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/raid1/www/Hosts/bankrupt/TCR_Public/020215.mbx T R O U B L E D C O M P A N Y R E P O R T E R Friday, February 15, 2002, Vol. 6, No. 33 Headlines ADVANCED LIGHTING: S&P Junks Ratings on Increased Financial Risk ADVANTICA RESTAURANT: Extends Sr. Note Exchange Offer to Tues. AMERICAN MEDIA: S&P Rates New Subordinated Notes at B- BALANCED CARE: Resolves Pending Litigation vs. Health Care REIT CEDARA SOFTWARE: Pays Down Subordinated Debt by Additional $1MM COURTYARD BY MARRIOTT: S&P Holds Low-B Sr. Secured Debt Rating DELTA AIR LINES: Discloses 4.95% Equity Stake in priceline ENERGY VISIONS: Intends to Raise CDN$357K via Private Placement ENRON CORP: Committee Taps Houlihan Lokey for Financial Advice ENVIRO-RECOVERY: Creditors File Involuntary Chapter 11 Petition EUPHONIX INC: Gets Approval to Restructure Promissory Notes EXODUS COMMS: Fleet Wants Monthly Payment of Postpetition Rent FACTORY CARD: Plan Confirmation Hearing Scheduled for March 20 FEDERAL-MOGUL: Future Claimants Tap Young Conaway as Counsel FOCAL COMMS: Morgan Stanley Discloses 11.3% Equity Stake GLOBAL CROSSING: Signs-Up Arthur Andersen as Auditors GLOBO CABO: S&P Drops and Places Low-B Ratings on Watch Negative GLOBOPAR: S&P Concerned About Diminished Financial Flexibility HAMPTON IND.: Hires McGladrey to Replace Deloitte as Auditors HEARTLAND TECHNOLOGY: Fails to Meet AMEX Listing Guidelines ICG COMMS: Court Extends Time to Remove Litigation Until May 8 IT GROUP: Gets Okay to Pay $3MM Prepetition Employee Obligations INFERTEK INC: Process to Cease Business Operations Underway INTELLICORP: Fails to Comply with Nasdaq Listing Requirements KMART CORP: Court Approves Professionals' Compensation Protocol LIONBRIDGE TECHNOLOGIES: Rory Cowan Discloses 9.15% Equity Stake LITTLE ERIC: Case Summary & 2 Largest Unsecured Creditors LOOK COMMS: CCAA Plan Gives Bell Canada Unit 34% Equity Stake LUIGINO'S INC: S&P Affirms B+ Rating Following Recapitalization MANHATTAN IMAGING: Case Summary & Largest Unsecured Creditors MCLEODUSA INC: Taps Skadden Arps as Counsel in Chapter 11 Case MCLEODUSA INC: Holders of 40% of Bonds Back Reorganization Plan METALS USA: Court Approves Uniform Asset Sales Procedures MIKOHN GAMING: Seeking Strategic Alternatives to Enhance Value MONTANA POWER: Completes Restructuring to Become Touch America NATIONSRENT: Committee Taps Lowenstein Sandler as Counsel NETCENTIVES INC: Trilegiant Acquires Patents from Asset Auction PACIFIC AEROSPACE: Dismisses KPMG and Hires Andersen as Auditors PACIFIC GAS: Entering into Supplemental Agreements with 21 QFs PACIFIC GAS: Says CPUC's Term Sheet Not Credible & Won't Work PACIFICARE HEALTH: Q4 2001 Financial Results Reach Expectations PENN NATIONAL GAMING: Commences Sale of 2.5 Million Shares PEOPLEPC INC: Special Shareholders' Meeting Set for Tuesday PRECISION AUTO CARE: Rights Offering to Expire on March 15, 2002 PRINTING ARTS: Wants Removal Period Deadline Moved to April 30 PROVANT: Rejects IIR's Proposal to Buy $47MM Bank Debt Position PSINET INC: Court Okays Staubach to Dispose of 4 Properties SOLA INT'L: S&P Revises Outlook over Continued Weak Performance SUN HEALTHCARE: Judge Walrath Confirms Plan of Reorganization SUPERIOR TELECOM: S&P Cuts Ratings On Weakening Fin'l Condition TELESYSTEM INT'L: Extends Purchase Offer for Units to Feb. 28 TELESYSTEM INT'L: Commission Rejects Highfields' Hearing Request TERAGLOBAL COMMS: WallerSutton Takes Over Controlling Interest U.S. INDUSTRIES: First Quarter Net Loss Nearly Doubles to $7MM VANGUARD AIRLINES: Set to Revise Loan Guarantee Application WILLIAMS COMMS: Will Give Banks a Restructuring Plan by Feb. 25 BOOK REVIEW: Creating Value Through Corporate Restructuring: Case Studies in Bankruptcies, Buyouts, and Breakups ********* ADVANCED LIGHTING: S&P Junks Ratings on Increased Financial Risk ---------------------------------------------------------------- Standard & Poor's lowered its corporate credit rating on Advanced Lighting Technologies Inc., a designer, manufacturer, and marketer of metal halide lighting products, to triple-'C'- plus from single-'B' due to increased financial risk. At the same time, all ratings were removed from CreditWatch where they were placed December 19, 2001. The Solon, Ohio-based company has about $135 million in debt. The outlook is now negative. "The downgrade is based on ADLT's weaker-than-expected operating performance, significantly deteriorating credit protection measures, a heavy debt burden, and very constrained liquidity," said Standard & Poor's credit analyst Brian Janiak. Although Standard & Poor's believes the company's debt reduction following the December 13, 2001, sale of its lighting fixture business, along with the cost-saving actions taken in the first quarter of fiscal 2002, will lead to better credit protection measures over time, the improvement may be delayed due to the current challenging economic environment. The ratings reflect the company's niche market position in the metal halide lighting business and its established relationship with major lighting manufacturers, largely offset by the company's weak financial profile as evidenced by a heavy debt burden and very limited financial flexibility. Although sales, excluding the fixture subsidiaries, were relatively flat for the first six months of fiscal 2002 ended December 31, 2001, the company reported a $10.7 million loss from operations compared with income from operations of $7.6 million for the same period in the previous year. The company's poor operating performance is primarily due to the overall weak U.S. economy, reduced demand for its metal halide products, higher operating costs as a percentage of sales, and competitive pricing. Poor operating performance during a time of very high debt levels has resulted in very weak credit protection measures, with total debt to EBITDA of about 7.9 times and EBITDA interest of about 1.8x as of Dec. 31, 2001, on a trailing 12-month basis (pro forma for asset sales and excluding non-recurring charges). Financial flexibility is limited with about $15 million available under a $25 million revolving credit facility and $1.8 million in cash as of December 31, 2001. Liquidity will remain constrained because of the company's $4 million interest payment due in March 2002 on its 8% senior notes, annual debt maturities of about $3.6 million, significant capital expenditures and R&D costs to operate its businesses, and its restrictive financial covenants. If it appears the company's operating performance and credit protection measures will remain below expected levels for an extended period, and its current liquidity position will remain constrained, the ratings could be lowered. ADVANTICA RESTAURANT: Extends Sr. Note Exchange Offer to Tues. -------------------------------------------------------------- Advantica Restaurant Group, Inc. (OTCBB: DINE) said that it has extended to 5:00 p.m., New York City time, on February 19, 2002, its offer to exchange up to $204.1 million of registered 12.75% senior notes due 2007 to be jointly issued by Denny's Holdings, Inc. and Advantica for up to $265.0 million of Advantica's 11.25% senior notes due 2008, of which $529.6 million aggregate principal amount is currently outstanding. The exchange offer was scheduled to expire at 5:00 p.m., New York City time, on February 12, 2002. Except for the extension of the expiration date, all other terms and provisions of the exchange offer remain as set forth in the exchange offer prospectus previously furnished to the holders of the Old Notes. To date, an aggregate of approximately $64.0 million Old Notes have been tendered for exchange. Advantica Restaurant Group, Inc. is one of the largest restaurant companies in the United States, operating over 2,300 moderately priced restaurants in the mid-scale dining segment. Advantica owns and operates the Denny's, Coco's and Carrows restaurant brands. FRD Acquisition Co., the parent company of Coco's and Carrows and a wholly owned subsidiary of Advantica, is classified as a discontinued operation for financial reporting purposes and is currently under the protection of Chapter 11 of the United States Bankruptcy Code effective as of February 14, 2001. For further information on the Company, including news releases, links to SEC filings and other financial information, please visit Advantica's website at http://www.advantica-dine.com DebtTraders reports that Advantica Restaurant Group's 11.250% bonds due 2008 (ADVRES1) are trading between 73 and 76. See http://www.debttraders.com/price.cfm?dt_sec_ticker=ADVRES1for real-time bond pricing. AMERICAN MEDIA: S&P Rates New Subordinated Notes at B- ------------------------------------------------------ Standard & Poor's said that it assigned its single-'B'-minus rating to publisher American Media Operations Inc.'s privately placed, Rule 144A $150 million 10-1/4% series B senior subordinated notes due 2009. At the same time, Standard & Poor's said it had affirmed its existing ratings on the Boca Raton, Florida-based company. The corporate credit rating is single-'B'-plus and the outlook is stable. The company has approximately $750 million in outstanding debt. "The company plans to use half of the proceeds of the new notes issue to redeem its stock from EMP Group LLC," said Standard & Poor's analyst Hal F. Diamond. "The transaction results in a modest increase in financial risk at a time when circulation and profitability are under pressure." Mr. Diamond noted that that the company's free cash flow is expected to be adequate because of low working capital and capital expenditure requirements. Standard & Poor's said that its ratings on the company continue to reflect its solid competitive position in the tabloid publishing market niche, offset by a small subscriber base and limited operational diversity. American Media publishes the National Enquirer, Star, and the Globe, which are the top three U.S. tabloid titles. A new, experienced management team has been implementing a business strategy since 1999 to drive single-copy circulation through enhanced editorial content and aggressive promotion. Nevertheless, newsstand circulation at the three core publications has continued to decline, despite a publication redesign and a national television advertising campaign. Standard & Poor's noted that the October 2001 anthrax incident at the company's Boca Raton headquarters has exacerbated the secular decline in circulation, but that circulation levels have improved since the incident, although they remain below previous levels. BALANCED CARE: Resolves Pending Litigation vs. Health Care REIT --------------------------------------------------------------- On December 21, 2001, Balanced Care Corporation, IPC Advisors S.a.r.l. and Health Care REIT Inc. (HCN), entered into a Master Lease Offer under which the Company and Health Care REIT agreed to resolve certain pending litigation against the Company that resulted from the Company's failure to perform its obligations under existing lease and loan documents with Health Care REIT, subject to the negotiation of final documentation that has now been completed. In accordance with the Master Lease Offer, (a) the Company, IPC and HCN entered into a Settlement Agreement and a Release Agreement, each dated January 31, 2002, which provide for the mutual release of liability in connection with the Defaults and for dismissal of the Pending Litigation, (b) the Company entered into a Master Lease with HCN relating to the Company's facilities located in Lebanon, Loyalsock, Bloomsburg and Saxonburg, PA and Sagamore Hills, OH effective January 1, 2002, (c) the Company agreed to pay $2.0 million to HCN ($250,000 in cash, $1.5 million pursuant to a note that provides for a discounted payoff if the note is paid in full prior to April 1, 2006, and $250,000 in cash over the next 12 months), (d) IPC purchased from HCN for $5.0 million certain promissory notes of the Company that provided working capital for the facilities leased from HCN having an aggregate outstanding principal balance (including accrued interest) of $6.4 million, (e) the Company transferred the operations of its Merrillville, IN and Westerville, OH facilities to a third party operator designated by HCN effective January 9, 2002 and (f) the Company transferred the operations of its Morristown and Oak Ridge, TN facilities to a third party operator designated by HCN effective January 31, 2002. The Master Lease Agreement has an initial term of 14 years, and has three five-year renewal terms. Under the Master Lease Agreement, the Company has several options to acquire the facilities. The Company has the right to assign the purchase options under the Master Lease Agreement to IPC or its affiliates without HCN's prior consent. The Master Lease Agreement is guaranteed by the Company and certain of its subsidiaries (BCC). The Company has entered into an assignment agreement with IPC providing that under certain circumstances IPC may exercise the purchase options under the Master Lease Agreement in BCC's stead. In such event, IPC will become the owner of the properties that are currently subject to the Master Lease Agreement. IPC has agreed to allow the Company to accrue interest on the Debt at an annual rate of 12%, which amount will be added to principal. Certain of the promissory notes constituting the Debt originally bore interest at an annual rate of 14% and default rates in excess of such amount up to 18.5%. The Debt (except for that certain promissory note in the original principal amount of $1 million, matures on the earlier to occur of (i) November 1, 2008 and (ii) the date on which the fee simple interest to the facilities is acquired from HCN under the purchase options. The $1,000,000 Note matures on October 1, 2008. The company operates about 65 assisted living and skilled nursing facilities for middle and upper income seniors in 10 states. Its Outlook Pointe assisted living facilities offer 24- hour personal and health care services, including help with bathing, eating, and dressing. The Balanced Gold program provides services aimed at improving residents' cognitive, emotional, and physical well-being. Like many assisted-living providers, Balanced Care is having trouble paying its rent, due in part to an increase in supply that grew faster than demand. A Luxembourg-based investment firm owns more than 50% of the company. At June 30, 2001, the company reported an upside-down balance sheet, showing a total shareholders' equity deficit of about $9 million. CEDARA SOFTWARE: Pays Down Subordinated Debt by Additional $1MM --------------------------------------------------------------- Cedara Software Corp., (TSE:CDE/Nasdaq:CDSW) announced that it has reached settlement with holders of an additional $1.0 million of promissory notes which were exchangeable into convertible subordinated debentures, which debentures in turn were convertible into common shares of the Company at $2.50 per share. The $1.0 million of promissory notes outstanding have been exchanged for 400,000 common shares. Of the $7.1 million of promissory notes originally outstanding, this settlement brings the total converted to common shares to $4.5 million or 1,800,000 common shares. The Company also announced that an additional $350,000 of promissory notes were settled by exchanging the notes for unsecured convertible debentures with a corresponding principal amount due five years from the date of issuance, bearing interest at 5% and convertible into common shares at a conversion price of $2.50. Michael Greenberg, Chairman and CEO of Cedara said, "This additional settlement with the note holders results in a $1,350,000 reduction in the current liabilities of the Company, and a $1,000,000 increase in shareholders' equity." The Company also announced the completion of a new banking arrangement that allows for a $9.0 million operating line. As part of the new banking arrangement, Analogic Corporation (Cedara's largest shareholder) has guaranteed the bank operating facility by way of a letter of credit. Cedara Software Corp., based in the greater Toronto area, is a leading healthcare imaging software developer. Cedara serves leading healthcare original equipment manufacturers (OEMs) and value-added resellers (VARs) and has long-term relationships with companies such as Cerner, GE, Hitachi, Philips, Siemens, and Toshiba. Cedara offers its OEM customers a rich array of end-to-end imaging solutions. The Cedara Imaging Application Platform (IAP(TM)) is a development environment supporting Windows and Unix. This continuously enhanced imaging software is embedded in 30% of MRIs sold today. Cedara offers components and applications that address all modalities and aspects of clinical workflow, including 3D imaging and advanced post-processing; volumetric rendering; disease-centric imaging solutions for cardiology; and streaming DICOM for web-enabled imaging. Through its Dicomit Dicom Information Technologies Inc. subsidiary, Cedara provides ultrasound and DICOM connectivity solutions to OEM customers. COURTYARD BY MARRIOTT: S&P Holds Low-B Sr. Secured Debt Rating -------------------------------------------------------------- Standard & Poor's said that it affirmed its ratings on Courtyard by Marriott II L.P.'s (CBMII). At the same time, the double-'B'- minus corporate credit and single-'B' senior secured debt ratings were removed from CreditWatch, where they were placed on September 21, 2001. The actions reflect Standard & Poor's expectation that the limited-service hotel portfolio of CBMII will generate adequate cash flow to support the ratings, despite the more challenging lodging environment since the September 11 terrorist attacks and in the slowing economy. While the cushion available to meet senior note interest is expected to decline somewhat, Standard & Poor's believes it remains adequate, given expectations for cash flow, and the added structural benefit to holders as a result of the subordination of certain operating fees and expenses payable to Marriott International Inc., the strong hotel operator with which Bethesda, Maryland-based CBMII is aligned. The outlook is negative. "We expect little improvement in 2002 cash flow, as a result of the difficult lodging environment," said credit analyst Craig Parmelee. But he added that Standard & Poor's expects that beyond 2002, CBMII will generate operating cash flow more in line with the higher pre-2001 levels. Mr. Parmelee said, "Ratings could be lowered if the operating environment is weaker than anticipated, putting additional pressure on credit protection measures." Senior note holders benefit from the subordination of certain operating fees and expenses that are payable to Marriott International. These fees and expenses include a portion of the base management fee, the entire incentive management fee, and ground rent that is due to Marriott. DELTA AIR LINES: Discloses 4.95% Equity Stake in priceline ---------------------------------------------------------- On January 31, 2002 and February 1, 2002, Delta sold an aggregate of 1,728,571 shares of priceline common stock in transactions on the Nasdaq National Market for an aggregate sales price of approximately $10,852,008.03. The Open Market Sales are summarized as follows: (a) Delta sold 850,000 shares on January 31, 2002 at an average price per share of $6.12 and (b) Delta sold 878,571 shares on February 1, 2002 at an average price per share of $6.43. Immediately after the consummation of the Open Market Sales, Delta beneficially owned 11,801,153 shares of priceline common stock. The shares beneficially owned by Delta after consummation of the Open Market Sales represented approximately 4.95% (assuming the exercise of Delta's right to purchase all 4,675,000 shares of priceline common stock pursuant to the Amended 1999 Warrant and the exercise of Delta's right to purchase the remaining 4,537,199 shares of priceline common stock pursuant to the 2001 Warrant) of the shares of priceline common stock outstanding on November 12, 2001. As a result of the Open Market Sales, Delta ceased to be the beneficial owner of more than 5% of priceline's common stock on February 1, 2002. Delta Air Lines, the #3 US carrier (behind UAL's United and AMR's American), is expanding its US regional operations while building a global alliance. With hubs in Atlanta, Dallas/Fort Worth, Cincinnati, New York City (Kennedy), and Salt Lake City, Delta flies to 205 US cities and about 45 foreign destinations. It also serves more than 220 US cities and nearly 120 destinations abroad through code-sharing agreements. In the US, Delta owns regional carriers Delta Express, Atlantic Southeast, and COMAIR. Internationally, it has formed the SkyTeam alliance with Air France, AeroMexico, and Korean Air Lines to compete with rival alliances Star and Oneworld. Delta also owns 40% of computer reservation service WORLDSPAN. As reported in the September 25, 2001, edition of the Troubled Company Reported, Standard & Poor's lowered its corporate credit, senior secured debt and senior unsecured debt ratings on Delta Air Lines Inc., to the low-B level, and were placed on CreditWatch with negative implications. The downgrades, S&P said, reflected the severe impact of sharply reduced air traffic since the September 11 terrorist attacks in New York City and Washington, D.C., with expectations for only a slow recovery in the coming months. This worsens significantly an already grim airline industry outlook, with depressed business travel and higher labor costs. The extent of the downgrades was determined principally by: * The risk of a downward rating action prior to the current crisis, and thus how much credit "cushion" was available within those ratings; * The cash and bank lines available to Delta Air Lines Inc., as well as the amount of owned, unsecured aircraft that could be used in secured debt or sale-leasebacks to raise further funds; and * The ability of Delta Air Lines to reduce cash operating expenses and commitments for capital spending. DebtTraders reports that Delta Air Lines' 9.750% bonds due 2021 (DELAIR4) are trading between 87.5 and 90. See http://www.debttraders.com/price.cfm?dt_sec_ticker=DELAIR4for real-time bond pricing. ENERGY VISIONS: Intends to Raise CDN$357K via Private Placement --------------------------------------------------------------- Energy Visions Inc. (EVI.S/CDNX and OTCBB: EGYV), announced its intention to raise up to CDN$357,500 in a non-brokered private placement. The offering will consist of up to 650,000 units at a price of CDN$0.55 per unit. Each unit is comprised of one common share and one common share purchase warrant. Each common share purchase warrant entitles the holder thereof to purchase one common share at the price of CDN$0.75 for a period of 12 months from the closing date. Closing is expected to occur prior to the end of February 2002. The common shares and the purchase warrants will be sold on a private placement basis in the Province of Ontario pursuant to certain exemptions from the registration and prospectus requirements of Ontario securities legislation. The closing of the private placement will be subject to CDNX regulatory approval. The net proceeds of the private placement are intended for general corporate purposes while EVI considers a proposal for a major acquisition. EVI has approved in principle a proposal by Rabih Holdings Ltd. to acquire a controlling interest in Pure Energy Inc., which owns 100% of the issued and outstanding shares in Pure Energy Battery Inc., located in Amherst, Nova Scotia. The proposal is subject to approval from the NSBI (Nova Scotia Business Inc.) board on a debt-restructuring package as well as various regulatory agencies. The ability of EVI to complete the proposed transaction involves a number of risks and uncertainties and there is no assurance that the proposed transaction will be completed. At September 30, 2001, the company had a working capital deficiency of $310,000. For further information please contact Wayne Hartford at (416) 733-2736 