/raid1/www/Hosts/bankrupt/TCR_Public/011030.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 30, 2001, Vol. 5, No. 212
Headlines
ABC-NACO INC: Court Approves Interim DIP Financing
AMRESCO CAPITAL: Net Assets In Liquidation Decrease By $69.9MM
BETHLEHEM STEEL: Court Okays $26MM Payment for Transit Claims
BRIDGE INFORMATION: Plan Filing Period Extended Until October 31
CALIBER LEARNING: Closes Sale of All Assets to Sylvan Learning
COMMTOUCH: Market Slump Lends Difficulty in Raising More Capital
COVAD COMMS: Asks Court to Clarify Insurance Carriers' Authority
D.R. HORTON: S&P Places Low-B Ratings on Credit Watch
DOMAN INDUSTRIES: S&P Junks Senior Unsecured Debt Ratings
EMBARCADERO AIRCRAFT: Weak Airline Lessees Prompt S&P Downgrade
ETHYL CORP: Asset Sales Keep Debt Reduction Programs On Track
EXIDE TECHNOLOGIES: Taps Jay Alix To Help in Restructuring
EXODUS COMMS: Signs-Up Lazard Freres For Financial Advice
FANTOM TECHNOLOGIES: Nasdaq Requests Additional Information
FEDERAL-MOGUL: Intends to Honor Prepetition Customer Obligations
FRUIT OF THE LOOM: Solves Spriggs & Hollingsworth Retaining Lien
IBEAM BROADCASTING: Nasdaq Wants More Info Re Chapter 11 Filing
INTEGRA INC: Off-Season Claim Volume Leads to Net Loss of $643K
INTEGRATED HEALTH: Gets Okay For Agreements with Senior Officers
INTERACTIVE TELESIS: Restructuring Efforts Will Continue in 2002
INTERNATIONAL TOTAL: Court Okays Final DIP Financing of $28.5MM
KNOWLEDGE HOUSE: Files Proposal to Creditors Under Canadian BIA
LSI LOGIC: S&P Concerned About Profitability Pressures
LERNOUT & HAUSPIE: Attorneys Take Steps to Protect Dictaphone
LERNOUT & HAUSPIE: MedQuist Seeks Okay of Transcription Unit Bid
LORAL CYBERSTAR: Will Launch Debt-for-Debt Exchange Offers
MARINER POST-ACUTE: Intercompany Claims Bar Date Extended
MERCHANTONLINE.COM: Chapter 11 Case Summary
NETWORK COMMERCE: Q3 Operating EBITDA Loss Drops to $4.4 Million
PACIFIC GAS: Sutter Tax Collector Seeks Payment of Tax Claims
PENN TRAFFIC: S&P Affirms Low-B Ratings & Says Outlook Positive
POLAROID CORP: Court Okays Payment of Foreign Creditors' Claims
SAMUELS JEWELERS: Plans to Close 38 Unprofitable Stores
SERVICE MERCHANDISE: Gets Okay to Sell & Leaseback HQ for $20MM
STANDARD AUTOMOTIVE: Lenders Agree to Forbear Until January 31
TXU ELECTRIC: Debenture Holders Waive Some Indenture Provisions
TRANSTECHNOLOGY: Resumes Sale of Engineered Components Business
UCAR INT'L: S&P Airs Concerns About Weakening Financial Results
U.S. AGGREGATES: Stock Price Falls Below NYSE Listing Standard
US AIRWAYS: Voluntary Leave Programs Expected to Reduce Layoffs
UNITED AIRLINES: Creighton Replaces Goodwin as Chairman and CEO
VICEROY RESOURCE: Completes Conditions for Forbearance Agreement
WEIRTON STEEL: Net Loss Jumps to $60.2 Million in Third Quarter
WHEELING-PITTSBURGH: Seeks Approval of Beech Bottom Transactions
WINSTAR COMMS: Sues Sayers Group for Breach of Contract
YOUNG BROADCASTING: Proposes Subordinated Debt Exchange Offer
*********
ABC-NACO INC: Court Approves Interim DIP Financing
--------------------------------------------------
ABC-NACO Inc. announced the U.S. Bankruptcy Court in the
Northern District of Illinois, Chicago, Illinois has entered
"first day orders" intended to provide support for the company's
employees, customers and vendors, as well as to supplement
liquidity and fund operations as the company moves forward with
its reorganization process.
These orders include approval for an interim DIP financing
facility provided by members of ABC-NACO's existing senior
secured bank group. The Court has scheduled a hearing for final
approval on DIP financing at 10:00 a.m. on Tuesday, November 6,
2001.
As announced October 18, 2001, ABC-NACO and its U.S.
subsidiaries have voluntarily filed for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. The Chapter 11 filing
does not include the company's subsidiaries or joint ventures in
Canada, Mexico, Scotland, Sweden, Portugal, or China.
The orders entered by the court enhance the financial and
operational stability of the company. These first day orders
include: payment of employee wages, salaries, business expenses
and benefits, including various health insurance benefits for
current employees; interim approval for debtor-in-possession
(DIP) financing of up to $20 million and use of cash collateral;
and retention of various professionals and other advisors.
Vaughn Makary, President and Chief Executive Officer, said, "We
are pleased with the timely approval by the court of our first
day motions and interim DIP financing. We remain focused on
serving our customers. The prompt approval of these first day
motions will enable us to continue operations without
interruption."
The cases have been assigned to the Honorable Judge Eugene R.
Wedoff and will be jointly administered under Case No. 01 B
36484 for ABC-NACO Inc.
The company is one of the world's leading suppliers of
technologically advanced products to the rail industry. With
four technology centers around the world, the company holds pre-
eminent market positions in the design, engineering and
manufacture of high-performance freight car, locomotive and
passenger suspension and coupling systems, wheels and mounted
wheel sets. The company also supplies railroad and transit
infrastructure products and services and technology-driven
specialty track products. It has offices and facilities in the
United States, Canada, Mexico, Scotland, Portugal and China.
AMRESCO CAPITAL: Net Assets In Liquidation Decrease By $69.9MM
--------------------------------------------------------------
AMRESCO Capital Trust (Nasdaq: AMCT) reported that net assets in
liquidation decreased by $69.9 million during the quarter ended
September 30, 2001. As of September 30, 2001, net assets in
liquidation totaled $17.2 million, down from $87.1 million at
June 30, 2001.
A liquidating distribution of $70.3 million was paid to the
company's shareholders on August 9, 2001. During the third
quarter, net assets in liquidation from operating activities
increased by $0.4 million. Revenues and expenses totaled $0.7
million and $0.3 million, respectively.
Currently, the company's investment portfolio is comprised of
one mortgage loan and a residual interest in its unconsolidated
taxable subsidiary.
As previously communicated, shareholders approved the
liquidation and dissolution of the company on September 26,
2000. To date, the company has made liquidating distributions
totaling $106.4 million.
BETHLEHEM STEEL: Court Okays $26MM Payment for Transit Claims
-------------------------------------------------------------
In connection with the day-to-day operation of their businesses,
Bethlehem Steel Corporation rely on certain processors and
warehousemen that:
(i) receive work-in-process from the Debtors and perform
processing services necessary to finish the Debtors'
products to the Debtors' and the Debtors' customer
specifications, and
(ii) store unfinished products and raw materials, work-in-
process, finished goods and supplies used in the
Debtors' manufacturing operations at various third-party
warehouse facilities.
In addition, the Debtors rely on certain shippers, including
trucking companies, railroads and barge operators, to transport
materials and work-in-process among the Debtors' manufacturing
facilities and to complete the delivery of finished goods to the
Debtors' customers.
As a result, George A. Davis, Esq., at Weil, Gotshal & Manges
LLP, in New York, explains, the processors, warehousemen and
shippers have possession of the Debtors' materials or products.
Mr. Davis reports that as of the Petition Date, many of the
processors, warehousemen and shippers had claims for goods and
services previously provided to the Debtors. The aggregate
value of the goods in the possession of the processors,
warehousemen and shippers substantially exceeds the transit
claims, Mr. Davis notes.
The Debtors estimate that, as of the Petition date, the
aggregate amounts of the transit claims are:
Type of Claim Amount
------------- ------
Processor and Warehouse Claims $15,000,000
Shipping Claims 9,000,000
According to Mr. Davis, if the Debtors don't pay the transit
claims, many processors, warehousemen and shippers may stop
providing services to the Debtors. Mr. Davis tells Judge
Lifland that even the slightest delay in receiving these
services could substantially disrupt the Debtors' operations,
potentially:
(a) delaying shipments to customers,
(b) damaging the Debtors' business reputation, and
(c) undermining the Debtors' ability to generate ongoing
operating revenue.
Certain processors and warehousemen are pre-approved by the
Debtors' customers, Mr. Davis adds, and replacing them would
jeopardize the Debtors' ability to serve their customers.
Accordingly, Mr. Davis asserts, the Debtors must pay the transit
claims to ensure that the essential services provided by the
processors, warehousemen and shippers are available without
interruption and, thus, preserve to the fullest extent possible
the value of the Debtors' businesses for the benefit of all
parties in interest.
Moreover, Mr. Davis cautions the Court, failure to pay the
transit claims may result in the assertion of materialman's or
similar liens by many of the processors, warehousemen and
shippers against the raw materials, work-in-process, finished
goods and supplies in their possession. Mr. Davis adds that the
processors, warehousemen and shippers may refuse to release
goods in their possession unless and until their pre-petition
claims for processing, warehousing or shipping services have
been satisfied.
* * *
After due deliberation, Judge Lifland was persuaded that the
relief sought in the motion was in the best interests of the
Debtors, their estates and all parties in interest.
Accordingly, Judge Lifland authorized the Debtors to pay all
pre-petition transit claims, on the same basis, and in
accordance with customary practices and procedures.
Judge Lifland further authorized and directed all applicable
banks and other financial institutions to:
(a) receive, process, honor, and pay all checks drawn on the
Debtors' accounts to pay the transit claims, whether
such checks were presented prior to or after the
Petition Date, and
(b) make other transfers related to the transit claims,
provided that sufficient funds are available in the
applicable accounts to make payments. (Bethlehem
Bankruptcy News, Issue No. 2; Bankruptcy Creditors'
Service, Inc., 609/392-0900)
BRIDGE INFORMATION: Plan Filing Period Extended Until October 31
----------------------------------------------------------------
Judge McDonald gives Bridge Information Systems, Inc. until
October 31, 2001 to file a reorganization plan and until
December 30, 2001 to solicit acceptances thereof. (Bridge
Bankruptcy News, Issue No. 19; Bankruptcy Creditors' Service,
Inc., 609/392-0900)
CALIBER LEARNING: Closes Sale of All Assets to Sylvan Learning
--------------------------------------------------------------
Caliber Learning Network, Inc. announced that following the U.S.
Bankruptcy Court's recent approval, Caliber's sale of
substantially all of its assets to Sylvan Learning Systems, Inc.
(Nasdaq: SLVN) had been completed.
Caliber assets sold to Sylvan include client relationships,
intellectual property, software, and some equipment. The
purchase price was $750,000.
Sylvan Ventures Chairman and CEO Chris Hoehn-Saric said Sylvan
Learning Systems intends to re-sell the Caliber assets to
iLearning, Inc., one of the education technology companies in
which Sylvan Ventures has made an investment.
"This was a cost-effective way to acquire assets which we
believe will be useful to iLearning," Hoehn-Saric said.
"iLearning has been successful at providing corporate e-learning
solutions, and is rapidly approaching profitability. We believe
the Caliber technology and client base will help iLearning
achieve that goal even faster."
"We are pleased with the Court's decision and the completion of
the transaction," stated Caliber CEO Glen Marder. "We believe
this is the best possible outcome for all of our constituents."
COMMTOUCH: Market Slump Lends Difficulty in Raising More Capital
----------------------------------------------------------------
Commtouch (Nasdaq:CTCH), a leading provider of messaging
solutions and software to telcos, data centers, ISPs and ASPs,
announced results for the third quarter of 2001.
Revenues for the quarter were $4.0 million in line with previous
estimates and an 8.4% decrease from the second quarter.
Excluding non-cash impairment charges and goodwill amortization
of $21.4 million, the third quarter net loss was $6.4 million, a
16% reduction from the comparable second quarter net loss of
$7.6 million and a 60% reduction from the comparable first
quarter net loss of $16.2 million.
Total loss for the quarter was $27.8 million compared with $8.5
million in the second quarter. Non-cash impairment charges
relate to the write-off of goodwill and other intangibles from
acquisition, certain unrecoverable investments, restructuring
costs for unused office leases and economically impaired and/or
unused assets.
Expenses for the third quarter also include $2.6 million of
depreciation and amortization of stock-based deferred
compensation. The Company also announced it was reducing its
workforce to approximately 75 people, effective immediately.
Gideon Mantel, CEO of Commtouch noted, "The uncertain economic
environment and recent tragic events have brought much of
business decision-making to a standstill. These factors have
significantly impacted Commtouch's ability to convert its
pipeline of prospects into revenue. Hence, fourth quarter
revenues are now expected to be approximately $3 million. The
economic climate has also adversely impacted our ability to
raise additional capital. As a result, we continue to streamline
our operations and aggressively reduce discretionary expenses,
while sharpening our focus on our core business and customers."
Gideon Mantel further noted, "Based on our current cash balance
of $5.4 million and revised projections of revenues and related
expenses, the Company should have sufficient cash to continue
operations. However, the success of this plan is predicated on
implementation of additional cost reduction programs, successful
retention of existing customers and renegotiation of existing
contractual obligations. Some of those factors are not within
our control. We will continue to seek additional financing or
other strategic alternatives. Despite current economic
conditions, we remain optimistic about the future growth of
enterprise messaging outsourcing and our actions are designed to
enable Commtouch to successfully participate in this emerging
market."
Commtouch is a leading provider of hosted messaging and
collaboration solutions to service providers. Commtouch
enterprise-class services include Microsoft Exchange 2000 and
open standards messaging, either as hosted or onsite solutions
that deliver a high level of performance, reliability,
scalability and security. Hosted messaging and collaboration
Powered by Commtouch? includes unified communications, wireless,
Web-based administration and revenue generating capabilities.
Through its subsidiary Wingra Technologies, the company provides
enterprise migration tools and services.
Founded in 1991, Commtouch is a global company, headquartered in
Netanya, Israel and Mountain View, CA. To learn how Commtouch
solutions are designed to meet today's enterprise messaging and
collaboration needs, visit http://www.commtouch.com
As of September 30, 2001, the Company's current assets totaled
$7.7 million, while its current liabilities amounted to $9.4
million.
COVAD COMMS: Asks Court to Clarify Insurance Carriers' Authority
----------------------------------------------------------------
Covad Communications Group, Inc. requests that the Court enter
an order clarifying that there is no bankruptcy impediment to
insurance carriers reimbursing Covad on conveyed rooms.
Christopher J. Lhulier, Esq., at Pachulski Stang Ziehl Young &
Jones, P.C., in Wilmington, Delaware, relates that prior to the
Petition Date, various parties sued the Debtor on a host of
securities fraud theories under both federal and state law. In
conjunction with the Securities Action, the Debtor was forced to
retain counsel Morrison & Foerster.
Mr. Lhulier claims that the Debtor has insurance coverage for
fees and expenses of Morrison & Foerster in defending the
Securities Action. Accordingly, prior to the Petition Date, the
insurance carriers under these policies regularly reimbursed the
Debtor for these Covered Expenses. According to Mr. Lhulier, the
Carriers were prepared to pay the Debtor in excess of $1,000,000
of non-reimbursed Covered Expenses as of the Petition Date.
However, after the said date, the Carriers took the position
that they will not reimburse the Debtor expenses, without
further Court order.
In this light, the Debtor therefore requests an order from this
Court providing that their insurance carriers are permitted to
honor their obligation to reimburse Debtor for Covered Expenses.
(Covad Bankruptcy News, Issue No. 9; Bankruptcy Creditors'
Service, Inc., 609/392-0900)
D.R. HORTON: S&P Places Low-B Ratings on Credit Watch
-----------------------------------------------------
Standard & Poor's affirmed its ratings on D.R. Horton Inc.,
following the announcement that Schuler Homes Inc. will merge
into Horton. Concurrently, Standard & Poor's placed its ratings
on Schuler on CreditWatch with positive implications.
The ratings reflect Horton's growing market position through
geographic expansion and its consistently above-average gross
operating margins. These strengths are offset by management's
more aggressive expansion strategy and financial profile. The
ratings on Schuler's debt reflect the company's improving
position within its core homebuilding markets, increased scale
and diversification from its recent merger with private, unrated
Western Pacific Housing, and profitability and debt-protection
measures that were stronger than average for the Schuler rating.
The merger agreement calls for a cash and stock transaction
valued at approximately $1.2 billion, including the assumption
of debt. The merger is structured such that the stock received
by Schuler shareholders will be tax free. Schuler shareholders
will receive $4.09 per share in cash plus a fraction of a share
of Horton common stock equal to an exchange ratio.
The exact conversion ratio is based on the 15-day average of
Horton's closing stock price for the period ending three days
prior to Schuler's stockholder meeting, subject to a collar
arrangement. Horton will issue more than 23 million shares of
stock currently worth about $490 million, $163 million in cash,
and will assume the liability for about $552 million in net
debt. The transaction is expected to close by the end of January
2002 and will be accounted for as a purchase.
Following the merger, Arlington, Texas-based Horton will rank as
the second-largest builder in the nation, based on the latest
12-month home closings, and will have the largest sales backlog
in the industry (over $2.8 billion). Horton will have a presence
in 45 markets in 21 states through more than 40 divisions and
will serve multiple market segments. For the past 12 months, the
combined entity accounted for more than 26,625 closings and $6
billion in revenues.
Schuler, based in El Segundo, California, is among the top five
builders in California, Colorado, Hawaii, Washington, and
Oregon, with a growing presence in Arizona. Schuler will operate
as a separate division of Horton, and certain Schuler senior
management will be joining Horton. Horton's mortgage and title
services will be expanded into new and existing markets for
certain of Schuler's markets.
D.R. Horton has grown very rapidly over the past 10 years by
offering entry and first-time move-up buyers a customized
product within an affordable price range. Since it was founded
in 1978, the company has integrated more than 16 acquisitions in
faster-growing entry-level markets as part of its efforts to
improve both geographic and product diversity. In acquiring
Schuler, Horton will be adding a company about 27% its size. Pro
forma the acquisition, leverage will increase to 57% from 55%.
