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/raid1/www/Hosts/bankrupt/TCR_Public/011023.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, October 23, 2001, Vol. 5, No. 207 Headlines 360NETWORKS: Impossible to Timely File Monthly Operating Reports 360NETWORKS: H1 Sales Plummet After Fiber Pact Renegotiations AMF BOWLING: Worldwide Presents Amended Plan of Reorganization ANC RENTAL: Travel Slump Prompts Closure of Charlotte Center ALARIS MEDICAL: S&P Raises Junk Ratings After Refinancing Plan AMERICAN CLASSIC: Nasdaq Halts Trading Until More Info Provided AMERICAN CLASSIC: Affiliates File Separate Chapter 11 Petitions AMTRAK: Cato Study Suggests Privatization to Cut Flow of Red Ink ARCHIMEDES FUNDING: Fitch Affirms Class D Notes' Rating at BB- AT HOME CORP: Reaches Provisioning Agreement with AT&T Broadband BETHLEHEM STEEL: Seeks Approval to Hire Greenhill As Advisors BROADBAND WIRELESS: Moves Dist. Ct. to End Federal Receivership C-PHONE CORP: Files for Dissolution in New York State Court CONSUMERS PACKAGING: Q2 Net Loss Balloons to $131.4 Million DAIRY MART: Gets Court's Final Approval of $46MM DIP Financing EIS FUND: Shareholders Nix Plan for Liquidation & Replace Board ETOYS.COM: Will Return to Business as KB Toys Unit EARTHCARE: Selling Solid Waste Division for $42 Million to GWC EXODUS COMMS: XO Wants Automatic Stay Modified to Allow Set-Off FANTOM TECH: Won't Make Interest Payment on Trimin Loan FEDERAL-MOGUL: Wants to Continue Use of Existing Bank Accounts GENESIS HEALTH: Court Approves MPAN Pharmacy Bidding Rules GLOBAL TELESYSTEMS: Agrees to Combination with KPNQwest INTEGRATED HEALTH: Rotech & HAC Enter Stipulation to Lift Stay KELLSTROM INDUSTRIES: S&P Drops Ratings After Missed Payment KOMAG INC: Nasdaq Delists Convertible Bonds Due January 2004 LAIDLAW: Judge Walsh Rejects Safety-Kleen's Move to Change Venue LERNOUT & HAUSPIE: Selling Kurzweil Educational Assets for $2MM LERNOUT & HAUSPIE: SpeechWorks Offers to Buy Technology Assets MARINER POST-ACUTE: Seeks Eighth Extension of Exclusive Periods MCLEODUSA: Scraps Dividend Payment on Series A Preferred Stock OWENS CORNING: Court Okays Stipulation Re Inter-Creditor Issues PACIFIC GAS: Gets Approval to Assume 15-Year Gaylord Gas Pact PACIFIC GAS: Deems DWR's Revenue Requirement as "Positive Step" PENNZOIL-QUAKER: Fitch Concerned About Weakening Credit Profile POLAROID CORP: Gets Okay to Pay Prepetition Employee Obligations QUALITY STORES: Noteholders File Involuntary Chapter 11 in MI QUALITY STORES: Weighing Options to Continue Restructuring RELIANCE: Asks Court to Fix Dec. 31 Bar Date for Proofs of Claim SNV GROUP: Cuts 53% of Staff After Filing for CCAA Protection SAFETY-KLEEN: Wants Approval of 2nd Consent Agreement with EPA SHOPKO STORES: Refinancing Risks Compel Fitch's Low-B Ratings SPINNAKER: S&P Drops Ratings to D After Missing Interest Payment SUN HEALTHCARE: Wants to Pay Martin's $505K Mechanic's Lien TELEX COMMS: 10-1/2% Note Exchange Offer Extended to Friday USG CORP: U.S. Trustee Asks Court to Appoint Fee Auditor WARNACO GROUP: Unsecured Panel Hires Jaspan as Special Counsel WHEELING-PITTSBURGH: Applauds ITC Ruling On Steel Industry Probe ********* 360NETWORKS: Impossible to Timely File Monthly Operating Reports ---------------------------------------------------------------- The operating guidelines established by the U.S. Trustee to ensure proper administration of chapter 11 cases require debtors to file verified, periodic financial statements and operating reports not later than the 15th calendar day following the end of each calendar month, covering all transactions by the debtor- in-possession. Shelley C. Chapman, Esq., at Willkie Farr & Gallagher, in New York, tells the Court that prior to the Petition Date, the Debtors already had a reporting system to produce internal monthly financial statements and operating reports. However, Ms. Chapman says, these internal reports are not available to management to review until the 15th day following the end of each month. Verifying the information in the internal reports and conforming these to the guidelines' requirements require approximately 2 weeks, Ms. Chapman adds. Thus, to avoid the high costs and complication of altering 360networks inc.'s internal reporting system, the Debtors request that the Court extend the deadline for filing periodic financial statements to the 30th calendar day following the end of each calendar month. (360 Bankruptcy News, Issue No. 10; Bankruptcy Creditors' Service, Inc., 609/392-0900) 360NETWORKS: H1 Sales Plummet After Fiber Pact Renegotiations ------------------------------------------------------------- 360networks, inc., a fiber optic network services provider that is restructuring under creditor protection in Canada and the United States, announced its financial results for the period ended June 30, 2001. Revenue, including sales contract adjustments, for the first six months of 2001 was $17 million, compared with $234 million for the same period in 2000. Revenue for the three months ended June 30, 2001 was a negative $63 million, compared with $158 million for the same period in 2000. The decreases are due to the renegotiation of a number of dark fiber contracts. Revenue of $102 million that was previously recorded on a percentage of completion basis has been reversed and replaced with revenue from the renegotiated contracts. These adjustments reflect various terms and conditions, including exchange or return of network segments and some price revisions. "We successfully renegotiated several contracts to best meet our customers' needs and accelerate our cash collections, but this resulted in the reduction of GAAP revenue," said Vanessa Wittman, chief financial officer of 360networks. The company incurred a gross loss of $154 million for the first six months of 2001, compared with a gross profit of $87 million for the same period in 2000. Gross loss was $172 million for the second quarter of 2001, compared with a gross profit of $58 million in the second quarter of 2000. Selling, general and administrative expenses were $112 million for the first six months of 2001, compared with $36 million for the same period in 2000, and $67 million for the second quarter of 2001, compared with $24 million for the same period in 2000. The increases are due primarily to the addition of sales, product and network services personnel in late 2000 and early 2001 as the company's business shifted from constructing networks and selling dark fiber to providing network and other services. In June 2001, 360networks reduced its workforce by approximately 800 positions as part of efforts to lower operating expenses and conserve capital. This reduction, combined with further downsizing, has resulted in a 70% decrease of the company's workforce. The company recently conducted an extensive evaluation of its assets and operations. As a result of the downturn in the telecommunications and data communications markets, 360networks has reduced significantly the value of its assets and operations. Accordingly, the company has recorded a provision for asset impairment of $4.4 billion for the first six months of 2001. The company will continue to evaluate the value of its assets while under creditor protection. In addition, the company recorded a provision for bad debts of $163 million for the first half of 2001 against accounts receivable that may not be collectable. Earnings before interest, taxes, depreciation, amortization, stock-based compensation and minority-based interest (EBITDA) was a loss of $429 million for the first six months of 2001, compared with a gain of $51 million for the same period in 2000. EBITDA for the second quarter of 2001 was a loss of $399 million, compared with a gain of $34 million in the second quarter of 2000. Net loss was $5.1 billion ($6.28 per share) for the first half of 2001, compared with $149 million ($0.33 per share) for the same period in 2000. Net loss was $5 billion ($6.13 per share) for the second quarter of 2001, compared with $104 million ($0.19 per share) in the second quarter of 2000. The losses in 2001 were due primarily to the asset impairment provision, the renegotiation of contracts, bad debt allowances and reorganization costs. "We continue to provide optical and colocation services to customers throughout the United States and Canada while we reorganize our business and work with our creditors on an emergence plan," said Jimmy Byrd, chief operating officer of 360networks. "Our cash needs have been significantly reduced and we are making good progress toward cash flow breakeven." The company is operating currently with a budget approved by secured lenders to the end of this year. 360networks is in compliance with a budget requirement to maintain a minimum cash balance of $100 million. 360networks will file its second quarter 2001 financial statements and the related management's discussion and analysis with securities commissions in Canada and the United States by October 25, 2001. 360networks offers optical network services to telecommunications and data communications companies in North America. The company's fiber optic network includes terrestrial segments and undersea cables in North America, the Atlantic and South America. On June 28, 2001, the company and several of its operating subsidiaries voluntarily filed for protection under the Companies' Creditors Arrangement Act (CCAA) in the Supreme Court of British Columbia. Concurrently, the company's principal U.S. subsidiary, 360networks (USA) inc., and 22 of its affiliates voluntarily 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. Insolvency proceedings for several subsidiaries of the company have been instituted in Europe and Asia. For more information about 360networks, visit http://www.360.net AMF BOWLING: Worldwide Presents Amended Plan of Reorganization -------------------------------------------------------------- AMF Bowling Worldwide, Inc. presents the Court with an Amended Plan of Reorganization. Convenience claims, previously classified as Class 7 claims are eliminated. The Amended Plan revises the classification and treatment of claims to now provide: Class Description Treatment ----- ----------- --------- 1 Other Secured Claims Such treatment that either: A. leaves unaltered the legal, equitable or contractual rights to which the holder of such Allowed Other Secured Claim is entitled, or B. leaves such Allowed Other Secured Claim the Bankruptcy Code. Any Allowed Claim based on any deficiency Claim by a holder of an Allowed Other Secured claim will be treated as & Allowed Unsecured Claim and will be classified as Class 4 Claim. 2 Senior Lender Claims A pro rata share of the Senior Lender Distribution, comprised of: A. the Senior Lender Cash Payment B. 10,000,000 shares of New AMF common stock C. the Senior Lender Facility Notes D. the New AMF Notes. The Senior Lenders will also receive pro rata share of the Senior Lender Origination Fee. 3 Priority Non-tax Unless otherwise agreed, cash in an Claims amount equal to the claim. 4 Unsecured Claims pro rata share of the ratable class 4 portion of the New Warrants 5 Tort Claims To the extent that any portion of a tort claim is not an insured claim, a pro rata share of the ratable class 5 portion of the new warrants. Any portion of a tort claim that becomes an allowed claim and is an insured claim will be paid in the ordinary course of business directly or indirectly by the applicable carrier to the extent of such insurance. 6 Senior Subordinated pro rata share of the ratable class Note Claims 6 portion of the New Warrants 7 Interdebtor Claims No distribution 8 AMF affiliate claims Allowed affiliates claims will be reinstates on terms and conditions reasonable satisfactory to reorganized AMF. 9 Equity Interests No distribution. All Equity Interests will be AMF Holdings and WINC will cancelled as of the effective date. 10 Existing Securities No distribution. Law Claims 11 510(c) Claims No distribution (AMF Bankruptcy News, Issue No. 9; Bankruptcy Creditors' Service, Inc., 609/392-0900) ANC RENTAL: Travel Slump Prompts Closure of Charlotte Center ------------------------------------------------------------ In the wake of the tragic September 11 events and the corresponding impact on the travel industry, ANC Rental Corporation (Nasdaq:ANCX) gave 60 days notice of its intention to close its Charlotte, North Carolina reservation center, which currently employs approximately 260 people. This notification is in keeping with the Worker Adjustment and Retraining Act. "Naturally, we regret having to take this action but today's travel environment, combined with an already softening economy, make this move unavoidable," said ANC CEO and Chairman Michael S. Egan. "The closing will be transparent to our customers, since their calls will be routed to our centers in Boca Raton, Charleston, and Salt Lake City," he added. ANC Rental Corporation (Nasdaq:ANCX), headquartered in Fort Lauderdale, is one of the world's largest car rental companies with annual revenue of approximately $3.5 billion in 2000. ANC Rental Corporation, the parent company of Alamo and National, has more than 3,000 locations in 66 countries and employs approximately 19,000 associates worldwide. Earlier this month, the Company reached agreements with its lenders to suspend certain financial covenants and to defer a principal payment of $70 million that would have been due October 1, 2001. The financial covenants have been suspended through November 15, 2001 and the principal payment has been deferred to November 30, 2001. ALARIS MEDICAL: S&P Raises Junk Ratings After Refinancing Plan -------------------------------------------------------------- Standard & Poor's raised its ratings on ALARIS Medical Inc. and its operating company, ALARIS Medical Systems Inc., and removed them from CreditWatch with positive implications, where they were placed September 10, 2001, following the company's announcement of its planned refinancing of its operating company's existing bank facility. At the same time, Standard & Poor's affirmed its single-'B'-plus senior secured debt rating on ALARIS Medical Systems. In addition, Standard & Poor's withdrew its single-'B' senior secured bank loan rating, since proceeds from the senior secured notes have repaid this debt. The action follows completion of ALARIS' bank loan refinancing, which has increased the company's financial flexibility. The outlook is stable. The speculative-grade rating for ALARIS and its holding company reflect its leading positions in competitive niche businesses offset by its heavy debt burden. San Diego, Calif.-based ALARIS manufactures products such as intravenous pumps to control the flow of solutions, drugs, and nutritionals into patients' circulatory systems; related accessories; and patient-monitoring devices. ALARIS remains a market leader in its niche areas. Contracts with large domestic group-purchasing organizations and the recurring nature of proprietary consumable products, representing about 65% of sales, provide some earnings stability. Moreover, management's ongoing efforts to improve manufacturing processes, reduce costs, and launch new products have aided the company's business prospects. Nevertheless, competition is strong, since ALARIS vies with several companies with significantly greater financial resources, and these companies have the ability to offer a wider variety of medical products to health care purchasers. In addition, given ALARIS' limited product diversity, pricing and competitive pressures are expected to continue to challenge the company. Still, while ALARIS' capital structure continues to be dominated by debt, the company will now be in a position to expand its business and maintain credit protection measures consistent with its rating. Standard & Poor's expects funds from operations to lease- adjusted debt and cash flow coverage of cash interest to average about 10% and 2 times, respectively. Ratings Raised and Removed from CreditWatch with Positive Implications Ratings TO FROM ALARIS Medical Systems Inc. Corporate credit rating B+ B Subordinated debt rating B- CCC+ Senior secured bank loan rating NR B ALARIS Medical Inc. Corporate credit rating B+ B Senior unsecured debt rating B- CCC+ Subordinated debt rating B- CCC+ Ratings Affirmed ALARIS Medical Systems Inc. Senior secured notes rating B+ AMERICAN CLASSIC: Nasdaq Halts Trading Until More Info Provided --------------------------------------------------------------- The Nasdaq Stock Market(R) announced that the trading halt status in American Classic Voyages Co., (Nasdaq: AMCV; AMCVP) was changed to "additional information requested" from the company. Trading in the company had been halted Thursday, October 18, at 13:07:37 p.m. Eastern Time for News Pending at last sale prices of .46 for AMCV and 2.10 for AMCVP. Trading will remain halted until American Classic Voyages Co. has fully satisfied Nasdaq's request for additional information. For news and additional information about the company, please contact the company directly or check under the company's symbol using InfoQuotes(SM) on the Nasdaq Web site. AMERICAN CLASSIC: Affiliates File Separate Chapter 11 Petitions ---------------------------------------------------------------- Court: District of Delaware Chapter 11 Petition Date: October 22, 2001 Entity Case No. ------ -------- Great Ocean Cruise Line, L.L.C. 01-10959 Great AQ Steamboat, L.L.C. 01-10960 Cape May Light, L.L.C. 01-10961 Cape Cod Light, L.L.C. 01-10962 Great River Cruise Line, L.L.C. 01-10963 Delta Queen Coastal Voyages, L.L.C. 01-10964 DQSC Property Co. 01-10965 Cruise America Travel, Incorporated 01-10966 AMCV Cruise Operations, Inc. 01-10967 Cat II, Inc. 01-10968 Great Independence Ship Co. 01-10969 The Delta Queen Steamboat Co. 01-10970 Great Hawaiian Properties Corporation 01-10971 Ocean Development Co. 01-10972 AMCV Holdings, Inc. 01-10973 DQSB II, Inc. 01-10974 Great Hawaiian Cruise Line, Inc. 01-10975 American Hawaii Properties 01-10976 Corporation Great Pacific NW Cruise Line, LLC 01-10977 Debtor's Counsel: Francis A. Monaco, Jr., Esq. Joseph J. Bednar, Esq. Walsh, Monzack & Monaco, P.A. 1201 Orange St., Ste 400 Wilmington, DE 19801 Tel: 302 656-8162 Fax: 302-656-2769 -and- David S. Heller, Esq. Joseph S. Athanas, Esq. Timothy A. Barnes, Esq. Latham & Watkins Suite 5800, Sears Tower Chicago, IL 60606 Tel: 312-876 7700 AMTRAK: Cato Study Suggests Privatization to Cut Flow of Red Ink ---------------------------------------------------------------- Cato Study Says Reform Committee Should Pull Plug on Amtrak; No End in Sight for 30 Years of Red Ink, Privatization a Solution The Amtrak Reform Council, charged with executing a congressional mandate to reorganize the government-owned rail system if it doesn't turn a profit by 2002, might vote as early as Friday last week to find whether the ailing train service would meet its goal. In the new Cato Institute study, "Help Passenger Rail by Privatizing Amtrak," former council member Joseph Vranich and Edward L. Hudgins, director of regulatory studies at Cato, argue that Amtrak would not meet the deadline. "It is time for the council to make this finding official and begin the mandated process of restructuring and liquidation," they say. Amtrak has always run at a loss since its creation 30 years ago, collecting more than $25 billion in taxpayer subsidies, the authors write. And if it is not reorganized, the authors say, it will continue to hemorrhage. For example, following the Sept. 11 attacks trains reported a spike in ridership, but perversely, some in Congress proposed a $15-billion "emergency" aid package because of the increase. "One reason for Amtrak's abysmal showing is that the trains run late," the authors say. "Some Amtrak trains are slower than the trains our great-grandparents rode in the early 1900s." Although Amtrak has reported that its punctuality has improved, Vranich and Hudgins charge that they have tinkered with schedules, artificially padding time at the end of a line, to give the appearance of on-time performance. Such padding is part of a series of Amtrak "credibility crises" that the authors outline, including broken promises about its new Acela Express, exaggerated ridership gains, and its use of stealth subsidies. "A government-owned Amtrak whose debt is at record levels and whose costs continue to rise will never be solvent," Vranich and Hudgins argue. They explore the routes to an Amtrak alternative and explain how no fewer than 40 countries around the world are replacing government railways with more efficient franchised private operators. ARCHIMEDES FUNDING: Fitch Affirms Class D Notes' Rating at BB- -------------------------------------------------------------- Fitch affirms the ratings of the liabilities of Archimedes Funding III, Ltd. (Archimedes) including the 'BBB' rating of the class C notes and the 'BB-' rating of the class D notes. This affirmation removes the class C notes and the class D notes from Rating Watch Negative. These notes were placed on Rating Watch Negative on Oct. 8, 2001 due to the potential impact of the events of Sept. 11, 2001 on the portfolio assets. After careful consideration of the portfolio, specifically those assets included in industries that Fitch believes to be high risk, Fitch has determined that Archimedes's exposure to obligors in these industries is much less than originally suspected. Approximately 5.15% of the portfolio is invested in obligors classified in the gaming, lodging and restaurant, and air transportation industries