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/raid1/www/Hosts/bankrupt/TCR_Public/030820.mbx T R O U B L E D C O M P A N Y R E P O R T E R Wednesday, August 20, 2003, Vol. 7, No. 164 Headlines ACCLAIM ENTERTAINMENT: June Net Capital Deficit Widens to $54MM ADVANSTAR COMMS: Closes $360-Million 2nd Priority Notes Offering AFC ENTERPRISES: S&P Junks Corporate Credit & Bank Loan Ratings AFTON FOOD: Obtains Credit Approval from Senior Lenders AGILENT TECHNOLOGIES: Red Ink Continued to Flow in Q3 2003 AK STEEL: Unit Completes Acquisition of Central Tubing Facility ALERT TECH.: Case Summary & 20 Largest Unsecured Creditors ALLCITY INSURANCE: Red Ink Splotches Second Quarter 2003 Results ALLIED WASTE: S&P Assigns BB Rating to $250 Million Term Loan C AMERCO: Court Fixes Dec. 22 Claims Bar Date for AREC Creditors AMERICAN RESTAURANT: S&P Junks Credit & Debt Ratings at CCC+ ANC RENTAL: Delays Filing of Form 10-Q for First Quarter 2003 APARTMENT INVESTMENT: Board Declares Preferred Share Dividends ARVINMERITOR: Issues Statement in Response to Dana's Complaint ASPECT COMMS: Beatriz Infante to Step Down as Chairman/Pres./CEO AVIX TECHNOLOGIES: Florida Bankr. Court Confirms Chapter 11 Plan BUDGET GROUP: Challenges 12 Claims Filed by Indenture Trustees CEDAR MOUNTAIN: Auditing Firm Expressing Doubts is Replaced CHAMPIONLYTE HOLDINGS: Taps Massella Roumbos as New Accountants CINCINNATI BELL: Retains Spencer Stuart to Conduct CFO Search CITGO PETROLEUM: Second Quarter Results Show Slight Improvement CONSECO INC: Files Fifth Amended Joint Plan of Reorganization DEX MEDIA: Fitch Assigns BB- Ratings to New $2.11BB Facility DIRECTV LATIN: Wants More Time to Make Lease-Related Decisions DLJ COMMERCIAL: Fitch Ups Class B-6 Note Rating to BB- from B ECHO SPRINGS: Aurora Beverage Acquires Controlling Interest ELAN CORP: Receives Extension of Waivers from EPIL Noteholders EXABYTE CORP: June 28 Net Capital Deficit Widens to $17 Million FEDERAL-MOGUL: Wants to Amend Charles McClure Employment Pact FERRELLGAS PARTNERS: Declares Fourth Quarter Cash Distribution FLEMING: Sara Lee Bakery Seeks Court Injunction Against Debtors FOAMEX INT'L: Closes $320 Million Bank Debt Refinancing Deal GARDENBURGER: Management-Led Pattico Offers to Buy All Shares GATEWAY INC: Promotes Steve Phillips to Chief Info. Officer GENERAL MEDIA: Wants to Continue Hiring Ordinary Course Profs. GENTEK INC: Court Approves Canadian Claims Objection Procedures GLOBAL CROSSING: Launches Innovative Voice Services Portfolio GMX RESOURCES: Bank Lender Agrees to Forbear Until August 31 GREAT LAKES AVIATION: Auditors Express Going Concern Uncertainty GS MORTGAGE: Fitch Takes Rating Actions on Series 1998-C1 Notes HORSEHEAD IND.: Pursuing Negotiations on Proposed Asset Sale INTEREP: Nasdaq Yanks Shares Off SmallCap Market Effective Mon. ISTAR FINANCIAL: Board Declares Preferred Share Dividends IT GROUP: Has Until October 10 to Move Actions to Delaware Court J. CREW GROUP: Will Publish Second Quarter Results on Friday JACUZZI BRANDS: Fitch Withdraws B Rating on Redeemed Notes JARDEN CORP: S&P Rates $215 Million Term Loan B Assigned at B+ KASPER A.S.L.: Reports Strong Growth for Second Quarter 2003 KEMPER INSURANCE: Fitch Withdraws Default & Junk Level Ratings KM LOGISTICS: CEO William Findley III Charged in Fraud Scheme LE NATURE: S&P Affirms B+/B- Corporate Credit and Debt Ratings LTV: Copperweld Plan's Proposed Changes in Capital Structure MAGELLAN HEALTH: Bankruptcy Court Approves Disclosure Statement MIDLAND REALTY: Fitch Ups 2 Low-B Note Class Ratings to BB/B MIRANT CORP: Court Deems Utility Companies Adequately Assured MOBILE COMPUTING: Conv. Debenture Maturity Extended to Aug. 21 MOOG INC: S&P Keeps Watch on BB-/B Corp. Credit & Debt Ratings MOTELS OF AMERICA: Wants to Appoint Altman Group as Claims Agent NATIONAL CENTURY: Court Nixes Jenner & Block's Engagement NATIONAL CENTURY: Sherry Gibson Pleads Guilty to Conspiracy Charge NATIONAL ENERGY: June 30 Net Capital Deficit Narrows to $68 Mil. NAVIDEC INC: Will Commence Trading on OTCBB Today NQL DRILLING: June 30 Working Capital Deficit Hits $29 Million NRG ENERGY: NRG McClain LLC's Voluntary Chapter 11 Case Summary PANGEO PHARMA: Canadian Court Okays NHP Sale to Jamieson Labs P-COM: Receives Orders for Point-to-Point Radios Totaling $1.1MM PETSI INC: Case Summary & 10 Largest Unsecured Creditors PG&E NATIONAL: Court Okays Foley Hoag as USGen's Special Counsel PILLOWTEX CORP: Honoring Up to $4.9 Million in Prepetition Taxes PNC COMM'L: Fitch Affirms Low-B & Junk Ratings on 7 Note Classes PRIMEDIA INC: Appoints Martin E. Maleska CEO of B2B Group PROLOGIC MANAGEMENT: Lacks Capital Resources to Continue Ops. QWEST COMMS: Will Publish Second Quarter Results on September 3 RAVEN MOON: Extends Share Dividend Record Date to September 19 ROWECOM: Claim Traders Offer Unsecured Creditors 6.25% to 12.5% SEROLOGICALS CORP: S&P Affirms & Assigns Low-B Level Ratings SK GLOBAL: Wants Schedule Filing Deadline Moved to September 8 SONIC FOUNDRY: Third Quarter Net Loss Doubles to $4.5 Million SPECIAL METALS: Reaches 5-Year Labor Agreements with IAM & USWA SPIEGEL INC: Asks Court to Fix Payment Protections to Utilities STRONGHOLD TECH.: June 30 Balance Sheet Upside-Down by $2.6 Mil. SUNSHINE PCS: Enters Pact to Sell Spectrum Licenses to Cingular SUNSHINE PCS: Lynch Interactive Will Redeem Preferred Shares TELENETICS: Prepays Third Installment Under Corlund Settlement UAL CORP: Court Lifts Stay for US Bank to Control Deposit Funds UNITED STATIONERS: Names P. Cody Phipps as SVP for Operations US AIRWAYS: Reaches Stipulation Allowing AAU's $3-Million Claim U.S. STEEL: Names Anthony Bridge Blast Furnace Managing Director U.S. STEEL: Names Leslie J. Broglie GM of Tubular Products U.S. STEEL: Names Gary F. Gajdzik Plant Manager at Gary Works VELANT INC: Voluntary Chapter 7 Case Summary VICWEST CORP: Canadian Court Approves CCAA Plan of Arrangement WEIRTON STEEL: Gets Open-Ended Lease Decision Period Extension WESTPOINT STEVENS: Court Okays Stroock as Committee's Counsel WHEELING: Second Post-Confirmation Changes to Contracts & Leases WICKES INC: June 28 Balance Sheet Upside-Down by $9 Million WORLD HEART: Lenders Further Extend Loan Maturity to September 2 WORLDCOM: Gets Go-Signal to Hire Cushman as Real Estate Broker ZI CORPORATION: Recurring Losses Raise Going Concern Uncertainty * Meetings, Conferences and Seminars ********* ACCLAIM ENTERTAINMENT: June Net Capital Deficit Widens to $54MM --------------------------------------------------------------- Acclaim Entertainment, Inc. (Nasdaq: AKLM) announced its financial results for the first quarter of fiscal year 2004 ended June 29, 2003. During the first quarter of fiscal year 2004, the Company reported net revenue of $33.1 million and a net loss of $18.0 million, as compared to net revenue of $62.9 million and net earnings of $2.5 million for the three months ended June 2, 2002. First Quarter Fiscal Year 2004 Operating Results The Company's gross profit for the quarter was $13.2 million (40% of net revenue) compared to $36.2 million for the comparable period of the prior fiscal year. The gross profit decline in the first quarter compared with the comparable period of the prior fiscal year was the result of lower unit sales at lower average prices, as well as a $3.1 million increase in the amortization of capitalized software development costs associated with the new product releases in fiscal 2004 of Burnout 2: Point of Impact, All-Star Baseball 2004 and the international release of VEXX. Operating Expenses and Other Expenses As part of the Company's operating plan, operating expenses for the first quarter of $27.8 million decreased $5.1 million or 16% from $32.8 million from the comparable period of the prior fiscal year. This decrease was primarily due to lower variable marketing and selling expenditures on lower revenues as well as reduced general and administrative expenses realized from expense reductions. These savings were partially offset by a variable accounting charge of $1.2 million recorded for the Chief Executive Officer's stock-based compensation that is subject to stockholder approval and a $2.0 million increase in game development expenses over the prior year. Also contributing to the $18.0 million loss for the first quarter of fiscal year 2004 were interest expense, net of $1.0 million and a non-cash financing charge of $2.0 million. This charge results primarily from the issuance of two million shares of the Company's common stock to each of its Co-Chairmen for providing aggregate cash deposits of $2.0 million to GMAC, the Company's bank, in support of the Company's supplemental discretionary loan. If the cash deposits are applied to the supplemental loan balance, the cash deposits would be forfeited by the Company's Co-Chairmen. Nasdaq advised the Company, in June 2003, that the stock issued to the Co-Chairmen required stockholder approval under Nasdaq Marketplace rule 4350(i)(1)(a). Accordingly, the Company is subject to the effects of variable accounting treatment for these shares until the issuance is approved by its stockholders. Liquidity As of June 29, 2003, the Company reported a cash position of $2.2 million. The Company's short-term liquidity has been supplemented with $5.0 million borrowings due September 29, 2003 under its North American and International credit facilities with GMAC, as well as $9.0 million in gross proceeds from a private placement of common stock and the prepayment of $4.8 million in principal and interest on the outstanding notes due from the Company's Co-Chairmen. During fiscal year 2003, in order to enhance the Company's short- term liquidity, it implemented targeted expense reductions through a restructuring of its business operations. In connection with this restructuring, the Company reduced its fixed and variable expenses, closed its Salt Lake City, Utah software development studio, redeployed various Company assets, eliminated certain marginal software titles under development, reduced its staff and staff related expenses and lowered overall marketing expenditures. Additionally, on March 31, 2003, GMAC advanced to the Company a supplemental discretionary loan of up to $11.0 million through May 31, 2003. In accordance with the terms of the amended credit agreement, the Company repaid $6.0 million of this supplemental discretionary loan as of May 31, 2003. The remaining $5.0 million of this supplemental discretionary loan will continue to be available to the Company through September 29, 2003. Furthermore, in June 2003, the Company completed a private placement of 16,383,000 shares of its common stock to a limited group of private investors, which resulted in net proceeds to the Company of $8.3 million. Additionally, in order to meet its liquidity needs, the Company has included a proposal in its 2003 Proxy Statement seeking the authorization from its stockholders to issue securities in connection with its continuing efforts to raise additional financing from outside investors. The Company's future liquidity will significantly depend in whole or in part on its ability to (1) obtain additional supplemental financing from outside investors, (2) timely develop and market new software products that meet or exceed its operating plans, (3) realize long-term benefits from its implemented expense reductions, and (4) continue to enjoy the support of GMAC and its vendors. If the Company does not substantially achieve its overall projected revenue levels as reflected in its business operating plan, nor continue to realize additional benefits from the expense reductions it has implemented, and is unable to obtain additional supplemental discretionary financing from GMAC to fund operations, or obtain additional supplemental financing from outside investors, the Company will either need to make further significant expense reductions, including, without limitation, the sale of certain assets or the consolidation or closing of certain operations, staff reductions, and/or the delay, cancellation or reduction of certain product development and marketing programs. Additionally, some of these measures may require third party consents or approvals from GMAC and others, and there can be no assurance those consents or approvals can be obtained. In the event that the Company does not achieve its business operating plan, continue to derive significant expense savings from its implemented expense reductions, obtain additional financing from outside investors or, if GMAC does not consent, based upon its existing collateral, to provide supplemental financing during the second half of fiscal 2004, the Company cannot assure its stockholders that its future operating cash flows will be sufficient to meet its operating requirements, its debt service requirements or to repay its indebtedness at maturity, including without limitation, repayment of the remaining outstanding balance of the supplemental discretionary loan. If any of the preceding events were to occur, the Company's operations and liquidity would be materially and adversely affected and it could be forced to cease operations. Acclaim Entertainment's June 29, 2003 balance sheet shows a working capital deficit of about $70 million, and a total shareholders' equity deficit of about $54 million. Organizational/Management Changes As part of the Company's new operating plan, on June 2, 2003, Rodney Cousens was appointed Acclaim's new Chief Executive Officer, succeeding the Company's co-founder, Gregory Fischbach, who resigned his Chief Executive Officer position, but remains with the organization as Co-Chairman and a member of its Board of Directors. On July 22, 2003, the Company appointed Paul Eibeler, as President and Chief Operating Officer of Acclaim North America. Mr. Eibeler, a seasoned interactive entertainment industry executive, who had most recently served as President and Director of Take-Two Interactive Software, Inc., assumed the responsibility for overseeing the performance and strategic growth of the Company's North American operations. In addition, the Company strengthened its internal development studio management team with the addition of Randy Dersham as General Manager of Acclaim Studios Austin. Reporting directly to Barry Jafrato, Senior Vice President of Studios, Mr. Dersham is responsible for overseeing the Company's Austin studio, including full operational responsibility, the timely delivery of quality products to the global marketplace, and the management and development of staff. "At the cornerstone of our operating plan to rebuild the organization, is the strengthening of our senior management team, which is highlighted by the recent additions of Paul and Randy," said Rod Cousens, Chief Executive Officer of Acclaim Entertainment. "Their appointments fully complement our new team of Gerard F. Agoglia, Executive Vice President and Chief Financial Officer; Marc Metis, Senior Vice President of Brand; Barry Jafrato, Senior Vice President of Studios; Bill West, Vice President of Strategic Planning; and Simon Hosken, Chief Operating Officer and Senior Vice President of Finance of Acclaim International." "We're looking forward to our year-end lineup, that includes NBA JAM, Alias and Gladiator Sword of Vengeance; three products that we believe will appeal to a broad consumer audience this holiday season," concluded Cousens. "Looking ahead to calendar year 2004, we will continue with our core brands, including All-Star Baseball, ATV Quad Power Racing and Legends of Wrestling, as well as launching two promising new comic book-based properties, 100 Bullets and The Red Star." Based in Glen Cove, N.Y., Acclaim Entertainment, Inc., is a worldwide developer, publisher and mass marketer of software for use with interactive entertainment game consoles including those manufactured by Nintendo, Sony Computer Entertainment and Microsoft Corporation as well as personal computer hardware systems. Acclaim owns and operates five studios located in the United States and the United Kingdom, and publishes and distributes its software through its subsidiaries in North America, the United Kingdom, Australia, Germany, France and Spain. The Company uses regional distributors worldwide. Acclaim also distributes entertainment software for other publishers worldwide, publishes software gaming strategy guides and issues "special edition" comic magazines periodically. Acclaim's corporate headquarters are in Glen Cove, New York and Acclaim's common stock is publicly traded on NASDAQ.SC under the symbol AKLM. For more information, visit the Company's Web site at http://www.acclaim.com ADVANSTAR COMMS: Closes $360-Million 2nd Priority Notes Offering ---------------------------------------------------------------- Advanstar Communications Inc. has closed a private placement of $360,000,000 of second priority senior secured notes. The notes were issued in two tranches: $130 million of Second Priority Senior Secured Floating Rate Notes due 2008 (which will require quarterly amortization equal to .25% of the principal amount thereof) and $230 million of 10.75% Second Priority Senior Secured Notes due 2010. Interest on the floating rate notes is payable quarterly at a rate equal to three-month LIBOR, which is reset quarterly, plus 7.5%, and will be 8.64% for the first quarterly period beginning August 18, 2003 to the first interest payment date. Each tranche of notes is secured by second priority liens on substantially all the collateral securing Advanstar's credit facility (other than the capital stock of certain of Advanstar's subsidiaries and assets of its parent companies). Advanstar has also entered into a registration rights agreement in connection with the private placement pursuant to which it has agreed either to exchange the notes for registered notes or to file a shelf registration statement for the notes. Advanstar used the net proceeds from the private placement of the notes to repay and terminate all outstanding Term A loans under its bank credit facility and all but $25 million of the outstanding Term B loans under its bank credit facility. Advanstar used the remaining net proceeds to repay a portion of its revolving credit borrowings and to pay related fees and expenses. In connection with the private placement, Advanstar obtained an amendment to its bank credit facility to permit the private placement and the use of the proceeds thereof, eliminate the leverage ratio and amend certain other covenants contained in the credit facility and reduce the revolving loan commitments thereunder from $80 million to $60 million. The notes were not and will not be registered under the Securities Act of 1933, as amended, or any state securities laws and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and any applicable state securities laws. This announcement is neither an offer to sell nor a solicitation of any offer to buy the notes. Advanstar Communications Inc. (S&P, B Corporate Credit Rating, Negative) is a worldwide business information company serving specialized markets with high quality information resources and integrated marketing solutions. Advanstar has 100 business magazines and directories, 77 tradeshows and conferences, numerous Web sites, and a wide range of direct marketing, database and reference products and services. Advanstar serves targeted market sectors in such industries as art, automotive, beauty, collaboration/e-learning, CRM/call center, digital media, entertainment/marketing, fashion & apparel, healthcare, manufacturing and processing, pharmaceutical, powersports, science, telecommunications and travel/hospitality. The Company has over 1,200 employees and currently operates from multiple offices in North America, Latin America, Europe and Asia. For more information, visit http://www.advanstar.com AFC ENTERPRISES: S&P Junks Corporate Credit & Bank Loan Ratings --------------------------------------------------------------- Standard & Poor's Ratings Services lowered its corporate credit and senior secured bank loan ratings on AFC Enterprises Inc. to 'CCC+' from 'BB'. The CreditWatch implications were revised to developing from negative. "The rating action is based on Standard & Poor's concern that AFC will miss the deadline for filing its financial statements, which could result in a violation of its debt agreements," said credit analyst Robert Lichtenstein. The current deadline set by the company's lenders for filing its financial statements is August 22, 2003. Moreover, the company announced that its audit committee has concluded that AFC lacked adequate internal controls and accounting procedures, and that its accounting and financial reporting functions needed improvement. The company is currently attempting to complete restatements and audits of its financial statements for 2002, 2001, and 2000, and to file its Form 10-K for fiscal year 2002, as well as its quarterly reports for the first two quarters of 2003. Standard & Poor's will monitor the company's ability to obtain an amendment from its lenders for its credit facility. In addition, Standard & Poor's will evaluate the company's operating results when its financial statements are filed. If the company is able to amend its credit facility and the lack of adequate internal financial controls do not have a material negative impact on the company's financial results, the ratings could be raised. AFTON FOOD: Obtains Credit Approval from Senior Lenders ------------------------------------------------------- Afton Food Group Ltd. (TSX: AFF) announced that the Company's Senior Lenders have given formal credit approval of the terms and conditions set forth in the indicative term sheet. The term sheet extends the maturity date of the financing to June 30, 2005 and reduces the fixed principal repayments from $10 million to $1.3 million for the same period. Formal closing is expected to take place by August 31, 2003, the finalization of which remains subject to conditions of closing. Afton is continuing to focus on its restructuring plans and is making steady progress. As a result of receiving signed agreements and formal credit approval from its senior lenders, signed agreements have also been made with its subordinated debt lenders. Afton's subordinated lenders have agreed to no cash payments of interest and principal until maturity of their instruments, which is June 30, 2005. Consequently, the first quarter results that were released August 1, 2003 would have shown a decrease of approximately $25 million in current liabilities relating to the reclassification of the current portion of long-term debt and the outstanding interest included in accounts payable. Afton, as part of its restructuring plan, is placing increased emphasis on improving its working capital position and top line revenues. This plan is designed to grow revenues from the Company's existing operations as well as new strategic initiatives. The Company's medium term goal is to restore revenue and EBITDA to historic levels. While a specific focus is being directed on the restructuring and enhancement of operations, the Company now has placed increased emphasis on revenue growth and brand development, as well as restructuring its balance sheet. These initiatives are occurring simultaneously. Afton owns operates, develops and franchises QSR Brands and is one of Canada's leading franchisor consolidators in Canada's Quick Service Restaurant Industry. Afton's principal brands include: 241 Pizza(R) and Robin's Donuts(R). AGILENT TECHNOLOGIES: Red Ink Continued to Flow in Q3 2003 ---------------------------------------------------------- Agilent Technologies Inc., (NYSE:A) reported orders of $1.47 billion and revenue of $1.50 billion for the fiscal third quarter ended July 31, 2003. During the quarter, the company recognized a $1.4 billion non-cash charge required under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," and reported a GAAP net loss of $1.56 billion. Excluding that charge, the company would have reported a loss from operations of $110 million, which compares to a GAAP loss of $223 million one year ago. Also excluding $99 million of net restructuring charges and intangibles amortization, Agilent reported a net loss for the third quarter of $11 million, or $0.02 per share, versus a loss on a comparable basis of $0.31 per share one year ago. "We are encouraged by our third-quarter operating results," said Ned Barnholt, Agilent chairman, president and chief executive officer. "Orders and revenues came in at expectations, with earnings from operations near the top end of expectations. We are confident that we'll meet our commitment to achieve an operating breakeven cost structure of $1.45 billion and return to profitability in the fourth quarter of this year."(1) Agilent saw a continued rebound this quarter in semiconductor equipment orders, which reached their highest level in three years. Activity in the company's other segments remained roughly flat compared to the prior year. "We made good progress in continuing to reduce our structural costs," Barnholt said. "These costs were reduced by nearly $100 million during the quarter, while worldwide headcount fell by an additional 2,400 during the last three months." Continued progress was also reflected on the balance sheet. The company generated $38 million cash from working capital during the quarter despite sequentially higher revenues. Capital spending, at $62 million, remained below depreciation expense of $77 million. Net cash consumption was only $103 million despite $121 million of cash restructuring payments. The company ended the quarter with over $1.4 billion in cash and equivalents. Looking ahead, Barnholt said, "We are seeing more evidence of a sustainable upturn in semiconductor capital equipment, and in the underlying semiconductor markets." Overall, the company anticipates a normal seasonal increase during the fiscal fourth quarter, with revenues in the range of $1.50 billion to $1.60 billion. Earnings before restructuring and amortization charges are expected to be in a range of an operating breakeven to $0.10 per share. "Our fourth-quarter priority remains firmly focused on achieving a $1.45 billion operating breakeven cost structure, which will lay the foundation for sustained profitability in 2004," Barnholt said. "I am confident we will achieve this milestone while continuing to deliver the innovative new products to our customers that will ensure their, and our, long-term success." Third-quarter Test and Measurement orders were down 4 percent from one year ago and were off 7 percent from the seasonally strong second quarter. By market segment, communications test orders were down 9 percent from last year largely because of continued weakness in wireline test coupled with a modest decline in wireless test. General purpose test orders were up 8 percent compared to last year because of renewed strength in aerospace and defense markets and rising demand for the new oscilloscope product line. Third-quarter revenues of $613 million were 18 percent above last year, when implementation of a new ERP system interrupted shipments. Sequentially, revenues were down 6 percent. The cumulative benefits of aggressive restructuring were clearly evident in the operating results of this segment. The third- quarter operating loss of $69 million was improved by $34 million from three months earlier despite $39 million lower revenues. Compared to last year, the operating loss was reduced by $191 million on $92 million of increased revenues. It is anticipated that this segment will return to profitability in the fourth quarter of this year. The rebound in the Automated Test segment continued in the third quarter, with orders of $251 million up 18 percent from last year to the highest levels since the fourth quarter of 2000. Sequentially, orders were up 15 percent, with both semiconductor test and manufacturing test participating in the increase. Revenues of $206 million were 6 percent above last year and up 35 percent sequentially. Semiconductor Test's third-quarter book-to- bill ratio of 1.29 was well ahead of the industry's June reading of 1.19. In the third quarter, this segment returned to profitability, with operating profits of $6 million compared to an operating loss of $5 million one year earlier and a loss of $37 million during the second quarter of this year. Semiconductor Products' third-quarter orders of $358 million were down 7 percent from last year because of the continued sharp drop in the hardcopy ASIC business. Excluding hardcopy ASICs, segment orders were up 8 percent from one year ago. Total segment orders were off 15 percent from the seasonally strong second quarter. Revenues of $380 million were down 3 percent from last year and up 1 percent sequentially. Excluding the hardcopy ASIC business, revenues were up 10 percent, consistent with the year-to-year increase in worldwide semiconductor industry sales. Segment operating results benefited from better yields on new products, the shutdown of a facility and restructuring actions. The third- quarter segment loss of $8 million represented a $35 million improvement over second-quarter results on essentially flat revenues. Compared to last year, the operating loss was reduced by $30 million despite $10 million lower sales. Life Sciences and Chemical Analysis orders and revenues showed some improvement from the generally flat trend of the past several quarters. Third-quarter orders of $293 million were up 8 percent from last year and up 5 percent sequentially. Life Sciences showed the most strength, with orders up 14 percent from last year and 10 percent sequentially while Chemical Analysis orders rose 4 percent from last year and were 1 percent ahead of the second quarter. Revenues of $303 million were 6 percent ahead of one year ago and the second quarter. Segment profits were about equal to one year ago. Compared to the second quarter, when spending is seasonally higher, operating profits were improved by $21 million on $17 million higher revenues. Note on Non-Cash Charge Related to SFAS 109 In accordance with the Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," Agilent recorded a non- cash charge of $1.4 billion to establish a valuation allowance, which essentially eliminates its net deferred tax assets. This adjustment will impact both GAAP tax expense and shareholders' equity on Agilent's financial statements but has no impact on the company's cash flow, liquidity or future prospects. In large part because of Agilent's cumulative losses over the past few years in the United States and the United Kingdom, SFAS No. 109 requires that "greater weight be given to previous cumulative losses than the outlook for future profitability when determining whether deferred tax assets can be used." In essence, the company is now unable to reference forecasts of future operating profits to value its deferred tax assets for GAAP purposes. The company emphasized that the establishment of this allowance was done strictly for purposes of conformance with GAAP, and does not in any way reflect reduced confidence in its future prospects. In fact, the company remains confident it will be able to use the entirety of its deferred tax assets before expiration dates that range from 5 to 20 years. This valuation allowance will be reviewed periodically after the company has achieved positive retained earnings, and could be reversed, partially or totally, when business results have sufficiently improved to support recognition of the deferred tax assets for GAAP purposes. Until that point, Agilent will record a near zero tax rate for GAAP reporting purposes. Agilent Technologies Inc. (NYSE:A) (S&P, BB Corporate Credit and Senior Note Ratings) is a global technology leader in communications, electronics, life sciences and chemical analysis. The company's 32,000 employees serve customers in more than 110 countries. Agilent had net revenue of $6 billion in fiscal year 2002. Information about Agilent is available on the Web at http://www.agilent.com More financial information about this quarter's earnings is available at http://www.investor.agilent.com AK STEEL: Unit Completes Acquisition of Central Tubing Facility --------------------------------------------------------------- AK Steel's (NYSE: AKS) tube subsidiary has completed the acquisition of Central Tubing Facility, an exhaust tube manufacturer located in Columbus, Indiana. AK Tube LLC, Walbridge, Ohio, acquired the facility from a subsidiary of ArvinMeritor (NYSE: ARM) for approximately $67 million. The transaction also includes a multi-year supply agreement between AK Tube and ArvinMeritor, the value of which was not disclosed. AK Steel said it expects the acquisition to be immediately accretive. "The acquisition of CTF continues our strategy of presenting value-added products and superior customer service to the marketplace," said Richard M. Wardrop, Jr., chairman and CEO of AK Steel. "AK Tube has an outstanding product line and quality reputation, and we look forward to the growth opportunities CTF brings to our steel tube business." The Columbus facility produces stainless steel tubing used primarily in the manufacture of passenger and light truck exhaust systems used throughout the U.S. and Canada. The Columbus facility began production in 1996 and was expanded in 1998. AK Steel produces flat-rolled carbon, stainless and electrical steel products for automotive, appliance, construction and manufacturing markets, as well as tubular steel products. The company has more than 10,000 employees in plants and offices in Middletown, Coshocton, Mansfield, Walbridge and Zanesville, Ohio; Ashland, Kentucky; Rockport and Columbus, Indiana; and Butler, Pennsylvania. In addition, the company produces snow and ice control products and operates an industrial park on the Houston, Texas ship channel. AK Tube's Columbus, Indiana, plant employs about 120 men and women who produce a range of 400 Series stainless steel tube products in diameters from 1.5 inches to 3.5 inches. As reported in Troubled Company Reporter's July 24, 2003 edition, Standard & Poor's Ratings Services lowered its corporate credit ratings on integrated steel producer AK Steel Corp., and its parent, AK Steel Holding Corp., to 'B+' from 'BB-' based on the company's weaker than expected financial performance. The current outlook is negative. Middleton, Ohio-based AK Steel has about $1.3 billion in total debt. ALERT TECH.: Case Summary & 20 Largest Unsecured Creditors ---------------------------------------------------------- Debtor: Alert Technologies, Inc. 1322 Space Park Drive Suite C201 Houston, Texas 77058 Bankruptcy Case No.: 03-41655 Type of Business: The Debtor is the maker of Page-Alert, a fitting room service automation system. Chapter 11 Petition Date: August 15, 2003 Court: Southern District of Texas (Houston) Judge: Letitia Z. Clark Debtor's Counsel: Edward Heller, Esq. Zukowski & Bresenhan LLP 1177 West Loop South Suite 1100 Houston, TX 77027 Tel: 713-965-9969 Fax: 713-528-1117 Estimated Assets: $1 Million to $10 Million Estimated Debts: $1 Million to $10 Million Debtor's 20 Largest Unsecured Creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ Pennian Funding, Ltd. Loan secured by assets $927,541 4111 Manorfield Seabrook, TX 77586 KBS Capital Judgment creditor $820,387 c/o Koll Bren Schreiber Realty Advisors 4343 Von Karman Newport Beach, CA 92660 Spencer Technologies, Inc. Labor $252,000 640 Lincoln Street Worcester, MA 01605 Loeb Lighting Services Labor $102,097 Lyon Financial Services, Equipment Lease, $58,006 Inc. Oracle license Henke and Associates Legal services $52,000 Edward Heller Legal services $42,187 Frank Giuliano Severance $29,849 M-Teq Mfg Techniques Materials $24,665 Eagle Systems Services $17,571 Advent Communication Labor $9,915 System, Inc. Merchandise Concepts Services $8,900 Etimes Solutions Services $8,200 Sotiriades & Associates Accounting services $6,960 Tekk, Inc. Materials $6,899 Reed Prototype & Model Materials $6,364 Metro Security & Comms Labor $5,284 Actra Materials $5,209 1322 Space Park, LP Services $3,141 PC Network Co. Labor $3,101 ALLCITY INSURANCE: Red Ink Splotches Second Quarter 2003 Results ---------------------------------------------------------------- Allcity Insurance Company (ALCI-OTCBB) announced its operating results for the six month period ended June 30, 2003 and reported a net loss of $1,620,000 for the six months ended June 30, 2003 compared to a net loss of $1,979,000 for the comparable 2002 period. Net earned premium revenues of the Company were $335,000 and $3,054,000 for the six month periods ended June 30, 2003 and 2002, respectively. The Company's premium revenues reflect the various previously announced actions taken by the Empire Group (which includes the Company and Empire Insurance Company, the Company's parent) since 2000 to exit the insurance business, and a reduction to premium revenues to recognize retrospective reinsurance premiums of $415,000 and $228,000 for the six month periods ended June 30, 2003 and 2002, respectively. Included in the Company's pre-tax losses were net increases for loss and loss adjustment expenses for prior accident years of $616,000 and $700,000 for the six month periods ended June 30, 2003 and 2002, respectively. In its SEC Form 10-Q filed for the quarter ended June 30, 2003, the Company reported: "The unaudited interim consolidated financial statements, which reflect all adjustments (consisting only of normal recurring items) that management believes necessary to fairly present interim consolidated results of operations, should be read in conjunction with the Notes to Consolidated Financial Statements (including the Summary of Significant Accounting Policies) included in the Company's audited consolidated financial statements for the year ended December 31, 2002 which are included in the Company's Annual Report filed on Form 10-K for such year. Consolidated results of operations for interim periods are not necessarily indicative of annual results of operations. The consolidated balance sheet at December 31, 2002 was extracted from the audited annual financial statements and does not include all disclosures required by generally accepted accounting principles for annual financial statements. "Pursuant to a tender offer by Leucadia National Corporation commenced in April 2003 for all of the outstanding shares of common stock of the Company not already owned by Leucadia and its affiliates, in June 2003 Leucadia accepted and purchased 312,611 shares of the Company's common stock at a price of $2.75 per share. After giving effect to the purchase of the tendered shares, Leucadia beneficially owns approximately 95.7% of the outstanding common stock of the Company. Subject to the prior approval of the New York Insurance Department, Leucadia, directly or indirectly through one of its subsidiaries, intends to acquire all of the remaining shares of the Company's common stock pursuant to a plan for the acquisition of minority interests in accordance with Section 7118 of the New York Insurance Law. "If the Plan of Acquisition is consummated, the Company will cease to be a public company. Leucadia intends to seek the Department's approval to merge the Company with Empire Insurance Company, the Company's parent, following implementation of the Plan of Acquisition, whereby Empire would be the surviving insurer. If the Department's approval for the Plan of Acquisition is not obtained, shares of the Company not beneficially owned by Leucadia will remain outstanding. In that event, the Company would continue as a public company unless it has fewer than 300 registered shareholders, in which case, Leucadia would cause the Company to deregister the common stock under the Securities Exchange Act of 1934, as amended, and, accordingly, there may be no public market for the common stock of the Company. "In December 2001, the Company and Empire announced that it had determined that it was in the best interest of its shareholders and policyholders to commence an orderly voluntary liquidation of all of the Group's operations. The Group will only accept business that it is obligated to accept by contract or New York insurance law; it does not engage in any other business activities except for its claims runoff operations. By the end of 2005, the Company expects that its voluntary liquidation will be substantially complete, premium revenue will be immaterial, infrastructure and overhead costs will be substantially reduced, and all that it expects to remain will be the administration and settlement of claims with long tail settlement characteristics, principally workers' compensation and certain liability claims. Given the Group's and the Company's current financial condition, the expected costs to be incurred during the claims runoff period, and the inherent uncertainty over ultimate claim settlement values, no assurance can be given that the Company's shareholders will be able to receive any value at the conclusion of the voluntary liquidation of its operations. "As of June 30, 2003, the Company's reinsurance recoverable from Empire was $80,380,000, representing 43% of the Company's total assets. Empire's stand alone statutory surplus was approximately $11,472,000 as of June 30, 2003, after giving effect to the limitations imposed