Net of goodwill (which will increase by $200 million with the
merger), leverage will be in the low 60% area, which is higher
than that of like-rated peers.
Standard & Poor's has general concerns about the acquisition
premium being paid (estimated at 34%) for market share at the
cyclical peak of the homebuilding cycle, as well as integration
concerns due to the recent merger between Schuler and Western
Pacific Housing. Horton's latest 12-month EBITDA interest
coverage measure at 3.8 times is low given the company's strong
operating margins (11.5%), which may be due in part to the
cumulative effect of acquisitions driving inventory levels up,
and overhead costs that remain around 10% of sales. Schuler's
interest coverage is 3.8x for the latest 12 months, with
operating margins of roughly 14% and inventory turns of 1.35x.
Horton has shown very consistent profitability for the past
several years, and interest coverage is expected to remain above
3x following the merger.
The acquisition appears to be a good strategic fit for Horton.
Schuler and Horton overlap geographically in five of Schuler's
seven regions. Schuler targets a moderately lower price point
buyer than Horton and has strong backlog in some of the
country's historically fastest-growing residential markets, such
as Denver, Colo. The acquisition should result in benefits
including increased market position, lower future borrowing
costs for Schuler's operations, improved product diversity, and
increased economies of scale at the corporate, regional, and
subdivision levels.
Outlook: Stable
Standard & Poor's double-'B' corporate credit rating on Horton
did incorporate the company's acquisitive growth strategy.
Horton has been the industry's most active consolidator
throughout this most recent housing cycle, and the integration
of acquired companies has been relatively smooth to date. It is
expected that the consolidation of Schuler will proceed smoothly
and that leverage levels should decline modestly as the combined
company delivers its current robust backlog. However, should
inventory turns continue to decline, coverage measures dip for a
prolonged period of time, or leverage remain high as the housing
market adjusts to declining demand, Horton's ratings would be
revisited.
Ratings Affirmed
Issuer Rating
D.R. Horton Inc.
Corp credit rating BB/Stable
$1.466 billion senior unsecured note BB
$350 million subordinated notes B+
Ratings Placed on CreditWatch with Positive Implications
Schuler Homes Inc.
Corporate credit rating B+/Watch Pos/-
$350 million senior unsecured notes B+/Watch Pos/-
$150 million subordinated notes B-/Watch Pos/
DOMAN INDUSTRIES: S&P Junks Senior Unsecured Debt Ratings
---------------------------------------------------------
Standard & Poor's lowered its ratings on Doman Industries Ltd.
and removed them from CreditWatch, where they were placed
November 9, 2000. The outlook is negative.
The ratings on Doman's senior unsecured debt, which represents
about 80% of the company's total debt, were lowered two notches.
This is because the book value of the company's assets has
shrunk, consequently weakening the standing of unsecured
noteholders relative to secured creditors.
The rating on the company's senior secured notes also were
lowered, but remain one notch higher than the corporate credit
rating, reflecting good prospects for recovery in a default
scenario.
The downgrade stems from the company's continuing poor financial
performance amid increasingly difficult industry conditions. The
recent U.S. government decision to impose a 19.31%
countervailing duty on Canadian softwood lumber following the
expiration of quotas under the Softwood Lumber Agreement, will
have a serious effect on Doman's operations by impairing the
company's ability to generate operating cash flow from its
lumber operations.
A 19.31% duty retroactive to May 2001 could require Doman to pay
more than CDN$10 million in duties by the end of 2001, which
would have a negative effect on the company's already strained
financial position. This is compounded by the fact that the
company's pulp operations have been shut down since July 2001
because of very weak prices, a situation exacerbated by the high
cost position of the facilities.
The ratings on Doman reflect the company's aggressive capital
structure, a product mix narrowly focused on cyclical commodity
forest products, and high-cost pulp operations. These factors
are offset somewhat by the company's high degree of fiber self-
sufficiency and cost-efficient logging and lumber operations.
Poor pricing for pulp, one of the company's major products, and
substantial market-related downtime in both pulp and lumber have
resulted in only a small amount of free operating cash flow
generated to date in 2001, despite strong lumber prices in the
first half of the year. Doman's rolling four-quarter funds from
operations to total debt is negative, while rolling four-quarter
EBITDA interest coverage is very weak at below 0.75 times.
Doman's capital structure remains very aggressive with total
debt to capitalization of more than 85%. Nevertheless, with
current cash balances and a CDN$65 million revolving credit
facility, the company has adequate liquidity. Doman has no
significant debt maturities before 2004.
Outlook: Negative
Although Doman's cash on hand and credit facility provide some
flexibility, a rebound in financial performance depends on
improved market conditions. Should the difficult operating
environment persist or liquidity worsen, ratings could be
lowered.
Ratings Lowered, Removed from CreditWatch
TO FROM
Doman Industries Ltd.
Long-term corp credit rating B- B
Senior secured debt rating B B+
Senior unsecured debt rating CCC+ B
EMBARCADERO AIRCRAFT: Weak Airline Lessees Prompt S&P Downgrade
---------------------------------------------------------------
Standard & Poor's lowered its rating on Embarcadero Aircraft
Securitization Trust's (EAST) class C notes to 'BB+' from 'BBB'.
The 'A' rating on the class B notes and the 'BB+' rating on the
class C notes remain on CreditWatch with negative implications
where they were placed on Sept. 27, 2001.
Similar to actions previously taken by Standard & Poor's for
other aircraft operating lease securitizations, this rating
action is based on several contributing factors, which have led
to an increase in risks involved in this transaction. Market
events and trends, combined with future lessee performance and
composition, may result in a further rating change.
The downgrade reflects the likelihood of significantly reduced
cash flow over the next several years, due to a high proportion
of weak airline lessees, a large number of scheduled lease
expirations, and the current depressed aircraft market.
EAST has a relatively high level of weak lessees (approximately
70% measured by aircraft value), with many either insolvent or
in weak financial condition even before the events of Sept. 11,
2001. These lessees include America West Airlines Inc., LTU
Lufttransport Unternehmen GmbH, N.V. Sabena S.A., and Viacao
Aerea Rio Grandense S.A. (Varig), and several others.
In addition, a large proportion (approximately 40% of the
original appraised value and 14 aircraft out of a total
portfolio of 34) of aircraft will be coming off-lease within the
next year. EAST's airline lessee portfolio is less diverse than
those of most aircraft lease portfolio securitizations,
increasing the risk of having a material proportion of aircraft
off-lease or re-leased at depressed rates in the current adverse
environment.
Although EAST's lessee portfolio is considered to be weak, the
types of aircraft within the portfolio are more favorable, with
a minority (about 26%) made up of less desirable aircraft such
as MD-82s and -83s, Airbus A310s, and Boeing 747-300s. The
balance of the portfolio consists of Airbus A320s, Boeing 737-
300s and -400s, 757s, and 767s.
The values of the less desirable aircraft had already
experienced weakness prior to Sept. 11. They are expected to
experience further permanent impairment in values and lease
rates over both the near and long term, with their retirement in
large numbers by U.S. airlines as part of the airlines' capacity
reductions as well as the airline user base being increasingly
concentrated in developing countries.
The more desirable aircraft should benefit from the replacement
of the older aircraft as they are retired. These values had also
experienced weakness prior to Sept. 11, but to a lesser extent.
Most are expected to recover to close to pre-Sept. 11 values and
lease rates when the airline industry recovers, but not to
values originally assumed in the prospectus. As a result,
although values and lease rates should benefit somewhat as the
airline industry recovers in 2002-2003, they are very likely to
remain below original expectations, imposing a likely permanent
reduction to the cash flow generating capabilities of the EAST
portfolio.
The downgrade of the class C notes and the continued CreditWatch
listing of the class B notes also reflect concerns regarding the
breach of an indenture requirement arising from certain recent
deliveries of aircraft in the EAST portfolio.
In September 2001, EAST delivered a third aircraft under a lease
to Atlas Internasyonal Havacilik S.A., a recently organized
charter carrier in Turkey. Standard & Poor's rating confirmation
was required for this delivery because it would exceed the
portfolio concentration limits. Standard & Poor's previously had
been requested to provide a rating confirmation for this
delivery subject to a contribution of additional capital to EAST
or other form of credit support. The additional credit support
was not provided and the aircraft was delivered without Standard
& Poor's rating confirmation.
Under certain circumstances, EAST's breach of this indenture
requirement may constitute an indenture event of default.
Standard & Poor's understands that EAST will be approaching the
trustee for a waiver of the concentration limit as EAST
considers that grounding the aircraft is not in the best
interests of the noteholders. Standard & Poor's considers the
lessee concentrations in the portfolio and the breach of the
indenture requirement as increased risks in this transaction and
will continue to monitor both.
Sources of liquidity available to this transaction have not yet
been utilized, therefore limiting the risk of a cash shock in
the short term. The capital structure of EAST sets the amount of
minimum principal payable to the class A and B notes at certain
levels. Since the transaction closed a little more than 14
months ago, the paydown of the notes has not yet resulted in an
improvement to loan-to-value (LTV) ratios for the notes. This is
due to a decline in appraisal values since closing, which more
than offset the paydown of principal amounts on the class A and
B notes. Assuming that asset values may have further
deteriorated, the LTV profile for the notes is less favorable
still, posing more risk to the most junior tranches.
The ratings on this transaction and the CreditWatch situation
will continue to be closely monitored.
ETHYL CORP: Asset Sales Keep Debt Reduction Programs On Track
-------------------------------------------------------------
Ethyl Corporation (NYSE:EY) President and Chief Executive
Officer, Thomas E. Gottwald, released the following progress
report on the operating results, debt reduction program and
continuing efforts to enhance operations. Thus, Mr. Gottwald
says:
For the nine months ending September 30, excluding nonrecurring
items, our net income was $6 million or 8 cents per share
compared with earnings on the same basis for nine months last
year of about $11 million or 12 cents per share. For the third
quarter of this year, results excluding nonrecurring items were
a loss of $2 million or about 2 cents per share compared to
income for last year's third quarter on the same basis of $4
million or 5 cents per share.
In previous discussions, I have described the Ethyl management
team's goals of restructuring our costs to allow us to compete
more effectively in Petroleum Additives (PA's), reducing debt to
improve our balance sheet, and pursuing profitable growth
opportunities to generate earnings momentum. During the third
quarter, we made solid progress in all of these areas.
Now that we are essentially complete with the cost reduction and
business restructuring objectives we set for ourselves, we are
devoting all of our energy to growing the business. How will we
do this? By offering to our customers high quality goods and
services that lower their total cost or help them grow their
market share. It is the nature of the PA industry that new
business takes some time to gain and then to begin shipping. Our
PA volume reflected this in the third quarter. Recovering from
the loss of significant volume early this year, we have made
solid gains in our product lines and regions, and we expect to
see earnings improvement in the fourth quarter as more of these
gains begin shipping. We continue to face adverse industry
conditions in the engine oil additives market with oversupply
and weak pricing hurting our results. There are no quick fixes
to these problems. But, our technology is sound, and we will
continue to serve our customers and expect to make steady gains
in this market. Improved asset utilization, coupled with reduced
cost, will lead to improved earnings in this area. We are
pleased with our progress in the remainder of the PA's segment.
Operating profit from our Tetraethyl Lead (TEL) segment was low
in the third quarter due to expected lower shipments. As we have
communicated in the past, irregular shipping patterns in this
segment are the norm, not the exception. TEL continues to be on
plan for the year, which will be lower than last year as this
product continues to phase out around the world.
Cash flow from operations, the capture of pension surplus and
the sale of non-strategic assets have kept our debt reduction
program on track. While our balance sheet shows that we have
paid down $131 million in debt, part of this debt reduction is
temporary as the income tax cost associated with the pension
fund receipt will be paid in December. Taking that adjustment
into consideration, we expect our debt reduction for the year to
be in the $120 million range, which is consistent with our
overall debt reduction plan. You may also notice that all of our
bank debt is now classified as current on the balance sheet. Our
current loan expires in August of 2002, and since the maturity
is less than a year, it is classified as current. We are working
with our banks to extend the maturity deadline into 2003 and
hope to complete the extension agreement by the end of this
year.
Like all of you, we are deeply saddened by the tragedy of
September 11th and the ongoing impact of terrorism. Like all
businesses, we are assessing its impact on our financial
results. We have seen a weakening in demand for some of our
products, but we will have to wait and see if this has a long-
term impact.
On a positive note, we expect today's lower crude oil prices to
lead to lower raw material pricing. In addition, lower interest
rates and expense improve our earnings and provide us with more
cash to apply to debt reduction.
The entire Ethyl team continues to work hard to generate
profitable growth opportunities and is making steady gains. Our
debt reduction program continues on track. And while there is
global economic uncertainty, we feel that the actions taken and
our current strategy place us in position for solid improvements
in future operations.
* * *
As of Sept. 30, 2001, the Company's current liabilities exceeded
its assets by $165 million.
Meanwhile, the current maturity date of the Company's bank loans
is August 8, 2002. The Company is discussing an extension of the
maturity date of its loans with its lenders. While it is the
Company's intent to extend these loans, the amounts outstanding
are classified as current in accordance with generally accepted
accounting principles.
EXIDE TECHNOLOGIES: Taps Jay Alix To Help in Restructuring
----------------------------------------------------------
Craig H. Muhlhauser, President and Chief Executive Officer,
Exide Technologies (NYSE:EX), announced the appointment of Lisa
J. Donahue to the roles of Chief Financial Officer and Chief
Restructuring Officer, effective immediately. She replaces
Kevin R. Morano, who served as Executive Vice President and CFO.
Mr. Morano has elected to leave the Company to pursue personal
interests.
Donahue, who will report directly to Muhlhauser, is a Principal
with Jay Alix & Associates, the internationally recognized
leader in corporate turnarounds and financial restructuring.
Exide has retained Jay Alix & Associates to support its
corporate restructuring efforts.
"Exide Technologies has developed a very bold and comprehensive
restructuring plan to drive significant improvements in
operating cash flow and further cost reductions to be
implemented over the next 12 months. Lisa will assist me and my
leadership team in earning the confidence and support for the
plan from our key stakeholders; customers, suppliers, employees,
shareholders and lenders, as well as providing us the benefit of
a proven track record in successful implementation and flawless
execution in a restructuring environment," said Muhlhauser.
"Our plan not only focuses on the financial restructuring of the
company, but also includes operational restructuring and
strategic repositioning in our key markets as one comprehensive
effort. We view this challenge as an opportunity to implement
the necessary changes at Exide more quickly and effectively with
the addition of Lisa to our leadership team. Lisa's access to
the required resources and expertise from Jay Alix & Associates,
a firm well recognized throughout the industry and respected for
delivering results, will allow us to move with greater speed
toward our goals. Successfully implementing this restructuring
effort will ensure the long term competitiveness of Exide
Technologies and provide the opportunity to build future
shareholder value from our market leadership positions in our
key customer segments, Transportation, Motive and Network
Power."
Donahue, 36, who most recently served as restructuring advisor
to Regal Cinemas, has substantial experience in guiding
companies through restructuring initiatives. The journal
Turnarounds & Workouts named her Outstanding Young Turnaround
Manager of The Year in 1999. She is a seasoned, hands-on
executive in financial and operational turnarounds. Her
experience also includes acting as CFO and financial advisor to
Umbro International and as Chief Restructuring Officer to Graham
Field Health Products, Inc.
Exide Technologies is the world's largest industrial and
transportation battery producer and recycler with operations in
89 countries.
Industrial applications include network-power batteries for
telecommunications systems, fuel-cell load leveling, electric
utilities, railroads, photovoltaic (solar-power related) and
uninterruptible power supply (UPS) markets; and motive-power
batteries for a broad range of equipment uses, including lift
trucks, mining vehicles and commercial vehicles.
Transportation uses include automotive, heavy-duty truck,
agricultural, marine and other batteries, as well as new
technologies being developed for hybrid vehicles and new 42-volt
automotive applications. The company supplies both aftermarket
and original-equipment transportation customers.
EXODUS COMMS: Signs-Up Lazard Freres For Financial Advice
---------------------------------------------------------
Exodus Communications, Inc. asks the U.S. Bankruptcy Court in
Wilmington to enter an order:
A. authorizing the continued retention and employment of
Lazard Freres & Co., LLC, as the Debtors' financial advisor
for the purpose of providing financial advisory and other
related services in connection with the Debtors' chapter 11
cases, all in accordance with the terms of the letter
agreement, dated July 26, 2001;
B. approving the proposed fee structure, including the
indemnification provisions, set forth in the Letter
Agreement; and
C. Debtors request that such retention be nunc pro tunc to
the Petition Date.
Adam W. Wegner, the Debtors Adviser for Corporate and Legal
Affairs, informs the Court that Lazard is an investment banking
firm focused on providing financial advice and transaction
execution on behalf of its clients with a broad range of
corporate advisory services including:
A. general financial advice;
B. domestic and cross-border mergers and acquisitions;
C. divestitures;
D. privatizations;
E. special committee assignments;
F. takeover defenses;
G. corporate restructurings; and
H. strategic partnerships/joint ventures.
In addition, Lazard maintains a presence in the capital markets
and has a significant asset management business and provides
underwriting services for corporations and performs research,
sales and trading functions for certain securities including
equities, debt and options.
The Debtors seek to retain Lazard as their financial advisor
because:
A. Lazard and its senior professionals have an excellent
reputation for providing high quality investment banking
services to debtors and creditors in bankruptcy
reorganizations and other debt restructurings, and
B. Lazard has extensive knowledge of the Debtors' financial and
business operations.
In addition to Lazard's understanding of the Debtors' financial
history and the industry in which the Debtors operate, Mr.
Wegner states that Lazard have extensive experience in the
reorganization and restructuring of troubled companies, both
out-of-court and in chapter 11 proceedings. Lazard have also
advised debtors, creditors, equity constituencies and government
agencies in many reorganizations since 1990, having been
involved in over 100 restructurings representing over $150
billion in restructured debt.
Mr. Wegner relates that Lazard is familiar with the Debtors'
business and financial affairs and is well-qualified to provide
the services required by the Debtors. Prior to the Petition
Date, the Debtors engaged Lazard to provide advice in connection
with the Debtors' attempts to complete a strategic transaction
or restructuring and to prepare for the commencement of these
cases.
