================================================================= AMES BANKRUPTCY NEWS Issue Number 1 ----------------------------------------------------------------- Copyright 2001 (ISSN XXXX-XXXX) August 21, 2001 ----------------------------------------------------------------- Bankruptcy Creditors' Service, Inc. 609-392-0900 FAX 609-392-0040 ----------------------------------------------------------------- AMES BANKRUPTCY NEWS is published by Bankruptcy Creditors' Service, Inc., 24 Perdicaris Place, Trenton, New Jersey 08618, On an ad hoc basis (generally every 10 to 20 days) as significant activity occurs in the Debtors' cases. Each issue is prepared by Peter A. Chapman, Editor. Subscription rate is US$45 per issue. Copying and re-mailing of AMES BANKRUPTCY NEWS is prohibited. ================================================================= IN THIS ISSUE ------------- [00000] HOW TO ORDER A SUBSCRIPTION TO AMES BANKRUPTCY NEWS [00001] BACKGROUND & DESCRIPTION OF AMES DEPARTMENT STORES, INC. [00002] AMES' CONSOLIDATED BALANCE SHEET AT MAY 5, 2001 [00003] COMPANY'S PRESS RELEASE CONCERNING CHAPTER 11 FILING [00004] AMES DEBTORS' CHAPTER 11 DATABASE [00005] CONSOLIDATED LIST OF AMES' 20-LARGEST UNSECURED CREDITORS [00006] DEBTORS' MOTION TO RESTRICT DEBT TRADING TO PRESERVE NOLs KEY DATE CALENDAR ----------------- 08/20/01 Voluntary Petition Date 09/04/01 Deadline for filing Schedules of Assets and Liabilities 09/04/01 Deadline for filing Statement of Financial Affairs 09/04/01 Deadline for filing Lists of Leases and Contracts 09/09/01 Deadline to provide Utilities with adequate assurance 10/19/01 Deadline to make decisions about lease dispositions 11/18/01 Deadline to remove actions pursuant to F.R.B.P. 9027 12/18/01 Expiration of Debtors' Exclusive Plan Proposal Period 02/16/02 Expiration of Debtors' Exclusive Solicitation Period 08/__/03 Commitment Termination Date for GECC DIP Financing Pact 08/19/03 Deadline for Debtors' Commencement of Avoidance Actions Organizational Meeting with UST to form Committees Bar Date for filing Proofs of Claim First Meeting of Creditors pursuant to 11 USC Sec. 341 ----------------------------------------------------------------- [00000] HOW TO ORDER A SUBSCRIPTION TO AMES BANKRUPTCY NEWS ----------------------------------------------------------------- AMES BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. 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Name: ---------------------------------------------- Firm: ---------------------------------------------- Address: ---------------------------------------------- ---------------------------------------------- Phone: ---------------------------------------------- Fax: ---------------------------------------------- E-Mail: ---------------------------------------------- ----------------------------------------------------------------- [00001] BACKGROUND & DESCRIPTION OF AMES DEPARTMENT STORES, INC. ----------------------------------------------------------------- Ames Department Stores, Inc. 2418 Main St. Rocky Hill, CT 06067 Telephone (860) 257-2000 Fax (860) 257-2198 http://www.AmesStores.com Ames Department Stores, Inc. (NASDAQ: AMES), is a publicly held company and defines itself as the largest regional discount retailer in the United States. Through its subsidiaries, Ames currently operates 452 stores in 19 contiguous states in the Northeast, Midwest, and Mid-Atlantic regions, as well as in the District of Columbia. Ames' stores offer a wide range of both brand name and other quality merchandise for the home and family at prices below those of conventional department stores and specialty retailers, in three major categories: * home lines (e.g., crafts, furniture, linens, home entertainment products, housewares, and small appliances), * softlines (e.g., jewelry and apparel for women, men, and children), and * hardlines (e.g., health and beauty care products, toys, stationery, gift wrap, and holiday decorations). In addition, all stores include a shoe department operated by an independent licensee. Ames' customers typically have an average annual household income between $25,000 and $40,000 and consist primarily of working women with families and senior citizens. Ames' merchandise offerings, prices, store design, and focus on customer service are