or EVI Head Office - Ottawa (613) 990-9373 or. The company's Web site is at http://www.energyvi.com ENRON CORP: Committee Taps Houlihan Lokey for Financial Advice -------------------------------------------------------------- The Official Committee of Unsecured Creditors of Enron Corporation, and its debtor-affiliates seeks the Court's authority to retain Houlihan Lokey Howard & Zukin Financial Advisors, Inc., as its financial advisor under a general retainer, nunc pro tunc to December 17, 2001. Committee Co-Chair Julie J. Becker from The Williams Companies, Inc., explains that Houlihan Lokey was selected based on the firm's global presence and extensive knowledge and expertise in bankruptcy and corporate reorganization. Because of Houlihan Lokey's experience in business reorganizations, the Committee believes the firm is exceptionally well qualified to serve as its financial advisors in these cases. Houlihan Lokey is expected to provide these services to the Committee: (a) Evaluating the assets and liabilities of the Debtors and their subsidiaries; (b) Analyzing and reviewing the financial and operating statements of the Debtors and their subsidiaries; (c) Analyzing the business plans and forecasts of the Debtors and their subsidiaries; (d) Evaluating all aspects of DIP financing, cash collateral usage and adequate protection therefore, and any exit financing in connection with any plan of reorganization and any budgets relating thereto; (e) Helping with the claim resolution process and distributions relating thereto; (f) Providing such specific valuation or other financial analyses or opinions as the Committee may require in connection with the case; (g) Assessing the financial issues and options concerning: -- the sale of any assets of the Debtors, either in whole or in part, and -- the Debtors' plan(s) of reorganization or any other plan(s) of reorganization and assisting the Committee in negotiating the terms thereof; (h) Preparation, analysis and explanation of the Plan to various constituencies; (i) Providing testimony in court on behalf of the Committee; and (j) Providing litigation support to Committee Counsel in any contested matter before the Court. Pursuant to the terms of an Engagement Letter, and subject to Court approval, Houlihan will be paid: -- Monthly Fee: The Company shall pay Houlihan Lokey a monthly fee of $350,000 on each monthly anniversary of the Effective Date of the Engagement Letter. The Monthly Fees shall be considered fully earned when due and are non-refundable regardless of whether any Transaction is consummated. In the event that, during the term of the engagement, it is reasonably expected by the Committee that there will be a period of sustained inactivity or significantly low activity, the Committee and Houlihan Lokey shall agree in "good faith" to a reduced monthly fee that is commensurate with the work that is expected to be required of Houlihan Lokey during that period. -- Transaction Fee: Houlihan Lokey shall be entitled to an additional fee of $9,500,000 shall be earned upon the closing or consummation of a Transaction and shall be paid upon the effective date of a Chapter 11 plan of reorganization or liquidation. Of the Transaction Fee, $4,000,000 shall be subject to these credits of the Monthly Fees earned by Houlihan Lokey: (a) 25% of the Monthly Fees earned after the first 9 months of the engagement, and (b) 50% of the Monthly Fees earned after the first 18 months of the engagement. In addition, the Committee reserves the right to object to the Reserve Amount (net of any credits of the Monthly Fees applied to such amount) in the event the Committee can establish that such amount (given the entire compensation to be received by Houlihan Lokey pursuant to the terms of this Agreement) was not reasonable based upon the services actually provided by Houlihan Lokey. -- Reimbursement of Expenses: In addition to any other payments and regardless of whether any Transaction is consummated, Houlihan Lokey shall be reimbursed for all out-of-pocket expenses that are reasonably incurred in connection with its services. Such fees and expenses will include, but not be limited to, travel expenses, communication charges, database charges, copying expenses, and delivery and distribution charges. -- Tail Period: Notwithstanding any termination of the Engagement Letter, Houlihan Lokey shall be entitled to full payment, in cash, of the Transaction Fees so long as a Transaction is consummated with the consent or approval of the Committee (by majority vote) during the term of the Engagement Letter, or within 6 months after the date of termination of the Engagement Letter. -- Indemnification: The Debtors shall indemnify Houlihan Lokey to the fullest extent lawful, from and against any and all losses, claims, damages or liabilities -- except for any liability resulting from Houlihan's bad faith, self-dealing, willful misconduct or gross negligence. Eric Siegert, Managing Director of Houlihan Lokey Howard & Zukin Financial Advisors Inc., assures the Court that the terms and conditions of the Engagement Letter were heavily negotiated between the Committee and Houlihan Lokey. Mr. Siegert acknowledges that the Monthly Fee and the Transaction fee are somewhat larger than that ordinarily charged by the firm. "But this is due to the fact that this is one of the largest and most complex restructuring efforts ever undertaken in the United Sates, and that Houlihan Lokey will be required to dedicate more professionals and other resources to this engagement," Mr. Siegert explains. Mr. Siegert maintains that the firm is a "disinterested person" as the term is defined in Section 101(14) of the Bankruptcy Code. After conducting a check on the Houlihan Lokey's relationship with the parties-in-interest in these cases, Mr. Siegert tells Judge Gonzalez that the firm holds no materially adverse interest as to the matters upon which Houlihan Lokey is to be retained. But should the firm discover additional facts, Mr. Siegert promises to file a supplementary affidavit with the Court immediately. (Enron Bankruptcy News, Issue No. 12; Bankruptcy Creditors' Service, Inc., 609/392-0900) ENVIRO-RECOVERY: Creditors File Involuntary Chapter 11 Petition --------------------------------------------------------------- On January 25, 2002, several creditors of Enviro-Recovery, Inc. and Superior Water Logged Lumber Company, Inc. filed involuntary petitions against each company under Chapter 11 of the United States Bankruptcy Code. The actions were filed at the United States Bankruptcy Court in the Western District of Wisconsin, located in Eau Claire, Wisconsin, Case Numbers 02-10456-11 (Enviro) and 92-10457-11 (Superior). The Company is engaged primarily in the production of lumber and wood products from old growth forest timber recovered from the bottom of the lakes and rivers of North America. Lumber sales are made to customers located mainly in the upper Midwestern region of the United States. EUPHONIX INC: Gets Approval to Restructure Promissory Notes ----------------------------------------------------------- Over the last 12 months, Euphonix, Inc., (OTCBB:EUPH) has made a number of strategic changes to enhance its long-term growth and financial operating results. These changes included the decision to focus on its core business of large format mixing consoles. During these trying economic and political times, Euphonix has continued to invest in current and new product development. While the Company's overall headcount has been reduced, there have been staffing increases in engineering and marketing. As part of its plan to enhance its future financial operating results, the Company announced on Feb. 7, 2002, that its Board of Directors had unanimously approved the filing of Form 15 with the Securities and Exchange Commission. Filing Form 15 allows Euphonix to suspend its obligations to file periodic reports with the Securities and Exchange Commission, including Forms 10- Q and 10-K. As a result, Euphonix is now a privately held company. One of the practical effects of this decision will be to remove the burdensome accounting, legal and administrative costs associated with SEC reporting, which has been a material cost element of the Company's operating cost. The projected accounting and legal cost savings will help to bring the Company's expenses more in line with its revenues and will enable the Company's management to focus more of its time on other business issues. Euphonix also recently garnered the necessary shareholder approval for its $6.0 million line of credit secured in November 2001 and the restructuring of the Company's existing promissory notes, which included extending the maturity dates to December 2003. The $6.0 million line of credit will be used to support investment in new product development and future operations. The line of credit was obtained from Dieter Meier and Walter Bosch, significant shareholders and creditors of Euphonix who also serve on the Company's Board of Directors. On August 1, 2001, Jeffrey Chew was appointed CEO of the Company after rejoining Euphonix in January 2001 as COO. From 1991 to 1997, Mr. Chew was employed by Euphonix, where his last position was Chief Financial Officer and VP Finance, which included responsibilities for manufacturing operations, and in 1995 led the Company's IPO. From 1997 to 2000, Mr. Chew was CFO for Women.com and then Sierra Imaging, where he led the merger of Sierra with Conexant. In December 2001, Andrew Wild rejoined Euphonix as VP of Marketing, during 1991 to 1996 he was VP Sales and Marketing at Euphonix. Mr. Wild was CEO of DSP Media, an Australian-based digital audio workstation company, for the past two years. While his focus is on marketing, Mr. Wild will be very involved in sales activities, especially in the US. In January 2002, Euphonix appointed Martin Kloiber as the Executive Vice President of Technology. Kloiber was previously head of new technology developments at the Company and is a member of the Euphonix Board of Directors. Kloiber holds a degree in music and electronics, and has been working as an independent music producer and engineer since 1984. In 1992, Kloiber co-founded, designed and acted as chief engineer for Soundproof Studios in Los Angeles. Soundproof is home to European music duo, Yello and includes a Euphonix System 5 console and R-1 multi-track recorder. Chairman of the Board, musician and filmmaker, Dieter Meier explained the reasoning behind the new investment and the company's goals, "First I invested by buying stock about 4 years ago. Then I got closer to Euphonix and supported the development of the first fully digital large format console, System 5, because I was convinced that in a world of propeller planes, this company was working on a jet engine. To aggressively attack the large format post and broadcast market, my group of investors recently decided to commit sufficient funds in the order of six million dollars." He added, "I want to make Euphonix very profitable and very strong...we are in business for the long haul." On the subject of the staffing changes, Dieter commented, "We need to be more market driven as a company, providing solutions for customers in the broadcast, post and music markets. Andrew Wild and Martin Kloiber both have a great deal of experience in the audio industry and can help to make Euphonix number one." Euphonix is a leading manufacturer of large format digital audio consoles and digital peripherals for broadcast, post and music production. More information is available at 650/855-0400 or on the Euphonix Web site at http://www.euphonix.com EXODUS COMMS: Fleet Wants Monthly Payment of Postpetition Rent -------------------------------------------------------------- Fleet Business Credit LLC moves the Court for entry of an order requiring Exodus Communications, Inc., and its debtor-affiliates to pay monthly rent due for the rental of personal property until those leases are assumed or rejected amounting to a total of $643,565.64 and for allowance of administrative claim in the current amount of $1,023,375.50 or in the alternative, relief from the automatic stay. Regina A. Iorii, Esq., at Ashby & Geddes in Wilmington, Delaware, contends that the Debtors are delinquent in their rental payments to Fleet under the lease amounting to a total of $643,565.64. Because the Debtors filed their bankruptcy petition in September 2001, the 60-day breathing period provided for in section 365(d)(10) has expired and the Debtors must comply with their obligations under the leases and schedules. Notwithstanding this obligation, the Debtors have not fully complied with their obligations under the leases and have not made any rental payments since December 2001. As the Debtors are continuing to possess and use the personal property leased under the master leases and schedules without compensating Fleet for the use of property, Ms. Iorii contends that Fleet is entitled to adequate protection of its ownership interests. The adequate protection payments should consist of the full lease payments as required under the leases and schedules. (Exodus Bankruptcy News, Issue No. 13; Bankruptcy Creditors' Service, Inc., 609/392-0900) FACTORY CARD: Plan Confirmation Hearing Scheduled for March 20 -------------------------------------------------------------- UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE In re : Chapter 11 Case Nos. : FACTORY CARD OUTLET CORP, and : 99-685 (EIK) FACOTRY CARD OUTLET OF : 99-686 (EIK) AMERICA LTS., : : (Jointly Administered) Debtors. : NOTICE OF HEARING TO CONSIDER CONFIRMATION OF DEBTORS' JOIN PLAN OF REORGANIZATION NOTICE IS HEREBY GIVEN as follows: 1. On February 5, 2002, Factory Card Outlet Corp. and Factory Card Outlet of America Ltd. (collectively, the "Debtors") filed with the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") an amended joint plan of reorganization, dated February 5, 2002 (the "Plan"). On February 5, 2002, after notice and a hearing, pursuant to sections 1125 and 1126(b) of title 11 of the United States code (the "Bankruptcy Code"), the Bankruptcy Court approved the disclosure statement with respect to the Plan, forms of ballot, balloting instructions and solicitation procedures, and established voting deadlines and procedures for a tabulation of votes (the "Disclosure Statement Order"). Pursuant to the Disclosure Statement Order, the Bankruptcy court has set March 13, 2002 as the deadline by which votes must be actually received by the Debtors' balloting agent on or before 5:00 p.m. Pacific Time. 2. A hearing to consider confirmation of the plan, including the substantive consolidation of the Debtors (for Plan purposes only) provided for thereunder, and any objections thereto will be held before the Honorable Erwin I. Katz, United States Bankruptcy Judge at the United States Bankruptcy court for the Northern District of Illinois, 219 South Dearborn Street, Courtroom 760, Chicago, Illinois 60604 on March 20, 2002 at 10:00 a.m., Central Time, or as soon thereafter as counsel may be heard (the "Confirmation Hearing"). The Confirmation Hearing may be adjourned from time to time without further notice other than an announcement of the adjourned date or dates at the Confirmation Hearing or at an adjourned Confirmation Hearing. 3. In accordance with the Disclosure Statement Order, all notices, copies of the Plan, the approved disclosure statement, ballots, and balloting instructions will be mailed to the holders of claims and equity interests of record as of January 31, 2002, who are entitled to vote on the Plan. Holders of claims or interests who are not entitled to vote on the Plan shall receive a separate notice of non-voting status outlining the Debtors' proposed treatment of their nonvoting claims of interests. 4. Any objections to the Plan, including the substantive consolidation of the Debtors (for Plan purposes only) provided for thereunder, shall be in writing, shall set forth the name of the objectant, the nature and amount of any claims or interests held by the objectant against the Debtors, the basis for the objection and the specific grounds therefore and (a) shall be filed with the Clerk of the Bankruptcy Court, together with proof of service, no later than 4:00 p.m., Eastern time, on March 13, 2002 at the United States Bankruptcy Court for the District of Delaware, 844 King Street, Wilmington, Delaware 19801 and (b) must be served so as to be received on or before 4:00 p.m., Eastern Time, on March 13, 2002 on (i) Attorneys for the Debtors, Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, NY 10153 Attn: Richard P. Krasnow, Esq.; (ii) Attorneys for the Debtors, Richards, Layton & Finger, P.A., One Rodney Square, PO Box 551 Wilmington, DE 19899, Attn: Daniel J. DeFranceschi, Esq., (iii) Office of the United States Trustee, 844 King Street, Suite 2313, Lockbox 35, Wilmington, DE 1981- 3519; (iv) Attorneys for the Creditors Committee, Otterbourg, Steindler, Houston & Rosen, P.C., 230 Park Avenue, New York, NY 10169, Attn: Scott L. Hazan, Esq.; (v) Attorneys for the Equity Committee, sidley Austin Brown & Wood, 10 S. Dearborn Street, Chicago, IL 60603, Attn: Bryan Krakauer, Esq.; (vii) Attorneys for the Equity Committee, Rosenthal, Monhait, Gross & Goddess, P.A., Mellon Bank Center, PO Box 1070, Suite 1401, Wilmington, DE 19899-1070, Attn: Kevin Gross, Esq.; (viii) Attorneys for the Debtors' Postpetition Lenders, Choate, Hall & Steward, Exchange Place, 53 State Street, Boston, MA 02109, Attn: Peter Palladino, Esq.; (ix) Attorneys for the Debtors' Postpetition Lenders Morris, Nichols, Arsht & Tunnell, 1201 North Market Street, PO Box 1347, Wilmington, DE 19899, Attn: Derek C. Abbott, Esq; and (x) the United States Securities and Exchange Commission, Midwest Regional Office, 500 West Madison Street, Chicago, Illinois 60661, Attn: Jolene M. Wise, Esq. Replies to objections to the Plan, if any, may be filed no later than 4:00 p.m. Eastern Time on march 19, 2002. Dated: Wilmington, Delaware February 5, 2002 Richard P. Krasnow WEIL, GOTSHAL & MANGES LLP 767 Fifth Avenue New York, New York 10153 (212) 310-8000 Daniel J. DeFranceschi (No. 2732) RICHARDS, LAYTON & FINGER, P.A. One Rodney Square PO Box 551 Wilmington, Delaware 19899 (302) 658-6541 Attorneys For Debtors FEDERAL-MOGUL: Future Claimants Tap Young Conaway as Counsel ------------------------------------------------------------ Eric D. Green, Esq., the proposed legal representative for future asbestos-related claimants of Federal-Mogul Corporation, and its debtor-affiliates, moves the Court for entry of an order authorizing his employment and retention of Young Conaway Stargatt & Taylor LLP as counsel, effective January 7, 2002. The Future Claimants' Representative seeks to retain Young Conaway because its attorneys have extensive experience and knowledge in the field of corporate reorganization, debtors and creditors' rights and in particular, the resolution of asbestos- related liabilities. Accordingly, the futures representative believes that Young Conaway is well qualified to represent him in these cases. Mr. Green relates that Young Conaway has substantial experience in bankruptcy cases affecting the rights of mass-tort asbestos claimants, having represented the legal representative for unknown bodily injury claimants in the Celotex bankruptcy cases, currently represents the unknown asbestos bodily injury claimants in The Babcock & Wilcox Co., and the Owens Corning cases and also represents the Debtor in the asbestos-related chapter 11 case of Fuller-Austin Insulation Co. The services that Young Conaway will perform to enable the Future Representative to execute his duties and responsibilities in connection with these cases include: A. provide legal advice with respect to the Future Representative's power and duties as Future Representative for the Future Claimants; B. taking any and all actions necessary to protect and maximize the value of the Debtors' estates for the purpose of making distributions to Future Claimants and to represent the Futures Representative in connection with negotiating, formulating, drafting, confirming and implementing a plan of reorganization and performing such other functions reasonably necessary to effectively represent the interest of Future Claimants; C. preparing on behalf of the Future Representative the necessary applications, motion, objections, answers, orders, reports and other legal papers in connection with the administration of these cases; D. performing other legal services and other support requested by the Future Representative in connection with these cases. James L. Patton Jr., Esq., at Young Conaway Conaway Stargatt & Taylor LLP, relates that the Firm intends to apply for compensation for professional services rendered in connection with these cases and for reimbursement of actual and necessary incurred. The attorneys and paralegals presently designated to represent the Futures Representative and their current standard hourly rates are: James L. Patton Jr. (Partner) $475 per hour Edwin J. Harron (Associate) 330 per hour Timothy E. Lengkeek (Associate) 220 per hour Sandi Van Dyk (Paralegal) 130 per hour (Federal-Mogul Bankruptcy News, Issue No. 10; Bankruptcy Creditors' Service, Inc., 609/392-0900) FOCAL COMMS: Morgan Stanley Discloses 11.3% Equity Stake -------------------------------------------------------- Morgan Stanley Dean Witter & Co. report the beneficial ownership of 19,321,789 shares of the common stock of Focal Communications Corporation, which represents 11.2763% of the outstanding common stock of the Company. Accounts managed on a discretionary basis by Morgan Stanley Dean Witter & Co. are known to have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of such securities. No such account holds more than 5 percent of the class. Morgan Stanley Dean Witter & Co. possess the shared powers to vote and dispose of the stock held. Focal Communications gets right to the point: The competitive local-exchange carrier (CLEC) provides local and long-distance voice services over more than 500,000 access lines in more than 20 US metropolitan markets. Targeting large corporations, it also offers such data services as Internet access and remote access to LANs, ISPs, and value-added resellers. Focal owns and operates switches and leases transport capacity; it typically provides its services over T1 lines. Nearly 70% of Focal's lines are used for data traffic, and the company has rolled out broadband digital subscriber line (DSL) service. Focal also offers equipment colocation for ISPs. Investment firm Madison Dearborn owns 35% of the company. At June 30, 2001, the company recorded a total shareholders' equity deficit of $23 million. GLOBAL CROSSING: Signs-Up Arthur Andersen as Auditors ----------------------------------------------------- Global Crossing Ltd., and its debtor-affiliates ask that the Court to approve their employment of Arthur Andersen to, without limitation: A. audit financial statements and assist in preparing and filing financial statements and disclosure documents required by the SEC and statutory and/or other regulatory authorities around the world; B. audit examinations of any benefit plans as may be required by the Department of Labor or by the Employee Retirement Income Security Act and provide consultation with respect to other employee matters; C. review unaudited quarterly financial statements of the Debtors as required by applicable law or regulations, or as requested by the Debtors; D. provide other tax consulting and preparation services; E. assist in preparing financial disclosures required by the Court, including the schedules of assets and liabilities, the statement of financial affairs and monthly operating reports; F. assist the Debtors, and other financial professionals retained by the Debtors, with the preparation of their business plan on a collaborative basis so as not to be duplicative in effort or expense; G. assist the Debtors by analyzing operations and identifying areas of potential cost savings and operating