In providing pre-petition services to the Debtors in connection
with these matters, Mr. Wegner says that Lazard's professionals
have worked closely with the Debtors' management and have become
well-acquainted with the Debtors' operations, debt structure,
business and operations and related matters. Accordingly, Mr.
Wegner submits that Lazard has developed significant relevant
experience and expertise regarding the Debtors that will assist
it in providing effective and efficient services in these cases.
Prior to retaining Lazard, the senior management of the Debtors
interviewed senior personnel of and considered proposals from
other investment banking firms, evaluating each firm on a number
of criteria, including:
A. the overall restructuring experience of each firm and their
professionals;
B. the overall investment banking capabilities of such firm with
respect to mergers and acquisitions and financings;
C. each firm's experience advising large companies in chapter
11;
D. the likely attention of the senior personnel of the firm; and
E. the compensation to be charged.
The Debtors believe that Lazard is eminently qualified to serve
them in these chapter 11 cases and accordingly, the employment
of Lazard by the Debtors is in the best interest of the Debtors
and their estates and creditors. If the employment application
is approved, the professional services that Lazard will be
required to render to the Debtors are expected to include:
A. Review and analyze the Debtors' business, operations and
financial projections;
B. Evaluate the Debtors' debt capacity in light of its projected
cash flows;
C. Assist in the determination of an appropriate capital
structure for the Debtors;
D. Assist in determining a range of values for the Debtors on a
going concern and liquidation basis;
E. Advise the Debtors with respect to negotiations and structure
of any potential sale transaction with any third party;
F. Advise the Debtors on tactics and strategies for negotiating
with their various groups of creditors;
G. Advise the Debtors on the timing, nature, and terms of any
new securities, other consideration or other inducements to
be offered pursuant to any Recapitalization Transaction;
H. Assess the possibilities of bringing in new lenders and/or
investors to replace, repay or settle with any of the
creditors;
I. Advise and attend meetings of the Debtors Board of Directors
and its committees; and
J. Provide the Debtors with other appropriate financial advice.
Frank A. Savage, Managing Director of Lazard Freres & Co. LLC,
submits that the firm has no connection with, and holds no
interest adverse to, the Debtors, their creditors, or any other
party in interest, or their respective attorneys or accountants,
or the Office of the United States Trustee or any person
employed in the office of the United States Trustee, in the
matters for which Lazard is proposed to be retained, except:
A. Chase Manhattan Bank is one of the principal lenders on
Lazard's $350 million subordinated credit facility. Chase
Manhattan Bank is a bond trustee of the Debtors. Lazard does
not believe that this relationship creates a conflict of
interest regarding the Debtors or these chapter 11 cases.
B. Lazard has been represented by Latham & Watkins during the
past three years in matters unrelated to these chapter 11
cases. Latham & Watkins is an ordinary course professional
to the Debtors. Lazard does not believe that its
relationship to Latham & Watkins creates a conflict of
interest regarding the Debtors or these chapter 11 cases.
C. Lazard has been represented by Veil Armfelt Joudre La
Garanderie during the past three years in matters unrelated
to these chapter 11 cases. Veil Armfelt Joudre La Garanderie
an ordinary course professional to the Debtors. Lazard does
not believe that its relationship to Veil Armfelt Joudre La
Garanderie creates a conflict of interest regarding the
Debtors or these chapter 11 cases.
D. Lazard has been represented by Wachtell, Lipton, Rosen & Katz
during the past three years in matters unrelated to these
chapter 11 cases. Wachtell, Lipton, Rosen & Katz is an
ordinary course professional to the Debtors. Lazard does not
believe that its relationship to Wachtell, Lipton, Rosen &
Katz creates a conflict of interest regarding the Debtors or
these chapter 11 cases.
E. Lazard has been represented by Wilson, Sonsini, Goodrich &
Rosati during the past three years in matters unrelated to
these chapter 11 cases. Wilson, Sonsini, Goodrich & Rosati
is an ordinary course professional to the Debtors. Lazard
does not believe that its relationship to Wilson, Sonsini,
Goodrich & Rosati creates a conflict of interest regarding
the Debtors or these chapter 11 cases.
F. Lazard has been represented by Skadden, Arps, Slate, Meagher
& Flom LLP during the past three years in matters unrelated
to these chapter 11 cases. Skadden is counsel to the Debtors.
Lazard does not believe that its relationship to Skadden
creates a conflict of interest regarding the Debtors or
these chapter 11 cases.
G. As part of its business as a broker-dealer, Lazard acts as a
broker in a variety of securities, including high yield
debt, investment grade debt, convertible debt, preferred
equity and common equity. From time to time, Lazard may
trade securities or act as a broker trading securities
unrelated to these cases with some of the Debtor's
significant creditors or equity holders.
H. Lazard Asset Management manages approximately $80 billion in
assets for institutions and individuals around the world and
is the advisor to several mutual fund families. Lazard Asset
Management may hold stock and/or bonds in various companies
who may be creditors in these cases.
I. Lazard has in the past worked with, continues to work with,
and has mutual clients with certain law firms and accounting
firms who represent parties-in-interest in these cases. None
of those engagements or relationships relate to these cases.
Those engagements or relationships are not material to the
financial condition of Lazard.
Mr. Savage informs the Court that Lazard will charge the Debtors
as compensation for its services:
A. A Monthly Financial Advisory Fee of $225,000 payable in cash
on the first day of each month. 50% of the Monthly Financial
Advisory Fee payable in these cases shall be credited to a
Recapitalization Transaction Fee.
B. Recapitalization Transaction Fee equal to $10,000,000
payable in cash upon the completion of a Recapitalization
Transaction.
In addition to any fees payable by the Debtors to Lazard
pursuant to the Letter Agreement, Mr. Savage relates that the
Debtors have also agreed to reimburse Lazard on a monthly basis
for its travel and other reasonable out-of-pocket expenses. Mr.
Savage states that in setting the fees, Lazard and the Debtors
took into account the hours worked, the results achieved, the
difficulty of the assignment and the ultimate benefit to the
Debtors.
The Debtors acknowledge and agree that Lazard's restructuring
expertise as well as its capital markets knowledge, financing
skills and mergers and acquisitions capabilities, all of which
may be required by the Debtors during the Lazard's engagement,
were important factors in determining the compensation. Mr.
Wegner believes that the ultimate benefit to the Debtors of
Lazard's services hereunder could not be measured by the number
of hours to be expended by Lazard's professionals in the
performance of such services.
The Debtors also acknowledge and agree that the contingent
Recapitalization Transaction Fee has been agreed upon by the
parties in anticipation that a substantial commitment of
professional time and effort will be required of Lazard, and in
light of the fact that such commitment may foreclose other
opportunities for Lazard and that the actual time and commitment
required of Lazard and its professionals to perform its services
hereunder may vary substantially, creating "peak load" issues
for the firm.
In addition, given the numerous issues which Lazard may be
required to address in the performance of its services, Lazard's
commitment to the variable level of time and effort necessary to
address all such issues as they arise, and the market prices for
Lazard's services for engagements of this nature, the Debtors
agree that the fee arrangements hereunder are reasonable.
The Debtors believe that the fee structure and indemnification
provisions set forth in the Letter Agreement are reasonable
terms and conditions of employment and should be approved. The
fee structure and indemnification provisions appropriately
reflect:
A. the nature of the services to be provided by Lazard and
B. the fee structures and indemnification provisions typically
utilized by Lazard and other leading financial advisory and
investment banking firms, which do not bill their clients on
an hourly basis and generally are compensated on a
transactional basis.
The Debtors believe that the proposed fee structure creates a
proper balance between fixed, monthly fees and contingency fees
based on the successful consummation of a transaction. Mr.
Wegner contends that the fee structure and indemnification
provisions are reasonable terms and conditions of employment in
light of:
A. industry practice,
B. market rates charged for comparable services both in and out
of the chapter 11 context,
C. Lazard's substantial experience with respect to financial
advisory services, and
D. the nature and scope of work already performed by Lazard
prior to the Petition Date and to be performed by Lazard in
these chapter 11 cases.
Prior to the Petition Date, Mr. Savage informs the Court that
the Debtors had paid Lazard $900,000 for pre-petition services
rendered and $36,300.10 for out-of-pocket expenses, representing
the Monthly Financial Advisory Fees for the months August 2001
through November 2001. (Exodus Bankruptcy News, Issue No. 4;
Bankruptcy Creditors' Service, Inc., 609/392-0900)
FANTOM TECHNOLOGIES: Nasdaq Requests Additional Information
-----------------------------------------------------------
the Nasdaq Stock Market(R) announced that the trading halt
status in Fantom Technologies Inc., (Nasdaq: FTMTF) was changed
to "additional information requested" from the company. Trading
in the company had been halted on Thursday, October 25, 2001 at
4:18 p.m. Eastern Time for News Pending at a last sale price of
$0.10. Trading will remain halted until Fantom Technologies
Inc. has fully satisfied Nasdaq's request for additional
information.
For news and additional information about the company, contact
the company directly or check under the company's symbol using
InfoQuotes(SM) on the Nasdaq Web site.
FEDERAL-MOGUL: Intends to Honor Prepetition Customer Obligations
----------------------------------------------------------------
Prior to the Petition Date, and in the ordinary course of their
businesses, Federal Mogul Corporation engaged in a variety of
practices to develop and sustain positive reputations in the
marketplace for their products and services, including product
warranties, rebates, alleged defective return policies, and
other similar programs, practices and commitments directed at
customers.
The common goals of the Customer Practices have been to meet
competitive pressures, ensure customer satisfaction, and
generate goodwill for the Debtors thereby retaining current
customers, attracting new ones, and ultimately enhancing net
revenue.
Thus, Federal-Mogul Corporation sought and obtained authority --
but not direction -- from Judge Robinson, in their business
judgment, to:
A. perform pre-petition obligations related to Customer
Practices as they see fit; and
B. continue, renew, replace, implement new, and/or terminate
Customer Practices as they see fit, in the ordinary
course of business, without further application to the
Court.
Jeffrey J. Stegenga, a partner at PricewaterhouseCoopers LLP,
states that the Debtors desire to continue during the post-
petition period those Customer Practices that they believe were
beneficial to their businesses and cost-effective during the
pre-petition period. The Debtors believe that such relief is
necessary to preserve their critical business relationships and
goodwill for the benefit of the estates.
The Debtors estimate that the aggregate cash cost of performing
their pre-petition obligations in regard to the Customer
Practices over the next year will not exceed $30,000,000. Mr.
Stegenga relates that approximately $23,800,000 of such amount
relates to rebate obligations of the Debtors while the remainder
will be expended in settlements concerning defective parts and
cooperative advertising. While the overall estimated costs
provided in this Motion are substantially greater than such
amounts, Mr. Stegenga says that virtually all of the remainder
of the estimated costs detailed herein will be incurred by the
Debtors in the form of replacement products and credit
obligations. Accordingly, the Debtors submit that the cash
outlay required to continue the Customer Practices post-petition
is exceedingly modest given the scope of these cases.
The following are general descriptions and examples of the
Customer Practices engaged in by the Debtors in the Original
Equipment and Aftermarket segments:
A. Original Equipment - Approximately 56% of the Debtors' sales
are attributable to the OE market, with which the Debtors
have long-standing relationships. The products are subject
to rigorous inspections at each of the Debtors' plants as
well as at the customer's site and as a result, the Debtors
historically have very few OE customer claims arising from
defective products. Consequently, the Debtors estimate that
the cost of continuing their warranty obligations and other
Customer Practices with respect to OE customers is
negligible. To the extent that any such costs may be
incurred or obligations may exist, however, the Debtors seek
this Court's authority to make the necessary payments
respecting these Customer Practices and continue these
Customer Practices on a going-forward basis.
B. Aftermarket - Approximately 44% of the Debtors' sales are
attributable to the Aftermarket segment, which includes
chain auto parts stores and warehouse distributors.
Competition in the Aftermarket segment is fierce, with many
of the Debtors' Aftermarket customers purchasing products in
buying groups which give the purchasers significant leverage
in demanding price concessions, rebates and warranties. In
order to compete effectively in this market, the Debtors
offer the Aftermarket customers certain warranties, rebates,
and allowances that are customary in the industry. These
customer accommodations relating to the Aftermarket include
the following:
1. Warranty and Defective Return Policies - The warranties
offered by the Debtors are similar to the warranties
offered by industry competitors, covering parts as well
as any incidental damage caused by defective parts.
Warranty claims made for goods sold are primarily from
products alleged to be defective by the customer.
Most of these claims are made within one year of the
customer's purchase. The Debtors also allow their
customers to return parts that are alleged to be
out-of-specification, cosmetically unacceptable,
incorrectly catalogued, improperly functioning, or
otherwise subjectively incorrect. These parts can be
returned to the Debtors for part cost credit only, not
including any incidental costs or labor. For the year
ending June 30, 2001, the Debtors estimate that the
warranty claims and alleged defective returns was
approximately $9,367,000. As of the Petition Date, the
Debtors estimate a liability of $5,647,000 for the
warranty claims and alleged defective returns arising
from pre-petition sales by the Debtors.
2. Annual Stock Adjustment Return Allowances - Certain
distributors are allowed to make adjustments to their
inventories of Debtors' products by returning a limited
amount of product to the Debtors each year up to a
maximum of 5% of their purchases during the prior year,
and such returns may be made anytime during the
following year. In addition, a number of line
changeovers are also committed as part of agreements
where new business has been won, involving the Debtors'
acceptance of returns of competitor stock for credit
where the Debtors have convinced a given distributor to
offer the Debtors' products instead of the
competitor's. During the first nine months of 2001, the
Debtors granted credits on account of stock adjustment
allowances of $47,000,000 respecting annual allowances
for calendar 2000. The U.S. Debtors estimate that they
will grant annual stock adjustment allowances of an
additional $10,000,000 during the remainder of 2001
that relate to purchases made in 2000. In addition,
based upon their sales to date, the Debtors estimate
that they will grant approximately $41,000,000 in
annual stock adjustment allowances during 2002 that are
attributable to the pre-petition portion of 2001.
Accordingly, the Debtors estimate they owe aggregate
obligations of $51,660,000 as of the Petition Date
related to annual stock adjustment allowances payable
through the end of 2002 attributable to the pre-
petition period.
3. Rebates - The Debtors offer rebates to certain of their
customers of 1% - 10% of a given customer's net
purchases, with the rebate amount increasing as the
volume purchased increases. For the year ending
December 31, 2001, the Debtors estimate that rebate
payments will be approximately $114,500,000. As of the
Petition Date, the Debtors estimate a liability of
$39,170,000 for the cost of rebates arising from pre-
petition sales by the Debtors, however, in light of the
fact that many of these rebates are granted in the form
of credit for future sales, only $23,769,000 million of
this liability is a cash liability.
4. Cooperative Advertising and Customer Goodwill Allowances-
Offered by the Debtors to support joint promotional
efforts with their customers, which typically are
limited to no more than 1% of sales to distributors,
are available from industry competitors. Also, in the
ordinary course of business the Debtors will
occasionally settle minor disputes with customers by
issuance of allowance credits to maintain customer
goodwill, to solidify existing business and to enhance
prospects for additional future business. For the year
ending June 30, 2001, the Debtors estimate that the
cost for cooperative advertising and customer goodwill
allowances was $15,200,000. As of the Petition Date,
the Debtors estimate a liability of $5,200,000 for the
cost of cooperative advertising and customer goodwill
allowances by the Debtors.
5. Other Programs - The Debtors have varied certain
commitments that need to be honored to sustain their
ongoing customer base and business. Additionally, at
any one time there are a number of customer requests
for credit relating to invoice price queries, short
shipments, picking errors, input errors, customer
errors, etc. Based on a typical claims-in-progress
situation, the Debtors estimate that at any given time
there is a liability of approximately $367,000 within
this category related to sales made by the Debtors.
Laura Davis Jones, Esq., at Pachulski Stang Ziehl Young & Jones
P.C. in Wilmington, Delaware, submits that the relief sought is
required in order for the Debtors to continue their business
operations in an uninterrupted manner and to avoid any
disruption to the Debtors' efforts to sell their products, which
in turn generate revenue for the Debtors' estates. Accordingly,
the Debtors submit that the relief requested is vital to the
operation and successful reorganization of the Debtors'
businesses and is justified.
Ms. Jones contends that continuation of the Customer Practices
and honoring of such other pre-petition obligations as are
described in this Motion are crucial to the maintenance and
operation of the Debtors' businesses. Ms. Jones explains that
the Debtors' failure to honor and continue these obligations and
practices would almost certainly render the Debtors
uncompetitive in the markets in which they compete, with
resulting negative consequences for the Debtors' estates and the
prospects for the Debtors' successful reorganizations in these
chapter 11 cases.
Moreover, Ms. Jones asserts that failure to continue the
Customer Practices could erode the Debtors' customer base at a
time when continued customer loyalty is most essential to the
Debtors. In the weeks prior to the Petition Date, Ms. Jones
informs the Court that the Debtors have received a substantial
number of inquiries from customers concerned about the Debtors'
ability to continue honoring warranty and rebate commitments,
particularly in the Aftermarket sector. Based on such inquiries,
the Debtors are certain that large numbers of their Aftermarket
customers would cease or scale back purchases from the Debtors
if the Customer Practices were not continued. Ms. Jones claims
that such consequences would undermine the Debtors' efforts to
reorganize, to the detriment of all parties in interest.
Ms. Jones tells the Court that granting the relief sought by
this Motion is further warranted given the fact that the
payments sought are a tiny fraction of the estates' total value.
With the exception of the rebate obligations, Ms. Jones contends
that virtually all of the cost of the Customer Practices will be
in the form of credit obligations or replacement product, not
actual cash outlays. As such, Ms. Jones submits that the actual
cash cost of the relief requested herein is estimated at no more
than $30,000,000, a fraction of the overall estimates of the
credit obligations and replacement products to be provided. In
addition, many of the obligations that would be paid under
authority sought in this Motion are to creditors that would
otherwise assert setoff and/or recoupment claims against the
Debtors. As such, Ms. Jones states that the payment of amounts
under this Motion to such creditors does not deplete the
Debtors' assets generally available to other creditors.