targeted "to meet the needs of these cost-conscious customers," the Company says, "who . . . are generally underserved by other large discount retailers." Ames employs a "high/low" pricing strategy (i.e., offering greater discounts on selected items or categories of merchandise in order to attract customers, while maintaining ordinary discount prices on all other merchandise), supplemented by weekly advertising circulars and recurring promotional programs. Ames currently employ approximately 29,700 workers -- 26,500 employees work in various capacities in the retail stores, 2,200 employees work in the Company's distribution centers, and 1,000 employees work in the corporate and regional offices. With the exception of 1,400 persons currently employed in distribution centers, none of the Company's employees are covered by collective bargaining agreements. For the fiscal year ended February 3, 2001, net sales approximated $3,953,600,000. As of August 4, 2001, the Company discloses, Ames' books and records reflected assets totaling approximately $1,901,573,000 and liabilities totaling approximately $1,558,410,000. Events Leading To Ames Chapter 11 Filings In its first-day papers delivered to the Bankruptcy Court, Ames says that "prevailing market (and recessionary) conditions in the United States have precipitated a broad decline in the retail sector . . . [arising] from a confluence of socioeconomic factors affecting consumers' disposable income, including fluctuating interest rates, previously soaring (but currently receding) energy prices, and widespread corporate and manufacturing layoffs. These socioeconomic effects have had a particularly acute impact on the Debtors' business, as the Debtors' core lower-income customers tend to be most affected by recessionary forces and market downturns." Rolando de Aguiar, Ames' Chief Financial and Administrative Officer, relates that Ames has improved its margin performance over last year and has identified the 47 stores and debt needed to be eliminated. While the Debtors' business plan has proved very successful for many years, and despite their strong market standing and well-recognized brand name, Mr. de Aguiar says, the Debtors have been unable to obtain the immediate financing that would enable them to maintain an adequate supply of inventory. The Debtors' business is seasonal in nature. Historically, net sales are highest in the last fiscal quarter (representing 34% of the Debtors' net sales in the past fiscal ear). Accordingly, the demand for working capital is heaviest in the period beginning in August and extending through November, when sufficient merchandise must be purchased for the Fall and Christmas seasons. "As a result of its inability to obtain necessary third party financing, the Debtors were forced to commence these chapter 11 cases to protect their valuable retail franchise. The respective boards of directors of the Debtors determined that the commencement of chapter 11 cases would be in the best interests of each of the Debtors and their constituencies. In continuing to operate in chapter 11, the Debtors fully expect they will be able to maintain strong relationships with their vendors, obtain new merchandise, and service their dedicated customer base," the Company says. Where Ames Sees These Cases Going Mr. de Aguiar stresses that Ames has developed a well-known and respected brand name in the sector in which it operates. Notwithstanding the cash flow problems the Debtors have encountered over recent months, the Debtors believe their business strategy and future prospects remain fundamentally strong. Elimination of debt incurred subsequent to the Hills acquisition and the rejection of unprofitable leases will by themselves significantly improve the Debtors' operating results. In November 2000, the Debtors launched an intensive internal initiative focused on improving cash flow and streamlining operations. The results of those efforts are only now becoming evident. In fact, despite the negative retail environment facing the Debtors, a close analysis of the Debtors' recent operating results demonstrates the fundamentally sound nature of the Debtors' business model and operations framework. The Debtors' gross margins have improved, and even exceeded those of last year. The Debtors have