efficiencies; H. assist in the coordination of responses to creditor information requests and interfacing with creditors and their financial advisors; I. assist Debtors' legal counsel, to the extent necessary, with the analysis and revision of the Debtors' plan or plans of reorganization; J. attend meetings and assist in discussions with the Creditors' Committee, the U.S. Trustee, and other interested parties, to the extent requested by the Debtor; K. consult with the Debtors' management on other business matters relating to its chapter 11 reorganization efforts; and L. assist with such other matters as Debtors' management or legal counsel and Andersen may mutually agree. Mitchell C. Sussis, the Debtors' Corporate Secretary, tells the Court that Andersen's services as auditors and accounting, tax and financial advisors are necessary in order to enable the Debtors to execute their duties as debtors and debtors in possession. The services to be rendered by Andersen are not intended to be duplicative in any manner with the services performed and to be performed by any other party retained by the Debtors and the firm will undertake every reasonable effort to avoid any duplication of their respective services. Andersen is well qualified to perform the auditing and accounting, tax, and financial advisory services as described above, and the Debtors know of no reason why Andersen should not be retained. Andersen partner James M. Lukenda relates that, in accordance with Andersen's historical billing practices with the Debtors, the firm provides fixed-fee or reduced hourly billing rate arrangements with the Debtors for non-restructuring related Audit Services, and anticipates providing fixed-fee or reduced hourly billing rate arrangements with the Debtors for non- restructuring related Audit Services, relating to the review of the Debtors' quarterly financial statements for 2002, audits of various benefit plans for the year ended December 31, 2001, and statutory audits of financial statements for Debtor and non- Debtor subsidiaries/affiliates throughout the world. The fee for the services will be $1,125,000 plus out of pocket expenses. Billings will be made as follows: 2001 Q1 and Q2 Reviews $125,000 (previously billed) October 10, 2001 $200,000 November 10, 2001 $200,000 December 10, 2001 $200,000 January 10, 2002 $200,000 February 10, 2002 $200,000 For all other advisory services, Mr. Lukenda states that Andersen will seek to be compensated for services actually rendered on an hourly basis at the firm's customary rates and disbursements incurred. The customary hourly rates of Andersen are as follows: Partners/Principals $425 - 600 Managers/Directors $310 - 525 Seniors/Associates/Consultants $180 - 495 Staff/Analysts/Paraprofessionals $ 90 - 250 Mr. Lukenda asserts that Andersen has not had any prior association with the Debtors, any creditors of the Debtors, or any other parties in interest in these chapter 11 cases, or their respective attorneys and accountants, identified at the present time, except that: A. As independent auditors, Andersen has audited the financial statements of the Debtors since fiscal 1997. Andersen has, since the date of appointment as auditors, also performed various accounting advisory, transaction advisory, and tax services for the Debtors. B. Andersen has performed professional services in unrelated matters for certain parties of interest including: The Pacific Capital Group, CISCO Systems Inc., Sonus Networks Inc., Qwest Communications Corporation, ABN Amro bank N.V., Alliance Capital Management, Allstate Insurance, Bank Leumi, Bank of America, Bank of China, Bank of Nova Scotia, Bank of Tokyo Mitsubishi, Bank One, Black Diamond Capital Mgmt., LLC, Caravelle Advisors LLC, CIBC Oppenheimer, Citibank, First Union, Industrial Bank of Japan, Indosuez, JP Morgan/Chase, Morgan Stanley Dean Witter, Pacific Investment Management Company, Sumitomo Trust & Banking Co., West LB, Banc One, Trust Company of the West, Alcatel, Lucent, Cisco, Sonus Networks Limited, Versatel Telecom Europe, Enron, United States Trust Company of New York, Canadian Imperial Bank of Commerce, Citicorp USA, Inc., Salomon Smith barney, Inc., West LB, Pacific Capital Group, Inc., and Softbank Corp. None of the entities represent more than 1.0% of Andersen's annual revenues. Andersen has not been retained to assist any of these entities with regard to these chapter 11 cases. C. Andersen has worked, continues to work, and has mutual clients with Weil Gotshal, Skadden, Arps, Slate, Meagher, & Flom LLP, tax counsel, Simpson Thatcher & Bartlett, general counsel, and Milbank Tweed Hadley & McCloy LLP, counsel to the Debtors' bank group. Andersen has coordinated efforts with these firms on common client engagements and has been retained directly by these firms for professional services. D. The Debtors have numerous additional creditors, equity security holders and other parties with whom they maintain significant business relationships and these creditors, equity security holders and other parties may be represented by counsel in addition to those firms identified. Andersen may have audit, tax, financial advisory, consulting or other professional relationships with such entities or persons or Andersen may, from time to time, perform professional services for such entities or persons unrelated to the Debtors or their business affairs. E. Asia Global Crossing Ltd. and certain of its subsidiaries have engaged Andersen to perform audits of their December 31, 2001 financial statements. Andersen has, since the date of appointment as auditors, also performed various accounting advisory, transaction advisory, and tax services for the Asia Global Crossing Ltd. and its subsidiaries. F. Certain Debtors' have also engaged Andersen to perform various statutory audits as required by local regulation throughout the world. G. Andersen received a retainer of $750,000 from the Debtors in connection with this case for pre-petition services and services to be rendered subsequent to January 28, 2002 and to be applied to Andersen's final allowance for services in this case. Within the one-year and ninety day periods prepetition, Mr. Lukenda informs the Court that Andersen received compensation of approximately $13,800,000 and $4,325,000, respectively and inclusive of the retainer above, from the Debtors related to services provided including attest and audit services, assisting in the preparation of various forms and reports required to be filed with the Securities and Exchange Commission and other regulatory entities, rendering tax return preparation and tax consulting services, transaction advisory services, and restructuring assistance. (Global Crossing Bankruptcy News, Issue No. 2; Bankruptcy Creditors' Service, Inc., 609/392-0900) GLOBO CABO: S&P Drops and Places Low-B Ratings on Watch Negative ---------------------------------------------------------------- Standard & Poor's lowered its foreign and local currency corporate credit and senior unsecured debt ratings on Globo Cabo S.A. to single-'B'-plus from double-'B'-minus. At the same time, the ratings were placed on CreditWatch with negative implications. The downgrade of Globo Cabo follows that of its controlling shareholder, Globopar S.A. The ratings on Globo Cabo incorporated Standard & Poor's perception that the company was strategic to distributing content produced at TV Globo Ltda., and Globosat, and therefore counted on operating and financial support from Globopar, benefiting Globo Cabo's rating. Due to Globopar's own diminished financial flexibility, such capacity to provide support is now more limited. The ratings on Globo Cabo reflect the challenges of operating in a volatile economy, as well as the company's high indebtedness and the currency mismatch between debt and cash generation. These weaknesses are partially offset by Globo Cabo's leading market position in pay-TV, the favorable growth prospects for non-traditional pay-TV services, as well as the above-mentioned support albeit diminished from Globopar. To reduce its vulnerability to exchange-rate fluctuations, Globo Cabo has been working with controlling shareholders to rearrange its capital structure. At the same time, the company is working with bankers to resolve the refinancing of short-term maturities with longer-term instruments. These actions should bring debt levels more in line with the company's capacity to generate cash and to amortize debt. Additionally, the company is implementing a significant cost reduction plan, which includes cuts in workforce, outsourcing, capturing of synergies with Net Sul, renegotiation of programming contracts to include multi-year contracts or more predictable prices, and more selective investment decisions. These measures have already resulted in stronger profitability in the third quarter of 2001, when the EBITDA margin improved to 27.8% of sales, compared to 22.2% in the previous quarter. EBITDA to interest ratio improved slightly to 1.2x. Still, overall, financial ratios are in line with Standard & Poor's expectations, and should remain stable, as Globo Cabo is focusing on revenue growth from existing customers and on leveraging the usage of the existing network. The CreditWatch on Globo Cabo ratings will be resolved together with the rating action taken on Globopar, which will depend on the debt reduction strategies of Globopar. GLOBOPAR: S&P Concerned About Diminished Financial Flexibility -------------------------------------------------------------- Standard & Poor's lowered its foreign currency corporate credit and senior unsecured ratings on Globopar S.A. and TV Globo Ltda. to single-'B'-plus from double-'B'-minus. At the same time, Standard & Poor's lowered its local currency corporate credit ratings on Globopar and TV Globo to single-'B'-plus from double- 'B'. The foreign currency ratings were placed on CreditWatch with negative implications, while the local currency rating remain on CreditWatch with negative implications since May 21, 2001. The downgrade reflects the company's diminished financial flexibility and Standard & Poor's expectations that credit measures will continue to be under pressure over the intermediate term. The local currency rating was placed on CreditWatch with negative implications in May 2001, reflecting the group's weak performance in the previous two quarters (fourth quarter 2000 and first quarter 2001), together with its inability to meet Standard & Poor's expectations of continuous improvement in Globopar's financial profile through significant leverage reduction and sustainable cash flow generation. While Standard & Poor's had originally expected only a one-notch downgrade of the local currency rating, the economic environment, as well as its impact on Globopar's financial performance, have been worse than originally anticipated. The foreign currency ratings, which were already one notch lower that the local currency ratings, were lowered by one notch. Lower advertising revenues and weak performance at smaller subsidiaries have depressed cash generation and resulted in deterioration in the group's financial profile. The devaluation of the real in the past few months has put substantial stress on the group's financials, because revenues and cash are generated in reais, while debt service is mostly U.S. dollar-denominated. As a consequence, the group's cash position, which was important to offsetting considerable refinancing risk, was significantly reduced. After the conclusion of Globo Cabo's recapitalization plan in 1999, and the significant excess liquidity brought by the sale of 30% of Globo.com to Telecom Italia, Standard & Poor's expected the group to reduce debt. However, capital requirements at subsidiaries, for investments and financial support, the devaluation of the currency and sharp decrease in advertising revenues in 2001, have reduced the group's cash position and consequently its financial flexibility. The EBITDA margin of TV Globo, the group's main generator of free cash flow, fell by 50% due to significant decline in business confidence and advertising spending brought about by the 2001 Argentine crisis and the energy rationing. As a result, TV Globo experienced a decrease in revenues of some 13% but was unable to reduce costs proportionally. Profitability and cash flow measures in the last 12 months (LTM) ended September 2001 were very weak, with the EBITDA margin for the period reaching a low 10%, pushing interest coverage ratios (EBITDA to interest) down to 0.5x, compared to 0.7x in the same period in 2000. The group's capital structure also deteriorated with the real devaluation and low free cash flow: debt to capital reached 63% and debt to EBITDA soared to 15.2x in the LTM ended September 2001, compared to 48% and 9.2x, respectively in 2000. As of September 2001, net debt position has increased by $340 million from December 2000. Standard & Poor's understands that TV Globo's capacity to generate cash will improve in 2002 since the Soccer World Cup and presidential elections should improve advertising revenues. Appreciation of the local currency should have a positive impact on results also. At the same time, Standard & Poor's expects management will take appropriate steps to reduce debt and improve financial ratios. The CreditWatch will be resolved as soon as management determines and communicates a timely plan to improve its financial profile. Globopar is a holding company for units involved in cable-TV production and distribution, DTH satellite, publishing, and Internet-related services. Globopar is analyzed on a consolidated basis with its subsidiaries including TV Globo, the principal units of which guarantee Globopar's rated debt. In its analysis, Standard & Poor's makes certain adjustments to Globopar's consolidated numbers, one of them being the incorporation of debt of non-consolidated affiliated and subsidiary companies guaranteed by Globopar. HAMPTON IND.: Hires McGladrey to Replace Deloitte as Auditors ------------------------------------------------------------- Effective January 28, 2002, Hampton Industries, Inc. dismissed its prior independent accountant, Deloitte & Touche LLP. The decision to change accountants was approved by the audit committee of Hampton's Board of Directors. Deloitte's independent auditors' report dated March 28, 2001 on Hampton's consolidated financial statements as of and for the years ended December 30, 2000 and January 1, 2000 appearing in Hampton's Annual Report on Form 10-K for the year ended December 30, 2000 contained a disclaimer of opinion as illustrated in the following explanatory paragraphs: "The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note B to the consolidated financial statements, the Company's recurring losses from operations, default of certain financial covenants and borrowing base limitations under its senior credit facility, and the Company's plan to sell all or a portion of the Company's assets raise substantial doubt about its ability to continue as a going concern." "Because of the possible material effects of the uncertainty referred to in the preceding paragraph, we are unable to express, and we do not express an opinion on the consolidated financial statements and the financial statement schedule for the year ended December 30, 2000." Effective January 28, 2002, Hampton engaged McGladrey & Pullen P.C. as its principal accountant. HEARTLAND TECHNOLOGY: Fails to Meet AMEX Listing Guidelines ----------------------------------------------------------- Heartland Technology, Inc., (Amex: HTI) reported that Gordon Newman has resigned from the board of directors, effective February 11, 2002. Newman was a Class I director whose term of office ran through the company's 2003 annual meeting. The company also reported that it has been informed by staff of the American Stock Exchange that the company does not currently meet certain guidelines for listing on the exchange and the company's continued listing eligibility is being reviewed. Heartland Technology has filed Form 8-K reports with the Securities and Exchange Commission regarding each of these events. ICG COMMS: Court Extends Time to Remove Litigation Until May 8 -------------------------------------------------------------- Judge Walsh approves ICG Communications, Inc. and its debtor- affiliates' motion to further extend the time within which they may remove proceedings pending as of the commencement of their chapter 11 cases. The time by which they may file notices of removal with respect to any pending actions is further extended until the earliest of: (a) May 8, 2002; (b) 30 days after entry of an order terminating the automatic stay with respect to any particular Action sought to be removed; and (c) the effective date of a plan of reorganization for the Debtors. (ICG Communications Bankruptcy News, Issue No. 17; Bankruptcy Creditors' Service, Inc., 609/392-0900) IT GROUP: Gets Okay to Pay $3MM Prepetition Employee Obligations ---------------------------------------------------------------- The IT Group, Inc., and its debtor-affiliates are authorized to reimburse employee expenses in the amount of $750,000, employee benefits in the amount of $2,110,000 and workers compensation claims in the amount of $200,000 as set forth in the DIP budget for the period January 22 to February 15, 2002. (IT Group Bankruptcy News, Issue No. 4; Bankruptcy Creditors' Service, Inc., 609/392-0900) INFERTEK INC: Process to Cease Business Operations Underway ----------------------------------------------------------- Infertek, Inc. (OTCBB: IFRKE), (Frankfurt SMQ:FSE), (formerly SmartSources.com) announced that it has initiated the process of curtailing its operations. Although the results of Infertek's operations have continued to improve in recent months, they have not resulted in any significant net positive cash flow, and the Company's financial condition has continued to deteriorate. In recent months, Infertek's existing and potential customers have identified the existence of the company's indebtedness to its principal creditor as a reason for declining to award new business to Infertek. In the last months, Infertek attempted but was unsuccessful in negotiating with this creditor an exchange of this indebtedness for equity, and Infertek has not made the interest payments on this indebtedness that came due in January and February 2002. In view of these circumstances, the audit of the Company's financial statements for its fiscal year ended September 30, 2001 has not been completed by its new auditors, and Infertek was not able to timely file its annual report on Form 10-KSB. As a consequence, cessation of quotation of its shares of common stock on the Over-the-Counter Bulletin Board is imminent, and the Company has filed a certification to terminate the registration of its shares of common stock under the United States Securities Exchange Act of 1934 and suspending its obligations to file periodic reports with the United States Securities and Exchange Commission. Because virtually all of its assets consist of intangibles having little if any value without technical and other support services related to those assets, Infertek will attempt to retain its key support staff as long as feasible under the circumstances to continue to fully serve its customers and retain existing value as an operating unit. Infertek is presently seeking a purchaser for all or a portion of its assets, together with an assignment of staff related to the operations associated with those assets, in an attempt to realize some value in order to make partial payment to its creditors. Infertek, Inc., develops and markets software technology, services and solutions for content and knowledge management through the use and application of its proprietary technology known as kServer. To date the company has targeted the public sector, travel and transportation and international trade market verticals and has successfully delivered its products and services to a wide number of clients in the United States, Canada, Europe and Mexico. The company's partnership strategy aims to introduce its product offering in other vertical markets by positioning Infertek's partners (kPartners) and methodology (kMethodology) on a unique system that enables and empowers individuals and organizations to deliver and implement robust web strategies. Additional information can be obtained by visiting the company's Web site at http://www.infertek.comor by contacting Anna Stylianides at (604) 904-8359, toll- free at (888) 689-9891 or by email at annas@infertek.com INTELLICORP: Fails to Comply with Nasdaq Listing Requirements ------------------------------------------------------------- IntelliCorp, Inc. (Nasdaq:INAI), a leading provider of eBusiness and eCRM solutions for the SAP community, announced that it received a Nasdaq Staff Determination on February 7, 2002, indicating that the Company fails to comply with the net tangible assets or the minimum stockholders' equity requirements for continued listing set forth in Marketplace Rule 4310(c)(2)(B), and that its securities are, therefore, subject to delisting from the Nasdaq SmallCap Market. The Company has requested a hearing before a Nasdaq Listing Qualifications Panel to review the Staff Determination. There can be no assurance the Panel will grant the Company's request for continued listing. IntelliCorp is a leading solutions and services firm focused on the implementation of Sales Side B2B, B2C and B2R solutions requiring extensive technical integration and business process expertise. Today's competitive climate requires the tight integration of eBusiness channels with back-office systems to drive business growth, and increase customer satisfaction and retention. IntelliCorp has deep capability and experience with SAP R3, MySAP.com, Siebel eBusiness Applications, and a number of other dominant software suites and components. In addition, IntelliCorp offers a suite of software solutions, tools, and applications for business process management and support of the integration and management of SAP's back office systems. Headquartered in Mountain View, CA, the company has offices across the United States and throughout Europe. IntelliCorp's web site is http://www.intellicorp.com/ KMART CORP: Court Approves Professionals' Compensation Protocol --------------------------------------------------------------- Kmart Corporation, and its debtor-affiliates sought and obtained the Court's authority to establish these procedures for compensation and reimbursement of court-approved professionals: (a) On or before the last day of each month following the month for which compensation is sought, each professional will submit a monthly statement to: (i) The Debtors at Kmart Corporation 31110 West Big Beaver Road Troy, Michigan 48084-3163 Attn: Janet Kelley Senior Vice President & General Counsel; (ii) Counsel to the Debtors Skadden, Arps, Slate, Meagher & Flom (Illinois), 333 West Wacker Drive, Suite 2100 Chicago, Illinois 60606 Attn: John Wm. Butler, Jr.; (iii) Counsel to the administrative agents for Debtors' post-petition lenders Morgan Lewis & Bockius 101 Park Avenue, New York, New York 10178 Attn: Robert H. Scheibe and Jay Teitelbaum and Katten Muchin Zavis 525 West Monroe Street, Suite 1600 Chicago, Illinois 60661 Attn: Jeff Marwil and Brian Swett; (iv) Counsel to any official committee appointed in these cases (who shall serve a notice of appearance on the Master Service List promptly after its retention); and (v) The United States Trustee U.S. Trustee, Region 11 Northern District of Illinois 227 West Monroe Street, Suite 3350 Chicago, Illinois 60606 Each such person receiving such a statement will have 20 days after the Monthly Statement Date to review the statement. (b) At the expiration of the 20-day period, the Debtors shall promptly pay 90% of the fees and 100% of the disbursements identified in each monthly statement, except such fees or disbursements as to which an objection has been served. Any professional who fails to submit a monthly statement shall be ineligible