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/raid1/www/Hosts/bankrupt/TCR_Public/011126.mbx T R O U B L E D C O M P A N Y R E P O R T E R Monday, November 26, 2001, Vol. 5, No. 230 Headlines ANC RENTAL: Gets Okay to Continue of Cash Investment Practices ADVANCED GLASSFIBER: S&P Drops Ratings on Weak Market Condition AMERICAN SKIING: High Debt Level to Affect Future Operations BGF INDUSTRIES: S&P Ratchets Ratings A Notch Lower BETHLEHEM STEEL: Creditors' Panel Taps Kramer Levin as Counsel BURLINGTON: Gets Approval to Maintain Cash Management System CHAPARRAL RESOURCES: Delays Form 10-Q Filing for Sept. Quarter CHEROKEE INTERNATIONAL: Lower Sales Prompts S&P to Junk Ratings COLOR SPOT: Completes Restructuring of $100MM Senior Sub. Notes COMDISCO: Seeks Plan Filing Exclusivity Extension to March 15 CONSECO FINANCE: Fitch Lowers Ratings to CCC on Possible Default CONSECO INC: CFC Downgrade Prompts Fitch to Drop Ratings Again CONSTELLATION 3D: Reaches Deal for $15MM in Equity Financing EARTHCARE: PricewaterhouseCoopers Doubts Ability to Continue ENRON CORP: Reaffirms Commitment to Proposed Merger with Dynergy ETOYS INC: Wants Exclusive Period Extended to January 16 EXODUS COMMS: Seeks Okay to Assume Senior Executive Agreements FEDERAL-MOGUL: Taps R.R. Donnelley as Noticing Agent FOCAL COMMUNICATIONS: Fitch Junks Senior Notes and Bank Facility FRUIT OF THE LOOM: Judge Walsh Rejects $30MM Termination Fee GENESIS WORLDWIDE: Walter W. Stasik Appointed as New CEO HEAFNER TIRE: S&P Lowers Ratings a Notch on Poor Performance HOUSE2HOME INC: Commences Inventory Liquidation Process JAM JOE: Court Extends Lease Decision Deadline to January 31 KELLSTROM: Faces Nasdaq Delisting Due To Form 10-Q Filing Delay KEYSTONE: Prolonged Industry Slump Causes Strain on Liquidity LTV CORP: Cleveland-Cliffs Assessing Impact of Shut-Down Plan LODGIAN: S&P Further Cuts Junk Ratings & Maintains Watch LOEWEN GROUP: Deems CTA-Related Fees 'Unrealistically High' MATTRESS DISCOUNTERS: Likely Default Spurs S&P to Junk Ratings METALS USA: Gets Okay to Use Existing Cash Management Systems NATIONSRENT: S&P Junks Ratings & Expects Bankruptcy Filing NETIA HOLDINGS: S&P Junks Ratings Over Higher Credit Risk Level NETZEE: Sells Digital Visions to SS&C Tech. For $1.35MM + Debts OWENS CORNING: Seeks to Defend & Indemnify Employee Defendants PILLOWTEX: Wants Plan Filing Exclusivity Extended to March 15 PINNACLE HOLDINGS: S&P Junks Ratings Citing Liquidity Concerns PRECISION AUTO: Net Loss Narrows to $1.9MM in September Quarter RELIANCE GROUP: Hires LeBoeuf Lamb as Special Tax Counsel SERVICE MERCHANDISE: Delays 10-Q Filing for September Quarter SUNSHINE PCS: Ernst & Young Doubts Ability to Continue TXU: Sells UK Distribution Business to London Electricity Group TEAM MUCHO: Nasdaq to Delist Shares for 10-Q Filing Delinquency TRICO STEEL: Selling Substantially All Assets to Nucor for $120M TRUSERV CORPORATION: Appoints Pamela Forbes Lieberman as New CEO US MINERAL: Seeks to Extend Exclusive Period to May 25, 2002 WINSTAR COMMS: Seeks Removal Period Extension Until March 14 XEROX CORP: Fitch Rates 144A Convertible Trust Preferred at B+ * BOND PRICING: For the week of November 26 - 30, 2001 ********* ANC RENTAL: Gets Okay to Continue of Cash Investment Practices -------------------------------------------------------------- All of the excess funds of ANC Rental Corporation, and its debtor-affiliates are presently on deposit with First Union National Bank or PNC and are invested in an Evergreen Account or a Provident Account which, in accordance with the Debtors' credit agreement, can only invest such funds in the following authorized investments: a. marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition; B. certificates of deposit, time deposits, eurodollar time deposits or bankers' acceptances having maturities of one year or less from the date of acquisition and overnight bank deposits issued by any lender or by any commercial bank having combined capital and surplus of not less than $500,000,000 and whose long-term debt is rated at the time of acquisition thereof at least A or the equivalent thereof by Standard & Poor's Rating Services or at least A or the equivalent thereof by Moody's Investors Service, Inc.; C. commercial paper of an issuer rated at least A-2 by S&P or P- 2 by Moody's, or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of commercial paper issuers generally, and maturing within one year from the date of acquisition; d. securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth, territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government are rated at least A by S&P or A by Moody's; E. securities with maturities of one year or less from the date of acquisition backed by standby letter of credit issued by any lender or any commercial bank satisfying the requirements of clause; and F. shares of money market, mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (e). By motion, the Debtors seek authorization to continue to invest the excess cash remaining in the Debtors' accounts in Authorized Investments under normal commercial terms. Bonnnie Glantz Fatell, Esq., at Blank Rome Comisky & Macauley LLP in Wilmington, Delaware, tells the Court that such investment will enable the Debtors to maintain the security of their investment, while at the same time providing the Debtors with the ability to maximize their income. The Debtors believe that their continued investment in the Authorized Investments substantially complies with the requirements of section 345 of the Bankruptcy Code but nevertheless, seek to waive the application of section 345 to the extent that the Authorized Investments do not technically conform to the investment practices required therein. Ms. Fatell submits that the investment of the Debtors' excess cash in certain Authorized Investments provides the Debtors with important income that is essential for the operation of the Debtors' business while, at the same time, maintaining the security of the Debtors' cash. The Authorized Investments are of a type generally considered to be conservative, low risk investments, with the primary goal of protecting principal and the secondary goal of generating yield and providing liquidity. The Debtors believe that it is unlikely that their customary banking institutions would be willing to provide a bond as set forth in section 345(b), and that such a requirement, in light of the safety of the investment, would be costly and completely unnecessary. Ms. Fatell points out that strict compliance with the requirements of section 345(b) in these cases would be inconsistent with section 345(a) where the Debtors' investments in the Authorized Investments will maximize their income while providing the protection contemplated by section 345(b) of the Bankruptcy Code, notwithstanding the absence of a "corporate surety" requirement. Any corporate surety that might be obtained to guarantee the safety of the Debtors' investment would likely not have significantly greater financial strength than the private entities in which the Debtors invest. Ms. Fatell adds that a bond secured by the undertaking of a corporate surety would be expensive, if such bond is available at all, and could offset much of the financial gain derived from investing in private as well as federal or federally guaranteed securities. In other large chapter 11 cases in this district, courts have waived the requirement of section 345(b) that a debtor obtain a bond from any entity with which its money is deposited or invested and replaced such requirement with alternative procedures. In order not to deny the Debtors the opportunity to earn this important income, Ms. Fatell asserts that the Court should dispense with any bond requirement and approve the investment in the Authorized Investments. * * * Finding the relief requested is necessary to the ongoing operations of the Debtors' business and in the best interests of the Debtors and their estates, and creditors, Judge Walrath authorizes the Debtors to invest cash in authorized investments and orders that the bond requirement is waived. (ANC Rental Bankruptcy News, Issue No. 2; Bankruptcy Creditors' Service, Inc., 609/392-0900) ADVANCED GLASSFIBER: S&P Drops Ratings on Weak Market Condition --------------------------------------------------------------- Standard & Poor's lowered its ratings on Advanced Glassfiber Yarns LLC and placed them on CreditWatch with negative implications. The downgrade is the result of continued weakness in key electronics and, to a lesser extent, industrial end markets. The CreditWatch listing reflects uncertainty regarding the outcome of negotiations to amend the company's bank credit agreement. Management has indicated that the company is unlikely to be in compliance with existing financial covenants as of December 31, 2001. Aiken, South Carolina-based Advance Glassfiber is a leading global supplier of glass yarns used in a variety of applications including: printed circuit boards, roofing materials, filtration equipment, and reinforced tapes. Advanced Glassfiber's majority (51%) owner is unrated France-based Porcher Industries Group (Porcher), which also owns 100% of BGF Industries Inc. (B/Negative/--), one of Advanced Glassfiber's major customers. The remainder of Advanced Glassfiber is owned by Owens Corning. Advanced Glassfiber relies on Owens Corning for critical support in the supply of specialized equipment and other areas. No disruption in operations related to Owens Corning's bankruptcy has been experienced or is expected. The ratings reflect Advance Glassfiber's good position in the technically demanding manufacture of glass fibers, offset by a relatively narrow product mix, sales to cyclical end markets, customer concentration, and an aggressive financial profile. Although cost reductions have kept operating margins (before depreciation) fairly stable in the upper-20% area, lower sales volumes and a negative product mix shift are depressing earnings. Moreover, financial performance could come under increased pressure if sales to construction end markets--which have held up relatively well so far--decline. Although reductions in inventories, capital spending, and operating costs should permit the company to operate without increasing debt significantly, cash flow generation is likely to remain weak relative to already aggressive debt levels. In addition, the company faces meaningful near-term debt maturities. The ratings will be reviewed again once the outcome of negotiations to amend the bank credit facility is known. Ratings Lowered and Placed on Creditwatch With Negative Implications Ratings Advanced Glassfiber Yarns LLC To From Corporate credit rating B B+ Senior secured bank loan rating B B+ Subordinated debt CCC+ B- AMERICAN SKIING: High Debt Level to Affect Future Operations ------------------------------------------------------------ For the fiscal year ended July 29, 2001 American Skiing Company had net revenues of $425,569 as compared to the year 2000 net revenues of $424,140. Net losses were $144,081 in fiscal 2001, and $51,127 in fiscal 2000. The Company is highly leveraged. As of November 1, 2001, it had outstanding $435.5 million of total indebtedness, including $296.1 million of secured indebtedness, representing 66.3% of the Company's total capital. The high level of debt affects future operations in several important ways. First of all, American Skiing will have significant cash requirements to service its debt which will in turn reduce the funds available for operations, capital expenditures and acquisitions. A decrease in the availability of funds will make the Company more vulnerable to adverse general economic and industry conditions. Secondly, the financial covenants and other restrictions contained in Company debt agreements require it to meet certain financial tests and restrict its ability to borrow additional funds, make capital expenditures or sell assets. American Skiing's ability to make scheduled payments or refinance its debt obligations will depend on its future financial and operating performance, which will be affected by prevailing economic conditions, financial, business and other factors. There can be no assurance that Company operating results, cash flow and capital resources will be sufficient to pay Company indebtedness. If operating results, cash flow or capital resources prove inadequate American Skiing could face substantial liquidity problems and might be required to dispose of material assets or operations to meet debt and other obligations. The Company also could be forced to reduce or delay planned expansions and capital expenditures, sell assets, restructure or refinance our debt or seek additional equity capital. There can be no assurance that any of these actions could be effected on terms satisfactory to its business, if at all. BGF INDUSTRIES: S&P Ratchets Ratings A Notch Lower -------------------------------------------------- Standard & Poor's lowered its ratings on BGF Industries Inc. The current outlook is negative. The downgrade stems from expectations that poor conditions in electronics and filtration end markets will persist in the near term, and that sales to the aerospace sector will deteriorate, causing credit protection measures to weaken more than had been expected. In addition, financial flexibility has been reduced following a recent amendment to the company's bank credit agreement. Greensboro, North Carolina-based BGF is a leading manufacturer of glass fiber and other high performance fabrics used in electronic, aerospace, marine, filtration, insulation, and construction products. The ratings reflect a relatively narrow product mix and modest sales base, cyclical end markets, significant customer and supplier concentration, and aggressive debt leverage. BGF is wholly owned by unrated France-based Porcher Industries Group (Porcher), which also owns 51% of Advanced Glassfiber Yarns LLC (B/CreditWatch Negative/--). The other 49% of Advanced Glassfiber is owned by Owens Corning. Advanced Glassfiber is one of BGF's two primary glass fiber yarn suppliers. Sales of electronics fabrics used in multi-layer and rigid printed circuit boards (historically about half of BGF's revenues) have declined dramatically in conjunction with lower capital spending in the information technology and telecommunications industries. Sales for filtration applications, less significant for BGF, have fallen due to fewer large utility projects and a downturn in the steel and foundry industries. BGF's second largest market, composite materials, is likely to suffer a drop in orders from the aerospace industry due to uncertainty over airline traffic recovery. A recent amendment to BGF's bank credit agreement provided needed covenant relief. However, availability declined significantly following a reduction in the size of the facility (to $50 million from $60 million) and use of the line to repay a $15.6 million term loan, leaving $20 million available as of Sept. 30, 2001. In the near term, continued sales weakness and low capacity utilization and are expected to keep EBITDA interest coverage very weak at about 1 time. However, completion of a significant capital project, lower inventories, and workforce reductions should lessen cash needs meaningfully during the next few quarters, curbing further deterioration in the credit profile. Outlook: Negative Worse-than expected market conditions or dwindling liquidity during the next few months would lead to another downgrade. Ratings Lowered Ratings BGF Industries Inc. To From Corporate credit rating B B+ Senior secured bank loan rating B B+ Subordinated debt CCC+ B- BETHLEHEM STEEL: Creditors' Panel Taps Kramer Levin as Counsel -------------------------------------------------------------- The Official Committee of Unsecured Creditors of Bethlehem Steel Corporation seeks the Court's authority to retain Kramer Levin Naftalis & Frankel LLP, as counsel, nunc pro tunc to October 23, 2001. On behalf of the Committee, Michael Hughes of Electronic Data Systems Corporation explains they have selected Kramer Levin primarily because the firm's Bankruptcy Department has extensive experience in the fields of bankruptcy and creditors' rights and, in particular, has represented creditors' committees in some of the largest and most complex chapter 11 reorganization cases of recent years. Furthermore, Mr. Hughes notes that Kramer Levin's broad-based practice -- which includes expertise in the areas of corporate and commercial law, litigation, tax, intellectual property, employee benefits and real estate -- will permit it to represent fully the interests of the Committee in an efficient and effective manner. The Committee expects Kramer Levin to render legal services that the Committee may consider desirable to discharge the Committee's responsibilities and further the interests of the Committee's constituents in these cases. In addition to acting as primary spokesman for the Committee, Mr. Hughes says, Kramer Levin's services will include, without limitation, assisting, advising and representing the Committee with respect to these matters: (a) The administration of these cases and the exercise of oversight with respect to the Debtors' affairs including all issues arising from the Debtors, the Committee or these Chapter 11 Cases; (b) The preparation on behalf of the Committee of necessary applications, motions, memoranda, orders, reports and other legal papers; (c) Appearances in Court and at statutory meetings of creditors to represent the interests of the Committee; (d) The negotiation, formulation, drafting and confirmation of a plan or plans of reorganization and matters related thereto; (e) Such investigation, if any, as the Committee may desire concerning, among other things, the assets, liabilities, financial condition and operating issues concerning the Debtors that may be relevant to these Chapter 11 Cases; (f) Such communication with the Committee's constituents and others as the Committee may consider desirable in furtherance of its responsibilities; and (g) The performance of all of the Committee's duties and powers under the Bankruptcy Code and the Bankruptcy Rules and the performance of such other services as are in the interests of those represented by the Committee. In return for the services, Kramer Levin expects to receive compensation and reimbursement in accordance with its standard billing practices, in accordance with the provisions of the Bankruptcy Code, or as otherwise ordered by the Court. Mr. Hughes outlines the principal attorneys expected to represent the Committee in this matter and their current hourly rates: Thomas Moers Mayer $ 525 per hour Mitchell A. Seider 435 James C. McCarroll 300 In addition, Mr. Hughes says, other attorneys and paraprofessionals may from time to time provide services to the Committee in connection with these bankruptcy proceedings. The range of Kramer Levin's hourly rates for its attorneys and legal assistants is: Partners $400 - 575 Counsel 420 - 575 Associates 200 - 395 Legal Assistants 150 - 165 Mr. Hughes advises the Court that Kramer Levin's hourly billing rates are subject to periodic adjustments to reflect economic and other conditions. Moreover, Mr. Hughes notes, Kramer Levin's hourly billing rates for professionals are not intended to cover out-of-pocket expenses and certain elements of overhead that are typically billed separately. Accordingly, Mr. Hughes explains, Kramer Levin regularly charges its clients for the expenses and disbursements incurred in connection with the client's case, including, inter alia, word processing, secretarial time, telecommunications, photocopying, postage and package delivery charges, court fees, transcript costs, travel expenses, expenses for "working meals" and computer-aided research. Thomas Moers Mayer, a member of the Kramer Levin firm, reports that they conducted a conflict check to determine whether Kramer Levin has connections to the parties-in-interest in these cases. Based on this review process, Mr. Mayer relates, it appears that Kramer Levin does not hold or represent an interest that is adverse to the Debtors' estates. "Kramer Levin is a disinterested person who does not hold or represent any interest adverse to and has no connection with the Debtors, their creditors or any party-in-interest in the matters upon which Kramer Levin is to be retained," Mr. Mayer assures the Court. Kramer Levin discloses that: (a) General Electric Capital Corporation is the lead DIP lender to Bethlehem Steel and the Administrative Agent under a Revolving Credit Agreement and Guaranty dated as of October 15, 2001. In matters unrelated to the Debtors, Kramer Levin represents or has represented GE Capital and its affiliates, in connection with: (i) a variety of real estate, environmental litigation and general litigation matters, and (ii) the purchase and/or sale of distressed debt and securities. GE Capital has indicated that it expects to consent to Kramer Levin's representation of the Committee and has agreed that Kramer Levin may represent the Committee in matters adverse to GE Capital in the Debtors' cases, including the commencement of proceedings to block relief sought by GE Capital, excluding, however, any legal proceeding to seek affirmative recovery from GE Capital, such as damages for lender liability. (b) JP Morgan Chase is a pre-petition secured inventory lender and the agent for the inventory facility. In matters unrelated to the Debtors, Kramer Levin represents or has represented JP Morgan Chase (and/or its predecessors in interest variously called The Chase Manhattan Bank and Morgan Guaranty Trust Company) in connection with: (i) various federal and state tax issues, (ii) ERISA matters, (iii) certain