also succeeded in curtailing expenses, with the Debtors' selling and general administrative expenses consistently trailing those of last year. To implement the restructuring and reorganization of the Debtors' businesses, while minimizing the adverse effects of a general contraction in credit and other negative factors, the protection of chapter 11 is essential to the preservation and enhancement of the Debtors' businesses, their employees, the communities in which they maintain and operate facilities, and the protection of all parties in interest. The Debtors will be filing motions to approve the rejection of certain burdensome leases pursuant to section 365 of the Bankruptcy Code and to establish procedures to conduct Store Closing Sales with respect to certain of the Debtors' underperforming stores. In the last quarter of fiscal year 2000 and the first quarter of fiscal year 2001, the Debtors completed the planned closing of thirty-two stores. With the exception of a single location, all of these closed stores were underperforming locations acquired as part of the Hills acquisition. In connection with the store closings, the Debtors recorded a charge of $139.3 million, of which $88.8 million represented continuing lease obligations. The Debtors are now seeking to reject those of these leases that have not already been terminated to relieve their estates of these substantial obligations arising from properties no longer occupied or operated by the Debtors. Furthermore, in the continued recessionary environment, certain of the Debtors' existing stores have failed to meet sales expectations and have had a negative effect on the Debtors' financial performance. On August 16, 2001, the Debtors announced the closing of 47 such store locations. In connection with these store closings, on August 15, 2001, the Debtors entered into an Agency Agreement with The Nassi Group, LLC. The Debtors will seek the Court's approval of the assumption of the Agreement and are requesting authority to conduct "going out of business" sales at these locations. The availability of relief under sections 363 and 365 of the Bankruptcy Code will enable the Debtors to eliminate these burdensome obligations and improve their prospects for an effective and successful reorganization. Considering the strong brand name and customer loyalty that the Debtors have cultivated and maintained and the existence of a remaining cash flow positive store base, the Debtors' prospects for a successful reorganization are high, Mr. de Aguiar is convinced. The Debtors' improved gross margins and reduced expenses demonstrate their ability to compete in a highly competitive and fragmented retail environment, despite weakened consumer spending and generally negative economic conditions. By eliminating the debt incurred subsequent to the Hills acquisition and rejecting the Debtors' unprofitable leases, the Debtors will be well positioned to confirm a consensual chapter 11 plan and rapidly emerge from the protection of the bankruptcy courts. Over the next month, the Debtors project negative cash flow: Ames Department Stores, Inc., et al. Cash Flow Projections 34 Days Ending September 22, 2001 Inflows Receipts from Sales $245,600,000 Sales Tax Collected 10,200,000 ------------ Total Inflow $255,800,000 ------------ Outflows Merchandise Payments $116,200,000 Import Wires 43,600,000 Sales Tax Payments 8,000,000 Shoes Payments 8,800,000 Net Payroll 32,500,000 Payroll Taxes 12,000,000 Benefits (401k - medical) 8,200,000 Advertising 11,500,000 Insurances 3,600,000 Outside Services 8,500,000 Utilities 6,000,000 Repairs and Maintenance 1,700,000 Cleaning 1,600,000 Supplies 1,600,000 Travel 600,000 Telecommunications 800,000 Credit Card Fees 2,100,000 Other Taxes 7,400,000 Rents 11,000,000 Rental Equipment 1,000,000 Freight 13,500,000 Other Administrative Expenses 5,000,000 Financing Fees 13,000,000 Interest 3,800,000 Professional Fees 2,000,000 ------------ Total Outflows $324,000,000 ------------ Net Cash Flow ($68,200,000) ============ The Company's liquidity problems are solved, Mr. Aguiar suggests, by the debtor in possession financing facilities arranged by General Electric Capital Corporation and Kimco Funding, LLC. The Debtors believe that the availability these facilities will assure prompt payment of