to receive further payment of fees and expenses as provided herein until such time as the monthly statement is submitted. The first statements shall be submitted and served by each of the professionals by March 29, 2002 and shall cover the period from the commencement of this case through February 28, 2002; (c) In the event that any of the Debtors, the United States Trustee, the Debtors' post-petition lenders or the Committee has an objection to the compensation or reimbursement sought in a particular statement, such party shall, within 20 days of the Monthly Statement Date, serve upon the respective professional and the other persons designated to receive monthly statements, a written "Notice of Objection to Fee Statement" setting forth the precise nature of the objection and the amount at issue. Thereafter, the objecting party and the Professional whose statement is objected to shall attempt to reach an agreement regarding the correct payment to be made. If the parties are unable to reach an agreement on the objection within 20 days after receipt of such objection, the objecting party may file its objection with the Court and serve such objection on the respective professional and the other parties designated to receive monthly statements parties and the Court shall consider and dispose of the objection at the next interim fee application hearing. The Debtors will be required to pay promptly those fees and disbursements that are not the subject of a Notice of Objection to Fee Statement. (d) Approximately every 4 months, each of the Professionals shall file with the Court and serve on the parties designated to receive monthly statements, on or before the 45th day following the last day of the compensation period for which compensation is sought, an application for interim Court approval and allowance, pursuant to section 331 of the Bankruptcy Code, of the compensation and reimbursement of expenses requested for the prior 4 months. The first such application shall be filed on or before June 17, 2002 and shall cover the period forth the commencement of these cases through April 30, 2002. Any professional who fails to file an application when due shall be ineligible to receive further interim payments of fees or expenses as provided herein until such time as the application is submitted. (e) The pendency of an application or a court order for payment of compensation or reimbursement of expenses, and the pendency of any Notice of Objection to Fee Statement or other objection, shall not disqualify a Professional from the future payment or compensation or reimbursement of expenses. Neither the payment of, nor the failure to pay, in whole or in part, monthly interim compensation and reimbursement as provided herein shall bind any party-in-interest or this Court with respect to the allowance of applications for compensation and reimbursement of Professionals. (f) Each member of the Committee in this case shall be permitted to submit statements of expenses and supporting vouchers to counsel for the Committee who shall collect and submit such requests for reimbursement in accordance with the procedure for monthly and interim compensation and reimbursement of Professionals. The Debtors contend that these procedures will streamline the professional compensation process and enable the Court and all other parties to monitor the professional fees incurred in these Chapter 11 cases more effectively. (Kmart Bankruptcy News, Issue No. 3; Bankruptcy Creditors' Service, Inc., 609/392-0900) LIONBRIDGE TECHNOLOGIES: Rory Cowan Discloses 9.15% Equity Stake ---------------------------------------------------------------- Rory J. Cowan may be deemed to beneficially own 2,850,748 shares of the common stock of Lionbridge Technologies, Inc. as of December 31, 2001. Such shares include 154,164 shares of common stock deemed to be beneficially owned by Mr. Cowan by virtue of options exercisable within 60 days of December 31, 2001. The amount of stock held represents 9.1% of the outstanding common stock of Lionbridge. Mr. Cowan has sole power to vote or direct the vote of the 2,696,584 shares, and the sole power to dispose or to direct the disposition of the 2,696,584 shares. Lionbridge Technologies, Inc. provides solutions for worldwidedeployment of technology and content to global 2000 companies inthe technology, life sciences and financial services industries. At June 30, 2001, the company reported a working capital deficiency of about $7 million. LITTLE ERIC: Case Summary & 2 Largest Unsecured Creditors --------------------------------------------------------- Debtor: Little Eric Shoes Ltd 1331 Third Avenue New York, NY 10021 Bankruptcy Case No.: 02-22209 Chapter 11 Petition Date: February 11, 2002 Court: Southern District of New York (White Plains) Debtors' Counsel: Eric C. Kurtzman, Esq. Kurtzman Lipton Matera Gurock & Scuderi 9 Perlman Drive Spring Valley, NY 10977 Tel: (845) 352-8800 Fax: (845) 352-8865 Total Assets: $100,000 to $500,000 Total Debts: $1 million to $10 million Debtor's Largest Unsecured Creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ Gildman Shoes Ltd. Sub lease on $978,600 1333 Third Avenue Premises New York, NY 10021 Chase Manhattan Bank Revolving Line of $14,287 Credit LOOK COMMS: CCAA Plan Gives Bell Canada Unit 34% Equity Stake ------------------------------------------------------------- Bell Canada Enterprises Inc., (BCE) announced that it now holds, through its subsidiary Teleglobe Inc., 7,982,654 Class A shares of Look Communications Inc., representing approximately 34% of Look's issued and outstanding common equity. This follows the implementation of Look's Plan of Compromise and Arrangement under the Companies' Creditors Arrangement Act. Most of these Class A shares were issued under the Plan against release of BCE's claims as secured and unsecured creditor with the balance representing BCE holdings in Look prior to the implementation of the Plan. As part of an arrangement between BCE, Telesystem Ltd. and Look, dated August 9, 2001, BCE and Telesystem Ltd. agreed to vote, or refrain from voting, their shares in Look in accordance with the recommendations of Look's management and that for a period of two years, neither they nor their affiliates would grant any further financial assistance to Look nor acquire any additional equity interest in or assets of Look. BCE is Canada's largest communications company. It has 23 million customer connections through the wireline, wireless, data/Internet and satellite services it provides, largely under the Bell brand. BCE leverages those connections with extensive content creation capabilities through Bell Globemedia which features some of the strongest brands in the industry - CTV, Canada's leading private broadcaster, The Globe and Mail, Canada's National Newspaper and Sympatico-Lycos, the leading Canadian Internet portal. As well, BCE has extensive e-commerce capabilities provided under the BCE Emergis brand and serves international customers through BCE Teleglobe, a global connectivity, content distribution and Internet hosting company. BCE shares are listed in Canada, the United States and Europe. LUIGINO'S INC: S&P Affirms B+ Rating Following Recapitalization --------------------------------------------------------------- Standard & Poor's affirmed Luigino's Inc., a leading company in the frozen-entree category, a single-'B'-plus corporate credit rating. About $169 million of debt was outstanding as of October 7, 2001. At the same time, Standard & Poor's said that it has revised its to stable from positive. The outlook revision reflects Standard & Poor's belief that credit measures will remain appropriate for the current rating, given Luigino's expected use of debt to facilitate its acquisitive growth strategy. "The outlook reflects Standard & Poor's expectations that the company will retain its solid market positions and maintain a financial profile in line with the current ratings," commented Standard & Poor's credit analyst Ronald Neysmith. The ratings reflect South Duluth, Minn.-based Luigino's Inc.'s relatively high debt levels following its recapitalization and subsequent debt-financed purchase of The All-American Gourmet Co. (AAG) and their Budget Gourmet name brands from Heinz. This is partially mitigated by the company's strong position in the highly competitive frozen entr�e segment in North America. Products are sold under the Michelina's and Budget Gourmet name brands. Luigino's operates primarily in the "popular" segment of the frozen-entr�e category, selling nondiet entrees priced below $2.00. The company holds a No. 1 market position in this segment, with about a 54% share by volume, and a No. 3 position in the larger frozen-entree category, with about a 20% share. While the company competes with several larger, financially stronger companies, Luigino's has established a good niche within the industry. MANHATTAN IMAGING: Case Summary & Largest Unsecured Creditors ------------------------------------------------------------- Debtor: Manhattan Imaging Associates, P.C. c/o Robinson Brog Leinwand Greene Et Al 1345 Avenue Of The Americas 31st Floor New York, NY 10105 Bankruptcy Case No.: 02-10646 Type of Business: The Company operates a medical imaging/radiology imaging center. Chapter 11 Petition Date: 02/13/2002 Court: Southern District of New York (Manhattan) Debtor's Counsel: Robert R. Leinwand, Esq. Robinson Brog Leinwand Greene Genovese & Gluck P.C. 1345 Avenue of the Americas 31st Floor New York, NY 10105 Tel: (212) 586-4050 Total Assets: $5,194,769 Total Debts: $5,328,079 Debtor's 20 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ Jeffery M. Brown Associates, Inc. $380,802 330 Seventh Ave., 18th Floor New York, NY 10001 Maureen Matturi $320,029 870 UN Plaza Apt. 288 New York, NY 10017 Diagnostic Radiology $200,000 Joel N. Bloom, M.D. $112,428 Joan A. Kedziora, M.D. $106,000 A.D. Winston Corp. $102,057 David A. Inkeles $100,128 S.C. Management $40,975 Dancker, Sellew & Douglas $36,027 GE Healthcare Financial Services $22,822 GE Healthcare Financial Services $20,066 Benjamin Golub, Esq. $19,558 Nixon Gallager Co. $17,638 Ewen Parker Xray Corp. $13,648 Computer Administration $13,582 Oxford Health Plans $8,528 Aetna/US Heathcare $8,164 Mallinkrodt, Inc. $5,067 Em Parker $4,917 Guardian $4,331 MCLEODUSA INC: Taps Skadden Arps as Counsel in Chapter 11 Case -------------------------------------------------------------- McLeodUSA Inc., seeks to employ Skadden, Arps, Slate, Meagher & Flom (Illinois) as Counsel in its Chapter 11 case. Randall Rings, McLeodUSA's Group Vice President, Secretary and General Counsel, says Skadden, Arps has acquired extensive knowledge of the Debtor and its businesses and is uniquely familiar with the Debtor's capital structure, financing documents and other material agreements after having performed extensive legal work for the Debtor in connection with certain corporate, financing, litigation, securities, and other significant matters since October 2001. Before commencing the Chapter 11 case, the Debtor sought the services of Skadden Arps with respect to, among other things, advice regarding restructuring matters in general and preparation for the potential commencement and prosecution of a Chapter 11. Specifically, Skadden Arps will: (a) advise the Debtor with respect to its powers and duties as debtor and debtor in possession in the continued management and operation of its business and properties; (b) attend meetings and negotiate with representatives of creditors and other parties in interest and advise and consult on the conduct of the Chapter 11 case, including all of the legal and administrative requirements of operating in Chapter 11; (c) take all necessary action to protect and preserve the Debtor's estate, including the prosecution of actions on its behalf, the defense of any actions commenced against its estate, negotiations concerning all litigation in which the Debtor may be involved and objections to claims filed against the estate; (d) prepare on behalf of the Debtor all motions, applications, answers, orders, reports and papers necessary to the administration of the estate; (e) negotiate and prepare on the Debtor's behalf plan(s) of reorganization, disclosure statement s) and all related agreements and/or documents and take any necessary action on behalf of the Debtor to obtain confirmation of such plan(s); (f) advise the Debtor in connection with any sale of assets; (g) appear before this Court, any appellate courts, and the U.S. Trustee, and protect the interests of the Debtor's estate before such courts and the U.S. Trustee; and (h) perform all other necessary legal services and provide all other necessary legal advice to the Debtor in connection with this chapter 11 case. Compensation The Debtor agrees to pay Skadden Arps by the hour under the Firm's bundled rate structure: Partners $480 to $695 Counsel and Special Counsel $470 Associates $230 to $470 Legal Assistants and Support Staff $80 to $160 The Debtor paid Skadden Arps a $250,000 retainer. Further, in the one-year period prior to the Petition Date, the Debtor paid Skadden Arps $4,470,047. Disinterestedness of Professionals David S. Kurtz, Esq., the Skadden member leading the engagement, assures the Court that neither he, his Firm, its members, counsel or associates have any connection with the Debtor, its affiliates, its creditors or any other party in interest, or its respective attorneys and accountants. Mr. Kurtz is convinced that Skadden is "disinterested," as that term is defined in Bankruptcy Code section 101(14), and holds or represents no interest adverse to the estate. Out of an abundance of caution, Mr. Kurtz discloses that Skadden represents some party in virtually every large corporate restructuring in and outside the United States. Accordingly, Skadden has many connections and relationships with parties-in- interest in the Debtor's case and with their professionals. Mr. Kurtz assures Judge Katz that none of these other representations involve matters that are adverse to McLeodUSA's interests. (McLeodUSA Bankruptcy News, Issue No. 2; Bankruptcy Creditors' Service, Inc., 609/392-0900) MCLEODUSA INC: Holders of 40% of Bonds Back Reorganization Plan --------------------------------------------------------------- McLeodUSA Incorporated, one of the nation's largest independent competitive local exchange carriers, reported financial and operating results for the quarter and year ended December 31, 2001. Revenues for fourth quarter were $453.7 million, an increase of 11% over fourth quarter of 2000. EBITDA (earnings before interest, taxes, depreciation and amortization) for the fourth quarter, excluding restructuring charges of $6.8 million associated with the Company's previously announced recapitalization, was $46.1 million. This was an increase of 74% over EBITDA of $26.6 million for the same quarter of 2000. Reported net loss per share for this quarter was $0.31 compared to $0.26 in the prior year. Revenues were $1.8 billion for the year 2001, an increase of 30% over $1.4 billion in the prior year. Excluding restructuring and one-time charges described below, EBITDA for the year was $128.3 million, an increase of 111% over EBITDA of $60.8 million for the year 2000. The Company's reported net loss per share for the year was $4.50 versus $0.95 for the year 2000. In addition to the fourth quarter charge, the Company recorded restructuring charges of approximately $2.9 billion in the third quarter 2001 related to its refocused strategy, including write- downs of goodwill, other long-lived assets, inventory associated with discontinuing operations, and charges associated with a reduction in force and facilities consolidation. The Company also took a non-cash charge to operating income of $35 million in the third quarter 2001 associated with balance sheet adjustments to various accounts such as prepaid expenses, receivables and bad debt reserves. Summary of Recapitalization and Financial Restructuring On January 31, 2002, the Company announced that it had signed lock-up agreements with an ad hoc committee of holders of McLeodUSA senior notes to support a recapitalization of the Company. Under the terms of the recapitalization, the bondholders will receive up to $670 million in cash, $175 million of new preferred stock convertible into 15% of the reorganized Company's common stock, and 5-year warrants to purchase an additional 6% of the common stock for $30 million. The ad hoc committee, which holds 23% of the bonds, voted unanimously in favor of the plan, which will eliminate approximately $3.0 billion of bond debt. Additionally, the Company has signed lock-up and support agreements with stockholders holding approximately 45% of its Preferred Series A, Series D and Series E shares, including funds managed by Forstmann Little & Co., to support the recapitalization plan. McLeodUSA has recently been informed by the advisors to the ad hoc committee of the bondholders, that holders representing a total of approximately $1.2 billion of bonds, or 40% of the outstanding bonds, have expressed support for the reorganization plan that was negotiated with the ad hoc committee. Included in the $1.2 billion are bondholders representing approximately $690 million, or 23%, who have signed lock-up or support agreements to vote in favor of the transaction. Also on January 31, 2002, with the support of its Board of Directors, Secured Lenders, Forstmann Little, the bondholders' ad hoc committee and certain of its preferred stockholders, the Company filed a pre-negotiated plan of reorganization through a Chapter 11 bankruptcy petition filed in the United States Bankruptcy Court for the District of Delaware, in order to complete its recapitalization as expeditiously as possible. The Chapter 11 case includes only the parent company, McLeodUSA Incorporated. The operating subsidiaries, which include McLeodUSA Telecommunications, McLeodUSA Publishing, Illinois Consolidated Telephone Company, and McLeodUSA Purchasing L.L.C., are not part of the bankruptcy proceeding. On February 5, 2002, the Company announced that the United States Bankruptcy Court for the District of Delaware approved orders for all of the Company's first day motions related to the Chapter 11 filing on January 31, 2002. The first day orders allow the parent company to conduct business as usual relative to all of its customers, employees and suppliers and to maintain its existing cash management systems. The Court also set February 28, 2002 as the date for the hearing to approve the parent company's disclosure statement and April 5, 2002 as the date for the confirmation hearing for the parent company's Plan of Reorganization. It is expected that the plan, if approved, could be implemented in April 2002. As previously announced, in connection with the recapitalization transaction, the Company entered into a definitive agreement with United Kingdom-based Yell Group to purchase McLeodUSA Publishing Company for $600 million. Under the terms of the agreement, McLeodUSA Incorporated will retain its distinctive branding on directories published in its 25-state footprint through a five-year Branding and Operating Agreement, which includes renewal options. The Company has received notification of early termination of the waiting period under the Hart-Scott- Rodino Antitrust Improvements Act of 1976 for this transaction. Cash Position The Company had approximately $140 million in cash available as of January 31, 2002, and had secured a commitment for a $110 million exit financing facility from a group of lenders arranged by JPMorgan, Bank of America and Citibank. This exit revolver may be increased to as much as $160 million and would be available to McLeodUSA at the completion of the recapitalization subject to customary conditions. Accordingly, based on such cash availability, the Company did not require nor expect to obtain debtor-in-possession financing. As previously announced, the Company and its Secured Lenders amended their existing $1.3 billion senior secured credit facility to permit the use of proceeds from the sale of the publishing business to retire outstanding bond debt in connection with the plan. The Company and its Secured Lenders have also modified the credit agreement to allow the Company to retain and use the proceeds from all currently identified future asset sales of non-core businesses and surplus assets for general working capital purposes in addition to capital expenditures. Subject to the consummation of the plan of reorganization, the Company plans to eliminate $425 million of bank debt by (i) a reduction of its current revolver commitment by $140 million, (ii) a paydown of its term loan by $60 million ($35 million from the Forstmann Little investment and $25 million from the directory publishing proceeds), and (iii) offer for sale its regulated incumbent local exchange subsidiary Illinois Consolidated Telephone Company. The ICTC sale process is expected to begin after the completion of the recapitalization and occur within the subsequent 14 months, with up to $225 million of the proceeds applied to reduce the Company's term loans. Non-Core Asset Sales In conjunction with the Company's plan to divest non-core assets, the following announcements were recently made: -- On November 19, 2001, McLeodUSA reached an agreement to sell the non-core assets of RuffaloCODY to present and former management of the entity. The transaction was completed on December 5, 2001. -- On December 7, 2001, McLeodUSA agreed to sell certain Internet/data assets and wholesale dial-up Internet Service Provider customer base (formerly part of Splitrock Services) to Level 3 Communications, Inc. This transaction was completed on January 24, 2002. -- On January 24, 2002, the Company announced that it had completed the sale of its customer-premise equipment company, Integrated Business Systems, to Inter-Tel Technologies, Inc. McLeodUSA provides integrated communications services, including local services, in 25 Midwest, Southwest, Northwest and Rocky Mountain states. The Company is a facilities-based telecommunications provider with, as of December 31, 2001, 42 ATM switches, 60 voice switches, 485 collocations, 525 DSLAMs, over 31,000 route miles of fiber optic network and more than 8,600 employees. Visit the Company's Web site at http://www.mcleodusa.com DebtTraders reports that McLeodusa Inc.'s 11.375% bonds due 2009 (MCLD2) are trading between 24.5 and 25.5. See http://www.debttraders.com/price.cfm?dt_sec_ticker=MCLD2for real-time bond pricing. METALS USA: Court Approves Uniform Asset Sales Procedures --------------------------------------------------------- Metals USA, Inc., and its debtor-affiliates sought and obtained from Judge Greendyke approval of uniform Sales Procedures and Bidding Protections for general use in future sales of their assets. Jonathan C. Bolton, Esq., at Fulbright & Jaworski LLP in Houston, Texas, states that a number of asset sales are expected within the next few months. Prior to the Petition Date, the Debtors had already consolidated their facilities and operations and implemented substantial cost-cutting. These non-core asset sales will implement management's cost-cutting measures and liquidity enhancement outlined in August 2001. The Debtors are currently in negotiations concerning a number of assets sale and some of these may need to be presented in the Court soon. According to Mr. Bolton, the Debtors want to establish a regular procedure to bring these various negotiations to conclusion, in which the Debtors will provide a blacklined copy to the court if the final contract is different from the standard Asset Purchase Agreement, where the court will have pre-approved a standard deposit requirement, Sale Procedures and Bidding Protections including a break-up fee and where Debtors and prospective purchasers must justify any departures from the pre-approved terms. The Uniform Sale Procedures provide that: A. The Debtors will initiate negotiations with a potential purchaser by sending the Asset