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/raid1/www/Hosts/bankrupt/TCR_Public/010911.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, September 11, 2001, Vol. 5, No. 177 Headlines 360NETWORKS: Balks At Committee's Proposed Fees for Jefferies 360NETWORKS: Second Quarter Results Expected by End of September AMERICAN LAWYER: Decline in EBITDA Compels S&P to Drop Ratings AMERICAN TISSUE: Results Errors Spur S&P to Withdraw Ratings AMERICAN TISSUE: Files for Chapter 11 Protection in Delaware AMERICAN TISSUE: Case Summary & 20 Largest Unsecured Creditors AMES DEPARTMENT: Court Okays Deloitte as Debtors' Consultant APPLIANCE RECYCLING: Secures Three-Year $10MM Credit Facility AVADO BRANDS: S&P Junks Ratings Due to Financial Constraints BRIDGE INFO: Sells CRB Assets to Logical Systems for $105,000 COMDISCO: Agent Banks Seek Exclusion of Non-Debtors from Stay COVAD COMMS: Plan's Classification & Treatment of Claims FAMILY WONDER: Case Summary & 20 Largest Unsecured Creditors FOAMEX INTL: Thomas E. Chorman Appointed as New EVP & CFO GENESIS HEALTH: Agrees to Extend Bar Date for HCFA to Sept. 27 GLOBAL DIAMOND: Standard Gets Order for Liquidation of SA Unit HARNISCHFEGER: Battles with Creditanstalt Over $11MM Claims HAYES LEMMERZ: S&P Places Low-B Ratings on CreditWatch ICG COMMS: Denver Agrees to Offset Contract Against Tax Duties IMPERIAL SUGAR: Leases Beet Factories to Michigan Beet Growers INTEGRATED HEALTH: Court Okays Settlement Pact with SouthTrust JORDAN INDUSTRIES: S&P Assigns B+ On $110 Million Bank Facility LAIDLAW INC: Seeks Open-Ended Extension of Lease Decision Period LA PETITE: S&P Junk Ratings Reflect Weak Operating Performance LTV CORP: Seeks Court Approval of Revised Financing Agreement MEDIQ: Court Sets Oct. 25 as Bar Date for Filing Proofs of Claim METRICOM INC: Nasdaq Delists Securities Effective September 10 MIDWAY AIRLINES: Nasdaq Delists Common Stock Effective Sept. 8 NEWCOR INC.: S&P Assigns D Ratings After Default on Notes NIAGARA MOHAWK: Negative Capital Balance Pegged at $568.5MM NIKE: Portland Expo. Bldg. New Venue for Shareholders' Meeting OWENS CORNING: Seeks Third Extension of Removal Period to May 28 PACIFIC GAS: Seeks Approval of Stipulation with Credit Enhancers PILLOWTEX CORP: Proposes to Reject Contracts with Alice Mills PSINET INC: Subsidiary Files for Chapter 11 Protection PSINET INC: Secures Court Okay to Reject 14 Executory Contracts RAYTECH: Operating Loss Drops to $3.3 Million In 13-Week Period RELIANCE GROUP: Rehabilitator Balks at Compensation Protocol SCHWINN/GT: Receives Mixed Bids for Cycling & Fitness Divisions SPORTS CLUB: Limited Liquidity Compels S&P to Give Junk Ratings TAPISTRON INTL: Completes Substantial Sale of Assets TAPISTRON INTL: Elliston Named New President & CEO TELSCAPE: Trustee Agrees to Allow ATSI to Manage Teleport Assets TRANS ENERGY: Working Capital Deficit Drops 6% At End of Q2 U.S.A. FLORAL: Secures Approval to Complete Sale of Florimex USG CORPORATION: Property Committee Hires Bilzen as Counsel WARNACO GROUP: Signs-Up Sharretts as Customs Counsel WASHINGTON GROUP: Raytheon Says Ruling Won't Weigh-Down On Claim WHEELING-PITTSBURGH: UST Appoints 3rd Amended Noteholders Panel WINSTAR COMMS: US Trustee Balks At Proposed Professionals' Fees ********* 360NETWORKS: Balks At Committee's Proposed Fees for Jefferies ------------------------------------------------------------- 360networks inc. objects to the Committee's proposed retention of Jefferies & Company, Inc. as investment bankers. The Debtors cite similar complaints raised against the application for E&Y Capital Advisors, and then some. Alan J. Lipkin, Esq., at Willkie Farr & Gallagher, in New York, says that the Committee's applications raise two simple questions: (1) Is it appropriate for the Committee's professional fees to approach or even exceed $10,000,000 annually when unsecured creditors in these cases are unlikely to receive any meaningful recoveries? (2) Correspondingly, in such circumstances, is it appropriate for the Committee's professionals to operate on all cylinders without adjusting in any meaningful way for unsecured creditors' relative position in these cases? The obvious answers to these questions are "no", Mr. Lipkin asserts. According to Mr. Lipkin, the Debtors are concerned with the magnitude of the fees because paying them would divert available cash from capital expenditures that are vital to the Debtors' reorganization. Mr. Lipkin also notes that the proposed retention agreement is confusing. "If the agreement is between the Committee and Jefferies, why does it seek to bind the Debtors?" Mr. Lipkin asks. In particular, Mr. Lipkin says, the agreement's indemnification provisions are objectionable to the extent that it purports to bind the Debtors: (1) The indemnity only relates to one of the Debtors, 360networks (USA), Inc., and does not explain how the indemnity would impact the other Debtors. (2) The indemnity would cover any act by the Committee or its members, regardless of the nature of such conduct. (3) The exclusions to the indemnity for acts of Jefferies or other "Indemnified Persons" are far too narrow, even if Jefferies' ordinary negligence is included. (4) The indemnity purports to cover certain "Information," which is undefined. (5) The indemnity unfairly seeks to limit Jefferies' proportional liability. (5) The indemnity seeks to have Jefferies paid for defending actions caused by its own misconduct. For these reasons, the Debtors ask Judge Gropper to either: (a) deny the Committee's applications for orders authorizing the Committee to retain and employ E&Y and Jefferies; or (b) grant such applications solely on terms consistent with these objections. Agents of Secured Lenders Also Object Jefferies' retention is an "unnecessary and unjustifiable extravagance," according to the Agents for the Secured Lenders. The Secured Lenders, who have by far the largest economic stake in these chapter 11 cases, have not even retained investment bankers. Now, mere unsecured creditors are asking for one? Seth Gardner, Esq., at Wachtell, Lipton, Rosen & Katz, in New York, insists that the services of Jefferies are entirely duplicative of the services to be provided by E&Y Capital Advisors. Moreover, Mr. Gardner tells Judge Gropper, Jefferies services are also duplicative of the work already undertaken by Lazard Freres & Co., the Debtors' proposed financial advisor. Mr. Gardner also asserts that the Jefferies Application reflects compensation levels only for representation of a debtor or a committee representing a constituency with a 9 or 10-figure demonstrable economic stake, not a constituency with at best a marginal interest in these chapter 11 cases. "It's not a surprise that the Committee claims no responsibility in paying for Jefferies' bills, in view of the magnitude of their compensation package," Mr. Gardner notes. The Agents for the Secured Lenders ask Judge Gropper to deny the Jefferies Application, without prejudice to the right of the Committee to seek authorization to retain Jefferies in the future on appropriate terms. Committee Responds Despite their professed concern over unnecessary expenses, Norman N. Kinel, Esq., at Sidley Austin Brown & Wood, LLP, in New York, notes that the Debtors are simultaneously asking the Court to approve their proposed Bonus and Retention Program. When viewed in tandem with their objections to the retention by the Committee of its professionals, Mr. Kinel says, the Debtors' proposed Bonus and Retention Program can be characterized in two words: "greed" and "arrogance." Mr. Kinel asserts that Jefferies and E&Y Capital Advisors have conducted their activities appropriately, delineating each firm's respective responsibilities and tasks. Furthermore, Mr. Kinel points out that: (1) both the Debtors and the Banks have two financial advisors whose retentions have not been subject to approval by this Court; (2) the Debtors have not shown this Court or the Committee the terms upon which Lazard Freres and PricewaterhouseCoopers are to render services to them; (3) Lazard and PricewaterhouseCoopers may have debilitating conflicts under the Bankruptcy Code if they represent both these U.S. Debtors and their Canadian parent, affiliates and the Monitor under the CCAA proceeding; and (4) the Committee was advised that Lazard intends to seek a "success bonus" in these cases in the amount of $10,000,000. Mr. Kinel further relates that as a condition to its employment, Jefferies agreed to charge a reduced monthly rate. The Committee also agreed that if unsecured creditors received a distribution in these cases, Jefferies could earn a bonus of 1% of the value of such a distribution. It made sense to the Committee, Mr. Kinel says, that if unsecured creditors do not receive a distribution in these cases, its investment bankers should not receive any bonus. If the Debtors and the Banks believe that any of the fees of the Committee's professionals are inappropriate, Mr. Kinel emphasized that there is ample opportunity to raise such objections at the appropriate time -- at a fee application hearing. According to Mr. Kinel, the attempt to establish a cap on the Committee's professionals' fees is nothing more than an ill-disguised attempt to quash the Committee and promote the Debtors' and the Banks' own agenda. The Committee believes the Debtors' accusations of extravagance are beneath contempt and entirely irrelevant. Thus, the Committee asks the Court to overrule the Debtors' and the Bank's objections and approve the Committee's application to retain Jefferies. (360 Bankruptcy News, Issue No. 7; Bankruptcy Creditors' Service, Inc., 609/392-0900) 360NETWORKS: Second Quarter Results Expected by End of September ---------------------------------------------------------------- 360networks expects to file its second quarter 2001 financial statements and the related management's discussion and analysis by the end of September 2001. This delay is due to additional requirements related to the respective creditor protection and insolvency proceedings. In compliance with the provisions of the Alternate Information Guidelines contained in the Ontario Securities Commission Policy 57-603, 360networks is issuing a default status report every two weeks until the second quarter results are issued. 360networks offers optical network services to telecommunications and data-centric organizations in North America. The company's fiber optic network includes terrestrial segments and undersea cables in North America and South America. On June 28, 2001, the company and several of its operating subsidiaries filed for protection under the Companies' Creditors Arrangement Act (CCAA) in the Supreme Court of British Columbia. The company's principal U.S. subsidiary, 360networks (USA) inc. and 22 of its affiliates concurrently filed for protection under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York. The company has also instituted insolvency proceedings in Europe. For more information about 360networks, visit http://www.360.net AMERICAN LAWYER: Decline in EBITDA Compels S&P to Drop Ratings -------------------------------------------------------------- Standard & Poor's lowered its ratings on American Lawyer Media Holdings Inc. and its unit, American Lawyer Media Inc. At the same time, all ratings are placed on CreditWatch with negative implications. Ratings American Lawyer Media Holdings Inc. To From Corporate credit rating CCC+ B Senior unsecured debt CCC- CCC+ American Lawyer Media Inc. Corporate credit rating CCC+ B Senior secured bank loan rating B- B+ Senior unsecured debt CCC+ B The rating actions reflect the company's weak operating performance, thin interest coverage, and limited flexibility. EBITDA, excluding restructuring charges, declined 29% during the quarter ended June 30, 2001, due to declining advertising revenues for the company's publications and lower revenues related to the licensing of legal content for Internet distribution. EBITDA coverage of total interest expense was marginal at about 1.0 times for the twelve months ended June 30, 2001. Coverage of cash interest was thin at roughly 1.4x for the twelve months ended June 30, 2001, and the senior discount notes require mandatory cash interest payments in 2003. Free cash flow has been negative over the past year, which has necessitated revolving credit borrowings to fund cash flow deficits. However, the revolving credit facility was recently amended to permanently reduce the aggregate revolving commitment to $29 million, providing minimal additional borrowing capacity. The company also received a waiver of compliance with certain bank financial covenants at June 30, 2001. Continued weakness in operating performance could put pressure on bank debt covenants. The company plans to discuss with its lenders further amendments to the revolving credit facility. During the second quarter of 2001, the company incurred a $1.7 million restructuring charge to reduce operating costs. Standard & Poor's remains concerned that softening economic and advertising conditions will continue to have a negative impact on profitability despite cost reductions. Standard & Poor's will continue to monitor the company's business strategies and operating performance for indications that it can restore its financial health. Failure to significantly improve profitability over the near term will likely prompt a further rating review and a possible downgrade. AMERICAN TISSUE: Results Errors Spur S&P to Withdraw Ratings ------------------------------------------------------------ Standard & Poor's withdrew its ratings on American Tissue Inc. Ratings Withdrawn Ratings American Tissue Inc. To From Corporate credit rating NR D Senior secured debt NR D The ratings on American Tissue had been lowered to 'D' on Aug. 22, 2001. The company had defaulted on an obligation to repay an overadvance of about $25 million under its revolving credit facility, which also constituted an event of default under its senior secured notes. The company disclosed on Sept. 5, 2001, that its financial statements for the past two fiscal years and the current year may contain material inaccuracies, and that the chief financial officer has resigned in connection therewith. AMERICAN TISSUE: Files for Chapter 11 Protection in Delaware ------------------------------------------------------------ American Tissue Inc. and its domestic subsidiaries, listed below, filed for protection under Chapter 11 of the U.S. Bankruptcy Code. The company and its subsidiaries made the filings in the U.S. Bankruptcy Court for the District of Delaware in Wilmington, Delaware. Mr. Mehdi Gabayzadeh, the company's President and Chief Executive Officer cited the overall slowdown in the U.S. economy and its effect on the pulp and paper industry, including decreased prices for pulp and paper products, the company's overburdened debt structure, lack of liquidity and recently discovered financial inaccuracies as factors contributing to the filings. Mr. Gabayzadeh stated: "Filing for Chapter 11 reorganization is necessary to enable us to immediately address our liquidity and debt restructuring problems." In a letter to employees, Mr. Gabayzadeh stated: "We believe that Chapter 11 reorganization will allow us to restructure our debt and secure additional financing so that we can continue to operate our business." The following companies were part of the bankruptcy filing: American Tissue Inc. 100 Realty Management LLC American Tissue Corporation American Cellulose Mill Corp. American Tissue Mills of Greenwich LLC American Tissue Mills of Neenah LLC American Tissue Mills of New Hampshire, Inc. American Tissue Mills of New York, Inc. American Tissue Mills of Oregon, Inc. American Tissue Mills of Tennessee LLC American Tissue Mills of Wisconsin, Inc. Berlin Mills Railway, Inc. American Tissue - New Hampshire Electric Inc. Calexico Tissue Company LLC Coram Realty LLC Engineers Road LLC Gilpin Realty Corp., Grand LLC Hydro of America LLC Landfill of America LLC Markwood LLC Paper of America LLC Pulp of America LLC Pulp & Paper of America LLC Railway of America LLC Saratoga Realty LLC Tagsons Papers, Inc. Unique Financing LLC Headquartered in Hauppauge, New York, American Tissue Inc. is a leading integrated manufacturer of tissue products and pulp and paper in North America, with a comprehensive product line that includes jumbo tissue rolls for converting and converted tissue products for end-use. AMERICAN TISSUE: Case Summary & 20 Largest Unsecured Creditors -------------------------------------------------------------- Lead Debtor: American Tissue Inc. aka Ballantine Inc. aka American Tissue Holdings Inc. 135 Engineers Road Hauppauge, NY 11788 Debtor affiliates filing separate chapter 11 petitions: American Tissue Corporation American Tissue Mills of Oregon, Inc. American Tissue Mills of Nennah LLC American Tissue Mills of New Hampshire, Inc. American Tissue Mills of Tennessee, LLC American Tissue Mills of Wisconsin, Inc. American Tissue Mills of New York, Inc. American Tissue Mills of Greenwich, LLC American Cellulose Mill Corp. Calexico Tissue Company LLC Coram Realty LLC Engineers Road, LLC Gilpin Realty Corp. Grand LLC Markwood LLC 100 Realty Management LLC Pulp & Paper of America LLC Saratoga Realty LLC Tagsons Papers, Inc. Unique Financing LLC Hydro of America LLC Landfill of America LLC Paper of America LLC Pulp of America LLC Railway of America LLC American Tissue- New Hampshire Electric Inc. Berlin Mills Railway, Inc. Chapter 11 Petition Date: September 10, 2001 Court: District of Delaware Bankruptcy Case No.: 01-10370 Debtors' Counsel: Laura Davis Jones, Esq. Pachulski, Stang, Ziehl, Young & Jones P.C. 919 North Market Street, 16th Floor P.O. Box 8705 Wilmington, DE 19899-8705 T: 302-652-4100 Email: ljones@pszyj.com Estimated Assets: More than $100 Million Estimated Debts: More than $100 Million Consolidated List of Debtors' 20 Largest Unsecured Creditors: Entity Nature of Claim Claim Amount ------ --------------- ------------ Boise Cascade Paper Trade $25,044,340 PO Box 360538M Pittsburgh, PA 15251 Perry H. Koplik & Sons, Inc. Trade $16,837,121 Department 15143 PO Box 1213 Newark, NJ 07101 (212)339-1700 Hershman Recycling Inc. Trade $8,591,894 PO Box 3059 Stony Creek, CT 06405 (203)488-0887 Global Petroleum Trade $2,285,130 PO Box 3372 Boston, MA 02241-3372 (781)891-4000 CIGNA Trade $1,738,933 c/o Fleet Bank CGLIC 99 Founders Plaza- 3rd Floor East Hartford, CT 06108 Mandel Resnik & Kaiser P.C. Trade $1,729,421 220 East 42nd Street New York, NY 10017 (212) 573-0000 Kimberly-Clark Forest Trade $1,697,782 Products PO Box 7247-7294 Philadelphia, PA 19170-7284 (807) 825-9859 Alliance Pulp & Paper Co. Trade $1,522,210 630 West Germantown Pike Suite #385 Plymouth Meeting, PA 19462 (610) 940-0800 Schneider National Inc. Trade $1,494,015 PO Box 100131 Atlanta, GA 30384-0131 (800) 558-6767 Niagara Mohawk Power Corp. Trade $1,272,705 535 Washington Street Buffalo, NY 14203 Memphis Light Gas & Water Trade $1,229,810 PO Box 388 Memphis, TN 38145 (901) 544-6549 Western Express, Inc. Trade $1,220,782 PO Box 280958 Nashville, TN 37228 (800) 316-7160 The Fiber Resource Group Inc. Trade $1,183,005 PO Box 2507 Lynn, MA 01903 (905) 677-3434 Fibre Marketing Group, LLC Trade $1,146,096 102 East Main Street Suite 104A Stevensville, MD 21666 (410) 604-1550 Nexen Chemicals USA Trade $1,119,629 PO Box 843708 Dallas, TX 75284-3708 (713) 876-2269 Pioneer Americas Inc. Trade $1,090,636 PO Box 98812 Chicago, IL 60693 (302) 886-4475 TXU Energy Services Trade $1,061,252 Account #26858 PO Box 360151 Pittsburgh, PA 15251-6151 (800) 490-5330 Duke Energy Trading & Mrktg Trade $1,032,812 PO Box 201204 Houston, TX 77216-1204 (713) 627-5400 New York State Electric & Gas Trade $1,007,454 PO Box 5550 Ithaca, NY 14852-5550 Wisconsin Electric Power Co. Trade $987,784 PO Box 2089 Milwaukee, WI 53201-2089 (800) 714-7777 AMES DEPARTMENT: Court Okays Deloitte as Debtors' Consultant ------------------------------------------------------------ Ames Department Stores, Inc., et al., sought and obtained approval from Judge Gerber to employ and retain Deloitte Consulting LP as their restructuring consultant in connection with these chapter 11 cases. David S. Lissy, Esq., Ames' Senior Vice President and General Counsel, tells the Court that the Company selected Deloitte because of the firm's knowledge of the Debtors' business and financial affairs and its expertise in bankruptcy matters of similar magnitude. Mr. Lissy relates that Deloitte have been rendering services to the Debtors for the past six years during which it has become familiar with the Debtors' business and affairs and has the necessary background to assist the Debtors in dealing effectively with the many needs and challenges of the Debtors that may arise in these cases. Deloitte has served as financial advisor to other troubled companies including American Rice, Inc., Anchor Glass Container Corp., Bruno's Inc., Caldor Inc., The Elder-Beerman Stores Corp., Kuppenheimer Manufacturing, Lechters Inc., LTV Steel Company, Inc., Purina Mills, Pic 'N Pay Stores, Ltd., Quaker Coal Co., Stage Stores Inc., and Wolf Camera. The Debtors contends that Deloitte's services are necessary to enable the Debtors to execute their duties. Specifically, the Debtors turn to Deloitte for: (1) consulting with management on issues regarding employee retention, severance and other compensation benefits; (2) consulting with management in connection with operating, financial, and other business matters relating to its ongoing activities; (3) consulting with management and counsel on the operational and financial restructuring of the Debtors' business and in the negotiation and development of a plan of reorganization; (4) consulting with management on cash control and cash management, including assistance with the development of the Debtors' cash flow projections and DIP financing; (5) consulting with management on communications with creditors and other parties in interest; (6) consistent with the scope of services set forth herein, attending and participating in court appearances before the Bankruptcy Court, when necessary; (7) consulting with management, counsel and other advisors concerning matters relevant to the scope of retention under Chapter 11; (8) as agreed to by Deloitte Consulting, rendering such other necessary advice and services as the Debtors may require in connection with its services to the Debtors; Holly Felder Etlin, a principal of Deloitte Consulting, asserts that neither the Firm, nor any of its principals and employees, has any connection with the Debtors, creditors or any other parties-in-interest. Out of an abundance of caution, Ms. Etlin discloses that: (1) Deloitte is not employed by and has not been employed by any entity other than the Debtors in matters unrelated to these cases. (2) Prior to the petition date, Deloitte Consulting performed management consulting and financial advisory services for the Debtors. The Debtors do not owe Deloitte Consulting any amount for services rendered prior to the petition date. (3) From time to time, Deloitte Consulting have provided services and will likely to continue to do so, to certain creditors of the Debtors in matters unrelated to these cases. (4) Deloitte Consulting have or may have provided services to provide professional services and may in the future provide professional services to certain of the Debtors' creditors, other parties in interest in this case and their respective attorneys and accountants in matters unrelated to these cases. Deloitte Consulting have client relationships with or provide a variety of services to parties in interest in matters unrelated to these Chapter 11 Cases, but no single relationship represents more than 1% of Deloitte revenues. (5) Deloitte Consulting has provided, may currently provide, and may continue to provide services to certain of the Debtor's creditors or other parties in interest in matters unrelated to these Chapter 11 cases, including: a) certain of the Debtor's current financing sources and affiliates, including CIT Group, Citicorp, Daimler/Chrysler, Eaton Vance, Fleet Bank, Foothill Capital, General Electric Capital Corp, GMAC Business Credit, Goldman Sachs, Gordon Brothers, Heller Financial, IBJ Whitehall, ING Capital, Kimco Funding LLC, LaSalle Business Credit, Mellon Business Credit, National City Commercial Finance, Orix Business Credit, Siemens Financial Services and TransAmerica Business Credit; b) certain of the Debtor's major creditors, including 20th Century Fox, Abitibi Consolidated Sales, Bissell Inc., Fisher Price, Footstar, IBM Business Credit, Hasbro, HSBC, Mattel, Mead Products, Newell Group, Samsung Electronics Corp., Sara Lee, State Street Bank & Trust, and Wrangler; c) certain of Debtor's Directors affiliates including, CIT Group, County Seat Stores, Global Health Sciences, Herballife International, and Lamonts Apparel; d) the Debtors Bankruptcy Counsel Weil, Gotshal & Manges LLP and Togut, Segal & Segal LLP; e) some of the Debtor's current financing sources, Citicorp, Fleet Bank, ING Capital and Mellon Bank provide financing to Deloitte or its individual partners or principals. (6) The