome or conditional than the terms of the current form of the Agreement and has a value greater than or equal to the sum of: a. the value, as reasonably determined by the independent financial advisor of Debtors, of CAR Acquisition Company's offer; plus b. the amount of the Termination Fee; c. in the case of the initial Qualified Bid and in the case of any subsequent Qualified Bids, $1,000,000 over the preceding Qualified Bid; 3. be substantially on the same or better terms and conditions as those set forth in the Definitive Sale Documentation; 4. be accompanied by satisfactory evidence of a commitment for financing or other ability to perform; 5. be accompanied by a deposit equal to or greater than the Termination Fee; 6. be accompanied by other information reasonably requested by the Debtors; and 7. be submitted on or before the Bid Deadline. The Debtors will immediately distribute by facsimile transmission, personal delivery or reliable overnight courier service in accordance with the current form of the Agreement, a copy of each Bid after receipt to counsel to CAR Acquisition Company, the Secured Creditors and the Committee. If the Debtors receive at least one Qualified Bid other than CAR Acquisition Company, the Debtors will conduct an Auction of the Acquired Assets. The Debtors and CAR Acquisition Company propose that the Auction take place at the offices of Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New York on a date that is two Business Days prior to the date scheduled by the Bankruptcy Court for the Sale Hearing, beginning at 11:00 a.m. E.T. or at a later time or other place as Debtors will notify all Qualified Bidders who have submitted Qualified Bids. Only the Notice Parties and those Qualified Bidders who have timely submitted a Qualified Bid and have informed the Debtors of their desire to participate in the Auction will be entitled to attend the Auction, and only CAR Acquisition Company and Qualified Bidders will be entitled to make any subsequent Qualified Bids at the Auction. Bidding at the Auction will continue until the time as the highest and best Qualified Bid is determined. At least one Business Day prior to the Auction Date, no later than 12:00 p.m. E.T., the Debtors will deliver to CAR Acquisition Company and all other Qualified Bidders a copy of the highest and best Qualified Bid received, as determined in the Debtors' business judgment, consistent with the Bidding Procedures and copies of all other Qualified Bids. In addition, the Debtors will inform CAR Acquisition Company and each Qualified Bidder who has expressed an intent to participate in the Auction of the identity of all Qualified Bidders that may participate in the Auction. The "Bid Deadline" is at 11:00 a.m. ET on the third Business Day before the Auction Date. Bidding at the Auction will commence with the Initial Successful Bid. The bidding will proceed in increments of not less than $1,000,000 greater than the value proposed in the Initial Successful Bid. All participating Qualified Bidders will be entitled to be present for all bidding with the understanding that the true identity of each participating Qualified Bidder will be fully disclosed to all other bidders and that all material terms of each Qualified Bid will be fully disclosed to all other participating Qualified Bidders throughout the entire Auction. Bidding will continue until the highest and best offer for the purchase of the Acquired Assets is determined by the Debtors in their business judgment, after consultation with the Secured Creditors and the Committee. After the failure to consummate the sale because of a breach or failure to perform on the part of the Successful Bidder, the next highest and otherwise best Qualified Bid, as approved at the Sale Hearing, will be deemed to be the Successful Bid. A Good Faith Deposit will be held in escrow until the earlier of: 1. the later of: a. two Business Days after consummation of the Sale; or b. 20 days after the Sale Hearing; or 2. the date upon which the Agreement or Marked Agreement is terminated in accordance with its terms. In the event that the Debtors fail to receive a Qualified Bid by the Bid Deadline, the Debtors will not conduct the Auction and will proceed with the Sale to CAR Acquisition Company pursuant to the terms of the Agreement, subject to the approval of the Bankruptcy Court at the Sale Hearing. Objections (1) Metro Nashville Airport Authority Tara L. Lattomus, Esq., at Saul Ewing LLP, in Wilmington, Delaware, informs the Court that in order for the Airport Authority to determine whether the Debtors and the Bidder or Purchaser have satisfied the requirements of Section 365(f)(2) of the Bankruptcy Code, the Airport Authority must receive these information with regard to each Bidder or Purchaser: 1. financial statements and supplemental schedules for the years ended December 2001 and 2002, and year-to-date 2003; 2. any and all documents regarding the Bidder's experience and the Bidder's principals' experience in operating car rental counters, or any other use to which the Bidder intends to put the premises; 3. a statement setting forth the Bidder's intended use of the premises; 4. the Bidder's 2003 business plan and 2004 business plan, if any, including sales and cash flow projections; and 5. any financial projections, calculations and financial pro- formas prepared in contemplation of purchasing the Leases. According to the Debtors' proposed schedule, it appears that the Debtors are requesting these deadlines: July 9, 2003 Deadline to Serve Assumption Notice July 17, 2003 Deadline for Debtors to File Sale Order Deadline to Object to Sale Order July 27, 2003 Deadline to Object to Assumption Notice July 30, 2003 Bid Deadline Aug. 4, 2003 Auction Aug. 6, 2003 Sale Hearing Ms. Lattomus states that the Airport Authority has a number of concerns regarding this proposed schedule. First, the deadline for the Debtors to file the Sale Order and the deadline for parties to object to the Sale Order can potentially be the same day. The concern with respect to the timing of these submissions is obvious. Second, as objections to the Assumption Notice are due July 27 and the Auction is August 4, the identity of the ultimate purchaser will be unknown when the objection to assumption is due. Accordingly, it will be impossible to determine whether an objection to assumption on the basis of adequate assurance of future performance is necessary. Finally, as the Auction is scheduled for mid-day on August 4 and the Sale Hearing for mid-day on August 6, 2003 the Airport Authority will have insufficient time to review information regarding the Purchaser's adequate assurance of future performance, if provided, and to conduct discovery if necessary. It is likely, however, that the Airport Authority will have no ability whatsoever prior to the Sale Hearing to evaluate adequate assurance information. Ms. Lattomus submits that the Airport Authority requires 14 days to perform the necessary evaluation of the information provided by the Purchaser and to conduct discovery that may be required regarding the Purchaser's ability to provide adequate assurance of future performance to the Airport Authority. This additional time will not prejudice the Debtors because the bids submitted under the Proposed Bidding Procedures are required to be irrevocable until the closing of the sale, which appears to have an outside deadline of December 31, 2003. (2) Statutory Committee of Unsecured Creditors Brendan Linehan Shannon, Esq., at Young Conaway Stargatt & Taylor LLP, in Wilmington, Delaware, argues that the proposed bidding procedures are not designed to obtain the highest and best offer for the Debtors' Alamo and National businesses, and will have a chilling effect on bidding. Specifically, the Committee finds these Bidding Procedures most objectionable: 1. The Debtors have, in essence, prohibited a consortium of purchasers from bidding to acquire the Debtors' businesses. Since the Debtors have two separate lines of business -- leisure and business travel -- the Committee believes that these cases are particularly well suited to consortium bidding. Indeed, if permitted, a consortium of bidders may provide the most value to the Debtors' estates. The confidentiality agreement required to be signed by potential purchasers goes so far as to preclude parties subject to confidentiality from talking to each other. This communication -- prohibited under the confidentiality agreement -- is essential to the making of a joint bid. Potential purchasers have complained to the Committee about this restriction. The Committee has raised this issue with the Debtors without success. 2. Due to the complexity of the proposed sale, the size of the Debtors' businesses and the numerous assets involved, a hearing to consider approval of the proposed sale should not be conducted on August 6, 2003. Potential bidders need at least 60 days to perform due diligence prior to making an offer for the Debtors' assets. Multiple bidders have contacted the Committee and have indicated that a short delay of three weeks will substantially assist them in due diligence and arranging necessary financing. Further, a short delay is unlikely to harm the Debtors' businesses or cause Cerberus to "pull out" of the Sale. 3. The Debtors have not provided potential bidders with due diligence information or management access since April 2003 and are not contemplating providing the information or access through the date that Qualified Bids are due. Potential bidders will not be in a position to make an informed bid unless they are provided with this up-to-date information. The Committee has repeatedly asked for more open access to information, but the Debtors' financial advisor has so far declined. 4. The Debtors' request for approval of an objection deadline 20 days before the Sale Hearing is unreasonable. The Debtors just filed the Agreement on June 14, 2003. Since they are requesting a short sale process relative to the complexity of the Agreement, a short objection deadline is unreasonable. The Committee requests that the objection deadline be set for seven days prior to the Sale Hearing, which will still give the Debtors ample time to resolve all objections. The Committee has, for months, voiced its concerns over the process and these procedures to the Debtors and their outside advisors, without success. The Committee believes that if the Debtors are going to proceed with the Sale, in order to maximize value for creditors they should: a. open up the bidding process to allow for a consortium of purchasers to bid on the Debtors' assets and allow those bidders to communicate with each other; b. request a hearing to consider approval of the sale of the Debtors' businesses no earlier than August 27, 2003; and c. provide potential bidders with updated information and management access with sufficient time so that they may make a qualified bid. (3) IBM Credit LLC According to Joseph Grey, Esq., at Stevens & Lee P.C., in Wilmington, Delaware, IBM Credit LLC and the Debtors are parties to certain Term Lease Master Agreements, and various Supplements to the Master Leases entered into in accordance with the Master Leases. Under the Leases, IBM Credit agreed to lease to the Debtors certain computer and computer-related equipment including but not limited to data processing equipment for use by the Debtors. The Equipment networks the Debtors' business systems and is essential to the operation of the Debtors' business. Mr. Grey observes that under the proposed bidding procedures, IBM Credit will be required to file its objection to the proposed Sale Approval Order and Sale on the same day that the proposed Sale Approval Order is filed. IBM Credit objects to this provision to the extent that IBM Credit is being told to object to the Sale Approval Order and Sale on the same day the Debtors will tell IBM Credit whether the Leases are being rejected or assumed and assigned. Since the Bidding Procedures require IBM Credit to object to the proposed Sale Approval Order and Sale on the same day that the Debtors will be filing the list of contracts that are being assumed and assigned, there is insufficient time to investigate whether IBM Credit has any objections to same, and if so, what objections it has, prior to the objection deadline. * * * Judge Walrath approves with Bidding Procedures in accordance with these schedules: July 15, 2003 Deadline to Object to Sale Motion July 16, 2003 Deadline to Serve Assumption Notice July 25, 2003 Bid Deadline July 27, 2003 Deadline to Object to Assumption Notice August 1, 2003 Deadline to Object to Bidders' Adequacy August 4, 2003 Auction August 6, 2003 Sale Hearing All objections, to the extent not resolved or withdrawn, are overruled. Judge Walrath approves these additional provisions to the Bidding Procedures: "The Debtors will consider a Bid as a higher and better offer only if, in the Debtors' business judgment, the Bid meets these requirements: 1. It complies in all material respects with the Agreement; 2. A proposal, which the Debtors' determine in good faith opinion of their Board or manager, as the case may be, and after consultation with the independent financial advisor of the Debtors, is not materially burdensome or conditional than the terms of the Agreement and has a value greater than or equal to the sum of the value, as reasonably determined by the independent financial advisor of the Debtors, of CAR Acquisition Company's offer plus the amount of the Termination Fee plus in the case of the initial Qualified Bid and in the case of any subsequent Qualified Bids, $1,000,000 over the preceding Qualified Bid; 3. It is substantially on the same or better terms and conditions as those set forth in the copy of the Definitive Sale Documentation; 4. It is accompanied by satisfactory evidence of committed financing or other ability to perform; and 5. It is accompanied by a deposit, by means of a certified bank check from a U.S. bank or by wire transfer, equal to or greater than the Termination Fee." (ANC Rental Bankruptcy News, Issue No. 35; Bankruptcy Creditors' Service, Inc., 609/392-0900) ARVINMERITOR INC: Names William R. Newlin to Board of Directors --------------------------------------------------------------- ArvinMeritor, Inc., (NYSE: ARM) announced that William R. Newlin, chairman and chief executive officer of Buchanan Ingersoll, has been elected to the ArvinMeritor board of directors for a term expiring in 2005. The announcement was made at the company's quarterly board meeting held at corporate headquarters in Troy, Mich. Buchanan Ingersoll is one of the largest law firms in the United States. "We look forward to having Bill join the ArvinMeritor team," said Chairman and CEO Larry Yost. "His proven leadership skills, keen business insight and depth of experience will be an important asset to the organization as we move forward." Newlin also serves as managing general partner of CEO Venture Funds, a private venture capital funding firm, as well as on the boards of directors for Black Box Corporation, Parker/Hunter Incorporated, the Pittsburgh Technology Council and Kennametal, Inc. In July 2002, he was named chairman of Kennametal's executive committee. Newlin also serves on a number of economic development boards and is a member of numerous professional and civic organizations. Listed in 1997 and 2000 as one of the 100 Most Influential Lawyers in America by the National Law Journal, as well as Entrepreneur of the Year by Inc. magazine in 1991, Newlin received his undergraduate degree from Princeton University and a law degree from the University of Pittsburgh. He began his professional career as an associate with Buchanan Ingersoll, following graduation in 1965. ArvinMeritor, Inc. is a premier $7-billion global supplier of a broad range of integrated systems, modules and components to the motor vehicle industry. The company serves light vehicle, commercial truck, trailer and specialty original equipment manufacturers and related aftermarkets. In addition, ArvinMeritor is a leader in coil coating applications. The company is headquartered in Troy, Mich., and employs 32,000 people at more than 150 manufacturing facilities in 27 countries. ArvinMeritor common stock is traded on the New York Stock Exchange under the ticker symbol ARM. For more information, visit the company's Web site at: http://www.arvinmeritor.com As previously reported in Troubled Company Reporter, Standard & Poor's Ratings Service placed its 'BB+' corporate credit and senior unsecured debt ratings on ArvinMeritor Inc. on CreditWatch with negative implications. In addition, Standard & Poor's placed its 'BB' corporate credit and senior unsecured debt ratings on Dana Corp., on CreditWatch with negative implications. Fitch Ratings also downgraded the ratings of ArvinMeritor Inc.'s senior unsecured debt to 'BB+' from 'BBB-' and capital securities to 'BB-' from 'BB+' and placed the Ratings on Watch Negative. The downgrade reflects ARM's intent to acquire growth through debt financed acquisitions and a willingness to substantially raise the leverage in its capital structure. If the transaction is completed on the proposed terms, further rating action is expected. New financing for the transaction is likely to be on a secured basis, further impairing unsecured debt holders. The ratings have been placed on Rating Watch Negative. ASSET SECURITIZATION: Fitch Drops 3 Junk Note Class Ratings to D ---------------------------------------------------------------- Asset Securitization Corp.'s commercial mortgage pass-through certificates, series 1995-MD IV classes B-2, B-2H and A-CS3 are downgraded by Fitch Ratings as follows: -- $32.4 million class B-2 to 'D' from 'CCC'; -- $836 class B-2H to 'D' from 'CCC'; -- Interest-only class A-CS3 to 'D' from 'CCC'. In addition, Fitch upgrades $67.7 million class A-2 to 'AAA' from 'AA+'. The following certificates are affirmed by Fitch as follows: -- $272.7 million class A-1 'AAA'; -- Interest-only class A-CS2 'AAA'; -- $53.2 million class A-3 'A+'; -- $58 million class A-4 'BBB+'; -- $29 million class A-5 'BBB'; -- $67.7 million class B-1 'B'. The downgrades are a result of the discounted sale of the Hardage loan, which has resulted in losses to the Trust as well as the recent bankruptcy filing of the borrower of the Motels of America loan, combined with the loan's continued poor performance. Per the July distribution report, the Hardage loan sale has resulted in total losses in the amount of $6.4 million to the B-2 and B-2H classes. The upgrade is primarily due to paydown, defeasance within the pool and the continued strong performance of the Hallwood and Crescent loans. As of the July 2003 distribution date, the pool consisted of five loans, including the G&L loan (4%) which has been fully defeased, compared to nine loans at issuance. The certificate balance had been reduced by approximately 40%, to $580.7 million from $967.2 million at closing. One loan, Motels of America, remains in special servicing. As part of its review, Fitch analyzed the performance of each loan and the underlying collateral. Fitch compared each loan's debt service coverage ratio (DSCR) at the year ended (YE) December 2002 to the DSCR at last review (trailing twelve month-ended June 2002) and the DSCR at issuance. DSCRs are based on Fitch adjusted net cash flow (NCF) and a stressed debt service based on the current loan balance and a Fitch hypothetical mortgage constant. The Motels of America loan (22%) is secured by 93 limited-service hotels with 7,206 rooms located in 29 states. The loan continues to show declining cash flow since issuance. The loan which continues to be of concern to Fitch, has been in special servicing since January 2003 due to the borrower leasing out a majority of the properties without lender consent. In addition, the borrower filed Ch. 11 bankruptcy on July 10, 2003. According to the bankruptcy filing, the properties have a recent appraisal value of $193 million. The YE 2002 weighted average DSCR, using a 11.19% constant, was 1.17 times down from 1.27x for the trailing twelve months ended (TTM) June 2002 and 1.52x at issuance. The YE 2002 occupancy was 68.9%, down from 69.7% for TTM June 2002 and 70% at issuance. The YE 2002 revenue per available room (RevPAR) was $34.78 compared to $33.74 TTM June 2002, but above $26.77 at issuance. Of the properties inspected in 2002 most were found to be in good condition with deferred maintenance noted at 32 properties. The Columbia Sussex loan (19%) consists of ten full-service hotels totaling 2,790 rooms, located in eight states. Despite a 20% decline in NCF since issuance, the YE 2002 DSCR based on a 10.48% constant, remains flat at 1.68x compared to 1.68x TTM June 2002 and 1.66x at issuance due to amortization on the loan. The decline in performance is a reflection of the current conditions of the hotel industry, which has affected occupancy rates at the properties. YE 2002 occupancy remained stable at 53% compared to 52% TTM June 2002, but down from 64% at issuance. YE 2002 RevPAR remained stable at $50.33 compared to $50.49 TTM June 2002 and $49.59 at issuance. All properties were inspected in 2002 and received good grades with no deferred maintenance noted. Of the remaining loans in the transaction, the Crescent (41%) and Hallwood (14%) portfolios continue to show strong performance. Although both loans have shown slight declines in YE 2002 occupancy due to vacancies or lease rollover, NCF is well above that at issuance. Both loans have an investment grade credit assessment by Fitch. The YE 2002 DSCR for the Crescent portfolio, using a constant of 9.23%, was 2.18x, up from 1.42x at issuance. YE 2002 occupancy slightly declined to 93% from 95% at last year's review. The YE 2002 DSCR for the Hallwood portfolio, using a constant of 9.82%, was 2.24x, up from 1.40x at issuance. YE 2002 occupancy slightly declined to 90% from 91% at last year's review. Fitch will closely monitor this transaction in light of the recent bankruptcy filing of the Motels of America loan and the on-going performance of the Columbia Sussex loan. AVAYA INC: Appoints Todd Meister VP for Global Channel Strategy --------------------------------------------------------------- Avaya Inc. (NYSE: AV), a leading global provider of communications networks and services for businesses, has appointed Todd Meister as vice president of Global Channel Strategy and U.S. distribution. In his new role, Meister will be responsible for strategic channel initiatives and for Avaya's relationship with more than 1700 BusinessPartners, value-added resellers, application specialists, systems integrators, service providers and distributors who represent Avaya products and services. Meister will work with Avaya BusinessPartners to help ensure enterprises make the most of their current investments in technology while looking to the future. "Todd is an accomplished executive with expertise in channel management, business development, sales, marketing and operations for the information technology field," said Susan Bailey, Avaya sales vice president for Americas, Global Accounts, Channels and Alliances. "His proven track record for driving growth and profitability will make him a great asset to our business." Prior to joining Avaya, Meister was president and chief operating officer of AE Business Solutions, a consulting and systems integration firm located in Madison, Wisconsin. He has held several key sales and channel management positions at EMC, StorageTek and Breece Hill Technologies. Meister received a B.A. in marketing and management from the University of Wisconsin, Madison. He will be based in Minneapolis, Minn. Avaya Inc., whose March 31, 2003 balance sheet shows a total shareholders' equity deficit of about $25 million, designs, builds and managers communications networks for more than one million businesses around the world, including 90 percent of the Fortune 500(R). A world leader in secure and reliable Internet Protocol telephony systems, communications software applications and services, Avaya is driving the convergence of voice and data application across IT networks, enabling businesses large and small to leverage existing and new networks to enhance value, improve productivity and gain competitive advantage. For more information visit the Avaya Web site: http://www.Avaya.com BETA BRANDS: Considering Voluntary Dissolution and Liquidation -------------------------------------------------------------- On May 2, 2003, Beta Brands Incorporated announced that its senior lenders foreclosed on the assets of the Company due to payment defaults under its senior secured indebtedness. The senior secured lenders obtained an order of the Ontario Superior Court of Justice implementing the foreclosure. Under the terms of the foreclosure order granted by the Ontario Superior Court of Justice, Beta Brands Incorporated has been left with no assets and has ceased to carry on business. The board of directors is considering the appropriate next steps for Beta Brands Incorporated to take, which may include a voluntary liquidation and dissolution. The Company consented to abridge the notice period for the foreclosure. The board of directors of the Company gave extensive consideration to various restructuring alternatives, but concluded that consenting to abridge the notice period for the foreclosure, as requested by the senior secured lenders, was the best available alternative to preserve the confectionery and bakery operations as on-going businesses, to preserve value for the secured creditors of the Company and to be in the best interests of the trade creditors and employees of the Company's former subsidiaries. In reaching its decision to consent to an abridgement of the notice period for the foreclosure, the board of directors also considered a report prepared by a national accounting firm which indicated that, had a liquidation of the Company's former operating subsidiaries occurred, there would have been a very substantial shortfall to the Company's senior secured lenders and no value to any other stakeholders. As reported in September 2002, the Company formed a special committee of the Board of Directors to address the Company's short and long-term financing requirements. For some time the Company has had to seek extensions from its senior secured lenders for the principal and interest repayments on the Company's senior secured debt as the Company had not been generating sufficient cash flow to enable it to repay these obligations on their originally scheduled maturity dates. The last extension expired on April 30, 2003. Following this expiry the senior lenders gave notice to the Company demanding repayment of the senior debt and enclosed a notice of intention to enforce their security. The senior secured lenders obtained an order of the Ontario Superior Court of Justice implementing the foreclosure. Under the foreclosure order, the senior secured lenders have accepted common shares and subordinated indebtedness of the Company's former operating subsidiaries in satisfaction of the senior secured indebtedness of the Company. The Company's former operating subsidiaries, Beta Brands Limited and Beta Brands U.S.A., Ltd., have continued as going concerns and continue to operate as they have in the past, but under new ownership. Beta Brands Limited, a private company is now owned directly by the former senior lenders. Beta Brands U.S.A., Ltd. is now a wholly owned subsidiary of Beta Brands Limited. Trade creditors, customers and employees of the former operating subsidiaries, Beta Brands Limited and Beta Brands U.S.A., Ltd. have not been affected by the foreclosure. The subordination of the indebtedness owing to the senior lenders has enabled the former operating subsidiaries, Beta Brands Limited and Beta Brands U.S.A., Ltd., to obtain new financing in the form of a revolving credit facility to finance their working capital requirements. On May 13, 2003 the Company announced that it has been notified that the TSX Venture Exchange had suspended trading in the Company's securities as a result of a failure to maintain exchange listing requirements. The failure to maintain exchange listing requirements was the result of the foreclosure on the assets of the Company described above. LIQUIDITY AND CAPITAL RESOURCES As a result of the foreclosure described above, Beta Brands Incorporated has no assets, no liabilities and a deficit of approximately $25.4 million. The board of directors is considering the appropriate next steps for Beta Brands Incorporated to take, which may include a voluntary liquidation and dissolution. Credit Facilities During the second quarter of Fiscal 2003, the Company's senior lenders foreclosed on the assets of Beta Brands Incorporated due to payment defaults under its senior secured indebtedness. Under the terms of the foreclosure order granted by the Ontario Superior Court of Justice, Beta Brands Incorporated has been left with no assets and has ceased to carry on business. Beta Brands is a leading manufacturer and distributor of quality confectionery and bakery products for the Canadian, U.S. and certain international markets. The Company markets products under a variety of strong brand names including Breath Savers(R), Beech- Nut(R), McCormicks(R), Goody(R), Champagne(R) and Bite-Life(R). Beta Brands trades on the TSX Venture Exchange under the symbol BBI and has approximately 41.3 million common shares outstanding. BMC INDUSTRIES: Receives Additional 60-Day Bank Waiver Extension ---------------------------------------------------------------- BMC Industries, Inc.'s (NYSE:BMM) banks have granted the company an additional 60-day waiver of certain covenants under its credit facility. BMC received an initial two-week waiver on June 30, 2003, following notice by BMC to its bank group that the company expected to fall outside of compliance with certain covenants and obligations under its credit facility as of June 30, 2003. The waiver extends the time period for BMC to make certain scheduled principal and fee payments. In addition, the banks and the Company have agreed that no additional borrowings will be extended during the waiver period. Discussions continue between BMC, its banks and the company's advisors, regarding a longer-term resolution of the situation. BMC Industries, founded in 1907, comprises two business segments: Buckbee-Mears and Optical Products. The Buckbee-Mears group offers a range of services and manufacturing capabilities to meet the most demanding precision metal manufacturing needs. The group is also the only North American manufacturer of aperture masks, a key component in color television picture tubes. The Optical Products group, operating under the Vision-Ease Lens trade name, is a leading designer, manufacturer and distributor of polycarbonate, glass and plastic eyewear lenses. Vision-Ease Lens is a technology and a market share leader in the polycarbonate lens segment of the market. Polycarbonate lenses are thinner and lighter than lenses made of other materials, while providing inherent ultraviolet filtering and impact resistant characteristics. BMC Industries, Inc. is listed on the New York Stock Exchange under the ticker symbol "BMM." For more information about BMC Industries, Inc., visit the company's Web site at http://www.bmcind.com CALL-NET: AlternaCall Unit Closes Mosaic Performance Acquisition ---------------------------------------------------------------- AlternaCall Inc., a subsidiary of Call-Net Enterprises Inc., (TSX: FON, FON.B), a national provider of residential and business telecommunications services, announced the closure of the transaction to acquire the assets of Mosaic Performance Solutions Canada (MPS Canada), a private label consumer services company. With the close of the transaction, MPS Canada's name has been changed to E-Force, a division of AlternaCall Inc. Call-Net Enterprises Inc. (S&P, B Corporate Credit Rating, Stable) is a leading Canadian integrated communications solutions provider of local and long distance voice services as well as data, networking solutions and online services to households and businesses. It provides services primarily through its wholly owned subsidiary, Sprint Canada Inc. Call-Net Enterprises and Sprint Canada are headquartered in Toronto and own and operate an extensive national fiber network with over 134 co-locations in nine Canadian metropolitan markets. For more information visit http://www.callnet.caand http://www.sprint.ca CALPINE: Inks Settlement Pact, Terminating Contracts with Enron --------------------------------------------------------------- Calpine Corporation (NYSE: CPN), a leading North American power company, confirmed that it has reached a preliminary agreement with Enron Corporation to settle the termination of certain natural gas and electricity contracts between Calpine and Enron affiliates. The settlement agreement must be submitted to the creditors committee for review and is subject to bankruptcy court approval. Calpine Corporation is a leading North American power company dedicated to providing electric power to wholesale and industrial customers from clean, efficient, natural gas-fired and geothermal power facilities. The company was founded in 1984 and is publicly traded on the New York Stock Exchange under the symbol CPN. For more information about Calpine, visit http://www.calpine.com * * * As previously reported in Troubled Company Reporter, Calpine Corp.'s senior unsecured debt rating was downgraded to 'B+' from 'BB' by Fitch Ratings. In addition, CPN's outstanding convertible trust preferred securities and High TIDES were lowered to 'B-' from 'B'. The Rating Outlook was Stable. Approximately $9.3 billion of securities were affected. CALPINE CORP: Arranges New $500 Million Working Capital Facility ---------------------------------------------------------------- Calpine Corporation (NYSE: CPN), a leading North American power company, has entered into agreements for a new $500 million working capital facility. The new first-priority senior secured facility will consist of a two-year, $300 million working capital revolver and a four-year, $200 million term loan that together will provide up to $500 million in combined cash borrowing and letter of credit capacity. The new facility replaces the company's existing working capital facilities. It will be secured by a first-priority lien on the same assets that secure Calpine's recently completed $3.3 billion offering of term loan and second- priority senior secured notes. The $300 million working capital revolver will bear interest at Libor plus 400 basis points and will mature on July 15, 2005. Initially, the company expects to use approximately $225 million of the revolver to replace existing letters of credit. The $200 million term loan was priced at Libor plus 350 basis points and matures on July 15, 2007. Approximately $130 million of proceeds from the term loan will be used to cash collateralize existing letters of credit, with the balance being used for general corporate purposes. The Bank of Nova Scotia is the administrative agent and was a lead arranger for the facility. "This financing, combined with our recently completed $3.3 billion offering of term loan and second-priority secured notes, further demonstrates the value of Calpine's power generation and natural gas assets and the strength of our business model," stated Calpine Chief Financial Officer, Bob Kelly. "We are encouraged by the market's favorable response to our refinancings and appreciate the support and commitment of our bank group, led by The Bank of Nova Scotia. Calpine continues to advance our 2003 finance program, with several additional financing opportunities under way." Calpine Corporation is a leading North American power company dedicated to providing electric power to wholesale and industrial customers from clean, efficient, natural gas-fired and geothermal power facilities. The company generates power at plants it owns or leases in 22 states in the United States, three provinces in Canada and in the United Kingdom. Calpine is also the world's largest producer of renewable geothermal energy, and it owns approximately one trillion cubic feet equivalent of proved natural gas reserves in Canada and the United States. The company was founded in 1984 and is publicly traded on the New York Stock Exchange under the symbol CPN. For more information about Calpine, visit http://www.calpine.com CALPINE CORP: Completes $3.3BB Term-Loan & Senior Debt Offering --------------------------------------------------------------- Calpine Corporation (NYSE: CPN), a leading North American power company, has closed its $3.3 billion term loan and second-priority senior secured notes offering. The term loan and senior notes are secured by substantially all of the assets owned directly by Calpine Corporation, including natural gas and power plant assets and the stock of Calpine Energy Services and other subsidiaries. The offering was comprised of two tranches of floating rate securities and two tranches of fixed rate securities. The floating rate securities included: -- A $750 million, four-year term loan priced at Libor plus 575 basis points; and -- $500 million of Second-Priority Senior Secured Floating Rate Notes due 2007, also priced at Libor plus 575 basis points. The fixed rate securities included: -- $1.15 billion of 8.5% Second Priority Senior Secured Notes due 2010; and -- $900 million of 8.75% Second Priority Senior Secured Notes due 2013. Net proceeds from the offering will be used to repay existing indebtedness, including approximately $950 million outstanding under the company's term loan, which was to mature in May 2004; borrowings outstanding under the company's working capital revolvers; and outstanding public indebtedness in open-market purchases and as otherwise permitted by the company's indentures. To date, the company has purchased approximately $708 million face value of outstanding senior notes at a cost of approximately $608 million using net proceeds from the offering. The term loan and senior secured notes have been offered in a private placement under Rule 144A, have not been registered under the Securities Act of 1933, and may not be offered in the United States absent registration or an applicable exemption from registration requirements. This press release shall not constitute an offer to sell or the solicitation of an offer to buy. Securities laws applicable to private placements under Rule 144A limit the extent of information that can be provided at this time. CHAMPION ENTERPRISES: Second-Quarter Results Enter Positive Zone ---------------------------------------------------------------- Champion Enterprises, Inc. (NYSE: CHB), the nation's leading housing manufacturer, today reported earnings of $0.05 per diluted share for its second quarter ended June 28, 2003. Champion had a loss of $4.10 per diluted share in the second quarter of 2002. For the three-month period ended June 2003, revenues totaled $296 million and net income was $3.0 million, which included pretax gains of $7.1 million from the early retirement of debt and $0.8 million from sales of fixed assets. In the year earlier period, the company had revenues of $362 million and a net loss of $199 million, including pretax goodwill impairment charges of $97 million, establishment of a deferred tax asset valuation allowance totaling $120 million, pretax restructuring charges of $4.9 million and pretax gains from the early retirement of debt totaling $5.9 million. In the first half of 2003, Champion had revenues totaling $541 million and a net loss of $18.4 million, or $0.40 per diluted share. These results included $13.8 million of pretax gains from the early retirement of debt, $1.8 million of pretax gains from sales of fixed assets and $5.7 million of pretax losses from finance loans sold or held for sale. In the first six months of 2002, the company reported revenues of $668 million and a net loss of $211 million, or $4.36 per diluted share. Chairman, President and Chief Executive Officer, Al Koch, commented, "We're pleased to report a profitable quarter following six consecutive quarters of net losses. Operating income for the three-month period improved substantially compared to both the second quarter of 2002 and this year's first quarter. We're encouraged by the progress that's been made to return our manufacturing segment to profitability and to significantly reduce our retail loss. During the quarter we also improved the balance sheet through increasing cash and continuing to reduce our debt, which gives us additional financial strength as we enter the second half of the year." Operations Manufacturing - For the three-month period ended June 2003, manufacturing revenues decreased 16% to $263 million from $314 million one year earlier, while segment income increased to $13.0 million, or 4.9% of segment revenues, from $10.4 million, or 3.3% of segment revenues, in the second quarter of 2002. Genesis sales to builders and developers accounted for 11.8% of manufacturing homes sold and approximately 15.5% of manufacturing revenues during the second quarter of 2003. For the six-month period, the manufacturing segment reported $472 million in revenues, which resulted in segment income of $6.2 million. Champion had unfilled manufacturing orders of $48 million at the end of June at 34 plants, compared to $26 million at 46 plants a year earlier. Retail - Year-over-year retail revenues dropped 31% for the quarter ended June 2003, while the retail loss was substantially reduced to $0.7 million from $13.8 million in the second quarter of 2002. The prior year loss included $4.9 million of restructuring charges related to the closing of 34 under performing retail locations. Champion