Purchase Agreement form and obtain the contemplated five percent deposit. The Debtors will promptly file a motion to sell these particular assets to that initial qualified bidder. The Debtors will then provide notice to any identified potential purchaser, or any purchaser who requests a copy, and parties-in- interest in these cases. B. The Debtors will seek a preliminary hearing on the Sale motion to have the Sale Procedures and Bidding Protections applied to the Initial Qualified Bidder. These will include a break-up fee greater than one percent of the proposed cash purchase price or the standard break-up fee of $50,000. C. The Debtors will propose at the preliminary hearing to conduct an auction three weeks after the preliminary hearing and will request a final Sale Hearing four weeks after the Preliminary hearing. D. The Debtors will permit and assist other qualified prospective purchasers that sign a confidentiality agreement to perform reasonable due diligence on the assets including the opportunity to meet with management and access to data. E. The Debtors will require prospective new buyers to demonstrate that they are qualified bidders and sign an Asset Purchase Agreement form and put up a deposit. F. The Debtors will then conduct an auction to determine whether the initial qualified bidder or another is the successful bidder. Any auction will be conducted according to the terms of the Sale Procedures. G. The initial qualified bid will be the opening offer at the auction. To determine whether a higher bid is being offered, the competing bid must exceed the purchase price by not less than the sum of the break-up fee and a $50,000 overbid. Bidding increments after the initial overbids shall be made in minimum increments of $50,000. H. After the auction, the Debtors will propose final approval of the successful bidder at a final sale hearing. No further bids will be considered after that. Mr. Bolton submits that it is important to approve in advance the general principles and procedures for selling the assets as these will aid in negotiating transactions and aid the Court, the Creditors' Committee and the Bank Group in analyzing and approving them. These procedures will also ensure an orderly process and secure the highest and best price for the assets that are up for sale. (Metals USA Bankruptcy News, Issue No. 7; Bankruptcy Creditors' Service, Inc., 609/392-0900) MIKOHN GAMING: Seeking Strategic Alternatives to Enhance Value -------------------------------------------------------------- Standard & Poor's said that it placed its single-'B' ratings of Mikohn Gaming Corp., on CreditWatch with developing implications, which means the ratings could be either raised or lowered. The action followed Mikohn's announcement that it has engaged Jefferies & Co. to help in developing and evaluating strategic alternatives to enhance stockholder value. These alternatives may include mergers, acquisitions, or other potential business combinations, as well as the possible sale of operating units and product lines that no longer fit the strategic objectives of the developer and manufacturer of proprietary branded slot machines and table games. Las Vegas, Nevada-based Mikohn Gaming also makes interior and exterior casino signage, progressive jackpot systems, and both player and game-tracking systems. Standard & Poor's will evaluate the impact on credit quality upon the announcement of a transaction or strategic plan. MONTANA POWER: Completes Restructuring to Become Touch America -------------------------------------------------------------- The Montana Power Company (NYSE: MTP) said it completed its planned restructuring in order to become a stand-alone telecommunications company, Touch America Holdings, Inc. Beginning yesterday morning, Touch America Holdings, Inc., became the listed company on the New York and Pacific stock exchanges under the symbol TAA. All outstanding shares of Montana Power have been converted to shares of Touch America Holdings on a one-for-one basis. Wednesday's announcement completes Montana Power's reorganization to allow the final step -- the sale of the utility -- to happen. On September 21, 2001, The Montana Power Company (MPC) shareholders approved the restructuring plan and the related sale of Montana Power's electric and natural gas transmission and distribution utility to NorthWestern Corporation. Montana Power and NorthWestern also have received all regulatory approvals for completing the utility transaction. Under the restructuring completed Wednesday, MPC merged into The Montana Power, L.L.C., a Montana limited liability company and wholly owned subsidiary of Touch America Holdings. As a result of the merger, each common shareholder of MPC will be deemed to receive one share of Touch America Holdings' common stock for each MPC common share held. Also, MPC's Preferred Stock, $6.875 Series shareholders will be deemed to receive one share of Touch America Holdings' Preferred Stock, $6.875 Series for each such MPC preferred share held. MPC's Preferred Stock, $4.20 Series and $6 Series will be redeemed. Instructions for exchanging shares or redeeming preferred stock are being or will be mailed to affected shareholders. Following the merger, The Montana Power, L.L.C., constituting MPC's utility business, will be sold to NorthWestern. As a result of these transactions, Touch America Holdings will become the owner of the telecommunications operating business, Touch America, Inc. "This restructuring is a necessary step for the utility sale and for Touch America to become a separate telecommunications company," said Bob Gannon, Montana Power and Touch America's chairman and chief executive. "With the completion of the utility sale, Touch America will become a stand-alone fiber- optic network and broadband products and services telecommunications company focused on superior customer service." According to Gannon, with the utility sale and the transition completed Touch America will emerge as a unique telecom company with a state-of-the-art fiber-optic network and operations support systems, a wide range of leading broadband products and services, no debt, and cash in the bank. "This was the vision of the company on March 28, 2000, when Montana Power announced that it would sell its energy businesses in coal, oil and gas, and independent power as well as its utility to become a stand-alone telecommunications company under Touch America," he said. Touch America is a national fiber-optic network and broadband products and services company, providing customized voice, data, and video transport, as well as Internet services, to wholesale and businesses customers. Branded TOUCHAMERICA, the telecommunications company's fiber network is one of the largest and highest capacity long haul networks in the U.S. TOUCHAMERICA provides private line services as well as the latest in IP, ATM and Frame Relay transport protocols. Touch America is in the process of transitioning from a subsidiary of The Montana Power Company to a stand-alone company under Touch America Holdings, Inc., which will become the traded company. At June 30, 2001, Montana Power had a working capital deficit of $137 million. For more information about Touch America, see http://wwww.tamerica.com NATIONSRENT: Committee Taps Lowenstein Sandler as Counsel --------------------------------------------------------- The Official Committee of Unsecured Creditors submits its application to the Court to employ and retain Lowenstein Sandler PC as its general counsel in NationsRent Inc., and its debtor- affiliates' Chapter 11 cases. Committee Chairman James Schaeffer tells the Court that that the firm was selected because of the experience and knowledge of its professionals. The professional services expected of Lowenstein include: A. Advise the Committee members with respect to the Committee's duties and powers; B. Assist the Committee in investigating the acts, conduct, assets, liabilities and financial condition of the Debtors, the operation of the Debtors' businesses, potential claims and any other matter pertinent to the cases or to the formulation of Plan of Reorganization Plan; C. Participate in the formulation of a Reorganization Plan; D. Assist the Committee in requesting the appointment of a Trustee or Examiner should action be necessary; and E. Perform other legal services that the Committee may require. Mr. Schaeffer says that aside from reimbursement of out-of-the- pocket expenses, Lowenstein will also be compensated based on the hourly rates of its professionals, which are: Partners $275 to $475 Counsel $230 to $325 Associates $135 to $275 Legal Assistants $70 to $125 Lowenstein member Kenneth A. Rosen tells the Court that after extensive inquiry, it was found that the firm previously represented the Debtors in 1998 in connection with the negotiation of an employee severance agreement in New Jersey. The Debtors' financial creditors, Bank of America, Fleet National Bank, GE Capital Corporation and Lasalle National Bank Association are also clients of Lowenstein. Combined, they represent 1.1% of the firms revenues for the fiscal year 2001. Because of its representations of some of the lenders under the Debtors' secured credit facility in matters wholly unrelated to the Debtors' Chapter 11 cases, Mr. Rosen submits that Lowenstein in behalf of the Committee will not file or prosecute any adversary proceeding against the pre-petition or post-petition Bank Group with respect to the amount, extent, priority or validity of its liens or to recover a monetary judgment. If such an adversary proceeding is to be filed, the Committee shall be represented by its local counsel, The Bayard Firm. In addition, Mr. Rosen states that Lowenstein is also performing services to some of the Debtors' equipment lessors in matters unrelated to these Chapter 11 cases. These include Fleet Capital Corporation, which represents .1% of Lowenstein's earnings for the fiscal year 2001 and Lasalle National Leasing Corporation's. The Lasalle Business Credit represents .5% of Lowenstein's earnings for the fiscal year 2001. Mr. Rosen assures the Court that Lowenstein will not be representing the Committee in any adversary proceeding involving the said Fleet Capital and Lasalle. If such a proceeding is to take place, the Committee will be represented by The Bayard Firm. Mr. Lowenstein admits that Lowenstein does not have knowledge of the full list of the Debtors' creditors or shareholders. One or more creditors may be a client of Lowenstein in some capacity and certain creditors of the Debtors may be divisions or subsidiaries of companies represented by Lowenstein. Thus, even a conflict check on the entire list of the Debtors' creditors may not reveal a complete picture. (NationsRent Bankruptcy News, Issue No. 5; Bankruptcy Creditors' Service, Inc., 609/392-0900) NETCENTIVES INC: Trilegiant Acquires Patents from Asset Auction --------------------------------------------------------------- Trilegiant Loyalty Solutions, the leading provider of incentive and loyalty programs, has won the rights to all of Netcentives' patents relating to online delivery of incentive programs. A personalized email, rewards and recognition solutions firm, Netcentives declared Chapter 11 in October 2001. The ensuing asset auction included US Patent Number 5,774,870 issued to Netcentives in June 1998 as well as US Patent Number 6,009,412 issued in December 1999. As the owner of the patents, Trilegiant Loyalty Solutions will assume most of the existing licensing agreements and pursue additional agreements as they relate to the scope of the patents. "Trilegiant Loyalty Solutions has followed the life of these patents since they were originally filed," Trilegiant Loyalty Solutions President Marti Beller, said. "We believe these are very strong patents and we plan to quickly capitalize on the competitive advantage that these patents naturally provide us in our marketplace." "We are thrilled to gain ownership over Netcentives' intellectual property," Scott Lazear, Senior Vice President of Strategic Business Development, added. "Our clients and prospects are looking to us to provide them with feature rich, customized loyalty solutions that have a proven ROI. These patents allow us the freedom to develop those solutions, without restrictions, at a very compelling price." Trilegiant Loyalty Solutions offers full service capabilities including strategic marketing, program design and implementation, creative services as well as ongoing marketing and customer service support. Trilegiant Loyalty Solutions' product line contains end-consumer programs, like Performance Points, that stimulate usage and retention, as well as internal incentive programs, like Employalty, which motivate and incent employees by aligning their behaviors with client objectives. In addition to Points Solutions, Concierge, 24-Hour Travel Centerr and Personal Identity Protection are some of the 30 plus Product Enhancements offered. These solutions all focus on the same objectives: increased brand awareness, competitive differentiation and sustained growth of revenue. Trilegiant Loyalty Solutions is a division of Trilegiant Corporation, a leader in the membership services and loyalty businesses, providing products and services that touch the lives of more than 100 million Americans. Trilegiant's membership business offers exceptional value, savings, convenience and protection to its customers through services such as Shoppers Advantage(R), AutoVantage Gold(SM) and PrivacyGuard(R). Trilegiant's loyalty business is the leading provider of full- service loyalty solutions to the financial services industry and other industries where product differentiation and customer retention are the primary focus. Trilegiant, which is based in Norwalk, Connecticut, is the successor to Cendant Membership Services, Inc. and Cendant Incentives. San Francisco-based Netcentives Inc., is a provider of personalized email, rewards and recognition solutions. The company offers a broad suite of offline and online products including email communications, sales force incentives, loyalty and rewards solutions for retail and financial institutions. Netcentives continues to differentiate itself through itsintegrated marketing approach, which includes experienced client service teams, leading-edge technology and expert consulting. More than 300 companies have partnered with Netcentives to drive their revenue and reduce costs. On October 5, 2001, Netcentives filed for Chapter 11 reorganization in the U.S. Bankruptcy Court for the Northern District of California in San Francisco. PACIFIC AEROSPACE: Dismisses KPMG and Hires Andersen as Auditors ---------------------------------------------------------------- On January 29, 2002, Pacific Aerospace & Electronics, Inc. dismissed KPMG LLP as its independent accountant. KPMG had served as the Company's independent accountant since 1998. The decision to change its independent accountant was recommended by the Company's Finance and Audit Committee and approved by its Board of Directors. KPMG's report on the Company's consolidated financial statements for the fiscal year ended May 31, 2001, contained a separate paragraph stating that: "[T]he Company has suffered recurring losses from operations and has a net capital deficiency at May 31, 2001, which raise substantial doubt about the entity's ability to continue as a going concern." This audit report also contained a separate paragraph stating that: "Because of the significance of the uncertainty discussed in the preceding paragraph, we are unable to express, and we do not express, an opinion on the accompanying 2001 consolidated financial statements." KPMG's report on the Company's consolidated financial statements for the fiscal year ended May 31, 2000, also contained a separate paragraph stating that: "[T]he Company has suffered recurring losses from operations, which raise substantial doubt about the entity's ability to continue as a going concern." New Independent Accountant On January 30, 2002, Pacific Aerospace & Electronics engaged Arthur Andersen LLP as its independent accountant to audit its financial statements for the fiscal year ending May 31, 2002. The decision to engage Arthur Andersen was recommended by its Finance and Audit Committee and approved by its Board of Directors. PACIFIC GAS: Entering into Supplemental Agreements with 21 QFs -------------------------------------------------------------- Pacific Gas and Electric Company sought and obtained the Court's approval of 21 Supplemental Agreements with Qualifying Facilities: Log No. Qualifying Facility ------- ------------------- 25C250 Badger Creek Limited 10P005 HL Power Company (Honey Lake) 10C003 Collins Pine 13H042 Nelson Creek Hydro 13Hl32 Digger Creek 15H002 Henwood Associates (Salmon Creek Hydro) 13H0l3 Snow Mt. Hydro, Cove 13H057 Snow Mt. Hydro, Lost Creek 1 l3H04l Snow Mt. Hydro, Lost Creek 2 13H016 Snow Mt. Hydro, Burney Creek l3H035 Snow Mt. Hydro, Ponderosa 19H004 Norman Ross Burgess 13C038 Burney Forest Products 13H047 Malacha 01W095 BNY Western Trust (Northwind Energy) l3H004 T&G Hydro 04H062 MacFadden Farms 04H061 Yolo County Flood Control (Indian Valley Hydro) 25C130 Texaco, Fee A 25C186 Texaco, Fee B 25C168 Texaco, Fee C 25C193 Texaco, McKittrick 25C246 Texaco, SE Kern River 19C010 Pacific Lumber The Supplemental Agreements are substantially similar to the Supplemental Agreements approved by the Court on December 21, 2001, except for these additional provisions agreed to by the QFs and not objected to by the Committee: (a) the QFs' waiver of their entitlement for semi-monthly (as opposed to monthly) payment for deliveries of energy under the QFs' Power Purchase Agreements (PPAs); (b) the QFs' withdrawal, within seven days of a bankruptcy court order approving the Supplemental Agreements, of any claims the QFs filed in the bankruptcy case, other than the Section 503 administrative expense claims provided for in paragraph 3(g) of the Supplemental Agreements with respect to PG&E's prepetition defaults (the Payables) under the PPAs and interest thereon or other claims specifically reserved in the Supplemental Agreements; (c) for purposes of administrative efficiency, PG&E's reservation of discretion to accelerate the payment schedule o the Payables for those QFs owed less than $100,000 in Payables, so that PG&E may make fewer than twelve payments; and (d) the QFs' representation that it is the sole holder of all right, title and interest to the Payables, and that in the event it assigns any interest in the Payables to a third- party (the transferee), it will: (1) so notify PG&E; (2) forward any payments of Payables to the transferee; and (3) indemnify PG&E from any claims by the transferee to collect the Payables from PG&E. (Pacific Gas Bankruptcy News, Issue No. 22; Bankruptcy Creditors' Service, Inc., 609/392-0900) PACIFIC GAS: Says CPUC's Term Sheet Not Credible & Won't Work ---------------------------------------------------------------- Pacific Gas and Electric Company issued the following statement in response to the filing made in U.S. Bankruptcy Court by the California Public Utilities Commission. On January 16, the Court ordered the CPUC to submit no later than Wednesday a term sheet outlining its alternative proposal for the utility to emerge from bankruptcy: "The Court asked the CPUC to prepare a credible term sheet. The proposal outlined [Wednes]day is not credible and will not work. It will not work because it overstates the available cash, understates the debt and undermines the utility's ability to invest in electric system reliability. Most striking is the fact that the CPUC continues to misunderstand the meaning of creditworthiness. The CPUC's term sheet will not restore PG&E to creditworthy status and thus condemns the state to remain in the power business." PACIFICARE HEALTH: Q4 2001 Financial Results Reach Expectations --------------------------------------------------------------- PacifiCare Health Systems Inc. (Nasdaq:PHSY), announced that pro forma net income for the fourth quarter ended Dec. 31, 2001, was $11.8 million before the effect of a restructuring charge. Including the charge, the reported loss for the quarter was $26.4 million. This compares with pro forma fourth quarter 2000 net income of $17.7 million excluding a net restructuring charge that resulted in reported earnings per diluted share of $0.35. For the year ended Dec. 31, 2001, the company's pro forma earnings per diluted share totaled $1.68. Reported EPS for the full year was $0.55 per share. This compares with year-ago reported earnings of $4.58 per diluted share. Howard G. Phanstiel, PacifiCare's president and chief executive officer, said: "The fourth quarter was in line with our expectations, despite continuing challenges in Texas. Operating results excluding Texas exceeded our guidance, thus providing further evidence that our turnaround continues. We are also making good progress on our initiatives to transform PacifiCare from an HMO into a diversified consumer health organization. "We made significant investments in our infrastructure to support a more competitive business model and a broader product line, including our new PPO, Medicare Supplement and Select Hospital products. Our pharmacy benefit management and behavioral health subsidiaries are steadily building their unaffiliated membership and increasing their profitability. We fully expect that the actions taken in 2001 to strengthen our health plans and grow our specialty businesses will enhance our margins beginning in 2002 and will move us toward the completion of our turnaround." As previously disclosed, the $59.4 million pre-tax restructuring charge in the 2001 fourth quarter was taken in connection with the implementation of a profit improvement and cost-savings program. The charge reflects severance payments and facilities and fixed asset impairment costs related to a consolidation of operations and a 15% reduction in workforce, which will take place over the course of 2002. Including the benefits of new information technology outsourcing arrangements, the profit improvement and cost-savings program is expected to generate annualized savings of $80 to $90 million by 2003. Revenue and Membership Fourth quarter 2001 revenue of $2.9 billion was 3% below the same quarter a year ago due to a 17% decrease in commercial membership and a 10% decrease in Medicare+Choice membership. Partially offsetting the impact of the membership decline were increases in commercial HMO premium yields of 13% and Medicare premium yields of 8%. For the full year, revenue rose 2% to $11.8 billion in 2001 compared with 2000. PacifiCare's HMO health plan membership was approximately 3.4 million on Dec. 31, 2001, down 16% year-over-year and 4% below the third quarter of 2001. The reduction in commercial membership primarily was the result of planned exits from unprofitable commercial markets and products, implementing appropriate premium rate increases, and terminating contracts with higher-cost network providers. The decrease in Medicare+Choice membership primarily was due to county exits in 2001 and freezes on new enrollment. Other income, principally from the company's specialty businesses, grew 41% from the fourth quarter of 2000, primarily due to the strong performance of the company's pharmacy benefit management subsidiary, Prescription Solutions. Prescription Solutions continued to grow its unaffiliated membership, which increased another 8% in the fourth quarter and a stellar 79% year-over-year. PacifiCare Behavioral Health unaffiliated membership grew 13% over the course of 2001. Net investment income decreased 26% from the year-ago quarter primarily due to the impact of lower interest rates on marketable securities yields. Health Care Costs The consolidated medical loss ratio (MLR) of 89.5% increased 30 basis points from the third quarter of 2001 and 20 basis points compared with the fourth quarter of 2000. The Medicare MLR in the fourth quarter was 91.3%, 230 basis points higher than the third quarter of 2001. The increase was due to anticipated seasonal increases in hospital inpatient and outpatient utilization, as well as expectations for higher rates of elective utilization prior to the implementation of Jan. 1, 2002 benefit changes. The fourth quarter commercial MLR of 86.9% declined 260 basis points from the prior quarter. The improvement was attributable primarily to commercial premium rate increases and less than anticipated member utilization in the company's indemnity and behavioral health businesses, which resulted in favorable changes in estimates. Selling, General & Administrative Expenses The selling, general and administrative (SG&A) expense ratio of 10.8% for the fourth quarter of 2001 increased by 50 basis points year-over-year, primarily due to lower revenues, but also due to the cost of introducing new products. It rose 30 basis points from the third quarter because of the reduction in revenues, as well as seasonally higher costs related to annual open enrollment. SG&A expenses rose 1% to $308.5 million in the fourth quarter, and totaled $1.2 billion for the year, comparable with the prior year. Other Financial Data Medical claims and benefits payable totaled $1.1 billion at Dec. 31, 2001, which was comparable with the total at Sept. 30, 2001, despite a 4% sequential decrease in membership. Days claims payable for the fourth quarter decreased 40 basis points to 40.2 compared with the third quarter. The decrease was due primarily to the reduction in insolvency reserves as the company made payments in the fourth quarter for physician group bankruptcies, and to faster claims payments. Consistent with the company's stated strategy, in the fourth quarter the claim turnaround period was shortened by another 7%, bringing the total reduction for the year to 24%. Days claims receipts on hand was 6.2 days at Dec. 31, 2001, a slight decrease from the third quarter and 46% below the amount on hand at the close of 2000. Earnings before interest, taxes, depreciation, amortization, and the restructuring charge totaled $79.4 million in the fourth quarter of 2001, compared with $89.6 million in the third quarter. Free cash flow, defined as net income plus depreciation and amortization, less capital expenditures and the restructuring charge, was $25 million. On Jan. 2, 2002, the company made a $25 million debt repayment on the company's term facility using proceeds generated by its new outsourcing agreement with IBM, which purchased PacifiCare's information systems equipment. 