that may continue to be impacted by the fallout from the events of September 11. Of this exposure, roughly 1/3 of the obligations are trading at or close to par. Fitch will continue to monitor the exposure to these credits closely. AT HOME CORP: Reaches Provisioning Agreement with AT&T Broadband ---------------------------------------------------------------- AT&T Broadband and Excite@Home reached a pact that allows AT&T Broadband to resume deploying high-speed Internet service to new customers, Dow Jones reported. AT&T Broadband, a unit of AT&T Corp., said it would begin provisioning new customers Thursday, October 18, 2001. As reported, Excite@Home said it has reached new agreements with some of its cable partners to resume taking on new subscribers during bankruptcy proceedings, reversing a decision made last week. (ABI World, October 18, 2001) BETHLEHEM STEEL: Seeks Approval to Hire Greenhill As Advisors ------------------------------------------------------------- Bethlehem Steel Corporation seeks the Court's authority to employ Greenhill & Company LLC, as their financial advisors, effective as of Petition Date. Leonard M. Anthony, Bethlehem's Senior Vice President, Chief Financial Officer and, Treasurer, relates the Debtors selected Greenhill as their financial advisors because of the firm's extensive experience with and knowledge of the Debtors' businesses and financial affairs. According to Mr. Anthony, Greenhill has been performing financial advisory services for the Debtors since June 15, 2001. Since that time, Mr. Anthony notes, Greenhill has perform a number of services for the Debtors including, among other things: (i) review and analysis of the business, operations, properties, financial condition and prospects of the Debtors; (ii) evaluation of the Debtors' debt capacity in light of their projected cash flows; and (iii) assistance in the determination of an appropriate capital structure for the Debtors. Also, Mr. Anthony explains, Greenhill is well qualified to serve as the Debtors' financial advisors because its restructuring professionals have extensive experience in advising debtors and other constituents in chapter 11 cases. In fact, Mr. Anthony relates, Greenhill has served as consultants and financial advisors to numerous debtors and creditors in restructurings involving, among others: Amresco, Regal Cinemas, Inc., United Artists Theatre Circuit, Inc., AmeriServe Food Distribution, Inc., US Office Products, Inc. and Weblink Wireless, Inc. In these chapter 11 cases, the Debtors will look to Greenhill for these financial advisory services: (A) General Financial Advisory Services (i) to the extent it deems necessary, appropriate and feasible, review and analyze the business, operations, properties, financial condition and prospects of the Debtors; (ii) evaluate the Debtors' debt capacity in light of its projected cash flows; (iii) assist in the determination of an appropriate capital structure for the Debtors; (iv) determine a range of values for the Debtors on a going concern basis and on a liquidation basis; (v) advise and attend meetings of the Debtors' Boards of Directors; (vi) if necessary, participate in hearings before the Court with respect to matters upon which Greenhill has provided advice. (B) Restructuring Services If the Debtors pursue a Restructuring: (i) provide financial advice and assistance to the Debtors in developing and seeking approval of a chapter 11 plan; (ii) provide financial advice and assistance to the Debtors in structuring any new securities, other consideration or other inducements to be offered and/or issued under the Plan; (iii) assist the Debtors and/or participate in negotiations with entities or groups affected by the Plan; and (iv) assist the Debtors in preparing documentation required in connection with the Plan. (C) Sale Services If the Debtors pursue a Sale: (i) provide financial advice and assistance to the Debtors in connection with a Sale, identify potential acquirors and, at the Debtors' request, contact such potential acquirors; (ii) assist the Debtors in preparing a memorandum (with any amendments or supplements); and (iii) assist the Debtors and/or participate in negotiations with potential acquirors. Prior to the filing of these cases, Mr. Anthony informs Judge Lifland, the Debtors paid Greenhill $810,000 for Pre-petition Services rendered and expenses incurred. In the course of these chapter 11 cases, the Debtors propose to pay Greenhill: (a) a $175,000 Monthly Advisory Fee; (b) a $12,000,000 Transaction Fee; and (c) in the event of a sale of all or a substantial portion of the Debtors' assets, a Sale Transaction Fee, which may be credited against the Transaction Fee. Aside from the monthly rates, Greenhill also intends to charge the Debtors for all additional reasonable and necessary expenses incurred. This includes, among other things: mail and express mail charges, special or hand delivery charges, photocopying charges, and travel expenses. Michael A. Kramer, Managing Director of Greenhill & Company LLC, assures the Court Greenhill does not holds any interest adverse to the Debtors, their estates, their creditors or any other party-in-interest in the matters for which Greenhill is proposed to be retained, except that: (i) prior to commencement of these cases, Greenhill rendered Pre-petition Services; and (ii) Greenhill may have rendered services to and may continue to render services to or use the services of, certain of the Debtors' creditors, professionals or other parties-in- interest in matters wholly unrelated to these cases. Similarly, Mr. Kramer admits that Greenhill's partners and principals may have business associations with some of the Debtors' creditors or other parties-in-interest. But these associations have no connection with these proceedings, Mr. Kramer emphasizes. "To the best of my knowledge, information and belief, the only such party-in-interest is EDS Corporation, for which Greenhill provides ongoing strategic financial advisory. Greenhill's advisory services to EDS Corporation are limited to investment banking services and shall have no bearing on or connection to these proceedings," Mr. Kramer discloses. Accordingly, Mr. Kramer swears, Greenhill is a "disinterested person," as defined in section 101(14) and as required by section 327(a) of the Bankruptcy Code. Moreover, Mr. Kramer tells Judge Lifland that Greenhill intend to update and expand its ongoing relationship search for additional parties-in-interest. If any new relevant facts or relationships are discovered, Mr. Kramer says, Greenhill will promptly file a supplemental affidavit. (Bethlehem Bankruptcy News, Issue No. 2; Bankruptcy Creditors' Service, Inc., 609/392- 0900) BROADBAND WIRELESS: Moves Dist. Ct. to End Federal Receivership --------------------------------------------------------------- Broadband Wireless International Corporation (OTC Bulletin Board: BBAN) announced Peter Bradford, the Federally appointed Receiver for the company has filed a report with the Federal Court providing a review of the activities of the Receivership and requesting the court immediately rule to end the Receivership and allow the company to transition formally into reorganization. The report was filed on October 16. Company officials anticipate the court will act quickly in reviewing the filing and set a hearing prior to the end of the month to issue a final ruling on the matter. C-PHONE CORP: Files for Dissolution in New York State Court ----------------------------------------------------------- C-Phone Corporation (OTCBB: CFON) announced that, following the unanimous recommendation of its Board of Directors, a petition seeking the dissolution of C-Phone was filed last month with the New York State Supreme Court, County of New York (Index No. 117769/01). As a result, the Court has issued an Order to Show Cause on a Petition for Dissolution of a Corporation Pursuant to Section 1102 of the Business Corporation Law, which is currently returnable on November 16, 2001. C-Phone is a New York corporation and such action is permitted under the New York Business Corporation Law when a majority of directors determines that dissolution would be beneficial to shareholders. Previously, C-Phone solicited its shareholders to vote for such dissolution at a Special Meeting scheduled for September 7, 2001, which was adjourned to September 12, 2001. As previously announced, the number of shares present at the Special Meeting did not constitute a quorum sufficient to conduct business. Paul Albritton, President and Chief Executive Officer of C- Phone, stated, "In spite of our efforts to get shareholders to vote, including the distribution of an explanatory proxy statement and the retention of a soliciting agent, only about 35% of the approximately 9 million outstanding shares voted. Even though proxies were solicited in opposition to management's proposals, 89% of the shares submitted voted in favor of the proposed dissolution. Under all of the circumstances, C-Phone's directors felt that the appropriate action was to seek judicial dissolution." C-Phone also announced that, at the end of September, two shareholders commenced a litigation against C-Phone, its current and previous directors, its current and certain previous executive officers and its outside legal counsel in the United States District Court for the Northern District of Illinois, Western Division, alleging that certain actions previously taken by the various defendants were, among other things, in violation of various federal securities laws and rules. Under C-Phone's Certificate of Incorporation and By-Laws, similar to other public companies, C-Phone is required to indemnify its current and previous directors and executive officers for all expenses incurred in defending the litigation, unless it is determined that such persons violated their legal responsibilities to C-Phone. Mr. Albritton stated, "It is unfortunate that the litigation, which we believe is without legal merit, has been commenced since the cost of defending the action is required to be borne by C-Phone, which will further deplete the limited resources otherwise available for distribution to C-Phone shareholders upon the dissolution of C-Phone. C-Phone intends to vigorously defend the litigation." CONSUMERS PACKAGING: Q2 Net Loss Balloons to $131.4 Million ----------------------------------------------------------- Consumers Packaging Inc. (TSE: CGC) released its financial results for the three-month period ended June 30, 2001. The results include the Canadian glass manufacturing operations, which were sold to Owens Illinois, Inc. for $230 million cash after the reporting period on October 1, 2001. During the 2001 second quarter, the Company did not consolidate the results of Anchor Glass Container Corporation in its financial statements as in prior periods and is now accounting for its investment by the equity method. The Company has been operating since May 23, 2001 under the Companies' Creditors Arrangement Act (CCAA). For the 2001 second quarter, the Company had a net loss of $131.4 million compared with a net loss of $2.4 million in the 2000 second quarter. Revenue in the latest period totaled $184.7 million, reduced from the year-earlier total of $435.3 million, which included the results of Anchor. For the 2001 first half, the Company had a net loss of $164.4 million, compared with a loss of $5.5 million. Revenue during the 2001 first half totaled $594.4 million, down from $802.0 million reflecting the de-consolidation of Anchor's results as of April 1, 2001. Results for the 2001 second quarter include write offs of: * $28.5 million, representing the book value of an investment in a glass manufacturing facility in the Ukraine; * $54.8 million in the value of its investment in Anchor; and * $36.1 million in its investment in the Glenshaw glass manufacturing operation in Pennsylvania. Following the sale of the Company's Canadian glass manufacturing assets on October 1, all outstanding principal and accrued interest under Canadian existing bank operating credit facilities were repaid. The Company is continuing with its efforts to restructure or sell its remaining assets. Visit the company Web site: http://www.consumersglass.com DAIRY MART: Gets Court's Final Approval of $46MM DIP Financing -------------------------------------------------------------- Dairy Mart Convenience Stores, Inc. announced that the U.S. Bankruptcy Court has approved its entire $46 million Debtor-in- Possession (DIP) credit facility. Dairy Mart had received interim approval of the DIP facility on September 26, for use of up to $10.75 million. Court approval of the DIP facility enables the company to continue to pay for employee salaries and benefits, ongoing operations and other working capital needs. Gregory G. Landry, president and chief executive officer, said, "We are pleased to have received final approval from the court on the entirety of this funding. And, we are very grateful and appreciative for the support we are receiving from all our stakeholders - banks, creditors, suppliers and employees. Their support has been crucial to our continued operation over the last few weeks." Landry said that suppliers are shipping to Dairy Mart's nearly 550 stores. He also noted that same-store sales have increased during September and October. Dairy Mart's DIP financing is provided by a group of lenders led by Foothill Capital Corporation, a wholly owned subsidiary of Wells Fargo & Company. A key use of the facility is payments to vendors on agreed-to terms for goods and services rendered after Dairy Mart's bankruptcy petition. On September 24, 2001, Dairy Mart and substantially all of its subsidiaries filed voluntary petitions for protection under chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. The case is being heard by Judge Arthur Gonzalez. During the chapter 11 process, Dairy Mart and its stores continue to operate normally. Dairy Mart Convenience Stores, Inc. owns or operates approximately 550 retail stores in seven states located in the Midwest and Southeast. For more information, visit Dairy Mart's web site at http://www.dairymart.com EIS FUND: Shareholders Nix Plan for Liquidation & Replace Board --------------------------------------------------------------- The Board of Directors of EIS Fund (NYSE: EIS) announced the preliminary results of the votes cast at the Annual Shareholder's Meeting for EIS Fund. Based upon the preliminary results, it appears that shareholders voted to replace the current Board with a slate of directors headed by Ralph W. Bradshaw. It also appears that the proposed Plan for Liquidation was rejected, as was the proposal to replace the investment advisor. In addition, the proposal to amend the Fund's certificate of incorporation to change the Fund's name to "EIS Fund, Ltd." appears to have been rejected. However, it appears that the majority of shares were voted in favor of appointing PriceWaterhouseCoopers, LLP, as the Fund's independent accounting firm for the coming year. Assuming the preliminary results are confirmed, the current Board of EIS Fund stated that it will turn over control of the Fund to the newly elected Board at the Fund's Annual Shareholder's Meeting, at which time the certified results of the voting will be announced. The Annual Meeting is scheduled to be reconvened on Oct. 30, 2001, at 11:00 a.m., at the offices of Kramer Levin Naftalis & Frankel, LLP, 919 Third Avenue, 41st Floor, Conference Room B, New York City. EIS Fund is the name under which Excelsior Income Shares, Inc., a closed-end bond fund organized under the laws of New York, does business. ETOYS.COM: Will Return to Business as KB Toys Unit -------------------------------------------------- Bankrupt eToys Inc. received approval from the U.S. Bankruptcy Court in Wilmington, Delaware to sell "strictly toy inventory" from two warehouses in California and Virginia for $1.25 million, TheDeal.com reported. Judge Mary Walrath approved a stalking-horse agreement that eToys had crafted with toy maker Bobby Wilkerson Inc. of Stuttgart, Arkansas. Also, eToys will return to business as a subsidiary of longtime toy retailer KB Toys. "We're happy to announce the grand reopening of the new eToys store," a note on the KB Toys web site said. KB Holdings, the parent company of KB Toys, bought eToys' inventory, web address and the rights to eToys' name earlier this year as part of the bankruptcy proceedings. In July, the defunct e-tailer sent a message to former customers, urging them to shop at KB's site. (ABI World, October 18, 2001) EARTHCARE: Selling Solid Waste Division for $42 Million to GWC -------------------------------------------------------------- EarthCare Company (OTC Bulletin Board: ECCO) announced that it has signed a letter of intent to sell its Solid Waste division for $42 million to a private company, General Waste Corporation, which is owned by Donald F. Moorehead, Jr., EarthCare's Chairman. The transaction would result in a $5 million reduction of the company's senior debt, and the return to EarthCare of $18.9 million in the aggregate of face value of its Series A preferred stock and principal amount of its 12% Subordinated Notes due March 30, 2008. General Waste will also assume approximately $18.1 million in other indebtedness of EarthCare's Earth Resource Management subsidiaries, which conducts its solid waste business. General Waste will also issue to EarthCare a warrant to acquire 8% of General Waste's common stock as of the closing. This transaction, which is subject to the approval of lenders and the negotiation of definitive agreements, does not require approval of EarthCare's shareholders and is expected to close before the special shareholder meeting relating to the sale of EarthCare's EarthLiquids division. EarthCare Company expects to complete the sale of its Solid Waste division during the fourth quarter of 2001, subject to normal terms and conditions, including negotiation of a definitive agreement and completion of financing by General Waste Corporation. EarthCare also announced that it plans to sign a definitive acquisition agreement later this month with U.S. Filter Recovery Services (Mid-Atlantic), Inc. for the sale of its EarthLiquids division. On August 6, 2001, EarthCare signed a non-binding letter of intent with U.S. Filter Recovery Services to sell its EarthLiquids division for cash consideration of $35 million. EarthCare estimates that there will be a $1.1 million working capital adjustment, as of October 1, 2001, which will result in a decrease of the purchase price. In addition, EarthCare may receive additional contingent payments of up to $5 million to the extent that the price of used oil sold by certain of EarthLiquids' pre-acquisition locations exceeds $0.56 per gallon in the future. The company expects that U.S. Filter Recovery Services will hold back approximately $4.9 million of the purchase price for a period, which is expected to be 12 months after the closing of the sale, to satisfy certain indemnification obligations, including indemnification for expenses related to compliance with environmental matters, should they arise. The company expects to complete this transaction, subject to shareholder and lender approval, the completion of due diligence procedures and the signing of a definitive acquisition agreement, during the fourth quarter of 2001. EarthCare plans to use the proceeds from this sale to repay its senior credit facility. EarthCare plans to hold a special shareholder meeting in November or December of 2001 relating to the sale of its EarthLiquids division. EarthCare also announced that it is in the process of negotiating an agreement to sell its EarthAmerica southern U.S. service centers in Dallas and Houston, Texas, Austell, Georgia and Orlando, Florida, to a strategic buyer for $4.0 million, of which approximately $1.4 million will be held back for up to seven months to cover potential indemnification obligations for general claims and for working capital adjustments. The company expects to close this transaction during the fourth quarter of 2001. Mr. Moorehead stated, "I believe that the sale of the Solid Waste division, along with the planned sales of our EarthLiquids division and our EarthAmerica southern U.S. service centers, are in the best interests of the company and our shareholders. We will continue to evaluate other strategic alternatives to improve our operating performance and capital structure." EarthCare also announced that it is in default under its senior credit facility as a result of its failure to complete the sale of its EarthLiquids division by September 30, 2001 and the failure to meet certain financial and other covenants. In addition, EarthCare anticipates that it will not have sold all the components of its EarthAmerica division by October 31, 2001, and may not be able to complete the sale of its Solid Waste division by October 31, 2001. EarthCare's failure to sell either of these divisions by October 31, 2001 will cause an additional default under its senior credit facility. EarthCare is in the process of negotiating a fifth amendment to its senior credit facility and does not believe that its senior lenders have a present intention to accelerate its outstanding indebtedness. EarthCare also announced that it has filed a preliminary proxy statement with the Securities and Exchange Commission relating to the planned sale of its EarthLiquids division and to a planned change in the number of authorized common shares. EXODUS COMMS: XO Wants