currently operates 115 company- owned stores, down from 208 locations a year ago. Finance - HomePride Finance Corp. originated $12.7 million of loans for the quarter and received $8.4 million of net proceeds for loans placed in its warehouse funding facility. HomePride reported a loss of $2.9 million for the three-month period, including a $0.3 million charge to value finance loans receivable at the lower of cost or market. In April the company sold $59.7 million (face amount) of loans, reduced its warehouse line borrowings by $42.2 million and realized net proceeds of $11.9 million. Subsequent to the end of the second quarter, in July the company sold finance loans with a face value of $16.4 million for $15.6 million, reduced its warehouse line borrowings by $10.0 million and realized net proceeds of $5.6 million. Liquidity and Capital Structure Champion ended the quarter with $129 million in cash and cash equivalents and generated $60.2 million in cash flow from operations during the three- month period, including tax refunds of $63.7 million. At quarter end the company had long-term debt of $291 million, down from $342 million at the beginning of the year. During 2003, the company used $35.8 million to purchase and retire $50.5 million of its Senior Notes, resulting in pretax gains of $13.8 million. In the first half of 2003, a charge to retained earnings of $3.5 million was recorded resulting from an amendment to the company's preferred stock terms, which was accounted for as an induced conversion and increased the loss per diluted share by $0.06. Outlook Koch continued, "Despite the progress we've made, there's still much work to be done. We look forward to receiving the results of the AlixPartners QuickStrike(TM) assessment, which involves reviewing our operations for potential improvements and adjustments. When this four-to-six week process is complete, we will consider a wide range of initiatives to solidify the profitability of our operations even during the severe industry downturn. "Year-to-date industry HUD Code wholesale shipments were down 27% through May and continue at a 40-year low. Due to the difficult consumer financing environment that the industry faces, we estimate that the seasonally adjusted rate of new home shipments has dropped to approximately 130,000 homes for 2003. As we work through this down cycle, Champion will continue to maintain strong cash balances and focus on running profitable, albeit possibly smaller, operations," concluded Koch. Champion Enterprises, Inc. (S&P, B+ Corporate Credit Rating, Negative), headquartered in Auburn Hills, Michigan, is the industry's leading manufacturer and has produced 1.6 million homes since the company was founded. The company operates 34 homebuilding facilities in 16 states and two Canadian provinces and 115 retail locations in 24 states. Independent retailers, including 650 Champion Home Center locations, and approximately 500 builders and developers also sell Champion-built homes. In addition, through its subsidiary, HomePride Finance Corp., the company provides consumer financing for purchasers of its homes. Further information can be found at the company's Web site. CHARTER COMMS: Taking Actions to Resolve Issues re Bresnan Deal --------------------------------------------------------------- As part of Charter Communications Holdings, LLC's acquisition of the cable television systems owned by Bresnan Communications Company Limited Partnership in February 2000, CC VIII, LLC, Charter's indirect limited liability company subsidiary, issued Class A Preferred Membership Interests with a value and an initial capital account of approximately $630 million to certain sellers affiliated with AT&T Broadband, now owned by Comcast Corporation. While held by the Comcast Sellers, the CC VIII Interest was entitled to a 2% priority return on its initial capital amount and such priority return was entitled to preferential distributions from available cash and upon liquidation of CC VIII. While held by the Comcast Sellers, the CC VIII Interest generally did not share in the profits and losses of CC VIII. Paul G. Allen granted the Comcast Sellers the right to sell to him the CC VIII Interest for approximately $630 million plus 4.5% interest annually from February 2000. In April 2002, the Comcast Sellers exercised the Comcast Put Right in full, and this transaction was consummated on June 6, 2003. Accordingly, Mr. Allen has become the holder of the CC VIII Interest. Consequently, subject to the matters referenced in the next paragraph, Mr. Allen generally hereafter will be allocated his pro rata share (based on the number of membership interests outstanding) of profits or losses of CC VIII. In the event of a liquidation of CC VIII, Mr. Allen will not be entitled to any priority distributions (except with respect to the 2% priority return, as to which such priority will continue), and Mr. Allen's share of any remaining distributions in liquidation will be equal to the initial capital account of the Comcast Sellers of approximately $630 million, increased or decreased by Mr. Allen's pro rata share of CC VIII's profits and losses (as computed for capital account purposes) after June 6, 2003. An issue has arisen as to whether the documentation for the Bresnan transaction was correct and complete with regard to the ultimate ownership of the CC VIII Interest following consummation of the Comcast Put Right. The Board of Directors of Charter's indirect parent company, Charter Communications, Inc., formed a Special Committee comprised of Messrs. Tory, Wangberg and Nelson to investigate and take any other appropriate action on Charter Communications, Inc.'s behalf with respect to this matter. After conducting an investigation of the facts and circumstances relating to this matter, the Special Committee has reached a preliminary determination that, due to a mistake that occurred in preparing the Bresnan transaction documents, Charter Communications, Inc. should seek the reformation of certain contractual provisions in such documents and has notified Mr. Allen of this conclusion. The Special Committee also has preliminarily determined that, as part of such contract reformation, Mr. Allen should be required to contribute the CC VIII Interest to Charter's indirect parent company, Charter Communications Holding Company, LLC in exchange for Charter Communications Holding Company, LLC membership units. The Special Committee also has recommended to the Board of Directors that, to the extent the contract reformation is achieved, the Board should consider whether the CC VII Interest should ultimately be held by Charter Communications Holding Company, LLC or by Charter Communications Holdings, LLC or another entity owned directly or indirectly by Charter Communications Holdings, LLC. Charter understands that Mr. Allen disagrees with the Special Committee's preliminary determinations. Accordingly, the Special Committee and Mr. Allen expect to enter into non-binding mediation to seek to resolve this matter as soon as practicable, but without any prejudice to any rights of the parties if such dispute is not resolved as part of the mediation. Charter Communications, A Wired World Company(TM), is the nation's third-largest broadband communications company. Charter provides a full range of advanced broadband services to the home, including cable television on an advanced digital video programming platform via Charter Digital Cable(R) brand and high-speed Internet access marketed under the Charter Pipeline(R) brand. Commercial high- speed data, video and Internet solutions are provided under the Charter Business Networks(R) brand. Advertising sales and production services are sold under the Charter Media(R) brand. More information about Charter can be found at http://www.charter.com * * * In early January, Moody's Investors Services warned that Charter Communications, Inc., may breach a bank debt covenant in the following quarter, and reacted negatively to talk that a restructuring is "increasingly likely" in the near to medium term and there's a "growing probability of expected credit losses." Restructuring Advisers Hired Charter reportedly chose Lazard as its restructuring adviser, according to TheDeal.com (edging-out Goldman Sachs Capital Partners, Carlyle Group, Thomas H. Lee Partners, UBS Warburg and Morgan Stanley) to explore strategic alternatives. The New York Post, citing unidentified people familiar with the situation, says those alternatives may involve selling assets or bringing in private equity partners. Charter co-founder Paul Allen has brought Miller Buckfire Lewis & Co. onto the scene to protect his 54% stake that cost him $7-plus billion. Alvin G. Segel, Esq., at Irell & Manella LLP in Los Angeles has served as long-time legal counsel to Mr. Allen and his investment firm, Vulcan Ventures. COEUR D'ALENE: Will Publish Second Quarter Results on Thursday -------------------------------------------------------------- Coeur D'Alene Mines Corporation (NYSE: CDE) will report its second quarter results on Thursday, July 24, 2003. There will be a conference call that day at 1:00 p.m. Eastern time. Dial-In Numbers: 888-428-4478 (US) 651-291-5254 (International) The conference call and presentation will also be simultaneously webcast on the Company's web site http://www.coeur.com Hosting the call will be Dennis E. Wheeler, Chairman and Chief Executive Officer of the Company, who will be joined by Robert Martinez, President and Chief Operating Officer, James A. Sabala, Executive Vice President and Chief Financial Officer and Dieter A. Krewedl, Senior Vice President of Exploration. Participants should call in at least five minutes prior to the conference start time and will be asked to provide their name and company. A replay of the call will be available through Thursday, July 31, 2003. The replay dial-in numbers are 800-475-6701 (US) and 320- 365-3844 (International) and the access code is 692229. In addition, the call will be archived on the Company's web site in the Investor Relations Section. Coeur d'Alene Mines Corporation is the world's largest primary silver producer, as well as a significant, low-cost producer of gold. Coeur has mining interests in Nevada, Idaho, Alaska, Argentina, Chile and Bolivia. * * * Going Concern Uncertainty In the Company's 2002 Annual Report filed on SEC Form 10-K, the Company's independent auditors, KPMG LLP, issue the following statement, dated February 28, 2003: "We have audited the 2002 financial statements of Coeur d'Alene Mines Corporation (an Idaho Corporation) and subsidiaries (the Company) as listed in the accompanying index. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The 2001 and 2000 financial statements of Coeur d'Alene Mines Corporation, as listed in the accompanying index, were audited by other auditors who have ceased operations and whose report, dated February 15, 2002, expressed an unqualified opinion on those financial statements and included an explanatory paragraph that stated that the Company had suffered recurring losses from operations, had a significant portion of its convertible debentures that needed to be repaid or refinanced in June 2002 and had declining amounts of cash and cash equivalents and unrestricted short-term investments, all of which raised substantial doubt about its ability to continue as a going concern." CONSECO INC: Files Fourth Amended Plan of Reorganization -------------------------------------------------------- Conseco, Inc. (OTCBB:CNCEQ) has filed its Fourth Amended Plan of Reorganization with the Bankruptcy Court. The new amendments principally reflect minor modifications to the non-debtor release provision and related components of the plan. Under the Bankruptcy Court's current schedule, court testimony will conclude no later than July 17, closing arguments will occur on July 18, and final post-trial briefs will be filed by July 25. The full text of the Fourth Amended Plan of Reorganization is available at -- http://www.bmccorp.net/conseco-- and, following the filing of the plan with the Securities and Exchange Commission, will be available at the SEC's Web site at http://www.sec.gov CONTINENTAL AIRLINES: Joins Sabre Network's DCA 3-Year Option ------------------------------------------------------------- Sabre Travel Network, a Sabre Holdings (NYSE: TSG) company, and Continental Airlines (NYSE: CAL) announced that Continental has agreed to participate in the Sabre Direct Connect Availability Three-Year Option, which commits the carrier to a three-year term at the highest level of participation in the Sabre global distribution system in exchange for a reduced booking fee rate that is fixed for three years. Through the DCA Three-Year Option, airlines agree to provide all published fares to all Sabre GDS users, including Sabre Connected online and offline travel agencies. This includes published fares that the airlines sell through any third-party Web site and through their own Web site and reservation offices. "Providing travelers the maximum level of customer service is the highest priority for Continental Airlines," said Jim Compton, senior vice president of marketing for Continental Airlines. "This program improves our ability to do that by offering customers access to all published fares, including Web fares. It also helps us meet a key business objective to further reduce distribution costs. We recognize the effectiveness of the Sabre GDS, which offers one of the highest yielding channels." In the Sabre GDS, airlines sign a participating carrier agreement enabling them to choose from one of several optional levels of connectivity to the system. DCA is the highest level and provides airlines with a wide range of services to market and sell their flight and fare information through the travel network of more than 56,000 travel agency locations worldwide. Sabre Travel Network recently extended the DCA Three-Year Option from U.S. only to now include bookings made in the U.S. Virgin Islands, Caribbean, and Europe. The expansion to these regions provides airlines with the opportunity to distribute all fares to consumers in many parts of the world. The DCA Three Year-Option extends the term of current 30-day agreements with airlines to a fixed three years. "By participating in the program, Continental demonstrates its commitment to travelers by providing a full range of choices for booking Continental published fares through multiple channels -- both online and offline," said John Stow, president of Sabre Travel Network. "Their participation offers enhanced opportunities for travel agencies to serve their customers and reinforces the value of the agency channel." The Program - How it Works: -- Participating airlines agree to commit to the highest level of participation in the Sabre system for three years. -- Participating airlines provide all Sabre GDS users broad access to schedules, seat availability and published fares, including Web fares and other promotional fares, but excluding opaque fares and private discounts. -- Participating airlines furnish generally the same customer perks and amenities to passengers booked through the Sabre GDS as those afforded through other GDS's and Web sites. -- Sabre Travel Network provides participating airlines with a reduction to their current applicable DCA booking fee. -- Sabre Travel Network fixes the DCA booking fee rate for three years. "These watershed agreements restore traveler confidence in being able to obtain competitive airline rates from their Sabre Connected agency -- and provide a renewed commitment to support agents in several ways," added Stow. "They also signal a change in the economics associated with GDS services for all parties -- airlines and agencies. As the travel distribution market transitions to new booking fee models, agency incentives are likely to be reviewed. The company believes it is important to manage incentive growth within the context of the benefits provided by the program." Sabre Travel Network, a Sabre Holdings company, provides access to the world's leading global distribution system (GDS) and products and services enabling agents at more than 56,000 agency locations worldwide to be travel experts. About 35 percent of the world's travel is booked through the Sabre GDS. Originally developed in 1960, it was the first system to connect the buyers and sellers of travel. Today the system includes more than 400 airlines, approximately 60,000 hotels, 53 car rental companies, nine cruise lines, 36 railroads and 232 tour operators. Sabre Holdings Corporation (NYSE: TSG) is a world leader in travel commerce, retailing travel products and providing distribution and technology solutions for the travel industry. More information about Sabre is available at http://www.sabre-holdings.com/ Continental Airlines is the world's seventh-largest airline with 2,300 daily departures to 134 domestic and 92 international destinations. Continental has the broadest global route network of any U.S. airline, including extensive service throughout the Americas, Europe and Asia. Continental has hubs serving New York, Houston, Cleveland and Guam, and carries approximately 41 million passengers per year on the newest jet fleet among major U.S. airlines. With 48,000 employees, Continental is one of the 100 Best Companies to Work For in America. In 2003, Fortune ranked Continental highest among major U.S. carriers in the quality of its service and products, and No. 2 on its list of Most Admired Global Airlines. As recently reported, Standard & Poor's Ratings Services assigned its 'CCC+' rating to Continental Airlines Inc.'s (B/Negative/--) $150 million 5.0% senior unsecured convertible debt due 2023. Ratings on Continental were affirmed on June 2, 2003, and removed from CreditWatch, where they were placed on March 18, 2003. "Ratings on Continental are based on its heavy debt and lease burden and relatively limited financial flexibility, which outweigh better-than-average operating performance and a modern aircraft fleet," said Standard & Poor's credit analyst Philip Baggaley. The outlook on Continental's long-term corporate credit rating is negative. Losses are expected to narrow and operating cash flow should turn modestly positive in the second and third quarters of 2003, but Continental remains vulnerable to any renewed deterioration in the airline industry revenue environment. CORRPRO COMPANIES: Sells Asian Operations in Private Transaction ---------------------------------------------------------------- Corrpro Companies, Inc. (Amex: CO), announced the sale of its Asian operations in a private transaction for an undisclosed amount. The operations were purchased by an affiliate of the OMG Group, a regional participant in the oil and gas industry. "With this transaction, we have achieved another strategic milestone in our business restructuring plan," stated Joseph W. Rog, Chairman, President, and Chief Executive Officer of Corrpro. "We are pleased that we have secured a continuing relationship with the purchaser. Through mutually beneficial licensing and distribution agreements, the OMG Group affiliate has been licensed to operate under the names Corrpro Asia and Corrpro Far East and is authorized to distribute Corrpro corrosion control products and services covering certain territories in the Asia Pacific region." Corrpro, headquartered in Medina, Ohio is the leading provider of corrosion control engineering services, systems and equipment to the infrastructure, environmental and energy markets around the world. Corrpro is the leading provider of cathodic protection systems and engineering services, as well as the leading supplier of corrosion protection services relating to coatings, pipeline integrity and reinforced concrete structures. As reported in Troubled Company Reporter's July 4, 2003 edition, the Company is currently not in compliance with certain financial ratios required to be maintained under its senior debt agreements. In addition, the Company's revolving credit facility agreement is scheduled to expire on July 31, 2003. The Company is also required to make a $7.6 million principal payment on its Senior Notes, which mature in 2008, by July 31, 2003. The Company is having continuing discussions with its lenders regarding an amendment to extend the maturity date of the revolving credit facility beyond July 31, 2003, and plans to negotiate arrangements with its lenders to, among other things, waive the covenant violations under the senior debt, extend the maturity of the senior bank facility and defer the principal payments due on the Senior Notes. There can be no assurance, however, that any waiver or extension will be obtained on terms acceptable to the Company or at all. Failure to do so would have a material adverse effect on the Company's liquidity and financial condition and could result in the Company's inability to operate as a going concern, in which case the Company would consider available alternatives. The Company is currently in default of certain financial ratios required to be maintained under it Senior Note and Revolving Credit Facility agreements. In addition, the Revolving Credit Facility is scheduled to expire on July 31, 2003 and the Company is required to make a $7.6 million principal payment on the Senior Notes by July 31, 2003. The Company is also, at the current time, not able to provide any assurances regarding its ability to make the $7.6 million Senior Note principal payment that is due on July 31, 2003. Further information about our Long-Term Debt is included in Note 3, Long-Term Debt, Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K. The Company has had preliminary discussions with its lenders regarding an amendment to the Revolving Credit Facility which would, among other things, extend the maturity date of the Revolving Credit Facility beyond July 31, 2003. The Company intends to continue its efforts to obtain such an amendment, however, there can be no assurances that the Company will be able to negotiate such an amendment at all or under terms and conditions acceptable to it. Until such time when the Company is able to refinance the Senior Notes and Revolving Credit Facility it will attempt to negotiate arrangement with its lenders to, among other things, waive the covenant violations under the Senior Notes and Revolving Credit Facility agreement, extend the maturity of the Revolving Credit Facility beyond July 31, 2003 and defer the principal payments due under the Senior Notes. If the Company is not able to negotiate mutually acceptable arrangements with its existing lenders, events could occur that would have a material adverse effect on the Company's liquidity and financial condition and could result in its inability to operate as a going concern. If the Company is unable to operate as a going concern, it may file, or have no alternative but to file, bankruptcy or insolvency proceedings or pursue a sale or sales of assets to satisfy creditors. CREDIT SUISSE: Fitch Affirms Ratings on Class F, H & I at BB/CCC ---------------------------------------------------------------- Fitch Ratings July 16 Credit Suisse First Boston Mortgage Securities Corp.'s commercial mortgage pass-through certificates, series 1997-C2, are upgraded by Fitch Ratings as follows: -- $95.3 million class B to 'AAA' from 'AA'; -- $80.6 million class C to 'AA' from 'A'; -- $95.3 million class D to 'BBB+' from 'BBB-'. The $14.7 million class G has been affirmed at 'BB-' and removed from Rating Watch Negative. In addition, Fitch affirms the following classes: -- $10.5 million class A-1 'AAA'; -- $322.3 million class A-2 'AAA'; -- $523.3 million class A-3 'AAA'; -- Interest-only class A-X 'AAA'; -- $73.3 million class F at 'BB'; -- $29.3 million class H 'CCC'; -- $14.7 million class I 'CCC'. The $25.7 million class E and the $9.3 million class J certificates are not rated by Fitch. The upgrades follow Fitch's annual review of the transaction, which closed in December 1997. The upgrades are primarily the result of increased subordination levels due to loan payoffs and amortization. As of the June 2003 distribution date, the pool's aggregate principal balance has been reduced by 12% from $1.47 billion to $1.29 billion. The removal of class G from Rating Watch Negative is primarily due to the resolution of two loans (2%) with exposure to Kmart. One of the properties' leases has been assumed by Walmart, and the other by Home Depot. In addition, there is a clearer estimate of the expected losses on the specially serviced loans. Wachovia Securities, Inc., the master servicer, collected year-end 2002 financials for 70% of the pool balance. Based on the information provided, the resulting YE 2002 weighted average debt service coverage ratio is 1.47x times, compared to 1.34x at issuance for the same loans. Currently, six loans (3.5%) are in special servicing. The largest loan is secured by a retail property in Canton, MI and is currently in foreclosure. The property was 100% occupied by Kmart, but the lease has been rejected and Kmart has vacated the property. The next largest specially serviced loan (0.55%) is secured by a hotel property in Evanston, IL and is current. The loan is in special servicing due to a change of franchise and is expected to be returned to the master servicer within a few months. Fitch will continue to monitor this transaction, as surveillance is ongoing. CROSS MEDIA: Fails to Comply with Nasdaq Listing Requirements ------------------------------------------------------------- Cross Media Marketing Corporation (AMEX: XMM) received a notice from the American Stock Exchange indicating that the Company no longer complies with the Exchange's continued listing standards due to the substantial impairment of the Company's financial condition. In view of the foregoing and in accordance with Sections 1003(a)(iv) and Section 1003(d) of the Amex Company Guide, the Exchange has notified the Company that it intends to proceed with the filing of an application with the Securities and Exchange Commission to delist and deregister the Company's common stock from the Exchange. The Company does not plan to appeal the Exchange's determination. The Exchange suspended trading in the Company's common stock, effective July 10, 2003, and such shares are now listed on the National Quotation Bureau's Pink Sheets (CMKC:PK). Cross Media Marketing filed for Chapter 11 protection under the federal bankruptcy laws on May 16, 2003 in the U.S. Bankruptcy Court for the Southern District of New York (Manhattan). The Debtor is a direct marketer and seller of magazine subscriptions. CYTO PULSE: Signs-Up Tydings & Rosenberg as Bankruptcy Attorneys ---------------------------------------------------------------- Cyto Pulse Sciences, Inc., asks for permission from the U.S. Bankruptcy Court for the District of Maryland to employ Tydings & Rosenberg LLP as its attorneys. The Debtor needs legal counsel to comply with the performance of its duties as a Debtor-in-Possession, the reorganization of its finances, and the defense of litigation that may be brought against the Company. In short, the Debtor needs the full range of traditional legal services unique to a Chapter 11 proceeding. The Debtor wishes to employ Tydings & Rosenberg to represent it as attorneys in this case and generally in its operations. Specifically, Tydings & Rosenberg will: a. provide the Debtor legal advice with respect to its powers and duties as a Debtor-in-Possession and in the operation of its business and management of its property; b. represent the Debtor in defense of any proceedings instituted to reclaim property or to obtain relief from the automatic stay under Section 362(a) of the Bankruptcy Code; c. prepare any necessary applications, answers, orders, reports and other legal papers, and appearing on the Debtor's behalf in proceedings instituted by or against the Debtor; d. assist the Debtor in the preparation of schedules, statements of financial affairs, and any amendments thereto that the Debtor may be required to file in this case; e. assist the Debtor in the preparation of a plan of reorganization and a disclosure statement; f. assist the Debtor with all bankruptcy legal work; g. provide general corporate legal advice; and h. perform all of the legal services for the Debtor that may be necessary or desirable herein. The Debtor desires to employ Tydings & Rosenberg under a general retainer because of the extensive legal services required. Alan M. Grochal, Esq., discloses that Tydings & Rosenberg received a $50,000 retainer from the Debtor to be applied towards future services rendered and expenses to be incurred. Mr. Grochal does not disclose the customary hourly rates that Tydings & Rosenberg charges its clients. Cyto Pulse Sciences, Inc., headquartered in Columbia, Maryland is in the business of inventing, developing and manufacturing medical equipment and devices for laboratory applications. The Company filed for chapter 11 protection on June 12, 2003 (Bankr. Md. Case No. 03-59544). Alan M. Grochal, Esq., and Stephen M. Goldberg, Esq., at Tydings and Rosenberg, represent the Debtor in its restructuring efforts. As of June 30, 2002, the company listed $1,913,305 in assets and $19,469,309 in debts. DVI INC: Defaults on 9-7/8% Senior Notes Due 2004 ------------------------------------------------- On July 15, 2003, DVI, Inc. (NYSE:DVI) received a Notice of Default from U.S. Bank National Association, the Trustee under the Indenture, dated as of January 27, 1997, between DVI and the Trustee relating to DVI's 9-7/8% Senior Notes due 2004, indicating that DVI failed to satisfy its obligation under Section 703(1) of the Indenture to file its quarterly report on Form 10-Q for the period ended March 31, 2003. DVI has advised the Trustee that it does not believe that a default exists under Section 703(1) of the Indenture and understands that the Trustee is considering DVI's position. If the Trustee does not rescind the Notice of Default promptly, DVI expects to address this issue by either challenging the validity of the Trustee's Notice of Default or seeking a waiver or modification from the holders of Notes representing not less than a majority in principal amount of the outstanding Notes, or both. Pursuant to the Indenture, DVI will have 60 days from the date of the Notice of Default to cure the purported noncompliance with the Indenture. Neither the Trustee nor the holders of the Notes may exercise any remedies until after the 60-day cure period has elapsed. DVI is an independent specialty finance company for healthcare providers worldwide with $2.8 billion of managed assets. DVI extends loans and leases to finance the purchase of diagnostic imaging and other therapeutic medical equipment directly and through vendor programs throughout the world. DVI also offers lines of credit for working capital backed by healthcare receivables in the United States. Additional information is available at http://www.dvi-inc.com ELAN CORP: Fails to Meet SEC Form 20-F Filing Deadline ------------------------------------------------------ Elan Corporation, plc (NYSE: ELN) did not file with the Securities and Exchange Commission Elan's Annual Report on Form 20-F for fiscal 2002 within the 15-day extension period provided under its previously filed Form 12b-25. As announced on June 26, 2003, Elan has been in discussions with the Office of Chief Accountant and the Division of Corporation Finance of the SEC. The SEC has questioned Elan's historic accounting treatment, under U.S. Generally Accepted Accounting Principles, for Elan's qualifying special purpose entity, Elan Pharmaceutical Investments III, Ltd., and for a related transaction. Elan is currently evaluating the issues raised by the SEC and is devoting significant time and resources to completing and filing its 2002 Form 20-F as expeditiously as practicable. Elan cannot, however, provide any assurances as to the timing of the completion of its evaluation or the timing of the filing of its 2002 Form 20-F. Elan is focused on the discovery, development, manufacturing, sale and marketing of novel therapeutic products in neurology, pain management and autoimmune diseases. Elan shares trade on the New York, London and Dublin Stock Exchanges. As reported in Troubled Company Reporter's June 30, 2003 edition, Standard & Poor's Ratings Services lowered its corporate credit rating on Elan Corp. PLC to 'CCC' from 'B-'. Standard & Poor's also lowered all of its other ratings on Elan, a specialty pharmaceutical company, and its affiliates, and the ratings have been placed on CreditWatch with negative implications. ENCOMPASS SERVICES: Court Approves Stipulation with Microsoft ------------------------------------------------------------- Encompass Services Corporation and its debtor-affiliates sought and obtained a Court order approving their stipulation with Microsoft Corporation and MSLI GP for the assumption and assignment of the certain software licenses to RSG Holding Corp. and Residential Services Group Inc. The Debtors and Microsoft are parties to a prepetition Enterprise Agreement and two prepetition Select Agreements pursuant to which the Debtors have ordered certain software licenses from Microsoft. In their Court-approved Stipulation, the parties agree that: (a) On July 14, 2003, the Debtors will assume the Enterprise Agreement and the Select Agreements. After assumption, the Enterprise Agreement and the Select Agreements are deemed to immediately expire, notwithstanding anything to the contrary in the Agreements; (b) Neither the Debtors nor Residential Group will be required to pay Microsoft any cure costs or other amounts nor provide adequate assurance of future performance pursuant to Section 365 of the Bankruptcy Code or otherwise as a condition precedent to, or as a result of, the assumption of the Enterprise Agreement and the Select Agreements. However, this is provided that Microsoft reserves the right to assert that that payment is a prerequisite to the issuance of license confirmations for licenses other than the 1,000 licenses for which a license confirmation is issued; (c) Pursuant to the terms of the Enterprise Agreement, Microsoft has until November 12, 2003, to provide the Debtors with "license confirmation" for 1,000 desktop software licenses identified on the license confirmation and will take all actions and deliver all documents necessary to evidence and effectuate the transfer of the licenses; (d) Within three business days after the Debtors' receipt of the license confirmations, the Debtors will, with Microsoft consent, transfer 600 of the 1,000 licenses identified on the license confirmation to Residential Group. The Debtors will record the transfer on the face of the license confirmation and provide a photocopy to Residential Group. Residential Group accepts the applicable product use rights, use restrictions, and limitations of liability under the Enterprise Agreement and the Select Agreements. (e) With respect to the remaining 400 licenses identified on the license confirmation, which are not transferred to Residential Group, the Debtors may transfer the licenses without Microsoft's prior consent notwithstanding any contrary provision of the Enterprise Agreement, if the licenses are transferred to a person or entity, which has purchased assets of the Debtors during the pendency of these Chapter 11 cases. However, this is provided that the Debtors will provide written notice of any transfer, including the name and address of the transferee within 30 days of the transfer; (f) Microsoft will have an allowed general unsecured prepetition claim for $1,158,784 against the Debtors, which will be treated in accordance with the Debtors' Plan terms; (g) None of these provisions will affect the Debtors' right to assert an interest in any license other than the 1,000 licenses, or Microsoft's right to contest on any basis, including taking the position that any transferees acquired no more rights than the Debtors possessed; and (h) These provisions are without prejudice to Microsoft's right to seek to enforce the terms of the Enterprise Agreement and the Select Agreements, except as modified, including transfer restrictions, against the Debtors or any third party transferees of Microsoft software and licenses, provided that the Debtors reserve all of their rights. (Encompass Bankruptcy News, Issue No. 16; Bankruptcy Creditors' Service, Inc., 609/392-0900) ENRON: Fitch Maintains Ratings Following Bankruptcy Plan Filing --------------------------------------------------------------- Ratings and the Rating Outlook for Enron Corp. and its affiliated companies have not been changed by Fitch Ratings following the filing by ENE of its Chapter 11 bankruptcy plan on July 11, 2003. ENE's 'D' rating status reflects modest recoveries (initially estimated by Fitch within the 20%-40% bracket, and now expected to be at the lower end of this range) and ENE's rating is not expected to change throughout conclusion of the bankruptcy process. Under the Plan, ENE unsecured creditors will receive 14.4% of par value and subordinated debt and preferred stock will have $nil recovery. Recoveries vary for debtors of those other individual ENE affiliates which have been placed under Chapter 11 protection, reflecting the bias towards individual asset cover analysis within the Plan, though aggregate recoveries on the debts of those entities in Chapter 11 looks to average roughly 20% should the Plan's estimates prove accurate. ENE affiliates, Northern Border Partners, L.P., Northern Border Pipeline Company, Portland General Electric Co., and Transwestern Pipeline Co. have been negatively affected by ENE's bankruptcy status to varying degrees. Execution of the Plan as proposed and the separation of the affiliates on a timely basis would be favorable credit developments. However, the full credit implications of the Plan have not yet been determined and Fitch will conduct a fuller analysis of the Plan and underlying assumptions before taking rating action. Furthermore, delays due to litigation cannot be ruled out given the scope and complexity of the bankruptcy estate. The Plan, which has the support of ENE's independent creditors' committee and certain other significant creditors, is premised on compromise and settlement between the several parties to the bankruptcy in an effort to avoid costly litigation. As proposed, distributions to creditors under the Plan will be based on assumptions as to the relative likelihood of substantive consolidation of the plan debtors. ENE unsecured creditors will receive the sum of 30% of the distribution the creditors would have received if the debtors were substantively consolidated and 70% of the distribution the creditors would have received if the debtors were not substantively consolidated. In addition, distributions to creditors will be derived from a common pool consisting of a mixture of cash and the stock of newly formed subsidiaries, CrossCountry Energy Corp. and InternationalCo., as well, potentially, as that of PGE. CrossCountry will be a holding company for ENE's natural gas pipeline businesses; its principal assets being Transwestern, a 50% ownership in Citrus Corp., and a general partnership interest in NBP. InternationalCo. will hold ENE's international infrastructure assets. The current expectation is that cash will compose two- thirds of the distribution for most creditors, with stock in the new subsidiaries forming the remaining third. Details of the subsidiary valuations implicit in these calculations are not available at this time, but represent an area where recoveries may rise or fall materially relative to currently published expectations. Distributions of cash or stock to creditors will not begin until confirmation of the Plan by the bankruptcy court. NBP, NBPL, and Transwestern Under a motion filed with the bankruptcy court on June 24, 2003 relating to the formation of CrossCountry, it is contemplated that the ownership interests of ENE's domestic pipeline operations including NBP, NBPL, and Transwestern will be contributed to CrossCountry for eventual distribution to ENE creditors. The transfer to CrossCountry will require court approval and is expected to happen during the third quarter of 2003. It is also contemplated that entities owned by CrossCountry will be indemnified by ENE for tax, employee benefits, and certain other liabilities, removing some investor concern. In particular, the ownership of Transwestern by CrossCountry is expected to facilitate efforts by Transwestern to renew or replace its existing $500 million 364-day secured credit facility that matures in November 2003. Fitch will review each of the affected companies' ratings pending further analysis of the implications of the formation of CrossCountry and distribution of CrossCountry shares. PGE PGE's ratings reflect the ongoing challenges arising from its status as a subsidiary of an insolvent parent, ENE. As outlined in prior Fitch commentary on PGE's ratings, PGE's standalone financial characteristics would support higher ratings absent the linkage to ENE. Nonetheless, Fitch has also recognized the significant improvement in PGE's liquidity in light of refinancing activities in 2002 and earlier this year. The current Positive Rating Outlook assigned to PGE reflects potential for further positive rating action in the near to medium term. Fitch has previously identified key drivers for further rating action as including a reasonable outcome in the pending FERC investigation into PGE's role in the alleged manipulation of western energy markets and the emergence of greater clarity within ENE's bankruptcy process. Progress toward the ultimate approval and implementation of the proposed plan of reorganization, or lack thereof, should become evident over the next