(Federal-Mogul Bankruptcy News, Issue No. 3; Bankruptcy
Creditors' Service, Inc., 609/392-0900)
FRUIT OF THE LOOM: Solves Spriggs & Hollingsworth Retaining Lien
----------------------------------------------------------------
Fruit of the Loom, Ltd. and Spriggs & Hollingsworth, a law firm
based in Washington, D.C., have reached an agreement on the
payment of legal fees. S&H provided services to Fruit of the
Loom and NWI for certain environmental matters and other pending
litigation.
S&H claims prepetition fees and costs due in the aggregate
amount of $592,446.04 due from Fruit of the Loom and NWI for the
Prepetition Services and filed proofs of claim numbers 3974 and
3975 against the Debtors.
On May 18, 2001, Debtor filed its Fifth Omnibus Objection of
Fruit of the Loom to Claims wherein Fruit of the Loom requested:
(i) the Court expunge claim number 3974 as a duplicate claim;
(ii) that claim number 3975, be reduced to a $413,309.21
unsecured claim.
On June 13, 2001, S&H filed a Response Form For Claimants for
claim numbers 3974 and 3975, to contest the Claims Objection.
S&H has asserted an attorneys' retaining lien under applicable
District of Columbia law on account of the Prepetition Claim
against certain documents in S&H's possession that belong to
Fruit of the Loom and relate to the Prepetition Actions,
including, without limitation, all client records,
correspondence, pleadings, filings, research, deposition or
interview notes, and any other work-product documents (whether
in written format or stored on electronic media).
As of the Petition Date, S&H held $36,795.37 in escrow on behalf
of Fruit of the Loom and has asserted an attorney's retaining
lien under applicable District of Columbia law with respect to
the escrow funds. Fruit of the Loom and NWI have determined that
the documents are necessary for the continued prosecution or
defense of the Prepetition Actions, and, therefore, the parties
have negotiated in good faith a settlement of the Prepetition
Claim, the Retaining Lien, the Escrow Retaining Lien, and
S&H's turnover of the Documents to Fruit of the Loom on the
terms and subject to the conditions set forth in this
stipulation and order.
S&H has submitted certain invoices that are currently
outstanding, to Fruit of the Loom for services provided after
the Petition Date. All interested parties have been given
notice of this Stipulation and Order and an opportunity to
object.
In consideration of the mutual covenants and consideration
contained herein, Fruit of the Loom and S&H stipulate and agree
as follows:
(a) Subject to the terms and conditions set forth below,
Fruit of the Loom shall pay $75,000 to S&H within 3 business
days of the bankruptcy court's entry of this order on account of
the Prepetition Claim in full settlement and discharge of any
Retaining Lien;
(b) Subject to the terms and conditions set forth below,
Fruit of the Loom shall pay an amount not to exceed $25,000 to
S&H, on account of (i) the Postpetition Invoices and (ii) any
and all fees or expenses arising from or related to S&H's
delivery of the Documents to Fruit of the Loom;
(c) Upon receipt of payment of the Settlement Amount, S&H
shall arrange within 10 business days for delivery of the
Documents, at S&H's expense, to a location directed by Fruit of
the Loom or its designated counsel;
(d) Within 3 business days of the bankruptcy court's entry
of this order, S&H shall return to Fruit of the Loom the Escrow
Funds;
(e) Effective upon payment of the Settlement Amount and
the Postpetition Amount, S&H hereby waives, releases, and
discharges any and all claims, including, but not limited to,
the Prepetition Claim and the Postpetition Invoices, or liens of
any nature, including, but not limited to, any Retaining Lien,
Escrow Retaining Lien, that S&H has or may have against Fruit of
the Loom through the date of this stipulation;
(f) Effective upon Delivery and payment of the Escrow
Funds, Fruit of the Loom hereby waives, releases, and discharges
any and all claims of any nature that Fruit of the Loom has or
may have against S&H through the date of this stipulation;
(g) Any claims filed in these cases by or on behalf of
S&H, including, but not limited to, claim numbers 3974 and 3975,
are disallowed in their entirety and expunged;
(h) Donlin, Recano & Company, Inc., as Court-appointed
claims agent for Fruit of the Loom, is hereby directed to amend
the Claims Registry to reflect the terms of this Order.
Judge Walsh approves of this agreement and gave it his stamp of
approval. (Fruit of the Loom Bankruptcy News, Issue No. 39;
Bankruptcy Creditors' Service, Inc., 609/392-0900)
IBEAM BROADCASTING: Nasdaq Wants More Info Re Chapter 11 Filing
---------------------------------------------------------------
iBEAM Broadcastingr Corp. (Nasdaq:IBEMQ), a leading provider of
streaming communications solutions, announced that it has been
requested by Nasdaq to submit information regarding the
company's filing for protection under Chapter 11 of the U.S.
Bankruptcy Code, which occurred on October 11, 2001. The company
has responded to Nasdaq's request. The company's continued
listing status is under review by Nasdaq.
iBEAM Broadcasting Corp. (Nasdaq:IBEMQ), founded in 1998, is a
leading provider of streaming communications solutions. iBEAM's
end-to-end solutions for enterprise and media customers include
interactive webcasting, streaming advertising insertion,
syndication and pay-per-view management, and secure, licensed
download and geographical identification applications.
iBEAM currently delivers more than 100 million audio and video
streams per month across its intelligent distribution network.
Several hundred innovative companies use iBEAM's global services
including enterprise customers IBM/Lotus, Bristol-Myers Squibb,
and Merrill Lynch, and media leaders CNBC and MTVi. iBEAM is
headquartered in Sunnyvale, Calif.
INTEGRA INC: Off-Season Claim Volume Leads to Net Loss of $643K
---------------------------------------------------------------
Integra, Inc., (Amex: IGR) a healthcare management and solutions
company providing employee assistance programs (EAP), work life
programs, managed behavioral healthcare, and consulting services
reported a net loss allocable to common shareholders of $643,000
for the quarter ended September 30, 2001.
"An examination of our quarterly loss shows that we experienced
unseasonable claim volume compared to prior years, and unusual
circumstances in the month of September primarily related to the
events of September 11th," remarked Jack Brown, Integra's Chief
Financial Officer. "Integra also incurred some upfront expenses
in Information Systems and personnel to prepare for new business
which we anticipate in the upcoming year."
"During the last quarter the Company began making needed
investments in Marketing, Customer Relations, Product
Development, as well as in a new Information Systems platform,"
said company President and CEO, Stuart Piltch. "Results have
been improved operational efficiency, increased market presence,
improved product offerings, and significant new business
opportunities."
Piltch went on to say, "We carefully planned and executed a
number of needed initiatives. These initiatives were
accomplished at or below budget. When the unusual claim activity
and unexpected events of September 11th occurred and caused our
cost of doing business to increase, we chose to address the
short term and additionally, follow through with our business
plan. We believe both the market and our shareholders will
recognize this as a correct decision for the long-term health of
the enterprise. We are hopeful and expectant that we will see
at least a partial return on the investment in the coming weeks
with the realization of significant new business."
Integra, Inc. (IGR) -- http://www.integra-ease.com -- is based
in King of Prussia, PA -- providing 1.15 million members with
behavioral healthcare solutions and management, including
Employee Assistance Programs, Work Life Solutions, as well as
Health Plan management and administration; Global Benefits
Solutions provides consulting services to companies with over
150,000 employees.
As of June 30, 2001, the Company's current ratio stood at .33:1
and it posted a working capital deficit $5,110.
INTEGRATED HEALTH: Gets Okay For Agreements with Senior Officers
----------------------------------------------------------------
Integrated Health Services, Inc. sought and obtained the Court's
authority to enter into new employment agreements with certain
of their senior officers who otherwise have not been covered by
the Debtors' post-petition actions regarding employment matters
while employment matters concerning many of the Debtors'
executive vice presidents and senior vice presidents who
received loans, as well as those of employees below the officer
level have been taken care of.
With many in the former group, that is, executive vice
presidents and senior vice presidents who received loans from
the Debtors prior to the IHS bankruptcy, the Debtors entered
into post-petition employment agreements which dealt with, among
other things, the tax ramifications the Debtors' forgiveness of
the officer loans caused by the departure of Robert Elkins (the
former chief executive officer of the Debtors) as well as issues
pertaining to severance, indemnification, non-competition, non-
solicitation of the Debtors' employees and other critical
employee related issues (collectively, the Critical Employee
Issues). Many of these issues were previously addressed in the
officers' pre-petition employment contracts with the Debtors.
With the latter group, that is, employees below the officer
level, the Debtors received approval for a severance program
which primarily dealt with.
Other than these two groups, the Debtors have a number of senior
vice presidents and managing directors who are vital to their
ongoing business (the Critical Senior Officers). The Critical
Senior Officers did not have loans from the Debtors. Some, but
not all, entered into pre-petition employment contracts with the
Debtors. The Critical Senior Officers have asked the Debtors to
confirm their employment status with them and, specifically, to
address the Critical Employee Issues. Certain Critical Senior
Officers, who had entered into prepetition employment contracts,
are seeking to clarify the severance aspects of their employment
arrangements with the Debtors. The Debtors are desirous of doing
so, as well as to clarify the non-solicitation and non-
competition aspects of their employment with respect to certain
Critical Senior Officers that did not enter into pre-petition
employment contracts with the Debtors.
The Debtors believe that the Critical Senior Officers are
crucial to the IHS reorganization efforts and that it is
imperative that such officers remain with the Debtors through
the reorganization, and are properly motivated and incentivized.
To address uncertainty with respect to the Critical Employee
Issues and to promote and maintain strong morale among these key
personnel, the Debtors have determined that it is necessary to
enter into post-petition Employment Agreements with them. The
Debtors have negotiated or are near the end of the negotiations
regarding Employment Agreements with respect to the following
seventeen Critical Senior Officers:
* Allen, Jerry E.,
* Battee, Cheryl C.,
* Box, Matthew,
* Boehringer, Kell M.,
* Duplantis, Patrick,
* Friedman, Toni-Jean Lisa,
* Lekas, Pamela L.,
* Lee, Rebecca A.,
* Pompeo, Kirk,
* Lyon, Terri A.,
* McDonald, Karen L.,
* Mercier, Murry,
* Mignone, Thomas F.,
* Palinkas, Pamela A.,
* Phillips, Jeanne M.,
* Wiederstein, Michael,
* Wilson, Michael L.
Specifically, the Employment Agreements:
(1) modify the Critical Senior Officers' severance benefits, all
on substantially similar terms to one another,
(2) with respect to certain Critical Senior Officers that
entered into pre-petition agreements with the Debtors,
establish that the Employment Agreements supercede any such
pre-petition agreements and, therefore, govern all the
rights and obligations of the parties and
(3) establish uniform non-solicitation and non-competition
provisions with respect to the Critical Senior Officers.
The Proposed Post-Petition Employment Agreements
Specifically, although variations exist, all of the Employment
Agreements provide for a term of two years, substantially
uniform confidentiality, and other uniform provisions, plus
specific terms of salary and benefits with respect to each
officer. In addition, the Employment Agreements include the
following key provisions:
(A) Severance
The Debtors are obligated to pay severance and benefits to the
Critical Senior Officers if the company terminates the Critical
Senior Officers "without cause". Though the severance amounts
vary by Critical Senior Officer, for most officers, they
generally equal 6 months of base salary plus up to an additional
6 months in the event that the Critical Senior Officer is unable
to find a comparable position within such period of time after
termination.
At this stage in the Debtors' negotiations with the Critical
Senior Officers, all of the Employment Agreements have a stated
term of two years except for the agreement with respect to Pam
Lekas, a Senior Vice President with the Debtors. Ms. Lekas'
Employment Agreement, unless otherwise terminated by the other
terms of the agreement, shall terminate when the Debtors
determine, in their discretion, that the Claims Administration
Process is substantially completed.
(B) Indemnification
The Employment Agreements provide for indemnification of each
Critical Senior Officer to the fullest extent permitted by
Delaware law. This provision is consistent with the
indemnification provision in the Debtors' other post-petition
employment agreements.
(C) Non-Solicitation and Non-Pirating
During the term of the Employment Agreements and for a period of
two years following the termination or natural expiration of
same, the Critical Senior Officers may not, without express
written consent, attempt to (i) solicit, divert or take away any
of the Debtors' employees, clients or customers, or (ii) hire,
entice or persuade any of the Debtors' employees, clients or
customers to alter or terminate their relationship with the
Debtors.
(D) Non-Competition
During the term of the Employment Agreements and for the period
of one year following the Critical Senior Officer's termination
or resignation, such Critical Senior Officer agrees not to
compete with the Debtors' business without the Debtors' written
consent. This provision is consistent with the non-competition
provisions in the Debtors other post-petition employment
agreements.
(E) Mutual Release
Critical Senior Officer acknowledges that Critical Senior
Officer has no claims arising out of or relating to his previous
employment agreements with the Debtors and the Debtors
acknowledges that it knows of no claims arising out of or
relating to Critical Senior Officer's previous employment
agreements with the Debtors. Excepted from the scope of the
Debtors' release of the Critical Senior Officers are any claims
arising out of or relating to any of the following: (i)
violations of law by Critical Senior Officer; or (ii) any matter
as to which Senior Officer did not act in good faith and/or in a
manner Critical Senior Officer reasonably believed to be in the
Debtors' best interests.
The Debtors tell the Court that the salient terms of the
Employment Agreements have been discussed with the Creditors'
Committee and copies of the executed Employment Agreements will
be given to the Creditors' Committee and the United States
Department of Justice.
The Debtors submit that the entry into the Employment Agreements
substantially under the terms described is essential to preserve
and maximize the value of the Debtors' estates. The Debtors
believe that the relief requested is essential to maintaining a
motivated and dedicated workforce, and that the relief requested
herein is designed to do so.
The Debtors believe that entering into the Employment Agreements
is within the ordinary course of the Debtors' business and, as
such, does not require any further order of the Court but have
filed the instant Motion out of an abundance of caution.
(Integrated Health Bankruptcy News, Issue No. 21; Bankruptcy
Creditors' Service, Inc., 609/392-0900)
INTERACTIVE TELESIS: Restructuring Efforts Will Continue in 2002
----------------------------------------------------------------
Interactive Telesis Inc. (OTCBB:TSIS), a provider of customized
interactive voice response (IVR) solutions and speech-enabled
hosting services, announced results for the fourth quarter and
fiscal year ended July 31, 2001.
The company reported consolidated fiscal 2001 fourth quarter
revenues of $0.9 million, with a net loss of $1.7 million,
compared to $1.1 million in consolidated revenue with a net loss
of $0.6 million for the same period in fiscal 2000.
The company reported consolidated fiscal 2001 revenues of $3.3
million with a net loss of $6.1 million, compared to $4.8
million in consolidated revenue with a net loss of $0.1 million
reported last year. Total restructuring costs for fiscal 2001
were $1.3 million.
During the past six months, the company has initiated critical
cost-containment measures including:
-- Reduction and realignment of staff
-- Restructuring of capital leases and equipment
-- Reduced telecommunications and co-location expenses
-- Improved cost-accounting and related contract pricing
for improved margins
-- Terminated all non-profitable business and partnerships
-- Significantly reduced facilities costs
The above initiatives will continue into fiscal year 2002.
"Our fourth quarter is the first full quarter we've had our new
management team in place, and a reduced monthly cash burn rate
of approximately $500,000 per month speaks tremendous progress
to this new team," said Al Staerkel, president and CEO of
Interactive Telesis. "While we've made significant improvements
during the past seven months, it is clear that much remains to
be done. I understand the frustration of our shareholders
regarding decisions that were made in the past, however, we have
a new team in place and we are working diligently toward our
goal of attracting new customers and increasing sales. We remain
focused on our business plan and continue to make excellent
progress in lowering our corporate expenditures, empowering our
sales team, and improving our balance sheets."
In commenting on the results, Charles Delle Donne, director for
Interactive Telesis said, "Our fiscal 2001 revenues reflect the
continued challenges faced by many companies in today's
difficult economy. Despite these circumstances, we are more
keyed up than ever in terms of moving forward. The CEO
transition went incredibly well and positive changes in the
company are already taking shape. Our shareholders should see
exciting developments from Interactive Telesis in the next
several months."
Interactive Telesis specializes in custom interactive voice
response (IVR) services and deployment of automated speech
recognition (ASR) technologies. Interactive Telesis presents a
very compelling offering for companies wishing to leverage the
benefits of IVR and speech recognition without the high cost of
ownership, capital outlay and internal IT staff requirements.
Clients include industry leaders such as 3D Systems, Global
Crossing, Lucent, MCI, Nike, Sprint, Wells Fargo, Worldcom and
Verizon, among others. Interactive Telesis has headquarters in
San Diego. For additional information, call 858/523-4000 or
visit http://www.interactivetelesis.com
Interactive Telesis is a trademark of Interactive Telesis Inc.
All other trademarks are properties of their respective owners.
* * *
As of April 30, 2001, the Company posted a current ratio of
0.51:1, with working capital standing at negative $590,418, a
decrease of $3,337,745 from July 31, 2000. The decrease is a
result of negative operating results and negative cash flows
from operating activities for the nine month period ended April
30, 2001.
INTERNATIONAL TOTAL: Court Okays Final DIP Financing of $28.5MM
---------------------------------------------------------------
International Total Services, Inc. (OTC:ITSW) said that the
Chief Judge of the U.S. Bankruptcy Court for the Eastern
District of New York issued an order on October 25, 2001,
enjoining the company's former chairman from convening a special
meeting of shareholders of the company until further order of
the court.
Robert A. Weitzel, the former chairman, had announced his
intention to call a special shareholder meeting for October 26
to replace the current board of directors.
The Judge also granted final approval of the company's entire
$28.5 million Debtor-in-Possession (DIP) credit facility. ITS
had received interim court approval of the DIP facility on
October 3. 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.
ITS and its domestic subsidiaries filed voluntary petitions for
protection under chapter 11 of the U.S. Bankruptcy Code in the
United States Bankruptcy Court for the Eastern District of New
York on September 13, 2001. The company continues business
operations without interruption under court protection.
International Total Services Inc. is a leading provider of
airport service personnel and staffing and training services and
commercial security services for a wide variety of industries.
ITS services include, among other things, airport passenger
checkpoint screening for airlines. The company has more than
12,000 employees at operations throughout the United States, and
in Guam and the United Kingdom.