corporate trust matters, and (iv) JP Morgan Chase's extension of credit to companies not related to the Debtors as a member of a bank syndicate represented by Kramer Levin. In addition, Kramer Levin represents or has represented the independent directors of certain funds that are managed or sponsored by JP Morgan Chase. JP Morgan Chase has indicated to Kramer Levin that it will consent to Kramer Levin's representation of the Committee and has agreed that Kramer Levin may represent the Committee in matters adverse to JP Morgan Chase in the Debtors' cases, including the examination of liens and security interests securing JP Morgan Chase and the other secured inventory lenders and participation in proceedings to block relief sought by JP Morgan Chase, excluding, however, any legal proceeding to seek affirmative recovery from JP Morgan Chase, such as damages for lender liability. (c) UBS Warburg, AG is a pre-petition secured inventory lender. In matters unrelated to the Debtors, Kramer Levin represents UBS, AG or its affiliates in connection with: (i) various employee benefit matters, and (ii) the purchase and/or sale of distressed debt and securities. (d) The Bank of New York is a pre-petition secured inventory lender and the paying agent for the Debtors' 10% notes and 8.45% debentures. In matters unrelated to the Debtors, Kramer Levin represents and has represented The Bank of New York in connection with: (i) a private venture fund, (ii) various litigation matters, including the defense of a claim for pension benefits, and (iii) the issuance of bonds by the Province of Santiago del Estero. (e) Citibank, N.A. is a pre-petition secured inventory lender. In matters unrelated to the Debtors, Kramer Levin represents Citibank, N.A. with respect to various corporate, litigation, tax, intellectual property and ERISA matters. Kramer Levin also uses Citibank, N.A. as its principal commercial bank. (f) Deutsche Bank provides custodial services for the Debtors' pension and insurance plan. In matters unrelated to the Debtors, Kramer Levin represented Deutsche Bank in connection with ERISA matters, and provides investment and legal advice to Deutsche Bank Asset Management, an affiliate of Deutsche Bank. (g) Fleet National Bank is a pre-petition secured inventory lender. In matters unrelated to the Debtors, Kramer Levin represents Fleet National Bank in connection with a private venture fund, various litigation matters and as a participant in various bank groups. Kramer Levin also represents the independent directors of certain funds sponsored or administered by Fleet National Bank or an affiliate thereof. (h) Wilmington Trust is a pre-petition secured inventory lender and is listed in the Debtors' Schedules as a secured creditor party to a sale/leaseback transaction. Wilmington Trust is also indenture trustee for the Debtors' 8.45% debentures, and in that capacity is a member of the Committee. In matters unrelated to the Debtors, Kramer Levin has represented Wilmington Trust in connection with Wilmington Trust acting as Corporate Trustee on certain corporate finance projects. (i) State Street Bank maintains the Debtors' hourly profit sharing plan account. In matters unrelated to the Debtors, Kramer Levin has represented a bondholder group where State Street Bank was the Indenture Trustee. Prior to January 2001, Kramer Levin's Paris office represented State Street Banque, a French affiliate of State Street Bank and Trust Company, in several discrete transactions, but did not represent State Street itself. Beginning in January 2001, Kramer Levin's Paris office undertook a limited representation of State Street pertaining to the issuance of Exchange Traded Funds. This representation is ongoing. Two attorneys and one paraprofessional from Kramer Levin's Financial Services Department in New York have provided, and may continue to provide, limited services to Kramer Levin's Paris office with respect to the Paris Office State Street Retention. No attorney or paraprofessional involved in the Bethlehem Steel bankruptcy case has done any work, or received any documents or information, with respect to the Paris Office State Street Retention. (j) Bank of America is a pre-petition secured inventory lender and has extended additional credit secured by a building and rolling mill at Port of Indiana, Indiana. In matters unrelated to the Debtors, Kramer Levin or has represented: (i) Bank of America as a participant in a bondholder group, a bank group and as an agent bank, and (ii) Independent Directors of Nations Funds, a group of registered investment companies that are managed by Bank of America. (k) PNC Bank, N.A. maintains several of the Debtors' trust accounts. In matters unrelated to the Debtors, Kramer Levin represents PNC Bank in connection with its membership in a bank group. (l) In matters unrelated to the Debtors, Kramer Levin has represented CSX Transportation (one of the Debtors' 30 largest unsecured creditors) in connection with environmental matters. That representation has terminated. (m) James McCarroll joined Kramer Levin Naftalis & Frankel LLP as an associate in its Creditors' Rights Department in 1999. Prior to joining Kramer Levin, Mr. McCarroll had worked as an attorney in the general counsel's office of the Pension Benefit Guaranty Corporation (one of the members of the Official Committee of Unsecured Creditors) from 1998 to 1999. While at Pension Corporation, Mr. McCarroll worked extensively on two steel industry related cases. However, Mr. McCarroll did not receive any information regarding the Debtors, nor did he have any contact with the Debtors. (n) As part of Kramer Levin's creditors' rights practice, Kramer Levin represents agent banks, bank groups, shareholder groups, bondholder groups and creditors' committee in connection with restructuring, bankruptcy and corporate matters. The Debtors have numerous creditors and other parties-in-interest. Kramer Levin may have in the past represented, and may presently or in the future represent or be deemed adverse to, creditors or parties-in-interest in addition to those specifically disclosed herein in matters unrelated to these cases. Kramer Levin believes that its representation of such creditors or other parties in such other matters has not and will not affect its representation of the Committee in these proceedings. (o) Kramer Levin's creditors' rights practice also involves representing buyers and sellers of distressed debt and securities. One or more clients of the firm may now or later purchase secured or unsecured claims against one or more Debtors. Kramer Levin believes that its representation of such parties in matters unrelated to the Debtors will have no effect on its representation of the Committee in these proceedings. Of course, Kramer Levin will not represent any entity in the purchase or sale of any debt or securities of the Debtors during Kramer Levin's representation of the Committee herein. (p) In addition to its creditors' rights practice, Kramer Levin is a full service law firm with very active real estate, intellectual property, corporate and litigation practices. Kramer Levin appears in cases, proceedings and transactions involving many different attorneys, accountants, financial consultants and investment bankers, some of which now or may in the future represent claimants or parties in interest in these cases. Kramer Levin has not and will not represent any of such entities in relation to the Debtors in these chapter 11 cases nor have any relationship with any such entity, attorneys, accountants, financial consultants, and investment bankers which would be adverse to the Committee, the Debtors or their estates. According to Mr. Mayer, none of these institutions, who are both parties-in-interest and clients of Kramer Levin, accounted for more than 1% of the firm's revenues in its last fiscal year. (Bethlehem Bankruptcy News, Issue No. 5; Bankruptcy Creditors' Service, Inc., 609/392-0900) BURLINGTON: Gets Approval to Maintain Cash Management System ------------------------------------------------------------ Prior to the Petition Date, Burlington Industries, Inc., and its debtor-affiliates maintained 75 bank accounts, including, deposit accounts, operating accounts, collateral accounts, or miscellaneous, special purpose accounts, out of which they managed cash receipts and disbursements. The principal components of the Debtors' Cash Management System and the flow of funds through the Pre-petition Bank Accounts in that system are: (A) Domestic Cash Collection and Concentration The Debtors maintain a concentration account at Wachovia Bank N.A. Funds are transferred into the Concentration Account from 3 primary sources: (1) the Debtors' non-debtor subsidiary, BI Funding, Inc., (2) various zero balance accounts, and (3) miscellaneous direct electronic transfers. BI Funding maintains 4 lockbox accounts: 2 at Wachovia, 1 at Bank of America, N.A., and 1 at First Union National Bank. On a daily basis, deposits collected in the Lockbox Accounts are deposited into BI Funding's main collection account at Wachovia and available funds are transferred on BI Funding's and the Debtors' books from the Receivables Account and credited to the Concentration Account. The Debtors maintain various zero balance accounts at Wachovia primarily for foreign denominated collections from non-factored customers and medical premiums collected from retirees. Deposits into these zero balance accounts are transferred on the Debtors' books each day into the Concentration Account. Periodically, the Debtors receive electronic payments into the Concentration Account. These payments result primarily from: (1) customers who have not paid by a check deposited into one of the Lockbox Accounts for payment of invoices, and (2) the sale of assets. (B) Disbursements All of the Debtors' material disbursement accounts are funded from the Concentration Account. Disbursements from General Disbursement Accounts primarily include accounts payable, payroll, multiple voluntary employee beneficiary association trust accounts, and foreign exchange. All of the General Disbursement Accounts are maintained at Wachovia. (C) Excess Funds On a given day, excess funds can be invested overnight by Wachovia or Bank One, N.A. The funds are invested primarily in either A1-P1 commercial paper or Eurodollar time deposits. Alternatively, excess funds can be left in the Concentration Account for which the Debtors receive credits toward their monthly account analysis fees. (D) Foreign Accounts The Debtors maintain a number of foreign accounts, including, collection accounts, deposit accounts, operating accounts, collateral accounts, or miscellaneous, special purpose accounts, out of which they manage cash receipts from or disbursements to foreign sources. The Concentration Account is the primary funding source for these accounts, which include all of the peso accounts associated with the operations of the Debtors' non-debtor affiliates in Mexico. The Debtors also maintain 4 foreign accounts that are not funded from the Concentration Account: (1) ScotiaBank Canadian Dollar Lockbox Account Receipts for the Debtors' sales in Canada are deposited into this lockbox account. Checks are issued against this account for any payables due in Canadian Dollars. The Canadian Dollar balance also is used periodically to settle maturing foreign exchange hedge contracts. (2) HSBC Bank ple Sterling Account Deposits are made to this account from customers of foreign export collections received in Sterling. A target balance of approximately o50,000 Sterling is maintained. Balances in excess of the target balance are periodically transferred to the Concentration Account or used to settle maturing foreign exchange hedge contracts. Checks are issued against this account for payables, value added taxes and duty payments due in Sterling. (3) HSBC Bank ple Dollar Account Various currencies received from customers for factored export collections are converted at least once per week and deposited as U.S. currency into this account. On a weekly basis, the account balance is transferred by wire into the Bank of America general account. (4) Bank of America General Account Deposits are made into this account from the weekly transfers from the HSBC U.S. Dollar Account. Funds from customers' letters of credit are also received in this account. If excess funds build up in this account, the funds are transferred to the Concentration Account. In the light of the substantial size and complexity of the Debtors' affairs - John D. Englar, Burlington Industries' Senior Vice President for Corporate Development and Law, asserts that a successful reorganization of the Debtors, as well as the preservation and enhancement of the Debtors' respective values as going concerns, cannot be properly achieved if cash management procedures are substantially disrupted. Therefore, Mr. Englar contends, it is essential that the Debtors be permitted to continue to consolidate the management of cash and transfer of money from entity to entity as needed, in the amounts necessary to continue business operations and in accordance with their existing cash management procedures. According to Mr. Englar, the Debtors have utilized the Cash Management System for many years and it constitutes a customary and essential business practice. The existing Cash Management System allows the Debtors to: (a) control and monitor corporate funds, (b) invest idle cash, (c) ensure cash availability, and (d) reduce administrative expenses by facilitating the movement of funds and the development of timely and accurate account balance and presentment information. These controls, Mr. Englar explains, are especially important for the Debtors given the significant volume of cash transactions - aggregating more than $4,000,000,000 annually - that is managed through the Cash Management System. If the Debtors are forced to establish an entirely new system of accounts and a new cash management and disbursement system for each separate legal entity, Mr. Englar says, it would be difficult and unduly burdensome for the Debtors - given the Debtors' organizational and financial structure and the number of entities participating in the Cash Management System. Thus, by this motion, the Debtors seek the Court's authority to use the Cash Management System - as such system may be modified pursuant to the requirements of the Debtors' proposed debtor-in- possession financing facility. Finding merit in the relief requested, Judge Walsh authorizes the Debtors to continue to use the Cash Management System. (Burlington Bankruptcy News, Issue No. 2; Bankruptcy Creditors' Service, Inc., 609/392-0900) CHAPARRAL RESOURCES: Delays Form 10-Q Filing for Sept. Quarter -------------------------------------------------------------- Chaparral Resources, Inc., owns an interest in oil and gas properties in a foreign country through a subsidiary, which has a 50% interest in a foreign entity that owns the interest in the oil and gas properties. Chaparral has been advised that delays have been encountered in completing the financial information for such entities. Therefore, Chaparral Industries is unable to obtain the required financial information for the quarter ended September 30, 2001, in order for the Company's Quarterly Report on Form 10-Q to be filed with the SEC within the prescribed time period. Chaparral expects to report a net loss between $1,400,000 and $1,600,000 for the three months ended September 30, 2001, and reported a net loss of $23,114,000 for the three months ended September 30, 2000. The decrease in the loss was primarily due to the September 2000 conversion of $20,846,000 in aggregate principal amount of the Company's 8% Non-Negotiable Convertible Promissory Notes, plus accrued interest, into 11,690,259 shares of the Company's common stock at an exercise price of $1.86 per share. Applying EITF 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, the Company recorded additional debt discount upon conversion of the Notes equal to the face value of the Notes, less original discount, or $20,340,000. The additional discount was expensed immediately upon discharge of the underlying indebtedness. Otherwise, the Company's overall loss decreased from the prior year due to increased equity income from investment based upon revenues generated from the sale of hydrocarbons from the Karakuduk Field. Chaparral Resources is currently pursuing talks with Shell Capital to restructure its defaulted $3.3 million loan. CHEROKEE INTERNATIONAL: Lower Sales Prompts S&P to Junk Ratings --------------------------------------------------------------- Standard & Poor's lowered its corporate credit and bank loan ratings on Cherokee International LLC to triple-'C'-plus from single-'B' and its subordinated debt rating to triple-'C'-minus from triple-'C'-plus. At the same time, all the ratings were removed from CreditWatch with negative implications where they were placed August 17, 2001. The outlook is negative. The ratings action is based on significantly lower sales and profitability, resulting in very weak credit measures. Tustin, California-based Cherokee is a leading designer and manufacturer of a broad range of switch mode power supplies for original equipment manufacturers primarily in the telecommunications, networking, and high-end workstation industries. The ratings reflect Cherokee's niche market position and highly leveraged financial profile that leave the company susceptible to weaker economic environment and a downturn in demand. Cherokee generates the majority of its sales from the communications market segment, particularly the networking and telecommunications sectors. Reduced capital spending by communication service providers negatively affected sales in the last few quarters and could lead to further sales deterioration in the near term, adversely affecting already weak operating and financial performance. Sales decreased by almost 40% to $26.0 million for the three months ended September 30, 2001, from the same period in the previous year. The sales decline was particularly pronounced in Cherokee's North American operations where sales fell by just more than one-half to about $15 million in the third quarter compared to the same period last year. Consequently, operating margins dropped by more than one-half to about 11% for the third quarter and are likely to remain depressed in the near to intermediate term. Cash flow protection measures are very weak with EBITDA coverage of interest deteriorating to below 1 times in the third quarter because the company generated just $3 million in EBITDA. Cherokee is highly leveraged with $156 million in debt and EBITDA of $25 million during 12 months ended September 30, 2001. However, nearly $15 million in cash from operations was generated in the nine months ended September 2001 due to improved management of working capital as demand slackened. Financial flexibility is limited by availability under its $25 million facility that had less than $15 million available as of September 30, 2001. Amortizations under its term facility of $8 million in 2002 are considerable and further limit flexibility. Outlook: Negative The ratings could be lowered in the near term unless the company enhances its weak liquidity position. COLOR SPOT: Completes Restructuring of $100MM Senior Sub. Notes --------------------------------------------------------------- Color Spot Nurseries announced that it has closed its previously communicated financial restructuring. As unanimously approved by its bondholders, the restructuring materially reduces its debt balance through the conversion of $100 million of its senior subordinated notes into a combination of new senior subordinated notes and preferred stock, which will immediately improve the Company's cash flow and financial flexibility. The Company contemporaneously closed a two-year renewal of its existing senior secured credit facility with its senior lender, Fleet Capital Corporation. Dave Barrett, Chief Executive Officer, said, "We are pleased to announce this successful closing of our financial restructuring and credit facility. In light of a challenging economic and banking climate, this closing is a validation of our results and our vision for the future. Now is the time for us to pursue our exciting growth plans and win in the marketplace by thrilling our customers through flawless execution." Color Spot is one of the largest wholesale nurseries in the United States, based on revenue and greenhouse square footage. The Company provides a wide assortment of high-quality plants as well as extensive merchandising services primarily to leading home centers and mass merchants, such as Home Depot, Lowe's, Wal-Mart and Kmart. The Company distributes products to over 2,800 retail and commercial customers, primarily in the western and southwestern regions of the United States. COMDISCO: Seeks Plan Filing Exclusivity Extension to March 15 ------------------------------------------------------------- Comdisco, Inc., and its debtor-affiliates seek to further extend their exclusive periods to file and solicit acceptances of the Plan through March 15, 2002 and May 15, 2002, respectively. According to Felicia Gerber Perlman, Esq., at Skadden, Arps, Slate, Meagher & Flom, in Chicago, Illinois, cause exists to grant the relief requested. "It is undeniable that these cases are large and complex," Ms. Perlman notes. About 51 debtors, foreign operations, over 100,000 creditors and parties-in- interest and billions of dollars in assets and claims are involved in these cases, Ms. Perlman reminds the Court. In addition, Ms. Perlman says, the Debtors are continuing with the process of evaluating the sale of certain portions of their