under Section 1408 of the NYSIL on Empire's ability to record the value of its investment in the Company on Empire's statutory financial statements. This amount is approximately $8,172,000 above the minimum required under New York insurance regulations and an improvement of approximately $7,000,000 when compared to Empire's stand alone statutory surplus as of March 31, 2003. This improvement resulted from a release that Empire obtained in May 2003 from the New York City Industrial Development Agency concerning contingent obligations related to its former headquarters building. Empire's management continues to investigate transactions that could increase its stand alone surplus level in order to remain above minimum requirements. However, no assurance can be given that Empire will be successful in any other transaction to increase its stand alone statutory surplus. "If the merger of Empire and the Company is consummated, the effect on Empire's stand alone surplus of the limitation imposed under Section 1408 of the NYSIL will be eliminated. The exact amount of the increase in Empire's stand alone statutory surplus cannot be currently determined, however, if the merger were consummated as of June 30, 2003, the increase would have been $5,597,000. "The Company currently believes that its reinsurance recoverable from Empire is fully collectible; however, further reductions in Empire's statutory surplus, resulting from operating results, could impair Empire's ability to pay the full amount due to the Company. Further, any adverse regulatory action taken against Empire in the future could also impair the Company's ability to fully collect its reinsurance recoverable and could result in adverse regulatory action against the Company. No assurance can be given that adverse regulatory action will not be taken against Empire or the Company." ALLIED WASTE: S&P Assigns BB Rating to $250 Million Term Loan C --------------------------------------------------------------- Standard & Poor's Ratings Services said that it assigned its 'BB' rating to Allied Waste North America Inc.'s $250 million term loan C due Jan. 15, 2010, guaranteed by its parent, Allied Waste Industries Inc. At the same time, Standard & Poor's affirmed its ratings, including the 'BB' corporate credit rating, on Allied Waste. The outlook is stable. Outstanding debt is about $8.2 billion. The term loan C proceeds are intended to fund refinancings of senior subordinated indebtedness. The term loan C is being added through an amendment to the existing senior secured credit facilities under the same terms and conditions. "The ratings on Scottsdale, Arizona-based Allied Waste reflect a relatively weak, albeit improving, financial profile, which outweighs the company's strong competitive business position," said credit analyst Roman Szuper. The firm is the second-largest solid waste management participant in the U.S., with 2003 revenues estimated at $5 billion. Allied Waste provides collection, transfer, disposal, and recycling services to about 10 million residential, commercial, and industrial customers in 39 states. A national network of facilities creates opportunities for modest growth through internal development, supplemented by tuck-in acquisitions, focusing on the vertical integration business model. The company's market position is enhanced by a low cost structure, very good collection route density, and a relatively high rate of waste internalization. At June 30, 2003, Allied Waste had $65 million of cash and equivalents and $815 million of availability under its $1.5 billion revolver. The firm expects to generate $330 million of free cash flow in 2003. This liquidity should be sufficient to meet operating needs (primarily for capital expenditures) and manageable debt maturities (only $18 million in 2003 and $345 million from 2004 to 2005). Based on current expectations, there should be a reasonable EBITDA cushion in the most restrictive financial covenant under the credit facilities. AMERCO: Court Fixes Dec. 22 Claims Bar Date for AREC Creditors -------------------------------------------------------------- According to Patricia Gray, the Clerk of the Bankruptcy Court for the District of Nevada, all creditors of Amerco Real Estate Company, except a governmental unit, have until December 22, 2003 to file a proof of claim against AREC. Creditors wishing to file a proof of claim must submit an original and two copies to: Trumbull Associates, LLC 4 Griffin Road North Windsor, Connecticut 06095 If a creditor wants to submit a proof of claim by mail, a postage-paid, self-addressed envelop must be included in order to receive acknowledgment that the proof of claim has been received. For a governmental unit, the proof of claim will be no later than 180 days after the date of the order for relief pursuant to Rule 3002(c) of the Federal Rules of Bankruptcy Procedure. Ms. Gray stresses that creditors must not file their proofs of claim with the Court. (AMERCO Bankruptcy News, Issue No. 5; Bankruptcy Creditors' Service, Inc., 609/392-0900) AMERICAN RESTAURANT: S&P Junks Credit & Debt Ratings at CCC+ ------------------------------------------------------------ Standard & Poor's Ratings Services lowered its corporate credit and senior secured debt ratings on casual dining restaurant operator American Restaurant Group Inc. to 'CCC+' from 'B-'. The outlook is negative. Los Altos, California-based American Restaurant Group had $158 million of debt outstanding as of June 30, 2003. The downgrade is based on the company's deteriorating operating performance, weak cash flow protection measures, and very limited liquidity. Same-store sales fell 7.4% in the first half of 2003, after falling 2.7% in all of 2002. The large sales decline is attributed to a weak economy and the competitive environment in the restaurant industry, in addition to a planned reduction of less profitable product promotions. Moreover, the company's operating margin for the six months ended June 30, 2003, decreased to 8.9% from 9.1% due to higher labor and beef costs. As a result, cash flow protection measures are very weak, with lease-adjusted EBITDA covering interest by about 1x. Moreover, liquidity is constrained, with $2.8 million in cash and $6.2 million available on the company's revolving credit facility as of June 30, 2003, and a $9.3 million interest payment due in November 2003. "The ratings on American Restaurant Group Inc. reflect its relatively small size in the highly competitive restaurant industry, weak operating performance, a significant debt burden, and limited liquidity," said Standard & Poor's credit analyst Robert Lichtenstein. American Restaurant Group is a small player in the casual dining segment of the restaurant industry. The chain is easily dwarfed by larger players such as Outback Steakhouse, Olive Garden, and Red Lobster. In addition, the company could be challenged by its lack of geographic diversity. With 90% of its store base in the west, American Restaurant Group's operating performance is vulnerable to a decline in the region's economy. Leverage is high, with lease-adjusted total debt to EBITDA of more than 7.0x. In October 2001, the company completed a refinancing that increased its leverage and added to its interest burden. The company's highly leveraged balance sheet limits its access to capital. ANC RENTAL: Delays Filing of Form 10-Q for First Quarter 2003 ------------------------------------------------------------- Howard D. Schwartz of ANC Rental Corporation informs the Securities and Exchange Commission that since the Petition Date, the Company's accounting and financial staff, who are critical to the preparation of the Form 10-Q, have been primarily engaged in dealing with bankruptcy-related matters and, together with the Company's advisors, formulating a substantially modified business strategy to promptly formulate and consummate a reorganization plan. The development and implementation of the Company's Chapter 11 reorganization include not only the administration of the Chapter 11 cases, but also, among other burdens, preparing detailed financial budgets and projections, formulating and preparing disclosure materials required by the Bankruptcy Court, analyzing accounts payable and receivable, assembling data for the valuation and schedule of the Company's assets and liabilities and statement of financial affairs to be filed with the Bankruptcy Court, seeking financing, and preparing the monthly operating reports for the Bankruptcy Court and United States Trustee. In light of the significant resources and time dedicated by the Company's accounting and financial staff to the Chapter 11 filing, the Company has been unable to complete its quarterly report on Form 10-Q for the period ending March 31, 2003. Mr. Schwartz relates that the Company is in good faith proceeding diligently to complete its Form 10-Q for the period ending March 31, 2003. The Company expects to file the Form 10-Q as soon as practicable. However, the Company cannot presently predict when its accounting and financial staff will complete their audit and, thus, the Company cannot estimate when the Form 10-Q will be filed with the Securities and Exchange Commission. "The Company expects that its revenue for the quarter ended March 31, 2003 will show a decline from the revenue for the quarter ended March 31, 2002," Mr. Schwartz says. (ANC Rental Bankruptcy News, Issue No. 37; Bankruptcy Creditors' Service, Inc., 609/392-0900) APARTMENT INVESTMENT: Board Declares Preferred Share Dividends -------------------------------------------------------------- Apartment Investment and Management Company (NYSE: AIV, AIVPrQ, AIVPrR) announced that its Board of Directors has declared a dividend of $0.63125 per share on its publicly traded 10.1% Class Q Cumulative Preferred Stock. The Aimco Board of Directors has also declared a dividend of $0.625 per share on its publicly traded 10.0% Class R Cumulative Preferred Stock. Dividends for both classes of preferred stock are payable to shareholders of record on September 1, 2003 and will be paid on September 15, 2003. Aimco (S&P, BB+ Corporate Credit Rating, Stable) is a real estate investment trust headquartered in Denver, Colorado owning and operating a geographically diversified portfolio of apartment communities through 19 regional operating centers. Aimco, through its subsidiaries, operates approximately 1,760 properties, including approximately 313,000 apartment units, and serves approximately one million residents each year. Aimco's properties are located in 47 states, the District of Columbia and Puerto Rico. Aimco common stock is included in the S&P 500. ARVINMERITOR: Issues Statement in Response to Dana's Complaint -------------------------------------------------------------- ArvinMeritor, Inc., (NYSE: ARM) issued the following statement in response to a complaint filed in Lucas County, Ohio late last week by Dana Corporation (NYSE: DCN). This statement was delayed as a result of the power outages on Thursday and Friday in the Northeast and Midwest sections of the country. "We believe the lawsuit is entirely without merit and we will contest it vigorously. We believe that Dana's shareowners would be better served by the Board and management working with us to quickly close a transaction that is in the best interests of both companies' shareowners. "As we have said before, if Dana is willing to work with us to consummate a transaction, we will analyze further whether a higher value is warranted. In addition, we are flexible in considering a mix of cash and stock if it will facilitate a transaction." ArvinMeritor, Inc. is a premier $7-billion global supplier of a broad range of integrated systems, modules and components to the motor vehicle industry. The company serves light vehicle, commercial truck, trailer and specialty original equipment manufacturers and related aftermarkets. In addition, ArvinMeritor is a leader in coil coating applications. The company is headquartered in Troy, MI, and employs 32,000 people at more than 150 manufacturing facilities in 27 countries. ArvinMeritor's common stock is traded on the New York Stock Exchange under the ticker symbol ARM. For more information, visit the company's Web site at: http://www.ArvinMeritor.com The solicitation and offer to purchase is made only pursuant to the Offer to Purchase and related materials that ArvinMeritor and Delta Acquisition Corp. filed with the Securities and Exchange Commission on July 9, 2003. Investors and security holders are advised to read such documents because they include important information. Investors and security holders may obtain a free copy of such documents at the SEC's Web site at http://www.sec.gov from ArvinMeritor at 2135 W. Maple Road, Troy, MI 48084, Attn: Investor Relations, or by contacting Mackenzie Partners, Inc. at (212) 929-5500 collect or at (800) 322-2885 toll-free or by email at proxy@mackenziepartners.com . ArvinMeritor, Inc. (S&P, BB+ Corporate Credit & Senior Unsecured Debt Ratings, Negative) is a premier $7-billion global supplier of a broad range of integrated systems, modules and components to the motor vehicle industry. The company serves light vehicle, commercial truck, trailer and specialty original equipment manufacturers and related aftermarkets. In addition, ArvinMeritor is a leader in coil coating applications. The company is headquartered in Troy, Mich., and employs 32,000 people at more than 150 manufacturing facilities in 27 countries. ArvinMeritor common stock is traded on the New York Stock Exchange under the ticker symbol ARM. For more information, visit the company's Web site at: http://www.arvinmeritor.com ASPECT COMMS: Beatriz Infante to Step Down as Chairman/Pres./CEO ---------------------------------------------------------------- Aspect Communications Corporation (Nasdaq: ASPT), the leading provider of enterprise customer contact solutions, announced that Beatriz Infante, Aspect's chairman, president and chief executive officer since early 2001, is transitioning from her role with the company to pursue other interests. Infante will assist in transition matters for the remainder of the quarter to ensure a smooth transition. The company has appointed A. Barry Rand, director, as interim chairman and Gary Barnett, executive vice president, products, and chief technology officer, as interim president and chief executive officer. A formal search for a president and chief executive officer is being commenced. "We are deeply appreciative of Beatriz's contributions to Aspect over her tenure with the company," said Norm Fogelsong, a partner at Institutional Venture Partners and member of the company's board of directors since 1985. "She has guided the company through an incredibly difficult and uncertain economy over the last several years and has seen the company through many challenges. We wish her much continued success as she pursues the next phase of her career." Barry Rand has been a director of the company since January 2003. Rand is currently chairman and chief executive officer of Equitant Limited, a provider of order-to-cash management services. From 1999 to 2001, Rand was the chairman and chief executive officer of The Avis Group following a 30-year career with Xerox Corporation, where he served most recently as executive vice president of worldwide operations. Rand also serves on the board of directors for several Fortune 1000 companies including AT&T Wireless Services Inc., Abbott Laboratories and Agilent Technologies. Gary Barnett has a distinguished history in communications technology. Barnett was a founding engineer at Octel Communications, where he was one of the developers of Octel's first voice-messaging system and did early groundbreaking work in the field of unified messaging. Barnett left Octel to become a founding engineer at Aspect, where he played a key role in the development of the company's first automatic call distributor. Barnett was a leader in Aspect's successful effort to develop the first ACD software that ran on standard hardware systems. In 1987 Barnett became a founder of Prospect Software, a company that pioneered computer-telephony integration in the early 1990s. Barnett returned to Aspect in 1996 when the company acquired Prospect Software. The company also announced that it currently expects the company's third-quarter financial results to be in line with the guidance it previously provided on July 17, 2003. Aspect Communications Corporation (S&P, B Corporate Credit & CCC+ Subordinated Debt Ratings, Stable) is the leading provider of business communications solutions that help companies improve customer satisfaction, reduce operating costs, gather market intelligence and increase revenue. Aspect is a trusted mission- critical partner with more than two-thirds of the Fortune 50, daily managing more than 3 million customer sales and service professionals worldwide. Aspect is the only company that provides the mission-critical software platform, development environment and applications that seamlessly integrate voice-over-IP, traditional telephony, e-mail, voicemail, Web, fax and wireless business communications, while guaranteeing investment protection in a company's front-office, back-office, Internet and telephony infrastructures. Aspect's leadership in business communications solutions is based on more than 17 years of experience and more than 8,000 implementations deployed worldwide. The company is headquartered in San Jose, Calif., with offices around the world and an extensive global network of systems integrators, independent software vendors and distribution partners. For more information, visit Aspect's Web site at http://www.aspect.com AVIX TECHNOLOGIES: Florida Bankr. Court Confirms Chapter 11 Plan ---------------------------------------------------------------- On September 24, 2002, pursuant to a previous board action, Avix Technologies, Inc., filed for reorganization under Chapter 11 of the United States Bankruptcy Code in the Middle District of Florida, Tampa Division, Case No. 02-18761-8C1. The filing law firm was Stichter, Riedel, Blain & Prosser, P.A. and the attorney of record is Kurt E. Davis, Esquire. There was overwhelming support for the plan by the shareholders. Plan confirmation was delayed on three occasions by the sitting Judge out of concern that all efforts to notify street named shareholders were exhausted. Having all such concerns satisfied by the law firm, the Judge confirmed the plan on July 25, 2003. Pursuant to the procedures approved by the stockholders and approved by the court, efforts are under way by counsel to establish the liability assessment for each share, as provided by the plan. BUDGET GROUP: Challenges 12 Claims Filed by Indenture Trustees -------------------------------------------------------------- Budget Group Inc., and its debtor-affiliates ask the Court to disallow and expunge 12 Claims as duplicative of claims filed by certain Indenture Trustees. Twelve Claims were filed by noteholders on account of principal, interest and other applicable fees and charges due under the 9.125% Senior Notes due April 1, 2006; the 6.85% Convertible Subordinated Notes due April 29, 2007; and the 6.25% Remarketable Term Income Deferrable Equity Securities. Pursuant to the Bar Date Order, the indenture trustee under the indentures for the Notes filed proofs of claim on behalf of all Noteholders for the principal and interest due under the Notes as well as all amounts payable under the indentures pursuant to which the Notes were issued. The proofs of claim filed by the Indenture Trustees have been assigned claim nos. 3500, 4073 and 4230. The Noteholder Claims are duplicative of the proofs of claim filed by the Indenture Trustees on the Noteholder's behalf and should therefore be disallowed and expunged. Robert S. Brady, Esq., at Young Conaway Stargatt & Taylor LLP, in Wilmington, Delaware, assures the Court that each claimant will continue to have a surviving claim against the Debtors in an amount to which the claimant is entitled pursuant to the Indenture Trustee's claim filed on the Noteholders' behalf. According to Mr. Brady, failure to disallow the Noteholder Claims will result in the applicable noteholders receiving an unwarranted double recovery against the Debtors' estates, to the detriment of other unsecured creditors in these cases. Furthermore, no prejudice will result to these noteholders because they will receive the same treatment as other similarly- situated claimants for their surviving claims. These Noteholder Claims are included and are duplicative of Claim No. 3500 filed by Wells Faro Bank Minnesota, NA for $430,230,449.57: Claimant Claim No. Claim Amount -------- --------- ------------ Edward M. Casselman 4180 $15,546.98 Edward M. Casselman 4903 30,000.00 Loraine F. Heidorn 2858 5,000.00 Leonta M. Longman 2911 18,750.00 Molin Holdings, Inc. 3085 277,095.50 R2 Investments LDC 3427 125,345,000.00 Stuart Schneider 3121 65,000.00 Raylen & Jack Slaughter 3166 10,000.00 Stifel Nicolaus & Co. 4854 1,906.50 Stifel Nicolaus & Co. 4838 13,125.00 Stifel Nicolaus & Co. 3080 5,000.00 Claim No. 4217 filed by Parker Valley Capital LLC for $106,808.04 is included and duplicative of Claim No. 4230 filed by Wilmington Trust Company, Indenture for $341,738,584.81. The Debtors further ask the Court to expunge 18 Equity Interest Claims, filed by equity interest holders based exclusively on their ownership of the Debtors' common or preferred stock as of Petition Date. Pursuant to the Bar Date Order, the Equity Interest Claim holders were not required to file proofs of claim based solely on their equity interests in the Debtors. The Debtors notified the equity interest holders of the Bar Date only to allow holders to assert claims, if any, based on transactions in the Debtors' securities including, but not limited to, claims for damages or rescission based on the purchase or sale of the Debtors' stock. Mr. Brady informs the Court that the equity interest holders will not receive distributions under the forthcoming Chapter 11 plan unless and until the general unsecured creditors are made whole pursuant to that plan. The Equity Claims are: Claimant Claim No. Claim Amount -------- --------- ------------ Leon H. Buffington 4603 $2,375.00 Kevin Derr 4590 22,739.06 Tim Fitzgibbon 4686 unliquidated Rose Jacobs 3044 unliquidated James A. Johnson 3049 unliquidated Gerald Kaufman 2418 780.00 Morton Miller 1862 11,200.00 Toni Moody 3072 2,162.50 Gordon T. Page 4610 881,532.00 Phyllis Jean Sieveke 2988 10,612.50 Richard Radenbaugh 2734 955.00 Robert L. Duren 2845 18,755.00 Robert W. Trsieveke 2989 18,038.98 Michael Sclafani 3076 23.25 John S. Shallcross 3222 15,431.95 Verley Smith 3042 unliquidated Judd W. Thomas 2274 unliquidated Jefrey Weston 3057 50,946.00 (Budget Group Bankruptcy News, Issue No. 24; Bankruptcy Creditors' Service, Inc., 609/392-0900) CEDAR MOUNTAIN: Auditing Firm Expressing Doubts is Replaced ----------------------------------------------------------- On July 28, 2003, Cedar Mountain Distributors Inc. dismissed Sartain Fischbein & Company, an accounting firm located in Tulsa, Oklahoma and hired Cordovano and Harvey, PC, an accounting firm located in Denver, Colorado. For the years ended December 31, 2002 and 2001, the reports of Sartain Fischbein & Company included the addition of an explanatory paragraph regarding the substantial doubt raised with regards to the Company continuing as a going concern. The decision to change accountants reflected management's belief that a periodic change of auditors is a prudent practice. The Board of Directors of the Company also believed it would be in the best interest of Cedar Mountain Distributors to retain Cordovano and Harvey, PC, and therefore approved the change of accountants. Results of Operations For the quarter ended June 30, 2003, the Company had sales of $544 and cost of net product sales of $435 compared to sales of $8,480 and cost of $7,027 for the quarter ended June 30, 2002. Operating expenses were $13,142, resulting in a loss from operations of $13,013, compared to operating expenses and a loss from operations of $16,713 and $15,260, respectively for the same quarter of the prior year. For the six months ended June 30, 2003, the Company had sales of $944 and cost of net product sales of $722 compared to sales of $18,139 and cost of $14,905 for the six months ended June 30, 2002. Operating expenses were $21,349, resulting in a loss from operations of $21,127 compared to operating expenses and a loss from operations of $25,730 and $22,496, respectively for the same six months of the prior year. The nominal sales are the result of the limited availability during the six months of the Company's sole employee. Expenses are substantially legal and accounting costs and services contributed by a shareholder and officer. A higher level of operations and promotion activities is expected if additional funding is achieved. Liquidity and Capital Resources On June 30, 2003, the Company had $8,528 in current assets, including $1,261 in cash, and total current liabilities of $38,587, resulting in a net working capital deficit of $30,059 compared to a net working capital deficit of $14,956 at December 31, 2002. Of the liabilities, $29,741 is owed to shareholders and an officer. Net cash used in operating activities for the six months ended June 30, 2003 was $11,079, compared to $2,191 for the six months ended June 30, 2002. Net cash provided by financing activities for the six month periods ended June 30, 2003 and 2002 was $2500 and $12,500, respectively, from proceeds of notes payable to shareholders, The Company does not have any commitments for significant capital or operating expenditures above their current levels and believes it has sufficient available resources to maintain its operations at the current restricted level but will need to obtain additional funding to execute its business plan and expand its operations for the year ending December 31, 2003. In its SEC Form 10-Q filing, the Company said: "Our auditors included an explanatory paragraph in their opinion on our financial statements for the year ended December 31, 2002, to state that our losses since inception and our net capital deficit at December 31, 2002 raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon raising additional capital and achieving profitable operations. We cannot assure you that our plan of operation will be successful in addressing this issue." CHAMPIONLYTE HOLDINGS: Taps Massella Roumbos as New Accountants --------------------------------------------------------------- On June 25, 2003, Radin Glass & Co, LLP was dismissed as the independent auditor for Championlyte Holdings Inc. and Massella Roumbos LLP was appointed as the new independent auditor for the Company. Radin Glass & Co, LLP 's report on the financial statements for the year ended December 31, 2002 contained an explanatory paragraph reflecting an uncertainty because the realization of a major portion of the Company's assets is dependent upon its ability to meet its future financing requirements and the success of future operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. ChampionLyte Products, Inc., is a fully reporting public company whose shares are quoted on the OTC Bulletin Board under the trading symbol CPLY. Its primary product, ChampionLyte(R) is the first completely sugar-free entry into the isotonic sports drink market. CINCINNATI BELL: Retains Spencer Stuart to Conduct CFO Search ------------------------------------------------------------- Cincinnati Bell Inc. (NYSE:CBB) announced that Thomas L. Schilling has stepped down as chief financial officer of the company, effective August 17, 2003, and will serve as a consultant to the company through the end of the year. "We would like to thank Tom for his significant contributions to the company. His work on the company's restructuring has left us well-positioned for the future," said Jack Cassidy, Cincinnati Bell's chief executive officer. Schilling assumed the role of chief financial officer for Cincinnati Bell Inc, in July, 2002 after serving as CFO of the company's broadband division. Immediately prior to assuming the CFO role, Mr. Schilling served as senior vice president of finance and administration for the company. The company has retained Spencer Stuart LLP to conduct a search for a new CFO. Cincinnati Bell is one of the nation's most respected and best performing local exchange and wireless providers with a legacy of unparalleled customer service excellence. The company was recently ranked number one in customer satisfaction, for the third year in a row, by J.D. Power and Associates for residential long distance among mainstream users. Cincinnati Bell provides a wide range of telecommunications products and services to residential and business customers in Ohio, Kentucky and Indiana. Cincinnati Bell is headquartered in Cincinnati, Ohio. For more information, visit http://www.cincinnatibell.com As reported in Troubled Company Reporter's July 25, 2003 edition, Standard & Poor's Ratings Services raised the corporate credit rating of incumbent local exchange carrier Cincinnati Bell Inc., to 'B' from 'B-'. Ratings on Cincinnati Bell's secured debt, which includes its $941 million bank credit facility and $50 million senior secured notes, are raised to 'B+' from 'B-'. "The upgrade of the secured debt reflects both the higher corporate credit rating and permanent reduction of bank debt," said credit analyst Michael Tsao. Ratings have been removed from CreditWatch, where they had been placed with positive implications on July 1, 2003 after Cincinnati Bell announced that it planned to issue new notes to reduce bank debt. The outlook is positive. Total debt is currently about $2.5 billion. CITGO PETROLEUM: Second Quarter Results Show Slight Improvement --------------------------------------------------------------- CITGO Petroleum Corporation reported net income of $109 million for the second quarter of 2003 compared with $96 million for the second quarter of 2002. For the six month period ending June 30, 2003, CITGO reported net income of $249 million compared with $81 million in 2002. Operating income (income before interest and income taxes) for the second quarter of 2003 was $204 million, which includes depreciation and amortization expenses totaling $84 million. In comparison, 2002 second quarter operating income was $170 million, which includes depreciation and amortization expenses totaling $73 million. Second quarter market conditions and outstanding operating performance contributed to CITGO's favorable financial results relative to the same quarter of 2002. Crack spreads were 21- percent higher in Chicago and relatively constant in the Gulf Coast when compared with the same time period in 2002. Additionally, crude differentials for both sour and Canadian crudes were improved relative to last year. "CITGO capitalized on the market conditions by optimizing its refineries' production as well as increasing its product sales," stated Luis Marin, President and Chief Executive Officer. "Our refinery utilization rate for the second quarter averaged 97- percent, continuing our excellent operational performance from the first quarter and exceeding the industry's utilization rate of slightly under 95-percent," said Marin. "In addition, our heavy-sour crude runs in the second quarter were up 137,000 barrels per day (bpd) compared with the same time period in 2002. We are also very pleased with the start up and production rates from the new mixed xylene unit at our Lake Charles, La. refinery," Marin said. "Another bright spot during the quarter was a 15-percent increase in our total refined product sales volumes, led primarily by a 33- percent increase in diesel and #2 fuel sales. When taken together, these factors generated a very good second quarter for CITGO," said Marin. Additional second quarter highlights include: -- Second quarter wholesale refined product sales increased by five-percent to 3.6 billion gallons, with gasoline sales to existing branded marketers comprising the largest increase. -- Lubricant sales volumes were relatively flat for the first six months of 2003 when compared with the same time period in 2002; however, industry sales volumes were down eight- percent compared with the same period in 2002. "CITGO's corporate debt ratings were upgraded during the second quarter, recognizing continued excellent operations and reflecting the company's improved financial condition," said Marin. "In fact, after the quarter ended CITGO paid a $500 million dividend to its direct parent company, PDV America, Inc. CITGO's liquidity (cash plus available borrowing capacity) was $526 million after the dividend payment," Marin concluded. CITGO's capital expenditures for the second quarter of 2003 were $118 million compared with $229 million for same quarter in 2002. Capital expenditures for the first six months of 2003 were $209 million compared with $350 million for the first six months of 2002. This decrease reflects CITGO's commitment to reduce 2003 planned capital spending by approximately $250 million. For the six months ending June 30, 2003, CITGO reported operating income of $447 million, including depreciation and amortization expenses totaling $163 million. In comparison, in the first six months of 2002, CITGO's operating income was $163 million, including depreciation and amortization expenses totaling $145 million. CITGO Petroleum Corporation is a leading energy company based in Tulsa, Okla., with approximately 4,300 employees and annual revenues of nearly $20 billion. CITGO is a direct, wholly-owned subsidiary of PDV America, Inc., a wholly-owned subsidiary of PDV Holding, Inc. CITGO's ultimate parent is Petroleos de Venezuela, S.A. (PDVSA), the national oil company of the Bolivarian Republic of Venezuela and its largest supplier of crude oil. CITGO operates fuels refineries in Lake Charles, La., Corpus Christi, Texas, and Lemont, Ill., and asphalt refineries in Paulsboro, NJ and Savannah, Ga. The company has long-term crude oil supply agreements with PDVSA for a portion of the crude oil requirements at these facilities. CITGO is also a 41-percent participant in LYONDELL-CITGO Refining LP, a joint venture fuels refinery located in Houston, Texas. CITGO's interests in these refineries result in a total crude oil capacity of approximately 865,000 barrels per day. With more than 13,000 branded, independently owned and operated retail locations, CITGO is also one of the five largest branded gasoline suppliers within the United States. As reported in Troubled Company Reporter's August 13, 2003 edition, Fitch Ratings upgraded the senior unsecured debt rating of CITGO Petroleum Corporation to 'BB-' from 'B+' and the rating of CITGO's $200 million secured term loan to 'BB+' from 'BB'. With the payment of the $500 million maturity of senior notes on August 1, Fitch is withdrawing its rating on PDV America, Inc. CITGO is owned by PDV America, an indirect, wholly owned subsidiary of Petroleos de Venezuela S.A., the state-owned oil company of Venezuela. The Rating Outlook for the debt of CITGO is Stable. CONSECO INC: Files Fifth Amended Joint Plan of Reorganization ------------------------------------------------------------- Conseco, Inc., (OTCBB:CNCEQ) has filed its Fifth Amended Joint Plan of Reorganization with the Bankruptcy Court. The Court has set September 9, 2003 as the hearing date to consider confirmation of the amended plan. Upon emergence, Conseco, Inc. will be engaged exclusively in the insurance business. The full text of the Fifth Amended Joint Plan of Reorganization is available at http://www.bmccorp.net/conseco DEX MEDIA: Fitch Assigns BB- Ratings to New $2.11BB Facility ------------------------------------------------------------ Fitch Ratings has assigned a 'BB-' rating to Dex Media West, LLC's proposed $2.11 billion senior secured credit facility. The secured bank facility consists of a $100 million 6-year revolving facility, a $960 million 6-year Term A loan and a $1.05 billion 6.5-year Term B loan. Fitch has also assigned a 'B' rating to the company's $535 million senior unsecured notes due 2010 and a 'B-' rating to the $780 million senior subordinated notes due 2013. The proceeds from the secured bank facility and the notes together with equity proceeds from the company's sponsor group will be utilized to fund the purchase of Dex Media West, LLC. The Rating Outlook is Stable. Fitch's ratings reflect the company's strong market position as the incumbent directory publisher within its service territory, the stability and consistency of its revenue stream, strong operating margins and anticipated solid free cash flow generation. The company's revenue stability is supported by a high advertiser retention rate and the contractual nature of the company's revenues. The contracts the company has with its advertiser base provide the company with significant revenue visibility as a large portion of the company's annual revenue is confirmed early in the year. In Fitch's view revenue generated by yellow page publishers is not as sensitive to cyclical economic conditions as other forms of advertising as evidenced by the industry's positive, albeit modest growth rate during the recent economic environment. Fitch's ratings are further supported by the geographic and customer diversity of its revenue stream. Dex Media West publishes directories throughout seven states and no single customer class represents more than approximately 3% of revenue with the largest single customer less than 0.5%. Ongoing capital expenditures to support its business are expected to remain low. These rating considerations are balanced against the high degree of leverage used to finance the acquisition, and execution risks centered on operating as a stand alone entity. Fitch recognizes the potential impact on the company's operating margins stemming from independent directory publishers that compete on price and usage substitution with internet directories. Long term risks relate to potential changes in the buying patterns of advertisers or a shift in the effectiveness of yellow page advertising relative to other media as well as the success of new product innovations launched by the company. Fitch's rating of the secured bank facility reflects the seniority the bank facility enjoys within the company's capital structure but also the lack of tangible asset value supporting the facility. The senior unsecured and senior subordinate ratings reflect the large amount of senior secured debt within the company's capital structure. At the close of the transaction Fitch expects that approximately 47% of the funded capital structure will consist of the senior secured debt. At the close of the transaction and based on total debt funded of approximately $3.4 billion and LTM EBITDA of $524 million the total debt-to-EBITDA is 6.4 times and the senior secured leverage is 3.9x. From Fitch's perspective the stability of the company's revenue stream coupled with low ongoing capital expenditure requirements will yield sustainable free cash flow generation and free cash flow conversion as a percent of EBITDA approaching 50%. Fitch expects that free cash flow will be utilized to reduce debt levels and anticipates year-end 2004 leverage below 6x. Dex Media West, LLC was formed by the private equity firms of Welsh, Carson, Anderson & Stowe and The Carlyle Group to acquire a portion of Qwest Dex, Inc., the yellow page publishing business from Qwest Communications International. The Qwest Dex, Inc. acquisition, valued at $7.05 billion is structured with two stages. The first phase closed in November 2002 and operates yellow page directory business in Colorado, Iowa, Minnesota, Nebraska, New Mexico, North Dakota, and South Dakota. The second stage, representing the balance of Qwest Dex business in Arizona, Idaho, Montana, Oregon, Utah, Washington, and Wyoming is anticipated to close September 2003 and is pending regulatory approvals. DIRECTV LATIN: Wants More Time to Make Lease-Related Decisions -------------------------------------------------------------- DirecTV Latin America, LLC asks the Court to extend the time by which it must assume or reject its unexpired non-residential property leases through and including November 17, 2003. M. Blake Cleary, Esq., at Young Conaway Stargatt & Taylor, LLP, in Delaware, reminds the Court that DirecTV is a party to two unexpired non-residential real property leases: Lease Premises Lessor -------------- ------ 2400 East Commercial Blvd. CB Richard Ellis Fort Lauderdale, Florida 2400 East Commercial Blvd. 33308 Suite 708 Fort Lauderdale, Florida 33308 New Town Commerce Center Iron Mountain 3821 SW 47th Avenue New Town Commerce Center Fort Lauderdale, Florida 3821 SW 47th Avenue 33314 Fort Lauderdale, Florida 33314 Attn: Daniel Melendez Mr. Cleary asserts that the Unexpired Leases are valuable assets of DirecTV's estate and are integral to its continued operations and plan of reorganization. DirecTV does not want to assume the Unexpired Leases until it determines a confirmable plan of reorganization since, without the plan, the result would be the imposition of potentially substantial administrative expenses to its estate. However, if DirecTV is unable