KNOWLEDGE HOUSE: Files Proposal to Creditors Under Canadian BIA
---------------------------------------------------------------
Knowledge House Inc. (TSE:KHI) announced that it has file a
proposal to creditors under the Bankruptcy and Insolvency Act
(Canada) through its trustee, Ernst & Young Inc.
Under the terms of the proposal, preferred creditors of KHI
under the Bankruptcy and Insolvency Act (Canada), including
employees, will receive Class A preferred shares of KHI in
exchange for their claims, on a dollar for dollar basis. Other
unsecured creditors of KHI will receive Class B preferred shares
of KHI in exchange for their claims, on a dollar for dollar
basis.
The Class A and Class B preferred shares are each 4% cumulative
preferred shares, redeemable at the option of KHI and
convertible at the option of the holder into common shares of
KHI, after two years in the case of the Class A preferred shares
and after four years in the case of the Class B preferred
shares. Class A preferred shares have priority over the Class B
preferred shares. Claims of secured creditors are unaffected by
the proposal.
In commenting on the proposal, Dan Potter, Chair and CEO stated
"We believe that it is best for all creditors to have the
opportunity for 100% realization in these circumstances based on
a successful recovery of Knowledge House Inc. By using two
classes of preferred shares the intent of the proposal is that
the preferred claims of the employees will be given the highest
priority and scheduled for payment at the earliest possible
date."
He further stated, "While it will be challenging to rebuild the
operations, the amount to be converted to preferred shares, at
approximately $2,000,000, is not too onerous since Knowledge
House Inc. has valuable educational programs and technologies
upon which to rebuild its business as a result of the extensive
$10 million research and development program it conducted over
the last three years."
The proposal will be provided to creditors of KHI to be voted on
at a creditors' meeting to be held on a date set by the Official
Receiver within 21 days of Thursday last week, and will remain
subject to shareholder and regulatory approvals. The proposal
was further to the notice of intention to make a proposal
announced by Knowledge House on September 25, 2001. Silicon
Island Art and Innovation Centre Limited, a subsidiary of
Knowledge House Inc., will not be filing a proposal.
Knowledge House designs collaborative problem-based learning
programs and provides related services for secondary and post-
secondary education, transition to work in corporate markets.
LSI LOGIC: S&P Concerned About Profitability Pressures
------------------------------------------------------
Standard & Poor's affirmed its double-'B'-minus corporate credit
and senior unsecured bank loan ratings and its single-'B'
subordinated debt ratings on LSI Logic Inc. At the same time,
Standard & Poor's revised its outlook on the company to stable
from positive.
The revision of the outlook reflects expectations that operating
profitability is not likely to strengthen materially over the
intermediate term.
Ratings continue to reflect the company's good niche
semiconductor position, offset by its reliance on a moderate
number of key customers and corresponding lack of a merchant
market for its products.
Milpitas, California-based LSI Logic is a major manufacturer of
application-specific semiconductors (ASIC), which are custom-
designed for the potentially highly profitable digital game,
communications, and entertainment markets. The company also
makes application-specific standard products that can satisfy
multiple customers' needs in these areas. The company has been
enriching its technology base through targeted acquisitions.
While LSI's sales grew well, more than 30% annually, in 1999 and
2000, the company has since been affected by severe inventory
corrections in the storage and communications markets. Sales in
the September 2001 quarter were $397 million, 15% below the June
quarter and 45% below the September 2000 quarter levels.
Given inherently long design cycles and the sole-source/sole-
customer nature of the ASIC market, LSI's return to revenue
growth will depend largely on recovery in its existing customer
base. The company believes that much of the decline has ended,
and that revenues in the fourth quarter will be flat or modestly
higher than the September level.
Although operating margins had been more than 25% through the
end of 2000, margins deteriorated as sales declined, and are now
modestly negative. While the company has undertaken cost
reduction actions, operating profitability is likely to remain
below historical levels over the near-to-intermediate term.
Debt of $1.3 billion at September 30, 2001, is about 32% of
capital, while financial flexibility remains ample for the
rating level, with cash balances of $1 billion at that date.
Outlook: Stable
LSI Logic's conservative financial practices and strong customer
relationships provide a good degree of downside protection for
the rating. Profitability pressures and potential ongoing
volatility in the communications sector are likely to constrain
upside potential over the intermediate term.
LERNOUT & HAUSPIE: Attorneys Take Steps to Protect Dictaphone
-------------------------------------------------------------
Lernout & Hauspie Speech Products NV's attorneys in the United
States are taking steps to protect the reorganization of the
company's bankrupt Dictaphone Corp. unit, according to Dow
Jones.
On Tuesday a company attorney submitted a proposed stipulation
to the U.S. Bankruptcy Court in Wilmington, Delaware, that would
limit the right of L&H, its L&H Holdings USA Inc. unit and
Dictaphone to change a plan of reorganization proposed by
Dictaphone in the United States. It would also limit the L&H
group's right to fire Dictaphone's key management.
Judge Judith H. Wizmur of the U.S. Bankruptcy Court for the
District of New Jersey approved a disclosure statement for
Dictaphone's proposed plan on October 18. A plan-confirmation
hearing is scheduled for November 29, with objections due
November 19.
Under the proposal, court approval would also be needed to
terminate or materially modify the employment of Dictaphone
President and Chief Operating Officer Robert Schwager and Chief
Financial Officer Tim Ledwick. The L&H group would be allowed to
seek court approval to terminate the stipulation upon giving
five days' notice.
On November 29, 2000, L&H, Dictaphone and L&H Holdings filed for
chapter 11 bankruptcy protection in Delaware, listing
consolidated assets of $2.37 billion, short-term debts of $255.3
million and long-term debts of $234.3 million. Dictaphone's
petition listed consolidated assets of $1.02 billion and debts
of $389.7 million as of June 30. (ABI World, October 26, 2001)
LERNOUT & HAUSPIE: MedQuist Seeks Okay of Transcription Unit Bid
----------------------------------------------------------------
MedQuist Inc. said it could complete its $25 million acquisition
of the medical transcription business of bankrupt Lernout &
Hauspie Speech Products NV by November 2, if a bankruptcy court
approves the bid, reported Dow Jones.
The court is scheduled to hear the case Friday, and MedQuist
believes the bid will win approval, according to an 8K filing
with the Securities and Exchange Commission Thursday that
detailed MedQuist's conference call. Lernout & Hauspie said
MedQuist offered the winning bid in an auction for the unit that
employs about 1,200 people. MedQuist provides electronic medical
transcription and information management services to hospitals,
physician groups and other health-care organizations. (ABI
World, October 26, 2001)
LORAL CYBERSTAR: Will Launch Debt-for-Debt Exchange Offers
----------------------------------------------------------
Loral Space & Communications (NYSE: LOR) announced that its
wholly owned subsidiary, Loral CyberStar, Inc., will conduct
exchange offers for $927 million of its debt (plus accrued
interest): the senior notes due 2007 and the senior discount
notes due 2007.
Under the terms of the offers, holders of these two existing
Loral CyberStar notes would receive in total up to $675 million
principal amount of new Loral CyberStar senior notes due July
15, 2006, together with five-year warrants to purchase up to
approximately 6.7 million shares of Loral Space & Communications
common stock at 110% of the market price of Loral stock
calculated over a ten-day period prior to closing of the
exchange offers.
The interest rate on the new notes will be 10%, reductions from
the 11.25% interest rate on the senior notes and 12.5% on the
senior discount notes.
The terms of the exchange offer will also provide that notes not
tendered in exchange, if any, will remain outstanding at their
original principal amounts, maturities and interest rates, but
will lose the benefits of substantially all of their covenant
protections.
The $927 million of Loral CyberStar debt is comprised of senior
notes due 2007 (principal amount $443 million) and senior
discount notes due 2007 (principal amount $484 million, with
accreted value of $470 million as of October 15, 2001). If fully
exchanged, holders of senior notes and senior discount notes
will receive $332.4 million principal amount and $342.6 million
principal amount, respectively, in new notes.
Closing of the exchange offers is conditional on, among other
things, acceptance of the exchange offer by holders of at least
85 percent of the existing notes. Holders of more than 50
percent of the existing notes have already agreed to participate
in the exchange offers and consent to the requested amendments.
The new notes will be guaranteed by Loral, while the existing
notes are non-recourse to Loral.
Loral Space & Communications is a high technology company that
concentrates primarily on satellite manufacturing and satellite-
based services. For more information, visit Loral's web site at
http://www.loral.com
As of June 30, 2001, Loral Cyberstar recorded its current assets
at $87.592 million, as compared to its total current liabilities
amounting to $171.337 million.
MARINER POST-ACUTE: Intercompany Claims Bar Date Extended
---------------------------------------------------------
The Mariner Health Group Debtors, the Mariner Post-Acute
Network, Inc. Debtors, the MHG Committee, the MPAN Committee,
the MHG Secured Lenders and the MPAN Secured Lenders have agreed
to extend the Stipulated Bar Date for intercompany claims and
claims by non-debtor affiliates by an additional approximately
60 days, to and including November 20, 2001. (Mariner Bankruptcy
News, Issue No. 20; Bankruptcy Creditors' Service, Inc.,
609/392-0900)
MERCHANTONLINE.COM: Chapter 11 Case Summary
-------------------------------------------
Debtor: MerchantonLine.com, Inc.
902 Clint Moore Rd #114
Boca Raton, FL 33487
Chapter 11 Petition Date: October 22, 2001
Court: Southern District of Florida (Palm Beach)
Bankruptcy Case No.: 01-35570
Judge: Steven H. Friedman
Debtor's Counsel: Robert C Furr, Esq.
1499 W Palmetto Park Rd #412
Boca Raton, FL 33486
561-395-0500
NETWORK COMMERCE: Q3 Operating EBITDA Loss Drops to $4.4 Million
----------------------------------------------------------------
Network Commerce Inc. (OTCBB:NWKC), announced financial results
for its third quarter ended September 30, 2001.
Operating EBITDA loss in the third quarter was $4.4 million,
versus $5.4 million in the second quarter. The improvements in
Operating EBITDA are the result of continuing to focus on core
on-line business services and restructuring the company's
infrastructure costs. Operating EBITDA excludes the effects of
interest, income taxes, depreciation and amortization, stock-
based compensation, and one-time non-recurring charges.
Net loss for the quarter, including extraordinary and one-time
items, was $18.5 million versus a net income of $1.8 million in
the second quarter. During the third quarter, the Company
incurred an extraordinary gain from settlement with a creditor
of $6.5 million and one-time charges of $17.1 million from
write-down of cost basis investments, intangible assets and
fixed assets. During the second quarter, the company recognized
$10.2 million of gains associated with settlements with various
creditors and lessors, and net gains of $5.3 million from the
sale of three business units.
The balance sheet was strengthened primarily when the company
restructured and reduced its $11 million convertible note from
Capital Ventures International. Under the terms of the
restructuring, the convertible note and all warrants were
retired. In return, the company paid CVI $2.2 million and issued
a $1.5 million convertible promissory note.
The promissory note has an 18-month term and is convertible, at
any time, into common stock at an exercise price of $2.00 per
share at the option of CVI. As a result, current assets exceeded
current liabilities by approximately $1.4 million at the end of
the third quarter, while current assets at the end of the second
quarter were $0.4 million less than current liabilities.
Revenues from continuing businesses in the third quarter were
$1.5 million, compared to $1.8 million in the second quarter.
Revenues from continuing businesses are primarily from commerce
and hosting services, and online marketing services. Total
revenues for third quarter were $1.6 million, compared to $6.3
million for second quarter, when the company sold its stock in
Go Software, Inc. on May 11, and the assets of Internet Domain
Registrars Corp. on June 18.
The company also reported cash and marketable equity securities
of approximately $5.7 million at the end of third quarter. The
historical results of operations, the balance sheet and certain
claims against the company have led the company's auditors to
issue a going concern opinion in its most recent annual report.
Additionally, during the quarter, the company's registration
statement related to the resale of up to $18 million of its
common stock by Cody Holdings Inc. was declared effective by the
Securities and Exchange Commission. Under the arrangement and
subject to certain limitations set forth in the common stock
purchase agreement, the company, at its discretion, may
periodically draw from this equity line to provide financing for
general corporate purposes.
"Network Commerce, like many other companies has been affected
by the current events and general economic turbulence," said
Dwayne Walker, chairman and chief executive officer. "However,
we are genuinely pleased with our results and hope to see
continued improvements to our income statements and balance
sheets."
PACIFIC GAS: Sutter Tax Collector Seeks Payment of Tax Claims
-------------------------------------------------------------
Jim Stevens, in his capacity as Tax Collector of Sutter County,
Yuba City files a Claim against Pacific Gas and Electric Company
for Administration Expense in the amount of $913,486.28 as a
priority claim for expenses of administration under 11 U.S.C.A.
Section 503(b)(1)(B)(1).
The Tax Collector alleges that the claim arises from property
taxes accruing after the petition date, to wit 2001-2002 Real
Property Tax (90-121-40135, 90-020-70135, 90-200-80135, 90-172-
30135 & 90-160-70135.) (Pacific Gas Bankruptcy News, Issue No.
16; Bankruptcy Creditors' Service, Inc., 609/392-0900)
PENN TRAFFIC: S&P Affirms Low-B Ratings & Says Outlook Positive
---------------------------------------------------------------
Standard & Poor's revised its outlook on The Penn Traffic Co. to
positive from stable.
At the same time, Standard & Poor's affirmed its single-'B'-plus
corporate credit, single-'B'-minus senior unsecured debt, and
double-'B'-minus senior secured bank loan ratings on the
company.
The outlook revision is based on Penn Traffic's sustained
operating improvement since it emerged from Chapter XI
Bankruptcy in 1999. Operating initiatives to improve customer
service and the quality of its store base, and to control costs
have resulted in positive same-store sales increases in
recent quarters and EBITDA coverage of interest trending in the
2.3 times area, which is strong for the rating. Standard &
Poor's believes the ratings could be raised over the next 12
months if the company continues to demonstrate improved
operations and satisfactory financial flexibility.
The ratings on Penn Traffic reflect the challenges faced by
management in improving the company's operations and gaining
market share in the highly competitive supermarket industry.
These factors are mitigated, somewhat, by the company's improved
operations over the past two years since it emerged from
bankruptcy, and good financial flexibility.
Penn Traffic continues to face challenges in improving
operations as it competes with larger competitors such as Kroger
Co., Meijer, and Wal-Mart Stores Inc., which limits pricing
flexibility. However, by maintaining leading, concentrated
positions in markets such as Columbus, Ohio, and Syracuse, N.Y.,
the company has been able to improve operations. Penn Traffic
has also made significant capital investments over the past two
years to remodel more than 35% of its store base.
In addition, the focus on improving customer service and the
quality of perishable products contributed to same-store sales
increases of 0.6% for the first six months of fiscal 2001 and
1.0% in fiscal 2000, which are consistent with industry trends.
Lease-adjusted total debt to EBITDA is in the high-3x area.
Lease-adjusted EBITDA covered interest expense in the mid-2x
area in fiscal 2000. Standard & Poor's believes Penn Traffic's
cash flow could improve modestly over the next two years if the
company continues to realize benefits from its operating
initiatives. The company completed the implementation of its
loyalty card program throughout its store network in September
2001 and successfully integrated 10 stores that it took back
from Grand Union Co. in August 2000. Financial flexibility is
provided by a $150 million revolving credit facility and no
significant near-term debt maturities.
Outlook: Positive
Penn Traffic has demonstrated improved operating performance
since 1999. The ratings could be raised if the company continues
to improve operating performance and maintains adequate
financial flexibility over the next 12 months.
POLAROID CORP: Court Okays Payment of Foreign Creditors' Claims
---------------------------------------------------------------
Polaroid Corporation asks Judge Walsh for an order authorizing:
(i) the Debtors to pay, in the ordinary course of business, as
and when due, any pre-petition claims owing to certain
foreign creditors, and
(ii) banks to honor any pre-petition checks drawn or fund
transfer requests made for payment of claims owing to
foreign creditors.
Neal D. Goldman, EVP and Chief Administrative Officer of
Polaroid Corporation, explains that while none of the foreign
subsidiaries or affiliates of the Polaroid Corporation are
debtors in these cases, certain of the Debtors have operations
in foreign countries. As a consequence, Mr. Goldman tells the
Court, the foreign operating Debtors incur obligations to
creditors in foreign countries for, among other things, taxes,
fees, rents, goods and services.
As of the Petition Date, Mr. Goldman relates, the foreign
operating Debtors were generally current on all payments due and
owing to foreign creditors. Mr. Goldman is concerned that the
foreign creditors may not agree that they are subject to the
jurisdiction of this Court. The Debtors may be unable to rely
on the automatic stay to protect themselves or their foreign
assets from actions in foreign jurisdictions to collect
obligations that remain unpaid, Mr. Goldman tells Judge Walsh.
Therefore, the foreign operating Debtors seek authorization to
pay, when due in ordinary course, all pre-petition claims owing
to foreign creditors.
Gregg M. Galardi, Esq., at Skadden, Arps, Slate, Meagher & Flom
LLP, in Wilmington, Delaware, contends that absent payment to
foreign creditors, the foreign operating Debtors' business
operations outside the United States could be severely
disrupted. The Debtors estimate that the amount of pre-petition
claims owing to foreign creditors is:
Debtor Company Amount Due
-------------- ----------
Polaroid Latin America less than $200,000
Polaroid Asia Pacific Limited less than $30,000
Polaroid Malaysia less than $200,000
These amounts are de minimis in the context of these cases, Mr.
Galardi points out, particularly in view of the potential
consequences of nonpayment.
In his order, Judge Walsh authorizes the Debtors to pay, in the
ordinary course of business, as and when due, any pre-petition
claims owing to certain foreign creditors, provided that:
(a) such authorization shall not extend to any holders of
bank loan or debt security claims against Polaroid
Corporation, and
(b) the aggregate amount paid to foreign creditors shall
not exceed $500,000.
In addition, the Court also authorizes banks to honor any pre-
petition checks drawn or fund transfer requests made for payment
of claims owing to foreign creditors.
To facilitate the payment of foreign creditors, Judge Walsh also
directs the banks servicing Polaroid Latin America, Polaroid
Asia Pacific Limited and Polaroid Malaysia to honor any checks
drawn against their accounts, but not negotiated prior to the
Petition Date, any fund transfer requests made but not completed
prior to the Petition Date.