Automatic Stay Modified to Allow Set-Off --------------------------------------------------------------- Prior to the Petition Date, in connection with the day-to-day operation of their businesses, XO Communications and Exodus Communications, Inc. regularly engaged in transactions under an XO Services Agreement and an Exodus Services Agreement. Many, if not all, of these transactions were conducted on credit terms. At the Petition Date, XO computes that it owes $110,484 to Exodus and Exodus owes approximately $1,430,768 to XO. By this Motion, XO seeks an order modifying the automatic stay to allow XO to set-off one claim against the other. The effect of the Setoff will be to reduce the XO Claim by $110,484 and the Exodus Claim to zero. Matthew G. Zaleski, Esq., at Campbell & Levine, LLC, in Wilmington, Delaware, tells the Court that XO has a valid and enforceable right of setoff with respect to the XO and Exodus Claims and as a consequence, cause exists to modify the automatic stay to allow XO to effectuate the Setoff. Mr. Zaleski claims that XO meets the requirements to establish a right of setoff, such as: (a) the existence of a debt owed by the creditor to the debtor that arose prior to the commencement of the bankruptcy case; (b) the existence of a claim of the creditor against the debtor that arose prior to the commencement of the bankruptcy case; (c) the debt and claim are mutual obligations; and (d) the right of setoff exists under non-bankruptcy law. Mr. Zaleski informs the Court that the Exodus Claim and the XO Claim each arose or relates to the period prior to the Petition Date and involves debts owed between the same parties in the same capacity. In addition, Mr. Zaleski contends that California law and New York law, which govern the Exodus Services Agreement and the XO Services Agreement, provide parties with a right of setoff. Accordingly, Mr. Zaleski asserts that the automatic stay imposed should be modified to allow XO to set off the Exodus Claim against the XO Claim. (Exodus Bankruptcy News, Issue No. 4; Bankruptcy Creditors' Service, Inc., 609/392-0900) FANTOM TECH: Won't Make Interest Payment on Trimin Loan ------------------------------------------------------- Fantom Technologies Inc. Fantom Technologies Inc. (TSE: FTM; NASDAQ: FTMTF) announced that James Meekison has resigned as a director of the Company. Mr. Meekison is the Chairman and a director of Trimin Capital Corp., one of the Company's lenders. The Company determined not to make the interest payment due on its loan with Trimin on October 1, 2001 and, due to the resulting conflict of interest, Mr. Meekison advised that he could not continue as a director of the Company. Fantom lead the appliance business into an age of bagless vacuums with its dual-cyclonic cleaners, which use a removable, washable, plastic part to collect dirt. In addition to its FANTOM-brand full-size, upright, and cannister cleaners, the company is developing a cordless vacuum and a line of countertop water-purification systems. Assembled at its two plants in Ontario and South Carolina, Fantom's vacuums are sold mostly through US and Canadian retailers, but also through catalogs, TV shopping networks, infomercials, and the Internet. FEDERAL-MOGUL: Wants to Continue Use of Existing Bank Accounts -------------------------------------------------------------- The United States Trustee for Region III requires that all chapter 11 debtors close all existing bank accounts upon filing of the petition and open new debtor in possession accounts in certain financial institutions designated as authorized depositories by the U.S. Trustee. These requirements are designed to provide a clear line of demarcation between pre and post-petition claims and payments, and help to protect against the inadvertent payment of pre-petition claims by preventing the banks from honoring checks drawn before the Petition Date. While Federal-Mogul Corporation acknowledge that the U.S. Trustee's requirements serve a useful function in the vast majority of chapter 11 cases, the application of those requirements to the instant case will create significant and undue hardship on the Debtors. Consequently, the Debtors seek a waiver of the requirement that the Debtors open new accounts. In the ordinary course of business, David M. Sherbin, the Debtors' Vice president and Deputy General Counsel, tells the Court that the Debtors use over 70 different bank accounts in their Cash Management System. To avoid substantial disruption to the normal operation of their businesses and provide a seamless transition to post-petition operations, Mr. Sherbin contends that the Debtors should be permitted to continue to use the Bank Accounts as the Courts have routinely permitted debtors to utilize their existing bank accounts, finding that such relief is entirely consistent with applicable provisions of the Bankruptcy Code. To protect against the possible inadvertent payment of pre- petition claims, James E. O'Neill, Esq., at Pachulski Stang Ziehl Young & Jones, P.C., in Wilmington, Delaware, says that all banks at which the Debtors hold accounts and from which the Debtors make payments by check have been advised not to honor checks issued prior to the Petition Date, except as otherwise ordered by the Court. Mr. O'Neill informs the Court that the Debtors have instituted internal cut-off procedures to draw the necessary distinctions between pre and post-petition obligations and payments without the need to close the Bank Accounts. Mr. Sherbin informs the Court that the Debtors also have small petty cash accounts at several locations used for the purchase of small office supplies and other materials that may be needed on an emergency basis. Although these cash transactions are miniscule in relation to the total cash that runs through the Cash Management System, Mr. Sherbin explains that they provide various locations with the flexibility to solve small local problems quickly and efficiently. Consequently, the Debtors request that the Court allow such cash transactions to continue post-petition. Mr. O'Neill contends that such relief has been granted in cases of similar size and complexity to the instant case. (Federal-Mogul Bankruptcy News, Issue No. 3; Bankruptcy Creditors' Service, Inc., 609/392-0900) GENESIS HEALTH: Court Approves MPAN Pharmacy Bidding Rules ---------------------------------------------------------- The U.S. Bankruptcy Court in Wilmington, Delaware approved bidding procedures for the pharmacy assets held by bankrupt Mariner Post-Acute Network Inc. and its bankrupt unit, Mariner Health Group Inc., Dow Jones reported. Under the deal, Genesis would pay $42 million in cash for the pharmacy operation and up to $18 million in so-called earnout payments. The company would make the payments over a three-year period following the closing. Under the bidding rules, challengers to the Genesis deal would have to pay at least $44.5 million at closing and at least $18 million in earnout payments. Court papers say if one or more timely bids are submitted, an auction would be held for Genesis and the other bidders. Mariner Health Group is a wholly-owned unit of the Atlanta-based Mariner Post-Acute Network. On January 18, 2000, the companies filed for chapter 11 bankruptcy protection, with the parent company listing assets of $1.3 billion and liabilities of $2.7 billion. Genesis emerged from its own chapter 11 on October 2, after merging with fellow long-term care provider Multicare Cos. (ABI World, October 18, 2001) GLOBAL TELESYSTEMS: Agrees to Combination with KPNQwest ------------------------------------------------------- Global TeleSystems, Inc. (OTC: GTLS; NASDAQ EUROPE: GTSG; Frankfurt: GTS) announced that it has signed a definitive share purchase agreement with KPNQwest (NASDAQ: KQIP). Under the terms of the agreement, KPNQwest will acquire (i) Global TeleSystems Europe B.V., which owns and operates Ebone, Europe's leading broadband optical and IP network service provider; and (ii) GTS's Central European operating companies, which are the leading alternative provider of voice and data communications in Central Europe. KPNQwest will acquire these companies through the issuance of approximately E210 million of new senior convertible bonds and the assumption of bank debt and capital lease obligations upon closing. Robert Amman, Chairman and Chief Executive Officer of GTS, commented: "GTS and KPNQwest make a formidable combination. We believe that this new company can lead the data revolution in Europe. The many valuable facets of GTS - its assets, its customers, and most significantly, its talented people - will be a great addition to KPNQwest. We expect this new combined company to thrive." Amman continued: "This transaction represents the completion of the consensual restructuring process that we began late last year. As the total consideration from KPNQwest is far less than our outstanding bond liability, we greatly regret that no value can accrue to our preferred and common shareholders. Given current market valuations, we nevertheless feel that this agreement represents a fair value for the operations and assets of GTS and presents the best opportunity to create as much value as possible for our bondholders while continuing to deliver on our commitments to customers, employees, suppliers and partners." GTS has reached agreements with the informal committees representing the holders of GTS's and GTS Europe's publicly traded bonds with respect to the terms of the transaction with KPNQwest, and the allocation of KPNQwest Senior Convertible Notes. Approximately 67 percent of the approximately E1.1 billion outstanding principal amount of the publicly traded Senior Notes at GTS Europe, approximately 78 percent of the approximately E116 million outstanding principal amount of the Senior Notes at GTS, and approximately 35 percent of the approximately E362 million outstanding principal amount of Convertible Debentures issued by GTS have signed forbearance agreements, committing them to support the proposed transaction subject to certain terms and conditions. "The high level of participation and support demonstrated by the GTS and GTS Europe bondholders in the form of signed forbearance agreements demonstrates the bondholders' collective support for the proposed transaction and allocation of value," commented Irwin Gold, Senior Managing Director of Houlihan Lokey Howard & Zukin, financial advisor to GTS and GTS Europe. To ensure the binding nature of the sale agreement on all bondholders, GTS expects that the transaction will be effectuated through a "pre-arranged" court proceedings by GTS and GTS Europe under United States bankruptcy laws, and a corresponding application by GTS Europe for "surseance" and "deposition for composition" in the Netherlands. Approval of the U.S. plan is subject to, among other things, acceptance by more than one-half in number and two-thirds in dollar amount of voting bondholders in the requisite classes. Approval of the Dutch plan is subject to, among other things, approval by two- thirds in number and three-quarters in value of the GTS Europe bondholders participating in the proceedings. None of the operating subsidiaries of GTS will be involved in either court proceeding and both the Dutch and US plans will call for all vendor claims of GTS's operating subsidiaries to be paid in the normal course. The transaction also may require approval by the European Commission, and is expected to close during the first quarter of 2002. Interim Funding To fund the Company's operations prior to closing, GTS has reached an interim financing agreement with Deutsche Bank, Dresdner Bank and Bank of America, and investment funds and accounts managed by Oaktree Capital Management LLC, an affiliate of one of its bondholders. Under this agreement, the Bank Group and a group of bondholders underwritten by Oaktree will provide up to E100 million of secured financing beyond that provided under GTS's existing E150 million bank facility. Allocation of Consideration Pursuant to the agreement between the Company and its bondholders, of the approximately E210 million of new senior convertible notes to be issued by KPNQwest, the following allocations will apply: approximately E40-55 million principal amount will be distributed to bondholders participating in the interim financing agreement based upon the peak interim borrowings; approximately E5.3 million principal amount will be allocated to the GTS Convertible Debentures (along with part of the allocation outlined below will result in a total allocation to the GTS Convertible Debentures of E10.0 million principal amount); the remaining net amount of the new senior convertible bonds will be allocated 76 percent to the GTS Europe bondholders and the remaining 24 percent (less the approximately E4.7 million principal amount required to increase the allocation to the GTS Convertible Debentures to E10.0 million principal amount) will be allocated to the holders of the GTS Senior Notes. In addition, the holders of the GTS Senior Notes will receive GTS's retained investments in Ventelo, Ltd, the Company's reorganized Business Services voice operations unit that was divested by the Company earlier this year. GTS is the parent company of Ebone, the leading broadband optical and IP network service providers in Europe, and GTS Central Europe, one of the leading providers of voice and data services across the region. Ebone's fibre optic network extends more than 25,000 kilometres, reaching virtually all major European cities. Ebone also operates one of Europe's leading IP networks, serving approximately 25% of all European Internet users. With operations in North America and in 50 European cities, Ebone delivers tailored networking services to telecommunication carriers, service providers and large European enterprises with intensive data requirements. GTS Central Europe has operations in the Czech Republic, Slovakia, Poland, Hungary and Romania. For further information, please visit us at http://www.gts.com or http://www.ebone.com INTEGRATED HEALTH: Rotech & HAC Enter Stipulation to Lift Stay -------------------------------------------------------------- To pursue State Court Litigation, specifically, to dismiss Integrated Health Services, Inc. from the State Court Action in which the Debtors were named as Co-Defendants in relation to their purchase of the assets of The Quest Companies (former franchisees of Home Americair of California (HAC)), including the ownership and operation of former HAC franchises, HAC on the one hand, and Debtors Centennial Medical Equipment, Inc. (a wholly owned subsidiary of Rotech) and Rotech Medical Corporation, on the other hand, sought and obtained the Court's approval of their Stipulation For Relief From The Automatic Stay. Recitals The purchase and sale of Quest assets, including the ownership and operation of former HAC franchises, was made on or about December 18, 1997, pursuant to agreements between Centennial and the "Quest Companies". The Quest Companies were comprised of Bradley Medical, Inc., JB Medical, Inc., Puget Medical, Inc., Home Med-Care Corporation, Tyler Medical, Inc., MK Medical, Inc., BBCS Oxygen, Inc and CSB Oxygen Services, Ltd., a California limited partnership. The Quest Companies, former HAC franchisees who had entered into certain Franchise Agreements with HAC, are alleged to have, among other things, misappropriating the "Americair(R)" name, mark and system and diluted their value to HAC and its franchisees. HAC is the franchisor/owner of the "Americair(R)" name and system developed for its own use and the use of its franchisees, which is an allegedly unique system for providing respiratory health care equipment and services to patients in their homes and other non-hospital environments. As part of the Purchase Agreement, the Debtors required the Quest Companies to put $5,000,000 of the purchase price into escrow as security and collateral for, inter alia, any judgment or costs incurred by the Debtors with respect to the pending or threatened litigation between Bradley and HAC. HAC, after being named as a Defendant in the case of Bradley Medical Inc., et al. v. Home Americair of California, et al., now pending in the Superior Court of the State of California, County of Orange as Case No. 779740 (State Court Action), filed a Cross-Complaint against the Quest Companies. Rotech and Centennial were added as Cross-Defendants following the sale of assets. HAC alleged causes of action in the State Court Action against Centennial for misappropriation of trade secrets (which has been dismissed), federal trademark infringement (Lanham Act), federal trademark dilution, state law trademark infringement, state law trademark dilution, conversion, constructive trust, intentional interference with prospective economic advantage, unfair competition, violation of the Washington Consumer Protection Act, violation of the Minnesota Deceptive Trade Practices Act and civil conspiracy. HAC alleged causes of action in the State Court Action against Rotech for conversion, constructive trust, intentional interference with prospective economic advantage, unfair competition and civil conspiracy. As a result of the filings of the Debtors' bankruptcy cases, certain acts and proceedings against those Debtors and their property are enjoined pursuant to 11 U.S.C. section 362 of the Code. The Agreement and Stipulation HAC and the Debtors stipulate and agree that the Debtors will be dismissed from the State Court Action, with prejudice, and that HAC may proceed against any and all other defendants in the State Court Action based upon Debtors' stipulations that the $5,000,000 escrow funds in that certain Agreement between Rotech Medical Corporation and the Quest Companies, dated October 21, 1997, and related transactional documents (collectively, the Purchase Agreement) is not property of either of the Debtor's estates or of any of the other jointly administered Debtors' estates. The parties believe it is in their respective interests to avoid any litigation in connection with the Bankruptcy Code 11 U.S.C. section 362 automatic stay injunction. Accordingly, the Stipulation and Order also provides that the Automatic Stay shall be modified, effective July 1, 2001, for the sole purpose of dismissing the Debtors' from the State Court Action, and thereby permitting HAC to prosecute its State Court Action. The Debtors covenant and agree that $5,000,000 escrow funds referred to in the Purchase Agreement between Rotech Medical Corporation and the Quest Companies is not property of either of the Debtor's estates or of any of the other jointly administered Debtors' estates. HAC may use this Stipulation for the purpose of assisting it in the collection of any judgment it may obtain against Bradley Medical, Inc. and/or any of its affiliates. The Bankruptcy Court shall retain jurisdiction to resolve any disputes or controversies arising from or related to this Stipulation. (Integrated Health Bankruptcy News, Issue No. 20; Bankruptcy Creditors' Service, Inc., 609/392-0900) KELLSTROM INDUSTRIES: S&P Drops Ratings After Missed Payment ------------------------------------------------------------ Standard & Poor's lowered its corporate credit rating on Kellstrom Industries Inc. to 'SD' from triple-'C'-plus, the subordinated debt rating to 'D' from triple-'C'-minus, and the senior secured (bank loan) rating to double-'C' from triple-'C'- plus, following the company's announcement that it did not make the Oct. 15, 2001, interest payment due on its $54 million 5.75% convertible subordinated notes due Oct. 15, 2002. The corporate credit and subordinated debt ratings are removed from CreditWatch, where they were placed August 17, 2001. The bank loan rating remains on CreditWatch with negative implications. Kellstrom is a leading aviation inventory management company engaged in the purchasing, overhauling (through subcontractors), reselling, and leasing of aircraft parts, aircraft engines, and engine parts primarily to airlines, overhaul centers, and other distributors. The September 11 terrorist attacks against the U.S. have had a severe impact on the commercial aviation industry, which represented about 75% the firm's 2000 revenues. Standard & Poor's will monitor developments to determine their effect on credit quality. KOMAG INC: Nasdaq Delists Convertible Bonds Due January 2004 ------------------------------------------------------------ Komag, Incorporated (OTC Bulletin Board: KMAGQ), the largest independent producer of media for disk drives, today announced that Nasdaq has delisted the 5 3/4% Subordinated Convertible Bonds due January 2004 that were originally issued by HMT Technology Corporation. Founded in 1983, Komag is the world's largest independent supplier of thin-film disks, the primary high-capacity storage medium for digital data. Komag leverages the combination of its U.S. R&D centers with its world-class Malaysian manufacturing operations to produce disks that meet the high-volume, stringent quality, low cost and demanding technology needs of its customers. By enabling rapidly improving storage density at ever-lower cost per gigabyte, Komag creates extraordinary value for consumers of computers, enterprise storage systems and electronic appliances such as peer-to-peer servers, digital video recorders and game boxes. For more information about Komag, visit Komag's Internet home page at http://www.komag.com LAIDLAW: Judge Walsh Rejects Safety-Kleen's Move to Change Venue ---------------------------------------------------------------- Safety-Kleen Corporation and its scores of debtor-affiliates ran to Chief Judge Peter J. Walsh in Wilmington with a pitch to transfer Laidlaw's bankruptcy cases from the Western District of New York to the District of Delaware. Judge Walsh declined Safety-Kleen's invitation. Safety-Kleen filed their chapter 11 cases in Delaware last June 2000, while Laidlaw filed their bankruptcy cases in the Western District of New York a year later. Laidlaw Inc. owns about 44% of the common stock of Safety-Kleen Corporation. According to Mark A. Fink, Esq., at Skadden, Arps, Slate, Meagher & Flom, in Wilmington, Delaware, Laidlaw's decision to file in a district other than that in which its affiliates cases are pending creates a substantial risk that both Safety-Kleen and Laidlaw will be: (a) subject to inconsistent judgments over inter-related issues, (b) forced to spend significant time and resources and consume limited judicial resources in determining which of the various inter-related issues and litigation will be adjudicated by which court and on what time frame; and (c) subject to inconsistent rulings with respect to the application of the automatic stay to various class action litigation in which Laidlaw and Safety-Kleen or current and former officers of each are co-defendants. Mr. Fink adds that permitting piecemeal resolution of the issues raised in the litigation in two separate tribunals is inefficient because the substantial claims and defenses each Debtor has, and will, assert against each other is substantially the same. Further, Mr. Fink says, it will likely result in significant duplication and multiple trials on the same issues. It also has the potential to result in significant appellate litigation spawned by inconsistent rulings, Mr. Fink notes. Mr. Fink cites Rule 1014(b) of the Federal Rules of Bankruptcy Procedure which provides that a Court may transfer venue of an affiliate case in order to ensure that both cases are pending in the same tribunal. Safety-Kleen believes that doing so in these cases is necessary to avoid the significant unnecessary expenditures of time, judicial resources and the various estates' resources in attempting coordinate, or after the fact reconcile, rulings with respect to the liquidation of the inter- related claims and the resolution of the multitude of issues that must be addressed between these affiliated debtors. For the last 13 months, Mr. Fink observes that the Delaware Bankruptcy Court has become familiar with Safety-Kleen and the historical context between Safety-Kleen and Laidlaw that is the factual predicate for many of the claims, defenses and issues that both debtors will have to resolve. In addition, Mr. Fink informs Judge Walsh that significant pieces of the litigation between Safety-Kleen and Laidlaw, including Laidlaw's $6,500,000,000 claim against Safety-Kleen and Safety-Kleen's $200,000,000 avoidance action against Laidlaw have already been filed in the Delaware Court, have been answered by Laidlaw. In fact, Mr. Fink says, the Delaware Court has entered an order governing discovery and discovery is well underway. Accordingly, Safety-Kleen believes that the interest of judicial economy weigh strongly in favor of the Laidlaw bankruptcy proceedings being transferred to the Delaware Court. To remind Judge Walsh of the multitude of inter-related legal issues, factual predicates and historical relationships between Laidlaw and Safety-Kleen, Mr. Fink outlines that: (a) Laidlaw has asserted substantial claims against Safety- Kleen and Safety-Kleen has asserted and will shortly assert additional substantial claims against Laidlaw. Resolution of inter-related facts and determination of complex issues with respect to setoff and recoupment of the various overlapping claims and defenses; (b) Issues concerning the conduct of certain former Safety- Kleen offices and directors, each of whom were installed by Laidlaw at Safety-Kleen, and their involvement in the accounting irregularities at Safety-Kleen that resulted in the recent restatement, involving over $1,200,000,000, of Safety-Kleen's financial statements for the period during those officers' and directors' tenure at Safety-Kleen; (c) Liquidation of Laidlaw Inc.'s $6,500,000,000 proof of claim filed against Safety-Kleen alleging: (i) claims for indemnification, contribution and reimbursement in connection with certain litigation matters, (ii) claims against Safety-Kleen for fraudulent misrepresentation, fraud, securities law violations and related causes of action, (iii) insurance claims, (iv) guaranty claims, (v) environmental contribution claims, (vi) tax reimbursement claims, and (vii) additional miscellaneous claims. (d) Safety-Kleen's pending objection to Laidlaw's proof of claim seeking, among other things, a determination that significant portions of the claim are subject to subordination pursuant to section 510 of the Bankruptcy Code and Laidlaw's response to Safety-Kleen's objection. (e) Safety-Kleen's adversary proceeding pending in the Delaware Court against Laidlaw Inc. and certain of its affiliates to recover a transfer of over $200,000,000 on the grounds that the transfer was either a preferential payment or an intentional fraudulent transfer. Laidlaw filed an answer to the complaint, and the parties have exchanged discovery requests. (f) The parties' agreement for a framework for moving forward with discovery over the pending litigation formalized in a protective order that the Delaware Court has already entered. (g) Safety-Kleen intends to file, prior to the bar date established in the Laidlaw Bankruptcy Cases, significant affirmative claims against Laidlaw, including claims based on the parties' historic contractual relationships and claims arising from Laidlaw's conduct in connection with its prior control of Safety-Kleen. (h) Both Safety-Kleen and Laidlaw have commenced similar adversary proceedings in their respective Bankruptcy Courts to enjoin prosecution of certain civil lawsuits filed by shareholders and bondholders pending against, among others, certain of their respective current and former officers and directors. Many of these same securities lawsuits form the basis of Laidlaw's $1,000,000,000 claim against Safety-Kleen for indemnification, contribution and reimbursement and for which Safety-Kleen has sought subordination. (i) Laidlaw acknowledges that it would not have filed for bankruptcy protection but for the claims asserted by Safety-Kleen and that those claims are a main obstacle to a completely consensual reorganization process in the Laidlaw Bankruptcy Cases. In addition to the numerous interrelated claims and causes of action, Mr. Fink notes, Safety-Kleen and Laidlaw historically have had and continue to have significant intertwined relationships: (1) In May 1997, Rollins Environmental Services, Inc. acquired the hazardous and industrial waste operations of Laidlaw, Inc. in a reverse acquisition. As a result of the reverse acquisition, Laidlaw, Inc. became the 67% owner of the "new" Rollins. (2) Laidlaw, Inc. renamed the company Laidlaw Environmental Services, Inc. and installed long time veterans of the Laidlaw companies as the senior operating officers of the company and placed three of its employees or board members on Laidlaw Environmental Services, Inc.'s board of directors. (3) In November 1997, Laidlaw Inc., through its subsidiary Laidlaw Environmental Services, Inc., announced its intention to acquire old Safety-Kleen. Laidlaw adopted the name Safety-Kleen for the merged entity. The Laidlaw veteran managers of Laidlaw Environmental Services, Inc. continued in senior positions at Safety-Kleen --chief executive officer, chief operating officer and chief financial officer. (4) Laidlaw's former chief executive officer and chairman, James Bullock, and chief financial officer, Leslie Haworth, served on the Safety-Kleen board of directors to serve, respectively, as board chairman and chairman of the audit committee. (5) Many of the claims Safety-Kleen has against Laidlaw relate to Laidlaw's prior control of Safety-Kleen, the conduct of the senior officers and board members Laidlaw placed at Safety-Kleen and its and their roles in the accounting irregularities that resulted in Safety-Kleen's recent restatement of its prior financial statements. (6) In the Laidlaw Bankruptcy case first day hearing, Laidlaw's counsel recognized that resolution of issues with Safety-Kleen is essential for Laidlaw. Thus, Safety-Kleen asserts that Laidlaw's bankruptcy cases should be transferred to the Delaware Bankruptcy Court. Safety-Kleen's Secured Creditors Hop on the Bandwagon Toronto-Dominion (Texas), Inc., on behalf of itself and as Administrative Agent for 120 financial institutions that hold approximately $1,800,000,000 in secured claims against Safety- Kleen, submits a memorandum of law to Judge Walsh outlining their reasons for supporting Safety-Kleen's motion: (i) transfer of the Laidlaw chapter 11 cases to the Delaware Bankruptcy Court is appropriate and consistent with Bankruptcy Rule 1014(b); (ii) transfer of the Laidlaw cases to Delaware is in the interest of justice and convenience of the parties: (a) proximity of the Delaware Court to interested parties than Buffalo, New York (1) parties-in- interest and (2) professionals engaged by the major parties are all located outside Buffalo, New York in geographic areas closer to Delaware; (b) location of the Laidlaw's Assets (1) both Safety- Kleen's and Laidlaw's businesses are national in scope, and (2) location of both Safety-Kleen's and Laidlaw's books and records is not dispositive; (c) transfer of venue of Laidlaw's cases would promote efficient and economic administration of the Estate; (d) substantial economic harm to Safety-Kleen and their creditors will result if Safety-Kleen is forced to recommence their litigation against Laidlaw in Buffalo; Mark D. Collins, Esq., at Richards, Layton & Finger, in Wilmington, Delaware, asserts that Laidlaw's selection of the Buffalo Bankruptcy Court for venue purposes was arbitrary and defensive on the part of Laidlaw. Mr. Collins accuses Laidlaw of avoiding the resolution in the Delaware Court of the Safety- Kleen claims against Laidlaw. Mr. Collins notes that the claims of Safety-Kleen against Laidlaw are substantial and critical to the potential reorganization of Safety-Kleen. Mr. Collins compares that Safety-Kleen's chapter 11 cases have been pending for almost 14 months while Laidlaw's chapter 11 cases are only a few months old. Consequently, Mr. Collins contends, there will be no major dislocation or inconvenience suffered by Laidlaw by reason of the appropriate transfer of the Laidlaw chapter 11 cases to the Delaware Bankruptcy Court. Thus, Safety-Kleen's secured creditors urge Judge Walsh to grant transfer of the venue of Laidlaw's chapter 11 cases. Laidlaw Likes New York Contrary to Safety-Kleen and its creditors' assertions, Laidlaw contends that the transfer of their bankruptcy cases to Delaware would be imprudent and wholly inconsistent with the purpose and spirit of Bankruptcy Rule 1014(b), for a number of reasons. Matthew G. Zaleski, III, Esq., at Campbell & Levine, in Wilmington, Delaware, explains that the purpose of Bankruptcy Rule 1014(b) is to transfer cases of affiliated debtors to a single district so that they may be consolidated or jointly administered "because their affairs are so intermingled that administering separate cases in multiple jurisdictions would be imprudent". But that is not the case here, Mr. Zaleski emphasizes, since Laidlaw and Safety-Kleen are "affiliates" in only the most technical sense. Although Laidlaw does hold 44% equity stake in Safety-Kleen Corporation, Mr. Zaleski notes, that stake has no economic or practical value. In fact, Mr. Zaleski tells Judge Walsh, Laidlaw has written off the entire book value of their investment in Safety-Kleen. In addition, Mr. Zaleski says, none of the factors that justify a transfer of venue under Bankruptcy Rule 1014(b) are present in this case. Mr. Zaleski relates that Laidlaw and Safety-Kleen act as entirely independent enterprises, having completely separate management, creditors, operations and books and records. In fact, Mr. Zaleski informs Judge Walsh, Laidlaw has no representation whatsoever on the Safety-Kleen board of directors or in Safety-Kleen's management contrary to Safety- Kleen's claim that Laidlaw represent controlling shareholders of Safety-Kleen. Furthermore, Mr. Zaleski contradicts Safety-Kleen and its secured creditors that transferring the venue of the Laidlaw cases to Delaware would not serve the interests of justice or the convenience of the parties. Mr. Zaleski recognizes that the resolution of the various disputes and claims between Laidlaw and Safety-Kleen is important to the eventual outcome of both the Laidlaw cases and the Safety-Kleen cases. However, Mr. Zaleski contends, it does not justify transferring venue of Laidlaw's entire chapter 11 cases to the Delaware Bankruptcy Court. In contrast to Safety-Kleen's concerns, Mr. Zaleski tells Judge Walsh that Laidlaw has complete confidence in the ability of the Delaware Bankruptcy Court and the New York Bankruptcy Court to coordinate their efforts to resolve the issues that impact both cases. "This is something that sophisticated courts such as these can and must do every day," Mr. Zaleski states. Finally, Mr. Zaleski explains Laidlaw's "ample good reasons" for selecting Buffalo, New York as the venue for their cases: (a) the close proximity of the New York Bankruptcy Court to Laidlaw's headquarters in Burlington, Ontario (less than 70 miles away), as well as to many of their major creditors in Canada and to the Canadian court in Toronto with jurisdiction over companion proceedings under the Canadian Companies' Creditors Arrangement Act; (b) the New York Bankruptcy Court's general familiarity with cross-border issues; and (c) the New York Bankruptcy Court's ability (as contrasted, respectfully, with the Delaware Bankruptcy Court, which is the busiest by far in the United States) to devote substantial attention to the Laidlaw cases in a compressed time frame. In addition, Mr. Zaleski says, the choice of the New York Bankruptcy Court as an appropriate filing venue is supported by virtually of Laidlaw's significant debtholders. On top of that, Mr. Zaleski notes that the New York Bankruptcy Court has already invested substantial time and attention not only to administrative matters, but also to substantive matters that will dictate the ultimate direction of the Laidlaw cases. Thus, Laidlaw contends that transferring their cases to the Delaware Bankruptcy Court at this point would undermine the progress made to date and severely prejudice their estates and creditors by causing substantial additional delay and expense. In sum, Laidlaw's objections are: (a) granting the requested relief would be an inappropriate application of Bankruptcy Rule 1014(b); (b) the interests of justice and convenience of the parties clearly favors retaining venue of the Laidlaw cases in the New York Bankruptcy Court: (1) the New York Bankruptcy Court is a more convenient forum for interested parties in the Laidlaw cases; (2) transferring venue to the Delaware Bankruptcy Court would undermine the progress of the Laidlaw cases; (3) the Delaware Bankruptcy Court should respect the Laidlaw's choice of venue; (4) transferring the venue of the Laidlaw cases will not foster the efficient and economic administration of the Laidlaw cases or the Safety-Kleen Cases. And that is why Laidlaw wants Judge Walsh to deny Safety-Kleen's motion. Laidlaw's Creditors' Committee Doesn't Like Delaware The Official Committee of Unsecured Creditors of Laidlaw supports Laidlaw's objections. Monica Leigh Loftin, Esq., at Potter Anderson & Corroon LLP, in Wilmington, Delaware tells Judge Walsh that the Laidlaw Committee is comprised of bank and public bondholder creditors of Laidlaw who: (i) directly represent in excess of $3,500,000,000 of fixed and undisputed claims against Laidlaw, and (ii) firmly support venue in the Western District of New York. * * * Unfortunately for Safety-Kleen, Judge Walsh denies their motion to transfer the venue of Laidlaw's cases to Delaware. In his order, Judge Walsh explains that Rule 1014(b) is a procedural rule and not one that decides rights or interests. "The rule is not mandatory. It provides that the Court may determine, in the interest of justice or convenience of the parties, which district or districts the cases should proceed," Judge Walsh notes. Thus, Judge Walsh relates, even if Safety- Kleen's and Laidlaw's cases were totally interdependent, this alone does not require consolidation of both cases in one district. Judge Walsh also justifies that the convenience of the parties is not the focus of his decision considering that both Safety- Kleen and Laidlaw are national in scope. Judge Walsh determines that the present business operations of Safety-Kleen and Laidlaw are not so intertwined that the relationship between them requires the proceedings in one district at this time. According to Judge Walsh, there is no evidence that Laidlaw continues to exercise the kind of control over Safety-Kleen's affairs that would warrant a transfer of Laidlaw's bankruptcy cases to Delaware. Furthermore, Judge Walsh notes, Laidlaw has already filed its plan and disclosure statement and the New York Bankruptcy Court has entered a claims bar date order. On the other hand, Judge Walsh observes, it will likely be many months before Safety- Kleen emerge from bankruptcy. And in the light of the heavy case load pending in the Delaware Bankruptcy Court, Judge Walsh says, a transfer of Laidlaw's cases to Delaware would disrupt the progress of Laidlaw's reorganization efforts. "It may be necessary and appropriate to resolve the intertwined claims between Safety-Kleen and Laidlaw in one forum at a latter time," Judge Walsh rules. But Judge Walsh makes it clear that the denial of Safety-Kleen's motion is entered without prejudice to the right and ability of Safety-Kleen and/or Laidlaw to have a procedure for resolving the intertwined claims between Safety-Kleen and Laidlaw in one forum addressed at a later time. In the meantime, Judge Walsh emphasizes that Safety-Kleen and Laidlaw's cases shall proceed in their respective courts, subject to the possibility of a later determination to consolidate the cases or particular proceedings in one forum, depending upon later developments. (Laidlaw Bankruptcy News, Issue No. 8; Bankruptcy Creditors' Service, Inc., 609/392-0900) LERNOUT & HAUSPIE: Selling Kurzweil Educational Assets for $2MM --------------------------------------------------------------- L&H Holdings, Inc., as the sole shareholder of L&H Applications USA, Inc., a non-debtor subsidiary of Holdings, Inc., Judge Wizmur to approve the sale by Applications of all of the assets of its Kurzweil Educational Systems Group to KESI Acquisition, Inc., an entity owned and controlled by insiders of Applications. Appearing for Holdings, Mr. Gregory W. Werkheiser and Robert J. Dehney, of the Wilmington firm of Morris Nichols Arsht & Tunnell, acting as local counsel, and Luc A. Despins, Allen S. Brilliant, and Paul D. Malek, of the New York firm of Milbank Tweed Hadley & McCloy LLP, as lead counsel, warn Judge Wizmur that, under Delaware law, this sale may constitute substantially all of Applications' remaining assets. However, the Debtor also advises that Applications owns other assets besides Kurzweil, and expects that Applications will continue operations after the sale. Nonetheless, Holdings is, from an "abundance of caution", seeking Judge Wizmur's approval of Holdings' authorization of this sale in the event that the Kurzweil assets are considered substantially all of the remaining assets of Applications. In addition, Holdings warns that this Agreement is expressly conditioned upon Holdings' obtaining Judge Wizmur's approval and authority for this sale. Applications is engaged in the business of (1) the development of voice recognition technology and related sales and marketing efforts on behalf of other members of the Debtor group, and (ii) the design, development, marketing, licensing, testing, documentation, manufacture, support, maintenance and sale of Windows- and Macintosh-based scanning and reading software designed to assist and teach people with learning disabilities and vision impairment. The purchased assets relate to the KESI business and constitute a substantial portion of the remaining assets of Applications. KESI was formed for the purpose of acquiring the purchased assets and is an entity owned and controlled by a group of Applications' employees involved in the management of the KESI group. This management group consists of: Michael Sokol, Vice President and General Manager, KESI Stephen Baum, Vice President, KESI Alice Cunningham, Financial Analst, KESI Mark Dionne, Director of Engineering, KESI Forest Dobbs, Director of Worldwide Sales, KESI Applications' Sales Efforts In the spring of 2001, Holdings and the senior management of Applications determined that the KESI business, and therefore the purchased assets, were no longer a strategic fit with the operations of the Debtors, and determined to sell the purchased assets. Holdings and its financial advisors contacted three prospective purchasers of the purchased assets, but all of these purchasers declined to proceed further. Negotiations between Applications and the management group began at this time and were, at all times, conducted at arm's