to come up with a plan of reorganization, it is then required to reject the Unexpired Leases. DirecTV is presently considering and assessing various options regarding the formulation of a reorganization plan. Forcing DirecTV to assume the Unexpired Leases would subject the estate to unnecessary administrative expense. Then again, forcing DirecTV to reject and seek new office and storage space would disrupt its operations and reorganization efforts. Mr. Cleary assures the Court that DirecTV continues to perform in a timely manner its postpetition obligations under the Unexpired Leases. Furthermore, the requested extension will promote the Debtor's ability to maximize the value of its estate, avoid the incurrence of needless administrative expenses and other claims on the estate by minimizing the likelihood of an inadvertent rejection of a valuable lease, or alternatively, the premature assumption of a burdensome one. The Court will convene a hearing on September 8, 2003 to consider DirecTV's request. By application of Del.Bankr.LR 9006-2, the lease decision deadline is automatically extended through the conclusion of that hearing. (DirecTV Latin America Bankruptcy News, Issue No. 11; Bankruptcy Creditors' Service, Inc., 609/392- 0900) DLJ COMMERCIAL: Fitch Ups Class B-6 Note Rating to BB- from B ------------------------------------------------------------- Fitch Ratings upgrades DLJ Commercial Mortgage Corp., commercial mortgage pass-through certificates, series 2000-STF1 as follows: -- $11.9 million class A-2 to 'AAA' from 'AA'; -- $11.2 million class A-3 to 'AAA' from 'A'; -- $9.8 million class B-1 to 'AAA' from 'BBB'; -- $7 million class B-2 to 'AAA' from 'BBB-'; -- $5 million class B-4 to 'A' from 'BB'; -- $2.9 million class B-5 to 'BBB' from 'BB-'; -- $11.7 million class B-6 to 'BB-' from 'B'. In addition, Fitch affirms the following certificates: -- $14 million class A-1 'AAA'; -- Interest-only classes S and X 'AAA'. The $8.8 million class B-7 and $13.7 million class C are not rated by Fitch. The rating upgrades and affirmations follow Fitch's annual review of this transaction, which closed in August 2000. The upgrades are primarily a result of increased subordination levels due to collateral paydown, and the transaction's return to sequential-pay structure. As of the August 2003 distribution date, six loans are remaining in the pool and the transaction's aggregate principal balance has decreased 78%, to $96.2 million from $438.8 million at issuance. The remaining loans have past their maturity dates and are being specially serviced by J.E. Robert Companies. Fitch applied various stress scenarios including expected losses on some of the loans. Even under these scenarios, the subordination levels remain sufficient to upgrade the ratings. Fitch will continue to monitor this transaction, as surveillance is ongoing. ECHO SPRINGS: Aurora Beverage Acquires Controlling Interest ----------------------------------------------------------- Echo Springs Water Corp. (EWC - TSX VENTURE EXCHANGE) and Aurora Beverage Corporation jointly announced the completion of the purchase by Aurora of 4,895,915 common shares of the Corporation, being 38.1% of the currently issued and outstanding common shares of the Corporation pursuant to the previously announced private share purchase transaction with five shareholders of the Corporation. The purchase price for each share was $0.06 (paid in cash). Aurora has undertaken to, within 100 days from the closing of the Transaction, make a formal offer pursuant to a take-over bid circular and in compliance with all applicable securities laws to acquire all the issued and outstanding shares of the Corporation at a price per share no less than the Purchase Price. The obligation of Aurora to make the Offer is subject to several conditions including a determination by the board of directors of the Corporation to recommend that shareholders accept the Offer. The taking up and paying for common shares tendered under the Offer will be conditional on, among other things, obtaining necessary regulatory and legal approvals, at least 90% of the outstanding common shares (including those held by Aurora) being deposited, all outstanding options having been exercised, cancelled or otherwise dealt with on terms satisfactory to Aurora, and no material right, property, franchise or license of the Corporation or its subsidiaries being adversely affected as a result of the making and completion of the Offer. In connection with the Transaction, the size of the board of directors has been reduced to four and two nominees of Aurora, George Arnold and Richard Brezzi, have been appointed as directors. The directors who have submitted their resignations are Douglas Hanson, Douglas Hatch, Mark Rundle, Rene Malo and Ray Courey. George Arnold will replace Mark Rundle as President and Chief Executive Officer effective immediately. In addition, as a result of the demand by the Corporation's largest secured creditor for repayment of all the outstanding indebtedness owed to it by the Corporation, the board of directors of the Corporation authorized the Corporation to file for protection under the Companies' Creditors Arrangement Act (Canada). The application was brought before the Ontario Superior Court of Justice Monday. The order which was granted stays all enforcement proceedings by creditors against the Corporation which will afford Aurora an opportunity to complete the Offer and allow the Corporation to remain in business for the benefit of all stakeholders including employees and suppliers. Aurora Beverage Corporation is a closely-held Ontario company. Aurora's head office is located at 200-193 King Street East, Toronto, Ontario and its principal place of business is 1 Big Bay Point, Barrie, Ontario. Echo Springs Water Corp. bottles, markets and distributes natural spring water in Canada and the United States, under its brands Echo Springs and Canada's Choice and also private label brands. The Corporation owns an aquifer and a bottling plant in the Foothills of Alberta where water is bottled at the source and operates a bottling plant in Mississauga, Ontario. The Corporation is a member of the International Bottled Water Association and the Canadian Bottled Water Association, and its products meet the U.S. Food and Drug Administration standards. Prior to the Transaction, Aurora beneficially owned and controlled no common shares of the Corporation. The completion of the Transaction has resulted in Aurora becoming the owner of 4,913,695 common shares of the Corporation representing approximately 38.1% of the currently issued and outstanding common shares of the Corporation. ELAN CORP: Receives Extension of Waivers from EPIL Noteholders -------------------------------------------------------------- Elan Corporation, plc (NYSE:ELN) has sought and received additional agreements from a majority of the holders of the guaranteed notes issued by Elan's qualifying special purpose entities, Elan Pharmaceutical Investments II, Ltd., and Elan Pharmaceutical Investments III, Ltd. The agreements extend to August 22, 2003, the EPIL II and EPIL III noteholders' waivers of compliance by Elan with certain provisions of the documents governing the EPIL II and EPIL III notes that required Elan to provide the noteholders with Elan's 2002 audited consolidated financial statements by June 29, 2003. The waivers had previously been set to expire Monday. Elan paid an aggregate fee of approximately $2.1 million to all EPIL II and EPIL III noteholders in connection with the waivers. In accordance with the agreements governing the EPIL II and EPIL III notes, the fee was paid on a pro-rata basis to each holder of EPIL II and EPIL III notes, regardless of whether any such holder consented to the waivers. Elan and its auditor, KPMG, are currently working to conclude all audit related issues and matters in order to complete Elan's 2002 Form 20-F as soon as practicable. However, Elan cannot provide any assurances as to the timing of the completion and filing of the 2002 Form 20-F. Elan is focused on the discovery, development, manufacturing, sale and marketing of novel therapeutic products in neurology, pain management and autoimmune diseases. Elan shares trade on the New York, London and Dublin Stock Exchanges. EXABYTE CORP: June 28 Net Capital Deficit Widens to $17 Million --------------------------------------------------------------- Exabyte Corporation (OTCBB:EXBT), a performance and value leader in tape backup systems, reported revenues of $22.7 million and a net loss of $5.0 million for the second quarter ended June 28, 2003. In the prior quarter, the company recorded revenues of $22.6 million and a net loss of $19.6 million that included a bad debt provision of $6.0 million and a $6.8 million reserve against inventory. While revenues remained steady versus the prior quarter, second quarter gross profit of $6.4 million was substantially improved compared to the first quarter gross loss of $3.9 million that included a $6.8 million inventory reserve. The improvement in gross profit is due to lower overhead costs, lower product costs from suppliers, and increased sales of higher margin products. Management's actions in the second quarter to bring spending in line with revenue expectations reduced operating expenses to $8.2 million compared to $15.1 million in the prior quarter (that included a $6.0 million provision for bad debt), and compared to spending of $9.9 million in the fourth quarter of 2002. The second quarter operating loss of $1.8 million represents significant improvement over the $19.0 million operating loss of the previous quarter, which included the inventory reserve and bad debt provision totaling $12.8 million. The net loss of $5.0 million includes interest expense of $3.2 million, of which $2.5 million is a non-cash charge related to common stock and warrants issued in exchange for over advance guaranties made by guarantors in favor of Silicon Valley Bank. Exabyte Corporation's June 28, 2003 balance sheet shows a working capital deficit of about $24 million, and a total shareholders' equity deficit of about $17 million. "Early in the quarter, as a result of the business failure of one of our major customers and the loss of that significant receivable from the borrowing base, Exabyte was in violation of several covenants of the loan agreement with Silicon Valley Bank," said Tom Ward, president and CEO of Exabyte. "Because of the severity of the situation, we quickly solicited and received the support we needed from major investors to establish loan guaranties with the bank that allowed the company to maintain its line of credit." "I am very pleased with the results achieved this year through our efforts to reorganize and cut costs, and we continue to identify additional opportunities to streamline the business," commented Ward. "We have also made positive progress in our negotiations with many of our larger creditors and generally improved our relationships with our suppliers and partners over the course of the last quarter." "We continue to make progress in the market with our VXA product line. Last year Exabyte announced availability of VXA-2 Packet Tape Drives on IBM pSeries eServers, and in the second quarter we announced availability on iSeries and xSeries eServers. With these latest announcements, VXA-2 became the first tape drive offered by IBM on all three eServer platforms," added Ward. "I am encouraged by the steady growth in sales of our VXA products and remain firmly convinced of the potential of that business." Changes to the company's balance sheet include a reduction of inventories from $10.8 million in the first quarter to $10.1 million in the second quarter due to normal sales activity. Cash at the end of the second quarter of $1.3 million includes $1.2 million of cash designated for July payment against the accounts payable balance of $15.9 million up from $13.0 million at the end of the first quarter. An increase in the current portion of long- term liabilities from $15.7 million in the first quarter to $18.3 million in the second quarter and a decrease in long-term liabilities from $9.1 million to $5.7 million over the same period reflect payments made in the second quarter and the schedule of payments for the next 12 months under terms Exabyte negotiated with major suppliers earlier in the year. Exabyte Corporation (OTCBB:EXBT) provides innovative tape storage solutions to customers whose top buying criteria is value: capacity/price, speed, data reliability and ease-of-use. Exabyte, an industry innovator since 1987, is the recognized value-leader in tape storage and automation solutions for servers, workstations, LANs and SANs. With groundbreaking VXA Packet Technology, the most significant advancement in tape in the last decade, Exabyte's VXA-2 solutions provide SMB and departmental users dramatically higher capacity, speed and data reliability at competitive prices. Exabyte's drives and automation products are rugged, robust and reliable solutions for users of VXAtapeT, LTOT (UltriumT) and MammothTapeT. Exabyte has a worldwide network of OEMs, distributors and resellers that share the company's commitment to value and customer service, including partners such as IBM, HP, Fujitsu Siemens Computers, Bull, Toshiba, Logitec, Apple Computer, Tech Data, Ingram Micro and Arrow Electronics. For additional information, visit http://www.exabyte.com FEDERAL-MOGUL: Wants to Amend Charles McClure Employment Pact ------------------------------------------------------------- Federal-Mogul Corporation and its debtor-affiliates seek the Court's authority to amend the employment contract of Chief Executive Officer, Charles G. McClure. By the Amendment, Mr. McClure's salary and benefits will increase to the level equal to the compensation of the prior CEO, Frank E. Macher. The Amendment also extends Mr. McClure's term in his new position as CEO. In particular, the salient terms of the Amendment are: (a) Mr. McClure's employment term will be extended for another year after the current term expires on January 11, 2004, unless determined otherwise by the Debtors' Board of Directors; (b) Mr. McClure's base salary will increase from $850,000 per annum to $1,000,000 per annum. After the Transition Date, the base salary will be reviewed annually, and will be subject to any increase, as determined by the Compensation Committee of the Board; (c) For the 2003 fiscal year and every subsequent fiscal year during employment, Mr. McClure will receive a target annual bonus equal to his base salary, payable at the customary time other executives generally receive an annual bonus in accordance with the Company's policies; (d) In the event of any dispute regarding the existence of Mr. McClure's incapacity or disability for purposes of termination, a physician selected by the Debtors or their insurers, and acceptable to Mr. McClure or his legal representative, will resolve the matter. Mr. McClure will submit to appropriate medical examinations for purposes of such determination; (e) The Amendment defines "Cause" as a ground for termination, which will include Mr. McClure's willful and continued failure to substantially perform his duties with the Debtors or its affiliates, after a written demand for substantial performance is delivered to him by the Board, or the willful engaging by Mr. McClure in illegal conduct or gross misconduct, which is materially and demonstrably injurious to the Debtors or its affiliated companies. Mr. McClure's termination will not be deemed to be for Cause unless and until: (1) a copy of a resolution is delivered to Mr. McClure that has been duly adopted by not less than a majority of the entire Board; (2) after Mr. McClure has been provided reasonable notice and the opportunity, with counsel, to be heard before the Board; and (3) the Board has found that in its good faith opinion Mr. McClure is guilty of the described conduct; (f) The circumstances for termination without cause, resulting in certain payments and benefits to Mr. McClure, are expanded to include expiration of his contract by the delivery of a Non- Renewal Notice by the Board; and (g) The non-competition provisions under the Employment Agreement are amended to provide that during Mr. McClure's employment and for one year thereafter, he will not, in any geographic area in which the Debtors or any of their subsidiaries is conducting business, consult, engage or assist in any manner any person or entity engaged primarily in the manufacture, sale or distribution of: -- pistons, piston rings, piston cylinder liners; -- sealant systems; -- aftermarket spark plugs, wipers, chassis components, ball joints or tie rods, or brake discs or drums; -- engine bearings; -- friction components; or -- sintered valve seals, guides or pulleys. Although the Amendment will change Mr. McClure's base salary and target annual bonus award to match what Mr. Macher was receiving as CEO, it will not affect the other remaining components of Mr. McClure's compensation package. Mr. McClure will receive $850,000 as retention payment and any additional awards he may earn through the Performance Unit Plan for the Cycle III at the end of 2003. However, the Debtors project that the Performance Unit Plan will not yield any award since there has been none under the Performance Unit Plan for 2001 and 2002 in the similar sense. In 2004, Mr. McClure will not receive a retention payment because the Debtors do not have a retention program for the year 2004. In addition, the Debtors are still negotiating with their creditor constituencies the terms of an interim long-term incentive program for an 18-month period from July 1, 2003 through December 31, 2004 and are yet uncertain as to program's components. As a result, Mr. McClure's total compensation opportunity for 2004, including base salary and bonus opportunities, will be $2,000,000 plus any payments he will receive under the Interim Long-Term Incentive Program that is being negotiated, which is being proposed to include $750,000 as potential long-term incentive annualized award. Effects on the Severance Provisions The Amendment's effects on the severance provisions are in line with similar Court-approved provisions for the Debtors' other top executives. On May 1, 2002, the Court approved severance agreements for the Debtors' 28 top executives immediately subordinate to Messrs. Macher and McClure. The Severance Agreements provided payments to employees upon termination for any reason other than for cause. For the highest ten executives, the severance payment equals two times the executives' annual base salary plus two times the executives' target annual bonus, in addition to health and welfare benefits for a specified period. In addition, the terms of the Severance Agreements extend through September 2003 and automatically renew each year. The Severance Agreements provide that the executives' entitlement to the severance payments will not expire during the course of the executives' employment. Accordingly, Mr. McClure is also entitled to receive, upon termination without cause, a severance payment equal to two years' annual base salary plus two times the target annual bonus, including health and welfare benefits for 24 months. The Amendment, therefore, places Mr. McClure on an equal footing with other top ten executives' severance agreements. Towers Perrin, a global management consulting firm engaged by the Debtors, advises that severance payments of two years base salary and bonus are within competitive practices in the industry for CEOs. Towers Perrin's Compensation Analysis Towers Perrin conducted a competitive pay analysis of CEO officer positions at comparably sized organizations by examining competitive pay levels in two markets, the auto suppliers and the durable goods manufacturers. In the auto supplier group, Towers Perrin evaluated 12 companies with median and average annual sales of $4,700,000,000 and $7,700,000,000. The group of durable goods manufacturers was comprised of 41 companies with median and average annual sales of $2,800,000,000 and $6,300,000,000. Towers Perrin focused primarily on the market pay elements of: (a) base salary; (b) target annual bonus opportunities; and (c) long-term incentive award opportunities. Towers Perrin also compared Mr. Macher's compensation package to competitive industry pay levels. A comparison of total compensation, including long-term incentive award opportunities, revealed that the Debtors' CEO compensation is well below the industry median. Towers Perrin found that Mr. Macher's compensation is 62% of the $4,823,000 annual median total direct compensation for CEOs in the auto industry segment, and is 63% of the $4,777,000 annual median total direct compensation for CEOs in the durable goods manufacturer market. In breaking down the different components, the deficiency of Mr. Macher's compensation package was caused by a significantly below market of long-term incentive award opportunities. With respect to Mr. McClure's current retention bonus, and using the retention award as a long-term incentive equivalent, his total compensation for 2003, is 59% of the median total direct compensation for the auto supplier market, and is 60% of the median total direct compensation for the durable goods manufacturer market. However, the percentages do not reflect proposals for long-term incentive opportunities that are currently being discussed with the creditor constituencies for the period July 1, 2003 through December 31, 2004. The proposed long-term incentive opportunity contemplates a $750,000 annualized award to Mr. McClure, bringing his total compensation opportunity up to 75% of the median total compensation for the auto supplier industry. According to James E. O'Neill, Esq., at Pachulski, Stang, Ziehl, Young, Jones & Weintraub, P.C., in Wilmington, Delaware, the Debtors acknowledge that many of the changes reflected in the Amendment are designed to strengthen Mr. McClure's severance rights because certain creditor constituencies have advised that it is very likely that Mr. McClure's employment will be terminated after the confirmation of a reorganization plan to make way for a different CEO. Understandably, Mr. McClure expressed the need to receive a market-competitive severance package as part of his continued employment terms. The Debtors have provided Mr. McClure with compensation and protection necessary to ensure his continued efforts to effect a successful reorganization, Mr. O'Neill adds. (Federal-Mogul Bankruptcy News, Issue No. 41; Bankruptcy Creditors' Service, Inc., 609/392-0900) FERRELLGAS PARTNERS: Declares Fourth Quarter Cash Distribution -------------------------------------------------------------- Ferrellgas Partners, L.P. (NYSE: FGP) has declared a fourth quarter cash distribution of $0.50 per partnership common unit. The distribution is payable September 12, 2003, to common unitholders of record as of August 29, 2003. The distribution covers the period from May 1, 2003, to July 31, 2003, the end of the partnership's fourth quarter of fiscal year 2003. Ferrellgas' annualized distribution is currently $2.00 per common unit. Ferrellgas Partners, L.P., through its operating partnership, Ferrellgas, L.P., currently serves more than one million customers in 45 states. Ferrellgas employees indirectly own more than 17 million common units of the partnership through an employee stock ownership plan. Ferrellgas trades on the New York Stock Exchange under the ticker symbol FGP. * * * As previously reported in Troubled Company Reporter, Ferrellgas Partners, L.P.'s $170 million 8.75% senior notes due June 15, 2012, issued jointly and severally with its special purpose financing subsidiary Ferrellgas Partners Finance Corp., was rated 'BB+' by Fitch Ratings. FGP's 'BB+' rating recognizes the subordination of its debt obligations to approximately $547 million unsecured debt of Ferrellgas, L.P., the operating limited partnership of FGP, including the OLP's $534 million 'BBB' rated senior notes. In addition, Fitch's assessment incorporates the underlying strength of FGP's retail propane distribution network. Positive qualitative credit factors include FGP's extensive geographic reach, track record of customer retention, a proven ability to maintain consistent gross profit margins even during past run-ups in spot propane prices and strong internal operating, pricing, and financial controls. FLEMING: Sara Lee Bakery Seeks Court Injunction Against Debtors --------------------------------------------------------------- Sara Lee Bakery Group Inc. asks the Court to determine and declare that all funds the Fleming Debtors collected and held on account of the goods Sara Lee sold to its independent retailers are its property and not of the Debtors' bankruptcy estates. Sara Lee complains that the Debtors have been commingling the collected funds with their other cash and using the collections to fund their own operations without Sara Lee's consent. Sara Lee sells goods to various stores on an open account. Pursuant to a prepetition billing arrangement, the Debtors assist in the collection of the amounts due to Sara Lee from its non- debtor customers. In return, the Debtors get a fee equal to 2% of the collected amounts. On March 25, 2003, Sara Lee terminated the Central Billing Program. The termination became effective before the Petition Date. David L. Finger, Esq., in Wilmington, Delaware, tells the Court that all funds collected pursuant to the Central Billing Program through March 31, 2003 -- less the Debtors' 2% fee -- are Sara Lee's property. Until remitted by the Debtors, the Net Pre- Termination Collections are held by the Debtors constructively in trust for Sara Lee's benefit. The Net Pre-Termination Collections are not property of the Debtors' estates. Similarly, all funds collected pursuant to the Central Billing Program from April 1, 2003 forward are Sara Lee's property. Until remitted to Sara Lee, the Post-Termination Collections are also held by the Debtors constructively in trust for Sara Lee's benefit. The Post-Termination Collections are not property of the Debtors' estates. Mr. Finger informs Judge Walrath that Sara Lee is owed $2,600,000 in Net Pre-Termination Collections. Of that amount, $400,000 is owed to Sara Lee from stores owned by the Debtors and $2,200,000 is owed to Sara Lee from stores not owned by the Debtors. Without an accounting from the Debtors, Mr. Finger says, Sara Lee is unable to determine how much in Net Pre-Termination Collections the Debtors have failed or refused to remit. Sara Lee is also unable to determine how much in Post-Termination Collections the Debtors have failed or refused to remit without an accounting from them. At the onset of the Chapter 11 cases, Sara Lee asked the Debtors to segregate the unremitted Net Pre-Termination Collections and Post-Termination Collections. Sara Lee also asked for an accounting of the funds collected through the Central Billing Program. At the April 3, 2003 hearing, the Debtors disclosed that the unremitted Net Pre-Termination Collections were commingled with their operating funds and used to fund their operations. The Debtors, however, promised that all Post- Termination Collections would be segregated, held for Sara Lee's benefit and remitted to Sara Lee in accordance with the parties' prior course of dealing. On several occasions, Sara Lee requested an accounting and confirmation that the Debtors were segregating the unremitted funds. The Debtors failed or refused to respond to its requests. Mr. Finger contends that the Debtors' acts have placed Sara Lee at a substantial and unjustified risk. As a direct and proximate result, Sara Lee has suffered damages in an undetermined amount equal to the amount of the unremitted Net Pre-Termination Collections, plus the amount of the unremitted Post-Termination Collections. Sara Lee anticipates that the Debtors may argue that the Net Pre- Termination Collections are no longer Sara Lee's property because Sara Lee cannot trace the funds' whereabouts. But Mr. Finger points out that the Debtors can trace the whereabouts of all of the Net Pre-Termination Collections through their cash management system. Mr. Finger warns the Court that Sara Lee will continue to suffer substantial, immediate and irreparable injury if the Debtors are not immediately restrained and enjoined from using, transferring, spending, taking possession of or otherwise diminishing in any manner its property. Sara Lee suggests that the Court issue a temporary restraining order, a preliminary injunction, and a permanent injunction requiring the Debtors to: (i) segregate unremitted Post-Termination Collections as of April 1, 2003 as well as all future Post-Termination Collections; (ii) account for all unremitted Collections; (iii) remit the Collections to Sara Lee; and (iv) confirm that they have ceased all activities with regard to amounts due to Sara Lee on the current sales to its customers. Sara Lee also wants the Debtors to account for the funds collected from February 1, 2003 through the present. (Fleming Bankruptcy News, Issue No. 11; Bankruptcy Creditors' Service, Inc., 609/392-0900) FOAMEX INT'L: Closes $320 Million Bank Debt Refinancing Deal ------------------------------------------------------------ Foamex International Inc. (NASDAQ: FMXI), the leading manufacturer of flexible polyurethane and advanced polymer foam products in North America, announced that Foamex L.P. has closed a comprehensive refinancing of its bank debt. The refinancing includes a new $240 million asset-based credit facility and an $80 million secured term loan. The new facilities will be used to replace Foamex L.P.'s existing $262 million credit facility and provide increased availability to fund operations. The refinancing extends approximately $190 million of debt payments, which would have been due at various times between 2004 and 2006, into 2007. In addition, the new loans will result in increased financial flexibility and liquidity for the Company. Foamex noted that the closing of the refinancing was delayed until today due to the power outage in the North East. The new credit facility matures in April 2007, and includes a $190 million revolver commitment and $50 million term loan. The new facility was primarily arranged and syndicated by Bank of America, N.A. Silver Point Finance, LLC provided the separate $80 million secured term loan, which also matures in April 2007. "This refinancing significantly strengthens our financial position. It provides a major reduction in debt maturities over the next three years and gives us substantially increased financial flexibility and liquidity," said Thomas Chorman, President and Chief Executive Officer of Foamex. "We are pleased to have the support and confidence of the financial institutions that are providing these facilities." As a result of the refinancing, the Company will recognize a non- cash charge of approximately $13 million in the 2003 third quarter for the write-off of debt issuance cost associated with the replaced bank facilities. Foamex -- whose June 29, 2003 balance sheet shows a total shareholders' equity deficit of about $190 million -- headquartered in Linwood, PA, is the world's leading producer of comfort cushioning for bedding, furniture, carpet cushion and automotive markets. The Company also manufactures high-performance polymers for diverse applications in the industrial, aerospace, defense, electronics and computer industries as well as filtration and acoustical applications for the home. For more information visit the Foamex Web site at http://www.foamex.com GARDENBURGER: Management-Led Pattico Offers to Buy All Shares ------------------------------------------------------------- Gardenburger, Inc. (OTC Bulletin Board: GBUR) has received an offer from Pattico, Inc., an entity recently formed by Gardenburger's Chairman, President and Chief Executive Officer, Scott C. Wallace, and certain other members of its management, to purchase all the outstanding shares of Gardenburger's common stock for $0.50 per share in cash in a going-private transaction. A Special Committee of independent directors appointed by Gardenburger's Board of Directors to consider strategic alternatives available to the company will determine whether to disapprove the proposal or approve it and recommend it to the Board for approval. The Committee is comprised of Charles E. Bergeron, Ronald C. Kesselman, Richard L. Mazer and Paul F. Wenner. The Committee is being advised by the company's financial advisor, U.S. Bancorp Piper Jaffray. In addition, the Committee has retained a separate independent valuation firm, Willamette Management Associates, Inc., to provide its opinion as to the fairness of the transaction to Gardenburger's common shareholders. The proposal initially received by the company from management included an offer price of $0.40 per common share. Following deliberations by the Committee and negotiations between the company's financial advisor and Scott Wallace, management agreed to increase the offer price to $0.50 per common share. In consideration of this increase, the Committee agreed in late July to a period during which it would pursue exclusive negotiations regarding the terms of a definitive agreement with Pattico, Inc. The proposal requires the consent of the holders of a majority of Gardenburger's outstanding preferred shares and the holder of its convertible senior subordinated debt. In order to enable the Committee to conduct discussions with the company's major investors regarding the terms of their participation in the transaction, the company has, with the consent of its preferred shareholders and the holder of its convertible senior subordinated debt, amended Gardenburger's shareholder rights plan such that the proposal and the transactions contemplated by the proposal will not cause these investors to become "acquiring persons" under the shareholder rights plan. If a person becomes an acquiring person under the shareholder rights plan, a right previously attached to each share of common stock, other than those held by the acquiring person, generally permits the purchase for $47.00 of shares of common stock with a market value twice that amount, causing substantial dilution to each acquiring person and any shareholder who does not exercise its rights. The proposal contemplates a merger of Pattico, Inc. with and into Gardenburger, Inc., with Gardenburger, Inc. remaining as the surviving corporation. As proposed, if the merger is consummated, each outstanding share of common stock of Gardenburger, Inc. would be converted into the right to receive $0.50, subject to applicable law, and the outstanding preferred stock and convertible senior subordinated debt would be exchanged for shares of a new series of Gardenburger's preferred stock. The proposed transaction would be subject to certain other conditions, including the approval and adoption of the related agreement and plan of merger at a special meeting of shareholders by the affirmative vote of (i) the holders of a majority of Gardenburger, Inc.'s common stock and (ii) the holders of a majority of Gardenburger, Inc.'s Series C Preferred Stock and Series D Preferred Stock. In addition, the Committee has advised Pattico, Inc., that it expects committed financing to be obtained on acceptable terms before a definitive merger agreement is executed. Pattico, Inc., has received a preliminary expression of interest from a lender in providing financing for a management buyout transaction; the lender is presently conducting due diligence. There is no assurance that Pattico's proposal will be approved by the Committee, that a definitive merger agreement will be executed, or that the merger transaction will be consummated. A TRANSACTION CONTEMPLATED BY THE PATTICO PROPOSAL MAY ONLY BE COMPLETED IN ACCORDANCE WITH APPLICABLE STATE AND FEDERAL LAWS, INCLUDING THE SECURITIES ACT OF 1933, AS AMENDED, AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. Founded in 1985 by GardenChef Paul Wenner(TM), Gardenburger, Inc. -- whose June 30, 2003 balance sheet shows a net capital deficit of about $52 million -- is an innovator in meatless, low-fat food products. The Company distributes its flagship Gardenburger(R) veggie patty to more than 30,000 food service outlets throughout the United States and Canada. Retail customers include more than 24,000 grocery, natural food and club stores. Based in Portland, Ore., the Company currently employs approximately 175 people. GATEWAY INC: Promotes Steve Phillips to Chief Info. Officer ----------------------------------------------------------- Gateway, Inc., has promoted Steve Phillips, a four-year company veteran, to serve as the company's Chief Information Officer. Mr. Phillips, age 40, will take on the title of Senior Vice President and be responsible for defining and delivering Gateway's IT strategy. He succeeds Will Headapohl, who will continue to contribute to strategic initiatives related to Gateway's transformation from a PC maker to a branded integrator of personalized technology. Mr. Phillips joined the company in 1999 in Dublin and moved in 2001 to the U.S. headquarters where he currently serves as Vice President, IT. Prior to Gateway, he spent three years at Diageo, an international food and drinks group, where he ran IT for its European food business, and previously spent eight years in a variety of roles at Thorn EMI, a UK defense-electronics company. He has a BSc. (Hons.) degree in electronic engineering from Essex University, and is a Fellow of the Institution of Electrical Engineers. Mr. Headapohl, age 48, came to Gateway as Senior Vice President and CIO two years ago, after serving as an executive vice president of CNET and as chief operating officer of Beyond.com. Since its founding in 1985, Gateway (NYSE: GTW) (S&P, B+ Corporate Credit Rating, Stable) has been a technology and direct-marketing pioneer, using its call centers, web site and retail network to build direct customer relationships. As it transforms itself from being a leading PC company into a branded integrator of personalized technology solutions, the company's line of Gateway- branded products is expanding to include digital TVs, DLP projectors, tablet PCs and systems and networking products and services. Gateway is America's second most admired computer company, according to Fortune magazine, and its products and services received more than 125 awards and honors last year. For more information, visit http://www.gateway.com GENERAL MEDIA: Wants to Continue Hiring Ordinary Course Profs. -------------------------------------------------------------- General Media, Inc., and its debtor-affiliates ask for permission from the U.S. Bankruptcy Court for the Southern District of New York to continue employing the professionals they utilize in the ordinary course of their businesses. The Debtors also ask for authority to pay these Ordinary Course Professionals 100% of their fees and disbursements incurred. These payments would be made following the submission of appropriate invoices setting forth in reasonable detail the nature of the services rendered and disbursements actually incurred. The Debtors agree to cap payments to Ordinary Course Professionals at $10,000 per month. It is essential that the employment of the Ordinary Course Professionals, many of whom are already familiar with the Debtors' affairs, be continued on an ongoing basis in order to avoid disruption of the Debtors' business operations. The Debtors submit that the proposed employment of the Ordinary Course Professionals and the payment of monthly compensation are in the best interest of their estates and their creditors. This will save the estates the substantial expenses associated with applying separately for the employment of each professional. The continued employment of the Ordinary Course Professionals will avoid the incurrence of additional fees pertaining to preparing and prosecuting interim fee applications and will relieve the Court and the United States Trustee of the burden of reviewing numerous fee applications involving relatively small amounts of fees and expenses. General Media Inc., headquartered in New York, New York, is a subsidiary of Penthouse International, Inc., publishes Penthouse magazine and other publications and is engaged in other diversified media and entertainment businesses. The Company filed for chapter 11 protection on August 12, 2003 (Bankr. S.D.N.Y. Case No. 03-15078). Robert Joel Feinstein, Esq., at Pachulski, Stang, Ziehl, Young, Jones & Weintraub P.C., represents the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed estimated debts and assets of over $50 million each. GENTEK INC: Court Approves Canadian Claims Objection Procedures --------------------------------------------------------------- Noma Company obtained the Court's approval of a proposed set of procedures for prosecuting objections to claims in the Canadian Proceeding, which are standard claims objection procedures under the Companies' Creditors Arrangement Act. The Court-approved Procedures contain these key provisions: (a) Noma will appoint a Claims Officer who will serve in a similar capacity as an arbitrator for resolving claims objections; (b) The Claims Officer will determine