Furthermore, Judge Walsh gave the Debtors permission to issue
post-petition checks and to make post-petition fund transfer
requests to replace any post-petition checks and pre-petition
transfers to foreign creditors that may be dishonored by the
banks. (Polaroid Bankruptcy News, Issue No. 2; Bankruptcy
Creditors' Service, Inc., 609/392-0900)
SAMUELS JEWELERS: Plans to Close 38 Unprofitable Stores
-------------------------------------------------------
Samuels Jewelers Inc. (OTCBB:SMJW), one of America's largest
specialty retailers of fine jewelry, has announced that as a
part of the Company's continued strategy to address its
profitability, it will close 38 of its 163 stores.
The Company intends to continue operating the 38 stores through
approximately January 2002.
Samuels has engaged Gordon Brothers Retail Partners and The Ozer
Group as consultants to oversee the closure of these 38 stores
and the liquidation of their inventory. The engagement also
provides for Gordon Brothers Retail Partners to receive a
purchase money security interest in approximately $1.5 million
of gold jewelry that Samuels purchased on a guaranteed sale
basis from Gordon Brothers Retail Partners in October of this
year.
"Utilizing these 38 under-productive stores to liquidate
approximately $11.0 million of inventory owned by Samuels
through this Christmas season creates a huge liquidity event for
the Company," said Randy McCullough, the Company's President and
CEO. "The liquidation of this inventory coupled with the closure
of the 38 stores positions the Company to move forward with 125
profitable stores and a very clean inventory."
Samuels Jewelers Inc., currently operates 163 stores in 23
states throughout the country under the trade names Samuels
Jewelers, Samuels Diamonds, Schubach Jewelers and C&H Rauch
Jewelers, and online with www.Samuels.cc,
www.SamuelsJewelers.com, and www.JewelryLine.com.
* * *
As of Sept. 1, 2001, the Company's current liabilities exceeded
current assets by $21.3 million.
The Company's unaudited financial statements have been prepared
on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course
of business. The Company's subordinated debt expires in June
2002. Management's plan, to continue as a going concern,
consists of obtaining sufficient financing to replace the
Company's subordinated debt and improve its profitability by
reviewing and improving store operating margins, overhead
expenditures and unprofitable stores.
Management believes that these improvements, coupled with new
financing, will be sufficient to meet the Company's operating
needs. However, there is no assurance that financing will be
available in the future, and if available, at terms and
conditions agreeable to the Company. Should the Company be
unable to obtain financing the Company may be unable to continue
as a going concern for a reasonable period of time.
SERVICE MERCHANDISE: Gets Okay to Sell & Leaseback HQ for $20MM
---------------------------------------------------------------
Service Merchandise Company, Inc. sought and obtained an order
authorizing and approving the sale and partial leaseback of
their interest in the Sales Support Center, otherwise known as
their corporate headquarters, located at Brentwood, Tennessee to
C/M Corporation.
After an auction held last month (September 19, 2001), the
Debtors determined that C/M Corporation offer of $20,350,000 for
the property is the highest and best bid for the property.
Thus, Judge Paine allows the Debtors to enter into an Asset
Purchase Agreement with C/M Corporation. The Debtors are
permitted to sell their interest in the property and to
leaseback a portion of the property -- free and clear of all
liens, claims encumbrances, and interests.
The Debtors' corporate headquarters has an area of 348,000
square feet. Since the Debtors reduced its personnel and
streamlined its operations, a substantial portion of their
property's space became idle. According to Paul G. Jennings,
Esq., at Bass, Berry, Sims PLC, in Nashville, Tennessee, the
Debtors were able to consolidate their continuing operations to
use only 140,000 square feet of their property. Thus, the
Debtors decided to enter into sale/leaseback transaction for its
200,000 square feet of excess space.
With the marketing assistance of Grubb & Ellis/Centennial
Incorporated, the Debtors were able to thoroughly explore their
options in maximizing the value of their property. In
recognition of Grubb & Ellis' service, the Court rules that the
Debtors' real estate consultants deserve a broker's commission.
After a thorough marketing as well as an exhaustive review and
analysis, the Debtors finally concluded that C/M Corporation's
proposal represented the most advantageous terms and greatest
economic benefit to the Debtors.
According to Mr. Jennings, C/M Corporation is a real estate
investment company with particular expertise in the development
and management of large parcels of real estate, including mixed
use, retail, office and industrial parcels.
The salient terms of the Term Sheet between the Debtors and the
C/M Corporation are:
Description
of the Property: The Sale will include all of the Debtors'
right, title and interest in the Property,
which contains approximately 348,000 gross
square feet situated on approximately 28 acres
at 7100 Service Merchandise Drive in
Brentwood, Tennessee, all appurtenances
thereto and all personal property owned by the
Seller that is used or useful in connection
with the operation and maintenance of the
Property, except as agreed upon by the
parties.
Purchase Price: The Purchase Price shall be $20,350,000 all in
cash, $250,000 of which as due on or before
July 23, 2001 as an earnest money deposit.
Upon the expiration of C/M Corporation's
contingency period, the Deposit must be
increased to $1,017,500 (or 5% of the Purchase
Price). The remainder of the Purchase Price
is payable at closing.
Closing: Closing shall take place no later than October
30, 2001.
Title/condition
of Property: The Property shall be delivered with good and
marketable title, free and clear of liens and
claims in accordance with section 363 Of the
Bankruptcy Code. The Property is being sold
AS-IS, WHERE-IS, with no representations or
warranties.
Leaseback: As an integral term of the sale of the
Property, at closing, C/M Corporation and the
Debtors shall enter into a lease under which
the Debtors shall lease approximately 127,000
square feet of the Building (located on the
ground and first floor) for 2 years, with 2
renewal options of one year each. The rent
shall be $15.00 per square foot during the
initial term of the Lease and $15.75 per
square foot thereafter. Rent shall he
inclusive of all utilities, maintenance and
other charges, but there shall be an expense
stop of $6.00. The shall maintain a standby
letter of credit in the amount of $750,000 as
a deposit under the term of the Lease,
including all option periods.
Judge Paine exempts the sale and conveyance of the Property from
any law imposing a stamp tax, transfer tax or other similar tax.
(Service Merchandise Bankruptcy News, Issue No. 19; Bankruptcy
Creditors' Service, Inc., 609/392-0900)
STANDARD AUTOMOTIVE: Lenders Agree to Forbear Until January 31
--------------------------------------------------------------
Standard Automotive Corporation (AMEX: AJX) announced that the
Company and its bank lenders under the Company's Term Loan and
Revolving Credit Facility have entered into a forbearance
agreement expiring on January 31, 2002.
Pursuant to the forbearance agreement, the bank lenders have
agreed to refrain from exercising their rights and remedies
under the Credit Facility until such date with respect to the
defaults by the Company thereunder.
The bank lenders maintain the ability to exercise their rights
and remedies under the Credit Facility to the extent the Company
defaults under such forbearance agreement or at any time
following the termination of such forbearance agreement.
Standard Automotive Corporation is a diversified company with
production facilities located throughout the United States,
Canada, and Mexico. Standard manufactures precision products for
the aerospace, nuclear, industrial and defense markets; it
designs and builds remotely operated systems used in
contaminated waste cleanup; it designs and manufacturers trailer
chassis used in transporting maritime and railroad shipping
containers; and it builds a broad line of specialized dump truck
bodies, dump trailers, and related products.
Through its Providence Group, Standard provides engineering
professional services to both government and commercial
industry.
TXU ELECTRIC: Debenture Holders Waive Some Indenture Provisions
---------------------------------------------------------------
TXU Electric, a wholly owned subsidiary of TXU (NYSE: TXU),
announced that its tender offers for its 7.17% Debentures due
August 1, 2007 (CUSIP No. 882850DM9) and for the Floating Rate
Capital Securities of TXU Electric Capital IV (CUSIP No.
87316RAA4) and the 8.175% Capital Securities of TXU Electric
Capital V (CUSIP No. 87316MAA5) expired October 25 at 9:00 a.m.,
New York City time. The tender offers were combined with waiver
solicitations.
TXU Electric received tenders of its 7.17% Debentures due August
1, 2007 from the holders of approximately $290 million aggregate
principal amount of such debentures, which represents
approximately 97% of the $300 million aggregate principal
outstanding.
TXU Electric received tenders of the Floating Rate Capital
Securities of TXU Electric Capital IV from the holders of
approximately $99 million aggregate liquidation amount of such
capital securities, which represents approximately 99% of the
$100 million aggregate liquidation amount outstanding and TXU
Electric received tenders of the 8.175% Capital Securities of
TXU Electric Capital V from the holders of approximately $392
million aggregate liquidation amount of such capital securities,
which represents approximately 98% of the $400 million aggregate
liquidation amount outstanding. Payment for the securities is
expected to be made on November 1.
In connection with the tender offer, TXU Electric solicited and
obtained waivers from the holders of the debentures sufficient
to waive certain provisions of the indenture under which the
debentures were issued and from the holders of the capital
securities sufficient to waive certain provisions of the
indenture pursuant to which subordinated debentures of TXU
Electric were issued and which subordinated debentures
constitute the sole assets of TXU Electric Capital IV and TXU
Electric Capital V. TXU Electric solicited the waivers in order
to more efficiently effect the unbundling of TXU Electric.
Merrill Lynch & Co. and Salomon Smith Barney served as the
dealer managers and information agents for the tender offers.
TXU is a global leader in electric and natural gas services,
merchant trading, energy marketing, telecommunications, energy
delivery and other energy-related services. TXU is one of the
largest energy companies in the world with $28 billion of annual
revenue and $43 billion of assets. TXU is one of the largest
generators of electricity in the world and sells over
330 million megawatt hours of electricity and 2.8 trillion cubic
feet of natural gas annually. TXU delivers or sells energy to
11 million customers primarily in the US, Europe and Australia.
Visit www.txu.com for more information about TXU.
As of Sept. 2001, the Company had a current ratio of 0.467:1.
TRANSTECHNOLOGY: Resumes Sale of Engineered Components Business
---------------------------------------------------------------
TransTechnology Corporation (NYSE:TT) said that it had been
notified by Kohlberg & Company L.L.C. that it was unable to
obtain sufficient financing to complete the $120 million
purchase of the TransTechnology Engineered Components business
as previously agreed to on August 23, 2001 and that it had
terminated their previously announced definitive purchase
agreement.
On October 2, the company had said that the completion of the
transaction had been delayed as a result of a request by the
banks providing financing for the proposed purchase by Kohlberg
for more time to evaluate the impact of recent world events on
the financial markets, the economy, and the future performance
of the business.
Michael J. Berthelot, Chairman President and Chief Executive
Officer of TransTechnology, said, "We are disappointed by the
recent turn of events, but we remain committed to the completion
of a sale of the Engineered Components business as part of our
overall restructuring plan. There has been substantial interest
expressed in the Engineered Components business during the
marketing of the business, and it is our intention to
immediately contact those parties which had submitted bids
earlier in the process to resume their evaluation and due
diligence activities. Engineered Components is a very healthy
business, with strong cash flow and profitability. We remain
confident that we will shortly obtain a financeable offer that
is fair to our shareholders, creditors, and the prospective
purchaser."
TransTechnology Corporation designs and manufactures aerospace
products with over 380 people at its facilities in New Jersey,
Connecticut, and California. Total aerospace products sales were
$81 million in the fiscal year ended March 31, 2001.
UCAR INT'L: S&P Airs Concerns About Weakening Financial Results
---------------------------------------------------------------
Standard & Poor's lowered its corporate credit ratings on UCAR
International Inc. and its subsidiary, UCAR Global Enterprises
Inc., to single-B-plus from double-'B'-minus and removed them
from CreditWatch where they were placed with negative
implications on April 13, 2001. The current outlooks on both are
negative.
The rating actions reflect the difficult operating conditions
the company is experiencing, its weak financial performance, and
concerns over further weakening in financial performance given
the uncertain global economic outlook.
As a producer of graphite electrodes, which are consumed by
steel minimills in their electric arc furnaces, the company has
significant exposure to the difficult steel industry conditions.
Softening demand and low prices have forced U.S. steel producers
to reduce capacity utilization rates to approximately 72%, thus,
affecting pricing and demand for the company's graphite
electrodes. UCAR's average price for graphite electrodes has
fallen drastically over the last few years, from $3,013 per
metric ton in 1998 to $2,323 per metric ton.
Furthermore, the devaluation of foreign currencies versus the
dollar, particularly the South African rand and the euro, have
negatively affected the company's international sales. Prior to
the terror attacks on September 11, 2001, Standard & Poor's had
anticipated that the U.S. economy and the cyclical steel
industry would remain at current pricing and demand levels or
slightly weaker through the remainder of 2001, with a rebound
expected some time during mid-2002.
Now, it is all but certain the U.S. economy is in a recession
and consumer confidence levels in the U.S will decline further,
resulting in lower demand from the key automotive, construction
and consumer durables sectors, and possibly lower minimill
utilization. Although UCAR to date has benefited from reasonable
steel fundamentals in its European markets, which account for
approximately 36% of its revenue, it appears inevitable the
events of September 11th have undermined the economic outlook
for Europe, and will have an adverse impact on UCAR's near-to
medium-term financial performance.
UCAR's financial performance has been weak for the rating
category and has been below Standard & Poor's expectations.
Notably, EBITDA to interest coverage and funds from operations
to total debt were a weak 2.2 times and 7.7%, respectively,
during fiscal year ending Dec. 31, 2000. For the nine months
ending September 30, 2001, EBITDA to interest was a weak 2.1x.
Standard & Poor's notes that despite difficult industry
conditions, UCAR has been successful in reducing its debt from
$735 million at December 31, 2000, to the current level of $638
million, as well as improving its cost profile, primarily
through the closure of some higher cost capacity. UCAR is in the
midst of a $165 million cost reduction program targeted for
completion by the end of 2002.
Debt reduction was accomplished through a combination of
effective working capital management and a secondary offering
that raised $91 million, with $55 million going toward debt
reduction). Still, with the pessimistic outlook for the U.S. and
European economies possibly leading to further declines in
graphite electrode demand, financial performance could
deteriorate.
Following the equity offering, UCAR amended its covenants under
its bank credit facility. Specifically, the maximum leverage
test (net debt/LTM EBITDA) steps down in 2002 to 4.25x and 4x in
2003 with the fixed charge test(LTM EBITDA to cash interest
coverage), stepping up in 2002 to 2.75x and 3x in 2003. If
operating conditions and cash flow remain weak or deteriorate
further, the combination of scheduled 2002 debt amortization of
$40 million in 2002, Department of Justice fines of $18 million,
capital expenditures, and general business purpose funding could
lead to further drawdowns under the company's $250 million
revolving credit facility and a possible violation of these
covenants. The European antitrust authorities recently levied a
$43 million fine against UCAR. To improve its flexibility, UCAR
plans to appeal the ruling, which could delay payment of these
fines. The penalties stem from company's guilty plea in 1998
regarding international price-fixing of graphite electrodes.
It is important to note that UCAR filed a suit against its
former parent companies Mitsubishi and Union Carbide in February
2000 for $1.5 billion alleging the companies knew about and
assisted industry price fixing. Strengthening UCAR's case was
the March 2001 ruling and $134 million fine levied against
Mitsubishi for its involvement in graphite electrode price
fixing. Although the outcome, amount, and timing of UCAR's suit
against its former parent companies is uncertain, a meaningful
windfall to UCAR applied toward debt reduction could provide
support to the rating.
Outlook: Negative
Further weakness or a prolonged period of distressed industry
conditions could result in covenant violations that could
restrict availability under the company's credit facility and
impair its liquidity.
Ratings Lowered and Removed from CreditWatch
Ratings
UCAR International Inc. To From
Corporate credit rating B+ BB-
UCAR Global Enterprises Inc.
Corporate credit rating B+ BB-
U.S. AGGREGATES: Stock Price Falls Below NYSE Listing Standard
--------------------------------------------------------------
U.S. Aggregates, Inc. (NYSE: AGA), a producer of aggregates,
announced that it has received notification from the New York
Stock Exchange that the Company's current total market
capitalization and stock price do not comply with the NYSE's
continued listing standards.
Under the applicable continued listing standards, the Company
must maintain over a consecutive 30 trading-day period a total
average market capitalization of not less than $15 million and
an average closing price of its common stock of at least $1.00
per share.
The Company has submitted a business plan to the NYSE for
achieving compliance with the NYSE continued listing standards.
The NYSE has 45 days to review the Company's business plan and
present it to the NYSE Listings and Compliance Committee.
Should the Company not be able to demonstrate compliance with
the NYSE continued listing standards, the Company's believes it
will continue to have a market for its stock which would trade
on the OTC Bulletin Board. As a result of a delisting, it would
likely become more difficult to buy or sell the Company's common
stock or to obtain timely and accurate quotations to buy or sell
the Company's common stock.
In addition, the delisting will likely result in a decline in
the trading market for the Company common stock which could
potentially depress the Company's stock price, among other
consequences.
Founded in 1994, U.S. Aggregates, Inc. is a producer of
aggregates. Aggregates consist of crushed stone, sand and
gravel. The Company's products are used primarily for
construction and maintenance of highways and other
infrastructure projects as well as for commercial and
residential construction. USAI serves local markets in nine
states in two fast growing regions of the U.S., the Mountain
states and the Southeast. For more information on U.S
Aggregates please visit the Company's Web site at
http://www.usaggregates.com
US AIRWAYS: Voluntary Leave Programs Expected to Reduce Layoffs
---------------------------------------------------------------
Working together with its major unions, US Airways said it
expects to be able to reduce the announced furlough of 11,000
employees by more than 2,000 through voluntary leave programs.
"We are pleased to have worked in cooperation with our labor
groups to create quickly these voluntary furlough programs,
which will preserve the jobs of co-workers and help to lessen
the unfortunate impact of these reductions on our valued
employees and their families," said Michelle Bryan, US Airways
senior vice president of human resources.
"For each employee who takes a voluntary furlough, US Airways
will be able to keep on the payroll another employee in that
same work group who would otherwise have been laid off. We look
forward to the day when we can bring back all of our employees
to active status," Bryan said.
US Airways will continue to make available health, insurance and
travel benefits to participating full-time employees during the
period of their voluntary furlough under these programs.