Leasing business involving over a billion dollars of assets. Furthermore, Ms. Perlman asserts that the Debtors have made progress toward reorganization. "Most significantly, the Debtors have successfully completed the sale of their Availability Solutions business," Ms. Perlman notes. It was a long and complicated sale process requiring both the Debtors and their professionals to devote significant time and resources, Ms. Perlman observes. The result of this sale process brought the estate approximately $850,000,000, including the working capital adjustment, Ms. Perlman says. In addition, Ms. Perlman relates, the Debtors have been evaluating the sale of portions of the Leasing business. According to Ms. Perlman, the Debtors have already concluded one evaluative auction with respect to the electronics segment of the Leasing business and have scheduled auctions with respect to the five other segments of the Leasing business to begin on November 29, 2001. "The Debtors have been and will continue to devote significant time to the potential sale of the various Leasing business segments," Ms. Perlman emphasizes. Moreover, Ms. Perlman reports, the Debtors' management has expended enormous effort responding to the many exigencies and other matters that are incidental to the commencement of any chapter 11 case, but which are compounded by the size and complexity of these cases. Ms. Perlman tells the Court that the Debtors have been consumed with the task of responding to a multitude of inquiries and information requests made by the Creditors' Committee and Equity Committee, the post-petition lenders, as well as many foreign and domestic banks, vendors, customers, landlords, bondholders, shareholders and other parties-in-interest. "The requested extension will allow the Debtors to turn to a reorganization plan process at a logical point in their chapter 11 cases, and seek to emerge from chapter 11 in the spring of 2002, consistent with their stated objectives at the outset of these cases," Ms. Perlman asserts. Ms. Perlman assures Judge Barliant that the Debtors' request for an extension of the Exclusive Periods is not a negotiation tactic, but instead, merely a reflection of the fact that these cases are not yet ripe for the formulation and confirmation of a valuable plan of reorganization. It is only after the Debtors have concluded the sale processes that the Debtors will have the opportunity to lay the groundwork for the development of a long- term business plan, and ultimately, a plan of reorganization, Ms. Perlman explains. Also, Ms. Perlman notes, the Debtors have sufficient liquidity and are paying their bills when they come due. "There is really no harm in granting the requested extensions now because it will be without prejudice to the right of any party to request a termination of exclusivity at any time," Ms. Perlman contends. (Comdisco Bankruptcy News, Issue No. 15; Bankruptcy Creditors' Service, Inc., 609/392-0900) CONSECO FINANCE: Fitch Lowers Ratings to CCC on Possible Default ---------------------------------------------------------------- Fitch lowers the long-term counterparty rating to 'CCC' from 'B' and the short-term rating to 'C' from 'B' of Conseco Finance Corp. (CFC), a wholly-owned subsidiary of Conseco, Inc. (Conseco). The ratings are removed from Rating Watch Negative where they were placed on October 3, 2001. The Rating Outlook for CFC is Negative. Ratings in the 'CCC' category indicate that default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. CFC's current ratings reflect the company's poor earnings performance inclusive of asset writedowns, high-risk credit profile, and dependence on secured funding facilities, which effectively encumber most of the company's assets. CFC took a $345 million pre-tax charge in the third quarter of 2001 to revalue its interest-only (I/O) residual asset, mainly related to manufactured housing loans, which were held on the company's balance sheet. While Fitch believes this charge has done little to impact the financial profile of CFC, the I/O writedown and corresponding loss for the third quarter of 2001 has placed the company closer to being in violation with financial covenants in its secured warehouse financing facilities. If the company lost access to the capital markets, CFC will be unable to execute securitizations, and thus will be unable to generate any positive operating cash flow on a quarterly basis. The positive cash flow from operations is needed to repay future debt maturities in 2002 and 2003. CFC has been accessing the securitization markets on a regular basis to fund its assets over the longer-term. Good execution in the securitization markets during 2001 has allowed the company to generate increased net cash from operations. CFC has used the proceeds of this cash along with other financing initiatives mainly to repay its intercompany loan to its parent. Fitch believes that the repayment of intercompany loan obligations through excess operating cash, in part generated from securitizations, has effectively put other unsecured bondholders in a more tenuous position, as approximately $330 million in principal balances is needed to be repaid between June and September 2002. In part reflecting the valuation writedown of the I/O asset in the third quarter of 2001, CFC has experienced declining asset quality in the past few quarters, as witnessed by higher loss rates in the company's subprime receivable portfolios, particularly with respect to manufactured housing loans. Fitch is concerned about further weakness in CFC's receivables portfolio, especially in light of a decline in the economy over the past year. Moreover, Fitch is concerned with the credit quality of more recently originated loans in particular the higher concentration of repossessed refinancings (repo refi's) in the company's manufactured housing loan portfolio. CFC has used repo refi's as part of their loss mitigation and remarketing practices of foreclosed manufactured housing loans for many years. Up-front recovery rates are substantially greater on repo-refi's versus wholesale remarketing channels. Fitch estimates, that without the use of repo-refi's in its remarketing function, loan losses on a quarterly basis could increase by more than 60%. However, asset quality data indicates that credit risk in repo-refi loans is far greater than traditional manufactured housing loans, leaving the potential for higher loss levels in the future periods. The company is attempting to offset the expected higher loss rates through increased annualized percentage rates on repo-refi loans. CFC incurs further risk through the $1.5 billion guarantee of payments related to subordinated pieces in its securitization structures. Additionally, Fitch does not believe that CFC's parent, Conseco, is capable of providing material financial support at this time. Consequently, Fitch views the ratings of CFC to be on a stand- alone basis. CONSECO INC: CFC Downgrade Prompts Fitch to Drop Ratings Again -------------------------------------------------------------- Fitch lowered the Conseco Inc. senior debt rating to 'B-' from 'BB-', preferred stock rating to 'CCC' from 'B' and the insurer financial strength ratings of Conseco's insurance subsidiaries to 'BBB-' from 'BBB'. A complete list of ratings is shown below. The ratings are removed from Rating Watch - Negative where they were placed on October 3, 2001. The Rating Outlook is Negative. Separately, Fitch has lowered the long-term counterparty rating of Conseco Finance Corp. (CFC) to 'CCC' from 'B'. The rating action on Conseco reflects primarily the deteriorating credit quality of Conseco Finance. Conseco is dependent on cash flow from Conseco Finance to meet holding company cash needs. Therefore, the ratings of Conseco are constrained by the stand-alone credit quality of Conseco Finance. Fitch's ratings on Conseco's insurance subsidiaries remain in the secure category. Fitch believes that the subsidiaries are well-capitalized and possess good liquidity. The rating actions at the insurance operating level reflect the increased pressures placed on those companies as a result of the aforementioned deterioration at Conseco Finance and, subsequently, the holding company and are not indicative of the stand-alone credit quality of the insurance operations. However, further deterioration at Conseco or Conseco Finance could put downward pressure on the insurer financial strength ratings. Conseco remains highly leveraged with a capital structure of debt at 37%, preferred stock of 17% and common equity of 46% at September 30, 2001. Conseco has a significant goodwill balance, 71% of equity at quarter-end. In 2002, Conseco and Conseco Finance will have debt maturities of approximately $312 million and $330 million, respectively. The company will have to refinance this debt or execute other cash raising alternatives to meet these maturities. Fitch believes these efforts will be challenging given the difficult economic environment and the company's limited financial flexibility. Fitch will monitor progress as the company develops plans to meet the 2002 maturities. Entity Issue/Type Action Rating Outlook ------ ---------- ------------- ------- Conseco Inc. * Long term rating Downgrade 'BB-' to 'B-' Negative * Senior debt rating Downgrade 'BB-' to 'B-' Negative * Short-term rating Affirm 'B' * Commercial paper Affirm 'B' Conseco Financing Trust I-VII * Preferred securities Downgrade 'B' to 'CCC' Negative Bankers Life & Casualty Company Conseco Annuity Assurance Company Conseco Direct Life Insurance Company Conseco Health Insurance Company Conseco Life Insurance Company Conseco Life Insurance Company of New York Conseco Medical Insurance Company Conseco Senior Health Insurance Company Conseco Variable Insurance Company Manhattan National Life Insurance Company Pioneer Life Insurance Company * Insurer Financial Strength Downgrade 'BBB' to 'BBB-' Negative CONSTELLATION 3D: Reaches Deal for $15MM in Equity Financing ------------------------------------------------------------ Constellation 3D, Inc. (Nasdaq: CDDD) - developer of Fluorescent Multilayer Disc (FMD) and Card (FMC) technologies, announced that the Company entered into a financing agreement on November 17, 2001, with an overseas investment group (the "Investor") and C3D's majority shareholder Constellation 3D Technology Ltd., for the investment of up to $20 million into the Company. The financing is subject to certain closing conditions. The Investor is purchasing $15 million of convertible debentures with the right to purchase an additional $5 million of debentures on the same terms. In addition, the Company announced that it has negotiated an extension of its Promissory Note to Sands Brothers Venture Capital LLC. Upon the funding of the Investor transaction, $2 million of existing Sands debt will be repaid and the remaining $2 million shall have a maturity date of September 24, 2003. Further, on November 15, 2001 the Company terminated its equity line with the Gleneagles Fund and restructured the terms of the sale of the $1 million executed on August 16th. In connection with the restructuring, Gleneagles was issued an amended adjustment warrant. The terms of the warrant, as amended, provide that Gleneagles can exercise its warrant into shares of Common Stock (at a 6% discount to market). As a point of reference, assuming the pricing of the warrant for the sale of the entire $1 million of stock was determined on November 15, 2001 (when the closing bid price of the Company's common stock was $0.66 per share), the Company would issue approximately 824,176 additional shares. The Company is the worldwide leader in the development of high capacity Fluorescent Multilayer Disc and Card (FMD/C) technology. Constellation 3D holds or has made applications for 116 worldwide patents in the field of optical data storage, and is supported by a team of world-class scientists. Headquartered in New York City, the Company has additional offices and laboratories in Texas, Israel and Russia. More information is available at www.c-3d.net. As of September 30, the company had a working capital deficit of over $5 million, while total stockholders' equity deficit stood at $5.9 million. EARTHCARE: PricewaterhouseCoopers Doubts Ability to Continue ------------------------------------------------------------ The report of PricewaterhouseCoopers LLP audited financial statements of EarthCare Company for the year ended December 31, 2000, expressed substantial doubt regarding EarthCare Company's ability to continue as a going concern. At EarthCare Company's Audit Committee meeting on October 18, 2001, the members of the Audit Committee approved the appointment of BDO Seidman LLP as the new independent accountants, subject to the completion of certain client acceptance procedures by BDO Seidman, LLP. On November 14, 2001, EarthCare Company completed the engagement of BDO Seidman, LLP as their new independent accountants by signing an engagement letter with BDO Seidman, LLP. ENRON CORP: Reaffirms Commitment to Proposed Merger with Dynergy ---------------------------------------------------------------- Enron Corp. (NYSE: ENE) announced that it has closed on the remaining $450 million of a previously announced $1 billion in secured credit lines from JP Morgan, the investment-banking arm of JP Morgan Chase & Co., and Salomon Smith Barney, the investment-banking arm of Citigroup Inc. The $450 million credit facility is secured by the assets of Enron's Northern Natural Gas Company. A $550 million credit facility, secured by the assets of Enron's Transwestern Pipeline Company, closed on Nov. 16. Proceeds are being used to supplement short-term liquidity and to refinance maturing obligations. Enron also reaffirmed its commitment to the merger with Dynegy Inc. "We continue to believe that this merger is in the best interests of our shareholders, employees, and lenders," said Kenneth L. Lay, chairman and CEO of Enron. "It offers the opportunity to create a formidable player in the merchant energy business with substantial growth prospects and a strong financial position." Enron also announced that it is in active discussions with its primary lenders on a restructuring of its debt obligations to further enhance liquidity. "We have been in continuous contact with our banks and believe we can identify a mutually beneficial restructuring to enhance our cash position, strengthen our balance sheet and address upcoming maturities," said Jeffrey McMahon, executive vice president and chief financial officer of Enron. "For example, we have been informed by the lead bank on the facility that the maturity on our $690 million note payable obligation, disclosed on Nov. 19 in a Form 10-Q filed with the Securities and Exchange Commission, will be extended to mid-December, providing the time necessary to restructure the facility. We expect that extension to be formalized shortly." "We believe the interests of Chase and Enron's other primary lenders are aligned in this restructuring effort," said James B. Lee, vice chairman of JP Morgan Chase & Co. "We will work with Enron and its other primary lenders to develop a plan to strengthen Enron's financial position up to and through its merger with Dynegy." Enron is one of the world's leading energy, commodities and services companies. The company markets electricity and natural gas, delivers energy and other physical commodities, and provides financial and risk management services to customers around the world. Enron's Internet address is http://www.enron.com The stock is traded under the ticker symbol "ENE." ETOYS INC: Wants Exclusive Period Extended to January 16 -------------------------------------------------------- EBC I Inc, formerly known as eToys, Inc. asks the Delaware Bankruptcy Court to further extend its Exclusive Periods. The Debtor wants the Exclusive Periods to file Plan and solicit consents for the Plan be extended through January 16, 2002 and March 17, 2002, respectively. eToys, Inc. now known as EBC I Inc, is a web-based toy retailer based in Los Angeles, California. The Company filed for Chapter 11 Petition on March 7, 2001 in the U.S. Bankruptcy Court for the District of Delaware. Robert J. Dehney, at Morris, Nichols, Arsht & Tunnell and Howard Steinberg at Irell & Manella represents the Debtors in their restructuring efforts. When the company filed for protection from its creditors, it listed $416,932,000 in assets and $285,018,000 in debt. EXODUS COMMS: Seeks Okay to Assume Senior Executive Agreements -------------------------------------------------------------- Exodus Communications, Inc., and its debtor-affiliates seek authority to assume executive employment agreements with L. William Krause, William Austin and Richard Stoltz. The Debtors seek to assume the Executive Employment Agreements as part of a comprehensive program designed by the Debtors to minimize management and other key employee turnover by providing incentives for employees, including senior management, to remain in the Debtors' employ and to work toward a successful reorganization of the Debtors' estates. The proposed assumption of the Executive Employment Agreements is a necessary element of the Key Employee Programs defined and described in the Employee Retention Program Motion. Mark S. Chehi, Esq., at Skadden Arps Slate Meagher & Flom LLP in Wilmington, Delaware, informs the Court that the Debtors' executives subject to this Motion are parties to Executive Employment Agreements governing the terms of their respective employments. Although each contract contains different terms based upon the position and responsibility of each executive, the Executive Employment Agreements all contain provisions setting forth base pay, incentive award opportunities, equity compensation, relocation assistance, health and welfare benefits and severance benefits. The Debtors request that executives with Executive Employment Agreements be entitled to receive the greater of the severance benefits available under the employee retention program or the severance benefits available under the Executive Employment Agreements. Mr. Chehi states that the Debtors, in consultation with executive compensation consultants, reviewed the proposed terms of the Executive Employment Agreements and believe such terms are within industry standards and consistent with employment contracts assumed in other large corporate restructurings, both in and out of chapter. In particular, the Debtors believe that: A. the salaries contained in the Executive Employment Agreements are within the range of competitive practice; B. the amounts of the proposed bonuses, severance and other benefits contained within the Executive Employment Agreements are within the range of competitive practice; and C. the Executive Employment Agreements contain terms and conditions comparable to those provided to members of senior management with similar positions and experience in technology and similar industries, and in other large chapter 11 cases. The Debtors believe that prompt assumption of the Executive Employment Agreements is necessary to quell fears among the Debtors' top management that the Debtors will not honor their agreements as the Debtors navigate through the reorganization process. Without assumption of these agreements, the Debtors believe that, a number of their key executives may leave their positions for alternative, more secure employment or, at best, will be distracted from focusing all of their energies on the very formidable reorganization tasks that lie ahead. In either case, Mr. Chehi submits that the Debtors and their estates will suffer and the prospects for a successful reorganization will be dimmed. Mr. Chehi contends that it is especially critical that the Executive Employment Agreements be assumed in order to offset the inability of the Debtors to offer stock-based compensation programs during the pendency of their chapter 11 cases, as well as to further enhance the Debtors' ability to retain key executives. Prior to the Petition Date, stock options and other equity rights formed the most significant portion of total compensation typically paid to top management. The Debtors therefore believe that prompt assumption of the Executive Employment Agreements is essential if the Debtors are to retain their top executives during this period of uncertainty, and are to remain competitive with other potential employers. Mr. Chehi tells the Court that losing any of the top management would severely harm the Debtors in many ways, including: A. many of the executives have significant experience with, and a unique and extensive knowledge of, the Debtors' business that would be difficult to replace at any cost. B. such executives are difficult to replace because experienced job candidates often find the prospect of working for a chapter 11 company unattractive. C. to find suitable replacement senior management, the Debtors may have to pay substantial fees to executive search firms, as well as signing bonuses, reimbursement for relocation expenses and above-market salaries to induce qualified candidates to accept employment with a chapter 11 debtor. D. the loss of any member of top management could lead to additional executive departures. The Debtors have determined in the exercise of their business judgment that assumption of the Executive Employment Agreements is necessary in order to provide incentives for key management to remain on the job until the Debtors' reorganization process is complete. Mr. Chehi asserts that the assumption of their contracts will send a strong signal to them that their services are valued, their compensation awards are competitive, and the Debtors have stabilized their operations and have confidence in the