several months as administrative proceedings unfold, providing guidance with regard to the latter issue. ENE's board has also indicated that it is still in the process of determining definitively whether to sell PGE prior to a restructuring or distribute the PGE stock as part of the Plan, as outlined above. Should PGE be the subject of an acquisition, the ratings would again become subject to more immediate review based on the plan of acquisition financing that would then apply. Enron Corp. affiliate ratings listed below: NBP -- Senior unsecured debt 'BBB+'; -- Rating Outlook Negative. NBPL -- Senior unsecured debt 'A-'; -- Rating Outlook Negative. PGE -- Senior secured debt 'BBB-'; -- Senior unsecured debt 'BB'; -- Preferred Stock 'B+'; -- Rating Outlook Positive. Transwestern -- Senior unsecured debt 'B+' (indicative); -- Rating Watch Evolving. ENRON CORP: Gas Liquids Units Settles Claims Dispute with EOTT -------------------------------------------------------------- Melanie Gray, Esq., at Weil, Gotshal & Manges LLP, in New York, recalls that prior to the Petition Date, Enron Gas Liquids, Inc. leased the storage capacity at EOTT Energy Liquids, LP's storage facility located at Mont Belvieu, Texas pursuant to a Storage Capacity Purchase Agreement dated June 29, 2001. EGLI rejected the Storage Agreement through a Stipulation dated April 2, 2002. As of April 2, 2002, Ms. Gray reports that EGLI owed EOTT $1,542,465 for storage fees under the Storage Agreement and EGLI was storing, and continuing to store, various amounts of isobutylene/mixed butane at EOTT's Mont Belvieu facility. Although EGLI rejected the Storage Agreement with EOTT, it nevertheless required storage capacity for the Inventory. Pursuant to the Stipulation, the parties agreed, inter alia, that: (i) EGLI would pay for storage charges for the Inventory stored and the amount would be reduced as the Inventory was sold; (ii) EOTT could purchase the Inventory on a ratable basis between May 1, 2002 and May 31, 2002; and (iii) the purchase price of EOTT's purchases would be first applied to reduce the administrative storage charges. Subsequent to the Stipulation, Ms. Gray relates that EOTT invoiced EGLI for storage of approximately 165,000 barrels of Inventory. However, EOTT had taken a total of 117,980 barrels of EGLI's Inventory from April 2, 2002 until March 31, 2003 without factoring this reduction in its calculation for the storage charges. EGLI estimates that the storage fees incurred from April 3, 2002 until March 31, 2003 at the Mont Belvieu facility, as adjusted for the reduction in the Inventory volumes, is approximately equal to the market price of the Inventory EOTT took. Currently, approximately 47,516 barrels of Inventory remains at the Mont Belvieu facility. To settle the dispute, the Parties agree to enter into a Settlement Agreement wherein: (a) EOTT and EGLI will terminate the Stipulation; (b) EOTT and EGLI will settle the claims arising under the Stipulation; (c) EGLI will transfer the remaining Inventory to EOTT in return for a $1,900,000 payment, free and clear of all liens, claims, encumbrances, rights of setoff, recoupment and deduction; and (d) EGLI and EOTT will release each other from all claims, obligations and liabilities under the Stipulation in exchange for the Settlement Payment. Ms. Gray argues that EGLI's entry into the Settlement Agreement is fair and reasonable under Section 363 of the Bankruptcy Code and Rule 9019 of the Federal Rules of the Bankruptcy Procedure because: (i) EGLI believes that it provides the best price obtainable for the Inventory; (ii) EGLI has ceased trading in natural gas liquids, including isobutylene/mixed butane, and has no further use of the Inventory; (iii) terminating the Stipulation monetizes the Inventory for EGLI's estate and resolves the issues related to the termination of the Stipulation; (iv) the Parties are able to resolve the dispute without a lengthy and protracted litigation and unnecessary expenses; and (v) it is a product of arm's-length bargaining between the Parties. Accordingly, EGLI asks the Court to: (a) approve the Settlement Agreement; (b) authorize the transfer of the Inventory to EOTT free and clear of all liens, claims and encumbrances; and (c) accept the Settlement Payment due. (Enron Bankruptcy News, Issue No. 73; Bankruptcy Creditors' Service, Inc., 609/392-0900) GLOBAL CROSSING: Committee Hires Greenberg as Special Counsel ------------------------------------------------------------- The Official Committee of Unsecured Creditors of the Global Crossing Debtors seeks the Court's authority to retain Greenberg Traurig, LLP as special conflicts counsel, nunc pro tunc to June 2, 2003. Greenberg will review and analyze alternative bids for the GX Debtors' stock and assets made by XO Communications, Inc. or its affiliates and present to the Court the Committee's view regarding these bids. Committee Chairman Joel L. Klein reminds the Court that on May 30, 2003, XO Communications, Inc. proposed a bid to purchase the GX Debtors' assets. By e-mail communication that day, the counsel to the Committee, Brown Rudnick Berlack Israels LLP, informed the Committee of the Firm's potential conflict of interest with respect to the Proposed XO Bid, and called an emergency conference call meeting of the Committee on June 2, 2003 to select a special conflicts counsel. At the June 2 meeting, Mr. Klein reports that the Committee selected Greenberg Traurig as special conflicts counsel to review and analyze the Proposed XO Bid and other possible bids that might be forthcoming from XO Communications, Inc. or its affiliates to purchase the GX Debtors' stock and assets. The need to select special conflicts counsel on an expedited basis arose from the impending hearing on the GX Debtors' request to amend the Chapter 11 Plan of Reorganization to confirm Singapore Technologies Telemedia Pte Ltd. as the sole Investor under the Plan. Accordingly, the Committee sought an expedited review of the Proposed XO Bid to respond to the Plan Amendment Request. The Committee and its professionals have continued to review the Proposed XO Bid and might be required to review other bids which might be forthcoming from XO before the ST Telemedia purchase receives regulatory approval and closes. Although the Committee has not yet received it, XO is reported in the press to have made a modified bid. The Committee requires the continuing assistance of a special conflicts counsel to review the XO Bids. Mr. Klein believes that Greenberg Traurig is well qualified to represent the Committee in these cases with respect to the XO Bids in a cost-efficient and timely manner. Greenberg Traurig has been involved in these cases since March 2002, when it began its representation of the Subcommittee, and has participated extensively in the Committee's deliberations in these cases and in the structuring of the Chapter 11 plan. The Committee selected Greenberg Traurig based on this past experience in these cases, due to the need to conduct an immediate review of the Proposed XO Bid and respond adequately to the pending Plan Amendment Request. Greenberg Traurig is expected to: A. assist the Committee with respect to the review, investigation and analysis of the XO Bids; B. provide the Committee with legal advice with respect to its rights, duties and powers in these cases with respect to the XO Bids; C. prepare reports, pleadings, motions, applications, objections and other papers as may be necessary in furtherance of the Committee's position with respect to the XO Bids; D. consult, discuss and negotiate with the Debtors, their counsel, the accountants and financial advisors for the Debtors, the Committee, its lead counsel, other professionals retained in these cases, the United States Trustee, and XO and their counsel, accountants and financial advisors, arising from or related to the XO Bids; and E. represent the Committee in hearings and other judicial proceedings as necessary in furtherance of the Committee's position with respect to the XO Bids. Greenberg Traurig has previously conducted an extensive conflicts check in connection with its retention as counsel to the Subcommittee. Greenberg Traurig will be compensated in accordance with the same terms and conditions of its retention by the Subcommittee, and in accordance with all orders of this Court applicable to the compensation of Committee professionals. (Global Crossing Bankruptcy News, Issue No. 43; Bankruptcy Creditors' Service, Inc., 609/392-0900) GRUPO IUSACELL: Default Waiver Extended to August 14, 2003 ---------------------------------------------------------- Grupo Iusacell, S.A. de C.V. (BMV:CEL) (NYSE:CEL) previously publicly announced that its subsidiary, Grupo Iusacell Celular, S.A. de C.V., received an additional extension of the temporary Amendment and Waiver of certain provisions and defaults under its US$266 million Amended and Restated Credit Agreement, dated as of March 29, 2001. As extended, the Amendment is now scheduled to expire on August 14, 2003. The Amendment contains covenants, expiring on August 14, 2003, which restrict Iusacell Celular from making any loans, advances, dividends or other payments to the Company and require a proportionate prepayment of the loan under the Credit Agreement if Iusacell Celular makes any principal or interest payments on any of its indebtedness for borrowed money, excluding capital and operating leases. Accordingly, Iusacell Celular has determined that, pending agreement with its lenders on a restructuring plan, it will not make the US$7.5 million interest payment due on July 15, on its 10% bonds due 2004. Iusacell Celular has a 30-day period after July 15 within which to make the interest payment. If the interest payment is not made within the 30-day period, an event of default would occur under the Indenture governing the bonds, and the bondholders would have the right to declare the principal of and accrued interest under the bonds due and payable or take other legal actions specified in the Indenture, as they deem appropriate. Grupo Iusacell, S.A. de C.V., (NYSE:CEL) (BMV:CEL) is a wireless cellular and PCS service provider in seven of Mexico's nine regions, including Mexico City, Guadalajara, Monterrey, Tijuana, Acapulco, Puebla, Leon and Merida. The Company's service regions encompass a total of approximately 92 million POPs, representing approximately 90% of the country's total population. GRUPO IUSACELL: Appoints Jose Luis Riera as CFO ----------------------------------------------- Movil Access, S.A. de C.V., a Mexican telecommunications service provider, subsidiary of Biper, S.A. de C.V. (BMV: MOVILAB), a Grupo Salinas company, announced that Gustavo Guzman will appoint Jose Luis Riera as company CFO of Grupo Iusacell. The appointment will become effective upon closing of the tender offers commenced by Movil@ccess, which is currently scheduled to occur on July 29, 2003. Mr. Riera is currently General Director of Corporate Finance for Grupo Salinas, overseeing several financial transactions for the different Grupo Salinas companies. "Jose Luis brings invaluable corporate finance experience and negotiating skills to Grupo Iusacell," said Gustavo Guzman, designed CEO of Grupo Iusacell. "We are building a highly qualified financial team for the company; this will prove to be of essence for the success of the company once we assume formal control in less than two weeks." Mr. Riera has been with Grupo Salinas for over five years, where he has occupied several key financial positions. Past positions include general director of corporate finance at Grupo Elektra, and company CFO of Unefon, a cellular operator. Mr. Riera holds a BA in Industrial Engineering from Universidad Panamericana, and an MBA in Executive Management from the Instituto Panamericano de Alta Direccion de Empresas (IPADE). Grupo Salinas is a group of Mexican companies owned or controlled by the family of Ricardo Salinas Pliego. Grupo Salinas includes TV Azteca, Elektra, Unefon, Biper, Todito.com, Telecosmos and Movil Access. Movil Access provides personal communication services of narrow band, or "two-way paging," commercially known as the "portable e-mail service," and the marketing and/or sale of personal interactive communication terminals. Biper is in the telecommunication service provider business. HEADWAY CORP: Gets Nod to Employ Ordinary Course Professionals -------------------------------------------------------------- Headway Corporate Resources, Inc., asks for approval from the U.S. Bankruptcy Court for the Southern District of New York to continue the employment of the professionals it utilizes in the ordinary course of its businesses, without the submission of separate employment applications, affidavits, and the issuance of separate retention orders for each such individual professional. The Debtor want to pay each Ordinary Course Professional, 100% of the fees and disbursements incurred, upon the submission of an appropriate invoice setting forth in reasonable detail the nature of the services rendered and disbursements actually incurred, up to $10,000 per month per Ordinary Course Professional or $50,000 per Ordinary Course Professional, in the aggregate, during the chapter 11 case. The Ordinary Course Professionals will render services similar to those they rendered prior to the Commencement Date. These professionals perform legal, insurance consulting, investor relations, and benefits administration work for Headway that impact Headway and the day-to-day operations of its Non-Debtor Subsidiaries. The Debtor submits that it is essential that the employment of the Ordinary Course Professionals, many of whom are already familiar with the affairs of Headway and the Non-Debtor Subsidiaries, be continued on an ongoing basis so as to avoid disruption of Headway's and its Non-Debtor Subsidiaries' day-to-day business operations. The Debtor further relates that that the proposed employment of the Ordinary Course Professionals and the payment of monthly compensation are in the best interest of its estate and its creditors. Such employment will save the estate the substantial expenses associated with applying separately for the employment of each professional. Headway Corporate Resources, Inc., headquartered in New York, New York, provides human resource and staffing services. The Company filed for chapter 11 protection on July 1, 2003 (Bankr. S.D.N.Y. Case No. 03-14270). Jeffrey L. Tanenbaum, Esq., at Weil, Gotshal & Manges, LLP, represents the Debtor in its restructuring efforts. When the Company filed for protection from its creditors, it listed estimated assets of over $10 million and estimated debts of more than $50 Million. HUGHES ELECTRONIC: 2nd Quarter Results Show Marked Improvement -------------------------------------------------------------- Hughes Electronics Corporation, a world-leading provider of digital television entertainment, broadband satellite networks and services, and global video and data broadcasting, reported that second quarter 2003 revenues increased 8.1% to $2,370.7 million compared with $2,192.3 million in the second quarter of 2002. Operating profit before depreciation and amortization for the quarter increased 167.0% to $404.7 million and operating profit increased to $140.0 million compared with operating profit before depreciation and amortization of $151.6 million and an operating loss of $98.7 million in the same period of 2002. In addition, HUGHES had second quarter 2003 net income of $21.6 million compared to a net loss of $155.1 million in the same period of 2002. "Continued strong performance by our DIRECTV U.S. business drove HUGHES' revenues and operating profit before depreciation and amortization growth in the quarter," said Jack A. Shaw, HUGHES' president and chief executive officer. "In particular, DIRECTV U.S. achieved revenue growth of over 16% to $1.8 billion and more than doubled its operating profit before depreciation and amortization to an all-time record of $325 million in the quarter. These results reflect continued solid subscriber growth including 181,000 net additions in the second quarter, a $2.80 increase in ARPU -- or average monthly revenue per subscriber -- to nearly $61, and significant improvement in operating profit margins. Primarily due to these strong results, we are increasing both the HUGHES and DIRECTV U.S. full year 2003 guidance for revenue, operating profit before depreciation and amortization, operating profit and cash flow." Shaw added, "Hughes Network Systems, or HNS, also contributed to growth in both our revenue and operating profit before depreciation and amortization in the quarter due to solid performance in their set-top box and broadband consumer businesses. The revenue and operating profit before depreciation and amortization comparison in the quarter was also impacted by the additional revenues generated and losses recognized in 2002 from the World Cup programming provided by DIRECTV Latin America." Shaw finished, "Over the past two years, we have executed on a growth strategy that focuses on cost management and cash flow, and as a result, we reached another important milestone in the quarter: net income. In fact, excluding one-time gains related to the sale of businesses, this is the first time since early 1999 that HUGHES has generated net income. In addition, HUGHES generated positive cash flow for the second consecutive quarter." HUGHES had second quarter 2003 net income of $21.6 million compared to a net loss of $155.1 million in the same period of 2002. This increase was principally due to an increase in operating profit driven by the DIRECTV U.S., DIRECTV Latin America and HNS operational improvements mentioned above, lower interest expense primarily related to a charge of $47 million for losses associated with the final settlement of a contractual dispute with General Electric Capital Corporation in 2002 and lower net losses at DIRECTV Broadband, now accounted for as a discontinued operation due to its shutdown on February 28, 2003. These improvements were partially offset by income tax expense in the second quarter of 2003 compared with an income tax benefit in the same period of 2002 due primarily to HUGHES generating pre-tax income instead of pre-tax losses. Also impacting the second quarter of 2002 was a $37 million gain resulting from the favorable resolution of remaining contingencies associated with the exit from the DIRECTV Japan business (recorded in Other, net). SIX-MONTH FINANCIAL REVIEW For the first half of 2003, revenues increased 9.0% to $4,598.0 million, compared to $4,217.1 million in the first half of 2002 primarily due to continued subscriber growth and higher ARPU at DIRECTV U.S. and increased sales of set-top boxes at HNS, partially offset by higher DIRECTV Latin America revenues in 2002 associated with the World Cup programming services and a larger sub-base, and further devaluations in 2003 to several Latin American currencies. Operating profit before depreciation and amortization for the first six months of 2003 was $709.7 million and operating profit before depreciation and amortization margin was 15.4%, compared to operating profit before depreciation and amortization of $316.1 million and operating profit before depreciation and amortization margin of 7.5% in the first half of 2002. The 124.5% increase in operating profit before depreciation and amortization and the corresponding increase in margin were primarily attributable to the additional gross profit gained from the DIRECTV U.S. revenue growth, reduced losses from the World Cup programming at DIRECTV Latin America and improved efficiencies associated with HNS' larger residential and small office/home office DIRECWAY(R) subscriber base. Also impacting the 2002 operating profit before depreciation and amortization results was a charge of $48 million related to the GECC settlement and a $95 million one-time gain based on the favorable resolution of a lawsuit filed against the U.S. government on March 22, 1991. The lawsuit was based upon the National Aeronautics and Space Administration's breach of contract to launch ten satellites on the Space Shuttle. HUGHES' operating profit for the first six months of 2003 was $181.9 million compared with an operating loss of $186.4 million in the first half of 2002. The improvement was due to the higher operating profit before depreciation and amortization partially offset by higher depreciation and amortization expense, particularly at DIRECTV U.S. resulting from the launch of two new satellites and additional infrastructure expenditures made during the last year. For the first six months of 2003, HUGHES had a net loss of $29.3 million compared to a net loss of $992.8 million in the same period of 2002. The improvement was primarily due to a first quarter 2002 charge associated with HUGHES' adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" of $681.3 million, recorded as "Cumulative effect of accounting change, net of taxes." Also contributing to the change was the improved 2003 operating profit discussed above, a 2002 net interest expense charge of $74 million related to the GECC settlement and higher losses in 2002 at DIRECTV Broadband. These improvements were partially offset by the higher income tax benefit generated in 2002 resulting from the larger pre-tax loss. SEGMENT FINANCIAL REVIEW: SECOND QUARTER 2003 Direct-To-Home Broadcast Second quarter 2003 revenues for the segment increased 9.4% to $1,943.1 million from $1,776.3 million in the second quarter of 2002. The segment had operating profit before depreciation and amortization of $299.4 million compared with operating profit before depreciation and amortization of $60.5 million in the second quarter of 2002. Operating profit for the segment was $129.9 million in the second quarter of 2003 compared to an operating loss of $85.2 million in the same period of 2002. Also, on February 28, 2003, HUGHES completed the shutdown of the DIRECTV DSL(TM) service. DIRECTV Broadband is now accounted for as a discontinued operation in the consolidated financial statements and its revenues, operating costs and expenses, and non-operating results are no longer included in the Direct-To-Home Broadcast segment for the periods presented. United States: Excluding subscribers in the National Rural Telecommunications Cooperative territories, DIRECTV U.S. added 633,000 gross subscribers and after accounting for churn, 181,000 net subscribers in the quarter. DIRECTV U.S. owned and operated subscribers totaled 9.95 million as of June 30, 2003, 10.7% more than the 8.99 million cumulative subscribers as of June 30, 2002. For the second quarter of 2003, the total number of subscribers in NRTC territories fell by 45,000, reducing the total number of NRTC subscribers as of June 30, 2003, to 1.61 million. As a result, the DIRECTV U.S. platform ended the quarter with 11.56 million total subscribers. DIRECTV U.S. reported quarterly revenues of $1,800.2 million, an increase of 16.2% from last year's second quarter revenues of $1,549.6 million. The increase was primarily due to continued strong subscriber growth as well as higher ARPU. ARPU increased approximately $2.80 to $60.90 in the quarter primarily due to a March 2003 price increase, increased customer purchases of local channels, as well as additional fees from the increased number of customers that have multiple set-top receivers. Operating profit before depreciation and amortization for the second quarter of 2003 more than doubled to a record $324.8 million compared to operating profit before depreciation and amortization of $156.6 million in last year's second quarter. The 107.4% increase was due to the additional gross profit gained from the DIRECTV U.S. increased revenue, an improved mix of higher- margin revenues primarily related to increased sales of local channel packages and fees from customers that have multiple set- top receivers, and the favorable impact from a continued emphasis on cost management. Operating profit in the quarter increased to $200.7 million compared to an operating profit of $60.6 million in the second quarter of 2002. The improved operating profit was primarily due to the reasons discussed above for the change in operating profit before depreciation and amortization partially offset by increased depreciation and amortization related to the launch of DIRECTV 5 in May of 2002, and additional infrastructure expenditures made during the last year. Latin America: On March 18, 2003, DIRECTV Latin America, LLC announced that in order to aggressively address the company's financial and operational challenges, it had filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The filing applies only to DIRECTV Latin America, LLC, a U.S. company, and does not include any of its operating companies in Latin America and the Caribbean. DIRECTV Latin America, LLC and its operating companies are continuing regular operations. The DIRECTV service in Latin America lost 35,000 net subscribers in the second quarter of 2003 primarily due to the negative market impact related to the Chapter 11 reorganization and the economic turmoil in Venezuela. The total number of DIRECTV subscribers in Latin America as of June 30, 2003, was approximately 1,493,000 compared to about 1,669,000 as of June 30, 2002, representing a decline of approximately 10.5%. Revenues for DIRECTV Latin America declined to $143 million in the quarter from $227 million in the second quarter of 2002 primarily due to the higher 2002 revenues generated from the World Cup soccer tournament, the devaluation of the Venezuelan and Mexican currencies over the past year, as well as the reduced number of subscribers. DIRECTV Latin America recorded an operating loss before depreciation and amortization of $29 million in the quarter compared to an operating loss before depreciation and amortization of $99 million in the same period of 2002. The operating loss in the quarter was $74 million compared to an operating loss of $148 million in the second quarter of 2002. The smaller operating loss before depreciation and amortization and lower operating loss were primarily due to the $75 million loss associated with the World Cup in 2002 and aggressive cost cutting over the past year including programming cost reductions resulting from the rejection of certain contracts in connection with the Chapter 11 reorganization, partially offset by a decline in gross profit related to the lower revenues. Satellite Services PanAmSat Corporation, which is approximately 81%-owned by HUGHES, generated second quarter 2003 revenues of $203.5 million compared with $209.3 million in the same period of the prior year. The decrease was primarily due to higher occasional-use revenues booked in 2002 related to the World Cup partially offset by additional revenues recorded in 2003 related to PanAmSat's new G2 Satellite Solutions division, which was formed after the acquisition of Hughes Global Services on March 7, 2003. Operating profit before depreciation and amortization for the quarter was $149.3 million and operating profit before depreciation and amortization margin was 73.4%, compared with second quarter 2002 operating profit before depreciation and amortization of $150.7 million and operating profit before depreciation and amortization margin of 72.0%. The decrease in operating profit before depreciation and amortization was primarily due to the lower revenues, partially offset by improved operational efficiencies. PanAmSat generated operating profit of $74.4 million in the second quarter of 2003 compared with operating profit of $61.0 million in the same period of 2002. The improved operating profit was primarily due to reduced satellite depreciation expense partially offset by the operating profit before depreciation and amortization changes discussed above. As of June 30, 2003, PanAmSat had contracts for satellite services representing future payments (backlog) of approximately $5.30 billion compared to approximately $5.46 billion at the end of the first quarter of 2003. Network Systems HNS generated second quarter 2003 revenues of $299.6 million compared with $254.4 million in the second quarter of 2002. The increase was principally due to higher sales of DIRECTVr receiver systems and revenues from the larger DIRECWAY residential and SOHO subscriber base. HNS shipped 750,000 DIRECTV receiver systems in the second quarter of 2003 compared to 512,000 units in the same period last year. Additionally, as of June 30, 2003, DIRECWAY had approximately 166,000 residential and SOHO subscribers in North America compared to 123,000 one year ago, representing an increase of approximately 35.0%. HNS reported an operating loss before depreciation and amortization of $9.2 million compared to an operating loss before depreciation and amortization of $27.0 million in the second quarter of 2002. The operating loss in the quarter was $29.8 million compared to an operating loss of $43.6 million in the second quarter of 2002. The smaller operating loss before depreciation and amortization and operating loss was primarily attributable to a smaller loss in the residential and SOHO DIRECWAY business due to improved efficiencies associated with the larger subscriber base, and increased revenues and margins in the set-top box business. BALANCE SHEET From December 31, 2002, to June 30, 2003, the company's consolidated cash balance increased $2,056.8 million to $3,185.4 million and total debt increased $1,891.0 million to $5,008.8 million. These changes resulted in a decline in net debt of $165.8 million to $1,823.4 million. Net debt is defined as the difference between the consolidated cash balance and the consolidated debt balance of HUGHES. The change in net debt was primarily driven by the strong operational performance at DIRECTV U.S. In the first quarter of 2003, DIRECTV U.S. completed several financing transactions. On February 28, DIRECTV U.S. closed a $1.4 billion senior notes offering. The $1.4 billion senior notes were offered in a Rule 144A / Regulation S private placement and bear interest at an 8.375 percent annual rate, payable semi-annually. The notes will mature on March 15, 2013, and are callable on or after March 15, 2008. The notes are guaranteed by all of DIRECTV U.S.' domestic subsidiaries. On March 6, DIRECTV U.S. closed senior secured credit facilities totaling $1.675 billion. The facilities consist of a $250 million five-year revolving credit facility, a $375 million five-year Term A loan and a $1.05 billion seven-year Term B loan. The Term A loan includes a $200 million delayed draw component. The facilities are secured by substantially all of DIRECTV U.S.' assets and are guaranteed by all of DIRECTV U.S.' domestic subsidiaries. Approximately $2.56 billion of the proceeds from the financings, after transaction fees, were distributed to HUGHES and used by HUGHES to repay $506 million of outstanding short-term debt. These proceeds are expected to fund HUGHES' business plan through projected cash flow breakeven and fund HUGHES' other corporate purposes. As announced on July 15, HUGHES and The Boeing Company reached an agreement whereby HUGHES will pay Boeing $360 million to settle the outstanding purchase price adjustment disputes arising from Boeing's October 2000 acquisition of HUGHES' satellite manufacturing operations. The payment will be made to Boeing in the month of July, 2003. Also subsequent to the end of the second quarter, on July 14, 2003, PanAmSat made an optional prepayment of $350 million under its $1.25 billion credit facility from available cash on hand due to strong financial performance over the past year. The prepayment was applied pro rata against PanAmSat's Term Loan A and Term Loan B. PanAmSat maintains a cash position of over $500 million and an unused credit line of an additional $250 million. Hughes Electronics Corporation is a unit of General Motors Corporation. The earnings of HUGHES are used to calculate the earnings attributable to the General Motors Class H common stock (NYSE: GMH). As reported in Troubled Company Reporter's April 11, 2003 edition, Standard & Poor's Ratings Services revised its CreditWatch listing on Hughes Electronics Corp. and related entities to positive from developing following the company's announcement that News Corp. Ltd., (BBB-/Stable/--) will acquire 34% of the company. The ratings had been on CreditWatch developing, reflecting uncertainty regarding Hughes' future ownership. Following a review of Hughes' operating and financial prospects under its new ownership structure, a ratings upgrade could occur once the deal is completed. However, the magnitude of a potential upgrade may be constrained in light of News Corp.'s minority stake. Ratings List: To From Hughes Electronics Corp. Corporate credit B+/Watch Pos/-- B+/Watch Dev/-- DirecTV Holdings LLC Senior secured debt BB-/Watch Pos/-- Senior unsecured debt B/Watch Pos/-- PanAmSat Corp. Corporate credit B+/Watch Pos/-- B+/Watch Dev/-- Senior secured debt BB-/Watch Pos/-- BB-/Watch Dev/-- Senior unsecured debt B-/Watch Pos/-- B-/Watch Dev- HUGHES: Agrees to 2000 Asset Sale Purchase Price Adjustment ----------------------------------------------------------- Boeing (NYSE: BA) and Hughes Electronics Corporation agreed to a purchase price adjustment stemming from the October 2000 Boeing acquisition of Hughes' satellite manufacturing operations. Under the terms of the agreement, Hughes will pay an aggregate $360 million in cash to Boeing as partial refund on the original $3.75 billion purchase price for the Hughes satellite manufacturing operations, renamed Boeing Satellite Systems. These payments are expected to have no material impact on the company's 2003 earnings. The agreement settles all outstanding purchase price adjustment disputes between the companies stemming from the transaction. In connection with the settlement, BSS and the Hughes Electronics subsidiary Hughes Network Systems agreed to restructure the contract under which BSS is building the Spaceway broadband satellite system. The restructured contract revises certain schedule, technical and insurance provisions. "We are pleased to put these matters behind us and look forward to our continued productive partnership with Hughes, including next year's launch of the first Hughes Spaceway satellite," said Dave Ryan, vice president and general manager of BSS. "This mutually acceptable restructuring of the Spaceway contract serves to emphasize that Boeing and Hughes are continuing to work together closely to achieve program success." Hughes will also release Boeing from its agreement to defray certain Hughes expenses in connection with the two companies' settlement with the U.S. Department of State regarding the China launch issues of the mid-1990s. A unit of The Boeing Company, Boeing Integrated Defense Systems is one of the world's largest space and defense businesses. Headquartered in St. Louis, Boeing Integrated Defense Systems is a $25 billion business. It provides systems solutions to its global military, government and commercial customers. It is a leading provider of intelligence surveillance and reconnaissance; the world's largest military aircraft manufacturer; the world's largest satellite manufacturer and a leading provider of space- base communications; the primary systems integrator for U.S. missile defense; NASA's largest contractor; and a global leader in launch services. INDIANAPOLIS POWER: Fitch Ups Low-B Senior Unsecured Debt Rating ---------------------------------------------------------------- Fitch Ratings has upgraded the following ratings of Indianapolis Power & Light Company (IP&L): -- First mortgage bonds to 'BBB' from 'BBB-'; -- Senior unsecured debt to 'BBB-' from 'BB+'. Fitch has also affirmed IP&L's preferred stocks rating at 'BB+' and its parent IPALCO Enterprises Inc.'s senior unsecured rating at 'BB'. The Rating Outlook for IP&L and IPALCO has been revised to Stable from Negative, reflecting the recent Rating Outlook revision at their ultimate parent The AES Corp. On a standalone basis, IP&L has credit measures and business profile that are comparable to peers in the 'AA' rating category. However, credit ratings of IP&L and its immediate parent IPALCO reflect the ownership by a highly leveraged ultimate parent, AES Corp., (senior unsecured debt rated 'B' by Fitch). The rating constraint of IP&L by AES considers the fact that IP&L is not entirely insulated from the credit risk of its ultimate parent, despite the various existing regulatory and contractual ring- fencing mechanisms that limit IP&L's ability to make upstream dividend payments. Alongside the stabilization of the credit profile of AES at the 'B' level on an unsecured basis, the rating upgrade of IP&L does recognize an additional insulation from AES provided by a recent Indiana Utility Regulatory Commission Order regarding IP&L's dividend policy. Specifically, the IURC Order, expiring in 2006, stipulates that IP&L must file a notice with the IURC 20 days in advance of any dividend disbursement. This notice must include the following items: amount of proposed dividend; amount of dividends distributed over the past 12 months; income statement for the same period; most recent balance sheet; IP&L's capitalization as of the close of the preceding month, as well as a pro-forma capitalization giving effect to the proposed dividend with sufficient detail to indicate the amount of retained earnings following distribution. Fitch believes the intent of the IURC order is not to prevent IP&L from paying future dividends to its parent in the ordinary course of prudent business operations but to ensure that IP&L provides reliable customer service, maintains low rates and retains a strong financial profile. Fitch believes that a continuation of dividend payments in line with historical pay-outs would be highly unlikely, in itself, to lead to a material impairment of IP&L's credit profile, given the current low leverage of the utility. Consequently the ratings of IP&L and of IPALCO are predicated on the assumption that dividend flow, in line with a reasonable band around historical pay-out amounts, will continue over coming years. This assumption also underlies Fitch's analysis for the ratings of ultimate parent AES Corp. As an integrated utility with a reserve margin of around 15%, IP&L enjoys a strong competitive position characterized by low cost generation resulting in one of the lowest rates in the eastern region of the U.S. About 99% of the company's power generated (3,224 MW net summer capability) is coal-fired, and the company's coal supplies are economical and are provided under long-term coal contracts diversified among several Indiana suppliers. IP&L has a fuel adjustment clause that allows the pass through to customers energy costs above $77/MWh. IP&L is burdened by neither uneconomic purchase power contracts, nor any other material stranded costs. Another credit strength is Indiana's reasonably supportive regulatory environment. The Indiana legislature is not expected to pass any electric restructuring legislation in the foreseeable future. Financially, IP&L's projected credit protection ratios will continue to be very strong with EBITDA/Interest coverage expected to lie in the vicinity of 7 times and Debt/EBITDA to increase only slightly to exceed 2002's 1.5x. IP&L's ratings also consider the company's exposure to evolving environmental standards on coal-fired generation and the under- funded status of its pension plans. In the next three years, IP&L plans to spend about $227 million to reduce the NOx emission to meet Environmental Protection Agency-mandated standards. As a result, its internally generated cash flows will not be sufficient to cover capital expenditures in the near term. However, IP&L has access to sufficient liquidity and capital markets to meet these needs. Its short-term liquidity is supported by two bank credit facilities totaling $110 million that expire in mid-2004. IP&L funded $20 million to its pension plan in January 2003 and $25 million in July 2003. Depending on the timing of contributions and other factors, the company anticipates additional program-related cash contributions for pension benefits of approximately $94 million to $124 million through 2005. The ratings of intermediate parent company IPALCO reflect its reliance on dividend payments from its sole subsidiary IP&L to service IPALCO debt obligations and to pay for IPALCO corporate overheads and taxes. In addition, IPALCO does not maintain any committed credit facilities of its own. The $750 million of standalone debt on IPALCO's balance sheet exceeds the $622 million gross debt of operating utility IP&L. Thus, the economic burden of supporting IPALCO's debt-servicing requirements acts as an additional and material, though not incremental, constraint upon IP&L's current ratings. Positively, IPALCO's ability to issue additional debt is limited by its achieving at least investment grade rating status, and to funding necessary or existing business activities, as stipulated by existing IPALCO bond indentures. IP&L is a wholly owned subsidiary of IPALCO Enterprises, Inc., which was acquired by The AES Corporation on March 27, 2001 AES for $2.2 billion through an exchange of shares. IP&L, a regulated public utility, principally engages in providing electric service to 450,000 customers in the Indianapolis metropolitan area. INTEGRATED HEALTH: Wants Lease Decision Time Extended to Sept 30 ---------------------------------------------------------------- As of the Petition Date, Integrated Health Services, Inc., and its debtor-affiliates were parties to more than 1,500 unexpired non- residential real property leases and subleases, including 230 Unexpired Leases relating to facilities in the Long Term Care