length. The management group and Applications were represented by separate counsel during these negotiations. Having determined that no offers other than that of the management group were forthcoming for the KESI assets, the management (other than the management group) and directors of Holdings and Applications determined that, in their business judgment, the sale of the purchased assets to the management group was in the best interests of Holdings and its estate, and Applications, respectively. Applications therefore negotiated the terms and conditions of the Agreement for the sale of the purchased assets with the management group. The Purchase Price The purchase price for the KESI asset is $2,000,000, of which $1,500,000 is payable in cash at closing, and the remaining balance of $500,000 paid by delivery to Applications of a promissory note for that amount. The note will bear interest at the rate of 6% per annum and have a term of five years, and will be secured bob all of the assets of KESI under the terms of a security agreement to be entered into concurrently with the closing. The Debtor assures Judge Wizmur that she has the authority to authorize Holdings to exercise its rights as Applications' sole shareholder to approve the sale of the purchased assets if Holdings demonstrates a sound business reason for this transaction, and if she also finds that the sale is fair and reasonable, and that the purchaser is proceeding in good faith. Once Holdings articulates a sound business reason, there is a presumptions that in making this business decision the Debtor's directors acted on an informed basis, in good faith, and in the honest belief that the action was in the best interests of the corporation. This rule shields a debtor's management from judicial second-guessing. Since Applications is not a debtor in these cases, the sale of its assets need not comply with these standards or the Bankruptcy Code. Holdings' approval of the sale of the purchased assets, however, may be required under applicable non-bankruptcy law. Holdings submits that the sale of the purchased assets by Applications under the Agreement is in the best interests of Holdings, its estate and creditors (although no reason other than the previously stated determination to sell is provided). Accordingly, Holdings asks that Judge Wizmur authorize it to give its consent to this sale to KESI. (L&H/Dictaphone Bankruptcy News, Issue No. 13; Bankruptcy Creditors' Service, Inc., 609/392-0900) LERNOUT & HAUSPIE: SpeechWorks Offers to Buy Technology Assets -------------------------------------------------------------- SpeechWorks International, Inc. (Nasdaq:SPWX), a global leader in speech recognition and text-to-speech (TTS) technologies and services, announced that it has submitted an offer for certain business and technology assets of Lernout & Hauspie Speech Products N.V. Under terms of the offer, SpeechWorks will continue support for several leading L&H technologies. The company also announced that it would operate a center of technical excellence in Belgium. The offer, comprised of a combination of cash and SpeechWorks' stock, values the selected assets at approximately $12.2 million. Lernout & Hauspie filed for bankruptcy protection in the United States late last year, and is currently pursuing similar protection in the courts of Belgium. SpeechWorks' offer is subject to closing conditions and to all applicable bankruptcy procedures. Through the power of SpeechWorksr technologies, the human voice is all a caller needs to access instant information and conduct transactions from any landline or wireless phone. Around the world, customer service innovators such as Amtrak, Microsoft, the U.S. Internal Revenue Service and Yahoo! are realizing returns on SpeechWorks applications that consistently delight and serve customers 24 hours a day. With over 100 partners, SpeechWorks (Nasdaq: SPWX) delivers natural language speech recognition, speaker verification and text-to-speech (TTS) solutions to leading corporations, telecommunications providers and government organizations worldwide. MARINER POST-ACUTE: Seeks Eighth Extension of Exclusive Periods --------------------------------------------------------------- In anticipation that the Lenders' Plan and Disclosure Statement will be withdrawn, and that Mariner Post-Acute Network, Inc. will be filing an alternate plan of reorganization, if the Court approves the MOU Motion, or alternatively, in the event the MOU Motion is not granted, a reasonable amount of time on their part will be required to formulate and confirm a plan of reorganization, the Debtors sought and obtained the Court's approval for a further extension of the exclusive periods in which to file a plan or plans of reorganization to and including November 20, 2001, and if a plan or plans of reorganization are filed on or before that date, to and including January 22, 2002. The Debtors tell the Court that they have made significant progress in the reorganization process, and in particular, in negotiating and seeking Court approval of the MOU and the transactions contemplated thereby. They expect still more work to do before a plan of reorganization can be confirmed and they can emerge from bankruptcy. Judge Walrath is satisfied that the Debtors have a legitimate, reasonable, and good faith need for additional time to file a plan of reorganization, that the Debtors are generally managing their business effectively and preserving the value of their assets for the benefit of creditors, and are not seeking to use exclusivity to pressure creditors to support a plan that is unacceptable to them. The Debtors are hopeful that the limited extension of the Debtors' Exclusivity Periods will encourage the negotiation and formulation of a plan or plans of reorganization that is in the best interests of the Debtors' creditors and estates. (Mariner Bankruptcy News, Issue No. 20; Bankruptcy Creditors' Service, Inc., 609/392-0900) MCLEODUSA: Scraps Dividend Payment on Series A Preferred Stock -------------------------------------------------------------- McLeodUSA Incorporated (Nasdaq:MCLD), the nation's largest independent competitive local exchange carrier, announced it has elected not to declare the quarterly stock dividend on its 6.75% Series A Cumulative Convertible Preferred Stock that is payable on November 15, 2001. The dividend will continue to accumulate at the rate of 6.75% annually. The dividend historically has been paid in shares of McLeodUSA Class A Common Stock at a rate of $4.21875 per share of Series A Preferred Stock owned. As of September 30, 2001, there were 1,149,375 shares of Series A Preferred Stock outstanding. While the Company could have paid the dividend, at current share prices the Company would have to issue over seven million new common shares, compared to the 787,690 shares issued in the past quarter as the Preferred dividend. McLeodUSA provides integrated communications services, including local services, in 25 Midwest, Southwest, Northwest and Rocky Mountain states. The company also provides data and voice services in all 50 states. McLeodUSA is a facilities-based telecommunications provider with, as of June 30, 2001, 383 ATM switches, 49 voice switches, 372 collocations, 512 DSLAMs, nearly 31,000 route miles of fiber optic network and 10,600 employees. The company's fiber optic network is capable of transmitting integrated next-generation data, Internet, video and voice services, reaching 800 cities and approximately 90% of the U.S. population. In the next 12 months, McLeodUSA plans to distribute 35 million telephone directories in 26 states, serving a population of 59 million. McLeodUSA is a Nasdaq-100 company traded under the symbol MCLD. Visit the company's web site at http://www.mcleodusa.com OWENS CORNING: Court Okays Stipulation Re Inter-Creditor Issues --------------------------------------------------------------- Judge Fitzgerald put her stamp of approval on a Stipulation to resolve certain inter-creditor issues between Owens Corning, along with the Official Committee of Asbestos Claimants, the Legal Representative for Future Claimants, and the Bank Group. The Stipulation involves these terms and their definitions: A. Credit Agreement refers to that certain Credit Agreement between and among the Debtors and its subsidiaries, as borrowers and guarantors, and the Banks, and Credit Suisse First Boston as Agent dated June 26, 1997. B. Banks or Bank Group mean the banks, their successors and/or assigns, in their capacity as lenders, under the Credit Agreement and not in any other capacity. C. Debentures mean those two certain debentures, dated December 24, 1997, each in the principal amount of $501,000,000, issued by Owens-Corning Fiberglas Technology Inc. and IPM Inc. to Owens Corning. D. License Agreement refers to that certain License Agreement dated as of October 1, 1991, by and between Owens Corning Fiberglas Corporation and Owens Corning Fiberglas Technology and that certain License Agreement dated April 27, 1999, by and between Owens corning Fiberglas Technology and Amerimark Building Products. E. Subsidiary Guaranties refer to the obligations of certain Owens Corning subsidiaries arising from the guaranties under the Credit Agreement. F. Successor Liability means any claim, basis, or theory that any subsidiary of Owens Corning is or should be liable for any personal injury or property damages caused by exposure to asbestos-containing material produced, sold or installed by Owens Corning or any other subsidiary. G. Intercompany Transfers refer to liabilities incurred or other asset transfers between and among Owens Corning and its subsidiaries. H. Inter-creditor Issues refer to any and all claims, objections, motions, adversary proceedings involving or related to issues of the amount, validity, enforceability, or priority of claims by the Bank Group against the Debtors and its subsidiaries. I. Participating Parties refer to the signatories to this Stipulation. The Stipulation provides that the Debtors will establish and maintain an information and document depository in New York City, which is currently being maintained at the offices of Skadden Arps Slate Meagher & Flom, in New York and shall be available during regular business hours. All information is given out with equal access to all Participating Parties. According to the Stipulation, this schedule shall govern the disposition of the Inter-creditor Issues: A. By October 29, 2001, the Debtors will file a motion to establish a bar date for filing of all claims, including intercompany claims against each of the Debtors, except for asbestos-related personal injury and damage claims. B. By September 30, 2001, the Debtors will place into the Information Depository all non-privileged documentary materials identified by them as of that date are relevant to the Inter-Creditor Issues, some of which may be redacted. C. Not later than October 20, 2001, the Debtors and the Participating Parties are authorized to serve reasonable written discovery requests in connection with their investigation of the Inter-Creditor Issues on such third party non-debtors as are reasonably necessary to complete the investigation. D. By October 31, 2001, the Bank Group shall file a proof of claim in each of the appropriate individual Debtor cases for claims arising from the Credit Agreement. E. By November 30, 2001, the Participating parties shall use best efforts to ensure that all third-party non-debtor document production is complete. F. By October 20, 2001, the Debtors shall propose a list of the names of the persons now or previously employed with knowledge of the Inter-Creditor Issues along with a specific description of the knowledge of each. Subsequently, within 10 days, the Participating Parties may identify additional persons limited to those reasonably required to investigate the Inter-Creditor Issues. G. By November 15, 2001, the Debtors shall circulate a proposed deposition schedule. Depositions shall commence no earlier than November 15, 2001 and shall conclude no later than January 31, 2002. Lastly, the Stipulation provides that at each omnibus hearing, the Debtors shall provide a report regarding the status of compliance with this Order and that any pending discovery disputes shall also be addressed at each such hearing. Additionally, the Participating Parties, by mutual agreement, may extend or modify the dates earlier established without further court approval. (Owens Corning Bankruptcy News, Issue No. 20; Bankruptcy Creditors' Service, Inc., 609/392-0900) PACIFIC GAS: Gets Approval to Assume 15-Year Gaylord Gas Pact ------------------------------------------------------------- Pacific Gas and Electric Company sought and obtained the Court's authority for assumption of its Long-Term Intrastate Natural Gas Transportation Service Agreement with Gaylord Container Corp., pursuant to Section 365(a) of the Bankruptcy Code. The proposed assumption would allow the continuation of PG&E's long-standing business relationship with Gaylord, which has resulted in significant revenue to PG&E and avoided the possibility that Gaylord would bypass PG&E's transmission system in favor of PG&E's competitors. Further, the assumption forms part of a reasonable compromise of Gaylord's outstanding claims against PG&E in the Bankruptcy Court arising from another agreement - a PPA between the parties, clearing the cloud of potentially expensive and protracted litigation. The Gas Agreement, entered into in 1994, is a long-term arrangement with Gaylord by which PG&E supply Gaylord's full requirements for intrastate natural gas transportation services to Gaylord's facility in Antioch, California for a 15-year period. Effective March 1, 1998, the Gas Agreement was modified soley as to the rates payable thereunder by the Gas Accord (CPUC-approved market restructure). PG&E is not in default under the Gas Agreement. PG&E and Gaylord are also parties to a Power Purchase Agreement (PPA) dated December 29, 1982, which provides for the sale of power to PG&E by Gaylord from its cogeneration facility. Previously Gaylord pursued various claims in the Bankruptcy Court including claims for payment of a "market rate" for the power delivered by Gaylord to PG&E after April 6, 2001, rather than the contract price set under its PPA. In order to compromise Gaylord's claims and thus avoid potentially costly and protracted litigation, and to secure the benefits of the PPA, PG&E agreed with Gaylord to amend and assume its PPA, in accordance with the terms set out in the Proposed Assumption Agreement. An integral part of the compromise of Gaylord's claims was PG&E's agreement to assume the Gas Agreement. The Court expressly acknowledges the term of the Agreement which requires that the CPUC approve a "pricing amendment" to the PPA between PG&E and Gaylord on or before October 13, 2001, and provides that if such approval is not obtained by that date, the "Agreement", which provides for the assumption of the PPA and the Gas Transportation Agreement, is a "nullity". (Pacific Gas Bankruptcy News, Issue No. 16; Bankruptcy Creditors' Service, Inc., 609/392-0900) PACIFIC GAS: Deems DWR's Revenue Requirement as "Positive Step" --------------------------------------------------------------- Pacific Gas and Electric Company issued the following statement after the California Department of Water Resources (DWR) released its revised revenue requirement: "After an initial review, we are encouraged by DWR's announcement that their revenue requirement is approximately $4 billion lower than previously estimated. The new revenue requirement appears to reflect the changing market conditions that have led to lower gas and electricity prices. "It is not yet clear how these new numbers interact with the California Public Utilities Commission's proposed $600 million cost shift between Northern and Southern California customers. We continue to support a fair and balanced distribution of costs between all utility customers, as DWR originally proposed. "These new figures are another positive step in resolving the state's energy crisis. We look forward to working with the Governor in his on-going efforts to lower wholesale electricity prices and bring stability back to the market for our customers. "We hope this development will facilitate efforts by Treasurer Angelides, DWR, and other parties to quickly and fully recover the state's power purchase costs." PENNZOIL-QUAKER: Fitch Concerned About Weakening Credit Profile --------------------------------------------------------------- Fitch rated Pennzoil-Quaker State Company's (Pennzoil) expected $250 million senior unsecured note issue `BB-`. The company's existing senior notes, which will become secured, maintain `BB+` ratings. The company's new $350 million secured bank revolver, which will rank pari passu with the existing senior notes, is rated `BB+'. The Rating Outlook is changed to Negative from Stable. Proceeds from the new senior unsecured offering will be used to repay outstanding bank debt. Fitch anticipates that Pennzoil's credit profile will remain weak given higher operating costs for Pennzoil, lower volumes in the lubricants and consumer products segment, and increased debt levels. Despite the weaker credit profile, the additional security given to the existing senior noteholders and new bank lenders is a significant benefit and is reflected in the above secured ratings. The level of subordinated debt included in the capital structure also enhances the secured note holders' positions. Security includes all U.S. intangible assets, inventory, and accounts receivables not sold in the securitization program. Pennzoil-Quaker State maintains a leading 36% market share in passenger car motor oil represented by its Pennzoil and Quaker State brands. In addition, the company markets leading automotive consumer products and has significant fast oil change operations with over 2,100 Jiffy Lube service centers in the U.S. However, operating margins have been under pressure as base oil, Pennzoil's largest raw material component, has significantly increased in price over the past 22 months. Pennzoil has implemented 6 price increases over the same period in order to recoup these higher costs however, a time lag exists between when costs to Pennzoil increase and when Pennzoil can implement price increases. Despite the price increases and the company's successful restructuring program, which is expected to generate annual savings of $200 million in 2001, Pennzoil's cost base will remain high and continue to place pressure on margins. In addition, volume levels have been negatively impacted by Pennzoil's increased prices to consumers as well as by higher gasoline prices, which results in fewer miles driven and reduces the frequency of oil changes. While Pennzoil has been working to drive volume through greater channel penetration and a broadened product portfolio, volumes remain below historical levels. Pennzoil's total debt will be higher than previously expected given lower motor oil volumes and reduced proceeds from asset sales during fiscal 2001. On June 30, 2001 total debt was $1.2 billion including $236 million in bank debt. The expected new secured bank revolver will extend the company's maturities beyond the December 2001 expiration of the existing bank agreement, which has a 1-year term out option. For the twelve month's ended June 30, 2001 leverage, measured by total debt to EBITDA, was 5.4 times and EBITDA coverage of interest was 2.3x. The weak operating performance and continued high debt levels have resulted in a negative rating outlook for the company. Uncertainty surrounding the longer-term impact of the events of September 11 on crude, base oil, and gasoline prices has been heightened. Consumer behavior toward automobile travel, maintenance, and spending are critical factors that Fitch will continue to monitor. POLAROID CORP: Gets Okay to Pay Prepetition Employee Obligations ---------------------------------------------------------------- Polaroid Corporation asks the Court to enter an order authorizing them: (1) to pay or otherwise honor various employee-related pre- petition obligations; and (2) to continue post-petition certain employee benefit plans and programs in effect immediately prior to the filing of these cases. (A) Compensation Obligations Polaroid Executive Vice President Neal D. Goldman relates the Debtors employ 3,500 domestic salaried and hourly paid workers. Accordingly, Mr. Goldman says, the Debtors seek to pay $9,100,000 on account of accrued and unpaid: (i) salaries and wages of employees, (ii) amounts that the Debtors are required by law to withhold from employee payroll checks in respect of federal, state and local income taxes, including unemployment contributions and taxes, and social security and Medicare taxes; and (iii) amounts that the Debtors are required to directly pay in respect of state unemployment taxes and contributions on behalf of employees. However, Mr. Goldman emphasizes that the Debtors are not seeking authority to pay pre-petition vacation or severance obligations to Employees or former Employee unless otherwise ordered by the Court. But, Mr. Goldman clarifies that the Debtors do seek the Court's authority to allow Employees to take vacations -- in the ordinary course and in line with the Debtors' current vacation policy. (B) Business Expenses Mr. Goldman also informs the Court that the Debtors usually reimburse their Employees who incur a variety of business expenses in the ordinary course of