ultimate success of the reorganization process. (Exodus Bankruptcy News, Issue No. 7; Bankruptcy Creditors' Service, Inc., 609/392-0900) FEDERAL-MOGUL: Taps R.R. Donnelley as Noticing Agent ---------------------------------------------------- The hundreds of thousands of claimants and other parties in interest involved in the chapter 11 cases of Federal-Mogul Corporation and its debtor-affiliates may impose heavy administrative and other burdens on this Court and the Office of the Clerk of the Court. The most effective manner to relieve the Clerk's Office of the burdens of these cases is to engage an independent third party to act as a notice agent of the Court. By this motion, the Debtors files an application to employ and retain R.R. Donnelley & Sons Company as notice agent of the Bankruptcy Court. James J. Zamoyski, Esq., the Debtors' Senior Vice President and General Counsel, tells the Court that Donnelley is one of the country's leading commercial printers with expertise in distribution. Mr. Zamoyski believes that the Debtors' estates will benefit from Donnelley's significant experience as notice agent if the Court approves the appointment of Donnelley in these cases. Mr. Zamoyski certifies that Donnelley is fully equipped to handle the volume involved in properly sending the required notices to creditors and other interested parties in these chapter 11 cases. Donnelley will provide various services as notice agent, including: A. preparing and serving all notices required under any applicable Bankruptcy Rule, including: 1. notice of commencement of these chapter 11 cases and the initial meeting of creditors; 2. notice of any hearings on a disclosure statement and confirmation of a plan of reorganization; 3. other miscellaneous notices to entities, as the Debtors or Court may deem necessary and proper for an orderly administration of these chapter 11 cases. B. after mailing of a particular notice, filing with the Clerk's Office a certificate or affidavit of service, within 10 days after each service, that includes a copy of the notice, list of persons to whom it was mailed and the date mailed; C. assisting the Debtors with the preparation and mailing of ballots for the purpose of voting to accept or reject any plan of reorganization proposed by the Debtors in these chapter 11 cases. D. complying with applicable federal statutes, ordinances, rules, regulations, orders, and other requirements; E. promptly complying with such other further conditions and requirements as the Clerk's Office or the Court may hereafter prescribe. Donnelley will be compensated in these cases according to the quantity of pieces prepared and served and the amount of information included in those pieces, such as: Quantity 50,000 150,000 200,000 Printing Cost $ 4,364 $ 7,846 $ 9,028 Mail Cost 4,620 10,175 13,200 Envelope Cost 2,084 4,187 5,164 Set-up Cost 250 250 250 Total Cost 11,318 22,458 27,642 Unit Cost $ .23 $ .15 $ .14 In connection with its appointment as notice agent to the Debtors in these cases: A. Donnelley will not consider itself employed by any federal or state agency and will not seek any compensation from the government in its capacity as the notice agent in these chapter 11 cases. B. By accepting employment in these cases, Donnelley waives any right to receive compensation from the Government. C. In its capacity as the notice agent in these cases, Donnelley will not be an agent of the United States and will not act on behalf of the United States. D. Donnelley will not employ any past or present employee of the Debtors in connection with its work as notice agent for these cases. Carmel A. Sardone, President of R.R. Donnelley & Sons Company, believes that Donnelley is a disinterested person in these cases and does not hold or represent interest adverse to the Debtors' estates for matters which Donnelley is to be employed. Ms. Sardone relates that the firm has performed and may continue to perform certain financial printing services for the Debtors in matters unrelated to which Donnelley is to be engaged in. Ms. Sardone certifies that Donnelley nor any of its officer or employees has any connection with the Debtor and their creditors, and other parties in interests that would conflict with the scope of Donnelley's retention or create interest adverse to the Debtors' estates or any other parties in interest. (Federal-Mogul Bankruptcy News, Issue No. 5; Bankruptcy Creditors' Service, Inc., 609/392-0900) FOCAL COMMUNICATIONS: Fitch Junks Senior Notes and Bank Facility ---------------------------------------------------------------- Fitch has downgraded Focal Communications' (Focal) senior secured rating to 'CCC+' from 'B' and senior unsecured rating to 'CCC-' from 'CCC+'. Focal's ratings are also removed from Rating Watch Negative. The Rating Outlook is Negative. The downgrades reflect the worse-than-expected improvement in revenues in 2002, limited financial flexibility as the company must continue to successfully target enterprise customers, manage its data business churn and working capital position in order to remain fully funded. The Negative Rating Outlook incorporates the impact the soft economy will continue to have on the company's revenues and strained capital structure. Revenues are lower-than-expected in 2002 due to higher- than- expected Internet Service Provider (ISP) disconnects coupled with the impact of a softer economy, worsened by the events of Sept. 11. Fitch expects network and carrier settlement expenses to improve as a percentage of revenue; therefore, EBITDA will be moderately impacted by the reduction in revenue. The company has very limited access to capital as its only source are the funds available under its credit facility ($55 million through year- end 2002 and $95 million thereafter). Positively, during the restructuring and recapitalization, Focal was able to loosen the bank facility covenants to provide it with operating flexibility. Moreover, Fitch continues to be concerned with the company's ability to grow its telecom-related revenue to the level necessary to remain fully funded as Fitch expect further weakening in its data segment in 2002. Management is dedicating more resources to target enterprise customers in 2002. Although this is a significant opportunity for the company, as it needs to only capture minimal market share to breakeven in a market, it must rapidly reach the necessary level of sales productivity to remain funded. As of Sept. 30, 2001, its mature markets generated an EBITDA margin of 35.1%, excluding corporate overhead expenses and restructuring costs. The remaining 16 (new) markets produced EBITDA of negative $1.2 million, approaching breakeven. Prior to the restructuring, Focal's accounts receivable days outstanding lengthened and its payable days shortened, which was a further drain on cash. The company expects its cash operating cycle to improve as its restructuring affords it increased leverage with customers and suppliers/vendors. However, liquidity would be hampered if the company is unable to improve its working capital position. The company recently closed a recapitalization transaction, which resulted in a $150 million capital infusion. This consisted of $50 million of convertible preferred stock and a $100 million secured convertible note, ranking subordinate to the bank debt. Both securities are convertible into common shares and will accrue 8% paid-in-kind (PIK) payments. This recapitalization allowed Focal to decrease its debt outstanding by approximately 50%. Focal is the only competitive local exchange carrier (CLEC) that solely targets large business customers, generating robust revenue per salesperson. In addition, Focal has successfully managed to decrease its exposure to reciprocal compensation, increasing its corporate and value-added reseller (VAR) customer base. Fitch expects Focal's telecom customer revenue to account for all of its future revenue growth, compared to Fitch's previous estimate of 70%. FRUIT OF THE LOOM: Judge Walsh Rejects $30MM Termination Fee ------------------------------------------------------------ "I can't believe" Berkshire is entitled to a $30 million termination fee, Judge Peter J. Walsh exclaimed Wednesday as he struck-down bidding procedures crafted to test Berkshire Hathaway's $835 million bid to purchase substantially all of Fruit of the Loom's assets under a plan of reorganization. Judge Walsh opines that that the $30 million termination fee could have a coercive effect on creditors when asked to vote for or against Fruit of the Loom's chapter 11 plan that would transfer ownership of the company to Berkshire. DDJ Capital Management, LLC, Lehman Brothers, Inc., and Mariner Investments, Inc. -- holders of the Company's 8-7/8% Senior Notes -- balked at the $30 million termination fee guaranteed to Berkshire if it lost in bidding for Fruit of the Loom's assets. The Bidding Procedures the Debtors and Berkshire propose, Bruce Bennett, Esq., at Hennigan, Bennett & Dorman, charges, are "not only an attempt to predetermine the terms of a plan but even more importantly, improperly influence[] the voting and confirmation process." Luc A. Despins, Esq., at Milbank, Tweed, Hadley & McCloy, argued in vain Wednesday morning that the bidding procedures are fair, reasonable and the best means to ensure that Fruit of the Loom obtains the highest and best offer for the Business. Mr. Despins reminded Judge Walsh that the Termination Fee is one of the material inducements that brings Berkshire's $835 million bid to the table. Mr. Despins told Judge Walsh that the other final round bidders in the Marketing Process orchestrated by Lazard Freres & Co., LLC, Fruit of the Loom's financial advisors, in conjunction with Chilmark Partners, the financial advisors to Bank Steering Committee and with Houlihan Lokey Howard & Zukin, each requested a termination fee in an equivalent range, in amounts ranging up to $32,500,000 (including expense reimbursement). "Bidding incentives encourage a potential purchaser to invest the requisite time, money and effort to negotiate with Fruit of the Loom and perform the necessary due diligence attendant to the acquisition of Fruit of the Loom's assets, despite the inherent risks and uncertainties of the chapter 11 process," Mr. Despins continued. Historically, Mr. Despins argued, bankruptcy courts have approved bidding incentives similar to the Termination Fee and Bidding Procedures under the "business judgment rule," which forwns on judicial second-guessing of the actions of a corporation's board of directors taken in good faith and in the exercise of honest judgment, directing Judge Walsh's attention to In re 995 Fifth Ave. Assocs., L.P., 96 B.R. 24, 28 (Bankr. S.D.N.Y. 1989) (bidding incentives may "be legitimately necessary to convince a white knight to enter the bidding by providing some form of compensation for the risks it is undertaking"). More recently, Mr. Despins added, the Third Circuit established standards for determining the appropriateness of bidding incentives in the bankruptcy context. Specifically, in Calpine Corp. v. O'Brien Envtl. Energy, Inc., 181 F.3d 527 (3d Cir. 1999), the court held that even though bidding incentives are measured 38 against a business judgment standard in nonbankruptcy transactions, the administrative expense provisions of Bankruptcy Code section 503(b) govern in the bankruptcy context. Accordingly, to be approved, bidding incentives must provide some benefit to Fruit of the Looms' estates. See id. at 533. The O'Brien court identified at least two instances in which bidding incentives may provide benefit to the estate. First, benefit may be found if "assurance of a break-up fee promoted more competitive bidding, such as by inducing a bid that otherwise would not have been made and without which bidding would have been limited." Id. at 537. Second, where the availability of bidding incentives induces a bidder to research the value of Fruit of the Loom and submit a bid that serves as a minimum or floor bid on which other bidders can rely, "the bidder may have provided a benefit to the estate by increasing the likelihood that the price at which [Fruit of the Loom] is sold will reflect its true worth." Id. So, Mr. Despins explained, whether evaluated under the "business judgment rule" or the Third Circuit's "administrative expense" standard, the Bidding Procedures and Termination Fee pass muster because: (a) the Agreement and the Bidding Procedures, including the Termination Fee, are the product of extended good faith, arm's-length negotiations between Fruit of the Loom and Berkshire; (b) the Bidding Procedures and Termination are fair and reasonable in amount, and are reasonably intended to compensate for Berkshire's risk of being used as a "stalking horse"; and (c) the Termination Fee and Bidding Procedures already have encouraged competitive bidding, in that Berkshire wouldn't have entered into the Agreement without these provisions. The Termination Fee and Bidding Procedures thus have "induc[ed] a bid that otherwise would not have been made and without which bidding would [be] limited." O'Brien, 181 F.3d at 537. Similarly, Berkshire's offer, provides a minimum bid on which other bidders can rely, thereby "increasing the likelihood that the price at which the [Business will be] sold will reflect its true worth." Id. Au contraire, Mr. Bennett responded. The facts in FTL's case don't follow the O'Brien decision. Berkshire has already done its due diligence. The Debtors provide no evidence that a Termination Fee is necessary to induce other bidders to make offers. In fact, the Debtors picked tapped Berkshire as the stalking horse bidder from three offers on the table. The only purpose the Termination Fee serves is to chill bidding. DDJ, Lehman and Mariner make no secret about why they're upset. They are convinced that FTL is worth more reorganized than liquidated. The Three Bondholders remind the Court that, early on in these cases, the Debtors stipulated that the value of the Company's assets were $1.45 billion. That stipulation paved the way for the Secured Parties were oversecured. Throughout these cases, the Debtors have said over and over that the business is improving. How, then, the Bondholders wonder aloud, has FTL concluded that a sale of substantially all of the assets for $835 million (subject, Berkshire says to its shareholders in announcing its third quarter results, to "significant reductions") is a better deal for creditors? Mr. Despins declined to address valuation-related arguments, suggesting that confirmation is the appropriate time for dissident creditors to put expert testimony and other evidence before the Court to challenge confirmability of a plan under 11 U.S.C. Sec. 1129(a)(7). Taking a final crack at the bat to explain why the Termination Fee is appropriate in FTL's case, Mr. Despins argued that the mere existence of the Bidding Procedures and Termination Fee permits Fruit of the Loom to insist that competing bids for the Business be materially higher or otherwise better than the Agreement, and that provides a clear benefit to Fruit of the Loom's estates. In sum, Mr. Despins continued, Fruit of the Loom's ability to offer the Bidding Procedures and the Termination Fee enables the Debtors to ensure the sale of the Business to a contractually-committed bidder at a price the Board of Directors (and core creditor constituencies) believe to be fair while, at the same time, providing them with the potential of even greater benefit to the estates. Thus, the Bidding Procedures and Termination Fee should be approved. Judge Walsh refused to budge. Judge Walsh sees that creditors, if inclined to reject the plan, would be faced with the prospect of "throwing away $30 million." That puts too much pressure on creditors to vote to accept a deal they really don't like, so the Termination Fee provision won't be approved, Judge Walsh ruled. It is unclear to what extent Judge Walsh's blow from the bench unravels the Berkshire deal. In the course of the hearing, and in conversations with reporters afterward, professionals representing Fruit of the Loom, Berkshire Hathaway, the Unofficial Secured Bank Steering Committee, the Steering Committee of the Informal Committee of Senior Secured Noteholders, and the Official Committee of Unsecured Creditors declined to speculate what the next step might be. Company officials at FTL and Berkshire headquarters were equally tight- lipped. By its own terms, the Berkshire deal provides that if acceptable bidding procedures aren't in place by Nov. 30, Berkshire walks. But, if Warren E. Buffet is committed to "the strength of the [Fruit of the Loom] brand and the managerial talent of John Holland," as he indicated when the deal was announced on Nov. 1, Berkshire has the option to waive the Termination Fee provision and proceed without the guarantee of the $30 million consolation prize. GENESIS WORLDWIDE: Walter W. Stasik Appointed as New CEO -------------------------------------------------------- Genesis Worldwide II, Inc. announced that it has hired Walter W. Stasik as its new Chief Executive Officer. Stasik has over 30 years of capital equipment experience, most recently with Voest- Alpine Industries in Pittsburgh, where he was the Vice President for Special Projects. Stasik previously served as the Chief Operating Officer of the Danieli Corporation from 1993 to 2000, and before that was the Chief Financial Officer of Wean Inc. from 1986 to 1993. Genesis Worldwide II, Inc. was created by KPS Special Situations Fund, L.P. and Pegasus Partners II, L.P. to purchase the domestic businesses and assets of Genesis Worldwide, Inc. and its subsidiaries in connection with a section 363 asset sale in the Genesis Worldwide, Inc. chapter 11 bankruptcy proceeding. On November 14, 2001, U.S. Bankruptcy Court Judge Thomas Waldron approved the sale to Genesis Worldwide II, Inc. The transaction is expected to close in the next weeks. Following the closing of the transaction, Genesis Worldwide II, Inc. will engineer high-quality metal coil processing, roll coating and electrostatic oiling equipment in the United States primarily through its Herr-Voss, Stamco and Gencoat business units. The company also will provide mill roll reconditioning, texturing and grinding services in addition to its rebuilding, repairing and spare parts business. HEAFNER TIRE: S&P Lowers Ratings a Notch on Poor Performance ------------------------------------------------------------ Standard & Poor's lowered its corporate credit and bank loan ratings on Heafner Tire Group to single-'B'-minus from single- 'B', and its senior unsecured rating to triple-'C'-plus from single-'B'-minus. In addition, the ratings were placed on CreditWatch with negative implications. Total debt as of Sept. 29, 2001, was about $288 million. The rating actions reflect Heafner's weaker-than-expected operating results, high debt leverage, constrained liquidity, and Standard & Poor's concerns that financial measures will remain below expected levels for the near to intermediate term. Heafner is a leading independent supplier of passenger car and light truck tires to the domestic replacement tire market. The company's weak operating results have been caused by reduced demand for consumer and commercial replacement tires and high expense levels. Demand has declined due to the soft U.S. economy. In addition, the Firestone tire recall during 2000 led to the early replacement of some consumer tires, which has depressed demand in 2001. Ford Motor Company's 2001 recall of certain Firestone tires is not benefiting Heafner because the replacement tires are being shipped directly to Ford's dealers, bypassing the wholesale distribution channel. For the first nine months of 2001, industry shipments of replacement passenger and light truck tires declined 3%. The events of Sept. 11 have also led to weaker demand; Heafner's business remains 10% below the level prior to Sept. 11. Lower demand has resulted in a more competitive environment and heightened pricing pressures. Market conditions are expected to remain weak in the near term. Heafner's expenses have increased during the past year due to several acquisitions completed during fiscal 2000. Although the company reduced costs during the third quarter by closing facilities and reducing its workforce, Heafner's expenses are largely fixed, limiting its ability to adjust to sales declines. Heafner has also taken charges related to doubtful accounts, inventory write downs, facility closures, and employee severance. Despite a 6.5% increase in sales, Heafner's EBITDA (excluding special charges) declined 27% for the first nine months of 2001. Credit protection measures are weak, with total debt to EBITDA of about 9 times and EBITDA interest coverage of about 1x. Although the company's lenders recently agreed to revise Heafner's bank financial covenants, future covenant requirements remain restrictive. Liquidity is constrained, with only $18 million available under a revolving credit facility. Standard & Poor's will review Heafner's recent operating performance and assess the prospects and likely time frame for achieving operating improvements. If it appears that financial performance will fall below expected levels, operating improvements will be substantially delayed, or liquidity will become more constrained, the ratings could be lowered. HOUSE2HOME INC: Commences Inventory Liquidation Process ------------------------------------------------------- House2Home, Inc., announced financial results for the third fiscal quarter and nine-month period, ended October 27, 2001. On November 7, the company and its subsidiaries filed voluntary petitions under Chapter 11 of the Federal Bankruptcy Code in the U.S. Bankruptcy Court