their ongoing obligations to their employees and vendors, as well as sufficient liquidity for operating flexibility. The Debtors further believe that, with the protections afforded by chapter 11, they will be able to continue the restructuring of their operations, propose and confirm a chapter 11 plan, and emerge from chapter 11 as a viable business enterprise. ---------------------------------------------------------------- [00002] AMES' CONSOLIDATED BALANCE SHEET AT MAY 5, 2001 ----------------------------------------------------------------- AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS At May 5, 2001 ASSETS Current Assets: Cash and cash equivalents $44,440,000 Receivables 34,877,000 Merchandise inventories 837,476,000 Deferred taxes, net 34,768,000 Prepaid expenses and other current assets 31,053,000 -------------- Total current assets 982,614,000 -------------- Fixed Assets 715,386,000 Less - Accumulated depreciation and amortization (221,366,000) -------------- Net fixed assets 494,020,000 -------------- Other assets and deferred charges 70,685,000 Deferred taxes, net 411,891,000 Beneficial lease rights, net 40,469,000 Goodwill, net 57,837,000 -------------- $2,057,516,000 ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable: Trade $321,931,000 Other 70,934,000 -------------- Total accounts payable 392,865,000 -------------- Current portion of capital lease and financing obligations 19,018,000 Self-insurance reserves 29,225,000 Accrued expenses and other current liabilities 112,046,000 Store closing reserves 142,797,000 -------------- Total current liabilities 695,951,000 -------------- Long-term debt 804,552,000 Capital lease and financing obligations 133,963,000 Other long-term liabilities 43,284,000 Excess of revalued net assets over equity under fresh-start reporting 10,176,000 Stockholders' Equity: Preferred stock (3,000,000 shares authorized; no shares issued or outstanding at May 5, 2001; par value per share $.01) --- Common stock (40,000,000 shares authorized; 29,408,057, shares outstanding at May 5, 2001; par value per share $.01) 295,000 Additional paid-in capital 533,394,000 (Accumulated deficit) Retained earnings (163,177,000) Treasury stock (80,495 shares at May 5, 2001, at cost) (922,000) -------------- Total stockholders' equity 369,590,000 -------------- $2,057,516,000 ============== ----------------------------------------------------------------- [00003] COMPANY'S PRESS RELEASE CONCERNING CHAPTER 11 FILING ----------------------------------------------------------------- Ames Files for Voluntary Reorganization Under Chapter 11 in Move to Focus Resources and Ensure Future Success ROCKY HILL, Connecticut -- August 20, 2001 -- Ames Department Stores, Inc. (NASDAQ: AMES), announced today that it has filed for voluntary reorganization under Chapter 11 of the U.S. Bankruptcy Code in the Southern District of New York in order to focus resources on Ames' solid nucleus of stores and ensure the company's future success. Ames' base of more than 400 stores will remain open while the company operates in reorganization. Through those locations, Ames will continue to serve its customers, pay its employees, and reimburse suppliers on normal terms for merchandise delivered and services provided after the reorganization filing. Ames will also continue to make the needed investments in its operations in order to ensure its competitive position moving forward. Ames enters reorganization with two completed agreements for DIP (Debtor in Possession) credit facilities totaling $755 million, one with GE Capital for $700 million and one with Kimco Funding LLC for $55 million. These combined facilities, upon court approval, will provide for the Company's ongoing operations and for payment of post-petition receipt of merchandise. "After considering all available options, and in light of today's difficult economic climate, we have concluded that reorganization is the best course for Ames," said Ames chairman and chief executive officer, Joseph R. Ettore. "With the burden of our debt leverage and certain unprofitable leases removed, Ames will be better positioned to realize the strong potential of our solid base of over 400 stores." "Ames offers unique strengths and an effective strategy for growth that sets us apart from other discount