Debtors have been informed that Deloitte has been involved in matters unrelated to these cases in which other professionals connected with these cases were also involved, including Weil, Gotshal & Manges LLP and Togut, Segal & Segal LLP. (7) The Debtors have been informed that Deloitte has provided personal tax services in prior years to the current Chief Financial Officer. No services provided to this individual were billed to the company. Ms. Etlin relates that Deloitte is unable to state with certainty that every client relationship or other connection has been disclosed due to the size and complexity of both Deloitte and the Debtors. In this regard, Ms. Etlin has informed the Debtors that if Deloitte discovers additional information required to be disclosed, it will file a supplemental disclosure with the Court promptly. Ms. Etlin states that Deloitte consulting intends to charge it regular hourly rates plus reimbursement for out-of-pocket expenses. The current hourly rates by classification are: Partners / Directors $545 to $675 per hour Senior Managers $485 to $545 per hour Managers $395 to $445 per hour Senior Consultants/Staff $150 to $315 per hour Ms. Etlin also discloses that the Debtors paid Deloitte Consulting $30,000 for restructuring services during the 90 days immediately preceding the petition date. (AMES Bankruptcy News, Issue No. 3; Bankruptcy Creditors' Service, Inc., 609/392-0900) APPLIANCE RECYCLING: Secures Three-Year $10MM Credit Facility ------------------------------------------------------------- Appliance Recycling Centers of America, Inc. (OTC BB: ARCI) secured a three-year, $10,000,000 line of credit with its current lender that replaced its previous one-year, $6,000,000 credit line. The new line of credit, which is priced more favorably than the prior credit line, will be used primarily to finance inventories of the Company's growing ApplianceSmart retail operation. Edward R. (Jack) Cameron, president and chief executive officer, commented: "This expanded credit line was necessitated by the continued growth of our ApplianceSmart business. We have opened three additional factory outlets thus far in 2001, which are generating steadily growing retail sales. Our new credit line also provides us with the resources required for supporting anticipated future growth. The more favorable terms of our new credit line in comparison to the previous credit facility also reflect ARCA's improved operating results and financial condition." Through its ApplianceSmart -- http://www.ApplianceSmart.com -- operation, ARCA is one of the nation's leading retailers of special-buy household appliances, primarily those manufactured by Whirlpool Corporation. These special-buy appliances, which include close-outs, factory overruns and scratch-and-dent units, typically are not integrated into the manufacturer's normal distribution channel. ApplianceSmart sells these virtually new appliances at a discount to full retail, offers a 100% money-back guarantee and provides warranties on parts and labor. As of August 2001, ApplianceSmart was operating three stores in the Minneapolis/St. Paul market; two in the Dayton, Ohio, market; two in the Columbus, Ohio, market; and one in Los Angeles. ARCA is also one of the largest recyclers of major household appliances for the energy conservation programs of electric utilities. AVADO BRANDS: S&P Junks Ratings Due to Financial Constraints ------------------------------------------------------------ Standard & Poor's lowered its ratings on Avado Brands Inc. and subsidiary Avado Brands Financing I. Avado Brands Inc. TO FROM Corporate credit rating CCC CCC+ Senior unsecured debt CCC CCC+ Senior unsecured bank loan CCC CCC+ Subordinated debt CC CCC- Avado Brands Financing I Preferred stock C CC The outlook is negative. The rating action is based on the company's limited near-term financial flexibility. Avado used the majority of the proceeds from the sale of its McCormick & Schmick's concept to repay borrowings of $95.8 million under its credit facility that matured on Aug. 22, 2001. As of July 1, 2001, pro forma for the debt repayment and asset sale, Avado only had $760,000 of cash and cash equivalents on its balance sheet. Moreover, McCormick & Schmick's accounted for 23% of Avado's revenue and 36% of its EBITDA in 2000, and operating performance at its Don Pablo's and Canyon Caf, concepts remains weak. Standard & Poor's believes that Avado will need to obtain additional sources of capital to fund operations and service debt going forward. Although management has attempted to improve the operating performance at Don Pablo's and Canyon Caf,, there is little assurance that it can succeed in reviving its flagging restaurant operations. The company's viability is in jeopardy, reflecting doubts that it will be able to generate sufficient cash flow to meet its debt obligations over the next 12 months. BRIDGE INFO: Sells CRB Assets to Logical Systems for $105,000 ------------------------------------------------------------- Bridge Information Systems, Inc., through their counsel Deborah M. Buell, Esq., at Cleary, Gottlieb, Steen & Hamilton, in New York, informs the Court that they received the highest and best offer submitted by Logical Systems, Inc. for the sale of their assets relating to the CRB Division of Bridge Information Systems, Inc. Both parties entered into an Asset Purchase Agreement dated June 20, 2001 wherein Logical shall purchase all of the assets and business operations related to CRB subject to certain conditions. Two parties, Logical and Equidex Incorporated, submitted formal offers to purchase the Acquired Assets in connection with Standing Order #5 on or about June 20, 2001. Logical and Equidex each submitted initial offers to purchase the Acquired Assets for approximately $100,000 in cash. However, various contingencies in the Equidex offer materially detracted from its value in comparison to the Logical offer. Logical subsequently improved its bid by offering to purchase the Acquired Assets for approximately $105,000 in cash. Subsequent to the selection of Logical, but prior to the execution of the Agreement, Bridge and Logical were informed that the www.crbindex.com internet domain had been erroneously included in the Agreement as an Acquired Asset. Since the exclusion of www.crbindex.com from the base of Acquired Assets: (i) requires Logical to incur additional operating costs and (ii) gives rise to a potential loss of CRB customers, both Bridge and Logical agreed to reduce the cash portion of the purchase price by $15,000. In light of the foregoing, the Debtors made the determination that the Offer by Logical of $90,000 represents the Highest and Best Offer (as defined in Standing Order #5) and now seek to sell the Acquired Assets pursuant to the Agreement and Standing Order #5. Pursuant to the Small Asset Procedure, the Debtors are providing notice of the Offer to the Pre-petition Lenders, the DIP Lenders, the Committee, GECC and any known creditor assert a lien on the Acquired Assets. If no objection to the transaction described herein is received from the Notified Parties within 10 days after the receipt hereof, the Debtors are authorized to consummate such transactions without further court approval. The Debtors assure the Court that they will comply with all other requirements of Standing Order #5. (Bridge Bankruptcy News, Issue No. 15; Bankruptcy Creditors' Service, Inc., 609/392-0900) COMDISCO: Agent Banks Seek Exclusion of Non-Debtors from Stay ------------------------------------------------------------- The Royal Bank of Scotland PLC, Citibank, N.A. and National Westminster Bank PLC, in their capacity as Agents or Arrangers under certain Credit Agreements on behalf of the lenders, objects of Comdisco Inc.'s motion to extend the automatic stay to non-debtor subsidiaries. Ann E. Stockman, Esq., at Latham & Watkins, in Chicago, discloses that prior to the Petition Date, Comdisco and certain of its debtor and non-debtor affiliates obtained approximately $1,000,000,000 of credit pursuant to: (1) the 364 Day U.S. Credit Agreement, dated December 2000; (2) the Fifth Amended and Restated Global Credit Agreement (Global Credit Agreement), dated December 1996; (3) the Facility Agreement dated June 1991; and (4) the 364 Day Facility Agreement, dated December 2000. Ms. Stockman adds that pursuant to the terms of the Global Credit Agreement or the Facility Agreement, as the case may be, certain non-debtor Foreign Subsidiaries executed Multi-currency Borrower Assumption Agreements and/or Letters of Accession. Thus, Ms. Stockman notes, such Foreign Subsidiaries became additional Borrowers under the Credit Agreements and subject to the obligations and conditions outlined therein. Then, as a result of certain Events of Default, Ms. Stockman says, the Agents and lenders under the applicable Credit Agreements have certain default-related rights and remedies against certain of the Foreign Subsidiaries, including rights of setoff. The Agents object to the Debtors' attempt to apply the automatic stay to their non-debtor Foreign Subsidiaries for several reasons. First, Ms. Stockman explains, the Court has no jurisdiction over property of the non-debtor Foreign Subsidiaries or the actions of creditors against the Foreign Subsidiaries or their property. Second, Ms. Stockman argues that even if this Court's jurisdiction could somehow reach the Foreign Subsidiaries, this Court must still reject the extra-territorial application of the automatic stay sought in the Motion, because the case law uniformly establishes the inapplicability of the automatic stay to creditor actions against non-debtors (whether foreign or domestic) or their property. By its very terms, Ms. Stockman contends, the automatic stay of section 362 applies only to actions against property of the debtor or property of the debtor's estate. Courts have recognized the distinct legal identities of the debtor and its corporate affiliates and consequently have refused to subject property of such non-debtors to the automatic stay in the debtor's bankruptcy case. (Comdisco Bankruptcy News, Issue No. 5; Bankruptcy Creditors' Service, Inc., 609/392-0900) *** Comdisco, Inc. COVAD COMMS: Plan's Classification & Treatment of Claims -------------------------------------------------------- In accordance with Bankruptcy Code section 1122, the Plan of Covad Communications Group, Inc. provides for the classification of ten (10) Classes of Claims and Equity Interests. Section 1122(a) permits a plan to place a claim or an interest in a particular class only if the claim or interest is substantially similar to the other claims or interests in that class. Covad believes that its classification of Claims and Equity Interests under the Plan is appropriate and consistent with applicable law: Class Description Treatment ----- ----------- --------- N/A Administrative Expenses Paid in full in Cash 1 Priority Claims Paid in full in Cash 2A Secured Note Claims -- Cash equal to 100% of the Claim Covad's 1999 Reserve on the Effective Date through a Notes secured by the 1999 release of the 1999 Reserve Reserve Note Fund Note Fund 2B Other Secured Claims Each Holder retains all legal, equitable and contractual rights 3 General Unsecured Claims Each Holder of a General -- constituting all Unsecured Claim shall receive trade liabilities, claims in full satisfaction of such arising from executory Claim: contract and unexpired leases not assumed by the (A) through and in accordance Debtor, and any with the $256,782,701 litigation claims that do deposited in the Note not constitute securities Claim Escrow, which should claims result in a distribution of approximately 19% of such Claim in Cash (B) Cash consideration in the same proportion to the Allowed amount of each such Claim as received by Noteholders on Note Claims paid through the Note Claim Escrow; (C) all Holders of General Unsecured Claims shall receive a Pro Rata interest in the Preferred Stock in an amount calculated as follows: The aggregate Preferred Stock distributable in the event the only General Unsecured Claims constitute Note Claims will have a liquidation preference of $100,000,000 and will be generally convertible into 15% of the Common Stock of Covad pursuant to and in accordance with the Preferred Stock Certificate of Designation. 4 Noteholders' Securities Each Class 4 claim shall be Fraud Claims paid only up to the amount of available insurance proceeds and pursuant to the MOU Settlement, sharing recoveries with Class 6 5 Contingent Indemnity Retain all contractual rights Claims -- Claims of an officer or director for indemnification that remains dependent on the occurrence of a future event that may never occur 6 Shareholders' Securities Each Class 6 claim shall be Fraud Claims paid only up to the amount of available insurance proceeds and shall be made only through the Securities Class Actions. Any Holder of a Class 6 Claim that opts out of the class established in the Securities Class Action shall not receive any Distribution in respect of any Class 6 Claims. Under the terms of the Memorandum of Understanding, the Holders of Class 6 Claims shall receive a Pro Rata portion of the MOU Settlement Fund minus that portion of the consideration in the MOU Settlement Fund distributable to Holders of Class 4 Claims. There shall be no Distribution on account of Class 6 Claims if such court does not approve the final stipulation of settlement. 7 Laserlink Securities Each Holder of a Class 7 Claim Claims -- Claims relating shall receive in full to the purchase of Common satisfaction of such Claim one Stock of Covad in share of Covad Common Stock in connection with the Plan respect of each $100 of Allowed of Merger among Covad, Claim. Lightsaber Acquisition Company, and Laserlink.Net, Inc., including Claims arising from the alleged failure to register or maintain the effectiveness of the registration of such securities. 8 IPO Allocation Securities Retain all legal, equitable Claims -- covers all and contractual rights to which Claims arising from the such Claim entitles the Holder purchase of Common Stock of such Claim. Covad believes of Covad from January it has no liability in respect 21, 1999 through June 25, of Class 8 Claims and has 2001 indemnification rights against its underwriters that are co- defendants in this litigation. 9 Equity Interests Diluted but otherwise unimpaired Covad argues that it is appropriate and necessary to classify the Securities Claims separate and apart from General Unsecured Claims because all Securities Claims are subordinated to General Unsecured Claims pursuant to Bankruptcy Code section 510(b). In turn, section 510(b) subordinates Claims arising from the purchase or sale of Common Stock to Securities Claims relating to the purchase or sale of the Notes. Covad has therefore separately classified the Securities Claims arising from the purchase or sale of Notes (i.e., Class 4 Securities Claims - Notes) from the various Classes of Securities Claims arising from the purchase or sale of Common Stock (i.e., Class 6 Securities Claims - Common Stock, Class 7 Securities Claims - Laserlink, and Class 8 Securities Claims - IPO Allocation. In turn, Covad has separately classified the various Classes of Equity Securities Claims for sound reasons. Specifically, Covad has separately classified the Securities Claims - IPO Allocation and left such claims unimpaired, because Covad believes it has no ultimate liability in respect of such Claims, and the determination or adjudication of such Claims would threaten to delay Confirmation (which Covad cannot afford). Covad has separately classified the Securities Claims - Common Stock because such Claims are being litigated in a pending class action of significant magnitude, and Covad was able to reach an agreement to settle such Claims (through the Memorandum of Understanding) prior to the commencement of this Chapter 11 Case. That agreement to settle would not have been practical if Equity Securities Claims wholly unrelated to such class action were incorporated into such settlement. (Covad Bankruptcy News, Issue No. 4; Bankruptcy Creditors' Service, Inc., 609/392-0900) FAMILY WONDER: Case Summary & 20 Largest Unsecured Creditors ------------------------------------------------------------ Lead Debtor: Family Wonder Holdings, Inc. a/k/a Sega.com, Inc. 650 Townsend, Suite 650 San Francisco, CA 94105 Chapter 11 Petition Date: September 10, 2001 Court: District of Delaware Bankruptcy Case No.: 01-10361 Debtor's Counsel: David B. Stratton, Esq. David M. Fournier, Esq. Pepper Hamilton LLP 1201 Market Street, Suite 1600 Wilmington, DE 19801 Estimated Assets: $10 million to $100 million Estimated Debts: $10 million to $100 million List of Debtors' 20 Largest Unsecured Creditors: Entity Nature of Claim Claim Amount ------ --------------- ------------ Genuity Contract $759,627 est 235 Presidential Way Woburn, MA 01801 Contact: Natalie Miller (T)(781) 865-5390 (F)(781) 865-8820 MarchFirst Contract $756,333.34 255 California St., 10th Fl San Francisco, CA 94111 Contact: Michael Murphy (F)(415) 782-6363 Sun Microsystems Trade Debt $156,441.92 UBRM 12-175 500 Eldorado Blvd Broomfiled, CO 80021 @Home Contract $137,892.52 425 Broadway St. Redwood City, CA 94063 Gunderson Dettmer Trade Debt $125,989.75 155 Constitution Drive Mcolo Park, CA 94025 Harte Hanks Trade Debt $240,000 est P.O. Box 911913 Dallas, TX 75391-1913 Soberlon Trade Debt $17,000 475 Sansome St Suite 770 San Francisco, CA 94111 Activislon (SegaSoft) Contract $68,421.09 3100 Ocean Park Blvd Santa Monica, CA 90405 Oracle Corp. Contract $63,465.05 1001 Sunset Blvd. Rocklin, CA 95765 Etruso Contract $50,000 P.O. Box 901 Road Town Tortola British VI Service Concept Trade Debt $43,218.88 563 N. Fairview St Santa Ana, CA 92703 BFD Productions Trade Debt $28,292.90 1221 S. Casino Center Blvd Las Vegas, NV 89104 Media Metrix Contract $26,250.00 100 Charles Lindbergh Blvd. Uniondale, NY 11553 Polaroid Corporation Trade Debt $25,000 P.O. Box 450426 Atlanta, GA 31145 Mango Trade Debt $25,000 13018 Woodforest Blvd. Houston, TX 77015-2775 Shoptok Trade Debt $17,500 370 7th St. San Francisco, CA 94103 Intermedia Communications Trade Debt $17,000 Virginia Manor Road Bellsville, MD 20705 Tom Grillo Contract $12,000 109 Freeway Avenue Huckettstown, NJ 07840 Real Emarketing Contract $10,800 742 Pine St. San Francisco, CA 94108 Heidrick & Struggles Contract $8,260.37 P.O. Box 92227 Chicago, IL 60675 FOAMEX INTL: Thomas E. Chorman Appointed as New EVP & CFO --------------------------------------------------------- Foamex International Inc. (Nasdaq: FMXI) announced the appointment of Thomas E. Chorman as Executive Vice President and Chief Financial Officer. The announcement was made by President and Chief Executive Officer, John Televantos. Chorman joins Foamex from his position as Chief Financial Officer of Ansell Healthcare, Inc., where he successfully spearheaded significant profitability improvement and cash generation projects. Ansell is a wholly owned subsidiary of Pacific Dunlop, a global manufacturer of medical and industrial products. From 1997 to 2000, Chorman was Vice President, Finance and Chief Financial Officer of Armstrong's Worldwide Floor Product Operations, where he initiated and directed two major acquisitions. Chorman joined The Procter & Gamble Company in 1984 out of business school, and spent thirteen years with them in financial positions of increasing responsibility. In his most recent position as Global Finance Manager and CFO for Corporate New Ventures, he developed and managed the company's strategic new product development process. Other assignments at P&G included CFO for the Pringles and Snacks Division and Controller for P&G France. Chorman also served as the architect for redesigning P&G's North American supply chain. Chorman's innovative work in portfolio management for new products and supply chain management are now part of the curriculum at top graduate schools. He was recently awarded the International Franz Edelman Award for his work in operations research management science. "Tom is an accomplished financial executive whose background includes international experience for both industrial and consumer products companies," Televantos noted. "He has considerable expertise in new business development, profitability improvement initiatives, cash generation programs, the supply chain process and acquisitions. I look forward to Tom's leadership as we execute our strategy of strengthening our balance sheet and growth through differential cost improvements and new business development enhanced by prudent acquisitions." Chorman holds an MBA from Rutgers Graduate School of Management and an undergraduate degree in Economics from City University of New York. Michael D. Carlini, who has been serving since June as Acting CFO, will continue with the company as Senior Vice President, Finance and Chief Accounting Officer. Foamex, headquartered in Linwood, Pennsylvania, is the world's leading producer of comfort cushioning for bedding, furniture, carpet cushion and automotive markets. The company also manufactures high-performance polymers for diverse applications in the industrial, aerospace, electronics and computer industries as well as filtration and acoustical applications for the home. The Company's total liabilities (as of June 30) stand at $905 million, as opposed to its total assets of $762.7 million. GENESIS HEALTH: Agrees to Extend Bar Date for HCFA to Sept. 27 -------------------------------------------------------------- Pursuant to the Bar Date Order, the Court established December 19, 2000 (the Bar Date) as the last date for any person or entity, including, without limitation, any governmental unit other than governmental units filing claims against HRC) to file a proof of claim against Genesis Health Ventures, Inc. & The Multicare Companies, Inc. The Court also established January 29, 2001 as the deadline by any governmental unit to file any proof of claim against HRC which arose prior to July 31, 2000. As previously reported, the Health Care Financing Administration (HCFA), the Department of Health and Human Services (HHS), and the Department of Justice (DOJ) and the Debtors continue to negotiate matters relating to, among other things, the treatment of claims and liabilities of the Governmental Entities and the Debtors against each other. Accordingly, the Debtors and the Governmental Entities have agreed and stipulated on extensions of the Governmental Bar Date to March 1, 2001, March 14, 2001, April 24, 2001, May 24, 2001, June 25, 2001, July 25, 2001 and August 27, 2001 respectively. The Debtors have determined that a conditional extension of the Bar Date will be helpful in its settlement process with the Governmental Entities. Therefore, by way of a Stipulation dated August 27, 2001, the Debtors and the Governmental Entities stipulate and agree as follows: "In the event the Court has not approved the Settlement Agreement by September 27, 2001, the time by which the Governmental Entities must file a proof of claim against any of the Debtors shall be extended through and including September 27, 2O01, at 4:00 p.m. (Eastern Time). If the Court approves the Settlement Agreement on or before September 27, 2001, the Bar Date shall be August 27, 2001. The Extended Bar Date applies with respect to any claims for the benefit of the Governmental Entities relating in any way to the Medicare program, including claims of private persons brought on behalf of the Governmental Entities pursuant to the qui tam provisions of the False Claims Act, 31 U.S.C. section 3730(b)." (Genesis/Multicare Bankruptcy News, Issue No. 13; Bankruptcy Creditors' Service, Inc., 609/392-0900) GLOBAL DIAMOND: Standard Gets Order for Liquidation of SA Unit -------------------------------------------------------------- Global Diamond Resources Inc., announced that Standard Bank of South Africa applied for and has been granted a final order of liquidation of Global Diamond Resources (SA) (Pty) Ltd. Global SA is the wholly owned operating subsidiary company of Global Diamond Resources Inc. Global SA owes Standard Bank an amount of approximately ZAR 1.5 million (US$180,000) and Standard Bank has as security a Notarial bond over the principal plant and equipment owned by Global SA. The overdraft facility was called in during the last week of August and the legal action taken on September 6, 2001. Global will file an urgent appeal to the ruling on the basis that proper notice was not given to Global SA and that Global SA was not given an opportunity to respond to the motion. The major shareholders of Global have agreed to advance funds to Global that would, at the very least allow for the repayment of the debt owed to Standard Bank on the basis that the liquidation order be withdrawn. * * * Global Diamond's liquidity is strained at June 30. Current liabilities is pegged at $1,339,988, exceeding its total current assets of $176,656. The Company believes that it may require additional working capital of approximately $500,000 to satisfy its working capital requirements for the next 12 months. HARNISCHFEGER: Battles with