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/raid1/www/Hosts/bankrupt/TCR_Public/040810.mbx T R O U B L E D C O M P A N Y R E P O R T E R Tuesday, August 10, 2004, Vol. 8, No. 167 Headlines ACCERIS COMMS: Implements Plan to Reduce Costs & Improve Results AIR CANADA: Creditors' Meeting Proxy Deadline Slated on Friday AIR CANADA: New GSM Wants Carrier to Pay $1.6 Mil. Lease Arrearage AIR CANADA: Reports $510 Million Net Loss in Second Quarter AIR CANADA: WestJet Continues Diversion Strategy in Litigation ALBANY MOLECULAR: Reschedules Q2 2004 Earnings Release to Friday AMERIDEBT: Hires Freeborn & Peters as Special Litigation Counsel ARMSTRONG HOLDINGS: 3rd Cir. Says Maertin Litigation Can Proceed BEVERLY ENTERPRISES: Elects Melanie Dreher to Board of Directors BLOCKBUSTER INC: S&P Assigns B+ Rating to New $300M Sub. Debt BURLINGTON IND: BII Trust Wants Court Nod on EPA Settlement Pact C2 MEDIA: Creditors Must Vote on Debtor's Plan by Friday, Aug. 13 CENTURY ALUMINUM: 96% of Sr. Noteholders Agree to Amend Indenture CHEMED CORP: Declares Quarterly Dividend of 12 Cents Per Share COVANTA: Parties Settle $741K Babcock Claims for Unpaid Use Fees CRDENTIA CORP: Summary of June 16 Debt & Equity Transactions CROWN CORK: Moody's Gives Ba3 Ratings to Notes & Credit Facilities CROWN HOLDINGS: S&P Gives BB Bank Loan Rating to $500M Facilities CURATIVE: S&P Affirms Low-B Ratings & Says Outlook is Negative DELTA AIR: Strongest Bankruptcy Language to Date in Form 10-Q DILLARD'S: Selling Credit Card Portfolio to GE Consumer Finance ENERSYS CAPITAL: Moody's Upgrades Senior Implied Ratings to Ba3 ENRON: Asks Court to Nix Employee Claims Totaling $6.8 Million ENRON: Ex-EBS CEO Kenneth Rice Pleads Guilty to Securities Fraud FLEMING COS.: Wants Court Nod on UFCW Local 789 Settlement Pact FMAC LOAN: Bad Credit Performance Prompts Moody's Ratings Review FT WILLIAMS: Hires Hamilton Gaskins as Bankruptcy Counsel GENCORP INC: Fitch Lowers Ratings & Says Outlook is Negative GEORGIA GULF: Moody's Ba3 Rating Under Review for Possible Upgrade GRUPO TMM: 9-1/2% & 10-1/4% Noteholders Agree to Amend Indentures HIGHWOODS: S&P Places Credit Ratings on CreditWatch Negative HOLLYWOOD ENT: S&P's B+ Corporate Credit Rating on Negative Watch HORIZON NATURAL: Newcoal Can Credit Bid Claims at Aug. 17 Auction INTERNATIONAL HI-TECH: Appoints Dan Hallman as U.S. Sales Director INTERNATIONAL HI-TECH: COO Guarantees $4.5 Mil. Mortgage Financing INTERNATIONAL HI-TECH: Gets More Patents & Develops New Products INTERNATIONAL WIRE: Confirmation Objections Due on August 12 KAISER ALUMINUM: Comalco Says $525 Million QAL Price is Too High LEASE INVESTMENT: Fitch Downgrades Four Classes to Low-B Ratings LITFUNDING: Inks Non-Binding Letter of Intent for $2.5 Mil Funding LORAL SPACE: Patrick Brant Succeeds Terry Hart as Skynet President LOYALTYPOINT: Ability to Continue as a Going Concern is in Doubt LUCKY LUCK FARMS: Case Summary & 16 Largest Unsecured Creditors MAGELLAN AEROSPACE: Posts $33.3 Million Half-Year Net Loss MAXTOR CORP: Weak Operating Results Prompt Moody's Stable Outlook MILLER DIVERSIFIED: Sale to Miller Feed Lots Still Pending MIRANT: MAGi Committee Wants Debtors to Sign Hedging Pacts MISSION ENERGY: Moody's Upgrades Sr. Sec. Rating to B3 from Caa2 MISSISSIPPI CHEM: Terra to Acquire Company for Approx. $268 Mil. MIV THERAPEUTICS: Capital Deficit Raises Going Concern Doubt MKP CBO II: S&P Lowers Class B and C Note Ratings to 'B+' NATIONAL CENTURY: VI/XII Trust Wants Klee Tuchin Hired as Counsel NEWFIELD EXPLORATION: Moody's Affirms Ba2 Senior Implied Rating NORTEL NETWORKS: Receives Global IP Sound Warrants NORTHWESTERN CORP: Incurs $4.8 Million 2004 Second Quarter Loss NOVADEL PHARMA: Ability to Continue Operations is in Doubt OMI TRUST: S&P Junks M-2 Classes After Interest Payment Default ORDERPRO LOGISTICS: Sues Former CEO in Arizona State Court PACIFIC GAS: U.S. Trustee Amends Unsecured Creditors Committee PARMALAT: Bondi Sues Citigroup for Fraud, RICO Violations, et al. PARMALAT: Antitrust Authority Probes Newlat & Carnini Transactions PENN OCTANE CORP: Auditors Raise Going Concern Doubt PILLOWTEX CORP: Hires Towers Perrin as to Fight PBGC Claims PNC MORTGAGE: S&P Affirms Low B-Ratings on Six Certificate Classes POLYONE CORP: Fitch Affirms Low-B Ratings Despite Improvement RCN CORP: Court Approves Committee's Bid to Retain Chanin Capital RELIANCE: Liquidator Wants to Sell 15-Acre Parcel for $2.6 Million ROMAN INDUSTRIES: Case Summary & 20 Largest Unsecured Creditors SBS INTERACTIVE: Completes $500,000 Private Placement Transaction SCAN-OPTICS: Completes Recapitalization & Extends Loan Maturities SHOWCASE AUTO: First Creditors Meeting Slated for August 24 SOBIESKI BANCORP: MFB Financial Closes $1.156 Million Acquisition SOLUTIA INC: Court Okays Second Amendment to DIP Financing Pact STANADYNE CORP: Kohlberg & Co. Completes $330 Million Buy-Out TENET HEALTHCARE: Cooperating in New Justice Dept. Probe in Mo. UAL CORP: United ALPA Issues Statement on Pilot Pension Plans UNIFIED HOUSING: First Creditors Meeting Set for September 8 UNITED REFINING: Completes $200M Private Senior Debt Offering UNIVERSAL ACCESS: Hires Buccino & Associates as Financial Advisors UNIVERSAL ACCESS: Hires Shefsky & Froelich as Special Counsel US AIRWAYS: Transfers $18 Million WestLB Claim to Wilmington Trust U.S. PLASTIC: First Creditors Meeting Slated for September 1 USG CORP: Trade Creditors Sell 81 Claims Totaling $1,292,758 VERIDICOM INT'L: Deficits Raise Going Concern Doubt WESTPOINT: BofA Objects to Key Employee Retention Plan Extension ZI CORPORATION: Names Donald P. Moore to Board of Directors * Large Companies with Insolvent Balance Sheets ********* ACCERIS COMMS: Implements Plan to Reduce Costs & Improve Results ---------------------------------------------------------------- Acceris Communications Inc. (OTCBB:ACRS) has implemented a plan to significantly reduce its operating costs. The cost cutting reflects efficiencies created by the ongoing integration of Company operations related to its four acquisitions during the last three years and management's commitment to its objective of achieving break-even Operating Income (defined by Acceris as EBITDA less amounts related to discontinued operations) by the end of 2004, despite softening revenue and regulatory uncertainty. Approximately 20 percent of the Company's work force will be removed from the organization. The reduction will affect staff in the San Diego, Pittsburgh and Somerset facilities. The Company anticipates that it will record one-time expenses of between $1 million and $2 million during the third quarter ended Sept. 30, 2004 related to this restructuring. Restructuring charges will include employee reduction costs and lease termination costs, and may include additional charges related to potential asset impairments. Management is in the process of assessing the impact of these measures on other assets. "The fiercely competitive nature of telecom combined with the changing regulatory environment has made it challenging for all players in the industry. In order to remain competitive, we have taken decisive action to reduce our operating costs and appropriately staff our organization," commented Kelly Murumets, President of Acceris. "We are confident that we will continue to provide the same excellent quality of service that our customers have come to know and expect." Acceris Communications is a subsidiary of Counsel Corporation (NASDAQ:CXSN)(TSX:CXS). About Acceris Acceris is a broad based communications company serving residential, small and medium-sized business and large enterprise customers in the United States. A facilities-based carrier, it provides a range of products including local dial tone and 1+ domestic and international long distance voice services, as well as fully managed and fully integrated data and enhanced services. Acceris offers its communications products and services both directly and through a network of independent agents, primarily via multi-level marketing and commercial agent programs. Acceris also offers a proven network convergence solution for voice and data in Voice over Internet Protocol communications technology and holds two foundational patents in the VoIP space. Acceris Communications' March 31, 2004, balance sheet showed a $47,292,000 total stockholders' deficit, compared to a deficit of $49,309,000 at December 31, 2003. AIR CANADA: Creditors' Meeting Proxy Deadline Slated on Friday -------------------------------------------------------------- Pursuant to the order of the Ontario Superior Court of Justice in Toronto, Air Canada's Unsecured Creditors are scheduled to meet on August 17, 2004, at 10:00 a.m. Montreal Time, to consider and to pass a resolution approving the carrier's consolidated plan of reorganization, compromise and arrangement pursuant to the Companies' Creditors Arrangement Act. Affected Unsecured Creditors who wish to vote on the Resolution must have submitted their Proofs of Claim in accordance with the Court's previous Claims Orders. Affected Unsecured Creditors who fail to file a Proof of Claim are neither entitled to attend or vote at the Creditors' Meeting. Affected Unsecured Creditors can also appoint a proxy to attend the meeting in his or her behalf. Proxies must be received by the Monitor prior to 5:00 p.m. Montreal Time on August 13, 2004, or 48-hours (excluding Saturdays, Sundays and holidays) before the time of any adjournment of the Creditors' Meeting. Proxies must be delivered to the Monitor: Ernst & Young, Inc. 355 Portage Avenue P.O. Box 2730 Winnipeg, Manitoba, R3B 2C3 Headquartered in Saint-Laurent, Quebec Canada, Air Canada -- http://www.aircanada.ca/-- represents Canada's only major domestic and international network airline, providing scheduled and charter air transportation for passengers and cargo. The Company filed for CCAA protection on April 1, 2003 (Ontario Superior Court of Justice, Case No. 03-4932) and Section 304 petition with the U.S. Bankruptcy Court for the Southern District of New York (Case No. 03-11971). Matthew A. Feldman, Esq., and Elizabeth Crispino, Esq., at Willkie Farr & Gallagher serve as the Debtors' U.S. Counsel. When the Debtors filed for protection from its creditors, they listed C$7,816,000,000 in assets and C$9,704,000,000 in liabilities. AIR CANADA: New GSM Wants Carrier to Pay $1.6 Mil. Lease Arrearage ------------------------------------------------------------------ New GSM Holding Corporation leases to Air Canada the premises at 355 Portage Avenue, in Winnipeg, Manitoba, which houses the primary data center for Air Canada's worldwide passenger reservation system. The Lease is for a 27-year term, beginning December 31, 1996. The Lease requires Air Canada to pay $6,253,600 as Fixed Net Rent plus $286,000 as Additional Fixed Net Rent, per annum, together with other obligations payable as rent under the Lease. As a condition of the airline's continued occupancy, New GSM asks Mr. Justice Farley to compel Air Canada to pay all amounts due and owing under the Lease. Air Canada presently owes $1,634,900 under the Lease for the rent from January 1, 2003 to March 31, 2003. David S. Ward, Esq., at Cassels Brock & Blackwell, LLP, in Toronto, Ontario, asserts that New GSM is a critical supplier that is entitled to be brought current pursuant to the Initial CCAA Order. Mr. Ward explains that the Leased Premises is critical to Air Canada's operations. Air Canada has not terminated, repudiated or disclaimed the Lease. However, the airline has not formally indicated that it intends to remain in the Premises. Meanwhile, Air Canada continues to occupy the Leased Premises, and to sublease and collect rent from its subtenants of portions of the Leased Premises. New GSM filed a claim in November 2003 for the payment of all outstanding amounts due under the Lease. New GSM included a claim for payment in full of all unpaid rent for the period from January 1, 2003 to March 31, 2003, plus interest. Ernst & Young, Inc., in its capacity as the airline's Monitor, denied New GSM's Lease Arrears Claim as a claim that Air Canada must pay. The Monitor allowed New GSM's Lease Arrears Claim as an ordinary unsecured claim that is to be compromised under Air Canada's Plan of Arrangement. New GSM further asks the CCAA Court to find that the Lease is unaffected for the purposes of Air Canada's Plan. Headquartered in Saint-Laurent, Quebec Canada, Air Canada -- http://www.aircanada.ca/-- represents Canada's only major domestic and international network airline, providing scheduled and charter air transportation for passengers and cargo. The Company filed for CCAA protection on April 1, 2003 (Ontario Superior Court of Justice, Case No. 03-4932) and Section 304 petition with the U.S. Bankruptcy Court for the Southern District of New York (Case No. 03-11971). Matthew A. Feldman, Esq., and Elizabeth Crispino, Esq., at Willkie Farr & Gallagher serve as the Debtors' U.S. Counsel. When the Debtors filed for protection from its creditors, they listed C$7,816,000,000 in assets and C$9,704,000,000 in liabilities. (Air Canada Bankruptcy News, Issue No. 43; Bankruptcy Creditors' Service, Inc., 215/945-7000) AIR CANADA: Reports $510 Million Net Loss in Second Quarter ----------------------------------------------------------- Air Canada reported a $22 million operating income before reorganization and restructuring items compared to an operating loss before reorganization and restructuring items of $270 million in the second quarter of 2003, an improvement of $292 million. Operating revenues were up $247 million or 15 per cent. The improvement in passenger revenues was due to a recovery in most markets, notably in the Pacific market. In the second quarter of 2003, passenger revenues were negatively impacted due to lower domestic and international demand resulting from the SARS crisis. Operating expenses were reduced by $23 million or 1 per cent from the second quarter of 2003 in spite of significantly higher fuel prices and an ASM capacity increase of 11 per cent. With near record fuel prices, fuel expense rose $82 million or 28 per cent from the second quarter of 2003. Unit cost was 11 per cent below the 2003 level, down 15 per cent, excluding fuel. Salary and wage expense per ASM declined 22 per cent from the second quarter of 2003. Expense reductions were recorded in essentially all controllable categories including salaries and wages, aircraft rent, aircraft maintenance materials and supplies, and communications and information technology. The unit cost improvement reflects, in large part, the cost reduction initiatives undertaken under the restructuring process. In the case of certain aircraft lease amendments, conditional upon emergence from creditor protection, the higher cost of the original agreement continues to be recorded in operating expense. As well, the Corporation's pension expenses in the quarter do not yet reflect the lower levels, which will be recorded post emergence with fresh start accounting. "These results reflect a continuation of the upward momentum reported during the first quarter of 2004," said CEO Robert Milton. "We achieved record load factors for the quarter and revenues have recovered overall following the devastating impact of SARS and the war in Iraq last year. We experienced significant recovery in yields from 2003 levels in July and bookings for the remainder of August and September remain strong. Our passenger revenue generation for 2004 remains on plan and despite high fuel prices, we expect to report improved year over year operating results for the third quarter. "I am particularly encouraged by our strong performance in the domestic market due in part to positive response to Air Canada's new simplified fare products which allow customers to choose the fare that best suits their needs. With lower unit operating costs and our ongoing focus in bringing new technology online to further automate and simplify our customers' travel experience, we are successfully transitioning to a new business model that is allowing us to compete effectively in an intensely competitive low cost domestic market. "We achieved unit cost reductions of 11 per cent this quarter despite record fuel and the continuing upward spiral of airport and navigation fees. As the full benefit of reduced aircraft rent and pension expense will only be recorded post emergence with fresh start accounting, our progress in unit cost reduction is encouraging. The labour cost realignments completed this quarter in addition to the restructuring of supplier contracts and aircraft leases will effectively reduce Air Canada's operating costs by approximately $2 billion annually. However current record high fuel prices are a concern and a compelling reason to vigilantly continue reducing costs to ensure our viability going forward. "While we still have work to do in the next two months, we are on track to exit from CCAA protection at the end of September. Following the successful ratification of all our labour agreements in mid-July, the Circular and Plan of Arrangement was sent to creditors in preparation for their vote on the Plan on August 17th, as required. "We would not have reached this advanced stage without the significant contribution and determined efforts of the people of Air Canada. It has been a difficult and stressful time for our employees and I thank them for their professionalism, hard work and continued focus on taking care of our customers. On behalf of all the people of Air Canada I also thank our customers -- we remain committed to earn their ongoing support through excellent service and as always an uncompromising focus on safety." On April 1, 2003, Air Canada obtained an order from the Ontario Superior Court of Justice providing creditor protection under CCAA. Air Canada also made a concurrent petition under Section 304 of the U.S. Bankruptcy Code. The Corporation intends to emerge from CCAA protection on September 30, 2004 following a creditor vote to be held on August 17, 2004. As a result of restructuring under CCAA, the results in this quarter continue to reflect a number of significant reorganization and restructuring charges directly associated with the restructuring; such charges will also be recorded in the third quarter. These "reorganization and restructuring items" represent revenues, expenses, gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business under CCAA. For the quarter, these mainly non-cash reorganization and restructuring items amounted to $426 million compared to $217 million in the second quarter of 2003. Including reorganization and restructuring items, the net loss for the quarter was $510 million compared to a net loss of $566 million in the second quarter of 2003. Air Canada reiterates that current shareholders of the corporation will receive only nominal, if any, consideration for their existing shares upon the corporation's emergence from CCAA protection. The current shareholders' participation is expected to be valued at less than 0.01 per cent of the total equity of the emerging corporation. Air Canada's Second Quarter 2004 Management's Discussion & Analysis and Interim Consolidated Financial Statements & Notes will be available on Air Canada's website and at http://sedar.com/ A copy may also be obtained on request by contacting Shareholder Relations at (514) 422-5787 or 1-800-282-7427. Headquartered in Saint-Laurent, Quebec Canada, Air Canada -- http://www.aircanada.ca/-- represents Canada's only major domestic and international network airline, providing scheduled and charter air transportation for passengers and cargo. The Company filed for CCAA protection on April 1, 2003 (Ontario Superior Court of Justice, Case No. 03-4932) and Section 304 petition with the U.S. Bankruptcy Court for the Southern District of New York (Case No. 03-11971). Matthew A. Feldman, Esq., and Elizabeth Crispino, Esq., at Willkie Farr & Gallagher serve as the Debtors' U.S. Counsel. When the Debtors filed for protection from its creditors, they listed C$7,816,000,000 in assets and C$9,704,000,000 in liabilities. AIR CANADA: WestJet Continues Diversion Strategy in Litigation -------------------------------------------------------------- Air Canada says WestJet's "defence and counterclaim is entirely without merit and represents a further attempt to divert attention from their corporate espionage scheme and the recent departure of WestJet co-founder Mark Hill." WestJet CEO Clive Beddoe's recent acknowledgment of inappropriate activity by WestJet senior executive and cofounder Mark Hill, supports Air Canada's claim. Air Canada is seeking to recover $220 million from WestJet in a lawsuit commenced in April 2004. WestJet and certain executives were involved in corporate espionage on a massive scale against Air Canada for a year. Mark Hill has admitted under oath that WestJet surreptitiously accessed Air Canada's password-protected employee website approximately a quarter of a million times during that time, and created automated technology to download and analyze passenger load and booking information. By obtaining access to this confidential information, including the number of passengers booked on any flight on any route Air Canada flies anywhere in the world up to a year in advance, WestJet was able to compile computer-generated reports for its own strategic planning, routing and pricing decisions, with a high degree of accuracy and very little risk. Mr. Hill resigned from WestJet on July 14, several months after being placed on paid leave in the aftermath of it becoming publicly known that he and WestJet had engaged in corporate espionage. Air Canada looks forward to hearing in open court WestJet's explanation for improperly accessing Air Canada's confidential employee website nearly aquarter of a million times over a 12- month period. Headquartered in Saint-Laurent, Quebec Canada, Air Canada -- http://www.aircanada.ca/-- represents Canada's only major domestic and international network airline, providing scheduled and charter air transportation for passengers and cargo. The Company filed for CCAA protection on April 1, 2003 (Ontario Superior Court of Justice, Case No. 03-4932) and Section 304 petition with the U.S. Bankruptcy Court for the Southern District of New York (Case No. 03-11971). Matthew A. Feldman, Esq., and Elizabeth Crispino, Esq., at Willkie Farr & Gallagher serve as the Debtors' U.S. Counsel. When the Debtors filed for protection from its creditors, they listed C$7,816,000,000 in assets and C$9,704,000,000 in liabilities. ALBANY MOLECULAR: Reschedules Q2 2004 Earnings Release to Friday ---------------------------------------------------------------- Albany Molecular Research, Inc. (Nasdaq: AMRI) is rescheduling the release of second quarter 2004 results and its previously announced earnings conference call. The company expects to report second quarter 2004 results and hold a conference call to discuss the results by Friday, August 13, 2004. The company will make an announcement when the definitive date and time are set. The earnings release and conference call were previously scheduled for Monday, August 9, 2004. As previously disclosed by the company, the company expects to incur restructuring charges, as well as an impairment of certain assets, in the second quarter of 2004 related to the closure of its Mount Prospect facility. The company will record such restructuring and impairment charges in the quarter ended June 30, 2004. The company estimates that such restructuring and impairment charges will be approximately $3 to 4 million. The company expects to recognize additional charges of approximately $2 million resulting from the Mount Prospect closing during the second half of 2004. In addition, the company has continued to monitor the realization of the carrying value of its library inventories. The company recently completed an in-depth review of the carrying value of its library inventories. As a result of this review, which was based on expected future revenues, the company has determined that a significant write-down in the carrying value of these inventories is required. Such write-down has resulted in a triggering event which requires the company to determine whether there is an impairment of certain other long-lived assets and goodwill, including the goodwill which resulted from the 2001 acquisition of New Chemical Entities. Based on its review, the company has determined that an impairment of certain related goodwill and long-lived assets has occurred. The carrying value of such library inventories, long-lived assets and goodwill, prior to the impact of any write-downs or impairments, is approximately $32.5 million. The company is in the process of determining the final charges in order to report its second quarter 2004 financial results, but currently expects that the charges will represent a substantial portion of the carrying value of the assets under review. The company expects to report second quarter 2004 results and to hold a conference call to discuss the results by Friday, August 13, 2004. The company also expects to file its quarterly report on Form 10-Q for the quarter ended June 30, 2004 by August 13, 2004. Albany Molecular Research, Inc. is a leading research, drug discovery, development and manufacturing company built on a chemistry platform of comprehensive and integrated technologies, resources and capabilities. The company conducts research and development with many leading pharmaceutical and biotechnology companies and for its own internal discovery programs, and provides cGMP manufacturing of active pharmaceutical ingredients through its wholly owned subsidiary, Organichem Corporation. * * * Liquidity Concerns In its Form 10-Q for the quarterly period ended March 31, 2004, filed with the Securities and Exchange Commission, Albany Molecular Research reports: "We have historically funded our business through operating cash flows, proceeds from borrowings and the issuance of equity securities. During the first three months of 2004, we generated cash of $9.7 million from operating activities. During the first three months of 2004, we used $2.6 million for investing activities resulting from $3.3 million from the maturity of investment securities and the use of $5.8 million for the acquisition of property and equipment. During the first three months of 2004, we used $0.4 million for financing activities, consisting of $1.1 million in long-term debt repayments, offset by $0.7 million provided by stock option and stock purchase plan exercises. Working capital was $177.1 million at March 31, 2004 as compared to $173.6 million as of December 31, 2003. The primary source of the increase was reduction in vendor payables due to timing of payments. During 2004, we anticipate making $2.5 million in defined benefit pension plan contributions, $342 of which was paid in the quarter ended March 31, 2004. "We entered into a credit facility consisting of $30.0 million term loan and $35.0 million line of credit to fund the acquisition of Organichem during 2003. The term loan matures in February, 2008. As of March 31, 2004, the interest rate on $17.9 million of the outstanding term loan balance was 3.37% and the interest rate on the remaining $7.8 million was 2.41%. The line of credit expires in February 2006 and bears interest at a variable rate based on the Company's leverage ratio. As of March 31, 2004, the outstanding balance of the line of credit was $25.5 million and the interest rate was 2.34%. The credit facility contains certain financial covenants, including a maximum leverage ratio, a minimum required operating cash flow coverage ratio, a minimum earnings before interest and taxes to interest ratio and a minimum current ratio. Other covenants include limits on asset disposals and the payment of dividends. As of March 31, 2004, we were in compliance with all covenants under the credit facility. There have been no significant changes in future maturities on our long term debt since December 31, 2003. "We are pursuing the expansion of our operations through internal growth and strategic acquisitions. We expect that such activities will be funded from existing cash and cash equivalents, cash flow from operations, the issuance of debt or equity securities and borrowings. Future acquisitions, if any, could be funded with cash on hand, cash from operations, borrowings under our credit facility and/or the issuance of equity or debt securities. There can be no assurance that attractive acquisition opportunities will be available to us or will be available at prices and upon such other terms that are attractive to us. We regularly evaluate potential acquisitions of other businesses, products and product lines and may hold discussions regarding such potential acquisitions. As a general rule, we will publicly announce such acquisitions only after a definitive agreement has been signed. In addition, in order to meet our long-term liquidity needs or consummate future acquisitions, we may incur additional indebtedness or issue additional equity or debt securities, subject to market and other conditions. There can be no assurance that such additional financing will be available on terms acceptable to us or at all. The failure to raise the funds necessary to finance our future cash requirements or consummate future acquisitions could adversely affect our ability to pursue our strategy and could negatively affect our operations in future periods." AMERIDEBT: Hires Freeborn & Peters as Special Litigation Counsel ---------------------------------------------------------------- AmeriDebt, Inc., asks the U.S. Bankruptcy Court for the District of Maryland for permission to hire Freeborn & Peters, LLP, as its special litigation counsel. AmeriDebt reports that numerous cases are pending in various courts naming the Company as a defendant. Freeborn & Peters, a full-service Chicago, Illinois-based law firm, represented AmeriDebt in two of these actions pending in the State of Illinois: (1) State of Illinois v. AmeriDebt, Inc., et al., Case No. 2003 CH 00062 (Circuit Court for Sangamon County, Illinois); and (2) Class, et al. v. AmeriDebt, Inc., et al., Case No. 01 CH 20350 (Circuit Court for Cook County, Illinois). AmeriDebt wants Freeborn & Peters to continue representing it as special litigation counsel because the firm has competently represented the Company prior to its bankruptcy filing, and is well-versed in the Illinois Litigation. Freeborn & Peters' professional hourly rates range from: Position Billing Rate -------- ------------ partners and other $295 to $540 per hour senior attorneys paralegals $95 per hour associates $175 to $305 per hour The professionals who are primarily responsible for representing the Debtor in the Illinois Litigation are: Professional Billing Rate ------------ ------------ Daniel C. Curth $355 per hour Daniel J. Voelker $480 per hour Roger H. Bickel $420 per hour Harley J. Goldstein $420 per hour John Stevens $390 per hour Garry Wills $250 per hour Headquartered in Germantown, Maryland, AmeriDebt, Inc. -- http://ameridebt.org/-- is a credit counseling company. The Company filed for chapter 11 protection on June 5, 2004 (Bankr. Md. Case No. 04-23649). Stephen W. Nichols, Esq., at Deckelbaum, Ogens, et al., represents the Debtor in its restructuring efforts. When the Company filed for protection from its creditors, it listed $8,387,748 in total assets and $12,362,695 in total debts. ARMSTRONG HOLDINGS: 3rd Cir. Says Maertin Litigation Can Proceed ---------------------------------------------------------------- Armstrong World Industries, Inc., took an appeal to the United States Court of Appeals for the Third Circuit concerning the December 10, 2001 Memorandum Order of the United States District Court for the District of Delaware that lifted the automatic stay to permit the Maertin Plaintiffs to proceed with their action against Armstrong outside of the bankruptcy court process. In an Opinion filed on July 20, 2004, Circuit Judges Samuel A. Alito, Jr., and Theodore A. McKee, and Senior District Judge William W. Schwarzer of the Northern District of California sitting by designation, affirm the District Court's December Order. Circuit Judge McKee notes that AWI raised three issues on appeal. The Company argued that the District Court erred in lifting the automatic stay by misapplying the applicable standard under Section 362(d)(1) of the Bankruptcy Code and concluding that the Company was solvent. Armstrong also argued that the District Court erred as a matter of law in lifting the automatic stay and that it abused its discretion or committed a plain error of law in making ostensible factual findings, without an evidentiary record, and without permitting the parties to make this record. After the District Court lifted the stay for the Maertin Plaintiffs and after additional proceedings in Delaware and New Jersey, the parties entered into a stipulation, which was approved by the Bankruptcy Court on May 3, 2002. Pursuant to the terms of the Stipulation, the parties agreed that "[t]he Maertin Plaintiffs may proceed with the Civil Action and pursue any rights that they may be permitted under applicable state and federal law in connection with that action, in state or federal court." The Stipulation further provided that the automatic stay will remain in effect with respect to any claims, judgment or settlement against Armstrong World, other than with respect to the insurance policies or the Insurance Proceeds. Thus, the Maertin Plaintiffs were required to first seek the Bankruptcy Court's approval before attempting to collect any claims against AWI other than insurance policies. The Company's challenge to the December Order is grounded on the contention that the Maertin Plaintiffs should not be allowed to attempt to collect their prepetition, unsecured claims against the Company's estate outside of the bankruptcy process. The May 3 Stipulation resolves that issue, Circuit Judge McKee notes. By agreeing that the Plaintiffs may proceed against the insurance proceeds at issue with a reservation that they must seek approval of the Bankruptcy Court for any other protection, Armstrong's appeal is mostly mooted as the Maertin Plaintiffs correctly noted in their brief. Moreover, in its January 16, 2003 letter brief, the Company attempts to suggest that the Stipulation does not render its appeal moot because it does not address the appropriate standard of review the Bankruptcy Court should apply if the Maertin Plaintiffs apply for protection beyond the scope of the insurance policies. The Circuit Court views that "argument" as disingenuous. "No such issue was raised in AWI's brief to us, nor could it have been," Circuit Judge McKee relates. To the extent that any similar issue exists, it is best resolved by the Bankruptcy Court if, and when, the Maertin Plaintiffs apply for protection. "We can not, and will not, allow AWI to breathe life into this largely mooted appeal by raising that specter for the first time before us." Headquartered in Lancaster, Pennsylvania, Armstrong World Industries, Inc. -- http://www.armstrong.com/-- the major operating subsidiary of Armstrong Holdings, Inc., designs, manufactures and sells interior finishings, most notably floor coverings and ceiling systems, around the world. The Company filed for chapter 11 protection on December 6, 2000 (Bankr. Del. Case No. 00-04469). Stephen Karotkin, Esq., Weil, Gotshal & Manges LLP and Russell C. Silberglied, Esq., at Richards, Layton & Finger, P.A., represent the Debtors in in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $4,032,200,000 in total assets and $3,296,900,000 in liabilities. (Armstrong Bankruptcy News, Issue No. 65; Bankruptcy Creditors' Service, Inc., 215/945-7000) BEVERLY ENTERPRISES: Elects Melanie Dreher to Board of Directors ---------------------------------------------------------------- Beverly Enterprises, Inc. (NYSE: BEV) elected Melanie Creagan Dreher, Ph.D., RN, FAAN, to the company's Board of Directors. Dr. Dreher is Kelting Dean and Professor, College of Nursing, at the University of Iowa. Previously, she held administrative and teaching positions at the University of Massachusetts in Amherst, University of Miami and Columbia University. She is a widely published author and a leading authority on the effects of drug use in various cultures. Dr. Dreher earned a Ph.D. with distinction in anthropology from Columbia University, a Master of Philosophy degree from Columbia University, a Master of Arts degree in anthropology from the Teachers College at Columbia University, and she graduated magna cum laude from Long Island University with a Bachelor of Science degree in nursing. She is a past president of the Sigma Theta Tau International Nursing Honor Society, a board member of the American Association of Colleges of Nursing, and a Fellow of the American Nurses Association. Beverly Enterprises, Inc. and its operating subsidiaries are leading providers of healthcare services to the elderly in the United States. Beverly operates 356 skilled nursing facilities, as well as 18 assisted living centers, and 43 hospice centers. Through Aegis Therapies, Beverly also offers rehabilitative services on a contract basis to facilities operated by other care providers. * * * As reported in the Troubled Company Reporter's June 18, 2004 edition, Fitch Ratings has assigned a 'B+' rating to Beverly Enterprises, Inc.'s planned up-to $225 million, 10-year, subordinated debt issue. Proceeds from the new issue will be used to fund the recent tender offer for the company's 'BB-' rated, $200 million, 9-5/8% senior unsecured notes due 2009. Those 9-5/8% Notes trade around 112, according to pricing obtained from the Bloomberg Professional Service. S&P rates the 9-5/8% Notes at B+ and Moody's gives them its B1 rating. In conjunction, Fitch affirmed the company's 'BB' secured bank facility, 'BB-' senior unsecured debt and 'B+' rated subordinated convertible notes. Fitch's Rating Outlook is Stable. Fitch notes that BEV's credit profile is improving following a difficult 2003 that saw profitability negatively impacted by rising patient liability costs and reduced Medicare reimbursement. Key factors Fitch sees driving the improvement include strong volume growth, increased Medicare and Medicaid per- diem rates, a significant reduction in patient liability-related costs and lower interest costs due to refinancing activities. BLOCKBUSTER INC: S&P Assigns B+ Rating to New $300M Sub. Debt ------------------------------------------------------------- Standard & Poor's Ratings Services assigned its 'B+' rating to Blockbuster Inc.'s proposed $300 million subordinated notes due 2012. Proceeds from the notes offering, together with a new credit facility, will be used to pay a special dividend to shareholders. On June 18, 2004, the company received financing commitments for a new $1.45 billion credit facility. The size of the new credit facility will be reduced to $1.15 billion upon issuance of the subordinated notes. All other ratings, including the 'BB' corporate credit rating, were affirmed. The outlook is stable. "The ratings on Blockbuster reflect the risks of operating in a mature and declining video rental industry, the company's dependence on decisions made by movie studios, its high leverage, and the technology risks associated with delivery of video movies to the home," said Standard & Poor's credit analyst Diane Shand. "These risks are partially mitigated by Blockbuster's dominant market position in the video rental industry, good cash flow generating capabilities, a healthy store base, and geographic diversity." Blockbuster is the number-one player in the mature and fragmented $8.2 billion video rental market, with a 39% share in 2003. The company has a 15.2% share of the overall home video industry. Hollywood Entertainment, its closest competitor, has about a 13% share in the rental market. Over the past five years, Blockbuster has gained about eight points of share in the rental industry, primarily from independents. In the near term, new technologies are not expected to affect the creditworthiness of the company. In the retail market (in which Blockbuster has about a 4% share) the company competes against big box retailers (e.g., Best Buy and Circuit City), discounters (e.g., Wal-Mart and Target), and specialty stores. Industry fundamentals for the video rental market are weak, and Blockbuster's profitability is heavily dependent on that market. In response to the weak rental industry dynamics, the company is transforming itself into a home entertainment store. Blockbuster has launched a national in-store rental subscription program and is expanding its store-in-store game concept. It is also planning on rolling out an online subscription plan and a movie trading business. These initiatives, along with stable share in the growing retail DVD market and good marketing abilities, should enable the company to more than offset the contraction of the rental market. BURLINGTON IND: BII Trust Wants Court Nod on EPA Settlement Pact ---------------------------------------------------------------- The United States of America, on behalf of the Environmental Protection Agency, filed Claim No. 1136 on July 18, 2000, pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, for: -- at least $10,193,132 for unreimbursed environmental response costs incurred by the United States, on the EPA's behalf, at the: (1) Carolina Steel Drum Site in York County, South Carolina; (2) J Street Site in Harnett County, North Carolina; and (3) FCX-Statesville Site in Iredell County, North Carolina; and -- approximately $10,744,322 in potential future response costs incurred by the United States, on the EPA's behalf, at the Sites. Daniel D. DeFranceschi, Esq., at Richards, Layton & Finger, PA, in Wilmington, Delaware, relates that the EPA Claim asserts a general unsecured claim except to the extent that the United States, on the EPA's behalf, may be entitled to administrative priority for injunctive obligations or postpetition liabilities of the Burlington Debtor with respect to the property of the Estate. On November 19, 2002, the EPA sent a General Notice Letter to the Debtor asserting various claims against the Debtor and its estate regarding the Industrial Pollution Superfund Site located at or near 810 Poindexter Street, Jackson in Hinds County, Mississippi. The Settlement Agreement The BII Distribution Trust, as representative of the chapter 11 estate of Burlington Industries, Inc., and the Government have agreed to resolve their disputes. The principal terms of the Settlement Agreement are: (1) With regard to the IPC Superfund Site claims, the United States and the EPA will receive a $5,000 General Unsecured Claim to be paid as an Allowed General Unsecured Claim in Class 4 under the Plan. Any claim amount related to the IPC Superfund Site that exceeds $5,000 will be deemed to be withdrawn with prejudice. The United States will waive and release any further claims against the Debtor for the recovery of environmental response costs or any other costs, expenses, damages, and claims of any description under the CERCLA arising from the IPC Superfund Site, subject to the terms of the Settlement Agreement and the completion of the Public Notice Process; (2) The portion of the EPA Claim relating to the Carolina Steel Drum Site will be withdrawn with prejudice; (3) With regard to the J Street Site, the United States and the EPA will receive a $160,039 General Unsecured Claim, which will be paid as an Allowed General Unsecured Claim in Class 4 under the Plan. Any amount of the EPA Claim related to the J Street Site that exceeds $160,039 will deemed to be withdrawn with prejudice. The United States will waive and release any further claims against the Debtor for the recovery of environmental response costs or any other costs, expenses, damages and claims of any description under the CERCLA arising from the J Street Site, subject to the terms of the Settlement Agreement and the completion of the Public Notice Process. In addition, the Debtor will have no further obligation to comply with the Unilateral Administrative Order for the J Street Site; (4) With respect to the FCX-Statesville Site, Operable Unit 1, the United States and the EPA will receive a $665,381 General Unsecured Claim, which will be paid as an Allowed General Unsecured Claim in Class 4 under the Plan. Any amount of the EPA Claim related to the FCX-Statesville Site that exceeds $665,381 will be deemed to be withdrawn with prejudice. The United States will waive and release any further claims against the Debtor for the recovery of environmental response costs or any other costs, expenses damages and claims of any description under the CERCLA arising from the FCX-Statesville Site, Operable Unit 1, subject to the terms of the Settlement Agreement and the completion of the Public Notice Process. The Debtor will have no obligation to comply with or liability under the April 1, 1998 Consent Decree, subject to the terms of the Settlement Agreement. The United States will waive any present or future claim against the Debtor for Operable Unit 3; (5) The Debtor will pay the Allowed General Unsecured Claims in accordance with the Plan and by Electronic Funds Transfer to the United States' lockbox bank in accordance with instructions provided by the United States after execution of the Settlement Agreement; (6) Only the amount of cash received by the United States, on the EPA's behalf, from the Debtor pursuant to the Settlement Agreement for the Allowed General Unsecured Claims, and not the total amount of the allowed claims, will be credited by the EPA to its accounts for the Site. The credit will reduce the liability of non-settling potentially responsible parties to the EPA for the Site; (7) The United States will covenant not to bring a civil action or take administrative action against the Debtor pursuant to Section 106 and 107 of CERCLA relating to the Sites. This covenant not to sue is conditioned on the complete and satisfactory performance by the Debtor of its obligation under the Settlement Agreement and extends to any successor-in-interest of the Debtor or its Estate, including the Trust and any successor company emerging under the Chapter 11 cases as approved by the Bankruptcy Court and does not extend to any other person; and (8) The Debtor or its Estate, including the Trust and any successor company emerging under the Chapter 11 cases as approved by the Court, will covenant not to sue and agree not to assert any claims or causes of action against the United States with respect to the Sites, including but not limited to: -- any direct or indirect claim for reimbursement from the Hazardous Substance Superfund; -- any claims for contribution against the Unites States, its departments, agencies or instrumentalities; and -- any claims arising out or response activities at the Sites. The Settlement Agreement will be submitted for public comment via notice of the Settlement Agreement in the Federal