in Santa Ana, California. The company is in the process of liquidating all 42 of its House2Home home decorating superstores and will cease normal business operations over the next three to four months. The company reported a net loss for the fiscal third quarter of $20.6 million. For the prior year period, the company reported a net loss of $10.3 million. Sales for the company's 42 House2Home stores totaled $119.4 million for the quarter. Sales totaled $334 million for the third quarter a year ago when the company operated 84 HomeBase stores and five House2Home test stores. For the nine-month period, the company reported a net loss of $187.9 million. The company reported a net loss of $10 million for the corresponding prior year period. Sales for the current nine-month period were $530.4 million. Net sales for the corresponding prior year period were $1.1 billion, including sales at both HomeBase and House2Home stores. As previously reported, sales for the company's House2Home stores fell severely following the September 11 terrorist attacks, exacerbating an already difficult retail environment. In addition, the company was approaching its peak borrowing levels against its credit facility following the August completion of the store conversion program. These factors, in combination, led to extreme pressure on the company's cash position. Despite intense efforts, no other strategic alternatives materialized that would permit the company to avoid liquidation. Upon receiving Bankruptcy Court approval, inventory liquidation sales began on November 14 at all 42 House2Home stores. The inventory liquidation process is being conducted by a joint venture, led by Gordon Brothers Retail Partners, LLC, and is expected to take approximately 13 weeks to complete. The company also reported that it has reached an agreement with the major constituencies in the bankruptcy case, and, subsequently, has received Bankruptcy Court approval, to honor outstanding pre- petition House2Home gift certificates, gift cards and credit vouchers. All House2Home stores are now accepting these forms of store credit. In addition, a committee representing the company's unsecured creditors has been established. The company is also developing a process for the orderly disposition of its owned and leased properties. Based on information currently available, the company does not believe there will be equity value remaining after proceeds from the liquidation of inventory, real estate and other assets are used to repay secured and unsecured creditors. Headquartered in Irvine, California, House2Home, Inc. has 42 House2Home home decorating superstores in three western states. Averaging more than 100,000 square feet, House2Home stores offer an expansive selection of specialty home decor merchandise across four broad product categories -- outdoor living, indoor living, home decor and accessories and seasonal goods. For more information, visit the House2Home Web site at http://www.house2home.com JAM JOE: Court Extends Lease Decision Deadline to January 31 ------------------------------------------------------------ The United States bankruptcy Court for the District of Delaware approved Jam Joe LLC's motion to extend the time to assume or reject unexpired leases of nonresidential real property. The deadline set by the Bankruptcy Court now runs through January 31, 2002. Jam Joe LLC filed for Chapter 11 Petition in the U.S. Bankruptcy Court for the District of Delaware on July 23, 2001. Christopher S. Sontchi, Esq., at Ashby & Geddes represents the Debtors in their restructuring efforts. KELLSTROM: Faces Nasdaq Delisting Due To Form 10-Q Filing Delay --------------------------------------------------------------- Kellstrom Industries, Inc. (Nasdaq: KELL), announced it received a Nasdaq Staff Determination on November 19, 2001 that its common stock is subject to delisting from The Nasdaq National Market, pending the outcome of the hearing. The delisting determination was based on the failure of Kellstrom to file its Form 10-Q for the quarter ended September 30, 2001 as required under Nasdaq Marketplace Rule 4310c(14). Kellstrom intends to request an oral hearing before the Nasdaq Listing Qualifications Panel to review the Staff Determination and seek continued listing. When Nasdaq receives the hearing request, the delisting of the common stock will be automatically stayed pending the outcome of the hearing. As a result of Kellstrom's failure to file the Form 10-Q, the trading symbol for its common stock will be changed from "KELL" to "KELLE" at the opening of business on November 21, 2001. The common stock will continue to trade on The Nasdaq National Market pending the outcome of these proceedings. There can be no assurance the Panel will grant Kellstrom's request for continued listing. Due to uncertainties relating to the impact of the terrorist attacks against the United States on September 11, 2001, which exacerbated the weak market conditions existing in the commercial aviation market and specifically in the commercial aviation aftermarket parts industry, Kellstrom is unable to determine when it will be in a position to file the quarterly report for such period. If Kellstrom is delisted from The Nasdaq National Market, it will seek to have its shares traded on an alternative trading venue, although there can be no assurance that an alternative trading venue will be available. Kellstrom is a leading aviation inventory management company. Its principal business is the purchasing, overhauling (through subcontractors), reselling and leasing of aircraft parts, aircraft engines and engine parts. Headquartered in Miramar, FL, Kellstrom specializes in providing: engines and engine parts for large turbo fan engines manufactured by CFM International, General Electric, Pratt & Whitney and Rolls Royce; aircraft parts and turbojet engines and engine parts for large transport aircraft and helicopters; and aircraft components including flight data recorders, electrical and mechanical equipment and radar and navigation equipment. KEYSTONE: Prolonged Industry Slump Causes Strain on Liquidity ------------------------------------------------------------- Keystone Consolidated Industries, Inc. (NYSE: KES), an integrated wire and wire products producer, announced its results for the third quarter and nine months ended September 30, 2001. For the 2001 third quarter, Keystone reported a net loss of $1.3 million compared to a net loss in the 2000 third quarter of $3.1 million. For the nine-month period ended September 30, 2001, Keystone reported a net loss of $6.6 million compared to a net loss of $8.4 million in the first nine months of 2000. Net sales of $82.3 million in the 2001 third quarter were down $500,000 from $82.8 million during the same period during 2000. This decline in net sales was due primarily to a 9% decline in overall per-ton steel and wire product selling prices partially offset by a 10% increase in shipments of Keystone's steel and wire products. Carbon steel rod shipments increased 44% during the 2001 third quarter compared with the 2000 third quarter, while per- ton selling prices declined .5%. Industrial wire shipments declined 26% while selling prices declined 6% and fabricated wire products shipments declined 7% while selling prices declined 2%. Billet production during the 2001 third quarter declined to 190,000 tons from 196,000 tons during the third quarter of 2000. Rod production during the 2001 third quarter declined to 174,000 tons from 185,000 tons during the 2000 third quarter. Gross profit during the 2001 third quarter increased to $6.6 million from $3.9 million in the 2000 third quarter. This increase in gross profit was due primarily to lower costs for utilities and scrap steel, Keystone's primary raw material, lower rod conversion costs due to improved production efficiencies and a favorable $1.7 million settlement with a utility provider in connection with litigation over a 1999 fuel- adjustment surcharge billed to the Company by the utility, all partially offset by the lower overall per-ton selling price of the Company's steel and wire products. Selling expense was $1.5 million in the third quarter of both 2001 and 2000. General and administrative expense increased to $4.7 million during the third quarter of 2001 as compared to $4.4 million during the third quarter of 2000 primarily due to higher legal and professional costs partially offset by the impact of reductions in salaried headcount resulting from employees accepting Keystone's early retirement package during the fourth quarter of 2000. Keystone currently anticipates the total 2001 overfunded defined benefit pension credit will approximate $3.0 million. Interest expense in the third quarter of 2001 was lower than the third quarter of 2000 due principally to lower interest rates and lower borrowing levels. Nine-Month Review Net sales of $246.4 million in the first nine months of 2001 were down 10% from $274.6 million during the same period during 2000. This decline in net sales was due primarily to a 5% decline in shipments of Keystone's steel and wire products combined with a 7% decline in overall steel and wire product selling prices partially offset by a $1.4 million increase in Garden Zone's sales during the first nine months of 2001. Carbon steel rod shipments during the first nine months of 2001 increased 14% as compared to the first nine months of 2000 while per-ton selling prices declined 3%. Industrial wire shipments declined 26% while per-ton selling prices declined 5%. Fabricated wire products shipments during the first nine months of 2001 declined 11% as compared to the first nine months of 2000 while per-ton selling prices declined 2%. Billet production during the first nine months of 2001 increased to 542,000 tons from 529,000 tons during the first nine months of 2000. The primary reason for the higher production levels during the first nine months of 2001 was the abnormally low production levels during the 2000 second quarter due to extended outages incurred in connection with the correction of the infrastructure problems related to Keystone's capital improvements that were completed during 1998 and a "break-out" that occurred at the Company's electric arc furnace during June 2000. Keystone did not purchase any billets during the first nine months of 2001 as compared to 8,000 tons purchased during the first nine months of 2000. Despite increased rod production during the second quarter of 2001 as compared to the 2000 second quarter, lower rod production during the first and third quarters of 2001 resulted in a decline in rod production during the first nine months of 2001 to 509,000 tons from 533,000 tons during the first nine months of 2000. The decline was due primarily to intentional production curtailments during the first quarter of 2001 designed to avoid using high cost natural gas and to allow billet inventories to build in anticipation of planned outages for repair and maintenance projects in the steel mill during that quarter. Gross profit during the first nine months of 2001 declined to $13.9 million from $14.3 million in the first nine months of 2000 although the Company's gross margin increased from 5.2% in the 2000 period to 5.6% in the first nine months of 2001. This decrease in gross profit was due primarily to the lower overall per-ton selling price of the Company's steel and wire products and higher natural gas costs, partially offset by lower costs for scrap steel and purchased billets, $1.6 million of business interruption insurance proceeds received in the 2001 first quarter related to incidents in prior years and the $1.7 million utility settlement received in the 2001 third quarter. In addition, the adverse impact on gross profit from production outages amounted to approximately $800,000 during the first nine months of 2001 and $5.3 million in the first nine months of 2000. The lower per-ton selling price of the Company's steel and wire products during the first nine months of 2001 adversely impacted gross profit by $17.5 million while the effect of higher natural gas costs adversely impacted gross profit by $3.0 million. Selling expense during the first nine months of 2001 of $4.8 million was, approximately $200,000 lower than the same period in 2000, but was as a percentage of sales, comparable with selling expense in the same period in 2000. General and administrative expense declined from $13.7 million during the first nine months of 2000 to $12.5 million during the first nine months of 2001, primarily due to the reduction in salaried headcount and a $650,000 reimbursement of legal fees received in 2001, partially offset by an unfavorable legal settlement and the higher legal and professional costs. Interest expense during the first nine months of 2001 was lower than the same period in 2000 due principally to lower interest rates and lower borrowing levels. Outlook for the Remainder of 2001 Carbon steel rod imports continue to cause disruption in the marketplace and market demand has weakened. As a result, management believes Keystone will record a net loss during the fourth quarter of 2001 and will record a net loss for calendar 2001 due primarily to higher energy and interest costs, continued high levels of imported rod and relative lower overall product selling prices. At September 30, 2001, the Company has recognized a net deferred tax asset of $32.5 million. The Company periodically reviews the recoverability of its deferred tax assets to determine whether such assets meet the "more-likely- than-not" recognition criteria. At September 30, 2001, based on all available evidence, the Company concluded no deferred tax asset valuation allowance was needed. The Company will continue to review the recoverability of its deferred tax assets, and based on such periodic reviews, the Company could recognize a valuation allowance related to its deferred tax assets in the future. Although operating results improved in the 2001 third quarter improved over that of the 2000 third quarter due to improved operating efficiencies, medical cost sharing arrangements and other initiatives, the prolonged downturn in the steel industry continues to adversely effect Keystone's liquidity and capital resources. In response, the Company has been required to defer capital expenditures, defer maintenance expenditures and delay payments to vendors and other creditors to the extent possible. Despite these measures, the Company's availability under its primary revolving credit facility is limited ($4 million at November 15, 2001 after consideration of outstanding payments to creditors) and a significant portion of the Company's accounts payable are past due compared to stated terms. As a result of the above factors, on August 1, 2001, Keystone did not make a $4.8 million interest payment due on its Senior Secured Notes. Under the governing indenture, a failure to make a scheduled interest payment for thirty days gives the holders of the Notes the right to accelerate the unpaid portion of the Notes. Such a failure also gives the trustee for the Notes the ability to take certain actions and to exercise certain remedies on behalf of holders of the Notes. The Company has received consents from holders representing more than 75% of the principal amount of the Notes in which the noteholders agreed to defer exercising their right to accelerate the payment of the Notes pursuant to the acceleration provisions of the governing indenture until December 7, 2001, and agreed to not direct the trustee of the Notes through such date to take any action or exercise any remedy available to the trustee as a result of the Company's failure to make the interest payment. Keystone continues to evaluate possible restructuring alternatives to improve its overall financial condition, including the potential conversion of the Notes into equity securities of the Company. In this regard, Keystone has entered into discussions with financial advisors to assist the Company in the process of evaluating restructuring alternatives. Keystone has received an agreement from its primary revolving credit lender to forbear remedies available to it solely as a result of the Company's failure to make the August 1, 2001 interest payment on the Notes. LTV CORP: Cleveland-Cliffs Assessing Impact of Shut-Down Plan ------------------------------------------------------------- Cleveland-Cliffs Inc (NYSE: CLF) said that it is assessing the impact of LTV Corporation's (OTC Bulletin Board: LTVCQ) announcement that it plans to cease its integrated steel operations. LTV is a customer of Cliffs and is a 25 percent owner of the Cliffs-managed Empire Mine. Cliffs' pellet sales in the fourth quarter, which had been projected to be in the range of 3.3 to 3.5 million tons, are now projected to be about 2.6 million tons. This will result in expected full year sales of approximately 8.3 million tons. Cliffs has no trade accounts receivable exposure to LTV. As a result of LTV's actions, the Empire Mine will idle operations for an indefinite period. The Empire Mine is owned by subsidiaries of Ispat Inland Inc. (40%), LTV Corporation (25%) and Cliffs (35%). Cleveland-Cliffs is the largest supplier of iron ore products to the North American steel industry and is developing a significant ferrous metallics business. Subsidiaries of the Company manage and hold equity interests in five iron ore mines in Michigan, Minnesota and Eastern Canada. Cliffs has a major iron ore reserve position in the United States and is a substantial iron ore merchant. References in this news release to "Cliffs" and "Company" include subsidiaries and affiliates as appropriate in the context. LODGIAN: S&P Further Cuts Junk Ratings & Maintains Watch -------------------------------------------------------- Standard & Poor's lowered its ratings for Lodgian Inc. and Lodgian Financing Corp. All ratings remain on CreditWatch with negative implications. The downgrade follows the announcement that the company is currently not in compliance with its senior credit facility and reflects management's expectations that it will not meet its December 31 amortization payment on its senior secured credit facility and its January 15, 2002, interest payment on its $200 million subordinated notes due 2009. Although management has reached a forbearance agreement in principle with its lenders until December 31, the outcome of its negotiations is still uncertain. If amortization and interest payments are not made, the issue ratings will be lowered to 'D' following each payment date. Based in Atlanta, Georgia, Lodgian owns or manages a portfolio of 106 hotels with approximately 20,000 rooms in 32 states and Canada. They are primarily full-service hotels. Ratings remain on CreditWatch as Standard & Poor's monitors the progress of Lodgian's negotiations with lenders. Ratings Lowered, Remaining On Creditwatch Negative TO FROM Lodgian Inc. Corporate credit rating CC CCC+ Lodgian Financing Corp. Senior secured bank loans* CC CCC+ Subordinated notes* C CCC- (*Guaranteed by Lodgian Inc.) LOEWEN GROUP: Deems CTA-Related Fees 'Unrealistically High' ----------------------------------------------------------- The Loewen Group, Inc., and its debtor-affiliates do not object to the reimbursing fees and expenses of any of the Principal CTA Creditors or the Indenture Trustees. However, the Debtors believe that many of the estimated fee and expense amounts may be unrealistically high given the current posture of these chapter 11 cases. Accordingly, Loewen has filed a provisional objection to the estimated fee and expense amounts submitted by the CTA Creditors and the Indenture Trustees in order to preserve the Company's right to review and, if necessary, object to the fees and expenses actually incurred through the Effective Date. Principal CTA Creditor Total Amt. Incurred Amt. Estimated Amt. or Indenture Trustee Asserted Asserted Asserted ---------------------- ---------- ------------- -------------- Oaktree Capital Management LLC $1,110,205 $ 827,705 $282,500 Angelo Gordon & Co. Franklin Mutual Advisors, LLP $ 833,616 $ 778,616 $ 55,000 Cerberus Capital Management $ 217,566 $ 199,066 $ 18,500 GSCP Recovery, Inc. $ 391,684 $ 376,684 $ 15,000 Bank of Montreal $2,461,184 $2,134,716 $326,468 Wachovia Bank, N.A. $1,716,144 $1,216,144 $500,000 HSBC Bank U.S.A. $ 804,049 $ 654,049 $150,000 U.S. Bank National Association $1,182,983 $ 915,483 $267,500 Trust Company of Bank of Montreal $1,845,729 $1,590,729 $255,000 Bank One Trust Company, N.A. $2,175,621 $1,425,621 $750,000 Wells Fargo Bank, N.A. $ 353,479 $ 348,479 $ 5,000 Teachers Insurance and Annuity Association of America $ 95,810 $ 70,810 $ 25,000 The UST objects to any allowance for the fees and expenses of State Street's agents and attorneys based on the argument that, because the Indentures "provide for State Street's continued rights to compensation and reimbursement of fees and expenses including, but not limited to, all fees and expenses of State Street's agents and attorneys," State Street is entitled to collect such fees and expenses from the Debtors under section 503(b)(1) of the Bankruptcy Code. The UST is not sure if State Street is making such argument. To the extent State Street is, the UST believes it should be rejected. The UST points out that sections 503(b)(3)(D) and 503(b)(5) of the Bankruptcy Code incorporate the "substantial contribution" standard with respect to such matter. The UST notes that State Street does not describe any act on its part which would constitute a "substantial contribution" under Lebron; the mere fact that the indenture trustee served note holders under the indenture does not satisfy the Lebron test. (Loewen Bankruptcy News, Issue No. 49; Bankruptcy