the manner, in which evidence may be brought before him as well as any procedural matters which may arise in respect of his or her determination of a Canadian Claim's value. The Claims Officer will have the discretion to determine who will bear the costs of any; (c) In order to object to a claim, Noma must give a creditor a Notice of Disallowance of that claim setting forth the Claim amount, Noma's proposed allowed amount, and the reason for disallowance; (d) Any creditor who intends to dispute a Notice of Disallowance will, within seven calendar days of the date of the notice, notify Noma in writing of its intention by delivery of a Notice of Dispute to Noma, Noma's Claims and Noticing Agent, and the Claims Officer, and will apply to have the value of its Canadian Claim determined by the Claims Officer; (e) A creditor who receives a Notice of Disallowance and fails to apply to the Claims Officer for a determination of the value of its Canadian Claim, including distributions under the Plan, will be deemed to be the accepted amount as set out in the Notice of Disallowance; (f) The Claims Officer may schedule a hearing no later than 14 days from the date of the delivery of the Notice of Dispute. If after the hearing, the parties have not resolved their dispute, the Claims Officer will make a ruling on the value of the Canadian Claim for all purposes, including distributions under the Plan; and (g) Either the creditor or Noma, within seven days of notification of the Claims Officer's determination of the value of a Canadian Claim, may file a motion appealing the determination to the Canadian Court. The appeal will be made returnable within 10 days of the filing of the motion. If no motion is filed, the determination of the Claims Officer will be final and binding upon Noma and the creditor. (GenTek Bankruptcy News, Issue No. 18; Bankruptcy Creditors' Service, Inc., 609/392-0900) GLOBAL CROSSING: Launches Innovative Voice Services Portfolio ------------------------------------------------------------- Global Crossing, a leader in providing innovative voice and data solutions for carriers and enterprises worldwide, announced a groundbreaking voice services portfolio that delivers unsurpassed network performance and superior customer support. The voice services offering, the first of its kind within the telecommunications industry, consists of voice services SLAs, loyalty incentives and an unmatched satisfaction guarantee. "Over the past 18 months, Global Crossing has overhauled its systems, operations and procedures to create a vastly superior operating infrastructure," said Global Crossing CEO John Legere. "To reflect our confidence in the world's first global MPLS-based IP network, our leading voice and data solutions are now backed by outstanding customer service that goes beyond purely price-based offerings." The voice SLAs, which apply to Global Crossing's dedicated retail voice services globally, guarantee service availability carried along Global Crossing's network. In addition, they include local access circuits -- also an industry first. These voice SLAs support three key areas: end-to-end network availability of 99.9 percent, guaranteed time of installation, and mean time to restore. Global Crossing's satisfaction guarantee applies to most voice and data products and network services. Customers can exit contracts if performance, based on service level agreements or customer service metrics, falters. Global Crossing's voice and data services portfolio is built around a streamlined global service delivery model that offers customers prompt procurement and provisioning. Premier dedicated customer service is provided from state-of-the-art network operations centers and call centers worldwide on a 24-hour basis, seven days a week. With the addition of uCommand(R), Global Crossing's secure, private Web-based network management tool, customers can monitor their voice services, create utilization reports, reroute traffic, order new services, create and track trouble tickets and perform online bill payment. The voice services portfolio addresses increasingly demanding applications such as those used by customer service and support call centers, healthcare agencies, and financial institutions -- business segments that have low tolerance for service downtime. "Global Crossing is committed to developing offers using enhanced customer service models that are targeted to the needs of specific business segments to provide a superior customer experience," said senior vice president of offer and product management, Anthony Christie. "An example of that commitment is Service Surround, a customer service model uniquely tailored to the financial community. Service Surround is the first step of a renewed focus on customer and segment specific offers from Global Crossing that are built around the three key ingredients: technology, service and value." Service Surround, the first of several segment-tailored service models, is implemented by a global dedicated account team, which serves as the single point of contact for network operations, requirements, escalation and coordination. The program's standard features include customer consultations, invoice reconciliation, and trouble ticket updates and progress, including MTTR measurements, root cause analysis and corrective action reports. The loyalty voucher program offers customers who have remained with Global Crossing over a 12-month period eligibility for a voucher to spend on new services. Voucher amounts vary depending on service contracts. Global Crossing is a worldwide leader in carrier and commercial voice products that include switched and dedicated outbound and inbound voice services for domestic and international long- distance traffic, toll-free enhanced routing services, calling cards, and commercial managed voice services. Global Crossing carries more than four billion minutes per month over a global voice network. Voice traffic is routed over Global Crossing's fiber-optic network utilizing an iVoIP packet-based and Time Division Multiplexing platform. Global Crossing provides telecommunications solutions over the world's first integrated global IP-based network, which reaches 27 countries and more than 200 major cities around the globe. Global Crossing serves many of the world's largest corporations, providing a full range of managed data and voice products and services. On January 28, 2002, Global Crossing Ltd. and certain of its subsidiaries (excluding Asia Global Crossing and its subsidiaries) commenced Chapter 11 cases in the United States Bankruptcy Court for the Southern District of New York (Bankruptcy Court) and coordinated proceedings in the Supreme Court of Bermuda (Bermuda Court). On the same date, the Bermuda Court granted an order appointing joint provisional liquidators with the power to oversee the continuation and reorganization of the Bermuda-incorporated companies' businesses under the control of their boards of directors and under the supervision of the Bankruptcy Court and the Bermuda Court. Additional Global Crossing subsidiaries commenced Chapter 11 cases on April 23, August 4 and August 30, 2002, with the Bermuda incorporated subsidiaries filing coordinated insolvency proceedings in the Bermuda Court. The administration of all the cases filed subsequent to Global Crossing's initial filing on January 28, 2002 has been consolidated with that of the cases commenced on January 28, 2002. Global Crossing's Plan of Reorganization, which was confirmed by the Bankruptcy Court on December 26, 2002, does not include a capital structure in which existing common or preferred equity will retain any value. On November 18, 2002, Asia Global Crossing Ltd., a majority-owned subsidiary of Global Crossing, and its subsidiary, Asia Global Crossing Development Co., commenced Chapter 11 cases in the United States Bankruptcy Court for the Southern District of New York and coordinated proceedings in the Supreme Court of Bermuda, both of which are separate from the cases of Global Crossing. Asia Global Crossing has announced that no recovery is expected for Asia Global Crossing's shareholders. Asia Netcom, a company organized by China Netcom Corporation (Hong Kong) on behalf of a consortium of investors, has acquired substantially all of Asia Global Crossing's operating subsidiaries except Pacific Crossing Ltd., a majority-owned subsidiary of Asia Global Crossing that filed separate bankruptcy proceedings on July 19, 2002. Global Crossing no longer has control of or effective ownership in any of the assets formerly operated by Asia Global Crossing. Visit http://www.globalcrossing.comfor more information about Global Crossing. GMX RESOURCES: Bank Lender Agrees to Forbear Until August 31 ------------------------------------------------------------ GMX RESOURCES INC. (Nasdaq: GMXR; Warrants: GMXRW) -- http://www.GMXRESOURCES.com-- announced the Company's results for the second quarter and six month period ended June 30, 2003. "Our second quarter results reflect a 192% gain in net income to $264,777 compared to $90,783 for the second quarter of 2002. This was primarily due to a reduction in expenses," stated Ken L. Kenworthy, Jr., President and CEO of GMX. "Our six months net income results also increased 106% to $384,393 from $186,901 for the first six months of 2002. The Company continues to reduce its costs and improve the production from some of its existing wells." Ken L. Kenworthy, Executive Vice President and CFO stated, "The Company continues to explore funding for working capital and drilling funds. The Company has a forbearance agreement with its present bank lender until August 31, 2003. We are making monthly principal and interest payments and do not expect the bank to take any enforcement action. As of July 31, the balance of the outstanding bank debt was $7.389 million. We are meeting current expense obligations, but still have past due accounts payable of approximately $1.4 million to resolve, down from $1.8 million at March 31, 2003." Revenues for the second quarter were $1,585,952 compared to $1,667,364 in the second quarter 2002, a decrease of 5%. While product prices were higher, revenue decreased due to the September 2002 sale of our Kansas properties. Net income was $264,777 for the quarter versus $90,783 in the second quarter of 2002, an increase of 192%. Basic earnings per share increased to $.04 from earnings in the second quarter of $.01. For the purposes of computing basic earnings per share for 2003, the Company had 6,550,000 weighted average common shares outstanding. Lease operations expense increased in the second quarter 2003 to $255,464 from $248,208 in the same period 2002, a 3% increase due to several wells being reworked. The workover costs were mitigated by the effects of the sale of Kansas properties. Total expenses decreased 15% in the second quarter 2003 to $1,321,175 down from $1,560,581 in the second quarter of 2002. The decrease is primarily due to reduction in general and administrative expenses and reduced depreciation, depletion and amortization because of the decrease in production related to the sale of the Kansas properties in the third quarter 2002. Revenues for the six months were $3,023,123 compared to $3,382,735 for the same six months in 2002, a decrease of 10%. This was primarily due to a decrease in 2003 production after the sale of the Company's Kansas properties in the third quarter of 2002. Earnings were $384,393 for the six months versus $186,901 for the same period in 2002, an increase of 106%. Basic earnings per share increased to 6 cents from earnings in the previous six months period of 3 cents. For the purpose of computing basic earnings per share for the first six months of 2003, the Company had 6,550,000 weighted average common shares outstanding. Lease operations expense decreased in the first six months of 2003 to $460,301, down from $570,543 in the same period 2002, a 19% decrease primarily due to the sale of the Company's Kansas properties in the third quarter of 2002. Total expenses decreased 18% in the first six months of 2003 to $2,586,896 down from $3,162,834 in the same period of 2002. This decrease is primarily due to reduction in general and administrative expenses and expenses related to the decrease in production related to the Kansas properties sold in the third quarter 2002. GMX Resources Inc.'s June 30, 2003 balance sheet shows that its total current liabilities exceeded its total current assets by about $8 million. GMX RESOURCES INC. is an independent exploration and production company headquartered in Oklahoma City, Oklahoma. GMX has 58 producing wells in New Mexico, Texas and Louisiana, 63 proven undeveloped wells and several hundred other development drilling locations in 17,000 acres on the Sabine Uplift of East Texas. The Company's strategy is to significantly increase production, revenue and reinvest in drilling. GMX's goal is to build shareholder value. GREAT LAKES AVIATION: Auditors Express Going Concern Uncertainty ---------------------------------------------------------------- Great Lakes Aviation Ltd. operates as an independent airline and as a code-sharing partner with United Air Lines, Inc., and Frontier Airlines, Inc. At August 1, 2003, the Company served 37 destinations in 11 states to and from Denver and two destinations in two states to and from Phoenix as a code-sharing partner with both United and Frontier. The Company also served four destinations in two states to and from Minneapolis. On February 28, 2003, the Company discontinued all operations at its Chicago O'Hare hub along with corresponding service to the subsidized communities of Manistee, Ironwood and Iron Mountain, Michigan and Oshkosh, Wisconsin after the United States Department of Transportation elected to select a carrier to provide EAS to a different hub for all points except Oshkosh. At Oshkosh the community's eligibility for subsidy was terminated. In April 2003, the Company began negotiations with United to modify and extend the existing code share agreement beyond its current expiration date of April 30, 2004. During the negotiation process, United filed a preemptive motion in the bankruptcy court to reject the code share agreement. On July 11, 2003 the Company and United signed a Memorandum of Understanding outlining the terms of the proposed amendment to the code share agreement. On July 18, 2003, United withdrew its bankruptcy court motion to reject the code share agreement. Also effective on that date, the Company and United amended their code share agreement, formalizing the terms under which the two companies will operate in the future. Pursuant to the amendment to the code share agreement, the Company granted United rights to enter five Denver hub markets for which the Company previously had exclusivity rights. In exchange for releasing exclusivity with respect to those markets, previous restrictions placed on the Company regarding code sharing and frequent flier program participation at the Denver hub with other major carriers was removed. The Company and United also agreed on a payment structure for amounts the Company owes United. Subject to the Company's compliance with the code share agreement, as amended, as of December 31, 2005, United has agreed to extend the term of the code share agreement through April 30, 2007. United may elect to assume or reject the amended code share agreement in connection with its ongoing bankruptcy proceedings. Due to significant losses in 2001 and 2002, at December 31, 2002, the Company had exhausted its outside sources of working capital and funds and was in arrears in payments to all the institutions providing leases or debt financing for the Company's aircraft. On December 31, 2002 and during the first four months of 2003, the Company restructured its financing agreements with Raytheon Aircraft Credit Corporation and certain other institutions providing financing for the Company's aircraft. The effect of these restructurings was to reduce the Company's total debt and lease obligations owing to these creditors and to reduce the amount of the Company's scheduled monthly debt and lease payments. The restructuring with Raytheon also provided for the return of seven surplus aircraft not used in current operations to Raytheon during the course of 2003. During 2003, the Company, due to the effects of reduced traffic and correspondingly reduced revenue during the Iraq War, has been unable to generate sufficient cash flow to service the Company's restructured debt and lease payment obligations as required by the Raytheon and other restructuring agreements. As of June 30, 2003 the Company was approximately $4.9 million, or 75%, in arrears in respect of such rescheduled payments for the six months ending June 30, 2003 and in default on substantially all of the Company's agreements with the institutions providing financing for the Company's aircraft. There are significant uncertainties regarding the Company's ability to achieve the necessary cash flow to meet the payments required under the Raytheon and other restructuring agreements due to a variety of factors beyond the Company's control, including the outcome of United's reorganization in bankruptcy, the evolution of United's continuing code share relationship with the Company; reduced passenger demand as a result of general economic conditions, public health concerns, security concerns and foreign conflicts; volatility of fuel prices; and the amount of Essential Air Service funding and financial support available from the U.S. government. Ultimately, the Company must generate sufficient revenue and cash flow to meet the Company's obligations as currently structured, obtain additional outside financing or renegotiate the Company's restructured agreements with its creditors in order to set a level of payments that can be reasonably serviced with the cash flows generated by the Company under current market conditions. The Company is engaged in on-going negotiations with Raytheon and its other creditors with respect to its default under the terms of its debt and lease agreements with these institutions. The Company's auditors have included in their report dated March 17, 2003 on the Company's financial statements for the year ended December 31, 2002 an explanatory paragraph to the effect that substantial doubt exists regarding the Company's ability to continue as a going concern due to the Company's recurring losses from operations and the fact that the Company has liabilities in excess of assets at December 31, 2002. GS MORTGAGE: Fitch Takes Rating Actions on Series 1998-C1 Notes --------------------------------------------------------------- Fitch Ratings upgrades GS Mortgage Securities Corp. II's commercial mortgage pass-through certificates, series 1998-C1, as follows: -- $102.4 million class B to 'AAA' from 'AA'; -- $102.4 million class C to 'A+' from 'A'. Fitch also downgrades $55.8 million class H to 'CCC' from 'B'. In addition, Fitch affirms the following classes: -- $89.7 million class A-1 'AAA'; -- $436 million class A-2 'AAA'; -- $562.9 million class A-3 'AAA'; -- Interest-only class X 'AAA'; -- $107 million class D 'BBB'; -- $32.6 million class E 'BBB-'; -- $23.3 million class G 'BB'; -- $23.3 million class J 'CCC'. Fitch does not rate classes F and K. The upgrades to classes B and C reflect increases in subordination levels due to loan amortization and payoffs. The downgrade to class H is attributed to the anticipated losses on several specially serviced loans, which would significantly reduce the credit support available to class H. Currently, fifteen loans (5.2%) are specially serviced by GMAC Commercial Mortgage Corp. Fitch expects eleven specially serviced loans (4%) to result in approximately $30 million of losses. The largest loan in special servicing is secured by an outlet mall located in Bristol, WI. The loan was transferred to special servicing due to vacancy issues. The outstanding balance is $20 million, approximately 1.2% of the pool. The second largest loan in special servicing is Sequoia Plaza (0.8%), which is secured by a retail center located in Visalia, CA. The property is 64% occupied and GMAC is pursuing foreclosure. As of the July 2003 distribution date, the aggregate collateral balance has been reduced by 12% to $1.64 billion from $1.86 billion at issuance. To date, the transaction has realized losses in the amount of $16.7 million. GMAC, the master servicer, collected year-end 2002 financials for 77% of the pool balance. According to this information, the YE 2002 weighted average debt service coverage ratio (DSCR) is 1.60 times, compared to an issuance DSCR of 1.49x for the same loans. Fitch reviewed the credit assessments of the Americold loan (8.3%) and the Four Winds Portfolio (1.8%). The DSCR for each loan is calculated using servicer provided net operating income less required reserves divided by debt service payments based on the current balance using a Fitch stressed refinance constant. The Americold loan is secured by 28 cold-storage warehouses totaling 6.2 million square feet and 1.4% of the loan is defeased. The DSCR for the YE 2002 is 1.58x, compared to 1.71x for YE 2001. Based on the declining performance of Americold loan the credit assessment was lowered, but remains investment grade. The Four Winds Portfolio is comprised of two cross-collateralized and cross-defaulted loans on two psychiatric facilities totaling 263 beds: one is in Katonah, New York (175 beds) and the other is in Saratoga Springs, New York (88 beds). The YE 2002 DSCR for the portfolio is 1.69x, compared to 1.31x for YE 2001. As of June 2003, the occupancy for both facilities was approximately 92%. Although the performance of this loan has improved, the loan maintains a below investment-grade credit assessment. Fitch applied various hypothetical stress scenarios taking into consideration all of the above concerns. Under these stress scenarios required subordination levels justify the upgrades to the senior classes and the downgrade to the junior class. Fitch will continue to monitor this transaction, as surveillance is ongoing. HORSEHEAD IND.: Pursuing Negotiations on Proposed Asset Sale ------------------------------------------------------------ Horsehead Industries, Inc., is moving forward in the sale of its assets, continuing to improve the efficiency of its operations and expects to generate additional cash in the next 30 days through the disposition of noncore assets and other actions. "We have had intensive discussions and negotiations with several interested acquirers and are confident that we will reach a successful conclusion to the sale process over the next 30 to 45 days," stated Chairman and CEO Dave Carpenter. "We have had the support of our banks and constituents throughout and they remain actively involved in the process of completing the sale." Horsehead has made exceptional improvements over the past year, including the conversion of its operations to 100% recycled raw material sources - the first and only major smelter in the world to achieve this position. The company has grown its market leading Electric Arc Furnace Dust recycling business and continued to meet all the needs of its zinc metal, zinc oxide, metal powders and zinc dust customers. Furthermore, the company continues to work to improve its cash flow with numerous cost savings initiatives and more efficient operations. Horsehead has also achieved a number of other milestones, including: an agreement to sell its Palmer Water Company subsidiary, a letter of intent for an energy services agreement for its 110 megawatt power plant, an agreement to sell its Balmat mine, and the completion of a negotiated insurance settlement. "We have been able to actually improve the value of our major operating assets, and stabilize our cash flow, despite the high cost and difficulties of being in bankruptcy and low zinc prices. The company was able to achieve this because of our excellent and dedicated people. We are extremely proud of this accomplishment," said President Jim Carpenter. Horsehead is the largest zinc producer in the United States and the world's largest recycler of zinc bearing materials, including the steel industry's. The company annually produces over 165,000 tons of zinc products and recycles more than 450,000 tons of EAF Dust. Horsehead operates primarily under its Zinc Corporation of America and Horsehead Resource Development brands employing over 1000 people in seven states. INTEREP: Nasdaq Yanks Shares Off SmallCap Market Effective Mon. --------------------------------------------------------------- NASDAQ Listing Qualifications Panel delisted Interep's (Nasdaq: IREP) common stock from the Nasdaq SmallCap Market at the opening of business on August 18, 2003. The Company's securities were immediately eligible for quotation on the OTC bulletin board with the opening of business on the same delisting day. The OTC bulletin board symbol assigned to the Company was "IREP". On April 10, 2003, Interep received notice from the NASDAQ Stock Market, Inc. stating that the NASDAQ staff has determined that the Company does not meet NASDAQ's alternative stockholders' equity, market capitalization or net income requirements for continued listing, as set forth in Marketplace Rule 4310(C)(2)(B). On June 4, 2003, the Company requested a hearing, which stayed the delisting. At the hearing, the Company asked the NASDAQ Listing Qualifications Panel to consider certain reasons for the Company to remain listed. However, the Panel decided to delist the company as this time. "While we are disappointed that the Panel has decided to delist us, we believe that the move to list our shares on the OTC bulletin board will not affect the overall value of our stock holdings, or our market growth," said Ralph Guild, Chairman and CEO of Interep. "We will continue to grow our business and meet with new and existing investors to increase our shareholder value." Interep is the nation's largest independent advertising sales and marketing company specializing in radio, the Internet and complementary media, with offices in 16 cities. Interep is the parent company of ABC Radio Sales, Allied Radio Partners, Cumulus Radio Sales, D&R Radio, Infinity Radio Sales, McGavren Guild Radio, MG/Susquehanna, SBS/Interep, as well as Interep Interactive, the company's interactive representation and web publishing division specializing in the sales and marketing of on- line advertising, including streaming media. Interep Interactive includes Winstar Interactive, Cybereps and Perfect Circle Media. In addition, Interep provides a variety of support services, including: consumer and media research, sales and management training, promotional programs and unwired radio "networks." Clients also benefit from Interep's new business development team, the Interep Marketing Group. For more information, visit the company's Web site at http://www.interep.com Interep National Radio Sales' March 31, 2003 balance sheet shows a total shareholders' equity deficit of about $10.5 million. ISTAR FINANCIAL: Board Declares Preferred Share Dividends --------------------------------------------------------- iStar Financial Inc.'s (NYSE: SFI) Board of Directors has declared dividends on the Company's Series B, Series C, Series D and Series E preferred stock. For all four series of preferred stock, dividends are payable on September 15, 2003 to holders of record on September 1, 2003. A dividend of $0.585938 per share will be paid on the 9.375% Series B preferred stock, a dividend of $0.575 per share will be paid on the 9.20% Series C preferred stock, a dividend of $0.50 per share will be paid on the 8.00% Series D preferred stock and a dividend of $0.322656 per share (prorated from July 18, 2003 to September 15, 2003) will be paid on the 7-7/8% Series E preferred stock. iStar Financial is the leading publicly traded finance company focused on the commercial real estate industry. The Company provides custom-tailored financing to high-end private and corporate owners of real estate nationwide, including senior and junior mortgage debt, senior, mezzanine and subordinated corporate capital, and corporate net lease financing. The Company, which is taxed as a real estate investment trust, seeks to deliver a strong dividend and superior risk-adjusted returns on equity to shareholders by providing innovative and value-added financing solutions to its customers. Additional information on iStar Financial is available on the Company's Web site at http://www.istarfinancial.com As previously reported, Fitch Ratings assigned a 'BB' rating to iStar Financial Inc.'s 7-7/8% series E cumulative redeemable preferred stock. The securities rank pari passu with iStar's existing series A, B, C and D cumulative redeemable preferred stock. iStar's senior unsecured debt rating and Rating Outlook is 'BBB-' and Stable, respectively. IT GROUP: Has Until October 10 to Move Actions to Delaware Court ---------------------------------------------------------------- The IT Group, Inc., and its debtor-affiliates has obtained an extension of its Removal Period. The U.S. Bankruptcy Court for the District of Delaware further extended to remove pending actions through the earlier of: (a) October 10, 2003; or (b) 30 days after the entry of any particular action sought to be removed. (IT Group Bankruptcy News, Issue No. 32; Bankruptcy Creditors' Service, Inc., 609/392-0900) J. CREW GROUP: Will Publish Second Quarter Results on Friday ------------------------------------------------------------ J.Crew Group, Inc. will release second quarter financial results for the period ended August 2, 2003 on Friday, August 22, 2003. The Company will hold a conference call and simultaneous webcast to discuss second quarter financial results on Friday, August 22, 2003 at 11 a.m. Eastern Time. To access the Company's earnings release on August 22, 2003, please visit http://www.jcrew.comand click on "Help" and "Investor Relations." To access the webcast of the conference call on August 22, 2003, please visit http://www.jcrew.com(click on "Help" and "Investor Relations") or http://www.companyboardroom.com A replay of the conference call will be available through August 29, 2003 at (888) 286-8010, reference #14561916. A replay of the webcast will also be archived at http://www.jcrew.comand http://www.companyboardroom.com J.Crew Group, Inc., whose May 3, 2003 balance sheet shows a total shareholders' equity deficit of about $421 million, is a leading retailer of men's and women's apparel, shoes and accessories. As of May 31, 2003, the Company operated 154 retail stores, the J.Crew catalog business, jcrew.com, and 42 factory outlet stores. JACUZZI BRANDS: Fitch Withdraws B Rating on Redeemed Notes ---------------------------------------------------------- Fitch Ratings has withdrawn the 'B' rating on Jacuzzi Brands, Inc.'s $133 million 11.25% senior secured notes due 2005, $70 million 7.25% senior secured notes due 2006, and $377 million senior secured bank facilities due 2004. These issues have been fully repaid with proceeds from Jacuzzi Brands' new debt financing completed on July 15, 2003. The new debt of Jacuzzi Brands was assigned ratings by Fitch as follows: -- $200 million asset based bank credit facility maturing in 2008 'BB'; -- $65 million term loan due 2008 'BB-'; -- $380 million 9.625% senior secured notes due 2010 'B'; Rating outlook is Stable. JARDEN CORP: S&P Rates $215 Million Term Loan B Assigned at B+ -------------------------------------------------------------- Standard & Poor's Ratings Services assigned its 'B+' rating to branded consumer products manufacturer and distributor Jarden Corp.'s proposed $215 million term loan B due 2008. The bank loan is rated the same as the corporate credit rating because in a stressed scenario, Standard & Poor's believes that senior lenders could expect meaningful but less than full recovery of principal. At the same time, Standard & Poor's affirmed its 'B+' long-term corporate credit and senior secured debt ratings, and its 'B-' subordinated debt rating on the company. The outlook is stable. On June 30, 2003, Jarden had $254.3 million in total debt outstanding. "The ratings on Jarden reflect a highly competitive and challenging operating environment in housewares, limited growth potential in several of the firm's product lines, a product portfolio with little brand equity, an acquisition orientation, and high debt leverage," said Standard & Poor's credit analyst Martin Kounitz. "These concerns are somewhat mitigated by Jarden's leading position in its niche-oriented portfolio of houseware products and other businesses." Rye, New York-based Jarden markets the FoodSaver brand of home preservation appliances as well as home canning jars and supplies under the Ball name and other brands. Through its Diamond Brands business, Jarden manufactures and markets toothpicks, matches, and disposable plastic cutlery. The company is also the sole supplier of copper-plated zinc blanks to the U.S. and Canadian mints for use in making pennies, and it owns a plastics fabrication business, although neither of these businesses are material to its operating results. Standard & Poor's assigns a high degree of business risk to the housewares industry because retailers are concentrated, competition is intense, and companies can increase prices generally only by adding new features to existing products. Although the company has few competitors in the home canning business, the market is mature and seasonal. Jarden has grown mostly through acquisitions in the past two years. In April 2002, the company purchased Tilia, owner of the FoodSaver product line, for $160 million. In February 2003, the company purchased Diamond Brands for $90 million. In August 2003, Jarden announced that it had agreed to acquire Lehigh Consumer Products Corp., the largest supplier of rope and twine in the U.S., as well as a marketer of security doors and storage products, for $155 million. KASPER A.S.L.: Reports Strong Growth for Second Quarter 2003 ------------------------------------------------------------ Kasper A.S.L. Ltd. (OTC Bulletin Board: KASPQ.OB) reported financial results for the second quarter and twenty-six weeks ended June 28, 2003. Net revenue for the second quarter of 2003 increased 27.1% to $91.3 million from $71.8 million in the prior year. Net income for the second quarter of 2003 decreased to $1.5 million, or $0.22 per share on a fully diluted basis, compared to $6.0 million, or $0.88 per share, in the second quarter of 2002. Net revenue for the first half of 2003 increased 3.7% to $196.1 million from $189.1 million in the prior year. Net income for the first half of 2003 increased to $9.5 million, or $1.40 per share on a fully diluted basis, compared to a net loss of $18.8 million, or $2.76 per share, in the first half of 2002. The first half of 2002 was restated for a $30.4 million charge for a cumulative effect of a change in accounting principle. Before the charge, net income for the first half of 2002 was $11.7 million, or $1.71 per share. As more fully described in the Company's Annual Report on Form 10-K, as a result of its highly leveraged financial position, on February 5, 2002 the Company filed for reorganization under Chapter 11 of the Bankruptcy Code. Also, as more fully described in the Annual Report, beginning in the fourth quarter of 2000, the Company substantially restructured its business. As a result, the financial statements for the thirteen and twenty-six weeks ended June 28, 2003 and June 29, 2002 include reorganization costs, restructuring and other credits, reserve reversals as a result of changes in estimates and a cumulative effect of change in accounting principle (together, the "Special Charges and Credits") that make comparisons difficult. Excluding the Special Charges and Credits for the second quarter of 2003 and 2002, net revenues were $91.3 million and $62.1 million, respectively, and net income (loss) was $3.8 million and $(2.9) million, respectively, and for the first half of 2003 and 2002 net revenues were $196.1 million and $179.4 million, respectively, and net income was $12.4 million and $3.8 million, respectively. The Company believes that the Special Charges and Credits that make comparisons of fiscal 2003 to fiscal 2002 difficult are the result of expenses incurred, estimates made, and changes in estimates relating to business restructuring, the bankruptcy and related reorganization costs. The Company has completed its business restructuring and believes that after emerging from Bankruptcy such Special Charges and Credits will not be recurring. The Company believes that net revenues and net income (loss) excluding the Special Charges and Credits may not be indicative of the results of peer companies; however, the Company believes that the presentation excluding the Special Charges and Credits is representative of the Company's core net revenues and net income (loss) and uses this measure for purposes of evaluating its business operations. John D. Idol, Chairman and Chief Executive Officer, said, "Despite a difficult retail environment and excluding the Special Charges and Credits, we are pleased with the results for the second quarter and first half. We have maintained strong gross margins, have controlled expenses, and have a strong balance sheet. As of June 28, 2003, we continue to have no borrowings under our DIP financing agreement and have $13.4 million of cash on hand. "While we remain cautious about the general economic situation in the United States, our management team is focused on emerging from reorganization as a balanced and profitable multi-brand women's apparel and accessories company." As previously announced, the Company has entered into an agreement to be acquired by Jones Apparel Group, Inc. (NYSE: JNY). The bid purchase price consists of $204 million in cash and the assumption of deferred liabilities, primarily pre-paid royalties, projected to be $12.6 million at closing, for an aggregate value of $216.6 million, plus the assumption of certain other liabilities. In addition, the purchase price is subject to adjustments. The transaction has the support of the Official Creditors' Committee. Mr. Idol said, "We are pleased that the bidding process has come to a conclusion and we believe that it has enabled us to maximize the value of the company and produce the best results for our customers, suppliers, creditors and shareholders." The sale of the Company will be implemented through an amended plan of reorganization that will require, among other things, the approval of the requisite majority of the Company's creditors and confirmation by the Bankruptcy Court. The Company anticipates that the transaction will be consummated by the end of the year. Kasper A.S.L., Ltd. is a leading marketer and manufacturer of women's suits and sportswear. The Company's brands include Albert Nipon, Anne Klein, Kasper and Le Suit. These brands are sold in over 3,000 retail locations throughout the United States, Europe, the Middle East, Southeast Asia and Canada. The Company also licenses its Albert Nipon, Anne Klein, and Kasper brands for various men's and women's products. KEMPER INSURANCE: Fitch Withdraws Default & Junk Level Ratings -------------------------------------------------------------- Fitch Ratings has withdrawn the 'D' rating of the surplus notes issued by Lumbermens Mutual Casualty Company, the lead property- casualty insurance underwriter of the Kemper Insurance Companies Group. Fitch has also withdrawn the 'CC' insurer financial strength ratings of the three primary insurance underwriters of the Kemper Insurance Companies. The withdrawal of the ratings is based on Fitch's belief that given Lumbermens' suspension of interest payments on its surplus notes, and the near curtailment of underwriting activities, market interest in the ratings is now minimal. The ratings were initiated by Fitch as a service to users of Fitch ratings. The ratings were based primarily on public information. SURPLUS Note Rating -- Lumbermens Mutual Casualty Co.: Withdrawn 'D' INSURER Financial Strength Ratings -- Lumbermens Mutual Casualty Co.: Withdrawn 'CC' -- American Motorists Insurance Co.: Withdrawn 'CC' -- American Mfgs. Mutual Ins. Co.: Withdrawn 'CC' KM LOGISTICS: CEO William Findley III Charged in Fraud Scheme ------------------------------------------------------------- The CEO of a Randolph company was charged late Thursday, August 14, 2003, in federal court with mail fraud, wire fraud, and bankruptcy fraud. United States Attorney Michael J. Sullivan and Kenneth W. Kaiser, Special Agent in Charge of the Federal Bureau of Investigation in New England, announced that WILLIAM J. FINDLEY, III, age 57, of 5 Stuart Road, Rochester, Massachusetts, was charged in an information with stealing money from the escrow account of KM Logistics, Inc. which held customer funds. According to the information, FINDLEY was the Chief Executive Officer, Treasurer, Chief Financial Officer, and sole stockholder of KM Logistics, Inc., located at 83 York Avenue in Randolph, Massachusetts. The information alleges that from at least May, 1997 through November, 2001, FINDLEY, embezzled more than $1.6 million in customer funds that KM Logistics was supposed to