Division and 200 Unexpired Leases used in connection with the Symphony Division. In connection with the Plan, the Debtors sought and obtained the Court's authority to assume certain of the Unexpired Leases, subject to and conditioned on the occurrence of the Effective Date under the Plan. With respect to all Unexpired Leases which have not been assumed or rejected and are not the subject of a motion to assume or reject pending on the Effective Date, the Plan provides for the "deemed" rejection of those Unexpired Leases after the occurrence of the Effective Date. The Debtors have made a number of assumption/rejection decisions, which will not be final prior to the occurrence of the Effective Date. The Debtors' assumption/rejection decisions with respect to certain of the Unexpired Leases are predicated on the consummation of the Briarwood Agreement and implementation of the Sale Transactions and will not become effective until the occurrence of the Effective Date. The Debtors expected the Plan to be consummated by June 30, 2003. As a result of unanticipated delays, it is now clear that the Plan was not consummated. Given the current status of the reorganization efforts, the Debtors require additional time to preserve the status quo with respect to the Unexpired Leases. Accordingly, by this motion, the Debtors ask the Court to further extend their lease decision period through and including September 30, 2003, without prejudice to their ability to request a further extension after notice and a hearing with respect to a particular Unexpired Lease. Joseph M. Barry, Esq., at Young, Conaway, Stargatt & Taylor, LLP, in Wilmington, Delaware, asserts that the Debtors' Unexpired Leases are an integral part of their business operations. Much of the Debtors' remaining business operations involve providing comprehensive long-term health care services to the elderly and the infirm. These operations necessarily require facilities specifically tailored to the provision of this type of care. Accordingly, the Debtors' determinations to assume or reject the Unexpired Leases must be reasoned and informed. In May 2003, the Plan was confirmed, and the Court approved the conditional assumption of certain Unexpired Leases, contingent on the occurrence of the Effective Date of the Plan. However, given the existing state of uncertainty with respect to whether the Sale Transactions will be implemented and when the Effective Date will likely occur, the Debtors urgently need additional time to reserve final decision on the assumption or rejection of Unexpired Leases. The Debtors hope that these uncertainties will be resolved quickly but believe that a 90-day extension is necessary to allow the Debtors flexibility to exercise reasonable business judgment in determining how best to proceed under the Plan or otherwise. As providers of post-acute and related specialty healthcare services, the Debtors must forfend any inadvertent or forced closure of a long-term care facility that would adversely affect the health and welfare of the facility's residents. Thus, it is important that the status quo be maintained so that the decisions to assume or reject the Unexpired Leases are made in an orderly manner without adverse consequences for the residents. The Debtors have used the prior extensions to make significant progress -- in some cases, by effectuating consensual operations transfers, and in others, by making reasoned economic decisions to assume certain Unexpired Leases and continuing operations at those facilities. Thus, the Court should permit the Debtors to continue to use their business judgment to make the assumption/rejection decisions on a reasonable timetable. Mr. Barry asserts that the Debtors should not be compelled to make precipitous decisions as to lease assumption or rejection and perhaps inadvertently reject a valuable lease or prematurely assume a burdensome lease and incur substantial administrative obligations. Rather, this decisional process must be carried out in a rational and orderly manner so as to benefit the Debtors' estates, their creditors and all other parties-in-interest. It should be noted that the lessors in respect of the Unexpired Leases will not be prejudiced by the requested extension because the Debtors have performed and will continue to perform in a timely manner their postpetition obligations under the Unexpired Leases, except with respect to those obligations, which are the subject of bona fide disputes and any lessor may request the Court to fix an earlier date by which the Debtors must assume or reject its lease in accordance with Section 365(d)(4) of the Bankruptcy Code. Mr. Barry asserts that extending the lease decision period will promote the Debtors' ability to maximize the value of their estates, avoid the incurrence of needless administrative expenses by minimizing the likelihood of an inadvertent rejection of a valuable lease or premature assumption of a burdensome one, and, most importantly, best serve the health and safety of facility residents. The Court will convene a hearing on July 21, 2003 to consider the Debtors' request. By application of Del.Bankr.LR 9006-2, the Debtors' lease decision deadline is automatically extended through the conclusion of that hearing. (Integrated Health Bankruptcy News, Issue No. 61; Bankruptcy Creditors' Service, Inc., 609/392-0900) JACUZZI BRANDS: Fitch Assigns 3 Low-B Facility & Debt Ratings ------------------------------------------------------------- Fitch Ratings has upgraded its indicative senior unsecured rating on Jacuzzi Brands, Inc. to 'B' from 'B-' following the closing of the refinancing of the company's debt. In addition, the following ratings have been assigned to the company's new debt. -- $200 million asset based bank credit facility maturing in 2008 'BB'; -- $65 million term loan due 2008 'BB-'; -- $380 million 9.625% senior secured notes due 2010 'B'. The Rating Outlook is Stable. Proceeds from the new debt have been used to repay outstanding debt under the existing credit facilities and fund the redemption of the company's existing senior notes. Upon redemption of the existing notes, Fitch's 'B' ratings on the company's existing $133 million 11.25% senior secured notes due 2005, $70 million 7.25% senior secured notes due 2006, and $300 million senior secured bank facilities due 2004 will be withdrawn as these issues will have been fully repaid. Borrowers under the asset based revolving credit facility and the term loan include Jacuzzi Brands, Inc. and certain of its domestic operating subsidiaries, USI Global Corp. and Zurn Industries, Inc.. These facilities are guaranteed by all material non-borrower domestic subsidiaries including JUSI Holdings, Inc., USI Atlantic Corp., and USI America Holdings, Inc. The borrower under the senior secured notes is Jacuzzi Brands, Inc. and the notes are guaranteed by all material domestic subsidiaries, including those listed above. JP MORGAN: Fitch Takes Rating Actions on Series 1999-C8 Notes ------------------------------------------------------------- J.P. Morgan Commercial Mortgage Finance Corp.'s mortgage pass- through certificates, series 1999-C8, are upgraded by Fitch Ratings as follows: -- $36.6 million class B to 'AA+' from 'AA'; -- $32.9 million class C to 'A+' from 'A'; -- $14.6 million class D to 'A' from 'A-'; -- $25.6 million class E to 'BBB+' from 'BBB'; -- $11 million class F to 'BBB' from 'BBB-'. In addition Fitch affirms the following classes: -- $123.1 million class A-1 'AAA'; -- $357 million class A-2 'AAA'; -- Interest-only class X 'AAA'; -- $16.5 million class G 'BB+'; -- $20.1 million class H at 'BB-'; -- $23.8 million class J at 'B-'; -- $7.3 million class K at 'CC'. Fitch does not rate the $12.6 million class NR certificates. The upgrades follow Fitch's annual review of the transaction, which closed in August 1999. The upgrades are primarily the result of increased subordination levels due to loan amortization. As of the June 2003 distribution date, the pool's aggregate principal balance has been reduced by 7%, from $731 million to $681 million at issuance. Midland Loan Services, Inc., the master servicer, collected year- end 2002 financials for 71% of the pool balance. Based on the information provided, the resulting YE 2002 weighted average debt service coverage ratio is 1.53 times, compared to 1.38x at issuance for the same loans. Currently, seven loans (5.2%) are in special servicing. Of the seven loans, three are cross-collateralized cross-defaulted Horizon group properties located in Sealy, Texas (1.6%); Gretna, Nebraska (1.1%); and Traverse City, Michigan (0.73%). Negotiations continue for a discounted payoff for the Sealy and Gretna properties and reinstatement of the Traverse City property. Under this agreement, a loss will be incurred to the trust for the DPO. In re-modeling the pool, Fitch applied the expected loss to the trust, as well as various hypothetical stress scenarios. Even under these stress scenarios, the resulting subordination levels were sufficient to upgrade the designated classes. Fitch will continue to monitor this transaction, as surveillance is ongoing. KMART CORP: Takes Action to Challenge 4 Property Tax Claims ----------------------------------------------------------- Kmart Corporation and its debtor-affiliates ask the Court to disallow and expunge four proofs of claim filed by various taxing authorities against Kmart Properties Inc. Alternatively, the Debtors propose to reclassify the Claims as non-priority, general unsecured claims. Four taxing authorities assessed corporate income and franchise taxes, interest and penalties against Kmart Properties based on the royalty payments Kmart Properties received from Kmart Corporation as consideration for certain licenses Kmart Properties granted: Taxing Authority Claim No. Amount ---------------- --------- ------ Iowa Dept of Revenue and Finance 1058 $4,178,288 Louisiana Dept of Revenue 45761 1,833,027 North Carolina Dept of Revenue 31971 36,994,399 South Carolina Dept of Revenue 15403 4,659,589 The Debtors question the tax assessments since Kmart Properties does not have employees or any property and does not conduct business activities in these states. South Carolina's claim also improperly included at least $25,539 in interest that accrued postpetition on its assessments. Louisiana filed its proof of claim on October 2, 2002, after the Claims Bar Date. J. Eric Ivester, Esq., at Skadden, Arps, Slate, Meagher & Flom, relates that the main subject of the dispute is a commercial transaction that was both negotiated and performed entirely within the State of Michigan by two Michigan-based businesses. In 1991, Kmart Properties was incorporated in Michigan as a wholly owned subsidiary of Kmart Corporation. In exchange for all of Kmart Properties' stock, and for the purpose of better managing and exploiting Kmart's intellectual property, Kmart transferred to Kmart Properties its trademarks, trade names, and service marks, including the well-known red "K", "Kmart" and "Blue Light Special". Kmart Properties owned and managed the properties and licensed them to Kmart as its customer in exchange for a royalty. Kmart used the licensed intangibles at the stores it operates in the four states. Kmart Properties' only connection to the four states was the in-state presence of Kmart. The Debtors object to the Claims because the power of a state to tax out-of-state corporations is limited by the Federal Constitution which requires a "substantial nexus" between the corporation and that state as a prerequisite to the imposition of tax. In addition, before a state may tax a corporation, there must exist between the corporation and the state sufficient connections and contacts to constitute a "substantial nexus." Mr. Ivester contends that the Taxing Authorities created various "nexus" theories to extend their taxing powers beyond the limits imposed by the Federal Constitution. The Taxing Authorities have argued that mere "economic presence" is sufficient to satisfy the constitutional mandate -- in effect contending that the "substantial nexus with a physical presence component" standard ought to be applied only to sales and use taxes. Mr. Ivester tells the Court that this argument ignores the reality that a direct-imposition income tax requires at least as tough a jurisdictional standard as a mere collection-obligation sales tax, regardless of any "special burdens" that collection may entail. It also ignores the fact that apportioning a company's income among the 50 states is a more burdensome and complex task than collecting sales taxes, and under the Taxing Authorities' "nexus" theories, a far more uncertain task, Mr. Ivester says. Another possible way to establish nexus is under the "attributional nexus" concept, which is the Supreme Court's narrow doctrine allowing the nexus of an in-state third party to be attributed to the out-of-state corporation. Mr. Ivester argues this doctrine has no application to these four claims because Kmart does not act to establish or maintain a market for licensing of the Kmart trademarks in the four states. Kmart was the customer of Kmart Properties and thus was the market. Mr. Ivester maintains that Kmart Properties does not have a "substantial nexus" with the four states because its only contact with the states is the presence of its customer, Kmart, which uses the intangible property Kmart Properties licensed. The mere presence of a customer in these states does not satisfy the "substantial nexus" requirement. The absence of any physical presence by Kmart Properties is an independent reason why the Taxing Authorities cannot demonstrate the constitutional predicate for asserting the power to tax Kmart Properties. Aside from the fact that no portion of Kmart Properties' income is taxable, Mr. Ivester contends that no portion of the Claims are entitled to priority pursuant to Section 507(a)(8)(A) of the Bankruptcy Code. To obtain priority for any particular income or franchise tax, the Taxing Authorities must show that the taxes related to a return due less than three years before the Petition Date, were assessed within 240 days prepetition or are still assessable, unless Kmart Properties had not filed the required tax returns related to the taxes. But Mr. Ivester points out that: -- with respect to Iowa, the taxes for fiscal years ending January 31, 1996 through 1998 relate to returns due more than three years prepetition and none of the 1992-1998 taxes were assessed during the 240 days prepetition; -- with respect to Louisiana, the taxes for fiscal years ending January 31, 1997 through 1998 relate to returns due more than three years prepetition and none of the 1997-1998 taxes were assessed during the 240 days prepetition; and -- with respect to North Carolina, the taxes for fiscal years ending January 31, 1992 through 1998 relate to returns due more than three years prepetition and none of the 1992-1998 taxes were assessed during the 240 days prepetition. -- with respect to South Carolina, the taxes for fiscal years ending January 31, 1992 through 1998 relate to returns due more than three years prepetition and none of the 1992-1998 taxes were assessed during the 240 days prepetition. Kmart Properties notes that it did not file any tax returns with respect to any of the taxes the Four States have assessed. (Kmart Bankruptcy News, Issue No. 59; Bankruptcy Creditors' Service, Inc., 609/392-0900) KOLATH HOTELS: Case Summary & 20 Largest Unsecured Creditors ------------------------------------------------------------ Debtor: Kolath Hotels and Casinos, Inc. 704 Route 23B Catskill, New York 12414 Bankruptcy Case No.: 03-14640 Type of Business: Operator of the Quality Inn and Conference Center, a 74-room hotel. See http://www.regencyhotelandconferencecenter.com/ Chapter 11 Petition Date: July 9, 2003 Court: Northern District of New York (Albany) Judge: Robert E. Littlefield Jr. Debtor's Counsel: Francis J. Brennan, Esq. Nolan & Heller, LLP 39 North Pearl Street Albany, NY 12207 Tel: 518-449-3300 Total Assets: $1,881,300 Total Debts: $2,286,338 Debtor's 20 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ Zions Bank $1,111,562 PO Box 26304 Salt Lake City, Utah 84126-0304 Abraham George $350,000 118 Elm Lane Manhasset Hills, NY 11040 Insang Lee $220,000 Days Inns Worldwide, Inc. $193,980 Green County Treasurer $68,508 Green County Treasurer $63,461 New York State Dept. of Taxation & Finance $50,000 Safemark Systems $22,000 Clear Channel $18,375 Maintenance Warehouse/America Corp. $17,532 HSBC Bank USA $15,776 Hubert $14,150 Main-Care Energy $12,791 Village of Catskill $11,000 Kahn & Company, Inc. $8,100 True Fitness Technology, Inc. $7,043 Liberty Flag & Specialty Company $6,936 Maintenance USA $6,524 Reliable Office Supplies $6,195 Barco Products $5,465 LAIDLAW INC: Wants to Pay $8.5 Million Fee to Cooper Corporation ---------------------------------------------------------------- To recall, the Court previously authorized the Laidlaw Inc. Debtors to employ Stephen Cooper as Chief Restructuring Officer in accordance with the terms and conditions of the employment agreements with The Stephen F. Cooper Corporation, on August 20, 2001. Pursuant to the employment terms, the Debtors paid Cooper Corporation $225,000 per month for Mr. Cooper's services, and reimbursed Cooper Corporation for reasonable out-of-pocket expenses. Garry M. Graber, Esq., at Hodgson Russ LLP, in New York, relates that the Debtors also agreed to pay Mr. Cooper an $8,500,000 Success Fee after the consummation and implementation of any reorganization plan, provided that the Debtors succeeded in obtaining a final judicial order approving a plan of reorganization under Chapter 11 of the Bankruptcy Code that: (a) does not take advantage of the "cram-down" provisions of Section 1129 of the Bankruptcy Code with respect the Debtors' bank and noteholder creditors; and (b) allows the Laidlaw Companies to continue as a solvent, operating entity. Mr. Graber points out that the ultimate success of the Debtors' Chapter 11 would not have occurred without the numerous significant contributions made by the Restructuring Officers, led by Mr. Cooper. Therefore, the Debtors seek the Court's permission to pay Cooper Corporation the $8,500,000 Success Fee. The diligence and achievements of the Restructuring Officers amply justify payment of the Success Fee in accordance with the terms of the Cooper Employment Agreement. Mr. Cooper's management style, candor and vision fostered a favorable climate for productive negotiations. Economic interests among disparate parties were identified and acknowledged to forge a consensual coalition that led to a successful restructuring strategy. Without the Restructuring Officers' crisis management and problem-solving actions, the Debtors may have been forced to liquidate. Specifically: (a) The severe liquidity crisis forced the Debtors to declare an interest payment moratorium on the prepetition bank credit facility and prepetition notes. When the Restructuring Officers arrived, the Bank Group and the Noteholders' Committee were becoming increasingly frustrated with the Laidlaw Companies. Mr. Cooper immediately recognized the substantial value in restructuring the Laidlaw Companies and convinced the Bank Group and the Noteholders' Committee that once cash flow and operations were stabilized, a considerably larger recovery would be realized. The Officers worked diligently to ensure that the Laidlaw Operating Companies wouldn't have to file Chapter 11 cases by establishing controls over cash management, conserving cash and maximizing cash flow, thus preserving the Laidlaw Companies' substantial enterprise value. (b) Financing was needed to stabilize the liquidity crisis and signal to the market and customer base that the Laidlaw Companies would remain a going concern. The Restructuring Officers' efforts to manage the bondholders' consent process in order to secure bridge financing to the Laidlaw Companies before the Petition Date were instrumental to the overwhelmingly successful consent solicitation. This allowed the Laidlaw Companies to enter into bridge financing that the Restructuring Officers arranged and negotiated and fund the Laidlaw Companies' operations while a restructuring strategy was developed with the creditor constituencies. Simultaneously, obtaining surety bonding support for the Debtors was vital in keeping the Laidlaw Operating Companies out of bankruptcy, thus preserving enterprise value. Due to the Debtors' financial troubles and the surety industry's poor market conditions, surety companies were staunchly opposed to adding any additional capacity to the Laidlaw Companies' existing surety bonding facilities. A lack of surety bonding availability would have crippled the Laidlaw Operating Companies' businesses. In particular, the school bus portion of the contract bus segment, the Debtors' largest business segment, was in the midst of the bidding and contract renewal season. Without surety bonding support during this critical period, the school bus portion of the segment would have collapsed. After intense and extensive negotiations, the Restructuring Officers were able to persuade the Laidlaw Companies' sureties to not only renew the facilities, but to increase the existing facility limits. With the liquidity crisis staved off, the Restructuring Officers were then able to turn their attention to negotiating a plan of reorganization with the Debtors' major creditor constituencies. (c) The Bank Group and the Noteholders' Committee had conflicting and competing positions on the validity, enforceability and effect of the agreement in which Debtor Laidlaw Transportation, Inc. guaranteed obligations under Laidlaw Inc.'s bank credit facility. The ability to finalize a consensual plan of reorganization was impossible without the resolution of the treatment of the Laidlaw Transportation guaranty. The Restructuring Officers' coordinated negotiations among the Bank Group and the Noteholders' Committee cumulating in a settlement that was acceptable to all parties-in-interest. The Laidlaw Companies and the Restructuring Officers also were able to negotiate and finalize a class action litigation settlement on behalf of the Debtors' noteholders. These resolutions were significant steps in completing the Plan. (d) Before the Petition Date, the Debtors were straddled with $3,600,000,000 in defaulted debt. In the initial negotiations to restructure the debt, the Bank Group and the Noteholders' Committee refused to shift from what the Restructuring Officers viewed as a crushing debt load. They were able to demonstrate that the Debtors could not support the proposed debt loads and persuaded the Bank Group and the Noteholders' Committee to accept more equity and less debt at emergence, thus reducing the Debtors' debt load by more than 70%. With the debt load significantly reduced, the Debtors could emerge from Chapter 11 with a strong balance sheet positioned as the industry leader. The Restructuring Officers' roles were crucial in receiving a consensual agreement between the Bank Group and the Noteholders' Committee regarding the appropriate capital structure that allowed for the filing of the Plan. (e) In order to effectuate the Plan, the disputes with Safety-Kleen Corp., in which the Debtors held 44% equity interest and which has filed its own set of Chapter 11 cases, had to be resolved. These negotiations were extremely complicated due to the number of intricate issues and the vast number of parties involved each with a differing agendas. Despite the numerous hurdles, the Debtors and the Officers were able to negotiate and finalize a settlement with Safety-Kleen that was acceptable to all of the Debtors' major creditor constituencies and allowed for a successful emergence from bankruptcy. In addition, Mr. Graber notes that the Restructuring Officers also: -- advised and assisted the Debtors to effectively and efficiently manage the Chapter 11 process. Their assistance in this area allowed the Debtors' management team to: (a) focus on the Debtors' day-to-day operations with minimal interruption; (b) deal expediently with bankruptcy related activities; (c) maintain a concentrated effort on reorganizing the business; (d) avoid duplication of effort; and (e) address the other financial and operational issues raised by various parties-in-interest on a timely basis; -- provided support in developing and negotiating the Plan. As result, the Debtors were able to file the Plan and Disclosure Statement, which was approved and confirmed by the Court and became effective on June 23, 2003; -- provided support in resolving the variety of claims filed against the Debtors in their Chapter 11 cases. Thus, the Debtors were able to resolve all of the significant claims asserted against them and emerge from Chapter 11; -- successfully managed the coordination and communication among the numerous parties-in-interest in the Debtors' Chapter 11 cases. The Restructuring Officers attended and participated in meetings with, developed presentations to, and responded to numerous information requests from, the Debtors' stakeholders. They were the primary communication link and information resource between the Debtors and parties-in-interest including the Creditors' Committee, the Subcommittees and their professionals. These efforts, in part, allowed the Debtors to keep parties fully informed on their operations and the status of the reorganization process. This allowed the Debtors' senior management to focus on operating the business; and -- instituted detailed cash management policies and procedures and monitored actual cash balances against forecast to insure constant liquidity and availability. The Officers assisted the Debtors in improving their cash position by $150,000,000, enabling the Laidlaw Operating Companies to continue operations without filing for Chapter 11 relief, thereby preserving enterprise value to the benefit of the Debtors' estates and creditors. At the request of Laidlaw Inc.'s board of directors, Mr. Cooper and the rest of the Restructuring Officers likewise performed specific activities and functions at the Debtors' wholly owned subsidiary, American Medical Response, Inc. which included: -- evaluating a synergy study regarding American Medical Response and the Debtors' wholly owned subsidiary, EmCare, Inc., and reported findings and recommendations to the board of directors; -- evaluated re-forecasts prepared by American Medical Response and reported findings to the board of directors, senior management of American Medical Response and the Creditors' Committee, the Subcommittees and their professionals; -- developed a process, specific workplans, and participated on teams to achieve identified American Medical Response initiatives aimed at improving information gathering for the accounts receivable and ultimately improving cash flow; -- functioned as interim Chief Financial Officer until a permanent replacement could be identified, and conducted an orderly transition to the new CFO; -- developed methodology and process to extract historical data from two billing systems to be used as a basis for the development of future projections of the accounts receivable. The projections were used to value the current accounts receivable and measure the adequacy of reserves. The accounts receivable reserves had been subject to significant audit adjustments. The implementation of this analysis tool resulted in no significant adjustments for fiscal year 2002; -- transitioned the development of data and preparation of the accounts receivable analysis to American Medical Response personnel and developed processes to perform the analysis on a monthly basis; -- developed an ad hoc reporting system to turn available data into meaningful management tools; and -- developed a process, specific workplans, and participated on teams to identify best practices and make recommendations to senior management to standardize the payroll, financial and information technology processes performed in the operating regions and at corporate headquarters. Accordingly, since the Debtors clearly benefited from all these services, Mr. Graber contends that the Debtors should be allowed to pay Cooper Corporation the Success Fee. (Laidlaw Bankruptcy News, Issue No. 38; Bankruptcy Creditors' Service, Inc., 609/392- 0900) LEAP WIRELESS: Wants Nod for Utility Security Deposit Requests -------------------------------------------------------------- Michael S. Lurey, Esq., at Latham & Watkins LLP, in Los Angeles, California, informs the Court that Leap Wireless International Inc., and its debtor-affiliates received Requests for payments of security deposits from 21 Utility Companies. The Debtors believe that 13 of the Requests are reasonable and will remit the requested security deposit to these Utility Companies or otherwise comply with the request. The Utility Companies with Reasonable Requests are: A. The City of Longmont, Colorado, the City of Newton, the Clinton Utilities Board, Columbia Gas of Ohio, Mountain Telecommunications, Inc., North Georgia Electric Membership Corporation and Southern California Edison are all requesting small deposits which the Debtors will pay once they receive a bill for this amount. B. Arizona Public Service Co. originally requested an additional $65,400 deposit but withdrew that Request once the Debtors agreed to allow Arizona Service to retain a $175,000 prepetition bond. C. Georgia Power and SRP Credit Services request that they be permitted to hold onto the Debtors' prepetition deposits and do not require an additional deposit. D. NYSEG will hold onto the Debtors' $16,010 prepetition deposit and refund the $9,583.39 balance remaining on the account to the Debtors. E. The Springfield Utility Board requested to retain their $875 prepetition deposit. The current deposit on hand is $640.53, so the amount due will be $234.47. The Debtors will pay this amount when they receive a bill from the Springfield Utility Board. F. Consumers Energy originally requested a $12,669.71 deposit because it was using the Debtors' prepetition deposit to satisfy outstanding prepetition invoices. Because the Debtors' have been paying the prepetition invoices, Consumers Energy informed Debtors' counsel that an additional deposit is not required. Some Utility Companies made their Request according to the Procedures but the Debtors view those Requests as unreasonable for a number of reasons, including: 1) the Debtors' history of timely payments for prepetition services; 2) the fact that the applicable Utility Company already has a deposit on hand for the account and an additional deposit is not necessary and, further, is an attempt to capitalize on the Debtors' bankruptcy filing; and 3) the unreasonable calculation of the deposit requested. The Utility Companies with Unreasonable Requests are: A. BellSouth Communications, Inc. seeks a $3,000,000 deposit as adequate assurance, which is four times the amount of the Debtors' prepetition deposit with BellSouth. The Debtors' payment history with BellSouth is good. Notably, BellSouth never sent the Debtors any prepetition disconnect notices or any other notification concerning any late payments. Moreover, BellSouth owes the Debtors $657,594.83 based on prepetition services provided by the Debtors pursuant to reciprocal compensation agreements. In addition, BellSouth was frequently late in making payments to the Debtors. Finally, with regards to the internal telephone accounts the Debtors have with BellSouth, the Debtors are in the process of paying any outstanding prepetition bills. B. United Power, Inc. indicated in its Request that "[p]rior to recent events, Cricket Communication has had no significant history of payment delinquency or irregularity." Because United Power admits that the Debtors' payment history has been good, additional adequate assurances are unnecessary. Moreover, the Debtors are in the process of paying United Power any outstanding prepetition bills. Another five Utility Companies did not request a deposit according to the Procedures. These Utility Companies submitted an untimely request for payment of adequate assurance and did not send the requested summary of the Debtors' prepetition payment history, thereby making it impossible for the Debtors to review whether the Request is reasonable. The Utility Companies making Improper Requests should be deemed to have adequate assurance of postpetition payments. The Improper Requests are: 1. Alabama Power has failed to provide payment history pursuant to the Utility Order. The Debtors' counsel called Alabama Power on May 5, 2003 to request the payment history but has not received it. The Debtors are also paying Alabama Power's outstanding prepetition invoices. 2. AT&T is requesting a $2,700,000 deposit, which is 14 times the amount of the Debtors' prepetition deposit. AT&T has failed to provide payment history pursuant to the Utility Order despite the Debtors' counsel's request. The Debtors are also paying AT&T's outstanding prepetition invoices. 3. Qwest Corporation is requesting $2,270,348.06, which is three times the amount of the Debtors' prepetition deposit. Qwest has failed to provide payment history pursuant to the Utility Order despite the Debtors' counsel's request. The Debtors are also paying Qwest's outstanding prepetition invoices. 4. Time Warner Communications failed to submit the Debtors' payment history. Moreover, Time Warner's Request is untimely. The Debtors are also paying Time Warner's outstanding prepetition invoices. 5. Verizon is requesting $1,098,638 as a deposit. Verizon has failed to provide payment history pursuant to the Utility Order despite the Debtors' counsel's request. Verizon provided only a Receivable/Payables Aging Analysis, which indicates which prepetition invoices are still outstanding which the Debtors are currently paying. By this motion, the Debtors ask the Court to approve the Reasonable Requests and deny the Unreasonable Requests and the Improper Requests. Mr. Lurey insists that the unreasonable requests are not necessary and therefore should be denied. A Utility Company is not entitled to additional adequate assurances simply because it submitted a Request according to the Procedures provided in the Utility Order. Where a debtor has a history of making timely prepetition payments for utility services or the Utility Company already has an adequate deposit on hand, further adequate assurances are not necessary and should not be granted. Where a debtor had been making timely payments prepetition, there is little risk that the debtor will not be timely paid for postpetition service. See, e.g., Va. Elec. & Power Co. v. Caldor, Inc., 117 F.3d 646 (2d Cir. 1997) (holding that no security deposit is needed if a utility company has adequate assurance of payment through other means, such as the availability of administrative expense status in a case in which the debtor had a good payment history and a high degree of liquidity); In re Utica Floor Maint., Inc., 25 B.A. 1010, 1014 (N.D.N.Y. 1982) (noting that cash deposits were deemed unnecessary in cases in which the debtors had not defaulted prior to filing their bankruptcy petitions); Heard v. City Water Bd. (In re Heard), 84 B.R. 454, 459 (Bankr. W.D. Tex. 1987) (holding that even if a request for a deposit was properly made, it may still not be necessary for the debtor to provide additional adequate assurances to the utility company). Mr. Lurey states that a Utility Company should not be able to require the Debtors to provide it with a security deposit when the Utility Company would not require a deposit from customers with the same credit history as the Debtors. To do otherwise would be capitalizing on the Debtors' status as debtors under the Bankruptcy Code. See, e.g., In re Calder, Inc. - NY, 1995 B.A. (S.D.N.Y. 1996) (stating that utility companies may only request additional security from a debtor as they would from any other customer with the financial strength of the debtors and that to do otherwise would permit the utility company to "capitalize on the Debtors' bankruptcy filing"), affd sub. nom Va. Elec. & Power Co. v. Calder, Inc., 117 F.3d 646 (2d Cir. 1997); In re Whittaker, 92 BA. 110, 115 (E.D. Pa. 1988) (stating that the utility company's requirement that the debtor pay a security deposit, while no such payments are required of new customers, is discriminatory), aff'd 882 F.2d 791 (3d Cir. 1989). In fact, Mr. Lurey points out that many of the Utility Companies have made a Request despite the Debtors' good payment history and despite the absence of any concern regarding the Debtors' payment history before the commencement of these Chapter 11 cases. In most cases, the Utility Companies did not request further deposits, send disconnect notices, or otherwise express concern over the Debtors' past payment history before the Petition Date. If the Debtors' prepetition payment history did not cause the Utility Companies to express concern regarding their ability to pay their invoices, the Utility Companies' current Request can only be based on the simple fact that the Debtors commenced bankruptcy cases. Certain Utility Companies allege that a deposit is justified because they are being "compelled" to extend credit to the Debtors without any assurance of payment, unlike other creditors who are not subject to Section 366 of the Bankruptcy Code. Mr. Lurey contends that this argument does not justify their Request for additional adequate assurance as the Debtors are treating the Utility Companies as Critical Trade Vendors. Pursuant to the Critical Trade Vendor Order, the Debtors are authorized to pay outstanding prepetition invoices due to Critical Trade Vendors, of which the Utility Companies are included. By paying the Utility Companies' prepetition claims in the ordinary course of their business, the Utility Companies are put into the exact position they were in before the Petition Date. Given that the Utility Companies will be made whole and will also continue to receive payments for postpetition utility services on an on-going basis, any further adequate assurances are unnecessary and many of the Requests are attempts to capitalize on the Debtors' bankruptcy filing. Further, according to the Critical Trade Vendor Order, before paying a Critical Trade Vendor's prepetition invoices, the Debtors are permitted to require the Critical Trade Vendor "to continue to supply goods or services to Cricket on Customary Trade Terms". Accordingly, if a Utility Company requests a deposit that it would not have requested from the Debtors if they did not file these bankruptcy cases, Mr. Lurey tells the Court that the Debtors will refrain from considering the Utility Company a Critical Trade Vendor and will not remit the outstanding prepetition invoice amount to the Utility Company pursuant to the Critical Trade Vendor Order. For example, several Utility Companies currently have significant deposits already on hand. After the Debtors' bankruptcy filing, these Utility Companies are now requesting an additional deposit without any explanation as to why such a deposit was not required prepetition. In the Debtors' view, these demands, if not withdrawn, disqualify the Utility Company from treatment as a Critical Trade Vendor. The Debtors are in the process of paying BellSouth's outstanding prepetition invoices to the extent they are for internal telephone service accounts. In most cases, as shown in the payment summaries provided by the Utility Companies, Mr. Lurey maintains that the Debtors have a history of making timely prepetition payments to the Utility Companies. For example, United Power, Inc. is requesting further adequate assurances despite its acknowledgement that before the Debtors became debtors under the Bankruptcy Code, "Cricket Communications has had no significant history of payment delinquency or irregularity." There is no reason to believe that the Debtors will not pay their postpetition utility bills in the same manner. Mr. Lurey explains that BellSouth's Request is unreasonable because they are requesting a $3,000,000 deposit, which is four times the size of the deposit BellSouth is currently holding on the Debtors' accounts. BellSouth does not provide any justification as to why a large deposit is required to adequately assure BellSouth that the Debtors will pay their postpetition utility bills. Before the Petition Date, BellSouth had never expressed any concern to the Debtors regarding their payment history and had never sent any disconnect notices or the like. Moreover, the Debtors' payment history with BellSouth has been good. On the other hand, BellSouth's payment history to the Debtors has been extremely delinquent over the last 12 months and further illustrates that BellSouth most likely was not concerned over the Debtors' comparatively excellent payment history until this attempt to capitalize on these Chapter 11 cases. Finally, to the extent the Debtors' accounts with BellSouth are for internal telephone services, the Debtors are paying BellSouth's outstanding prepetition invoices. "The Improper Requests did not follow the Procedures established by the Utility Order and should therefore be denied," Mr. Lurey says. "The Utility Companies that made Improper Requests should be deemed to have adequate assurance under Section 366 of the Bankruptcy Code." (Leap Wireless Bankruptcy News, Issue No. 7; Bankruptcy Creditors' Service, Inc., 609/392-0900) LENTEK INT'L: Case Summary & 20 Largest Unsecured Creditors ----------------------------------------------------------- Debtor: Lentek International, Inc. 700 Commerce Blvd Kissimmee, Florida 34741 Lentek is moving, as of July 17, 2003, to: Lentek International, Inc. 2500 Principal Row, Suite 100 Orlando, FL 32837-8358 Bankruptcy Case