Creditanstalt Over $11MM Claims ----------------------------------------------------------- Harnischfeger Industries, Inc. and Creditanstalt AG are contending over administrative claims in an aggregate amount of $11 million asserted by Creditanstalt. The Beloit Committee joins in HII's objection to the motion of Creditanstalt for allowance and payment of the claims. Creditanstalt a, bank organized and existing under the laws of the Republic of Austria, previously filed four administrative claims, which were actually two claims because the two claims filed against HII (Claim Nos. 9568 and 9570) were identical to the two filed against Beloit (Claim Nos. 9571 and 9569). These claims were filed before the Bar Date and the Debtors included in its Schedules of Assets and Liabilities Contingent and Unliquidated Claims by Creditanstalt AG in the amount of 15,384,852. These Original Claims arise out of Creditanstalt's business relationship with Beloit Austria, GmbH, an indirect subsidiary of both HII and Beloit. According to Creditanstalt, Claims 9568 (against HII) and 9571 (against Beloit) are related to administrative expense request. In their Fifth and Sixth Omnibus Objectionst to Claims, the Debtors objected to Claim Nos. 9570 (against HII) and 9571 (against Beloit). Creditanstalt opposed the Debtors' objections. In their Seventy-Sixth Omnibus Objection to Claims, the Debtors objected to Claim Nos. 9568 (Creditanstalt' administrative claim against HII). Creditanstalt served its response to the Debtors' Seventy-Sixth Omnibus Claims Objection. Creditanstalt later filed a motion for allowance of an $11 million administrative claim. At the instruction of the Court at the hearing of the Original Motion, Creditanstalt filed an Amended Motion which supersedes the earlier motion. In the Amended Motion, supported by the declaration of Dr. Walter Friedrich, an Austrian lawyer, Creditanstalt seeks the allowance and immediate payment by HII and Beloit of German Mark (DEM) 12,740,000.00 and Austrian Schillings (ATS) 63,602,100.69 as an administrative expense claim for certain post-petition obligations of the Debtors. The combined administrative claims equal $11,458,043.06, Creditanstalt asserts. The parties argument centers upon: (1) the merit or lack of merit of the Original Claims; (2) the scope and basis of the assertion in Creditanstalt's motion, which was filed after the Bar Date, and the timeliness or untimeliness of the assertion; (3) whether Creditanstalt's claim is controlled by United States law or foreign law and whether it raises genuine, material factual disputes. Creditanstalt's Amended Motion (A) "Factual Background" as related in Creditanstalt's Amended Motion: (1) The Credit Agreement In or about March, 1996, Creditanstalt entered into a Credit Agreement with Beloit (Austria) in an amount of Austrian Schilling (ATS) 200,000,000. As security for the Credit Agreement, on March 26, 1996 and November 19, 1997, HII and Beloit respectively, jointly issued to Creditanstalt's parent guarantees in the amount of ATS 200,000,000. On January 22 and 28, 1999, HII and Beloit reaffirmed their commitments to Creditanstalt. In response to the Debtors' Petition, Creditanstalt froze Beloit Austria's credit line under the Credit Agreement. (2) The Omega Turnkey Project and Post-Petition Guarantees The Omega Turnkey Project was a DEM 80 million state-of-the-art hygienic tissue paper facility in Wernshausen, Germany. During negotiation of the Omega/Beloit Austria Contract, Omega became concerned about the financial condition of Beloit Austria and demanded bank guarantees in case of Beloit Austria's default. It obtained three guarantees totaling DEM 12,740,000 from Creditanstalt. In order to assure Omega that Beloit Austria would complete the Omega Contract, Beloit (USA) executed a post-petition "unconditional" guarantee of performance on July 12, 1999 which reads: "Beloit Corporation hereby unconditionally confirms that in the event of an insolvency or bankruptcy of our indirect subsidiary, Beloit Austria GmbH, we, the Beloit Corporation, shall assume the rights and obligations of Beloit Austria GmbH arising out of the Agreement executed with you concerning the Supply of a Paper Machine and dated February 12, 1999 in accordance with the terms and conditions set forth therein." In the meantime, Harnischfeger had obtained a $750,000,000 debtor-in-possession facility to finance its operations. In order to reassure Omega that the Debtors would support Beloit Austria, Beloit (USA) reissued the July 12 Post-Petition guarantee which Harnischfeger and Beloit (USA) jointly signed on August 11, 1999, specifically stating that: "Harnischfeger Industries, Inc. (HII) joins in this letter for the purpose of ensuring that HII will use commercially reasonable efforts to cause Beloit to perform its obligations under this letter." (The July 12 and August 11, 1999 letters are hereafter referred to as "the Post-Petition guarantees.") (3) The July 22, 1999 Representations On July 22, 1999, at a meeting in Austria attended by Beloit (USA), Debtors' counsel, Beloit Austria and Creditanstalt, the Debtors told Creditanstalt that they would provide Beloit Austria with the means necessary to keep Beloit Austria a going concern and to finance its production if Creditanstalt would unfreeze the credit line and release ATS 62,300,000. (4) The Letter of Comfort On September 15, 1999, HII confirmed its commitment made on July 22, 1999 to Creditanstalt in the form of a letter to the Directors of Beloit Austria. In pertinent part, that letter reads: "HII confirms that it is its current strong intention to make available such sums as may be necessary for Beloit Austria GmbH's working capital requirements and current Needs." The Debtors were aware that this Letter of Comfort was written for the benefit of Creditanstalt and, together with the representations made on July 22, 1999, would be relied upon as such. Based upon those representations and the Letter of Comfort, Creditanstalt, as agreed in July 22 meeting, released the credit line, and thereby enhanced the Debtors' Estate by at least ATS 63,000,000. (5) Debtors Strip Beloit Austria of its Assets Immediately after the release of the credit line, according to the Omega pleading, the Debtors embarked upon a campaign to strip Beloit Austria of its assets and actively to interfere with the financial accounts of Beloit Austria and to direct Beloit Austria to pay certain bills and to withhold payments on others exclusively for the Debtors' own benefit. After the Debtors had succeeded in stripping Beloit Austria of its assets, on November 19, 1999, Beloit Austria told Omega that the Debtors had unilaterally decided to halt any support of Beloit Austria, and on the same day HII publicly confirmed that it was cutting off all funding of its subsidiaries "to cut costs." (6) Beloit Austria's default and Omega's drawdown on the Guarantee As a result of Debtors' withdrawal of finds and their refusal to support it with adequate finding, Beloit Austria was forced into liquidation. At or about the end of November, 1999, Dr. Erhard Hackl, liquidator for Beloit Austria, was compelled to repudiate Beloit Austria's contract with Omega. Omega drew down on Creditanstalt's bank guarantees which were paid on December 7, 1999. The Third Amended Disclosure Statement for the Plan at p. 190 lists Omega Papier as an outstanding administrative claim, but it does not list Creditanstalt's subrogation claim or breach of contract/tort claims. It thus appears that the Debtors have miscalculated the totality of the administrative claims. (B) Creditanstalt's Claims Creditanstalt asserts 9 claims, accusing as follows: Claim 1: Breach of the Post-petition Guarantees, the Representations Made at the July 22 Meeting and the Letter of Comfort Creditanstalt is a direct and third party beneficiary of the Post-Petition guarantees, the representations made at the July 22 meeting and the Letter of Comfort and the Debtors breached the terms made in all these. Creditanstalt moves for discovery to substantiate these claims which are premised upon the Omega pleadings and discussions with Dr. Hackl. Claim 1 is subject to Austrian law. Claim 2: Tortious Interference with Contractual Relations The Debtors also tortiously interfered with the Credit Agreement between Beloit Austria and Creditanstalt. Through their systematic, wanton and willful course of conduct -- which included theft manipulation of Beloit Austria's finances for their benefit; their depriving Beloit Austria of finding, essential parts, and technical expertise; and their failure to reflect accurate accounting credits within the finances of the Harnischfeger Group -- the Debtors made it absolutely impossible for Beloit Austria to perform its obligations, in particular, under the Omega contract, Creditanstalt accuses. Creditanstalt claims that it has as a result of this been damaged in an amount of not less than DEM 12,740,000.00 and ATS 63,602,100.69. Claim 2 is subject to Austrian law. Claim 3: Tortious Interference with Contractual Relations The Debtors tortiously interfered with the Omega/Beloit Austria contract and the guarantee given by Creditanstalt to Omega in Annex II para. 5. of the Omega/Beloit Austria contract signed December 2, 1999 as amended. The Debtors knew of the Omega/Beloit Austria contract and the guarantees given by Creditanstalt in the combined amount of DEM 12,740,000 and through their systematic, wanton and willfull course of conduct -- which included their manipulation of Beloit Austria's finances for their benefit; their depriving Beloit Austria of funding, essential parts, and technical expertise; and their failure to reflect accurate accounting credits within the finances of the Harnischfeger Group -- made it absolutely impossible for Beloit Austria to perform its obligations, in particular, under the Omega contract," Creditanstalt tells the Court, "Consequently, the Creditanstalt guarantees were paid on December 7, 1999 in the full amount of DEM 12,740,000.00." Thereafter, Debtors' tortious interference continued and they created repeated obstacles for Omega to mitigate its damages," Creditanstalt goes on, "As a result of this further tortious interference, neither Beloit Austria nor Creditanstalt has been able to claim any overpayment from Omega. By reason thereof, Creditanstalt has been damaged in an amount of not less than DEM12,740,000.00." Claim 3 is subject to Austrian law, Creditanstalt asserts. Claim 4: Subrogation "As a consequence of Beloit Austria's repudiation of the Omega Contract, Creditanstalt paid Omega DEM 12,740,000.00. As a matter of law, Creditanstalt has become subrogated to all rights and remedies of Omega against the Debtors for their breach of the Post- Petition guarantees and their tortious interference with the Beloit Austria/Omega Contract." Claim IV is subject to German and Austrian law." Claim 5: Breach of Covenant of Good Faith "The actions of the Debtors constitute a breach of the covenant of good faith implied in the Credit Agreement, the Post-Petition Guarantees, the representations made at the July 22 meeting, the Letter of Comfort, and in the Omega/Beloit Austria Contract together with Creditanstalt's guarantee thereof. By reason of the foregoing, Creditanstalt has been damaged." "Claim 5 is subject to Austrian law." Claim 6: Fraud in the Inducement "The Debtors fraudulently induced Creditanstalt to release the credit line by making false representations at the July 22 meeting and by issuing the Letter of Comfort and thereby representing that the parent companies would ensure completion of the Omega/Beloit Austria Contract. "However, on information and belief, the Debtors knew that they had no intention of performing the representations made at the July 22, 1999 meeting and the representations made in the Letter of Comfort, because, at that time, they were engaged in a scheme to loot the subsidiaries of working capital, and also to deprive the subsidiaries of parts and support necessary to complete their contracts. Creditanstalt reasonably relied on the Debtors' representations to its detriment." Claim 6 is subject to Austrian law. Claim 7: Negligent Representation The Debtors induced Creditanstalt to release credit line by making the representations at the July 22 meeting and issuing the Letter of Comfort. The Debtors had a duty to communicate accurate information and knew that the representations made at the July 22 meeting and in the Letter of Comfort, would be used and relied on by Creditanstalt. However, on information and belief; the representations were false. In spite of that, the Debtors either made the misrepresentations, carelessly or negligently, without ascertaining the truth of their representations, or Debtors made them deliberately. The Debtors knew that, without such representations, Creditanstalt would never have released the credit line, and they made those representations solely in order to induce Creditanstalt to unfreeze at least ATS 63,602,100.69 to Beloit Austria, which directly or indirectly benefited the Debtors. In addition, Debtors knew, or reasonably should have known, that they did not have the ability to perform their obligation, namely to "... make available such sums as may be necessary for Beloit Austria's working capital requirements and current needs." Creditanstalt reasonably relied on the Debtors' representations to its detriment. By reason of the foregoing, Creditanstalt has been damaged. Claim 7 is subject to Austrian law. Claim 8: Right of Contribution Creditanstalt and the Debtors were under a common burden or liability to Omega by their guarantee of Beloit Austria's obligations. By virtue of Beloit USA's default on its guarantee to Omega to complete the project upon Beloit Austria's default, and by reason of Omega's consequential drawdown on the Creditanstalt guarantees in November, 1999, Creditanstalt was compelled to pay more than its share of the common liability. By reason of the foregoing, Creditanstalt is entitled to contribution from the Debtors as co-obligors in the am.unt of not less than DEM 8,493,333.00. Claim 8 is subject to Austrian law. Claim 9: For Conversion Following Debtors' Petition, the Debtors caused at least $10,000,000.00 and perhaps as much as $23,400,000.00 to be transferred from Beloit Austria's books to themselves of their designees for their own direct or indirect use and/or benefit without meeting formal requirements, such as a shareholders' resolution and approval of a duly audited annual balance sheet. These transfers constituted conversion and were made in violation of Austrian law. As a result of these transfers, Creditanstalt's ability to obtain relief from Beloit Austria has been lost. Claim 9 is subject to Austrian law. (C) Creditanstalt's Arguments (1) Application of Foreign Law "Austrian law must be applied because Austria was the place of contracting performance and the location of the subject matter of the contract," Creditanstalt argues, "and because insofar as the Debtors were guilty of conversion, the internal affairs of Beloit Austria are implicated and that must be decided in accordance with the law of the place of incorporation -- Austria." Regarding the fraudulent inducement Claims, Creditanstalt asserts that the following criteria are to be weighed under Brown v. SAP: (a) the place where the injured party acted in reliance on the representations; (b) the place the injured party received the representations; (c) the place where the representations were given; (d) the domicile, place of incorporation or place of business of the injured party; (e) the place where the tangible subject of the transaction was situated; and (f) the place of induced performance. "Factors (a), (b), (d), (e) and (f) all support the application of Austrian law, where both Creditanstalt and Beloit Austria have their places of business," Creditanstalt asserts, "Even (c) supports the use of Austrian law because the July 22, 1999 meeting was held in Austria." For claims involving asset stripping the following criteria are to be considered under United Rubber v. Great American Industries 479 F. Supp. 216 (S.D.N.Y. 1979), Creditanstalt asserts: (a) the domicile, place of incorporation, andn place of business of the injured party; (b) the place where the stripped assets were located; and (c) the place where the assets were fraudulently disposed of. "Here, the Debtors deferred from adequately capitalizing Beloit Austria, it is alleged that they withdrew liquidity, defaulted on necessary payments and supplies and they rendered Beloit Austria incapable of performance. These three criteria also argue for application of Austrian law. Finally, the Omega Contract states that it is governed by German law (Section 20) and the Creditanstalt credit line extended to Beloit Austria is governed by Austrian law," says Creditanstalt. Creditanstalt further argues that, because Delaware's conflict of laws rules are final and exclude renvoi, Brown v. SAP., Austrian or German law applies insofar as the Omega/Beloit Austria contract concerned. "Wisconsin law does not apply to the Letter of Comfort of September 15, 1999 because that letter was part and parcel of a contract negotiated and entered into in Austria at the July 22, 1999 meeting," Creditanstalt argues. (2) Contract was made and breached post-petition Creditanstalt also asserts that it is entitled to administrative claims because the claims arise out of post-petition transactions with the Debtors. (3) Comparison with Omega Adversary Proceeding Creditanstalt draws the Court's attention to the adversary proceeding by Omega against the Debtors, which was settled prior to trial. (See prior entry at [00601].) Creditanstalt notes that, in its order denying the Committee's motion for Judgment on the Pleadings, the Court found that the Committee's Rule 12(c) motion had to be denied due to a factual issue as to whether the HII commitment of August 11, 1999 constituted a "hard declaration of support" which is tantamount to a guarantee. The Court held that not only was there a conflict in the expert affidavits on German law, but it was not even clear whether German law applied. Creditanstalt reminds the Court that it held, in that issue, that one must examine the facts and circumstances regarding (1) the Debtors' pre-petition policies and practices; (2) the Debtors' post-petition policies and practices and (3) the particulars surrounding the issuance of the commitments. Based on this, Creditanstalt argues that it is entitled to discovery at the very least. Creditanstalt further argues that, - it is subrogated to the rights of Omega and that the language in the August 11 letter, which purports to bar any grant of rights to third parties, may be invalid under German law, assuming German law applies; - HII's Letter of Comfort dated September 15, 1999 constitutes a guarantee under Austrian law, or at least, it is a question of fact under Austrian law whether it constitutes a guarantee; - Dr. Friedrich, an Austrian lawyer, opines in his Declaration accompanying the motion that the language contained in the Letter of Comfort constitutes a binding commitment under Austrian law, or that at the very least, it would be a question of fact which could be determined only in the context of the surrounding circumstances. (4) Creditanstalt's Right of Subrogation is preserved Creditanstalt draws the Court's attention to the Friedrich Declaration in which Dr. Friedrich opins that under Austrian law, Creditanstalt's payment to Omega on December 7, 1999 operated as an assignment as a matter of law of the rights Omega had against the Debtors for their breach. Creditanstalt argues that because that payment reduces Omega's damages against the Debtors by the amount of the guarantee, DEM 12,740,000, those damages reduced did not belong to Omega and Omega's release of its claims against the Debtors therefore could not preclude Creditanstalt's claim. (5) Creditanstalt Has a Right of Contribution against the Debtors Creditanstalt argues that the Debtors and Creditanstalt were under a common burden or liability to Omega because the Debtors guaranteed Beloit Austria's performance of the Omega Complaint and Creditanstalt gave Omega a separate guarantee. "Creditanstalt satisfied its guarantee, but the Debtors did not satisfy their," Creditanstalt further argues, "Under Austrian law, Creditanstalt is entitled to equalize this joint obligation with a direct cause of action against the Debtors as con- obligors." (6) All of Creditanstalt's Claims Are Timely Creditanstalt draws the Court's attention to the filing of its claims before the Bar Date, the Debtors' Objections and Creditanstalts' responses. With respect to the assertions made in its motion, Creditanstalt argues that, because the Omega Claims and Creditanstalt Claims are substantially similar and premised upon identical facts, the Debtors should have been put on notice as to the substance, if not the exact content, of each of the Claims pled in its Original Motion. Based on this, Creditanstalt argues that the Debtors will not be prejudiced by the particularization of the claims in Creditanstalt's Original Motion. (7) Alternatively, Creditanstalt Should Be Granted Leave to Amend Its Administrative Claim Based on the reasons mentioned above, Creditanstalt argues that the claims asserted in its motion are not time-barred. Should the Court find it necessary to do so, Creditanstalt suggests that the Court, under Bankruptcy Rule 7015 and Federal Rule of Civil Procedure 15, allow Creditanstalt's claim to be amended. HII's Objection, Joined By the Beloit Committee HII points out that the claims filed before the Bar Date (the Original Claims) contained no explanation to support Creditanstalt's assertion that they were entitled to administrative priority but simply stated that they were based on "breach of contract". Moreover, the Original Claims were based on alleged breaches of contract, but since no contract was ever created between HII and Creditanstalt, the Original Claims fail. With respect to Creditanstalt's motion, as amended, HII tells the Court that it went far beyond the scope of the Original Claims by adding a number of new claims, counts I to IX (the Additional Claims). Each of the Additional Claims is asserted for the first time in the motion, which was filed more than two months after the administrative claims bar date, HII notes, thus each Additional Claim is time barred. (I) About Creditanstalt's Original Claims, HII argues that they do not establish a right to payment of an administrative expense on the following bases: (A) HII's September 15, 1999 Letter is Not a Contract HII argues that, whether under the laws of Wisconsin or Austria, this letter gives Creditanstalt no contractual rights because HII's statement concerning its "current strong intention to make available to Beloit Austria GmbH such sums as may be necessary for Beloit Austria GmbH's working capital requirements and current needs" is not sufficient to form any contractual obligations. HII notes that, in this letter, it does not agree to do anything but simply makes a statement concerning its intent. (B) Even If the September 15 Letter Was a Contract It Would Give No Rights to Creditanstalt HII tells the Court that the letter was sent by HII to Beloit Austria, not Creditanstalt, so Creditanstalt was not a party to that contract and has no standing to bring claim for an alleged breach. Nor does Creditanstalt qualify as a third-party beneficiary under any applicable law, HII contends. Under Wisconsin law, HII notes, a party may only bring an action as a third party beneficiary if it can show "that the parties to the contract intentionally entered into their agreement directly and primarily for his [the third party's] benefit." The result would be the same under Austrian law, HII argues, because under Austrian law, the party purporting to be a third party beneficiary must show, on the basis of the contract, that it was intended to "mainly be to the benefit of the third party." In the current issue, HII notes, neither Creditanstalt nor Beloit Austria's credit facility are even mentioned in the letter; to the contrary, the latter's specific references to Beloit Austria's "working capital" makes clear the letter was directed to Beloit Austria's general business needs, and not specifically concerned with Creditanstalt. (C) The August 11, 1999 Letter To Omega Provides No Basis For Creditanstalt's Administrative Claim HII cites a number of reasons: (1) This Letter Does Not Create Any Obligation On The Part Of HII HII tells the Court that although the declaration of Dr. Walter Freidrich, an Austrian lawyer and Creditanstalt's sole foreign law expert, contains a choice of law provision, designating German law, Creditanstalt has not submitted any evidence regarding the applicable German law. The affidavit of Dr. Walter Freidrich, HII points out, does not even address the legal effect of the HII language used in the August 11 letter. HII notes that Dr. Freidrich does address the issue of Creditanstalt's purported right to be subrogated to any rights Omega may have had under the August 11 letter, he