2002 Outlook Commenting on the company's outlook for the current year, Phanstiel said: "Our previously announced 2002 EPS guidance of $3.55 to $3.65, including the favorable amortization impact of FAS 142 and excluding non-cash charges related to changes in accounting for the balance sheet carrying value of goodwill, reflects our expectations for margin improvement as we enhance our focus on profitable markets and product lines and benefit from commercial premium rate increases, medical management initiatives, and increased unaffiliated membership in our specialty companies. "We also expect to partially offset inadequate premium increases from the federal government for our Medicare products with benefit reductions and partial or full exits from counties where we could not continue to provide an affordable, quality Medicare+Choice product to seniors. As we reduce the company's Medicare+Choice membership, we are accelerating our focus on resuming commercial membership growth. We believe we are well- positioned to continue attracting new membership to our commercial product lines and to our specialty businesses throughout 2002 and beyond." PacifiCare Health Systems is one of the nation's largest health care services companies. Primary operations include managed care products for employer groups and Medicare beneficiaries in eight western states and Guam serving approximately 3.4 million members. Other specialty products and operations include pharmacy benefit management, behavioral health services, life and health insurance, and dental and vision services. In January, as previously reported in the Troubled Company Reporter, PacifiCare Health Systems Inc., (Nasdaq:PHSY) obtained approval from the majority of the company's bank syndicate to exclude its $60 million pre-tax restructuring charge to be recorded in the fourth quarter of 2001 from financial covenants. Also included in the waiver was the elimination of a requirement that the company retain a financial consultant. PacifiCare, the report said, expected to remain in compliance with these and all other terms of its credit facility. More information on PacifiCare Health Systems can be obtained at http://www.pacificare.comor by calling 877/PHS-STOCK (877/747- 7862). PENN NATIONAL GAMING: Commences Sale of 2.5 Million Shares ---------------------------------------------------------- Penn National Gaming, Inc. delivered a registration statement to the SEC offering 2,500,000 shares of its common stock, and the selling shareholder is offering 1,000,000 shares of its common stock. Penn will not receive any proceeds from the shares of common stock sold by the selling shareholder. The Company's common stock is quoted on the Nasdaq National Market under the symbol "PENN." On February 1, 2002, the last sale price of its common stock as reported on the Nasdaq National Market was $31.95 per share. Penn has granted the underwriters a 30-day option from the date of its prospectus supplement to purchase up to an additional 525,000 shares at the public offering price, less the underwriting discount, to cover over-allotments. The company owns and operates horse racing and casino gaming facilities in the South and East, including Pocono Downs and its namesake Penn National Race Course. Its Charles Town Entertainment Complex in West Virginia offers patrons horse racing and casino gaming, with a thoroughbred track, simulcast racing, and nearly 2,000 slot machines. It also has 11 off-track betting centers and manages the Freehold Raceway (50%-owned) in New Jersey. Penn National's casinos include the Boomtown Biloxi and Casino Magic Bay St. Louis in Mississippi and the Casino Rouge Riverboat in Louisiana. Penn is buying the Bullwhackers Casino operations in Colorado from Hilton Group. The chairman and CEO Peter Carlino and his family own about 35% of the company. At September 30, 2001, the company reported a working capital deficit of $15 million. PEOPLEPC INC: Special Shareholders' Meeting Set for Tuesday ----------------------------------------------------------- A Special Meeting of the stockholders of PeoplePC Inc., a Delaware corporation, will be held on February 19, 2002 at 11:00 a.m., local time, at the Hyatt Embarcadero, 5 Embarcadero Center, San Francisco, CA 94111. At the Special Meeting, stockholders will be asked to approve: 1. The issuance of 437,500,000 shares of the Company's common stock, which will exceed 20% of its total common stock outstanding, upon conversion of the Company's Series B Preferred Stock sold in its recent private placement. 2. Amendments to the Company's 2000 Stock Plan to increase the number of shares of common stock reserved for issuance thereunder by 126,404,098 shares and to increase the Internal Revenue Code Section 162(m) limits on the number of options and stock purchase rights granted in any fiscal year of the Company or in connection with an individual's initial employment with the Company from 2,000,000 to 40,000,000. 3. An amendment to the Company's Amended and Restated Certificate of Incorporation to effect a reverse stock split of not less than 1 for 15 and not more than 1 for 20 and to authorize the Company's Board of Directors to determine which, if any, of these reverse stock splits to effect. 4. To approve an amendment to the Company's Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 500,000,000 to 750,000,000. 5. To transact such other business as may properly come before the meeting or any adjournment thereof. Only stockholders of record at the close of business on January 30, 2002 are entitled to notice of and to vote at the Special Meeting. The company sells three-year memberships for about $25 a month and in return, customers receive a name-brand computer (replaced every three years) with warranty, Internet access, and access to its buyer's club, which offers discounts for other businesses (such as E*TRADE and BUY.COM). The company also sells memberships just to its buyer's club and has a program that sells products to businesses' employees. Wholesale distributor Ingram Micro supplies and distributes PeoplePC's computer products and processes its orders. At September 30, 2001, the company had an upside-down balance sheet, with its total liabilities exceeding its total assets by $26 million. PRECISION AUTO CARE: Rights Offering to Expire on March 15, 2002 ---------------------------------------------------------------- Lou Brown, President and CEO for Precision Auto Care, Inc. (Nasdaq: PACI) (PACI), announced that the SEC had declared effective the registration statement in connection with a rights offering by PACI. In this rights offering, PACI will offer an aggregate of 4,032,723 shares of its common stock. Individual shareholders will be able to purchase 1 share of stock for every 2.5 shares that they own as of February 14, 2002. The exercise period for the rights will expire on March 15, 2002. Each right will entitle the holder to purchase the stock for $.30/share. The rights are non-transferable. Robert Falconi, PACI's CFO, said "The company is confident that the rights offering will enable the company to raise the capital that it needs to execute its business plan." Precision Auto Care, Inc. is the world's leading franchiser of auto care centers, with over 500 operating centers as of February 13, 2002. The Company franchises and operates Precision Tune Auto Care centers around the world. According to Troubled Company Reporter - October 4 Edition, Precision Auto Care is negotiating extensions of its 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. PRINTING ARTS: Wants Removal Period Deadline Moved to April 30 -------------------------------------------------------------- Printing Arts America, Inc., and its debtor-affiliates ask the U.S. Bankruptcy Court for the District of Delaware to extend their time period to remove Prepetition actions. The Debtors tell the Court that the time by which they may file notices of removal with respect to any actions pending on the Petition Date, needs to be extended through April 30, 2002. A hearing on the motion is scheduled on February 18, 2002 at 11:30 a.m. Due to the size and complexity of these cases, the Debtors assert that they have not had a full opportunity to investigate their involvement in the Prepetition Actions. In addition to this, the Debtors have been highly focused with stabilizing their business during these cases. The Debtors believe that this extension will afford them an opportunity to make fully informed decisions on their involvement of the Prepetition Actions and will not prejudice any party in interest. Printing Arts America, Inc. filed for chapter 11 protection on November 1, 2001. Teresa K.D. Currier, Esq. and William H. Schorling, Esq. at Klett Rooney Lieber & Schorling represent the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed an estimated assets and debts of more than $100 million. PROVANT: Rejects IIR's Proposal to Buy $47MM Bank Debt Position --------------------------------------------------------------- On February 5, 2002 Provant, Inc. said that its Board of Directors has unanimously rejected an unsolicited proposal from the Institute for International Research, Inc. (IIR). Under the terms of the proposal, IIR would purchase Provant's outstanding bank debt of approximately $47 million in exchange for approximately 47 million new common shares of Provant. Additionally, IIR would offer existing Provant shareholders the option to exchange up to 50% of their existing shares at $1.00 cash per share. The Board cited three main reasons for its rejection of the proposal: the $1.00 per share price is woefully inadequate; the structure of the proposed transaction - which contemplates that Provant's current shareholders will become minority shareholders in an entity controlled by IIR - is detrimental to Provant shareholders; and, given that IIR and Provant will compete to an increasing extent, the proposal would allow IIR to take actions to enhance its own business at Provant's, and thus its minority shareholders', expense. Chairman John E. Tyson said, "The Board unanimously rejected Mr. Laidlaw's proposal because it is not in the best interests of Provant's shareholders. The proposal does not reflect Provant's inherent value and would require Provant's shareholders to forego any future opportunity to capture a premium for control. Moreover, since Provant and IIR increasingly compete with each other, the proposal would create an intolerable conflict of interest to the detriment of Provant shareholders. We are confident that the management and go-forward plan we now have in place will drive enhanced growth and shareholder value." As a leading provider of performance improvement training services and products, Provant helps its clients maximize their effectiveness and profitability by improving the performance of their people. With over 1,500 corporate and government clients, the Company offers blended solutions combining Web-based and instructor-led offerings that produce measurable results by strengthening the performance and productivity of both individual employees and organizations as a whole. Though IIR has not commenced a tender offer, Provant has said that the subject of the Company's announcement is the receipt of a proposal to make a possible tender offer. Provant indicates that if a tender offer commences, it will file a solicitation/recommendation statement and other documents with the SEC. At September 30, 2001, Provant reported that its total current liabilities exceeded its total current assets by $41 million. PSINET INC: Court Okays Staubach to Dispose of 4 Properties ----------------------------------------------------------- PSINet, Inc., and its debtor-affiliates obtained the Court's authority to employ and retain to provide additional professional services as real estate brokers in the disposition of the Debtors' * Dallas Property located at 1333 Crestside Drive, Coppell, Texas; * Boston Property located at 55 Middlesex Tumpike, Bedford, Massachusetts; * Atlanta Property located at 40 Perimeter Center East, Atlanta, Georgia; and * Miami Property located at 2100 Northwest 84th Avenue, Miami, Florida. Upon the approval of the Court, Staubach will provide further services for the benefit of the Debtors and their estates. Staubach has indicated its willingness to be compensated for the Real Estate Services at the following commission and rebate rates: Net Commission Per Transaction Staubach Share PSINet Share ------------------------------ -------------- ------------ $0 - $49,999 100% 0% $50,000 - $499,999 75% 25% $500,000 - $999,999 70% 30% $1,000,000+ 65% 35% If Staubach successfully brokers the sale of the Ashburn Property, it will receive a commission equal to 2% of the purchase price, less a rebate to be determined according to the Commission Rebate Schedule. The Ashburn Parcels most likely will be sold to the purchaser of the Ashburn Property as part of a single transaction. In that event, Staubach would receive a single commission from the Debtors, based on the aggregate purchase price received for the Ashburn Property and the Ashburn Parcels, the aforementioned 2% commission rate and the Commission Rebate Schedule. If one or more of the Ashburn Parcels were sold in one or more separate transactions, Staubach would receive a separate commission upon the completion of each such transaction, based on the purchase price received for the Parcel(s) sold in that transaction, the aforementioned 2% commission rate and the Commission Rebate Schedule. If Staubach successfully brokers the sale of the Dallas Property, Boston Property and/or the Miami Property, it will receive a commission equal to 2% of the purchase price of each property, less a rebate to be determined according to the Commission Rebate Schedule. If Staubach successfully brokers the sale of the Atlanta Property, the parties currently contemplate that Staubach would receive a 4% commission (50% of which would be paid to the buyer's broker) and the remainder of which would be subject to a partial rebate to the Debtors in accordance with the Commission Rebate Schedule. Staubach and the Debtors agree and acknowledge that any prior understanding or agreement between the parties regarding commissions (whether orally or in writing) is null and void, and the Debtors will be authorized to pay commissions to Staubach only in connection with the sales of the four properties (the Dallas Property, Boston Property, Atlanta Property and Miami Property), unless as provided by a separate application by the Debtors and order of the Court. Staubach also acknowledges that any compensation received from the Debtors or the Debtors' estates remains subject to approval by the Court in accordance with Sections 330 and 331 of the Bankruptcy Code, the applicable Bankruptcy Rules, the Local Rules of the United States Bankruptcy Court for the Southern District of New York, and all other rules and orders of the Court. (PSINet Bankruptcy News, Issue No. 14; Bankruptcy Creditors' Service, Inc., 609/392-0900) SOLA INT'L: S&P Revises Outlook over Continued Weak Performance --------------------------------------------------------------- Standard & Poor's said that it revised its outlook on SOLA International Inc., a leading global maker of prescription eyeglass lenses, to negative from stable due to continued weak performance stemming from unfavorable market conditions. Approximately $280 million in rated outstanding debt is affected. At the same time, Standard & Poor's affirmed its double-'B' corporate credit rating on the company. "Management's recent restructuring efforts have enabled the company to reduce receivable-days-outstanding and lower inventory levels," commented Standard & Poor's credit analyst Arthur Wong. "However, continued weakness in business performance over the next one to two years or longer may result in a ratings downgrade." The noninvestment-grade ratings on San Diego, California-based SOLA International Inc. reflect the company's challenge to improve the weak operating performance of its worldwide eyeglass lens manufacturing business. Management has indicated that its fiscal 2002 fourth quarter ending March 31st, historically the company's strongest, will be essentially flat compared to year ago levels, due to continued economic uncertainties. SOLA holds a 20%-25% share of the prescription eyeglass lens market. However, unfavorable market conditions have continued to hamper the company's performance. Return on capital remains well under 10%, from over 18% as recently as 1998, and earnings before interest, taxes, and depreciation coverage of interest expense is approximately only two times -- measures indicative of a low double-'B' rating. SUN HEALTHCARE: Judge Walrath Confirms Plan of Reorganization ------------------------------------------------------------- The Sun Healthcare Group and its debtor-affiliates obtained confirmation of their Amended Joint Plan of Reorganization of Debtors Under Chapter 11 of the Bankruptcy Code from Judge Walrath. Prior to the confirmation hearing, the Debtors filed some last- minute amendments: (i) clarifying the treatment of Subclass B-11; B-11 --- Sun Life of Canada On the Effective Date, Masthead and Sun Healthcare each shall execute and deliver to Sun Life Assurance Company of Canada that certain Assumption and Reinstatement Agreement in form and substance acceptable to Sun Life, pursuant to which Masthead and Sun Healthcare shall reinstate and assume their respective obligations under that certain: (a) Promissory Note by Masthead in favor of Sun Life dated May 29, 1997, (b) Real Property Deed of Trust, Security Agreement, Assignment of Leases and Rents and Financing Statement by Masthead in favor of Sun Life dated as of May 29, 1997 and recorded May 30, 1997, (c) Absolute Assignment of Leases and Rents by Masthead in favor of Sun Life dated May 29, 1997 and recorded May 30, 1997, (d) Security Agreement by Masthead in favor of Sun Life dated May 29, 1997, (e) Guaranty by Sun Healthcare in favor of Sun Life dated as of May 29, 1997, (f) certificate and agreement concerning hazardous waste executed on May 29, 1997, (g) Financing Statement by Masthead, as debtor, to Sun Life Assurance Company of Canada, as secured party, and (h) letter dated May 29, 1997 from Sun Healthcare Group, Inc., as tenant to Sun Life Assurance Company of Canada containing estoppel certificate and subordination, non-disturbance and attornment provisions. (ii) modifying the list of assumed contracts and leases; (iii) modifying treatment of Subclasses B-3 through B-6 to conform to a settlement approved by the Court; and (iv) deleting reference to former officers, directors and employees of the Debtors. Confirmation Standards Michael F. Walsh, Esq., at Weil, Gotshal & Manges LLP, in New York, tells Judge Walrath that the Plan warrants confirmation because: (a) The Bankruptcy Court has the jurisdiction over the Reorganization Cases pursuant to section 157 and 1334 of title 28 of the United States Code; (b) The Debtors have the burden of proving the elements of section 1129(a) and (b) of the Bankruptcy Code by the preponderance of evidence and they have met that burden as further found and determined herein; (c) The Disclosure Statement, the Original Plan, the Ballots, the Solicitation Order and the Confirmation Hearing Notice were transmitted and served in compliance with the Solicitation Order and the Bankruptcy rules; (d) Votes to accept and reject the Plan have been solicited and tabulated fairly, in good faith and in a manner consistent with the Bankruptcy Code, the Bankruptcy Rules, the Solicitation Order and industrial practice; (e) The Plan satisfied section 1129(a)of the Bankruptcy Code by: - the plan designates 12 Classes of Claims and Equity Interests aside from the Administrative Expense Claims and Priority Tax Claims. Other Secured Claim in Subclasses B-1 through B-17 shall be deemed to be separately classified in a subclass of Class B and shall have all rights associated with separate classification under the Bankruptcy Code. The Claims and Equity Interests placed in each Class are substantially similar to other Claims and Equity Interests, as the case may be, in each such Class. Valid business, factual and legal reasons exist for separately classifying the various Classes of Claims and Equity Interests created under the Plan, and such Classes do not unfairly discriminate between or among holders of Claims and Equity Interests. The Plan satisfies section 1122 and 1123(a)(1) of the Bankruptcy Code; - Section 4 of the Plan specifies that Class A and Subclass B-1, B-23, B-4 and B-6 through B-17 are unimpaired under the Plan, thereby satisfying section 1123(a)(2) of the Bankruptcy Code; - Section 4 of the Plan designates Subclasses B-2 and B-5, Classes C,D, E-1, E-2, and F through K as impaired and specifies the treatment of Claims and Equity Interests in those Classes, thereby satisfying section 1124(a)(3) of the Bankruptcy Code; - The Plan provided for the same treatment by the Debtors for each Claim or Equity Interest in each respective Class unless the holder of a particular Claim or Equity Interest has agreed to a less favorable treatment of such Claim or Equity Interest, thereby satisfying section 1123(a)(4) of the Bankruptcy Code; - The Plan and the various documents and agreements set forth in the Plan Supplement provide adequate and proper means for the Plan's implementation, including the deemed consolidation of the Debtors and the Exit Financing Facility, thereby satisfying section 