No.: 03-08035 Type of Business: Manufactures and sells pest and animal control products. See http://www.lentek.com/ Chapter 11 Petition Date: July 11, 2003 Court: Middle District of Florida (Orlando) Judge: Karen S. Jennemann Debtor's Counsel: Kenneth D. Herron, Jr., Esq. Peter N. Hill, Esq. Wolff, Hill, McFarlin & Herron, PA 1851 West Colonial Drive Orlando, FL 32804 Tel: 407-648-0058 Estimated Debts: $1 Million to $10 Million Debtor's 20 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ Guangdong Light Electrical $393,225 Appliances 16/F, 52 Dezheng Road South Guangzhou, China Essence World Investment Ltd. $258,902 c/o Alphacast Dong Guan Co Ltd Xing Ye Ave New City Ind. Area Heng Li, Dong Guan, Guang Digital Fusion $203,397 Daka Development Ltd. $150,518 DFDS Dan Transport $138,403 Baker & Hostetler LLP $118,830 Marshall Gas C $110,273 Bengal Associates SL $62,700 National Marketing Specialists $58,718 Law Office of Foley & Lardner $56,718 SILIPOS, Inc. $43,737 Clean Air Systems, Inc. $41,356 LRG International, Inc. $36,741 Embassy Freight International $28,980 Tahitian Investments $26,240 Chicago Exhibit $24,997 Allen, Dyer, Doppelt, Malbrath $23,830 Reed Exhibition Companies $23,043 American Express Corp. $21,440 LODGENET: June 30, 2003 Net Capital Deficit Balloons to $121MM -------------------------------------------------------------- LodgeNet Entertainment Corporation (Nasdaq: LNET) reported its 39th consecutive increase in comparative quarterly revenue. Revenue in the second quarter of 2003 increased 6.3 percent to $62.4 million in comparison to the second quarter of 2002. Operating income was $2.1 million this year versus $2.4 million a year earlier. Net loss in the second quarter of 2003 was $13.3 million, which includes a charge of $7.1 million related to the early retirement of the Company's 10.25% Senior Notes in June. "Our second quarter results continue to reflect the strength of our business model and the increasing positive influence of our new digital platform which is now installed in greater than one- third of our interactive room base," said Scott C. Petersen, President and CEO. "Once again, we posted healthy top line revenue growth, despite continued softness across the lodging industry. During the quarter, average revenue per room was up 1.5%, even as the occupancy levels decreased by 230 basis points or 3.4% over last year because of the Iraqi War and the generally sluggish economy." "Given the soft economic conditions, we continued to operate the company in a conservative manner," said Gary H. Ritondaro, Senior Vice President and CFO. "During the quarter, we reduced per-room cash operating expenses to $4.73, a 4.6% reduction over the second quarter of last year. A significant driver of this reduction was our SG&A expense, which at 7.8% of revenue, was below the eight percent threshold for the first time in our company history. Additionally, we reduced the level of additional investment in property and equipment by $4.3 million over the first quarter of this year to maintain a healthy balance sheet during these uncertain economic times. Cash flow from operations covered all but $3.7 million of our investment activity during the quarter -- a substantial improvement over the $11.1 million gap during the second quarter one year ago." "Our new digital platform continues to positively impact our company's growth prospects and financial results," continued Petersen. "Demand for our new digital television services from the hotel industry has been robust and we expect that to continue with the recent launch of our SigNETureTV(SM) platform configuration. Additionally, the new digital platform and its expanded scope of content is continuing to produce substantial growth in usage by guests. Digital revenue per room for the first six months of this year was 39% higher than the revenues generated via our traditional analog system. Now installed in 36% of our guest pay room base, we anticipate bringing digital penetration to 43% by the end of 2003 and 55% by the end of next year. We believe we are well poised for significant growth in revenue and cash flow, as occupancy levels recover and we drive incremental operating leverage through our business model." "Our recent $200 million senior note transaction and the associated modifications to our secured bank credit facility have reduced our cost of capital and have given us greater financial flexibility to manage our business during these uncertain times," continued Ritondaro. "We remain committed to meeting our goal of generating net free cash flow after all capital expenditures for the second half of the year. We believe we have built a business that generates predictable cash flows over the long-term." RESULTS FROM OPERATIONS THREE MONTHS ENDED JUNE 30, 2003 VERSUS THREE MONTHS ENDED JUNE 30, 2002 Total revenue for the second quarter of 2003 was $62.4 million, an increase of $3.7 million, or 6.3%, compared to second quarter of 2002. Revenue from Guest Pay interactive services increased $4.8 million, or 8.5%, resulting from a 6.9% increase in average rooms in operation. Revenue per room increased 1.5% to $22.75 per month in the second quarter of 2003 from $22.42 per month in the second quarter of 2002. Per room revenue from movies decreased 2.6% from $18.20 per month in the second quarter of 2002 to $17.73 in the current year due to a 230 basis point or 3.4% decrease in occupancy levels. Guest Pay revenue per room from other interactive services increased 19.0%, from $4.22 per month in the second quarter of 2002 to $5.02 in the current year quarter, due to the continued expansion of revenue from TV Internet, TV On- Demand, digital music, cable television programming services, and other interactive TV services available with the digital system, which was deployed in an additional 139,000 rooms as compared to the second quarter of 2002. Gross profit increased 2.2% to $34.5 million in the second quarter of 2003 compared to $33.8 million in the second quarter of 2002. The overall gross profit margin decreased to 55.2% in the current quarter compared to 57.5% in the prior year quarter. The decrease was attributable to increased number of sites with the TV Internet service, programming costs and hotel commissions. Guest Pay operations expenses were $7.8 million, in the second quarter of 2003, an increase of 4.5% compared to the year earlier quarter. The increase was primarily due to the 6.9% increase in average rooms in operation, offset in part by greater operating efficiencies. As a percentage of revenue, Guest Pay operations expenses decreased to 12.5% in the second quarter of 2003 compared to 12.7% in the year earlier period. Per average installed room, Guest Pay operations expenses decreased to $2.91 per month in the second quarter of 2003 compared to $2.98 per month in the prior year quarter. Selling, general and administrative expenses were $4.9 million, a level $79,000 below that of the second quarter of 2002. For the quarter, SG&A was 7.8% of revenue compared to 8.4% for the second quarter of 2002. Per average guest pay room, SG&A expenses decreased to $1.82 per month in the second quarter of 2003 compared to $1.98 per month in the prior year quarter. The decrease was attributable to reductions in professional fees partially offset by increases in research and development and payroll-related expenses. Depreciation and amortization expenses increased 4.4% to $19.7 million in the current year quarter versus $18.9 million in the second quarter of 2002. The increase was primarily due to the 6.9% increase in average rooms in operation and the amortization of intangibles and distribution rights acquired in August 2002. As a percentage of revenue, depreciation and amortization decreased from 32.2% in the second quarter of 2002 to 31.6% in the second quarter of 2003. As a result of factors previously described, the Company generated operating income of $2.1 million in the second quarter of 2003 compared to operating income of $2.4 million in the year earlier quarter. Operating income exclusive of depreciation and amortization equaled $21.8 million this year compared to $21.3 million last year in the second quarter. The Company's net loss was $13.3 million as compared to $5.7 million in the year earlier quarter, primarily attributed to a $7.1 million cost related to the early retirement of the Company's 10.25% Senior Notes in June 2003. LodgeNet Entertainment's June 30, 2003 balance sheet shows a working capital deficit of about $6 million, and a total shareholders' equity deficit of about $121 million. 2003 Outlook With regard to financial results for the third quarter of 2003, LodgeNet expects to report revenue of between $66.0 million and $69.0 million, resulting in $2.7 million to $4.2 million in operating income. Operating income exclusive of depreciation and amortization is expected to be $22.5 million to $24.0 million during the quarter. This outlook is based on the assumption of occupancy rates ranging from a plus or minus 100 basis point change versus the same period in 2002. Loss per share estimates are $0.51 to $0.39 for the third quarter of 2003. With respect to the calendar year 2003, LodgeNet expects to report revenue in a range from $254.0 million to $260.0 million and operating income from $6.9 million to $9.9 million. Operating income exclusive of depreciation and amortization is expected to be $86.0 million to $89.0 million. Loss per share estimates are $2.82 to $2.58 for the full year 2003. This outlook is based on the assumption of occupancy rates ranging from a plus or minus 50 basis points of the full calendar year occupancy rate for 2002. LodgeNet Entertainment Corporation -- http://www.lodgenet.com-- is the leading provider in the delivery of broadband, interactive services to the lodging industry, serving more hotels and guest rooms than any other provider in the world. These services include on-demand digital movies, digital music and music videos, Nintendo(R) video games, high-speed Internet access and other interactive television services designed to serve the needs of the lodging industry and the traveling public. As the largest company in the industry, LodgeNet provides service to 960,000 rooms (including more than 900,000 interactive guest pay rooms) in more than 5,700 hotel properties worldwide. More than 260 million travelers have access to LodgeNet systems on an annual basis. LodgeNet is listed on NASDAQ and trades under the symbol LNET. LORAL SPACE: Commences Trading on Pink Sheets Under LRLSQ Symbol ---------------------------------------------------------------- Loral Space & Communications Ltd., announced that the National Association of Securities Dealers had assigned the ticker symbol "LRLSQ" to its common stock. Effective Wednesday, the common stock is quoted on the Pink Sheets Electronic Quotation Service under this new symbol; information regarding such service is available at http://www.pinksheets.com The company expects that its common stock will also be quoted on the Over-The-Counter Bulletin Board service (OTCBB) shortly. As previously announced, the New York Stock Exchange has suspended trading of Loral's common stock and may initiate proceedings to delist the securities. Loral is entitled to request a review of its status with respect to the NYSE and is considering doing so. Loral Space & Communications is a satellite communications company. It owns and operates a global fleet of telecommunications satellites used by television and cable networks to broadcast video entertainment programming, and by communication service providers, resellers, corporate and government customers for broadband data transmission, Internet services and other value- added communications services. Loral also is a world-class leader in the design and manufacture of satellites and satellite systems for commercial and government applications including direct-to- home television, broadband communications, wireless telephony, weather monitoring and air traffic management. For more information, visit Loral's Web site at http://www.loral.com Loral Space & Communications filed for Chapter 11 protection under the Federal Bankruptcy Laws on July 15, 2003 in the U.S. Bankruptcy Court for Southern District of New York (Manhattan). LUCILLE FARMS: Fails to Obtain Waiver of Loan Covenant Default -------------------------------------------------------------- Lucille Farms, Inc. (Nasdaq:LUCYC) a manufacturer and marketer of low moisture mozzarella cheese, low moisture mozzarella type cheese products and shredded cheese, announced its results for quarter and fiscal year ended March 31, 2003. Three Months Ended Year Ended March 31, March 31, 2003 2002 2003 2002 ---- ---- ---- ---- Net Sales $8,524 $10,217 $36,691,000 $44,915,000 (loss) before Extraordinary Item $(571) $(992) ($1,722,000) ($1,540,000) Extraordinary Item: Gain on Debt Restructuring -- -- $875,000 -- Net (loss) Income $(571) $(992) ($847,000) ($1,540,000) The Company's loss before extraordinary item for the quarter and fiscal year ended March 31, 2003 resulted in part from the continued decline of the block cheddar cheese market as reported on the Chicago Mercantile Exchange (CME Block Market). The selling price of the Company's products, as well as products of others in the industry, is a function of this market. In addition to the soft CME Block Market, earnings during the year were negatively impacted by a $350,000 reserve for obsolete inventory ($150,000 of which was incurred in the fourth quarter), a $50,000 increase in the Company's reserve for bad debts due to the bankruptcy of one of the Company's largest customers, $85,000 in legal fees attributable to negotiations in connection with a possible acquisition by the Company, and $55,000 in depreciation adjustments (all of which were expensed in the fourth quarter). Without such charges, the loss in the fourth quarter, prior to the extraordinary item, would have been $231,000 (or $.07 per share), reflecting an improving trend in the business of the Company during the fiscal year. The extent of the improvement in the fourth quarter of 2003 is further highlighted by the fact that the average price per pound for block cheddar cheese on the CME Block Market for such quarter was $.13 lower ($1.12) than the average price per pound for the fourth quarter of 2002 ($1.25). Under comparable circumstances this would have led to a greater loss in the fourth quarter of 2003 than in the fourth quarter of 2002. The improvement primarily was due to the efforts of Jay Rosengarten, who was appointed as chief executive officer of the Company during the year. Under his leadership, the Company has undertaken a number of cost saving steps to make its operations more efficient, and has instituted a quality assurance program to improve the quality of its products. In addition, the Company has begun to implement a selling strategy designed to increase the premiums it gets for its products and eliminate unprofitable customers. These steps have been taken to insure that the Company will be in a position to take advantage of a CME Market that has improved significantly since the beginning of July 2003. The Company also reported that there will be a delay in the filing of its Annual Report on Form 10-K due to the failure to obtain on a timely basis a waiver of a default in the debt service ratio covenant contained in its USDA guaranteed 20-year term loan with First International Bank, N.A. (UPS Capital Business Credit). Jay Rosengarten, CEO stated: "The failure to obtain the waiver prior to filing the Annual Report on Form 10-K would require the Company to report the loan as a current liability as at its fiscal year ended March 31, 2003. This in turn would result in a default in other covenants contained in the loan agreement with the Bank, as well as a default in covenants contained in loan agreements with other banks. Monthly payments of the obligation to the Bank have been made on a timely basis. The Company has been advised by the Bank that the delay in obtaining the waiver stems from the need to obtain approval for the waiver from the USDA and the paperwork involved in the process. We have no reason to believe that the waiver will not be forthcoming." MEGO FINANCIAL: Allan Bentley Appointed as Chapter 11 Trustee ------------------------------------------------------------- The U.S. Bankruptcy Court for the District of Nevada approves the United States Trustee's application for the appointment of C. Alan Bentley as the Chapter 11 Trustee in Mego Financial Corp.'s reorganization proceedings. The U.S. Trustee tells the Court that he consulted the two important parties in interest in these cases: a) Stephen R. Harris, attorney for the Debtors; and b) Michael Richman, attorney for Textron Financial. regarding the appointment of the trustee and talked with them about what type of work the trustee might have to do in the cases. To the best of the U.S. Trustee's knowledge, C. Alan Bentley has no connections with the Debtors, creditors and any other parties in interests in these cases. Mego Financial Corp., headquartered in Henderson, Nevada is in the business of vacation time share resorts sales and management business. The Company filed for chapter 11 protection on July 9, 2003 together with its 4 affiliated entities (Bankr. Nev. Case No. 03-52300). Stephen R Harris, Esq., at Belding, Harris & Petroni, Ltd., represents the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed more than $1 million in assets and $39,319,861 in liabilities. MIDWEST AIRLINES: Restructuring Initiatives Save the Day -------------------------------------------------------- Midwest Express Holdings, Inc. (NYSE: MEH) has averted the necessity of filing for reorganization under Chapter 11 of the Bankruptcy Code. The airline holding company said Wednesday evening that it had achieved its major restructuring objectives including labor cost savings and productivity improvements from its three employee unions, identification of opportunities to enhance productivity for non-represented employees, and renegotiation of aircraft finance agreements. Reaching closure on those items allows the company to move forward with efforts to obtain new financing. MIRANT CORP: Names Robert Dangremond Chief Restructuring Officer ---------------------------------------------------------------- Mirant's board of directors has elected Robert N. Dangremond as chief restructuring officer. Dangremond, a principal with AlixPartners, LLC, will be joined in his restructuring assignment by two other AlixPartners principals, Bettina Whyte and Douglas Werking. In this newly-created position, Dangremond will lead Mirant's efforts to restructure its business following the company's July 14 Chapter 11 filing. Reporting directly to Marce Fuller, president and chief executive officer, Dangremond will serve as the company's primary representative in the bankruptcy process. He will define Mirant's restructuring goals, lead their implementation, and participate in the preparation of a long-term business plan as well as the company's Chapter 11 plan of reorganization. "Bob and his colleagues provide valuable perspective and experience to the Mirant management team as we restructure the company and work to emerge from Chapter 11 stronger and more viable," said Fuller. "Mirant's business has all the essential components to successfully complete a financial restructuring," said Dangremond. "Our ultimate goal is to reshape Mirant so that it can emerge from Chapter 11 with maximum growth potential and opportunity for long- term success." Robert N. Dangremond Mr. Dangremond recently served as the senior vice president and chief restructuring officer at Harnischfeger Industries, Inc., a global manufacturer of mining equipment and pulp and papermaking machinery. Previously, he served as interim chief financial officer of Zenith Corporation. He has been involved in numerous restructurings requiring strategic repositioning of core operations, refinancings, divestitures, aggressive cost reductions and comprehensive working capital initiatives. Bettina Whyte Ms. Whyte's background includes acting as interim crisis manager of a billion dollar, NYSE-listed, diversified health care corporation providing physician management, hospital billing, managed care and the management of clinics and HMOs; advising the management of a national computer retailer on a successful turnaround and sale of the business; and, development of a comprehensive business plan and loan renegotiation strategy that kept a $300 million waste management company out of Chapter 11. Douglas Werking Mr. Werking specializes in financial restructurings and operational turnarounds. He is currently completing an assignment as restructuring advisor at Burlington Industries, Inc. and previously served as a turnaround and restructuring advisor to Fruit of the Loom, Ltd., and chief financial officer of Peregrine, Inc. an automotive parts manufacturer during their out of court restructuring. On July 14, Mirant filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Additionally, on July 15 certain of the company's Canadian subsidiaries filed an application for creditor protection under the Companies Creditors' Arrangement Act (CCAA) in Canada. Mirant Corp., Mirant Americas Generation, LLC, and substantially all of the companies' wholly- owned subsidiaries in the United States are included in the Chapter 11 filings. Excluded from the filings are the company's operations in the Philippines and the Caribbean. Mirant is a competitive energy company that produces and sells electricity in North America, the Caribbean, and the Philippines. Mirant owns or controls more than 22,000 megawatts of electric generating capacity globally. We operate an integrated asset management and energy marketing organization from our headquarters in Atlanta. For more information, visit http://www.mirant.com MIRANT: Begins Trading Common Stock & Preferreds on Pink Sheets --------------------------------------------------------------- Mirant announced that its common stock and Mirant Trust I 6.25 percent Convertible Trust Preferred Series A securities will be quoted on Pink Sheets. The new stock symbols are MIRKQ for the common stock, and MIRPQ for the trust preferred securities. Pink Sheets is a daily listing of bid and ask prices for over-the- counter (OTC) stocks not included in the daily OTC bulletin board. Quotes can be found at http://www.pinksheets.com Mirant's stock may be traded OTC at some point during its Chapter 11 proceeding. Mirant will be eligible for OTC trading when its Securities and Exchange Commission filings become current. Mirant's new stock symbols may be changed if its stock becomes eligible for OTC trading. On July 15, the New York Stock Exchange announced that it suspended trading in both Mirant common stock and its trust preferred securities. The NYSE then announced its intent to delist the securities. Delisting is a process that normally takes several weeks. Under NYSE procedures, Mirant has the right to appeal the decision but may elect to decline. Until a plan of reorganization for Mirant's Chapter 11 proceeding has been developed, the treatment of existing creditor and stockholder interests in the company cannot be determined. Mirant is a competitive energy company that produces and sells electricity in North America, the Caribbean, and the Philippines. Mirant owns or controls more than 22,000 megawatts of electric generating capacity globally. We operate an integrated asset management and energy marketing organization from our headquarters in Atlanta. For more information, visit http://www.mirant.com MIRANT: Wants to Honor Up to $5.2MM of Critical Vendor Claims ------------------------------------------------------------- Mirant Corp. and its dozens of debtor-affiliates ask the Bankruptcy Court for permission to pay up to $5.2 million of prepetition amounts owed to critical vendors. The Debtors tell the Court that the amount is a fraction of one percent of the total $9 billion pool of unsecured debt and about 1.3% of $400 million owed to trade creditors. The Debtors ask the Court for permission to pay prepetition claims held by Critical Vendors that fall into five specific categories: (A) Shipping Obligations The Debtors receive and store fuel to operate their power plants and for resale to third parties. Continued delivery of fuel is essential. If the process is interrupted, power plant operations come to a halt and national electrical service may be disrupted. Power plants, Mirant tells Judge Lynn, can't be turned on and off at the mere flip of a switch. Coal comes by rail, gas and oil reserves are stored in third- party tanks, and spare parts are stored in third-party warehouses. The Debtors have to pay for these goods and services at a rate of about $2 million a week. Many of the carriers and storage facilities have statutory liens on the goods. (B) Essential Services The Debtors receive four types of essential services from sole- source vendors that impact employee safety and infrastructure integrity: -- permitting and environmental compliance services; -- emergency equipment and maintenance personnel; -- security, fire and alarm services; and -- water treatment. (C) Regulatory Compliance Vendors In the ordinary course of business, the Debtors rely on a number of Critical Vendors to assist in complying with applicable governmental laws and regulations, including regulated waste disposal and recycling. Payment of these vendors' claims will avoid fines and penalties or, at worst, closure of a facility. (D) Equipment Maintenance Vendors Boilers, turbines, cranes, motors, computers and other equipment in the Debtors' facilities must function properly and at peak performance. They require routine maintenance, cleaning and repair, and the Debtors believe many equipment maintenance vendors will refuse to provide postpetition goods and services is all or a portion of their prepetition claim is not paid. (E) Security, Fire and Alarm Services and Water Treatment If the Debtors don't pay amounts owed to sole-source security companies, fire and alarm service providers and water treatment facilities, proper and safe functioning of the Debtors' facilities is placed in jeopardy. The Debtors also ask for authority to pay up to $150,000, provided no single vendor is paid more than $25,000 and on 5 days' notice to the Court, the U.S. Trustee and counsel to the Debtors and any official committees, to any prepetition vendor the Debtors conclude is critical. The Doctrine of Necessity The ability of a Bankruptcy Court to authorize the payment of a prepetition debt when it'll facilitate rehabilitation of a debtor is not a novel concept, Robin Phelan, Esq., at Haynes & Boone, LLP, argues. The U.S. Supreme Court endorsed the equitable common law principle now dubbed the Doctrine of Necessity more than 100 years ago in Miltenberger v. Logansport, C. & S.W.R. Co., 106 U.S. 286, 1 S.Ct. 140, 27 L.Ed. 117 (1882). printiplae Judge Lifland in Mantalked about it years ago in In re Ionosphere Blubs, Inc., 98 B.R. 174 (Bankr. S.D.N.Y. 1989). The Northern District of Texas endorsed payment of critical vendor claims outside a plan of reorganization in In re CoServ, L.L.C., 273 B.R. 487 (Bankr. N.D. Tex. 2002). There is one recent decision in the Kmart bankruptcy case in which the court ruled that traditional critical vendor relief was not appropriate in that case. Capital Factors, Inc. v. Kmart Corp., 291 B.R. 818 (N.D. Ill. 2003). Mirant would argue that that the Kmart decision, which is not controlling in the Fifth Circuit, is inapposite here. Kmart sought authority to pay certain prepetition obligations to trade creditors that supplied goods to Kmart stores. Id. These creditors included, inter alia, egg and dairy vendors and liquor distributors. Id. at 820. While the supply of eggs, milk and alcoholic beverages may have enhanced the sundries offered by Kmart and possibly increased customer traffic at Kmart's stores and/or increased sales revenues, such items can hardly be considered "critical" when compared to the goods/services provided by the prepetition vendors that the Debtor has identified as critical. Further, such fungible goods could have been obtained by Kmart from other dairy farmers and liquor distributors, albeit presumably on less favorable terms. Id. Here, the critical vendors of the Debtor are truly "critical" in the most fundamental sense. Mirant's critical vendors are not mere suppliers of fungible goods easily obtainable on the open market from a host of generic vendors. Rather, these vendors provide unique, highly specialized services which are necessary to protect the environment, comply with environmental and energy restrictions at the local and federal level, and maintain adequate wholesale energy supplies which are ultimately enjoyed by thousands of businesses and consumers without disruption. Moreover, due to the highly specialized nature of the goods and services provided to the Debtor by these vendors, competing vendors or alternative options are practically nonexistent in areas in which the Debtor's facilities are located. Accordingly, the truly critical nature of the goods and services supplied by these vendors to the Debtor requires unique protection, in contrast to the goods not deemed critical in Kmart. (Mirant Bankruptcy News, Issue No. 1; Bankruptcy Creditors' Service, Inc., 609/392-0900) MOSAIC GROUP: Canadian Court Further Extends CCAA Stay to Aug 15 ---------------------------------------------------------------- Mosaic Group Inc. (TSX:MGX) has sought and obtained from the Ontario Superior Court of Justice an order granting it and certain of its Canadian subsidiaries an extension of protection under the Companies' Creditors Arrangement Act (Canada) to and including August 15, 2003. The order of the Ontario Superior Court of Justice also accepted and approved the report dated July 9, 2003 of KPMG Inc., in its capacity as monitor of the Company. A copy of the report will be filed by the Company with the Canadian securities regulators and will be available at their Web site at http://www.sedar.com In December, 2002, the Company and certain of its Canadian subsidiaries and affiliated companies obtained an order from the Ontario Superior Court of Justice under the Companies' Creditors Arrangement Act (Canada) to initiate the restructuring of its debt obligations and capital structure. Additionally, certain of the Company's US Subsidiaries commenced proceedings for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Texas in Dallas. Pursuant to these filings, the Company and its relevant subsidiaries continue to operate under a stay of proceedings. NATIONAL EQUIPMENT: Looks to FTI Consulting for Financial Advice ---------------------------------------------------------------- National Equipment Services, Inc., and its debtor-affiliates seek permission from the U.S. Bankruptcy Court for the District of Illinois to bring-in FTI Consulting as Financial Advisors in these chapter 11 cases. The Debtors selects FTI based on its experience and expertise in providing financial advisory services in Chapter 11 cases. The Debtors believes that FTI is well qualified and uniquely able to provide financial advisory services to them in these cases in an efficient manner. The Debtors submit that they need a financial advisor to assist them in a variety of matters in the operation of the Debtors' businesses during these Chapter 11 cases. In its capacity, FTI will provide financial advisory services including: a. assistance in the preparation and review of reports or filings as required by the Bankruptcy Court or the Office of the United States Trustee, including but not limited to schedules of assets and liabilities, statement of financial affairs and monthly operating reports; b. assistance in the preparation and review of financial information for distribution to creditors and other parties-in- interest, including but not limited to analyses of cash receipts and disbursements, financial statements, and proposed transactions for which Bankruptcy Court approval is sought; c. assistance with implementation of bankruptcy accounting procedures as required by the Bankruptcy Code and generally accepted accounting principles, including Statement of Position 90-7; d. assistance in preparing business plans, budgets, and analyzing the business and financial condition of the Debtors; e. assistance in evaluating reorganization strategies and alternatives; f. available to the Debtors, including the sale of Debtors' assets; g. assistance in developing the Debtors' financial projections and assumptions; h. preparation of enterprise, asset and liquidation valuations; i. assistance in preparing documents necessary for confirmation of a plan of reorganization, including financial and other information contained in the plan of reorganization and disclosure statement; j. advice and assistance to the Debtors in negotiations and meetings with any official creditors' or equity committees and other creditors or equity holders; k. expert witness testimony regarding plan of reorganization feasibility, avoidance actions or other matters; and l. other financial and restructuring advisory services as may be provided at the Debtors' or the counsels' request to assist the Debtors in their business and reorganization. John Esposito, Senior Managing Director of FTI tells the Debtors that his firm's current hourly rates are: Principals $550 to $625 per hour Consultants $290 to $525 per hour Support Staff $75 to $190 per hour National Equipment Services, headquartered in Evanston, Illinois, rents specialty and general equipment to industrial and construction end users. The Company filed for chapter 11 protection on June 27, 2003 (Bankr. N.D. Ill. Case No. 03-27626). James A. Stempel, Esq., at Kirkland & Ellis, represents the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed debts and assets of over $100 million each. NATIONAL STEEL: Reaches Settlement Pact on Retirees' Benefits ------------------------------------------------------------- National Steel Corporation (OTC Bulletin Board: NSTLB) and the Official Committee of Salaried Non-Represented Retirees of National Steel Corporation have entered into a settlement agreement regarding the modification of medical benefit and life insurance coverage of Retirees. Under the terms of the settlement agreement, National Steel will stop paying premiums for Retiree's health and life insurance plans on July 31, 2003. Retirees will have a choice of (a) paying for the continuation of their existing medical coverage through October 31, 2003, (b) paying for employer- sponsored medical coverage with both reduced rates and benefits, or (c) finding their own medical coverage. Information packets are being mailed to retirees shortly and educational sessions are being planned for July. The second medical coverage option offered by National Steel satisfies many of the Committee's concerns about offering affordable, continuing medical coverage including prescription drugs with no pre-existing condition limitations. Committee spokesperson, former National Steel executive Leon Judd, stated that "Offering the second medical coverage option as an employer sponsored plan addresses the Retiree Committee's concerns about offering an alternative to existing medical coverage, which will be available to all Retirees regardless of their state of residence on a continuing basis. Offering a choice of alternatives permits those Retirees most in need of their current benefit level to elect to continue it for a period of time, while presenting a more affordable option with reduced benefits to those Retirees unable to afford continuing their present level of benefits. In addition, the offering addresses the Retirees' desire to maintain continuous coverage and positions the Retirees to take advantage of the Health Coverage Tax Credit established by the Trade Act of 2002. By addressing these needs, National Steel and the Retiree Committee have made the most of limited resources in a difficult situation." The Retiree Committee was formed pursuant to Section 1114 of the Bankruptcy Code to act as the authorized representative of National Steel's non-union, salaried retirees with respect to their medical and life insurance benefits. National Steel sold substantially all of its assets to U.S. Steel in May, and is winding down its business. Press inquiries can be addressed to Committee Spokesperson Leon Judd at leonjudd@msn.com NATIONAL STEEL: Wants to Implement Liquidation Retention Program ---------------------------------------------------------------- Early in National Steel Corporation and its debtor-affiliates' Chapter 11 cases, the Court approved an employee retention and severance program designed to minimize management and other key employee turnover by providing incentives. The initial program included four separate components: (a) A retention program covering 95 key employees; (b) A severance program covering 1,500 non-union employees without employment contracts; (c) A severance program covering 11 key executive officers and nine other key management employees with prepetition employment contracts; and (d) Continuation of a prepetition deferred compensation plan. After the Sale of the Debtors' assets to United States Steel Corporation, substantially all of their employees have either become employees of U.S. Steel or have been terminated. Excluding those employees administering certain of their pension plans on behalf of the Pension Benefit Guaranty Corporation, the Debtors' continuing workforce is comprised of 26 individuals requested to remain with the Debtors. The Debtors acknowledge that these remaining employees and their collective expertise and knowledge to efficiently wrap up the estates' affairs are essential to the successful wind-down of the Debtors' business in a manner that maximizes the recovery to creditors. To ensure that the employees will continue to work for a liquidating estate and to complete the tasks that remain for these estates, the Debtors decided to implement a Liquidation Retention Program. Although continuing to work for them does not provide job security and typical employee bonuses, the Debtors propose that under the Liquidation Retention Program, each employee would receive a single liquidation retention payment equal to the employee's annual base salary prorated for the amount of time the employee remains with the company after June 1, 2003. The Debtors believe that this structure would encourage an employee to remain with them as long as needed, because if an employee leaves early for another job, the entire Liquidation Retention Program is forfeited. By this motion, the Debtors seek the Court's authority to implement the Liquidation Retention Program for their remaining employees. According to Mark A. Berkoff, Esq., at Piper Rudnick, in Chicago, Illinois, each employee's Liquidation Retention Payment would be paid on the date that the Debtors terminate the employee without cause. Employees who are terminated for cause or who resign before termination would not be entitled to any payments under the program. Mr. Berkoff explains that any payment due under the Liquidation Retention Program is additive to payments that an employee may be entitled to under the Initial Program, and the Liquidation Retention Program will not be deemed to alter or modify the previously approved program in any way. The Debtors and the employees have also agreed that any payments that remain due under the Initial Program will not be paid unless and until the employee is eligible to receive a payment under the Liquidation Retention Program. Mr. Berkoff says that the proposed payments under the Liquidation Retention Program are "extremely modest for a case of this magnitude -- less than $2,000,000 in the aggregate." (National Steel Bankruptcy News, Issue No. 32; Bankruptcy Creditors' Service, Inc., 609/392-0900) NEXTEL COMMS: 2nd Quarter Fin'l Results Show Strong Performance --------------------------------------------------------------- Nextel Communications, Inc. (NASDAQ:NXTL), announced record financial results for second quarter 2003 including income available to common stockholders of $281 million. Revenue was $2.6 billion, a 19% increase over last year's second quarter. Operating income before depreciation and amortization was $1.0 billion for the second quarter, increasing by 23% over the second quarter of the prior year. Bolstered by improved customer satisfaction, Nextel added approximately 591,000 subscribers during the second quarter, bringing total subscribers to 11.7 million at June 30. "This quarter represents Nextel's strongest performance to date," said Tim Donahue, Nextel's president and CEO. "We are delivering on every front and producing record earnings, record subscriber additions and garnering the most valuable customers in the industry. Nextel continues to attract and retain the most valuable customers in the industry due to our differentiated wireless products and services, our targeted sales approach and our enhanced back office systems. Additionally, our Nationwide Direct Connect rollout is almost complete, and the 6:1 vocoder, which will nearly double the cellular capacity of our network, is coming soon. The positive trends we're experiencing bode well for Nextel for the balance of the year and we've raised our guidance accordingly." "Nextel is gaining an increasing share of the best subscribers in the wireless marketplace," said Tom Kelly, Nextel's executive vice president and COO. "I'm especially pleased with our improved customer retention rate which is a testimony to the satisfaction our customers have with Nextel. Our new products and services, network quality, and our customer touchpoint strategy are driving impressive results on all fronts. Nextel's recently announced exclusive 10-year partnership with NASCAR is unique in professional sports and representative of our innovative approach to our current and prospective customers. I am quite optimistic about the future." Nextel's average monthly service revenue per subscriber (ARPU) was approximately $69 for the second quarter, up from $67 in the first quarter and significantly higher than estimates for other national wireless carriers. Customer churn was approximately 1.6% for the second quarter of 2003, the best since 1998. "Our operating trends once again translated into superior results," said Paul Saleh, Nextel's executive vice president and CFO. "We've turned in record results this quarter including operating income before depreciation and amortization of $1.0 billion with a 42% margin, and free cash flow grew to $314 million. We are ahead of our expectations, and have thus revised upward our financial guidance for the full year. Additionally, our consistently strong operating performance and substantial liquidity position continue to allow us to de-lever the balance sheet. Including the series D preferred stock which was called on July 15, we have retired approximately $4.3 billion in debt and preferred stock since the first quarter of 2002, enabling the company to avoid approximately $7.1 billion in principal, interest and dividend obligations." For the quarter ended June 30, 2003, Nextel retired $131 million in principal amount of its outstanding debt and mandatorily redeemable preferred stock in exchange for approximately $137 million in cash. Additionally, on July 15, 2003 Nextel redeemed $375 million in principal amount of the series D mandatorily redeemable preferred stock which was outstanding at the end of the second quarter. Nextel may from time to time as it deems appropriate enter into other transactions, which in the aggregate may be material. Capital expenditures for the second quarter 2003 were $402 million - down 10% from second quarter 2002 capital expenditures of $448 million. Total minutes of use on the Nextel National Network grew by 34% in the second quarter to 24.5 billion compared with the prior year's second quarter. 