Register. The United States reserves the right to withdraw or withhold its consent if the public comments regarding the Settlement Agreement disclose facts or consideration that indicate that the Settlement Agreement is inappropriate, improper or inadequate. The public will have 30 days to review and comment on the Settlement Agreement. After the United States has reviewed any comments, the Trust will file a certification that advises the Court of the results of the Public Notice Process and, if appropriate, seek Court approval of the Settlement Agreement. By this motion, the BII Trust asks the Court to approve the Settlement Agreement, if appropriate, after the completion of the Public Notice Process. Mr. DeFranceschi points out that if these matters were not resolved consensually, the Estate would be required to litigate the EPA Claim, which would require significant additional time and effort for further factual investigation and discovery, and ultimately, a trial on the merits. Substantial additional attorney's fees and expenses would be incurred as a result and there would be no certainty as to the outcome of that litigation. The Trust believes that the Settlement Agreement is fair and reasonable. In exchange for a release of all claims and liabilities asserted in the EPA Claim, the United States will be granted general unsecured claims for $830,420. Mr. DeFranceschi adds that approval of the Settlement Agreement will liquidate and bring finality to the Estate's obligations relating to the Sites. Moreover, the Settlement Agreement will allow the Trust to liquidate and resolve the Disputed Claim in excess of $20,000,000 represented by the EPA Claim. The Trust Advisory Committee has given its consent to the terms of the Settlement Agreement after written notice by the Distribution Trust Representative. Headquartered in Greensboro, North Carolina, Burlington Industries, Inc. -- http://www.burlington-ind.com/-- is one of the world's largest and most diversified manufacturers of soft goods for apparel and interior furnishings. The Company filed for chapter 11 protection in November 15, 2001 (Bankr. Del. Case No. 01-11282). Daniel J. DeFranceschi, Esq., at Richards, Layton & Finger One Rodney Square, and David G. Heiman, Esq., and Richard M. Cieri, Esq., at Jones, Day, Reaves & Pogue North Point represent the Debtors in their restructuring efforts. Burlington Reorganization Plan confirmed on October 30, 2003 was declared effective on November 10, 2003. (Burlington Bankruptcy News, Issue No. 52; Bankruptcy Creditors' Service, Inc., 215/945-7000) C2 MEDIA: Creditors Must Vote on Debtor's Plan by Friday, Aug. 13 ----------------------------------------------------------------- All persons and entities entitled to vote on the Amended Joint Plan of Reorganization of C2 Media, LLC and its debtor-affiliates must return their ballots by mail, hand delivery or overnight courier no later than 5:00 p.m., Eastern Time, on Friday, August 13, 2004, to the Debtors' counsel at: Vedder, Price, Kaufman & Kammholz, PC 805 Third Avenue New York, New York 10022 Attn: Tony Hernandez The confirmation hearing is scheduled for August 27, 2004 at the United States Bankruptcy Court for the Southern District of New York, One Bowling Green, in Manhattan. Confirmation objections, if any, must be filed with the Court Clerk no later than 5:00 p.m., Eastern Time, on August 20, 2004, and served on: (1) Attorneys for the Debtors Vedder, Price, Kaufman & Kammholz, PC 805 Third Avenue New York, New York 10022 Attn: Jon Yard Arnason, Esq. (2) Office of the United States Trustee 33 Whitehall Street, 21st Floor New York, New York 1004 Attn: Tracy Hope Davis, Esq. Assistant U.S. Trustee (3) Attorneys for JP Morgan Chase Clifford Chance US, LLP 31 West 52nd Street New York, New York 10019 Attn: Scott D. Talmadge, Esq. (4) Attorneys for Syntek Capital Hughes & Luce, LLP 111 Congress Avenue, Suite 900 Austin, Texas 78701 Attn: Bryan Wittman, Esq. (5) Attorneys for David Manning and Amnon Bar-Tur Sonnenschein, Nath and Rosenthal, LLP 1221 Avenue of the Americas New York, New York 10020-1089 Attn: Carole Neville, Esq. (6) Attorneys for the Creditors Committee Drinker Biddle & Reath, LLP 500 Campus Drive Florham Park, New Jersey 07932-1047 Attn: Robert K. Malone, Esq. Any confirmation objection must be in writing and must state the name and address of the objecting party and the amount of its claims or the nature of its interest and must state with particularity the nature of its objection. C2 Media -- http://c2media.com/-- supplies professional media graphics solutions. The Debtors filed for chapter 11 protection on October 10, 2001 (Bankr. S.D.N.Y. Case No. 01-15256). At that time, C2 owed J.P. Morgan Chase $34 million under a pre-petition credit agreement. CENTURY ALUMINUM: 96% of Sr. Noteholders Agree to Amend Indenture ----------------------------------------------------------------- Century Aluminum Company (Nasdaq:CENX) has received consents from holders of more than 96% of its outstanding $325.0 million aggregate principal amount 11-3/4% Senior Secured First Mortgage Notes Due 2008 (CUSIP No. 156431AC2). The consents are sufficient to effect the proposed amendments to the indenture governing the Notes and to the related security documents as set forth in the Company's Offer to Purchase and Consent Solicitation Statement dated July 29, 2004, pursuant to which the tender offer and the consent solicitation are being made. To be eligible to receive the consent payment relating to the Notes, holders were required to consent to the proposed amendments on or prior to 5:00 p.m., New York City time, on Friday, August 6, 2004. Notes tendered prior to the Consent Date may not be withdrawn except as may be required by law. Century Aluminum will proceed to execute a supplemental indenture and amendments to security documents effecting the proposed amendments to the indenture and security documents. The supplemental indenture and amendments to the security documents will become operative only if the Company accepts the Notes for payment pursuant to the terms of the tender offer. When the supplemental indenture and the amendments to the security documents become operative, they will be binding on the holders of Notes not tendered for purchase in the tender offer. The tender offer will expire at 10:00 a.m., New York City time, on August 26, 2004, unless extended or earlier terminated. The closing of the tender offer is subject to certain conditions, including closing of the Company's previously announced private offerings of convertible notes and senior notes to finance the purchase of the Notes in the tender offer. The consideration for the Notes tendered will be calculated as of 10:00 a.m., New York City time, on August 12, 2004, based on a fixed-spread pricing formula. Subject to the satisfaction of the conditions to the tender offer, the payment date for the Notes will be promptly following the expiration date. Credit Suisse First Boston LLC is the exclusive Dealer Manager and Solicitation Agent for the tender offer and the consent solicitation. Questions regarding the tender offer and consent solicitation may be directed to Credit Suisse First Boston's Liability Management Group, at 800-820-1653 (toll-free) or 212- 538-0652 (collect). Requests for documents may be directed to Morrow & Co., Inc., the Information Agent, by telephone at 800- 607-0088 (toll-free), 800-662-5200 (toll-free), or 212-754-8000 (collect), or by e-mail at cenx.info@morrowco.com This press release is not an offer to purchase, a solicitation of an offer to sell or a solicitation of consents with respect to any securities, including the Notes. The offer is being made solely by the Offer to Purchase and Consent Solicitation Statement and related Letter of Transmittal and Consent dated July 29, 2004. The securities that may be offered by the Company to finance the purchase of the Notes in the tender offer will be offered pursuant to an exemption from registration under the Securities Act of 1933. Such securities will not be registered under the Securities Act and, accordingly, may not be offered or sold in the United States absent registration under the Securities Act or an applicable exemption from the registration requirements. About the Company Century Aluminum is a producer of primary aluminum with 615,000 metric tons per year of primary aluminum production capacity. Century owns and operates a 244,000-mtpy primary aluminum reduction facility at Hawesville, KY, a 170,000-mtpy facility in Ravenswood, WV and a 90,000-mtpy facility in Grundartangi, Iceland. Century also owns a 49.67-percent interest in a 222,000- mtpy facility in Mt. Holly, SC. Alcoa Inc. owns the remainder and is the operator of the facility. Century's corporate offices are located in Monterey, CA. * * * As reported in the Troubled Company Reporter's April 27, 2004 edition, Standard & Poor's Ratings Services revised its outlook on Century Aluminum Co. to stable from negative, and affirmed its 'BB-' corporate credit, senior secured bank loan and senior secured notes ratings. Total debt at Monterey, California-based Century was about $345 million at Dec. 31, 2003. "The outlook revision reflects an expected improvement in Century's financial performance as a result of higher aluminum prices and better industry fundamentals," said Standard & Poor's credit analyst Paul Vastola. The ratings on Century reflect its exposure to the cyclical aluminum industry, its high cost position as a primary aluminum producer, limited product diversity, and its somewhat aggressive financial profile. These factors offset currently favorable conditions in the aluminum industry, a relatively low free cash flow break-even aluminum price and its fair liquidity position. CHEMED CORP: Declares Quarterly Dividend of 12 Cents Per Share -------------------------------------------------------------- Chemed Corporation's (NYSE:CHE) Board of Directors has declared a quarterly cash dividend of 12 cents per share on its capital stock, payable on September 10, 2004, to stockholders of record on August 20, 2004. This represents the 133rd consecutive quarterly dividend paid by Chemed in its 33 years as a public company. With roughly 12 million shares outstanding, the company will distribute just under $1.5 million to its shareholders. Listed on the New York Stock Exchange and headquartered in Cincinnati, Ohio, Chemed Corporation -- http://www.chemed.com/-- is the nation's largest provider of end-of-life hospice care services through its VITAS Healthcare Corporation subsidiary. Chemed also maintains a presence in the residential and commercial repair-and-maintenance industry through two subsidiaries. Roto- Rooter is North America's largest provider of plumbing and drain cleaning services. Service America Network Inc. provides major- appliance and heating/air conditioning repair, maintenance, and replacement services. * * * As reported in the Troubled company Reporter's June 1, 2004 edition, Standard & Poor's Ratings Services assigned its 'B+' corporate credit rating to Cincinnati, Ohio-based hospice, plumbing, and drain cleaning services provider Chemed Corporation (formerly Roto-Rooter, Inc.). At the same time, Standard & Poor's assigned its 'B+' senior secured debt rating to Chemed's $110 million floating rate notes maturing on Feb. 24, 2010, and assigned its 'B-' senior unsecured debt rating to the company's $150 million senior notes maturing on Feb. 24, 2011. The outlook is negative. "The low speculative-grade ratings on Chemed reflect the company's flat to declining plumbing, drain cleaning, and heating and air conditioning business, its limited experience functioning as a combined entity, its exposure to third-party reimbursement, and the integration risks associated with its future acquisition strategy," said Standard & Poor's credit analyst Jesse Juliano. "These concerns are partially offset by the company's industry leading positions in its two businesses, the positive near- and long-term growth potential in the hospice industry, and its ability to generate significant operating cash flows." COVANTA: Parties Settle $741K Babcock Claims for Unpaid Use Fees ---------------------------------------------------------------- On May 22, 1995, The Babcock & Wilcox Company, under a license from Niro A/S, and Covanta Projects, Inc., entered into a license agreement where Covanta Projects and certain of its affiliates were granted the right to use Niro's patented mercury removal process at certain waste to energy facilities operated by Covanta Projects. Under the License Agreement, Covanta Projects pays Babcock for the use of the Process. As of the Petition Date, Covanta Projects and certain affiliates owed Babcock, $741,565 in Use Fees. The Unpaid Use Fees relate to six of the Covanta Debtors' cases. On August 6, 2002, Babcock filed in the Debtors' cases identical unsecured claims -- Claim Nos. 2151, 2162 to 2187 -- for the Unpaid Use Fees. Babcock is a debtor in a Chapter 11 proceeding pending before the U.S. Bankruptcy Court for the Eastern District of Louisiana in New Orleans. On April 17, 2003, the Court approved a stipulation between the Debtors and Babcock regarding the assumption and assignment of the License Agreement, and the allowance and payment of an administrative expense. Upon the cessation of operations at the Tulsa, Oklahoma Facility, the parties agreed that the pro-rata portion of the remaining Unpaid Use Fees allocated to the Tulsa Facility were to be waived by Babcock as against the Debtors and their estates. The Debtors ceased operations at the Tulsa Facility on October 30, 2003. Pursuant to the April 2003 Stipulation: -- The Debtors have already paid Babcock $514,938 plus interest; -- Babcock waived $82,608 in Unpaid Tulsa Use Fees; and -- The Debtors are obligated to pay Babcock as an allowed administrative expense claim, $144,110 in remaining Unpaid Use Fees, plus interest at the rate of 5% per annum on or before the earlier of: * within 10 days after the effective date of a plan; or * December 31, 2004. Covanta Projects assumed the License Agreement pursuant to the Second Reorganization Plan. To resolve the treatment of the Babcock Claims and the outstanding objections to those claims, the Debtors and Babcock stipulate that: (a) Babcock is allowed an administrative expense claims for the Unpaid Use Fees, adjusted according to the Administrative Expense Payments made pursuant to the April 2003 Stipulation, against these Debtors: Debtors Claim No. Amount ------- --------- ------ Covanta Hillsborough, Inc. 2162 $43,702 Covanta Huntsville, Inc. 2163 27,394 Covanta Huntington LP 2174 29,312 Covanta Lee, Inc. 2167 43,702 (b) the Surviving Claims will accrue interest at the rate of 5% per annum from January 15, 2004, until paid in full under the terms of the April 2003 Stipulation; (c) Babcock's claim related to the $82,608 Unpaid Tulsa Use in $82,608 is waived pursuant to the April 2003 Stipulation; (d) Babcock's Claim No. 2165 against Covanta Tulsa, Inc., is disallowed and expunged; (e) Claim Nos. 2151, 2164, 2166, 2168 to 2173, and 2175 to 2187, are disallowed and expunged; and (f) upon payment of the Cure Amount as provided in the April 2003 Stipulation, the Surviving Claims will be deemed withdrawn. Headquartered in Fairfield, New Jersey, Covanta Energy Corporation -- http://www.covantaenergy.com/-- is a publicly traded holding company whose subsidiaries develop, own or operate power generation facilities and water and wastewater facilities in the United States and abroad. The Company filed for Chapter 11 protection on April 1, 2002 (Bankr. S.D.N.Y. Case No. 02-40826). Deborah M. Buell, Esq., and James L. Bromley, Esq., at Cleary, Gottlieb, Steen & Hamilton represent the Debtors in their restructuring efforts. When the Debtors filed for protection from its creditors, they listed $3,280,378,000 in assets and $3,031,462,000 in liabilities. (Covanta Bankruptcy News, Issue No. 60 and 62; Bankruptcy Creditors' Service, Inc., 215/945-7000) CRDENTIA CORP: Summary of June 16 Debt & Equity Transactions ------------------------------------------------------------ On June 16, 2004, Crdentia Corp., entered into a Loan and Security Agreement with Bridge Healthcare Finance, LLC, pursuant to which Crdentia obtained a revolving credit facility in the amount of up to $15,000,000. The Loan has a term of three years and bears interest at a rate equal to the greater of: (i) three percent (3.0%) per annum over the prime rate in effect from time to time, or (ii) nine and one-half percent (9.5%) per annum. On June 16, 2004, Crdentia issued 6,250,000 shares of Series B Convertible Preferred Stock at a cash price per share of $0.20 to MedCap Partners LP. The holders of the Series B Convertible Preferred Stock will be entitled to receive a dividend on each of September 30, 2004, December 31, 2004, March 31, 2005, June 30, 2005, September 30, 2005 and December 31, 2005 in an amount equal to 0.005 shares of common stock for each share of outstanding Series B Convertible Preferred Stock held by them. In the event of any liquidation or winding up of Crdentia Corp., the holders of the Series B Convertible Preferred Stock will be entitled to receive in preference to the holders of common stock an amount equal to their initial purchase price plus any declared but unpaid dividends and any remaining liquidation proceeds will thereafter be distributed on a pro rata basis to the holders of the Series B Convertible Preferred Stock (on an as-if-converted into common stock basis), common stock and any other series of Preferred Stock expressly entitled to participate in such distribution, until the holders of Series B Convertible Preferred Stock shall have received, in the aggregate, an amount equal to five times the amount of their purchase price. Unless previously voluntarily converted prior to such time, the Series B Convertible Preferred Stock will be automatically converted into common stock at an initial conversion ratio of one- to-one upon the earlier of: (i) the closing of an underwritten public offering of Crdentia common stock pursuant to a registration statement under the Securities Act of 1933, as amended, with aggregate net proceeds of at least $25 million, or (ii) the date specified by written consent or agreement of the holders of a majority of the then outstanding shares of Series B Convertible Preferred Stock. The description of the foregoing rights, preferences and privileges of the Series B Convertible Preferred Stock is qualified in its entirety by the Certificate of Designations, Preferences and Rights of Series B Preferred Stock filed with the Secretary of State of the State of Delaware on June 16, 2004. In addition, the holders of such shares of Series B Convertible Preferred Stock will be entitled to the registration rights set forth in the Amended and Restated Registration Rights Agreement dated June 16, 2004 between Crdentia and MedCap. Liquidity Concerns In its Form 10-KSB for the fiscal year ended December 31, 2003, filed with the Securities and Exchange Commission, Crdentia Corp. reports: "The audit report for the year ended December 31, 2002 contained an opinion that was qualified as to the Company's ability to sustain itself as a going concern without securing additional funding. During 2003 the Company was able to secure additional funding to fund its operations as it began executing its business plan to acquire and grow companies involved in healthcare staffing. Although the Company ended 2003 with negative working capital of $1,220,865, the following are considered to be mitigating factors: (i) in February 2004 the Company raised an additional $1 million of Series A Convertible Preferred Stock, and (ii) of the $910,000 convertible debt outstanding, the Company believes that the holders of a majority of this debt will convert to equity in 2004. The Company believes that these two factors, coupled with its cash on hand at December 31, 2003 and its anticipated cash flow from operations in 2004, will be sufficient to service its debt and fund its operations for the foreseeable future. About Crdentia Corp. Crdentia Corp. seeks to capitalize on an opportunity that currently exists in the healthcare industry by targeting the critical nursing shortage issue. There are many small companies that are addressing the rapidly expanding needs of the healthcare industry. Unfortunately, due to their relatively small capitalization, they are unable to maximize their potential, obtain outside capital or expand. By consolidating well-run small private companies into a larger public entity, Crdentia intends to facilitate access to capital, the acquisition of technology, and expanded distribution that, in turn, drive internal growth. CROWN CORK: Moody's Gives Ba3 Ratings to Notes & Credit Facilities ------------------------------------------------------------------ Moody's Investors Service took several ratings actions on the proposed and existing debt of Crown Cork & Seal Company, Inc., which include assignment of ratings to the approximately $1.06 billion proposed first lien debt; affirmation of existing ratings; and update of the rationale for its Speculative Grade Liquidity Rating of SGL-2. The affirmation of existing ratings reflects Moody's belief that the pro-forma transactions are essentially credit neutral, and with some improvement in liquidity given the expected reduced reliance on the proposed revolver and the longer- dated maturity profile. While acknowledging the company's solid operating and financial performance since the ratings assignment in February 2003, the ratings remain principally constrained by low adjusted free cash flow to its substantial adjusted debt at below 5%. Adjustments totaling over $1 billion are made to debt for asbestos liabilities, unfunded pension and OPEB obligations, and outstandings under account receivable securitizations. High financial leverage and lingering asbestos liabilities overshadow Crown's much improved fundamentals, solid global market positions, and good near-term liquidity. Continuing pressure on margins from rising raw material and energy costs, along with ongoing -- but improving -- pricing and volume in food cans further constrain the ratings. In Moody's opinion, the stable ratings outlook could move to positive during the intermediate term - absent event risk - should Crown continue to improve its free cash flow generation and meaningfully reduce financial leverage while improving margins and returns. Sustained levels of free cash flow to adjusted debt between 5% - 10% and unadjusted debt to EBITDA close to 4 times could trigger a change in the ratings outlook to positive. Conversely, material deviation from Moody's expectations, which could include significant acquisitions or other unanticipated calls on cash, would likely have negative ratings consequences. Proceeds from the proposed transactions are intended to repay the existing term B loans (approximately $486 million); to repay and retire the existing $550 million first lien revolver; and to pay related expenses. Moody's took the following actions: Ratings assigned: -- Ba3 to the proposed $500 million first lien credit facilities, maturing in 2010, consisting of a $400 million revolver and a $100 million US letter of credit facility; and -- Ba3 to the proposed Euro 460 million (equivalent USD 561 million) first lien notes, due 2011, to be issued by Crown European Holdings, S.A. Ratings affirmed: -- B1 for the $1.4 billion second lien notes, due 2011, issued by European Holdings; -- B2 for the $725 million third lien notes, due 2013, issued by European Holdings; -- B3 for the $700 million senior unsecured notes, due 2023 -- 2096, issued by Crown; -- B3 for the $336 million senior unsecured notes, due 2004 -- 2006, issued by Finance PLC and including the $40 million stub from the January 2005 notes at Crown; -- B2 senior implied rating moved to Crown from Crown Holdings, Inc., the ultimate parent holding company; and -- Caa1 senior unsecured issuer rating moved to Crown from Crown Holdings. The ratings outlook is stable. The ratings are predicated on the enforceability of the financing structure and collateral packages (intercreditor and collateral sharing agreements) as proposed. The ratings are subject to the execution and review of final documentation. Upon completion of the proposed transactions, the Ba3 rating assigned to the existing $1 billion first lien credit facility will be withdrawn. Pro-forma for the proposed transactions, financial leverage remains high with debt to EBIT of approximately 8 times (roughly 5 times EBITDA). EBITDA less capital expenditures coverage of pro- forma interest expense is likely to remain thin at approximately 1.5 times. The ratings incorporate modest potential fluctuations in margins and overall profitability given the challenging business environments worldwide, adverse commodity and energy price movements, and foreign exchange changes (69% of consolidated revenue is sourced in currencies other than USD). The rationale for the SGL-2 rating continues to express good near- term liquidity for Crown as evidenced by solid cash generation, cash on hand averaging approximately $250 million, modest mandatory debt maturities in the forward twelve months, and improved working capital management. Net cash generated by operations (after asbestos and pension payments) should remain ample to cover non-extraordinary capital expenditures. Compliance under existing covenants is expected with adequate cushion. The SGL-2 rating is constrained by the absence of free cash flow during each consecutive quarter; uncertainties surrounding the level of future asbestos cash payments; and limited alternate sources of liquidity given the encumbrance of assets. Downward pressure on the liquidity rating would result from greater than expected working capital requirements, operating shortfalls, higher than expected asbestos payments and/or pension contributions, or material increases in discretionary capital expenditures. Going forward, the liquidity rating should benefit from improved availability under committed financings pro-forma for the proposed transactions and further enhancement of its debt maturity profile. As of June 2004, there would have been approximately $330 million of availability under the revolver and approximately $22 million available under the $100 million letter of credit facility. Average availability under the $300 million accounts receivable securitization program should be around $180 million. The liquidity rating will be revisited when the deal is final. The Ba3 rating assigned to the proposed $500 million secured facility reflects its priority position in the capital structure and the benefits and limitations of the collateral. In Moody's opinion, the over-collateralization of the first lien facility, given consideration to the approximately $45 million capital leases and the proposed pari passu first lien $550 million note, warrants notching above the B2 senior implied rating. The notching is further supported by the apparent wrapping of legal issues of perfecting liens, etc., across geographies as proposed in the Collateral Sharing Agreement so that US and non-US indebtedness are on equal footing. The borrowers under the proposed first lien revolver are intended to be Crown Americas, Inc. ("Crown Americas") with a $200 million revolver for USD denominated advances and European Holdings with a $200 million revolver for non-USD borrowings, namely Euro equivalent or sterling denominated advances. Additionally, the borrowers intend to have a $100 million letter of credit facility secured by a first lien on the same collateral as the proposed revolver. Obligations of the US borrower and guarantees are to be secured by a perfected first priority lien on all the assets, intercompany notes, capital stock of the US borrower and each of the direct and indirect subsidiaries of Crown and the US borrower, and up to 65% of the capital stock of foreign subsidiaries. Obligations of the non-US borrower and guarantees are intended to be secured by a perfected first priority lien on all the US collateral and all the assets of the non-US borrower and guarantors, the capital stock, and intercompany notes of the US Borrower, the non-US borrower, and each of the direct and indirect subsidiaries of Crown, the US borrower, and the non-US borrower. US borrowings and the letter of credit facility will be guaranteed on a secured basis by Crown Holdings, Inc., Crown, Crown International, Inc., and all existing and future direct and indirect domestic subsidiaries of the US borrower. Non-US borrowings will be guaranteed on a secured basis by the US guarantors, Canadian and Mexican subsidiaries, and certain European subsidiaries to the extent legally permissible. Euro guarantors will also pledge secured intercompany notes from certain non-guarantor subsidiaries. It is Moody's understanding that the collateral sharing arrangement and intercreditor agreement among bank lenders, first, second, and third lien note holders will require any proceeds obtained by second and third lien note holder, in the event of foreclosure on collateral, to first be applied to satisfy the first lien lenders and note holders. The Ba3 rating assigned to the proposed first lien notes at European Holdings reflects the priority position in the capital structure and the benefits and limitation of the collateral. The notes are effectively subordinated to approximately $100 million of debt at non-guarantor subsidiaries. Non-guarantor subsidiaries account for approximately 32% of total consolidated assets. The notes are secured by a first perfected lien on the same collateral package securing the existing 9.5% second lien notes, due 2011. The proposed note will be guaranteed on a senior basis by the guarantors of the proposed credit facility. However, there is certain collateral that is available to the first lien credit facility that is not intended to be available to the first lien note. In Moody's opinion, that amount as currently understood should not be material enough to distort the recovery value of the proposed first lien note. This, combined with the protections embedded in the Collateral Sharing arrangement, support notching above the B2 senior implied rating. The affirmation of the existing bond ratings reflects Moody's view that loss severity for each class of debt is relatively unchanged pro-forma for the proposed transaction and given Crown's solid enterprise value. Crown Cork is a large global packaging manufacturer, providing a broad array of metal and plastic packaging products. These include metal food and beverage cans, polyethylene terephthalate (PET) plastic soft drink containers, and plastic containers for the health andbeauty care market. CROWN HOLDINGS: S&P Gives BB Bank Loan Rating to $500M Facilities ----------------------------------------------------------------- Standard & Poor's Ratings Services assigned its 'BB' bank loan rating and a recovery rating of '1' to Crown Holdings Inc.'s proposed $500 million senior secured credit facilities due February 2010, based on preliminary terms and conditions. The borrowing entities are Crown European Holdings SA and Crown Americas Inc. The bank loan rating is rated one notch above the corporate credit rating; this and the '1' recovery rating indicate a high expectation of full recovery of principal in the event of default. At the same time, Standard & Poor's assigned its 'BB' rating and a '1' recovery rating to the proposed $550 million first priority senior secured notes due 2011, which are to be issued under Rule 144A with registration rights by Crown European Holdings SA and will be guaranteed by Crown Holdings Inc. The 'BB' rating is one notch above the corporate credit rating; this and the '1' recovery rating indicate a high expectation of full recovery of principal in the event of default. Proceeds are expected to be used to finance the outstanding bank debt, and for fees and expenses. Standard & Poor's also affirmed its 'BB-' corporate credit rating and other existing ratings on the Philadelphia, Pennsylvania-based company. The outlook is stable. Crown had outstanding total debt of about $4 billion at June 30, 2004. "The ratings on Crown reflect its aggressive financial profile, onerous debt burden, and risks associated with its asbestos litigation, all of which overshadow its average business risk profile," said Standard & Poor's credit analyst Liley Mehta. With annual sales of about $6.9 billion, Crown is primarily a metal container manufacturer (resulting from its asset sales program of plastic packaging operations and divestiture of Constar International Inc.), with only about 13% of its revenues derived from its plastic closures operations. Although product diversity has diminished, the company benefits from a broad geographic presence, a well-diversified customer base, and leading market positions in food, beverage, and aerosol cans, and plastic closures. About 70% of the company's sales are generated outside the U.S., with Europe accounting for most of Crown's international sales. The company enjoys good customer diversity with the top 10 customers representing 22% of sales. Crown is the largest producer of metal food cans and metal vacuum closures, and the second largest producer of aerosol cans in the world and the third-largest global producer of metal beverage cans. Improved operating results in the first six months of 2004 over the previous year reflect volume growth in beverage cans in the U.S., Europe, and Asia, benefits of higher operating efficiencies, and the favorable impact of foreign currency translation for non- U.S. operations. Because of price increases across many product lines and continuing cost-reduction efforts, Crown's margins have improved since 2001 to the low double-digit percentage area. Price increases in the food can segment (being implemented in 2004), and benefits from ongoing cost reductions should more than offset lost earnings from divested operations and increased pension expenses, and should further enhance its operating prospects in the intermediate term. Although the company has materially reduced its debt in the past two years (using proceeds from asset sales, debt-for-equity exchanges, and free cash flow), Crown remains heavily leveraged; total debt (adjusted for capitalized operating leases and receivables securitization) to EBITDA was about 5x for the 12 months ended June 30, 2004. As a result, Crown's credit protection measures are still weak for the rating. Nevertheless, Standard & Poor's expects the strength of the company's business and management's commitment to rein in spending will allow it to continue its debt-reduction efforts. CURATIVE: S&P Affirms Low-B Ratings & Says Outlook is Negative -------------------------------------------------------------- Standard & Poor's Ratings Services revised its outlook on specialty infusion services and wound-care management provider Curative Health Services Inc. to negative from stable. At the same time, Standard & Poor's affirmed its 'B' corporate credit rating and its 'B-' senior unsecured debt rating on the company's $185 million in senior unsecured notes due in 2011. "The outlook revision reflects the large reduction in reimbursement rates for blood-clotting factor products by the state of California's Medi-Cal program," said Standard & Poor's credit analyst Jesse Juliano. The new rates for these products are approximately equivalent to an average wholesale price minus 36%. Standard & Poor's expected the new reimbursement rate to be significantly higher. For the second quarter of 2004, Medi-Cal represented 18% of Curative's infusion sales. The program's contribution is expected to decline to 16% of infusion sales for the entire year of 2004 and shrink even further in 2005 due to this reduction in reimbursement. Curative's financial profile should be significantly weakened by this reduction, which will likely eliminate any flexibility the company had within its rating category. The low, speculative-grade ratings reflect Curative's narrow business focus in specialty infusion services, as well as the potential margin pressure the company faces from payors and drug manufacturers. Furthermore, the company's payors are concentrated. Curative also faces integration risk after its purchase of specialty infusion company Critical Care Systems, Inc., as well as the threat of new entrants into the specialty infusion market. These concerns are only partially offset by the company's relatively strong position in this growing and favorable market and by the greater product diversity Critical Care has provided. Until 2001, Curative Health Services was focused on the management of chronic wound care, and the company continues to provide these services to hospital clients through 91 outpatient clinics in about 30 states. In 2001, however, the company shifted its focus to specialty infusion, building a franchise with 11 acquisitions. Curative purchases biopharmaceutical products, which it then provides to patients via retail pharmacies or overnight mail directly to patients' homes. Before the Critical Care acquisition, Curative had about 300 payor contracts and 20 retail pharmacy contracts. Critical Care added a network of 28 company- owned and operated pharmacy branches and about 150 payor contracts. Specialty infusion now accounts for about 90% of Curative's revenues, while wound care represents the rest. No single commercial payor accounts for more than 4% of the company's revenues after the acquisition. DELTA AIR: Strongest Bankruptcy Language to Date in Form 10-Q ------------------------------------------------------------- "If we cannot make substantial progress in the near term toward achieving a competitive cost structure that will permit us to regain sustained profitability and access the capital markets on acceptable terms," Delta Air Lines, Inc., says in its quarterly report filed with the Securities and Exchange Commission yesterday, "we will need to seek to restructure our costs under Chapter 11 of the U.S. Bankruptcy Code." "If we are unsuccessful in reducing our operating expenses and continue to experience significant losses, we will be unable to maintain sufficient liquidity to provide for our operating needs," the third-largest carrier in the United States continued. Delta reported a $2 billion loss for the six months ended June 30, 2004. Delta's June 30 balance sheet shows liabilities exceeding assets by nearly $3 billion. Delta's balance sheet shows more than $24 billion in assets. Ranked by assets, Delta would become the eighth-largest bankruptcy in U.S. history if it filed for chapter 11 protection today, and the second-largest airline bankruptcy, behind UAL Corp., United Airlines' parent company. "Although we have made progress under our profit improvement program, which has a goal of lowering our costs and increasing our revenues," Delta says, "significant increases in aircraft fuel prices and pension and related expense and declining yields have offset a large portion of these benefits. Accordingly, we have now concluded that we will need substantial further reductions to our cost structure in order to achieve viability. Furthermore, our pilot cost structure is significantly higher than that of our competitors and must be substantially reduced in order to compete effectively with both hub-and-spoke airlines and low-cost carriers. We believe that approximately $1 billion in annual pilot cost savings, in addition to significant cost reductions from other stakeholder groups, is essential for us to compete successfully." The Atlanta, Georgia-based carrier's common stock tumbled below $4 to an all-time low in trading yesterday -- one-tenth of what the shares traded for immediately prior to September 11, 2001. During the six months ended June 30, 2004, Delta's financial performance continued to deteriorate. Delta says its suffered a significant decline in domestic passenger mile yield, near historically high aircraft fuel prices and other cost pressures. Cash and cash equivalents at June 30, 2004 were $2.0 billion, down from $2.7 billion at December 31, 2003. "These results are unsustainable and underscore the urgent need to reduce our cost structure," Delta said in the regulatory filing. While revenue passenger miles, or traffic, rose 13% in the six months ended June 30, 2004 compared to the corresponding period in the prior year, passenger revenue increased only 10%, reflecting a 2% decrease in the domestic passenger mile yield on a year-over- year basis. The decrease in domestic passenger mile yield reflects the permanent changes in the airline industry that have occurred primarily due to the rapid and continuing growth of low- cost carriers with which Delta competes in most of its domestic markets. Aircraft fuel prices also had a significant negative impact on Delta's financial results for the six months ended June 30, 2004. These prices reached near historically high levels, as Delta's average fuel price per gallon increased 22% to $1.00 (net of hedging gains) for the six months ended June 30, 2004 compared to the corresponding period in the prior year. Delta projects that its annual aircraft fuel expense will be approximately $680 million higher in 2004 than in 2003, with about 75% of this increase caused by higher aircraft fuel prices. "In light of our losses and the decline in our cash and cash equivalents, we must make permanent structural changes in the near term to appropriately align our cost structure with the depressed level of revenue we can generate in this business environment," the carrier tells its stakeholders. "Our cost structure is materially higher than that of low-cost carriers. Moreover, other hub-and-spoke airlines, such as American Airlines, United Airlines and US Airways, have significantly reduced their costs through bankruptcy or the threat of bankruptcy. As a result, our unit costs have gone from being among the lowest of the hub-and-spoke airlines to among the highest, a result that places us at a serious competitive disadvantage. "[W]e will need substantial further reductions to our cost structure in order to achieve viability," Delta stresses. At the end of 2003, Delta began a strategic reassessment of its business. "The goal of this project is to develop and implement a comprehensive and competitive business strategy that addresses the airline industry environment and positions us to achieve long-term sustained success," Delta relates. "As part of this project, we are now also evaluating the appropriate cost reduction targets and the actions we should take to seek to achieve these targets. Because our cost reduction targets will be substantial, we believe that our key stakeholder groups, including our lessors, vendors, lenders and employees, must participate in the process if we are to be successful," the Company reports. Noting that its pilot cost structure is significantly higher than that of its competitors, Delta says those expenses must be reduced in order for it to compete effectively with both hub-and-spoke airlines and low-cost carriers. On July 30, 2004, Delta presented a proposal to the Air Line Pilots Association International (ALPA), the union representing its pilots, to reduce pilot costs by approximately $1 billion annually through a combination of changes in wages, pension and other benefits and work rules. "We believe that this approximately $1 billion in annual pilot cost savings, in addition to significant cost reductions from other stakeholder groups, is essential for us to compete successfully," Delta says, cautioning that it cannot predict the outcome of these discussions with ALPA. Delta's unencumbered assets are limited, and during the June 2004 quarter and through August 5, 2004, the carrier's credit ratings were lowered. Delta's senior unsecured long-term debt is rated Caa3 by Moody's Investor Service, Inc., CCC- by Standard & Poor's Rating Services and CC by Fitch Ratings. All three agencies have stated that their ratings outlook for our senior unsecured debt is negative. Except for existing commitments to finance regional jet aircraft purchases, Delta has no available lines of credit. "We believe that, unless we achieve significant reductions in our cost structure, we will be unable to access the capital markets for new borrowings on acceptable terms," Delta says. "Continued losses of the magnitude we recorded in 2003 and in the six months ended June 30, 2004 are unsustainable, and we have significant obligations due in 2005 and thereafter, including significant debt maturities, operating lease payments, purchase obligations and required pension funding. We are intensively engaged in an effort to identify and obtain cost reductions from our key stakeholders and to implement new strategic business initiatives in order to effect a successful out-of-court restructuring, but there can be no assurance this effort will succeed. If we cannot make substantial progress in the near term toward achieving a competitive cost structure that will permit us to regain sustained profitability and access the capital markets on acceptable terms, we will need to seek to restructure our costs under Chapter 11 of the U.S. Bankruptcy Code." DILLARD'S: Selling Credit Card Portfolio to GE Consumer Finance --------------------------------------------------------------- Dillard's Inc. (NYSE: DDS) has entered into a definitive agreement to sell substantially all the assets of Dillard National Bank, the Company's private label credit card subsidiary, to GE Consumer Finance for approximately $1.25 billion, which includes the assumption of $400 million of securitization liabilities, the purchase of owned accounts receivable and an undisclosed premium. As part of the transaction, Dillard's and GE Consumer Finance will also enter into a long-term marketing and servicing alliance with an initial term of 10 years. The transaction has been approved by both companies and is expected to close by the end of the current fiscal year, subject to customary regulatory review and closing conditions. Dillard's expects to use net proceeds to reduce debt outstanding, repurchase its common stock and for general corporate purposes. Dillard's expects the transaction to be accretive to fiscal 2005 earnings per share. Strategic Alliance As part of the long-term marketing and servicing alliance, the two companies signed a 10-year agreement for GE Consumer Finance to provide a range of services, including marketing support and customer care, to Dillard's proprietary cardholders. Dillard's and GE Consumer Finance will share in the income generated by the long-term marketing and servicing alliance. Depending upon the performance of the alliance, Dillard's anticipates that income generated could be comparable to the earnings currently generated by Dillard National Bank. Upon completion of the transaction, substantially all of the approximately 500 employees of Dillard National Bank will become employees of GE Consumer