The voluntary furlough programs were negotiated with the Air
Line Pilots Association, the Association of Flight Attendants,
the Communications Workers of America, who represent passenger
service employees, and the International Association of
Machinists, who represent both mechanics and related employees
and fleet service workers. Similar programs for employees
represented by the Transport Workers Union are under discussion.
Details of the programs vary by labor group, but generally
involve time off in increments up to a maximum of three years.
UNITED AIRLINES: Creighton Replaces Goodwin as Chairman and CEO
---------------------------------------------------------------
UAL Corporation (NYSE: UAL), parent company of United Airlines,
announced that John W. Creighton has been elected chairman and
chief executive officer by the unanimous vote of the company's
board of directors following the resignation of James E.
Goodwin. Mr. Creighton is a member of UAL's board of directors.
Mr. Creighton said, "Throughout the time I've been associated
with United, I've taken great pride in the depth of talent and
dedication that exists at every level of the company. Our
ability to pull together and effectively harness these
attributes will be critical to United's success during this
difficult period for our company and our industry. I appreciate
the trust that the board, including the employee
representatives, have placed in me.
"Our immediate goal is to restore United's financial stability.
We intend to work hand-in-hand with our employees and unions to
accomplish this task by developing innovative solutions to the
issues we collectively face. Of course, our core business and
getting our customers where they need to go safely and reliably
will be my chief priority. We will continue to cooperate with
the government and our regulatory agencies to provide the
highest level of security both on the ground and in the air.
This is what our employees, shareholders, and customers expect,
and this is what we will deliver. I intend to serve until we are
confident that the company is on the road to financial stability
and has the leadership in place to ensure a thriving United," he
continued.
Mr. Creighton concluded, "We thank Jim Goodwin for his major
contributions to United, which were instrumental in growing the
United brand and modernizing the airline to allow it to compete
in an increasingly competitive environment. Jim Goodwin has
dedicated his entire career to United, is a good friend and we
wish him well."
Mr. Goodwin said, "I am proud to have contributed to the
tremendous growth of United during my 34 years here and have
never failed to be amazed at the many great things United
employees can achieve. United is a great company and it is the
right time for a new leader to guide the organization through
the challenges that lie ahead. I wish my friends at United a
future filled with every opportunity and continued success."
Mr. Creighton has been a director of UAL Corporation since 1998.
Earlier, he served as president and chief executive officer of
Weyerhaeuser Company from 1991 through 1997, and he was a
director of that company from 1988 through 1998. He has been a
director of Unocal since 1995.
United Airlines is a leading global airline with operations that
span the globe. United Airlines' Web site can be found at
http://www.united.com
VICEROY RESOURCE: Completes Conditions for Forbearance Agreement
----------------------------------------------------------------
Viceroy Resource Corporation (TSE:VOY.) announces that it has
satisfied prior conditions and delivered the required
consideration and documents in accordance with the Forbearance
Agreement, previously executed August 31, 2001, with NM
Rothschild & Sons (Australia) Limited and Macquarie Bank
Limited.
The Forbearance Agreement relieves Viceroy and its North
American subsidiaries of their obligations under agreements
guaranteeing certain borrowings and hedging arrangements
relating to the Australian operations.
Under the settlement arrangement the total common shares issued
by Viceroy has increased by 23,000,000 to 80,664,745 common
shares and Viceroy has relinquished its equity position in
NovaGold Resources Inc. Rothschild has become a significant
shareholder of Viceroy holding approximately 19.7% of the issued
common shares. Under the terms agreed to with the Toronto Stock
Exchange, Rothschild's interest will be under escrow and only
10% of the position can be voted under normal events.
The voluntary administration of Viceroy's Australian
subsidiaries, Viceroy Australia Pty Ltd. and Bounty (Victoria)
Pty Ltd. is continuing following adoption on September 21, of a
Deed of Company Arrangement that provides for the Administrator
to extend the creditor moratorium for a further six months,
allowing the Administrator to continue discussions with third
parties regarding restructuring proposals which may result in an
improved return to creditors.
The Bounty Mine continues to operate and Viceroy believes that
the finalization of the agreement with Rothschild and Macquarie
will significantly assist in the restructuring of the Australian
assets while further enhancing Viceroy's ability to pursue new
business opportunities.
Under the Forbearance Agreement, Viceroy and its North American
subsidiaries are relieved of all obligations under the
Rothschild and Macquarie guarantees, while Viceroy retains
upside in the event the value of the consideration achieved for
the North American plus the Australian assets exceeds the total
amount guaranteed under the original facility and hedging
agreements. Viceroy is the largest unsecured creditor of Viceroy
Australia and Bounty as well as having the right to be
subrogated to certain other creditors if those creditors are
paid in full.
Viceroy Resource Corporation is a gold producer with operations
in Canada and the United States. Viceroy's shares, trade under
the symbol "VOY" on the Toronto Stock Exchange.
WEIRTON STEEL: Net Loss Jumps to $60.2 Million in Third Quarter
---------------------------------------------------------------
Weirton Steel Corporation (OTC Bulletin Board: WRTL) reported a
net loss of $60.2 million in the third quarter of 2001.
Excluding non-recurring charges of $11.5 million, the net loss
for the third quarter of 2000 was $16.8 million. Net sales in
the third quarter of 2001 were $241.5 million on shipments of
556,000 tons, compared to $273.1 million on 583,200 tons of
shipments for 2000's third quarter.
For the first nine months of 2001, the Company reported a net
loss of $353.3 million, which includes a non-cash charge of
$153.8 million to fully reserve for the Company's deferred tax
assets. Excluding the effect of this non-recurring charge, the
net loss would have been $169.1 million.
Excluding non-recurring charges, last year's first nine months
resulted in a net loss of $13.5 million. Net sales for the
first nine months of 2001 were $733.8 million on shipments of
1,718,500 tons compared to $907.6 million on shipments of
1,977,000 tons for the same period last year.
"The overall economy continued to weaken during the third
quarter, and the events of September 11 most likely will delay
any recovery in the near term. However, we are encouraged by the
International Trade Commission's recent favorable ruling under
Section 201 of the Trade Act of 1974. Their vote paves the way
for President Bush to possibly take action early next year to
curb the flow of steel imports into U.S. markets," said John
Walker, president and CEO.
Total liquidity at September 30, 2001, was $41.8 million
compared to $55.4 million at June 30, 2001.
WHEELING-PITTSBURGH: Seeks Approval of Beech Bottom Transactions
----------------------------------------------------------------
Wheeling-Pittsburgh Steel Corp. asks Judge Bodoh for an Order:
(1) approving modifications to an Equipment Supply
Agreement, dated November 17, 1999, between WPSC and Fata
Hunter, Inc., and approving the assumption of the Fata Hunter
Contract as modified, pursuant to a Settlement Agreement,
between WPSC and Fata Hunter;
(2) authorizing WPSC to grant liens and security
interests in certain property to secure WPSC's obligations under
two Promissory Notes, to be issued by WPSC in favor of Fata
Hunter pursuant to the terms of the FH Settlement Agreement, in
the combined principal amount of $4,743,926;
(3) authorizing WPSC to obtain post-petition secured
financing in the aggregate principal amount of $2 million
pursuant to the terms of a Term Loan Agreement, between WPSC and
WesBanco Bank, Inc.;
(4) authorizing WPSC to take such actions as may be
necessary so that WesBanco is able to obtain a loan guarantee
from the West Virginia Economic Development Authority
guaranteeing WPSC's obligations under the WesBanco Agreement;
(5) authorizing WPSC, in connection with the WesBanco
Agreement, to pay WesBanco all past due principal and interest
and all future payments of principal and interest when due under
a pre-petition Promissory Note, dated August 31, 1987, between
WPSC and Wheeling Dollar Bank;
(6) approving modifications to a Service Agreement, dated
April 21, 2000, between WPSC and Jarvis Downing & Emch, Inc.,
and approving the assumption of the Restated Unit Agreement as
modified, pursuant to an Amendment to the Restated Unit
Agreement, between WPSC and JD&E;
(7) approving, in connection with the JD&E Amendment, the
stipulation by WPSC to certain unsecured, non-priority pre-
petition claims in favor of JD&E; and
(8) authorizing WPSC to enter into a three-year paint
supply agreement with Valspar Corporation.
Wheeling Corrugating Company, a division of WPSC, is a leading
fabricator of roll formed products for the agricultural,
construction, highway and bridge- building markets. A
significant portion of WCC's roofing and deck sheet metal
products must be painted before roll forming. In the year 2000,
a total of 221,000 tons of coils were painted prior to further
internal processing. The cost in 2000 for this painting totaled
$26.5 million.
WPSC's only painting facility is at its plant in Beech Bottom,
West Virginia. Because the single paint line at Beech Bottom
cannot accommodate all of WCC's painting requirements, a
significant portion of the required painting is performed by
outside processors (i.e., toll painters). Painting by outside
processors costs more per ton than the painting done internally
at the Beech Bottom facility. It costs WPSC $91 per ton (or 31%)
less to paint roofing material internally than to have such
painting done by toll painters. Deck product painting performed
internally provides a saving of $18 (or 22%) per ton. Of the
total $26.5 million in painting costs incurred by WCC during
2000, $10.4 million was paid to toll painters.
In October 1999, WPSC approved the installation of a second
paint line at the Beech Bottom facility in order to take
advantage of the significant savings associated with internal
painting. The second paint line was projected to accommodate all
of WCC's painting requirements, including a projected 20% to 25%
increase in future WCC business. It was also projected that the
second paint line would allow WCC to perform painting services
for third parties until WCC's growth brought WCC's painting
requirements in line with the facility's capacity. WPSC
anticipated that the total cost of the second paint line would
be S 14.6 million.
The Fata Hunter Contract
On November 17, 1999, WPSC executed the Fata Hunter Contract,
providing for the purchase and delivery of certain engineering
and equipment to be utilized to construct the second paint line
at the Beech Bottom facility. The aggregate price for such
equipment and services was $8,668,000. Shortly thereafter, Fata
Hunter commenced performance under the Fata Hunter Contract.
The JD&E Contract
On April 21, 2000, WPSC executed a services contract with JD&E,
providing for the installation of the second paint line. JD&E's
subcontractors for the paint line project were Erb Electric and
H.E. Neuman.
Status of the Second Paint Line
at Time of Filing of Petition
When WPSC filed its bankruptcy petition on November 16, 2000,
work on the second paint line was suspended. At that time, the
building which houses the new paint line had been completed,
along with connections to major utilities. Approximately 90% of
the paint line equipment had been received from Fata Hunter and
approximately 50% of the equipment, foundations, piping and
wiring had been installed. At the Petition Date, WPSC had paid
Fata Hunter $4,389,274 and owed Fata Hunter an additional
$3,743,926 for goods and services already provided. Fata Hunter
filed with the Secretary of State of West Virginia a Notice of
Retention of Title, contending that, under its contract with
WPSC, title to the equipment remained in Fata Hunter until WPSC
paid for the equipment in full. Under the terms of the Fata
Hunter Contract, the price for the work remaining to be done by
Fata Hunter was $1,007,402. Fata Hunter is unwilling to complete
the second paint line until it has secured adequate assurance of
payment from WPSC for the work performed and the equipment
delivered prior to the Petition Date and the balance of work and
equipment to be provided under the Fata Hunter Contract.
Under the terms of the Restated Unit Agreement, the total cost
of all work to be performed by JD&E, including extra work
approved prior to the Petition Date, was $2,440,429. Of this
total, $378,119 had been paid by WPSC as of the Petition Date
and $872,309 was billed but unpaid.
Proposed Package of Agreements to Complete Paint Line
WPSC believes that completion of the second paint line will
generate approximately $6,300,000 in annual cost savings to
WPSC. The significant financial return associated with
completion of the new paint line at Beech Bottom provides an
incentive for all constituents to support its completion. To
that end, Fata Hunter and JD&E have agreed to complete the work
on the second paint line with financing to be provided by Fata
Hunter, WesBanco, the State of West Virginia and Valspar.
Valspar has agreed to supply all the paint requirements of the
Beech Bottom facility.
WPSC believes that it will cost $7,251,328 to complete the
second paint line. This figure includes amounts for the payment
of pre-petition liabilities to Fata Hunter as well as for
payment for further supplies and work required to finish the
project. WPSC seeks to have this Court authorize a package of
financing and other agreements which will allow construction of
the second paint line to resume. The financing included in this
package will not unduly burden the estate and will be repaid by
cash flow generated by the paint line itself. The financing
arrangements provide for repayment in a manner which will allow
the paint line to generate cash flow almost immediately.
The $7,251,328 will be provided by Fata Hunter ($4,751,328 in
the form of vendor financing), WesBanco ($2,000,000 in the form
of a loan guaranteed by the State of West Virginia) and Valspar
($500,000 in the form of a cash payment). The $7,251,328 will be
spent as follows:
Fata Hunter equipment and startup $4,751,328
JD&E installation $1,660,000
Spare parts $350,000
Crane upgrade $100,000
Training $50,000
Construction performance bond $33,000
Contingency $307,000
------------
$7,251,328
Settlement Agreement with Fata Hunter
Completion of the second paint line depends upon delivery and
installation of the remaining Fata Hunter equipment which was
specifically manufactured for the Beech Bottom facility. WPSC
believes that some of the equipment, including certain flame
control equipment, cannot be provided by alternate vendors. Fata
Hunter can also provide the needed equipment much more quickly
than can any other supplier. In addition, assumption of the Fata
Hunter Contract will preserve for WPSC representations,
warrantees and other similar undertakings by Fata Hunter
contained therein. WPSC has therefore negotiated the FH
Settlement Agreement and certain ancillary agreements with Fata
Hunter for completion of the paint line.
WPSC respectfully refers the Court to the text of the FH
Settlement Agreement and the ancillary agreements for a MI
recitation of their terms. However, set forth below is a
description of the central provisions of the FH Settlement
Agreement and ancillary agreements:
(a) Fata Hunter Performance: Fata Hunter will deliver all
equipment and provide all services specified in the Fata Hunter
Contract.
(b) Equipment Release: Fata Hunter will release its claim
to the equipment already delivered and WPSC will have undisputed
legal and equitable title to all the equipment installed and to
be installed at the Beech Bottom facility.
(c) Payment: WPSC will execute two secured promissory
notes in favor of Fata Hunter in the combined principal amount
of $4,751,328. The first Note will be in the amount of
$3,743,926, the amount of WPSC's pre-petition indebtedness to
Fata Hunter, and will be delivered to Fata Hunter when the
Settlement Agreement is executed. The second Note will be in the
amount of $1,007,402, representing the balance of monies due for
equipment not yet delivered and work not yet performed by Fata
Hunter, and will be delivered when the second paint line is
completed. Payment on both Notes will begin the month after the
second paint line is completed and accepted. WPSC will pay Fata
Hunter in equal monthly payments of principal and interest that
will fully amortize the Notes over a period of twenty-four
months. Any additional amounts which may become due pursuant to
mutual agreement between WPSC and Fata Hunter will be paid
thirty days from the date of invoice which in turn will be
issued upon completion of the work specified.
(d) Interest The Notes will each bear interest at a rate
equal to the prime rate plus one percent per annum. Interest on
the first Note will begin to accrue on the date of entry of a
final order by this Court approving the Settlement Agreement.
Interest on the second Note will begin to accrue on the date of
the completion of the project by Fata Hunter.
(e) Collateral: The Notes will be secured by a deed of
trust on the real property upon which the second paint line will
be installed, as well as a security agreement pledging the paint
line machinery and equipment. These liens and security interests
will be junior to all valid and perfected liens currently in
existence, except those securing the Debtor-In-Possession Credit
Agreement, dated as of November 17, 2000, to which liens the
lenders party to such agreement have agreed to subrogate. The
machinery and equipment collateral will be shared pro-rata by
Fata Hunter (70%) and WesBanco (30%).
(f) Remedies: In the event of default by WPSC, Fata
Hunter shall be entitled to immediate relief from the automatic
stay as imposed by Section 362 of the Bankruptcy Code for the
purpose of exercising its rights under the Security Agreement
and the Notes.
WesBanco Term Loan Agreement
WesBanco will provide a $2 million state-guaranteed term loan to
be used to complete the paint line at Beech Bottom. The WesBanco
Agreement's central provisions are:
(a) Amortization: WPSC will make interest-only payments
on the term loan for the first four months following the closing
date. Thereafter, WPSC will make equal monthly payments of
principal and interest in an amount sufficient to amortize fully
the loan over a period of twenty-four months.
(b) Rate of Interest The term loan will bear interest at
a rate per annum, equal to the WesBanco Bank Base Rate adjusted
annually.
(c) Credit Supports: The State of West Virginia will
provide a loan guarantee for 80% of the WesBanco term loan and a
grant of an additional $400,000 to serve as collateral for the
non- guaranteed portion of the loan. The $400,000 grant will be
amortized quarterly over the two-year term of the loan so that
the amount held by the Bank will never exceed the unguaranteed
principal amount outstanding. In addition, WesBanco will share
Fata Hunter's security interest in all the machinery and
equipment comprising the paint line.
(d) Repayment of 1987 Loan: WesBanco's obligations under
the WesBanco Agreement are further conditioned upon WPSC's
resumption of payments on the WesBanco Promissory Note. The
WesBanco Promissory Note is secured by WPSC's headquarters in
Wheeling, West Virginia. WPSC will make an initial payment of
$172,608 to bring the WesBanco Promissory Note current and
eleven monthly payments of $21,576 thereafter.
JD&E Amended Agreement
It is to WPSC's advantage to complete the installation of the
paint line using the original contractor, JD&E. Other
contractors do not possess needed construction materials (such
as fabricated structural steel), cannot accurately estimate the
time required to complete the project, will not provide
warrantees for any of the work already performed and will not
bid the project on a lump sum basis. In addition, because of its
familiarity with the project, JD&E anticipates that it will be
able to complete the project in just fourteen weeks - at least
one month sooner than other potential contractors contacted by
WPSC. JD&E will use their key subcontractors, Erb and Neuman,
both of which participated in the pre-petition construction.
WPSC has therefore negotiated the JD&E Amendment with JD&E to
complete the installation of the second paint line.
The JD&E Amendment's central provisions are:
(a) JD&E Performance: JD&E will complete the installation
of the second paint line.
(b) Liens: JD&E, Erb, and Neuman will release their
alleged mechanics liens on the Beech Bottom facility.