performing their duties on behalf of the Debtors, e.g., travel and entertainment expenses. Because the Employees do not always submit claims for reimbursement promptly, Mr. Goldman explains, it is difficult for the Debtors to determine the amount outstanding at any particular time. However, Mr. Goldman says, the Debtors estimate that their obligations in respect of reimbursements to be made to Employees aggregate less than $400,000 as of Petition Date. Since it is essential to the continued operation of the Debtors' business, Mr. Goldman asserts that Debtors should be allowed to continue reimbursing their employees for these expenses. (C) Employee Benefits Like most large companies, Mr. Goldman explains, the Debtors have established various benefit plans and policies for their Employees, including medical plans, dental plans, life insurance and long-term disability insurance programs. Medical Plans According to Mr. Goldman, the Debtors offer two forms of medical insurance for current Employees: (1) two experience-rated plans with Blue Cross Blue Shield; and (2) various HMO plans. Mr. Goldman explains that the Blue Cross Blue Shield Plans are self-insured plans with claims administered by Blue Cross Blue Shield and paid by Polaroid. On the other hand, Mr. Goldman says, the HMO Plans are fully insured plans. Employees who participate in the Blue Cross Blue Shield Plans or the HMO Plans contribute to the cost of the Plans through payroll deductions, Mr. Goldman tells Judge Walsh. On the first Monday of each month, Mr. Goldman notes, the Debtors fund the Blue Cross Blue Shield Plans with $1,000,000 to pay reported claims. At the end of each quarter, Mr. Goldman says, Blue Cross Blue Shield reconciles the amount of claims actually paid by Blue Cross Blue Shield during that quarter against the amount deposited by the Debtors during the quarter. If the Company has not deposited funds sufficient to cover the claims actually paid during the quarter, Mr. Goldman explains, the Debtors pay the shortfall. At any period of time, Mr. Goldman discloses, there are approximately three months of claims (on the average) that are incurred but not reported to Blue Cross Blue Shield. According to Mr. Goldman, those incurred but not reported claims total on average between $3,000,000 and $3,500,000. Thus, the Debtors seek the Court's authority to continue to make monthly payments with respect to such claims as well as any shortfall associated with claims incurred prior to the Petition Date. Mr. Goldman tells Judge Walsh that the Debtors do not expect the aggregate monthly expense plus shortfall, if any, to exceed $3,500,000. Dental Plans According to Mr. Goldman, the Debtors also provide their Employees with a dental plan. Mr. Goldman explains that the Dental Plan provided by Delta Dental is a self-insured plan wherein the Debtors fund the Dental Plan each month for those claims incurred by the Employees and billed during the previous month. At any period of time, Mr. Goldman notes, there are approximately three months (on average) of dental claims that have been incurred, but not reported to Delta Dental. The Debtors anticipate that those three months of incurred but not yet billed claims total, on average, between $600,000 and $700,000. Accordingly, the Debtors expect that they will make monthly payments of approximately the same amount to cover Employee dental claims that were incurred prior to the Petition Date. Disability Insurance The Debtors also provide long-term disability insurance and other life, accidental death and disability insurance for their Employees. Mr. Goldman tells the Court that the insurer for the long-term disability Plan is Metropolitan Life Insurance Company. According to Mr. Goldman, this is a fully insured plan and the Debtors pay a monthly premium one month in arrears. Accordingly, the Debtors ask Judge Walsh for authority to pay the November premium for the month of October, which will necessarily include pre-petition time periods. Mr. Goldman relates that the total amount of the monthly premium for the long-term disability Plan is $145,000. Life Insurance Like the long-term disability plan, Mr. Goldman notes, the Life Insurance Plan is a fully insured plan for which the Debtors pay a monthly premium one month in arrears. According to Mr. Goldman, the insurer for the Life Insurance Plan is John Hancock Insurance Company. Earlier this year, Mr. Goldman relates, the Debtors' received $2,800,000 in proceeds from the demutualization of John Hancock. Those proceeds were used to fund the Life Insurance Program, Mr. Goldman adds. Currently, Mr. Goldman tells the Court that about $1,200,000 in demutualization proceeds remain. And, Mr. Goldman says, the Debtors expect to continue to use such proceeds to fund the Life Insurance Plan. Accordingly, the Debtors ask Judge Walsh for permission to pay their next premium for the Life Insurance Plan, cognizant of the fact that such premium is paid from the demutualization proceeds and not out of the Debtors' general operating funds. Massachusetts Compensation Program As required under state law, Mr. Goldman relates, the Debtors provide workers' compensation coverage for their Massachusetts employees. With respect to those claims incurred prior to September 1, 2001, Mr. Goldman notes, the Massachusetts Workers Compensation Program is a self-insured program. As a result, Mr. Goldman says, the Debtors must continue to pay the amounts due stemming from claims incurred prior to September 1, 2001 from their general operating funds. On average, Mr. Goldman notes, those claims total $1,300,000 annually. The Debtors are hopeful that the claim amounts will decrease, as those claims are resolved and the number of employees reduced. Accordingly, the Debtors request the Court's authority to continue to pay these pre- petition claims under the Massachusetts Workers' Compensation Program. Also, Mr. Goldman informs Judge Walsh that the Debtors provide workers' compensation insurance for their employees outside Massachusetts, which insurance is provided pursuant to a fully insured plan. Retiree Medical Plans Prior to the Petition Date, Polaroid terminated its retiree medical benefit programs effective October 9, 2001. This means that only those claims incurred prior to October 9, 2001 will be paid pursuant to the terms of the various Retiree Medical Plans, Mr. Goldman explains. According to Mr. Goldman, Polaroid offered two forms of retiree medical insurance to its qualified retirees. Mr. Goldman relates retirees between the ages of 55 and 64 participated in one of two types of medical programs: either experience-rated plans with Blue Cross Blue Shield or various HMO plans. Mr. Goldman explains the Blue Cross Blue Shield Retiree Plans were self-insured plans with claims administered by Blue Cross Blue Shield and paid by Polaroid. On the other hand, Mr. Goldman notes, the HMO Plans were fully insured plans. Mr. Goldman informs the Court that retirees who participated in the Retiree Plans contributed on average approximately 50% of the cost of the Retiree Plans through either a deduction from their pension check or by sending a check to the Debtors. Retirees who are over age 65 participated in one of two types of medical plans: a Blue Cross Blue Shield Medex Plan or various Senior HMO Plans, according to Mr. Goldman. "Retirees who participated in the Medex Plan or Senior HMO Plans contributed, on average, approximately 50% of the cost of such plan either through deductions from their pension check or by mailing a check to the Debtors," Mr. Goldman relates. Prior to the termination of the Retiree Medical Plans, Mr. Goldman notes, Polaroid funded the Blue Cross Blue Shield Retiree Plans and Medex Plan with approximately $1,100,000 to pay reported claims on a monthly basis. Then at the end of each quarter, Mr. Goldman explains, Blue Cross Blue Shield reconciled the amount of claims actually paid during the quarter against the amount deposited by Polaroid during that quarter. If Polaroid had not deposited funds sufficient to cover the claims actually billed during the quarter, Mr. Goldman says, Polaroid paid the shortfall. Though the Retiree Medical Plans have been terminated, Mr. Goldman anticipates that there may be claims incurred prior to October 9, 2001, which have not yet been processed. Accordingly, the Debtors ask Judge Walsh for authority to pay those claims incurred under the Retiree Medical Plans prior to October 9, 2001. The Debtors estimate this amount will not exceed $3,500,000. (D) Administration of Employee Benefit Plans To facilitate the administration and maintenance of their books and records in respect of Employee Benefits, the Debtors utilize the services of professionals and consultants in the ordinary course of their business. According to Mr. Goldman, the Debtors estimate that approximately $200,000 was accrued and unpaid on account of Administrative Obligations prior to the Petition Date. In the light of the potential delay in obtaining a hearing date, the Debtors want the Court to address their request to pay their employees wages and salaries first. David S. Kurtz, Esq., at Skadden, Arps, Slate, Meagher & Flom, in Chicago, Illinois, asserts it is crucial that the Debtors satisfy their pre-petition Employee payroll obligations during the critical days following the commencement of these chapter 11 cases. Non-payment may have dramatic and irreparable consequences, Mr. Kurtz warns. According to Mr. Kurtz, it would be devastating to the Debtors' business operations and prospects for a successful reorganization if, immediately after commencing their chapter 11 cases, they were not authorized to fund and honor their payroll obligations to Employees. Mr. Kurtz emphasizes that maintaining the confidence of Employees early in these cases is necessary and essential to the ability of the Debtors to preserve and successfully reorganize their business. "Thus, it is crucial that the Order be entered immediately, so that the Debtors and their agents are authorized to pay, and the banks are directed to honor, pre-petition employee payroll obligations prior to a hearing on the Employee Motion," Mr. Kurtz appeals. Aware of the urgency and necessity, Judge Walsh authorizes the Debtors to pay all pre-petition wages and salaries of their employees, as well as any and all corresponding taxes, and honor all pre-petition Employee Obligations, subject to an $18,600,000 cap. The Court also clarifies that the Debtors are not authorized to pay pre-petition vacation or severance obligations to Employees or former Employees. However, the Debtors are permitted to allow Employees to take vacations in the ordinary course and in line with the Debtors' current vacation policy. Judge Walsh further authorizes the Debtors to continue post- petition certain Employee Benefit Plans (but not the Retiree Medical Plans) in effect immediately prior to the filing of these cases. Judge Walsh makes it clear that his order shall not constitute an assumption of any Employee Benefit plan, program or contract. In addition, the authority to make payments and honor obligations is subject to any requirements imposed upon the Debtors under any approved DIP financing facility or order with respect to the use of pre-petition lenders' cash collateral. (Polaroid Bankruptcy News, Issue No. 2; Bankruptcy Creditors' Service, Inc., 609/392-0900) QUALITY STORES: Noteholders File Involuntary Chapter 11 in MI ------------------------------------------------------------- Triton Partners LLC, Pacholder High Yield Fund, Inc., and Conseco Capital Management, Inc. announced that several of their various managed funds (collectively, the "Executive Committee of Noteholders"), which hold the 10-5/8% Senior Notes due 2007 of Quality Stores, Inc., have commenced an involuntary chapter 11 case against the Company in the United States Bankruptcy Court for the Western District of Michigan in Grand Rapids. The Company had previously failed to make the October 1, 2001 interest payment on the Senior Notes in the approximate aggregate amount of $5.8 million. The Company shortly thereafter coordinated the formation of a committee of certain holders of the Senior Notes. The Committee was organized to facilitate negotiations between the holders of the Senior Notes and the Company. In light of concerns that the Company was taking significant operating steps without providing adequate information to the Committee, the Executive Committee of Noteholders concluded that the protections afforded by chapter 11 were necessary to protect the interests of holders of the Senior Notes. The holders of the Senior Notes anticipate commencing in earnest a dialog with the Company regarding the Company's business plan and reorganized capital structure. QUALITY STORES: Weighing Options to Continue Restructuring ---------------------------------------------------------- Quality Stores, Inc., announced that an involuntary petition under the United States Bankruptcy Code was filed in the United States Bankruptcy Court for the Western District of Michigan in Grand Rapids. The involuntary petition was filed by a group of holders of the 10 5/8% senior notes on Saturday, October 20, 2001. Under laws relating to an involuntary bankruptcy filing, the Company is permitted to operate its business in the ordinary course, unless the Court orders otherwise. The Company said that it is evaluating its options as it determines how to continue with the financial and business restructuring that has been ongoing for several months. The Company also continues to work with legal and financial advisors specifically engaged to assist it in its restructuring efforts. As part of the business restructuring, the Company also has announced that it intends to close 133 stores. Most of the stores to be closed are located west of the Mississippi River. The Company intends to concentrate its efforts going forward on core markets in the Midwest and East. Stores will remain open in the following states: Michigan, Ohio, Indiana, New York, Pennsylvania, New Jersey, Delaware, Maryland, Vermont, Massachusetts, Virginia, West Virginia, and Kentucky. The Company said that it intends to continue to pay employees' pre-petition and post-petition wages, salaries, and benefits without interruption. Quality Stores, Inc. is a specialty retailer of farm and agriculture-related merchandise with headquarters in Muskegon, MI. RELIANCE: Asks Court to Fix Dec. 31 Bar Date for Proofs of Claim ---------------------------------------------------------------- To establish the full range of asserted claims against Reliance Group Holdings, Inc.'s estates, and to identify potential disputes as to claims, Reliance asks Judge Gonzalez to: (i) establish December 21, 2001 as the last day for all persons and entities, including individuals, partnerships, corporations, estates, trusts and governmental units, to file proofs of claim pursuant to 11 U.S.C. Sec. 501 and Rule 3003(c) of the Federal Rules of Bankruptcy Procedure and also to establish procedures for filing proofs of claim; (ii) approve a Bar Date Notice, to be sent to creditors and other parties in interest, together with a Proof of Claim form conforming to Official Bankruptcy Form No. 10 and instructions relating thereto; (iii) approve the manner of service of the Notice of Bar Date by a) first class regular mail and b) publication of the Notice of the Bar Date in the publications listed below. Lorna G. Schofield, Esq., at Debevoise & Plimpton, tells Judge Gonzalez that Notices of Bar Date together with the Proof of Claims forms can be mailed on or before November 7, 2001. Therefore, creditors will have at least 40 days after they receive Notices of Bar Date to file proofs of claim. The Bar Date will apply to each and every claim, as defined at 11 U.S.C. Sec. 101(5), against RGH's estates, except: (A) Claims by a creditor who has already filed a proof of claims with the Debtors' counsel or the Claims Agent against a specific Debtor using a claim form that substantially conforms to Official Bankruptcy Form No. 10; (B) Claims listed on the Schedules as neither "disputed" nor "contingent" nor "unliquidated" if the creditor agrees with the amount and classification set forth therein; (C) Administrative priority claims; (D) Claims of one Debtor against another Debtor; (E) Claims already allowed by a Court order. Ms. Schofield informs potential claimants that any person or entity whose claim arises from, or as a consequence of, the rejection of executory contracts and unexpired leases and the incurrence of certain taxes, pursuant to Sections 502(g) and 502(i), respectively, must file a proof of claim within 40 days after the particular claim arises. Thus, each proof of claim would have to be filed within 40 days after entry of an order approving the rejection of an executory contract or unexpired lease or within 40 days after a tax claim arises under Section 502(i), or by the Bar Date, whichever is later. Holders of equity interest need not file proofs of interest with respect to the ownership of such equity interest. Holders of equity interest who wish to assert a claim against RGH that is not based solely upon ownership of an equity interest will be required to file a proof of claim on or prior to the Bar Date. RGH proposes that the Court establish the following procedures for the filing of proofs of claim: (a) Proofs of claim must be filed with the Clerk of the Court at one of the following addresses, as appropriate: (I) If by mail: United States Bankruptcy Court c/o Reliance Group Holdings, Inc. Claims Processing P.O. Box 5177 Bowling Green Station New York, New York 10274-5177 (II) If by hand delivery or overnight courier: United States Bankruptcy Court c/o Reliance Group Holdings, Inc. Claims Processing One Bowling Green New York, New York 10004-1408 (b) Proofs of claim will be deemed filed only when received. Proofs of claim will be deemed timely filed only if the proof of claim (i) is signed, (ii) identifies the Debtor against which it is asserted, and (iii) is actually received by the Court on or before the Bar Date; (c) Proofs of claim must be received by the Court before the Bar Date; (d) The Proof of claim form will indicate whether the creditor's claim is listed on the Debtors' schedules as disputed, contingent or unliquidated. If a creditor's claim is listed on the Schedules as undisputed, noncontingent and liquidated, then the dollar amount of such claim is listed on the Schedules will also be set forth on the proof of claim form; (e) Any person or entity holding claims against more than one Debtor must file a separate proof of claims against each Debtor individually. Each claimant will be bound by the designation of the particular Debtor it named in its proof of claim; (f) An indenture trustee may file a claim on behalf of known or unknown holders of securities. In particular, holders of the 9% senior notes due November 15, 2000, and the 9 3/4% senior debentures due November 15, 2003, need not file their own proofs of claim if Wells Fargo Bank Minnesota and HSCB Bank USA as indenture trustees for the holders of the above notes, respectively, file timely proofs of claim on their behalf. If either Debtor amends its Schedules subsequent to the date hereof to reduce, reclassify or schedule as "contingent," "unliquidated" or "disputed" any claim, such Debtor shall give written notice to the holder of the affected claim. Such holder shall be afforded an extension of 40 days from the date on which such notice is given to file or amend a proof of claim, if necessary, or be forever barred from so doing. Any person or entity holding a claim required to file a proof of claim by the Bar Date that fails to do so: -- shall be forever barred from: (a) participating in the Debtors' estates; (b) voting with respect to any Chapter 11 plan(s) of reorganization or liquidation filed; -- receiving any distribution under the Chapter 11 plan(s) of reorganization or liquidation; and -- shall be bound by the terms of any Chapter 11 plan(s) of reorganization or liquidation if confirmed by the Court. Pursuant to Rule 2002(a)(7), RGH proposes to have the Claims Agent serve the Notice of Bar Date, instructions and a proof of claim form that conforms to Official Bankruptcy Form No. 10, by first class regular mail on all known potential claimants. To flush-out unknown claims, the Debtors propose to publish the Bar Date Notice in the national editions of The New York Times and The Wall Street Journal. (Reliance Bankruptcy News, Issue No. 13; Bankruptcy Creditors' Service, Inc., 609/392-0900) SNV GROUP: Cuts 53% of Staff After Filing for CCAA Protection ------------------------------------------------------------- SNV Group Ltd. (CDNX: SGL) announced that, following its filing for protection under the Companies' Creditors Arrangement Act, it laid off 53% of its employees. These layoffs, which affect a total of 46 employees in the Company's Vancouver and Montreal offices, will substantially reduce its operating costs during the restructuring period. The Company is confident that its remaining employees, which include all of its senior management team, will be able to continue to provide service to its customers during this period. SNV provides a professional link between Canadian tourism products and an international business network of tour wholesalers, travel agents, airlines and other tourism-related partners. SNV is headquartered in Vancouver, with a group and incentive operations office in Montreal and sales service offices in the United