retailers," Mr. Ettore continued. "Ames' ongoing stores have attained margins above last year's even in the recent economic downturn, employ a marketing strategy that targets a distinct customer base, and possess a clear business focus that allows us to coexist with larger retailers, because we offer a different shopping experience with our smaller, more convenient store size. We believe that these strengths will enable the company to continue to operate as the nation's number one regional discounter," he said. "We appreciate the support our vendors have shown us in the past and look to ensure that Ames remains a viable and important channel for vendors to reach the customer. The dedication and hard work of our associates is critical to our success, and for that I thank them. I -- along with my management team -- am committed to leading the company through this difficult time and towards a brighter future," Mr. Ettore concluded. Ames Department Stores, Inc., a FORTUNE 500(R) company, is the nation's largest regional, full-line discount retailer with annual sales of approximately $4 billion. With 452 stores in the Northeast, Mid-Atlantic and Mid-West, Ames offers value-conscious shoppers quality, name-brand products across a broad range of merchandise categories. For more information about Ames, visit http://www.amesstores.com or http://www.amesstores.com/espanol ----------------------------------------------------------------- [00004] AMES DEBTORS' CHAPTER 11 DATABASE ----------------------------------------------------------------- Lead Debtor: Ames Department Stores, Inc. dba Hills Stores 2418 Main Street Rocky Hill, CT 06067 Debtor affiliates filing separate chapter 11 petitions: Ames Merchandising Corporation Amesplace.com, Inc. Ames Realty II, Inc. Ames Transportation Systems, Inc. Type of Business: Ames Department Stores, Inc. is a regional discount retailer that, through its subsidiaries, currently operates 452 stores in nineteen states and the District of Columbia. Chapter 11 Petition Date: August 20, 2001 Court: Southern District of New York (Manhattan) Bankruptcy Case Nos.: 01-42217-reg through 01-42221 Judge: Robert E. Gerber Debtors' Counsel: Albert Togut, Esq. Frank A. Oswald, Esq. Togut, Segal & Segal LLP One Penn Plaza New York, NY 10119 (212) 594-5000 Email: frankoswald@teamtogut.com and Martin J. Bienenstock, Esq. Warren T. Buhle, Esq. Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153 Tel: 212-310-8530 Fax: 212-310-8007 Email: martin.bienenstock@weil.com Debtors' Restructuring Consultant: Holly Felder Etlin Deloitte Consulting LP Two World Financial Center New York, NY 10281-1414 U.S. Trustee: Carolyn S. Schwartz United States Trustee (Region 2) 33 Whitehall Street, 21st Floor New York, NY 10004 Phone: 212-510-0500 Fax: 212-668-2256 ----------------------------------------------------------------- [00005] CONSOLIDATED LIST OF AMES' 20-LARGEST UNSECURED CREDITORS ----------------------------------------------------------------- Entity Nature Of Claim Claim Amount ------ --------------- ------------ Chase National Corporate Indenture Trustee $200,000,000 Services Inc. for Ames 10% Senior Mary Lou Bessie Notes due 2006 Vice President 73 Tremont Street Boston, MA 02108-3913 (617) 557-6553 State Street Bank & Trust Indenture Trustee $43,605,000 Company for Hills 12.5% Paul Allen Senior Notes due 2003 Vice President Corporate Trust Division 4th floor Two International Place Boston, MA 02110 (617) 662-1730 Footstar, Inc. License Arrangement $8,900,000 Maureen Richards VP and General Counsel 933 MacArthur Blvd. Mahwah, NJ 07430 (201) 934-2344 Wrangler/VF Corp. Trade Debt $8,071,130 Roger Poplin P.O. Box 21488 Greensboro, NC 27420 (336) 332-4833 IBM Global Services, Inc. Computer Services $5,415,554 Sean Ryan Vice President Route 100 Somers, NY 10589 (914) 766-4680 Mattel Toys Inc. Trade Debt $5,350,201 (including Fisher Price) Kathleen Simpson-Taylor 333 Continental Blvd. El Segundo, CA 90245 (310) 252-4223 Newell/Rubbermaid Trade Debt $5,205,654 Rob Sandberg 1147 Akron Road Wooster, OH 44691 (815) 233-8133 Hasbro Trade Debt $5,100,121 Judy Smith Treasurer P.O. Box 1241 Providence, RI 02901 (401) 431-8106 Fruit of the Loom Trade Debt $4,467,973 Ed Weldon Credit Manager One Fruit of the Loom Dr. Bowling Green, KY 42102 (270) 781-6400 