Finance. Dillard's Chief Executive Officer William Dillard, II, stated, "We are pleased to announce this agreement with GE Consumer Finance today. Our new alliance with GE Consumer Finance will provide Dillard's shoppers expanded financing options supported by consistent, customer-friendly account servicing. Our commitment to provide our customers with exciting fashion apparel and home furnishing choices at Dillard's, complemented by excellence in customer service, is further strengthened by this alliance. We are particularly excited by the marketing expertise that GE Consumer Finance will make available to us. We are proud to be associated with GE Consumer Finance, a solid, established leader in consumer finance, and look forward to many years of mutually beneficial operations." "We're absolutely thrilled to be partnering with a retailer as well known and respected as Dillard's," said Mark W. Begor, President and Chief Executive Officer, GE Consumer Finance- Americas. "This new partnership opens up great opportunities to offer more products, benefits and value to Dillard's customers and to help drive Dillard's sales growth." Morgan Stanley served as financial advisor to Dillard's on this transaction. Dillard's legal advisors in the transaction were Simpson Thacher & Bartlett, LLP and Sidley Austin Brown & Wood, LLP. About Dillard's Dillard's, Inc. is one of the nation's largest fashion apparel and home furnishing retailers with annual revenues exceeding $7.8 billion. The Company's 329 stores operate with one name, Dillard's, and span 29 states. Dillard's stores offer a broad selection of merchandise, including products sourced and marketed under Dillard's exclusive brand names. Fifteen tranches of debt issued by Dillard's, Inc., and Dillard Department Stores, according to data reported by the Bloomberg Professional Service, carry low-B ratings from Moody's, Standard & Poor's and Fitch. About GE Consumer Finance GE Consumer Finance, a unit of General Electric Company, with $117 billion in assets, is a leading provider of credit services to consumers, retailers and auto dealers in 40 countries. GE Consumer Finance, based in Stamford, Conn., offers a range of financial products, including private label credit cards, personal loans, bank cards, auto loans and leases, mortgages, corporate travel and purchasing cards, debt consolidation and home equity loans and credit insurance. More information about GE Consumer Finance can be found at http://www.geconsumerfinance.com/ ENERSYS CAPITAL: Moody's Upgrades Senior Implied Ratings to Ba3 --------------------------------------------------------------- Moody's Investors Service has upgraded the ratings of EnerSys Capital, Inc., a leading global manufacturer of industrial batteries. The rating outlook is stable. Ratings upgraded: -- $100 million senior secured revolver, due 2009, to Ba3 from B1; -- $360 million first-lien senior secured term loan, due 2011, to Ba3 from B1; -- Senior implied rating, to Ba3 from B1; and -- Senior unsecured issuer rating, to B2 from B3. The rating upgrade reflects EnerSys' reduced financial leverage following its recent $156 million initial public offering, as well as its improving financial performance. The rating action also considers EnerSys' leading market position as the world's largest industrial battery manufacturer, its successful integration of Invensys' industrial battery business acquired in early 2002, and the improved end-market condition. Subsequent to the recent IPO, the company has used approximately $140 million of the net proceeds to pay off its second-lien term loan and to repay a portion of the term loan B. As a result, its pro forma debt for March 2004 declined from $511 million to $373 million, or 3.3 times LTM EBITDA. The debt reduction helps restore the financial flexibility that was temporarily constrained when the company paid out a $250 million cash dividend to its equity holders early this year as part of a refinancing/recapitalization transaction. On the other hand, the ratings also reflect the strong cyclicality in EnerSys' major end-markets and the resultant volatility in its financial performance, modest cash flow generation relative to its debt level, and margin pressures due to escalating commodity prices. The stable rating outlook reflects Moody's expectation that the improving market conditions could lead to higher revenue performance over the next 18 months. However, increasing commodity prices, particularly those of lead, plastics and steel - the three major raw materials used by EnerSys -- could erode profit margins. In addition, free cash flow generation is expected to be modest for fiscal year 2005 at about 4-5% of outstanding debt. This results from higher working capital investments to support sales growth as well as cash charges related to its remaining restructuring program. EnerSys' liquidity position remains good, with positive although modest free cash flow generation expected over the next twelve months. The $100 million revolver was undrawn at the end of March 2004, and the company is expected to be in compliance with its bank covenants over the next twelve months. The Ba3 ratings on the $100 million revolver and the $360 million first-lien senior secured credit facility are at the same level as the senior implied rating, reflecting the company's single-class debt structure after the payoff of the $120 million second-lien loan. The senior credit facilities are secured by a first-lien on all company assets and guaranteed on a senior secured basis by the company's current and future domestic subsidiaries and its holding company, EnerSys. EnerSys, headquartered in Reading, Pennsylvania, is the world's largest industrial battery manufacturer, with revenues of $969 million in fiscal year 2004 ended March 31, 2004. ENRON: Asks Court to Nix Employee Claims Totaling $6.8 Million -------------------------------------------------------------- As Enron and its debtor-affiliates continue to evaluate Proofs of Claim filed by Employees, they've identified 204 objectionable claims that are based on the claimant's purported status as an owner of shares of Enron stock or owner of options to purchase shares of Enron stock. Melanie Gray, Esq., at Weil, Gotshal & Manges, LLP, in New York, explains that the ownership of Enron stock or option to purchase Enron stock constitutes equity interests in Enron, but does not constitute "claims" against the Debtors' estates, as the term is defined in Section 101(5) of the Bankruptcy Code. Enron shareholders were not required to file proofs of interest in Enron's Chapter 11 cases. Accordingly, the Debtors ask the Court to disallow and expunge the 204 Employee Equity Claims in their entirety, including: Claimant Claim No. Amount -------- --------- ------ Andrew L. Unverzaut 1515203 $258,189 Bruce A. Martin 1515803 564,487 Christie Patrick 1580206 237,940 Carol J. Richard 1153002 200,172 Gregory L. Sharp 1762700 632,370 Kenneth W. Cline 1846804 472,000 P.E. Ilavia 1239902 1,451,277 Rick L. Kile 2088602 223,870 Sanjay Bhatnagar 1858400 2,604,490 Virgil Pfennig 536501 202,524 Headquartered in Houston, Texas, Enron Corporation is in the midst of restructuring various businesses for distribution as ongoing companies to its creditors and liquidating its remaining operations. Before the company agreed to be acquired, controversy over accounting procedures had caused Enron's stock price and credit rating to drop sharply. The Company filed for chapter 11 protection on December 2, 2001 (Bankr. S.D.N.Y. Case No.: 01- 16033) Martin J. Bienenstock, Esq., and Brian S. Rosen, Esq., at Weil, Gotshal & Manges, LLP, represent the Debtors in their restructuring efforts. (Enron Bankruptcy News, Issue No. 120; Bankruptcy Creditors' Service, Inc., 215/945-7000) ENRON: Ex-EBS CEO Kenneth Rice Pleads Guilty to Securities Fraud ---------------------------------------------------------------- Deputy Attorney General James Comey, Assistant Attorney General Christopher A. Wray of the Criminal Division, Enron Task Force Director Andrew Weissmann, and Assistant Director Chris Swecker of the Federal Bureau of Investigation said that Kenneth Rice, a former Chief Executive Officer of Enron Broadband Services, a unit of now-defunct Enron Corp., has pleaded guilty to securities fraud. As part of his plea agreement, Mr. Rice has agreed to cooperate fully with the government's ongoing criminal investigation into the collapse of Enron. Mr. Rice, 45, of Houston, Texas, entered the guilty plea before Judge Vanessa Gilmore at U.S. District Court in Houston, Texas. Mr. Rice pleaded guilty to one count of securities fraud, in violation of 15 U.S.C. Sections 78j(b) and 78(ff) and 15 C.F.R. Sections 240.10b-5 and 240.10b5-1. Mr. Rice is the lead defendant in an indictment pending before Judge Gilmore, which charged seven former Enron executives with a range of criminal conduct arising out of activities in EBS. The case is scheduled for trial before Judge Gilmore on October 4, 2004. "July 30's guilty plea is another sign that our efforts to clean up corruption in the boardroom have not stopped. More importantly, we have obtained an additional $14 million in ill- gotten gains that will go back to the victims of the Enron fraud. This plea ensures that Mr. Rice is held accountable for his criminal conduct, advances the Enron investigations and prosecutions, and serves to compensate those who were victimized," said Deputy Attorney General James Comey. Mr. Rice faces a maximum sentence of 10 years in prison and a fine of $1 million or twice the loss at his sentencing. As part of his plea, Mr. Rice has agreed to the forfeiture of approximately $13.7 million to be used to compensate victims of the Enron fraud. Mr. Rice also agreed with the Securities and Exchange Commission to pay an additional fine of $1 million. The indictment and plea documents signed by Mr. Rice state that while at EBS, Mr. Rice and others made a series of false statements about the products, services and business performance of EBS in order to mislead investors and others about the success of the company and to inflate artificially the price of Enron stock. As part of his plea agreement, Mr. Rice admitted that while serving as EBS's CEO, he conspired with others to portray falsely the success of EBS to the investing public by, among other things, making false statements about the company's development of various software capabilities and its fiber-optic network, including at analyst conferences in 2000 and 2001. Mr. Rice admitted that he and others falsely portrayed EBS as a commercial and business success and falsely claimed that EBS had developed a revolutionary network control software known as the "Broadband Operating System" or "BOS" and that the BOS was "up and running" on the EBS network. In fact, as Mr. Rice admitted, the BOS software had not progressed beyond the internal development stage. Mr. Rice also failed to disclose to the investing public that the company stood to sustain operating losses in 2001 and that it lacked a sustainable customer and commercial base. These misrepresentations contributed to a sharp rise in Enron's stock price. Enron, at one time the seventh-ranked company in the United States with stock trading as high as $80 per share in August 1999, filed for bankruptcy protection on Dec. 2, 2001 and its stock became virtually worthless. The investigation into Enron's collapse is being conducted by the Enron Task Force, a team of federal prosecutors supervised by the Justice Department's Criminal Division and agents from the FBI and the IRS Criminal Investigative Division. The Task Force has also coordinated with and received considerable assistance from the Securities and Exchange Commission. The Enron Task Force is part of President Bush's Corporate Fraud Task Force, created in July 2002 to investigate allegations of fraud and corruption in U.S. corporations. Thirty-one defendants have been charged in connection with the work of the Enron Task Force, and with the plea, twelve defendants have so far been convicted. The total forfeiture funds seized to date for victims is over $161 million. The Task Force investigation is continuing. Headquartered in Houston, Texas, Enron Corporation is in the midst of restructuring various businesses for distribution as ongoing companies to its creditors and liquidating its remaining operations. Before the company agreed to be acquired, controversy over accounting procedures had caused Enron's stock price and credit rating to drop sharply. The Company filed for chapter 11 protection on December 2, 2001 (Bankr. S.D.N.Y. Case No. 01-16033) Martin J. Bienenstock, Esq., and Brian S. Rosen, Esq., at Weil, Gotshal & Manges, LLP, represent the Debtors in their restructuring efforts. (Enron Bankruptcy News, Issue No. 120; Bankruptcy Creditors' Service, Inc., 215/945-7000) FLEMING COS.: Wants Court Nod on UFCW Local 789 Settlement Pact --------------------------------------------------------------- United Food and Commercial Workers, Local 789 represents certain former employees at the Debtors' various retail operations throughout Minnesota. Prior to the Petition Date, Fleming Companies, Inc., and Local 789 entered into various collective bargaining agreements that established the Parties' rights and obligations with respect to the terms of employment of the former employees that are members of a bargaining unit of Local 789. Laura Davis Jones, Esq., at Pachulski, Stang, Ziehl, Young, Jones & Weintraub, PC, in Wilmington, Delaware, relates that the Debtors sold or closed their operations in 13 locations, which resulted in the Former Employees' unemployment or the purchaser becoming their new employer. The final closing or sale of the Locations took place after the Petition Date. Local 789 filed proofs of claim totaling $1,155,194 on behalf of the Former Employees: -- $497,426 as administrative claims; -- $14,834 as priority claims; and -- $642,884 as general unsecured non-priority claims. Ms. Jones notes that the Local 789 Claims are based on Fleming's alleged breaches of the CBAs for failure to pay vacation and holiday pay. The damages asserted in the administrative claim are, in part, redundant of the damages sought in Local 789's prepetition claim. According to Ms. Jones, the Former Employees also filed a total of 65 proofs of claim for $217,942. The Former Employees allege that, among other things, the Debtors owe them wages, holiday pay, sick day pay, severance pay, vacation pay and unpaid pension and health and welfare benefits. The Former Employee Claims are comprised of: * $54,923 in administrative claims; * $142,843 in priority claims; and * $20,175 in general unsecured non-priority claims. The Debtors dispute the factual and legal bases of the Local 789 Claims and the Former Employee Claims because: (a) many of the Former Employee Claims are redundant of the Local 789 Claims; (b) the Local 789 Claims are redundant of one another; (c) the Former Employee Claims and the Local 789 Claims generally overstate the amounts due; and (d) the Local 789 and Former Employee Claims overstate the administrative and other priority portions that should be allowed if the Former Employee Claims were allocated properly pursuant to the proration formula in In re Roth American, Inc., 975 F.2d 949, 957 (3rd Cir. 1992). To settle the dispute, the parties agree that: (1) the Debtors will pay $265,651 in cash to the Former Employees and Local 789; (2) Local 789 agrees, on behalf of itself and the Former Employees, to accept the payment in full and complete satisfaction of the Administrative Portion and Priority Portions of the Former Employee Claims; (3) the Debtors will distribute to each of the Former Employees his or her share of the $256,651 cash as soon as possible; (4) the Debtors will allow as general unsecured non-priority claims the General Unsecured Portions of the Local 789 Claim and the Former Employee Claims for $833,132, in the aggregate, to be distributed in conformity with the terms of the Plan; (5) the Debtors will release Local 789 from all claims and causes of action arising out or related to the CBAs between Local 789 and Fleming, except that any avoidance actions arising under Chapter 5 of the Bankruptcy Code and any retained causes of action set forth in Article XIII of the Plan will not be released; (6) Local 789 agrees to release the Debtors from any and all further liability arising out of or related to the CBAs except that Local 789 is not releasing any workers compensation claims or Civil Rights Claims; and (7) the Debtors will create a $5,000 reserve fund to cover any settlement payment amounts of the Administrative Portion or the Priority Portions that have been undercalculated. Ms. Jones points out that the Settlement Agreement allows the Debtors to avoid further litigation regarding the Local 789 Claims and the Former Employee Claims. Ms. Jones assures the Court that the settlement reflects a reasoned compromise of each party's calculation of owed amounts. In fact, Local 789 agreed to reductions based on the Debtors' books and records and to the allocation of the Claims. Thus, the Debtors ask the Court to approve their Settlement Agreement with Local 789. Headquartered in Lewisville, Texas, Fleming Companies, Inc. -- http://www.fleming.com/-- is the largest multi-tier distributor of consumer package goods in the United States. The Company filed for chapter 11 protection on April 1, 2003 (Bankr. Del. Case No. 03-10945). Richard L. Wynne, Esq., Bennett L. Spiegel, Esq., Shirley Cho, Esq., and Marjon Ghasemi, Esq., at Kirkland & Ellis, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from its creditors, they listed $4,220,500,000 in assets and $3,547,900,000 in liabilities. (Fleming Bankruptcy News, Issue No. 41; Bankruptcy Creditors' Service, Inc., 215/945-7000) FMAC LOAN: Bad Credit Performance Prompts Moody's Ratings Review ---------------------------------------------------------------- Moody's Investors Service has placed notes issued by FMAC Loan Receivables Trust 1998-C on review for possible downgrade. The ratings action affects the A-2, B and C notes. Moody's did not rate the Class E and F notes, along with the certificates. The review action is due to the continued deterioration in credit performance of the pool. The complete ratings actions are as follows: Rating Action Issuer: FMAC Loan Receivable Trust 1998-C -- $174,020,000 Class A-2 Notes, rated Baa2, on review for possible downgrade; -- $12,200,000 Class A-3 Notes, rated Ba2, on review for possible downgrade; -- $20,570,000 Class B Notes, rated Caa1, on review for possible downgrade; -- $20,570,000 Class C Notes, rated Ca, on review for possible downgrade. As of the June 2004 distribution date, 27% of the pool by principal balance was delinquent or defaulted. The ratings review will consider the resolution of these problem loans and future defaults the deal may incur. The notes were sold in a privately negotiated transaction without registration under the Securities Act of 1933 (the Act) under circumstances reasonably designed to preclude a distribution thereof in violation of the Act. The issuance has been designed to permit resale under Rule 144A. FT WILLIAMS: Hires Hamilton Gaskins as Bankruptcy Counsel --------------------------------------------------------- FT Williams Company, Inc., sought and obtained approval from the U.S. Bankruptcy Court for the Western District of Carolina to employ Hamilton Gaskins Fay & Moon, PLLC, as its bankruptcy counsel. Hamilton Gaskins is expected to: a) provide the Debtor advice on its powers and duties as debtor-in-possession in the continued operation of its business and management of its properties; b) negotiate, prepare, and pursue confirmation of a chapter 11 plan and approval of a disclosure statement, and all related reorganization agreements and/or documents; c) prepare on behalf of the Debtor necessary applications, motions, answers, orders, reports, and other legal papers; d) appear in Court to protect the interests of the Debtor before the Court; and e) perform all other legal services for the Debtor which may be necessary and proper in this chapter 11 proceeding. To the best of the Debtor's knowledge, the firm is a "disinterested person" as that term is defined in Section 101(14) of the Bankruptcy Code. Hamilton Gaskins professionals designated to represent the Debtor in this case are: Professional Hourly Rate ------------ ----------- Travis W. Moon $375 T. Jonathan Adams $250 Kevin M. Profit $205 Headquartered in Charlotte, North Carolina, FT Williams, is principally in the business of commercial grading, clearing, and excavation of construction sites. The Company filed for Chapter 11 protection on July 27, 2004 (Bankr. W.D. NC. Case No. 04-32623). When the Debtor filed for protection from its creditors, it listed $10,000,001 in total assets and $12,703,065 in total debts. GENCORP INC: Fitch Lowers Ratings & Says Outlook is Negative ------------------------------------------------------------ Fitch Ratings has lowered the ratings on GenCorp Inc.'s secured bank facilities to 'BB-' from 'BB', senior subordinated notes to 'B+' from 'BB-', convertible subordinated notes to 'B-' from 'B', and contingent convertible subordinated notes to 'B-' from 'B'. The Rating Outlook is Negative. Approximately $600 million of debt is affected by these actions. The downgrades reflect the lower-than-expected proceeds anticipated from the sale of the GDX Automotive segment, and the deterioration in GenCorp's current and projected credit ratios. The low GDX sale price is the result of weak operating performance in the past year, with poor visibility for improvement due to a difficult automotive operating environment. OEM pricing pressures and increased material costs are among the factors pressuring the results at GDX. Other general rating concerns that continue to be incorporated in the ratings include the company's currently weak free cash flow, high debt levels, potential environmental liabilities, pending lawsuits and arbitrations, and the effect the upcoming U.S. elections could have on several of the company's defense and space programs, including missile defense. Factors, which continue to support the ratings include GenCorp's substantial real estate holdings, the overall defense spending environment, current liquidity position, the tax shield that could be generated by the proposed GDX transaction, fully funded pension plans, and the recent dividend cut. The Negative Rating Outlook is based on GenCorp's transformation strategy, which contains several uncertain elements related to reshaping the company's portfolio. The Outlook and the ratings incorporate the recently announced GDX Automotive transaction, as well as other possible acquisitions and divestitures. The specific credit effect of these possible acquisitions and divestitures will be evaluated on the basis of the terms, timing, and strategic rationale of the transactions. On July 19, GY signed a definitive agreement to sell GDX Automotive for approximately $147 million, an amount substantially lower than the amount previously incorporated into Fitch's ratings of GenCorp. The lower-than-expected price is partially mitigated by the transaction's large capital loss, which can be used to shield future capital gains. GEORGIA GULF: Moody's Ba3 Rating Under Review for Possible Upgrade ------------------------------------------------------------------ Moody's placed the ratings of Georgia Gulf Corporation (Ba3 senior implied) under review for possible upgrade due to the company's improving financial profile and the anticipation of further strengthening over the near-term. Ratings placed under review for possible upgrade are as follows: Georgia Gulf Corporation Senior Implied -- Ba3 * Guaranteed senior secured revolver due 2005, $120 million -- Ba3; * Guaranteed senior secured term loan D due 2010, $135 million -- Ba3; * Guaranteed secured notes due 2005, $100 million -- Ba3; * Guaranteed notes due 2013, $100 million -- B1 * Issuer Rating -- B1 Moody's review will focus on Georgia Gulf's projected financial metrics over the next several years, the prospect of additional acquisitions and the extent to which further debt reduction will strengthen the balance sheet. More specifically, the review will examine the company's plans to repay or refinance $100 million of notes and its $120 million credit facility, which mature in November 2005. The review will also analyze the extent to which further improvements in the supply and demand balance in Georgia Gulf's major end-markets will impact margins in 2005. Furthermore, it will incorporate the potential impact of further increases in chlorine and benzene prices, the expected increase in ethylene and propylene prices, and the continuation of elevated natural gas and energy prices. Georgia Gulf Corporation, headquartered in Atlanta, Georgia produces commodity chemicals including chlorovinyls (chlorine, caustic soda, vinyl chloride monomer, and vinyl resins and compounds) and aromatics (cumene, phenol and acetone). The company generated revenues of $1.74 billion for the LTM ended June 30, 2004. GRUPO TMM: 9-1/2% & 10-1/4% Noteholders Agree to Amend Indentures ----------------------------------------------------------------- Grupo TMM, S.A.'s (NYSE:TMM)(BMV:TMM A) exchange offer and consent solicitation for its 9-1/2% Notes due 2003 and its 10-1/4% Senior Notes due 2006 expired at midnight, New York City time, on August 5, 2004. As of midnight on the expiration date, $170,618,000 aggregate principal amount of the 2003 notes and $197,121,000 aggregate principal amount of the 2006 notes had been properly tendered and not withdrawn. All of the conditions to the exchange offer, including receipt of tenders from holders of at least 95.3 percent of the aggregate principal amount of 2003 notes and 97.3 percent of aggregate principal amount of 2006 notes, were satisfied at the expiration date, and the Company has accepted all of the tendered 2003 notes and 2006 notes for exchange. The Company expects to issue its new Senior Secured Notes due 2007 in exchange for the tendered 2003 notes and 2006 notes on Tuesday, August 10, 2004. As of the expiration date, the Company had also received sufficient consents from holders of 2006 notes to effect the proposed amendment to the indenture governing the 2006 notes which will remove substantially all of the restrictive covenants of such indenture. The Company will pay in cash the principal amount of, plus accrued unpaid interest on, all of the 2003 notes that were not tendered in the exchange offer and the accrued unpaid interest on the 2006 that were not tendered in the exchange offer. Javier Segovia, president of TMM commented, "Today's economic climate has made the restructuring of TMM challenging, but the successful completion of the bond exchange at the levels we were able to achieve allowed us to avoid bankruptcy proceedings and will give TMM the financial flexibility needed to move forward with a new strategy for increasing value and providing healthy returns to our investors. This is truly a milestone for TMM, and we would like to thank our advisors, the bondholders' committee and their advisors, and most importantly, all of our clients and employees for their continued support." Headquartered in Mexico City, Grupo TMM is Latin America's largest multimodal transportation company. Through its branch offices and network of subsidiary companies, Grupo TMM provides a dynamic combination of ocean and land transportation services. Grupo TMM also has a significant interest in TFM, which operates Mexico's Northeast railway and carries over 40% of the country's rail cargo. Grupo TMM's web site address is http://www.grupotmm.com/ and TFM's web site is http://www.gtfm.com.mx/Grupo TMM is listed on the New York Stock Exchange under the symbol "TMM" and Mexico's Bolsa Mexicana de Valores under the symbol "TMM A" * * * Liquidity Position In its Form 20-F for the fiscal year ended December 31, 2003, filed with the Securities and Exchange Commission, Grupo TMM, S.A. reports: "At December 31, 2003, Grupo TMM (excluding TFM) had short-term debt with a face value of $379.0 million and long-term debt of $1.5 million. The 2003 notes matured on May 15, 2003 and we have not repaid the principal amount to date. As a result, we are in default under the terms of the 2003 notes, and such default has resulted in a cross-default under our 2006 notes. Moreover, we failed to make required interest payments on the 2006 notes on May 15, 2003, November 15, 2003 and May 15, 2004, resulting in an independent default on such notes. On August 19, 2003, we amended and refinanced the outstanding amounts under the securitization facility to $54 million. The new certificates require monthly amortization of principal and interest and mature in three years, changing the maturity date from 2008 to 2006. On December 29, 2003, we and certain subsidiaries amended the securitization facility to increase the outstanding amount under the securitization facility by approximately $25 million under substantially the same terms and conditions existing prior to such increase. At December 29, 2003, and after giving effect to the amendments, there was approximately $76.3 million in aggregate principal amount of certificates outstanding under the securitization facility. On May 25, 2004, and on June 10, 2004, we and certain subsidiaries amended the securitization facility to adjust the net outstanding amount under the securitization facility to $78.2 million under the same terms and conditions existing prior to such adjustment. For accounting purposes, the securitization facility represents the total dollar amount of future services to be rendered to customers under the securitization facility and is so reflected in our financial statements." HIGHWOODS: S&P Places Credit Ratings on CreditWatch Negative ------------------------------------------------------------ Standard & Poor's Ratings Services placed its ratings on Highwoods Properties, Inc., and its affiliate, Highwoods Realty L.P., on CreditWatch with negative implications. The CreditWatch placements, which impacts roughly $460 million in rated senior notes, a $250 million revolver, and $347 million of preferred stock, follows the delayed release of second quarter financial results and uncertainty regarding reference to an abandoned strategic transaction. Prior to these CreditWatch placements, the outlook on the corporate credit rating was negative due primarily to continued weakness in the company's core markets and higher secured debt levels that have reduced financial flexibility. The company has delayed the release of its second quarter results because it expects to restate previously reported financial results for fiscal years 2001 through 2003, as well as for the first quarter of 2004. Management indicated that these restatements focus on a number of previously executed real estate sales transactions and the accounting presentation of discontinued operations. The likely result will be the consolidation of joint ventures, which will now be considered financial arrangements rather than dispositions. Standard & Poor's has historically fully consolidated these ventures for analytical purposes, and it appears likely that the restatement will have a negligible impact on earnings and cash flow for the impacted periods. Recent general market trends have pointed to modestly improved leasing velocity in some of Highwoods' more competitive Southeastern office markets, and the company's recently revamped management team appears to be prudently focusing on very aggressively managing the core portfolio. Highwoods' current liquidity position is adequate and the company does not face a material debt maturity until December 2005, at which time a $120 million unsecured term loan matures. However, until second quarter results are released, it remains unclear whether the company's same store portfolio trends have clearly turned the corner. In addition, the company's secured debt levels remain very close to Standard & Poor's notching threshold (which requires differentiating between the corporate credit and the unsecured debt rating), and the revelation that a strategic transaction was being contemplated adds another element of uncertainty to current ratings. Standard & Poor's will review Highwoods' restated financials once they are filed and meet with management to discuss expectations for future secured debt levels as well as the potential for a potential strategic transaction. The range of likely outcomes could include the affirmation of the corporate credit rating, but a lowering of the unsecured rating is possible due to continued higher secured debt levels. Ratings Placed On Creditwatch Negative Highwoods Properties Inc./Highwoods Realty L.P. Rating To From -- ---- Corporate credit rating BBB-/Watch Neg BBB-/Negative Senior unsecured notes BBB- BBB- Preferred stock BB+ BB+ HOLLYWOOD ENT: S&P's B+ Corporate Credit Rating on Negative Watch ----------------------------------------------------------------- Standard & Poor's Ratings Services' ratings for Hollywood Entertainment Corporation, including the 'B+' corporate credit rating, remain on CreditWatch with negative implications. The ratings were initially placed on CreditWatch March 29, 2004, when Hollywood had announced it entered into a definitive merger agreement to be acquired by an affiliate of Leonard Green & Partners L.P. Wilsonville, Oregon-based Hollywood Entertainment operates more than 1,900 Hollywood Video stores in 47 states and approximately 600 Game Crazy video game specialty stores. This CreditWatch update follows the announcement that Leonard Green & Partners has informed Hollywood Entertainment that it believes the financing condition to consummate the merger will not be satisfied due to industry and market conditions. Hollywood and a special committee of its board of directors are currently considering the company's alternatives to determine the course of action that would be in the best interest of shareholders. Standard & Poor's will review any proposed transaction and its impact on the company's credit quality. "Hollywood's operating performance has been under pressure since the second quarter of 2003 due to increased costs related to the expansion of the Game Crazy business (video games) and a lack of sales leverage in the video rental business," said Standard & Poor's credit analyst Diane Shand. "Profitability is expected to remain under pressure in 2004 given the weakness in the overall video rental industry and the company's continuing investments in Game Crazy." Hollywood is already leveraged, with total debt to EBITDA of 4.2x before any additional transactions. HORIZON NATURAL: Newcoal Can Credit Bid Claims at Aug. 17 Auction ----------------------------------------------------------------- U.S. Bankruptcy Judge William Howard had approved the right of the Newcoal investor group to bid the full amount of their Second Lien bonds in lieu of cash in the auction for Horizon Natural Resources to be held on August 17, 2004. Newcoal was organized under Wilbur L. Ross' leadership by the holders of a majority of the $465 million principal amount of Second Lien notes of Horizon. By the time of the hearing, holders of more than 90% of the issue wrote letters in support of credit bidding. Objections filed earlier by Deutsche Bank, AIG, Third Lien Holders, and the Unsecured Creditors Committee were withdrawn by the time of the hearing. Mr. Ross added, "The judge's decision assures that the Second Lien Holders will be treated fairly." As reported in the Troubled Company Reporter's June 17, 2004, edition, Horizon Natural Resources Company announced that the United States Bankruptcy Court has approved procedures for soliciting competing bids and conducting an auction for the sale of a substantial portion of Horizon's assets in connection with its proposed chapter 11 reorganization plan. Pursuant to the asset purchase agreement filed with the Bankruptcy Court on June 2, 2004, Newcoal LLC, a company formed by Wilbur L. Ross and four other investors who collectively own a majority of Horizon's Second Tier Secured Notes, has agreed to acquire a significant portion of the operating assets of Horizon. The agreement includes a cash purchase price of up to $255 million, payment of up to $5 million of cure costs, a guarantee that proceeds of at least $17 million will be collected for certain accounts receivable and inventory that are not part of the purchased assets, and the assumption of certain liabilities. Newcoal LLC was approved as the stalking horse bidder by the Bankruptcy Court. If approved by the Bankruptcy Court as the highest and best bidder after an auction, Mr. Ross will assume operational and management control of Newcoal LLC. The five investors will backstop an equity rights offering to all of Horizon's Second Tier Noteholders, and upon consummation Mr. Ross will own at least 10% of Newcoal LLC. His final ownership position will be determined by the extent to which other holders subscribe. Headquartered in Ashland, Kentucky, Horizon Natural Resources (f/k/a AEI Resources Holding, is one of the United States' largest producers of steam (bituminous) coal. The Company filed for chapter 11 protection on February 28, 2002 (Bankr. E.D. Ky. Case No. 02-14261). Ronald E Gold, Esq. represent the Debtors in their restructuring efforts. When the Company filed for protection from their creditors, they listed at least $100 million in total assets and $100 million in total debts. INTERNATIONAL HI-TECH: Appoints Dan Hallman as U.S. Sales Director ------------------------------------------------------------------ International Hi-Tech Industries Inc. appointed Dan Hallman Director of U.S. Sales. Mr. Hallman has extensive sales and marketing experience all over the United States. He was president and CEO of Affiliated Medical for 26 years. Previously, he was national sales manager for Cordis Corporation. The company has hired most of the professional team that will handle building permits, sales, marketing and financing, for its Greater Vancouver hi-rise project. For more information and latest design updates, visit the website http://www.ihiskyline.com/ The Company has accepted three home orders, including one from an area formerly devastated by fire and one for a show home from a potential joint venture partner. The Company is also proceeding with a number of projects previously announced in various stages of developments. The Company continues to anticipate receiving an order to establish an IHI JV-Factory prior to end of Q2 2005. International Hi-Tech Industries Inc. is a company whose principal business is the development and commercialization of a new building system in Canada, and internationally through its subsidiary, IHI International Holdings Ltd. To date, IHI's system has attracted interest from more than 65 different countries worldwide. The Company's March 31, 2004 consolidated financial statements were prepared in accordance with Canadian generally accepted accounting principles on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has incurred losses amounting to $37,586,627, which includes a net loss for the current period of $1,056,892. The continuation of the Company is dependent upon the continuing financial support of creditors and shareholders, refinancing debts payable, obtaining additional long-term debt or equity financing, as well as achieving and maintaining a profitable level of operations. The Company plans to raise additional equity and debt capital as necessary to finance the operating and capital requirements of the Company. Amounts raised will be used to provide financing for the development and commercialization of the Company's business and for other working capital purposes. While the Company is expending its best efforts to achieve its plans, there is no assurance that any such activity will generate sufficient funds for operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. INTERNATIONAL HI-TECH: COO Guarantees $4.5 Mil. Mortgage Financing ------------------------------------------------------------------ International Hi-Tech Industries Inc.'s Director and COO, Dr. Rene G.A. Rached, P. Eng., will guarantee a first mortgage financing for $4.5 million over the Company's Delta facility. Subject to the receipt of regulatory approval, a bonus of 4.7 million common shares will be issued to one of his nominated companies. The finance and bonus replaced those announced by the company on April 30th 2002 and then abandoned in spite of receiving all the then required approvals. International Hi-Tech Industries Inc. is a company whose principal business is the development and commercialization of a new building system in Canada, and internationally through its subsidiary, IHI International Holdings Ltd. To date, IHI's system has attracted interest from more than 65 different countries worldwide. The Company's March 31, 2004 consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has incurred losses amounting to $37,586,627, which includes a net loss for the current period of $1,056,892. The continuation of the Company is dependent upon the continuing financial support of creditors and shareholders, refinancing debts payable, obtaining additional long-term debt or equity financing, as well as achieving and maintaining a profitable level of operations. The Company plans to raise additional equity and debt capital as necessary to finance the operating and capital requirements of the Company. Amounts raised will be used to provide financing for the development and commercialization of the Company's business and for other working capital purposes. While the Company is expending its best efforts to achieve its plans, there is no assurance that any such activity will generate sufficient funds for operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. INTERNATIONAL HI-TECH: Gets More Patents & Develops New Products ---------------------------------------------------------------- International Hi-Tech Industries Inc. reports that European patent number 1028207 has been issued. Philippines patent numbers 1- 2001-00095, 1-2001-00096 and 1-1994-49539 have been issued. Turkish patent number 28829 has been issued. Slovenian patent number 9420070 has been issued. Additional patents have been granted in Indonesia- ID 0005736 and ID 0005664. Patents in India and Croatia have been accepted. Current patents encompass IHI's earthquake, wind, fire and sound resistant pre-fabricated building panels, as well as structures made from these panels, held under license. International Hi-Tech now has 72 patent claims fully issued in 163 countries and pending in another 17 countries, with respect to the building technology held by it under license. The Company and its international subsidiary are planning to file for additional new sets of worldwide patents in 2005. The Company filed for tax credits under the Federal Scientific Research & Experimental Development -- SR&ED -- and Investment Tax Credit (ITCs) programs with the assistance of a prominent consulting firm. More products have been developed to accommodate northern Canada's booming oil industry by introducing new versions of our mobile mats for, heavy duty applications, water tanks and septic tanks, and most importantly, mobile staff offices and sleeping accommodations of insulated concrete units of various sizes. Since its priority commitment with our defaulted potential JV partners for the kingdom of Saudi Arabia has expired, the Company has been free to negotiate and accept projects anywhere in the world. Since the expiration, the Company has received interest from dozens of potential customers to analyze their projects and to give them rough budget panel estimates. As a result, the Company has received three irrevocable payments to prepare permit drawings and to submit a final price. After obtaining the necessary building permits, the Company will proceed with the manufacture of the required IHI panels for the specific project quoted. So far, these projects are small in nature and the Company does not expect any material income. In order to accommodate larger projects due to the fact that the Fanuc defaulted system is occupying approximately 40% of the production area of the Delta facility, which will remain preserved until the trial is completed hopefully by end of first Quarter 2005, the Company is applying for required permits to expand the production area of the facility to overcome the physical hindrance of the Company's production due to the idle Fanuc system; Hence, allowing the manufacturing of the IHI JV factories to be much easier. The Company has designed and developed a floating dock prototype utilizing IHI's building technology. Test results were according to design. Further fire tests were conducted according to US, Canadian and European (specifically German and UK) Standards. Results were more than pleasing. International Hi-Tech Industries Inc. is a company whose principal business is the development and commercialization of a new building system in Canada, and internationally through its subsidiary, IHI International Holdings Ltd. To date, IHI's system has attracted interest from more than 65 different countries worldwide. The Company's March 31, 2004 consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has incurred losses amounting to $37,586,627, which includes a net loss for the current period of $1,056,892. The continuation of the Company is dependent upon the continuing financial support of creditors and shareholders, refinancing debts payable, obtaining additional long-term debt or equity financing, as well as achieving and maintaining a profitable level of operations. The Company plans to raise additional equity and debt capital as necessary to finance the operating and capital requirements of the Company. Amounts raised will be used to provide financing for the development and commercialization of the Company's business and for other working capital purposes. While the Company is expending its best efforts to achieve its plans, there is no assurance that any such activity will generate sufficient funds for operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. INTERNATIONAL WIRE: Confirmation Objections Due on August 12 ------------------------------------------------------------ The United States Bankruptcy Court for the Southern District of New York approved the Second Amended and Restated Disclosure Statement explaining International Wire Group, Inc., and its debtor-affiliates' Second Amended and Restated Joint Reorganization Plan. Objections to the Plan, if any, must be filed no later than 4:00 p.m. Eastern Time on August 12, 2004, and served on: (1) The Debtors: David J. Webster Chief Restructuring Officer 101 South Hanley road, Suite 1075 St. Louis, Missouri 63105 (2) Attorneys for the Debtors: Allan B. Miller, Esq. Weil, Gotshal & Manges, LLP 767 Fifth Avenue New York, New York 10153-0119 Stephen A. Youngman, Esq. Weil, Gotshal & Manges, LLP 200 Crescent Court, Suite 300 Dallas, Texas 75201-6950 (3) Office of the United States Trustee: Paul Schwartzberg, Esq. U.S. Trustee for the Southern District of New York 33 Whitehall Street, 21st Floor New York, New York, 10004 (4) Attorneys for the Debtors' Postpetition Lenders: Daniel V. Oshinsky, Esq. Robert Morfka, Esq. Schulte Roth & Zabel, LLP 919 Third Avenue New York, New York 10022 (5) Attorneys for the Creditors Committee Michael J. Sage, Esq. Kristopher M. Hansen, Esq. Stroock & Stroock & Lavan, LLP 180 Maiden Lane New York, New York 10038-4982 Any confirmation objection, The Honorable Burton R. Lifland directs, must: -- be in writing; -- state the name and address of the objecting party and the amount of its claims pr the nature of its interest; and -- must state, with particularity, all legal and factual bases for and the nature of the party's objection. As previously reported in the Troubled Company Reporter, the Debtors' Plan proposes to swap the company's existing Subordinated Notes for $75,000,000 of New Notes and, subject to option-related dilution, 96% of the New Common Stock in the Reorganized Debtor. International Wire Group, Inc., designs, manufactures and markets bare and tin-plated copper wire and insulated copper wire products for other wire suppliers and original equipment manufacturers. The company filed for chapter 11 protection (Bankr. S.D.N.Y. Case No. 04-11991) on March 24, 2004. Alan B. Miller, Esq., at Weil, Gotshal & Manges, LLP represents the debtor in its restructuring efforts. When the Company filed for bankruptcy protection, it listed total assets of $393,000,000 and total debts of $488,000,000. KAISER ALUMINUM: Comalco Says $525 Million QAL Price is Too High ---------------------------------------------------------------- The Australian Financial Review reports that Comalco, Ltd., finds the $525,000,000 price for Queensland Alumina, Ltd., too high. Comalco owns 38.6% of QAL and has preemptive rights to buy Kaiser's 20% stake. For Comalco, building a new refinery would be cheaper, according to a summary of the newspaper article distributed by Bloomberg News. As reported in the Troubled Company Reporter's July 7, 2004 edition, Daniel J. DeFranceschi, Esq., at Richards, Layton & Finger, in Wilmington, Delaware, relates that QAL operates an alumina refinery at Gladstone in Queensland that tolls bauxite, supplied by the Participants, into alumina at a cost in proportion to the Participants' ownership interests in QAL. Kaiser Australia and certain of the other Participants purchase the bauxite for processing at QAL from Comalco Limited pursuant to separate bauxite supply agreements. Queensland Alumina Limited is a Queensland, Australia corporation that operates as an independent production company. The direct shareholders in QAL are referred to as Participants and their parent companies are referred to as Guarantors. Kaiser Alumina Australia Corporation, a wholly owned subsidiary of Kaiser Aluminum and Chemical Corporation, is a Participant in QAL and KACC is a Guarantor. Mr. DeFranceschi notes that the Participants and the Guarantors, together with QAL, are parties to a Participants Agreement, dated as of July 31, 1964, and five separate tolling contracts under which each Participant is severally and conditionally obligated to take its share of alumina produced by QAL and pay, among other things, its proportionate share of the costs and expenses of QAL's operations. KACC, Kaiser Aluminum International, Inc., and Kaiser Australia's interests in and related to QAL consist of: (a) 20% of the outstanding shares of QAL; (b) rights and obligations under the Participants Agreement, tolling contracts, and related agreements; (c) rights and obligations under all other agreements between or among the Participants, their parent corporations and others, as the case may be, with respect to financing for QAL, including related reimbursement of interest expenses and security arrangements; (d) rights and obligations under the bauxite supply agreements relating to QAL; (e) interests in certain alumina and bauxite inventories; and (f) rights and obligations under certain alumina sales contracts with third parties. Comalco's Right of First Opportunity On October 14, 1982, KACC, CRA Limited and Comalco entered into an Agreement Collateral to Share Purchase Agreement, pursuant to which Comalco is entitled to a right of first opportunity if at any time KACC wishes to sell or otherwise dispose of all or any part of the QAL Interests. If KACC desires to sell all or any part of the QAL Interests, the Collateral Agreement provides, among other things, that these obligations and procedures will apply to each of KACC and Comalco, as applicable, to give effect to the RFO: (a) KACC is required to give notice in writing to Comalco of its intention to sell any QAL Interests indicating, to the extent possible, the terms and conditions on which it is willing to sell the QAL Interests to Comalco; (b) Within 30 days of receipt of the notice from KACC, Comalco must give written notice to KACC stating either that: (i) it does not wish to acquire the QAL Interests; or (ii) it is interested in acquiring the QAL Interests and wishes to meet with KACC's authorized representatives to negotiate terms and conditions on which it would be willing to purchase the QAL Interests; (c) If within 60 days from the first meeting between KACC and Comalco representatives, the parties have not agreed on a basis for the sale of the QAL Interests, KACC must send a second notice to Comalco stipulating the price and other relevant terms and conditions on which it offers to sell the QAL Interests to Comalco; and (d) Comalco has 30 days from the receipt of the second notice to accept or reject KACC's offer. If Comalco rejects the offer, KACC has 180 days in which to enter into a legally enforceable commitment to sell the QAL Interests on terms and conditions no more favorable to the purchaser than the terms offered to Comalco in the second notice. Sale Process Overview Since the Petition Date, the Debtors have been analyzing their various assets to determine whether certain of those assets should be sold because, among other reasons, they are not necessary for the successful operation or reorganization of their businesses. As a part of this analysis, the Debtors determined, with the support of the Official Committee of Unsecured Creditors, the Official Committee of Asbestos Claimants and Martin J. Murphy, the legal representative for future asbestos claimants, that it was appropriate to explore the value that could be recognized on a sale of certain of their commodities businesses, including the QAL Interests. Headquartered in Houston, Texas, Kaiser Aluminum Corporation -- http://www.kaiseral.com/-- operates in all principal aspects of the aluminum industry, including mining bauxite; refining bauxite into alumina; production of primary aluminum from alumina; and manufacturing fabricated and semi-fabricated aluminum products. The Company filed for chapter 11 protection on February 12, 2002 (Bankr. Del. Case No. 02-10429). Corinne Ball, Esq., at Jones, Day, Reavis & Pogue, represent the Debtors in their restructuring efforts. On September 30, 2001, the Company listed $3,364,300,000 in assets and $3,129,400,000 in debts. (Kaiser Bankruptcy News, Issue No. 47; Bankruptcy Creditors' Service, Inc., 215/945-7000) LEASE INVESTMENT: Fitch Downgrades Four Classes to Low-B Ratings ---------------------------------------------------------------- Fitch Ratings has taken these rating actions for Lease Investment Flight Trust -- LIFT -- aircraft securitization: -- Class A-1 notes are downgraded to 'BBB' from 'A'; -- Class A-2 notes are downgraded to 'BBB' from 'A'; -- Class A-3 notes are downgraded to 'BBB' from 'A'; -- Class B-1 notes are downgraded to 'B-' from 'BBB'; -- Class B-2 notes are downgraded to 'B-' from 'BBB'; -- Class C-1 notes are downgraded to 'CCC' from 'BB'; -- Class C-2 notes are downgraded to 'CCC' from 'BB'; -- Class D-1 notes are downgraded to 'CC' from 'B'; -- Class D-2 notes are downgraded to 'CC' from 'B'. The downgrades reflect Fitch's concern that LIFT's lease cash flows have continued to show weakness, and Fitch believes that they are unlikely to show much rebound over the next few years. Through the first six months ended June 2004, LIFT reported collections net of expenses of $63.2 million down 13.9% from the $73.4 million reported during the first six months ended June 2003. These continued weak results primarily reflect higher expenses but also reflect continued weak lease rates. The higher expenses are due to increased maintenance and remarketing expenses. Although lease rates for many aircraft types have stabilized, most remain weak compared with historical levels. Beginning in November 2003, LIFT has been periodically utilizing the cash reserves related to the class D notes. The original $11 million reserve has been drawn down to $6.9 million as of June 30, 2004. Fitch expects that by mid-year 2005, the class D reserve will likely be depleted and LIFT will be unable to pay interest on the class D notes. Although the class C reserve has not been utilized, Fitch does expect that this is likely sometime early in 2005. While LIFT's indenture does specify that any failure to pay scheduled interest when due constitutes an event of default, it does not provide for an acceleration of payment on the notes. Acceleration of payment on the notes only occurs when interest on LIFT's most senior class is not paid when due. LIFT's indenture also includes provisions that provide that the amount of principal payable to the class A notes be increased if the appraised value of LIFT's aircraft portfolio declines below certain levels. Based on the April 2004 appraisals, the class A scheduled principal payments are required to be increased. While this could result in delays of scheduled principal payments to other noteholders in the future, it is not having much effect currently. Because of LIFT's continued weak collections cash flows and the location of scheduled class A principal at the back of the payment waterfall, LIFT is currently unable to pay scheduled class A principal. LIFT is a Delaware business trust formed to conduct limited activities, including the issuance of debt, and the buying, owning, leasing, and selling of commercial jet aircraft. LIFT originally issued $1.4 billion of rated notes in June 2001, while as of June 2004, it had $1.3 billion of notes outstanding. Primary servicing on LIFT's 39 aircraft is being performed by GE Capital Aviation Services, wholly owned by General Electric Corporation, while the administrative agent role is being performed by Phoenix American Financial Services, Inc. LITFUNDING: Inks Non-Binding Letter of Intent for $2.5 Mil Funding ------------------------------------------------------------------ LitFunding Corp (OTC BB: LFDG) signed a non-binding Letter of Intent with Pacific Dawn Capital, LLC, for a multi-stage $2.5 million round of funding. As proposed, Pacific Dawn will either make a capital investment or make a loan to a limited liability company formed together with LitFunding USA, the new wholly owned operating subsidiary of LitFunding. Under the terms of the agreement, the limited liability company will receive fees for originating, servicing and managing investments made with these funds. After the return of capital invested to Pacific Dawn, both the limited liability company and Pacific Dawn will participate equally in the fees generated from the investments made. Dr. Morton Reed, Chairman and President announced that this new source of capital so soon after LitFunding emerged from bankruptcy clearly underscores the viability of LitFunding and announces that the company is back in business and ready to resume it's pre- eminent role as the primary source of capital to the plaintiff attorney's market. Additionally, LitFunding is proud to announce that it intends to expand it's product line of non-recourse advances to include a market driven need for full recourse lending at lower interest rates than the fees currently charged. Dr. Reed also announced that the company's intends to complete it's move to a 6,600 sq foot facility in Las Vegas by October 2004. LitFunding through it's wholly owned subsidiary LitFunding USA remains one of the nations largest public company's specializing in the funding of litigation primarily through plaintiff's attorneys. The Company is in the litigation funding business making advances to plaintiff's attorney's primarily in the areas of personal injury. A fee is earned when the lawsuits so funded are settled or otherwise concluded by a court ruling. At that time both the funds advanced and the fee contractually agreed to are repaid to the company. The company's new full recourse program will charge lower interest rates than the current fees charged on non-recourse advances and these loans will be collateralized by both the attorney's underlying case load as well as real property. LitFunding filed for Chapter 11 protection on January 26, 2004 (Bankr. C.D. Calif. Case No. 04-11622). Michael Marcelli, Esq. represents the Debtors in its restructuring efforts. When the Debtor filed for protection from its creditors, it listed total assets of $10 million to $50 million and total debts of $10 million to $50 million. LORAL SPACE: Patrick Brant Succeeds Terry Hart as Skynet President ------------------------------------------------------------------ Loral Space & Communications named Patrick K. Brant president of subsidiary Loral Skynet. Mr. Brant succeeds Terry Hart. Mr. Brant, 53, takes the helm at Loral Skynet as Loral prepares to file a plan of reorganization that should allow it to emerge from bankruptcy before the end of the year. Loral Skynet owns and operates a fleet of four telecommunications satellites that, in combination with its established hybrid VSAT/fiber global network infrastructure, provides secure, high-quality video broadcasting, broadband data transmission, Internet services and other value- added communications services to commercial and government customers. Mr. Brant served as an executive at Loral Cyberstar from 1999 to 2003, ultimately as its president and chief operating officer. He was a leading participant in Cyberstar's integration into Loral Skynet in 2003. His strong sales, marketing and business development background includes senior management positions at satellite companies, including Orbital Communications and American Mobile Satellite Corporation. Mr. Brant holds a Bachelor of Science degree in Economics from the University of Maryland. "Pat Brant's strong sales and marketing experience, knowledge of the industry, and leadership capabilities will unquestionably enhance our efforts to build out our international network of satellite services," stated Bernard L. Schwartz, chairman and chief executive officer of Loral. Terry Hart, who served as president of Loral Skynet for seven years, left the company to pursue a career in academia, a longstanding objective. "We are grateful to Terry Hart, under whose leadership Loral Skynet grew from a one-satellite company in 1997 to an international satellite services company today. He has our respect and admiration for staying the course through the recent difficult time at Loral and in our industry," Mr. Schwartz continued, "and we wish him well." Loral Space & Communications is a satellite communications company. In addition to having Loral Skynet as its subsidiary, Loral, through its Space Systems/Loral subsidiary 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. Loral Space & Communications and various affiliates filed for chapter 11 protection (Bankr. S.D.N.Y. Case No. 03-41710) on July 15, 2003. Stephen Karotkin, Esq., and Lori R. Fife, Esq., at Weil, Gotshal & Manges LLP represent the Debtors in their restructuring efforts. When the company filed for bankruptcy, it listed total assets of $2,654,000,000 and total debts of $3,061,000,000. LOYALTYPOINT: Ability to Continue as a Going Concern is in Doubt ---------------------------------------------------------------- LoyaltyPoint Inc. is a loyalty marketing company focused on nontraditional fundraising for schools and charitable organizations. As shown in the Company's consolidated financial statements, the Company has yet to achieve profitability and has accumulated a deficit of approximately $11,000,000 since inception. Additionally, the Company has generated negative cash flow from operating activities of approximately $386,000 for the first quarter ended March 31, 2004, and at March 31, 2004 has a working capital deficit of approximately $4,358,000 and a stockholder's deficiency of approximately $1,712,000. In order to sustain its operating activities, the Company has been successful in raising $3,297,351 from financing activities since inception, which was also used to finance its acquisitions of other businesses. However, past successes in raising capital is not indicative of future results, and there can be no assurance that the Company can be successful in raising sufficient capital in order to meet its future operating needs. The Company is currently seeking to raise $3,000,000 in additional capital from an existing stockholder and has recently signed a non-binding letter of intent. Because it is uncertain whether the Company will be successful in raising the necessary capital, there is substantial doubt of the Company's ability to continue as a going concern. The Company anticipates that it will continue to generate insufficient cash flow from operations to meet operating capital needs, until at least the fourth quarter of 2004. With the existing operations today, management believes that existing cash will be sufficient to fund the negative operating cash flow over the next two fiscal quarters. Additional capital resources may be required to fund negative operating cash flow in future periods beyond the third quarter of 2004, and the Company gives no assurances that it will be able to obtain adequate capital resources on acceptable terms and conditions. In order to meet working capital needs, LoyaltyPoint entered into a term sheet with a venture capital firm that agreed to invest a minimum of $3,000,000 in exchange for convertible preferred stock, subject to certain conditions. Three key conditions are: (1) the investor's review of FUNDever's (a Company subsidiary) audited financial statements for the year ended December 31, 2003, (2) LoyaltyPoint's obtaining authorization from its stockholders to increase its authorized capital to permit the investor to be able to convert its preferred stock into common stock and (3) LoyaltyPoint entering into a long-term agreement with American Express Incentive Services, LLC which accounts for a large majority of the scrip revenue from the NSC assets LoyaltyPoint purchased. In this regard, please note the following: (i) The audited financial statements are in process of being completed; (ii) While management believes the Company has the necessary approval from the Company's majority stockholders to amend its certificate of incorporation and increase its authorized capital, that step cannot be taken until the Company can send its stockholders the financial information required under the rules of the SEC. With the filing of its Form 10-QSB, the Company expected to file the Information Statement with the SEC within a few days. LoyaltyPoint cannot amend its Certificate of Incorporation for at least 30 days thereafter; and (iv) The Company has reached an oral agreement with AEIS, which continues the Company exclusivity and which requires it to issue 5,000,000 shares of common stock and 3,000,000 warrants, exercisable above current fair market value, and pay $1,500,000 over five years, including $250,000 when the Company signs the definitive agreement. Under this term sheet, the preferred stock is convertible into approximately 23,000,000 shares of common stock; in addition LoyaltyPoint agreed to issue the investor 4,500,000 warrants exercisable above current fair market value. The Company is currently negotiating definitive agreements with the venture capital investor and AEIS. There can be no assurances that it will close each transaction on the terms agreed upon or at all. The Company was targeting to close each transaction by August 1, 2004. If unsuccessful in closing the minimum $3,000,000 funding, the Company will make other efforts to obtain the necessary working capital. If the Company is unsuccessful in reaching an exclusive agreement with AEIS, the resulting loss of revenue could have a material negative impact on the Company's anticipated revenue and operating cash flow, dependent upon whether it can continue selling the cards without an exclusive agreement, or whether AEIS cancels the program entirely. LoyaltyPoint Inc. is a loyalty marketing company focused on nontraditional fundraising for schools and charitable organizations. A consumer shopping online or using prepaid merchant gift cards (scrip) generate revenues for the Company, a portion of which are paid to participating schools and charitable organizations. LUCKY LUCK FARMS: Case Summary & 16 Largest Unsecured Creditors --------------------------------------------------------------- Lead Debtor: Lucky Luck Farms, LLC 3453 Southfork Road Cody, Wyoming 82414 Bankruptcy Case No.: 04-21512 Debtor affiliates filing separate chapter 11 petitions: Entity Case No. ------ -------- D3X, Inc. 04-21513 Type of Business: The Debtor is engaged in agriculture industry. Chapter 11 Petition Date: August 4, 2004 Court: District of Wyoming (Cheyenne) Judge: Peter J. McNiff Debtors' Counsel: Ronald P. Jurovich, Esq. Messenger & Jurovich, P.C. P.O. Box 550 Thermopolis, WY 82443 Tel: 307-864-5596 Total Assets Total Debts ------------ ----------- Lucky Luck Farms, LLC $1,318,025 $3,532,516 D3X, Inc. $5,000,000 $3,500,000 Debtor's 16 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ First National Bank & Trust $2,200,000 P.O. Box 907 245 East First Powell, NY 824335 Powell Equipment $13,143 Powell Valley Oil $7,654 Internal Revenue Service $3,729 Internal Revenue Service $2,285 Big Horn Cooperative Marketing Assn. $1,705 Superior Machine Co. $1,254 NAPA Auto Parts $649 Internal Revenue Service $628 Woodward Tractor $373 Butane Power & Equipment Co. $334 Big Valley Irrigation $210 WY Workers Safety and Compensation $187 Division Cody Large Animal $150 Cody Animal Health $131 McIntosh Oil $84 MAGELLAN AEROSPACE: Posts $33.3 Million Half-Year Net Loss ---------------------------------------------------------- Magellan Aerospace Corporation (TSX: MAL) reported its 2004 second quarter results. Revenues for the three months ended June 30, 2004 were $157.8 million, an increase of $36.8 million or 30.4% from the same period one year ago. Revenues for the year-to-date period ending June 30, 2004 were $293.8 million, an increase of $54.7 million or 22.9% from the previous year. Approximately two- thirds of the increase in revenues, being $26.4 million, is due to the inclusion of Magellan's business in the United Kingdom, acquired in October 2003, and the balance from new contracts, such as the GE 414 Aircraft Engine Revenue Sharing Agreement as well as increased shipments from higher activity levels at its North American operations. Gross profit is $15.3 million (9.7% of revenues) for the second quarter of 2003 compared to $16.8 million (13.9% of revenues) during the same period in 2003. Gross profit was negatively affected by an increase in new program shipments, which are experiencing low margins in the early stages, and operating inefficiencies associated with ramp-up to increased volumes. Gross profits were also impacted by foreign exchange rates; even though Magellan has hedged a significant portion of its cash flows, current year hedging levels are less advantageous compared to those from one year ago. Cost reduction efforts are continuing to occur in order to remain competitive in the prevailing exchange rate environment. Due to the stronger Canadian dollar in 2004 compared to 2003, revenues in the second quarter of 2004 were lower by approximately $2.7 million compared to the second quarter of 2003, had the exchange rate been the same in both periods. Cost of sales is correspondingly lower as well, but the exchange impact is somewhat more diluted, as the cost of Canadian based inventories expensed in the quarter will have been purchased at different rates in the inventory turn cycle. In addition, certain production costs are denominated in Canadian dollars, and therefore the strengthening of the Canadian dollar versus the US dollar has no effect on these costs. In the second quarter of 2004, the Corporation realized a benefit of $0.8 million from its hedging activities to offset the negative impact of foreign exchange rate changes on gross margin. In the corresponding quarter in 2003 the gain realized from hedging was $1.7 million, which was recorded as an addition to gross margin in that period. Administrative and general expenses were $14.1 million in the second quarter of 2004, an increase of $7.3 million from the same period last year. Included in administrative and general expenses for the three months ended June 30, 2004, is a foreign exchange loss of $3.3 million, which arose on translation of the Corporation's US dollar denominated debt as the Canadian dollar weakened compared to the US dollar during the quarter. In the corresponding period in 2003, there was a foreign exchange gain of $3.6 million due to the translation of the US dollar debt, as the Canadian dollar had strengthened in that period. Excluding the impact of foreign exchange, administrative and general expenses were $10.8 million or 6.7% of revenues in the second quarter of 2004, compared to $10.4 or 7.4% in the second quarter of 2003. Interest expense increased to $3.9 million in the three months ended June 30, 2004, up from $2.9 million in the same period last year. Interest expense is higher due to additional debt levels associated with higher working capital balances outstanding during the quarter. Interest expense includes an amount of $0.2 million, which represents discounts on the sale of receivables. Recovery of income tax was $1.0 million in the second quarter of 2004, resulting in an effective tax rate of 35.3%, compared to a provision from income tax of $2.6 million in the second quarter of 2003, for an effective rate of 36.3%. The blended income tax rate has declined year over year primarily due to lower income tax rates in the United Kingdom where the corporation had operations in 2004, but no operations in the corresponding period in 2003. There was a net loss for the quarter ended June 30, 2004 of $1.7 million, compared to net income of $4.6 million for the same period in 2003. For the year to date in 2004, net income is $0.9 million, compared to a net loss of $14.5 million in the year to date period in 2003. The year to date loss in 2003 contained a pre tax provision of $33.3 million related to the closure of facilities in Fort Erie. The most recent review of the closure provision indicates that it remains sufficient to cover all anticipated closure costs. The earnings per share calculations contain charges related to the convertible debenture of $1.3 million for the second quarter of 2004 and $2.6 million for 2004 year-to-date. Liquidity and Capital Resources During the second quarter of 2004 the Corporation used $2.7 million of cash in operations, as non-cash working capital balances increased by $5.7 million. The growth in working capital includes increases in inventory of $17.5 million, offset by decreases in accounts receivable of $10.6 million and increases in accounts payable of $3.1 million. Inventory increased as the Corporation built ahead of customer delivery schedules to ensure continued deliveries during traditional summer maintenance shutdowns in July and August at several divisional locations. Inventory also increased during the second quarter due to the additional work in the United Kingdom and increased demand for products in North America. Accounts receivable decreased, as additional receivables were sold under securitization arrangements. During the second quarter, the Corporation sold certain receivables under securitization arrangements with third parties. In the second quarter, the Corporation sold a total of $33.0 million of receivables. A discount of $0.2 million relating to these sales reflecting an annualized discount rate of 2.5% has been recorded as interest expense in the second quarter. In the quarter ended June 30, 2004, the Corporation invested $12.2 million in capital expenditures to modernize current facilities and enhance its capabilities. Included in this amount was $7.1 million related to the modernization and facilitation to support additional business awarded in the United Kingdom. For the year-to-date, the Corporation has made $14.5 million of capital acquisitions. The Corporation was not in compliance with certain of its bank financial covenants at the end of the second quarter of 2004. As a result, the Corporation obtained a waiver of these financial covenants as of June 30, 2004, and received an amendment of its financial covenants for the quarter ending September 30, 2004. In addition, Magellan committed to raise additional capital through the issuance of equity and committed to refinance its long-term debt. Magellan expects to be in compliance with all of its existing bank covenants, as amended, at all times during the upcoming twelve months. Risk Factors The majority of the Corporation's revenues and operating income is derived from the aviation industry. The Corporation's aerospace operations are focused on engineering and manufacturing aircraft components on new aircraft, selling spare parts and performing repair and overhaul services on existing aircraft components. Therefore, the Corporation's business is directly affected by economic factors and other trends that affect the Corporation's customers in the aerospace industry. Economic and other factors, both internal to the aviation industry or general economic factors that might affect the aerospace industry may have an adverse impact on the Corporation's results from operations. In addition, growth in the demand for products manufactured by the Corporation has resulted in an increased requirement for working capital. The Corporation needs to access the capital markets to fund this growth. There is no assurance that the Corporation will be able to raise additional capital required on financial terms acceptable to it. Recent Developments On May 6, 2004 the Corporation announced the signing of a new supply agreement with Airbus UK, which represents additional work valued at approximately $24.0 million annually, across the full range of Airbus products with significant content on the Airbus A380. The work consists of complex machining of aluminium and hard metal alloys. Magellan has also secured additional equipment and facilities to accommodate the expanded workload and anticipated volume increases as the demand for Airbus aircraft grows. This additional capacity is located adjacent to existing Magellan facilities in the United Kingdom, and will provide an opportunity to rationalize the increased workload across all divisions, reduce overhead costs and absorb the cost reduction demands that are now a feature of aerospace lean manufacturing. Along with the Airbus work, the Corporation has secured additional work from AgustaWestand and the GKN Group, representing an additional $9.0 million to $12.0 million of annual revenue. A new opportunity for growth was made available to the Corporation as the first co-generation gas turbine was delivered during the quarter to a customer in London, Ontario. This unit will be the prototype installation for the production of electricity and steam from biofuel and presents a growth opportunity given the increasing demands for power in the Ontario marketplace and elsewhere. Magellan also announced at the Farnborough Air Show, an agreement with agencies in China and India, to develop suppliers in those two countries to expand Magellan's global supplier network. Major customers are increasingly interested in dealing with suppliers with strong global sourcing systems to enhance value, and to provide economic benefits to those areas where their products will be sold. Summary The worldwide aerospace industry continues to strengthen. In spite of high fuel costs, major airlines have been experiencing higher load factors for both freight and passenger traffic. While profits have not recovered at the major US airlines, low-cost carriers continue to flourish both in North America and Europe and Asian airlines are also profitable. Both Boeing and Airbus have recently updated delivery schedules for 2005 and 2006 showing increases in rates in the single aisle aircraft models. As Magellan has good exposure to these models, business activity is expected to increase to meet the increased demand for components. Delivery schedules for twin-aisle aircraft have remained steady. There are also signs of a recovery in the power generation sector increasing the opportunities for component manufacturing and small co-generation power units. Magellan Aerospace Corporation is a diversified supplier of components to the aerospace industry, and, through its network of facilities throughout North America and the United Kingdom, supplies leading aircraft manufacturers, airlines and defence agencies throughout the world. MAXTOR CORP: Weak Operating Results Prompt Moody's Stable Outlook ----------------------------------------------------------------- Moody's Investors Service changed the rating outlook for Maxtor Corporation to stable from positive following the company's recently announced, weaker than expected second quarter (June) operating results. The company's materially narrowed gross margin, second consecutive quarter of negative operating cash flow generation and somber expectations for improvement in coming quarters have negated the optimistic circumstances that supported the rating agency's May 2003 outlook upgrade to positive from negative. While the company's solid liquidity position remains the cornerstone to its current B2 rating, ongoing competitive pricing pressures and near term concerns relating to company specific dynamics will be closely monitored during the next few quarters. However at this time, Moody's affirms the following rating profile: (i) B2 rating on Maxtor Corporation's $230 million convertible senior notes, due 2010; (ii) Caa1 rating on Maxtor Corporation's $60 million 5-3/4% convertible subordinated debentures, due 2012; (iii) B2 senior implied rating; and (iv) B2 senior unsecured issuer rating. The rating affirmation reflects the company's modest total leverage (total debt to trailing twelve month recurring EBITDA of approximately 1.5x), its significant liquidity position (unrestricted cash & marketable securities totaled approximately $450 million as of June 30, 2004) and the possibility for an operating performance recovery in the near term resulting from numerous corporate actions currently underway as well as to be initiated during the remainder of 2004. Specifically, Moody's anticipates modestly improved results, particularly during the fourth quarter and into the first half of 2005 as a result of the following company developments: (i) sustaining market leadership position and highly profitable sales generation within the consumer electronic HDD segment; (ii) securing a moderately reduced manufacturing cost base through the transitioning of existing third party (MKE) enterprise HDD sourcing to company-owned Singapore facilities and desktop HDD operations to a newly constructed China facility; (iii) re-qualification and returning to historical supply volume levels in a timely fashion with a leading OEM; and (iv) realizing reduced operating expense from the announced 450 employee headcount reduction (expected to generate $15 million quarterly cost savings). Further, Moody's is optimistic that the company will leverage its leading HDD industry position into securing a formidable mobile marketplace toehold, a segment, which it expects to enter at some point during the next several quarters. Finally, while the company is expected to continue generating moderately negative free cash flow into the foreseeable future, on-hand liquidity will remain more than sufficient to fund this shortfall as well as to service the existing capital structure and very modest near term debt maturities. At the present time, the company's B2 rating incorporates numerous company specific and industry wide risks. Most prominently, it reflects the significant pricing pressure confronting the industry on whole and the company in particular since the end of 2003. While there remains significant potential for further disappointment in terms of end market pricing levels, resulting profitability and cash flow pressures are not expected to produce a serious strain on the company's current formidable liquidity position. In addition, the rating accounts for execution uncertainties associated with the company's announced strategic shifts (i.e., facilities' transition, leading OEM requalification and restructuring). While it is essential that the company restore rating agency and capital markets' confidence in the merits of its business model, for the time being these uncertainties are incorporated within the company's existing B2 rating. The company's convertible senior notes rating, at the same B2 level as the senior implied rating, accounts for these securities being issued by Maxtor Corporation, the sole legal entity representing 100% of domestic operations. While this unsecured senior debt is structurally subordinate to existing indebtedness incurred by foreign operations, currently consisting of a $30.8 million economic development board loan, $30 million manufacturing facility construction loan (incremental term loans will result in a peak balance of $63 million) and trade creditor obligations, there currently exists sufficiently adequate domestic asset coverage (excluding mortgage pledged assets and assuming only moderate utilization of the $100 million receivables facility) to support this rating level. However, should Maxtor Corporation seek to replace significant additional amounts of unsecured senior debt with senior secured debt or assume guarantees in support of significant additional amounts of foreign subsidiary debt, the notes' B2 rating could be notched downward. The stable rating outlook signals that the company's existing rating profile is appropriate, incorporating all of the pressures on its business model. Nonetheless, Moody's will closely monitor the company's near term operating results as there remains potential for further disappointment, either in terms of continued irrational industry pricing behavior, heightened competitive pressure from new entrants within the consumer electronics and mobile segments or execution issues in implementing the manufacturing transition strategies. This rating outlook could be lowered to negative over the near to intermediate term, resulting from adverse developments involving some combination of the aforementioned concerns. Conversely, if these developments meet/exceed management expectation and resulting operating performance returns to 15-18% gross margins, core profitability and positive operational as well as free cash flow generation that underscored the May 2003 outlook upgrade, this may again place upwards pressure on the company's rating profile. As of March 31, 2004, Maxtor possessed approximately $400 million of long term debt (excludes $50 million funded under the company's receivable facility during Q2), translating into trailing twelve months Total Debt/Adj. EBITDA of approximately 1.5x. Nonetheless, incorporating the various business model & market challenges expected during the next twelve months period, Moody's expects Adj. EBITDA (excludes non-recurring charges associated with the recently announced restructuring) to decline to the $60 - $80 million level, with the potential for stronger results dependent on a more rational pricing environment, greater than expected penetration into the mobile marketplace, increasing profitability from its enterprise HDD operations and greater cost reduction efficiencies captured from the previously announced manufacturing transitions. Notwithstanding such upside potential, the projected Total Debt/Adj. EBITDA will increase to the 5.0-6.0x area during the next twelve months. Somewhat lessening these near term operating performance challenges, the resulting cash flow burn is not expected to reduce the unrestricted cash & marketable securities balance below the $325 million area, with supplemental liquidity still available in the form of unutilized capacity under the company's recently secured $100 million receivables facility (subject to financial covenant compliance). At the same time, the company also faces scant debt repayment requirements during the 2004-2005 period. Maxtor Corporation, headquartered in Milpitas, California, is a leading provider of hard disk drives and related storage solutions for desktop computers, high-performance Intel-based servers, near- line storage systems and consumer electronics. MILLER DIVERSIFIED: Sale to Miller Feed Lots Still Pending ---------------------------------------------------------- On August 31, 2003, Miller Diversified Corporation's working capital was a minus $141,948 compared to a positive $21,700 at August 31, 2002, a decrease of $163,648. This decrease is attributable in part to the loss in cattle being sold and the reduction in equity in company cattle in inventory. Current assets of $3,182,358 at August 31, 2003 decreased $503,204 over the prior year, or 14%. This is primarily attributable to the $810,841 decrease in inventory. Trade and cattle-financing receivables increased $801,163 due to the increased number of cattle on the investor line and the number of related-party cattle being fed. Current liabilities decreased by $339,556 (9%) to $3,324,306. This decrease relates primarily to the reduction of accounts payable for company cattle on feed. The Company's line of credit which financed the feeding of Company-owned cattle was not renewed in January 2003. Between January and August, the remaining Company-owned cattle were completed and sold. During this time, management developed a plan to sell substantially all of the assets of the Company to Miller Feed Lots, Inc. (MFL), a related party. On October 31, 2003, the Company's shareholders approved the sale. The agreement also provides for cancellation of the lease agreement for the feedlot facility in exchange for paying a cancellation fee of $250,000 to MFL. The assets sold, valued at $3,433,268, less the $2,795,946 in liabilities assumed by MFL and the lease cancellation fee resulted in a net receivable from MFL of $387,322. The receivable is to be collected in $100,000 annual installments. In connection with this sale, the Company recognized a loss of $364,466, which includes the $250,000 lease cancellation fee. After this transaction, the Company will effectively be a shell company with no active operating activities. Management believes there is a market for public shell companies and intends to sell the Company. Miller Diversified Corporation is a publicly held Nevada corporation that was formed in 1987 as the result of several transactions and mergers of predecessor companies. In 1987, the Company acquired the commercial cattle feeding business and some farms of Miller Feed Lots, Inc. (MFL), a related entity. The farms were subsequently sold, and the Company's principal business was still commercial cattle feeding that was operated on a feedlot facility and with equipment leased or rented from MFL. The Company has a wholly owned subsidiary, Miller Feeders, Inc. (MFI) which was acquired in 1987. MFI is a cattle brokerage company that earns commissions from the purchasing of feeder cattle and selling finished cattle for the Company's cattle feeding customers, and for brokering certain "outside" cattle purchases and sales. MFI has the required bond to enable it to receive and distribute the sales proceeds from the sale of feeding customers' cattle. The Company is headquartered near La Salle, Colorado at the site of its cattle feeding operations. La Salle is about 40 miles northeast of Denver, Colorado in the South Platte River Valley of Weld County. MIRANT: MAGi Committee Wants Debtors to Sign Hedging Pacts ---------------------------------------------------------- Mirant Mid-Atlantic, LLC, a subsidiary of Mirant Americas Generation, LLC, operates various power plants in the Mid- Atlantic or "PJM" power market, which were acquired from Potomac Electric Power Company in December 2000. Several of these plants are coal-fired electricity generating units. MIRMA's largest coal-fired facilities have the benefit of contracts that effectively "lock-in" or fix the purchase price for coal for an extended period of time. Thus, because the marginal price of power generally is set to the price of natural gas, MIRMA has an opportunity to obtain increased gross margins when power prices rise, as a result of the rise in natural gas prices. Fortuitously, power prices have stayed relatively high since March 2004. Nevertheless, a substantial amount of MIRMA's 2004 gross margin remains unprotected against volatility in the market price of power because the MAEM Volumes -- significant numbers of megawatt hours of power which MIRMA currently sells to Mirant Americas Energy Marketing, LP -- are unhedged. Thomas Rice, Esq., at Cox & Smith, Incorporated, at San Antonio, Texas, informs the Court that starting in March 2004, and on numerous occasions thereafter, the MAGi Committee asked Mirant and its debtor-affiliates to enter into hedging transactions to lock- in the power prices and gross margins associated with the MAEM Volumes. The MAGi Committee noted to the Debtors that the hedging of the MAEM volumes could be done at the expense of the MIRMA and MAGi estates and would not affect Mirant or MAEM's separate exposure or risk profile with respect to the Transitional Power Agreement obligations. The MAGi Committee, thus, urges the Debtors to mitigate the risk of potential downturn in gas prices and to secure MIRMA/MAGi's profits by entering into hedging transactions. At first, Mr. Rice reports that the Debtors refused to enter into hedging transactions on MIRMA's behalf with respect to the MAEM Volumes. The Debtors admitted that, vis-a-vis the estates of MAGi and MIRMA, they are duty-bound to enter into hedging transactions to lock-in MIRMA/MAGi's profits. Indeed, at a meeting on March 30, 2004, Mirant's Chief Operating Officer, Curtis A. Morgan, conceded that the business judgment of an independent fiduciary for MAGi or MIRMA would dictate hedging the MAEM Volumes at current power market prices. Nonetheless, the Debtors argued that hedging the price