2003 Guidance (Revised to reflect positive business trends through mid-year) Nextel is revising its guidance upward. This guidance is forward- looking and is based upon management's current beliefs as well as a number of assumptions concerning future events and as such, should be taken in the context of the risks and uncertainties outlined in the Securities and Exchange Commission filings of Nextel Communications Inc. The new guidance is: -- Free cash flow of $600 million or more - up from $500 million -- Earnings per share of $1.00 or more - up from at least $0.75 -- Operating income before depreciation and amortization of $3.9 billion or more - up from $3.8 billion -- Capital expenditures of $1.8 billion or less - unchanged -- Net subscriber additions (excluding Boost Mobile) of 1.9 million or more - up from 1.7 million Nextel Communications, a Fortune 300 company based in Reston, Va., is a leading provider of fully-integrated wireless voice and data communications services including NEXTEL(R) high quality digital cellular services and two-way messaging services; NEXTEL DIRECT CONNECT(R)--the long-range digital walkie-talkie feature; NEXTEL ONLINE(R) wireless data content and business solutions. Nextel and Nextel Partners, Inc. have built the largest guaranteed all- digital wireless network covering 198 of the top 200 U.S. markets. Nextel's wireless voice and packet data communications services are available today in areas of the U.S. where approximately 240 million people live or work. * * * As reported in the Troubled Company Reporter's March 12, 2003 edition, Fitch Ratings revised the Rating Outlook on Nextel Communications Inc. to Positive from Stable. The Positive Outlook applies to Nextel's senior unsecured note rating of 'B+', the senior secured bank facility of 'BB' and the preferred stock rating of 'B-'. The Positive Outlook reflects Fitch's view that favorable financial and operating trends will continue over the next several quarters based on the positive momentum produced from the three factors during 2002: -- The significant improvement in operating performance through strong cost containment, low churn and solid ARPUs despite a somewhat unfavorable climate within the wireless industry and a weak economic environment. -- The reduction in financial risk due to the repurchase of $3.2 billion in debt and associated obligations. -- A strong competitive position relative to other operators due to the unique push-to-talk application that allows Nextel to target higher-value and lower churn business users. NORTHWEST AIRLINES: Joins Sabre Travel DCA Three-Year Option ------------------------------------------------------------ Sabre Travel Network, a Sabre Holdings (NYSE: TSG) company, announced that Northwest Airlines (Nasdaq: NWAC) has joined the Sabre Direct Connect Availability (DCA) Three-Year Option. This program commits the carrier to a three-year term at the highest level of participation in the Sabre global distribution system in exchange for a reduced booking fee rate fixed for three years. "Participating in the Sabre DCA Three Year program enables Northwest Airlines and KLM to meet the important goal of lowering distribution costs while serving travelers through multiple channels," said Al Lenza, vice president of distribution and e- commerce with Northwest Airlines. "This new initiative demonstrates Northwest's efforts to make all our publicly available fares and content available where it is economically viable for us to do so." In the Sabre GDS, airlines sign a participating carrier agreement enabling them to choose from one of several optional levels of connectivity to the system. DCA is the highest level and provides airlines with a wide range of services to market and sell their flight and fare information. Through the Sabre DCA Three-Year Option, airlines agree to provide access to all published fares to all Sabre GDS users, including Sabre Connected online and offline travel agencies. This includes published fares that the airlines sell through any third-party Web site and through their own Web site and reservation offices. The airlines also furnish generally the same customer perks and amenities to passengers booked through the Sabre GDS as those afforded through other GDS's and Web sites. Sabre Travel Network provides participating airlines with a reduction to their current applicable DCA booking fee. "The Sabre DCA Three-Year Option is a win-win for all parties," said John Stow, president of Sabre Travel Network. "Northwest lowers distribution costs, agencies enhance customer service, travelers gain access to all Northwest fares through the channel of their choice and Sabre Travel Network gains a three year commitment from the airline." Sabre Travel Network, a Sabre Holdings company, provides access to the world's leading global distribution system and products and services enabling agents at more than 56,000 agency locations worldwide to be travel experts. About 35 percent of the world's travel is booked through the Sabre GDS. Originally developed in 1960, it was the first system to connect the buyers and sellers of travel. Today the system includes more than 400 airlines, approximately 60,000 hotels, 53 car rental companies, nine cruise lines, 36 railroads and 232 tour operators. Sabre Holdings Corporation (NYSE: TSG) is a world leader in travel commerce, retailing travel products and providing distribution and technology solutions for the travel industry. More information about Sabre Holdings is available at http://www.sabre-holdings.com/ Northwest Airlines is the world's fourth largest airline with hubs at Detroit, Minneapolis/St. Paul, Memphis, Tokyo and Amsterdam, and approximately 1,500 daily departures. With its travel partners, Northwest serves nearly 750 cities in almost 120 countries on six continents. In 2002, consumers from throughout the world recognized Northwest's efforts to make travel easier. A 2002 J.D. Power and Associates study ranked airports at Detroit and Minneapolis/St. Paul, home to Northwest's two largest hubs, tied for second place among large domestic airports in overall customer satisfaction. Readers of TTG Asia and TTG China named Northwest "Best North American airline." For more information pertaining to Northwest, visit its Web site at http://www.nwa.com As reported in Troubled Company Reporter's May 22, 2003 edition, Fitch Ratings assigned a rating of 'B' to the $150 million in convertible senior unsecured notes issued by Northwest Airlines Corp. The privately-placed notes carry a coupon rate of 6.625% and mature in 2023. The Rating Outlook for Northwest is Negative. The 'B' rating reflects continuing concerns over Northwest's capacity to deliver the substantial improvements in operating cash flow that will be necessary if the airline is to meet growing cash financing obligations (interest, scheduled debt and capital lease payments, rents and required pension plan contributions). In light of the weak business travel demand environment that clouds prospects for a quick rebound in industry unit revenue, Northwest's future liquidity position will be influenced primarily by the company's success in negotiating labor cost reductions with its unionized employees. While the dialogue with labor is ongoing, there are no signs that a substantial reduction in labor costs is imminent. NRG ENERGY: Earns Nod to Continue Existing Investment Practices --------------------------------------------------------------- After due deliberation, U.S. Bankruptcy Court Judge Beatty authorizes the NRG Energy Debtors to invest and deposit funds in accordance with Section 345 of the Bankruptcy Code. Specifically with respect to the Wells Fargo Overnight Investment Account and short-term investment account, Account Nos. 11-11-984 and 02146892, Judge Beatty authorizes the Debtors to invest the funds in agreements to repurchase treasury direct securities, and up to $10,000,000 in agreements not utilized prior to the Petition Date. Furthermore, the Court permits the Debtors to continue their current investment practices at the Bank of New York with respect to the accounts of Finance Company I currently invested in commercial paper, for two weeks from July 7, 2003, by which date Finance Company I will reinvest the funds in direct treasury obligations or other investments in accordance with Section 345(b) guidelines of the Bankruptcy Code. (NRG Energy Bankruptcy News, Issue No. 6; Bankruptcy Creditors' Service, Inc., 609/392-0900) OWENS & MINOR: Reports Improved Second Quarter 2003 Performance --------------------------------------------------------------- Owens & Minor (NYSE: OMI) reported that sales for the second quarter ended June 30, 2003, were $1.05 billion, up 8 percent, or $74.9 million, compared to the second quarter last year. Earnings per diluted common share were $0.37, up 19 percent in comparison to $0.31 for the prior year quarter. For the same period, net income grew 18 percent to $13.6 million. "These are truly outstanding results for the second quarter and year-to-date," said G. Gilmer Minor, III, chairman and chief executive officer of Owens & Minor. "This momentum started in the third quarter last year, and continues. We continue to grow our business by penetrating existing accounts, thereby leveraging our current cost structure and improving productivity. We have also added some new business. What I love most is the spirit of our teammates, which is the engine that drives the train. We will work hard to have an excellent second half as well." Other Second Quarter Results For the second quarter 2003, operating earnings remained consistent at 2.5 percent of net sales, compared to 2.5 percent in the same period of last year, even as the company made considerable investments in its strategic initiatives. This consistency in operating earnings resulted from strong sales trends, balanced by core business productivity improvements. The productivity improvements were demonstrated by gains in operating measurements such as lines picked per hour, sales per teammate, and sales per square foot of distribution space. Gross margin was 10.5 percent of net sales, down slightly from gross margin of 10.6 percent from the prior year quarter. Selling, general and administrative expenses (SG&A) were better than anticipated at 7.7 percent of net sales. Asset management was strong for the second quarter, with significant improvement in days sales outstanding (DSO), and resulted in cash flow from operations of $34.8 million. Strong cash collections drove the improvement in DSO to 28.0 from 33.4 at the end of second quarter of 2002. Inventory turns for the quarter remained steady at 9.9 compared to 10.0 in last year's second quarter. "Sales have continued to increase this quarter, largely as a result of our ability to grow our strong relationships with existing customers," said Craig R. Smith, president and chief operating officer of Owens & Minor. "At the same time, we managed our expenses very effectively with productivity improvements in the field operations, even as we made investments in our strategic initiatives. Also, during the quarter we signed a number of significant agreements that will move each of our strategic initiatives forward. Our team is rising to the opportunities we are seeing in the healthcare marketplace." Year-to-Date Results For the six months ended June 30, 2003, sales were $2.07 billion compared to $1.95 billion for the comparable period in 2002, an increase of 6.5 percent. Net income was $26.5 million, up 19 percent from $22.3 million in the comparable period of 2002. Year- to-date, EPS was $0.72 compared to $0.60 in 2002, an increase of 20 percent. Year-to-date, operating earnings were 2.5 percent of net sales, unchanged from the corresponding period in 2002, while both gross margin of 10.6 percent and SG&A of 7.7 percent were consistent with the comparable period of 2002. Cash flow from operations year-to-date was strong at $114.9 million. Updated Outlook for 2003 Due to encouraging sales results and strong year-to-date performance, Owens & Minor is raising its financial guidance for 2003. The company anticipates sales growth in the 5 to 7 percent range. The company also now anticipates EPS for the year 2003 to be between $1.40 and $1.45. Recent Highlights OMSolutions(SM) Signs The Children's Hospital of Philadelphia. Through its OMSolutions(SM) consulting group, Owens & Minor signed a comprehensive, five-year agreement with The Children's Hospital of Philadelphia, ranked as the best pediatric hospital in the nation in a Child magazine survey. The innovative agreement includes materials management outsourcing, a five-year traditional distribution services agreement, and installation of WISDOM(2SM), Owens & Minor's award-winning data mining tool. Also, the agreement includes process improvement targets and provisions for ongoing benchmarking. Owens & Minor recently announced that it has named Mark Van Sumeren as senior vice president, OMSolutions(SM). Van Sumeren, who brings twenty-four years of healthcare experience to Owens & Minor, joins the team from Cap Gemini Ernst & Young. He will assume his duties effective August 4, 2003. Department of Defense's Defense Logistics Agency Selects Owens & Minor. During the second quarter of 2003, Owens & Minor announced that it was chosen by the Department of Defense's Defense Logistics Agency to cross-dock medical supplies bound for the DOD Central Command and European Command. In this activity-based fee arrangement, Owens & Minor is receiving and consolidating medical and surgical supplies from a variety of sources for shipment overseas to support a single military air bridge from the United States to the Middle East and Europe. Owens & Minor was also named the Medical/Surgical Prime Vendor for Central Command. With this award Owens & Minor is now the sole prime vendor for distributed medical and surgical products bound for overseas military combat forces and overseas fixed-base medical treatment facilities outside of the Pacific Rim. The company anticipates that incremental sales from the Central Command award will exceed approximately $25 million annually. HealthTrust Purchasing Group, LP Names Owens & Minor as One of Three Authorized National Distributors. In the second quarter, Owens & Minor signed a five-year master distribution agreement with HealthTrust Purchasing Group, LP, a Nashville, Tennessee- based group purchasing organization. Under terms of this agreement, Owens & Minor is one of three national healthcare product distributors authorized to pursue distribution contracts with HPG. As one of the nation's leading healthcare group purchasing organizations, HPG membership includes HCA, HMA, Triad, Lifepoint, Ardent, Quorum, Vanguard, as well as other members. The agreement is effective September 1, 2003. Owens & Minor University Opens Doors. In the second quarter, Owens & Minor University opened its doors to students on April 23, 2003. In the last three months, OMU deans have appointed teammate advisory boards for the six different colleges, and more than 100 courses, offered both in the field and at the new teaching facility, are now available to teammates. Due to popular demand, course offerings have been expanded and faculty members have been added. Owens & Minor, Inc. (S&P/BB+/Stable) , a Fortune 500 company headquartered in Richmond, Virginia, is the nation's leading distributor of national name brand medical/surgical supplies. The company's distribution centers throughout the United States serve hospitals, integrated healthcare systems and group purchasing organizations. In addition to its diverse product offering, Owens & Minor helps customers control healthcare costs and improve inventory management through innovative services in supply chain management and logistics. The company has also established itself as a leader in the development and use of technology. For news releases, more information about Owens & Minor, and virtual warehouse tours, visit the company's Web site at http://www.owens-minor.com PAC-WEST TELECOMM: Will Publish 2nd Quarter Results on July 30 -------------------------------------------------------------- Pac-West Telecomm, Inc. (Nasdaq: PACW), a provider of integrated communications services to service providers and business customers in the western U.S., announced the date for its second quarter 2003 earnings release and conference call. Pac-West plans to announce its financial and operating results for the second quarter 2003 on Wednesday, July 30, 2003, after market close. An investor conference call will be held on Thursday, July 31, 2003 at 8:30 a.m. Pacific Time/11:30 a.m. Eastern Time. Investors are invited to participate by dialing 1-888-291-0829 or 706-679-7923. The call will be simultaneously webcast on Pac- West's Web site at http://www.pacwest.com/investor An audio replay will be available through August 14, 2003 by dialing 1-800- 642-1687 or 706-645-9291 (passcode #1759971). Founded in 1980, Pac-West Telecomm, Inc., is one of the largest competitive local exchange carriers headquartered in California. Pac-West's network carries over 100 million minutes of voice and data traffic per day, and an estimated 20% of the dial-up Internet traffic in California. In addition to California, Pac-West has operations in Nevada, Washington, Arizona, and Oregon. For more information, visit Pac-West's Web site at http://www.pacwest.com * * * As reported in Troubled Company Reporter's May 1, 2003 edition, Standard & Poor's Ratings Services lowered its corporate credit rating on Stockton, Calif.-based competitive local exchange carrier Pac-West Telecomm Inc. to 'D' from 'CC'. The rating on the 13.5% senior notes due 2009 has been lowered to 'D' from 'C'. S&P explained, "Given the company's significant dependence on reciprocal compensation (the rates of which the company expects to further decline in 2003) and its limited liquidity, Pac-West will likely find the implementation of its business plan continue to be challenging." PACKAGED ICE: Receives Consents to Amend 9.75% Note Indenture ------------------------------------------------------------- Packaged Ice, Inc. (Amex: ICY) announced that, as part of its previously announced tender offer and consent solicitation for its outstanding 9-3/4% Series A Senior Notes due 2005 and 9-3/4% Series B Senior Notes due 2005, as of 5:00 p.m. New York City time, it had received the requisite consents to the proposed amendments to the Indenture governing the Notes. Each holder of Notes who validly consented to the proposed amendments on or prior to 5:00 p.m., New York City time, on July 16, 2003, and did not validly withdraw such consent, will be entitled to the total consideration of $1,025.63 per $1,000 principal amount of Notes, including the consent payment in the amount of $1.25 per $1,000 principal amount of Notes if, and only if, Packaged Ice accepts for payment Notes tendered pursuant to the tender offer. Holders who tender their Notes after the Consent Expiration Date will not be entitled to receive the consent payment. Notes tendered prior to the Consent Expiration Date may not be withdrawn and related consents may not be revoked, except in the limited circumstances described in the Offer to Purchase and Consent Solicitation Statement, dated July 2, 2003, and related Consent and Letter of Transmittal, which set forth the complete terms of the tender offer and consent solicitation. The tender offer expires at 5:00 p.m., New York City time, on July 31, 2003, unless extended by Packaged Ice. As of the close of business on July 16, 2003, approximately $230.4 million of the $255.0 million aggregate outstanding principal amount of the Notes, had been tendered. On May 12, 2003, Packaged Ice entered into an agreement and plan of merger with CAC Holdings Corp. and Cube Acquisition Corp. pursuant to which Cube will be merged with Packaged Ice (the "Merger"), subject to the approval of Packaged Ice's shareholders and the satisfaction of various other conditions, with Packaged Ice surviving the Merger and continuing as a wholly-owned subsidiary of CAC. CAC and Cube were jointly formed by Trimaran Fund Management, L.L.C. and Bear Stearns Merchant Banking for purposes of completing the Merger. In order to finance the Merger and the total consideration, it is expected that Trimaran and Bear will make a cash equity contribution to CAC and that Packaged Ice will obtain additional funds through borrowings under a new credit facility and through the issuance of a new series of senior subordinated notes through a private placement under Rule 144A of the Securities Act of 1933, as amended, and/or a senior subordinated bridge loan. The tender offer and consent solicitation are conditioned upon the consummation of the Merger and the receipt of adequate financing. If the Merger is not consummated or adequate financing is not available to fund the total consideration, Packaged Ice will not be required to complete the tender offer and consent solicitation. Credit Suisse First Boston LLC, Bear, Stearns & Co. Inc. and CIBC World Markets Corp. are the Dealer Managers for the tender offer and the consent solicitation and Georgeson Shareholder is the Information Agent for the tender offer and consent solicitation. The tender offer and consent solicitation are being made pursuant to the Offer to Purchase and Consent Solicitation Statement and related Consent and Letter of Transmittal. Questions concerning the procedures of the tender offer and the consent solicitation and requests for the related materials should be directed to Georgeson Shareholder, toll free at (800) 293-7319. Questions concerning the terms of the tender offer may be directed to the following, as Dealer Managers for the tender offer: Credit Suisse First Boston LLC, Liability Management Group, toll free at (800) 820-1653; Bear, Stearns & Co. Inc., Global Liability Management Group, toll free at (877) 696-BEAR (696-2327); and CIBC World Markets Corp., Brian Perman, toll free at (800) 274-2746. Packaged Ice is the largest manufacturer and distributor of packaged ice in the United States. With over 1,700 employees, the Company sells its products primarily under the widely known Reddy Ice brand to more than 73,000 locations in 31 states and the District of Columbia. The Company provides a broad array of product offerings in the marketplace through traditional direct store delivery, warehouse programs, and its proprietary Ice Factory technology. Packaged Ice serves most significant consumer packaged goods channels of distribution, as well as restaurants, special entertainment events, commercial users and the agricultural sector. As reported in Troubled Company Reporter's May 15, 2003 edition, Standard & Poor's Ratings Services placed its 'B-' corporate credit and senior unsecured debt ratings on Packaged Ice Inc. on CreditWatch with developing implications. Dallas, Texas-based Packaged Ice had about $366 million of debt and preferred stock outstanding at March 31, 2003. PG&E: USGen Gets Interim Nod to Continue Cash Management System --------------------------------------------------------------- USGen's corporate policy with respect to cash management is to maintain adequate liquidity, ensure proper controls, account for cash assets and invest cash for maximum short-term returns consistent with prudent policy guidelines. To these ends, USGen maintains a cash management system, which is subject to monitoring and control by its corporate treasury department, and which includes the use of a bank account and an investment account, established business forms and checks. USGen's Cash Management System is similar to the cash management systems used by other major corporate enterprises. Its Cash Management System provides significant benefits to its operations, including, inter alia, the ability to: (i) efficiently control and ensure the maximum availability of corporate funds when necessary; (ii) develop timely and accurate account balance information; and (iii) maximize returns through the investment of funds consistent with prudent investment policies. Leslie J. Polt, Esq., at Blank Rome LLP, in Baltimore, Maryland, tells the Court that USGen's Cash Management System is also integral to the processing of intercompany transactions and maintaining needed services. For instance, a non-debtor operating affiliate incurs obligations to third parties, including employees, on the Debtor's behalf, and then invoices the Debtor accordingly. The Cash Management System, in conjunction with USGen's accounting system, allows for the accurate tracking and tracing of these transactions. Consequently, Ms. Polt contends that forcing USGen to employ a new Cash Management System would cause confusion and introduce inefficiency at a time when efficiency is most critical. USGen will continue to code all receipts and disbursements and maintain records of all transfers within the Cash Management System, so that all transfers and transactions will be properly documented and accurate balances will be maintained. USGen believes that the maintenance of its Accounts and the Cash Management System is warranted in this case. At the First Day hearing, USGen sought and obtained the Court's authority to continue using its Cash Management System on an interim basis. (PG&E National Bankruptcy News, Issue No. 2; Bankruptcy Creditors' Service, Inc., 609/392-0900) PRIME RETAIL: 2 Pref. Shareholders Balk at Proposed Allocation -------------------------------------------------------------- Prime Retail, Inc. (OTC Bulletin Board: PMRE, PMREP, PMREO) announced that two shareholders of the Company that collectively own approximately 32% of the outstanding shares of Series A Preferred Stock have objected to the allocation of consideration proposed by the Company in connection with the previously announced merger between the Company and an affiliate of The Lightstone Group, LLC. In separate communications, Merrill Lynch & Co., Inc., which owns 511,572 shares, or approximately 22%, of the outstanding Series A Preferred Stock, and Fortress Investment Trust II, which owns 230,000 shares, or approximately 10%, of such stock, have indicated that the proposed allocation of $16.25 per share of Series A Preferred Stock is inadequate. As previously announced, shareholder approval of the transaction with Lightstone requires the affirmative vote of the holders of 66-2/3% of the Company's outstanding Series A Preferred Stock and Series B Preferred Stock, each voting separately as a class, as well as the approval of the holders of a majority of the Company's Common Stock voting to approve the transaction and an amendment to the Company's charter. In response to these communications, the Company, together with its legal and financial advisors, expects to engage in discussions with Merrill Lynch and Fortress concerning the transaction and the proposed allocation. There can be no assurances as to the timing, nature or outcome of these discussions which may include other shareholders of the Company. Although under the terms of the merger agreement with Lightstone the Company has reserved the right to modify, at its discretion, the allocation of consideration among the various classes of shareholders until the mailing of definitive proxy materials, any such modification would be subject to approval of the special committee of independent directors established in connection with the transaction. Prime Retail is a self-administered, self-managed real estate investment trust engaged in the ownership, leasing, marketing and management of outlet centers throughout the United States. Prime Retail currently owns and/or manages 37 outlet centers totaling approximately 10.4 million square feet of GLA. Prime Retail also owns 154,000 square feet of office space. Prime Retail has been an owner, operator and a developer of outlet centers since 1988. For additional information, visit Prime Retail's Web site at http://www.primeretail.com * * * Liquidity and Going Concern Uncertainty As reported in Troubled Company Reporter's May 16, 2003 edition, the Company's liquidity depends on cash provided by operations and potential capital raising activities such as funds obtained through borrowings, particularly refinancing of existing debt, and cash generated through asset sales. Although the Company believes that estimated cash flows from operations and potential capital raising activities will be sufficient to satisfy its scheduled debt service and other obligations and sustain its operations for the next year, there can be no assurance that it will be successful in obtaining the required amount of funds for these items or that the terms of the potential capital raising activities, if they should occur, will be as favorable as the Company has experienced in prior periods. During 2003, the Company's first mortgage and expansion loan matures on November 11, 2003. The Mega Deal Loan, which is secured by a 13 property collateral pool, had an outstanding principal balance of approximately $262.9 million as of March 31, 2003 and will require a balloon payment of approximately $260.7 million at maturity. Based on the Company's initial discussions with various prospective lenders, it is currently projecting a potential shortfall with respect to refinancing the Mega Deal Loan. Nevertheless, the Company believes this shortfall may be alleviated through potential asset sales and/or other capital raising activities, including the placement of mezzanine level debt. The Company cautions that its assumptions are based on current market conditions and, therefore, are subject to various risks and uncertainties, including changes in economic conditions, which may adversely impact its ability to refinance the Mega Deal Loan at favorable rates or in a timely and orderly fashion, or which may adversely impact the Company's ability to consummate various asset sales or other capital raising activities. In connection with the completion of the sale of six outlet centers in July 2002, the Company guaranteed to FRIT PRT Bridge Acquisition LLC (i) a 13% return on its approximately $17.2 million of invested capital, and (ii) the full return of its invested capital in FP Investment LLC by December 31, 2003. As of March 31, 2003, the Mandatory Redemption Obligation was approximately $16.4 million. In April 2003, we made an additional payment of approximately $1.1 million with net proceeds from the March 31, 2003 sale of certain excess land which reduced the balance of the remaining Mandatory Redemption Obligation to approximately $15.3 million. Although the Company continues to seek to generate additional liquidity to repay the Mandatory Redemption Obligation through (i) the sale of FRIT's ownership interest in the Bridge Properties and/or (ii) the placement of additional indebtedness on the Bridge Properties, there can be no assurance that it will be able to complete such capital raising activities by December 31, 2003 or that such capital raising activities, if they should occur, will generate sufficient proceeds to repay the Mandatory Redemption Obligation in full. Failure to repay the Mandatory Redemption Obligation by December 31, 2003 would constitute a default, which would enable FRIT to exercise its rights with respect to the collateral pledged as security to the guarantee, including some of the Company's partnership interests in the 13 property collateral pool under the aforementioned Mega Deal Loan. Because the Mandatory Redemption Obligation is secured by some of the Company's partnership interests in the 13 property collateral pool under the Mega Deal Loan, the Company may be required to repay the Mandatory Redemption Obligation before, or in connection with, the refinancing of the Mega Deal Loan. These above listed conditions raise substantial doubt about the Company's ability to continue as a going concern. QUANTUM CORP: Appoints CEO Rick Belluzzo as New Board Chairman -------------------------------------------------------------- Quantum Corp. (NYSE: DSS), a leading provider of data protection systems, announced that Rick Belluzzo, the company's chief executive officer, has been named chairman of its board of directors, effective immediately. Michael Brown, the former chairman, will continue to serve as a company director. "In his relatively short time at Quantum, Rick has done a great job leading Quantum through a number of transitions to better position the company," said Edward J. Sanderson, Jr., a member of Quantum's board. "As Rick has made clear, however, there is still a lot of work to do. The board looks forward to the broader role Rick will play in executing Quantum's data protection strategy and delivering shareholder value." Since Belluzzo joined Quantum in September 2002, the company has taken a number of steps to focus solely on data protection and improve its long-term performance. These steps include making two key acquisitions, outsourcing manufacturing, spinning off one of its businesses, improving operational efficiencies and reducing costs. As a result of these and other actions, for the fiscal year that ended in March, Quantum gained share both in the super drive category of the tape market and in tape automation, launched a new category of disk-based enhanced backup products, improved gross margins and reduced expenses. In addition, the company laid the groundwork for the introduction of several new generation products next quarter. These products, which include the SDLT 600 super drive and DX100 enhanced backup solution, will address important challenges customers are facing in data protection and thereby expand Quantum's market opportunities. Quantum Corp., founded in 1980, is a global leader in data protection, meeting the needs of business customers with enterprise-wide storage solutions and services. Quantum offers a wide range of tape drive and tape automation products for managing, storing and transferring data, and its DLTtape(TM) technology is the standard for tape backup, archiving, and recovery. Over the past year, Quantum has also been one of the pioneers in the emerging market of disk-based backup, offering a solution that emulates a tape library and is optimized for data protection. Quantum sales for the fiscal year ending March 31, 2003, were $871 million. Quantum Corp., 1650 Technology Dr., Suite 800, San Jose, CA 95110, 408-944-4000, http://www.quantum.com As previously reported, Standard & Poor's Ratings Services lowered its corporate credit rating on Quantum Corp., to double-'B'-minus from double-'B' and its subordinated debt rating to single-'B' from single-'B'-plus. RECOTON CORP: Completes Sale of Audio Assets to Audiovox Corp. -------------------------------------------------------------- Audiovox Corporation (Nasdaq: VOXX) announced that its previously disclosed acquisition of the audio assets of Recoton Corp. has been completed. The Company, through one of its wholly owned subsidiaries, acquired Recoton's U.S. audio operation, which includes the well known brands of Jensen, Advent and Acoustic Research in addition to Recoton German Holdings GmbH, an audio business with 2002 sales of $70 million for approximately $40 million and the assumption of $5 million of debt related to the acquired German subsidiary. This transaction combined with the already substantial market share of Audiovox, creates one of the largest U.S. audio suppliers of mobile entertainment products. Pat Lavelle, President and CEO of AEC commented, "We believe this acquisition will enhance our current distribution and give us the opportunity to broaden our penetration in key retailers here in the United States as well as expand our product distribution in Europe." Lavelle continued, "Customers and suppliers alike have expressed their desire to rebuild the Jensen, Acoustic Research and Advent brands in the U.S. and Recoton Germany is already well- established with the number one market position in car amplifiers and speakers and number two in home speakers." Lavelle continued, "We have hired several of the Recoton sales, engineering and research and development staff members as well as some of the operational personnel. We will manage the acquisition from our New York offices, however we will keep an R&D facility in Lake Mary, Florida. Although there is much work to be done, I'm confident in our ability to rebuild the Jensen name and improve Audiovox's position in this market." Audiovox Corporation is an international leader in the marketing of cellular telephones, mobile security and entertainment systems, and consumer electronics products. The Company conducts its business through two subsidiaries and markets its products both domestically and internationally under its own brands. It also functions as an OEM (Original Equipment Manufacturer) supplier to several customers. For additional information, please visit Audiovox on the Web at http://www.audiovox.com Recoton Corporation, together with its subsidiaries, is engaged in the development, manufacturing and marketing of consumer electronics accessories and home and mobile audio products. Recoton Corporation is a global leader in the development and marketing of consumer electronic accessories, audio products and gaming products. Recoton's more than 4,000 products include highly functional accessories for audio, video, car audio, camcorder, multi-media/computer, home office and cellular and standard telephone products, as well as 900MHz wireless technology products including headphones and speakers; loudspeakers and car and marine audio products including high fidelity loudspeakers, home theater speakers and car audio speakers and components; and accessories for video and computer games. Recoton Corporation filed for Chapter 11 protection on April 8, 2003 in the U.S. Bankruptcy Court for the Southern District of New York (Manhattan). REDBACK NETWORKS: Second Quarter Net Loss Narrows to $51 Million ---------------------------------------------------------------- Redback Networks Inc. (Nasdaq:RBAK), a leading provider of next- generation networking equipment, announced its second quarter results for the period ended June 30, 2003. Net revenue for the second quarter of 2003 was $22.2 million, compared with $29.5 million for the first quarter of 2003 and $40.1 million for the second quarter of 2002. GAAP net loss for the second quarter of 2003 was $51.0 million compared to a GAAP net loss of $65.1 million in the second quarter of 2002. Non-GAAP net loss for the second quarter of 2003 was $26.3 million compared to a non-GAAP net loss of $26.4 million in the second quarter of 2002. Non-GAAP results exclude amortization of intangible assets, restructuring charges, stock-based compensation, realized gain and write-off of certain investments and certain impairment and inventory charges. See the attached table for a reconciliation of non-GAAP results to our GAAP results. Redback Networks enables carriers and service providers to build profitable next-generation broadband networks. The company's User Intelligent Networks(TM) (UIN) product portfolio includes the industry-leading SMS(TM) family of subscriber management systems, and the SmartEdge(R) Router and Service Gateway platforms, as well as a comprehensive User-to-Network operating system software, and a set of network provisioning and management software. Founded in 1996 and headquartered in San Jose, Calif., with sales and technical support centers located worldwide, Redback Networks maintains a growing and global customer base of more than 500 carriers and service providers, including major local exchange carriers (LECs), inter-exchange