GMAC Commercial Trade Debt $3,602,254 Credit LLC Gene Cordiano, EVP 1 Penn Plaza 9th floor New York, NY 10119 (212) 884-7503 Sara Lee Knits Trade Debt $3,529,227 Grey Loggins Credit Manager 470 Hanes Mill Road Winston-Salem, NC 27105 (336) 519-5047 American Greetings Trade Debt $3,504,062 Corporation Vinnie Henniger Credit Manager 10500 American Road Cleveland, OH 44144 (216) 252-6704 The CIT Group/Commercial Trade Debt $3,480,636 David Bram, EVP 1211 Avenue of the Americas New York, NY 10036 (212) 382-6939 HSBC Business Credit Trade Debt $3,129,783 USA, Inc. Greg Gallo 452 5th Avenue New York, NY 10018 (212) 525-5101 Armstrong/RTA Furniture Trade Debt $3,083,384 (Thomasville) Paul Dascoli, CFO 401 E. Main Street P.O. Box 339 Thomasville, NC 27361 336) 472-4005 Rosenthal and Rosenthal, Trade Debt $3,029,896 Inc. Allan Spielman, EVP 1370 Broadway New York, NY 10018 (212) 356-1438 Sunbeam Trade Debt $2,724,185 Jerry Levin, CEO 2381 Executive Center Drive Boca Raton, FL 33431 (561) 243-2100 20th Century Fox Home Trade Debt $2,697,290 Entertainment Charles Austin 2121 Avenue of the Stars Los Angeles, CA 90067 (866) 306-6160 W E A Distribution Trade Debt $2,668,866 Yvonne Butler 1 Warner Court Bridgeport, CT 08014 (818) 843-6311 Arlee Home Fashions Trade Debt $2,282,135 Alan Mandell 261 5th Avenue 24th floor New York, NY 10016 (212) 592-8049 ----------------------------------------------------------------- [00006] DEBTORS' MOTION TO RESTRICT DEBT TRADING TO PRESERVE NOLs ----------------------------------------------------------------- One of the valuable assets of the Debtors' estates is their net operating loss carryforwards, David H. Lissy, Esq., Ames' Senior Vice President and General Counsel, tells Judge Gerber, As of February 3, 2001, the Debtors had a consolidated NOL carryforward for federal income tax purposes estimated at approximately $1 billion. Projections prepared by Rolando de Aguiar, Ames' Chief Financial and Administrative Officer, show that the Debtors expect to use a substantial portion of their NOL carryforwards to offset future income and dramatically reduce their federal income tax liability, subject to certain limitations. One of these limitations is contained in 26 U.S.C. Sec. 382, which limits the NOL deduction when a corporation experiences a change of ownership. A change of ownership occurs where the percentage of the stock of a loss company's equity increases by more than 50 percentage points over the lowest percentage of stock owned by such shareholders at any time during a three year moving testing period. The limitations imposed by Section 382 in the context of a change in ownership pursuant to a confirmed chapter 11 plan is significantly more relaxed, particularly where the plan involves the retention or receipt of at least half of he stock of the reorganized Debtors by shareholders or qualified creditors. See Sec. 382(l)(5), (6). Qualified creditors are, in general, those creditors who (A) have held their claims since at least 18 months prior to the bankruptcy or, for shorter-lived claims that were incurred in the ordinary course of the Debtors' business, since such claims were incurred, or (B) will own less than 5% of the reorganized Debtors' equity. See id. Sec. 382(l)(5)(E); Treas. Reg. Sec. 1.382-9(d). In light of these limitations, Mr. Lissy explains, the Debtors could lose the substantial benefits of their NOL carryforwards as a result of trading and accumulation of claims by creditors in claims against and stockholders in interests in the Debtors prior to emergence from chapter 11. "It is likely that any realistic chapter 11 plan will involve the issuance of a substantial portion of common stock to creditors in satisfaction, either in whole or in part, of the Debtors' indebtedness," Mr. de Aguiar adds, and in that event, Ames will want to avail itself of the special relief afforded by Section 382 for changes in ownership under a confirmed chapter 11 plan. Accordingly, the Debtors assert that they need the ability to preclude certain transfers, and monitor and possibly object to other changes in the ownership of stock and claims, to assure that the 50% ownership change test is not violated prior to the effective date of a chapter 11 plan in these cases and that the Debtors have the opportunity to avail