of power on MIRMA's behalf was inappropriate because a natural "internal hedge" existing within the entire Mirant enterprise, which offset any loss the MIRMA/MAGi estate may suffer if power prices decrease. In response, the MAGi Committee emphasized to the Debtors that the so-called "internal hedge" does not benefit the MAGi estate and ignores the interests of MAGi and MIRMA creditors. The MAGi Committee also highlighted that failing to hedge MIRMA's profits in isolation may cause the MAGi estate to suffer substantial losses and therefore, is inconsistent with the separate fiduciary duties owed by the management of MAGi and MIRMA to the creditors of those estates. On May 7, 2004 and on several occasions thereafter, the MAGi Committee formally asked the Examiner to investigate the appropriateness of hedging the MAGi assets. The Debtors, the MAGi Committee, the Mirant Committee and the Examiner responded by engaging in negotiations in an attempt to develop a mutually satisfactory mechanism for eliminating the market risk to MIRMA associated with the MAEM Volumes. Ultimately, the Examiner proposed a solution involving an internal forward sale to MAEM of the MAEM Volumes, at fixed prices based on the market prices at the point in time when the discussions were being held, as opposed to the current arrangement of selling the MAEM Volumes at fluctuating market prices. The Debtors agreed to proceed with the Examiner's proposed internal forward sale of the MAEM Volumes to MAEM, provided that both the Mirant Committee and the MAGi Committee consented. This internal forward sale would have eliminated the potential market disruption and transaction costs associated with a forward sale by MIRMA of the MAEM Volumes to a third-party, and was believed by the Examiner, the Debtors and the MAGi Committee to represent the most effective, value- maximizing way to eliminate the risks to MIRMA of the unhedged MAEM Volumes. Nevertheless, the Mirant Committee refused to consent to the Examiner's proposed solution. After four months of discussion, Mr. Rice says that there is a stalemate between the parties. The Debtors have continued to leave the profits associated with the MAEM Volumes at risk to power market fluctuations, to the detriment of the creditors of MAGi and MIRMA. Despite the efforts of both the Examiner and the MAGi Committee, MIRMA's gross margins associated with the MAEM Volumes remain unhedged. Thus, the MAGi Committee asks the Court to compel the Debtors to enter into the hedging transaction on behalf of MIRMA to limit the risk associated with market price changes in power and to lock-in related profits. In the alternative, the MAGi Committee asks the Court for authority to enter into the hedging transaction on MIRMA and MAGi's behalf. Mr. Rice contends that the Debtors should be compelled to enter into the hedging transaction because their failure to lock-in gross margins for MIRMA with respect to the MAEM Volumes and eliminate exposure to declines in forward market prices for power constitutes a breach of the fiduciary duties independently owed to each of MIRMA and MAGi. Without the Court's intervention, the MAGi and MIRMA estates will be subjected to additional market risk and value may be lost, as the Debtors' management will perpetuate the management philosophy that in pursuing one "enterprise" strategy, it is appropriate to disregard risks and harm to each individual Debtor. Since the Debtors are either unable or unwilling to take the necessary action, Mr. Rice relates that only independent third- parties like the MAGi Committee can act to protect the interests of the MAGi and MIRMA estates and their creditors. Section 1103(c) of the Bankruptcy Code delineates activities a creditors committee is permitted to engage in on behalf of its creditor class, including the right to "perform such other services as are in the interest of those represented." According to Mr. Rice, this broad statutory authority has been interpreted by recent court decisions to allow a creditors' committee to take actions necessary to the representation of its constituency, so long as the proposed action is to be taken within the confines of the Bankruptcy Court. Mr. Rice notes that the only rationale the Debtors provided for not entering into the hedging transactions is the so-called "internal hedge," arising from the losses Mirant and MAEM are experiencing as a result of the same power prices on account of the TPA obligations. However, this purported "corporate hedge" neither locks-in profits at MAGi and MIRMA nor addresses the independent fiduciary duties owed to the two estates. In fact, the "internal hedge" only stands to benefit the estates of Mirant and MAEM, since a decrease in power prices would mitigate the losses of those estates arising from the TPAs and an increase in power prices would enlarge their equity value in MAGi and MIRMA. An independent fiduciary evaluating this issue from the MAGi/MIRMA perspective would attempt to eliminate or mitigate the loss in value that would be created by a decrease in power prices. The Debtors' contention that they are constrained from entering into an appropriate hedge because of the fiduciary duties owed to all Mirant Debtors, compounded by the Mirant Committee's actions, highlight the conflict inherent in attempting to represent the divergent interests between the Mirant and MAGi estates. Importantly, the Debtors' management team has not defended their unwillingness to enter into a third-party hedge for MIRMA as an exercise of business judgment by MAGi and MIRMA, because admittedly no independent business judgment is currently being employed. Indeed, the lack of an able fiduciary representing the interests of MAGi and MIRMA on the Debtors' management team may give rise to a breach of fiduciary duty claim for the benefit of creditors of MAGi and MIRMA. Those claims could be avoided if an independent fiduciary were acting on behalf of MAGi and MIRMA with respect to the issue of how best to hedge the MAEM Volumes. Accordingly, the MAGi Committee seeks the Court's permission to enter into hedging transactions on behalf of MAGi and MIRMA. Hardie Affidavit Filed Under Seal At the MAGi Committee's request, the Court allows it to file under seal William H. Hardie, III's Affidavit in support of the MAGi Committee's request. Mr. Rice relates that the Hardie Affidavit relies on information the Debtors provided that may constitute "Subject Material" as defined in the Amended Information Blocking Order. Headquartered in Atlanta, Georgia, Mirant Corporation -- http://www.mirant.com/-- together with its direct and indirect subsidiaries, generate, sell and deliver electricity in North America, the Philippines and the Caribbean. The Company filed for chapter 11 protection on July 14, 2003 (Bankr. N.D. Tex. 03- 46590). Thomas E. Lauria, Esq., at White & Case LLP represent the Debtors in their restructuring efforts. When the Company filed for protection from their creditors, they listed $20,574,000,000 in assets and $11,401,000,000 in debts. (Mirant Bankruptcy News, Issue No. 40; Bankruptcy Creditors' Service, Inc., 215/945-7000) MISSION ENERGY: Moody's Upgrades Sr. Sec. Rating to B3 from Caa2 ---------------------------------------------------------------- Moody's Investors Service upgraded the ratings of Mission Energy Holding Company (MEHC: senior secured to B3 from Caa2) and the ratings of subsidiary, Edison Mission Energy (EME: senior unsecured to B1 from B2). The rating outlook for MEHC, EME, and all of EME's rated subsidiaries is positive. The rating action follows the announcement by EME that it has entered into an agreement to sell its remaining 5,381 MW international power generation portfolio, known as the "BV", to a joint venture owned by International Power PLC (70%) and Mitsui & Co. Ltd. (30%), for net proceeds of about $2.3 billion. This asset sales agreement follows a previous announcement in mid-July that EME had entered into an agreement to sell its 51.2% interest in Contact Energy Limited to Origin Energy for proceeds of about $750 million. After payment of taxes and transaction costs, these two transactions, when completed, are expected to provide about $2.5 billion of net cash proceeds, and when added to other restructuring initiatives taken by EME, including the termination of the Collins lease, should provide $2.8 billion of net cash proceeds to EME over the next few months. EME is required under the Mission Energy Holdings International credit agreement to repay an $800 million bridge loan, using the asset sales proceeds. The remaining $2.0 billion of cash proceeds will be available to reduce holding company debt at EME and MEHC. The rating action reflects expectations that these transactions will result in substantial debt reduction throughout the MEHC family of companies. While the rating action incorporates the successful completion of these asset sales, Moody's recognizes that a certain degree of execution risk exists in EME being able to successfully complete its de-leveraging plan including the receipt of numerous regulatory approvals, project lender consents, and approval by International Power's shareholders. Additionally, all of the bonds outstanding at MEHC and at EME have no call provision so there is some uncertainty about the exact amount of debt that will be retired at EME and at MEHC. The company anticipates that the Contact Energy sale will close prior to November 30, 2004, and expects the BV sale to close prior to December 31, 2004. As such, material debt reduction related to these events might not occur until 2005. Upon the completion of these transactions, EME's business will be domestically focused and centered around three distinct business units, Homer City Generating Station, a three-unit 1,884 mw coal- fired merchant plant which sell electric output in PJM, Midwest Generation, a 5,621 mw fleet of merchant coal-fired plants that principally sell electric output in the midwest US, and its California business, which consist of interests in five natural gas plants that sell electric output under contract. The bulk of EME's future earnings and cash flows will be heavily reliant on the U.S. merchant power market. The positive rating outlook for MEHC, EME, and certain EME subsidiaries incorporate the potential for further credit strengthening at MEHC and EME as well as its operating subsidiaries, given the degree of de-leveraging that is expected to follow the completion of the asset sales. Moody's estimates that total consolidated MEHC on-balance and off-balance sheet debt could decline by around 62% from its level at 12/31/03, should the transactions close under the current terms and if the asset sales proceeds are used to reduce EME and MEHC debt. Ratings upgraded and issuers with a positive rating outlook include: * Mission Energy Holding Company: senior secured bonds and senior secured bank credit facility, upgraded to B3 from Caa2; * Edison Mission Energy: senior unsecured debt and Senior Implied rating upgraded to B1 from B2; shelf registration for junior subordinated debt upgraded to (P)B3 from (P)Caa1; * Midwest Generation, LLC: pass-through certificates, guaranteed by Edison Mission Energy, upgraded to B1 from B2; and * Mission Capital, L.P.: monthly income preferred securities upgraded to B3 from Caa1. Ratings affirmed and issuers for, which the rating outlook is revised to positive from stable include: * Midwest Generation, LLC: senior secured credit facilities at Ba3; second-priority notes at B1; * Homer City Funding, LLC: senior secured bonds at Ba2; and * Edison Mission Energy Funding Corporation, senior secured bonds at Ba3. Headquartered in Irvine, California, Edison Mission Energy is a wholly owned subsidiary of Mission Energy Holding Company, which in turn is a wholly owned subsidiary of Edison International. MISSISSIPPI CHEM: Terra to Acquire Company for Approx. $268 Mil. ---------------------------------------------------------------- Terra Industries Inc. (NYSE: TRA) and Mississippi Chemical Corporation (OTC Bulletin Board: MSPIQ.OB) have reached a definitive agreement under which Terra will acquire all of the outstanding shares of Mississippi Chemical for an estimated total value of approximately $268 million. The transaction consideration will include cash and assumed debt of $161 million and stock of $107 million, and the final value will depend on Terra's share price and closing adjustments. Both companies' Boards of Directors have unanimously approved the transaction. The Official Committee of Unsecured Creditors in Mississippi Chemical's bankruptcy case, Mississippi Chemical's largest unsecured creditors and its debtor-in-possession secured lenders also support the transaction. Mississippi Chemical and its domestic subsidiaries are currently operating under Chapter 11 of the U.S. Bankruptcy Code. As a result, the purchase agreement and related amended plan of reorganization are subject to approval by the U.S. Bankruptcy Court for the Southern District of Mississippi, as well as other regulatory approvals. Mississippi Chemical intends to file for Bankruptcy Court approval of the purchase agreement and related amended plan of reorganization by the end of August. Prior to the Terra acquisition and pursuant to the amended plan of reorganization, Mississippi Chemical's nitrogen and phosphate businesses will be separated and the phosphate business will be either sold or transferred to the holders of Mississippi Chemical's 71/4% senior notes and Mississippi Phosphates' 5.8% industrial revenue bonds. After confirmation of the amended plan of reorganization, Terra will acquire all of the stock of Mississippi Chemical. The transaction is expected to be completed no later than the first quarter of 2005. Expected Benefits of the Transaction Terra's acquisition of Mississippi Chemical is expected to: * Expand Terra's product sourcing and distribution capabilities beyond its existing North American and U.K. operations by diversifying its asset base in Trinidad and the U.S.; * Improve Terra's business risk profile by strengthening Terra's industrial nitrogen market position and increasing its sourcing from low-cost gas regions; * Provide Terra with new growth opportunities through Mississippi Chemical's terminal assets in Donaldsonville, Louisiana and Houston, Texas; * Yield significant annual cost savings; and * Be accretive to Terra's earnings and cash flow per share in the first year after closing. "This is an important step in our efforts to strengthen Terra's asset base and position the company for the long-term," said Michael L. Bennett, Terra's President and Chief Executive Officer. "Expanding our nitrogen manufacturing capabilities and diversifying our natural gas sources have been two important Terra objectives. Mississippi Chemical's 50% interest in the Point Lisas, Trinidad ammonia production facility will significantly enhance Terra's flexibility by lowering production costs in a high natural gas price environment. Mississippi Chemical's terminal assets in Donaldsonville and Houston provide Terra with access to new markets. We also expect the Yazoo City facility's mix of upgraded products for agricultural and industrial markets to serve us well. "This transaction creates a strong platform for improved efficiency and future growth," added Mr. Bennett. "The addition of Mississippi Chemical expands Terra's product sourcing and distribution capabilities and strengthens our industrial nitrogen market position. We are confident this transaction will enhance Terra's earnings power throughout the nitrogen market cycle and deliver significant value to our shareholders." Coley Bailey, Chairman and Chief Executive Officer of Mississippi Chemical, said, "We are very pleased to have reached this agreement with Terra. This transaction is an important step forward in completing the company's plan of reorganization. We believe that it maximizes the value of Mississippi Chemical for our creditors and stakeholders while affording them the unique opportunity to participate in the upside potential of the combined company." Mr. Bailey continued, "This transaction reflects the importance and quality of Mississippi Chemical's people and our outstanding manufacturing capabilities. I thank our employees for their continuing hard work and dedication. We are all committed to completing the sale process as expeditiously as possible and ensuring a seamless transition." Terra expects the transaction to be accretive to its earnings and cash flow per share in the first year after closing under most reasonable natural gas cost scenarios and applying customary operating, sales and administrative practices for these types of businesses. Terra expects to realize significant annual cost savings through synergies in the areas of product sourcing, distribution, administration and sales. Terra expects to quantify these and other cost saving opportunities as it and Mississippi Chemical develop an integration plan to combine the two companies. Overview of Combined Terra-Mississippi Chemical Mississippi Chemical owns a 50% interest in Point Lisas Nitrogen Limited in The Republic of Trinidad and Tobago, which has the capacity to produce annually 715,000 tons of ammonia from low-cost natural gas supplied under a contract with the National Gas Company of Trinidad and Tobago. In the U.S., Mississippi Chemical produces nitrogen products at its Yazoo City, Mississippi and Donaldsonville, Louisiana. facilities and owns and operates a storage and distribution terminal in Donaldsonville -- one of the northernmost points on the Mississippi River capable of receiving ocean-going nitrogen vessels. Mississippi Chemical also owns a 50% interest in an ammonia terminal located near Houston, Texas. Production at the Donaldsonville facility is limited to one anhydrous ammonia plant that operates on a swing basis to take advantage of favorable relationships between natural gas costs and anhydrous ammonia prices. The acquisition will increase Terra's annual production capacity for urea ammonium nitrate solutions (UAN), anhydrous ammonia (AA) and ammonium nitrate (AN) by 16%, 41% and 95%, respectively, making Terra the leading U.S. producer of UAN, AA and AN, and the leading U.K. producer of AA and AN. Upon completion of the transaction, Terra will have the capacity to annually produce at its facilities (including the 50% interest in the Point Lisas facility): * 4.4 million tons of UAN, the most versatile nitrogen fertilizer in North America; * 4.8 million tons of AA, the basic ingredient for most nitrogen fertilizers and many industrial products; and * 2.0 million tons of AN, the nitrogen fertilizer preferred by most British farmers and a popular nitrogen fertilizer source in the southeastern U.S. Of Terra's 4.8 million tons of AA production capacity, 8% will rely on natural gas sources in Trinidad, 75% in North America and 17% in the U.K. Terra is also one of the largest U.S. producers of methanol, an ingredient in oxygenated fuels and a feedstock for other chemical processes. Perry Principals Investments LLC, an affiliate of Perry Capital Management Inc., and Citigroup Global Markets, Inc., an affiliate of Citigroup, have entered into a commitment to extend the term of Mississippi Chemical's debtor-in-possession term loan beyond Mississippi Chemical's emergence from bankruptcy until four years from the closing of the transaction. Terra and Mississippi Chemical will use existing cash on hand to reduce the principal amount of this term loan to $125 million from $160 million and satisfy all other cash payments to creditors required by the amended plan of reorganization. In addition, Terra would issue to certain of Mississippi Chemical's unsecured creditors 14.75 million shares of Terra common stock and an amount of preferred stock, subject to certain post-closing adjustments as specified in the definitive agreement. Assuming the Closing Share Price as defined in the definitive agreement is equal to $6.14, (Terra's closing share price on Friday August 6, 2004, the last trading day prior to the announcement of the agreement), Mississippi Chemical's unsecured creditors would receive Terra common stock with a value of $90.6 million plus the preferred stock. The preferred stock to be issued to unsecured creditors will initially be set with a liquidation preference of $32.2 million. The projected working capital and other closing adjustments are currently anticipated to total $17.4 million. Under this projected scenario, Terra will issue preferred stock with a liquidation preference of $14.8 million and, within ten months of closing, Terra will have the option, but not the obligation, to redeem the preferred stock for 2.4 million to 3.4 million shares of Terra common stock to be determined based upon Terra's stock price at closing. Based upon a Closing Share Price of $6.14 per share, Terra would have the right to redeem the preferred stock for 2.4 million Terra common shares. The final amount of the working capital and other post-closing adjustments will depend on various factors including, but not limited to: business performance, commodity prices and the terms of final separation of Mississippi Chemical's phosphate business. The agreement also provides that Terra will issue 250,000 additional shares of Terra common stock for distribution to Mississippi Chemical shareholders. Under the amended plan of reorganization, Mississippi Chemical expects that substantially all unsecured creditors with allowed claims of $5,000 or less from the nitrogen business will be paid in cash, in full. Substantially all other unsecured creditors with allowed claims from the nitrogen business will be paid either cash equal to a specified percentage of their allowed claim or a pro-rata share of the pool of Terra common and preferred stock. Anglo American In a separate transaction, Anglo American plc (Nasdaq: AAUK), through a wholly-owned subsidiary, has entered into an agreement to sell in a private placement to an investor group led by Perry Capital 12.5 million of its shares of Terra common stock for $67 million. Upon completion of this sale, Anglo American will own approximately 25.1 million common shares of Terra, representing 32% of Terra's outstanding shares. As previously announced, Anglo American plans to dispose of its interest in Terra, with timing based on market and other considerations. Mr. Bennett said, "We are pleased to have Perry Capital and other leading investors acquire over 12 million shares of Terra at the same time that we announce this important strategic acquisition." Conditions and Closing The transaction is subject to U.S. Bankruptcy Court approval, successful completion of the restructuring of Mississippi Chemical's nitrogen and phosphate businesses, as well as customary regulatory approvals. The transaction is also subject to Terra's ability to obtain the consent of Terra's current working capital lenders. The Terra acquisition will be the primary basis of Mississippi Chemical's amended plan of reorganization. To facilitate Mississippi Chemical's exit from bankruptcy as expeditiously as possible, however, the amended plan will also provide that should the Terra transaction not be consummated, Mississippi Chemical would emerge from bankruptcy on a standalone basis with secured financing provided by an existing commitment from Citigroup and Perry Capital. Under the standalone alternative, Mississippi Chemical's debtor-in-possession financing would be retired, the same cash distributions would be made to holders of allowed unsecured claims as in the Terra transaction, Mississippi Chemical's other unsecured creditors would receive substantially all of the common shares of the reorganized Mississippi Chemical, and Mississippi Chemical's current shareholders would receive warrants to acquire common shares in the reorganized company. Lazard LLC is serving as financial advisor to Terra. Kirkland & Ellis LLP is serving as legal advisor to Terra. Mississippi Chemical is being advised by Gordian Group LLC as its financial advisor, Glass & Associates, Inc., as its restructuring advisor, Vinson & Elkins LLP as its corporate counsel, and Phelps Dunbar LLP as its bankruptcy counsel. The Official Committee of Unsecured Creditors in Mississippi Chemical's bankruptcy case is being advised by Chanin Capital Partners as its financial advisor and Orrick, Herrington & Sutcliffe LLP as its legal counsel. About Terra Terra Industries Inc., with 2003 revenues of $1.4 billion, is a leading international producer of nitrogen products. Headquartered in Sioux City, Iowa, Terra employs approximately 1,050 people in North America and the United Kingdom. Terra's NYSE ticker symbol is TRA. Additional information is available on Terra's web site, http://www.terraindustries.com/ About Mississippi Chemical Mississippi Chemical Corporation is a leading North American producer of nitrogen and phosphorus products used as crop nutrients and in industrial applications. Production facilities are located in Mississippi, Louisiana, and through Point Lisas Nitrogen Limited, in The Republic of Trinidad and Tobago. On May 15, 2003, Mississippi Chemical Corporation, together with its domestic subsidiaries, filed voluntary petitions seeking reorganization under Chapter 11 of the U.S. Bankruptcy Code. MIV THERAPEUTICS: Capital Deficit Raises Going Concern Doubt ------------------------------------------------------------ Moore Stephens Ellis Foster Ltd., Chartered Accountants was engaged as the principle independent accountants for MIV Therapeutics, Inc., effective May 28, 2004. Moore Stephens Ellis Foster replaces Morgan & Company. The decision to change accountants was approved by the Company's Board of Directors. The Former Accountant's reports on the consolidated financial statements of the Company for the fiscal years ended May 31, 2003 and 2002 contained separate paragraphs stating that, "The accompanying consolidated financial statements have been prepared assuming that MIV Therapeutics Inc. will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, MIV Therapeutics Inc. has suffered losses from operations and has a working capital deficiency that raises substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty." MIV Therapeutics, Inc., is developing a new generation of advanced biocompatible stent coatings and drug-delivery technologies. The Company's business objective is to be a leader in coating technologies and drug-delivery devices for both cardiovascular and non-vascular applications. MKP CBO II: S&P Lowers Class B and C Note Ratings to 'B+' --------------------------------------------------------- Standard & Poor's Ratings Services lowered its ratings on the B and C notes issued by MKP CBO II Ltd., a cash flow arbitrage CDO of ABS/RMBS and removed them from CreditWatch with negative implications, where they were placed May 3, 2004. At the same time, the ratings on the class A-1 and A-2 notes are affirmed at 'AAA' based on the credit enhancement available to support the notes. The ratings on the class C notes were previously lowered February 17, 2004. The current rating actions reflect factors that have negatively affected the credit enhancement available to support the class B and C notes since the prior rating action, primarily continued defaults and negative migration in the credit quality of the assets within the collateral pool. Standard & Poor's noted that according to the June 30, 2004 trustee report, $11.129 million of the underlying assets are defaulted and come from bonds issued in ABS manufactured housing transactions. Standard & Poor's reviewed the results of the current cash flow runs generated for MKP CBO II Ltd. to determine the level of future defaults the rated classes can withstand under various stressed default timing and interest rate scenarios, while still paying all of the interest and principal due on the notes. When the results of these cash flow runs were compared with the projected default performance of the performing assets in the collateral pool, it was determined that the ratings assigned to the class B and C notes was no longer consistent with the credit enhancement available. Ratings Lowered And Removed From Creditwatch Negative MKP CBO II Ltd. Rating Class To From ----- -- ---- B A- AA/Watch Neg C-1 B+ BBB-/Watch Neg C-2 B+ BBB-/Watch Neg Ratings Affirmed MKP CBO II Ltd. Class Rating ----- ------ A-1 AAA A-2 AAA Transaction Information Issuer: MKP CBO II Ltd. Current manager: MKP Capital Management Underwriter: Banc of America Securities Trustee: LaSalle Bank N.A. Transaction type: CDO of ABS/RMBS Tranche Initial Last Current Information Report Action Action Date (MM/YYYY) 3/02 5/04 8/2004 -------------- ------- ------ ------- Class A-1 notes rtg AAA AAA AAA Class A-2 notes rtg AAA AAA AAA Class A OC ratio 124.67% 125.17% 119.96% Class A OC ratio min 119.5% 119.50% 119.50% Class B note rtg. AA AA/Watch Neg A- Class B OC ratio 116.14% 116.61% 111.75% Class B OC ratio min 112.00% 112.00% 112.00% Class C-1 note rtg. BBB BBB-/Watch Neg B+ Class C-2 note rtg. BBB BBB-/Watch Neg B+ Class C OC ratio 106.06% 106.48% 102.05% Class C OC ratio min 102.80% 102.80% 102.80% Class A-1 note bal. $183.75mm $183.75 $183.75 Class A-2 note bal $61.25mm $61.25mm $61.25mm Class B note bal $18.00mm $18.00mm $18.00mm Class C-1 note bal $12.50mm $12.50mm $12.50mm Class C-2 note bal $12.50mm $12.50mm $12.50mm Portfolio Benchmarks Current -------------------- ------- S&P Wtd. Avg. Rtg. (excl. defaulted) BBB- S&P Default Measure (excl. defaulted) 0.80% S&P Variability Measure (excl. defaulted) 1.60% S&P Correlation Measure (excl. defaulted) 1.54 Wtd. Avg. Coupon (excl. defaulted) 7.219% Wtd. Avg. Spread (excl. defaulted) 2.299% Oblig. Rtd. 'BBB-' and Above 73.60% Oblig. Rtd. 'BB+' and Above 76.85% Oblig. Rtd. 'B+' and Below 19.18% Oblig. Rtd. in 'CCC' Range 8.16% Oblig. Rtd. 'CC', 'SD' or 'D' 3.80% Rated OC Ratios (ROCS) Prior Current --------------- ------ ----- ------- Class A-1 notes 108.05% (AAA) 103.10% (AAA) Class A-2 notes 108.05% (AAA) 103.10%(AAA) Class B notes 105.53% (AA/Watch Neg) 103.87% (A-) Class C-1 notes 101.30% (BBB-/Watch Neg) 100.27% (B+) Class C-2 notes 101.30% (BBB-/Watch Neg) 100.27% (B+) NATIONAL CENTURY: VI/XII Trust Wants Klee Tuchin Hired as Counsel ----------------------------------------------------------------- Fred Neufeld, Esq., at Milbank, Tweed, Hadley & McCloy, LLP, in Los Angeles, California, tells Judge Calhoun that the existing counsel for the VI/XII Collateral Trust discovered a conflict of interest that precludes it from representing the VI/XII Collateral Trust with respect to the application filed by JPMorgan Chase Bank for compensation and reimbursement of its expenses pursuant to Section 503(b) of the Bankruptcy Code. Accordingly, the VI/XII Collateral Trust seeks the Court's authority to: (a) retain Klee, Tuchin, Bogdanoff & Stern, LLP, as VI/XII Conflicts Counsel in accordance with the provisions of an engagement letter between Avidity Partners, LLC, and Klee Tuchin dated July 27, 2004; and (b) pay compensation to, and reimburse the expenses of, VI/XII Conflicts Counsel from the assets of the VI/XII Collateral Trust without further Court order. Klee Tuchin will act as the Conflicts Trustee's special litigation counsel to investigate any and all objections to the application filed by JPMorgan Chase Bank and its counsel pursuant to Section 503(b). As directed by the Conflicts Trustee, Klee Tuchin will investigate and research the facts on which the Application may be objected to and, if so directed, represent the Conflicts Trustee in asserting and pursuing an objection. Klee Tuchin's employment as the Conflicts Trustee's counsel does not include the provision of advice outside the insolvency and related litigation area, in areas like corporations, taxation, securities, environmental, labor and criminal law. Furthermore, the limited scope of Klee Tuchin's employment does not include giving attention to, forming professional opinions as to, or advising the Conflicts Trustee with respect to, any disclosure obligations under non-bankruptcy laws or agreements. Thomas E. Patterson, a member of Klee Tuchin, relates that no member of the firm is presently admitted to practice in Ohio. While several of Klee Tuchin members have been admitted to appear before the Court in the Debtors' cases, the employment of local counsel is essential. Klee Tuchin had previously worked with Ken Cookson, now of Kegler, Brown, Hill & Ritter, in Columbus, Ohio. Klee Tuchin now seeks to associate Kegler Brown as their local counsel as well. If that is not possible, then Klee Tuchin's employment is contingent on their associating with other mutually acceptable Ohio counsel. The Conflicts Trustee will employ Klee Tuchin at the expense of the Collateral Trust's estate. Klee Tuchin's monthly invoices will reflect charges for services rendered calculated on the basis of the firm's hourly rates: Professional Hourly Rate ------------ ----------- Kenneth N. Klee $750 David M. Stern 615 Lee R. Bogdanoff 585 Daniel J. Bussel 585 Michael L. Tuchin 585 Thomas E. Patterson 585 Edward T. Attanasio 495 Martin R. Barash 475 Ronn S. Davids 450 Laura L. Buchanan 435 Mette H. Kurth 405 Lila E. Rogers 400 David A. Fidler 375 Jennifer L. Dinkelman 345 Efrat B. Zisblatt 335 Brendt C. Butler 310 Laine Mervis 265 Michael J. Weinberger 265 Kimber Cooley 225 Melanie S. Ezerzer 145 Klee Tuchin will reimbursement for costs and expenses, including airfare, hotel accommodations, charges for messenger services, air couriers, photocopying, travel expenses, postage for large mailings, long distance telephone, computerized legal research facilities, investigative searches, and other charges customarily invoiced by law firms in addition to fees for legal services. The VI/XII Collateral Trust also asks the Court to deem that the appointment of and service of Klee Tuchin as the VI/XII Conflicts Counsel will in no way: -- impair the VI/XII Conflicts Counsel from representing the CSFB Claims Trust with respect to matters comprehended within the CSFB Claims Trust; and -- serve as a basis for disqualifying the VI/XII Conflicts Counsel or in any fashion restricting the VI/XII Conflicts Counsel from serving as CSFB Claims Counsel, including representing the CSFB Claims Trust in any matter that is adverse to the VI/XII Collateral Trust, the Unencumbered Assets Trust or their Steering Committees or beneficiaries. Mr. Patterson assures the Court that despite any concurrent representation, Klee Tuchin strictly preserves all client confidences and zealously pursues the interests of all its clients. The Conflicts Trustee may discharge Klee Tuchin at any time. Klee Tuchin may withdraw at any time with the Conflicts Trustee's consent or for good cause without the Conflicts Trustee's consent. Good cause includes the Conflicts Trustee's breach of the agreement or the failure of the estate to pay Klee Tuchin consistent with their agreement, the Conflicts Trustee's refusal or failure to cooperate with Klee Tuchin, or any fact or circumstance that would render their continuing representation unlawful or unethical. Headquartered in Dublin, Ohio, National Century Financial Enterprises, Inc. -- http://www.ncfe.com/-- is the market leader in healthcare finance focused on providing medical accounts receivable financing to middle market healthcare providers. The Company filed for Chapter 11 protection on November 18, 2002 (Bankr. S.D. Ohio Case No. 02-65235). The healthcare finance company prosecuted its Fourth Amended Plan of Liquidation to confirmation on April 16, 2004. Paul E. Harner, Esq., at Jones Day represents the Debtors in their restructuring efforts. (National Century Bankruptcy News, Issue No. 44; Bankruptcy Creditors' Service, Inc., 215/945-7000) NEWFIELD EXPLORATION: Moody's Affirms Ba2 Senior Implied Rating --------------------------------------------------------------- Moody's affirmed Newfield Exploration's (NFX) Ba2 senior implied rating with a stable outlook on the announcement of its acquisition of Inland Resources. The partly common equity funded $575 million acquisition of 54.3 mmboe of total reserves (7,000 BOEPD current production) is the second significant acquisition the company has made in 2004. In June 2004, NFX announced a 16 mmboe acquisition of Gulf of Mexico properties from Denbury Resources, based on Denbury Resources reserve estimations. The stable outlook reflects NFX's increased reserve scale and the production diversification added through the Inland acquisition. The outlook assumes: -- that future acquisitions will be amply funded with equity; -- that NFX will continue to see organic production gains from its core properties; -- that already high full cycle costs do not increase further; and -- that NFX will continue to replace production with a balance of proven developed (PD) and proven undeveloped (PUD) at finding and development costs (F&D) no worse than its pro- forma 3-year average of $11.66/boe. The outlook and/or ratings could face downward pressure if NFX: incurs higher leverage on its proven developed reserve base; sustains further increases in it's total full cycle costs; fails to cover its roughly $20/boe of leveraged full-cycle costs through realized prices plus its hedging program; faces any other challenges in replacing or growing volume at competitive costs relative to price realizations. The outlook would benefit from: debt reduction relative to PD reserve volumes; sustained production gains, and reserve volume gains at reduced reserve replacement costs. A positive outlook, though unlikely in the near-term future, will require Moody's review of NFX's 2004 year end reserve replacement cost and reserve mix, satisfactory productive reinvestment of 2004 capital, and evidence that the acquisition lends to sustainable production growth. In spite of partial equity funding, the acquisition increases key leverage metrics due to high acquisition costs and a very low (30%) percentage of PD reserves. This results in elevated leverage on PD reserves over the levels the company has historically reached to date. Inland's core holding is 54.3 mmboe of proven reserves in the Monument Butte Field in the Uinta Basin in Utah. The property currently produces 7,000 boepd (5.3 year proven developed reserve developed), is 100% operated by Inland, and is 85% oil. Inland adds an important new property for NFX as it continues to diversify away from Gulf of Mexico properties and establishes a focus area in the Rocky Mountains. The Monument Butte Field is significantly underdeveloped and may add substantial upside drilling opportunity for NFX. However, NFX is buying it for a historically high $82,143 per boe of current daily production and roughly $10.58 per boe of announced proven reserves. Pro-forma for all 2004 acquisitions, Moody's estimates total year- end 2003 proven reserves of 290 mmboe with proven developed reserves of 216 mmboe. Pro-forma second quarter 2004 production appears to be 112,796 boe per day. At closing, Moody's projects total debt to be in the range of $1.1 billion. In that scenario, Debt/PD reserves would exceed $5.00/PD boe. Total debt plus development capital would be in the zrange of $6.50/proven reserves. With a stable outlook, Moody's: i) Affirmed NFX's Ba3 rating on NFX's $250 million of 8 3/8% senior subordinated notes due 2012; ii) Affirmed NFX's Ba2 rating on $175 million of 7.625% senior unsecured notes due 2011; iii) Affirmed NFX's Ba2 rating on $125 million of 7.45% senior unsecured notes due 2007; and iv) Affirmed NFX's Ba2 senior implied rating. The ratings are supported by: -- a history of sound funding and business strategies; -- the important addition of Inland's diversification away from the Gulf of Mexico; -- the combination of debt and common equity NFX will use to fund the Inland acquisition; -- NFX's long established core position in the shallow water Gulf of Mexico; -- historically attractive operating margins that typically cover high reserve replacement costs; and NFX's ability so far, through effective hedging to internally fund its high reserve replacement costs during weaker market prices. The ratings remain restrained by: -- fairly high pro-forma leverage on proven developed (PD) reserves; -- rising combined unit costs (production, G&A, interest and preferred dividends, and reserve replacement costs) which now exceed $20/boe and are driven by rising all-sources F&D costs; -- reduced liquidity following the Denbury and Inland acquisitions; -- slightly lower NFX second quarter 2004 production versus the year before; -- reinvestment risk and capital needs associated with NFX's 5.3 year pro-forma PD reserve life (second quarter run- rate); and -- ratings flexibility needed for additional strategic moves. NFX's pro-forma unit costs are high, in the $20/boe range, due to a pro-forma 2003 three-year average reserve replacement costs (RRC) of roughly $11.66/boe, resulting in reduced cash-on-cash returns relative to several peers. Pro-forma for all announced 2004 acquisitions: -- NFX's three year average all-sources F&D costs approximate $11.66/boe; -- three year average drillbit F&D costs are roughly $13.50/boe; -- pro-forma one-year all-sources F&D costs of nearly $10.70/boe; and -- pro-forma one year drillbit F&D costs, before reserve revisions of nearly $11.25/boe. Pro-forma for Inland, NFX expects to maintain its committed $600 million unsecured reserve-based revolving credit facility, under which it will continue to have a $500 million borrowing base until its next borrowing base redetermination on November 1, 2004. Before Inland, $466 million was available for borrowing on June 30, 2004. NFX's leverage and high total costs reflect the challenges and rising costs of building a North American exploration and production firm. The ratings anticipate reduced effective debt on PD reserves and accommodate, for now, the cumulative capital requirements associated with the combination of a short PD reserve life, high RRC costs, and ongoing property diversification efforts. Newfield Exploration is an independent oil and gas exploration and production company headquartered in Houston, Texas. NORTEL NETWORKS: Receives Global IP Sound Warrants -------------------------------------------------- Nortel Networks(1) (NYSE:NT)(TSX:NT) has been granted 2,669,503 warrants to purchase shares of Global IP Sound (GIPS) common stock, at a formula exercise price of approximately SEK 3.10 per share. The warrant issue, following the expanded licensing agreement announced by the companies on June 21, affirms GIPS' role as a strategic supplier of voice processing software for Nortel Networks IP-centric communications systems. The warrant issue represents five percent of the fully diluted value of Global IP Sound and is exercisable after five years. Nortel Networks may accelerate its exercise rights based on achieving fee payment thresholds related to shipments of GIPS- enhanced systems. Integration of the GIPS software on its IP-centric communications systems helps Nortel Networks customers deliver high quality voice performance under various network conditions. The company has licensed the GIPS VoiceEngine(TM) and SoundWare(TM) suite of embedded voice processing software for use in multiple products, including Nortel Networks PC- and web-based SIP soft phone clients, Nortel Networks i2004 IP phone, and Nortel Networks Multimedia Communication Server (MCS) 5100 and 5200 platforms. "Global IP Sound's expertise in voice processing software helps to address key Quality-of-Service criteria for VoIP systems, accelerating the transformation of today's network infrastructure to leverage the power of packet-based communications," said Sue Spradley, president, Wireline Networks, Nortel Networks. "By securing warrants to invest in GIPS, we strengthen its position as a supplier to the industry. This translates into benefits for Nortel Networks customers as more points of access to the network are enhanced with GIPS software." "The two year collaboration between GIPS and Nortel Networks to bring the best possible Quality-of-Service to IP-based communications has demonstrated our mutual commitment to delivering carrier-class VoIP," said Gary Hermansen, president and CEO of Global IP Sound. "The investment agreement, combined with the growing deployment of GIPS software across the product lines of the industry's leading carrier and enterprise VoIP supplier, validates the capabilities we bring to VoIP systems and will help us to further expand our role in this market." About Global IP Sound Global IP Sound develops embedded voice processing technologies for real-time communications over packet networks. GIPS SoundWare(TM) provides better than PSTN voice quality and fidelity in end-to-end IP communications with robustness against packet loss. Global IP Sound's world-renowned speech processing and IP telephony experts deliver these solutions to applications developers, gateway and chip manufacturers. Companies using GIPS SoundWare products include Nortel Networks, Skype, WebEx, Marratech, and other key players in the VoIP market. Global IP Sound is a member of the Intel(R) PCA Developer Network, the Motorola Design Alliance, and Texas Instruments' third party developer network. Global IP Sound has headquarters in Stockholm and San Francisco. More information is available at http://www.globalipsound.com/ Global IP Sound, GIPS, SoundWare, VoiceEngine, NetEQ, iPCM-wb, Enhanced G.711, and associated design marks and logos are trademarks owned or used under license by Global IP Sound AB, and may be registered in the United States and other countries. About Nortel Networks Nortel Networks is an industry leader and innovator focused on transforming how the world communicates and exchanges information. The Company is supplying its service provider and enterprise customers with communications technology and infrastructure to enable value-added IP data, voice and multimedia services spanning Wireless Networks, Wireline Networks, Enterprise Networks, and Optical Networks. As a global company, Nortel Networks does business in more than 150 countries. More information about Nortel Networks can be found on the Web at www.nortelnetworks.com/ or http://www.nortelnetworks.com/media_center * * * As reported in the Troubled Company Reporter's June 25, 2004 edition, Standard & Poor's Ratings Services said that its long- term corporate credit rating and other long-term ratings on Nortel Networks Corp. and Nortel Networks Ltd. remain on CreditWatch with developing implications, where they were placed April 28, 2004. As previously reported Standard & Poor's lowered its 'B' long- term corporate credit rating and other long-term ratings on Nortel Networks Corp. and Nortel Networks Ltd. to 'B-'. NORTHWESTERN CORP: Incurs $4.8 Million 2004 Second Quarter Loss --------------------------------------------------------------- NorthWestern Corporation (Pink Sheets: NTHWQ) reported financial results for the second quarter ended June 30, 2004, and filed the Company's second quarter 2004 