use for shipping costs on behalf of its customers. KM Logistics was in the freight forwarding business. Thus, on behalf of its customers, KM Logistics negotiated contracts with freight carriers, selected the proper and most cost effective type of transportation, and paid customers' freight bills to the carriers. KM Logistics was entrusted with customer funds which it was obligated to use to pay for shipping costs on behalf of those customers. Instead of using customer funds for the agreed upon purpose, it is alleged that FINDLEY wrote numerous checks and instructed the wire transfer of funds out of the escrow account. It is alleged that the stolen funds were principally used by FINDLEY for stock day trading. It is alleged that FINDLEY's theft from the KM Logistics customer escrow account drove the business into bankruptcy. The information further alleges that FINDLEY appeared at a bankruptcy proceeding and testified falsely under oath regarding whether he had taken funds from the KM Logistics escrow account for personal use. If convicted on these charges, FINDLEY faces up to 5 years' imprisonment, to be followed by 3 years of supervised release, and a $250,000 fine. The case was investigated by Special Agents of the Federal Bureau of Investigation. It is being prosecuted by Assistant U.S. Attorney Diane C. Freniere in Sullivan's Economic Crimes Unit. LE NATURE: S&P Affirms B+/B- Corporate Credit and Debt Ratings -------------------------------------------------------------- Standard & Poor's Ratings Services affirmed its 'B+' corporate credit and senior secured debt ratings and its 'B-' subordinated debt rating on non-carbonated alternative beverage manufacturer Le Nature's Inc. All ratings have been removed from CreditWatch where they were placed June 18, 2003, following the company's disclosure that it was in a commercial dispute over a contract with one of its key bottle suppliers. The outlook is stable. Latrobe, Pennsylvania-based Le Nature's had about $171 million of total debt and about $20 million of preferred stock at the closing of its recent refinancing transaction. "The ratings affirmation follows Le Nature's successful resolution of the commercial dispute with its bottle supplier and completion of its transition to in-house plastic bottle production at its Latrobe facility," said Standard & Poor's credit analyst David Kang. The existing bottle supply contract in dispute has been terminated. Under the agreement between the company and its bottle supplier, Le Nature's has agreed to purchase plastic blow-molding equipment (used to produce plastic bottles) from the supplier at a fair market value. The company plans to use the new equipment in its planned West Coast facility. Le Nature's is now able to satisfy its own plastic bottle needs internally after successfully launching its own in-house production facility. The company has also secured an arrangement with a third-party to be a backup supplier of plastic bottles. The ratings on Le Nature's Inc. reflect its narrow product focus, small size, customer concentration, and leveraged financial profile. Somewhat offsetting these factors are the company's strong EBITDA margins and participation in the water segment, which is growing faster than other areas of the U.S. beverage industry. Le Nature's is a developer, producer, and marketer of all- naturally flavored, fully pasteurized alternative beverages, including flavored and unflavored bottled water, ready-to-drink kettle-brewed iced teas, and vitamin and mineral fortified juice drinks. Bottled water accounts for about 50% of sales, however, the narrow product portfolio is somewhat offset by the company's participation in the higher growth bottled water and non- carbonated soft drink segments, which have been outpacing the rest of the beverage industry. Still, with only about $136 million of sales in fiscal 2002, Le Nature's is a very small participant in the $14.7 billion U.S. non-carbonated soft drink and $8.6 billion U.S. single-serve bottled water segments. The total size of the U.S. beverage industry is about $85.7 billion. LTV: Copperweld Plan's Proposed Changes in Capital Structure ------------------------------------------------------------ On or after the Confirmation Date, the Copperweld Debtors intend to effect the Restructuring Transactions and implement a reorganized capital structure, as a result of which: (i) Copperweld will be the parent company of certain Copperweld Debtors, with three wholly owned direct subsidiaries; (ii) all outstanding shares of Copperweld held by LTV will be cancelled; (iii) New Class A Common Stock and New Class B Common Stock of Reorganized Copperweld will be issued to the Copperweld DIP Lenders; (iv) 700 shares of New Class B Common Stock will be issued to certain members of senior management of Reorganized Copperweld; and (v) Reorganized Copperweld will issue the New Senior Secured Revolving Credit Facility Notes and the New Senior Secured Term Loan Facility Notes. Reorganized Copperweld Restructuring Transactions A. Corporate Restructuring After giving effect to the Restructuring Transactions, Reorganized Copperweld will be the parent company of the other Reorganized Copperweld Debtors. Reorganized Copperweld will have these wholly owned subsidiaries: * Reorganized Copperweld Tubing Products Company, an Ohio corporation; * Reorganized Copperweld Bimetallic Products Company, a Pennsylvania corporation, which, in turn, will have one wholly owned subsidiary -- Copperweld Bimetallics UK Ltd. (United Kingdom); and * Non-debtor Copperweld Canada, an Ontario (Canada) corporation. B. Restructuring Transactions The Restructuring Transactions will be effected in steps, undertaken in sequences determined to minimize costs: * Tubing Companies (1) Reorganized Welded Tube Holdings will be merged with and into Reorganized Copperweld. (2) Reorganized Copperweld will assume the rights and obligations as lender under an intercompany loan to non-debtor Copperweld Canada. (3) Reorganized Welded Tube will be merged with and into Reorganized Copperweld Tubing Products Company. (4) Reorganized Miami Acquisition Corporation will be merged with and into Reorganized Copperweld Tubing Products Company. (5) Reorganized Copperweld Marketing and Sales Company will be dissolved. Employees of Reorganized Copperweld Marketing and Sales Company currently work for Copperweld Tubing Products Company, Miami Acquisition Corporation and Welded Tube, and will be hired by the appropriate reorganized company. (6) Reorganized TAC Acquisition Corporation will be merged with and into Reorganized Copperweld. * Bimetallics Companies (1) Reorganized Southern Cross Investment Company will be dissolved. (2) Reorganized Metallon Materials Acquisition Corporation will be dissolved. (3) Non-debtor LTV Copperweld Bimetallics UK Limited will be merged with and into non-debtor LTV Copperweld Bimetallics UK (Holdings) Limited and will be renamed Copperweld Bimetallics UK Limited. * International Pursuant to the settlement of Inter-Debtor Claims, International will transfer all of the outstanding shares of Copperweld Canada to Copperweld. Once the shares are transferred, International may be dissolved. * Copperweld Equipment Company Copperweld Equipment Company, a Texas corporation that was a wholly owned subsidiary of Copperweld Tubing Products Company, was a shell corporation without assets or liabilities on the Petition Date. CEC was dissolved on August 1, 2001, and this dissolution will be ratified as part of the Joint Plan. In summary, after confirmation of the Plan, the corporate structure of Reorganized Copperweld, after consummation of the Restructuring Transactions, will be: Reorganized Corporation (Delaware) | -------------------------------------------------------------- | | | Reorg. Copperweld Reorg. Copperweld Copperweld Canada Tubing Products Co. Bimetallic Products Co. Inc. (Ohio) (Pennsylvania) (Ontario) Shelby, OH Fayetteville, TN Brantford, ON Bedford Park, IL | Woodstock, ON Birmingham, AL | Brampton, ON Elizabethtown, KY Copperweld Bimetallics Mississauga ON Chicago, IL UK Ltd. Winnipeg, MB Portland, OR (United Kingdom) London, ON Piqua, OH The Copperweld Debtors affirm the completion of the Restructuring Transactions as an important part of the Plan intended to: (1) streamline the Reorganized Copperweld Debtors' overall capital structure; (2) permit Reorganized Copperweld greater access to the financial markets by creating a more "understandable" and flexible corporate structure; and (3) provide tax efficiencies. (LTV Bankruptcy News, Issue No. 52; Bankruptcy Creditors' Service, Inc., 609/392-00900) MAGELLAN HEALTH: Bankruptcy Court Approves Disclosure Statement --------------------------------------------------------------- Magellan Health Services, Inc. (OCBB:MGLH) announced that the U.S. Bankruptcy Court for the Southern District of New York has approved the Disclosure Statement filed in connection with the Company's Third Amended Joint Plan of Reorganization for the purposes of soliciting creditor approval for the amended Plan of Reorganization. The Bankruptcy Court also authorized the Company to begin soliciting approval from its creditors for its amended Plan. The Company plans on beginning solicitation of acceptances for its Plan on or about August 29, 2003. The voting deadline by which acceptances or rejection on the Plan are to be received by the Company (or its voting agent) has been set at September 30, 2003. The Plan, if consummated, will result in $150 million of new equity invested in Magellan and a reduction in debt of approximately $500 million, as well as new financing at improved terms that offers the Company greater financial flexibility. The Official Committee of Unsecured Creditors appointed in Magellan's Chapter 11 case has endorsed the Plan and is strongly recommending that all creditors vote in favor of the Plan. The Plan also has the approval of Aetna, Magellan's largest customer. Steven J. Shulman, chief executive officer of Magellan, said, "We are extremely pleased to be able to formally present our plan for restructuring and significantly improving Magellan's capital structure to our creditors. The Court's approval of the disclosure statement and the establishment of a timeline for our emergence demonstrate clearly that we are on track for our exit from Chapter 11. When we emerge, Magellan will have a much stronger capital structure to go along with our existing strong market leadership position and operations that we will leverage for the benefit of our members, customers, providers, employees and investors." "Magellan's plan is the result of a collaborative process with its creditors and creditors' representatives," said Saul E. Burian, director of Houlihan Lokey Howard & Zukin, which is the financial advisor to the Official Committee of Unsecured Creditors. "We believe that, as a market leader with a de-leveraged balance sheet and greater financial flexibility, Magellan will be well- positioned to thrive in the future. The Committee strongly urges that all creditors vote in favor of the plan." The Bankruptcy Court established a timetable with respect to solicitations of approval from creditors that includes the following: -- A record date of August 21, 2003: Holders of claims as of this date will be entitled to vote on the Plan. Such holders will receive a mailing from Magellan consisting of the Plan and Disclosure Statement as well as full details of the procedures for voting on or objecting to the Plan. Holders of the Company's senior subordinated notes and general unsecured claims as of the record date also will have the right to participate in the equity offering, and to elect to receive cash in lieu of a portion of the common stock to which they are entitled, each on the terms and conditions set forth in the Plan. Under the cash-out provision, holders of unsecured claims who elect to receive cash will receive their pro rata share of up to $50 million in cash, which will reduce their distribution of common stock in reorganized Magellan by a number of shares that is equal in value to the cash received, based on an equity valuation of reorganized Magellan of $225 million. Only holders of claims as of August 21, 2003 will be entitled to participate in the equity offering and elect to receive cash in lieu of the common stock under the Plan. Transferees of Senior Subordinated Notes and general unsecured claims will not have such rights and will not be entitled to vote on the Plan. Holders of Senior Subordinated Notes electing to receive cash in lieu of common stock will be unable to trade their notes after making such election. -- Magellan expects to mail its solicitation, including the Plan, Disclosure Statement and voting instructions, on or about August 29, 2003. -- A voting deadline of September 30, 2003: Votes must be properly completed and received by the voting agents no later than September 30, 2003 at 4:00 p.m. Eastern in order to be counted. -- A confirmation hearing date of October 8, 2003: Acceptance of the Plan requires affirmative votes of a majority by number and two-thirds by claim value of those voting of each eligible voting class. The Bankruptcy Court may also confirm the Plan if it does not receive these levels of affirmative votes if the Plan meets certain criteria. The Company expects to emerge from Chapter 11 in October. Gleacher Partners LLC is serving as financial advisor to Magellan Health Services, and Weil, Gotshal & Manges LLP is bankruptcy counsel to Magellan Health Services. Houlihan Lokey Howard & Zukin is serving as financial advisor to the Official Committee of Unsecured Creditors and Akin, Gump, Strauss, Hauer & Feld, L.L.P. is serving as counsel to the Committee. Headquartered in Columbia, Md., Magellan Health Services (OCBB:MGLH), is the country's leading behavioral managed care organization. Its customers include health plans, corporations and government agencies. MIDLAND REALTY: Fitch Ups 2 Low-B Note Class Ratings to BB/B ------------------------------------------------------------ Fitch Ratings upgrades Midland Realty Acceptance Corp.'s commercial mortgage pass-through certificates, series 1996-C2 as follows: -- $28.2 million class C to 'AAA' from 'AA-'; -- $23 million class D to 'AAA' from 'A-; -- $7.7 million class E to 'AA' from 'BBB'; -- $15.4 million class F to 'A' from 'BBB-'; -- $12.8 million class G to 'BBB' from 'BB+'; -- $5.1 million class H to 'BBB-' from 'BB'; -- $12.8 million class J to 'BB' from 'B'; -- $7.7 million class K 'B' from 'B-'. In addition, Fitch affirms the following certificates: -- $178.9 million class A-2 'AAA'; -- Interest-only class A-EC 'AAA'; -- $30.7 million class B 'AAA'. Fitch does not rate the $11.3 million class L-1 or interest-only class L-2 certificates. The rating upgrades and affirmations follow Fitch's annual review of the transaction, which closed in December 1996. The rating upgrades reflect the continued strong pool performance and the increased credit enhancement as a result of additional collateral paydown. Midland Loan Services, the master servicer, collected year-end 2002 financial statements for 96% of the pool balance. According to the information provided, the YE 2002 weighted average debt service coverage ratio is 1.60 times, compared to 1.42x at issuance and 1.63x as of YE 2001 for the same loans (93%). As of the July 2003 distribution date, the pool's collateral balance has been reduced by 35%, to $333.6 million from $512.1 million at issuance. To date, the transaction has realized losses in the amount of $1.5 million. Five loans (4.3%) are currently in special servicing. The largest loan (2.1%), Malone Plaza, is secured by a retail property in Malone, NY and is currently 90 days delinquent. One of the property's anchor tenants vacated, leaving the property 67% occupied. The next largest specially serviced loan (1.2%) is secured by an owner occupied industrial property located in Hialeah, FL. This loan has an issue with the letter of credit provided by the borrower. Fitch applied various stress scenarios taking into consideration all of the above concerns. Even under these scenarios, the subordination levels remain sufficient to upgrade the ratings. Fitch will continue to monitor this transaction, as surveillance is ongoing. MIRANT CORP: Court Deems Utility Companies Adequately Assured ------------------------------------------------------------- At the Mirant Debtors' request, the Court finds that the Debtors are administratively solvent pursuant to Section 366 of the Bankruptcy Code. The Debtors previously asked the Court to determine that their utility providers are adequately assured of future payments as required by 11 U.S.C. Sec. 366. To support that determination, the Debtors want the Court to rule on their administrative solvency -- their ability to pay post-petition debts as they become due. Meredyth A. Purdy, Esq., at Haynes and Boone LLP, in Dallas, Texas, assures Judge Lynn that the Debtors are administratively solvent since: -- the Debtors have over $733,000,000 in unencumbered cash; -- the Debtors have approximately $17,000,000,000 in unencumbered property, plant and equipment and other unencumbered assets; -- the Debtors have no material secured debt; and -- the Debtors generate millions of dollars of unencumbered working capital daily, and anticipate generating sufficient cash postpetition to meet all working capital needs, including postpetition utility costs. Ms. Purdy argues that the offer of an administrative expense claim to the Utility Companies constitutes "adequate assurance of payment" in the form of "other security" as contemplated in Section 366(b). Accordingly, because the Utility Companies have been assured of payment for postpetition services by virtue of the Debtors' administrative solvency, an offer of an administrative expense claim for postpetition services constitutes adequate assurance of payment pursuant to Section 366(b). Having determined that the Debtors are administratively solvent, Judge Lynn rules that: (a) the Utility Companies are adequately assured of future payment by the provision of an administrative expense claim; and (b) the Utility Companies are prohibited from altering, refusing or discontinuing services to the Debtors solely on the bases of the Chapter 11 cases or that a debt owed by the Debtors for service rendered before July 31, 2003 was not paid when due. (Mirant Bankruptcy News, Issue No. 4; Bankruptcy Creditors' Service, Inc., 609/392-0900) MOBILE COMPUTING: Conv. Debenture Maturity Extended to Aug. 21 -------------------------------------------------------------- Mobile Computing Corporation announced that the holders of its convertible debentures have agreed to further extend the maturity date until August 21, 2003 for that portion of the debentures that were originally due August 8, 2003. The Company continues to negotiate definitive agreements and pursue necessary regulatory approvals relating to the previously announced significant restructuring of the Company. The transactions contemplated by the restructuring are subject to shareholder approval and the receipt of all necessary regulatory approvals, including the approval of the Toronto Stock Exchange. The Company intends to seek shareholder approval at an annual and special meeting of shareholders, scheduled for September 22, 2003. Accordingly, there can be no assurance that the proposed restructuring will be completed as proposed or at all. Mobile Computing Corporation -- http://www.mobilecom.com-- is a supplier of wireless information solutions for mobile workers. These systems enable companies to communicate with, monitor and manage the activities of their vehicles and field personnel. MCC solutions enable improved management of the movement and delivery of goods and services, improving productivity and profitability. MCC specializes in delivering fully integrated solutions that link mobile workers with corporate information systems utilizing wireless data communications services. Mobile Computing Corporation trades on the Toronto Stock Exchange under the symbol "MBL" and has approximately 45 million shares outstanding. MOOG INC: S&P Keeps Watch on BB-/B Corp. Credit & Debt Ratings -------------------------------------------------------------- Standard & Poor's Ratings Services placed its ratings on Moog Inc., including the 'BB-' corporate credit rating, on CreditWatch with negative implications. Standard & Poor's also assigned its preliminary 'B' ratings, which are also on CreditWatch with negative implications, to unsecured and subordinated debt securities registered in the company's Aug. 1, 2003, $120 million SEC Rule 415 shelf registration. "The CreditWatch placement reflects Moog's announcement that it has signed an agreement to acquire the assets of Northrop Grumman Corp.'s Poly-Scientific Division," said Standard & Poor's credit analyst Christopher DeNicolo. The purchase price was not disclosed, but will be financed with drawings from Moog's existing revolving credit facility as well as a new 18-month bank loan. The increased debt will result in a deterioration of Moog's credit ratios, which are currently above average for the rating, but the acquisition will improve the company's product and program diversity. Poly-Scientific is a manufacturer of motion controls and data transmission devices for aerospace (two-thirds of revenue) and industrial applications, including electrical and fiber-optic slip rings, brushless DC motors, and electro- mechanical actuators, with annual sales of around $130 million. The transaction is expected to close by the end of September 2003. East Aurora, N.Y.-based Moog serves aerospace and industrial markets, providing highly engineered motion control systems for critical applications. Moog is a major manufacturer of servo valves, actuators, and regulators used in aerospace flight controls and in industrial applications requiring precision positioning and use of force. Competition is significant in all product lines, and limited pricing flexibility requires ongoing improvements to operational efficiencies. Despite a difficult commercial aircraft market, overall aircraft segment sales (53% of total sales) continue to grow due to strength in the military business, especially related to the F-35 Joint Strike Fighter development program. Industrial sales (36%) are tied to the cyclical demand for capital goods, but have benefited recently from the weak U.S. dollar. Sales in the space segment (11%) have declined significantly due to a worldwide dearth of commercial satellite and launch vehicle orders. Standard & Poor's will meet with Moog's management to discuss the transaction and to determine the effect on credit quality. MOTELS OF AMERICA: Wants to Appoint Altman Group as Claims Agent ---------------------------------------------------------------- Motels of America LLCtells the U.S. Bankruptcy Court for the Northern District of Illinois that it wants to appoint the Altman Group, Inc., as claims, noticing and balloting agent in its chapter 11 case. The large number of creditors and other parties in interest involved in Debtor's chapter 11 case may impose administrative and other burdens upon the Court and the Office of the Clerk of the Court. To relieve the Court and the Clerk's Office of these burdens, Debtor proposes to engage Altman Group as a claims processing, noticing and balloting agent in this chapter 11 case. In its capacity, Altman Group will a) prepare and serve required notices in this chapter 11 case, including: i. notice of filing and section 341 meeting; ii. notice of the claims bar date; iii. notice of objections to claims; iv. notice of any hearings on any disclosure statement and confirmation of a plan of reorganization; and v. other miscellaneous notices to any entities, as Debtor or the Court may deem necessary or appropriate for the orderly administration of this chapter 11 case; b) after the mailing of a particular notice, file with the Clerk's Office a certificate or affidavit of service that includes a copy of the notice involved, an alphabetical list of persons to whom the notice was mailed and the date and manner of mailing; c) maintain copies of all proofs of claim and proofs of interest filed; d) maintain an official claims register, including, among other things, the following information for each proof of claim or proof of interest; i. the name and address of the claimant and any agent thereof, if the proof of claim or proof of interest was tiled by an agent; ii. the date received; iii. the claim number assigned; and iv. the asserted amount and classification of the claim; e) implement necessary security measures to ensure the completeness and integrity of the claims registers; f) transmit to the Clerk's Office a copy of the claims registers as required by the Clerk's Office or requested by Debtor; g) maintain an up-to-date mailing list for all entities that have filed a proof of claim or proof of interest, which list shall be available upon request of a party in interest or the Clerk's Office; h) provide access to the public for examination of copies of the proofs of claim or interest without charge-during regular business hours; i) record all transfers of claims pursuant to Bankruptcy Rule 3001(e) and provide notice of such transfers as required by Bankruptcy Rule 3001(e); j) comply with applicable federal, state, municipal, and local statutes, ordinances, rules, regulations, orders and other requirements; k) provide temporary employees to process claims, as necessary; l) promptly comply with such further conditions and requirements as the Clerk's Office or the Court may at any time prescribe; or Debtor may request; and m) provide such other services of a similar nature as Debtor may reasonably request. Altman Group's fees are: Creditor Set-Up and Schedule Creation $125 to $150 per hour Claims Docketing $100 to $150 per hour Document Management $100 to $150 per hour Custom Reports $125 to $175 per hour Voting and Tabulation $100 per hour Consulting Charges $100 to $275 per hour Programming/Technical Services $125 to $175 per hour Reconciliation Claims $125 to $200 per hour Motels of America LLC, headquartered in Des Plaines, Illinois filed its chapter 11 protection on July 10, 2003 (Bankr. N.D. Ill. Case No. 03-29135). Mohsin N. Khambati, Esq., Nathan F. Coco, Esq., and Stephen Selbst, Esq., at McDermott Will & Emery, represent the Debtor in its restructuring efforts. When the Company filed for protection from its creditors, it listed estimated debts and assets of over $100 million each. NATIONAL CENTURY: Court Nixes Jenner & Block's Engagement --------------------------------------------------------- The Official Committee of Unsecured Creditors of National Century Financial Enterprises, Inc. et al., believes that the application of Jenner & Block is simply part and parcel of Lance Poulsen's ongoing project to reacquire management and control of NCFE. A meeting of NCFE shareholders was held on May 16, 2003, and six candidates were elected to serve on a reconstituted board of directors of NCFE: -- Lance Poulsen; -- Barbara Poulsen; -- Donald Ayers; -- Harold Pote; -- Thomas Mendell; and -- Raymond Brooks. Leon Friedberg, Esq., at Carlile, Patchen & Murphy, LLP, in Columbus, Ohio, reports that the reconstituted board met on May 21, 2003, and by majority vote, the Board voted to engage J&B at estate expense. Two members of the board, Messrs. Pote and Mendell, apparently voted against Jenner & Block's engagement, and resigned shortly after the meeting. The Application was filed on May 27, 2003. Tellingly, although David Coles is the NCFE president and is supposed to "effectively [have] the rights of the debtor-in-possession," Mr. Coles was not consulted about and did not sign the Application. The Application trots out not less than two theories about who Jenner & Block's client is, and not less than five characterizations of the nature of the proposed engagement. Thus, the client is either: (a) some amorphous amalgam of NCFE and the board, under the theory that "representation of NCFE and the Board is indistinguishable and therefore appropriate under the standard demarcated in Section 327(e)," or (b) it is the board members themselves, in the event that the Court elects to consider "the Board to be separate from or distinct of NCFE." To analyze whether the Application should be granted, it is important to first unbundle that which the Application deliberately conflates -- the identity of the client -- and then evaluate the merits of the Application as against the two possibilities suggested by the Application -- NCFE and the members of the board. NCFE As Client The Jenner & Block Application skims over the standards of Section 327 of the Bankruptcy Code, and for very good reason. For one, Section 327(e) applies to a trustee or debtor-in- possession. Although the Application of Jenner & Block purports to be filed by NCFE as debtor-in-possession, Mr. Coles, who as the Court has noted "sits in the position of president of NCFE and effectively has the rights of the debtor in possession" is not, in that capacity, the proponent of the Application. In fact, it is the members of NCFE's Board that are the proponents, and nowhere in Section 327(e) of the Bankruptcy Code is there authorization for board members to engage counsel at estate expense. Also, the engaging of counsel under Section 327(e) must be "in the best interest of the estate." Although Section 327(e) itself does not define "best interest," Section 330 of the Bankruptcy Code, which governs allowance of compensation of professionals engaged under Section 327(e), provides guidance. Section 330 gives the bankruptcy court discretion to award a reasonable fee for "actual, necessary services." On the contrary, the Application makes absolutely no showing that Jenner & Block's services are necessary for NCFE's benefit, other than vague references to some unspecified need to "supplement" Jones Day, or to "add credibility" to NCFE's collection and reorganization efforts. If any need for supplementation or added credibility in fact existed, it would be Mr. Coles, as NCFE's president, that would be identifying the need and moving to meet it, and he has not. That leaves the assertion that NCFE must engage Jenner & Block to steer the estates through "certain potential conflicts of interest that exist by and between certain members of the Board and between NCFE and certain members of the Board". Mr. Friedberg contends that no conflicts existed until Mr. Poulsen forced himself, his wife, and Mr. Ayers back onto the board a month ago. To the extent that the estate would somehow benefit from resolving the conflicts solely created by the Poulsens and Mr. Ayers serving on the board, it would benefit much more easily, quickly, and cheaply if they would simply resign. Moreover, if NCFE indeed needs advice in connection with the conflicts that the Poulsens and Mr. Ayers have insisted on creating, it certainly should not be getting that advice from the same firm giving advice to the board members. Board Members As Client NCFE's retention of Jenner & Block under Section 327(e) with the board members as the client, even if one accepts the claim that representation of the board is "indistinguishable [from representation of NCFE] and therefore appropriate under the standard demarcated in section 327(e)," nevertheless cannot survive the prohibition in the Section against representing "any interest adverse to the debtor or to the estate with respect to the matter on which such attorney is to be employed." By its terms, the Application proposes that Jenner & Block will advise the board members in managing their conflicts and fiduciary responsibilities with respect to NCFE and these estates, and no matter how many ways the Application attempts to couch that representation as a representation of "NCFE and the Board" or of "NCFE including, by definition, the Board," in fact that advice will be given in the context of, and indeed because of, the assertion of claims by NCFE and its creditors against the current board members. And indeed, none of the authority cited by the Application holds that a debtor may engage counsel on behalf of its board of directors when the debtor and its board are adverse. It is utterly inappropriate on its face for NCFE to engage and compensate, for the benefit of Mr. Poulsen and the other board members, counsel to provide advice under the circumstances. Over creditor objection, Mr. Poulsen forced his way back onto the NCFE board, and now seeks to use that position, ostensibly in NCFE's name, to engage counsel at estate expense for purposes either transparently specious or not properly chargeable to the estates on their face. If Mr. Poulsen wishes to have separate counsel to pursue his own ideas about "decisions to be made by the Board with respect to specific issues that arise from these Chapter 11 cases and existing and future proceedings in which NCFE's interests are implicated," then he should pay for that counsel himself. These estates have an effective debtor-in-possession, Mr. Coles, and counsel, Jones Day, each of whom is being compensated by the estates. Thus, the Committee asks the Court to deny the Application. * * * At the conclusion of the July 2 hearing, Judge Calhoun denies NCFE's Application to Employ Jenner & Block as counsel. (National Century Bankruptcy News, Issue No. 21; Bankruptcy Creditors' Service, Inc., 609/392-0900) NATIONAL CENTURY: Sherry Gibson Pleads Guilty to Conspiracy Charge ------------------------------------------------------------------ Sherry L. Gibson, a former executive of Dublin, Ohio-based National Century Financial Enterprises, Inc. (NCFE), pled guilty in United States District Court Monday to conspiracy to commit securities fraud. In her plea, she acknowledged her role in a scheme by NCFE executives that improperly took money out of the company, hid the shortfall by moving money back and forth between subsidiaries' bank accounts, and sent phony reports to investors and auditors to cover up the scheme. Copies of the Plea Agreement, Information and Statement of Facts are available at no charge at: -- http://www.usdoj.gov/usao/ohs/pr/GibsonPlea.pdf -- http://www.usdoj.gov/usao/ohs/pr/GibsonInf.pdfand -- http://www.usdoj.gov/usao/ohs/pr/GibsonSOF.pdf The Securities and Exchange Commission also filed a civil enforcement action against Gibson seeking an injunction, monetary penalties and disgorgement of wrongful gains. The SEC's civil complaint alleges that Gibson and other senior NCFE officials improperly "advanced" $1 billion in unauthorized, unsecured loans to distressed or defunct health-care providers, many of which were partly or wholly owned by NCFE or its principals. Gregory G. Lockhart, United States Attorney for the Southern District of Ohio; Kevin R. Brock, Special Agent in Charge, Federal Bureau of Investigation Cincinnati Field Division; and Mary E. Keefe, Regional Director, Chicago Office, Securities and Exchange Commission, announced the filing of the civil enforcement action and the criminal plea which was entered today before Senior United States District Judge George C. Smith. "Executives who cook the books and try to hide their actions from investors and auditors cause irreparable harm to the integrity of the financial markets," said Deputy U.S. Attorney General Larry Thompson, head of President Bush's Corporate Fraud Task Force. "Today's plea demonstrates the resolve that we have shown in pursuing criminal misconduct at companies like National Century. The Justice Department, the SEC and our other partners on the Task Force will aggressively pursue allegations that corporate executives are breaking the law." "Gibson and the other insiders at NCFE bilked investors by building a financial house of cards with deception, sleight-of- hand financing, and accounting misdeeds," Lockhart said. "Gibson was part of a financial shell game that moved hundreds of millions of dollars back and forth to hide the fact that the company's accounts were at least $511 million below what they were telling investors, trustees and auditors." NCFE bought medical accounts receivable from health care providers around the country. NCFE financed the purchases by selling securities in the form of notes to large institutional investors outside Ohio. They used the money they collected from the accounts receivable to repay investors. In their promotional materials, NCFE billed themselves as the "nation's leading supplier of working capital to the medical industry." "The Commission's Complaint and the guilty plea announced today describe an elaborate accounting fraud that cheated sophisticated investors out of more than $1 billion," Keefe said. "The SEC is determined to use the full force of its enforcement powers to combat this unconscionable conduct." "Massive corporate fraud is still an unsettling reality in this country," Brock said. "But today's actions demonstrate that continual progress is being made." The charge is based on information recovered from thousands of boxes of documents and computer files seized by the FBI with the assistance of the Dublin Police Department and the Franklin County Sheriff's Office from NCFE's Dublin offices in November of 2002. Gibson, age 39, of Hilliard, Ohio, held a number of management and executive positions with the company, including Executive Vice President for Compliance between 1999 and November 2002. In her plea, Gibson admitted that, beginning in 1995, she prepared or directed others to prepare investor reports containing false financial information. She admitted that the company maintained separate sets of bookkeeping records labeled "actual" and "reported." The one-count Information filed in this case details 93 overt acts, among others, committed by the conspirators in furtherance of their scheme to defraud. Gibson reviewed the government's evidence pertaining to these overt acts and confirmed that each act occurred. Gibson faces up to five years in prison with no parole, a $250,000 fine, and three years of supervision following release. Judge Smith will set a date for sentencing. Lockhart commended the cooperative investigation of the FBI and SEC and Assistant U.S. Attorneys Dale E. Williams, Jr. and Douglas W. Squires who are prosecuting the case. Lockhart said the investigation is continuing. NATIONAL ENERGY: June 30 Net Capital Deficit Narrows to $68 Mil. ------------------------------------------------------------------ National Energy Group, Inc. (OTC Bulletin Board: NEGI) announces results for the second quarter ended June 30, 2003. Results of Operations On September 12, 2001 as provided in the Company's Joint Plan of Reorganization, the Company contributed all its operating assets and oil and gas properties excluding cash of $4.3 million to NEG Holding LLC in exchange for an initial 50% membership interest. Following the LLC Contribution, the Company no longer directly owns oil and gas properties and will only recognize income from accretion of the preferred investment and fees attributable to the management and operation of NEG Holding LLC's oil and gas properties. The income from accretion of the preferred investment and management fees amounted to $6.7 million and $2.0 million, respectively, for the quarter ended June 30, 2003 and $15.5 million and $3.9 million, respectively, for the six months ended June 30, 2003. For the Three Months Ended June 30, 2003 Net income of $2.2 million was recognized for the three months ended June 30, 2003 compared with net income of $2.2 million for the comparable 2002 period. Total revenues decreased $1.4 million (13.9%) to $8.7 million for the second quarter of 2003 from $10.1 million for the second quarter of 2002. For the Six Months Ended June 30, 2003 Net income of $4.9 million was recognized for the six months ended June 30, 2003 compared with net income of $4.4 million for the comparable 2002 period. Total revenue decreased $.6 million (3.0%) to $19.3 million for the six months ended June 30, 2003 from $19.9 million for the comparable 2002 period. At June 30, 2003, the Company's balance sheet shows a total shareholders' equity deficit of about $68 million. Oil and Gas Operations NEG Holding LLC conducts its oil and gas operations through its affiliate, NEG Operating LLC. The Company manages all of these oil and gas operations pursuant to a management agreement with NEG Operating LLC. National Energy Group, Inc. (OTC Bulletin Board: NEGI) is a Dallas, Texas based company. NAVIDEC INC: Will Commence Trading on OTCBB Today ------------------------------------------------- Navidec, Inc. (Nasdaq: NVDC), will begin trading on OTC Bulletin Board at the opening of business today, under the symbol NVDC. The Nasdaq SmallCap Market delisted the shares because the Company failed to comply with Nasdaq's Marketplace Rule 4310(c)(13). That rule requires that the company have a minimum $2,500,000 in stockholders' equity. Navidec, Inc. (Nasdaq: NVDC) Navidec evaluates, purchases and grows business opportunities that offer cash flow, strong management and opportunity for growth. Navidec's corporate Web site is http://www.navidec.com * * * Liquidity and Going Concern Uncertainty In its most recent Form 10-Q filed with the Securities and Exchange Commission, Navidec Inc. reported: The Company's financial statements for the six months ended June 30, 2003 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company has historically reported net losses, including reporting a loss from operations of $703,000 and $1,380,000 for the three and six months ended June 30, 2003 respectively and has working capital of $878,000 as of June 30, 2003. Management cannot provide assurance that the Company will ultimately achieve profitable operations or be cash positive or raise necessary additional debt and/or equity capital. Management believes that the Company has adequate capital resources to continue operating and maintain its business strategy during the next 12 months. If substantial losses continue and/or the Company is unable to raise additional capital, liquidity problems could cause the Company to curtail operations, liquidate assets, seek additional capital on less favorable terms and/or pursue other such actions that could adversely affect future operations. These financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the company be unable to continue as a going concern. NQL DRILLING: June 30 Working Capital Deficit Hits $29 Million -------------------------------------------------------------- NQL Drilling Tools Inc., announces a second quarter loss of $42.1 million, which includes $39.3 million in charges, net of $2.0 million in income taxes, for which a comparable amount was not incurred in the prior year. These costs include additional professional fees, interest and other expenses and non-cash provisions relating to goodwill and deferred charge impairments. Excluding these charges, the Company lost $2.8 million compared to a net loss in the prior year of $2.3 million. INTRODUCTION Significant changes have occurred with the Company since its last quarterly report was issued. At the Company's June 26th Annual General Meeting, a change in the composition of the Board of Directors occurred. Three new directors, R. Tim Swinton, Bruce R. Libin, and Glen D. Roane were elected to the Company's Board. This change was made as a result of the former board and management recognizing the Company, including its financial and operating condition, had evolved to a point where additional skill sets were desirable to ensure the on-going profitability of the Company and to improve the Company's balance sheet and the prospect for increases in shareholders' value, and that a change in the composition of the board of directors was desirable. In arriving at this determination, the board of directors took into account input and commentary received from various significant shareholders of the Company, including CanFund VE Investors II, L.P., who were strongly advocating a change of the board of directors at the Company's annual shareholders' meeting. These new directors come to the Company with the necessary skill sets and experience to provide guidance and assistance in this regard. Due to the Company's financial situation, it became apparent to the new board very quickly that a comprehensive refinancing plan was necessary to provide for the stability of the Company. Therefore, the Company has entered into arrangements for a proposed refinancing package with CanFund and Lime Rock Partners II, L.P. The proposed refinancing package with CanFund and Lime Rock consists of four parts: 1. On July 31, 2003, the Company raised $10 million for liquidity through a Bridge Note Financing from CanFund. 