themselves of the special relief provided by Section 382. By this Motion, the Debtors seek authorization pursuant to sections 362 and 105(a) of the Bankruptcy Code to establish procedures to notify holders of the Ames 10% Senior Notes, the Hills 12.5% Senior Notes, all holders of the Debtors' Common Stock, and all holders of general unsecured claims of proposed procedures that must be satisfied before the sale or other transfer of such claims may be deemed effective. Specifically, the Debtors propose to advise all creditors and shareholders (whose actions could adversely affect the Debtors' NOL carryforwards) that: * Any person and any entity (within the meaning of Section 382) is stayed, prohibited, and enjoined, pursuant to sections 362 and 105(a) of the Bankruptcy Code, (i) in the case of a person or entity who does not Own (as defined below) any Senior Notes or Common Stock, or who Owns less than 5% of each class of Senior Notes and less than 1.4 million shares of Common Stock,1 from purchasing, acquiring, or otherwise obtaining Ownership of an amount which, when added to such person's or entity's total Ownership, if any, equals or exceeds 4.99% of such class of Senior Notes or 1.4 million shares of Common Stock, or (ii) in the case of a person or entity who Owns at least 5% of a class of Senior Notes or at least 1.4 million shares of Common Stock, from purchasing, acquiring, or otherwise obtaining Ownership of any additional Senior Notes or Common Stock. * Any person or entity who proposes or intends to sell, acquire, trade, or otherwise transfer or effectuate any transfer of any general unsecured claim against the Debtors (other than the Senior Notes) must before any such transaction file with this Court and serve on the Debtors and their counsel a proscribed notice at least 30 days prior to such transaction. The Debtors will then have 30 days after receipt of such notice to object to such transaction. If the Debtors file an objection, then the transaction will not be effective unless approved by a final and nonappealable order of this Court. If the Debtors do not object within such 30-day period, then such transaction may proceed solely as set forth in the notice. Further transactions within the scope of this paragraph must be the subject of additional notices as set forth herein with an additional 30 day waiting period. For purposes of this Motion, (i) "Ownership" of a claim against, or stock of, the Debtors shall be determined in accordance with applicable rules under Section 382 and, thus, shall include, but not be limited to, direct and indirect ownership (e.g., a holding company would be considered to beneficially own all shares owned or acquired by its subsidiaries), ownership by members of such person's family and persons acting in concert, and in certain cases, the creation or issuance of an option (in any form), and (ii) any variation of the term "Ownership" (e.g., Own) shall have the same meaning. "It is well-established that a debtor's NOL is property of the debtor's estate which is protected by section 362 of the Bankruptcy Code," Martin J. Bienenstock, Esq., at Weil, Gotshal & Manges LLP, argues. The United States Court of Appeals for the Second Circuit, in its seminal decision, Official Committee of Unsecured Creditors v. PSS Steamship Co. (In re Prudential Lines Inc.), 928 F.2d 565 (2d Cir.), cert. denied, 502 U.S. 821 (1991), affirmed the application of the automatic stay and upheld a permanent injunction against a parent corporation from taking a worthless stock deduction with respect to its debtor subsidiary since that would have adversely affected the subsidiary's ability to utilize its NOL carryforwards postbankruptcy under the special relief provisions of Section 382. The Second Circuit held that the debtor's NOL carryforward was property of the estate under the broad language of section 541 of the Bankruptcy Code: Including NOL carryforwards as property of a corporate debtor's estate is consistent with Congress' intention to "bring anything of value that the debtors have into the estate." Moreover, "[a] paramount and important goal of Chapter 11 is the rehabilitation of the debtor by offering breathing space and an opportunity to rehabilitate its business and eventually generate revenue." Including the right to a NOL