(c) Price: WPSC will pay JD&E a fixed amount of
$1,660,000 for work to be performed. Of this amount, $337,845 is
to be paid within twenty-five days of approval of the JD&E
Amendment by this Court. The remaining $1,322,155 will be paid
by WesBanco upon JD&E's submission of invoices to WPSC.
(d) Stipulated Claims: WPSC stipulates to the amount of
three unsecured, non-priority pre-petition claims asserted by
JD&E with respect to other work done by JD&E prior to the
Petition Date in the amounts of $123,804, $20,541.76 and
$64,239.70, respectively. WPSC believes that such amounts were
in fact due and owing to JD&E on the Petition Date.
Valsvar Paint Supply Agreement
WPSC will enter a requirements -based, three-year paint supply
agreement (the "Valspar Agreement") with Valspar. WPSC
respectfully refers the Court to the text of the Valspar
Agreement for a full recitation of its terms. However, set forth
below is a description of the central provisions of the Valspar
Agreement:
(a) Term: Three years.
(b) Paint supply: WPSC will purchase from Valspar all
paint used for building products at the Beech Bottom plant,
according to WPSC's requirements at the facility. No minimum
quantity of paint is guaranteed.
(c) Alternate purchases: An exception will be made in the
event certain WPSC customers require WPSC to use a paint
supplier other than Valspar.
(d) Price: The paint prices are firm during the term of
the Agreement.
(e) Payment terms: Walspar will invoice WPSC only for
paint actually used by WPSC, after the paint has been used.
WPSC will remit payment to Valspar thirty days from the date
WPSC receives an invoice from Valspar. WPSC will receive a
five-percent discount on the invoice price if WPSC remits
payment to Valspar within ten days from such date. In the event
WPSC remits payment later than ten days and consumption of
the paint would cause the amounts owed Valspar to exceed
$325,000, Valspar may require that WPSC make a payment to
Valspar in the amount in excess of such $325,000 credit limit.
(f) Credit and Repayment: Valspar will pay WPSC $500,000
in cash no later than ten days after approval of the Valspar
Agreement by the Court. If the Valspar Agreement is terminated
by either party before expiration of the three-year term, WPSC
must repay to Valspar a pro-rata portion of the Credit Such
repayment in the first month of the agreement is $500,000 and
decreases by an amount of $13,889 per month during the term of
the agreement.
(g) Equipment: WPSC owns certain bulk storage tanks.
WPSC and Valspar agree to enter into an agreement relating to
the refurbishment of the Tanks no later than 120 days after
approval of the Valspar Agreement by the Court. If WPSC and
Valspar do not enter into the Tank Agreement within the
stipulated time, WPSC may terminate the Valspar Agreement upon
ninety days prior written notice to Valspar.
The Debtor's Arguments In Support of the FH,
JD&E and Valspar Agreements
WPSC seeks Judge Bodoh's permission Court to enter into and
perform its obligations under (1) the FH Settlement Agreement;
(2) the JD&E Amendment; and (3) the Valspar Agreement. The
Bankruptcy Code permits WPSC, with the Court's approval, to use
property of the estate other than in the regular course of
business, including entering into contracts for the supply of
goods and services that, based on reasonable business judgment,
are determined to be in the best interest of the debtor's
estate.
WPSC assures Judge Bodoh it believes that securing the equipment
that is not currently in WPSC's possession from a supplier other
than Fata Hunter would require a minimum of nine months, during
which time substantial projected benefits from the paint line
would be lost. WPSC further submits that it is not possible to
secure a vendor who can provide the necessary controls for flame
safety systems on the paint ovens.
WPSC submits that JD&E is the only contractor which will bid the
project on a lump-sum basis, possesses the needed construction
materials, and can accurately estimate how long the project will
take to complete. In addition, WPSC submits that an alternate
contractor would require at least one month of additional time
to complete the project, resulting in lost benefits to WPSC.
WPSC submits that the Valspar Agreement represents a reasonable
step to ensure the steady supply of paint. The Valspar
guaranteed prices and payment terms are as good or better than
prices and payment terms available from other suppliers. Valspar
is providing the paint on a consignment basis and ATSC need only
pay for the paint after it is used. Because the Valspar
Agreement does not oblige WPSC to purchase any specific quantity
of paint, the risk associated with the Valspar Agreement is
limited.
WPSC submits that, based upon the above, the agreements with
Fata Hunter, JD&E and Valspar will have an important positive
impact on WPSC's estate and should be approved.
The Debtor's Assumption of the FH and JD&E Amended Agreements
WPSC requests the Court's approval of WPSC's assumption of two
contracts: (a) the Fata Hunter Contract, as modified by the FH
Settlement Agreement; and (b) the Restated Unit Agreement, as
modified by the JD&E Amendment. The Bankruptcy Code permits
WPSC, with Judge Bodoh's approval, to assume any executory
contract, subject to certain specified exceptions which the
Debtor assures Judge Bodoh do not apply here. To assume an
executory contract, the debtor must establish that the
assumption reflects sound business judgment. The business
judgment standard requires a showing that performance of the
contract will be advantageous to the estate and that the estate
will be able to perform; if both requirements are met, the
debtor will normally be permitted to assume.
WPSC submits that assumption of the Fata Hunter Contract is in
WPSC's best interests. It will give WPSC the benefit of the
equipment warrantees, the line equipment performance guarantees,
the environmental performance guarantees, the required technical
assistance for proprietary equipment and the availability of
spare parts provided for under the original Fata Hunter
Contract.
Assumption of the Restated Unit Agreement is also in WPSC's best
interests. Alternative contractors will not provide warranties
for any of the JD&E work completed to date. In addition,
assumption of the Restated Unit Agreement will lead to lower
installation costs overall.
WPSC submits that, for these reasons, assumption of the Fata
Hunter Contract and the Restated Unit Agreement, in each case as
modified, is in the best interests of WPSC's creditors and of
the WPSC estate and should be approved.
The Debtor's Arguments for the Wesbanco & FH Borrowing
And the Valspar Grant
If a debtor-in-possession cannot obtain post-petition credit on
an unsecured basis, the court may authorize the debtor to obtain
credit secured by a lien on the debtor's property. WPSC
proposes to finance the paint line under (i) the Promissory
Notes with Fata Hunter, (ii) the WesBanco Agreement, and (iii)
the grant from Valspar.
Authorization for the Fata Hunter and WesBanco financing is
sought under the Bankruptcy Code provisions which allow Judge
Bodoh to authorize the debtor to obtain credit secured by a lien
on property of the estate that is not otherwise subject to a
lien or by a junior lien on property of the estate that is
subject to a lien. WPSC believes that the terms set forth in
the Promissory Notes and the WesBanco Agreement represent the
best financial package currently available to it, and WPSC
submits that this reasonable business judgment should be
approved.
Authorization for the Valspar credit grant is sought pursuant to
the Bankruptcy Code, which allows the Court to authorize the
debtor to obtain unsecured credit other than in the ordinary
course of business.
The debtor must show that the incurrence of a post-petition
obligation is necessary for the preservation of the debtor's
estate. Valspar is supplying WPSC's paint requirements, in
addition to supplying part of the funding for construction of
the new paint line.
The Debtor's Arguments for Resuming Payments to Wesbanco
Permitting WPSC to resume payments under the WesBanco Promissory
Note described above is essential to the maintenance of WPSC's
business during the pendency of this Chapter 11 case, and is in
the best interests of all parties in interest. Pursuant to
Section 105(a) of the Bankruptcy Code, the Court is authorized
to issue "any order, process, or judgment that is necessary or
appropriate to carry out the provisions of [the Bankruptcy
Code]." The purpose of Section 105(a) is to assure the
bankruptcy courts have the power to take whatever action is
appropriate or necessary in aid of the exercise of their
jurisdiction.
Section 105(a) has long been interpreted as incorporating, in
Chapter 11 cases, the "necessity of payment" doctrine that was
first established by the Supreme Court in Miltenberger v.
Logansport, C. & S. W. R. Co., 106 U.S. 286 (1882). Under this
doctrine, "if payment of a claim that arose prior to
reorganization is essential to the continued operation of the
[business] during the reorganization, payment may be authorized
even if it is made out of corpus." Under the necessity of
payment doctrine, courts often permit payment of pre-petition
claims even though the Bankruptcy Code does not explicitly
authorize such payment.
WPSC submits that it is appropriate for Judge Bodoh to use his
power under Section 105(a), and the necessity of payment
doctrine, to grant this aspect of the Motion. If WPSC is not
permitted to resume payment under the WesBanco Promissory Note,
the entire arrangement it has negotiated for construction of the
second paint line will fail. WesBanco's term loan is conditioned
on the resumption of payments with respect to the pre-petition
loan, and the other agreements and arrangements discussed in
this Motion, in turn, are premised on the new loan from
WesBanco.
WPSC submits that the relief requested herein is necessary to
the preservation of the value of WPSC's business and is in the
best interests of WPSC's estate and of its creditors. WPSC
submits that it is appropriate for Judge Bodoh to use his power
under Section 105(a), and the necessity of payment doctrine, to
grant this aspect of the Motion. If WPSC is not permitted to
resume payment under the WesBanco Promissory Note, the entire
arrangement it has negotiated for construction of the second
paint line will fail. WesBanco's term loan is conditioned on the
resumption of payments with respect to the pre-petition loan,
and the other agreements and arrangements discussed in this
Motion, in turn, are premised on the new loan from WesBanco.
WPSC argues, therefore, that Judge Bodoh's approval of the
resumption of these payments is necessary to the preservation of
the value of WPSC's business and is in the best interests of
WPSC's estate and of its creditors. (Wheeling-Pittsburgh
Bankruptcy News, Issue No. 12; Bankruptcy Creditors' Service,
Inc., 609/392-0900)
WINSTAR COMMS: Sues Sayers Group for Breach of Contract
-------------------------------------------------------
Winstar Communications, Inc. and Sayers Group LLC, are party to
an Asset Purchase Agreement, dated April 12, 2001, pursuant to
which Sayers acquired all of the assets and properties relating
to Winstar Professional Services Division.
Pursuant to the Asset Purchase Agreement, Sayers acquired all
accounts receivable of the Business held by Seller in the amount
of $58,951,671. The Agreement also includes a stipulation that
commencing August 15, 2001 and continuing on the 15th day and
the last business day of each month thereafter until August 15,
2002, Sayers is obligated to pay Winstar an amount equal to the
actual cash collections received by Sayers for the immediately
preceding month then ended which are in excess of the $150,000
Receivable minimum floor payment.
The Agreement also stipulates that commencing on August 15, 2001
and continuing on the 15th day of each month thereafter until
August 15, 2003, Sayers is obligated to pay Winstar an amount
equal to 15% of the cash collections made by Sayers during the
immediately preceding month arising from services provided after
the closing date by Sayers under the customer contracts, but
only to the extent that Service Revenues exceed $333,333. Sayers
also agrees that, for any month that Sayers is obligated to pay
Winstar any Excess Service Revenue Payment, such Excess Service
Revenue Payment is less than the forecasted amount for such
month, Sayers agrees to provide such documentation and reports
as the Debtors may reasonably request to evidence that Sayers
has paid the Debtors the correct amount.
To date, the Debtors has made numerous requests of Sayers for
the Purchased Receivables Payments and the Excess Service
Revenue Payments and for information in connection with the
amounts of collected, but which Sayers has not made any payments
for.
In a formal Adversary Proceeding, the Debtors lay-out causes of
action against Sayer for breach of contract and conversion and
demand specific performance under the Asset Purchase Agreement.
The Debtors ask the Court that:
A. Judgment be entered against Defendant for breach of the Asset
Purchase Agreement and Amendment, and damages in an amount
to be determined at trial, but not less than $719,000, be
awarded to the Debtors;
B. Judgment be entered against Defendant for conversion of funds
and damages in an amount to be determined at trial, but not
less than $719,000, be awarded to Plaintiff;
C. An order be entered directing Defendant Sayer to:
1. notify Plaintiff of the receipt by Defendant of any
payment heretofore and hereafter received with respect
to the Purchased Receivables and Service Revenues;
2. provide to Plaintiff a full and detailed accounting of all
collections heretofore or hereafter made by Defendant of
any accounts receivables, including, but not limited to,
Purchased Receivables and the Service Revenues; and
3. to permit Plaintiff and its accountant to audit books and
records of the Defendant to the extent reasonably
required to determine Defendant's compliance with the
foregoing and with the requirement of the Asset Purchase
Agreement and Amendment;
Pauline K. Morgan, Esq., at Young Conaway Stargatt & Taylor LLP,
in Wilmington, Delaware, relates that in response to numerous
requests by the Debtors for information in connection with the
Purchased Receivables Payments and the Excess Service Revenue
Payments, on just one occasion Sayers provided the Debtors with
a single spreadsheet, which indicates that for the period from
the Closing Date through July 31, 2001, Sayers had collected
over $462,000 on account of the Purchased Receivables. Ms.
Morgan believes that Sayers has collected over $257,000 on
account of the Purchased Receivables during the month of August
2001, for total collections exceeding $719,000. Ms. Morgan
contends that none of these amounts were paid over to the
Debtors and no further information with respect to Purchased
Receivables or Service Revenues has been made available to the
Debtors despite further requests by the Debtors. Ms. Morgan adds
that Sayers has admitted that it has collected over $719,000 on
account of the Purchased Receivables and that under the Asset
Purchase Agreement these amounts are owed to the Debtors.
Ms. Morgan submits that under the Agreement, Sayers was
obligated to make the Purchased Receivables Payments and the
Excess Service Revenue Payments to the Debtors. Despite demand,
and in violation of the terms of the Asset Purchase Agreement,
Ms. Morgan contends that Sayers has not paid the sums owed to
the Debtors under the Asset Purchase Agreement, non-payment of
which constitutes a material breach of the Agreement. Mr. Morgan
contends that as of August 31, 2001, Sayers had received
payments in excess of $719,000 with respect to the Purchased
Receivables. In addition, the Debtors have not been provided any
information with respect to Sayers' collections on account of
Service Revenues. Ms. Morgan says that Sayers was obligated but
has not provided documentation and reports to the Debtors to
evidence that Sayers had paid the correct amount with respect to
the Excess Service Revenue Payments if the Excess Service
Revenue Payments actually paid to the Debtors were less than the
forecasted amount.
By failing to make payments to the Debtors, Ms. Morgan explains
that Sayers has breached the Asset Purchase Agreement and caused
the Debtors actual and consequential damages in an amount not
less than $719,000, and costs and expenses that the Debtors has
incurred in attempting to enforce its rights. Ms. Morgan also
believes that Sayers has secured cash collections for the
payment of Purchased Receivables which exceed the threshold
amount and has secured cash collections on account of Service
Revenues in an amount that may exceed the threshold amount
identified.
Ms. Morgan tells the Court that Sayers has taken possession and
assumed ownership of the Purchased Receivables and Excess
Service Revenue Payments without the Debtors' consent. Ms.
Morgan argues that Sayers' refusal to turn the Purchased
Receivables and Excess Service Revenue Payments over as
requested by the Debtors and as mandated by the Agreement
amounts to an illegal use or abuse of the sums by Sayers.
(Winstar Bankruptcy News, Issue No. 16; Bankruptcy Creditors'
Service, Inc., 609/392-0900)
YOUNG BROADCASTING: Proposes Subordinated Debt Exchange Offer
-------------------------------------------------------------
Young Broadcasting Inc. (NASDAQ: YBTVA) announced that it has
commenced the solicitation of consents from holders of its 9%
senior subordinated notes due 2006 to amend certain provisions
of the indenture governing those securities.
The Company will pay consenting holders $10.00 in cash for each
$1,000 principal amount of the 9% notes if the proposed
amendments become effective. The solicitation of consents will
expire at 5 p.m. EDT, November 5, 2001, unless extended by the
Company. Young Broadcasting has retained Deutsche Banc Alex.
Brown Inc., CIBC World Markets Corp. and First Union Securities,
Inc. as Solicitation Agents in connection with the consent
solicitation. D.F. King & Co., Inc. is acting as the information
agent for the consent solicitation.
The Company also announced that it intends, subject to market
conditions, to offer up to $250 million of new senior unsecured
notes in a private placement, and that it has requested that its
senior lenders agree to certain amendments to the Company's
senior credit facility.
The proposed amendments to the 9% notes indenture are
conditioned upon, among other things, receipt of the requisite
consents in the consent solicitation, consummation of the
proposed offering of new senior notes and the amendments to the
Company's senior credit facility. The net proceeds from the
proposed new senior note offering will be used to repay
indebtedness under the senior credit facility. The issuance of
the new senior notes is subject to the successful completion of
the consent solicitation. The proposed amendments to the senior
credit facility address, among other things, possible financial
covenant issues which may arise at December 31, 2001 and in
future years.
The new senior notes will be offered to qualified institutional
buyers under Rule 144A and to persons outside the United States
under Regulation S. The new senior notes will not be registered
under the Securities Act of 1933, as amended (the "Securities
Act"), and, unless so registered, may not be offered or sold in
the United States except pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the
Securities Act and applicable state securities laws.
Young Broadcasting owns twelve television stations and the
national television representation firm, Adam Young Inc. Six
stations are affiliated with the ABC Television Network (WKRN-TV
- Nashville, TN, WTEN-TV - Albany, NY, WRIC-TV - Richmond, VA,
WATE-TV - Knoxville, TN, WTVO-TV - Rockford, IL and WBAY-TV -
Green Bay, WI), three are affiliated with the CBS Television
Network (WLNS-TV - Lansing, MI, KLFY-TV - Lafayette, LA, and
KELO-TV - Sioux Falls, SD), and two are affiliated with the NBC
Television Network (KWQC-TV - Davenport, IA, and KRON-TV - San
Francisco, CA). KCAL-TV - Los Angeles, CA is the only
independent VHF station in Los Angeles.
*********
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For copies of court documents filed in the District of Delaware,
please contact Vito at Parcels, Inc., at 302-658-9911. For
bankruptcy documents filed in cases pending outside the District
of Delaware, contact Ken Troubh at Nationwide Research &
Consulting at 207/791-2852.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter is a daily newsletter co-published by
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C. de Roda, Ronald P. Villavelez and Peter A. Chapman, Editors.
Copyright 2001. All rights reserved. ISSN: 1520-9474.
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