Form 10-Q with the Securities and Exchange Commission. On September 14, 2003, NorthWestern filed a voluntary petition for relief under Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware under case number 03-12872. Pursuant to the Chapter 11 filing, NorthWestern retains control of its assets and is authorized to operate its business as a debtor-in-possession while being subject to the jurisdiction of the Bankruptcy Court. Included in the consolidated financial statements are subsidiaries that are not party to the Chapter 11 case and are not debtors. The assets and liabilities of such nondebtor subsidiaries are not considered to be material to the consolidated financial statements or are included in discontinued operations. In addition, in order to wind-down its affairs in an orderly manner, NorthWestern's subsidiary, Netexit, Inc., formerly known as, Expanets, Inc., filed a voluntary petition for relief under the provisions of Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware on May 4, 2004. Beginning in the third quarter of 2003, the Company's consolidated financial statements have been prepared in accordance with the American Institute of Certified Public Accountants Statement of Position (SOP) 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code," and on a going concern basis, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the ordinary course of business. As a result of the Company's Chapter 11 filing, the realization of assets and liquidation of liabilities are subject to uncertainty. Under SOP 90-7, certain liabilities existing prior to the Chapter 11 filing are classified as Liabilities Subject to Compromise on the Consolidated Balance Sheets. Additionally, professional fees and expenses directly related to the Chapter 11 proceeding and interest income on funds accumulated during the Chapter 11 proceeding are reported separately as reorganization items. Finally, the extent to which reported interest expense differs from the contractual rate of interest is disclosed in the Company's Consolidated Statements of Income (Loss). Consolidated Financial Results NorthWestern reported a consolidated loss on common stock in the second quarter of 2004 of $4.8 million, compared with a consolidated loss on common stock of $57.8 million in the same period in 2003. Due to NorthWestern's bankruptcy filing, the Company has ceased recording interest expense on its unsecured debt and trust preferred securities, which accounted for a $17.5 million decrease in interest expense during the second quarter of 2004 and a $7.5 million decrease in minority interests on preferred securities of subsidiary trusts. In addition, results from discontinued operations improved by $22.6 million, primarily related to a Netexit gain of $11.5 million attributable to a settlement with Avaya, Inc., Consolidated earnings on common stock were $12.2 million for the six months ended June 30, 2004, compared with a loss of $47.9 million for the first six months of 2003. Revenues from continuing operations in the second quarter of 2004 were $233.0 million, compared with $234.7 million in the second quarter of 2003. Revenues for the six months ended June 30, 2004, were $572.6 million, compared with $522.6 million in the same period in 2003. Revenues increased due to sales of surplus gas of $19.7 million, increased market prices for gas of $15.9 million and an increase in nonregulated gas revenues of $13.4 million. Consolidated gross margin in the second quarter of 2004 was $103.3 million, as compared to $105.4 million in the second quarter of 2003. For the six months ended June 30, 2004, consolidated gross margin was $236.0, as compared to $238.2 million for the same period in 2003. Results from Continuing Utility Operations NorthWestern's electric and natural gas utility operations reported operating income of $14.7 million for the second quarter of 2004, compared with operating income of $25.8 million in same period in 2003. Operating income from electric operations in the second quarter of 2004 was $15.9 million, a decrease of 36.3 percent, compared with $24.9 million in the same period of 2003. The decrease was mainly due to higher transmission and wheeling costs, a $2.1 million loss related to a dispute settlement with a wholesale power supply vendor and higher operating, general and administrative expenses which includes increased directors and officers liability insurance costs, higher property taxes and higher contractor costs due to strike contingency planning and increased allocation of corporate expenses. Operating loss for the second quarter of 2004 from natural gas operations was $1.2 million, compared with operating income of $0.9 million in the same period in 2003. The change primarily resulted from higher operating, general and administrative expenses. For the six months ended June 30, 2004, operating income from electric and natural gas operations was $57.4 million, compared with $78.7 million, a decrease of 27.1 percent, for the same period in 2003. Operating income from electric operations during the first six months of 2004 was $39.0 million, compared with $56.4 million for the same period in 2003. Operating income from natural gas operations during the first six months of 2004 was $18.3 million, compared with $22.2 million for the same period in 2003. Electric revenues for the second quarter of 2004 were $152.6 million, a decrease of 5.7 percent, compared with revenues of $161.9 million in the same period of 2003. The decrease in revenues during the second quarter of 2004 as compared with 2003 was primarily due to a $16.9 million decrease in sales of excess purchased power to the secondary market. This was offset by an $8.4 million increase in sales volumes to core customers. Electric revenues for the first six months of 2004 were $329.6 million, compared with $329.5 million for the same period in 2003. Natural gas revenues during the second quarter of 2004 were $78.2 million, an increase of 10.6 percent, compared with $70.7 million in the same period in 2003. Gas supply costs increased $5.2 million as a result of higher average market prices. These costs are also reflected in cost of sales thereby having no impact on gross margins. Additionally, nonregulated gas revenues increased approximately $4.3 million, primarily from the addition of ethanol plant customers in South Dakota. This was partially offset by a $2.7 million decrease in retail revenues resulting from a 3.7 percent volume decline. Natural gas revenues for the six months ended June 30, 2004, were $238.3 million, compared with $188.4 million in the same period in 2003. Gross margin for electric operations in the second quarter of 2004 was $82.3 million, a decrease of $3.4 million, or 3.9 percent from gross margin in the second quarter of 2003. This decrease was primarily attributable to the loss on a wholesale power supply contract and increased transmission and wheeling costs. For the six months ended June 30, 2004, margins of $171.6 million were $4.6 million lower, or 2.6 percent, from results in the first six months of 2003. This decrease was primarily attributable to higher transmission and wheeling costs and the loss related to the dispute settlement. Gross margin for natural gas operations in the second quarter of 2004 was $19.4 million, an increase of $1.1 million, or 6.1 percent, over the same period in 2003. Lower retail margins were more than offset by the decrease in the write-off of the gas supply costs. For the six months ended June 30, 2004, margins of $61.0 million were $2.3 million higher, or 3.9 percent, over the same period in 2003. This increase was mainly due to the decrease in the write-off of gas supply costs. Total electric volumes in the second quarter of 2004 totaled approximately 2.6 million megawatts hours, compared with volumes of approximately 2.5 million megawatt hours in the same period in 2003. This change during the 2004 second quarter was due primarily to a 7.6 percent increase in retail volumes stemming from a return of Montana choice customers to NorthWestern and higher wholesale volumes in South Dakota. Retail natural gas volumes totaled approximately 4.5 million dekatherms in the second quarter of 2004, compared with volumes of approximately 4.7 million dekatherms in the same period in 2003. The decrease during the second quarter of 2004 was due to milder than normal temperatures. Unregulated wholesale natural gas volumes totaled approximately 3.4 million dekatherms in the second quarter of 2004, compared with volumes of approximately 2.2 million dekatherms in the same period in 2004. The increase during the second quarter of 2004 was due to a 51.3 percent increase in gas wholesale volumes in South Dakota due to the addition of ethanol plant customers in comparison to the same period in 2003. Liquidity and Capital Resources As of June 30, 2004, cash and cash equivalents were $101.6 million, compared with $15.2 million as of December 31, 2003. Cash provided by continuing operations during the six months ended June 30, 2004, totaled $123.1 million, compared with cash used in continuing operations of $86.3 million during the six months ended June 30, 2003. This increase was substantially due to improved vendor credit terms and the suspension of interest payments on our unsecured debt and preferred securities during the Company's reorganization. In July 2004, NorthWestern reduced the availability under its debtor-in-possession (DIP) facility from $75 million to $50 million. As of August 6, 2004, the only outstanding amounts under the DIP facility were letters of credit of $15.4 million. NorthWestern anticipates that its total cash and cash equivalents, together with access to the DIP facility, will be sufficient to fund operations during its bankruptcy proceedings. In July 2004, NorthWestern filed applications with the Montana Public Service Commission (MPSC) and the Federal Energy Regulatory Commission (FERC) seeking approval to enter proposed exit financing facilities including: -- $100 million revolving credit facility with a five-year maturity and a variable interest rate based on LIBOR plus a credit spread; -- $150 million Term B loan credit facility with a seven-year maturity and variable interest rate based on LIBOR plus a credit spread; and -- Up to $350 million of senior secured notes with a maturity of seven to 10 years and fixed interest rate expected to range between 6.75% and 7.25%. The only component of the exit financing needed for the Company to emerge from bankruptcy is the $100 million revolving credit facility. The exit financing will be secured by mortgage bonds and will be used to repay and refinance the Company's existing DIP facility, existing Senior Secured Term Loan ($384.2 million outstanding as of June 30, 2004) and potentially $150 million of Montana First Mortgage Bonds. NorthWestern believes that refinancing these obligations at this time with longer term maturities and at lower interest rates will lower the Company's borrowing cost and improve cash flow. The additional components of the exit financing are being contemplated to lower the Company's borrowing costs and extend existing maturities. NorthWestern has also requested the MPSC and FERC approval to issue up to 35.5 million shares of new common stock. Under the terms of NorthWestern's First Amended Plan of Reorganization, the Company's existing common stock will be cancelled, and the debt owed to the Company's unsecured creditors and holders of Mandatorily Redeemable Preferred Securities of Subsidiary Trusts will be exchanged for the new common stock. On August 3, 2004, the MPSC conditionally approved the proposed exit financing and issuance of new common stock, subject to confirmation of our Plan. Additional financial information related to NorthWestern's second quarter 2004 results is available in its Form 10-Q which can be viewed on the Company's Web site at http://www.northwestern.com/ About NorthWestern Headquartered in Sioux Falls, South Dakota, NorthWestern Corporation -- http://www.northwestern.com/-- provides electricity and natural gas in the Upper Midwest and Northwest, serving approximately 608,000 customers in Montana, South Dakota and Nebraska. The Debtors filed for chapter 11 protection on September 14, 2003 (Bankr. Del. Case No.: 03-12872). Judge Peter J. Walsh administers the bankruptcy proceedings. Scott D. Cousins, Esq., Victoria Watson Counihan, Esq., and William E. Chipman, Jr., Esq., at Greenberg Traurig, LLP, and Jesse H. Austin, III, Esq., and Karol K. Denniston, Esq., at Paul, Hastings, Janofsky & Walker, LLP, represent the Debtors in their restructuring efforts. On the Petition Date, the Debtors reported a $2,624,886,000 assets and a $2,758,578,000 liabilities. NOVADEL PHARMA: Ability to Continue Operations is in Doubt ---------------------------------------------------------- Management of Novadel Pharma Inc. believes that during the third calendar quarter of fiscal 2005, it will be necessary for the Company to obtain additional financing or consummate a well funded strategic alliance with a business partner. There are a number of risks and uncertainties related to the Company's attempt to complete a financing or strategic partnering arrangement that are outside the control of the Company. The Company may not be able to successfully obtain additional financing on terms acceptable to the Company, or at all. Since its inception, substantially all of the Company's revenues have derived from its consulting activities. The Company has had a history of recurring losses from operations, giving rise to an accumulated deficit at April 30, 2004 of $20,499,000. The Company anticipates that it will incur substantial operating expenses in connection with the testing and approval of its proposed delivery systems, and expects these expenses will result in continuing and significant operating losses until such time, if ever, that the Company is able to achieve adequate sales levels. The Company's net loss for the 2004 period was $4,871,000 compared to a net loss of $4,354,000 for the 2003 Period. During January 2004, the Company completed a private offering of units and received net proceeds of approximately $12,785,000. The Company believes that it currently has sufficient cash to satisfy its cash requirements into the third calendar quarter of 2005. However, beyond this point there is substantial doubt about the Company's ability to continue operations. About NovaDel Pharma Novadel Pharma Inc., a Delaware corporation, is engaged in development of novel application drug delivery systems for presently marketed prescription and over-the-counter drugs and has been a consultant to the pharmaceutical industry. Since 1992, the Company has used its consulting revenues to fund its own product development activities. OMI TRUST: S&P Junks M-2 Classes After Interest Payment Default --------------------------------------------------------------- Standard & Poor's Ratings Services lowered its ratings on the M-2 classes from OMI Trust 2000-A and OMI Trust 2000-C. The lowered ratings reflect the unlikelihood that investors will receive timely interest and the ultimate repayment of their original principal investments. OMI Trust 2000-C reported an outstanding liquidation loss interest shortfall for its M-2 class on the July 2004 payment date. In addition, the rating on the class M-2 for OMI 2000-A is being lowered in anticipation of a liquidation loss interest shortfall on the next payment date. Standard & Poor's believes that interest shortfalls for these deals will continue to be prevalent in the future, given the adverse performance trends displayed by the underlying pools of manufactured housing retail installment contracts originated by Oakwood Homes Corporation, and the location of M-2 write-down interest at the bottom of the transactions' payment priorities (after distributions of senior principal). High losses have reduced the overcollateralization ratios for both transactions to zero, resulting in the complete principal write- down of the B-2 and B-1 classes, and the partial principal write- down of the M-2 classes. Standard & Poor's will continue to monitor the outstanding ratings associated with these transactions in anticipation of future defaults. Ratings Lowered OMI Trust 2000-A Rating Class To From M-2 CC CCC- OMI Trust 2000-C Rating Class To From M-2 D CC ORDERPRO LOGISTICS: Sues Former CEO in Arizona State Court ---------------------------------------------------------- OrderPro Logistics Inc. (OTC BB: OPLO) has filed a complaint in Superior Court of Pima County, Arizona, against its former chief executive officer, Richard Windorski. The company is seeking damages and injunctive relief, as necessary. The complaint alleges that Mr. Windorski engaged in numerous schemes related to issuance of the company's shares, including receipt of kickbacks related to share issuances. The complaint also alleges that Mr. Windorski diverted corporate funds without authorization for his personal benefit, and failed to account for such funds. The complaint states that additional defendants, including the recipients of the improperly issued shares, may be named in the future. "It is our intention to recover shares of company stock issued illegally or improperly," stated Jeffrey M. Smuda, president and chief executive officer of OrderPro Logistics Inc. The complaint alleges that "tens of millions" of shares may have been improperly issued. Mr. Smuda also stated, "We are pleased to have engaged the law firm of Lewis and Roca LLP to represent the company in this lawsuit and to provide us with additional legal services. Lewis and Roca is one of the largest firms in Arizona and provides the legal resources needed to assist us with these challenging circumstances." About OrderPro Logistics Inc. OrderPro Logistics Inc. was created to capture the potential of the Internet in the transportation and logistics industry by employing new and innovative processes. OrderPro Logistics Inc. can integrate every aspect of the customer shipping needs from order entry through successful delivery. Customer priorities, shipment integrity, best quality, and optimization of every load is the objective of supply chain management with OrderPro Logistics Inc. lowering costs while adding value in process and service. For more information, please visit http://www.orderprologistics.com/ * * * Liquidity and Capital Resources In its Form-10QSB for the quarterly period ended March 31, 2004, filed with the Securities and Exchange Commission, OrderPro Logistics, Inc. reports: "Cash used for operating activities was approximately $715,000 in 2004 as compared to approximately $266,000 in 2003. The use of cash in 2004 is the result of a net loss of approximately $6,313,000, partially offset by non-cash charges of approximately $5,839,000, and a net change in operating assets and liabilities of approximately $241,000. For 2003, a loss of approximately $617,000 was partially offset by non-cash charges of approximately $320,000 and a net increase in operating assets and liabilities of approximately $31,000. "The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying condensed consolidated financial statements, the Company has a net loss of $6,313,458, a negative cash flow from operations of $714,627 and a working capital deficiency of $1,019,391. These factors raise substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company's ability to raise additional funds and become profitable. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern." PACIFIC GAS: U.S. Trustee Amends Unsecured Creditors Committee -------------------------------------------------------------- On July 28, 2004, William T. Neary, the United States Trustee for Region 17, advised the Court that Bank of America, N.A., Morgan Guaranty, and Pacific Investment Management Company, LLC, resigned from the Official Committee of Unsecured Creditors. The Committee is now composed of eight members: (1) Kenneth E. Smith PE-Berkeley, Inc. P.O. Box 776 Berkeley, CA 94701 Phone: 949/650-6301 fax: 949/650-8412 e-mail: ksmith@deltapower.com (2) Mike Jines Reliant Energy Services, Inc. 1111 Louisiana P.O. Box 4567 Houston, Texas 77002 Phone: 713/207-7414 fax: 713/207-0116 e-mail: mike-jines@reliantenergy.com (3) John C. Herbert Dynegy Power Marketing Inc. 1000 Louisiana Street, Suite 5800 Houston TX 77002 phone: 713/507-6832 fax: 713/507-6788 e-mail: john.c.herbert@dynegy.com (4) Grant Kolling City of Palo Alto 250 Hamilton Avenue P.O. Box 10250 Palo Alto, CA 94303 Phone: 650/329-2171 ext.3953 fax: 650/329-2646 e-mail: grant_kolling@city.palo-alto.ca.us (5) Tom Milne State of Tennessee 11th Floor, Andrew Jackson Bldg. Nashville, Tennessee 37243 phone: 615/532-1167 fax: 615/734-6441 e-mail: tmilne@mail.state.tn.us (6) David E. Adante The Davey Tree Expert Company 1500 North Mantua Kent, OH 44240 Phone: 330/673-9511 fax: 330/673-7089 e-mail: david.adante@davey.com (7) Duane H. Nelsen GWF Power Systems Company, Inc. 4300 Railroad Ave. Pittsburg, California 94565 phone: 925/431-1441 fax: 925/431-0518 e-mail: dnelsen@gwfpower.com (8) Michael E. Lurie Merrill Lynch 2 World Financial Center, #7 New York, New York 10281-6100 phone: 212/236-6480 fax: 212/236-6460 e-mail: mlurie@exchange.ml.com Patricia A. Cutler is the Assistant U.S. Trustee assigned to PG&E's Chapter 11 case. She is represented by trial attorneys Edward G. Myrtle, Frank M. Cadigan, and Julie M. Glosson, of the U.S. Department of Justice in San Francisco. Headquartered in San Francisco, California, Pacific Gas and Electric Company -- http://www.pge.com/-- a wholly owned subsidiary of PG&E Corporation (NYSE:PCG), is one of the largest combination natural gas and electric utilities in the United States. The Company filed for Chapter 11 protection on April 6, 2001 (Bankr. N.D. Calif. Case No. 01-30923). James L. Lopes, Esq., William J. Lafferty, Esq., and Jeffrey L. Schaffer, Esq., at Howard, Rice, Nemerovski, Canady, Falk & Rabkin represent the Debtors in their restructuring efforts. On June 30, 2001, the Company listed $23,216,000,000 in assets and $22,152,000,000 in debts. Pacific Gas and Electric emerged from chapter 11 protection on April 12, 2004, paying all creditors 100 cents-on- the-dollar plus post-petition interest. (Pacific Gas Bankruptcy News, Issue No. 81; Bankruptcy Creditors' Service, Inc., 215/945- 7000) PARMALAT: Bondi Sues Citigroup for Fraud, RICO Violations, et al. ----------------------------------------------------------------- Parmalat Finanziaria SpA in Extraordinary Administration communicates that Dr. Enrico Bondi, Parmalat's Extraordinary Commissioner, has filed an action in the Superior Court of New Jersey to recover damages from Citigroup and certain of its subsidiaries. The action is part of a process through which the Extraordinary Commissioner, following the approval of Parmalat's Industrial and Financial Restructuring Plan, will seek recovery from third parties believed to have played a role in Parmalat's collapse. Parmalat's Industrial and Financial Restructuring Plan contemplates the distribution to its future shareholders of at least 50% of Parmalat's distributable profits arising from the next 15 years' annual results, including any eventual proceeds derived from revocatory actions or actions for damages. Citibank Manipulated Parmalat's Financials Representing Dr. Enrico Bondi, Michael R. Cole, Esq., at DeCotiis, Fitzpatrick, Cole & Wisler, LLP, in Teaneck, New Jersey, tells the Superior Court of New Jersey, Bergen County Law Division, that Citigroup, Inc., its investment services arm, Citibank, N.A., and three Citibank special purpose entities played crucial parts in the manipulations of Parmalat's reported financial results to cover up Parmalat's true financial picture and mask the systematic looting of the company. Mr. Cole relates that Parmalat's expansion was not funded by the sale of equity. Parmalat sold billions of dollars in debt securities through bonds or notes to raise funds for its expansion. Over $1,500,000,000 of the debt securities was sold to U.S. investors, including well-known financial institutions that have a significant presence in New Jersey: (1) Allstate Life Insurance Corp. (2) Bear, Stearns & Co, Inc. (3) CIGNA Retirement & Investment Services (4) Guardian Life Insurance Company of America (5) Hartford Life Insurance Company (6) Metropolitan Life Insurance Company (7) Nationwide Life Insurance Company (8) New York Life Insurance Company (9) Prudential Life Insurance Company Since maintaining an investment grade credit rating was crucial to Parmalat's ability to continue to obtain ongoing financing, Citigroup designed transactions by which Parmalat raised hundreds of millions of dollars by: -- high-interest financing disguised as equity; and -- securitizing non-existing assets. Citigroup knew that the true nature of the transactions was not disclosed or reflected in Parmalat's financial statements or otherwise disclosed to the public. Citigroup continued to arrange for hundreds of millions of dollars in financing for Parmalat long after the company had become insolvent, reaping tens of millions of dollars in fees and commissions for itself. Citigroup also facilitated the Parmalat insiders' fraudulent schemes by allowing Parmalat's bank accounts in the U.S. and elsewhere to be used by Parmalat's corrupt managers and consultants to move money they had misappropriated. With Citigroup's active assistance, Mr. Cole reports that around $8,000,000,000 has been lost, stolen or wasted by the Parmalat insiders. Special Purpose Entities The three Citibank special purpose entities are: 1) Buconero, LLC, a Delaware limited liability company formed by Citibank in December 1999 and based in New York. Buconero's operations are overseen by Citibank Overseas Investment Corp. Buconero is controlled by Citibank and is the alter ego of Citibank. Buconero does not have separate offices or staff from Citibank; 2) Vialattea, LLC, another Delaware limited liability company based in New York. Vialattea is a wholly owned subsidiary of Citibank Overseas and is the direct parent of Buconero. Vialattea is controlled by Citibank and is the alter ego of Citibank. Vialattea shares the same office and staff with Citibank; 3) Eureka, plc, a United Kingdom public liability company based in England. Eureka shares offices with Citibank, London Branch, and is managed by Citibank as part of its global securitization business. Citibank and Citigroup, Inc., also provide credit lines and financial services to Eureka. Structure of Securitization Program Under a 1995 securitization agreement designed by Citibank, Parmalat and its subsidiary, Giglio SpA, could sell receivables up to 150,000,000 lire, about $93,000,000, to Archimede Securitization Srl, a wholly owned Italian subsidiary of Eureka, on a revolving basis. Archimede would purchase the receivables using funds raised by Eureka, and then use the invoices as collateral for the sale of securities to private investors. 1995 Securitization Program ____________ | | | Citibank | |____________| | ______|_____ | | | Eureka | |____________| | | (A) | | | | 100% ____________ __V___|_____ | | (B) | | | Parmalat |<--------------| Archimede | |____________| |____________| (A) Eureka raises funds on the market for itself and for Archimede. (B) Archimede purchases Parmalat's Italian receivables. Parmalat and Citibank worked out to expand the program to include receivables from Parmalat operations in Canada and the United States, and to add five more Italian subsidiaries to the program. Parmalat's Canadian subsidiaries Parmalat Dairy & Bakery, Inc., and Parmalat Food, Inc., were also added in March 2000. Farmland Dairies, LLC, and Milk Products of Alabama, LLC, joined the program in November 2000. Under the 2000 agreement, Parmalat sold receivables from its U.S. and Canadian operations to Eureka, and from its Italian operations to Archimede. Curcastle Corporation, N.V., a Parmalat subsidiary in Netherlands Antilles, purchased subordinated notes issued by Eureka as a partial guarantee for the securitized receivables. The subordinated notes served as a form of credit enhancement to improve the creditworthiness of the securitized portfolio. The credit enhancement was necessary to maintain Eureka's credit rating. The subordinated notes were issued proportionately to the amount of receivables transferred to Eureka. The notes were repayable only when all of the receivables sold by Parmalat had been repaid, including expenses and interest. The 2000 agreement was initially subject to a $300,000,000 global maximum. In December 2001, U.S. entities Mother's Cake and Cookies Co. and Archway Cookies, LLC, were added to the program, and the global maximum was increased to $340,000,000. 2000 Securitization Program ____________ ____________ | | | | ________________| Curcastle |-------- | Citibank | | |____________| \ |____________| | \ | | (D) \ | | \ | _____|_____ ___________________ V______|_____ | | | | | | | Parmalat |_______| Parmalat |<-------| Eureka | | Group | | (U.S. and Canada) | (C) |____________| |___________| |___________________| | | | (A) | | | | | 100% | __ _________ __V___|_____ | | | (B) | | |_________________| Parmalat |<----------| Archimede | | (Italy) | |____________| |____________| (A) Eureka raises funds on the market for itself and for Archimede. (B) Archimede purchases Parmalat's Italian receivables. (C) Eureka purchases Parmalat's U.S. and Canadian receivables. (D) Curcastle purchases subordinated notes issued by Eureka as a partial guarantee for the securitized receivables. The notes are issued proportionately to the amount of receivables purchased. Based on Parmalat's billing system, Citibank should have sold supermarket invoices together with the dealer invoices it purchased only after deducting the credit notes to the dealers. Instead, Citibank sold to investors the supermarket invoices and the entire dealer invoices as if they were separate invoices for separate goods, even though Parmalat was entitled to receive money from just one set of invoices. Citibank, therefore, double counted the invoices, and defrauded investors into thinking that they were acquiring the rights to a revenue stream that was nearly twice as high as it was in reality. The securitization program was intended to and did create the false impression that Parmalat was generating nearly twice as much cash flow from its operations and, therefore, mislead the markets about Parmalat's real financial situation. Citibank, on behalf of Eureka, sold $348,000,000 of securities, backed in substantial part by the phantom receivables. For its part in the securitization program, Citibank received $35,000,000 in fees. Citibank knew that it and its special purpose vehicles, Archimede and Eureka, had no credit risk because all of the risk was passed to the purchasers of the securities. Buconero Transactions In December 1995, Gestione Centrale Latte Srl, a Parmalat subsidiary, and Citibank International plc entered into a joint venture, wherein Citibank International would "invest" in the joint venture. As part of the joint venture, Parmalat set up a branch of Geslat in Lugano, Switzerland, whose purpose was to obtain funds in Switzerland from the international financial markets and then invest the funds in other companies of the Parmalat group. Citibank "invested" 750,000,000 lire, about $491,604, in Geslat. In return, Citibank was to receive 48.75% of the distributable after tax profits from Geslat. Citibank also entered into a put option agreement with Parmalat that allowed Citibank to put its interest in Geslat back to Parmalat. The put guaranteed that Citibank would receive a return on its investment. In 1999, Citibank proposed a new arrangement. Instead of Citibank partnering directly with Geslat, two Citibank subsidiaries, Vialattea and Buconero, would become the members of the joint venture. Both subsidiaries were formed for the sole purpose of entering into the transaction. Buconero is Italian for black hole. Under the 1999 agreement, Parmalat, as a "partner," made a $60,000,000 contribution to Geslat's Swiss branch. On the same day, Parmalat transferred its interest to Buconero for the same amount. The Swiss branch was supposed to lend the $60,000,000 it received to other companies in the Parmalat group. Buconero, as a "joining partner," was to share the profits of the Swiss branch based on a preset formula and would share the Swiss branch's losses up to the amount of Buconero's investment. Vialattea also "contributed" $208,000 to Geslat -- 2% of Geslat's capital. For structuring the transaction, Parmalat paid Citibank a $1,000,000 structuring fee. Under the 1999 agreement, Geslat's Swiss branch would "endeavor to earn a pre-tax return on its invested capital of no less than 5.68% per [year] net all of the costs and expenses (the 'Minimum Investment Return')." In December 2000, the joint venture agreement was amended. Among other modifications, the provisions regarding the calculation of compensation due to Buconero were changed and the Minimum Investment Return was increased to 5.86%. For this Parmalat paid Citibank another $3,270,000 structuring fee. The joint venture agreement was modified again on July 31, 2001. As part of the amendment, Buconero "invested" an additional $50,000,000 in Geslat's Swiss branch and Vialattea "invested" an additional $2,400,000 in Geslat, raising its share of Geslat's capital to 2.044%. For this, Parmalat paid Citibank another $2,800,000 structuring fee. "Joint Venture" Structure _________________ ____________ | | | | | Parmalat Group | | Citibank | |_________________| |____________| | | | | 100% | ______|_____ | 98% 2% | | | __________________| Vialattea | | | |____________| | | (A) | | _________|_________ | 100% | | | ______|_____ |_____| Geslat | | | |___________________|------->| Buconero | | |____________| | (C) | _________|_________ | | | | | Swiss Brach |<-------------- (B) |___________________| $137,000,000 (A) Vialattea purchases a 2% ownership interest in Geslat. (B) Buconero "invests" $137,000,000 in Geslat's Swiss branch. (C) Buconero receives a percentage of Geslat's profits as a return on its "investment." Parmalat's insiders recorded each of the "investments" from Buconero as equity on the company's consolidated financial statements. The interest payments on the loans from Buconero were recorded as "minority interest payments." However, Mr. Cole tells the New Jersey Court that the Buconero "investments" were actually disguised loans, not equity: a) The joint venture agreement guaranteed that Citibank would receive a minimum fixed rate of return of 5.68% -- later increased to 5.86%; b) Citibank would not lose any money from the joint venture because Buconero would pay for losses only when the losses exceeded the contributions of Geslat's other members and the dividends previously paid to the other members of the joint venture; and c) Before Geslat's losses could consume the other members' contributions, Citibank could terminate the joint venture. Citibank could "dismantle" the joint venture and require the repayment of its exposure in case of "events indicative of deterioration of the value of the credit to [Parmalat Group]" or in case of a decline in the Swiss branch's performance. Citibank knew and intended that Parmalat would and did use the Buconero arrangement to: (a) make it appear that Parmalat was "partnering" with a "major" international group; and (b) improve its financial statements by appearing to have lower amounts of debt than it actually had. Mr. Cole maintains that Citibank had a direct interest in the mischaracterization of the Buconero transactions on Parmalat's financial statements because Citibank reaped a number of considerable tax benefits. As a result of the Buconero arrangement, Parmalat's: (i) debt was understated by $137,000,000; (ii) equity was overstated by $137,000,000; and (iii) income statements understated its interest expense. Citibank received $5,000,000 to $6,000,000 annually in returns from Geslat as a result of the Buconero arrangement. Citibank received $7,000,000 more in fees from Geslat -- approximately $1,000,000 for structuring the 1999 deal, $3,270,000 for structuring the 2000 amendment, and $2,800,000 for structuring the 2001 amendment. Citibank's "Investment" in Parmalat Canada In separate transactions, Parmalat purchased Dairy & Bakery, Inc., formerly known as Beatrice Foods, Inc., for CN$420,000,000 and Ault Foods, Ltd., for CN$412,000,000. To finance the purchases, Parmalat borrowed $70,000,000 from Citibank. Rather than calling the $70,000,000 payment a loan, Citibank structured it to appear as an equity investment. Citibank "purchased" a 24.9% stake in Parmalat Canada by making capital contributions to Parmalat Canada totaling CN$97,000,000 in April and July 1997. Citibank made a third contribution for CN$24,900,000 in October 1997. Citibank used the same scheme when Parmalat acquired Astro Dairy Products, Ltd., in 1998 for CN$483,000,000. As part of the transaction, Citibank made an additional CN$50,000,000 "capital contribution" to Parmalat Canada in November 1998. Each time Citibank made a "capital contribution," Dairies Holding International B.V., the direct parent of Parmalat Canada, would make a contribution to Parmalat Canada that amounted to 75.1% of the total increase in capital. On the surface, Citibank appeared to obtain a 24.9% ownership interest in Parmalat Canada. This percentage was used because, under Canadian tax law, there is no capital gains tax on share interests of less than 25%. In reality, the Citibank "investments" were high interest loans. Citigroup never intended to take any risk by becoming a minority shareholder. Citigroup protected its Parmalat "investments" from any loss by requiring Parmalat to enter into a secret put agreement that guaranteed that Citibank would receive a return on its investment. The put agreement was never disclosed to Parmalat's regulators, shareholders and creditors. The put agreement allowed Citibank to sell back to Parmalat its ownership interest in Parmalat Canada at a set price. The first put agreement was entered into as part of an April 10, 1997 capital increase. The exercise price for the put was CN$70,000,000. From 1997 until 2001, Citibank increased the put price by amending the put agreement with each new transaction. In April 2001, Parmalat and Citibank made a final amendment to the put option, increasing the exercise price to CN$182,300,000 as of December 31, 2001. In January 2002, Citibank exercised the put option. In the process, Citibank received a CN$47,820,000 tax-free profit. Mr. Cole asserts that Citibank knew from the inception about Parmalat's deteriorating financial condition, but designed the transactions to help Parmalat maintain the facade of a lower debt-to-equity ratio. In return, Citibank received CN$1,300,000 in subscription fees from Parmalat Canada and CN$5,600,000 in financial advisor fees, in addition to its net tax-free gain. Citibank Ignored Questionable Transfers Between January 2002 and August 2003, at least $27,000,000 was transferred from the foreign bank accounts of two Parmalat subsidiaries -- Parmalat Capital Finance, Ltd., and Parmalat Trading Limited Malta -- to the Citibank accounts of Gian Paolo Zini, Parmalat's outside counsel. Mr. Zini maintained an escrow account and other accounts at Citibank. Of that amount, $18,000,000 was transferred directly to one of Zini's Citibank accounts. Another $9,900,000 was transferred to Zini's Citibank account by way of Citibank London. Based on the nature and size of the transfers, Citigroup knew or should have known that Mr. Zini's accounts were being used for money-laundering and other irregular transactions. However, Citibank took no steps to prevent Mr. Zini and other Parmalat insiders from using those accounts to transfer funds among some very dubious entities into and out of Citibank bank accounts and into and out of bank accounts in financial secrecy havens throughout the world. Citigroup Top Level Execs Approved Transactions The fraudulent activities were perpetuated with the direct knowledge, participation and involvement of Citibank employees. The transactions were all approved at the top levels of Citigroup and required the coordination of different groups at Citigroup throughout the world, from New York to New Jersey to England and Italy itself. Citigroup's relationship with Parmalat was initially managed by Alberto Ferraris, then vice-president of Citibank's Milan office. Mr. Ferraris was involved in many of the transactions. In 1997, Mr. Ferraris left Citibank to join Parmalat. He later became Parmalat's Chief Financial Officer. From 1997 to 2000, the relationship was managed by Citibank employee Filippo Sabatini. Since 2000, Citibank employee Paolo Botta has managed the relationship. Citibank employee Donna Carville was a key person in setting up and managing the Buconero "joint venture." Citibank managing director Richard Simmons and employees Peter Davies and Drew Riethnuller were involved with setting up the securitization program. Virtually Worthless Investments The scam resulted in billions of dollars of losses to Parmalat and to the thousands of innocent shareholders and creditors in the United States and elsewhere. The scam rendered the investments virtually worthless. Parmalat's Claims Against Citigroup Dr. Bondi asks the Superior Court to find that: (i) the Citigroup transactions were fraudulent. Citigroup continued to arrange financing for Parmalat without telling Parmalat's regulators, market analysts and others that: -- the transactions were other than what Citigroup and Parmalat had made them seem to be; and -- their financial reality was not reflected on Parmalat's financial statements. (ii) Citigroup aided and abetted in constructive fraud and in breach of fiduciary duty. Citigroup gave substantial assistance to the Parmalat insiders: * Calisto Tanzi, former Parmalat CEO and President; * Fausto Tonna, former Parmalat CFO; * Luciano Del Soldato, former member of Parmalat's finance staff and for a time Parmalat's CFO; * Alberto Ferraris, formerly with Citibank and then the CFO of Parmalat; * Gianfranco Bocchi, former member of the finance department; * Franco Gorreri, a former company officer; * Claudio Pessina, a former company officer; and * Gian Paolo Zini, Parmalat's outside counsel, in breaching their fiduciary duty to act at all times with the utmost good faith and fair dealing in the best interest of Parmalat and its stakeholders. (iii) Citigroup made negligent misrepresentations. Investors relied on the reported nature of Parmalat's contracts, transactions and arrangements with Citigroup, and Parmalat's financial statements, audits and other reports that were prepared and disseminated based on the Citigroup transactions. (iv) Citigroup was an active, willing and knowing participant in the unlawful diversion and re-channeling of corporate funds or assets to purposes other than proper corporate purposes. (v) Citigroup was unjustly enriched. (vi) Citigroup aided and abetted in fraudulent transfers and creditor fraud. (vii) Citigroup willfully and knowingly aided and assisted Parmalat's culpable insiders in continuing to borrow billions of dollars of money and at the same time concealing their wrongful conduct. As a result, Parmalat went further into debt and became incapable of surviving without going into bankruptcy. (viii) Citigroup was an active, knowing participant in the conspiracy of the Parmalat insiders. (ix) Citigroup engaged in a pattern of racketeering activity in violation of the New Jersey RICO (Racketeer Influenced and Corrupt Organizations) Act, N.J.S.A. 2C:41-1, et seq. Citigroup, among others, falsified and aided and abetted the falsification of records and the commission of theft and deception. Citigroup engaged in money laundering and in transactions with money derived from unlawful activity in violation of N.J.S.A. 2C:21-25 and 2C:2-6, and 18 U.S.C. Sections 1956 and 1957. The violations of Citigroup and the Parmalat insiders caused Parmalat to suffer direct injury to its business and property through the more than $10,000,000,000 that was taken from it over the course of years beginning at least in 1998 and continuing to late 2003. (x) Citigroup, along with the Parmalat insiders, operated and controlled an "enterprise" consisting of Parmalat Finanziaria, SpA, Parmalat SpA, and their subsidiaries and affiliates within the meaning of N.J.S.A. 2C:41-1(c). Citigroup conducted the affairs of the "Parmalat Enterprise" through a pattern of racketeering activity. Dr. Bondi seeks an award of damages, among others: -- for all losses Parmalat incurred as a result of Citigroup's acts; and -- to compensate Parmalat for the losses Parmalat's bondholders, noteholders and other lenders as well as Parmalat's shareholders have incurred as a result of Citigroup's acts. Dr. Bondi also seeks the establishment of a constructive trust for Parmalat's benefit to be placed on any identifiable funds and assets that were stolen or fraudulently transferred from Parmalat, as well as on any identified assets that those funds or assets were used to acquire. Headquartered in Wallington, New Jersey, Parmalat USA Corporation -- http://www.parmalatusa.com/-- generates more than 7 billion euros in annual revenue. The Parmalat Group's 40-some brand product line includes milk, yogurt, cheese, butter, cakes and cookies, breads, pizza, snack foods and vegetable sauces, soups and juices and employs over 36,000 workers in 139 plants located in 31 countries on six continents. The Company filed for chapter 11 protection on February 24, 2004 (Bankr. S.D.N.Y. Case No. 04-11139). Gary Holtzer, Esq., and Marcia L. Goldstein, Esq., at Weil Gotshal & Manges LLP represent the Debtors in their restructuring efforts. On June 30, 2003, the Debtors listed EUR2,001,818,912 in assets and EUR1,061,786,417 in debts. (Parmalat Bankruptcy News, Issue No. 27; Bankruptcy Creditors' Service, Inc., 215/945-7000) PARMALAT: Antitrust Authority Probes Newlat & Carnini Transactions ------------------------------------------------------------------ Parmalat Finanziaria SpA in Extraordinary Administration communicates that the Antitrust Authority initiated two investigations on July 22, 2004 with regard to Parmalat. The investigations have been communicated to Parmalat on July 27, 2004 and have been published on the website of the Antitrust Authority. The first contends that Parmalat did not respect the conditions imposed by the Antitrust Authority in 1999 relating to the authorization of the acquisition of Eurolat from the Cirio Group, and specifically its failure to divest, Newlat to which certain brands and facilities had been transferred. The second cites the failure to communicate in advance to the Authorities the acquisition of a controlling position in Carnini. The actions that are the subject of the Antitrust Authority's investigation, in which the current Extraordinary Administration of Parmalat had no role