carriers (IXCs), PTTs and service providers. As previously reported, Standard & Poor's lowered its corporate credit rating on Redback Networks Inc., to triple-'C'-plus from single-'B'-minus. At the same time, Standard & Poor's rating on the company's convertible subordinated notes was lowered to triple-'C'-minus from triple-'C'. The outlook is negative. The rating actions reflect Redback's reduced liquidity and significantly lower revenue outlook, amid expected continued weakness in telecommunications capital spending. REPRO MED: Taps Meyler to Replace Radin Glass as Ind. Auditors -------------------------------------------------------------- In an action approved by the Company's full Board of Directors to reduce future audit expenses, on February 26, 2003, Repro Med Systems, Inc. dismissed its current certifying accountants, Radin, Glass & Co., LLP of New York, New York. In their place, the Company engaged the firm of Meyler & Company, LLC, of Middletown, New Jersey, effective February 28, 2003. Radin, Glass & Co. had included a "going concern" qualification in their report for the fiscal year ended February 28, 2002, due to the Company's adverse cash flow position. Repro-Med Systems, Inc. went public in 1982 (OTC - symbol REPR). The Company designs and manufactures medical devices directing resources to the global markets for emergency medical products and infusion therapy. It maintains a presence in the US markets for impotency treatments and gynecological instruments. These products are regulated by the FDA. Repro-Med Systems, Inc. was incorporated under the laws of the State of New York, March 1980. The corporate offices are located at 24 Carpenter Road, Chester, New York 10918. The telephone number is 845-469-2042, fax is 845-469-5518 and the Internet site is http://www.repro-med.com REPUBLIC ENGINEERED: Brings-In KPMG LLP as New External Auditors ---------------------------------------------------------------- On July 9, 2003, the Audit Committee of the Board of Directors of Republic Engineered Products Holdings LLC determined not to retain its previous auditors, Deloitte and Touche LLP, as a result of a competitive bidding process, and to retain KPMG LLP as the auditor for the Company for fiscal 2003. Deloitte's report on the financial statements of the Company and its predecessor for the past two fiscal years contained an explanatory paragraph concerning a going concern uncertainty. Republic Engineered Products Holdings LLC, a Delaware limited liability company, produces special bar quality steel products. Special bar quality steel products are high quality hot-rolled and cold-finished carbon and alloy steel bars and rods used primarily in critical applications in automotive and industrial equipment. Special bar quality steel products are sold to customers who require precise metallurgical content and quality characteristics. Special bar quality steel products generally contain more alloys, and sell for substantially higher prices, than merchant and commodity steel bar and rod products. The Company produces a wide range of special bar quality steel products and supplies a diverse customer base that includes leading automobile and industrial equipment manufacturers and their first tier suppliers. RFP EXPRESS: Retains Hutchinson & Bloodgood as New Accountants -------------------------------------------------------------- On July 9, 2003, RFP Express Inc. contracted with Hutchinson & Bloodgood to be RFP's independent accountant. Nation Smith Hermes Diamond, PC was relieved of their duties. The Former Auditor's report dated March 2, 2002, on RFP's financial statements for the two fiscal years ended December 31, 2001 was modified to reference that there was substantial doubt as to the Company's ability to continue as a going concern. The Company was organized to develop and market prepaid wireless products and services in various markets throughout the United States. In late 1998 the Company established a new strategic objective of refocusing the Company's mission to pursue new complimentary Internet-related and e-commerce opportunities. In 1999 the Company actively implemented its new mission by, among other actions, selling a portion of the Company's business no longer considered essential for the new strategy and purchasing IXATA.COM, a company whose business thrust was in line with the new strategy. Upon closing the IXATA.COM acquisition, the Company established itself as a provider of internet-based, business-to-business electronic commerce services in the travel market, targeting existing and new corporate clients, hotel and property management groups, and major travel agencies. The Company's principal service, RFP Express(SM), integrates a user-friendly, Internet- based interface with a sophisticated data-warehousing system and email technology to deliver automated solutions for creating, sending, receiving and managing the preferred lodging programs request for proposal process in the hospitality services market. This process typically involves hundreds or, in some cases, thousands of properties worldwide. By automating the users' RFP business process, and also providing user-friendly Internet access to a sophisticated data warehousing system, RFP Express(SM) provides dramatic cost savings to users. The Company's principal operations are to provide internet based electronic commerce services in the travel market for creative solutions for creating, receiving and managing preferred lodging programs. Although the market reaction to the Company's service has been positive, there can be no assurance that the Company will be able to attain profitability. On April 8, 2002 the Company entered into a letter of intent agreement with an existing hotel management company customer to begin designing and programming a custom software solution to replace the customer's current RFP management and database system. During the third quarter of 2002, the Company completed the contract. As a result, the Company developed an entirely new business segment, Custom Software Solutions Design for large hotel management companies. At the successful completion of the current contract, other hotel management companies have inquired about the custom software solution design service that the Company now offers. ROHN INDUSTRIES: PricewaterhouseCoopers Resigns as Accountants -------------------------------------------------------------- ROHN Industries, Inc., (Nasdaq: ROHNE), a provider of infrastructure equipment to the telecommunications industry, announced that PricewaterhouseCoopers LLP has resigned as the independent accountant of the Company. At this time the Company has not retained another independent accountant, but continues its search. For further information on the resignation of PricewaterhouseCoopers, please see the Form 8-K filed by the Company with the Securities and Exchange Commission on July 16, 2003. On May 16, 2003, the Company announced that Alan Schwartz resigned as Chairman of the Board of Directors, and also indicated his intention to resign as a member of the Board of Directors in the near future. Wednesday, the Company has announced that Mr. Schwartz has formally submitted his resignation as a member of the Board of Directors of the Company. Mr. Schwartz, a professor of law, has indicated that his academic commitments will prevent him from acting as a director of the Company. The Company would like to thank Mr. Schwartz for his contributions and hard work during his term. The Company will continue to look for a replacement for Mr. Schwartz. The Company is a manufacturer and installer of telecommunications infrastructure equipment for the wireless industry. Its products are used in cellular, PCS, radio and television broadcast markets. The Company's products include towers, poles, related accessories and antennae mounts. The Company also provides design and construction services. The Company has a manufacturing location in Frankfort, IN along with offices in Peoria, IL and Mexico City, Mexico. * * * As previously reported in Troubled Company Reporter, the Company is experiencing significant liquidity and cash flow issues which have made it difficult for the Company to meet its obligations to its trade creditors in a timely fashion. The Company expects to continue to experience difficulty in meeting its future financial obligations. The Company continues to experience difficulty in obtaining bonds required to secure a portion of anticipated new contracts. These difficulties are attributable to the Company's continued financial problems and an overall tightening of requirements in the bonding marketplace. The Company intends to continue to work with its current bonding company to resolve its concerns and to explore other opportunities for bonding. ROSSBOROUGH-RENACOR: UST Appoints Official Creditors' Committee --------------------------------------------------------------- The United States Trustee for Region 9 appointed six creditors to serve on an Official Committee of Unsecured Creditors in Rossborough-Renacor LLC's Chapter 11 case: 1. Chiti, Inc. Attn: Jimmy Huang 3950 14th Avenue Suite 204 Ontario, Canada L3R OA9 phone: 905-470-1889 2. Hebi Jianchai Smelting Co., Ltd. Attn: Li Ting Guo No. 4 Pedestrean Street East Section of New Century Square Hebi City, Henan Province China 3. Midwest Transatlantic Lines, Inc. Attn: Richard A. Gareau 1230 W. Bagley Rd. Berea, OH 44017 phone: 440-243-1993 fax: 440-243-1996 4. Halaco Engineering Co. Attn: Dave Gable 6200 Perkins Road Oxnard, CA 93033 phone: 805-488-3684 fax: 805-986-2181 5. Hastie Mining & Trucking Attn: James W. Watson, Jr. R #1, Box 55 Cave-in-Rock, IL 62919 phone: 618-289-4536 fax: 618-289-4539 6. Fortune Magnesium Industrial Company, Ltd. Attn: Xianmin Gao No. 4 Huixin Dong Jie Chaoyang District Beijing, Peoples Republic of China 100029 Official creditors' committees have the right to employ legal and accounting professionals and financial advisors, at the Debtors' expense. They may investigate the Debtors' business and financial affairs. Importantly, official committees serve as fiduciaries to the general population of creditors they represent. Those committees will also attempt to negotiate the terms of a consensual chapter 11 plan -- almost always subject to the terms of strict confidentiality agreements with the Debtors and other core parties-in-interest. If negotiations break down, the Committee may ask the Bankruptcy Court to replace management with an independent trustee. If the Committee concludes reorganization of the Debtors is impossible, the Committee will urge the Bankruptcy Court to convert the Chapter 11 cases to a liquidation proceeding. Rossborough-Remacor, LLC, headquartered in Avon Lake, Ohio, is a producer of additives used to deoxidize, desulfurize and condition steel slag. The Company filed for chapter 11 protection on June 18, 2003 (Bankr. N.D. Ohio Case No. 03-18020). Diana M. Thimmig, Esq., at Arter & Hadden LLP represents the Debtor in its restructuring efforts. When the Company filed for protection from its creditors, it listed $18,709,681 in total assets and $22,644,854 in total debts. SEALY CORP: June 1, 2003 Balance Sheet Upside-Down by $90 Mill. --------------------------------------------------------------- Sealy Corporation, the world's largest manufacturer of bedding products, announced results for the fiscal second quarter ending June 1, 2003. For the quarter, Sealy reported net sales of $269.8 million, a decrease of 10% from $299.8 million for the same period a year ago. Net loss was $1.0 million, compared with an $8.4 million loss a year earlier. Earnings before interest, taxes, depreciation and amortization were $21.2 million, compared with $9.5 million a year earlier. The second quarter 2003 net loss and EBITDA amounts include a $2.5 million write off of non cash costs resulting from our $50 million bond offering which was completed during the second quarter. At June 1, 2003, the Company's balance sheet shows a total shareholders' equity deficit of about $90 million. For the six months ended June 1, 2003, Sealy reported net sales of $558.1 million, a 5.7% decrease from $591.5 million for the same period a year ago. Net income was $8.1 million, compared with $0.1 million a year ago. Year-to-date EBITDA was $59.4 million compared with $48.5 million a year earlier. Reported net sales reflect Sealy's adoption of Financial Accounting Standards Board Emerging Issues Task Force 01-09, "Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor's Product." Under EITF 01-09, cash consideration is a reduction of revenue, unless specific criteria are met regarding goods or services that the vendor may receive in return for this consideration. Historically, Sealy classified costs such as volume rebates and promotional money as marketing and selling expenses. These costs are now classified as a reduction of revenue. This had the effect of reducing net sales and selling, general and administrative expenses each by $10.9 million and $22.5 million for the three and six months ended June 1, 2003, and $13.5 million and $22.7 million for the three and six months ended June 2, 2002. These changes did not affect the Company's financial position or results of operations. "Sales in the second quarter were down as expected due to the restructuring of our former affiliates, continued weak economic conditions, and strong second quarter floor sample shipments in 2002" said David J. McIlquham, Sealy's president and chief executive officer. "During the second quarter we were able to make progress on some of our key initiatives, including the introduction of our innovative new Sealy Posturepedic product line at the April High Point Furniture Market." On June 16, 2003, the Company began shipping its new Sealy Posturepedic line, which represents Sealy's first branded offering with a one-sided design. The new design features an industry-first UniCased(TM) Construction that optimizes the performance of the Posturepedic innerspring by creating a stable feel and providing uniform comfort across the entire mattress. "The new Sealy Posturepedic was developed after extensive product development and consumer research. We have received positive response to the product introduction and we are extremely excited about this great new line," said McIlquham. "The UniCased Construction, exclusive to Sealy, resembles the unibody construction found in most automobiles today. Sealy has thermo-bonded our internal edge support and base to create a stable, integrated unit around the entire innerspring. The end result is a new design that creates the most comfortable bed available. You can see and feel the difference as soon as you lie down on it." In addition, last quarter Sealy completed the restructuring of its affiliate investments by selling all its interest in Mattress Discounters. "The transaction was completed for approximately $13.6 million, which represented a slight gain," said McIlquham. Sealy is the largest bedding manufacturer in the world with net sales of $1.2 billion in 2002. The Company manufactures and markets a broad range of mattresses and foundations under the Sealy(R), Sealy Posturepedic(R), Stearns & Foster(R), and Bassett(R) brands. Sealy employs more than 6,000 individuals, has 30 plants, and sells its products to 3,200 customers with more than 7,400 retail outlets worldwide. Sealy is also a leading supplier to the hospitality industry. For more information, please visit http://www.sealy.com SPIEGEL GROUP: Asks Court to Approve Key Employee Retention Plan ---------------------------------------------------------------- The Spiegel Inc., and its debtor-affiliates aim to maximize the value of their estates for the benefit of their creditors and stakeholders by: -- providing continuity of management responsible for strategic decisions and day-to-day operations to ensure that their restructuring initiatives are carried out in an efficient manner; -- providing a sense of security to key employees who may find themselves displaced as a result of their own efforts in carrying out the restructuring plan; and -- creating and sustaining employee morale, loyalty and commitment in the face of difficulties that necessarily attend a complex Chapter 11 case. Against this backdrop, the Debtors seek the Court's authority, in accordance with Sections 105(a) and 363(b) of the Bankruptcy Code, to implement a Key Employee Retention Plan, pay bonuses and execute and perform under various employment agreements. The KERP is designed to minimize management and other key employee turnover by providing inducements to those employees to continue working for the Debtors, as well as to enhance employee morale and job commitment. The Debtors believe that the implementation of the KERP, paying the bonuses and performing under the Employment Agreements are necessary to accomplish a successful reorganization and to maximize recoveries for their constituencies. In connection with their restructuring initiatives, the Debtors have involuntarily terminated 900 employees postpetition. In addition, 1,250 employees have voluntarily terminated their employment. These terminations are adversely affecting the Debtors' ability to retain critical employees, particularly those in management positions and those at the corporate level. The employees' unfamiliarity with the Chapter 11 process exaggerates their concerns regarding job security and the prospects of their employer, hence contributing to a potentially unstable situation. The Debtors emphasize that the continued operation of their businesses depends on the retention of their key managers' services and the maintenance of employee morale. "If a key manager is lost, it will be difficult and expensive to attract an equally qualified replacement and would likely hinder the implementation of the restructuring directives." The KERP After a thorough review of the Debtors' workforce and operational needs, the Debtors' senior management with the assistance of Watson Wyatt & Company developed the KERP, which has these key components: (a) A retention plan structured to encourage key employees to remain with the Debtors during the restructuring period; (b) A transition bonus plan to provide the Debtors flexibility to determine the necessary workforce during the restructuring period and provide incentives to non- Retention Plan employees with uncertain employment periods; (c) A performance incentive plan to provide the necessary incentives for key employees during the restructuring period to meet the Debtors' business goals; and (d) An enhanced severance plan to provide employees with a sense of financial security due to their necessarily uncertain employment duration during the restructuring period. The Debtors have assigned key employees to six organizational levels that are eligible for the various plans other than the Transition Bonus Plan: Level Representative Position # Eligible ----- ----------------------- ---------- 1 President & CEO 2 2 Senior Executives 12 3 Key Executives 19 4 Senior Managers 27 5 Managers 120 6 Key Contributors 45 ---------- Total 225 The Debtors anticipate that certain individuals who are promoted or newly hired during the Chapter 11 cases may be added to the KERP and that the cost of any additions will be offset by workforce attrition. The Retention Plan The Retention Plan provides for retention bonuses ranging from 25% to 80% of the base salary -- the Retention Bonus varies by the Key Employees level -- and payable according to this schedule: * 25% six months after the Petition Date; * 35% 12 months after the Petition Date; and * 40% 60 days after the Debtors' emergence from Chapter 11. The Retention Plan includes these provisions with respect to those employees who were terminated or who are employed by a business unit that is sold during the course of the restructuring: -- Key Employees who voluntarily terminate their employment before the specified payout date will forfeit any relevant Retention Bonus amounts; -- Key Employees who are involuntarily terminated will receive the entire Retention Bonus at the time of termination, as well as an enhanced severance benefit; and -- Key Employees who are employed by a divested business unit will have their entire Retention Bonus paid at the time of divestiture or sale of significant business unit operating assets. Transition Bonus Plan The Transition Bonus Plan is for directors, managers, and staff employees who will not participate in the Retention Plan, and therefore provides the Debtors with maximum flexibility to decide on its manpower for the next year. The Transition Bonus Plan will be communicated to the designated employees who will be needed until certain projects are completed and, at the time of termination, would receive their severance benefits and a transition bonus. Managers have the discretion to decrease the transition bonus if the employee is needed for a shorter period. The Transition Bonus Plan will have a $1,500,000 pool allocation. The eligible company levels and opportunity targets under the Transition Bonus Plan are: Average Transition Transition Level No. Base Salary Bonus Opportunity Bonus Amount ----- --- ----------- ----------------- ------------ Director 15 $101,800 35% $534,450 Manager 32 69,900 25% 559,200 Staff 54 50,100 15% 405,810 ------------ Total 101 $1,499,500 Performance Incentive Plan The Debtors relate that the 14 executives in KERP Levels 1 and 2 will participate in the Performance Incentive Plan, which has a $5,500,000 target incentive pool. At the discretion of Spiegel's Chief Executive Officer, on the Debtors' emergence from Chapter 11, the Performance Incentive Plan will payout 100% if the earnings before interest, taxes, depreciation and amortization of the June 2003 Plan is fully achieved, and 50% of the incentive pool if 85% of the EBITDA June 2003 Plan is achieved. Meanwhile, the 19 executives in KERP Level 3 will participate in the Performance Incentive Plan with a $2,000,000 target incentive pool. At the CEO'S discretion, on the Debtors' emergence, the Performance Incentive Plan will payout 100% if the EBITDA June 2003 Plan is fully achieved, and 50% of the incentive pool if 85% of the EBITDA June 2003 Plan is achieved. Employees in KERP Levels 4 and 5 will participate in the Performance Incentive Plan with a $1,450,000 target incentive pool. On the Debtors' emergence, the Performance Incentive Plan will payout 100% if the EBITDA June 2003 Plan is fully achieved, and 50% of the incentive pool if 85% of the EBITDA June 2003 Plan is achieved. A $1,000,000 discretionary pool may be used to supplement the Performance Incentive Plan payout of KERP participants. Employees who are not assigned to a level under the KERP will be eligible for their annual incentive opportunities that will be determined in accordance with prepetition practices. As the EBITDA June 2003 Plan has not yet been finalized, the Debtors will establish the applicable benchmarks for the Performance Incentive Plan in consultation with the Official Committee of Unsecured Creditors. In the unlikely event that the Debtors are unable to reach an agreement with the Committee on the benchmarks, they will not implement the Performance Incentive Plan. Instead, the Debtors will implement another Performance Incentive Plan pursuant to the benchmarks that they will propose. In accordance with prepetition practice, the Debtors will establish an incentive bonus plan for employees who are not eligible to participate in the Performance Incentive Plan. The Debtors intend to allocate up to $5,000,000 for the Ordinary Course Incentive Plan, but expect that, assuming the applicable benchmarks are satisfied, only $3,750,000 will be paid to employees due to attrition. Pursuant to the Ordinary Course Incentive Plan, satisfaction of the benchmarks under the EBITDA June 2003 Plan for corporate employees will be measured. Employees of the Merchant Divisions, Distribution Fulfillment Services, Inc. and Spiegel Group Teleservices, Inc. will be measured on their division's 2003 earnings before interest and taxes, and on the EBITDA June 2003 Plan. Enhanced Severance Plan Pursuant to the proposed Enhanced Severance Plan, Key Employees will be entitled to receive the greater of their regular severance benefit determined in accordance with existing policy, applicable severance agreement or the enhanced severance benefit level. Enhanced Severance Level Representative Position (% of salary) ----- ----------------------- ------------------ 1 President & CEO 200% 2 Senior Executives 65% 3 Key Executives 50% 4 Senior Managers 50% 5 Managers 25% 6 Key Contributors 25% The Enhanced Severance Plan contains these provisions regarding an employee's entitlement to enhanced severance upon termination: -- Employees who voluntarily terminate employment will not be entitled to severance benefits including any payments under the KERP; -- Employees who are involuntarily terminated will receive their eligible severance benefit payable in a single lump sum at the time of termination, subject to review by the Board of Directors compensation committee. The estimated aggregate maximum cost of the KERP is $26,400,000 excluding any severance payments. Bonuses to Five Key Employees To attract and retain five key employees during the prepetition period, the Debtors have agreed to provide these employees certain bonuses aggregating $183,000 that are payable in 2003 or 2004. These separate bonuses include a signing bonus as well as certain bonuses to be paid based on performance or continued service to the Debtors. Employment Agreements for Key Executives The Debtors have also determined that to achieve their goal, it is critical that they continue to receive the services provided by these four key executives: (1) Fabian Mansson, who has served as Eddie Bauer President and Chief Executive Officer since July 1, 2002; (2) Geralynn Madonna, who has been President and Chief Executive Officer of Spiegel Catalog, Inc. and Newport News, Inc. since March 14, 2003; (3) Alexander Birken, who serves as Spiegel's Senior Vice President and Chief Operating Officer; and (4) James M. Brewster, who was appointed as Senior Vice President and Chief Financial Officer for the Spiegel Group on February 26, 2003. (Spiegel Bankruptcy News, Issue No. 8; Bankruptcy Creditors' Service, Inc., 609/392-0900) STERLING: Fitch Affirms Ratings After Acquisition Announcement -------------------------------------------------------------- Fitch Ratings has affirmed its ratings of Sterling Financial Corporation following the company's announcement that it has entered into a definitive agreement to acquire Klamath First Bancorp, Inc. KFBI, with approximately $1.5 billion in assets, is the holding company for Klamath First Federal Savings and Loan Association, a savings and loan operating branches in Oregon and Washington. The exchange of stock transaction, valued at approximately $147 million, is expected to close in first quarter of 2004 pending shareholder and regulatory approval. The acquisition will add to STSA's Pacific Northwest franchise creating an institution with approximately $5.3 billion in assets and 143 branches in four states. While, as with all acquisitions, there is integration risk, Fitch views this transaction as a positive addition to STSA's franchise. Additionally, STSA's track record with previous acquisitions is good. Nonetheless, we are mindful that this is a relatively large transaction for STSA. Management expects the transaction to be accretive to EPS in 2004 and is projecting cutting approximately 17% of KFBI's expense base. After-tax merger costs are estimated at $13.0 million. Ratings Affirmed: Sterling Financial Corporation -- Long-term Issuer 'BB'; -- Short-term Issuer 'B'; -- Individual Rating 'C'; -- Support '5'; -- Rating Outlook Stable. STEWART ENT.: Fitch Affirms Facilities & Debt Ratings at BB+/BB- ---------------------------------------------------------------- Fitch Ratings has affirmed the 'BB+' rating for Stewart Enterprises' $355 million of secured bank credit facilities and the 'BB-' rating for its $300 million of subordinated debt. The Rating Outlook is Stable. The ratings reflect Stewart's significant backlog of pre-arranged funeral sales, relatively stable business, and improved credit profile as a result of substantial debt reduction during the past several years. Stewart reduced its total debt from $951 million at fiscal year-ended Oct. 31, 2000 to $517 million as of June 4, 2003 by selling all of its foreign subsidiaries. The above positive factors are partially offset by a decrease in revenue and profit margins (for continuing operations), a declining death rate and a growing trend favoring lower-priced cremations over traditional funerals. The decline in sales over the past three years is primarily attributable to the cemetery segment, which has been affected by the slow economy as well as the shift towards cremations. Cemetery sales are mostly pre-arranged discretionary expenditures. Since Stewart records sales of cemetery plots as revenue at the time of the sale, performance of the cemetery segment is somewhat dependent upon the economy. Unlike cemetery sales, pre-arranged funeral services are not recorded as revenue until the time the service is performed. Therefore, performance of the funeral segment is more closely correlated to the death rate. Stewart has been able to partially offset the impact of a decreasing death rate by offering more customized funeral services for additional fees. Fitch believes that the death rate will return to historical levels over the longer-term despite the recent trend. The growth of the lower-priced cremation business has been gradual, but could affect Stewart's margins over time since the company has large fixed operating costs and many cemeteries would lose cemetery plot sales. However, Stewart performs a higher percentage of cremations than the national average as the company is attempting to offset the lower-prices for cremations with higher volumes. Stewart generates adequate discretionary free cash flow that provides a reasonable cushion for the current weak environment. Nonetheless, if profits continue to deteriorate, there could be rating implications to the extent that Stewart's discretionary funds are severely diminished. SUNLAND ENTERTAINMENT: Lewak Greenbaum Airs Going Concern Doubt --------------------------------------------------------------- Sunland Entertainment Co., Inc., together with its subsidiaries Sunland Entertainment, Inc. and Pepin/Merhi Entertainment Group, Inc. owns and exploits motion picture product and related intellectual property. The accounting firm, and independent auditors for the Company, Singer Lewak Greenbaum & Goldstein LLP, in its March 12, 2003, Auditors Report concerning the financial condition of Sunland Entertainment Company Inc., stated, in part: "[T]he Company has suffered recurring losses from operations and has an accumulated deficit. This raises substantial doubt about the Company's ability to continue as a going concern." The management of Sunland Entertainment believes that the Company's current and anticipated sources of working capital from collection of accounts receivable and new sales of the Company's remaining film library are not sufficient to provide the necessary liquidity and financing for the Company's operating financial needs for the next twelve months. To address previous liquidity issues management sold certain assets, properties and rights owned by the Company. On April 10, 2003, the Company and its wholly- owned subsidiary, Pepin/Merhi Entertainment Group, Inc., entered into an Asset Purchase Agreement with Film Library Acquisition Corp. for the sale of PM's film library. If the Company does not successfully complete the sale of the PM Entertainment Library, management will continue to operate the Company as a scaled-back business focusing on the sale of that PM library. Whether or not the Company successfully completes the sale of the PM Entertainment Library, the Company intends to continue exploring its various strategic alternatives, including the acquisition of additional assets, or a merger or sale of the Company, or its assets. The Company does not intend to limit its search to any specific kind of industry or business. It may investigate and ultimately acquire a venture that is in its preliminary or development stage, is already in operation, or in various stages of its corporate existence and development. A potential venture might need additional capital or merely desire to have its shares publicly traded. TRANSTECHNOLOGY: June 29 Net Capital Deficit Narrows to $5 Mill. ---------------------------------------------------------------- TransTechnology Corporation (NYSE:TT) reported net income and income from continuing operations of $694,000 for the first quarter of the fiscal year ending March 31, 2004 compared with a loss from continuing operations of $143,000 in the year earlier period. Including losses from discontinued operations in the first quarter of the prior fiscal year, the total net loss a year ago was $750,000. Net sales for the fiscal 2004 first quarter increased 16.1% to $16.1 million from $13.9 million for the corresponding period of last year. Robert L. G. White, President and Chief Executive Officer of the company, said, "Our business performed well in the first quarter, posting significant increases in both sales and operating income. A more favorable than expected mix of aftermarket to new product sales resulted in a higher than anticipated gross profit of 45.6%. The benefit of restructuring our corporate office is reflected in a 14.3% decline in these costs compared with last year's first quarter, despite a $375,000 charge associated with the settlement of a claim relative to a previously sold business included in current year results. Reflecting both the sales growth and cost controls, operating income increased 37.1% to $3.6 million from $2.6 million in last year's first quarter and earnings before interest, taxes, depreciation and amortization increased 31.6% to $4.0 million from $3.0 million. We do not pay federal income taxes as a result of our large net operating loss carryforward." Mr. White continued, "Our focus now is to complete a restructuring of our burdensome debt facilities as quickly as possible. We have been evaluating various proposals and have now targeted completion of the restructuring of our debt by September 30. We expect such a restructuring to substantially reduce our interest expense and enhance our profitability in subsequent periods." TransTechnology's June 29, 2003 balance sheet shows a total shareholders' equity deficit of about $5 million. TransTechnology Corporation -- http://www.transtechnology.com-- operating as Breeze-Eastern -- http://www.breeze-eastern.com-- is the world's leading designer and manufacturer of sophisticated lifting devices for military and civilian aircraft, including rescue hoists, cargo hooks, and weapons-lifting systems. The company, which employs approximately 180 people at its facility in Union, New Jersey, reported sales from continuing operations of $55.0 million in the fiscal year ended March 31, 2003. TRANSWITCH CORP: Reports $12 Million Net Loss for Second Quarter ---------------------------------------------------------------- TranSwitch Corporation (Nasdaq:TXCC) posted second quarter 2003 net revenues of $6.6 million and a net loss according to Generally Accepted Accounting Principles (GAAP) of $12.6 million. For the six-months ended June 30, 2003, the Company has posted net revenues of $10.7 million and a net loss of $30.0 million. During the second quarter of 2003, the Company reported a gross margin of $3.3 million. This margin was impacted by two factors; an excess inventory charge totaling $1.5 million and a cost of sales benefit from the sale of previously reserved inventory totaling $1.7 million. This compares to a gross margin of $2.9 million, which included a $0.7 million cost of sales benefit from the sale of previously reserved inventory, that the Company reported for the second quarter of 2002. For comparison purposes, the net loss on a GAAP basis (as restated due to a change from the cost to the equity method of accounting for the Company's investment in OptiX Networks, Inc.) for the relevant prior quarters was: -- for the second quarter of 2002, the net loss was $9.0 million. The net loss before income tax benefit was $14.2 million. The second quarter of 2002 was the last quarter that the Company recognized an income tax benefit; and -- for the first quarter of 2003, net loss was $17.4 million. "Although the conditions in the wireline telecom market place continue to be challenging and we still have limited visibility, we are encouraged by our second quarter results," stated Dr. Santanu Das, Chairman of the Board, Chief Executive Officer and the President of TranSwitch Corporation. "We are further encouraged by the fact that in the second quarter, we had 63 design-wins in 35 accounts and our EtherMap-3 product continues to have a very high level of interest." "Our objective continues to be a company that is a specialist in the SONET / Ethernet-over-SONET area. We see broad momentum behind Ethernet service, particularly in Asia," commented Dr. Das. "Our focus on the SONET / EoS area is based on the following: a) validation through design wins that EoS represents a growth segment in the wireline market; b) our considerable intellectual property in the EoS area; and c) the endorsement of our EoS products by major systems vendors. Accordingly, we believe that we are in the forefront of this critical marketplace," stated Dr. Das. "We are anticipating that third quarter 2003 net revenues will be in the $4.5 million range. We are estimating that our third quarter 2003 GAAP net loss will be in the range of $0.18 to $0.19 per basic and diluted share. This per share estimate excludes the potential impact of our proposed bond exchange and any potential further impact related to the application of FIN 46," concluded Dr. Das. TranSwitch Corporation, headquartered in Shelton, Connecticut, is a leading developer and global supplier of innovative high-speed VLSI semiconductor solutions - Connectivity Engines(TM) - to original equipment manufacturers who serve three end-markets: the Worldwide Public Network Infrastructure, the Internet Infrastructure, and corporate Wide Area Networks. Combining its in-depth understanding of applicable global communication standards and its world-class expertise in semiconductor design, TranSwitch Corporation implements communications standards in VLSI solutions that deliver high levels of performance. Committed to providing high-quality products and service, TranSwitch is ISO 9001 registered. Detailed information on TranSwitch products, news announcements, seminars, service and support is available on TranSwitch's home page at the World Wide Web site - http://www.transwitch.com As previously reported, Standard & Poor's affirmed its 'B-' corporate credit and senior unsecured debt ratings on Traswitch Corp. At the same time, Standard & Poor's revised the company's outlook to negative from stable. The outlook revision reflects diminished liquidity and ongoing cash usage, stemming from a severe decline in the company's markets. Transwitch's quarterly revenue run rate has been below $5 million and negative free cash flow has been about $20 million per quarter since June of 2001. The company may face difficulties increasing revenues from a very low base, given substantial competition and a rapidly evolving technology environment in the communications equipment market. UNITED AIRLINES: Fifth Third Gets Blessing to Make IAA Payments --------------------------------------------------------------- Fifth Third Bank, Indiana, as Indenture Trustee, obtained relief from the automatic stay to free trust funds held for the Indianapolis Airport Authority Special Facility Revenue Bonds, Series 1995 A (United Airlines, Inc. Indianapolis Maintenance Center Project), with $220,705,000 outstanding. Backgrounder On December 1, 1991, United Airlines entered into a Master Lease for facilities at the Indianapolis Airport. United also entered into a Trust on June 1, 1995, as a guaranty of Bonds for construction and improvement of facilities at the Indianapolis Airport. The Trust created a Bond Fund and a Construction Fund. United rejected its interest in the Master Lease with the IAA, thereby relinquishing its interest in the Facility. Therefore, if United ever had an interest in the Funds, it surely does not now. The Terms of the Construction Fund Trust Indenture are unambiguous -- United can only use money from the Construction Fund to pay costs of construction at the Facility or make interest payments on the Bonds. Similarly, the Bond Fund can be used only to pay indebtedness on the Bonds. Only if United pays all amounts due under the Master Lease, will it have any remaining interest in the Bond Fund. (United Airlines Bankruptcy News, Issue No. 22; Bankruptcy Creditors' Service, Inc., 609/392-0900) UNITED DEFENSE: Fitch Affirms BB Rating on Sr. Credit Facilities ---------------------------------------------------------------- Fitch Ratings has affirmed its 'BB' rating on United Defense Industries' senior secured credit facilities, and has revised the Rating Outlook to Positive from Stable. The affirmation takes into consideration the company's continued solid financial performance, cash flow generation and liquidity, UDI's appointment to the design team for Future Combat Systems ground combat vehicles and the company's position in the currently favorable defense spending environment. Fitch remains concerned with UDI's acquisition strategy. Partially mitigating this concern is the potential use of cash or secondary