does not address what rights those may be (under either German or Austrian law). HII tells the Court that it was to avoid exactly this type of expensive litigation that it chose to settle the Omega litigation. HII did not see any need to include Creditanstalt in these settlement negotiations, because Creditanstalt asserted only contract claims that could be defeated without the need for expensive and protracted litigation. Now, HII complains, Creditanstalt's effort to change the very nature of its claims after the Omega settlement had already been reached would force HII to engage in exactly this type of litigation and deprive HII of much of the benefit of the $l,000,000 settlement payment it made to Omega. HII argues that the language it used in the August 11 letter is "not a conventional guarantee under American jurisprudence." Neither does this language constitute a guarantee under the laws of Germany or Austria, HII contends. German law, HII notes, recognizes that parent companies make different types of statement to creditors of its subsidiaries. To support this, HII presents to the Court the Declaration of Dr. Kolja von Bismarck. Dr. Bismarck advises that German law divides these statement into two types: "hard" and "soft" letters of comfort. Under German law, a "hard" letter of comfort is considered a contract while a "soft" letter is not. In order for a letter to be a "hard" letter of comfort, and therefore a binding contract, it must include a specific description of what the parent is promising to do, such as undertaking an express obligation to provide a subsidiary with sufficient funds to meet its obligations. HII did not do this. To the contrary, HII's statement in the letter conspicuously avoids assuming any specific obligation to support Beloit Austria, as would be required in a "hard" letter of comfort. The effect of the HII language included in the August 11 letter, HII tells Judge Walsh, is to make it nothing more than a non-binding "soft" letter of comfort, which can not form the basis of a claim. Austrian law leads to the same result, draws Judge Walsh's attention to the Spiegelfeld Declaration. (2) The Letter Specifically Disclaims Any Third Party Rights But even if the August 11 letter did form some sort of contract between HII and Omega, it could still not form the basis of a claim by Creditanstalt, HII argues, as HII joined in the August 11 letter for the limited purpose of stating that it would "use commercially reasonable means" to "cause Beloit to perform its obligations under this letter" but under applicable German law, Beloit had no obligation to Creditanstalt. Moreover, in the August 11 letter, Beloit specifically stated that "this letter is intended for [Omega's] benefit only and does not serve to grant any third party rights, irrespective of the legal basis therefore." Under applicable German law this language is sufficient to defeat any subrogation claim brought by Creditanstalt, HII asserts, drawing upon the expert advice of Dr. Bismarck. Although German law would ordinarily provide for the transfer of Omega's rights under the August 11 letter to Creditanstalt, as a result of Creditanstalt's payments to Omega, that transfer was defeated here, because Beloit and Omega expressly agreed that it would not occur, Dr. Bismarck advises. Creditanstalt attempts to avoid this result by arguing that under section 354a of the German Commercial Code "it is not possible to exclude the transferability of an obligation among merchants as the August 11 letter purports to do." Creditanstalt argues that this "leads to the inference that a subrogation or contribution claim - which is a transfer of an obligation by operation of law - cannot be subbrogated by the parties." HII tells Judge Walsh that Creditanstalt's argument is supported only by the opinion of Dr. Freidrich, an Austrian lawyer not licenced to practice in Germany and this argument is wrong under German law, because under German law the "no third party rights" language of the August 11 letter bars any subrogation or contribution claim by Creditanstalt. (3) Any Subrogation Right Would Be Restricted to a General Unsecurd Claim Because Creditanstalt's legal obligation to Omega existed long before the August 11, 1999 letter was written, even if Creditanstalt did have some sort of subrogation claim against HII or Beloit, that subrogation would arise out of the Debtors' pre- petition contractual obligations, HII argues. This would mean any such subrogation claim would be properly characterized as a general unsecured claim, not an administrative expense. (II) Creditanstalt's Additional Claims, HII reiterates, Are Time Barred. Absent a showing of excusable neglect, a creditor may not pursue a claim that it failed to raise prior to the bar date. HII tells the Court that Creditanstalt has not even attempted to show that its failure to assert these claims in a timely manner was the result of excusable neglect. Creditanstalt argues that Omega's complaint was sufficient to put HH and Beloit on notice of these claims, and so no harm comes from Creditanstalt's failure to include these claims in its timely filed claims. This argument, HII tells Judge Walsh, makes Creditanstalt's failure to assert their alleged tort claims even more inexcusable because Creditanstalt was clearly aware of the Omega complaint, and the claims included therein but they chose to assert only breach of contract claims against either HIT or Beloit. Although the Debtors may have been aware that Omega was asserting these tort claims, they could not know that Creditanstalt would choose to assert similar claims. Indeed, a reasonable conclusion would be that Creditanstalt had made a decision not to assert similar tort based claims. Because no showing of excusable neglect has been made, all claims raised for the first time in Creditanstalt's April 18, 2001 Motion are barred, HII asserts. HII accuses Creditanstalt of attempting to slip its time barred claim through the back door, by attempting to amend its Original Claims. Although bankruptcy courts will generally allow a claimant to amend a claim even after a bar date has passed, this is not allowed when the "amendment" seeks to add a new cause of action. "Amendments after the bar date are to be scrutinized very closely to insure that the amendment is in fact genuine and not an entirely new claim" as in re W.T. Grant Co., 53 B.R. 417, 422 (Bankr. S.D.N.Y. 1985). Any other result would destroy the very purpose of the bar date, which is to establish a date certain on which the Debtor knows what claims it is facing, HII asserts. "It is only now, on the eve of HII's emergence, that Creditanstalt has attempted to assert this new cause of action," HII tells the Court, "If Creditanstalt were allowed to succeed in this tactic both HII and Beloit would be severely prejudiced. They would be forced to engage in protracted (and expensive) discovery at a time when HII is attempting to move forward as a reorganized entity, and Beloit is attempting to distribute the maximum amount possible to its creditors." (Harnischfeger Bankruptcy News, Issue No. 47; Bankruptcy Creditors' Service, Inc., 609/392- 0900) HAYES LEMMERZ: S&P Places Low-B Ratings on CreditWatch ------------------------------------------------------ Standard & Poor's placed its ratings on Hayes Lemmerz International Inc. on CreditWatch with negative implications. Ratings Placed On CreditWatch Negative Rating Hayes Lemmerz International Inc. Corporate credit rating B+ Senior secured debt rating B+ Senior unsecured debt rating B- Subordinated debt rating B- The company's debt as of April 30, 2001, totaled about $2.0 billion. The CreditWatch placement follows the announcement that Hayes will restate certain historical financial statements to correct accounting errors and to write down the value of impaired assets. As a result, the company's earnings and operating performance during recent quarters was weaker than previously reported. In addition, the need to restate financial statements has led to bank financial covenant violations and delayed the release of Hayes' second quarter financial results. The accounting errors led to the understatement of net losses of at least $14.7 million and $5.0 million during fiscal 2000 and the first quarter of fiscal 2001, respectively. EBITDA was overstated by at least $21 million and $9 million during the same periods. About half of the errors occurred at one of Hayes' manufacturing plants, which has had recurring operating difficulties. The errors resulted from the failure within certain areas of the company to comply with proper accounting procedures. The asset valuation write down relates to the company's Petersburg, Mich. plant, which Hayes has previously announced it intends to close. The write down will increase Hayes' first quarter 2001 net loss by $22.1 million. Hayes' investigation of the accounting errors is continuing. The actual amount of the restatement has not been definitively determined and could be higher than the estimated amounts. The bank covenant violations and the company's delay in replacing its expired accounts receivable securitization (which had $119 million outstanding on April 30, 2001), reduces the company's available liquidity amid current difficult industry conditions. Hayes is in discussions with its lenders to resolve its non-compliance with financial covenants. Reduced automotive production, ongoing pricing pressure, and the uncertain outlook for the U.S. economy present near-term challenges for the company. Standard & Poor's will meet with management to review the extent of the accounting errors and to evaluate the company's corrective action plans. The ratings on Hayes could be lowered if it appears the company's operating performance will be weaker or if liquidity will be more constrained than previously expected. ICG COMMS: Denver Agrees to Offset Contract Against Tax Duties -------------------------------------------------------------- ICG Communications, Inc. and the City and County of Denver submit a second stipulation agreeing that Denver may offset the prepetition contract liability against the prepetition tax liability, and the postpetition contract liability against the postpetition tax liability. After that, Denver will pay to the Debtors the difference between the postpetition contract liability and the postpetition tax liability of $430,570.96 in satisfaction of any amounts Denver owes for services provided by the Debtors through and including June 2001. (ICG Communications Bankruptcy News, Issue No. 9; Bankruptcy Creditors' Service, Inc., 609/392-0900) IMPERIAL SUGAR: Leases Beet Factories to Michigan Beet Growers -------------------------------------------------------------- Imperial Sugar Company and Michigan Sugar Company ask Judge Robinson to likewise approve their entry into (i) an agreement with Michigan Sugar Beet Growers, Inc., for an interim lease of Michigan Sugar's four beet-processing factories for the 2001 processing season, or until a related sale of Michigan Sugar to the Michigan Sugar Beet Growers is consummated, and (ii) related management and marketing agreements. MSC currently operates four of the Debtors' nine sugar beet processing factories. These factories operate on a seasonal basis, running continuous operations during the five-month sugar beet harvested processing season, but idle or operated at a reduced capacity during the remainder of the year. Sugar processed at MSC's factories currently is marketed under the Debtors' Pioneer and Peninsular brands or sold to customers in the customers' private label packaging. The Michigan Factories Lease Following commencement of this case, Imperial and MSC entered into an agreement with the Michigan Cooperative, subject to approval of the Court and Harris Trust and Savings Bank as agent for the Debtors' senior secured lenders, pursuant to which the Michigan Cooperative will lease MSC's four factories for the 2001 processing season, or until a related sale of MSC to the Michigan Cooperative is consummated, pursuant to a lease agreement. The principal terms of the proposed lease are: (a) Term: October 1, 2001 through February 28, 2002 or end of 2001 crop campaign, whichever is later, or until a related sale of MSC to the Michigan Cooperative is consummated. (b) Rent and Related Fees: Lease, marketing, and management fee equal to $4.00 per ton of beets delivered by members of the Michigan Cooperative for the 2001 processing season, payable monthly commencing October 31, 2001. (c) Ownership of Sugar Beets: The lease and related agreements provide that the Michigan Cooperative will be the sole and exclusive owner of all sugar beets harvested during the 2001 campaign and all refined sugar and byproducts produced from those sugar beets. The Debtors will not take title to any sugar beets harvested during the 2001 campaign or have any obligation to pay beet growers for any beets delivered. In addition to the transactions contemplated by this Motion, Imperial and the Michigan Cooperative also have entered into a letter of intent which envisions the sale of MSC and the Michigan factories to the Michigan Cooperative, subject to negotiation of definitive documents and the obtaining of required approvals. These efforts are separate from the proposed transactions and are not the subject of the Motion. (d) Repair and Maintenance: Actual repair and maintenance expenses incurred during the inter-campaign which began on March 22, 2001 are the responsibility of the Michigan Cooperative. MSC will continue to be responsible for all repair and maintenance items incurred prior to March 22, 2001, except to the extent incurred in connection with the 2001 crop campaign. (e) Capital Expenditure: Imperial, MSC, and the Michigan Cooperative will jointly determine both the need for capital expenditures and the party who should be responsible for the expenditure. (f) Indemnification: If the Michigan Cooperative causes injury or damage to another party, it will indemnify, defend, and hold harmless Imperial from any loss, attorney's fees, court costs, or other costs or claims arising from use of the leasehold premises. The Michigan Cooperative also agrees to indemnify Imperial and various affiliated persons and entities for any liability arising out of the deposit, spill, discharge, or release of hazardous substances during the term of the lease, the Michigan Cooperative's use of the premises, or the Michigan Cooperative's failure to comply with environmental laws. Imperial and MSC has agreed to indemnify the Michigan Cooperative and certain affiliated parties for any liability related to the deposit, spill, discharge, or other release of hazardous substances during MSC's use of the premises or from MSC's failure to provide information, or make submissions required to comply with applicable environmental laws. (g) Insurance: The Michigan Cooperative will maintain public liability insurance for the leasehold premises and conduct of the Michigan Cooperative's business. Such insurance will name Imperial as an additional insured for up to $2,000,000 for death and bodily injury and $ 1,000,000 for property damage. The Michigan Cooperative additionally will maintain insurance on any of its personal property stored or used on the premises. (h) Representations and Warranties: The Michigan Cooperative represents and warrants, among other customary terms, that it will comply with all federal and state regulations and guidelines with respect to use of the premises and will not create any public or private nuisance and will not permit any hazardous substances to be brought onto, kept, or manufactured on the leasehold premises and will bear all responsibility for costs associated with compliance with laws regulating the use, generation, storage, transportation, or disposal of hazardous substances. (i) Arbitration: All unresolved disputes after mediation will be resolved by binding arbitration under the American Arbitration Association's Commercial Arbitration Rules. (j) Assignability: Permitted only with consent of landlord. Management and Marketing Agreements Subject to Judge Robinson's approval and of Harris, as agent, Imperial also has entered into agreements with the Michigan Cooperative to provide the Michigan Cooperative with management and marketing support during the term of the proposed lease and beyond if a proposed sale of the factories to the Michigan Cooperative is approved and consummated. (a) The Factory Management Agreement's terms are: (i) Retroactive to May 15, 2001 through February 28, 2002 or, if later, the end of the 2001 crop campaign. (ii) Management Fee: The combined lease, marketing, and management fee are as payable under Michigan factories lease as discussed above. (iii) Resolution of Disputes. Disputes under the management agreement will be resolved under the Commercial Arbitration Rules of the American Arbitration Association at a proceeding to be held in Chicago, Illinois. (b) The Marketing Agreement's terms are: (i) Term: October 1, 2001 through September 30, 2002 or October 1, 2011, if the Michigan factories are sold to the Michigan Cooperative. (ii) Marketing Fee: The combined lease, marketing, and management fee are payable under the Michigan factories lease as discussed above. (iii) Responsibilities of Marketer: Imperial will have exclusive authority to market sugar and sugar by-products produced at the leased Michigan factories during the 2001 crop season and will provide such services in a prudent manner consistent with generally accepted standards of refined sugar and sugar byproduct marketing, sales, and distribution business, including, without limitation: (a) to maintain and operate a customer tracking system, sales management information system, and sales order processing system, (b) provide traffic services, transportation management services, customer services, order entry services, credit management, distribution services, and warehouse management services, (c) maintain a comprehensive marketing plan; (d) take actions necessary to comply with applicable laws; and (e) submit monthly reports to the growers. Imperial will be responsible for determining the numbers and qualifications of employees needed for such services and will be responsible for recruiting, hiring, supervising, training, promoting, assigning, and discharging employees needed to perform services. All employees retained by Imperial in its capacity as marketer win be employees of Imperial, except as otherwise determined under the terms of the marketing agreement. (f) Relationship of the Parties: The relationship of the parties under the Marketing Agreement is that of independent contractor to contracting party. (g) Marketing Standards: Imperial will consult with and advise the Michigan Cooperative on a marketing strategy. Each August, Imperial will present a proposed marketing plan for the coming year for consultation. Imperial will undertake to obtain a competitive price for all sugar sold and if not sold by September 30, 2002, help store and market the balance. Sugar may not be sold at a price which is less than the forfeiture rate on Commodity Credit Corporation loans without the express consent of the Michigan Cooperative. (h) Ownership of Product: All product will be owned by the Michigan Cooperative. (i) Limitation of Liability, Imperial will be liable to the Michigan Cooperative only for acts or omissions in bad faith or for acts or omissions in disregard of a substantial risk of harm of risk to the Michigan Cooperative where such risk was known by Imperial and where such risk was a gross deviation from conduct that a reasonable person would have exercised in the same situation. (j) Indemnification of the Michigan Cooperative. Notwithstanding the immediately preceding paragraph, Imperial will indemnify the Michigan Cooperative and certain affiliated parties from any claims, causes of action or liability to any person incurred by the growers as a result of Imperial's operation of the Michigan Cooperative's business at the four MSC factories. Imperial has the obligation to defend the indemnified parties in the any such action. (k) Labels. Sugar marketed under the marketing agreement will be marketed under one or more of Imperial's trademarked labels or the private label of customers. (l) Choice of Law. Michigan Resolution of Disputes. Disputes under the management agreement will be resolved under the Commercial Arbitration Rules of the American Arbitration Association at a proceeding to be held in Chicago, Illinois. In support of their request, the Debtors advise Judge Robinson that the proposed lease of MSC's beet processing factories to the Michigan Cooperative and entry by Imperial and the Michigan Cooperation into related management and marketing agreements are a continuation of the Debtors' efforts to rationalize capacity, reduce cash flow volatility and operating risks, and shift the focus of the Debtors functions to high-value-added functions such as marketing and distribution. Lease of the Michigan facilities and entry into the related agreements will benefit the Debtors by limiting the risk the Debtors currently assume when they purchase and take title to sugar beets for processing, thus reducing cash flow volatility, and will also permit the Debtors to reduce their December 2001 revolver borrowings by at least $60 million since the Debtors will not have obligations to purchase any 2001 beet deliveries in Michigan. The agreements also allow Imperial to capitalize on its significant expertise in high value-added areas such as marketing and management where the Michigan Cooperative lacks experience. For the farming community in Michigan, the agreements also ensure that the factories will be able to continue to operate under circumstances where economics otherwise might dictate that they be closed for one or more seasons because of low prices for refined sugar. Imperial assures Judge Robinson that the terms of the lease and related agreements are reasonable, fair, and customary for similar agreements in the industry. The terms were negotiated at arms' length between parties with considerable knowledge of both the sugar industry in general and the Michigan sugar beet market in particular. The single-season nature of these arrangements enable Imperial to revisit and adjust its arrangements with respect to the Michigan factories if the need arises. Judge Robinson Conditions Her Approval Judge Robinson grants the requested approval, but conditions it upon a requirement that the Michigan Cooperative obtain financing commitments for the lease year in an amount sufficient to meet its obligations under the agreements, or otherwise provide "reasonable assurance" to the Debtors, in a form "reasonably acceptable" to the Debtors' Bank Group as described in the Plan, of its ability to perform and satisfy all obligations under the Agreements. She further directs that the Bank Group's acceptance of the form of the Michigan Cooperative's assurance shall not be unreasonably withheld. Each guaranty issued by any of the Debtors with respect to the Michigan Industrial Revenue Bonds will remain in full force and effect according to its original terms, and no rights granted under the documents giving rise to or governing the Michigan IDBs will be abrogated or impaired in any way as a result of entry of this Order or consummation of the transactions contemplated under the Agreements. It is a condition to closing of the Agreements that the Debtors shall have obtained a legal opinion from counsel, who is acceptable to the indenture trustee for the holders of Michigan IDBs, which provides, in form and substance acceptable to the Michigan Indenture Trustee: (a) that all such bonds and interest generated thereupon, will continue to be tax exempt and will not be subject to the alternative minimum tax as a result of entry into the Agreements, and (b) that the entry into the Agreements will not result in violation of the Michigan statutes under which such bonds were issued. Following the closing date under the Agreements. Judge Robinson orders that it shall be an obligation of both the Debtors (including MSC and Imperial) and the Michigan Cooperative to timely provide the Michigan Indenture Trustee with quarterly, internally prepared financial statements and annual audited financial statements for their respective operations in the form and manner required under the Michigan IDB documents. With respect to the Michigan IDBs, the terms and conditions of the Michigan IDB documents shall continue to govern any assumption and/or assignment of the Michigan IDBs in connection with an assignment. sale or lease of MSC or any of its facilities (including, without limitation, the lease pursuant to the Agreements) and such assumption and/or assignment shall be permitted only to the extent provided under the Michigan IDB documents. Following any assignment, sale or lease of MSC or any of its facilities (including, without limitation, lease pursuant to the Agreements), Imperial shall remain obligated under the guaranties it previously granted of MSC's obligations in respect to the Michigan IDBs in accordance with the terms of such