Kingdom and France. SAFETY-KLEEN: Wants Approval of 2nd Consent Agreement with EPA -------------------------------------------------------------- David S. Kurtz and J. Gregory St. Clair of the Chicago office of Skadden, Arps, Slate, Meagher & Flom LLP (Illinois), acting as lead counsel, and Mark A. Fink and Gregg M. Galardi of the Wilmington office of that firm as local counsel, ask Judge Peter Walsh, on behalf of Safety-Kleen Corp. and twenty-eight of its direct and indirect subsidiaries and affiliates, to approve the terms of the Second Amended Consent Agreement, by which the Debtor-Respondents and the United States Environmental Protection Agency agree to amend certain provisions of the Consent Agreement by and between the Debtor-Respondents and EPA dated as of September 5, 2000 and the First Amended Consent Agreement and Final Order dated May 4, 2001. The Debtor-Respondents remind Judge Walsh that on September 15, 2000, they filed a motion seeking approval of the Debtor- Respondents' entry into the Consent Agreement. As the Debtor- Respondents explained in that motion, the fact that the Debtor- Respondents did not have Compliant Financial Assurance presented the Debtors with a stark choice: either commence a nationwide, zero-sum litigation strategy to avoid attempts by EPA or the Participating States to close the Covered Facilities or negotiate a consensual process by which the Debtor-Respondents would obtain Compliant Financial Assurance in cooperation with EPA and the Participating States. The Debtor-Respondents chose to proceed along the consensual pathway, the result of which was entry into the Consent Agreement. Entry into the Consent Agreement, which ultimately was not opposed by either the Creditors' Committee or the secured lenders with certain conditions and a reservation of rights, enabled the Debtor-Respondents to preserve the status quo while the Debtor-Respondents went about re-establishing Compliant Financial Assurance. On October 17, 2000, Judge Walsh entered his Order approving the Consent Agreement and Final Order. Pursuant to paragraph 20(d) of the Consent Agreement, the Debtor-Respondents were required to obtain Compliant Financial Assurance by December 15, 2000. On December 15, 2000, EPA conditionally extended the Compliant Financial Assurance Deadline to February 28, 2001. On February 28, 2001, EPA further extended the Compliant Financial Assurance Deadline to April 30, 2001, which was the last date to which the Compliant Financial Assurance Deadline could be extended under the Consent Agreement Order. On May 4, 2001, the EPA and Debtors entered into the First Amended Consent Agreement. On May 16, 2001, this Court approved the First Amended Consent Agreement. Under the terms of the First Amended Consent Agreement, the Compliant Financial Assurance Deadline as extended until July 31, 2001 for those Covered Facilities, and September 30, 2001 for certain Covered Facilities other than certain specified facilities subject to a different extension). The Financial Assurance Deadline for those Covered Facilities (other than certain specified exceptions) was subsequently extended by EPA from September 30, 2001 to October 18, 2001 and further extended to November 5, 2001. On July 11, 2001, this Court approved the Insurance Program with Indian Harbor, thereby enabling the Debtors to establish Compliant Financial Assurance for those Covered Facilities. On October 18, 2001, Debtors filed a motion with this Court seeking to establish Compliant Financial Assurance for certain of the Other Covered Facilities, which facilities are located in Arizona, Colorado, Louisiana and Utah. The Other Covered Facilities (Active) consist of one landfill located in Deer Trail, Colorado; a RCRA/TSCA storage, treatment and disposal facility located in Clive, Utah (aka the Grassy/Grayback Mountain disposal facility); a service center in Phoenix, Arizona; an incinerator in Aragonite, Utah; a wastewater treatment facility in Baton Rouge, Louisiana; and a PCB and RCRA storage facility in Clive, Utah. The Financial Assurance Deadline for those Covered Facilities was subsequently extended by EPA from September 30, 2001 to October 18, 2001, and further extended to November 5, 2001. Thus, the Debtors seek the Court's approval of the Debtors' entry into the Second Amended Consent Agreement extending the deadline to establish Compliant Financial Assurance for the certain facilities located in Utah through January 31, 2002 and extending such deadline for the Other Covered Facilities located in Kansas, New Jersey, Georgia, Iowa, Kentucky, Wisconsin, Louisiana, Ohio, Oklahoma, South Carolina and Pennsylvania through March 31, 2002. Under the Second Amended Consent Agreement, Safety-Kleen Services, Inc. has agreed to pay an additional civil penalty in the amount of $1,200,999.00 for not having Compliant Financial Assurance during the period from October 18, 2001 through January 31, 2002 and for not having Compliant Financial Assurance for other Facilities during the period from October 18, 2001 through March 31, 2002. Safety-Kleen Services, Inc. has agreed to pay $500,000 of the civil penalty as an Allowed Administrative Expense within fifteen days of Judge Walsh's Order approving the Second Amended Consent Agreement. The remainder of the penalty will be treated as an allowed administrative expense claim and paid consistent with the treatment of other allowed administrative expense claims. These changes do not alter any other terms of the CA/OF. Under the Consent Agreement Order, the Debtor-Respondents were authorized to enter into similar agreements with Parallel Action States or states that were neither Participating States nor Parallel Action States, respectively, without further Court order, provided that the Debtor-Respondents had provided certain notice of such Agreements to the Committee and the Lenders. The Debtor-Respondents have entered into several agreements with Parallel Action States and Non-Participating States. Accordingly, the Debtor-Respondents may attempt to negotiate similar extension agreements with Parallel Action States and Non-Participating States having facilities with noncompliant financial assurance coverage. The Debtors are currently negotiating such an agreement with the State of Colorado with respect to an extension through January 31, 2002 for the only remaining active facility not covered by the Second Amended Consent Decree, a landfill located at Deer Trail, Colorado. In order to streamline that process and to preserve estate assets, the Debtor-Respondents seek authority to enter into extensions with Parallel Action States and Non-Participating States without further Court order, provided that Debtor-Respondents provide counsel to the Committee and the Lenders with 10 business days notice prior to the effectiveness of such extensions and they do not object. The Debtors/Respondents direct Judge Walsh's attention to Bankruptcy Rule 9019, which empowers him to approve compromises and settlements if they are in the best interests of the estates. In determining whether to approve a settlement, a bankruptcy court should consider "(1) the probability of success in litigation; (2) the likely difficulties in collection; (3) the complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it; and (4) the paramount interest of the creditors." In approving the Consent Agreement and First Amended Consent Agreement, Judge Walsh previously found that the above requirements were met because in weighing the cost to these estates in embarking upon a scorched earth litigation strategy against embarking upon a negotiated, cooperative course towards obtaining Compliant Financial Assurance, the Debtor-Respondents and their creditors were best served by proceeding along the consensual pathway. The same arguments hold true for the Debtor-Respondents' entry into the Second Amended Consent Agreement. Rather than triggering a litigation war that would consume many of the resources of these estates and injure the Debtor-Respondents' customer relations, the Debtor-Respondents have agreed to pay an additional $1,200,999.00 civil penalty. In weighing those options, it is clear that the best interests of the creditors of the Debtor-Respondents lie in entering the Second Amended Consent Agreement. Terms of the Second Amended Consent Agreement In addition to the requirements of the CA/FO discussed above, Respondents shall comply with the provisions and terms contained in the Compliance Schedule set forth in the Second Amended Consent Agreement: a. Within two Working Days of the Effective Date of the Second Amended consent Agreement, the Debtor/Respondents will submit to Indian Harbor Insurance Company the necessary letters of credit to establish the collateral needed to secure the financial assurance for the facilities identified in this Second Amended Consent Agreement. Respondents' lenders have represented that they will not oppose the expenditure of funds to secure the letters of credit, the submittal of same to the Indian Harbor Insurance Company or the purchase of Compliant Financial Assurance for the Covered Facilities identified in this Second Amended Consent Agreement. b. On January 31, 2002, the Debtor/Respondents will put in place financial assurance for the Covered Facilities specifically identified in the Second Amended Consent Agreement, or, if the financial assurance is not in place by January 31, 2002, then the Debtor/Respondents will immediately cease to take waste and shall comply with the requirements for closure, post- closure and/or corrective action for such Covered Facilities in accordance with federal regulations and statutory law, and the applicable hazardous waste permit or TSCA approval. The Debtor/Respondents' lenders have represented that if the Respondents have not obtained Compliant Financial Assurance prior to January 31, 2002, Respondents' lenders shall not seek from Judge Walsh (or otherwise) any waiver or extension of the obligation to cease operations without the written consent of the EPA and shall not contend that the final volume or quantity of hazardous or PCB waste received at such Covered Facilities occurred after January 31, 2002. c. On or before October 17, 2001, the Debtor/Respondents shall file with the Bankruptcy Court a request for all approvals necessary to obtain Compliant Financial Assurance for the Covered Facilities in Arizona, Louisiana, and Utah identified this Second Amended Consent Agreement. The Debtor/Respondents' lenders have represented that they will not oppose such a request. d. On or before October 19, 2001, Respondents shall have sent to Arizona, Louisiana, and Utah the financial responsibility mechanism for the Covered Facilities identified in this Second Amended Consent Agreement for review and approval. e. If, prior to January 31, 2002, the Debtor/Respondents file a motion to request permission from the Bankruptcy Court to sell any of the Covered Facilities listed on Attachment L to the Second Amended Consent Agreement, the Debtor/Respondents at the same time will file with the Bankruptcy Court a request seeking approval for a financial responsibility mechanism pursuant to which Compliant Financial Assurance for that Covered Facility will be put in place. The Debtor/Respondents' lenders have represented that they will not oppose such a request. During the Interim Compliance Period, the Debtor/Respondents will continue to use their best efforts to obtain Compliant Financial Assurance. The Debtor/Respondents shall continue to seek additional proposals or mechanisms for obtaining Compliant Financial Assurance. In addition to other reporting of the CA/FO, the Debtor/Respondents shall include in their weekly report of the status of their efforts to obtain Compliant Financial Assurance information that describes in detail: (i) the status of the Debtor/Respondents' efforts to obtain consents or approvals for financing from various of the Debtor/Respondents' lenders for the posting of collateral that would be required for Compliant Financial Assurance for the Covered Facilities; (ii) the Debtor/Respondents' efforts to obtain proposals or mechanisms for obtaining Compliant Financial Assurance; and (iii) the Debtor/Respondents' efforts to obtain proposals for the sale, merger, or divestiture of any Covered Facilities or other facilities of the Debtor/Respondents. (f) The Debtor/Respondents shall participate in weekly conference calls with EPA to discuss the status of the efforts to obtain consents or approvals for financing from various of the Debtor/Respondents' lenders for the posting of collateral which would be required for Compliant Financial Assurance for the Covered Facilities. Upon request, the Debtor/Respondents shall exercise their best efforts to include interested lenders in the discussions under this requirement. (g) The Debtor/Respondents shall provide EPA and requesting Participating States a detailed report every other week on the status of its reorganization and/or marketing plans. If requested, Respondents shall provide such report in writing. Penalties and Restrictions Failure to perform any of the tasks specified the Second Amended Consent Agreement shall result in stipulated penalties. The Debtor/Respondents shall not seek to withdraw the irrevocable stand-by letter of credit in the amount of $28.5 million from Toronto Dominion to Frontier Insurance Company so long as the Debtor/Respondents have any surety bonds issued by Frontier. If for any reason the $28.5 million irrevocable stand-by letter of credit is released as collateral for the surety bonds issued by Frontier for any of the Covered Facilities owned and operated by the Debtor/Respondents, and the Debtor/Respondents still do not have Complaint Financial Assurance, the extensions granted in this Second Amended Consent Agreement with respect to the Covered Facilities shall no longer apply. If such events occur, the Debtor/Respondents shall provide EPA and the Participating States with ample time to provide comments regarding the timing and prioritization of operational shutdown of the Covered Facilities in accordance with applicable law. If EPA determines, in its sole discretion, that the situation with Frontier has materially changed, EPA may provide the Debtor/Respondents with notice that the Compliance Financial Assurance Deadline is being changed to an earlier date not less than 30 days from the date of the notice. Monetary Penalties in Second Amended Consent Agreement Debtor/Respondent Safety-Kleen Services, Inc., agrees to pay an additional civil penalty in the sum of $1,200,999 as an Allowed Administrative Expense for not having Compliant Financial Assurance during the period from October 18, 2001, through January 31, 2002, for those facilities operated by it, and for not having Complaint Financial Assurance during the period form October 18, 2001, through March 31, 2002, for the remaining facilities. The general provisions of the Consent Agreement regarding payment of this penalty shall apply to the additional civil penalty, except that Services will pay $500,000 of this amount within 15 days of Judge Walsh's approval of the Second Amended Consent Agreement. EPA reserves all rights to obtain stipulated penalties for any violation of the CA/FO that has occurred or does occur. Debtor/Respondent Services, Inc. shall be liable for stipulated penalties to the EPA for failure to submit the additional civil penalty specified in and in accordance with the penalties in the Second Amended Consent Agreement. The Debtor/Respondent Services shall pay stipulated penalties in the following amounts for each day during which the payment is not received: Period of Failure Penalty Per Violation To Comply Per Day ----------------- --------------------- 1st through 30th day $ 2,500.00 31st through 60th day $ 4,000.00 60th day and beyond $10,000.00 All of the Debtor/Respondents shall be liable for stipulated penalties to the EPA for failure to perform the tasks specified in this Second Amended Consent Agreement. The Debtor/Respondents shall pay stipulated penalties in the following amounts for each day during which the payment is not received: Period of Failure Penalty Per Violation To Comply Per Day ----------------- --------------------- 1st through 30th day $ 1,000.00 31st through 60th day $ 2,000.00 60th day and beyond $ 4,000.00 Effect of Second Amended Consent Agreement This Second Amended Consent Agreement resolves only EPA's civil claims for failure to have Compliant Financial Assurance for the period from October 18, 2001 through January 31, 2002 for those facilities listed on Attachment L and for not having Compliant Financial Assurance during the period from October 18, 2001 through March 31, 2002 for those Facilities listed on Attachment M to the Second Amended Consent Agreement. Nothing in the Second Amended Consent Agreement shall be construed to limit the authority of EPA, the United States and/or the Participating States to undertake action against any person, including the Debtor/Respondents, in response to any condition which EPA, the United States or the Participating States determine may present an imminent and substantial endangerment to the public health and welfare or the environment, nor shall anything in this Second Amended Consent Agreement be construed to resolve, and the EPA, United States and Participating States reserve their authority to pursue, criminal sanctions against the Debtor/Respondents. (Safety-Kleen Bankruptcy News, Issue No. 21; Bankruptcy Creditors' Service, Inc., 609/392-0900) SHOPKO STORES: Refinancing Risks Compel Fitch's Low-B Ratings ------------------------------------------------------------- Fitch has lowered its ratings on Shopko Stores, Inc.'s bank credit facility to `BB-' from `BB' and the senior notes to `B' from `BB-'. The Rating Outlook remains Negative. Approximately $803 million is affected. The downgrades reflect a highly competitive retail environment, which has negatively impacted the company's operating results, difficulty in achieving the benefits from its Pamida acquisition and refinancing risks associated with several debt maturities over the next three years. In addition, since a significant portion of cash flow is generated during the fourth quarter, a poor retail environment in the upcoming holiday season could further pressure results. The Rating Outlook remains Negative given the company's weakened financial profile and competitive challenges longer term. While SKO has competed against the top three specialty discounters (Wal-Mart, Target, and Kmart) for some time, the level of their penetration in SKO's key markets continues to increase. Moreover, weak same-store sales and a more cautious consumer have hurt results as shoppers are more selective with regard to purchases. During the first half of 2001, comparable- store sales declined 2.1%. SKO continues to develop its Pamida acquisition (completed in 1999); however, the integration has been costly for the company, as SKO has failed to recognize returns from the acquisition. The company's EBITDA margin of 5.7% is below its pre-acquisition level of 6.8% (including ProVantage, a pharmacy-related division sold in 2000). In addition, a reduction in capital expenditures to $30 million for 2001 from $196 million last year as the company focuses on debt retirement will likely impair growth opportunities in the near to intermediate term. EBITDAR-to-interest plus rents has fallen to 2.9 times in 2001 from 4.2x in 2000. Nonetheless, SKO's pharmacy and optical segment and smaller, more efficient store layout continue to be key drivers to the company's ability to compete. Over the next three years, SKO has three separate senior notes maturing totaling $242 million. SKO's current bank credit agreement and cash from operations appear sufficient to refinance its senior notes maturing in March 2002 and beyond. However, operating results need to improve in order to shift the focus from debt refinancing to a more competitive operator. SPINNAKER: S&P Drops Ratings to D After Missing Interest Payment ---------------------------------------------------------------- Standard & Poor's lowered its corporate credit and senior secured debt ratings on Spinnaker Industries Inc. to 'D'. The rating actions follow the company's announcement that it has failed to make its October 15, 2001, semi-annual interest payment on its 10.75% senior secured notes maturing in 2006. Standard & Poor's does not expect that Spinnaker will make the required payment within the 30-day grace period. Spinnaker has retained a financial advisor to review the company's financial position, and the company is in discussions with bank lenders and note holders regarding debt-restructuring alternatives. Spinnaker is a U.S. producer of adhesive-backed, paper-label stock for the packaging industry and the largest supplier of stock for pressure-sensitive U.S. postage stamps. For the past several years, intense pricing pressures and high-cost operations have thwarted cost-reduction initiatives and caused recurring losses. Ratings Lowered Spinnaker Industries Inc. TO FROM Corporate credit rating D CCC+ Senior secured debt rating D CCC SUN HEALTHCARE: Wants to Pay Martin's $505K Mechanic's Lien ----------------------------------------------------------- In connection with the completion of the construction of an office building and parking structure at 101 Sun Avenue, Albuquerque, New Mexico, Sun Healthcare Group, Inc. seek the Court's authorization to remit payment of $505,374.00 to Gerald Martin, Ltd., as