Creditors' Service, Inc., 609/392-0900) MATTRESS DISCOUNTERS: Likely Default Spurs S&P to Junk Ratings -------------------------------------------------------------- Standard & Poor's lowered its corporate credit and senior unsecured debt ratings on Mattress Discounters Corp. to double- 'C' from triple-'C' and lowered its senior secured bank loan rating to triple-'C'-minus from triple-'C'-plus. The outlook is negative. The downgrade is based on the company's limited liquidity and heightened risk of payment default. Mattress Discounters' credit facility is fully drawn and the company had about $5.2 million in cash on hand as of September 29, 2001, which is only expected to fund operations and cover interest payments in the near term. Moreover, Mattress Discounters generated only $2 million of EBITDA in the first nine months of 2001, but is required to make an approximately $9 million interest payment on its senior notes in January 2002. Because of these factors, the company needs to obtain additional sources of capital to fund operations and debt service. In addition, Mattress Discounters is not currently in compliance with revised financial covenants on its senior credit facility and anticipates that it will not be in compliance for the remainder of 2001. Operating performance has deteriorated due to significant and prolonged comparable-store sales declines throughout the company's markets. In addition, operating difficulties are occurring at a time when a softening in the economy is contributing to an overall industry slowdown. Upper Marlboro, Maryland-based Mattress Discounters is a bedding retailer in 15 markets in the U.S. The company sells both Sealy manufactured bedding products and its own private-label Comfort Source products. Outlook: Negative If Mattress Discounters is unable to generate positive cash flow, amend its financial covenants, and arrange for alternative financing, the ratings could be lowered. METALS USA: Gets Okay to Use Existing Cash Management Systems ------------------------------------------------------------- Metals USA, Inc., and its debtor-affiliates maintain two centralized cash management systems -- one for Metals USA Inc., and one for Metals Receivables Corp. These cash management systems have been in place since July 2001. Debtors' cash management system is integrated with the revolving credit arrangements provided by Bank of America N.A., as administrative agent for a group of institutional lenders under the Loan and Security Agreement dated March 12, 2001 as amended and restated. Cash receipts form collections of receivables from Metals USA's customers are received in lock-box accounts maintained at Bank of America, PNC Bank and at Bank One Texas, N.A. This cash is forwarded on a daily basis from these lock-box accounts to master depository accounts for the benefit of Bank of America, where this cash partially repays the outstanding balance of revolving loans made by Bank Group. When Bank of America lends money to Metals USA, these proceeds go to the Metals USA Master Disbursement/Operating Accounts which in turn fund 28 Metals USA Accounts Payable Accounts, 19 Metals USA Payroll Accounts, 12 Metals USA Clearing Accounts and 5 Metals USA Management Accounts. Checks and automatic fund transfers are paid to vendors and employees on a daily basis out of these payment accounts. The Debtors routinely deposit and withdraw funds from these accounts primarily through a custom electronic cash transfer system, by methods including check, wire transfer and automated clearing house transfer. By this motion, the Debtors sought and obtained entry of an interim order: A. authorizing the Debtors' immediate continued use of their existing bank accounts, cash management system, checks and business forms; and B. scheduling a final hearing on this motion on November 28, 2001. Zack A. Clement, Esq., at Fulbright & Jaworski LLP in Houston, Texas, submits that a waiver of requiring the Debtors to close all pre-petition accounts and open new debtor-in-possession accounts is appropriate in these cases. The Debtors' cash management system provides an efficient and secure means of managing and disbursing cash for the Debtors' daily operations on a daily basis. Mr. Clement claims that closing of each of the bank accounts and opening new accounts will substantially disrupt the Debtors' business operations and cash management system and hinder the smooth operation of the Debtors' businesses during the critical initial stages of these cases. Mr. Clement believes that commencement of these cases will place a substantial strain on the Debtors' relationships with their employees, vendors, and customers, each of which are essential to the Debtors' continued operations. The delays, confusion and disruption that will result if the Debtors are required to substitute new debtor-in-possession accounts will further strain these relationships. In addition, the Debtors' centralized cash management system is beneficial to the Debtors, their estates and creditors because it enables the Debtors to reduce the administrative expenses involved in moving funds and to maintain accurate information regarding receipts, account balances and disbursements. In an effort to ensure that pre-petition checks are not honored absent an order of the Court, Mr. Clement assures the Court that the Debtors will serve a copy of this motion and the proposed form of order on all affected banks within 2 business days of the filing of this motion with the Court. The Debtors will also serve upon such banks a copy of any pleadings filed by the Debtors on the petition date seeking to honor pre-petition checks and will provide each bank with a list of check numbers, so that checks numbered lower these can be presumed to be pre- petition and thus not paid. Mr. Clement relates that the Debtors issue a large number of checks in the ordinary course of business and it may be impractical to obtain sufficient "Debtor-in-Possession" check stock during the initial stages of these cases. As existing check stock is depleted while the Debtors are operating in chapter 11, the Debtors will obtain new check stock reflecting their status as debtor-in-possession and listing the case number under which these cases are being jointly administered. The Debtors also utilize numerous standard business forms, including invoices, purchase orders, form contracts and bills of lading. As existing sock of pre-printed business forms is depleted while the Debtors are operating under chapter 11, Mr. Clement says that the Debtors will obtain new business forms reflecting their status as debtor-in-possession and listing the case number under which these cases are being jointly administered. Judge Greendyke directs the Debtors to close all dormant and unnecessary accounts and to change the signature cards on all open accounts to reflect debtor-in-possession status and shall open all post-petition accounts and debtor-in-possession accounts. He further orders the Debtors to immediately commence a new series of check numbers and that the Debtors, counsel for the Bank Group and the U.S. Trustee's Office shall use their best efforts to resolve any objections to the entry of a final order on the motion. (Metals USA Bankruptcy News, Issue No. 2; Bankruptcy Creditors' Service, Inc., 609/392-0900) NATIONSRENT: S&P Junks Ratings & Expects Bankruptcy Filing ---------------------------------------------------------- Standard & Poor's lowered its ratings for NationsRent Inc. At the same time, all the ratings were placed on CreditWatch with negative implications. A $790 million credit facility and $175 million of rated long-term debt securities are affected. The rating actions follow the announcement that the company does not expect to make its $53.7 million principal payment on its term loan portion of its credit facility due December 1, 2001. Liquidity is very constrained with the company having less than $20 million of availability under its revolving credit facility as of September 30, 2001. NationsRent has suffered from poor operating performance due to the weak economy, slower than expected rental revenue growth, and ongoing operational issues at several of its branches. The company is considering various options to address its capital structure, including a possible bankruptcy filing. The ratings will be lowered to 'D' should the company fail to make its term loan payment or file for bankruptcy. Standard & Poor's will monitor developments as they unfold. Ratings Lowered, Placed On Creditwatch Negative NationsRent Inc. TO FROM Corporate credit rating CC B Bank loan CC B Subordinated debt CC CCC+ NETIA HOLDINGS: S&P Junks Ratings Over Higher Credit Risk Level --------------------------------------------------------------- Following the recent announcement by Poland-based telecommunications operator Netia Holdings S.A. that it has launched a tender offer and consent solicitation for 85% of its outstanding senior unsecured notes, Standard & Poor's lowered its long-term corporate credit rating on Netia to double-'C' from single-'B'-minus. At the same time, Standard & Poor's lowered its senior unsecured debt ratings on guaranteed subsidiaries Netia Holdings B.V. and Netia Holdings II B.V. to single-'C' from triple-'C'. All ratings remain on CreditWatch, where they were placed with negative implications on August 8, 2001. The rating actions reflect the higher degree of risk for creditors in view of the proposed cash offer for Netia's bonds. Under the terms of the proposal, bondholders are being offered between 11% and 14% of the nominal value for 85% of the outstanding bonds in a modified Dutch auction. The overall tender is contingent on the receipt of tender offers for a minimum of 65% of the total outstanding notes and at least 50% of each issue. Netia is also seeking consent to remove or modify certain negative covenants. If investors tender their bonds prior to November 23, 2001, they will receive an additional 1% payment of nominal value of the notes, bringing the total to between 12% and 15% of nominal value. The combined nominal value of all the notes in question is about EUR957 million ($856 million). In addition, Netia has stated that it will not pay interest due Dec. 15, 2001, on its EUR100 million 13.5% notes and $100 million 13.125% notes due in 2009, and that the tender price for the EUR200 million 13.75% notes due in 2010 is inclusive of the interest payment due Dec. 15, 2001. At this stage, it is unclear as to the date and amount of interest that will be paid to holders of the euro 2009 and U.S. dollar 2009 notes who do not take up the offer. There is also a need to assess the ramifications of a weakened covenant package pertaining to the bonds that could remain outstanding in Netia's capital structure after the offer is completed. Netia intends to fund this buyback with existing cash and cash equivalent of Polish zloty (PLZ) 643 million ($151 million) and restricted cash of PLZ7 million at September 30, 2001. Standard & Poor's estimates that the proposed buyback could cost up to about $102 million. At this stage, it is uncertain if bondholders of the required 65% of the notes will accept the tender offer. While successful completion of the offer would significantly reduce Netia's debt burden, it would leave the company with insufficient cash to continue operations beyond the first quarter of 2001, based on the current cash burn rate of about $25 million in the third quarter of 2001. If the offer proves successful, Netia will have a less leveraged balance sheet, although the company's financial flexibility will remain constrained without the provision of extra funds. To date, Netia's shareholders have not declared whether they will provide additional funding for the company to continue operations. Standard & Poor's would need to review Netia's revised medium-term business plan in the light of a successful completion of the tender offer. Standard & Poor's views Netia's proposed offer as coercive, as refusal to accept the offer may lead to even worse prospects for bondholders. Completion of the offer would be treated as a default with regard to the notes due in 2009, at which time the corporate credit rating would be lowered to 'SD' (selective default) and the ratings on the euro 2009 and U.S. dollar 2009 senior unsecured notes lowered to 'D'. NETZEE: Sells Digital Visions to SS&C Tech. For $1.35MM + Debts --------------------------------------------------------------- Netzee, Inc. (Nasdaq: NETZ), a leading provider of integrated Internet banking products and services and Internet commerce solutions, announced that it has sold its Digital Visions assets to SS&C Technologies (Nasdaq: SSNC) for gross proceeds of approximately $1.35 million in cash and the assumption of certain liabilities. These assets provided Internet-based financial information tools for community banks and credit unions, delivered bond accounting, interest rate analytic and asset liability services, as well as information services designed to help retail and small business lending officers. "Over the past year, we have tightened our focus on the Internet banking services offered by Netzee," said Donny R. Jackson, Netzee president and chief executive officer. "These assets no longer fit into our core product offering. We intend to use proceeds from the sale to pay down debt and further strengthen our financial position as we move Netzee towards a positive EBITDA and cash flow position in the year 2002." Netzee provides financial institutions with a suite of Internet- based products and services, including full-service Internet banking, bill payment, cash management, Internet commerce services, custom web design and hosting, branded portal design, access to brokerage services, as well as implementation and marketing services. Netzee was formed in 1999 as a subsidiary of The InterCept Group, Inc. (Nasdaq: - ICPT), and as the successor to a company founded in 1996. Netzee became a public company in November 1999. The company's stock is traded on the Nasdaq National Market under the symbol NETZ. Further information about Netzee is available at http://www.netzee.com * * * Netzee's working capital deficit as of September 30, 2001 was approximately $1.0 million compared to a working capital deficit of $5.5 million at December 31, 2000. This increase in working capital is primarily due to proceeds from the sale of the company's regulatory reporting assets and certain bill payment assets, offset by its operating and capital requirements as well as the classification of its redeemable preferred stock as a current liability. The company calculate its working capital balances by taking its current assets net of current liabilities plus borrowings available on our credit facility. OWENS CORNING: Seeks to Defend & Indemnify Employee Defendants ---------------------------------------------------------------- Owens Corning and its debtor-affiliates seek authority to indemnify their directors and officers for defense costs incurred in connection with the Existing Litigation and/or Other Litigation through March 29, 2002, to a maximum expenditure of $600,000, without prejudice to the right of the Debtors to request an increase of this amount and/or a modification of the proposed time period. J. Kate Stickles, Esq., at Saul Ewing LLP in Wilmington, Delaware, tells the Court that certain present and past directors and officers of the Debtors have been named as defendants in a purported securities class action based upon certain specified officers' and directors' alleged conduct with respect to alleged misleading statements of fact and omissions of material fact in connection with certain Registration Statements filed with the Securities and Exchange Commission. Separately, certain officers and/or directors of the Debtors have been named in the Buchfield Litigation, which asserts what are primarily employment liability claims arising out of the plaintiffs' alleged plans to assume positions with ServiceLane.com, an entity to which the Debtors contributed assets pursuant to Court Order dated December 1, 2000. Ms. Stickles points out that the allegations against the directors and officers named in the Securities Litigation and the Burchfield Litigation include conduct for which the Debtors' directors and officers are entitled to indemnification pursuant to the Debtors' Certificate of Incorporation and bylaws as well as Delaware law. Ms. Stickles informs the Court that the Debtors and their present and former directors and officers are insured by Chubb Group of Insurance Companies under a Directors and Officers Liability Insurance Policy, which provides $20,000,000 in coverage for claims made against the Debtors and their directors and officers during the policy period of March 29, 2001 to March 29, 2002. In addition to the Chubb Policy, the Debtors and their directors and officers are insured under a number of excess directors and officers' liability insurance policies that generally follow the terms and conditions of the Chubb Policy, which additionally provides for $180,000,000 in coverage for claims. Ms. Stickles relates that the combined Chubb and the Excess Policies afford the Debtors and their directors and officers $200,000,000 in coverage for claims like those alleged in the Existing Litigation. The D&O Policies currently in force were renewed on March 29, 2001 in accordance with a materially identical endorsement on the prior year's Chubb policy and total premiums paid for the D&O Policies currently in force was $1,488,340, the same amount paid for the prior year's policies. Ms. Stickles explains that the Chubb Policy has a $1,000,000 per claim retention for losses as to which the Debtors are legally permitted to indemnify its directors and officers. If indemnification is not legally permissible, or if the Debtors are unable to indemnify their Directors and Officers solely because of the Debtors' financial insolvency, the retention amount is zero. Ms. Stickles states that the directors and officers named in the Securities Litigation have informed the Debtors that they intend to defend themselves and have retained the Dechert law firm as their defense counsel. It is the Debtors' understanding that said firm will be entering an appearance in the Securities Litigation and filing a responsive pleading on or before March 29, 2002, the Expiration Date of the D&O Policies. Although the Burchfield Litigation was filed only very recently, the Debtors expect their officers and directors named therein to retain counsel to defend themselves. Significantly, Ms. Stickles believes that the payment by Chubb of any defense costs or other amounts in connection with the Existing Litigation, or in connection with any other litigation or matter, prior to March 29, 2002, would jeopardize the Debtors' ability to renew the D&O Policies automatically for, as stated above, aggregate annual premiums of $1,488,340. If the Debtors lose their contractual right to renew the D&O Policies automatically, Ms. Stickles fears that the additional costs of replacing the policies in March 2002 are expected to include an overall premium increase of more than $1,000,000 to purchase renewal coverage to take effect on March 29, 2002, and payment of more than $1,000,000 to incumbent carriers to secure "Discovery Period" coverage. Moreover, if the current D&O Policies are not renewed on March 29, 2002, the Debtors would likely purchase from the incumbent carriers so-called "Discovery Period" protection, which provides them coverage under the current D&O Policies for wrongful acts that occurred prior to March 29, 2002, but that do not give rise to claims for one or two years thereafter. The premium cost of this coverage would exceed $1,000,000 and be payable above and beyond the additional $1,000,000. Thus, Ms. Stickles concludes that the additional costs of securing the Discovery Period coverage and the additional premiums to replace the D&O Policies, if they are not automatically renewed, would be at least $2,000,000 more than the aggregate premium of $1,480,000 million for the D&O Policies, if they are automatically renewed. Separate and apart from these anticipated costs, the Debtors may not be able to secure $200,000,000 of equivalent replacement coverage if they lose the benefit of the Guarantee Renewal Endorsement. Due to the hardening of the directors and officers insurance market prior to September 11, 2001 and the disruptions in the entire insurance industry since September 11, 2001, Ms. Stickles claims that there are serious market issues which call into question the Debtors' ability to obtain equivalent replacement coverage. It goes without saying that the maintenance of adequate directors and officers coverage is critical to the Debtors' ability to retain and attract highly qualified directors and officers. More fundamentally, Ms. Stickles asserts that adequate directors and officers coverage protects the Debtors' estates from indemnity claims on account of post-petition actions of the Debtors' officers and directors. The Debtors believe it is in the best interest of the estates and creditors for the Debtors to be authorized to indemnify their directors and officers with respect to costs incurred in connection with the Existing Litigation, as well as in connection with any other litigation which may be filed based on acts alleged to have occurred prior to the Petition Date or arising prior to the Petition Date, in the manner, and subject to the restrictions, outlined below. Such authority, if granted, would permit the Debtors to realize savings of more than $2,000,000 and would ensure their ability to maintain adequate directors and officers insurance. In order to provide the Court and creditors with comfort regarding