guaranties. Notwithstanding consummation of the transaction contemplated by the Agreements, MSC, Imperial, and any other obligor of the obligations and liabilities under the Michigan IDB documents, shall each remain obligated for its respective obligations and liabilities thereunder, and the Michigan IDBs remain enforceable and in full force and effect. Judge Robinson further ordered that the proceeds of the agreements to Imperial were subject to the liens and encumbrances of the Bank Group and are those parties' collateral, to secure the Debtors' obligations under the Senior Credit Agreement, as amended, and the DIP facility, and the terms and conditions of these agreements, or affect the Bank Group's liens pending a sale of the Michigan facilities. (Imperial Sugar Bankruptcy News, Issue No. 9; Bankruptcy Creditors' Service, Inc., 609/392-0900) INTEGRATED HEALTH: Court Okays Settlement Pact with SouthTrust -------------------------------------------------------------- Integrated Health Services, Inc. and SouthTrust Bank have disagreed as to the value of six of the Debtors' Facilities that secure a mortgage loan in the principal amount of $53 million by SouthTrust, as well as to a host of issues relating to SouthTrust's alleged entitlement to adequate protection. On June 12, 2001, the Court "so ordered" a stipulated discovery and trial schedule, pursuant to which a hearing on both the Valuation Motion and the Adequate Protection Motion was scheduled for August 10, 2001. By a separate Order dated June 12, 2001, the Court, with the consent of the parties, scheduled a mediation before Judge Erwin I. Katzon to explore the possibility of settling the entire controversy. In accordance with the June 12, 2001 Orders, the parties exchanged discovery requests, including document requests, interrogatories and expert appraisals of the Facilities. Pursuant to a separate mediation procedural order issued by Judge Katz, the parties exchanged settlement offers and presented position papers to Judge Katz. Mediation before Judge Katz ultimately led to the formation of a mutually acceptable compromise, which received the Court's blessing. The Settlement is summarized as follows: (1) The settlement provides for the transfer of the Borrowers' fee interest in the Facilities, free and clear of all liens and claims (other than SouthTrust's existing mortgages), to a nominee of SouthTrust or its participant in the SouthTrust Loan, National Health Investors, Inc., which will simultaneously lease back the Facilities to Acquisition pursuant to a New Lease. (2) The New Lease will provide for an Initial Term of 66 months and an option to renew for a term of 36 months (the Renewal Term). During the Initial Term, Acquisition will pay rent consisting of (a) Monthly Rent in the amount of $213,669, commencing on September 1, 2001 ; and (b) Quarterly Rent in the amount of $128,201, commencing on December 1, 2001. The aggregate annual rent under the New Lease is estimated at no less than $2 million below the annual debt service that would be owed by the Borrowers under the SouthTrust Loan. (3) As consideration for operating the Facilities, Acquisition will be entitled to management fees consisting of (i) a Monthly Management Fee of 4% of the Facilities' net revenue, payable on a monthly basis and calculated from the immediately preceding month's operations, with the first payment due on October 1, 2001; and (ii) if the Quarterly Rent has been paid for the same quarter, an additional payment equal to 1% of the Facilities' net revenue, payable in arrears on a quarterly basis, with first payment due on December 1, 2001. (4) A portion of the Facilities' net revenue will also be allocated for capital expenditures. All excess revenues will be divided between Acquisition and the Lenders as indicated in the Term Sheet. (5) After the expiration of the Initial Term, rent during the 36-month renewal term will be fixed at fair market value determined at the time of renewal, but shall in no event be less than the rent during the Initial Term. The parties will attempt to agree to the rent amount among themselves, but if they are unable to do so, each will appoint an appraiser who is familiar with Texas nursing home rents, and the two appraisers will appoint a third appraiser who will set the rent. (6) During the Initial Term, the Acquisition shall have the exclusive option to purchase the Facilities for the principal amount now owed to SouthTrust ($51,280,431.74). Acquisition shall also have a right of first refusal in the event that the Lenders receive an arm's length offer to purchase the Facilities or an offer to purchase the Lenders' debt position at any time during the Initial Term. (7) The Lenders agree not to sell the Facilities or their debt position for the next 3 years. (8) In the event the Facilities are generating insufficient revenue to pay the both the Monthly Management Fee and the Quarterly Management Fee, the Debtors have the right to terminate the New Lease on 90 days' notice without any further penalties or liabilities, except for the transition obligations referenced in the Term Sheet. The Debtors tell Judge Walrath that the proposed settlement fully and finally resolves, on fair and reasonable terms, the disputed legal and factual issues, the litigation of which undoubtedly would be both costly and time-consuming. Having analyzed the merits of the parties' respective positions on the Adequate Protection Motion and the Valuation Motion, and the likely risks and expenses attendant to litigating the numerous issues emanating from this dispute, the Debtors have determined that entering into a settlement in accordance with the Term Sheet is a more favorable course of action. The Debtors believe that such settlement is in the best interest of the Debtors, their estates, their creditors, and all parties in interest. Specifically, the Debtors note that the proposed settlement affords the Debtors the equivalent of a reduction in their monthly payments to SouthTrust, while allowing the Debtors to retain possession and operate the Facilities with an economic incentive to improve their performance and hopefully ride the tide of a healthcare market rebound. The Debtors believe the monthly revenues will support the reduced monthly fee and allow it to receive a market-rate management fee. The transaction will also eliminate mortgage debt from the Debtors' balance sheets. The settlement gives the Debtors the flexibility to either purchase the Facilities if their value returns or give them back to SouthTrust if their value deteriorates. The settlement also protects the Debtors in the event that SouthTrust decides to get out of its investment by giving the Debtors valuable rights of first refusal. The settlement also allows the Debtors to resolve thorny disputed legal and factual issues, and the incurrence of additional time and expense that would accompany a litigated resolution. Based upon all the reasons, the Debtors believe that the proposed settlement is an eminently fair and reasonable compromise. (Integrated Health Bankruptcy News, Issue No. 18; Bankruptcy Creditors' Service, Inc., 609/392-0900) JORDAN INDUSTRIES: S&P Assigns B+ On $110 Million Bank Facility --------------------------------------------------------------- Standard & Poor's assigned its single-'B'-plus rating to Jordan Industries Inc.'s new $110 million senior secured bank credit facility due 2006. Jordan Industries Inc. Rating $100 million senior secured bank loan B+ Rating Affirmed, Outlook Revised to Negative Jordan Industries Inc. Rating Corporate credit rating B Senior unsecured debt rating B Subordinated debt rating CCC+ In addition, Standard & Poor's revised its outlook on Jordan to negative from stable. The ratings on the company were simultaneously affirmed. At June 30, 2001, debt at Jordan's restricted subsidiaries was about $528 million. The rating actions reflect continued softness in many of Jordan's subsidiaries, and the company's willingness to pursue debt-financed acquisitions during this period of challenging market conditions, which has further eroded very modest credit protection measures and liquidity. The ratings reflect Jordan's very aggressive financial policy and financial profile, tempered by fair niche positions within its restricted subsidiaries. Deerfield, Ill.-based Jordan is a closely held company with a portfolio of business units serving consumer, industrial, specialty printing and labeling, specialty plastic, automotive, and information technology markets. The firm's business units generally have leading positions in niche, modestly cyclical, and highly fragmented markets. Capital investment requirements are limited. Most units, however, have limited growth prospects and face significant pricing pressures. The business strategy is acquisition driven. Transactions are typically modest to moderate in size and can be "tuck-in", complementing existing operations, or strategic, forming new legs. For the first six months of 2001, EBITDA declined by about 40%. As a result, EBITDA to cash interest was thin, at about 1.3 times, while total debt to EBITDA over 9.0x. Although the company was able to improve its working capital management, cash flow from operations was modestly negative in the first half of 2001. Liquidity benefits from Jordan's ownership in its unrestricted subsidiary, Kinetek Inc., discrete business units that could be sold, about $15 million in cash, and sufficient availability under its new bank credit facility. Nonetheless, financial flexibility is modest, reflecting a heavy debt burden and increasing term risk, with Jordan's $214 million 11.75% senior subordinated notes becoming cash pay in October 2002. Jordan has publicly stated that should its EBITDA and cash flow generation continue through 2002 at levels experienced in the first half of 2001, it would barely generate sufficient cash to cover its interest payments. Although liquidity is limited, Jordan purchased four companies through July 2001 for about $10.5 million. In the near term, EBITDA to interest is expected to remain in the vulnerable 1x area. Outlook: Negative Failure to stabilize operations and improve financial flexibility could lead to a ratings downgrade in the near term. LAIDLAW INC: Seeks Open-Ended Extension of Lease Decision Period ---------------------------------------------------------------- Laidlaw Inc. and its affiliates are tenants under 5 unexpired nonresidential real property leases for office space and operational facilities. Thus, the Debtors ask Judge Kaplan to extend the deadline to assume or reject each of the Leases through and including the date on which their Plan of Reorganization is confirmed. The deadline technically expired on August 27, 2001. On that same day, the Debtors raced to the Courthouse for a bridge order extending the assumption-rejection period until the Court can hold a hearing (if that's even necessary) and make a final determination on the Extension Motion. Garry M. Graber, Esq., at Hodgson Russ, in Buffalo, New York, relates that since the Petition Date, the Debtors have been focusing their efforts on completing the smooth transition to operations in chapter 11. Because they were so busy, Mr. Graber says, the Debtors were unable to: (a) evaluate the Leases thoroughly, (b) determine which of the Leases will contribute to the Debtors' restructuring efforts, or (c) solicit the views of the Creditors' Committee, the Bank Group, the Noteholders' Committee and other constituencies regarding the appropriate treatment of each Lease. The Debtors were given 60 days from the filing of these cases to determine which leases they want to assume or reject. But given the importance of the Leases to the Debtors' ongoing operations, Mr. Graber says, it would be impossible for the Debtors to make a decision on such a short period of time. Mr. Graber reminds the Court that there are a lot of issues that the Debtors must consider and resolve in deciding whether to assume, assume and assign, or reject each of the Leases. The Debtors contend that it would be more prudent to wait until the Confirmation Date before they make final assumption or rejection decisions. If the Court will deny the relief requested, Mr. Graber warns, the Debtors might be at risk of prematurely assuming Leases which would later prove to be useless or rejecting Leases which would have been critical to their reorganization efforts. On the other hand, Mr. Graber notes, that if Judge Kaplan will rule favorably, the Debtors promise speed up all evaluations, determinations and negotiations necessary to assume, assume and assign, or reject each of the Leases. While that process is not yet complete, Mr. Graber assures the Court that the Debtors will continue to perform all of their obligations arising under the Leases in a timely fashion, including payment of all post- petition rent due. Thus, Mr. Graber asserts that granting this motion will not prejudice the Lessors under these Leases: Location Lessor -------- ------ 1) 181 Bay Street BCE Place (Wellington) Limited Toronto, Ontario c/o Brookfield Development Corp. P.O. Box 746 Toronto, Canada 2) Office Space, London Decade Corporation 252 Pall Mall Street, Suite 303 London, Canada 3) 1108 Derwent Way Grosvenor Int'1 Holding Ltd. Annacis Business Park 777 Hornby Street New Westminster, BC 19th Floor Vancouver BC Canada 4) 3255 North Service Road Knaul, Marie Burlington, Ontario c/o 417 Parliament Street Toronto, Canada 5) 12301 Wilshire Blvd. Mutual Life Insurance Co. of NY Suite 301 c/o Ardent Realty Ltd. Partnership Los Angeles, California 19712 MacArthur Blvd., Ste. 200 Irvine, California 92612 (Laidlaw Bankruptcy News, Issue No. 6; Bankruptcy Creditors' Service, Inc., 609/392-0900) LA PETITE: S&P Junk Ratings Reflect Weak Operating Performance -------------------------------------------------------------- Standard & Poor's lowered its corporate credit and senior secured ratings on La Petite Academy Inc. to triple-'C'-plus from single-'B', and its senior unsecured rating to triple-'C'- minus from single-'B'-minus. The senior unsecured rating is lowered three notches rather than two, considering the substantial amount of secured debt and Standard & Poor's increasing concern with the asset value of the child-care firm. At the same time, the ratings are placed on CreditWatch with negative implications. About $207 million of debt and bank loans are affected. The rating downgrade reflects the company's weak operating performance, and diminished operating and financial flexibility. Overland Park, Kan.-based La Petite is the second-largest chain provider of preschool education and child care in the U.S., operating about 750 centers nationwide. However, the company has been unable to achieve the operating improvements necessary for it to contend with the heavy debt burden associated with its recapitalization in 1998. The company announced that it is in default of certain financial covenants contained in its senior secured bank agreement. Absent external funding, or a dramatic improvement in working capital, the company will be unable to meet an upcoming interest payment due on November 15, 2001. La Petite is expected to pursue a waiver of its financial covenant violations and amendments on its bank loan. Furthermore, the company has hired Chanin Capital Partners LLC to assess strategic alternatives, including a financial restructuring of the company. The CreditWatch listing incorporates the possibility that the ratings could be lowered further, if La Petite is unsuccessful in its efforts to improve its financial flexibility. LTV CORP: Seeks Court Approval of Revised Financing Agreement ------------------------------------------------------------- Bennett J. Murphy of the Los Angeles firm of Hennigan, Bennett & Dorman, acting as Special Litigation and Financing Counsel for The LTV Corporation, Frederic L. Ragucci of the New York firm of Schulte Roth & Zabel LLP, as counsel for Abelco Finance LLC, lender and Collateral Agent, and CIT Group/Business Credit, Inc., as lender and Administrative Agent, and Lindsee P. Granfield of the New York firm of Cleary, Gottlieb Steen & Hamilton, as counsel for Abbey national Treasury Services plc, as lender and Syndication Agent, join each of Lisa G. Beckerman of the new York firm of Akin Gump Strauss Hauer & Feld LLP, as counsel for the Official Committee of Noteholders, and Ron Francis of the Pittsburgh firm of Reed Smith as counsel for the Official Committee of Trade Creditors, in a Stipulation seeking Judge Bodoh's approval of a First Amendment to the Financing Agreement dated April 2, 2001. The Debtors entered into and the Court by its Order approved the Debtors' Motion for Order Approving Post-Petition Financing and Related Relief, and Granting Security Interests and Superpriority Claims entered on March 20, 2001, effectuating a Financing Agreement dated as of April 2, 2001, with Group/Business Credit, Inc., the Administrative Agent, and Abbey National Treasury Services plc as the Syndication Agent, whereby the Lenders agreed to provide up to $100,000,000 of debtor-in-possession financing to the Debtors. The Debtors have advised the Agents that EBITDA reported by VP Buildings for the period ending June 30, 2001, did not meet the level specified in Section 7.03(b) of the Financing Agreement for such period, thereby giving rise to an Event of Default under section 9.01(c) of the Financing Agreement. The Required Lenders have agreed to waive this default and modify the Financing Agreement pursuant to the terms in the First Amendment to Financing Agreement. In consideration for certain of the modifications to the Financing Agreement and the waiver contained in the Amendment, the Debtors have agreed to pay the Administrative Agent for the benefit of the Lenders a $200,000 amendment fee and to pay all reasonable costs and expenses of the Agents incurred in connection with the Amendment. The Debtors and other parties stipulate that the terms of the Amendment are "fair and reasonable" and the approval of the Amendment is in the best interests of the Debtors and their estates. (LTV Bankruptcy News, Issue No. 14; Bankruptcy Creditors' Service, Inc., 609/392-00900) MEDIQ: Court Sets Oct. 25 as Bar Date for Filing Proofs of Claim ---------------------------------------------------------------- UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE _______________________________x In re: : Chapter 11 MEDIQ INCORPORATED, et al., : Case No.: 01-252 (MFW) Debtors, : Jointly Administered _______________________________x NOTICE OF BAR DATE TO FILE PROOFS OF CLAIM __________________________________________ PLEASE TAKE NOTICE that the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") has entered an Order establishing October 25, 2001 (the "Bar Date"), as the last date to file proofs of claim for the purpose of asserting claims against any of the debtors in the above- captioned cases (the "Debtors") that arose before January 24, 2001 (the "Petition Date") and that have not yet been paid. PLEASE TAKE FURTHER NOTICE that if you own or hold any of the Debtors' stock or other equity securities, you need not file a proof on interest solely on account of your ownership interest or possession of such equity securities. PLEASE TAKE FURTHER NOTICE that the deadline to submit a rejection damages claim arising from the Debtors' rejection during these chapter 11 cases of an executory contract or unexpired lease has been set by previous order of the bankruptcy court. Any other claims arising before the Petition Date respecting any leases or contracts of the Debtors must be filed by the Bar Date. PLEASE TAKE FURTHER NOTICE that you should not file a proof of claim if you do not have a claim against any of the Debtors. Moreover, the Debtors of their attorneys cannot tell you whether you have such a claim or whether you should file a proof of claim. PLEASE TAKE FURTHER NOTICE that if you decide to file a proof of claim, you must complete a proof of claim from the deliver it by mail, hand delivery or overnight courier, together with any supporting documentation for your claim to the Claims Agent appointed by the Bankruptcy Court at the following address: MEDIQ INCORPORATED, et al. c/o THE ALTMAN GROUP, INC. 60 East 42nd Street, Suite 1241 New York, New York 10165 (212) 681-9600 PLEASE TAKE FURTHER NOTICE that if you wish to assert claims against more than one Debtor, you must file a separate proof of claim in the case of each Debtor against which you believe you hold a claim. You may request additional proof of claim forms from the Claims Agent at telephone number (212) 681- 9600. PLEASE TAKE FURTHER NOTICE that each signed original proof of claim form must be ACTUALLY RECEIVED by the Claims Agent on or before 4:00 p.m. (EST) on the Bar Date. The Claims Agent shall reject any facsimile or electronic submissions. PLEASE TAKE FURTHER NOTICE that if you are required to submit a proof of claim to preserve your claim against any of the Debtors and the Claims Agent does not actually receive your original proof of claim in the manner described above on or before the Bar Date or other applicable deadline, you shall be forever barred from asserting any such claim against any of the Debtors or their successors or assigns, and you will be barred from receiving any distribution made during these chapter 11 cases by the Debtors to their creditors. DECHERT RICHARDS, LAYTON & FINGER, P.A. 30 Rockefeller Plaza One Rodney Square, 9th Floor New York, NY 10112 Wilmington, DE 19899 Attn: Joel H. Levitin, Esq. Attn: Mark D. Collings, Esq. Co-Counsel for the Debtors and Debtors-in-Possession METRICOM INC: Nasdaq Delists Securities Effective September 10 -------------------------------------------------------------- Metricom Inc. (Nasdaq:MCOQE), a company that provided high-speed wireless data services, announced that it has been notified by Nasdaq that its securities would be delisted from The Nasdaq Stock Market effective as of the opening of business on Monday, September 10, 2001. This notification follows Metricom's withdrawal of its request for a hearing before a Nasdaq Listing Qualifications Panel to consider the delisting determination previously made by the Nasdaq staff. Trading in Metricom's common stock has been suspended since July 2, 2001, following its announcement that it had filed for protection under Chapter 11 of the U.S. Bankruptcy Code. The Company anticipates that its securities may be quoted on the Pink Sheets following delisting from The Nasdaq Stock Market. MIDWAY AIRLINES: Nasdaq Delists Common Stock Effective Sept. 8 -------------------------------------------------------------- Midway Airlines Corporation announced that due to its August 13th filing for reorganization under Chapter 11 of the U.S. Bankruptcy Code, it no longer complies with the requirements for the continued listing of its common stock (MDWYQ) on the Nasdaq National Market. The common stock will therefore be delisted from trading effective September 8, 2001. Trading on the stock has been halted since the August 13th reorganization filing. Due to the uncertainties surrounding the value of the common stock post-reorganization, the company has no plans to list the securities for trading on another exchange at this time. However, independent brokers may seek to create a market for the company's common stock in over-the-counter markets such as the OTC Bulletin Board(R) or the Pink Sheets(R), although the company is not currently aware of any efforts to do so. Market makers do not need the company's cooperation to make a market in its securities. NEWCOR INC.: S&P Assigns D Ratings After Default on Notes --------------------------------------------------------- Standard & Poor's today lowered its corporate credit rating on Newcor Inc. to 'D' from triple-'C' and its subordinated debt rating on the company to 'D' from double-'C'. At the same time, the ratings are removed from CreditWatch, where they were placed on August 30, 2001. The rating actions follow Newcor's failure to make the Sept. 4, 2001, semi-annual interest payment on its 9.875% senior subordinated notes due 2008. The company indicated that it would explore alternatives to access funds to meet its interest obligations, but did not specify what those alternatives might be. Cash flow generation is expected to remain very weak given the depressed near-term outlook for its key markets. It is therefore problematic that the company could effect a recapitalization without material impairment for bondholders. Newcor is a manufacturer of precision-machined components and assemblies; molded rubber and plastic products; and specialty equipment for the automotive, medium- and heavy-duty truck, and agricultural vehicle markets. Demand in all of Newcor's end markets has declined during the past year. The heavy-duty truck and agricultural equipment markets have experienced an especially steep decline, and no material recovery is expected in the near term. Industry pressures translated into a 30% decrease in sales for the first six months of 2001, compared with the same period the previous year, and a 71% decline in operating income. Debt to EBITDA, on a 12-month