equity offerings to offset acquisition-related debt. Additional concerns focus on reduced spending on the Bradley program, timing of near term Bradley deliveries and a revenue shift to lower margin developmental work. In May 2002, Fitch changed UDI's Outlook from Positive to Stable mainly due to the impact of $300 million of additional debt from the United States Marine Repair acquisition and the uncertainty surrounding the fate of the Crusader program, which represented approximately 20% of UDI's revenues. Since then, USMR has performed well and UDI has continued to build upon its solid track record of accelerated debt reduction. Additionally, Fitch's previous concerns regarding Crusader uncertainty and UDI's role in the U.S. Army's transformation have been lessened as a result of UDI's appointment to develop the Crusader's replacement program, the Non-Line-of-Sight Cannon (NLOS-C), and the appointment to the design team for the development of FCS armored vehicles. Going forward, Fitch expects UDI to continue to exhibit solid financial performance and cash flow generation that will allow the company to pay down debt and exhibit improved credit protection measures. Fitch's revision of the Outlook to Positive from Stable assumes future acquisitions will be modest relative to UDI's existing business. The revision also assumes that UDI will continue to reduce debt in the near term. Future acquisitions could negatively affect credit quality and require Fitch to review its rating and outlook for UDI. The company's ability to use cash or equity to finance all or a portion of future acquisitions could mitigate Fitch's concerns relating to acquisition-related debt. UDI generated particularly strong free cash flow of $157 million in 2002 benefiting from a reversal of a $50 million deferred tax valuation allowance and improvements to working capital. This trend continued into the first quarter of 2003 with UDI generating $47 million of free cash flow. This strong cash flow generation has allowed UDI to continue to accelerate debt reduction. Since the July 2002 acquisition of USMR, UDI has paid down $133 million of bank debt while still increasing cash on the balance sheet. However, Fitch notes that in the first quarter of 2003, UDI accumulated cash as opposed to reducing debt. Despite the run off of net operating loss carry forwards which have historically offset cash tax payments for UDI, Fitch expects UDI to continue to generate solid free cash flow going forward. The proposed DoD budget for 2004 included significant reductions for the Bradley Fighting Vehicle program with spending authority budgeted at $113 million in 2004, down from $437 million in 2003. This production program represented approximately 19% of UDI's revenues and generates some of UDI's top margins. Subsequent to the submission of the 2004 Budget, the House Appropriations Committee and the Senate Appropriations Committee have proposed additional funding, $259 million and $62 million, respectively, for Bradley upgrades. Despite this proposed additional funding, Fitch remains concerned that potential future funding for the Bradley program may be shifted to newer, transformational platforms like the Interim Armored Vehicle. Current multi-year contracts carry the Bradley program through 2005. Due to the current deployment of troops in Iraq, the timing of Bradley deliveries and revenue recognition may be delayed in the near term. UDI is currently in discussions with the Army regarding modifications to the existing contract to allow UDI to recognize deliveries as scheduled. Fitch remains concerned that the combination of potential reduced spending and delivery delays could negatively affect UDI's results in the intermediate term. UDI has made good progress in solidifying its position on transformational military platforms. UDI's selection to the team that will design the FCS ground vehicles partially mitigates the effect of BFV funding cuts. However, this appointment does not necessarily guarantee UDI's level of participation on the production portion of the program. Since this program is only in the design phase, Fitch does not expect that revenues and margins from this program will be sufficient to make up for lower BFV revenues. The FCS vehicles are not expected to be fielded until 2008. As part of its role in FCS, UDI also has entered into an agreement for the design and production of the NLOS-C. Funding for the NLOS- C is expected to be approximately $353 million in 2004. Fitch remains concerned that this program may compete for funding with other programs that are intended to provide artillery like capabilities such as NetFires. Some of UDI's other developmental programs include the engineering development models for the Advance Gun System and Advance Vertical Launch System for the U.S. Navy's new DD(X) destroyer. Since DD(X) is the first in the family of a new class of ships, UDI may benefit from the application of these systems to related new ships such as CG(X). While UDI's participation on the aforementioned transformational platforms is a positive credit factor in the long term, Fitch recognizes that in the intermediate term, UDI's revenues and margins may be pressured by a gap between its current production and developmental programs. As of March 31, 2003, UDI maintained $156 million of cash, approximately $45 million of availability under its revolving credit facility and $26 million of current maturities, netting to a liquidity position of $175 million. Since the USMR acquisition, UDI has repaid $133 million of debt, resulting in solid credit protection measures for the rating category, with leverage, as defined by debt-to-EBITDAP, of 2.2 times and adjusted leverage, including rent and operating lease expenses, of 2.6x for the 12- month period ending March 31, 2003. UDI also maintained good interest coverage, as defined by EBITDAP-to-interest, and adjusted interest coverage, as defined by EBITDAPR-to-(interest plus rent), of 7.9x and 5.5x, respectively, for the same period. Since approximately two-thirds of UDI's debt carries a floating rate, net of interest rate swaps, UDI's interest coverage has benefited from a historically low interest rate environment. UPC POLSKA: Signs-Up BSI as Court Claims and Noticing Agent ----------------------------------------------------------- The U.S. Bankruptcy Court for the Southern District of New York gave its stamp of approval to UPC Polska, Inc.'s application to employ Bankruptcy Services LLC as the official claims and solicitation agent in its chapter 11 case. The Debtor tells the Court that it conducts business with many creditors and other parties in interest. These parties in interest may file proofs of claim in this case. The Debtor foresees that noticing, receiving and docketing of proofs of claim will be time consuming and burdensome on the Clerk's Office. Similarly, the process of transmitting the Plan, disclosure statement, ballots, related notices and other solicitation materials is a time-consuming, specialized, administrative task that should be outsourced to a professional. The Debtor believes that the retention of BSI as the Court's outside agent is in the best interests of its estate and parties in interest. Specifically, BSI will: a) notify all potential creditors of the filing of the bankruptcy petition as well as the setting of the first meeting of creditors pursuant to Section 341 of the Bankruptcy Code; b) maintain an official copy of the Debtor's schedules of assets and liabilities and statement of financial affairs, and listing all known creditors and the amounts owed; c) notify creditors of the bar date to be established in this Chapter 11 Case pursuant to Bankruptcy Rule 3003(c)(3), mailing a proof of claim form to all potential claimants and providing a certificate of mailing; d) coordinate receipt of filed claims with the Court and providing secure storage for all original proofs of claim; e) enter filed claims into BSI's database; f) work directly with the Debtor to facilitate the claims reconciliation process, including: (i) matching scheduled liabilities to filed claims, (ii) identifying duplicate and amended claims, (iii) categorizing claims within "plan classes" and (iv) coding claims and preparing exhibits for omnibus claims motions; g) maintain the official claims register and providing the Clerk with copies thereof as well as making changes, as required by the Court; h) maintain the official mailing list of all entities that have filed a proof of claim, which list shall be made available upon request by a party in interest or the Clerk; i) print and coordinate the mailing of ballots, disclosure statement and plan to all voting and non-voting parties; and j) assist with, among other things, the soliciting of votes on the plan and the tabulation and certification of results. Kathy Gerber, a Senior Vice President of BSI, discloses that the firm will charge the Debtor for services at its customary hourly rates: Kathy Gerber $210 per hour Senior Consultant $185 per hour Programmer $130 - $160 per hour Associate $135 per hour Data Entry/Clerical $40 - $60 per hour Schedules Preparation $225 per hour UPC Polska, Inc., headquartered in Denver, Colorado, is an affiliate of United Pan-Europe Communications N.V. The Debtors is a holding company, which owns various direct and indirect subsidiaries operating the largest cable television systems in Poland. The Company filed for chapter 11 protection in July 7, 2003 (Bankr. S.D.N.Y. Case No. 03-14358). Ali M.M. Mojdehi, Esq., and Ira A. Reid, Esq., at Baker & McKenzie represent the Debtor in its restructuring efforts. As of March 31, 2003, the Debtor listed $704,000,000 in total assets and $940,000,000 in total debts. VENTURE HOLDINGS: Wants Exclusivity Extended to September 24 ------------------------------------------------------------ Venture Holdings Company LLC and its debtor-affiliates ask the U.S. Bankruptcy Court for the Eastern District of Michigan to extend their exclusive periods to file a plan of reorganization and solicit acceptances of that plan from creditors. The Debtors want to prevent any other party-in-interest from filing a chapter plan of reorganization until September 24, 2003. If they can deliver their plan to the Court by Sept. 24, the Debtors want to preserve their exclusive right to solicit votes in favor of that plan through November 23, 2003. This is the Debtors' first request for an extension of their exclusive periods. The Debtors say the size and complexity of their cases entitles them to an extension and constitutes cause for an extension under 11 U.S.C. Sec. 1121. Venture employs 13,000 workers worldwide, generates $2 billion in annual revenues and owns and operates 63 facilities in 11 countries. The outcome of a German insolvency proceeding involving Peguform GmbH & Co. KG (a European Venture affiliate) has a direct impact on the U.S. Debtors' reorganization. The Debtors' capital structure is complicated. And, any plan-related negotiations have to involve General Motors Corporation, Ford Motor Company and DaimlerChrysler Corporation -- Venture's primary customers. Venture reports that it's experienced a liquidity crisis in recent months. The Debtors owe about $430 million of secured bank debt, $495 million on account of unsecured notes and bonds and other secured and unsecured debts. Venture Holdings Company LLC is a worldwide, full-service supplier, systems integrator and manufacturer of interior and exterior plastic components, modules and systems used in North American, European and Japanese automotive industries. Venture filed for chapter 11 protection on March 28, 2003 (Bankr. E.D. Mich. Case No. 03-48949). Judy A. O'Neill, Esq., Laura J. Eisele, Esq., and David E. Barnes, Esq., at Dymena Gossett PLLC in Detroit represent the Company in its restructuring. WEIRTON STEEL: Committee Wins Nod to Hire Blank Rome as Counsel --------------------------------------------------------------- The Official Committee of Unsecured Creditors of Weirton Steel Corporation sought and obtained the Court's authority to retain Blank Rome LLP as its counsel effective May 28, 2003. Lisa Watson, the Committee's Chairperson, explains that the Committee selected Blank Rome as its counsel because of the firm's expertise and experience in bankruptcy cases and, specifically, in representing creditors' committees in Chapter 11 cases. Blank Rome is a law firm of nearly 450 attorneys with offices located in New York City, Philadelphia, Washington, D.C., and Wilmington, Delaware. Furthermore, Ms. Watson adds, Blank Rome's broad-based practice, which includes expertise in the areas of finance, litigation, labor relations and tax, will permit it to represent fully the Committee's interests in an efficient and effective manner. Besides acting as the Committee's primary professional spokesperson, Blank Rome's services will include, without limitation, assisting, advising and representing the Committee with respect to these matters: (a) The administration of this case and the exercise of oversight with respect to the Debtor's affairs including all issues arising from or impacting the Debtor or the Committee in this Chapter 11 case; (b) The preparation on the Committee's behalf of all necessary applications, motions, orders, reports and other legal papers; (c) Appearances in the Bankruptcy Court and at statutory meetings of creditors to represent the Committee's interests; (d) The negotiation, formulation, drafting and confirmation of any plan of reorganization and matters related thereto; (e) The exercise of oversight with respect to any transfer, pledge, conveyance, sale or other liquidation of the Debtor's assets; (f) The investigation, if any, as the Committee may desire concerning the assets, liabilities, financial condition and operating issues concerning the Debtor that may be relevant to this case; (g) Communication with the Committee's constituents and others as the Committee may consider desirable in furtherance of its responsibilities; and (h) The performance of all of the Committee's duties and powers under the Bankruptcy Code and the Bankruptcy Rules and the performance of other services as are in the interests of those represented by the Committee or as may be ordered by the Court. As the Committee's counsel, Blank Rome will receive from the Debtor compensation on an hourly basis, in compliance with Sections 328, 330 and 331 of the Bankruptcy Code, the Bankruptcy Rules, the Local Bankruptcy Rules, the United States Trustee's Guidelines for Fees and Disbursements issued by the Office of the U.S. Trustee, and other procedures as may be fixed by a Court order, for professional services rendered and expenses incurred by Blank Rome. Marc E. Richards, Esq., a member of Blank Rome, informs Judge Friend that Blank Rome will bill the Debtor at its customary hourly rates and its customary reimbursement. At present, hourly billing rates of Blank Rome's professionals are: Partners $275 - 600 Associates 180 - 330 Legal assistants, law clerks and paraprofessionals 100 - 225 It is contemplated that Mr. Richards and Michael Brownstein will be the lead partners in this engagement. Mr. Richards and Mr. Brownstein's hourly rate is $535 According to Mr. Richards, Blank Rome has agreed to defer payment of 10% of its monthly fees subject to certain conditions. Blank Rome will receive payment at 80% of its normal hourly rates on a monthly basis. A "true up" will start August 31, 2003, and every four months thereafter. From that point forward, Blank Rome will seek payment for an additional 10%, in lieu of the 20%, as other professionals retained pursuant to the Court order. Mr. Richards relates that the payment of the 10% balance of Blank Rome's fees will be deferred until there is confirmation of a plan of reorganization or sale of substantially all of the Debtor's assets. Consistent with Blank Rome's practice, the firm will also charge for other services rendered in this case including long distance telephone, facsimile, photocopying, travel, business meals, computerized research, messengers, couriers, postage and other fees and expenses. Blank Rome believes that the failure to charge these expenses would require the firm to increase its hourly rates. From time to time, Mr. Richards tells the Court that Blank Rome performs work on behalf of Fleet Capital Corporation, The CIT Group of CIT Business Credit, Inc., Foothill Capital Corporation and GMAC Mortgage Corporation and GMAC Commercial Holdings Capital Mortgage Corporation, or their affiliates. Mr. Richards assures Judge Friend that none of the work performed on behalf of these creditors or their affiliates has been with respect to the Debtor. Blank Rome and its members, counsel and associates have no connection with the Debtor, its creditors or any other party-in- interest, or the Debtor's attorneys or accountants, or with the U.S. Trustee. Mr. Richards assures Judge Friend that Blank Rome is a "disinterested person" as defined in Section 101(14) of the Bankruptcy Code. (Weirton Bankruptcy News, Issue No. 5; Bankruptcy Creditors' Service, Inc., 609/392-0900) WHEELING: Court Approves US EPA & Coast Guard Claim Settlement -------------------------------------------------------------- Wheeling-Pittsburgh Steel Corporation brings a motion asking for entry of an order approving a Settlement Agreement regarding pre- petition claims that the United States Environmental Protection Agency has against WPSC and related Debtors. The EPA filed two proofs of claim against WPSC for unspecified amounts. These claims were, primarily, for penalties for alleged violations of certain environmental protection laws and regulations by WPSC at its various sites in both Ohio and West Virginia, including Steubenville, Ohio; Yorkville, Ohio; Follansbee, West Virginia; Mingo Junction, Ohio; and Martins Ferry, Ohio. One of the claims is for costs incurred by the United States in response to two oil spills that allegedly originated at a WPSC facility. The EPA alleges that the pre-petition penalties in the proofs of claim exceed $20 million. WPSC believes it can substantiate at least $10 million of the penalties. In the Plan, penalty claims were separately classified in Class 9 and were subordinated to the claims of general, unsecured creditors. The EPA has argued that WPSC improperly categorically subordinated the penalties to the claims of unsecured creditors. After considerable negotiations, the EPA, the Coast Guard and WPSC have agreed to the terms of a proposed Settlement Agreement that would resolve the penalties. The significant terms of the Settlement Agreement are: (1) Amount of Claim: The United States on behalf of the EPA and the Coast Guard will have a general, unsecured claim against WPSC in the amount of $5,500,000. Of this, $490,083 will be allocated to the Coast Guard's claim, representing the full amount of the costs the Coast Guard incurred in response to the oil spills. The remainder of the claim will be allocated to the EPA to satisfy its claims for penalties. The claim will be classified as a Class 7 claim under the Plan. (2) The United States, on behalf of the EPA and the Coast Guard, waives and releases its claims -- however, this Settlement Agreement only resolves all of the unsecured pre-petition claims that the United States on behalf of the EPA and the Coast Guard has against WPSC. Karen A. Visocan, Esq., at Calfee Halter & Griswold LLP in Cleveland, cautions that this Settlement Agreement does not resolve the EPA's claim asserted against Wheeling-Pittsburgh Corporation, which continues to pend and is not included in the release. That claim is settled in a separate document. Judge Bodoh signs the order approving and implementing this settlement. (Wheeling-Pittsburgh Bankruptcy News, Issue No. 43; Bankruptcy Creditors' Service, Inc., 609/392-0900) WORLD WIRELESS: Court Freezes Assets of Major Shareholder Group --------------------------------------------------------------- World Wireless Communications, Inc. (Amex: XWC), a developer of wireless and Internet based telemetry systems, announced a development affecting its largest stockholder group and its two senior creditors. The Company learned that a Federal judge in South Florida entered a temporary restraining order on July 10, 2003 against the Connecticut-based advisors of a purported large hedge fund (including Michael Lauer) which (i) restrains them from violating the anti-trust provisions of the Federal securities laws, (ii) freezes the assets of Lancer Offshore, Inc. (and certain other affiliated entities) until a hearing on July 18, 2003 and (iii) appoints Marty Steinberg, Esq., an attorney in the law firm of Hunton & Williams, LLP as receiver for Lancer Offshore, Inc., and several other entities, for marshaling and safeguarding their assets. Such action does not affect the Company directly. Lancer Offshore, Inc. and Lancer Partners, L.P. (which previously filed a bankruptcy proceeding in the Federal courts in 2003), together with The Orbiter Fund Ltd., comprise our largest stockholder group and currently own 7,295,853 issued and outstanding shares of our common stock out of 31,459,945 shares issued and outstanding at March 31, 2003, plus warrants to purchase 2,500,000 shares of the Company's common stock at $0.20 per share, or 28.8%, exclusive of warrants to purchase an aggregate of 1,010,000 shares as of such date. Mr. Lauer is believed to control the voting and disposition of these shares by virtue of his being the investment manager of these entities, is also the general partner of Lancer Partners, L.P. and is treated as the beneficial owner of these shares. This group has no representation on the Board of Directors of the Company and plays no active vote in the management of the Company. Lancer Offshore, Inc. and Lancer Partners, L.P. also are the Company's senior secured creditors based on their aggregate secured loans to the Company totaling $7,020,000 in principal amount outstanding as of the date hereof. In addition, such stockholder and his affiliates potentially could increase their ownership in the Company significantly. For further details concerning the Lancer group's stock ownership and the senior secured financing, see the Company's Form 10-K for the year ended December 31, 2002 which was filed with the SEC in May, 2003 (although it was not audited or reviewed by any independent accountants). The Company attempted to reduce its reliance on its largest stockholder group and secured creditors by entering into a Restructuring Agreement with Lancer Offshore, Inc. and Lancer Partners, L.P. in February, 2003, subject to the condition precedent that the Company receive an equity investment of at least $750,000. The key terms of such agreement are set forth below: (a) The Company would pay such creditors $1,400,000 for $2,400,000 principal amount of the senior secured notes, which would result in the elimination of $1,000,000 of indebtedness and leave an outstanding principal amount of $4,620,000 (which, because of the change in conversion rate thereof below, would be convertible into a maximum of 9,240,000 shares of common stock). (b) The Company would pay such creditors the sum of $100,000 in full payment of all interest accrued on the 2001 Notes to date (which is in excess of $1,600,000). (c) The maturity date of the 2001 Notes would be extended from May 29, 2003 until June 30, 2005. (d) The 2001 Notes would carry no further interest thereon in the future. (e) The 2001 Notes held by such creditors would become mandatorily convertible at the rate of one share for each $0.50 of debt, instead of the current rate of one share for each $0.05 of debt. Such mandatory conversion of the 2001 Notes would occur upon (i) the approval of such mandatory conversion by the Company's shareholders at a meeting of shareholders (which was given up to the then applicable ceiling amount of $5,000,000 but not for any excess thereof), and (ii) the Company's receipt of equity in an amount equal to the then outstanding principal balance of the 2001 Notes from persons other than Michael Lauer and his affiliates, including, without limitation, Lancer Offshore, Inc., Lancer Partners L.P. and The Orbiter Fund Ltd., on or before June 30, 2005 (instead of The current date of July 1, 2003). The Company is seeking financing, although the results of such efforts are not assured, which financing is necessary to consummate the previously reported conditional restructuring agreement with the Company's senior secured creditors. Greenwood Village-based World Wireless Communications, Inc. was founded in 1995 and is a developer of wireless and Internet systems, technology and products. World Wireless focuses on spectrum radios in the 900MHz band and has developed the X- traWeb(TM) system -- an Internet-based product designed for remote monitoring and control devices. X-traWeb's many applications included utility meters security systems, vending machines, asset management, and quick service restaurants. World Wireless' December 31, 2002 balance sheet shows a working capital deficit of about $9 million, and a total shareholders' equity deficit of close to $9 million. WORLDCOM INC: Pushing for Approval of Qwest Settlement Agreement ---------------------------------------------------------------- Worldcom Inc., and its debtor-affiliates ask the Court to approve their settlement and compromise of issues with Qwest Corporation and assumption of certain Agreements between the parties. Marcia L. Goldstein, Esq., at Weil Gotshal & Manges LLP, in New York, relates that prior to the Petition Date, Qwest Corporation and MCI WorldCom Network Services, Inc. entered into certain agreements, including: -- an Amended and Restated Master Services Agreement; -- an Amended and Restated Central Office-Based Remote Access Services Schedule; -- a Primary Rate Interface Service Schedule; and -- a Uniform Access Services Schedule. After the Petition Date, Qwest and the Debtors entered into: -- a Modification to Uniform Access Services Schedule; -- a Modification to Primary Rate Interface Service Schedule; and -- a Modification to Amended & Restated Central Office-Based Remote Access Service Schedule. Ms. Goldstein informs the Court that all of the Modifications have an effective date of April 1, 2003. Qwest and the Debtors also entered into a Settlement Agreement, dated as of April 30, 2003, wherein the Debtors agreed to assume the Agreements, as amended and modified by the Settlement Agreement and the Modifications. The parties entered into the Settlement Agreement to, among other things: (i) modify, assume, and affirm the COBRA Agreement, the PRI Agreement, and the UAS Agreement, each as modified by their Modifications and the Settlement Agreement; (ii) assume and affirm the MSA; (iii) establish the cure amounts for the Agreements and provide terms for payment of such cure amount; (iv) provide for the final resolution of certain disputes, claims and issues arising from or relating to the Agreements; and (v) ensure the continued provision of services by Qwest to WorldCom pursuant to the Agreements. The salient terms of the Agreements are: A. Cure: Qwest and the Debtors have agreed to resolve certain defaults under the contract in the form of a cure payment. The Debtors will pay Qwest $30,850,000 as cure in full and complete satisfaction of any and all defaults under the Agreements. Approximately $6,850,000 of this Payment is in consideration for PRI circuits that are being provided as of April 1, 2003 that will continue to be provided pursuant to the PRI Modification for 24 months. Approximately $6,850,000 reflects a discount for prepayment of the total amount the Debtors would be obligated to pay for the circuits if payment were made over the course of the 24- month period. The Debtors and Qwest agree that there will be no additional cure obligation. B. The UAL Modification: Lowers the monthly fee per circuit and provides that the Debtors may disconnect circuits at any time without payment of any early termination or other charges. C. The PRI Modification: Eliminates termination liabilities for any PRI circuits terminated prior to the PRI Modification effective date. Provides for lower termination liabilities for circuits ordered after the PRI Modification effective date. D. The COBRA Modification: Provides for lower monthly fees per circuit and lowers the minimum port commitment. Allows for the Debtors to disconnect circuits as of the COBRA Modification effective date without being subject to disconnect or early termination fees. E. Releases: As of April 1, 2003, Qwest and the Debtors will exchange mutual releases. The Qwest Releasors irrevocably waive any claim for material breach or right to terminate, alter, limit or suspend their performance in any way under the Agreements due to: a) the fact that WorldCom and certain of its subsidiaries and affiliates have filed voluntary petitions under Chapter 11; b) any claim that WorldCom was insolvent, unable to pay its debts in the ordinary course of business, or otherwise was financially troubled at any time prior to July 21, 2002; or c) any disclosures by WorldCom at any time regarding its prepetition financial condition. F. No Termination Liability: For the avoidance of doubt, WorldCom will not have any liability to any of the Qwest Releasors for any early termination charges, costs, equipment repurchase or lease charges, or other fees or expenses in connection with the termination and disconnect of services and the reduction in the minimum purchase commitment under the Agreements being implemented by the Modifications and the termination and disconnect of the services provided for in the Modifications, including any Costs under: a) the Agreements, b) any prior agreements or tariffs that were for the services now being provided under the Agreements, and c) any agreements related to the sale by WorldCom Entities to Qwest Entities of equipment used to provide the services under the Agreements, provided, however, that nothing in the Settlement Agreement will waive or release Claims for Costs due for the termination and disconnection of services under agreements. The Agreements, as modified by the Modifications, benefit the Debtors in a number of ways because they: a) allow the Debtors to continue to obtain services from Qwest; b) allow the Debtors to disconnect unneeded services; c) reduce the Debtors' minimum purchase commitment; and d) resolve various defaults and disputes between the parties. As a result of these benefits, Ms. Goldstein insists that the Agreements, as modified by the Modifications, represent substantial cost savings to the Debtors and their estates. Accordingly, the Agreements, as modified by the Modifications, are critical assets of the estate, which are necessary for the generation of significant revenues. Ms. Goldstein contends that the Settlement Agreement and the Modified Agreements are fair and reasonable under the circumstances, represent the exchange of reasonably equivalent value between the parties, and in no way unjustly enrich any of the parties. In addition, the settlement constitutes the contemporaneous exchange of new value and legal, valid, and effective transfers between the parties. Furthermore and perhaps most importantly, the Modified Agreements, incorporating the resolution of certain issues between the parties, represent substantial cost savings to the Debtors and their estates. Absent authorization to enter into and implement the Settlement Agreement and the Agreements, as modified by the Modification, Ms. Goldstein is concerned that the parties might require extensive judicial intervention to resolve their many disputes and it is uncertain which of the parties would emerge with a favorable and successful resolution of their claims. This litigation would be costly, time-consuming, and distracting to management and employees alike. Moreover, approval would eliminate the attendant risk of litigation and would avoid the delay of the implementation of the changes effected in, and the cost savings associated with, the Settlement Agreement and the Modifications. "The settlement reflected in the Settlement Agreement and the Modified Agreements is the product of extensive, arm's-length, good faith negotiations between the parties," Ms. Goldstein maintains. "Accordingly, the Debtors believe that the settlement is appropriate in light of the relevant factors and should be approved." (Worldcom Bankruptcy News, Issue No. 32; Bankruptcy Creditors' Service, Inc., 609/392-0900) * Joseph S. Wu Joins Sheppard Mullin in San Diego as Partner ------------------------------------------------------------ Sheppard, Mullin, Richter & Hampton LLP announced that Joseph S. Wu has joined the Firm as partner in the Business Trial Practice Group in San Diego. As an experienced trial lawyer, Wu has a strong reputation for effectively assisting clients in resolving business disputes between companies across the Pacific Rim. Wu will also serve as leader of Sheppard Mullin's Asia Practice, aiming to merge his Asian client base into Sheppard Mullin's existing international platform to support Firm clients in both U.S. in-bound and out-bound investments and related activities. Wu will focus the Firm's growth in key areas of international business transactions, including intellectual property rights (counseling, prosecution and litigation), products liability, and real property investments. Robert Sbardellati, Administrative Partner of the San Diego office, said, "We are delighted to have Joe Wu join our San Diego office. He has established an outstanding practice advising Asian businesses on a variety of matters including international business disputes and transactions. Joe is an excellent addition to the firm's international practice and will complement the firm's core areas of litigation, corporate, finance, employment law and real property." Added Robert Beall, Chair of the Business Trial Practice Group, "We're excited to have Joe as part of our Litigation Team. He has a diverse client base and his international practice is key to our continued strategic growth in this area." Jerry J. Gumpel, leader of the Firm's International Practice Group, said, "We are pleased that Joe has joined Sheppard Mullin. Joe has an outstanding reputation in both the legal arena and within the Asian business community. Our Firm has long had a significant transactional international practice, and Joe's litigation expertise adds to the depth and breadth of the services we provide for all of our international clients and our domestic clients with global legal needs." Commented Wu, "I am most impressed by the quality of the lawyers I've met at Sheppard Mullin, and I look forward to assisting my fellow partners in strengthening the Firm's Asia practice in the years to come." Wu regularly represents clients in various international arbitration forums including the American Arbitration Association (U.S.), the International Chamber of Commerce (Paris), and the World Intellectual Property Organization (Geneva). Wu also practices before various State and Federal Courts throughout the United States. Wu received his law degree, with Moot Court Honors, from the University of California at Los Angeles Law School in 1990, and his undergraduate degree, cum laude, from the University of California at Irvine in 1986. He is admitted to practice in California. Wu is a member of the American, California, San Diego, Los Angeles, and Southern California Chinese American Lawyers Bar Associations. He is also a Founding Director of the Taiwanese American Lawyers Association. Wu also served as a Director of the Taiwanese American Foundation of San Diego and as President of the Taiwanese Chamber of Commerce (San Diego) and Taiwanese American Citizens League (Los Angeles). Additionally, Wu also serves on the arbitrator and mediator panel with the Los Angeles Superior Court. He is also a Director of UCBH Holdings, Inc. and United Commercial Bank. Wu regularly conducts presentations in the Asian business community in Southern California on various topics, including the formation of business organizations, corporate governance, and dispute resolution and litigation prevention techniques. Wu is fluent in Chinese Mandarin and Taiwanese. Sheppard Mullin has more than 380 attorneys among its eight offices in San Diego, Del Mar Heights, Orange County, Los Angeles, West Los Angeles, Santa Barbara, San Francisco and Washington, D.C. The full-service firm provides counsel in Antitrust and Trade Regulation; Business Litigation; Construction, Environmental, Real Estate and Land Use Litigation; Corporate; Entertainment and Media; Finance and Bankruptcy; Financial Institutions; Government Contracts and Regulated Industries; Healthcare; Intellectual Property; International; Labor and Employment; Real Estate, Land Use, Natural Resources and Environment; Tax, Employee Benefits, Trusts and Estates; and White Collar and Civil Fraud Defense. The Firm celebrated its 75th anniversary in 2002. * BOOK REVIEW: Risk, Uncertainty and Profit ------------------------------------------- Author: Frank H. Knight Publisher: Beard Books Softcover: 381 pages List Price: $34.95 Review by Gail Owens Hoelscher Order your personal copy today at http://www.amazon.com/exec/obidos/ASIN/1587981262/internetbankrupt The tenets Frank H. Knight sets out in this, his first book, have become an integral part of modern economic theory. Still readable today, it was included as a classic in the 1998 Forbes reading list. The book grew out of Knight's 1917 Cornell University doctoral thesis, which took second prize in an essay contest that year sponsored by Hart, Schaffner and Marx. In it, he examined the relationship between knowledge on the part of entrepreneurs and changes in the economy. He, quite famously, distinguished between two types of change, risk and uncertainty, defining risk as randomness with knowable probabilities and uncertainty as randomness with unknowable probabilities. Risk, he said, arises from repeated changes for which probabilities can be calculated and insured against, such as the risk of fire. Uncertainty arises from unpredictable changes in an economy, such as resources, preferences, and knowledge, changes that cannot be insured against. Uncertainty, he said "is one of the fundamental facts of life." One of the larger issues of Knight's time was how the entrepreneur, the central figure in a free enterprise system, earns profits in the face of competition. It was thought that competition would reduce profits to zero across a sector because any profits would attract more entrepreneurs into the sector and increase supply, which would drive prices down, resulting in competitive equilibrium and zero profit. Knight argued that uncertainty itself may allow some entrepreneurs to earn profits despite this equilibrium. Entrepreneurs, he said, are forced to guess at their expected total receipts. They cannot foresee the number of products they will sell because of the unpredictability of consumer preferences. Still, they must purchase product inputs, so they base these purchases on the number of products they guess they will sell. Finally, they have to guess the price at which their products will sell. These factors are all uncertain and impossible to know. Profits are earned when uncertainty yields higher total receipts than forecasted total receipts. Thus, Knight postulated, profits are merely due to luck. Such entrepreneurs who "get lucky" will try to reproduce their success, but will be unable to because their luck will eventually turn. At the time, some theorists were saying that when this luck runs out, entrepreneurs will then rely on and substitute improved decision making and management for their original entrepreneurship, and the profits will return. Knight saw entrepreneurs as poor managers, however, who will in time fail against new and lucky entrepreneurs. He concluded that economic change is a result of this constant interplay between new entrepreneurial action and existing businesses hedging against uncertainty by improving their internal organization. Frank H. Knight has been called "among the most broad-ranging and influential economists of the twentieth century" and "one of the most eclectic economists and perhaps the deepest thinker and scholar American economics has produced." He stands among the giants of American economists that include Schumpeter and Viner. His students included Nobel Laureates Milton Friedman, George Stigler and James Buchanan, as well as Paul Samuelson. At the University of Chicago, Knight specialized in the history of economic thought. He revolutionized the economics department there, becoming one the leaders of what has become known as the Chicago School of Economics. Under his tutelage and guidance, the University of Chicago became the bulwark against the more interventionist and anti-market approaches followed elsewhere in American economic thought. He died in 1972. ********* 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. Each Tuesday edition of the TCR contains a list of companies with insolvent balance sheets whose shares trade higher than $3 per share in public markets. At first glance, this list may look like the definitive compilation of stocks that are ideal to sell short. Don't be fooled. Assets, for example, reported at historical cost net of depreciation may understate the true value of a firm's assets. A company may establish reserves on its balance sheet for liabilities that may never materialize. The prices at which equity securities trade in public market are determined by more than a balance sheet solvency test. 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 2003. 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 $675 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 ***