1123(a)(5) of the Bankruptcy Code; - Section 5.10 of the Plan provides that the Amended Certificate of Incorporation for Reorganized Sun shall prohibit the issuance of nonvoting equity securities. Thus, the requirements of section 1123(a)(6) of the Bankruptcy Code are satisfied; - Section 5.9 of the Plan contains provisions with respect to the manner of selection of directors of Reorganized Sun that are consistent with the interests of creditors, equity security holders, and public policy in accordance with section 1123(a)(7); - The Plan's provision are appropriate and not inconsistent with the applicable provisions of the Bankruptcy Code; and - The Plan is dated and identifies the entities submitting it as proponents, thereby satisfying Bankruptcy Rule 3016(a). (f) The Debtors satisfy section 1129(a)(2) of the Bankruptcy Code as: - The Debtors are proper debtors under section 109 of the Bankruptcy Code; - The Debtors have complied with applicable provisions of the Bankruptcy Code, except as otherwise permitted by orders of the Bankruptcy Court; - The Debtors have complied with the applicable provisions of the Bankruptcy Code, the Bankruptcy Rules and the Solicitation Order in transmitting the Plan, the Disclosure Statement, the Ballots and related documents and notices and in soliciting and tabulating votes on the Original Plan. (g) The Debtors have proposed the Plan in good faith and not by any means forbidden by law, thereby satisfying section 1129(a)(3) of the Bankruptcy Code. The Debtors' good faith is evident from the facts and records of these Reorganization Cases, the Disclosure Statement and the hearings thereon, and the record of the Confirmation Hearing and other proceedings held in these Reorganization Cases. The Plan was proposed with the legitimate and honest purpose of maximizing the value of the Debtors' estate and to effectuate a successful reorganization of the Debtors; (h) Any payment made or to be made by any of the Debtors for services or for cost and expenses in or in connection with the Reorganization Cases, or in connection with the plan and incident to the Reorganization Cases, has been approved by, or is subject to the approval of, the Bankruptcy Court as reasonable, thereby satisfying section 11299(a)(4) of the Bankruptcy Code; (i) The Debtors have complied with section 1129(a)(5) of the Bankruptcy Code as the identity and affiliations of the persons proposed to serve as initial directors or officers of the Reorganized Sun after the confirmation of the Plan have been fully disclosed on the Debtors' web site, and the appointment to, or continuance in, such offices of such persons is consistent with the interests of holders of Claims against and Equity Interests in the Debtors and with public policy. The identity of any insider that will be employed or retained by the Reorganized Debtors and the nature of such insider's compensation have also been fully disclosed; (j) After confirmation of the Plan, the Debtors' business will not involve rates established or approved by, or otherwise subject to, any governmental regulatory commission. Thus, section 1129(a)(6) of the Bankruptcy Code is not applicable in these Reorganization Cases; (k) The liquidation analysis provided in the Disclosure Statement and other evidence proffered or adduced at the Confirmation hearing are persuasive and credible, have not been controverted by other evidence and establish that each holder of an impaired Claim or Equity Interest either has accepted the Plan or will receive or retain under he Plan, on account of such Claim or Equity Interest, property of a value, as of the Effective Date, that is not less than the amount that such holder would receive or retain if the Debtors were liquidated under chapter 7 of the Bankruptcy Code on that date. This satisfies section 1129(a)(7) of the Bankruptcy Code. (l) Class A and B of the Plan are Classes of unimpaired Claims that are conclusively presumed to have accepted the Plan under section 1126(f) of the Bankruptcy Code. Subclasses B-2 and B-5, and Classes D, E-1, E-2, and F have voted to accept the Plan in accordance with section 1126(c) and (d) of the Bankruptcy Code. Classes G through K are not entitled to receive or retain any property under the Plan and, therefore, are deemed to have rejected the Plan pursuant to section 1126(g) of the Bankruptcy Code. Although section 1129(a)(8) has not been satisfied with respect to the deemed rejected Classes identified above and with respect to Class C, the Plan is confirmed because the Plan satisfies section 1129(b) of the Bankruptcy Code with respect to such classes; (m) The treatment of Administrative Expense Claims and Priority Non-Tax Claims pursuant to section 2.1 and 4.1 of the Plan satisfies the requirements of section 1129(a)(9)(A) and (B) of the Bankruptcy Code, and the treatment of Priority Tax Claims pursuant to Section 2.3 of the Plan satisfies the requirements of section 1129(a)(9)(C) of the Bankruptcy Code; (n) At least one Class of Claims against the Debtors that is impaired under the plan has accepted the Plan, determined without including any acceptance of the Plan by any insider, thus satisfying the requirements of section 1129(a)(10) of the Bankruptcy Code; (o) The evidence proffered or adduced at the Confirmation Hearing: - is persuasive and credible; - has not been controverted by other evidence; and - establishes that confirmation of the Plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the Reorganized Debtors, thus satisfying the requirements of section 1129(a)(11) of the Bankruptcy Code; (p) All fees payable under section 1930 of title 28 of the United States Code, as determined by the Bankruptcy Court, have been paid or will be paid pursuant to Section 12.1 of the Plan from the funds deposited by the Debtors into an escrow account pursuant to an escrow arrangement, the terms of which are satisfactory to the Debtors and the United States Trustee, thus satisfying the requirements of section 1129(a)(12) of the Bankruptcy Code. On or before the Effective Date, the Reorganized Debtors shall deposit the sum of $3,900,000 earmarked for payment of pre- confirmation United States Trustee's fees pursuant to 28 U.S.C. 1930(a)(6) and 11 U.S.C. 1129(a)(12), through and including Third Quarter 2201, in a segregated interest bearing account at a bank reasonably acceptable to the United States Trustee. In addition, the Reorganized Debtors shall deposit in the Account, on or before the Effective Date, the disputed amount of United States Trustee fees for Fourth Quarter 2001. No withdrawals or transfers of funds of the Account shall be made until the amount due has been determined final non-appealable order and upon further order of this Court; (q) Section 12.2 of the Plan provides that, on and after the Effective Date, the Reorganized Debtors will continue to pay all "retiree benefits", at the level established pursuant to section 1114(e)(1)(B) or 1114(g) at any time prior to confirmation of the Plan, for the duration of the period the Debtors have obligated themselves to provide such benefits. Thus, the requirements of section 1129(a)(13) of the Bankruptcy Code are satisfied; (r) Classes G, H, I, J and K are deemed to reject the Plan. Based on the Confirmation Affidavits and the evidence presented by the Debtors at the Confirmation Hearing, the Plan is fair and equitable with respect to the Rejecting Classes, as required by section 1129(b)(1) of the Bankruptcy Code. Thus, the Plan may be confirmed notwithstanding the Debtors' failure to satisfy section 1129(a)(8) of the Bankruptcy Code. Upon confirmation and the occurrence of the Effective Date, the Plan shall be binding upon the members of the Rejecting Classes; (s) The principal purpose of the Plan is not the avoidance of taxes or the avoidance of the application of section 5 of the Securities Act off 1933; (t) The modifications to the Original Plan set forth in the Plan Amendments constitute technical changes and/or changes with respect to particular Claims by agreement with holders of such Claim, do not materially adversely affect or change the treatment of any Claims or Equity Interests, and comply in all respects with the requirements of section 1127 of the Bankruptcy Code. Accordingly, pursuant to Bankruptcy Rule 3019, these modifications do not require additional disclosure under section 1125 of the Bankruptcy Code or re-solicitation of votes under section 1126 of the Bankruptcy Code, not do they require that holders of Claims or Equity Interests be afforded an opportunity to change previously cast acceptances or rejections of the Plan. (u) Based on the record before the Bankruptcy Court, the Debtors and their directors, officers, employees, shareholders, members, agents, advisors, accountants, investment bankers, consultants, attorneys, and other representatives have acted in "good faith" within the meaning of section 1125(e) of the Bankruptcy Code in compliance with the applicable provisions of the Bankruptcy Code and Bankruptcy Rules in connection with all their respective activities relating to the solicitation of acceptances to the Plan and their participation in the activities described in section 1125 of the Bankruptcy Code, and are entitled to the protection afforded by section 1125(e) of the Bankruptcy Code and the exculpation provisions set forth in Section 10.6 of the Plan; (v) Section 8 of the Plan governing the assumption and rejection of executory contracts and unexpired leases satisfies the requirements of section 365(b) of the Bankruptcy Code. Pursuant to Section 8.2 of the Plan, within 60 days of the Confirmation Date, the Debtors shall file and serve a pleading with the Bankruptcy Court listing the cure amounts of all executory contracts or unexpired leases to be assumed to the extent such cure amounts are not already listed on Schedule 8.1 to the Plan, consistent with section 365 of the Bankruptcy Code. The parties to such contracts to be assumed by the Debtors shall have 30 days from service of the pleadings referenced above to object to the cure amounts listed by the Debtors. The Debtors shall retain their rights to reject any of their executory contracts, including those that are listed in Section 8.1 to the Plan, and including contracts or leases that are subject to a dispute concerning amounts necessary to cure any defaults; (w) No creditor of any of the Debtors will be prejudices by the deemed consolidation of the Debtors; such deemed consolidation will benefit all creditors of the Debtors; (x) The Plan satisfies the requirements for confirmation set forth in section 1129 of the Bankruptcy Code. After a thorough examination of the Plan, the Voting Reports, the Boston Affidavit, Responses and Confirmation Memorandum, the Confirmation Haring and the Debtors' arguments, Judge Walrath confirms the Debtors' Joint Plan of Reorganization on February 6, 2002. The Confirmation Order provides that the Debtors shall pay -- on the Effective Date -- all amounts outstanding under the DIP Loan Agreement. At the same time, Judge Walrath rules that any outstanding letters of credit issued under the DIP Loan Agreement shall be either replaced or secured by letters of credit issued under the exit facility. The Court authorizes the Debtors to enter into a new $150,000,000 Exit Financing Facility for purposes of funding obligations under the Plan, including the payment of Administrative Expense Claims, the repayment of obligations under the DIP Loan Agreement, financing the Reorganized Debtors' working capital requirements, and satisfying the treatment of Class E-2 Claims, as well as any Other Secured Claims, or other Claims that the Debtors elect to satisfy with Cash payments. Furthermore, the Confirmation Order states that: -- All distributions to any holder of an Allowed Senior Lender Claim shall be made to Bank of America, N.A., as administrative agent under that certain Credit Agreement dated as of October 8, 1997, among Sun Healthcare Group, Inc., Bank of America, N.A., as administrative agent, certain co-agents, and the lender parties. -- All distributions to any holder of an Allowed Senior Subordinated Note Claim shall be made to: (a) U.S. Bank Trust National Association, as trustee, under the Indenture, dated as of May 4, 1998, between Sun Healthcare Group, Inc., and U.S. Bank Trust National Association, as trustee, for the 9 3/8% Senior Subordinated Note due 2008, (b) U.S. Bank Trust National Association, as trustee, under the Second Amended and Restated Indenture, dated as of January 10, 1998 between Sun Healthcare Group, Inc., and U.S. Bank Trust National Association, as trustee, for the 9-1/2% Senior Subordinated Note due 2007, (c) Bank of New York, as trustee, under the First Supplemental Indenture, dated as of January 4, 1995, between Sun Healthcare Group Inc., The Mediplex Group Inc., and Bank of New York, as trustee, for the 11 3/4% Senior Subordinated Note due 2002, or (d) U.S. Trust Company of California, N.A., as trustee, under the Indenture dated as of October 12, 1995, as supplemented on October 8, 1997, between Regency Health Service Inc., the guarantors, and U.S. Trust Company of California, N.A., as trustee for the 9 7/8% Senior Subordinated Notes due 2002. -- The Sun Lease Guarantees will be reaffirmed pursuant to documentation that is reasonably acceptable to Karrell Capital and the Debtors; provided, however, that entry into such documents shall not be a condition to the Effective Date. In addition: (a) as a condition of assuming two leases which are of the Nampa and Avondale facilities entered into with National Health Investors Inc: (1) SunBridge shall cure all defaults under the National Health Leases on the Effective Date of the Plan by satisfying all obligations outstanding under the National Health Leases, pursuant to the terms therein, and reinstating National Health's senior perfected security interests in the property securing SunBridge's obligations, including without limitation accounts receivable, equipment, inventory, and general intangibles, and (2) Sun shall reinstate its guaranty of the National Health Leases in its entirely, which guaranty shall not be discharged; and (b) in the event the National Health Leases are rejected, National Health's current security interests and liens in the collateral securing the National Health Leases shall not be impaired, discharged or made subordinate to any security interests or liens securing the Exit Financing Facility. -- The Debtors' rejection of the Master Lease Agreement entered into with Line Capital Inc. on May 5, 1997 shall not become effective until March 31, 2002. -- The Plan does not extinguish, waive or adversely affect the rights of the Internal Revenue Service of the United States of America. In addition, nothing in the Plan or the Confirmation Order prejudices, diminishes, limits, extinguishes, eliminates, or affects any of OmniCell Technologies Inc.'s setoff rights or other rights to payment, under the January 1, 1997 OmniCell Distribution Agreement. The reservation of OmniCell's rights shall not affect any interest of the Lenders under the Exit Financing Facility. Such Lenders are not taking a security interest in Claims by or against OmniCell. (Sun Healthcare Bankruptcy News, Issue No. 32; Bankruptcy Creditors' Service, Inc., 609/392-0900) SUPERIOR TELECOM: S&P Cuts Ratings On Weakening Fin'l Condition --------------------------------------------------------------- Standard & Poor's said that it was lowering its corporate credit rating on wire and cable manufacturer Superior Telecom Inc. to single-'B'-minus from single-'B'-plus due to deterioration of its financial condition. Standard & Poor's also said that it was removing its ratings on the company from CreditWatch where they had been placed July 26, 2001. The outlook is now negative. The Atlanta, Gergia-based company currently has $1.2 billion of total debt. According to credit analyst Thomas Watters, Standard & Poor's is concerned about the company's ability to service its heavy debt amortization schedule over the next year or two amid current weak market conditions. Mr. Watters said, "The company has delayed its previously announced divestiture plans because it felt it had not received satisfactory valuations for its cable operations. Absent such asset sales, Superior's liquidity and cash flow generation may be insufficient to meet its scheduled bank principal repayments due in the fall of 2003, which could lead to a restructuring of these payments." Standard & Poor's would deem an inability to meet such payments or a restructuring of these payments as being tantamount to a default. Superior's business position benefits from its substantial market share in a broad line of copper wire and cable products, as well as diversified manufacturing and distribution facilities. However, Standard & Poor's remains concerned about the company's aggressive debt leverage and burdensome debt repayment schedules given its exposure to the current difficult industry conditions in its end markets. The ratings could be lowered again if continuing weak business conditions further reduce the company's financial flexibility. Following Superior's $936 million acquisition of Essex International Inc., in October of 1998, the company's total debt has remained very high. Indeed, total debt to EBITDA for the last twelve months ending Sept. 30, 2001 was a lofty 6.8x with total debt to total capital at 83%. EBITDA for the nine months ended September 30, 2001, has fallen precipitously to $144 million compared with $217 million during the same period in 1999. Consequently, EBITDA to interest was a weak 1.79x. In light of the expected continuation of weak market conditions, Standard & Poor's anticipates cash flow measures to remain near or at current levels for the medium term. TELESYSTEM INT'L: Extends Purchase Offer for Units to Feb. 28 ------------------------------------------------------------- Telesystem International Wireless Inc., announces that it has given proper notice to the depository to extend its purchase offer for all of its outstanding Units. The Offer will expire at 5:00 p.m., Montreal time, on February 28, 2002, unless further extended or withdrawn. The Offer will be further amended to comply with an order of the Ontario Superior Court of Justice. The Company intends to launch the amended offer shortly and to have it expire at 5:00 p.m., Montreal time, on February 28, 2002. As permitted by the Court's order, TIW has already taken-up and paid for the 25.3 million Units validly tendered by Telesystem Ltd, Caisse de depot et placement du Quebec and all its subsidiaries, and Rogers Telecommunications (Quebec) Inc. As a result, TIW's economic ownership in ClearWave N.V. (ClearWave) has increased from 45.5% to approximately 75.5%. By reason of the Court's order, Units are no longer subject to the deemed TIW exchange option which would have resulted in each Unit not tendered on June 30, 2002 being exchanged for 0.2 subordinate voting shares of TIW if less than US$ 100 million of Units, based on the original issuance price, remained outstanding on that date. TIW is a global mobile communications operator with 4.9 million subscribers worldwide. The Company's shares are listed on the Toronto Stock Exchange ("TIW") and NASDAQ ("TIWI"). TELESYSTEM INT'L: Commission Rejects Highfields' Hearing Request ---------------------------------------------------------------- Telesystem International Wireless Inc., welcomes the Commission des valeurs mobilieres du Quebec (CVMQ)'s ruling rejecting Highfields Capital Limited (Highfields)'s application. The Commission agreed with TIW's position that Highfields had not acted in a timely manner and had already sought preventive relief before the Ontario Superior Court. Highfields was asking the CVMQ to hold a hearing to examine if TIW should be required to extend its purchase offer and request of consents for its 7% Equity Subordinated Debentures beyond February 4, 2002. The Offer expired on Monday, February 4, 2002 at 12:00 noon and was successfully completed with over 97% of ESD holders tendering their debentures to the Offer. As a result, the Company took up and paid for the debentures tendered into the Offer. Highfields alleged that an Order from the Ontario Superior Court rendered on February 2, 2002, in connection with another issuer bid for another TIW security, the TIW Units, was a material change within the meaning of section 130 to 132 of the Quebec Securities Act (QSA) which warranted an extension of the Offer until 11:59 pm on February 13, 2002. The Offer was part of a comprehensive recapitalization plan involving a number of interrelated transactions including the conversion of debt by Hutchison Whampoa Limited and JP Morgan Partners LLC, the infusion of new capital in the Company, the conversion of Telesystem Ltd's multiple voting shares into subordinate voting shares, the amendment and partial repayment of the corporate bank facility and the acquisition of a majority of Units. For the last two months, TIW collaborated with the TSE and the Securities Commissions-and more recently with the Ontario Superior Court-on various aspects of these transactions, all with a view to enabling the plan to proceed. Highfields previously attempted to block TIW's recapitalization plan before the Ontario Superior Court. Highfields had filed an application pursuant to the oppression remedy under the sections 241 of the Canada Business Corporations Act in connection with TIW's bid for the TIW Units. Highfields had sought to restrain TIW from taking up any Units under its bid, including those locked-up under agreements with Telesystem Ltd, Caisse de depot et placement du Quebec and all its subsidiaries (CDPQ), and Rogers Telecommunications (Quebec) Inc., and to thereby preclude TIW from fulfilling a condition precedent to its entire recapitalization plan. Highfields' legal arguments were that a component of the plan, namely a funding commitment of up to US$90 million by JP Morgan Partners LLC, Telesystem Ltd and CDPQ, in law, constituted a collateral benefit and that the standard US$100 million cleanup clause in the trust indenture for TIW Units should not be applicable because of its coercive impact in the context of the bid. The Ontario Superior Court accepted Highfields' legal argument but instead of voiding the entire recapitalization plan, as had been desired by Highfields, simply ordered that the funding commitment be made available prorata to ownership of TIW Units and that the cleanup clause be inapplicable. TIW is a global mobile communications operator with 4.9 million subscribers worldwide. The Company's shares are listed on the Toronto Stock Exchange ("TIW") and NASDAQ ("TIWI"). TERAGLOBAL COMMS: WallerSutton Takes Over Controlling Interest -------------------------------------------------------------- TeraGlobal Communications Corp. (OTCBB:TGCC) announced that WallerSutton 2000 L.P., the principal investor in the company's recent bridge financing, has acquired a controlling interest in the company's Common Stock. Pursuant to a Convertible Promissory Note and Warrant Purchase Agreement, dated Dec. 10, 2001, WallerSutton 2000 L.P. purchased $1,128,857 in Convertible Promissory Notes and 4,486,890 Bridge Warrants to purchase Common Stock at exercise prices ranging from $.185 to $.20 per share. In addition, the Purchase Agreement provided that WallerSutton and the other purchasers thereunder would be issued certain warrants to purchase common stock exercisable at a price of $.001 per share, in the event certain events of default specified in such warrants occurred. As previously announced, on Jan. 12, 2002 such an event of default occurred and the Default Warrants held by WallerSutton and the other purchasers became exercisable. The Default Warrants held by WallerSutton were exercisable for a total of 34,592,395 shares of Common Stock. On Feb. 5, 2002, WallerSutton 2000 L.P. exercised its Default Warrants on a cashless basis in exchange for 34,373,455 shares of Common Stock. After giving effect to the exercise of