rolling average, stands at 16.9 times, up from 5.0x for the same period the previous year, and leverage will remain very aggressive until markets recover. NIAGARA MOHAWK: Negative Capital Balance Pegged at $568.5MM ----------------------------------------------------------- Niagara Mohawk Holdings, Inc.'s loss for the second quarter of 2001 was $80.0 million, as compared with a loss of $19.7 million for the second quarter of 2000. The loss for the second quarter of 2001 includes a charge of $44.0 million due to the recognition of an impairment charge of its entire investment in Telergy, Inc., a development stage telecommunications company, as a result of Holdings' assessment of its investment in Telergy, Inc.. The loss for the second quarter of 2000 includes extraordinary charges related to the early repayment of debt of $0.9 million. According to the Company second quarter results for 2001, as compared with the second quarter of 2000, were negatively impacted by the following items: * Niagara Mohawk's exposure to higher natural gas prices in its purchased power portfolio of $16.1 million, principally because restructured contracts with IPPs began indexing to natural gas prices in July 2000. Fuel and purchased power costs were also higher because of an indexed contract with an IPP not part of the MRA. Niagara Mohawk has taken steps to hedge against further volatility in natural gas prices, largely by purchasing NYMEX gas futures contracts through August 2001, which marks the end of the fixed price period in Niagara Mohawk's multi-year regulatory agreement. * Changes in the percentage allocation of federal income taxes in the second quarter 2001 as compared to the same period in 2000 of $22.6 million. The effective tax rate will differ from the statutory rate primarily due to the flow-through of certain tax benefits or liabilities as required by the PSC. * Lower subsidiary earnings of 3 cents per share primarily as a result of market-to-market losses on the trading portion of Niagara Mohawk Energy's portfolio. No auction incentive was recorded in the second quarter 2001 and an auction incentive of $6.0 million was recorded in the second quarter 2000. A reduction in regulated electric revenues by $2.7 million as a result of the implementation of Niagara Mohawk's third phase of rate reductions in September 2000 under Power Choice. Second quarter results have been positively impacted by the following items: * Lower interest expense of approximately $10.0 million due to the repayment of debt during 2000 and 2001. * Receipt of multi state tax refunds from a previously owned subsidiary of $3.9 million related to tax periods prior to 1995. The increase in GRT credits received by Niagara Mohawk of $5.2 million due to an increase in the customers in Niagara Mohawk's service territory that participate in New York State's Power for Jobs program. Liquidity At June 30, 2001, Holdings and Niagara Mohawk's principal sources of liquidity included cash and cash equivalents of $169.2 million and $82.7 million, respectively, and accounts receivable of $307.3 million and $264.4 million, respectively. Holdings and Niagara Mohawk have a negative working capital balance of $426.5 million and $568.5 million, respectively, primarily due to long-term debt due within one year of $418.1 million at Niagara Mohawk and short-term debt of $5.0 million. Ordinarily, construction related short-term borrowings are refunded with long-term securities on a periodic basis. This approach generally results in a working capital deficit. Working capital deficits may also be a result of the seasonal nature of Niagara Mohawk's operations as well as the timing of differences between the collection of customer receivables and the payments of fuel and purchased power costs. Although the Company's total current assets of $698.8 million is way below its total current liabilities of $1.12 billion, Niagara Mohawk believes it has sufficient cash flow and borrowing capacity to fund such deficits as necessary in the near term. NIKE: Portland Expo. Bldg. New Venue for Shareholders' Meeting -------------------------------------------------------------- Nike Inc. has changed the location of the NIKE, Inc. annual meeting of shareholders. The date and time are the same. The meeting will be held at the Portland Exposition Building, 239 Park Avenue, Portland, Maine 04102, on Monday, September 17, 2001 at 1:00 P.M. Eastern Time. The doors will open for registration at 12:00 noon. Shareholders must present an admission ticket enclosed in the Proxy Statement. OWENS CORNING: Seeks Third Extension of Removal Period to May 28 ---------------------------------------------------------------- Owens Corning asks the Court to extend the deadline by which they must decide whether to remove any prepetition lawsuits to the District of Delaware to May 28, 2002. J. Kate Stickles, Esq., at Saul Ewing LLP, of Wilmington, Delaware contends that the Debtors have not had much opportunity to evaluate and determine which actions to remove. She reveals that the Debtors and their counsel also have to manage and maintain their business operations while administering these chapter 11 cases. Without the requested extension, the Debtors could make removal decisions that might prove disadvantageous to the estates. Ms. Stickles asserts that none of the Debtors' adversaries will be prejudiced by the requested time extension, as each individual action is stayed by the operation of section 362 of the Bankruptcy Code. Lastly, she argues that if the Debtors seek to remove any of the individual actions, any party to that action may seek to have it remanded. (Owens Corning Bankruptcy News, Issue No. 16; Bankruptcy Creditors' Service, Inc., 609/392-0900) PACIFIC GAS: Seeks Approval of Stipulation with Credit Enhancers ---------------------------------------------------------------- In order to preserve favorable bond financing with tax-exempt status related to Pollution Control Revenue Bonds, commenced pre-petition, and in light of the constraint on Pacific Gas and Electric Company after the chapter 11 petition from reimbursing either the Letter of Credit Issuing Banks or MBIA Insurance Corporation (the issuer of a financial guaranty insurance policy - the PC Bond Insurance Policy) for payments they have made pursuant to the several post-petition draws by the Bond Trustee, PG&E seeks the Court's approval of a Stipulation with various Credit Enhancers. Background and Mechanics of Subject Bond Issuances (1) Revenue Bonds and Credit Enhanced Revenue Bonds The California Pollution Control Financing Authority, a public instrumentality and political subdivision of the State of California was the Issuer of Revenue Bonds pursuant to various separate trust indentures between the Issuer and Bankers Trust Company as the Bond Trustee and various corresponding loan agreements between the Issuer and PG&E. As of the petition date, the Issuer had issued and outstanding 15 series of its revenue bonds in aggregate principal amount of approximately $1.69 billion. As of the date of the motion, 11 series of such revenue bonds remain outstanding in the aggregate principal amount of approximately $1.24 billion. Five of these 11 series are credit-enhanced revenue bonds (the Credit Enhanced PC Bonds) in the aggregate principal amount of approximately $814 million. The Issuer loaned the proceeds from the sale of each series of Credit Enhanced PC Bonds to PG&E for the purpose of financing or refinancing the acquisition and/or construction of certain pollution control, sewage disposal and/or solid waste disposal facilities of PG&E located within the State of California. Pursuant to the Bond Loan Agreements, PG&E agreed, among other things, to repay the Bond Loans at the times and in the amounts necessary to enable the Issuer to make full and timely payment of (i) the principal of, (ii) premium, if any, and (iii) interest on, each series of Credit Enhanced PC Bonds when due and to pay the purchase price of any Credit Enhanced PC Bonds tendered for purchase by PG&E in accordance with the terms of the applicable Indenture. Pursuant to the terms of each of the Indentures, the Issuer assigned to the Bond Trustee, for the benefit of the holders of the respective series of Credit Enhanced PC Bonds, certain of the Issuer's rights under the various Loan Agreements, including the Issuer's right under the Loan Agreements to receive the above-mentioned payments from PG&E. In this manner, the Issuer acted solely as a conduit, loaning the proceeds from the sale of the Credit Enhanced PC Bonds to PG&E and assigning its right to receive repayment of such loans to the Bond Trustee as security for the Credit Enhanced PC Bonds and to provide funds for the full payment of the respective Credit Enhanced PC Bonds. The Credit Enhanced PC Bonds are special limited obligations of the Issuer payable exclusively out of the trust estates under each of the Indentures. None of the Credit Enhanced PC Bonds constitute a debt or liability, or a pledge of the faith, credit or taxing power of the Issuer, the State of California or any of its instrumentalities or political subdivisions. Rather, each series of Credit Enhanced PC Bonds is a limited obligation of the Issuer payable solely from the revenues derived by the Issuer from PG&E pursuant to the terms of the related Loan Agreement to the extent pledged by the Issuer to the Bond Trustee under the terms of the applicable Indenture, and from certain other funds pledged and assigned as part of the trust estates under the applicable Indentures. (2) Letter of Credit Backed PC Bonds With respect to each series of Credit Enhanced PC Bonds other than the 96A Bonds (collectively, the "Letter of Credit Backed PC Bonds"), PG&E entered into a reimbursement agreement (each, a "Letter of Credit Reimbursement Agreement") with a bank (each, a "Letter of Credit Issuing Bank") and certain banking or other financial institutions (each, a "Bank"), pursuant to which the Letter of Credit Issuing Bank issued its irrevocable letter of credit to the Bond Trustee, for the account of PG&E, to provide for the payment of the principal of and interest on the related series of Letter of Credit Backed PC Bonds and to support the payment of the purchase price of any Letter of Credit Backed PC Bonds tendered for purchase in accordance with the terms of the applicable Indenture. Under the terms of each Letter of Credit Reimbursement Agreement, PG&E is obligated to reimburse the Letter of Credit Issuing Bank for all amounts drawn on the related Letter of Credit. Each Letter of Credit was issued in an initial stated amount equal to the sum of (i) the aggregate outstanding principal amount of the related series of Letter of Credit Backed PC Bonds (the "Principal Portion"), plus (ii) an amount equal to the amount of accrued interest on the outstanding principal amount of the related series of Letter of Credit Backed PC Bonds at an assumed maximum annual rate for a specified period of days as set forth in the Letter of Credit (the "Interest Portion"). The Stated Amount of each Letter of Credit is reduced by the amount of each drawing paid thereunder, subject to the provision that (a) with respect to amounts drawn for the payment of scheduled interest on the related Letter of Credit Backed PC Bonds, the Interest Portion of the Stated Amount is automatically reinstated unless the Letter of Credit Issuing Bank gives notice to the contrary to the Bond Trustee in accordance with the terms of the applicable the Letter of Credit, and (b) with respect to amounts drawn to pay the purchase price of Letter of Credit Backed PC Bonds, the amount so drawn is subject to reinstatement upon the terms set forth in the applicable Letter of Credit. Under the terms of each of the Indentures pursuant to which each series of Letter of Credit Backed PC Bonds were issued, each regularly scheduled payment of the principal of, or interest on, the Letter of Credit Backed PC Bonds is made from moneys drawn by the Bond Trustee under the related Letter of Credit. The obligation of PG&E to repay the loan under the Loan Agreement is deemed satisfied to the extent of any corresponding payment made by the Letter of Credit Issuing Bank under the terms of the Letter of Credit. With respect to each such drawing, PG&E is then obligated under the applicable Letter of Credit Reimbursement Agreement to reimburse the Letter of Credit Issuing Bank for the amount of such drawing. Only if the Letter of Credit Issuing Bank dishonors a drawing, or there is no Letter of Credit then in effect, is the Bond Trustee authorized under the terms of the Indenture to collect Bond Loan payments under the respective Loan Agreement and apply such funds to the payment of the principal of, or interest on, the related Letter of Credit Backed PC Bonds. Accordingly, with respect to each series of Letter of Credit Backed PC Bonds for which the related Letter of Credit remains outstanding, all payments of the principal of, and interest on, the Letter of Credit Backed PC Bonds have been fully and timely made when due from draws made by the respective Bond Trustee on the respective Letter of Credit in accordance with the terms of such Letter of Credit and the related Indenture. (3) The MBIA-Enhanced 96A Bonds In connection with the 96A Bonds, PG&E entered into a reimbursement and indemnity agreement with MBIA Insurance Corporation pursuant to which MBIA issued its financial guaranty insurance policy (the "PC Bond Insurance Policy") insuring the full payment of regularly scheduled principal of and interest (but not premium) on the 96A Bonds. The PC Bond Insurance Policy unconditionally and irrevocably guarantees: (a) the full and complete payment to the Bond Trustee of an amount equal to the principal of and interest on the MBIA Insured PC Bonds as such payments shall become due but unpaid (except that in the event of any acceleration of the due date of such principal by redemption or other reason, other than any mandatory sinking fund payment or mandatory redemption upon the occurrence of a determination of taxability of the 96A Bonds, the payments guarantee by the PC Bond Insurance Policy shall be made in such amounts and at such times as if there had not been any such acceleration); and (b) the reimbursement of any such payment which is subsequently recovered from any owner of 96A Bonds pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law. Under the terms of the MBIA Reimbursement Agreement, PG&E is obligated to reimburse MBIA for all payments made by MBIA to the Bond Trustee under the PC Bond Insurance Policy and to indemnify MBIA against certain liabilities, costs and expenses that it may sustain in connection with the 96A Bonds. (4) Tax-Exempt Status of Credit Enhanced PC Bonds All of the Credit Enhanced PC Bonds (i.e., both the Letter of Credit Backed PC Bonds and the 96A Bonds) were sold in the capital markets on the basis that, assuming PG&E continues to comply with certain covenants contained in the Loan Agreements and certain related documents (collectively, the "PC Bond Documents") and with certain exceptions, interest on such series of Credit Enhanced PC Bonds would not be includable in the gross income of the holders for federal income tax purposes or California personal income taxes. The tax-exempt status of the Credit Enhanced PC Bonds has allowed such bonds to be issued at favorable interest rates, thus allowing PG&E to finance certain of its capital improvements and other qualified costs at rates substantially below comparable conventional taxable financing alternatives available to PG&E. Based on the tax-exempt status of the Credit Enhanced PC Bonds, their credit enhancement and their commensurate credit rating, the Credit Enhanced PC Bonds currently accrue interest at the average blended interest rate of only 3.66% per annum, calculated as of August 8, 2001, shortly before the filing of this Motion. In the event that any of the Credit Enhanced PC Bonds were to be redeemed in accordance with the terms of their respective Indentures, it may not be possible under current law to reissue such bonds on a tax-exempt basis. PG&E desires to keep the Credit Enhanced PC Bonds outstanding in order to preserve the substantial benefits of such tax-exempt financing. Post-Petition Status and Necessity for the Relief Since the Petition Date, all of the Credit Enhanced PC Bonds have remained outstanding, and each scheduled interest payment due has been fully and timely made by the Bond Trustee through the use of draws made on the respective Letters of Credit or payments made under the PC Bond Insurance Policy issued by MBIA. However, consistent with its duties as a Chapter 11 debtor in possession, PG&E has not reimbursed either the Letter of Credit Issuing Banks or MBIA for any of the payments. Following each such drawing by the Bond Trustee in May, June, July and August 2001, each of the Letter of Credit Issuing Banks has allowed the Interest Portion of its respective Letter of Credit to automatically reinstate in accordance with the terms. The next interest draw on the Letters of Credit will be on or about September 4, 2001, and each Letter of Credit Issuing Bank thereafter has until on or about September 10, 2001 to decide whether to give notice to the Bond Trustee that such Letter of Credit Issuing Bank's Letter of Credit will not be reinstated or to stay silent and permit an automatic reinstatement. Each of the Letter of Credit Issuing Banks and MBIA claim that they have the right upon the passage of time, or the giving of notice, or both, (a) to declare a default under its respective Reimbursement Agreement, (b) to notify the Bond Trustee of such default, and (c) to direct the Bond Trustee to call an Event of Default under the terms of the respective Indenture and to declare the respective series of Credit Enhanced PC Bonds immediately due and payable. Thus, PG&E cannot take for granted the continued benefits of the tax-exempt financing: -- In the case of the Letter of Credit Backed PC Bonds, the Bond Trustee would, in accordance with the terms of the respective Indentures and the respective Letters of Credit, draw upon the respective Letters of Credit, and apply such drawn funds to the full payment and cancellation of the related outstanding Letter of Credit Backed PC Bonds, with the end result that this tax-preferred financing would no longer be outstanding, and -- In the case of the 96A Bonds, the Bond Trustee may make demand upon PG&E for the full outstanding amount of the 96A Bonds and, because PG&E could not honor such demand as a Chapter 11 debtor in possession, may then draw on the PC Bond Insurance Policy from time to time to the extent of the regularly scheduled amounts specified in the PC Bond Insurance Policy. During the first several months of the PG&E Chapter 11 case, the Letter of Credit Issuing Banks and MBIA (the Credit Enhancers) refrained from taking the actions described above. However, they have indicated to PG&E that they required some type of comfort agreement with PG&E that would need to be approved by the Bankruptcy Court if they were to consider any further such restraint. For the past several weeks, PG&E and the Credit Enhancers have engaged in discussions, culminating in the proposed Stipulation. Summary of Terms of Stipulation The principal terms of the Stipulation are summarized as follows: Term No. 1: Any post-Petition interest drawings under the Letters of Credit shall result in allowed claims against PG&E and its bankruptcy estate in favor of the applicable Letter of Credit Issuing Banks. Similarly, any post-petition interest payments on the PC Bond Insurance Policy shall result in allowed claims against PG&E and its bankruptcy estate in favor of MBIA. In addition, to the extent provided for under the applicable Reimbursement Agreements or any Agreement To Extend The Letter of Credit that is entered into pursuant to the Stipulation, the fees and expenses of the Letter of Credit Issuing Banks, the Banks and MBIA (including, to the extent incurred post-petition in connection with this Chapter 11 case, the fees and expenses of unrelated third-party professionals' retained by the Letter of Credit Issuing Banks, the Banks and MBIA) will result in allowed claims, to the extent that the fees and expenses of the professionals of the Letter of Credit Issuing Banks and the Banks were incurred for services that were not duplicative of the services of third party professionals of the Letter of Credit Issuing Banks, and provided further that PG&E and any other parties in interest reserve the right to object to all professional fees and expenses on the grounds of reasonableness. The Stipulation and order will be without prejudice to: (a) claimant's right or ability to argue that the allowed claims constitute administrative expense claims under Sections 503(b) and 507(a)(l) of the Bankruptcy Code, or (b) PG&E's and any other party in interest's right or ability to oppose any such argument. While the Stipulation provides for the allowance of the specified claims, it does not provide for the payment of the claims, and, absent further Court order, PG&E will not be making any payment on account of such allowed claims. Explanation of Term No. 1: The Letter of Credit Issuing Banks and MBIA believe it fair and appropriate that they have the comfort of knowing now that they will have allowed claims for any post-petition payments they make to the Bond Trustee on account of draws for interest, as well as for various fees and expenses incurred by them. Term No. 2: PG&E will pay, on a current basis, the fees and reasonable out- of-pocket expenses of the remarketing agents, the credit rating agencies, the tender agents and the Bond Trustee associated with the maintenance of the Credit Enhanced PC Bonds as set forth on Schedule 1 to the Stipulation, to the extent such fees and reasonable out-of-pocket expenses are payable in accordance with the terms of the applicable underlying agreements and are incurred with respect to the post-petition period. Explanation of Term No. 2: These fees and expenses are necessary for keeping the Credit- Enhanced PC Bonds outstanding and for taking the minimum steps to maintain a market for them. Term No. 3: At any time there is an "Event of Default" under the applicable Reimbursement Agreements, the Letter of Credit Issuing Banks and MBIA have the continuing right, pursuant to the applicable Reimbursement Agreement and Indenture, to notify the Bond Trustee of the occurrence or existence of one or more "Events of Default" under the applicable Reimbursement Agreements and to direct the Bond Trustee to declare an "Event of Default" under such Indenture, notwithstanding their failure to exercise such right at any time. In addition, so long as a Letter of Credit Issuing Bank is not reimbursed in full for drawings honored by such Letter of Credit Issuing Bank under the Letter of Credit issued by it, such Letter of Credit Issuing Bank shall have, among other things, the continuing right (pursuant to the respective Letter of Credit Reimbursement Agreement, Letter of Credit and the Indenture) to notify the Bond Trustee of such failure to be reimbursed in full and to state that the amount available to be drawn under the Letter of Credit to pay interest on such Credit Enhanced PC Bonds has not been reinstated, notwithstanding the failure of the Letter of Credit Bank to exercise such right at any time. Finally, the Letter of Credit Issuing Banks and the Banks have the continuing right to refuse to extend the terms of the Letters of Credit upon their respective maturities. At the same time, however, upon terms mutually acceptable to PG&E and the respective Letter of Credit Issuing Banks and the Banks, the terms of one or more of the Letters of Credit may be extended to the extent permitted under the terms of the existing documents pertaining to the Credit Enhanced PC Bonds. Explanation of Term No. 3: These points merely restate the existing provisions of the Reimbursement Agreements and do not confer any new rights on anyone. The Letter of Credit Issuing Banks and MBIA merely wanted to confirm that in entering into the Stipulation, they were not intending to affect these bedrock provisions of the Reimbursement Agreements. Term No. 4: PG&E's previous entry into the amendments to the Reimbursement Agreement with Deutsche Bank AG as the Letter of Credit Issuing Bank and with the Banks parties thereto (the "DB Reimbursement Agreement"), (the "Prior Amendments"), is ratified and approved. Further, PG&E consents to the form of future amendments to the DB Reimbursement Agreement, substantially in the same form as the Prior Amendments, which address allocation issues among Deutsche Bank AG and the Banks that are parties to the DB Reimbursement Agreement; provided, however, that with the approval of PG&E and the other parties to the DB Reimbursement Agreement, any one or more of such future amendments may reflect an extension of time that is different than the extension contained in the Prior Amendments. PG&E also consents to the form of Agreement to Extend the Letter of Credit and the related form of amendment to the applicable