2. The Company plans to raise $25 million by a private placement of 7.9 million shares with Lime Rock and CanFund in early September. 3. The Company plans to raise $22.4 million through a Rights Offering to its shareholders immediately thereafter. 4. In the event that the full proceeds are not raised through the Rights Offering, the Company plans to borrow up to $20.0 million through a back-up subordinated debenture financing by Lime Rock and CanFund. Effective June 30, 2003, the Company entered into a new loan extension agreement with its Senior Canadian Bank Lenders. The agreement extends the Company's Credit Facilities to June 30, 2004, provided that certain conditions are satisfied, including the completion of the refinancing plan. These financings should improve the Company's Balance Sheet sufficiently to allow it to obtain new replacement long-term bank credit facilities and to resume carrying on business in the normal course. The Company intends to have these new credit facilities in place by January 31, 2004. As a result of the Company's financial situation and its efforts to resolve this issue, over the past quarter it has incurred additional professional fees, interest and other costs. As well, the board in conjunction with management has spent time reviewing the carrying value of some of the Company's assets. Specifically, through the June 30, 2003 annual assessment of goodwill and other intangibles required by Generally Accepted Accounting Principles, it has been determined that the carrying value of goodwill and other intangibles should be reduced. These charges, totaling approximately $41.3 million, have impacted the profitability of the Company during the current period. As well, a considerable amount of time has been spent by both the Board of Directors and management over the past several months dealing with the financial situation of the Company. Although not easily quantifiable, this has had a negative impact on the day-to-day operations of the Company during the first six months of fiscal 2003. MANAGEMENT'S DISCUSSION AND ANALYSIS Revenue Geographic Segments Three months ended June 30, 2003 and 2002 Canadian revenue for the quarter was $4.8 million compared to $4.9 million in 2002. Black Max operations in Canada posted revenue of $1.7 million compared to $1.8 million last year. CanFish operations showed revenue for the quarter of $2.9 million compared to $2.7 million in 2002. The remainder of the revenue in Canada came from third party revenue in NBJ Manufacturing and DPI. In the US, revenue for the second quarter of 2003 were $12.7 million (includes DPI revenue of $3.1 million) compared to $8.9 million in the second quarter of 2002, an increase of 43%. On a more comparable basis (DPI excluded), revenue was $9.6 or 8% higher than 2002. Black Max operations in the US had revenue of $6.1 million compared to $7.1 million in the prior year. Ackerman International posted revenue of $3.5 million compared to $1.2 million in 2002. Included in revenue for the quarter were sales of approximately $2.0 million of redundant assets. Internationally, the Company had revenue of $7.4 million (includes DPI revenue of $3.6 million) compared to $6.0 million in 2002, an increase of 23%. On a more comparable basis (DPI excluded), international revenue was $3.8 million or 36% below 2002 second quarter revenue. Aside from DPI, the next largest contributor to international revenue for the quarter was the Company's operations in Venezuela, posting revenue of $0.9 million. This compares to revenue of $2.5 million last year and $0.2 million last quarter. Activity has started to increase since the beginning of the year, with the active rig count climbing to approximately 30 rigs. Other international revenue came from operations in Holland ($0.6 million - 2003; $0.6 million - 2002), U.A.E. ($0.5 million - 2003; $0.3 million - 2002), Argentina ($0.5 million - 2003; $0.1 million - 2002) Mexico ($0.4 million - 2003; $0.5 million - 2002) and Bolivia ($0.4 million - 2003; $0.3 million - 2002). The remainder of the international revenue for the quarter includes sales to customers in Vietnam, Australia, and Egypt. DPI's revenue was earned in the Middle East, Europe, Africa and Asia Pacific regions. The Company's geographic revenue distribution in the second quarter of 2003 was divided as follows: Canada - 19%; US - 51%; and International - 30%. In the second quarter of 2002, this allocation was Canada - 25%, US - 45% and International - 30%. Six months ended June 30, 2003 and 2002 Canadian revenue for the six months ended June 30, 2003 was $16.8 million compared to $14.2 million in 2002, an increase of 18%. Black Max operations in Canada posted revenue of $8.0 million compared to $6.6 million last year. CanFish operations showed year-to-date revenue of $8.0 million compared to $6.8 million in 2002. The remainder of the revenue in Canada came from third party revenue in NBJ Manufacturing and DPI. In the US, revenue for the six months ended June 30, 2003 was $26.0 million (includes DPI revenue of $7.6 million) compared to $16.8 million in 2002, an increase of 55%. On a more comparable basis (DPI excluded), revenue was $18.4 or 10% higher than 2002. Black Max operations in the US had revenue in the first six months of 2003 revenue of $13.0 million compared to $14 million in the prior year. Ackerman International posted revenue of $5.4 million compared to $2.8 million in 2002. Included in this year's revenue were sales of approximately $2.0 million of redundant assets. Internationally, the Company had revenue of $14.2 million (includes DPI revenue of $6.6 million) compared to $12.1 million in 2002, an increase of 17%. On a more comparable basis (DPI excluded), international revenue was $7.6 million or 37% below 2002 revenue. Aside from DPI, the next largest contributor to international revenue for the year was the Company's operations in Holland, posting revenue of $1.5 million. This compares to revenue of $1.8 million last year. Other international revenue came from operations in the U.A.E. ($1.3 million - 2003; $1.20 million - 2002), Venezuela ($1.0 million - 2003; $5.30 million - 2002), Argentina ($1.0 million - 2003; $0.4 million - 2002) Mexico ($1.0 million - 2003; $1.0 million - 2002) and Bolivia ($0.8 million - 2003; $0.5 million - 2002). The remainder of the international revenue for the quarter includes sales to customers in Vietnam, Australia, and Egypt. DPI's revenue was earned in the Middle East, Europe, Africa and Asia Pacific regions. The Company's geographic revenue distribution for the first half of 2003 was divided as follows: Canada - 30%; US - 46%; and International - 24%. In 2002, this allocation was Canada - 31%, US - 39% and International - 30%. Three months ended June 30, 2003 and 2002 Expenses Direct expenses for the second quarter of 2003 were $14.7 million (59% of sales) compared to $10.9 million (55% of sales) for 2002. This resulted in a gross margin for the quarter of 41 percent compared to 45 percent in the prior year. The decrease in gross margin can be primarily attributed to the fixed component of direct expenses combined with the mix of revenue for the quarter. For example, certain areas with higher fixed costs achieved lower revenue than in the prior year. General and administrative expenses for the second quarter were $11.2 million compared to $6.7 million in 2002 and $9.9 million in the first quarter of 2003. Included in general and administrative expenses for the second quarter are approximately $1.9 million in professional fees and other costs for which a similar amount was not incurred in prior periods. Excluding these expenses, G&A expenses have declined from Q1 2003 to $9.3 million. Also, by removing G&A expenses relating to DPI as well as the professional fees and other costs mentioned above, G&A expenses would have been $6.7 million, which compares favorably to G&A expenses in Q2 of 2002. Amortization expense for the quarter was $5.7 million compared to $3.4 million in the second quarter of 2002. Included in amortization expense for the quarter was a $2.2 million charge relating to an impairment of deferred charges. Interest expense in the quarter was $2.9 million compared to $0.9 million last year. Included in interest expense for the quarter was $0.6 million in extension fees, $0.3 million in additional interest relating to a rate increase of 1.5% to 1.75% on the Company's credit facilities, and a $0.2 million write-off of deferred financing costs relating to the previous credit agreement. The remainder of the increase can be attributed to interest and financing costs incurred on funds borrowed to acquire DPI and interest incurred by DPI itself on its operating line and long-term debt. Six months ended June 30, 2003 and 2002 Expenses Direct expenses for the six months ended June 30, 2003 were $31.7 million (56% of sales) compared to $23.9 million (55% of sales) for 2002. This resulted in a gross margin of 44 percent compared to 45 percent in the prior year. The decrease in gross margin can be primarily attributed to the fixed component of direct expenses combined with the mix of revenue for the quarter. For example, certain areas with higher fixed costs achieved lower revenue than in the prior year. General and administrative expenses year-to-date were $21.2 million compared to $12.1 million in 2002. Included in general and administrative expenses are approximately $1.9 million in professional fees and other costs for which a similar amount was not incurred in the prior year. By excluding these expenses as well as G&A expenses relating to DPI (acquired in August 2002), G&A expenses would have been $13.6 million. Amortization expense for the first six months of 2003 was $9.7 million compared to $6.9 million last year. Included in this year's amortization expense was a $2.2 million charge relating to an impairment of deferred charges. Interest expense year-to-date was $4.8 million compared to $1.7 million last year. Included in interest expense was $0.6 million in extension fees, $0.3 million in additional interest relating to a rate increase of 1.5% to 1.75% on the Company's credit facilities, and a $0.2 million write-off of deferred financing costs relating to the previous credit agreement. The remainder of the increase can be attributed to interest and financing costs incurred on funds borrowed to acquire DPI and interest incurred by DPI itself on its operating line and long-term debt. Goodwill Impairment In conjunction with the requirements under CICA Handbook Section 3062 the Company is required to annually test its goodwill for impairment. Upon completion of its annual impairment test, the Company determined that a non- cash provision of $36.0 million of goodwill, relating to certain of its businesses, was required. These businesses include Northstar Drilling Systems Inc. ($19.3 million), Diamond Products International, Inc. ($12.7 million) and Ackerman International Corp. ($4.0 million). The circumstances that contributed to an impairment of the goodwill arising from the May 15, 2001 acquisition of Northstar Drilling Systems Inc. include a slowdown in the utility industry, lower margins than anticipated, and lower than projected business activity due to slower customer product acceptance resulting in lower sales growth forecasts. The circumstances that contributed to a partial impairment of the goodwill arising from the August 29, 2002 acquisition of Diamond Products International, Inc. relate to a slowdown in US deep water drilling, political unrest in Nigeria and Venezuela and enhanced competition. The circumstances that contributed to an impairment of the goodwill arising from the July 1, 2000 acquisition of Ackerman International Corp. include a slowdown in the utility industry and a general decline in Ackerman's business activity. Net Earnings Net loss for the second quarter of 2003 was $42.1 million ($1.53 per share) compared to a net loss of $2.3 million ($0.10 per share) in the prior year. Net loss on a year-to-date basis was $43.3 million ($1.57 per share) compared to a net loss of $3.2 million ($0.14 per share) in the prior year. These current period and year-to-date losses includes a non-cash provision for goodwill impairment of $36.0 million, $1.9 million (net of income taxes) in professional fees, interest and other expenses, for which there is no comparable amounts in prior periods, and a $1.4 million (net of income taxes) non-cash provision relating to impairment of deferred charges. By excluding these items, the net loss for the quarter and year-to-date would have been $2.8 million ($0.10 per share) and $4.0 million ($0.15 per share), respectively. Restatement of comparative figures The Consolidated Balance Sheet as at June 30, 2002 and the Consolidated Statement of Operations and Consolidated Statement of Cash Flows for the three months and six months ended June 30, 2002 have been restated to reflect changes in the areas of foreign currency translation and future income taxes. See note 11 to these consolidated financial statements for further detail. Liquidity and Capital Resources As at June 30, 2003, the Company's current and long-term debt was $18.0 million as compared to $22.4 million at December 31, 2002. The Company also has a bridge loan in the amount $34.6 million which has remained unchanged from December 31, 2002. At June 30, 2003, the Company had bank indebtedness relating to its operating facilities of $34.3 million compared to $37.9 million at December 31, 2002. The credit facilities available to the Company and its subsidiaries at the end of the quarter included a Canadian bank operating facility of up to $30.0 million, operating lines at US banks totaling $4.6 million US and an operating line at a Dutch bank in the amount of 350,000 Euros (At June 30, 2003, one Euro was equal to 1.54 Canadian dollars). As at June 30, 2003, the Company had a $29.4 million working capital deficiency (December 31, 2002 - working capital deficiency of $17.4 million). This deficiency arose primarily from a $34.6 million bridge loan, which is repayable in full by March 31, 2004, and from $14.0 million of term debt that is due June 30, 2004. The Company has been suffering from a lack of liquidity and working capital, and has had difficulties in paying trade creditors and making certain other corporate payments required on an on-going basis. As well, the Company has required a series of extensions of its credit facilities. The Company has taken several steps to improve its liquidity and working capital position and restore its financial stability, including the following: The Company has completed a $10.0 million Bridge Note Financing from CanFund VE Investors II, L.P., which was funded on July 31, 2003. The proceeds from the Bridge Note were used for working capital purposes, including payment of trade creditors. This indebtedness is evidenced by a $10 million promissory note in favour of CanFund. The Bridge Note bears interest during the first 90 days at 12% per annum and thereafter at 24% per annum. The Bridge Note is secured by a second charge on the assets of the Corporation and certain of its subsidiaries as well as guarantees from certain subsidiaries. All amounts are due and payable on March 31, 2004, other than $4 million, which is due on the earlier of November 25, 2003 and the date on which the funds from the Rights Offering (discussed below) are received. The Company paid a commitment fee of $0.3 million on July 31, 2003 to CanFund in connection with the borrowing under the Bridge Note. The Company's refinancing plan includes a proposed private placement of common shares to each of Lime Rock Partners II, L.P. and CanFund. The Company has entered into an agreement whereby it will issue an aggregate of 7,936,600 common shares at a subscription price of $3.15 per share. The Company expects the net proceeds (after estimated transaction costs of approximately $1.5 million) from this transaction to be approximately $23.5 million. All of the net proceeds from this transaction will be used to repay the Bridge Loan, with the exception of $2 million, which will be used for working capital purposes. The Private Placement Transaction is subject to shareholder approval and approval of the waiver of the Company's shareholder protection rights plan to the transaction. The Company has agreed to a break fee of $4.5 million if the common share private placement is not completed subject to certain circumstances. Following the completion of the Private Placement Transaction, the Company intends to complete a Rights Offering at an exercise price of $3.15 per share to all NQL common shareholders, whereby NQL shareholders will be issued one right for each common share held. NQL shareholders will be entitled to purchase one common share for every five rights held. If fully subscribed, the Rights Offering is expected to raise net proceeds (after estimated transaction costs of approximately $0.45 million) of $21.9 million. All of the net proceeds of the Rights Offering will be used to repay the Bridge Loan, with the exception of $12 million, $4 million of which will be used to repay the CanFund Bridge Note and $8.0 million which will be used for working capital purposes, subject to certain conditions. The Rights Offering is subject to shareholder approval of the waiver of the Company's shareholder protection rights plan to the transaction. CanFund has provided to the Company a stand-by commitment in respect of the Rights Offering, whereby it has agreed to acquire all common shares issuable on the exercise of rights not otherwise exercised, subject to certain conditions. In the event the Rights Offering is not fully subscribed, the Company has arranged for contingency financing from Lime Rock and CanFund by way of Subordinated Debt Financing. The Company will issue debentures in equal parts to each of Lime Rock and CanFund in an amount equal to the amount by which the Rights Offering is undersubscribed up to a maximum of $20 million. The Subordinated Debentures will bear interest at 12% per annum, payable quarterly. The principal amount owing under the Subordinated Debentures will be payable, on account of the Subordinated Debenture issued to Lime Rock, on the date that is five years and one week after the issuance thereof and, on the account of the Subordinated Debenture issued to CanFund, on the date that is one year after the issuance thereof. The amounts owing under the Subordinated Debentures will be guaranteed by certain subsidiaries of the Corporation. Such guarantees will be subordinate to any guarantees provided in connection with the Company's Credit Facilities and the Bridge Note. In conjunction with the refinancing plans discussed above, effective June 30, 2003, the Company entered into a loan extension agreement with its Canadian senior bank lenders. Under the terms of this agreement, the lenders have agreed to extend the Company's credit facilities to June 30, 2004, provided that certain conditions are satisfied, including the completion of the refinancing plan. All amounts owing under the Company's Credit Facilities to its Canadian senior bank lenders are now due and payable on June 30, 2004, with the exception of the Bridge Loan, which is due on March 31, 2004. Pursuant to the loan extension agreement, there are certain conditions, which may require earlier repayment. Subject to the terms of the agreement, all amounts owing under the credit facilities will bear interest at prime plus 4.25%. Under the terms of its previous loan agreement, the Company was in violation of certain financial covenants as at June 30, 2003. Under this new agreement, the Company is no longer in violation of any financial covenants. The Company's continued existence is dependent upon its ability to complete its refinancing plans and to restore and maintain profitable operations. Although all parties are committed to completion of the refinancing transactions, no assurance can be given that they will be completed. Once the above refinancing plans are completed, the Company's expects that its financial stability will be restored, returning the Company to normal operations and growth. Contingencies The Canada Customs and Revenue Agency is auditing certain of the Company's transfer pricing methodologies for the fiscal years 1996 to 2002. The Company anticipates that this matter will go before competent authority, comprised of representatives of the CCRA and the Internal Revenue Service of the United States. During the period ended June 30, 2003 transfer pricing discussions with CCRA continued. Due to the nature of the matter, the amount of the loss, if any, cannot be reasonably estimated and therefore no amounts have been accrued in these financial statements. Management now estimates the maximum after-tax charge resulting from the most negative outcome on resolution of this matter could be up to $7 million. Management anticipates that any assessment issued by CCRA, would be partially offset by as much as $2.5 million, by credits in other tax jurisdictions. At December 31, 2002, the Company had loss carry forwards available, which could be used to reduce the cash impact of any assessment by approximately $1.2 million. Management will continue to work with its advisors to resolve this issue. Outlook The steps taken by the Company's Board of Directors demonstrate a strong commitment to return the Company to financial health. The Board and management will continue to review the Company's operations in order to improve the future profitability of the Company. It is expected that the Company will continue to incur additional professional fees and increased interest costs in the third quarter of 2003. However, after the completion of both the private placement and the rights offering, management anticipates these costs to return to historical levels for the balance of the year. As well, once these financial issues have been dealt with, this should allow the Board and management to refocus their efforts on strengthening the operations of the Company. We will also continue to focus on increasing utilization of existing downhole tools and inventory. Due to the slowdown in some the Company's South American markets, downhole tools and inventory are being shifted to more active markets. With the recent increase in drilling activity in many of the Company's markets, we are encouraged about the prospects for the balance of 2003 and into 2004. Upon completion of the Company's restructuring plans, its financial structure should be well positioned to take advantage of any opportunities that may arise during this business cycle. NRG ENERGY: NRG McClain LLC's Voluntary Chapter 11 Case Summary --------------------------------------------------------------- Debtor: NRG McClain LLC 901 Marquette Avenue Minneapolis, Minneapolis 55402-2165 dba McClain dba Duke Energy McClain, L.L.C. Bankruptcy Case No.: 03-15205 Type of Business: The Debtor is an affiliate of NRG Energy Inc. Chapter 11 Petition Date: August 19, 2003 Court: Southern District of New York (Manhattan) Judge: Prudence Carter Beatty Debtors' Counsel: Matthew Allen Cantor, Esq. Kirkland & Ellis LLP 153 East 53rd Street 39th Floor New York, NY 10022-4675 Tel: 212-446-4846 Fax: 212-449-4900 Estimated Assets: More than $100 Million Estimated Debts: More than $100 Million PANGEO PHARMA: Canadian Court Okays NHP Sale to Jamieson Labs ------------------------------------------------------------- PanGeo Pharma Inc. announced that the Quebec Superior Court has approved the sale of its natural health products business to Jamieson Laboratories Ltd. and made an order transferring the assets related to the NHP business to Jamieson Laboratories free and clear of the claims of PanGeo Pharma's creditors. The transaction is expected to close this week and the proceeds from the sale of the NHP business will be used by PanGeo Pharma to pay down its loan from National Bank of Canada. As part of the transaction Jamieson Laboratories will acquire PanGeo Pharma's "Quest" and "Wampole" branded vitamin and herbal lines. The transaction includes the accounts receivable, intellectual property, inventory related the NHP business and the associated manufacturing operations in Vancouver, Canada. Jamieson Laboratories has also committed to hire 135 of PanGeo Pharma's employees and will assume certain of PanGeo Pharma's real property lease obligations. PanGeo Pharma has been granted a three year license to use the "Wampole" trade-mark in connection with the company's over-the-counter products. PanGeo Pharma -- http://www.pangeopharma.com-- is a specialty pharmaceutical company with core competencies in pharmaceutical manufacturing and marketing. The company manufactures and supplies a range of specialty pharmaceutical products and services to Canadian and international markets. On July 10, 2003 PanGeo Pharma filed for and obtained protection under the Companies' Creditors Arrangement Act (Canada) in order to facilitate restructuring efforts. On August 6, 2003 the protection afforded to the company was extended until August 29, 2003. The sale of the NHP business is the first stage of the company's restructuring and PanGeo Pharma is confident that, after disposing of certain surplus assets, it will be able to effect an operational and financial restructuring that will enable it to continue to operate as a going concern on a reduced basis for the benefit of its unsecured trade creditors, employees and other stakeholders. National Bank, PanGeo Pharma's primary lender, continues to be supportive of the company's restructuring efforts. P-COM: Receives Orders for Point-to-Point Radios Totaling $1.1MM ---------------------------------------------------------------- P-Com, Inc. (OTC Bulletin Board: PCOM), a worldwide provider of wireless telecom products and services, has received $1.1 million in orders for its point-to-point radios for deployment in China. The orders are for P-Com's Encore and Tel-Link products and follow the announcement of similar orders on July 31, when P-Com announced orders for $1.4 million for its point-to-point products for deployment in China. Over the past 12 months, P-Com has received $3.8 million in orders for its point-to-point products for deployment in China. "Our success in China is the result of our reputation for building quality products, as well as the strength of our distribution network in Asia," said P-Com Chairman George Roberts. "We will remain focused on fast-growing markets such as Asia, and we expect to generate additional business from the region in the second half of 2003." Tel-Link Encore is P-Com's advanced point-to-point microwave radio, providing capacities from low speed through high speed in the same unit. P-Com's Tel-Link product provides high capacity communications to facilitate voice, data, Internet and video connectivity. P-Com, Inc. develops, manufactures, and markets point-to-point, spread spectrum and point-to-multipoint, wireless access systems to the worldwide telecommunications market. P-Com broadband wireless access systems are designed to satisfy the high-speed, integrated network requirements of Internet access associated with Business to Business and E-Commerce business processes. Cellular and personal communications service (PCS) providers utilize P-Com point-to-point systems to provide backhaul between base stations and mobile switching centers. Government, utility, and business entities use P-Com systems in public and private network applications. For more information visit www.p-com.com or call 408-866-3660. P-Com, Inc.'s June 30, 2003 balance sheet show a working capital deficit of about $34 million, and a total shareholders' equity deficit of about $30 million. PETSI INC: Case Summary & 10 Largest Unsecured Creditors -------------------------------------------------------- Debtor: PETSI Inc 5711 Schumier Houston, Texas 77048 Bankruptcy Case No.: 03-41757 Type of Business: PETSI specializes in the manufacture of fluidized bed catalyst activators for the petrochemical process plant industry Chapter 11 Petition Date: August 18, 2003 Court: Southern District of Texas (Houston) Judge: Karen K. Brown Debtor's Counsel: James R. Clark, Esq. James R. Clark & Associates, P.C. 4545 Mt Vernon Houston, TX 77006 Tel: 713-532-1300 Fax: 713-532-5505 Estimated Assets: $1 Million to $10 Million Estimated Debts: $1 Million to $10 Million Debtor's 10 Largest Unsecured Creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ Chevron-Phillips Chemical Unsecured Claim $351,891 Co. c/o Beirne Maynard & Parsons LLP Attn: Allyson L. Mihalock 1300 Post Oak Blvd 25th Floor Houston, TX 77056 H T Lily Inc. Unsecured Claim $351,891 c/o Gaughan & Stone Attn: Christina Stone 2500 Tanglewide Suite 222 Houston, Texas 77063 Southwest Business Unsecured Claim $5,250 American Express Unsecured Claim $2,465 United Welding Unsecured Claim $495 Reed-Young Co. Inc. Unsecured Claim $360 CW Rod Tool Co. LP Unsecured Claim $71 Swisher Hygiene Unsecured Claim $64 Pearland Standard Unsecured Claim $30 Avaya, Inc. Unsecured Claim $26 PG&E NATIONAL: Court Okays Foley Hoag as USGen's Special Counsel ---------------------------------------------------------------- USGen New England Inc. needs lawyers to prosecute its interest in environmental, labor, real property, state regulatory, commercial litigation, tax, and patent matters. Accordingly, USGen sought and obtained the Court's permission to employ Foley Hoag LLP as Special Counsel pursuant to Section 327(e) of the Bankruptcy Code. Mary Beth Gentleman, Esq., a member of Foley Hoag, relates that before USGen's Chapter 11 filing, Foley Hoag advised and represented the Debtor for six years on environmental, labor, real property, state regulatory, commercial litigation, tax and patent matters including: * renewal of and compliance with all environmental permits and approvals for generating stations owned by the Debtor in New England; * real estate acquisitions and sales; * property valuation advice and litigation; * state public utility commission; and * labor and employment. As a consequence of Foley Hoag's prepetition representation, the Debtor believes that the firm is both well qualified and uniquely able to represent in its Chapter 11 case in a most efficient and timely manner. John Lucian, Esq., at Blank Rome LLP, in Baltimore, Maryland, asserts that were USGen required to employ attorneys other than Foley Hoag in connection with the prosecution of these particular matters, USGen, its estate and all parties-in- interest would be unduly prejudiced by the time and expense necessarily attendant to the attorneys' familiarization with the intricacies and history of these matters. USGen will compensate Foley Hoag on an hourly basis, and will reimburse the firm of actual and necessary expenses incurred. At present, Foley Hoag's standard hourly rates are: Partners $330 - 575 Associates 195 - 365 Legal Assistants 120 - 195 During the 90-day period before the Petition Date, Foley Hoag received $1,519,700 from the Debtor as compensation for professional services performed. Moreover, Foley Hoag is currently owed less than $37,000 for fees and expenses between July 1, 2003 and the Petition Date for which it was unable to render a bill prepetition. Foley Hoag is also currently holding a $37,000 retainer. Judge Mannes rules that any prepetition claim by Foley Hoag against USGen for unpaid legal fees and expenses is waived, and the $37,000 retainer will be applied to postpetition fees and expenses. According to Mr. Lucian, Foley Hoag's employment under a general retainer is appropriate and necessary to enable the Debtor to faithfully execute their duties as debtor and debtor-in- possession and to implement their restructuring. Ms. Gentleman attests that no Foley Hoag member or associate represents any interest adverse to the Debtor or its estates. Ms. Gentleman further discloses that Foley Hoag does not currently represent any of USGen's creditors. (PG&E National Bankruptcy News, Issue No. 3; Bankruptcy Creditors' Service, Inc., 609/392-0900) PILLOWTEX CORP: Honoring Up to $4.9 Million in Prepetition Taxes ---------------------------------------------------------------- Pursuant to Sections 105(a), 363(b) and 507(a) of the Bankruptcy Code, Pillowtex Corporation and its debtor-affiliates seek the Court's authority to pay: (a) prepetition sales and use taxes arising from their operations, owed to various taxing authorities; (b) withholding taxes from employee pay; (c) certain ad valorem taxes on real and personal property that, under applicable law, are or will become secured by valid and perfected liens on the Debtors' property; and (d) penalties and interest, if any, accrued on them to various taxing authorities during the orderly liquidation of their businesses, as the payments become due. The Debtors estimate that the aggregate prepetition amount outstanding on account of these Taxes is $4,900,000. William H. Sudell, Jr., Esq., at Morris, Nichols, Arsht & Tunnell, in Wilmington, Delaware, relates that in connection with the normal operation of their businesses, the Debtors incur sales and use taxes to the Taxing Authorities. Prior to the Petition Date, the Debtors estimate that $150,000 of these tax obligations were generated, which taxes have not yet been paid to the applicable Taxing Authorities. The Debtors also withhold payments from Employees' paychecks on account of various federal, state and local income, Federal Insurance Contributions Act and other withholding taxes. The Debtors estimate that the amount of these withholdings that have not yet been remitted to the applicable Taxing Authorities aggregates $800,000. In addition, the Debtors are required to make payments periodically for certain ad valorem taxes on personal and real property. Mr. Sudell explains that there is a lag time between the time when the Debtors incur the obligations to pay the Taxes and the date when payment of each Tax is due. Therefore, various Taxing Authorities may have claims against the Debtors for the Taxes that are accrued and owing, but unpaid, as of the Petition Date. The Debtors estimate that $3,950,000 of these accrued and unpaid obligations are outstanding as of the Petition Date. The Debtors believe that many of the Taxes, which the Debtors seek the Court's authority to pay, constitute so-called "trust fund" taxes, which must be collected from third parties, including employees, and held in trust for payment to the appropriate taxing authority. The Debtors do not have any equitable interest in the trust fund taxes that they collect. Thus, the Court should authorize the Debtors to pay these taxes to the various Taxing Authorities as they become due. "Although the ad valorem property taxes may not be trust fund taxes, the Debtors submit that it is important that they be paid as well," Mr. Sudell remarks. To the extent that these ad valorem taxes are not paid, the various Taxing Authorities may impose liens on the Debtors' property. Any liens will make it difficult to sell the Debtors' assets as part of the orderly liquidation of their businesses to willing buyers. For similar reasons, the Debtors seek the Court's authority to continue making payments to three [unnamed] counties, which reached a settlement with the Debtors permitting them to pay accrued property taxes pursuant to a deferred payout plan. The counties retained their rights to impose liens on the Debtors' property should the Debtors fail to make payments pursuant to the deferred payment schedule. As of the Petition Date, the Debtors owe the three counties $1,400,000, which is scheduled to be paid out over the next 48 months. Mr. Sudell asserts that the Taxes are entitled to priority status pursuant to Section 507(a)(8) of the Bankruptcy Code and must be paid in full under any plan of reorganization or liquidation. Otherwise, some, if not all, of the Taxing Authorities may audit the Debtors if the Taxes are not paid on time. These audits will needlessly divert the Debtors' attention away from the liquidation process and diminish their estates. Moreover, the Taxing Authorities may impose penalties for late payment including, but not limited to, significant interest charges. Furthermore, in many jurisdictions, which have laws providing that certain taxes constitute "trust fund" taxes, officers and directors of the collecting entity may be held personally liable for their payments. Mr. Sudell notes that any potential lawsuits would prove extremely distracting for the Debtors, its officers and directors whose attention to the Debtors' liquidation process is required, and for the Court, which might be asked to entertain various motions seeking injunctions with respect to the potential state court actions. The possibility of these distractions should be eliminated. According to Mr. Sudell, the Debtors made their best efforts to pay most of the sales and use taxes in full prior to the Petition Date. Thus, the Debtors hope that there will be only small amounts owing on account of prepetition sales and use taxes. Nevertheless, the Debtors do not know what portion of the checks remitted to the Taxing Authorities cleared prior to the Petition Date. The Debtors anticipate access to sufficient debtor-in-possession financing to pay promptly all of their remaining obligations for the Taxes in the ordinary course of their businesses. The Debtors further request that all applicable banks and other financial institutions be authorized and directed to receive, process, honor and pay any and all checks drawn on the Debtors' accounts to pay the prepetition Taxes, whether the checks were presented prior to or after the Petition Date, provided only that sufficient funds are available in the applicable accounts to cover the payments. The Debtors can readily identify each of these checks by using the "Encore" processing system provided by Bank of