whatsoever, are entirely attributable to the previous management of Parmalat. The initiations of these steps by the Antitrust Authority were preceded by a request for information by the Authority to Parmalat Finanziaria SpA in Extraordinary Administration which the latter fulfilled providing all the relevant information in its possession and cooperating fully in the preliminary phases of the Authority's inquiries. Parmalat Finanziaria SpA in Extraordinary Administration does not currently manage either Newlat or Carnini. On the basis of information in his possession or which has been reported in the press, Extraordinary Commissioner, Dr Enrico Bondi, took the limited but prudent step, in the interest of all the creditors, of recognizing in March 2004 ownership of the holdings in Newlat and Carnini. Headquartered in Wallington, New Jersey, Parmalat USA Corporation -- http://www.parmalatusa.com/-- generates more than 7 billion euros in annual revenue. The Parmalat Group's 40-some brand product line includes milk, yogurt, cheese, butter, cakes and cookies, breads, pizza, snack foods and vegetable sauces, soups and juices and employs over 36,000 workers in 139 plants located in 31 countries on six continents. The Company filed for chapter 11 protection on February 24, 2004 (Bankr. S.D.N.Y. Case No. 04-11139). Gary Holtzer, Esq., and Marcia L. Goldstein, Esq., at Weil Gotshal & Manges LLP represent the Debtors in their restructuring efforts. On June 30, 2003, the Debtors listed EUR2,001,818,912 in assets and EUR1,061,786,417 in debts. (Parmalat Bankruptcy News, Issue No. 27; Bankruptcy Creditors' Service, Inc., 215/945-7000) PENN OCTANE CORP: Auditors Raise Going Concern Doubt ---------------------------------------------------- The auditing firm of Burton, McCumber & Cortez, L.L.P. in Brownsville, Texas, included an explanatory paragraph in Penn Octane Corporation's financial statements as of July 31, 2003, raising substantial doubt about the Company's ability to continue as a going concern. These facts were previously contained in the firm's Auditors Report to the Board of Directors of Penn Octane Corporation, and dated May 28, 2004. The Company has had an accumulated deficit since its inception and has historically had a deficit in working capital. In addition, significantly all of the Company's assets are pledged or committed to be pledged as collateral on existing debt in connection with the Restructured Notes, the $280,000 Notes and the RZB Credit Facility. The RZB Credit Facility is to be reduced from $15 million to $12 million after September 30, 2004 unless a further extension is obtained. The Company and RZB are currently in negotiations to maintain the credit facility at $15.0 million for a longer term. The Company may need to increase its credit facility for increases in quantities of LPG purchased and/or to finance future price increases of LPG. The Company depends heavily on sales to one major customer. Since April 1, 2004 the Company has been operating on month-to- month contracts with PMI. The Company's sources of liquidity and capital resources historically have been provided by sales of LPG, proceeds from the issuance of short-term and long-term debt, revolving credit facilities and credit arrangements, sale or issuance of preferred and common stock of the Company and proceeds from the exercise of warrants to purchase shares of the Company's common stock. In addition to the above, the Company intends to Spin-Off a major portion of its assets to its stockholders. As a result of the Spin-Off, the Company's stockholders' equity will be materially reduced by the amount of the Spin-Off, which may result in a deficit in stockholders' equity and a portion of the Company's current cash flow from operations will be shifted to the Partnership. Therefore, the Company's remaining cash flow may not be sufficient to allow the Company to pay its federal income tax liability resulting from the Spin-Off, if any, and other liabilities and obligations when due. The Partnership will be liable as guarantor on the Company's collateralized debt discussed in the preceding paragraph and will continue to pledge all of its assets as collateral. In addition, the Partnership has agreed to indemnify the Company for a period of three years from the fiscal year end that includes the date of the Spin-Off for any federal income tax liabilities resulting from the Spin-Off in excess of $2.5 million. If the Company's cash flow from operations is not adequate to satisfy such payment of liabilities and obligations and/or tax liabilities when due and the Partnership is unable to satisfy its guarantees and /or tax agreement, the Company may be required to pursue additional debt and/or equity financing. In such event, the Company's management does not believe that the Company would be able to obtain such financing from traditional commercial lenders. In addition, there can be no assurance that such additional financing will be available on terms attractive to the Company, or at all. If additional financing is available through the sale of the Company's equity and/or other securities convertible into equity securities through public or private financings, substantial and immediate dilution to existing stockholders may occur. There is no assurance that the Company would be able to raise any additional capital if needed. If additional financing cannot be accomplished and the Company is unable to pay its liabilities and obligations when due or to restructure certain of its liabilities and obligations, the Company may suffer material adverse consequences to its business, financial condition and results of operations. About Penn Octane Corporation Penn Octane Corporation's principal activities are to purchase, transport and market liquefied petroleum gas (LPG) in the United States. It owns and operates a terminal facility in Brownsville, Texas and owns a LPG terminal facility in Matamoros, Tamaulipas, Mexico and pipelines that connect the Brownsville Terminal Facility to the Matamoros Terminal Facility. The primary market for the Group's LPG is the northeastern region of Mexico which includes the states of Coahuila, Nuevo Leon and Tamaulipas. PILLOWTEX CORP: Hires Towers Perrin as to Fight PBGC Claims ----------------------------------------------------------- Pillowtex Corporation and its debtor-affiliates sought and obtained the Court's authority to employ Towers Perrin Forster & Crosby, Inc., as special bankruptcy consultants and actuaries. Towers Perrin is a global consulting firm with offices located at 600 Grant Street in Pittsburgh, Pennsylvania. Towers Perrin provides global actuarial consulting services to clients and has extensive experience in performing those services for entities in Chapter 11 proceedings. Pillowtex Vice President, General Counsel and Secretary, John F. Sterling, relates that since the Petition Date, the Debtors developed procedures to handle various matters arising in the course of the administration of these cases and the liquidation of the estate's assets. These procedures include the settlement of claims relating to the Debtors' two defined pension plans. The Debtors believe that Towers Perrin is well qualified and able to assist them in a cost-effective, efficient and timely manner to evaluate the accuracy of Pension Benefit Guaranty Corp.'s calculation of claims in relation to the Pension Plans. As consultants, Towers Perrin will: (a) quantify the amount of PBGC's claims with regard to the termination of the Pension Plans; and (b) assist the Debtors in objecting to PBGC's claim calculations or in negotiating a settlement with PBGC. Specifically, Towers Perrin will be: -- developing recommended assumptions and methods for measuring the Pension Plans' obligations; -- negotiating with PBGC representatives regarding the liabilities of the Pension Plans; and -- providing an affidavit for court filings relating to Towers Perrin's calculation of the PBGC claims. Towers Perrin will be compensated on an hourly basis at rates in effect at the time of performance of the services. Currently, Towers Perrin's hourly billing rates are: William Daniels $585 Principals 480 - 690 Consultants 345 - 525 Associates 107 - 315 The Debtors will reimburse Towers Perrin, at cost, for all of the expenses it will reasonably incur in connection with the performance of the services. Additionally, the Debtors will compensate Towers Perrin for the amount of any tax or similar assessments levied or based on Towers Perrin's charges or provision of services other than assessments based on Towers Perrin's net income. Towers Perrin will consider performance of additional services at the Debtors' request. If the additional or different services can be clearly defined, Towers Perrin will perform those services on a fixed fee basis. If the services exceed $10,000, Towers Perrin will provide the Debtors with an estimate of the costs of the services to be performed. The additional or different services would be subject to Court approval. Towers Perrin member, William Daniels, assures the Court that the firm has no connection with, and holds no interest adverse to the Debtors, their estates, their creditors or any other party-in- interest in the matters for which Towers Perrin will be employed. Mr. Daniels believes that Towers Perrin is a "disinterested person" within the meaning of Sections 101(14) and 1107(b) of the Bankruptcy Code. Headquartered in Dallas, Texas, Pillowtex Corporation -- http://www.pillowtex.com/-- sold top-of-the-bed products to virtually every major retailer in the U.S. and Canada. The Company filed for Chapter 11 protection on November 14, 2000 (Bankr. Del. Case No. 00-4211), emerged from bankruptcy under a chapter 11 plan, and filed a second time on July 30, 2003 (Bankr. Del. Case No. 03-12339). The second chapter 11 filing triggered sales of substantially all of the Company's assets. David G. Heiman, Esq., at Jones Day, and William H. Sudell, Jr., Esq., at Morris Nichols Arsht & Tunnel, represent the Debtors. On July 30, 2003, the Company listed $548,003,000 in assets and $475,859,000 in debts. (Pillowtex Bankruptcy News, Issue No. 67; Bankruptcy Creditors' Service, Inc., 215/945-7000) PNC MORTGAGE: S&P Affirms Low B-Ratings on Six Certificate Classes ------------------------------------------------------------------ Standard & Poor's Ratings Services raised its ratings on seven classes of PNC Mortgage Acceptance Corporation's commercial mortgage pass-through certificates from series 2000-C2. Concurrently, ratings on eight other classes from the same transaction are affirmed. The raised and affirmed ratings reflect credit enhancement levels that provide adequate support through various stress scenarios as well as the stable performance of the seasoned pool. As of the July 12, 2004 remittance report, the collateral pool consisted of 175 loans with an aggregate principal balance of $1,009 million, down from 185 loans totaling $1,076 million at issuance. The master and special servicer, Midland Loan Services, Inc., provided net cash flow -- NCF -- debt service coverage (DSC) figures for 95% of the pool. Based on this information, Standard & Poor's calculated a weighted-average DSC of 1.31x, slightly down from 1.35x at issuance. One loan ($2.7 million, 0.3% of the pool) is defeased. Only two loans in the pool are delinquent at 30 and 90 days past due, respectively. The remaining loans in the pool are current. To date, the trust has experienced no losses. The top 10 loans have an aggregate outstanding balance of $352.2 million (35%). The weighted average DSC for the top 10 loans is 1.28x, down slightly from 1.33x at issuance. Standard & Poor's reviewed property inspections performed over the past year, provided by Midland for all of the assets underlying the top 10 loans. All were characterized as "good" or "excellent". There are three loans with an aggregate outstanding balance of $14 million (1.4%) that are with the special servicer. The largest specially serviced asset, a 94,000-sq.-ft., office facility in Richmond, California, has an outstanding principal balance of $10.5 million (1.0%). The loan is current and was transferred to the special due to nonmonetary default and will be reviewed by the special. The second loan has a principal balance of $1.9 million (0.2%) and is secured by a 90-room lodging property in Waxahachie, Texas. The asset was sold recently and a moderate loss on the loan will be reflected on the next remittance report. The last loan, which was transferred to the special servicer last week, is a 30-day delinquent loan secured by a $1.6 million multifamily loan in Corsicana, Texas. A payment was received in July that was applied to the June payment. Midland's watchlist consists of 30 loans with an aggregate outstanding balance of $154.6 million (15%), including the third- largest loan in the pool. The loan ($43 million, 4.3%) is secured by a 224-room Courtyard By Marriot hotel in New York City. The property had a Dec. 31, 2003 NCF DSC and occupancy of 1.10x and 88%, respectively. The property posted a much healthier net operating income DSC of 1.28x, and posted a relatively strong full year 2003 average daily rate of $188 and revenue per available room of $165. The trust collateral is located across 36 states, and only New York (25%) and California (17%) account for more than 10% of the pool balance. After removing collateral for the defeased loan, property concentrations greater than 10% of the pool balance are found in retail (32%), office (32%), and multifamily (18%) properties. Standard & Poor's stressed various loans with credit issues as part of its pool analysis. The resultant credit enhancement levels support the raised and affirmed ratings. Ratings Raised PNC Mortgage Acceptance Corporation Commercial mortgage pass-thru certificates series 2000-C2 Rating Class To From Credit Enhancement (%) ----- -- ---- ---------------------- B AAA AA 21.06 C AA- A 16.26 D A+ A- 14.93 E A BBB+ 11.73 F A- BBB 10.13 G BBB+ BBB- 8.26 H BBB- BB+ 5.33 Ratings Affirmed PNC Mortgage Acceptance Corporation Commercial mortgage pass-thru certificates series 2000-C2 Class Rating Credit Enhancement (%) ----- ------ ---------------------- A-1 AAA 25.32 A-2 AAA 25.32 J BB 5.33 K BB- 4.53 L B+ 3.73 M B 2.67 N B- 2.13 X AAA N/A N/A -- Not applicable POLYONE CORP: Fitch Affirms Low-B Ratings Despite Improvement ------------------------------------------------------------- Fitch Ratings has affirmed PolyOne Corporation's credit ratings even though the company's EBITDA strengthened considerably in the second quarter. PolyOne's senior secured credit facility rating is 'BB-' and its senior unsecured debt rating is 'B'. The Rating Outlook is Negative. The ratings reflect PolyOne's improving but weak financial performance and adequate liquidity. Higher volumes, higher selling prices, and favorable currency exchange rates supported higher operating margins during the first six months of 2004. However, the improvement comes after a very weak performance in 2003. Credit statistics remained weak even as sales improved to $2.1 billion and EBITDA reached $99.7 million for the trailing 12-month period ended June 30, 2004, compared with $2.0 billion and $58.9 million EBITDA at year-end 2003. Total debt-to-EBITDA (including accounts receivable securitization) was 8.0 times (x) for the last 12 months ended June 30, 2004, while EBITDA-to- interest incurred was 1.3x. These statistics do compare favorably to year-end 2003 statistics of 14.5x for total debt-to-EBITDA and 0.8x for EBITDA-to-interest, although they continue to be at weak levels. Liquidity is adequate and continues to support the ratings. PolyOne reported $52.7 million in cash and $180.5 million available from various capital resources while remaining in compliance with covenants at the end of the second quarter. These resources are more than adequate to retire current maturities of $27.2 million reported at June 30, 2004. Fitch expects asset sales to temporarily bolster liquidity in preparation for upcoming cash needs. Cash proceeds from the completed sale of the Elastomers and Performance Additives business will likely be earmarked for near-term maturities, including 2005 maturities of $98.8 million. Cash proceeds from future asset sales would likely be used to reduce debt and to fulfill pension obligations. The size of the receivables securitization program and the credit facility declined concurrent with the close of the Elastomers and Performance Additives sale. The Negative Rating Outlook reflects the near-term uncertainty in EBITDA recovery. PolyOne's business portfolio has changed with the designation of discontinued operations in 2003. As a result, mid-cycle EBITDA levels are yet unknown. Moreover, margins remain under pressure from higher raw material costs. PolyOne, headquartered in Avon Lake, Ohio, is the largest compounder of plastics and a leading distributor of plastic resins in North America. At the end of the second quarter, PolyOne's debt (including the A/R program balance) totaled $800.0 million, of which $780.9 million is public debt. RCN CORP: Court Approves Committee's Bid to Retain Chanin Capital ----------------------------------------------------------------- The Official Committee of Unsecured Creditors appointed in RCN Corporation's chapter 11 cases sought and obtained permission to retain Chanin Capital Partners as its financial advisor, effective as of June 14, 2004. Committee Co-Chairman Eric L. Eddin relates that Chanin Capital has extensive experience in distressed transactions, including in Chapter 11 cases and representations of creditors. Judge Drain approved indemnification provisions contained in an Engagement Letter subject to these conditions: (a) All of Chanin Capital Partners' requests for payment of indemnity, contribution or otherwise pursuant to the Indemnification Provisions will be made by means of an application and will be subject to Court review to ensure that the payment of the indemnity conforms to the terms of the Indemnification Provisions, and is reasonable based on the circumstances of the litigation or settlement in respect of which the indemnity is sought, provided that in no event will Chanin Capital be indemnified in the case of its own bad-faith, self-dealing, breach of fiduciary duty, gross negligence or willful misconduct; (b) In no event will Chanin Capital be indemnified if RCN Corp. and its debtor-affiliates or a representative of the Debtors' estates, asserts a claim for, and a court determines by final order that the claim arose out of, Chanin Capital's own bad-faith, self-dealing, breach of fiduciary duty, gross negligence or willful misconduct; and (c) In the event that Chanin Capital seeks reimbursement for attorney's fees from the Debtors pursuant to the indemnification as set forth in the Indemnification Provisions, the invoices and supporting time records from the attorneys will be included in Chanin Capital's own applications, and the invoices and time records will be subject to the U.S. Trustee's guidelines for compensation and reimbursement of expenses and Court's approval under the standards of Sections 330 and 331 of the Bankruptcy Code, without regard to whether the attorney's services satisfy Section 330(a)(3)(C). Indemnification Provisions The terms of Chanin Capital's engagement include the provision that the Debtors will indemnify and hold harmless Chanin Capital and its affiliates from and against any losses, claims, damages, judgments, assessments, costs and other liabilities, whether they be joint or several. The Debtors will also reimburse Chanin Capital and its affiliates for all fees and expenses, including: (i) the reasonable fees and expenses of counsel, arising out of, or in connection with advice or services rendered, or to be rendered by Chanin Capital on the Committee's behalf; (ii) the transactions contemplated in connection with the Chapter 11 cases; or (iii) any indemnified person's actions or inactions in connection with any advice, services or transactions. The Debtors will not be obligated to indemnify against losses or pay expenses that are determined by a final judgment by a court of competent jurisdiction to have resulted from an indemnified person's gross negligence or willful misconduct. In the event that the indemnification is unavailable, the Debtors will contribute to the losses or expenses payable by the indemnified party. Chanin Capital and its affiliates will be liable in respect of the services to be rendered to the Committee, only to the extent that any losses and expenses resulted solely from the gross negligence or willful misconduct of Chanin Capital or its affiliate. Rusell Belinsky, Senior Managing Director at Chanin Capital, assures the Court that the firm serves no interest adverse to the interests of the Committee or the Debtors' estate. Additional details about Chanin's engagement appeared in the Troubled Company Reporter on July 23, 2004. Headquartered in Princeton, New Jersey, RCN Corporation -- http://www.rcn.com/-- is a provider of bundled Telecommunications services. The Company, along with its affiliates, filed for chapter 11 protection (Bankr. S.D.N.Y. Lead Case No. 04-13638) on May 27, 2004. Frederick D. Morris, Esq., and Jay M. Goffman, Esq., at Skadden Arps Slate Meagher & Flom LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $1,486,782,000 in assets and $1,820,323,000 in liabilities. (RCN Corp. Bankruptcy News, Issue No. 8; Bankruptcy Creditors' Service, Inc., 215/945-7000) RELIANCE: Liquidator Wants to Sell 15-Acre Parcel for $2.6 Million ------------------------------------------------------------------ M. Diane Koken, the Insurance Commissioner of the Commonwealth of Pennsylvania, as Liquidator of Reliance Insurance Company, proposes to sell certain parcels of real property to Melvin Lenkin and William Walde for $2,638,047. The Liquidator will sell to Messrs. Lenkin and Walde the real property at the Ryan Park Center, in Loudoun County, Virginia, which totals 15.25 acres: (1) Part of Parcel 25A (Area C), 0.7468 acres; (2) Parcel 25E, 4.2161 acres; (3) Parcel 25F, 4.5597 acres; (4) Parcel 25G, 3.5612 acres; (5) Parcel 25H, 1.9127 acres; and (6) Part of Parcel 25A, Area A, 0.2591 acres. Only Parcels 25E, 25F, 25G and 25H are useable. The total useable acreage within the Property is 14.2497 acres. The Ryan Park Center is comprised of over 111 acres of land. The Center was acquired by a RIC subsidiary for $11,009,000, on April 3, 1989, as part of a larger transaction. The unit cost was $2.28 per square foot. Subsequently, 34 acres were dedicated for toll road construction and three acres were reserved for mass transit parking. Additionally, 59 acres have been sold in a series of transactions approved by the Commonwealth Court for a total consideration of $11,450,000. As in the past transactions, the Liquidator employed the services of CB Richard Ellis to assist in the marketing and sale of the remainder of the Center, which consisted of several parcels. CB Richard Ellis extensively marketed the remainder of the Center for over 18 months, but was able to sell only two parcels. To liquidate the holdings expeditiously, CB Richard Ellis solicited offers for the remainder of the Center in its entirety, instead of parcel by parcel. The 15.25 acres includes the entirety of RIC's remaining interest in the Center. Two offers were received, one of which was from Foulger-Pratt Development, Inc. The Foulger-Pratt offer was selected for its higher price and proposed superior settlement terms. The Foulger-Pratt transaction also proposed the sale of RIC's right, title and interest in a Re-Purchase Option for 3.7979 acres of reserved property at the Ryan Park Center. RIC's interest in the Re-Purchase Option was created by the Parcel 25D Sale Agreement that was approved by the Commonwealth Court on April 9, 2003. Under the Foulger-Pratt Agreement, RIC would sell the Property for $2,638,047, or $4.25 per square foot for all useable land. RIC would also sell the Re-Purchase Option for $4.25 per square foot, which amounted to $703,105. The total purchase price equaled $3,341,152. On December 22, 2003, at the end of the Feasibility Study Period, Foulger-Pratt terminated its contract to purchase the Property and the Re-Purchase Option. However, CB Richard Ellis continued to receive inquiries from other parties. Upon notice of the Foulger-Pratt termination, CB Richard Ellis contacted Messrs. Lenkin and Walde, who had previously expressed interest. Messrs. Lenkin and Walde submitted an offer in response to the overture. The Transaction Terms At RIC's request, Messrs. Lenkin and Walde will not purchase the Re-Purchase Option. RIC believes that it is in a better position to liquidate the Re-Purchase Option by negotiating directly with other possible purchasers. Messrs. Lenkin and Walde will pay RIC $2,638,047, equal to $4.25 per square foot of net useable land, for the Property. Messrs. Lenkin and Walde paid $50,000 as initial deposit into an escrow account. Messrs. Lenkin and Walde will deposit another $120,000 in escrow upon completion of a 60-day review period. The balance of the purchase price will be paid at closing. RIC's only obligation is to cure up to $50,000 in any code or related violations imposed or issued between the Effective Date of the Agreement and the date of closing. RIC's closing expenses are limited to its cost of preparing the Deed, attorney's fees, recording any instruments necessary to clear title and payment of Virginia's Grantor tax, one-half of any closing charges, not to exceed $400. The transaction is contingent on Messrs. Lenkin and Walde obtaining a special exception from the Loudoun County authorities permitting restaurant and banking with drive-thru uses on the Property. CB Richard Ellis is entitled to a broker's commission calculated at 5% of the first $1,000,000 purchase price and 3% of the purchase price above $1,000,000. Based on this formula, CB Richard Ellis will receive $99,141 at closing. Messrs. Lenkin and Walde are private developers and investors who own a large portfolio of Washington-area commercial and residential properties. Mr. Lenkin owns a construction and management company. Messrs. Lenkin and Walde are financially able to complete the transaction. Messrs. Lenkin and Walde produced a letter from Bank of America in Chevy Chase, Maryland, indicating Bank of America's support. In addition, detailed financial statements from Messrs. Lenkin and Walde indicate that each has a net worth substantially in excess of $10,000,000, with liquid assets that are more than adequate to consummate the transaction. To ensure that the Liquidator receives fair value for the Property, the Liquidator obtained the advice of a licensed real estate appraiser, Robert G. Johnson, MAI of JMSP, Inc., in Herndon, Virginia. Mr. Johnson prepared an appraisal report that placed the fair market value of the Property at $2,600,000. This figure excludes the value of the Re-Purchase Option. As a result, the $2,638,047 purchase price exceeds the appraised fair market value. The transaction will assist the Liquidator in marshalling RIC's assets to minimize any unavoidable loss to policyholders, claimants and creditors resulting from RIC's insolvency. Headquartered in New York, New York, Reliance Group Holdings, Inc. -- http://www.rgh.com/-- is a holding company that owns 100% of Reliance Financial Services Corporation. Reliance Financial, in turn, owns 100% of Reliance Insurance Company. The holding and intermediate finance companies filed for chapter 11 protection on June 12, 2001 (Bankr. S.D.N.Y. Case No. 01-13403) listing $12,598,054,000 in assets and $12,877,472,000 in debts. The insurance unit is being liquidated by the Insurance Commissioner of the Commonwealth of Pennsylvania. (Reliance Bankruptcy News, Issue No. 58; Bankruptcy Creditors' Service, Inc., 215/945-7000) ROMAN INDUSTRIES: Case Summary & 20 Largest Unsecured Creditors --------------------------------------------------------------- Debtor: Roman Industries 1560 Quarry Road North East Corydon, Indiana 47112 Bankruptcy Case No.: 04-92780 Chapter 11 Petition Date: August 6, 2004 Court: Southern District of Indiana (New Albany) Judge: Basil H. Lorch III, Esq. Debtor's Counsel: Gordon D. Ingle, Esq. Law Office Of Gordon D. Ingle 209 North Capitol Avenue Corydon, Indiana 47112 Telephone (812) 738-7575 Fax (812) 738-1321 Estimated Assets: $500,000 to $1 Million Estimated Debts: $1 Million to $10 Million Debtor's 20 Largest Unsecured Creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ UPS Capital Business Credit Secured Value: $950,000 280 Trumbull St. $425,000 Hartford, CT 06103 Soar Funding $198,000 Composite One, LLC $150,107 Indiana Dept. of Revenue $85,100 Ashland Chemical Co. $72,106 McWhorter Technologies $70,614 Kentucky Revenue Cabinet $41,450 Internal Revenue Service $41,000 Advanced Plastics, Inc. $31,310 Dennis O'Brien P.S.C. $17,620 Schibley Chemical $16,880 Indiana Dept. of Workforce $16,625 J.M. Huber Corp., HEM $14,411 Chase Platinum Mastercard $11,443 Bennett & Bennett Ins. $11,107 Indiana Naval Stores Co., Inc. $10,084 ECC International $9,037 American Express $8,610 Columbus Container, Inc. $7,401 Ranco, Inc. $4,880 SBS INTERACTIVE: Completes $500,000 Private Placement Transaction ----------------------------------------------------------------- SBS Interactive, Co. (OTC Bulletin Board: SBSS) completed a private placement of its securities. The Company raised $500,000 through the issuance of one million shares of its common stock at $0.50 per share. In addition, the investors received warrants to purchase one million shares of common stock at $1 per share, and warrants to purchase an additional one million shares of common stock at $1.25 per share. The proceeds from the financing will be used for manufacturing the Company's "Duo" hardware, for further development activities and for general corporate purposes. "We believe this financing reflects the significant accomplishments the Company has achieved in a relatively short period of time," said Todd Gotlieb, the Company's Chief Executive Officer. "Recently, we announced three new customers, just weeks after our new model of the Side by Side(TM) set-top box was available. This financing should permit us to accelerate the roll-out of the Side by Side(TM) technology." The Company's Side by Side(TM) technology uses a propriety, patented reverse "blue screen" technology to seamlessly combine virtually any kind of pre recorded or computer generated content with the users' environment. The environment integrates with the content via the fully automated digital camera in the Side by Side(TM) set-top box. For optimal effect, this happens in real time. * * * As reported in the Troubled Company Reporter's March 27, 2004 edition, Barry I. Hechtman, P.A., independent accountants who had been engaged by SBS Interactive Co. as the principal accountants to audit the Company's consolidated financial statements, resigned effective February 10, 2004. The report of Barry I. Hechtman, P.A. on the financial statements of the Company as of, and for, the years ended December 31, 2002 and December 31, 2001 was modified as to the Company's ability to continue as a going concern. SCAN-OPTICS: Completes Recapitalization & Extends Loan Maturities ----------------------------------------------------------------- Scan-Optics, Inc. (OTC BB: SOCR), a leader in information capture and customer service solutions for government, insurance, order fulfillment, proxy, health claims, test scoring and other paper- intensive businesses, has completed its recapitalization with certain lenders affiliated with Patriarch Partners LLC. Scan-Optics gained approval from shareholders at its recent annual meeting to issue to the Lenders 79.8% of the fully-diluted common stock of the Company in consideration for, among other things, the Lenders' agreement to extend the repayment date for the Company's outstanding secured debt from June 30, 2005 to March 30, 2007. The Lenders' fully-diluted common stock is subject to an approximate 15% reduction by stock options reserved for Senior Management, which would provide the Lenders with no less than 61.56% of fully- diluted equity interest. Also, as a result of this restructuring, Scan-Optics has a $2.5 million revolving credit facility and an additional $1.5 million working capital term loan. In discussing the agreement, James C. Mavel, Chairman, Chief Executive Officer and President of Scan-Optics, stated, "We are pleased to have the opportunity to bring additional available credit to the Company. The additional resources available through March 2007 provide liquidity for business operations and investment purposes." Scan-Optics, Inc., with headquarters in Manchester, Connecticut, is recognized internationally as an innovator and solution provider in the information management and imaging business. It designs, manufactures and services products and systems for character recognition, image processing and display, data capture and data entry. Scan-Optics systems and software are marketed worldwide to commercial and government customers directly and through distributors. Through its Manufacturing Services Division, Scan-Optics also provides contract-manufacturing services to customers, outsourcing the manufacturing of complex, electro- mechanical assemblies. Scan-Optics has sales and service offices located throughout the United States and abroad. Additional information concerning Scan-Optics is available at http://www.scanoptics.com/ * * * Liquidity and Capital Resources In its Form 10-Q for the quarterly period ended March 31, 2004, filed with the Securities and Exchange Commission, Scan-Optics reports: "Total borrowings increased $1.0 million at March 31, 2004 from $8.0 million at the end of 2003. The available balance on the line of credit was $4.0 million at March 31, 2004. The Company is in compliance with all of the financial covenants as of March 31, 2004 and expects to remain in compliance throughout 2004. The Company's ability to do so, however, will be directly impacted by its ability to achieve planned operating results for the remainder of 2004. The Company anticipates meeting its current obligations and resource needs through the funds generated from operations and the available line of credit. "The Company believes that the 2004 loan restructuring will allow execution of the Company's business plan through the term of the credit agreement by reducing required payments under the borrowing arrangements with the Lenders and increasing available funds through the working capital term loan facility, thereby enhancing the Company's ability to invest in its business, by lowering the thresholds of the financial covenants and by extending the loan maturities through June 2005, and through March 2007 if the shareholders approve the recapitalization transaction. In the event that shareholders fail to approve the recapitalization transaction or the recapitalization transaction fails to occur for any other reason, the Company's secured obligations (including the Company's mandatorily redeemable preferred stock), which exceeded $13.6 million as of March 30, 2004, will be due and payable on June 1, 2005." SHOWCASE AUTO: First Creditors Meeting Slated for August 24 ----------------------------------------------------------- The United States Trustee for Region 17 will convene a meeting of Showcase Auto Plaza's creditors at 1:30 p.m., on August 24, 2004, in Suite C at 1130 12th Street in Modesto, California. This is the first meeting of creditors required under 11 U.S.C. Sec. 341(a) in all bankruptcy cases. All creditors are invited, but not required, to attend. This Meeting of Creditors offers the one opportunity in a bankruptcy proceeding for creditors to question a responsible office of the Debtor under oath about the company's financial affairs and operations that would be of interest to the general body of creditors. Headquartered in Modesto, California, Showcase Auto -- http://www.showcaseautoplaza.com/-- sells automobiles and provides auto service and repair. The Company filed for a chapter 11 protection on July 15, 2004 (Bankr. E.D. Calif. Case No. 04-92709). Donald W. Fitzgerald, Esq., at Felderstein Fitzgerald Willoughby represents the Debtor in its restructuring efforts. When the Debtor filed for protection, it listed assets and debts of more than $10 million. SOBIESKI BANCORP: MFB Financial Closes $1.156 Million Acquisition ----------------------------------------------------------------- MFB Corp.'s (Nasdaq:MFBC) banking subsidiary, MFB Financial, has completed a transaction acquiring certain assets and assumed certain liabilities of Sobieski Bank. Under the terms of the agreement, MFB Financial paid Sobieski Bank $1.156 million, subject to post closing adjustments to be finalized within the next 15 days. As of June 30, 2004, Sobieski Bank, located in South Bend, Indiana, had approximately $105.1 million of assets and approximately $102.4 million of liabilities. Among items excluded from the Acquisition under the agreement were certain troubled and/or substandard assets, including certain commercial loans, real estate owned, assets seized in connection with litigation related to fraudulent activity affecting Sobieski Bank, and other items. The transaction was structured as an asset purchase and MFB Financial generally did not assume any of any of Sobieski's contingent liabilities. Sobieski Bank and its holding company, Sobieski Bancorp, Inc., have agreed to indemnify and protect MFB against liabilities not assumed by MFB in the transaction. The acquisition is expected to be accretive to MFB's earnings per share for the fiscal year beginning October 1, 2004. As a result of the transaction, MFB is expected to increase its total assets to approximately $538 million and to solidify MFB Financial's position as the second largest FDIC-insured institution headquartered in St. Joseph County, Indiana. MFB will operate the three Sobieski retail offices, all located in South Bend, as branch facilities under the MFB Financial name. The acquisition expands MFB's offering of retail and small business financial services to eleven banking centers in the St. Joseph and Elkhart county metropolitan area. MFB also recently moved into its new corporate headquarters in Mishawaka. Both Mishawaka and South Bend are in St. Joseph County. MFB Corp. shareholders' equity was $35.7 million at June 30, 2004. "This is a carefully structured growth transaction consistent with our focus on community banking, asset quality and efficiency," said Charles J. Viater, President & CEO of MFB. "We are expanding and extending our market presence and service capability in a prudent and profitable manner. We will immediately benefit from the critical mass this will add to our organization while simultaneously providing Sobieski customers with enhanced product and service offerings." Edelman & Co., Ltd. served as financial advisor to MFB for the transaction. As reported in the Troubled Company Reporter yesterday, the shareholders of Sobieski Bancorp, Inc. (Nasdaq:SOBI), parent company of Sobieski Bank, approved the sale of substantially all of the Bank's assets to MFB Financial and the Company's plan of dissolution and liquidation. The transaction with MFB is scheduled to close on August 6, 2004, and the Company's common stock will be de-listed from the Nasdaq Stock Market at the close of trading on that day. The Company expects to file its certificate of dissolution with the State of Delaware on August 9, 2004, after which the Company's stock transfer books will be closed and the Company will begin the process of winding up its business affairs in accordance with its plan of dissolution and liquidation. The Company will also be de- registering its common stock under the Securities Exchange Act of 1934. About Sobieski Bancorp Sobieski Bancorp's principal activity is to provide financial products and services to individuals and businesses. It operates through the main office and two branch offices located in St. Joseph County, Indiana. The Group collects deposits from the general public and originates loans and invests in Government treasury and agency securities and mortgage-backed securities. The loans provided include construction loans, mortgage loans secured by one-to-four family properties, commercial mortgage loans, commercial loans-participation, home equity loans and other consumer loans. The deposits accepted by the Group include now and money market accounts, passbook accounts and certificates of deposits and IRA accounts. http://www.sobieskifsl.com/ * * * Liquidity and Capital Resources In its Form 10-Q for the quarterly period ended March 31, 2004, filed with the Securities and Exchange Commission, Sobieski Bancorp, Inc. reports: "The continuing decline in the Bank's capital, as well as the Company's history of operating losses and likely future operating losses, could, among other factors, affect the terms of any future FHLB advances requested by the Bank, and could lead to a determination by the FHLB to limit or deny an advance amount requested by the Bank. "In addition, in February 2004, at the request of the OTS, the Company consented to a cease and desist order that, among other things, provides that the holding company should not borrow any funds without OTS approval. Because of the Company's history of reporting net losses and reduced capital position, as well as the cease and desist order, it is possible that the Company and/or the Bank could encounter difficulty in borrowing funds from other sources on terms acceptable to it, or at all. "The Company uses its liquidity resources principally to meet loan originations, ongoing commitments to fund maturing certificates of deposit, deposit withdrawals and to meet operating expenses. Federal regulations require the Bank to maintain sufficient liquidity to maintain its safe and sound operation. "Although management believes that the level of the Company's liquid assets at March 31, 2004, as well as repayments and other sources of funds will be adequate to meet the Company's foreseeable liquidity needs, no assurance can be given in this regard, particularly in light of the possibility that the Company and/or Bank may encounter difficulty in borrowing funds when needed, and if a significant portion of the Banks maturing certificates of deposit do not renew." SOLUTIA INC: Court Okays Second Amendment to DIP Financing Pact --------------------------------------------------------------- Judge Beatty authorizes and approves in all respects a Second Amendment to the DIP Financing Agreement providing Solutia, Inc., and its debtor-affiliates with working capital financing while reorganizing under chapter 11. The Second Amendment Pursuant to the Second Amendment, M. Natasha Labovitz, Esq., at Gibson, Dunn & Crutcher, LLP, in New York, explains, the Debtors gain important flexibility to make necessary changes in their operations and agreements related to those operations in a way that will allow the Debtors to achieve significant cost savings and liquidity improvements, along with streamlining their operations and simplifying certain reporting and other compliance requirements. The Second Amendment will benefit the Debtors in these key areas: A. Asset Sales and Restructuring The Second Amendment will facilitate asset sales and business restructuring activities by permitting: (1) numerous asset dispositions and other general categories of asset transactions, including: (a) the sale of specified business lines and other enumerated assets of the Solutia Group; (b) sales or leases and subleases of specified parcels of real estate owned or leased by the Solutia Group that are not used in its core business operations; (c) sales of certain assets of minor business lines that are wound down, like the Chlorobenzene business; and (d) certain other sales pursuant to other motions under Section 363 of the Bankruptcy Court or the Court- approved non-core asset sales procedures; (2) certain asset sale transactions involving non-cash consideration, like ongoing earn-out payments or land swaps; and (3) certain de minimis charitable donations by non-Debtor Subsidiaries and donations or below-market sales of certain parcels of real estate by the Debtors where appropriate. B. Mandatory Prepayments/Commitment Reductions The Second Amendment will modify existing loan prepayment requirements by permitting the Debtors to retain proceeds of certain asset dispositions and extraordinary receipts that would otherwise be required to be used to permanently pay down loans under the DIP Agreement. The Second Amendment will: (1) increase the amount of proceeds of all Dispositions and Extraordinary Receipts not generally subject to mandatory prepayment requirements from $2,500,000 to $7,500,000, and clarify and expand the types of Extraordinary Receipts that benefit from this carve- out; (2) permit the retention of the first $5,000,000 of proceeds of Specified Property Dispositions and limit the prepayment obligation for proceeds of the Specified Property Dispositions to 50% of the next $10,000,000 of sale proceeds; and (3) clarify the allocation of proceeds of asset sales that involve assets subject to liens of both the DIP Lenders and the holders of the Eurobonds issued by Solutia's Belgian subsidiary, Solutia Europe, SA/NV. C. Contract and Lease Restructurings The Second Amendment will contain provisions that increase the Debtors' flexibility to replace, modify or reap the benefits of certain of their existing contracts and leases so as to meet cost reduction and other goals set forth in the business plan. The Second Amendment will: (1) permit the entry into certain sale-leaseback transactions; (2) permit the Debtors to enter into stipulations regarding lifting the stay for certain fully secured obligations and to make related prepetition payments; (3) allow the Debtors greater flexibility in restructuring prepetition contracts and leases through its assumption or replacement, including in the areas of: (a) granting ordinary course indemnities in connection with the execution of new contracts and leases; (b) entering into capital leases and operating leases; and (c) permitting amendments to material contracts that are not materially adverse to the DIP Lenders; (4) permit the Debtors to continue implementing a prepetition restructuring agreement with respect to the deferral of certain payments from Astaris, LLC; and (5) permit the Debtors to pay up to $5,000,000 per year, and pay reasonable related fees and expenses, in respect of certain prepetition litigation settlement agreements, which may preserve the Debtors' rights to realize benefits under those agreements. D. Operational Flexibility Provisions of the Second Amendment will enhance the Debtors' ability to take other operational steps to improve their business operations consistent with the business plan by: (1) allowing the Debtors and their Subsidiaries to increase short-term liquidity and mitigate collection risks through limited sales of accounts receivable; (2) facilitating the marketing of new products or the establishment of new customer relationships by permitting certain sales of inventory subject to ordinary course return or approval rights; (3) permitting the Debtors to make general payments in respect of de minimis prepetition claims up to a $1,500,000 limit and subject to the Court's approval; (4) clarifying the Debtors' right to engage in the wind- down of minor business lines, and permitting the liquidation or merger of certain "Significant Subsidiaries"; (5) permitting certain de minimis acquisitions of all or substantially all of the assets of other entities and certain other equity investments and capital contributions; (6) granting the Debtors greater flexibility in structuring voluntary environmental remediation activities on real properties owned by the Debtors by permitting implementation of certain institutional controls like land-use and natural resource-use restrictions, access restrictions and other restrictive covenants that "run" with the land; and (7) streamlining the Debtors' reporting requirements by reducing the number of reports which must be provided in respect of minor environmental issues and inventory held on consignment, and clarifying the types of notices which must be provided to the DIP Lenders and the means by which those notices are delivered. Ms. Labovitz clarifies that the Second Amendment will not modify the financial covenants set forth in the DIP Amendment. The terms and conditions of the proposed Second Amendment also contemplate that the Debtors will pay an amendment fee of 12.5 basis points, or $656,250, to the DIP Lenders and a documentation fee of $250,000 to the DIP Agent. The Debtors, the DIP Lenders and the DIP Agent have negotiated these fees at arm's length and in good faith. Based on those negotiations and the benefits of the Second Amendment, the Debtors believe that payment of the Amendment-Related Fees is prudent and will be more than recouped in the context of the cost savings and liquidity enhancements that the Second Amendment will permit. Accordingly, the Debtors obtained authority from Judge Abrams to: -- amend the DIP Agreement; and -- pay the Amendment-Related Fees in connection with the amendment. The Debtors have evaluated their financing and operational needs in light of their intended reorganization strategy. The Debtors decided that it is more prudent from a business perspective to enter into a single comprehensive amendment to the DIP Agreement to facilitate the implementation of that business strategy, rather than incurring the costs and expenses associated with seeking individual waivers and consents for the numerous actions they may desire to take during the course of the Chapter 11 cases. The Second Amendment will afford the Debtors significantly improved ability to refine and implement their restructuring strategy and should provide them with increased flexibility in managing their day-to-day operations and with comfort that those day-to-day operations will not result in the inadvertent breach of onerous or ambiguous loan provisions. Headquartered in St. Louis, Missouri, Solutia, Inc. -- http://www.solutia.com/-- with its subsidiaries, make and sell a variety of high-performance chemical-based materials used in a broad range of consumer and industrial applications. The Company filed for chapter 11 protection on December 17, 2003 (Bankr. S.D.N.Y. Case No. 03-17949). When the Debtors filed for protection from their creditors, they listed $2,854,000,000 in assets and $3,223,000,000 in debts. (Solutia Bankruptcy News, Issue No. 20; Bankruptcy Creditors' Service, Inc., 215/945-7000) STANADYNE CORP: Kohlberg & Co. Completes $330 Million Buy-Out ------------------------------------------------------------- The stockholders of Stanadyne Corporation's parent, led by American Industrial Partners, completed the sale of their stock to an affiliate of Kohlberg & Company, L.L.C. The proposed transaction was previously announced on June 23, 2004. The transaction totaled approximately $330 million, which was financed by $105 million of equity, $160 million of new senior subordinated notes and $65 million of borrowings under a new term loan credit facility. Goldman, Sachs & Co. acted as M&A advisor to American Industrial Partners on the transaction. Founded in 1987, Kohlberg & Company, L.L.C. is a private merchant banking firm with offices in Mt. Kisco, New York and Palo Alto, California. Through its affiliates, Kohlberg & Company, L.L.C. has completed more than 75 acquisitions and recapitalization transactions in a variety of industries. Stanadyne is a leader in technology and services for engine components and fuel systems including diesel fuel injection and filtration systems, valve train components, and fuel supply pumps used in agricultural, construction, industrial and automotive vehicle and equipment applications. Stanadyne is headquartered in Windsor, Connecticut and has facilities in the United States, Brazil, France, Italy, and India. * * * As previously reported in the Troubled Company Reporter's July 22, 2004 edition, Standard & Poor's Ratings Services affirmed its 'BB-' corporate credit and 'B' subordinated debt ratings on Windsor, Conn.