Letters of Credit, both attached as Exhibit C to the Stipulation, with respect to the extension of the term of the Letters of Credit. PG&E is authorized, but not required, to execute any such amendments in substantially the form of Exhibits B or C to the Stipulation from time to time without further order of the Court. Explanation of Term No. 4: The Letter of Credit Issuing Banks reasonably want to amend the applicable Letter of Credit Reimbursement Agreements to take into account the reality that the dollar amount of the aggregate liabilities of the Letter of Credit Issuing Banks and the Banks under the Letters of Credit increase each month that the Letter of Credit Issuing Banks allow an automatic reinstatement to take place, thus increasing the overall exposure of the Letter of Credit Issuing Banks because PG&E has not been reimbursing any of the Letter of Credit Issuing Banks for the Bond Trustee's monthly interest draws since the first post-petition draw in May 2001. Similarly, PG&E wants the ability to facilitate the extension of the Letters of Credit so long as PG&E deems an extension desirable, since extensions of the Letters of Credit will or may be necessary from time to time to keep the Credit Enhanced PC Bonds in place and outstanding. * * * The form of Agreement to Extend the Letter of Credit contemplates that the periodic commitment fee for the applicable extension term may be different than that prior to the extension term, and will only be determined by the parties at the time any such Extension Agreement is entered into, and any such periodic commitment fee under any such Extension Agreement shall constitute an allowed claim pursuant to the provisions of Paragraph 4 of the Stipulation as summarized under "Term No. 1," Accordingly, PG&E, in seeking the Court's authorization to enter into any future Extension Agreement as part of the Stipulation, is also seeking authorization to agree upon the applicable periodic commitment fee for the extension term at the time such Extension Agreement is entered into. PG&E represents that this is reasonable because commitment fees for material extension terms of letters of credit are functionally equivalent to commitment fees for a new letter of credit, and are typically determined based on market factors at the time such extension is entered into. Further, PG&E says that the Court and parties in interest need not be concerned based on other provisions of the Stipulation: first, if the Motion is granted, PG&E will have the authority but not the obligation to enter into any Extension Agreement; and second, although the periodic commitment fee agreed to in any Extension Agreement will be an allowed claim pursuant to the Stipulation, it, like the other claims allowed pursuant to the Stipulation, will be paid by the estate on a current basis absent a further Court order. PG&E submits that the Stipulation should be approved because there is little hope or prospect of keeping the tax-exempt Credit Enhanced PC Bonds outstanding without approval of the Stipulation. The Debtor is aware that arguably no concession has virtually been made in the Stipulation. PG&E is also mindful that so long as the subject Letters of Credit are reinstated, the Bond Trustee's monthly drawings thereunder are used to fund interest payments on the Letter of Credit Backed PC Bonds, and most of the payments made under MBIA's PC Bond Insurance Policy during the term thereof are used for a similar purpose, and post- petition interest is generally disallowed under Section 502(b)(2) of the Bankruptcy Code, subject to limited exceptions. Thus, an argument could also be made that the claims of the Letter of Credit Issuing Banks under the Letter of Credit Reimbursement Agreements (and MBIA under the MBIA Reimbursement Agreement) in respect of draws that are utilized to fund post- petition interest payments should similarly be disallowed, PG&E notes. For two reasons PG&E does not believe this argument should carry the day and stand as an obstacle to approval of the Stipulation. First, by analogy to the "independence principle" in letter of credit law (viz., that the obligations of the issuing bank to the beneficiary and of the account party to the issuing bank are separate and independent from any rights, obligations, claims or defenses of the beneficiary and account party vis-a-vis each other), the issuing bank's rights and claims against the account party under the reimbursement agreement should be separate and independent from the beneficiary's use of the draws under the letter of credit. Thus, the fact that the Bond Trustee uses the monthly draws under the Letters of Credit and the MBIA Reimbursement Agreement to pay interest to the bondholders arguably should not affect the allowability of the honoring Banks' or MBIA's claims under their respective reimbursement agreements. Second, here the advantage and benefit of the Credit Enhanced PC Bonds are sufficiently great that the allowance issue should not become an impediment to the Stipulation. This is particularly true since PG&E has repeatedly announced its intent to propound a full payment plan of reorganization, which ultimately should provide for and allow for the payment of all interest due on the Credit Enhanced PC Bonds to the extent not previously paid in full. Certain of the Credit Enhancers have indicated that unless the Stipulation is presented to and approved by the Court before September 10, 2001, they may proceed to take the actions described in the preceding paragraph. Similarly, some of the Letter of Credit Issuing Banks have also have indicated that they in all likelihood will decline to allow the automatic reinstatement of their respective Letters of Credit following the September 2001 drawing, which would result in a similar acceleration of the Letter of Credit Backed PC Bonds, unless the Stipulation is timely heard and approved by the Court. Because such actions by the Letter of Credit Issuing Banks and/or MBIA could result in the loss to PG&E and its estate of the significant benefits of the tax-exempt financing afforded by the respective Credit Enhanced PC Bonds, PG&E has determined that it is in the best interests of PG&E and its estate to enter into the Stipulation and to seek the Court's approval of the Stipulation on or before September 7. For all the reasons cited, PG&E requests that the Court grant the Motion, thereby approving the terms of the Stipulation that PG&E provisionally entered into with the Letter of Credit Issuing Banks and MBIA. (Pacific Gas Bankruptcy News, Issue No. 13; Bankruptcy Creditors' Service, Inc., 609/392-0900) PILLOWTEX CORP: Proposes to Reject Contracts with Alice Mills ------------------------------------------------------------- In September 2000, Pillowtex Corporation entered into a Settlement Agreement and General Release with Alice Mills, Inc., which resolved certain disputes relating to, and modified, 3 contracts between Fieldcrest Cannon and Alice Mills for the purchase of fabric. Pursuant to these Contracts, the Debtors are obligated to purchase no fewer than 2,851,934 yards of polyester/cotton fabric from Alice Mills in equal monthly quantities over a 9- month period starting September 2000. The Debtors are required to pay for the fabric in 9 equal monthly installments. The total price for all of the fabric under the Contracts is $2,773,884.98. But Eric D. Schwartz, Esq., at Morris, Nichols, Arsht & Tunnell, in Wilmington, Delaware, says the fabric to be purchased under the Contracts is no longer needed for the Debtors' businesses. Thus, Mr. Schwartz argues, the rejection of the Contracts will ensure that no administrative expense liability to Alice Mills is incurred. So, the Debtors ask the Court for authority to reject these fabric purchase Contracts with Alice Mills. (Pillowtex Bankruptcy News, Issue No. 12; Bankruptcy Creditors' Service, Inc., 609/392-0900) PSINET INC: Subsidiary Files for Chapter 11 Protection ------------------------------------------------------ PSINet Inc. (OTC BB: PSIXE) announced that its wholly-owned subsidiary, PSINet Consulting Solutions Holdings, Inc. (formerly Metamor Worldwide, Inc.), has signed a definitive agreement with CIBER, Inc. (NYSE:CBR), pursuant to which CIBER will acquire two subsidiaries of PSINet Consulting Solutions Holdings -- Metamor Industry Solutions, Inc., and Metamor Government Services Inc. These entities are engaged in the public sector IT service market. The proposed purchase is subject to a number of conditions, including obtaining a Bankruptcy Court order authorizing the sale of the subsidiaries free and clear of all liens, claims and encumbrances. PSINet Consulting Solutions Holdings, Inc., the parent company of the entities being sold in this transaction, filed Monday for protection under Chapter 11 of the U.S. Bankruptcy Code. Neither of the entities being acquired by CIBER in this transaction nor any other subsidiary of PSINet Consulting Solutions Holdings, Inc. is included in Monday's bankruptcy filing. Concurrent with its Chapter 11 filing, PSINet Consulting Solutions Holdings, Inc. filed a motion with the United States Bankruptcy Court seeking approval of this transaction with CIBER pursuant to Section 363 of the U.S. Bankruptcy Code. Lazard is acting as financial advisor to PSINet Consulting Solutions Holdings Inc. on this transaction. Headquartered in Ashburn, Va., PSINet Inc. is a provider of Internet and IT solutions, offering hosting solutions, and a full suite of retail and whole sale Internet services through wholly owned PSINet subsidiaries. PSINET INC: Secures Court Okay to Reject 14 Executory Contracts --------------------------------------------------------------- PSINet, Inc. sought and obtained the Court's approval to reject 14 executory contracts because, in the Debtors' business judgment, none of these Contracts and Leases constitutes a source of value for the Debtors' estates. The Debtors have determined that it is in their best interest to avoid accruing any potential further obligations under the Contracts and Leases. With respect to each of the Contracts or Leases, the Debtors have delivered to the respective counter-party a notice letter, indicating that, as of the date of the letter (the Notice Date), the Debtors would cease payment under the Contract or Lease, that the Debtors would not expect further performance from the counterparty under the Contract or Lease, and that the Debtors would seek to reject the Contracts or Lease. Seven of the leases are office equipment leases, one is a vehicle lease and the other 6 are as follows: Contracting Party Type of Agreement ----------------- ----------------- MCI Worldcom Gateway Services Agreement, Communications, Inc. dated Jan 15, 2001 Cisco Systems, Inc. GeoTel System Agreement Dated September 30, 1999 Robertson Marketing Agreement for Catalogue Promotional Group Program, dated June 4, 1999 MCI Telecom. Corp. MCI Special Customer Arrangement Effective November 6, 1996 Cable & Wireless North Pacific Cable Indefeasible Limited Company Right of Use Agreement International Digital dated September 29, 1998 Communications, Inc. Pacific Telecom North Pacific Cable Indefeasible Cable, Inc. Right of Use Agreement, dated June 30, 1998 (PSINet Bankruptcy News, Issue No. 7; Bankruptcy Creditors' Service, Inc., 609/392-0900) RAYTECH: Operating Loss Drops to $3.3 Million In 13-Week Period --------------------------------------------------------------- In April 2001 Raytech Corporation emerged from the protection of Bankruptcy Court under Chapter 11 of Title 11 of the United States Code. Raytech Corporation had been under the Chapter 11 protection since May 1989. The Company has determined that the most meaningful presentation of financial information would be to provide comparative analysis of the financial performance for the Successor Company for the period April 3, 2001 through July 1, 2001 compared to the predecessor financial information for the period April 3, 2000 to July 2, 2000. Raytech Corporation recorded a net loss for the period from April 3, 2001 to July 1, 2001 of $2.4 million as compared to a net loss of $7.064 billion for the thirteen-week period ended July 2, 2000. In the thirteen-week period ended July 2, 2000 the Company recorded certain charges and related liabilities based on estimated asbestos-related personal injury liabilities of $6.760 billion, estimated Government's claim for certain environmental liabilities of $431.8 million and estimated liabilities for Raymark pension plans of $16 million. These were designated as Liabilities Subject to Compromise. Effective April 2, 2001, the Company recorded certain adjustments relating to the emergence from bankruptcy. The Liabilities Subject to Compromise have been settled with the third party creditors in exchange for 90% of the common stock of Raytech Corporation valued at $142.5 million, a cash payment of $2.5 million, the assumption of certain pension plan obligations of Raymark Corporation and certain future tax benefits, resulting in an extraordinary gain on debt discharge for the one day, April 2, 2001, of $6.928 billion. Worldwide net sales for the period from April 3, 2001 to July 1, 2001 of $50.6 million were less than the recorded sales of $61.1 million for the thirteen-week-period ended July 2, 2000, a reduction of 17%. The lower sales reflect the economic effects of the poor economy in the United States and the reduced demand from the automobile original equipment manufacturers. Certain competitive issues have also caused a reduction in sales. The Company recorded an operating loss of $3.3 million for the period April 3, 2001 to July 1, 2001, which compares to $7.2 billion loss for the thirteen-week period ended July 2, 2000. Raytech Corporation has taken certain steps to address the decreased operating profit, including reductions in both the hourly and salaried work force, wage reduction and new hire containment programs and a stronger focus on reducing material costs. RELIANCE GROUP: Rehabilitator Balks at Compensation Protocol ------------------------------------------------------------ Jeffrey B. Rotwitt, Esq., John J. Ehlinger, Jr., Esq., and Lawrence Tabas, Esq., of Obermayer, Rebmann, counsel for M. Diane Koken, Insurance Commissioner of Pennsylvania, file an objection to Reliance Group Holdings, Inc.'s motion to establish an interim compensation protocol. Before proceeding, the attorneys remind Judge Gonzalez that the filing of this objection is not and should not be deemed consent by the Insurance Commissioner and the Rehabilitator to this Court's jurisdiction. Moreover, the filing of this objection is not and should not be deemed a waiver of the sovereign immunity of the state of Pennsylvania, the Insurance Commissioner and/or the Rehabilitator. The attorneys state that the Constructive Trust Action was commenced prior to the filing of the Debtors' bankruptcy cases. Its goal is to recover $95,651,000 that is currently being held by RGH in trust for RIC and its policyholders. The Debtors have conceded that the $95,651,000, which is the subject of the Constructive Trust Action, is the only liquid asset of their estates. Thus, in order to pay the compensation and reimbursement of expenses of professionals that have been retained in their cases, RGH would necessarily have to make payments from the $95,651,000 that rightfully belongs to RIC and its policyholders. The Debtors should not be allowed to pay professionals with funds that are not property of the Debtors' estates. Until this Court or the Commonwealth Court decides the merits of the Constructive Trust Action, it would be inappropriate for the professionals to be paid out of funds that the Rehabilitator asserts belong to RIC and its policyholders. The attorneys assert that all of the elements of a constructive or resulting trust are present so that the Rehabilitator's claims to the $95,651,000 are valid and legitimate. Many courts have held that administrative claimants cannot look to encumbered property as a source of payment of their interim fees. In TriCounty, 91 B.R. at 550, the secured creditor claimed a security interest in the debtor's real property and cash on hand, the most likely source of attorney compensation. Although the debtor's plan stated that litigation would be necessary to determine the existence of any security interest in the estate's personal property, the TriCounty court held that this fell far short of establishing that such collateral was unencumbered. Therefore, the court denied the debtor's request for interim fees and expenses. Similarly, here, the Rehabilitator asserts that the $95,651,000 is being wrongfully held by RGH in trust for RIC and its policyholders, and this property is not property of the Debtors' estates. Unless the Debtors can prove, without resort to litigation, that they have liquid assets from which to pay professionals, other than the $95,651,000, which belongs to RIC, the Compensation Motion should be denied in its entirety. The Debtors seek the entry of an order approving the Compensation Motion in accordance with the standing General Order of the Bankruptcy Court for the Southern District of New York signed on January 24, 2000 by former Chief Judge Tina L. Brozman. While in some cases, it may be appropriate to allow payment of compensation and reimbursement of expenses of professionals on a monthly basis, it is not appropriate here. The Standing Order certainly does not give the Debtors carte blanche to pay professionals upon the mere filing of a motion with this Court, without any demonstration that the payments are appropriate under the circumstances of the individual case. Instead, a variety of courts have held that debtors bear the burden of proving that procedures for payment of compensation and reimbursement of expenses to professionals that are similar in scope to the Compensation Motion are necessary and appropriate. Courts carefully scrutinize debtors' motions, which allow for payment of compensation and reimbursement of expenses to professionals prior to the filing of formal interim fee applications as contemplated by Sec. 331 of the Bankruptcy Code. Generally, professionals that are retained pursuant to Sec. 327 of the Bankruptcy Code must file an application for compensation, which is subject to a noticed hearing, prior to allowance and payment of fees. While the Court has allowed professionals to be paid their compensation and expenses prior to the filing of interim fee applications, none of those cases involved situations where the debtors sought to pay professionals out of funds, the ownership of which was hotly disputed. Here, the Rehabilitator has made claims upon the funds at issue, which, if successful, would result in the Debtors likely having insufficient assets of their own to satisfy such payments. The Standing Order was not designed to allow all debtors in large Chapter 11 bankruptcy cases to seek monthly compensation and reimbursement of expenses for its professionals. Such a determination must be made on a case-by-case basis. Given the facts of this case, it is clear that the Compensation Motion is wholly inappropriate, and RIC and its policyholders would be severely prejudiced if the Debtors were allowed to pay professionals out of the $95,651,000. Furthermore, to the extent that the Debtors' counsel, Debevoise & Plimpton, and their accountants, Deloitte & Touche, were paid pre-petition retainers with funds that belong to RIC and are the subject of the Constructive Trust Action, the Rehabilitator requests that such retainers be placed in a separate escrow account pending the outcome of the Constructive Trust Action. A decision on the Compensation Motion should be deferred to allow the Debtors and the Rehabilitator an opportunity to present memoranda of law to this Court on the various issues that are implicated thereby. The Debtors request that this Court waive the requirement of a memorandum of law in support of the Compensation Motion because they claim that there are no novel issues of law presented by the Compensation Motion. However, this claim is inaccurate. In light of the fact that (1) the Standing Order is in derogation of the express provisions of Sec. 331 of the Bankruptcy Code; (2) there are no reported opinions in this Circuit which have addressed the interplay of the Standing Order with Sec. 331 of the Bankruptcy Code; and (3) the Debtors seek to pay professionals out of funds that the Rehabilitator asserts are being held in either a constructive or resulting trust for RIC and its policyholders, there are clearly several novel issues of law presented herein. RGH and the Rehabilitator will require time to prepare memoranda of law to address such issues. RGH cannot satisfy the burden of proving that the Compensation Motion is necessary here, where there is a pending dispute over the ownership of the asset from which the compensation will be paid. The Debtors have long been aware of the Rehabilitator's claim to the $95,651,000. The Rehabilitator's claim that the $95,651,000 belongs to RIC is good and sufficient reason for the denial of the Compensation Motion. Based upon all of the foregoing, the Rehabilitator argues, the Bankruptcy Court should defer a decision on the Interim Compensation Protocol until after there has been a resolution of the Constructive Trust Action or, in the alternative, after the Court decides the Dismissal Motion at which time the issues can be revisited by the Court and all parties. (Reliance Bankruptcy News, Issue No. 8; Bankruptcy Creditors' Service, Inc., 609/392- 0900) SCHWINN/GT: Receives Mixed Bids for Cycling & Fitness Divisions --------------------------------------------------------------- Schwinn/GT Corp. said it has informed the Court that it has received bids from Direct Focus, Inc. (Nasdaq: DFXI) and Pacific Cycle LLC in connection with the upcoming Court-supervised auction that is scheduled to take place on Monday, September 10, 2001. Schwinn stated that the Court-approved "stalking horse" bid from Huffy is currently valued at approximately $59.4 million based on a valuation as of August 31, 2001. The Company has received a conforming bid from Pacific Cycle LLC valued at approximately $64.4 million using the same August 31 valuation. The Company also said it has received a non-conforming bid of approximately $133 million from Direct Focus, Inc. and Pacific Cycle LLC encompassing both the cycling and fitness divisions. In Friday's hearing the Court set forth the procedures for the auction, which will take place on Monday, September 10, 2001. The Court indicated that it will initially consider conforming bids for the cycling division. Once the Cycling Division auction has been completed it will then consider non-conforming bids for other assets. Schwinn/GT filed voluntary petitions for reorganization under Chapter 11 on July 16, 2001, in the United States Bankruptcy Court for the District of Colorado in Denver. SPORTS CLUB: Limited Liquidity Compels S&P to Give Junk Ratings --------------------------------------------------------------- Standard & Poor's lowered its ratings on The Sports Club Co. Inc. The ratings remain on CreditWatch with negative implications where they were placed on Dec. 19, 2000. Ratings Lowered & Remaining on CreditWatch Negative Ratings The Sports Club Co. Inc. To From Corporate credit rating CCC B- Senior secured debt CCC B- The downgrade reflects the company's severe financial risk and its extremely limited liquidity, which are further compounded by ongoing operating challenges that are undermining cash flow growth. The company's very thin coverage ratios reflect its expansion program, club openings, and operating issues at a number of the newer clubs. Continued pressure on financial performance is expected in the near term, given the meaningful number of immature clubs in the company's small portfolio. Furthermore, high growth-related capital expenditures relative to the company's cash flow base have resulted in free cash flow deficits, high debt leverage, and extremely constrained financial flexibility. The Sports Club operates seven upscale health and fitness clubs primarily under The Sports Club/LA brand. The company's mature clubs include The Sports Club located in Los Angeles, Irvine, Calif. and Las Vegas, Nev., and the Reebok Sports Club in New York, N.Y. In 2000, The Sports Club opened three Sports Club/LA facilities, located in Rockefeller Center and on the Upper East Side in New York City, as well as Washington D.C. The company's Boston, Mass. and San Francisco, Calif. clubs complete the development pipeline. Higher initiation fees and monthly membership dues than those charged by most other sports and fitness clubs help reinforce the brand's exclusive image. Expansion addresses some of the company's main vulnerabilities, namely its small portfolio and limited geographic diversity. However, operating performance is under pressure given that it takes about two years for a new club to reach profitability. For the twelve months ended June 30, 2001, EBITDA was less than $5 million compared with about $7.5 million for the fiscal year ended 2000. EBITDA plus rent expense coverage of interest