America, N.A. Mr. Sudell clarifies that contingent or unliquidated tax amounts are not included in the Debtors' estimate. * * * Judge Walsh grants the Debtors' request to pay their prepetition taxes, in their sole discretion. (Pillowtex Bankruptcy News, Issue No. 48; Bankruptcy Creditors' Service, Inc., 609/392-0900) PNC COMM'L: Fitch Affirms Low-B & Junk Ratings on 7 Note Classes ---------------------------------------------------------------- Fitch Ratings affirms PNC Commercial Mortgage Acceptance Corp.'s commercial mortgage pass-through certificates, series 2000-C1 as follows: -- $119.7 million class A-1 'AAA'; -- $460.7 million class A-2 'AAA'; -- Interest only class X 'AAA'; -- $34 million class B 'AA'; -- $34 million class C 'A'; -- $10 million class D 'A-'; -- $26 million class E 'BBB'; -- $12 million class F 'BBB-'; -- $12 million class G 'BB+'; -- $18 million class H 'BB'; -- $8 million class J 'BB-'; -- $7 million class K 'B+'; -- $8 million class L 'B'; -- $7 million class M 'B-'; -- $4 million class N 'CCC'. Fitch does not rate the $6.7 million class O. The rating affirmations follow Fitch's annual review of this transaction, which closed in June 2000. The rating affirmations reflect the consistent loan performance and minimal reduction of the pool collateral balance since closing. Midland Loan Services, the master servicer, provided year-end 2002 operating statements for 90% of the pool. The YE 2002 weighted average debt service coverage ratio remains stable at 1.51 times, compared to 1.47x at issuance and 1.53x as of YE 2001 for the same loans. Ten loans (3.8%) are currently specially serviced, three (1.2%) of which Fitch expect to result in losses. These include two cross- collateralized and cross-defaulted pools, each with two loans. In both pools, one loan has expected losses, while the other loan is performing. The first crossed group (1.6%) is secured by single tenant industrial properties in Santa Clara, CA. The tenant at one of the properties filed bankruptcy and vacated. The second crossed group (0.7%) consists of stand alone Kmart stores. Kmart has rejected one lease (0.3%), and the borrower has filed bankruptcy. As of the July 2003 distribution date, the pool's aggregate principal balance has been reduced by 4%, to $767.4 million from $801 million at issuance. Fitch will continue to monitor this transaction, as surveillance is ongoing. PRIMEDIA INC: Appoints Martin E. Maleska CEO of B2B Group --------------------------------------------------------- PRIMEDIA Inc. (NYSE: PRM), the leading targeted media company, has appointed media industry veteran Martin E. Maleska, 59, as CEO of PRIMEDIA's B2B Group, which includes PRIMEDIA Business Magazines & Media, PRIMEDIA Workplace Learning and Federal Sources, Inc. In his role as CEO of the PRIMEDIA B2B Group, Mr. Maleska will capitalize on his experience building successful B2B media brands across a number of business sectors, including marketing information systems, healthcare, educational and legal and will focus on creating growth opportunities, generating organic revenue and driving profitability across the company's portfolio of specialized media properties. Mr. Maleska will report to Charles G. McCurdy, who had been overseeing the B2B Group as well as serving as Interim CEO of PRIMEDIA. "Martin has a deep understanding of how to negotiate the challenges that are unique to the business-to-business media environment," said Charles McCurdy, Interim CEO, PRIMEDIA. "While we were colleagues at Macmillan, I was impressed by his ability to build businesses and drive organic revenue growth. He has a keen ability to look both broadly at the market and focus on specific aspects of a business to achieve business objectives. I am even more convinced of those skills today and am confident of his ability to build the B2B business and expand its role in growth markets across the media spectrum." Mr. McCurdy continued, "Without a doubt, today's economic climate has placed additional challenges in front of us. As we navigate through the middle of this business cycle and continue to focus our business, I am confident that Martin can capitalize on the many improvements we have already made and further accelerate our positioning as the leading provider of targeted business-to- business products and services." Mr. Maleska added, "After a period of significant reorganization, the Primedia B2B Group is poised to achieve growth. The company has been able to retain a cadre of talented people. Now by putting customers first and innovatively meeting the needs of the markets it serves, I believe that each company can further build on their position as industry leaders." Mr. Maleska joins PRIMEDIA from Veronis Suhler Stevenson, a leading independent merchant bank dedicated to the media, communications and information industries, where he was Managing Director, Business Information Services; Magazines & Exhibitions and a Principal, VS&A Communications Partners III, LPAs. Prior to his tenure at VSS, Mr. Maleska was President of Simon & Schuster's International and Business Professional Group where he helped the group realize a significant and positive impact on its international revenue and domestic profits. Mr. Maleska's notable career in publishing began at Macmillan Inc. where he held a number of positions and ultimately served as a Senior Vice President. While at Macmillan, he was tasked with overseeing all professional publishing activities and promoting the long-term health of its numerous trade publications, including the publications of Intertec Publishing, which are now part of PRIMEDIA Business Magazines and Media. He served as the Chairman of Intertec when it was owned by Macmillan, then privately held and ultimately acquired by PRIMEDIA. Mr. Maleska earned a BS in Chemistry from Fordham University and an MBA in Finance from New York University. PRIMEDIA (S&P, B Corporate Credit Rating, Stable) is the leading targeted media company in the United States, with positions in consumer and business-to-business markets. Our properties deliver content via print as well as video, the Internet and live events and offer highly effective advertising and marketing solutions in some of the most sought after niche markets. With 2002 sales from continuing businesses of $1.5 billion, PRIMEDIA is the #1 special interest magazine publisher in the U.S. with more than 250 titles. Our well known brands include Motor Trend, Automobile, New York, Fly Fisherman, Power & Motoryacht, Creating Keepsakes, Ward's Auto World, and Registered Rep. The company is also the #1 publisher and distributor of free consumer guides, including Apartment Guides. PRIMEDIA Television's leading brand is the Channel One Network and About is one of the largest sources of original content on the Internet. PRIMEDIA's stock symbol is: NYSE: PRM. PROLOGIC MANAGEMENT: Lacks Capital Resources to Continue Ops. ------------------------------------------------------------- Prologic Management Systems provides systems integration services, maintenance services, technology products and related services. The Company's services include systems integration, maintenance services, and national and regional support in Internet and intranet application and framework design, enterprise and workgroup client/server design and optimization, relational database development, LAN/WAN and workgroup solutions, network design and connectivity, and security and encryption design and deployment. Net loss for the quarter ended June 30, 2003 was $26,850 compared to a loss of $412,047 for the same period of the previous year. The net loss improvement resulted from a favorable change in the sales mix toward increased revenues from sales of higher margin services and software licenses in the first quarter of fiscal 2004. At June 30, 2003 the Company had a working capital deficit of approximately $4,300,000 versus a deficit of approximately $4,401,000 at March 31, 2003. As a result of the working capital deficit at March 31, 2003 (the Company's fiscal year end), the Company's independent certified public accountants have expressed substantial doubt about the Company's ability to continue as a going concern. The total cash balance at June 30, 2003 was $32,631. At June 30, 2003, the Company had current debt obligations, or debt that will become due within twelve months, of $2,137,298. It is unlikely that the Company will be able to service this debt from funds generated by operations alone. As a result, the Company will require additional equity, debt financing, or deferment of debt repayment to maintain current operations and service current debt. Historically the Company has been unable to generate sufficient internal cash flows to support operations, and has been dependent upon outside capital sources to supplement cash flow. New equity investments, lines of credit and other borrowings, and credit granted by its suppliers have enabled the Company to sustain operations over the past several years. In August 1998, the Company had failed to meet the "continued listing criteria" established by NASDAQ and the Company's securities were delisted from the NASDAQ Small Cap Market. The subsequent lack of shareholder liquidity in the Company's securities has materially adversely affected the Company's ability to attract equity capital. Additionally, the lack of capital resources has precluded the Company from effectively executing its strategic business plan. The ability to raise capital and maintain credit sources is critical to the continued viability of the Company. QWEST COMMS: Will Publish Second Quarter Results on September 3 --------------------------------------------------------------- Qwest Communications International Inc. (NYSE: Q) will release second quarter 2003 earnings and operational highlights on Wednesday, September 3, 2003, at approximately 7:00 a.m. EDT. Qwest will host a conference call September 3, 2003, at 9:00 a.m. EDT. The call will feature Richard C. Notebaert, chairman and CEO, and Oren G. Shaffer, vice chairman and CFO, who will provide the company's perspective on second quarter operational results. "We have made significant progress towards completion of our restatement analysis," said Shaffer. "Onsite audit work is substantially complete, and we are now in final preparation and review of our filing, which will include communications with the SEC. We are pleased with our second quarter operational results, and remain on track to meet our previously stated financial outlook for 2003." You may access a webcast (live and replay) of the conference call at http://www.qwest.com/about/investor/meetings Qwest Communications International Inc. (NYSE: Q) -- whose December 31, 2002 balance sheet shows a total shareholders' equity deficit of about $1 billion -- is a leading provider of voice, video and data services to more than 25 million customers. The company's 50,000-plus employees are committed to the "Spirit of Service" and providing world-class services that exceed customers' expectations for quality, value and reliability. For more information, visit the Qwest Web site at http://www.qwest.com RAVEN MOON: Extends Share Dividend Record Date to September 19 -------------------------------------------------------------- Raven Moon Entertainment, Inc.'s (OTC Bulletin Board: RVNM) has extended the record date for Raven Moon shareholders to receive the previously announced 1 for 1 stock dividend for all shareholders of record from August 20, 2003 to September 19th, 2003. The Board has elected to extend the record date for the dividend based upon the adjournment of this past Friday's shareholder meeting. The August 15, 2003 shareholder meeting was adjourned because of the power blackout in New York City and New Jersey which prevented the tabulation of electronic votes by ADP to account for a Quorum. Therefore, Raven Moon will reschedule the shareholder meeting for September 12, 2003. Raven Moon will retain the votes from all shareholders who voted and will only need to obtain votes from those shareholders who did not vote and the votes from those shareholders whom ADP was unable to process. The 1 for 1 stock dividend for all shareholders of record as of September 19th, 2003 is based upon shareholder approval to increase the authorized share total at the September 12 shareholder meeting. The distribution date for the shareholder dividend will be October 1, 2003. Raven Moon is encouraging its shareholders to attend the annual shareholder meeting or fax their proxies directly to ADP (631) 254-7760. For more information please contact 407-877-5952. * * * Raven Moon Entertainment's March 31, 2003 balance sheet shows a $42 total shareholders' equity deficit. In its Form 10-QSB for the quarter ended March 31, 2003, the Company reported: "The Company is currently working to establish the following lines of business: Home Video and Television Productions Internet Retail Sales Music CDs Plush Toys "The [Company's] financial statements are prepared on a going concern basis which assumes that the Company will be able to realize assets and discharge liabilities in the normal course of business. Accordingly, it does not give effect to adjustments, if any, that would be necessary should the Company be unable to continue as a going concern and therefore be required to realize assets and liquidate its liabilities, contingent obligations and commitments in other than the normal course of business and the amounts which may be different from those shown in these financial statements. The ability to continue as a going concern is dependent on its ability to: Obtain additional debt and equity financing. Generate profitable operations in the future. "The Company has initiated several actions to generate working capital; and improve operating performances, including equity and debt financing and cost reduction measures. There can be no assurance that the company will be able to successfully implement its plan, or if successfully implemented the Company will achieve its goals. Furthermore, if the Company is unable to raise additional funds it may be required to reduce its workforce, reduce compensation levels, reduce dependency on outside consultants, modify its growth and operating plans, and even be forced to terminate operations completely." ROWECOM: Claim Traders Offer Unsecured Creditors 6.25% to 12.5% --------------------------------------------------------------- Libraries across the country report that three claim traders are offering cash for claims against RoweCom, Inc. ASM Capital Advisors, LLC, is offering unsecured creditors 6.25% and Liquidity Solutions, Inc., is offering 12.5%. Argo Partners, reportedly, is extending offers in between its competitors' offers. "I would guess that we're not expecting any recovery against Rowecom, so $825 is better than nothing [for our $6,600 claim]," one Arizona law librarian said, commenting on Liquidity Solutions' offer. "We received a similar offer," a Maryland county librarian says. "My guess is that the investors assume they will get at least the amount they have offered," the librarian speculates. "We are a small public library in Iowa and, yes, we received the same offer," another librarian relates. "I've put the question out to my Board of Directors as to what we should do. Our claim was $1,500 and they offered $185. My thought is to wait and see what happens." An Ohio librarian notes that buried in the fine print in these offers is a representation that the acceptor has "adequate information concerning the business and financial condition of the debtor and the status of the proceedings. "I don't think I could affirm that," he says. RoweCom has filed an action against divine, Inc., asserting claims for fraudulent transfers, preferences, fraudulent inducement, negligent misrepresentation, unjust enrichment and piercing the corporate veil. A copy of the divine Complaint can be reviewed at http://www.kccllc.net/rowecom(click on Court Documents, click on Adversary Complaint, RoweCom, Inc. v. divine, inc., Case 03-1028). "The Committee believes that individual creditors of RoweCom may also have claims against the divine debtors under various theories of liability, including some of those asserted by RoweCom against divine," Christopher J. Panos, Esq., at CRAIG AND MACAULEY, representing the Official Committee of Unsecured Creditors in the pending chapter 11 case of RoweCom, Inc., Case No. 03-10668-JNF (Bankr. D. Mass), relates. Craig and Macauley is in the process of preparing and filing on behalf of the Committee a class proof of claim against the divine debtors, asserting claims for damages under some of the theories set forth in the divine Complaint. "There is no assurance, however, that the class proofs of claim will be allowed, that any class will be certified by the Bankruptcy Court, or that any class that may be certified by the Bankruptcy Court will include the claim of any particular creditor. Individual creditors should therefore not rely upon the Committee or this firm to assert any rights or claims they may have against the divine debtors," Mr. Panos stresses. SEROLOGICALS CORP: S&P Affirms & Assigns Low-B Level Ratings ------------------------------------------------------------ Standard & Poor's Ratings Services affirmed its 'B+' corporate credit and 'BB-' senior secured ratings and assigned its 'B-' rating to Serologicals Corporation's proposed $110 million convertible senior subordinated debentures due 2033. The outlook is stable. "The low, speculative-grade ratings reflect Serologicals Corp.'s acquisitive growth model and niche markets," said Standard & Poor's credit analyst David Lugg. Atlanta, Georgia-based Serologicals produces a range of products used by health care companies to discover and manufacture drugs and diagnostic products. These range from specialized reagents for basic research to supplements used in the manufacture of monoclonal antibodies. The supplements used are attractive both from the standpoint of the high margins they command and the regulation-imposed high switching costs faced by their drug company customers. The research reagent business, meanwhile, is being expanded mostly through acquisitions. The most recent, the largely debt-financed $95 million purchase of Chemicon International Inc., was the second acquisition in less than two years in support of the reagent business. However, the company commands a relatively small share of its markets and competes with larger and better-capitalized companies. Indeed, the company's original business, the collection of human blood plasma for use in diagnosis and treatment of various medical conditions, is being discontinued. This franchise was poorly situated in an industry increasingly dominated by large, vertically integrated plasma collectors and fractionators. Despite an increase in capital spending to expand capacity of its important EX-CYTE culture media supplement, the company is expected to readily generate free cash flow. Still, Serologicals' relatively limited financial resources and ongoing need for scientific innovation contributes uncertainty to its prospects for success considering its desire to grow. Adjusting for the Chemicon purchase, Serologicals' debt burden is moderate, with lease- adjusted total debt to capital of about 42% and total debt to EBITDA at 3.1x. SK GLOBAL: Wants Schedule Filing Deadline Moved to September 8 -------------------------------------------------------------- Albert Togut, Esq., at Togut, Segal & Segal LLP, in New York, tells Judge Blackshear that SK Global America Inc. needs more time to file its Schedules of Assets and Liabilities and Statement of Financial Affairs. According to Mr. Togut, the Debtor has over $3,100,000,000 in liabilities, including loan payables, vendor payables and certain other unsecured obligations, as well as extensive contractual relationships. As an international trading company with several offices located throughout the United States, annual sales exceeding $2,600,000,000 and numerous trading partners located in the United States and abroad, the financial affairs and contractual relationships of the Debtor are complex and extensive. Mr. Togut explains that the Debtor's case is still in its early stages. In fact, an official committee of unsecured creditors has not been formed yet. Since the Petition Date, the Debtor has expended substantial time and resources on issues relating to its orderly transition to operating in a Chapter 11 context. In addition to operating its business, the Debtor's personnel and its professionals have been consumed since the Petition Date with many issues that have been complex and time-intensive, including: (a) continuing negotiations with representatives of the Foreign Creditors; (b) addressing the issues and concerns raised by the Debtor's trading partners, both domestic and foreign, regarding the impact of the Chapter 11 process on its trading business; (c) addressing the retention of the Debtor's essential employees; and (d) responding to information requests of the U.S. Trustee and other parties-in-interest, including utilities and landlords. Mr. Togut points out that the Debtor is working diligently to shift to its new status as a debtor-in-possession. The Debtor's financial and accounting staff has been fulfilling the many requests for information and documents required by the Debtor's professionals for the administration of its bankruptcy case. As a matter of fact, Mr. Togut says, the Debtor recently filed an application to employ KPMG LLP as its accountants and financial advisors to provide assistance in the preparation of the Schedules and the other financial reporting requirements imposed upon a debtor-in-possession in Chapter 11. Mr. Togut anticipates the retention will be approved in mid-August. KPMG will therefore need additional time to assist the Debtor in preparing the Schedules. At this juncture, the Debtor calculates that an additional 20-day extension should provide sufficient time within which it can have its Schedules prepared and filed. The accuracy and completeness of the Schedules will, among other things, allow the Debtor to send notice of the claims bar date, to be set by the Court, to the Debtor's creditors on, or shortly after, the filing of the Schedules. Pursuant to Rule 1007(c) of the Federal Rules of Bankruptcy Procedure, the Debtor asks the Court to extend the time for it to file its Schedules of Assets and Liabilities and Statement of Financial Affairs to September 8, 2003. The Debtor discussed its request with the Foreign Bank Steering Committee and the Committee does not oppose the extension sought. (SK Global Bankruptcy News, Issue No. 3; Bankruptcy Creditors' Service, Inc., 609/392-0900) SONIC FOUNDRY: Third Quarter Net Loss Doubles to $4.5 Million ------------------------------------------------------------- Sonic Foundry(R), Inc. (NASDAQ:SOFO), a leading rich media solutions company, announced results for its third quarter and first nine months of fiscal 2003. Results demonstrate several significant activities the company has completed during the last several months, including the sale of its Services and Software businesses. They also reflect its newly formed operations. Revenues, expenses and balance sheet items of the company's previous Services and Software business have been combined as discontinued operations and previously reported financial statements have been restated to reflect the discontinued operations presentation. Highlights for the third quarter and first nine months of 2003 include: -- Third quarter revenues were $343,000, up 96 percent from $175,000 reported for the third quarter of last year, and up 57 percent from $218,000 recorded in the previous second quarter of this year. Year-to-date, revenues were $734,000 for the first nine months of fiscal 2003, up slightly from $718,000 reported for the same period one year earlier. -- For third quarter of fiscal 2003, gross margins were 43 percent compared to 46 percent for the same period a year earlier. Year-to-date, gross margins were 27 percent for the first nine months of fiscal 2003 versus 65 percent for the first nine months of 2002. Gross margins last year included a high margin custom software development project and sales of the company's MediaSite Publisher(TM) rich media content management and indexing product to federal agencies. The company expects margins to increase based on revenue growth from continued market expansion as well as from a mix of new higher margin project revenues it expects to realize from federal agencies. -- Operating expenses were flat quarter-to-quarter at $2.2 million for the third quarter of fiscal 2003 compared to $2.1 million last year. For the nine-month period, operating expenses increased slightly to $6.4 million, versus $5.8 million for the same period a year earlier. The increase for the nine-month period is a result of facility and other one-time expenses the company incurred in connection with disposing of its Services and Software businesses and re-focusing its efforts on the rich media communications market. The company will continue to focus on cost and expense reductions and expects to make significant further cuts in its general, administrative and other operating costs now that the sales of its Services and Software businesses are complete. -- The company reported a net loss for the third quarter of $4.5 million, or 16 cents per share, including a net loss of $2.4 million from discontinued operations. This compares to a net loss of $2.5 million, or 9 cents per share, including a net loss from discontinued operations of $200,000, for the second quarter of 2002. For the nine-month period, the company had a net loss of $10.0 million, including a net loss from discontinued operations of $3.7 million, versus a loss of $52.8 million for the first nine months of fiscal 2002, including a net loss from discontinued operations of $2.3 million. Prior year results also included a $44.7 million non-cash charge to reflect a change in accounting principle to write off goodwill. -- The company continues to build strong market demand and interest in its flagship rich media presentation system, Mediasite Live(TM), within the education, government and corporate enterprise markets. The next generation of Mediasite Live is almost complete and contains a number of new engineering enhancements based on customer input. It will begin shipping in September. At June 30, 2003, the Company's balance sheet shows that its total current liabilities outweighed its total current assets by about $1 million, while net capitalization dwindled to about $8 million from $18 million as at September 30, 2002. "We have begun the next chapter of Sonic Foundry's story," explained Rimas Buinevicius, chairman and CEO of Sonic Foundry. "Our recent objectives have been met and allowed us to strengthen the balance sheet while simultaneously positioning the company toward a strategic focus in rich media communications. We have the cash, the management team, proven technology, a market ripe for growth and a group of talented people to execute our vision and build long-term shareholder value for our investors." Founded in 1991, Sonic Foundry (NASDAQ: SOFO) has positioned itself as a provider of rich media communications technology for the enterprise. The company's integrated Webcasting and Web presentation solutions are trusted by Fortune 500 companies, education institutions and government agencies for a variety of critical communication needs. Sonic Foundry is based in Madison, Wis. For more information about Sonic Foundry, visit the company's Web site at http://www.sonicfoundry.com SPECIAL METALS: Reaches 5-Year Labor Agreements with IAM & USWA --------------------------------------------------------------- Special Metals Corporation (SMCXQ.PK) and the International Association of Machinists and Aerospace Workers have reached agreement on the terms of new five-year collective bargaining agreements for Special Metals' manufacturing facility in New Hartford, New York and Princeton, Kentucky. Two of the agreements, covering maintenance and production employees as well as production support technicians at New Hartford, NY, were ratified by members of the IAM's Local Lodge 2310 on Thursday, August 14, 2003. A third agreement, covering employees at the Company's facility in Princeton, KY was ratified by the IAM Local Lodge 2507 membership on Monday, August 18, 2003. Additionally, on August 8, 2003, the memberships of Local Nos. 7153 and 2693A of the United Steelworkers of America approved new five-year contracts for the Company's manufacturing facilities in Burnaugh, Kentucky and Dunkirk, New York. While the Local No. 40 membership at the Company's Huntington, West Virginia facility did not vote in favor of the new labor agreement on August 8, the Company continues to support the USWA's efforts to reach a quick resolution of this matter. "The approval and implementation of new collective bargaining agreements are a critical component of the Company's Plan of Reorganization," said Special Metals Chief Operating and Restructuring Officer, Dennis L. Wanlass. "We are pleased that the union workers at these facilities have supported the Company in reaching its goal of emerging from the Chapter 11 reorganization process as a financially sound and viable entity." Special Metals is the world's largest and most-diversified producer of high-performance nickel-based alloys. Its specialty metals are used in some of the world's most technically demanding industries and applications, including: aerospace, power generation, chemical processing, and oil exploration. Through its 10 U.S. and European production facilities and a global distribution network, Special Metals supplies over 5,000 customers and every major world market for high-performance nickel-based alloys. Special Metals filed for Chapter 11 protection on March 27, 2002, in the U.S. Bankruptcy Court for the Eastern District of Kentucky in Lexington (Bankr. Case No. 02-10335). SPIEGEL INC: Asks Court to Fix Payment Protections to Utilities --------------------------------------------------------------- Pursuant to the Court-approved procedures by which The Spiegel Debtors would provide adequate assurance of payment, utility companies seeking additional adequate assurance from the Debtors in the form of a deposit or other security were required to make a request in writing so that it was received by the Debtors on or before May 5, 2003. The Procedures Order prescribed a 60-day negotiation period for the Debtors to resolve timely requests for adequate assurance. If no agreement could be reached within this period, the Debtors are required to file a request for determination of adequate assurance of payment. The latest possible date for resolution of a timely request for adequate assurance was July 7, 2003. James L. Garrity, Jr., Esq., at Shearman & Sterling, in New York, reports that the Debtors received 37 timely requests for additional adequate assurance and in each case, with limited exceptions, the Utility Company requested adequate assurance in the form of a security deposit. On June 12, 2003, the Court ruled on AT&T Corp.'s request for adequate payment assurance. The AT&T Adequate Assurance Order provides that AT&T will not alter, refuse or discontinue service to, or discriminate against the Debtors solely on the basis of the Chapter 11 cases or on account of any unpaid invoice for its prepetition services. The AT&T Adequate Assurance Order also provides certain protections to AT&T. The Debtors have attempted to resolve each of the Adequate Assurance Requests with the Utility Companies by offering each of them the same adequate assurance protections provided to AT&T. The Debtors have received responses from nine utility companies -- two of which have accepted the proposal, four have requested specific changes to the proposal, and three have withdrawn their requests for additional adequate assurance. 1. Georgia Power Company Georgia Power agreed to the same adequate assurance protections to be provided to AT&T with these modifications: A. Administrative Expense Priority for Postpetition Services Georgia Power wants to be accorded administrative expense priority status under Section 507(a) of the Bankruptcy Code in addition to Section 503(b). It also wants all claims for postpetition services deemed allowed. B. Expedited Payment for Postpetition Services For the invoices the Debtors generated after adequate assurance is granted, Georgia Power wants the Debtors to pay any of the invoices' undisputed portion by their due date. Conversely, the Debtors offer to pay the invoices within five business days after receipt. C. Expedited Default Procedures The Debtors offered that in the event of a default of payment, Georgia Power may serve, by facsimile, notice of such default on the Debtors and their counsel. If the payment of the undisputed amount is not made by wire transfer or similar good federal funds within five business days of the date of the notice, Georgia Power may seek, by an Order to Show Cause, an order requiring immediate payment. The Debtors will have three business days to object. Georgia Power wants this provision replaced in its entirety. Any non-payment for an undisputed invoice not received by the Due Date should be declared a default. If such default is not cured by providing with payment by wire transfer or similar good federal funds within 10 days of the Due Date, Georgia Power will initiate termination procedures under its rules and regulations. Georgia Power also wants that the Debtors to notify it no later than the Due Date regarding any Disputed Charges and the basis for the dispute. Georgia Power wants the Debtors to engage in good faith efforts to resolve the Disputed Charges. 2. Westar Energy Westar rejected the adequate assurance protections the Debtors offered on the grounds that it should not have to seek Court approval before terminating utility services for non-payment. 3. Alabama Power Company The Debtors understand that Alabama Power agreed to the adequate assurance protections they offered except for the Expedited Default Procedures provisions. Alabama Power requested that in the event of a default of payment, it may serve notice of that default on the Debtors and their counsel, and if payment of the undisputed amount is not made within five business days after the service of notice, it may initiate termination procedures rather than seek the Court's authority to do so. 4. Pacific Gas & Electric Company PG&E has rejected the adequate assurance protections offered by the Debtors on the grounds that it should not have to seek court approval before terminating utility services for non- payment. PG&E desires to return to the billing and payment terms that existed prepetition. Furthermore, PG&E does not wish to receive the financial information offered by the Debtors as part of its proposed adequate assurance package. Mr. Garrity asserts that the Utility Companies are not in a better position than AT&T to demand adequate assurance under Section 366 of the Bankruptcy Code. The Debtors cite as example that on a monthly basis AT&T invoices $1,200,000 in aggregate whereas the Utility Companies invoice $550,000 collectively. Mr. Garrity adds that while all of the Utility Companies are important service providers, the level of utility services provided to them on a monthly basis "pales in comparison with that provided by AT&T." Accordingly, the Debtors ask the Court to provide each Utility Company, including the four Disputing Utilities, with adequate assurance protections substantially in the same form as those provided to AT&T, and to deem each Withdrawing Utility as having received adequate assurance in accordance with the Procedures Order. The Debtors will provide these protections to each Utility Company: (a) Administrative Expense Priority for Postpetition Services A Utility Company will be granted administrative expense priority status under Section 503(b) for services rendered to the Debtors after the Petition Date. (b) Expedited Payment for Postpetition Services For future invoices, the Debtors will pay the undisputed portion of any of the invoices, within five business days of receipt of the invoices from their third party service provider that receives the Utility Company's invoices directly. (c) Timely Access to Monthly Operating Reports. The Debtors will provide copies of their monthly operating reports to a Utility Company's representative contemporaneously with the submission of the reports to the Court and the U.S. Trustee. (d) DIP Reports The Debtors will provide copies of all financial reporting that they are required to make to postpetition secured lenders to a Utility Company provided that it executes a confidentiality agreement. (e) Information Exchange The Debtors and each of the Utility Companies will exchange contact information for employees with sufficient authority to deal with and resolve any disputes regarding late or missed postpetition payments. (f) Expedited Default Procedures In the event of a payment default, a Utility Company may serve by facsimile a default notice on the Debtors. If payment of the undisputed amount is not made by wire transfer or similar good federal funds within five business days of the notice date, the Utility Company may seek to require immediate payment, which the Debtors will have three business days to object to. (g) Expedited Dispute Resolution In the event of any dispute between the Debtors and a Utility Company regarding postpetition payment of obligations not resolved in accordance with the expedited dispute resolution procedures, the Court will hear the dispute, upon motion, by an Order to Show Cause filed by either party, on five business days notice. (h) Reconsideration Upon Material Adverse Change In the event of a material adverse change with respect to the Debtors' "administrative solvency", liquidity or other financial condition or with respect to volume and types of services a Utility Company is providing to the Debtors, the Utility Company may file a motion for reconsideration of the adequacy of the proposed adequate assurance, including requesting a deposit, letter of credit or prepayment for future utility service. The Debtors explain that their financial position continues to be strong, thus leaving the Utility Companies with no risk of non- payment of undisputed bills. More specifically, the Debtors have $90,000,000 cash on hand and have no amounts outstanding under the available postpetition financing facility. In addition, by the end of December 2003, the Debtors estimate that cash flow from operations will be sufficient to fund their obligations. Finally, accounts receivable are forecasted to exceed $40,000,000 at all times postpetition. Given the magnitude of each of the Debtors' potential claims and the value of the ongoing services to be provided by each Utility Company, on a postpetition basis, Mr. Garrity emphasizes that the protections set forth constitute adequate assurance in the present circumstances. (Spiegel Bankruptcy News, Issue No. 10; Bankruptcy Creditors' Service, Inc., 609/392-0900) STRONGHOLD TECH.: June 30 Balance Sheet Upside-Down by $2.6 Mil. ---------------------------------------------------------------- Stronghold Technologies, Inc. (OTCBB:SGHT), the developer of DealerAdvance(TM), an enterprise software system leveraging wireless technologies for the automotive retail industry, announced results for the second quarter ended June 30, 2003. Second Quarter Results Revenue in the second quarter 2003 was $626,779, compared with revenue of $773,194 in the second quarter 2002. "The impact of the war with Iraq on the overall economy early in the second quarter and the completion of restructuring and rebuilding our sales force during the first half of 2003 impacted revenue and the signing of new dealership customer contracts in the second quarter," said Christopher Carey, Chairman and Chief Executive Officer of Stronghold. "While we pursued our goal to expand our direct sales network and operational support personnel for coverage of 13 major cities from nine at the end of 2002, in the second quarter we segmented our sales force into two regions and replaced several under-performing business development managers with experienced industry veterans. "Thanks to a strong support organization and an industry-leading value proposition for DealerAdvance(TM), our revitalized sales force quickly made very encouraging progress. Our customer pipeline in the third quarter-to-date strongly suggests that our initiatives to adjust our sales force organization have been successful." At June 30, 2003, a total of 55 dealers were using DealerAdvance, including system installations in 9 new dealerships located in California, Florida, Maryland, North Carolina, and Texas. In the second quarter, the Company expanded its customer base to include its first Kia dealership, and now has installed DealerAdvance(TM) in dealerships representing 22 major automobile brands. Gross profit in the second quarter was $349,595, compared to gross profit of $414,130 in the year-ago quarter. As a percentage of revenue, gross profit increased 4.1% from 53.6% in the second quarter 2002 to 55.8% in the same quarter of 2003. This improvement in gross