the relief requested, Ms. Stickles points out that the proposed form of order restricts the Debtors' authority to indemnify their directors and officers to defense expenses incurred prior to March 29, 2002 in connection with the Existing Litigation, and/or in connection with any Other Litigation, in the maximum amount of $600,000, without prejudice to the right of the Debtors to request an increase of these amounts and/or a modification of the proposed time period, upon further notice and an opportunity for a hearing. Based on the Debtors' discussions with counsel to the directors and officers named in the Securities Litigation, and upon the Debtors' understanding of the Burchfield Litigation, $600,000 should be sufficient to satisfy defense expenditures incurred in the Existing Litigation and in the Other Litigation, if any, in the time period prior to March 29, 2002. (Owens Corning Bankruptcy News, Issue No. 22; Bankruptcy Creditors' Service, Inc., 609/392-0900) PILLOWTEX: Wants Plan Filing Exclusivity Extended to March 15 ------------------------------------------------------------- Pillowtex Corporation seek an order: (i) extending the period during which the Debtors have the exclusive right to file a plan or plans of reorganization by approximately 4 months, through and including March 15, 2001; and (ii) extending the period during which the Debtors have the exclusive right to solicit acceptances thereof through and including May 15, 2002. The Debtors have made substantial progress in their reorganization efforts, William H. Sudell, Jr., Esq., at Morris, Nichols, Arsht & Tunnell, in Wilmington, Delaware, tells the Court. Most significantly, Mr. Sudell relates, the Debtors completed their comprehensive 3-year strategic business plan, which serves as the foundation for their reorganization efforts. The Debtors have also completed the sale of substantially all of the assets of their unprofitable blanket division and have continued to implement identified cost reduction and asset rationalization initiatives, Mr. Sudell adds. Moreover, Mr. Sudell cites the size and complexity of the Debtors' chapter 11 cases as justification for the requested extension. Mr. Sudell reminds the Court that "the Debtors and their nondebtor affiliates comprise a large, complex and geographically diverse organization that is one of the largest North American designers, manufacturers and marketers of home textile products." Mr. Sudell further notes that the extension of the exclusive periods is rendered more compelling by the fact that the Debtors are now at the stage where they are negotiating with the Secured Lenders and the Creditors' Committee regarding the principal terms of a plan of reorganization. Finally, Mr. Sudell assures the Court, the extension of the exclusive periods will not harm the Debtors' creditors or other parties in interest. Neither the Debtors' creditors nor any other party in interest would be in a position to formulate, build a consensus around and obtain confirmation of a plan of reorganization prior to the end of the extension of the exclusive periods, Mr. Sudell claims. Accordingly, Mr. Sudell contends, the relief the Debtors are requesting will not delay the plan-of-reorganization process. Rather, Mr. Sudell says, it will simply permit the process to move forward in an orderly fashion. By application of Del.Bankr.LR 9006-2, the current deadline is automatically extended through the conclusion of the December 18, 2001 hearing. (Pillowtex Bankruptcy News, Issue No. 17; Bankruptcy Creditors' Service, Inc., 609/392-0900) PINNACLE HOLDINGS: S&P Junks Ratings Citing Liquidity Concerns -------------------------------------------------------------- Standard & Poor's lowered its ratings on independent tower operator Pinnacle Holdings Inc. and subsidiary Pinnacle Tower Inc. The ratings remain on CreditWatch with negative implications. The downgrade is based on Standard & Poor's heightened concerns about the company's liquidity, in light of its announcement that it is not in compliance with financial covenants under its bank facility. The company is negotiating with the bank group to obtain waivers and amendments to the bank covenants, though it is uncertain whether Pinnacle will be successful in these efforts. Absent receipt of this agreement in the near term, the ratings will be lowered further. The bank loan rating is the same as the corporate credit rating, reflecting the uncertainty that exists as to whether the company's tower portfolio would provide full recovery of the fully drawn bank facility in a distressed scenario, based on the value ascribed to the company's assets, including its portfolio of nearly 2,500 owned revenue-producing towers. Pinnacle Holdings' business position is very weak relative to other tower operators. Unlike the other major independent tower players, it does not have any anchor tenant contracts with large national or regional wireless telephony carriers. As such, it has been relatively more dependent on the financially fragile paging and wireless data sector, which comprises 30% of the company's revenues. During the third quarter of 2001, the company's revenue base was adversely affected by the bankruptcy and rescission of leases by two paging companies, and a lease default by a third paging carrier. Gross tenant additions were likewise soft for the quarter. These factors, coupled with higher expenses for tower rents and utilities, and increased headcount for managing the tower portfolio, constrained the company's operating cash flows for the third quarter and limit cash flow improvement prospects. The company's asset impairment charge of $250 million for the reevaluation of its tower portfolio has no immediate impact on its credit quality, since Standard & Poor's had already valued Pinnacle's tower assets at a discount to book value. The company has targeted sales of non-core assets to improve its liquidity and has pending agreements for the sale of several collocation facilities for about $22 million. Pinnacle is also seeking buyers for two other collocation facilities, as well as for its U.K. tower investment and various domestic land parcels. Under the amended bank agreement being negotiated, proceeds from the pending sale of the collocation properties would be used to pay bank amortization requirements, including about $7 million in bank amortization due in December 2001. Moreover, 80% of prospective asset sales proceeds would be used to pay off additional outstanding bank borrowings. Total bank debt outstanding as of Sept. 30, 2001, was roughly $383 million. Cash balances of only about $13 million provide limited liquidity in light of the company's ongoing maintenance capital expenditure requirements and interest payments, and limited expectations for operating cash flow. The investigation of the company's public accounting firm by the SEC continues to create uncertainty as to whether Pinnacle will be required to restate its financial reporting, and effectively eliminated the company's ability to access the public capital markets over the past year. With the recent weakening of the overall economy and financial markets, the company's ability to obtain additional funding remains extremely limited. Ratings Lowered and Remaining on Creditwatch Negative Pinnacle Holdings Inc. TO FROM Corporate credit rating CCC+ B- Senior unsecured debt CCC- CCC Pinnacle Towers Inc. $285 million secured revolving credit* CCC+ B- $125 million secured term loan* CCC+ B- $110 million secured term loan* CCC+ B- *Guaranteed by Pinnacle Holdings Inc. PRECISION AUTO: Net Loss Narrows to $1.9MM in September Quarter --------------------------------------------------------------- Precision Auto Care, Inc. (Nasdaq: PACI) announced a loss of $1.9 million for the fiscal quarter ending September 30, 2001, compared with a loss of $2.7 million for the comparable prior year quarter. Lou Brown, President and CEO, stated "Even though the bottom line is not where we want to it to be, I am pleased that the Company showed improvement from the comparable period a year ago. I believe that we are headed in the right direction and that the operating results will continue to improve in both our franchise business and our manufacturing and distribution business." Robert Falconi, PACI CFO, stated, "The Company is especially happy over the results in the manufacturing and distribution division. A year ago, that division was losing a great deal of money. This year, it is off to a good start. We believe that we are beginning to see the dividends from the consolidation of our car wash plant, Hydro-Spray, and our modular building plant, Precision Building Solutions, in Mansfield, Ohio." Precision Auto Care, Inc. is the world's largest franchisor of auto care centers, with over 500 operating centers as of November 21, 2001. The Company franchises and operates Precision Tune Auto Care centers around the world, and offers a vertically integrated organization with manufacturing and distribution subsidiaries. According to Troubled Company Reporter - October 4 Edition, is currently negotiating extensions of Senior Debt. However, the report said, in the event that the Company would be unable to accomplish its strategic objectives or would be otherwise unable to generate revenues sufficient to cover operating expenses and pay other debt, the Company would not be able to sustain operations at the current level. This would require the Company to further reduce expenses and liquidate certain assets. RELIANCE GROUP: Hires LeBoeuf Lamb as Special Tax Counsel --------------------------------------------------------- Pursuant to the motion to employ ordinary course professionals, Reliance Group Holdings, Inc. asks Judge Gonzalez for permission to employ the law firm of LeBoeuf, Lamb, Greene & MacRae as special tax counsel. LeBoeuf maintains offices at 125 West 55th Street in New York City, 10019. John S. Breckinridge, Jr., Esq., files an affidavit in support of his firm's retention. Since 1954, LeBoeuf and predecessor firms have represented the Debtors' insurance subsidiaries, and indirectly the Debtors, in connection with income tax matters, including income tax returns filed on a consolidated basis with the Internal Revenue Service. LeBoeuf has also helped RGH file separate franchise tax returns with the State of New York and certain other taxing jurisdictions in New York. If it is retained as special counsel, Mr. Breckinridge states that LeBoeuf expects to continue its representations of the Debtors in the matters described above, except to the extent that a conflict arises among the entities that were parties to the Debtors' consolidated tax returns. Mr. Breckinridge continues, although LeBoeuf represents no parties adverse to RGH itself, LeBoeuf has clients and potential clients, which are adverse to the interests of the Debtors' insurance subsidiaries in the Pennsylvania liquidation proceedings and other pending litigation. Those representations and potential representations do not involve tax issues, and LeBoeuf intends to continue them. In addition, because LeBoeuf's prior tax work was on behalf of the entities that participated in the Debtors' consolidated tax returns, including the insurance subsidiaries, LeBoeuf cannot undertake to represent the Debtors in any tax dispute that may arise between the Debtors and the insurance subsidiaries, including, without limitation, disputes concerning tax allocations, allocation of tax refunds and allocation of tax losses. LeBoeuf intends to apply for compensation for professional services rendered at its customary hourly rates and for reimbursement of expenses. Mr. Breckinridge states that he is the principal attorney designated to represent the Debtors and his current hourly rate is $425. He informs Judge Gonzalez that other attorneys and paralegals may work on matters for RGH from time to time. He also states that in his opinion, LeBoeuf meets the legal definition of a disinterested party. In the retention questionnaire attached to the filing, it is disclosed that Lee D. Hoffman, Esq., an associate attorney in LeBoeuf's office in Hartford, Connecticut, owns 50 shares of RGH common stock. (Reliance Bankruptcy News, Issue No. 15; Bankruptcy Creditors' Service, Inc., 609/392-0900) SERVICE MERCHANDISE: Delays 10-Q Filing for September Quarter ------------------------------------------------------------- Service Merchandise Company, Inc. was unable to file timely its quarterly report on Form 10-Q for the quarter ended September 30, 2001 because it believes that there are circumstances and events which may affect materially the information contained in the 10-Q and which cannot be described in a complete and accurate manner at this time without unreasonable effort or expense. The 10-Q will be filed on or before the fifth calendar day following the prescribed due date. On March 15, 1999, five of the Company's vendors filed an involuntary petition for reorganization under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Middle District of Tennessee seeking court supervision of the Company's restructuring efforts. On March 27, 1999, the Debtors filed voluntary petitions with the Bankruptcy Court for reorganization under Chapter 11 and orders for relief were entered by the Bankruptcy Court. The Chapter 11 Cases have been consolidated for the purpose of joint administration under Case No. 399-02649. The Debtors are currently operating their businesses as debtors-in-possession pursuant to the Bankruptcy Code. The Company's Consolidated Statements of Operations included below have been prepared without notes and are unaudited. They have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities and commitments in the normal course of business. The Company's recent losses and the Chapter 11 Cases raise substantial doubt about the Company's ability to continue as a going concern. Results Of Operations Net sales for the Company were $178.9 million for the three periods ended September 30, 2001 compared to $274.3 million for the three periods ended October 1, 2000. The Company believes the decline in net sales was primarily due to the increased restructuring and remerchandising activities in fiscal 2000, cross shop loss from exiting certain home product categories and a weak economic environment. Net sales from operations excluding exiting categories and closed facilities were $178.9 million for the three periods ended September 30, 2001 compared to $225.4 million for the three periods ended October 1, 2000. Comparable store sales for jewelry were down 16.3% and home products comparable store sales were down 28.0% compared to the three periods ended October 1, 2000. The jewelry comparable stores sales decrease was led by declines in special events, watches/accessories and diamonds/stones. The home products comparable store sales performance was driven by declines in personal care, photo, and housewares. There were no net sales from exiting categories and closed facilities for the three periods ended September 30, 2001 compared to $48.9 million for the three periods ended October 1, 2000. Sales from exiting categories and closed facilities decreased due to the fact that the three periods ended October 1, 2000 reflects the sales of discontinued product lines that were substantially completed by December 31, 2000. Gross margin was $36.3 million for the three periods ended September 30, 2001 as compared to $46.0 million for the three periods ended October 1, 2000. The decrease in gross margin was primarily due to a decrease in sales. Gross margin after costs and expenses and excluding exiting categories and closed facilities was $36.3 million or 20.3% of net sales for the three periods ended September 30, 2001, compared to $58.0 million or 25.7% of net sales for the three periods ended October 1, 2000. The margin decrease was primarily due to a decrease in sales with approximately the same occupancy costs as the prior year. There was no gross loss after costs and expenses for exiting categories and closed facilities for the three periods ended September 30, 2001 compared to (negative) $12.1 million for the three periods ended October 1, 2000. The margin increase was primarily due to the fact that the three periods ended October 1, 2000 reflects the sales of discontinued product lines that were substantially completed by December 31, 2000. Net sales for the Company were $636.6 million for the first nine periods of 2001 compared to $1,034.9 million for the first nine periods of 2000. The Company believes the decline in net sales was primarily due to the increased restructuring and remerchandising activities in fiscal 2000, cross shop loss from exiting of certain home product categories and a weak economic environment. Net sales from operations excluding exiting categories and closed facilities were $636.6 million for the first nine periods of 2001 compared to $842.9 million for the first nine periods of 2000. Comparable store sales for jewelry were down 15.9% and comparable store sales for home products was down 24.1% as compared to the first nine periods of 2000. The jewelry comparable store sales decrease was driven by declines in special events, watches/accessories and diamond/stones. The home products comparable sales decrease was driven by declines in personal care, photo and housewares. The Company believes that the decline in net sales was primarily due to cross shop loss from exiting of certain home product categories and a weak economic environment. Net sales from exiting categories and closed facilities were $0.05 million for the first nine periods of 2001 compared to $192.0 million for the first nine periods of 2000. Sales from exiting categories and closed facilities decreased primarily due to the fact that the first nine periods of 2000 reflects the sales of discontinued product lines that were primarily completed by December 31, 2000 and were not reflected in the first nine periods of 2001. Gross margin was $166.5 million for the first nine periods of 2001 compared to $214.4 million in the first nine periods of 2000. The decrease was primarily due to a $398.3 million decline in sales, partially offset by a $350.3 million decrease in cost of goods sold. Gross margin after costs and expenses and excluding exiting categories and closed facilities was $167.0 million or 26.2% of net sales for the first nine periods of 2001, compared to $234.0 million or 27.8% of net sales for the first nine periods of 2000. The margin decrease was primarily due to decreased sales. Gross loss after costs and expenses for exiting categories and closed facilities was a loss of $0.4 million, compared to a loss of $19.6 million for the first nine periods of 2000. The margin increase was primarily a result of decreased inventory clearance sales for the first nine periods of 2001. SUNSHINE PCS: Ernst & Young Doubts Ability to Continue ------------------------------------------------------ Sunshine PCS Corporation has incurred losses since inception and will need to obtain capital for further build-out of facilities. There can be no assurance that Sunshine can raise sufficient capital to finance the construction of its networks. Accordingly there is substantial doubt about Sunshine's ability to continue as a going concern. Sunshine was incorporated in July 2000, as the successor to Fortunet Communications, L.P., a combination of five partnerships that were awarded 31 personal communications service licenses in the Federal Communications Commission's 1996 C-Block auction. These licenses had an aggregate purchase price of $216 million after a 25% bidding credit, and were financed primarily by the Federal Communications Commission. Fortunet Communications, L.P., experienced substantial problems in servicing this debt because a perception developed in both the public and private debt and equity markets that the supply of spectrum greatly exceeded realistic customer demand. While the Federal Communications Commission offered Fortunet Communications, L.P., a relief plan, this plan required Fortunet Communications, L.P., to forfeit 30% of its down payment; as a result of such anticipated forfeiture, in 1997 Fortunet Communications, L.P., established a reserve of $6.6 million to reflect the impairment in the value of its licenses. In June 1998, Fortunet Communications, L.P., returned 28 of its licenses, and 15 megahertz of its three 30 megahertz licenses, and surrendered 70% of its down payment to the Federal Communications Commission in exchange for credits, which were used to pay all remaining indebtedness to the Federal Communications Commission. On April 15, 1999, the Federal Communications Commission completed a reauction of all the C- Block licenses that were returned to it. Due to considerably lower amounts bid for these licenses, in the quarter ended March 31, 1999, Fortunet Communications, L.P., recorded a further reserve of $18.5 million to write down its investment in the licenses, plus an additional $0.1 million of capitalized expenses, leaving a net carrying value of $2.7 million at December 31, 1999. Because Sunshine has incurred losses since inception and have not yet determined how to finance its operations, the report of Ernst & Young LLP, its independent auditors, with respect to its financial statements as of and for the year ended December 31, 2000, contains an explanatory paragraph as to the Company's ability to continue as a going concern. Such an opinion may adversely affect the Company's ability to obtain new financing on reasonable terms or at all. Certain of the factors considered by its auditors in making this determination have been included in their report and have been disclosed in Note 1 to our financial statements at December 31, 2001, that were included in our Form 10-KSB that was filed with the Securities and Exchange Commission. Results of Operations Neither Sunshine, nor its predecessors, have had any operating history or revenues. Through September 30, 2001, the Company had cumulative net losses of $84,068,524, resulting from net interest charges of $78,143,094, including commitment fees, and reserves aggregating $25,032,989 for impairment of its personal communications service licenses. In the three- and nine-month periods ending September 30, 2001, as compared to comparable periods in the prior year, results predominantly reflected finance charges and varied due to restructuring. Liquidity and Capital Resources At September 30, 2001, Sunshine had $216,162 in cash and current payables of $623,857. At the current level of operating activity, operations will require approximately $300,000 to $500,000 of cash flow on an annual basis. When the Company decides to employ an accelerated business plan, significantly higher levels of cash flow will be required. On November 13, 2001, Sunshine announced a planned rights offering to raise equity capital. The proceeds from such rights offering would be used to pay current liabilities and to fund working capital needs over the next twelve months; there can be no assurance, however, that such rights offering will be successful in raising capital sufficient for such uses. TXU: Sells UK Distribution Business to London Electricity Group --------------------------------------------------------------- TXU (NYSE: TXU), a global energy company with operations on three continents, announced the sale of its United Kingdom distribution business and its 50 percent interest in 24seven to London Electricity Group (LE Group) for GBP 1.310 billion (US$1.873 billion). The transaction provides total value to TXU of GBP 1.450 billion (US$2.073 billion), after including the assumption by London Electricity Group of GBP 890 million (US$1.273 billion) fair market value (GBP 750 million (US$1.073 billion) face value) of debt. TXU Europe's distribution business is the largest in the UK and consists of the assets and wires that deliver electricity through a 90,000 kilometer network in East Anglia and southeast England. 