carryforward as property of [the debtor's] bankruptcy estate furthers the purpose of facilitating the reorganization of [the debtor]. Id. at 573 (citations omitted). See also Nisselson v. Drew Indus., Inc. (In re White Metal Rolling & Stamping Corp.), 222 B.R. 417, 424 (Bankr. S.D.N.Y. 1998) ("It is beyond peradventure that NOL carrybacks and carryovers are property of the estate of the loss corporation that generated them."). The Second Circuit further held that the parent corporation's claiming of a worthless stock deduction in stock of the debtor subsidiary would effectively eliminate the value of the debtor's NOL carryforward and thus would be an act to exercise control over estate property in violation of the automatic stay. Section 362(a) of the Bankruptcy Code operates as a stay of, among other things, "any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate." 11 U.S.C. Sec. 362(a)(3). Accordingly, "where a nondebtor's action with respect to an interest that is intertwined with that of a bankrupt debtor would have the legal effect of diminishing or eliminating property of the bankrupt estate, such action is barred by the automatic stay. " Prudential Lines, 928 F.2d at 574. In Prudential Lines, the parent corporation's interest in its worthless stock deduction was intertwined with the debtor's NOL. According to the Second Circuit, if the parent were permitted to take a worthless stock deduction, it would have an adverse impact on the debtor subsidiary's ability to carry forward its NOL. Therefore, "despite the fact that the [parent corporation's] action is not directed specifically at [the debtor subsidiary], it is barred by the automatic stay as an attempt to exercise control over property of the estate." Id. The Second Circuit went on to hold that the permanent injunction was also supported by the court's equitable powers pursuant to section 105(a), which authorizes the court to "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." 11 U.S.C. Sec. 105(a). Because the NOL was a valuable asset of the debtor, the Second Circuit refused to disturb the bankruptcy court's finding that elimination of the right to apply its NOL to offset income on future tax returns would impede the debtor's reorganization. Prudential Lines, 928 F.2d at 574. Similarly, in In re Phar-Mor, Inc., 152 B.R. 924 (Bankr. N.D. Ohio 1993), chapter 11 debtors moved to prohibit the transfer of the debtors' stock that could have an adverse effect on the debtors' ability to claim a NOL carryover. The court held that the NOL qualified as property of the estate and issued an injunctive order to protect the assets of the estate and enforce the automatic stay. Significantly, the court granted the relief requested even though the stockholders did not state any intent to sell their stock and even though the debtors did not show that a sale was pending which would trigger the prescribed change in ownership under Section 382. Id. at 927. Despite the "ethereal" nature of the situation, the court observed that "[w]hat is certain is that the NOL has a potential value, as yet undetermined, which will be of benefit to creditors and will assist Debtors in their reorganization process. This asset is entitled to protection while Debtors move forward toward reorganization." Id. (emphasis added). The court also concluded that because the debtors are seeking to enforce the stay, they did not have to meet the more stringent requirements for a grant of preliminary injunctive relief: The requirements for enforcing an automatic stay under 11 U.S.C. Sec. 362(a)(3) do not involve such factors as lack of an adequate remedy at law, or irreparable injury, or loss and a likelihood of success on the merits. The key elements for a stay . . . are the existence of property of the estate and the enjoining of all efforts by others to obtain possession or control of property of the estate. Id. at 926 (quoting In re Golden Distribs., Inc., 122 B.R. 15, 19 (Bankr. S.D.N.Y. 1990)). In short, Mr. Bienenstock continues, it is well-settled by courts in this and other Circuits that the automatic stay enjoins actions under section 362(a)(3) which would adversely affect a debtor's NOL carryforwards. Such actions, including the trading of claims or common stock, are null and void ab initio. *** End of Issue No. 1 ***