-based Stanadyne Corp. and removed them from CreditWatch where they were placed on June 24, 2004. At the same time, Standard & Poor's assigned its 'BB' senior secured bank loan rating and its recovery rating of '1' to Stanadyne's proposed $35 million senior secured asset-based revolving credit facility and assigned its 'B+' debt rating and its recovery rating of '3' to Stanadyne's proposed $65 million senior secured term loan. Standard & Poor's also assigned its 'B' debt rating to the company's proposed $160 million senior subordinated notes. The bank loan and recovery ratings on the revolving credit facility indicate a high expectation of full recovery of principal in the event of a default or bankruptcy. The term loan debt and recovery ratings indicate a meaningful (50%-80%) likelihood of recovery of principal in the event of default. The outlook is stable. The rating affirmation and CreditWatch resolution reflect Standard & Poor's analysis of the company's expected business strategy, capital structure, and financial policy following a transaction whereby Stanadyne will be purchased by an affiliate of Kohlberg & Co. LLC, a private merchant bank. Stanadyne will have about $225 million of total debt pro forma at the transaction's closing, which is expected to occur in the third quarter of 2004. Proceeds from the issuance of debt will be used to refinance certain existing debt, to partly fund Kohlberg's purchase of Stanadyne's equity, to provide working capital financing, and for other general corporate purposes. "Downside ratings risk is mitigated by the expectation of continued positive free cash flow generation that will enable Stanadyne to reduce leverage in the near term. This expectation rests on the assumption that the economic uplift that has supported the company's improved sales in the past several quarters will continue into 2005," said Standard & Poor's credit analyst Nancy Messer. "Upside ratings potential is limited by the cyclical and competitive characteristics of Stanadyne's operating environment." TENET HEALTHCARE: Cooperating in New Justice Dept. Probe in Mo. -------------------------------------------------------------- Tenet Healthcare Corporation (NYSE: THC) is cooperating with a voluntary request for documents it has received from the U.S. attorney's office in St. Louis, Missouri. The voluntary request seeks information about physician relocation agreements entered into by current Tenet hospitals in the St. Louis area and a hospital formerly owned by Tenet in Kennett, Missouri. The company said the latest request for documents is consistent with previously disclosed government reviews of Tenet's physician relocation agreements in other states. Tenet reiterated its earlier comments that the company is continuing to work cooperatively with regulatory and enforcement agencies to provide them with documents and information on a voluntary basis, and it continues to be engaged in discussions with federal agencies regarding a resolution of physician relocation and other issues. "We are sensitive to the concerns that regulatory agencies have with physician relocation arrangements, and Tenet's policies reflect the most recent guidance issued on this subject in March of this year by the U.S. Department of Health and Human Services," said E. Peter Urbanowicz, Tenet's general counsel. The latest request for information seeks documents regarding physician relocation agreements at Saint Louis University Hospital, Forest Park Hospital, Des Peres Hospital and Saint Alexius Hospital, Jefferson Campus (formerly SouthPointe Hospital), all in St. Louis; and Twin Rivers Regional Medical Center, in Kennett, Mo., which Tenet sold in November 2003. The request also seeks additional information regarding certain admissions and medical procedures at Twin Rivers. In its most recent quarterly report to the Securities and Exchange Commission, Tenet disclosed that it had been notified that subpoenas had been issued to Twin Rivers' current owner seeking documents pertaining to certain cardiac care patients at that hospital for the period 2000-2003. Tenet retained certain liabilities when it sold the hospital last year. Tenet Healthcare Corporation, through its subsidiaries, owns and operates acute care hospitals and related health care services. Tenet's hospitals aim to provide the best possible care to every patient who comes through their doors, with a clear focus on quality and service. Tenet can be found on the World Wide Web at http://www.tenethealth.com/ * * * As reported in the Troubled Company Reporter's June 21, 2004 edition, Standard & Poor's Ratings Services said that the ratings and outlook on Tenet Healthcare Corp. (B/Negative/--) will not be affected by an increase in the size of the company's new senior unsecured note issue due in 2014, to $1 billion from $500 million. Tenet used $450 million of the proceeds to repay debt due in 2006 and 2007, and the balance will be retained in cash reserves. Despite the additional debt and interest costs, Standard & Poor's considers the additional liquidity provided by the cash, as well as the effective extension of maturities, to be offsetting factors. The ratings already consider expectations of weak operating performance and cash flow over the next year while the negative outlook incorporates the risk of ongoing litigation and investigations related to the hospital chain's operations. UAL CORP: United ALPA Issues Statement on Pilot Pension Plans ------------------------------------------------------------- Captain Mark Bathurst, Chairman of the United Pilots Master Executive Council of the Air Line Pilots Association, responded to reports of United Airlines' plans to terminate all employee pension plans, including the pilot pension plan, as part of its program to exit bankruptcy. Captain Bathurst asserted that they "will use every resource at [their] command and every legal means available to prevent the Company from destroying the pilot pension program." He further contended: "We recognize United's continuing need to reduce operating costs, given the current dramatic rise in the price of fuel. However, the Company's 9,000 pilots have already made huge concessions to provide United with over $6 billion in financial relief over the next five years. Over the last 18 months, the average pilot has forfeited 45% of his or her pay and 20% of his or her pension benefits, as well as endured a 15% increase in work hours. We made these enormous financial and lifestyle sacrifices to help the airline move toward profitability and to protect our pensions. We will not further sacrifice our futures -- and our families' futures -- as well. "The facts are now clear: United's labor costs are now among the lowest in the network airline industry, but its non-labor operating expenses remain among the highest. Outside of labor and fuel costs, American Airlines enjoys a full 25% operating cost advantage over United. United's maintenance and airport operations are substantially less efficient than its industry peers; its aircraft leases remain well above market; its relationship with United Express carriers is unprofitable and unstable; and United fails to manage revenue as well as American, Continental or Northwest. Any corporate management team can attack employee pensions. That is the "simple" way to generate a large sum of cash. We are asking this management team for two things: accountability, and to begin steps toward executing a solid, rational, and achievable business plan that does not attempt to solve its problems on the backs of its employees. "United's pilots have acquiesced to massive pay cuts and much longer working hours: huge concessions that made it possible for this great airline to remain viable throughout an extraordinarily difficult period. Terminating pilot pensions has the potential to destroy the career of every United pilot, and potentially plunge labor relations at United into years of hostility and chaos. We will do everything in our power to avoid that scenario. The pilots of United Airlines will fight for our pensions every bit as hard as we have fought to ensure that United emerges from bankruptcy as the best airline in the world." Headquartered in Chicago, Illinois, UAL Corporation -- http://www.united.com/-- through United Air Lines, Inc., is the holding company for United Airlines -- the world's second largest air carrier. the Company filed for chapter 11 protection on December 9, 2002 (Bankr. N.D. Ill. Case No. 02-48191). James H.M. Sprayregen, Esq., Marc Kieselstein, Esq., David R. Seligman, Esq., and Steven R. Kotarba, Esq., at KIRKLAND & ELLIS represent the Debtors in their restructuring efforts. When the Company filed for protection from their creditors, they listed $24,190,000,000 in assets and $22,787,000,000 in debts. UNIFIED HOUSING: First Creditors Meeting Set for September 8 ------------------------------------------------------------ The United States Trustee for Region 6 will convene a meeting of Unified Housing of Kensington, LLC's creditors at 2:30 p.m., on September 8, 2004 in Room 7A24 in the Fritz G. Lanham Federal Building located at 819 Taylor Street, in Fort Worth, Texas. This is the first meeting of creditors required under 11 U.S.C. Sec. 341(a) in all bankruptcy cases. All creditors are invited, but not required, to attend. This Meeting of Creditors offers the one opportunity in a bankruptcy proceeding for creditors to question a responsible office of the Debtor under oath about the company's financial affairs and operations that would be of interest to the general body of creditors Headquartered in Dallas, Texas, Unified Housing, filed for a chapter 11 protection on July 29, 2004 (Bankr. N.D. Tex. Case No. 04-47183). John P. Lewis, Jr., at Cholette, Perkins & Buchanan, represents the Company in its restructuring efforts. When the company filed for protection, it listed above $10 million in assets and debts. UNITED REFINING: Completes $200M Private Senior Debt Offering ------------------------------------------------------------- United Refining Company completed its previously announced private placement offering of $200 million in Senior Notes due 2012, which will bear an interest rate of 10.500%. The notes were issued at 98.671% of par to yield 10.750% to maturity. Net proceeds from the offering of approximately $191.6 million plus available cash are intended to be used: (1) to redeem $180.1 million of aggregate principal amount of its outstanding 10-3/4% Senior Notes plus an aggregate redemption premium of $3.2 million and $3.7 million of estimated accrued and unpaid interest through the date of redemption; and (2) to pay a dividend to its stockholder of $5 million in the aggregate. The notes will be eligible for resale under Rule 144A of the Securities Act of 1933. United Refining Company -- http://www.urc.com/-- is an independent refiner and marketer of petroleum products. It fuels cars, trucks, airplanes and farm and construction equipment, as well as the homes and industries in one of America's largest concentrations of people and commerce. Their market includes Pennsylvania and portions of New York and Ohio. * * * As reported in the Troubled Company Reporter's July 27, 2004 edition, Standard & Poor's Ratings Services assigned its 'B-' rating to independent petroleum refiner and retail marketer United Refining Company's $200 million senior notes due 2014. UNIVERSAL ACCESS: Hires Buccino & Associates as Financial Advisors ------------------------------------------------------------------ Universal Access Global Holdings, Inc., and its debtor-affiliates ask the U.S. Bankruptcy Court for the Northern District of Illinois for permission to employ Buccino & Associates, Inc., as their financial advisors and consultants. The Debtors tell the Court that in the reorganization process, they need the expertise of Buccino & Associates as a turnaround and crisis management firm. Buccino & Associates has gained familiarity with the Debtors' businesses due to their prepetition business dealings. Buccino & Associates is expected to: a) assist the Debtors regarding the evaluation of the present level of operations and identification of areas of potential cost savings, including overhead and operating expense reduction and efficiency improvements; b) assist the Debtors in the preparation of financial related disclosures required by the Court, including the Schedules of Assets and Liabilities, the Statement of Financial affairs and Monthly Operating Reports; b) assist the Debtors in developing accounting and operating procedures to segregate pre-petition and post-petition business transactions; c) assist the Debtors with the identification and implementation of short-term cash management procedures; d) assist and advice the Debtors with respect to the identification of core business assets and the disposition of assets or liquidation of unprofitable assets and other operations; e) provide assistance with implementation of court orders; f) assist with the identification of executory contracts and leases and performance of cost/benefit evaluations with respect to the affirmation or rejection of each; g) assist in the preparation of financial information for distribution to creditors and others, including, but not limited to, cash receipts and disbursement analysis, analysis of various asset and liability accounts, and analysis of proposed transactions for which Court approval is sought; h) attend at meetings and support for other professional advisors in discussions with potential investors, any unsecured creditors' committee appointed in these chapter 11 cases, the U.S. Trustee, other parties in interest and professionals hired by the sane, as requested; i) assist the Debtors in claims processing, analysis and reporting, including plan classification modeling and claim estimation; j) give analysis of creditor claims by type, entity and individual claim, including assistance with development of a database to track such claims; k) assist in the preparation of information and analysis necessary for the confirmation of a Plan of Reorganization in these chapter 11 cases; l) assist in the evaluation and analysis of avoidance actions, including fraudulent conveyances and preferential transfers; m) provide testimony on various matters as required; n) provide such other financial advisory and claims management services consistent with Buccino & Associates' role in this matter as may be required or requested by the Debtors or their counsel; and o) render such other general business consulting or such other assistance as Debtors' management or counsel may deem necessary that are not duplicative of services provided by other professionals in this proceeding. Buccino & Associates will bill the Debtors at the Firm's current hourly rates: Professionals Hourly Rate ------------- ----------- Gerald Buccino $525 Senior Vice Presidents $400 Vice Presidents $350 Senior Consultants $300 Consultants $250 Headquartered in Chicago, Illinois, Universal Access -- http://www.universalaccess.com/-- provides network infrastructure services and facilitates the buying and selling of capacity on communications networks. The company, and its affiliates, filed for a chapter 11 protection on August 4, 2004 (Bankr. N.D. Ill. Case No. 04-28747). John Collen, Esq., and Rosanne Ciambrone, Esq., at Duane Morris LLC, represent the Company. When the Debtor filed for protection from its creditors, it listed $22,047,000 in total assets and $24,054,000 in total debts. UNIVERSAL ACCESS: Hires Shefsky & Froelich as Special Counsel ------------------------------------------------------------- Universal Access Global Holdings, Inc., and its debtor-affiliates, ask the U.S. Bankruptcy Court for the Northern District of Illinois for permission to employ Shefsky & Froelich, Ltd., as special counsel. The Debtors require the legal services of Shefsky & Froelich on matters concerning securities. The firm has represented the company since 1997 in a variety of matters including general corporate and securities law. Shefsky & Froelich professionals primarily responsible for handling this case are Cezar M. Froelich, Esq., billing $640 per hour, and Kimberly Copp, Esq., billing $315 per hour. The Firm discloses that these Shefsky & Froelich lawyers own shares in Universal Access: Name Position No. of Shares ---- -------- ------------- Richard T. Ingram Counsel 152 Lawrence M. Kern Shareholder 50 Michael J. Choate Shareholder 25 Paul T. Jenson Associate 13 Thomas R. Pappas Associate 12 Kathryn K. Arnold Shareholder 9 Jeremy Stonehill Associate 5 Headquartered in Chicago, Illinois, Universal Access -- http://www.universalaccess.com/-- provides network infrastructure services and facilitates the buying and selling of capacity on communications networks. The company, and its affiliates, filed for a chapter 11 protection on August 4, 2004 (Bankr. N.D. Ill. Case No. 04-28747). John Collen, Esq., and Rosanne Ciambrone, Esq., at Duane Morris LLC, represent the Company. When the Debtor filed for protection from its creditors, it listed $22,047,000 in total assets and $24,054,000 in total debts. US AIRWAYS: Transfers $18 Million WestLB Claim to Wilmington Trust ------------------------------------------------------------------ WestLB AG, formerly known as Westdeutsche Landesbank Girozentrale, filed Claim No. 2846 in an unliquidated amount against US Airways and its debtor-affiliates. The Debtors objected to the Claim and WestLB responded. Wilmington Trust Company, as Collateral Agent, also asserted an interest in Claim No. 2846. Wilmington alleges that it is subrogated to the rights of WestLB under Claim No. 2846. In a stipulation, the parties agree that Claim No. 2846 is allowed as a Class USAI-7 General Unsecured Claim for $18,000,000. Claim No. 2846 is deemed transferred from WestLB to Wilmington. All distributions relating to Claim No. 2846 will be directed to Wilmington. The Reorganized Debtors have no obligation to make any distribution to WestLB based on Claim No. 2846. WestLB withdraws its response and request for a hearing. All other claims by WestLB or Wilmington relating to Claim No. 2846, including any claims related to aircraft with Tail Nos. N625VJ, N626AU, N627AU, N628AU, N629AU, N630AU, N631AU, N632AU and N633AU, are withdrawn. (US Airways Bankruptcy News, Issue No. 59; Bankruptcy Creditors' Service, Inc., 215/945-7000) U.S. PLASTIC: First Creditors Meeting Slated for September 1 ------------------------------------------------------------ The United States Trustee for Region 21 will convene a meeting of U.S. Plastic Lumber Corp.'s creditors at 2:00 p.m., on September 1, 2004, in Room 101 at 330 Clematis Street in Palm Beach, Florida. This is the first meeting of creditors required under 11 U.S.C. Sec. 341(a) in all bankruptcy cases. All creditors are invited, but not required, to attend. This Meeting of Creditors offers the one opportunity in a bankruptcy proceeding for creditors to question a responsible office of the Debtor under oath about the company's financial affairs and operations that would be of interest to the general body of creditors. Headquartered in Boca Raton, Florida, U.S. Plastic -- http://www.usplasticlumber.com/-- manufactures plastic lumber and is the technology leader in the industry. The Company filed for a chapter 11 protection on July 23, 2004 (Bankr. S.D. Fla. Case No. 04-33579). Stephen R. Leslie, Esq., at Stichter, Riedel, Blain & Prosser, P.A., represents the Debtor in its restructuring efforts. When the Debtor filed for protection it listed $78,557,000 in total assets and $48,090,000 in total debts. USG CORP: Trade Creditors Sell 81 Claims Totaling $1,292,758 ------------------------------------------------------------ Between June 1 and August 6, 2004, the U.S. Bankruptcy Clerk for the District of Delaware recorded 81 claim transfers aggregating $1,292,758. Contrarian Funds, LLC, bought 13 claims totaling $534,588. Amroc Investments, LLC, purchased 18 claims aggregating $383,909. Sierra Nevada Liquidity Fund went home with 11 claims totaling $154,028 and Stark Event Trading, Ltd., acquired two claims totaling $116,514. Portia Partners, LLC, purchased 33 claims aggregating $67,066, and Debt Acquisition Company of America V, LLC, bought three claims totaling $35,326. Sur Seal's $1,327 claim was sold to Fair Harbor Capital, LLC. Claim Original Claimant Amount Transferee ----------------- ------ ---------- Construction Systems $10,237 Contrarian Funds Construction Systems 23,884 Contrarian Funds Construction Systems 23,884 Contrarian Funds Innomation, Inc. 134,001 Contrarian Funds J.M. Huber Corporation $198,087 Contrarian Funds J.M. Huber Corporation 61,382 Contrarian Funds J.M. Huber Corporation 0 Contrarian Funds Paragon Pacific Insulation 2,220 Contrarian Funds Specialty Products & Insulation 24,031 Contrarian Funds Specialty Products & Insulation 298 Contrarian Funds Specialty Products & Insulation 155 Contrarian Funds Specialty Products & Insulation 1,907 Contrarian Funds Specialty Products & Insulation 54,502 Contrarian Funds Cline Energy 5,267 Amroc Investments Darlington Professional Resources 1,046 Amroc Investments Delta Star, Inc. 5,056 Amroc Investments Design & Shapes in Steel 6,456 Amroc Investments Design & Shapes in Steel 1,418 Amroc Investments Design & Shapes in Steel 5,685 Amroc Investments Huebsch 1,195 Amroc Investments Inline Distributing Co. 155,696 Amroc Investments Letter Shop 3,980 Amroc Investments Marriott's Lincolnshire Resort 9,152 Amroc Investments Milwaukee Electric Tool 2,536 Amroc Investments Overnite Transportation Company 3,243 Amroc Investments Piranha Sales & Products 1,668 Amroc Investments Sloss Industries Corporation 145,808 Amroc Investments US Silica 16,480 Amroc Investments US Silica 8,839 Amroc Investments Volume Transportation 2,500 Amroc Investments Wallace Montgomery & Associates 7,884 Amroc Investments Acme Dynamics, Inc. 5,269 Sierra Nevada Chemical Solvents, Inc. 11,268 Sierra Nevada Fluid Machinery, Inc. 5,151 Sierra Nevada Freeman & Sons Trucking, Inc. 5,383 Sierra Nevada Henkel Surface Technologies 34,019 Sierra Nevada ITS Enclosures 9,476 Sierra Nevada Jimco Products, Inc. 1,811 Sierra Nevada Petro's Lawn Services 9,274 Sierra Nevada Propane Services 9,478 Sierra Nevada Scott Wood Products Company 51,358 Sierra Nevada Southern Parts & Engineering Co. 11,541 Sierra Nevada Fil-More Express, Inc. 53,718 Stark Event Trading Municipal Water Authority 62,796 Stark Event Trading A. Pal King Co, Inc. 4,183 Portia Partners ABC Fire Extinguishing Service 2,005 Portia Partners Barry Personnel Resources, Inc. 1,618 Portia Partners Barry Personnel Resource, Inc. 1,498 Portia Partners Blastmaster Industries 1,191 Portia Partners City of St. George Utility 1,283 Portia Partners Clad-Rex, Inc. 3,700 Portia Partners Commercial Billing Service 1,598 Portia Partners Conti Materials 1,158 Portia Partners D & D Enterprises 1,290 Portia Partners D & D Enterprises 1,290 Portia Partners Demello Truck Body & Trai 1,379 Portia Partners Digital Freedom 2,022 Portia Partners DRW Machines, Inc. 1,446 Portia Partners Equipment, Inc. 1,774 Portia Partners General Mill Supply, Inc. 4,652 Portia Partners Gill Glass 1,400 Portia Partners Hoekstra & Sons, Inc. 1,590 Portia Partners Hunter, Maclean, Exley & Dunn P.C. 1,274 Portia Partners Krohne, Inc. 1,733 Portia Partners Marine Specialty Company, Inc. 3,787 Portia Partners Mayfield Manufacturing Co. 1,274 Portia Partners Mike Irvin 1,210 Portia Partners Mike Irvin 1,210 Portia Partners Nesco Manufacturing 1,309 Portia Partners North American Products Corp. 4,498 Portia Partners Reichen/Brub 1,685 Portia Partners Richor, Inc. 3,848 Portia Partners Salt City Sales Corp. 1,736 Portia Partners Sam A. Mesher Tool Co. 2,731 Portia Partners Signs Now of Greenville 1,342 Portia Partners Southwest Engineers 2,893 Portia Partners Turner, Padget, Graham, Laney, PA 1,459 Portia Partners Peirco, Inc. 1,365 Debt Acquisition Venture Supply, Inc. 33,683 Debt Acquisition Wagner Industries, Inc. 278 Debt Acquisition Sur Seal 1,327 Fair Harbor Headquartered in Chicago, Illinois, USG Corporation -- http://www.usg.com/-- through its subsidiaries, is a leading manufacturer and distributor of building materials producing a wide range of products for use in new residential, new nonresidential and repair and remodel construction, as well as products used in certain industrial processes. The Company filed for chapter 11 protection on June 25, 2001 (Bankr. Del. Case No. 01-02094). David G. Heiman, Esq., and Paul E. Harner, Esq., at Jones, Day, Reavis & Pogue represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $3,252,000,000 in assets and $2,739,000,000 in debts. (USG Bankruptcy News, Issue No. 70; Bankruptcy Creditors' Service, Inc., 215/945-7000) VERIDICOM INT'L: Deficits Raise Going Concern Doubt --------------------------------------------------- Veridicom International Inc.'s financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred a net loss of $764,884 during the three month period ended March 31, 2004 and has a working capital deficit and a stockholder deficit, which raises substantial doubt about its ability to continue as a going concern. The Company is currently devoting its efforts to raising additional capital and investigating potential merger candidates. The Company's ability to continue as a going concern is dependent upon its ability to develop additional sources of capital, and ultimately, achieve profitable operations. The Company officially changed its name from Alpha Virtual, Inc. to Veridicom International, Inc. on February 23, 2004. Following the name change, shares of its common stock are traded under the symbol "VRDI" on the OTC Bulletin Board. On April 16, 2004, Messrs. Al-Zarooni and Mirza resigned from the Board of Directors. Management indicates that the Company currently has sufficient funds on hand to fund its operations for the next quarter. It will need to raise financing in the future to fund its operations. If successful in raising additional financing, the Company may not be able to do so on terms that are not excessively dilutive to its existing stockholders or less costly than existing sources of financing. Failure to secure additional financing in a timely manner and on favorable terms if, and when, needed in the future could have a material adverse effect on Veridicom's financial performance, balance sheet and stock price and require the Company to implement cost reduction initiatives and curtail operations. WESTPOINT: BofA Objects to Key Employee Retention Plan Extension ---------------------------------------------------------------- WestPoint Stevens Inc. asked the U.S. Bankruptcy Court for the Southern District of New York to approve an extension of its Key Employee Retention Plan, as modified. John J. Rapisardi, Esq., at Weil, Gotshal & Manges, LLP, in New York, relates that the performance-based incentive program under the KERP only provided calculations through the end of the first quarter of 2004. In light of the continued pendency of their Chapter 11 cases, the Debtors have calculated incentive payments through December 2004 in accordance with their 2004 budget. New target metrics are also being implemented to correspond with the Debtors' 2004 Budget: EBITDA Target Levels/Goals Period Ending Minimum Target Maximum ------------- ------- ------ ------- 06/30/2004 $25,112 $29,543 $35,452 09/30/2004 32,513 38,251 45,901 12/31/2004 30,465 35,841 43,009 Cash Availability Target Levels/Goals Period Ending Minimum Target Maximum ------------- ------- ------ ------- 06/30/2004 $100,467 $118,197 $141,836 09/30/2004 68,917 81,079 97,295 12/31/2004 104,701 123,178 147,814 The proposed EBIDTA and Cash Availability metrics are principally based on the corresponding targets contained in the 2004 Budget but have been adjusted to reflect the estimated costs of the continuation of the Chapter 11 cases through the end of 2004. Bank of America Objects Bank of America, N.A., as administrative and collateral agent for the Bank Group, told the Debtors that the Bank Group would support an extension of the Original KERP to cover the second quarter of 2004, using the same targets established in the 2003 Business Plan and the same structure of deferring half of the earned compensation until confirmation. Bank of America and the Bank Group also suggested that, for subsequent quarters, the August 2004 business plan should be a reference point by which the targets for incentive compensation are established, and that they would agree to use the new business plan to craft a new KERP following the same structure as the Original KERP. The Debtors flatly refused, insisting that the New KERP targets be accepted now, in the absence of any business plan, and that none of the compensation be deferred until confirmation. Bank of America and the Bank Group firmly believe that all relevant considerations weigh against approval of the New KERP in its present form and at the current time because: (a) Unlike the Original KERP, the New KERP provides no incentive for the key employees to obtain confirmation of a reorganization plan. The Debtors provide no compelling argument for modifying the structure of the Original KERP, which required that half of the earned compensation be deferred until confirmation of a plan; (b) Unlike the Original KERP, the target levels for EBITDA and borrowing availability are wholly divorced from any of the Debtors' continuing business plan. It is impossible to discern how the target levels for EBITDA and borrowing availability under the New KERP will relate to the financial projections in the new August 2004 business plan. The Debtors did not provide compelling reason why consideration of an extended KERP cannot wait until the August 2004 business plan is completed, so that the EBITDA and availability targets can be evaluated in the Debtors' framework for a viable reorganization; (c) The Debtors did not explain why the targeted levels for EBITDA in the New KERP should be substantially lower by 9.6% than the projected levels of EBITDA established in the 2003 Business Plan. By lowering the target levels, and only requiring 85% of the target to be achieved for management to receive the incentive compensation, the New KERP seems designed to award management for substantial underperformance; (d) The Debtors did not justify awarding incentive compensation based on levels of borrowing availability, which, for the third quarter of 2004, are within the vicinity of a critical covenant default under their DIP facility; (e) The Debtors did not substantiate the fear that failure to approve the New KERP now will lead to the imminent departure of key employees. To the contrary, the Debtors have operated without any KERP for the entire second quarter of 2004, and the Debtors have not raised with the Court, or with the Bank Group, any concerns over their loss of critical personnel during this period; and (f) The Debtors argue that the "costs associated with the New KERP will . . . not exceed $4,503,000 per quarter," for a total cap of $13.5 million for three quarters. The $13.5 million cap is in addition to the $10 million of incentive compensation already provided for the same employees. The Debtors also pointed out that a "Group 2" employee would receive a bonus equal to 50% of his or her base salary merely for achieving the targets that management itself has established in the absence of a business plan. A Group 1A employee receives a bonus equal to 100% of his base salary merely for making management's own status quo budget. Bank of America believes that the amounts are inappropriate in the absence of evidence substantiating significant employee attrition, especially considering the troubled industry in which the Debtors operate. Richard D. Feintuch, Esq., at Wachtell, Lipton, Rosen & Katz, in New York, argues that the Debtors' New KERP proposal is not fair and reasonable. Bank of America asks the Court to defer consideration of the structure, performance targets, and amounts of the proposed incentive compensation until they can be evaluated in the larger context of the Debtors' August 2004 business plan. Debtors Respond John J. Rapisardi, Esq., at Weil, Gotshal & Manges, LLP, in New York, contends that the First Lien Lenders offer no meaningful rationale on why the Court should second-guess the Debtors' business judgment and replace it with their own. The First Lien Lenders' assertion that the Court should wait until the 2004-2009 Business Plan is complete before authorizing a KERP extension ignores the detrimental impact on employee morale if the Debtors are forced to operate without a KERP for over four months. Taking into account a sufficient period of time to allow the First Lien Lenders to perform their own diligence and subsequent negotiations over the KERP targets, a revised KERP Program will not be presented to the Court until October. It is important to remember that the KERP Program is not just a retention program -- it is also an incentive plan, Mr. Rapisardi asserts. To operate without an incentive plan would create tremendous uncertainty for the Debtors' employee base, putting the business at great risk. Contrary to the First Lien Lenders' assertions, 17 managers have already left the company during the pendency of the Chapter 11 cases. The Debtors cannot afford to increase the risk of losing any more of their key personnel. In addition, the 2004-2009 Business Plan could require the KERP targets be further adjusted downward. The First Lien Lenders' contention that the Debtors can continue to make payments based on the 2003 business plan is not an adequate solution. The entire purpose of a KERP is to provide clear incentives that employees can work towards. It defeats the purpose of having in place an incentive program if employees get paid in the absence of set targets or goals. Because the 2003 Business Plan does not account for a substantial increase in the price of raw materials, the target levels are inadequate. The 2003 Business Plan is no longer accurate and cannot form the basis of a makeshift KERP extension. Mr. Rapisardi clarifies that the Debtors are not requesting approval of a New KERP. The Debtors are only requesting an extension of the existing KERP targets, which expired at the end of March. Nothing else has changed. The payout structure, where 50% is paid currently and 50% deferred until emergence, remains the same as do the payout percentages previously approved by the Court. All the Debtors are asking for is an extension of the current program through December 2004. Accordingly, the Debtors ask the Court to overrule the First Lien Lenders' objection. Headquartered in West Point, Georgia, WestPoint Stevens, Inc., -- http://www.westpointstevens.com/-- is the #1 US maker of bed linens and bath towels and also makes comforters, blankets, pillows, table covers, and window trimmings. It makes the Martex, Utica, Stevens, Lady Pepperell, Grand Patrician, and Vellux brands, as well as the Martha Stewart bed and bath lines; other licensed brands include Ralph Lauren, Disney, and Joe Boxer. Department stores, mass retailers, and bed and bath stores are its main customers. (Federated, J.C. Penney, Kmart, Sears, and Target account for more than half of sales.) It also has nearly 60 outlet stores. Chairman and CEO Holcombe Green controls 8% of WestPoint Stevens. The Company filed for chapter 11 protection on June 1, 2003 (Bankr. S.D.N.Y. Case No. 03-13532). John J. Rapisardi, Esq., at Weil, Gotshal & Manges, LLP, represents the Debtors in their restructuring efforts. (WestPoint Bankruptcy News, Issue No. 26; Bankruptcy Creditors' Service, Inc., 215/945-7000) ZI CORPORATION: Names Donald P. Moore to Board of Directors ----------------------------------------------------------- Zi Corporation (Nasdaq:ZICA) (TSX:ZIC), a leading provider of intelligent interface solutions, has appointed Donald P. Moore, 41, to serve as a director on Zi's Board. This appointment increases the size of the Board to eight members. Mr. Moore is a shareholder of Fowler White Burnett P.A., one of Florida's largest and most prestigious law firms. Prior to joining Fowler White Burnett, Mr. Moore was President of Rebelyon Capital & Management (1996-2002); in-house counsel to Miami-based Ryder System, Inc., a Fortune 500 provider of leading-edge transportation, logistics and supply chain management solutions worldwide (1992-1996) and a corporate securities lawyer with New York-based law firm Weil, Gotshall & Manges (1989-1992). Mr. Moore joins the Zi Board as part of the Company's previously announced agreement with the Lancer Entities. Chairman Michael Lobsinger commented, "Donald brings valuable financial and business experience to the Zi board. With his extensive business background, Donald will provide valuable new perspectives to Zi that will help the Company in achieving the next phase of its growth plans." Mr. Moore graduated Cum Laude from the University of Michigan Law School at Ann Arbor in 1989. He holds a master's of business administration degree with a major in international business from the University of Miami and a bachelor of arts degree with a major in political science from the University of Michigan at Ann Arbor. "I have been very impressed by the strong and steady progress Zi has demonstrated during several very difficult years for the technology sector," Mr. Moore said. "I am looking forward to the opportunity to contribute as a Board member and to help Zi continue on its impressive growth path." About Zi Corporation Zi Corporation -- http://www.zicorp.com/-- is a technology company that delivers intelligent interface solutions to enhance the user experience of wireless and consumer technologies. The company's intelligent predictive text interfaces, eZiTap and eZiText, allow users to personalize the device and simplify text entry providing consumers with easy interaction for short messaging, e-mail, e-commerce, Web browsing and similar applications in almost any written language. eZiNet(TM), Zi's new client/network based data indexing and retrieval solution, increases the usability for data-centric devices by reducing the number of key strokes required to access multiple types of data resident on a device, a network or both. Zi supports its strategic partners and customers from offices in Asia, Europe and North America. A publicly traded company, Zi Corporation is listed on the Nasdaq National Market (ZICA) and the Toronto Stock Exchange (ZIC). * * * Liquidity and Capital Resources In its Form 20-F for the fiscal year ended December 31, 2003, filed with the Securities and Exchange Commission, Zi Corporation reports: "While cash generated from operations and our existing cash resources are adequate to meet our current liquidity needs, we have been evaluating potential acquisitions and expansion opportunities, which, if successful, will require additional capital. We have been engaged in discussions with investment banking firms and institutional investors regarding potential financing. Our financing efforts to date have been hampered by the investment community's concern over the potential impact on our company of the substantial ownership of our shares by the receiver for the Lancer group of funds. While we have been in discussions with the receiver and his advisors to reach an agreement to ameliorate these concerns, there can be no assurance that we will be able to reach such an agreement or that we will be able to attract needed growth capital on acceptable terms." * Large Companies with Insolvent Balance Sheets ----------------------------------------------- Total Shareholders Total Working Equity Assets Capital Company Ticker ($MM) ($MM) ($MM) ------- ------ ------------ ------- -------- Airgate PCS PCSA (377) 291 13 Alliance Imaging AIQ (68) 628 20 Akamai Technologies AKAM (175) 279 140 Amazon.com AMZN (1,036) 2,162 568 Bally Total Fitness BFT (158) 1,453 (284) Centennial Comm CYCL (579) 1,447 (99) Choice Hotels CHH (118) 267 (42) Cincinnati Bell CBB (640) 2,074 (47) Deluxe Corp DLX (298) 563 (309) Domino Pizza DPZ (718) 448 (1) Echostar Comm DISH (1,033) 7,585 1,601 Graftech International GTI (97) 967 94 Hawaian Holdings HA (143) 256 (114) Idenix Pharm IDIX (28) 67 30 Imax Corporation IMAX (52) 250 47 Kinetic Concepts KCI (246) 665 228 Maxxam INC MXM (602) 1,061 127 Millennium Chem. MCH (46) 2,398 637 McDermott International MDR (363) 1,249 (24) McMoRan Exploration MMR (54) 169 83 Northwest Airlines NWAC (1,775) 14,154 (297) Nextel Partner NXTP (13) 1,889 277 ON Semiconductor ONNN (499) 1,161 213 Pinnacle Airline PNCL (48) 128 13 Quality Distributors QLTY (19) 372 7 Rightnow Tech. RNOW (13) 29 (9) Sepracor Inc SEPR (619) 1,020 256 St. John Knits Int'l SJKI (65) 234 69 UST Inc. UST (115) 1,726 727 Vector Group Ltd. VGR (3) 628 142 ********* Monday's edition of the TCR delivers a list of indicative prices for bond issues that reportedly trade well below par. Prices are obtained by TCR editors from a variety of outside sources during the prior week we think are reliable. Those sources may not, however, be complete or accurate. The Monday Bond Pricing table is compiled on the Friday prior to publication. Prices reported are not intended to reflect actual trades. Prices for actual trades are probably different. 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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., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Frederick, Maryland USA. Yvonne L. Metzler, Emi Rose S.R. Parcon, Bernadette C. de Roda, Rizande B. Delos Santos, Jazel P. Laureno, Cherry Soriano-Baaclo, Marjorie Sabijon and Peter A. Chapman, Editors. Copyright 2004. 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. 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