plus rent expense is fractional, at less than 1.0 times (x). EBITDA margins are low, due to the number of immature clubs that have yet to generate relatively meaningful, stable cash flow. The company generates negative free cash flow, although deficits could narrow as a result of scaled back capital expenditures. At June 30, 2001, total debt outstanding was level with previous year's levels, and the company had $8.8 million of borrowing capacity under its $15 million credit facility and cash balances of $5.6 million. Financial flexibility is extremely constrained, despite the renewed credit agreement and the amended lease agreements with Millennium Entertainment Partners that provide for additional landlord contributions totaling $16.5 million. Alternative sources of financing are likely to be required to meet the company's liquidity needs over the next year. The ratings will remain on CreditWatch while Standard & Poor's determines the company's ability to meet its financial obligations and implement plans to address immediate liquidity and operating issues. TAPISTRON INTL: Completes Substantial Sale of Assets ---------------------------------------------------- Tapistron International Inc. on August 31, 2001, sold substantially all of its assets, including all of its patents, trademarks, trade names, and other intellectual property, to CYP Technologies, LLC pursuant to the terms of an Asset Purchase Agreement signed by the parties on June 29, 2001, and as approved by Order of the U.S. Bankruptcy Court for the Eastern District of Tennessee on August 24, 2001. The total purchase price paid at closing was $2,141,686.16. It's not spinning a yarn to say that Tapistron International develops and acquires proprietary textile technologies and commercializes them globally. Its computerized yarn placement (CYP) machine produces tufted carpets and rugs in a large variety of patterns, colors, and textures. Touted as being faster than conventional weaving looms and tufting machines, CYP technology quickly changes patterns, color, texture, and density combinations. The machines are made at the company's facility in Georgia. North America accounts for about 80% of sales. After stitching together a reorganization plan, Tapistron emerged from Chapter 11 protection in 1998. TAPISTRON INTL: Elliston Named New President & CEO -------------------------------------------------- Bruce C. Elliston was unanimously elected as Tapistron International's President and Chief Executive Officer on August 17, 2001, following Mr. Hardeman's resignation. Mr. Elliston formerly served as the Company's Executive Vice President and Secretary. He resigned both positions to serve as the Company's President and CEO. Henry Christopher was unanimously elected as the Company's Secretary on August 17, 2001, to fill the vacancy in the office created by Mr. Elliston's resignation. Mr. Christopher also serves on the Company's Board of Directors. Rodney C. Hardeman, Jr. resigned as the Company's Chief Executive Officer and as a Board Member by letter addressed to the Board of Directors dated August 17, 2001, and effective as of the 17th. His letter explained that his resignation was "to pursue interests which I see are in the best interests of Tapistron, its' staff and shareholders." TELSCAPE: Trustee Agrees to Allow ATSI to Manage Teleport Assets ---------------------------------------------------------------- ATSI Communications Inc. (AMEX:AI) announced that in anticipation of finalizing the sale of the Telscape Houston- based Teleport assets, ATSI and the Bankruptcy Trustee have signed an Interim Operating Agreement, allowing ATSI to manage the facilities, invoice customers and otherwise maintain service for Telscape's Houston-based Teleport customers. The Interim Operating Agreement is subject to Bankruptcy Court approval. ATSI Communications Inc. is an emerging international carrier serving the rapidly expanding niche markets in and between Latin America and the United States, primarily Mexico. The Company's borderless strategy includes the deployment of a "next generation" network for more efficient and cost effective service offerings of domestic and international voice, data and Internet. ATSI has clear advantages over the competition through its corporate framework consisting of unique licenses, interconnection and service agreements, network footprint, and extensive retail distribution. ATSI's Internet software subsidiary, GlobalSCAPE Inc. -- http://www.globalscape.com-- is recognized as a leader in the development, marketing and support of award-winning content and file management solutions and collaborative peer-to-peer technologies. TRANS ENERGY: Working Capital Deficit Drops 6% At End of Q2 ----------------------------------------------------------- Trans Energy Inc.'s total revenues for the three months ended June 30, 2001 increased 86% when compared with the second quarter of 2000. For the six months ended June 30, 2001, total revenues increased 76% compared to the first half of 2000. The increase during the 2001 periods is primarily due to higher gas sales and higher oil and gas prices. Cost of oil and gas for the second quarter and first half of 2001 increased 179% and 80%, respectively, from the second quarter and first half of 2000 due to increased sales, land lease expenses and increased gas prices to the Company. Selling, general and administrative expenses for the second quarter and first half of 2001 declined 56% and 64%, respectively, when compared to the second quarter and first half of 2000 primarily attributed to a decrease in staff and fewer stock issuances for services. The Company's net loss for the second quarter and first half of 2001 was $277,133 and $449,707, respectively, compared to $642,440 and $1,307,227 for the same 2000 period. This decrease in the Company's net loss for the 2001 periods is primarily attributed to the increase in revenues and the decreases in selling, general and administrative expenses. Historically, the Company's working capital needs have been satisfied through its operating revenues and from borrowed funds. At June 30, 2001, the Company had a working capital deficit of $4,834,347 compared to a deficit of $4,550,117 at December 31, 2000. This 6% decline in working capital is primarily attributed to the increases in trade accounts payable (17%), accrued expenses (21%), and related party payables (48%), and was partially offset by the 148% increase in accounts receivable and the 15% decrease in the current portion of notes payable. As of June 30, 2001, the Company had total assets of $4,380,335 and total stockholders' deficit of $1,289,142, compared to total assets of $4,299,654 and total stockholders' deficit of $985,635 at December 31, 2000. U.S.A. FLORAL: Secures Approval to Complete Sale of Florimex ------------------------------------------------------------ Floral Products, Inc. received Bankruptcy Court approval to complete the sale of its International Division (Florimex) to affiliates of ACON Investments, LLC, a Washington, D.C.-based private equity firm, for EURO 33,535,000 (approximately $29 million) and the assumption of certain debt. The International Division (Florimex) includes all of the Company's operations in Europe, Africa, Asia and Latin America and represents substantially all of U.S.A. Floral Products' remaining assets. On August 6, 2001, Judge Mary F. Walrath of the U. S. Bankruptcy Court for the District of Delaware signed an order setting dates and approving bidding procedures in connection with the proposed sale of the Company's International Division (Florimex). Among other things, the order set forth a procedure for submitting higher and better offers for the purchase of the International Division (Florimex) through an auction sale on September 4, 2001. The two bidders participating in that auction were ACON and Deutsche Beteiligungs AG, a European private equity firm, which, on July 20, 2001, had entered into an agreement with the Company to purchase the International Division (Florimex), subject to the auction process and Bankruptcy Court approval. On September 5, 2001, following the court-ordered auction, the Bankruptcy Court held a hearing in which it determined that ACON had submitted the highest and best bid. In connection therewith, a proposed sale order will be submitted to the Bankruptcy Court for its approval. According to Dwight Ferguson, President of the International Division (Florimex), "ACON's purchase of Florimex should be considered good news to our employees, customers, and suppliers. ACON's investment will significantly reduce our indebtedness and provide the financing for future worldwide growth initiatives. The operations of Florimex continue to be self-sustaining and our lenders have been both helpful and supportive throughout the period of negotiations with various potential purchasers. We expect to receive Bankruptcy Court approval shortly for the sale to ACON and, subject to satisfaction of certain customary closing conditions, we expect to be in a position to complete the sale of Florimex by the end of the quarter." ACON is an international private equity investment firm, which manages investments in the United States, Europe and Latin America. ACON was founded in 1995 and manages partnerships with approximately $440 million under management. ACON's partnerships typically include sophisticated institutional investors from the U.S., Europe and Latin America. Among its activities, ACON is affiliated with Texas Pacific Group (TPG). TPG manages over $5.7 billion worldwide. ACON typically utilizes a thematic investment approach to identify investments at times of inflection points. ACON's investment philosophy is to identify opportunities in industries with attractive dynamics and to pursue those opportunities in partnership with established management teams. On April 2, 2001, the Company and 16 of its U.S. subsidiaries voluntarily filed for protection under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware. An additional U.S. subsidiary later filed for bankruptcy protection. On May 7, U.S.A. Floral Products completed the sale of its then- remaining North American operations, including the assets of its Miami and West Coast Bouquet operations and of its Import operations, and the stock of its Canadian subsidiary, Florimex Canada. In total, the Company received approximately $19.8 million from the sales of these North American operations for the benefit of the estate. As in the case of proceeds from the sales of its North American operations, the Company anticipates that all proceeds from the sale of the International Division (Florimex) will be distributed to creditors and that no proceeds will be available for distribution to its shareholders. Legg Mason Wood Walker, Incorporated and Freyberg Close Brothers GmbH served as financial advisors to U.S.A. Floral Products in connection with the sale of the International Division (Florimex). USG CORPORATION: Property Committee Hires Bilzen as Counsel ----------------------------------------------------------- The Official Committee of Asbestos Property Damage of USG Corporation asks for the Court's permission to employ the Miami, Florida lawfirm of Bilzen Sumberg Dunn Baena Price & Axelrod, LLP. Martin Dies, Esq., as counsel and designee for the Catholic Archdiocese of New Orleans and Chairman of the Committee explains the Property Damage Committee represents the interests of the asbestos property damage claimants in the consolidated cases. He states that during the administration of the Consolidated Cases, the Property Damage Committee will need the advice and representation of counsel. At a July 13 PD Committee meeting, the members chose Bilzen as its counsel to represent it in all matters during the pendancy of the Consolidated Cases. The PD Committee wishes to employ Bilzen to perform professional services such as: - providing the PD Committee with legal advice with respect to its rights, duties and powers in the Consolidated Cases; - assisting the PD Committee in investigating acts, conduct, assets, liabilities and financial condition of the Debtors, the operation of the Debtors' businesses and the desirability of the continuance of such businesses and any other matter relevant to the Consolidated Cases or to the formation of a plan; - preparing pleadings and applications as may be necessary in furtherance of the Committee's interest and objectives; - participating in formulating a plan or plans of reorganization; - assisting the PD Committee in considering and requesting the appointment of a trustee or examiner or conversion, should such action(s) become necessary; - consulting with the Debtors, their counsel and the United States Trustee concerning the administration of this estate; - representing the PD Committee in hearings and other judicial proceedings; and - performing such other legal services as may required and as are deemed to be in the best interests of the PD Committee and the constituency which it represents. Mr. Dies goes on to say Bilzen's restructuring and bankruptcy group has extensive experience with routine and complex in-court and out-of-court reorganizations, with emphasis on creditors' rights, corporate, banking and financial matters. Also, Bilzen currently represents the Official Committee of Asbestos Property Damage Claimants in the pending W.R. Grace & Co., et al case. The PD Committee is convinced that Bilzer possesses the necessary expertise to represent it. Mr. Dies says, subject to the approval of this Court, Bilzen will be compensated according to their respective customary hourly rates. Also the PD Committee will apply for the Court's allowance of interim compensation and for reimbursement of expenses. Bilzen Partner Mindy A. Mora, Esq., confirms that, based upon conflict searches, no attorney in her firm, nor any member, counsel, associate or paralegal of Bilzen have any connections with the Debtors, any of the top 50 Debtors' creditors, the United States Trustee, or any person employed in the office of the United States Trustee as required by rule 2014(a) of the Federal Rules of Bankruptcy Procedure. She closes by saying neither she, nor Bilzen, has or will represent any other entity in connection with these cases. (USG Bankruptcy News, Issue No. 7; Bankruptcy Creditors' Service, Inc., 609/392-0900) WARNACO GROUP: Signs-Up Sharretts as Customs Counsel ---------------------------------------------------- The Warnaco Group, Inc. seeks authority to employ Sharretts, Paley, Carter & Blauvelt, P.C., as special customs and international trade counsel, nunc pro tunc to the Petition Date. Warnaco Vice-President Stanley P. Silverstein says they need a counsel with experience in customs and international trade matters. And, Sharretts -- who has served as special customs counsel in many complex bankruptcy cases and represented Warnaco and certain of its subsidiaries in connection with their customs and international trade matters for the last 20 years -- fits the bill. There is no doubt that Sharretts is well qualified to act as the Debtors' special customs and international trade counsel since the firm is already intimately familiar with the Debtors and their import and export activities throughout the world, Mr. Silverstein contends. According to Mr. Silverstein, the Debtors paid Sharretts $674,431.34 for services rendered from April 2000 to June 2001. Sharretts has also advised the Debtors that the Firm holds a $52,881.33 pre-petition claim for legal services rendered to the Debtors. Mr. Silverstein explains that Sharretts was retained as an ordinary course professional on June 2001. Sharretts has advised the Debtors that its monthly fees and expenses for each of the months of June, July and August 2001 exceed the $20,000 monthly cap and will likely exceed the cap for most of the months going forward as well. The delay in seeking retention, Mr. Silverstein says, was due to Sharretts working with the Debtors to arrive at the least burdensome arrangement for the Debtors' estates when applying for allowance of compensation and reimbursement of expenses. The Debtors will depend on Sharretts for these services: (a) defending administrative penalty claims asserted by the United States Customs Service against the Debtors; (b) providing day-to-day advice regarding the classification, marking, importation and valuation of imported merchandise; (c) responding to inquiries for information issued by various customs services; (d) preparation of various submissions to the customs service regarding the proper appraised value of imported merchandise; (e) reviewing the Debtors' activities to ensure that they are in compliance with customs regulations; (f) filing claims for refunds of duties and similar charges, as required; (g) acting as liaison between the Debtors and customs services in the United States and abroad; (h) assisting in the preparation for and conducting of compliance assessment reviews conducted by the United States Customs Service; (i) assisting in the preparation and filing of certificates required by the Caribbean Basin Incentive Program; (j) providing information regarding the marking, value, classification and entry requirements for textiles in countries throughout the world; and (k) providing other advice and services relating to the Debtors' customs and international trade matters as the Debtors may request from time to time. Sharretts will charge the Debtors for its legal services on an hourly basis in accordance with its ordinary and customary rates: (i) $300 for all attorneys; and (ii) $110 for legal assistants and support staff. According to Mr. Silverstein, Sharretts has advised Warnacothat it is currently owed fees and expenses for services: Amount Period ------ ------ $33,266.68 June $28,212.76 July still unknown August Instead of complying with the monthly compensation procedures, Mr. Silverstein says, Sharretts proposes to serve monthly statements for payment of 80% of fees and 100% of expenses incurred in connection with services rendered from the Petition Date to July 31, 2001, on or before September 20, 2001, and from August 1, 2001 to September 30, 2001, on or before October 20, 2001, on all core parties-in-interest. Gail T. Cumins, a member of Sharretts, assures the Court that his Firm, its members, counsel and associates: (i) do not have any connection or relationship with the Debtors, their principal creditors and parties in interest, their respective attorneys and accountants, or the Office of the United States Trustee, and (ii) do not hold or represent an interest adverse to the Debtors' estates with respect to the matters on which SPC&B is to be employed. Ms. Cumins explains that Sharretts has represented, and may in the future represent, certain parties-in-interest, but only in matters wholly unrelated to the Debtors. For example, Ms. Cumins says, Sharretts represents Polo Ralph Lauren in connection with its customs and international trade matters. However, in the event other material connections are found to exist that would require disclosure, Ms. Cumins notes, Sharretts reserves the right to and will promptly submit a supplemental affidavit. (Warnaco Bankruptcy News, Issue No. 8; Bankruptcy Creditors' Service, Inc., 609/392-0900) WASHINGTON GROUP: Raytheon Says Ruling Won't Weigh-Down On Claim ---------------------------------------------------------------- Raytheon Company (NYSE: RTN) said that the ruling by the Bankruptcy Court in Reno will have no affect on Raytheon's ability to pursue its claims against Washington Group International (WGI). "In bankruptcy, a debtor has the right to reject or assume executory contracts -- those that have remaining obligations -- such as the stock purchase agreement. To no one's surprise, WGI elected to reject this contract," said Neal E. Minahan, Raytheon's senior vice president and general counsel. Minahan said that WGI's rejection of the stock purchase agreement constitutes a breach of the contract. Raytheon has filed a proof of claim to recover more than $900 million in damages against WGI. WGI's rejection of the stock purchase agreement has no affect on Raytheon's claims. "What is important is that yesterday's ruling has no financial impact whatsoever on Raytheon. It does not represent a rescission of the sale of its former engineering and construction business," Minahan added. The next major event in the bankruptcy proceeding is the hearings to determine whether WGI's most recent plan of reorganization can be confirmed. These hearings are currently scheduled to begin September 13 and continue into October. Raytheon filed its objections to the plan yesterday. Those papers were filed under seal because the papers refer to certain documents that WGI has designated as "confidential." Raytheon is attempting to have these documents disclosed to the public so that the full story can be told. With headquarters in Lexington, Mass., Raytheon Company is a global technology leader in defense, government and commercial electronics, and business and special mission aircraft. WHEELING-PITTSBURGH: UST Appoints 3rd Amended Noteholders Panel --------------------------------------------------------------- Donald M. Robiner, the United States Trustee for Ohio/Michigan Region 9, advises the Court that after resignations and new appointments to the Official Committee of Unsecured Noteholders of Wheeling-Pittsburgh Steel Corp., these Noteholders now serve on the Committee: Bank One, N.A., as Indenture Trustee c/o Jeffrey A. Ayres 100 East Broad Street, 8th Floor Columbus, Ohio 43271-0181 (614) 248-2566 (Temporary Chairperson) Stonehill Capital Management LLC c/o John Motulsky 126 East 56th Street, 9th Floor New York, New York 10022 (212) 739-7474 Merrill Lynch Investment Managers c/o Warren Hymson 800 Scudders Mill Road Plainsboro, New Jersey 08536 (609) 282-3733 Colonial Management c/o Thomas LaPointe One Financial Center Boston, Massachusetts 02111 (617) 722-3733 Highland Capital Management, L.P. c/o Wesley Olfers 13455 Noel Road, Suite 1300 Dallas, Texas 75240 (972) 233-4300 Accordingly, Credit Suisse Asset Management and General Reinsurance/New England Asset Management, no longer serve on the Noteholders' Committee. (Wheeling-Pittsburgh Bankruptcy News, Issue No. 10; Bankruptcy Creditors' Service, Inc., 609/392-0900) WINSTAR COMMS: US Trustee Balks At Proposed Professionals' Fees ---------------------------------------------------------------- Patricia A. Staiano, the United States Trustee for Region III, objects to Winstar Communications, Inc.'s motion to retain certain legal and accounting professionals employed in their ordinary course of business. Paying 25 professionals up to $50,000 per month and $200,000 per firm during the pendency of these cases is too much, Ms. Staiano says, computing that some $3.6 million per year could leak out of the estates without giving the court, the creditors or the US Trustee an opportunity to review such payments. According to Ms. Staiano, a number of these "ordinary course professionals" are prominent law firms handling the Debtors' commercial litigation, which is outside the ordinary course of the Debtors' telecommunications business. Another law firm, she says, allegedly handles "structured finance" matters that, being financial, are pertinent to these bankruptcy cases and outside the ordinary course of business. Furthermore, Ms. Staiano argues, Section 327 of the Bankruptcy Code applies only to lawyers. One of the "ordinary course professionals" the Debtors seek to retain, Deloitte & Touche, is an accounting firm. Ms. Staiano requests that the Debtors be permitted to retain any professionals without submission of formal retention applications and formal fee applications, only on the following conditions: (a) Employment should be limited to professionals truly rendering services in the ordinary course of the Debtors' business. (b) The amounts payable to any professional should be capped substantially lower than those proposed by the Debtors, with the professionals required to file applications for all fees and disbursements if such caps are exceeded at any time during the pendency of these cases. Additionally, any such professional should be required to submit its invoices periodically to the Notice Parties and such Parties should be given reasonable amount of time to object to such disbursements. (c) The aggregate cap on payments to all such professionals should be reduced substantially to reflect (i) the smaller number of "ordinary course professionals" retained and (ii) the reduced monthly cap on payments to such professional. (Winstar Bankruptcy News, Issue No. 9; Bankruptcy Creditors' Service, Inc., 609/392-0900) ********* Bond pricing, appearing in each Monday's edition of the TCR, is provided by DLS Capital Partners in Dallas, Texas. A list of Meetings, Conferences and Seminars appears in each Wednesday's edition of the TCR. Submissions about insolvency- related conferences are encouraged. Send announcements to conferences@bankrupt.com. Each Friday's edition of the TCR includes a review about a book of interest to troubled company professionals. 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