24seven operates and maintains the networks for TXU and London Electricity Group. The sale of the distribution business is a major step towards delivery of growth from the merchant energy business in Europe. The transaction removes regulatory uncertainty, and in our opinion, taking into account the value achieved for 24seven and the market value of the transferred debt, represents a 26 per cent premium to regulatory book asset value. It also reduces debt levels and improves interest coverage, strengthening TXU's financial position through GBP1.310 billion (US$1.873 billion) of debt reduction. As a result of the sale, TXU has verified with Standard and Poor's and Moody's bond rating agencies that TXU Europe's current ratings of BBB+/Baa1, respectively, are affirmed. TXU's Chief Operating Officer, Europe, Paul Marsh said, "With the recent legal separation of the retail business from the distribution business in the UK and the lower returns and declining profitability of the distribution business, now was the right time for us to recycle capital into the faster growing merchant energy business. This sale will allow management to focus solely on our core merchant energy business (generation, trading and retail) and European growth prospects. In addition, the sale will remove regulatory uncertainty associated with the distribution business." "The employees in the UK distribution business and 24seven are to be congratulated for their efforts in establishing the efficiency frontier for distribution businesses in the UK and I expect continued improvements in reliability and quality customer service from the distribution business under LE Group's new ownership," Marsh added. "This is a very significant and strategic move for our European operation and TXU as a whole," said Erle Nye, chairman and chief executive of TXU. "We have achieved a very good value for this business which allows us to focus on the higher growth and return potential in the merchant energy business. With this transaction, TXU will have more than three-fourths of our business coming from the global merchant energy operations. Combined with a stable dividend and a proven ability to deliver value, this continues to demonstrate the value of this company." TXU expects to incur one time charges of approximately $150 million (after tax) mainly associated with transaction and debt restructuring costs. The transaction requires approval from the European Commission and certain bondholders. Mike McNally, TXU's chief financial officer said that this transaction further strengthens TXU's financial position with the reduction of more than GBP1.310 billion (US$1.873 billion) of debt. "With total disposals of over $5 billion over the last two years, we are well positioned to reduce net debt to total capital to approximately 55 per cent by early next year. This transaction, along with growth in the merchant energy business, will provide greater returns on invested capital. With the sale of this business, 2002 earnings expectations will be reduced by approximately 39 cents per common share. Growth from the merchant energy business will replace that decrease within three years. We are now comfortable with earnings estimates in a range of $4.35 to $4.45 for 2002." Both companies are pleased to report that there will be no compulsory job losses as a result of last Monday's announcement. There are 31 TXU employees in the UK distribution business and 2,500 in 24seven in total. In a separate announcement, TXU has also announced the sale of its 2,000 MW West Burton power station to London Electricity Group for GBP 366 million (US$523 million). In addition, London Electricity Group will assume responsibility for the completion of the installation of flue gas desulphurization plant at the site already underway and reimburse TXU around GBP 60 million (US$86 million for costs to date. 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 more than $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 http://www.txu.comfor more information about TXU. TXU was advised by Schroder Salomon Smith Barney on the transaction. In October, as reported in the Troubled Company Reporter, holders of TXU's 7.17% Debentures due August 1, 2007, waived certain indenture provisions. As of September 2001, the company's balance sheet showed strained liquidity with a current ratio of 0.467 to 1. TEAM MUCHO: Nasdaq to Delist Shares for 10-Q Filing Delinquency --------------------------------------------------------------- TEAM Mucho, Inc. (Nasdaq: TMOS) announced that it had received a Nasdaq Staff Determination on November 19, 2001 indicating that the Company's failure to file its Form 10-Q for the period ended September 30, 2001 was a violation of the continued listing requirements set forth in Marketplace Rule 4310, and that its common stock, therefore, is subject to delisting from The Nasdaq SmallCap Market. As a result of the delinquency, the trading symbol for the Company's common stock will be changed from "TMOS" to "TMOSE" at the opening of business on November 21, 2001. On or before 4:00 p.m. on November 26, 2001, the Company may request a hearing before a Nasdaq Listing Qualifications Panel to review the Staff Determination. The Company presently intends to request a hearing. If the request for a hearing is made by 4:00 p.m. on November 26, 2001, the delisting will be stayed pending the Panel's determination. There can be no assurance the Panel will grant the Company's request for continued listing. As previously disclosed, on November 15, 2001, the Company filed a Notification of Late Filing on Form 12b-25 relating to its Form 10-Q for the quarter ended September 30, 2001. As stated in Form 12b-25, the delay is due to the Company's conversion to new accounting software and integration of the accounting software with its operating processes. On November 19, 2001, the Company filed on Form 8-K a press release entitled, "TEAM Mucho, Inc. Third Quarter Update" which more fully described the reasons for the delay. The outstanding issue in the conversion process is the reconciliation of approximately $500,000, mostly related to accounts receivable. Until the Form 10-Q is filed, the Company will not answer detailed questions about the Company's third quarter results. S. Cash Nickerson, Chairman and CEO, has stated that "the Company is working diligently to complete its Form 10-Q filing." TEAM Mucho, Inc. is a leading Business Process Outsourcing Company specializing in human resources. TEAM Mucho, Inc. was created by the December 2000 reverse merger of online business center Mucho, Inc. and TEAM America Corporation, a market leader in human resource and Professional Employer Organization (PEO) services. TEAM America currently has the number-one PEO market share position in Ohio, Utah, Nevada, Oregon, Idaho, Tennessee and Mississippi, and top-five positions in Northern and Southern California. TEAM America's Single-Point-Of-Contact Human Resource Solution includes payroll, benefits administration, on- site and online employee and employer communications and self- service, employment practices and human resources risk management, workforce compliance administration and severance management. TRICO STEEL: Selling Substantially All Assets to Nucor for $120M ---------------------------------------------------------------- Nucor Corporation (NYSE: NUE) announced that it has entered into an agreement to purchase substantially all of the assets of Trico Steel Company, LLC for $120 million. Trico Steel Company, LLC is in a Chapter 11 bankruptcy proceeding, having ceased operations in March of 2001. The agreement is subject to approval by the bankruptcy court and the conclusion of a bidding procedure under the auspices of the bankruptcy court as well as a satisfactory resolution by Nucor of due diligence, regulatory approvals, tax matters, and utility, equipment and other contracts. "The timing for start-up of this facility will depend upon market conditions. When successful, the addition of the Trico assets will be a strong complement to our flat-rolled sheet strategy," said Dan DiMicco, Nucor's president and chief executive officer. The Trico sheet steel mill facility, which originally began operations in 1997, is located in Decatur, Alabama and has an annual capacity of approximately 1.9 million tons. Nucor is the largest recycler in the United States. Nucor and affiliates are manufacturers of steel products, with operating facilities in ten states. Products produced are: carbon and alloy steel -- in bars, beams, sheet, and plate; steel joists and joist girders; steel deck; cold finished steel; steel fasteners; metal building systems; and light gauge steel framing. TRUSERV CORPORATION: Appoints Pamela Forbes Lieberman as New CEO ---------------------------------------------------------------- TruServ Corporation, the world's largest hardware and home improvement cooperative, announced that Pamela Forbes Lieberman, the co-op's Chief Operating Officer and Chief Financial Officer, has been elected Chief Executive Officer. Forbes Lieberman joined TruServ in March as CFO and assumed the additional position of COO following the July resignation of former CEO Donald Hoye. She assumes her new responsibilities on November 16, 2001. "The Board of Directors concluded after conducting an extensive search that the ideal candidate to lead this company forward as CEO is Pamela Forbes Lieberman," said Bill Blagg, TruServ's chairman. "Since assuming her new responsibilities in July, Pamela has consistently demonstrated a drive, determination and discipline that has resulted in the successful execution of TruServ's restructuring plan," said Blagg. After factoring out one-time restructuring and refinancing charges, TruServ has returned to operating profitability, despite lower revenues. Blagg said Forbes Lieberman has been the key architect of TruServ's successful turnaround plan and its execution. "Under her leadership in recent months, TruServ has consistently exceeded its business plan in terms of strengthening the balance sheet, reducing operating costs and improving margins," said Blagg. "She has the enthusiastic support of our board of directors, employees, retail members, vendor community and our lenders." TruServ will operate without a chief operating officer and will announce a new chief financial officer as soon as possible. Prior to joining TruServ, Forbes Lieberman was senior vice president and CFO of Shoptalk, Inc., a voice application software company. Prior to Shoptalk, she was senior vice president and CFO for the Martin-Brower Company, a distributor in the McDonald's system. From 1993 to 1998, Forbes Lieberman was vice president and CFO for Fel-Pro Incorporated, where she led the sale of the business to Federal Mogul. She also spent four years as vice president of finance acquiring and integrating individual companies of Bunzl Building Supply, a distributor of commodity and branded building products. From 1975 to 1988, she held a variety of positions at Price Waterhouse. TruServ, headquartered in Chicago, is the world's largest member-owned hardware cooperative with 2000 sales of $4 billion, supporting annual retail sales of nearly $12 billion. The TruServ cooperative includes more than 7,300 independent retailers worldwide operating under the store identities of True Value Hardware, Grand Rental Station, Taylor Rental, Party Central, Home & Garden Showplace and Induserve Supply. Additional information on TruServ and its retail identities is available at http://www.truserv.com US MINERAL: Seeks to Extend Exclusive Period to May 25, 2002 ------------------------------------------------------------ United States Mineral Products, doing business as Isolatek International, ask the US Bankruptcy Court for the District of Delaware to grant an extension on its Exclusive Periods. The Debtor wants the Exclusive Filing Period to move through March 25, 2002 and the Exclusive Solicitation Period through May 25, 2002. United States Mineral Products filed for Chapter 11 Bankruptcy Petition in the U.S. Bankruptcy Court for the District of Delaware on June 23, 2001. Aaron A. Garber, David M. Fournier and David B. Stratton at Pepper Hamilton LLP represent the Debtor in its restructuring efforts. WINSTAR COMMS: Seeks Removal Period Extension Until March 14 ------------------------------------------------------------ Winstar Communications, Inc., and its debtor-affiliates ask the U.S. Bankruptcy Court for the District of Delaware for an order extending the period within which the Company may remove prepetition actions and related proceedings to the District of Delaware for continued litigation. The Debtors propose that the time by which they may file notices of removal in the bankruptcy court with respect to civil actions pending on the Petition Date, be extended to and including the latest to occur of (i) March 14, 2001 or (ii) the day which is 30 days after entry of an order terminating the automatic stay with respect to the particular action sought to be removed. Edwin J. Harron, Esq., at Young Conaway Stargatt & Taylor LLP in Wilmington, Delaware, relates that the Debtors are party to actions currently pending in the courts of various states. Since the Petition Date, the Debtors have been devoting substantial amounts of time to transitioning their businesses into chapter 11 and during this period, the Debtors have focused substantial time and energy toward selling certain assets, as well as, assessing leases and contracts and evaluating their business options. Accordingly, Mr. Harron says that the Debtors have not had a full opportunity to fully investigate their involvement in the pre-petition actions. The Debtors believe that it is prudent to seek an extension to protect their right to remove the State Court Actions. The Debtors submit that the relief requested is in the best interests of the Debtors, their estate and their creditors. Mr. Harron explains that the extension sought will afford the Debtors an additional opportunity to make fully informed decisions concerning removal of each State Court Action and will assure that the Debtors do hot forfeit valuable rights. Further, the rights of the Debtors' adversaries will not be prejudiced by such an extension because any party to a State Court Action that is removed may seek to have it remanded to the state court. (Winstar Bankruptcy News, Issue No. 18; Bankruptcy Creditors' Service, Inc., 609/392-0900) XEROX CORP: Fitch Rates 144A Convertible Trust Preferred at B+ -------------------------------------------------------------- Fitch has assigned a `B+' rating to Xerox Corp.'s (Xerox) $900 million convertible trust preferred securities 144A issuance due 2021. Proceeds will be used for general corporate purposes and debt reduction. The company's and its subsidiaries' `BB' senior unsecured debt rating is affirmed. The Rating Outlook is Stable. The outlook reflects the company's improved liquidity situation, which provides some cushion for operational shortfalls as the company continues to execute on its turnaround strategy. The `B' ratings for Xerox's commercial paper (CP) program and Xerox Capital de Mexico, S.A. de C.V.'s $200 million `B' U.S. CP program are withdrawn. Fitch recognizes the company's improved liquidity, the progress made in asset dispositions and its $1 billion cost cutting program, its strong, technologically competitive product line and business position, its continued effort to improve working capital management, and the commitment to continue its cost cutting program beyond the initial $1 billion. The ratings also consider the company's strained credit protection measures, refinancing risk of its $7.0 billion revolver due October 2002, the ongoing Securities and Exchange Commission investigation into Xerox's Mexican accounting issues and other accounting matters, and overall weaker economic conditions. Although the company's financial flexibility has improved with forecasted flat to down revenues, it is crucial that Xerox executes its cost cutting programs in order to return the core operations to profitability. As of September 30, 2001, Xerox's cash position was $2.4 billion with total debt at approximately $16.1 Billion, of which more than half is from the customer financing operations. However, with the current proceeds from the convertible trust preferred securities as well as funds from several planned securitizations of its financing receivables with General Electric Capital Corp. (GECC), the company's cash positions should increase substantially. Debt maturities for the fourth quarter are estimated to be $1.3 billion, with a further $1.3 billion due in the first half of 2002. The company's revolver expires in October 2002 and Xerox is currently in compliance with all covenants. However, based on third quarter financial results, the cushion for the company's tangible net worth covenant was only $182 million, compared to $1.1 billion at the end of the third quarter of 2000. However, the current convertible trust preferred offering will increase the cushion by $900 million, as the covenant definition includes the issuance as an addition to tangible net worth. Credit protection measures for the latest twelve months ending Sept. 30, 2001, show Xerox's leverage, measured by total debt (including the financing segment) to EBITDA, increasing to greater than 20 times compared to 14x at December 31, 2000. For the same time period, the company's core interest coverage (defined as core EBITDA divided by core interest expense) declined to less than 1.5x from 2.4x at Dec. 31, 2000. Fitch anticipates core credit protection measures will continue to be challenged for the near term, despite continued anticipated cost reductions from the company's ongoing restructuring programs. Xerox has made significant progress with its turnaround strategy. Asset sales have totaled more than $2.0 billion, including an agreement to outsource approximately half of its manufacturing, the common stock dividend has been eliminated, and the company exited the ink-jet market, which was a significant cash drain. In addition, Xerox continues to make progress in exiting the customer financing business, with GECC eventually being the primary source of customer financing in the U.S. and Canada. The previously announced $1 billion cost cutting program has been achieved ahead of schedule, including a 10% headcount reduction from year-end 2000. The company has indicated that it has identified further cost cuts of approximately $200 million that could occur in the next two quarters. In addition to Xerox Corp., the ratings affected are: Xerox Credit Corp. and Xerox Capital (Europe) plc's rated senior debt. * BOND PRICING: For the week of November 26 - 30, 2001 ------------------------------------------------------ Following are indicated prices for selected issues: Amresco 9 7/8 '05 30 - 33(f) Asia Pulp & Paper 11 3/4 '05 26 - 28(f) AMR 9 '12 91 - 93 Bethelem Steel 10 3/8 '03 5 - 6(f) Chiquita 9 5/8 '04 82 - 84(f) Conseco 9 '06 58 - 60 Enron 9 5/8 '03 65 - 75 Global Crossing 9 1/8 '04 17 - 19 Level III 9 1/8 '04 57 - 59 McLeod 11 3/8 '09 21 - 23 Northwest Airlines 8.70 '07 75 - 77 Owens Corning 7 1/2 '05 33 - 35(f) Revlon 8 5/8 '08 49 - 51 Royal Caribbean 7 1/4 '18 80 - 84 Trump AC 11 1/4 '06 65 - 67(f) USG 9 1/4 '01 72 - 74(f) Westpoint 7 3/4 '05 31 - 33 Xerox 5 1/4 '03 87 - 89 ********* Bond pricing, appearing in each Monday's edition of the TCR, is provided by DLS Capital Partners in Dallas, Texas. 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