those Default Warrants, the company has approximately 60,749,377 shares of Common Stock and 7,468,661 shares of Series A Convertible Preferred Stock outstanding. WallerSutton 2000, L.P. presently owns 34,373,455 shares or 57% of the outstanding Common Stock and 5,597,016 shares or 75% of the outstanding Series A Convertible Preferred Stock. In a series of releases, the company has announced its efforts to secure additional financing to fund operations. However, no definitive agreement or plans for a financing have been reached, and no firm commitments for further funding exist at this time. The company is continuing to receive bridge financing from existing investors, principally WallerSutton 2000 L.P., to support its operations on an as needed basis. Repayment of the promissory notes being sold in the bridge financing is secured by a first lien on all of the company's assets. The company's board of directors continues to investigate a number of avenues for raising additional capital. To that end, the company recently filed a preliminary information statement on Form 14C with the SEC on Feb. 5, 2002. The information statement relates to actions taken by the board of directors to approve certain transactions intended to increase the company's options to finance its ongoing capital requirements, including (1) amending the company's Certificate of Incorporation to authorize 1,000,000 shares of "blank check" Preferred Stock; (2) amending the company's Certificate of Incorporation to effect a 1 for 25 reverse split of the company's issued and outstanding Common Stock; and (3) approving of the formation of a subsidiary corporation, and the authorization to transfer of all of the company's operating assets and certain of its liabilities to the new subsidiary, with the intent to cause the subsidiary to issue debt or equity securities to prospective investors or to sell some or substantially all of the company's assets. The company expects to obtain stockholder approval of these transactions by a written consent resolution signed by the owners of a majority of the company's outstanding voting power. A final Information Statement would then be filed with the SEC and mailed to shareholders on or about Feb. 19, 2002 informing them of the transactions approved by the Consent Resolution. In accordance with applicable federal securities laws, the transactions would take place at least 20 days after the Information Statement is mailed to shareholders. While the board of directors believes that each of the transactions will increase the company's financing options, no agreement exists for the sale of any securities or the company's operating assets at this time. Despite the fact that the company has filed the preliminary Information Statement with the SEC, and may obtain stockholder approval of the transactions pursuant to the Consent Resolution, the board of directors may, in its discretion, determine not to proceed with any or all of the transactions at any time prior to their consummation. In an unrelated transaction, Grant Holcomb has separated his relationship with the company. Holcomb served as the company's chief technology officer from 1998 through Jan. 31, 2002, and was largely responsible for coordinating development of the company's Apple-based TeraMedia product. In connection with his separation Holcomb sold to the company 750,000 shares of Common Stock and 600,000 options to purchase Common Stock as partial payment for loans the company had extended to Holcomb during his employment. TeraGlobal Communications Corp. develops software real-time collaboration with integrated IP voice and video communications. The software applications are IP based and run over standard broadband computer networks. TeraGlobal's TeraMedia(R) collaboration software, is industry leading technology combining extensive collaboration tools with integrated IP voice and video communications on the Apple Mac OS 9 operating system. The company is now releasing Session collaboration software which runs on the Windowsr operating system. TeraGlobal's corporate office is in San Diego. TeraGlobal stock is traded on the OTCBB under the symbol "TGCC." U.S. INDUSTRIES: First Quarter Net Loss Nearly Doubles to $7MM -------------------------------------------------------------- U.S. Industries, Inc. (NYSE-USI) announced that net sales and operating income from continuing operations for the three months ended December 31, 2001 was $254.4 million and $14.6 million, respectively, as compared to the same period last year of $251.8 million and $12.0 million. Net loss for the period was $7.0 million for the first quarter of fiscal 2002 compared to $4.2 million for the same period in fiscal 2001. Prior year sales and results from continuing operations have been restated to exclude the sales and operating results of the non-core assets due to the Disposal Plan adopted by the Board of Directors on December 28, 2001. Accordingly, results of continuing operations for 2002 and those restated for 2001 do not include these discontinued operations (which reported net sales of $287.1 million and operating income of $11.5 million in the first quarter of fiscal 2002). Interest expense incurred in the 2002 and the 2001 quarters was $22.9 million and $19.8 million, respectively. Interest expense is expected to decrease as the Company sells its non-core assets and utilizes net proceeds to satisfy debt amortization requirements under the Restructured Debt Facility. As of this date, the Company has made, through its Disposal Plan and operating cash flow, approximately $270 million of amortization payments. Fiscal 2002 includes sales of $26.6 million and operating income of $7.6 million of Rexair, Inc., that was acquired contemporaneously with the restructuring of the Company's debt on August 15, 2001. While still owned by its former owner, Rexair's sales and operating income for the first quarter of fiscal 2001 was $29.0 million and $8.4 million, respectively. Rexair's sales and operating income decreased from the first quarter 2001 results due to a decrease in unit sales in certain international markets. Excluding Rexair, sales and operating income decreased compared to the prior year principally due to the continued softness in the Spa and Whirlpool businesses at Jacuzzi and the inclusion in 2001 of $11.8 million of sales from the disposed European HVAC businesses and discontinued U.S. Brass product lines. Unit sales of certain spa and whirlpool bath product lines decreased due to customer requests for price and service concessions that the Company declined. Operating income decreased from the prior year primarily due to the decreased sales and the reduced absorption of overhead caused by a reduction in inventory levels and production. Also contributing to the decrease were the costs of consolidating selected whirlpool bath manufacturing facilities. USI adopted SFAS 142 "Goodwill and Other Intangible Assets" in the first quarter of fiscal 2002 and therefore goodwill amortization has been eliminated from the first quarter 2002 results. Goodwill amortization, after tax, included in continuing operations in the first quarter of fiscal 2001 was $2.2 million. Following the completion of its Disposal Plan, U.S. Industries will own several major businesses selling branded bath and plumbing products, along with its consumer vacuum cleaner company. The Company's principal brands will include Jacuzzi, Zurn, Sundance Spas, Eljer, and Rainbow vacuum cleaners. VANGUARD AIRLINES: Set to Revise Loan Guarantee Application ----------------------------------------------------------- Vanguard Airlines, Inc. (OTC Bulletin Board: VNGD) released its unaudited results for the quarter and the year ended December 31, 2001. This release was made to comply with Regulation FD (fair disclosure) as a result of Vanguard's circulation of these unaudited results in connection with its application for a federal loan guarantee. Vanguard's actual results for these periods may be different than the unaudited results due to final year-end closing entries and the completion of the audit. For the quarter ended December 31, 2001, Vanguard expects an operating loss of approximately $6 to $7 million, as compared to an operating loss of $10.5 million in the fourth quarter of 2000. For the year ended December 31, 2001, Vanguard expects an operating loss of approximately $27 million as compared to an operating loss of $24.8 million for the year ended December 31, 2000. The substantial improvement in operating loss for the fourth quarter as compared to the prior year period, achieved despite the general recession in the airline industry, is due to Vanguard's restructuring of its business operations through (i) operation of a Kansas City hub with new destinations, (ii) replacement of older 737-200 aircraft with newer, more reliable MD-80 series aircraft featuring a SkyBox ? business class cabin, (iii) improvements in customer service and on-time reliability and (iv) participation in a major global distribution system with direct travel agency and Internet sales capability. "Despite the tragedy of September 11, Vanguard's results for the fourth quarter improved tremendously as compared to the fourth quarter of 2000," said Scott Dickson, Chief Executive Officer and President. "This improvement demonstrates the viability and strength of our business plan." For the quarter ended December 31, 2001, Vanguard expects a net loss of approximately $2 to $3 million, as compared to a net loss of $11.0 million in the fourth quarter of 2000, reflecting grant income received under the Air Transportation Safety and System Stabilization Act (ATSSSA) of approximately $5.0 million. For the year ended December 31, 2001, Vanguard expects a net loss of approximately $28 million, as compared to a net loss of $26.0 million for the year ended December 31, 2000, also reflecting grant income received under ATSSSA of approximately $7.3 million during the latter part of 2001 and also reflecting an approximate $4.1 million noncash charge related to the issuance of equity in the second quarter. Without this noncash charge, the Company's expected net loss for the year ended December 31, 2001, would have been approximately $24 million: an improvement over 2000 of approximately $2 million. "The funds granted by DOT under the ATSSSA were intended to offset losses that would not have occurred but for the events of September 11," said Dickson. "In Vanguard's case, the preponderance of these extraordinary losses were related to lost passenger revenues, and secondarily to the impacts of increased security requirements. However, accounting rules require this grant income to be recorded as non-operating income. Applying the $5 million of grant income to reduce Vanguard's operating loss demonstrates the improvement from the fourth quarter of 2000 that Vanguard would have realized had the tragic events of September not occurred." Vanguard's average fares for the quarter and year ended December 31, 2001, are expected to be $81 and $78, respectively, as compared to $76 and $66 for the comparable periods in 2000. Vanguard's revenue per passenger mile, or yields, for the quarter and year ended December 31, 2001, are expected to be $0.107 and $0.104, respectively, as compared to $0.120 and $0.129 for the comparable periods in 2000. The change in yield corresponds with Vanguard's increased flight lengths as its route system evolved in 2001 to focus on longer haul routes, which tend to have lower yields. Vanguard's average passenger flight for 2001 was approximately 750 miles, a 46 percent increase from 512 miles in 2000. "We are very pleased that, following the implementation of the revised route system in the first quarter of 2001, our yields have steadily improved," continued Dickson. "Vanguard's expected yield for the fourth quarter of 2001 is eight percent higher than Vanguard's yield realized in the second quarter of 2001. This is another demonstration of steady improvement in Vanguard's operational efficiency during calendar year 2001." As previously announced, Vanguard's load factor for the full year 2001 increased 11.1 percent to 65.8 percent from 59.2 percent in 2000. "The increases in yield during the year, and substantial year-over-year increases in average fare and load factor are contrary to general results in the industry and, accordingly, validate Vanguard's business turnaround," continued Dickson. "Considering the impact of September 11 and the general economy, Vanguard's results in 2001 as compared to 2000 are substantially better than most of the industry." While the results are very encouraging, they do not eliminate the need for Vanguard to take strong action to preserve its financial condition as a result of the September 11 terrorist attacks. As Vanguard previously reported in its Form 10-Q for the quarter ended September 30, 2001, Vanguard requires additional debt or equity financing to fund ongoing operations. The Company is seeking to raise additional capital with the federal loan assistance made possible by ATSSSA; however, there can be no assurance that such capital can be obtained. Without such capital, Kansas City and the nation may lose a valuable airline competitor. Vanguard filed an application for a federal loan guarantee under ATSSSA on December 6, 2001; revised its application on December 20, 2001; and is in the process of preparing a further revision in response to comments received from the Air Transportation Stabilization Board. "We believe in Vanguard's value to Kansas City and the nation, and that this value far exceeds the amount of the loan guarantee requested," continued Dickson. "Vanguard was demonstrating the viability of its revised plan when the tragedy struck on September 11. The tragedy is lengthening our turnaround, but we have continued to demonstrate that the new Vanguard rolled- out in 2001 is an airline with a future. We have continued improvements post-September 11 with the addition of Colorado Springs and Ft. Lauderdale to our route map, as well as the return to Myrtle Beach, and through the addition of newer aircraft. We have obtained commitments from aircraft lessors with whom we previously did not lease aircraft. Our load factor has recovered nicely, and we anticipate traffic returning to pre-September 11 levels during the second quarter of 2002." Vanguard Airlines, Kansas City's Hometown Airline, provides convenient all-jet service to 16 cities nationwide: Atlanta, Austin, Buffalo/Niagara Falls, Chicago-Midway, Colorado Springs, Dallas/Ft. Worth, Denver, Fort Lauderdale, Kansas City, Las Vegas, Los Angeles, Myrtle Beach (March 28), New Orleans, New York-LaGuardia, Pittsburgh and San Francisco. The airline offers low fares with no advance-purchase requirements, advanced seat assignment and extra legroom on all flights with a fleet of seven Boeing 737s and seven Boeing MD-80-series aircraft, which feature SkyBox Business Class service. For more information or to make reservations online, visit Vanguard's Web site at http://www.flyvanguard.com WILLIAMS COMMS: Will Give Banks a Restructuring Plan by Feb. 25 --------------------------------------------------------------- Williams Communications (NYSE: WCG), a leading provider of broadband services for bandwidth-centric customers, announced its full year 2002 financial objectives and first quarter 2002 financial guidance. "In 2002, Williams Communications will continue to execute and deliver solid financial results by profitably growing our top- line revenue, strengthening our balance sheet and solidifying our liquidity position," said Scott Schubert, executive vice president and chief financial officer for Williams Communications. "For the first quarter of 2002, consolidated revenues for the company are expected to range between $328 million and $347 million, marking a minimum year-over-year growth rate of approximately 20 percent." For full-year 2002, Williams Communications is targeting year- over-year revenue growth rates of 15-30 percent for its Network segment and 25-40 percent for its Emerging Markets segment. Driving this growth rate will be increased existing customer traffic, new customer growth and new products and services innovation. The company is expecting Network to be EBITDA (earnings before interest, taxes, depreciation and amortization and other adjustments) positive on an operating basis for the full year, and is targeting Emerging Markets to be operating EBITDA positive on a run-rate basis by year-end. Net capital expenditures (net of proceeds from asset sales) are expected to be less than $100 million for 2002. For the first quarter 2002, Williams Communications is targeting a consolidated minimum revenue growth rate of approximately 20 percent compared to the year ago period. Network revenues are expected to range between $285 million and $300 million, marking an increase of approximately 20 percent (excluding dark fiber sales) from the first quarter 2001. Emerging Market revenues are expected to range from $43 million to $47 million, marking an increase of at least 6 percent from the year ago period. Network EBITDA for the quarter is targeted to range between a $10 million loss and breakeven. Emerging Markets EBITDA is expected to be a loss of between $9 million and $11 million. "As stated on Feb 4, we have agreed to provide our banks, by February 25, 2002, a comprehensive plan for restructuring and de-leveraging Williams Communications' balance sheet," said Schubert. "[Wednes]day's guidance may differ significantly from actual performance depending upon the ultimate form of such a plan and its acceptance by the banks and others who may be affected by it." Based in Tulsa, Okla., Williams Communications Group, Inc., is a leading broadband network services provider focused on the needs of bandwidth-centric customers. Williams Communications operates the largest, most efficient, next-generation network in North America. Connecting 125 U.S. cities and reaching five continents, Williams Communications provides customers with unparalleled local-to-global connectivity. By leveraging its infrastructure, best-in-breed technology, connectivity and network and broadband media expertise, Williams Communications supports the bandwidth demands of leading communications companies around the globe. For more information, visit http://www.williamscommunications.com BOOK REVIEW: Creating Value Through Corporate Restructuring: Case Studies in Bankruptcies, Buyouts, and Breakups ---------------------------------------------------------------- Author: Stuart C. Gilson Publisher: Wiley Hardcover: 516 pages List Price: $79.95 Review by David M. Henderson Order your copy -- and one for a colleague -- today at http://amazon.com/exec/obidos/ASIN/0471405590/internetbankrupt Most business books fall into two categories. The first is very important. It is like that stuff you have to drink before you have a colonoscopy. You keep telling yourself, this is very good for me, while you would rather be at the beach reading Liar's Poker or Barbarians at the Gate. Stuart Gilson, of the Harvard Business School, has managed to write a book important to everybody in the distressed market that is also quite enjoyable. His prose is fluid and succinct and a pleasure to read. But don't take my word for it. The dust jacket endorsements come from Jay Alix, Martin Fridson, Harvey Miller, Arthur Newman, and Sanford Sigoloff. At a collective gazillion dollars a billing hour, that's a lot of endorsement. Be advised that this is designed as a text book. The case study format might be off-putting to some. The effect can be jarring as you read the narrative history of the case and suddenly confront the financial statements without any further clue as to what to do, but this must be what it is like for the turnaround manager. Even after reading several of the cases, when I got to the financials I had that sinking feeling of, what do I do now? If you read carefully, clues to the solutions are in the introductions. The book is divided into three "modules", bizspeek for sections: Restructuring Creditors' Claims,. Restructuring Shareholders' Claims, and Restructuring Employees' Claims. The text covers 13 corporate restructurings focusing on debt workouts, vulture investing, equity spinoffs, tracking stock, assete divestitures, employee layoffs, corporate downsizing, M & A, HLTs, wage give- backs, employee stock buyouts, and the restructuring of employee benefit plans. That's a pretty comprehensive survey, wouldn't you say? Dr. Gilson's chapter on "Investing in Distressed Situations" is an excellent summary of the distressed market and a good touchstone even for seasoned vultures. Even in the two appendices on technical analysis, this book is marvelously free of those charts and graphs that purport to show some general ROI of distressed investing. Those are cute, aren't they? As Judy Mencher has famously said, "You can buy the paper at 50 thinking it's going to 70, but it can just as easily go to 30 if you are not willing to act on it." Therein lies the rub and the weakness, if inevitable, of this or any book on corporate restructurings. As Dr. Gilson notes, no two are alike, and the outcome is highly subjective, in our out of Court, but especially in Chapter 11. Is the Judge enthralled by Jack Butler as Debtor's Counsel or intimidated by Harvey Miller as Debtor's Counsel? Are you holding "secured" paper only to discover that when it was issued the bond counsel forgot to notify the Indenture Trustee of the most Senior debt? Is somebody holding Junior paper that you think is out of the money only to have Hugh Ray read the fine print and discover that the "Junior" paper is secured? This is the stuff of corporate reorganizations that is virtually impossible to codify into a textbook. That said, this is an especially valuable text for anybody working in the distressed market. As a Duke grad, I tend to be disdainful of all things Harvard, but having read Dr. Gilson's book, I am enticed to encamp by the dirty waters of the Charles long enough to take his course, appropriately entitled, "Creating Value Through Corporate Restructuring." ********* Bond pricing, appearing in each Monday's edition of the TCR, is provided by DLS Capital Partners in Dallas, Texas. A list of Meetings, Conferences and Seminars appears in each Wednesday's edition of the TCR. Submissions about insolvency- related conferences are encouraged. Send announcements to conferences@bankrupt.com. Bond pricing, appearing in each Thursday's edition of the TCR, is provided by DebtTraders in New York. DebtTraders is a specialist in global high yield securities, providing clients unparalleled services in the identification, assessment, and sourcing of attractive high yield debt investments. For more information on institutional services, contact Scott Johnson at 1-212-247-5300. To view our research and find out about private client accounts, contact Peter Fitzpatrick at 1-212-247-3800. Real-time pricing available at http://www.debttraders.com/ Each Friday's edition of the TCR includes a review about a book of interest to troubled company professionals. All titles are available at your local bookstore or through Amazon.com. Go to http://www.bankrupt.com/books/to order any title today. For copies of court documents filed in the District of Delaware, please contact Vito at Parcels, Inc., at 302-658-9911. For bankruptcy documents filed in cases pending outside the District of Delaware, contact Ken Troubh at Nationwide Research & Consulting at 207/791-2852. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Trenton, NJ USA, and Beard Group, Inc., Washington, DC USA. Yvonne L. Metzler, Bernadette C. de Roda, Ronald P. Villavelez and Peter A. Chapman, Editors. Copyright 2002. All rights reserved. ISSN: 1520-9474. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR subscription rate is $575 for 6 months delivered via e- mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. For subscription information, contact Christopher Beard at 240/629-3300. *** End of Transmission ***