compensation for post-petition services. Pursuant to a Conditional Waiver of Lien, upon the receipt of $505,374.00, GAM will agree to waive any mechanic's or materialmen's lien against the Property and indemnify, defend and hold the Debtors harmless for any liability resulting from the failure or refusal of GAM to pay and discharge in full any claims for labor or materials furnished and contracted for by GAM. The Contract Price for the construction of the Property was $46,359,773.00 originally. After the petition date, the Parties entered into five separate contractual modifications, each reducing the Contract Price. The most recent Change Order reduced the Contract Price to the aggregate sum of $31,421,102.00. The Debtor advise the Court that they have remitted payment of $30,915,728.00 to GAM for pre-petition and post-petition services performed pursuant to the Contract. (Sun Healthcare Bankruptcy News, Issue No. 23; Bankruptcy Creditors' Service, Inc., 609/392-0900) TELEX COMMS: 10-1/2% Note Exchange Offer Extended to Friday ----------------------------------------------------------- Telex Communications, Inc. announced that it has further extended the expiration date for its previously announced Exchange Offer and Consent Solicitation in connection with its proposed debt restructuring plan. The Exchange Offer and Consent Solicitation relate to the Telex 10-1/2% Senior Subordinated Notes Due 2007 (CUSIP No. 879569AD3) and Telex (formerly known as "EV International, Inc.") 11% Senior Subordinated Notes Due 2007 (CUSIP No. 269263AC3). The Exchange Offer and Consent Solicitation have been extended to, and are now scheduled to expire at, 5:00 P.M., New York City time on Friday, October 26, 2001. Telex's restructuring plan is intended to significantly reduce Telex's outstanding debt, increase its financial flexibility and improve its cash flow. In anticipation of completing the debt restructuring, and as previously announced by Telex, Telex will not make the interest payment that was due on September 17, 2001 under its 11% Senior Subordinated Notes and will not make the November 1, 2001 interest payment that is due on its 10-1/2% Senior Subordinated Notes. The Exchange Offer and Consent Solicitation are conditioned upon, among other things, the consent of the lenders under Telex's senior secured credit facility and senior secured notes to the restructuring transactions, and waivers of defaults under the senior secured credit facility and senior secured notes, and obtaining additional senior secured financing. Telex is currently in the process of seeking to obtain such consents and waivers and to arrange such financing. As of this date, tenders of approximately $27.5 million principal amount of the 10-1/2% Senior Subordinated Notes, and tenders of approximately $18.5 million principal amount of the 11% Senior Subordinated Notes, have been received pursuant to the Exchange Offer. Telex is a leader in the design, manufacture and marketing of sophisticated audio, wireless and multimedia communications equipment for commercial, professional and industrial customers. Telex provides high value-added communications products designed to meet the specific needs of customers in commercial, professional and industrial markets, and, to a lesser extent, in the retail consumer electronics market. USG CORP: U.S. Trustee Asks Court to Appoint Fee Auditor -------------------------------------------------------- The United States Trustee for Region III asks Judge Newsome to appoint an independent auditor to analyze and comment upon all interim and final fee applications filed by USG Corporation's and Committees' professionals in these cases in order to facilitate the Court's review of professional fees and expenses. The UST reminds the Court that it has appointed three official committees in this case: an Official Committee of Unsecured Creditors, an Official Committee of Asbestos Personal Injury Claimants, and an Official Committee of Asbestos Bodily Injury Claimants. The Debtors and the Committees have retained at least 15 professionals. Based on the history of bankruptcy proceedings involving other asbestos-related cases, it is very likely that many more professionals will be retained by the Debtor and the Committees as these case progresses. The UST says that a Fee Auditor should be appointed because: -- Appointing a fee auditor to review and to comment on interim and final fee applications under section 105 will streamline the Court's oversight duties under sections 330 and 331. The Third Circuit Court of Appeals has acknowledged the review process for fee applications is a necessary, but significant, burden on bankruptcy judges. Accordingly, the court has encouraged the judges to take necessary steps to enhance the efficiency of fee application review. If the Court implements section 105 to appoint a fee auditor in this situation to ease the Court's fulfillment of section 330's mandatory, independent review, that pressure would be lessened; and -- Appointing a fee auditor under Fed.R.Evid.706(a) will also preserve the applicants procedural due process rights. By streamlining the fee review process through the Court's fee auditor appointment, the expert will provide the Court with a disinterested means of identifying and reporting problem applications. The fee auditor's reports will provide applicants with Court concerns and the like prior to hearings so that those issue may be addressed beforehand. The fee auditor will, in that way, promote fairness and due process rights. (USG Bankruptcy News, Issue No. 10; Bankruptcy Creditors' Service, Inc., 609/392-0900) WARNACO GROUP: Unsecured Panel Hires Jaspan as Special Counsel -------------------------------------------------------------- The Official Committee of Unsecured Creditors of The Warnaco Group, Inc. seeks the Court's authority to employ Jaspan Schlesinger Hoffman LLP to serve as special counsel, nunc pro tunc to October 9, 2001. Committee Chairman William C. Kulkens, International Credit Manager for Milliken & Company, tells the Court the Committee needs Jaspan's assistance with their continued investigation and potential challenges to the Pre-Petition Secured Lenders' security interests, liens and claims. Mr. Kulkens explains they need a special counsel to complete the analysis of potential claims, which the Committee can assert, and to pursue those causes of action. According to Mr. Kulkens, the Committee's counsel - Otterbourg, Steindler, Houston & Rosen - cannot pursue these claims because the firm may directly affect the interests of current or former clients. Mr. Kulkens asserts that the Jaspan firm can do this job well because its attorneys have expertise and experience in many facets of the legal disciplines that affect the Committee's duties including investigation and challenges to the Pre- Petition Secured Lenders' security interests, liens and claims. The Committee will look to Jaspan to: (a) assist and advise the Committee in connection with the Committee's investigation of the security interests, liens and claims of the Debtors' Pre-Petition Secured Lenders, including Rule 2004 examinations; (b) commence, if necessary, and prosecute adversary proceedings against the Pre-Petition Secured Lenders and other necessary parties, which shall include all aspects of discovery; (c) to attend meetings and negotiate with the representatives of the Debtors and/or any party which is the subject of investigation by the Committee or against which the Committee may commence an adversary proceeding; (d) to take all necessary action to protect and preserve the interests of the Committee, including: (i) the prosecution of actions on their behalf, and (ii) negotiations concerning all litigation in which the Debtors are involved; (e) to prepare on behalf of the Committee all necessary adversary complaints and related motions, applications, answers, orders, reports and other papers in support of positions taken by the Committee in any adversary proceeding; (f) to appear, as appropriate, before this Court, the Appellate Courts, State Courts and the United States Trustee and to protect the interests of the Committee before said Courts and the United States Trustee; and (g) to perform all other necessary legal services in these Cases as is appropriate given the purpose and scope of Jaspan's retention, with those services primarily related to present or former clients of Otterbourg. According to Mr. Kulkens, Jaspan will continue the investigation commenced by Otterbourg, inter alia, which will include: (i) scheduling and conducting Rule 2004 examinations, (ii) requesting and reviewing additional documents in the possession of various of the Pre-Petition Secured Lenders, (iii) completing a thorough and comprehensive review of the pre-petition transactions, and (iv) prosecuting various claims and defenses, if requested. Subject to the Court's approval, Mr. Kulkens says, Jaspan will calculate its fees for professional services based on: (A) Jaspan's customary hourly billing rates, which in the normal course of business are subject to revision. Jaspan's current range of customary hourly rates is: Partners: $315 to $395 Counsel: $235 to $375 Associates: $95 to $225 Legal Assistants: $75 to $105 Jaspan will also charge the Committee for all other disbursements incurred, such as: costs for telephone charges, photocopying (at a reduced rate of 10 cents per page), travel, business meals (but not overtime meals), computerize research, messengers, couriers, postage, witness fees and other fees related to trials and hearings. (B) If a proceeding is filed to assert any Claims against the Pre-Petition Secured Lenders, Steven R. Schlesinger, a member of the firm of Jaspan Schlesinger Hoffman, LLP, says they intend to apply to the Court for compensation and reimbursement of actual and necessary expenses incurred in such proceeding, to be awarded strictly on a contingency fee basis. Mr. Schlesinger explains that a contingency fee arrangement is required since the Final Financing Order provides that proceeds of Pre-Petition and Post-Petition collateral (representing virtually all of the Debtors' assets) may not be used to assert Claims against the Pre- Petition Secured Lenders. Subject to the Court's approval, Mr. Schlesinger notes, Jaspan will charge a contingency fee calculated as: (1) the fees shall be contingent upon results as measured by the distribution to the Unsecured Creditors pursuant to a Plan of Reorganization, or as a result of a liquidation pursuant to Chapter 7 of the Bankruptcy Code, (2) either in cash or in kind arising from the settlement with Secured Creditors, the setting aside of lien claims of the Secured Creditors, the return to the Estate of preferences or any other tangible benefit inuring to the Unsecured Creditors, (3) such fees shall be equal to 10% of the first $10,000,000, 7% of the next $10,000,000 and 1 1/2% of amounts in excess of $20,000,000. (C) In the event there is a benefit to the Estate as a result of Jaspan's efforts (but distribution to the Unsecured Creditors is limited relative to the benefit obtained by the Debtors' Estate), then, Mr. Schlesinger says, they will reserve their right to apply for fees bases upon the time expended by Jaspan and the benefit obtained by the Estate from those efforts. The Committee contends that the proposed contingency fee arrangement is reasonable and should be approved by the Court subject to a determination of the amount to be paid to Jaspan upon application for allowance. If Jaspan's employment will be approved, Mr. Schlesinger says, Jaspan intends to apply to the Court for allowance of compensation and reimbursement of expenses in accordance with the applicable provisions of the Bankruptcy Code, the applicable Federal Rules of Bankruptcy Procedure and rules and Orders of this Court. To ensure that there will be no unnecessary duplication of services performed or charged to the Debtors' estates, Mr. Schlesinger assures the Court that Jaspan will work closely with the Committee and its counsel. Given the limited scope of Jaspan's retention, the Committee believes that duplication, if any, will be minimal. Jaspan discloses that it currently represents or has represented Fleet Bank N.A. on episodic transactional matters. But Mr. Schlesinger assures Judge Bohanon that Jaspan's representation of Fleet Bank N.A. will not affect Jaspan's representation of the Committee on the matters for which retention is sought. Mr. Schlesinger declares that Jaspan has not, does not, and will not represent any parties-in-interest or any of their respective affiliates/subsidiaries in matters directly related to the Debtors or their Chapter 11 Cases. Mr. Schlesinger declares that Jaspan does not hold or represent any interest adverse to the Debtors or the estates with respect to the matters on which Jaspan is to be retained. Jaspan is "disinterested" as such term is defined in section 101(14) of the Bankruptcy Code, Mr. Schlesinger asserts. Debt Coordinators Complain The Bank of Nova Scotia and Citibank, N.A. in their capacity as Debt Coordinators for the Pre-petition Banks object to Jaspan's retention because the Committee's application and the Schlesinger Affidavit are allegedly devoid of evidence establishing cause for the relief that is being requested. James L. Garrity, Jr., Esq., at Shearman & Sterling, New York, New York, notes the Committee's Application fails to address why Otterbourg cannot complete its investigation and bring suit, if that is appropriate. Moreover, Mr. Garrity says, the Application is impermissibly vague regarding the scope of Jaspan's retention. "It is simply impossible," Mr. Garrity observes. The Debt Coordinators also inform Judge Bohanon that the Committee's counsel, Otterbourg, was aware of the potential conflicts of interests at the time it was retained considering that some of the Debtors' largest secured creditors were or continued to be Otterbourg's clients. At the same time, Mr. Garrity tells the Court, Otterbourg was bargaining for the opportunity to conduct an investigation of the Potential Claims against its Clients. "This suggests that Otterbourg believed that its representation of the Committee would not be adversely affected by its representation of the Otterbourg Clients," Mr. Garrity observes. However, for reasons unknown to the Debt Coordinators, Otterbourg suddenly determined in early October 2001 that it was unable to complete its analysis of the Potential Claims "because they may directly affect the interests of current or former clients." This development came as a surprise to the Debt Coordinators because during their meeting with Otterbourg last October 3, 2001, Otterbourg never mentioned the fact that it would be unable to complete its analysis of the Potential Claims. The Committee's revelation that Otterbourg cannot pursue the claims because they may directly affect the interests of current or former clients, gives rise to one of two possibilities, either: (1) the filing of the Application was calculated to provide the Bankruptcy Court with an otherwise unfounded basis to extend the Committee's deadline to file a complaint, or (2) during the course of its investigation of potential avoidance claims over the past 4 months, Otterbourg was unable to conduct its investigation with the same vigor that it would have had it not represented its Clients because its investigation may have been hampered by "the interests of current or former clients." Given that the Committee and its counsel knew, or should have known, (i) of Otterbourg's inability to vigorously and fully pursue the Potential Claims against the Pre-petition Banks when the Committee retained Otterbourg, (ii) the potential importance of the investigation and prosecution of the Potential Claims, the Debt Coordinators are bewildered by Otterbourg expending approximately 4 months of effort and delaying, until eleven days prior to the deadline (October 22, 2001), the retention of special counsel. Mr. Garrity asserts that the Committee and its counsel should at least be obligated by the Court to fully disclose all of the facts and circumstances surrounding Otterbourg's sudden ability to conduct any analysis of the Potential Claims. The Debt Coordinators are unclear as to the point at which Jaspan will assume responsibility for asserting legal and/or financial positions that are adverse to the Debt Coordinators. Furthermore, Mr. Garrity argues that if the Court authorizes the Committee to retain Jaspan, Jaspan would necessarily have to conduct an investigation that will, at least partially, be duplicative of Otterbourg's efforts. "And awarding compensation to both Otterbourg and Jaspan for performing identical tasks would be inappropriate," Mr. Garrity asserts. Moreover, Mr. Garrity maintains that the proposed contingency fee structure should not be granted. The Debt Coordinators contend that the proposed contingency fee structure is inappropriate because it is not based on the benefit to be provided to the unsecured creditors that are not Pre-petition Banks. Instead, Mr. Garrity observes, the Application calls for Jaspan to receive a fee based on a re- characterization of distributions to the Pre-petition Banks as unsecured creditors as opposed to secured creditors. According to Mr. Garrity, a proper calculation of the contingency fee should be based on the actual benefit to Jaspan's clients; namely, the unsecured creditors other than the Pre-petition Banks. Mr. Garrity reminds the Court that the Pre-petition Banks hold 95% in amount of all non-subordinated claims against the Debtors. Thus, to the extent that there is any recovery to the general unsecured creditors in these cases, Mr. Garrity explains, a substantial part of such recovery will be distributed to the Pre-petition Banks. If the Court will approve any contingency fee structure, Mr. Garrity suggests that it should recognize the economic benefits of litigation and should measure the compensation based on the benefit realized by the general unsecured creditors other than the Pre-petition Banks. According to Mr. Garrity, this will insure that compensation is based on the benefit, if any, to be enjoyed by Jaspan's clients. Because even in the unlikely event that Jaspan is successful in any litigation against the Pre- petition Banks, Mr. Garrity notes, the vast majority of distributions will go to the Pre-petition Banks in their capacity as either secured or unsecured creditors. Mr. Garrity also argues that the proposed hourly fee structure should not be approved. The Debt Coordinators are unclear as to the exact meaning of this hourly fee proposal and the conditions under which Jaspan would seek compensation based on hourly fees, according to Mr. Garrity. In any event, to the extent that it contemplates the payment of any fees from any of the collateral granted to the Pre-petition Banks, Mr. Garrity notes, such payments are expressly prohibited under the terms of the Final DIP Order. Thus, the Debt Coordinators ask Judge Bohanon to deny the Committee's application at this time. (Warnaco Bankruptcy News, Issue No. 11; Bankruptcy Creditors' Service, Inc., 609/392-0900) WHEELING-PITTSBURGH: Applauds ITC Ruling On Steel Industry Probe ---------------------------------------------------------------- Wheeling-Pittsburgh Steel Corporation President and CEO James G. Bradley applauded the U.S. International Trade Commission (ITC) ruling announced that found the domestic steel industry has been severely damaged by unfair foreign competition. "This ruling reconfirms what we and the industry have contended since the steel import crisis began more than three years ago," Bradley said. "Unfairly traded steel imports have severely injured the domestic steel industry costing thousands of American steelworkers their jobs and sending 24 steel companies into bankruptcy or liquidation. "This action is an important step for the survival of the domestic steel industry, which is as efficient as any in the world," Bradley said. "Without this determination by the ITC, thousands more jobs would be lost and many more steel companies would file for bankruptcy or go into liquidation. As it is, steel markets are depressed, with little pricing improvement expected in the near future." Within the next two months the ITC will make its recommendation of a remedy to the President. The President will then have two months to act on the ITC's recommendation, modify those recommendations, or set a different course of action. "We deeply appreciate how quickly the ITC has conducted its investigation and thank President Bush for initiating the Section 201 investigation in June," Bradley said. "The decision [Mon]day and strong remedial actions by the President in the coming months will help Wheeling-Pittsburgh Steel successful reorganization and emerge from bankruptcy." Bradley also thanked Sen. Robert Byrd, Sen. Jay Rockefeller, Rep. Bob Ney, Sen. Mike DeWine and Rep. Alan Mollohan for their efforts on behalf of Wheeling-Pittsburgh Steel and its employees. Bradley noted that these and other West Virginia, Ohio and Pennsylvania officials have consistently supported the company's efforts during the steel crisis. ********* 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. All titles are available at your local bookstore or through Amazon.com. Go to http://www.bankrupt.com/books/to order any title today. For copies of court documents filed in the District of Delaware, please contact Vito at Parcels, Inc., at 302-658-9911. 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