profit reflects the Company's ability to control its prices given its premium product offering and continued efforts to reduce cost of sales. Steps to streamline costs include the transition to a more reliable, lighter and less expensive PDA and reductions in fees paid to third-party information services providers. Selling, general and administrative (SG&A) expenses were $1.2 million in the second quarter, compared to $1.0 million in the year-earlier period and $1.1 million in the first quarter 2003. SG&A expenses were only slightly higher than in the first quarter as the Company completed its expansion into new markets and payroll increases for additional sales and marketing staff stabilized. The Company's second quarter 2003 loss from operations was $844,445, compared to a loss of $631,648 in the second quarter 2002. The net loss for the quarter ended June 30, 2003 was $934,665, which is an increase of $249,345 from the loss for the quarter ended June 30, 2002 of $685,320. There was no change in the loss of $.09 per share in the quarter ended June 30, 2003 as compared to the quarter ended June 30, 2002. The weighted average number of common shares outstanding for the second quarters of 2003 and 2002 were 10,301,212 and 7,829,459, respectively. The Company's June 30, 2003 balance sheet shows a working capital deficit of about $2 million, and a total shareholders' equity deficit of about $2.6 million. Additional Capital and Debt Restructuring "We have undertaken a business plan aimed at rapid growth which has required significant resources to design and develop our products and investments in a national sales and support network," said Mr. Carey. "During the second quarter, Stronghold management executed a strategy to improve the Company's liquidity. This strategy included the raising of $2.2 million from Stanford Venture Capital Holdings, Inc., the conversion of $543,000 of debt into equity, and the restructuring of bank debt to reduce principle payments, including the subordination to a future lender." On July 31, 2003, Stronghold entered into a modification of the loan agreement with United Trust Bank. Pursuant to the agreement, United Trust Bank has agreed to reduce monthly payments from $41,666 per month in 2003 to $10,000 per month in 2003 and subordinate its position to a new lender. The balance of the loan will reflect lower monthly payments in the near term until maturity on January 1, 2006. As previously announced, Mr. Carey converted $543,000 of personal loans to Stronghold to fund the purchase of 603,333 shares of the Company's common stock at $0.90 per share, which at the time was a premium to market value. In terms of raising additional capital, as previously announced, Stronghold issued $2.2 million of Series B convertible preferred stock in the second quarter, of which approximately $700,000 in cash will be received in the third quarter. Positioned For Growth "Stronghold has achieved industry leadership in its ability to improve prospect capture and follow-up compliance," continued Mr. Carey. "For our customers, this means a substantial increase in vehicle sales. We have established a significant value proposition that is creating a great deal of interest in DealerAdvance(TM), which is reflected in increased proposal activity in the summer months. "Our existing sales force and sales management can accommodate an increase in customers and revenues to an approximate factor of three with minimal investment. We are well positioned to continue to take market share with a strong product in DealerAdvance(TM), for which we expect to release a substantially improved version in the third quarter, and new applications to follow. "To maximize the investments we have made and the potential we see in the industry, we are considering the pursuit of opportunistic acquisitions to augment our internal growth. The most desirable acquisition targets would be accretive to earnings and have a similar or complimentary product to accelerate our entry into new dealerships. Proceeds raised from the sale of securities in the second quarter may be used to fund acquisitions. Furthermore, the Company is considering other means of liquidity, including, but not limited to, the establishment of a line of credit secured by our accounts receivable to be used for working capital purposes as well as acquisitions." Stronghold Technologies, Inc., is an innovator in applying wireless technology and process improvement methods to increase business efficiency and sales. The Company has developed an integrated wireless technology, called DealerAdvance(TM), which, among many features, allows automobile dealers to capture a customer's purchasing requirements, search inventory at multiple locations, locate an appropriate vehicle in stock and print out the necessary forms. Through an integrated CRM (Customer Relationship Management) application, the systems sends detailed tasks for prospect and customer follow-up and produces management reports to measure compliance. DealerAdvance(TM) allows sales professionals to increase sales, improve customer follow-up, and reduce administrative costs. SUNSHINE PCS: Enters Pact to Sell Spectrum Licenses to Cingular --------------------------------------------------------------- Sunshine PCS Corporation (OTC Pink Sheets: SUNPA.PK) has entered into a definitive agreement with Cingular Wireless in which Cingular will acquire three licenses in Florida for $13.75 million. The licenses are for spectrum in markets where Cingular currently has voice and data operations. Under terms of the deal, Cingular would pay $13.75 million in cash, and obtain FCC authorization to operate on 15 MHz of broadband PCS (1900 MHz) spectrum in the following markets: Tallahassee, Panama City and Ocala. Sunshine PCS and Cingular also entered into other commercial arrangements to facilitate service in these markets. The sale requires approval by the shareholders representing a majority of the voting power of all outstanding shares of Sunshine PCS. In addition, completion of the sale is subject to the consent of the Federal Communications Commission to the transfer of the licenses. In connection with the transaction, Sunshine PCS has reached an agreement with Lynch Interactive Corporation, which owns all of the outstanding shares of the three series of Preferred Stock of Sunshine PCS, to acquire those shares for a total of approximately $7.2 million. Sunshine PCS also has reached an agreement with the holder of its 3,069,313 shares of Class B Common Stock to reacquire such shares for $.20 per share. The acquisition of both the Preferred Stock and Class B Common Stock would coincide with the sale of the licenses to Cingular. With regard to the remaining sale proceeds, Sunshine PCS is in the process of evaluating all of its alternatives and will consider all options with regard to their potential use. Cingular Wireless, a joint venture between SBC Communications (NYSE: SBC) and BellSouth (NYSE: BLS), serves more than 23 million voice and data customers across the United States. A leader in mobile voice and data communications, Cingular is the only U.S. wireless carrier to offer Rollover, the wireless plan that lets customers keep their unused monthly minutes. Cingular has launched the world's first commercial deployment of wireless services using Enhanced Data for Global Evolution (EDGE) technology. Cingular provides cellular/PCS service in 43 of the top 50 markets nationwide, and provides corporate e-mail and other advanced data services through its GPRS, EDGE and Mobitex packet data networks. Details of the company are available at http://www.cingular.com Sunshine PCS Corporation (OTC Pink Sheets: SUNPA.PK), as the successor to Fortunet Communications, L.P., owns three 15- megahertz PCS licenses for Tallahassee, Panama City and Ocala, Florida, covering a population of approximately 900,000. At June 30, 2003, Sunshine PCS's balance sheet shows a total shareholders' equity deficit of about $13 million. SUNSHINE PCS: Lynch Interactive Will Redeem Preferred Shares ------------------------------------------------------------ Lynch Interactive Corporation (AMEX:LIC) announced that as part of the transaction that was recently announced by Sunshine PCS Corporation (OTC:SUNPA.PK) pursuant to which Sunshine has agreed to sell its three PCS licenses to Cingular Wireless for a total of $13.75 million Lynch Interactive has agreed to accept $7.2 million in exchange for all its preferred stock of Sunshine. At June 30, 2003, all such preferred stock had a liquidation value of $26.2 million and a cash cost to Lynch Interactive of $21 million. The final accounting for this transaction will be recorded when the sale of the licenses is consummated and will take into account the proceeds received by Lynch Interactive as well as certain indemnification obligations. This transaction will result in substantial cash and economic loss to Lynch Interactive. However, it is important to note that Lynch Corporation reserved for this potential loss and, indeed, appears to have over-reserved for book purposes. The perception of an over supply of spectrum, operating difficulties of many companies in the wireless industry and a bleak outlook by Wall Street analysts contributed to Sunshine's difficulties and also resulted in the bankruptcies of many of the companies that participated in PCS auctions, the most visible of which is Nextwave Telecom Inc. In 1995, Lynch Corporation invested in the Federal Communications Commission's auction for C-Block PCS spectrum through various partnerships which formed the basis of Sunshine. At that time, Lynch Corporation invested approximately $21 million. In 1997, as part of an FCC restructuring program, Fortunet returned to the FCC 28 licenses and half of the spectrum of the remaining three licenses, thereby retaining 15 MHz of spectrum in the three Florida cities of Tallahassee, Panama City and Ocala. In 1999, Lynch Corporation spun off Lynch Interactive to its shareholders. In 2001, Lynch Interactive spun off most of its common equity investment in Sunshine. Lynch Interactive, based in Rye, NY, is a diversified holding company engaged in telecommunications, cable TV and broadcasting, personal communications and related wireless services. Lynch Interactive's World Wide Web address is: http://www.lynchinteractivecorp.com Sunshine PCS Corporation (OTC Pink Sheets: SUNPA.PK), as the successor to Fortunet Communications, L.P., owns three 15- megahertz PCS licenses for Tallahassee, Panama City and Ocala, Florida, covering a population of approximately 900,000. At June 30, 2003, Sunshine PCS's balance sheet shows a total shareholders' equity deficit of about $13 million. TELENETICS: Prepays Third Installment Under Corlund Settlement -------------------------------------------------------------- On August 8, 2003, Telenetics Corporation prepaid the third installment called for under its Settlement Agreement with Corlund Electronics, which was due by August 20, 2003, and recorded a gain of approximately $541,000. Based in Lake Forest, Telenetics designs, manufactures and distributes wired and wireless data communications products for customers worldwide. Telenetics offers a wide range of industrial grade modems and wireless products, systems and services for connecting its customers to end-point devices such as meters, remote terminal units, traffic and industrial controllers and remote sensors. Telenetics also provides high-speed communications products for complex data networks used by financial institutions, air traffic control systems and public and private wireless network operators. Additional information is available at http://www.telenetics.com As reported in Troubled Company Reporter's April 23, 2003 edition, the Company's auditors Haskell & White LLP stated in its report for the period December 31, 2002: "The [Company's] consolidated financial statements have been prepared assuming that the Company will continue as a going concern. . . . [T]he Company has suffered recurring losses from operations, has used cash in operations on a recurring basis, has an accumulated deficit, and is involved in a dispute with a significant contract manufacturer that, among other things, raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty." UAL CORP: Court Lifts Stay for US Bank to Control Deposit Funds --------------------------------------------------------------- U.S. Bank, N.A., on behalf of the bondholders secured by pledged funds, obtained relief from the automatic stay to permit it to exercise rights and remedies to money deposited in the Bond Fund. U.S. Bank, N.A. serves as Indenture Trustee for the Miami-Dade County Industrial Development Authority. On March 1, 2000, the MDCIDA issued a Miami-Dade County Industrial Development Authority Special Facilities Revenue Bonds Series 2000, for $32,365,000. The proceeds were used to finance the acquisition, construction and improvement of a portion of the Miami Airport. The MDCIDA deposited the proceeds into a Bond Fund and a Project Fund. Instead of providing a loan, the MDCIDA permitted United to take draws from the Project Fund. United was obligated to repay the money drawn from the Project Fund by paying the principal and interest on the Bonds. The Bonds are limited obligations of the MDCIDA and are payable only from the Trust Estate, which is pledged to U.S. Bank as Trustee for the benefit of the Holders. Pursuant to the Indenture, U.S. Bank has a first lien on the Bond Fund. United does not have a direct present interest in the Bond Fund, which was established by the issuer, MDCIDA. The money in the Bond Fund is in U.S. Bank's possession and does not constitute property of United's estate. (United Airlines Bankruptcy News, Issue No. 24; Bankruptcy Creditors' Service, Inc., 609/392-0900) UNITED STATIONERS: Names P. Cody Phipps as SVP for Operations ------------------------------------------------------------- United Stationers Inc. (Nasdaq: USTR) announced that P. Cody Phipps has joined the company as senior vice president, operations. He will report directly to Richard W. Gochnauer, president and chief executive officer. Phipps, 41, joins United Stationers after 13 years with McKinsey & Company, Inc., where he had been a partner in its Chicago office. He was one of the leaders in the firm's North American Operations Effectiveness Practice, and co-founded and led its Service Strategy and Operations Initiative, which focused on driving significant operational improvement in complex service and logistics environments. Prior to working at McKinsey, Phipps began his management consulting career with The Information Consulting Group, a systems consulting firm. Prior to that, he was an account marketing representative at IBM for five years. "I am pleased to have Cody on board as a member of United Stationers' senior management team," said Richard W. Gochnauer, president and chief executive officer. "His experience with operational transformation includes designing and leading initiatives to help clients improve supply chain management, boost margin and operating performance, reduce operating expenses, and increase customer satisfaction. All of these are key current initiatives at United. We believe that Cody's strategic expertise in these areas will be extremely helpful." Phipps has an M.B.A from the University of Chicago Graduate School of Business and a bachelor's degree in mechanical engineering from Ohio State University. He and his wife live in Bannockburn, Illinois with their four children. United Stationers Inc. (S&P, BB Corporate Credit Rating, Negative), with trailing 12 months sales of approximately $3.8 billion, is North America's largest broad line wholesale distributor of business products and a provider of marketing and logistics services to resellers. Its integrated computer-based distribution system makes more than 40,000 items available to approximately 15,000 resellers. United is able to ship products within 24 hours of order placement because of its 35 United Stationers Supply Co. distribution centers, 24 Lagasse distribution centers that serve the janitorial and sanitation industry, two Azerty distribution centers in Mexico that serve computer supply resellers, and two distribution centers that serve the Canadian marketplace. Its focus on fulfillment excellence has given the company an average order fill rate of better than 97%, a 99.5% order accuracy rate, and a 99% on-time delivery rate. For more information, visit http://www.unitedstationers.com The company's common stock trades on The NASDAQ Stock Market(R) under the symbol USTR and is included in the S&P SmallCap 600 Index. US AIRWAYS: Reaches Stipulation Allowing AAU's $3-Million Claim --------------------------------------------------------------- Associated Aviation Underwriters filed Claim Nos. 2179 through 2186 against the US Airways Debtors for $7,836,769. AAU also filed a request to modify the automatic stay to enforce its alleged rights. The Reorganized Debtors objected. Now, the Reorganized Debtors and AAU have reached a stipulation. The parties agreed that AAU's $7,836,769 Worker's Compensation Proof of Claim No. 2186 is reduced and allowed as a Class USAI-1 secured claim for $3,050,000. All of AAU's remaining Proofs of Claim are disallowed. In exchange, AAU will disburse to the Reorganized Debtors $1,050,000 held in a trust account for insurance claims. Upon this transaction, the parties will have no further duties or liabilities to each other out of any agreement. (US Airways Bankruptcy News, Issue No. 36; Bankruptcy Creditors' Service, Inc., 609/392-0900) U.S. STEEL: Names Anthony Bridge Blast Furnace Managing Director ---------------------------------------------------------------- United States Steel Corporation (NYSE: X) has named Anthony R. Bridge managing director-blast furnace engineering and technology. In this new position, Bridge will oversee operating practices and furnace maintenance issues related to attaining longer life for U. S. Steel's 15 blast furnaces worldwide. In his new position, effective September 1, Bridge will report to John H. Goodish, executive vice president-operations. "As an integrated steelmaker, the effective management of our blast furnaces is absolutely critical to the financial success of U. S. Steel," said U. S. Steel President and Chief Operating Officer John P. Surma. "Tony's job will be to determine how we run our blast furnaces, what technology we use to upgrade them, and how, when and if we rebuild them. With his extensive ironmaking experience, there is no one more qualified than Tony for this challenging and important new position." Bridge, 49, began his career in the steel industry with Inland Steel in East Chicago, Ind., in 1976 and moved through a series of supervisory and management positions in ironmaking operations. In 1995, he moved to Rouge Steel in Dearborn, Mich., as superintendent of ironmaking. He joined U. S. Steel in 1998 as area manager of the No. 13 blast furnace - U. S. Steel's largest blast furnace - at Gary Works in Gary, Ind. He was promoted to division manager of iron producing in 1999, and to plant manager of primary operations in 2001, a position he held until his current promotion. Bridge earned bachelor's degrees in industrial management and electrical engineering, both from Purdue University. He serves on the Board of Directors for the Gary Chamber of Commerce and the Gary Baseball Foundation, a joint effort of U. S. Steel, the South Shore RailCats and the City of Gary, which provides funding assistance to support youth baseball in the City of Gary. He and his family will relocate to Pittsburgh. For more information about U. S. Steel visit http://www.ussteel.com * * * As reported in Troubled Company Reporter's May 9, 2003 edition, Standard & Poor's Ratings Services lowered its corporate credit rating on integrated steel producer United States Steel Corp. to 'BB-' from 'BB' based on concerns about the firm's increased financial risk. Standard & Poor's said that it has removed its ratings on Pittsburgh, Pennsylvania-based United States Steel from CreditWatch, where they were placed with negative implications on Jan. 9, 2003. The current outlook is negative. The company had about $1.7 billion in lease-adjusted debt at March 31, 2003. At the same time, Standard & Poor's said it has assigned its 'BB-' rating to United States Steel Corp.'s proposed $350 million senior notes due 2010. U.S. STEEL: Names Leslie J. Broglie GM of Tubular Products ---------------------------------------------------------- United States Steel Corporation (NYSE: X) (S&P, BB- Corporate Credit Rating, Negative) has named Leslie J. Broglie as general manager-tubular products. The appointment is effective September 1. In his new position at Pittsburgh headquarters, Broglie will be responsible for manufacturing, sales and marketing activities for U. S. Steel's tubular business. He succeeds Gary Gajdzik, who has been appointed plant manager-primary operations at Gary Works in Gary, Ind. "In addition to the knowledge gained from his sales and marketing positions for both United States Steel International and U. S. Steel Kosice, Les Broglie brings to his new position nearly 20 years of experience in operations," said U. S. Steel President and Chief Operating Officer John P. Surma. "We look forward to his leadership in this significant area of our business." Broglie, 52, began working at U. S. Steel in 1974 as a management trainee in sheet and tin operations at the Mon Valley Works near Pittsburgh. He was promoted to turn foreman for the cold reduction mill the next year, and to general foreman in 1981. In 1984, Broglie was named area manager of the cold reduction mill and roll shops at Mon Valley Works, and progressed through several management positions in sheet products. In 1993, he was named manager of APEX and special processing and, in 1995, manager of sales and technical services for United States Steel International at Pittsburgh headquarters. He moved to U. S. Steel Kosice in Slovakia in 2001 where he served as general manager of sales and, since 2002, as managing director of sales and marketing. Broglie is a 1974 graduate of Drexel University, where he earned a bachelor of science degree in commerce and engineering. U.S. STEEL: Names Gary F. Gajdzik Plant Manager at Gary Works ------------------------------------------------------------- United States Steel Corporation (NYSE: X) (S&P, BB- Corporate Credit Rating, Negative) has named Gary F. Gajdzik plant manager- primary operations for Gary Works in Gary, Ind. The appointment is effective September 1. Gajdzik succeeds Anthony Bridge, who has been named managing director-blast furnace engineering & technology. As plant manager- primary operations, Gajdzik will oversee coke, iron and steel production at Gary Works, which includes responsibility for the plant's four blast furnaces, two basic oxygen process steelmaking facilities, four continuous casting lines and coking operations. "Gary's extensive experience in operations combined with the quality leadership skills he has demonstrated throughout his career make him an excellent choice for this key production position at our flagship plant," said U. S. Steel President and Chief Operating Officer John P. Surma. Gajdzik, 50, joined U. S. Steel in 1974 as a management trainee at the former National-Duquesne Works near Pittsburgh and progressed through a series of engineering positions in pipe and tubular production. From 1983 to 1996, he advanced through a number of increasingly responsible positions in the company's tubular operations at Fairfield, Ala., and Lorain, Ohio, before he was named general manager-steel production and casting at the former USS/Kobe joint venture in Lorain. In 1998, he was promoted to vice president-operations, and in 1999 to president of Lorain Tubular Co., LLC, which was formed in August that year following the transfer of USS/Kobe's steelmaking and bar production assets to Republic Technologies International. Later in 1999, Gajdzik transferred to Pittsburgh headquarters to serve as general manager-tubular products, a position he held until his most recent assignment. Gajdzik holds a bachelor of science degree in engineering mechanics from Pennsylvania State University and a master's degree in business administration from Cleveland State University. For more information about U. S. Steel visit its Web site at http://www.ussteel.com VELANT INC: Voluntary Chapter 7 Case Summary -------------------------------------------- Debtor: Velant, Inc. 900 Circle 75 Parkway Suite 300 Atlanta, Georgia 30339 Bankruptcy Case No.: 03-70186 Type of Business: Velant provided premium transportation planning solutions to improve the efficiency of truck transportation. Chapter 7 Petition Date: July 25, 2003 Court: Northern District of Georgia (Atlanta) Judge: Margaret Murphy Debtors' Counsel: J. Robert Williamson, Esq. Scroggins and Williamson 1500 Candler Building 127 Peachtree Street, N.E. Atlanta, GA 30303 Tel: (404) 893-3880 Chap. 7 Trustee: John W. Ragsdale, Jr. 2400 International Tower 229 Peachtree St., NE Atlanta, GA 30303-1629 Tel: 404-588-0500 Ch. 7 Trustee's Counsel: John W. Ragsdale, Jr., Esq. Ragsdale, Beals, Hooper and Seigler 2400 International Tower 229 Peachtree Street, N.E. Suite 2400 Atlanta, GA 30303-1629 Tel: (404) 588-0500 Total Assets: $1,272,531 Total Debts: $3,430,769 VICWEST CORP: Canadian Court Approves CCAA Plan of Arrangement -------------------------------------------------------------- As previously announced, Vicwest Corporation and certain of its Canadian subsidiaries obtained an order on May 12, 2003 to begin Vicwest's restructuring under the Companies' Creditors Arrangement Act. On August 14, 2003, the Ontario Superior Court of Justice granted a sanction order approving a plan of compromise and reorganization proposed by Vicwest pursuant to the CCAA. A copy of the Sanction Order will be filed with the Canadian securities regulators on their Web site at http://www.sedar.com At this time it is anticipated that Vicwest will emerge from its restructuring process in September, 2003. Vicwest, with corporate offices in Oakville, Ontario, is Canada's leading manufacturer of metal roofing, siding and other metal building products. WEIRTON STEEL: Gets Open-Ended Lease Decision Period Extension -------------------------------------------------------------- Weirton Steel Corporation obtained an extension of time within which it must assume, assume and assign, or reject its unexpired nonresidential real property leasaes, through and including the Confirmation Date of a Chapter 11 plan, subject, however, to: (1) each Lessor's right to request the extension of time be shortened, and (2) the Debtor's retention of the burden of proof on the issue of why extension of time should not be shortened. Weirton Steel Corporation is lessee to at least two unexpired nonresidential real property leases, relating to its operating facilities: Expiration of Lessor Location/Use Current Term ------ ------------ ------------- Solid Waste Services, Inc. Brooke County 9/24/2008 d/b/a J.P. Mascaro & Sons Landfill, Colliers, West Virginia Use: Dedicated industrial waste disposal cell Teramana LTD #1 Weirton, West Virginia 7/31/2004 Use: Rehab center and vision center (Weirton Bankruptcy News, Issue No. 7; Bankruptcy Creditors' Service, Inc., 609/392-0900) WESTPOINT STEVENS: Court Okays Stroock as Committee's Counsel ------------------------------------------------------------- The Official Committee of Unsecured Creditors of WestPoint Stevens Inc., obtained Judge Drain's permission to retain Stroock & Stroock & Lavan LLP as its counsel in these Chapter 11 cases, nunc pro tunc to June 10, 2003. As counsel, Stroock is expected to: A. advise the Committee with respect to its rights, duties and powers in these Cases; B. assist and advise the Committee in its consultation with the Debtors relative to the administration of these cases; C. assist the Committee in analyzing the claims of the Debtors' creditors and the Debtors' capital structure and in negotiating with holders of claims and equity interests; D. assist the Committee in its investigation of the Debtors' acts, conduct, assets, liabilities and financial condition and operation of their businesses; E. assist the Committee in its analysis of, and negotiations with, the Debtors or any third party concerning matters related to, among other things, the assumption or rejection of certain leases of non-residential real property and executory contracts, asset dispositions, financing of other transactions and the terms of a plan(s) of reorganization for the Debtors and accompanying disclosure statements and related plan documents; F. assist and advise the Committee as to its communications to the general creditor body regarding significant matters in these Cases; G. represent the Committee at all hearings and other proceedings; H. review and analyze applications, orders, statements of operations and schedules filed with the Court and advise the Committee as to their propriety; I. assist the Committee in preparing pleadings and applications as may be necessary in furtherance of the Committee's interests and objectives; and J. perform any other legal services as may be required or are otherwise deemed to be in the interests of the Committee in accordance with the Committee's powers and duties as set forth in the Bankruptcy Code, Bankruptcy Rules or other applicable law. Stroock will charge for its legal services on an hourly basis in accordance with its ordinary and customary hourly rates in effect on the date the services are rendered. The current hourly rates charged by Stroock for professionals and paraprofessionals employed in its offices are: Partners $500 - 750 Special Counsel and Counsel 400 - 510 Associates 185 - 500 Paraprofessionals 150 - 245 The names, positions and current hourly rates of the Stroock professionals currently expected to have primary responsibility for providing services to the Committee are: Lawrence M. Handelsman Partner $725 Michael J. Sage Partner 725 Mark E. Palmer Partner 625 Shannon Lowry Nagle Special Counsel 510 Patty Perez Associate 495 Jonathan Gill Associate 395 Joshua Lefkowitz Associate 320 (WestPoint Bankruptcy News, Issue No. 6; Bankruptcy Creditors' Service, Inc., 609/392-0900) WHEELING: Second Post-Confirmation Changes to Contracts & Leases ---------------------------------------------------------------- Wheeling-Pittsburgh Steel Corporation notifies the Court of changes to its Schedule of Assumed Contracts and Leases included in the Third Amended Plan. WPSC discloses that an amended agreement relating to a cogeneration facility, which supplies electricity and steam to the WPSC Mingo Junction Plant, and which is operated by Mingo Junction Energy Center LLC on WPSC's behalf, has now been amended and restated, and as so amended, will now be assumed. Objection to Mingo Junction Energy Claim Mingo Junction filed a claim for $1,418,648 against the WPSC estate for amounts due it under the existing energy contract. This claim was amended to increase the amount to $3,004,825. In the Debtors' Second Omnibus Objection to Claims, WPSC objected to the allowance of the claim as amended, and asked the Court to reduce and allow it for $1,591,685.47. Amendment of Mingo Junction Energy Contract As the Mingo Energy contract is "central to WPSC's continued operations, Mingo Junction and WPSC have negotiated the Amended Mingo Junction Energy Contract under which the parties have agreed that WPSC will not be required to pay any cure amount in connection with assumption of the Amended Mingo Junction Energy Contract. James M. Lawniczak, Esq., at Calfee Halter & Griswold LLP, in Cleveland, points out that this is very beneficial to WPSC's estate. As part of the settlement, Mingo Energy will be allowed an unsecured claim against WPSC's estate amounting to $1,165,443.97, and the Second Omnibus Objection will be withdrawn as it pertains to Mingo Energy's claim. (Wheeling-Pittsburgh Bankruptcy News, Issue No. 44; Bankruptcy Creditors' Service, Inc., 609/392-0900) WICKES INC: June 28 Balance Sheet Upside-Down by $9 Million ----------------------------------------------------------- Wickes Inc. (NASDAQSC:WIKS), a leading distributor of building materials and manufacturer of value-added building components, reported a second quarter 2003 net loss of $37.7 million, or $4.54 per fully diluted share compared to net income of $2.3 million, or $0.28 per fully diluted share, reported for the second quarter 2002. The second quarter 2003 net loss includes a non-cash deferred tax asset valuation allowance charge of $29.6 million offset by a $5.1 million tax benefit, or $2.95 per fully diluted share, and store closing and other charges of $3.7 million, or $0.45 per fully diluted share. Sales of $127.6 million for the second quarter 2003 compared to $160.5 million reported in the second quarter of 2002. The second quarter 2002 figure includes $21.9 million in sales at centers sold or closed prior to second quarter 2003. The Company's same store sales trend improved over the course of the quarter, from a 14.1 percent decline in April, to an 8.1 percent decline in May and to a 3.9 percent decline in June. In the fourth quarter of 2002, the Company sold thirty-one sales and distribution centers and four component plants to Lanoga Corporation. The results of these operations have been reclassified as discontinued operations for the three and six month periods ended June 28, 2002, including sales of $74.1 million for the second quarter of 2002 and sales of $124.5 million for the first half of 2002. In addition, the Company has sold or closed eight other sales and distribution centers since the second quarter of 2002. Currently, the Company operates 52 sales and distribution facilities compared to 60 sales and distribution facilities included in the 2002 financial statement presentation. Commenting on the quarter, Jim O'Grady, Wickes newly appointed President and Chief Executive Officer, said, "This business is all about customer service delivering building materials on-time and complete at the lowest cost possible. We have worked extremely hard to reduce operating and overhead costs to make sure we are spending at a level which is consistent with our current sales volume. As a result, the second quarter includes the impact of many costs incurred to provide permanent reductions in expense and a lower operating structure for the rest of the year. Sales growth is also an important objective as management has worked to reorganize and streamline our operating structure. The sales trend during our second quarter is an important positive sign and July has continued to improve as well. We are at a turning point whereby we can become a low cost supplier poised to aggressively pursue growth in sales and operating profitability. Wickes has consistently benefited from hard working employees, customers who are some of the smartest builders in the industry and vendors who have shown steadfast loyalty. I am grateful for the enthusiastic support of everyone involved in this Company and I feel very strongly that everyone's continued support in executing our plan will be worth the effort." Jim Hopwood, Wickes Chief Financial Officer, added, "Management has worked through many of the issues resulting from both our recent leadership changes and aggressive store count reductions. We are now instituting and executing a series of plans and actions designed to improve the Company's operating results and cash flows and to strengthen the Company's financial position. These include headcount reductions at headquarters, targeted reductions in operating expenses and optimization of the Company's real estate portfolio. We are also working to secure capital through the sale of additional equity, through borrowings, or through an exchange or restructuring of the Company's existing debt obligations. The Company has continued to have senior lender support throughout this transition period. Equally important, we are sensitive to investor and employee concerns and we are therefore pleased to have retained the investment banking firm of Brown, Gibbons, Lang & Company to assist us in our efforts to recapitalize Wickes for longer term stability and growth." Gross profit of $25.6 million for the second quarter 2003 or 20.1 percent of sales compared to $34.3 million or 21.4 percent of sales reported for the second quarter of 2002. The decline as a percent of sales was the result of changes in purchasing methods, management's efforts to reduce inventory levels as well as commodity price volatility and competitive pricing issues. Selling, general and administrative expenses of $30.0 million or 23.5 percent of sales for the second quarter 2003 compared to $30.8 million or 19.2 percent of sales reported for the second quarter of 2002. Store closing and severance costs increased to $3.7 million from the $0.8 million reported for the second quarter of 2002. In addition, other income for the second quarter of 2002 included $1.3 million in gains on the sale of real estate which were not repeated in the second quarter of 2003. As a result, the company reported a second quarter 2003 loss from continuing operations before interest and taxes of $9.2 million compared to a $3.1 million income from continuing operations before interest and taxes reported for the second quarter of 2002. At June 28, 2003, the Company's balance sheet shows a total shareholders' equity deficit of about $9 million. Wickes Inc. is a leading distributor of building materials and manufacturer of value-added building components in the United States, serving primarily building and remodeling professionals. The Company distributes materials nationally and internationally, operating building centers in the Midwest, Northeast and South. The Company's building component manufacturing facilities produce value-added products such as roof trusses, floor systems, framed wall panels, pre-hung door units and window assemblies. Wickes Inc.'s Web site -- http://www.wickes.com-- offers a full range of valuable services about the building materials and construction industry. WORLD HEART: Lenders Further Extend Loan Maturity to September 2 ---------------------------------------------------------------- World Heart Corporation's lenders have agreed to a further extension of the maturity date of its senior and subordinated loans, from August 15, 2003 until September 2, 2003. The company is continuing to work towards completion of a financial transaction within this time frame. World Heart Corporation, a global medical device company based in Ottawa, Ontario and Oakland, California, is currently focused on the development and commercialization of pulsatile ventricular assist devices. Its Novacor(R) LVAS (Left Ventricular Assist System) is well established in the marketplace and its next generation technology, HeartSaverVAD(TM), is a fully implantable assist device intended for long-term support of patients with end- stage heart failure. WORLDCOM: Gets Go-Signal to Hire Cushman as Real Estate Broker -------------------------------------------------------------- Worldcom Inc., obtained permission from the Court to employ Cushman & Wakefield, Inc. as its real estate broker in connection with the sale of a certain parcel of real property located at 901 Stewart Avenue in Garden City, New York. The Debtors currently own real property located at 901 Stewart Avenue, Garden City, New York. The Debtors have determined that they do not need the Property in their ongoing business operations. Thus, the Debtors decided to pursue the sale of the Property. Cushman worked with Hilco Real Estate, LLC, the Debtors' real estate professional as the brokers for the sale of the Property, and as a result of these efforts, succeeded in negotiating a sale of the Property to 901 Stewart Partners, LLC for $5,775,000, which represents the highest and best offer received for the Property. Specifically, pursuant to the Agreement, Cushman made diligent efforts to consummate the sale agreement for the Property. In connection therewith, Cushman has, among other things, provided these services to the Debtors: (i) provided background information on the market, competitive buildings and rent comparables for the Property; (ii) assisted the Debtors in the preparation of multiple replies to requests for information from the Purchaser, as well as multiple economic analyses based on changing criteria; and (iii) assisted the Debtors in negotiating and finalizing the sale. The Debtors will compensate Cushman for professional services rendered under the Agreement with a commission equal to 1.5% of the total sale price that otherwise would have been paid to Hilco on the closing of the sale of the Property, for a total payable of $86,625. Because Hilco has informed the Debtors that it has agreed to share the commission to which it is entitled under its retention agreement and the Order approving its retention, the retention of Cushman will not cost the Debtors any additional amounts. (Worldcom Bankruptcy News, Issue No. 34; Bankruptcy Creditors' Service, Inc., 609/392-0900) ZI CORPORATION: Recurring Losses Raise Going Concern Uncertainty ---------------------------------------------------------------- Zi Corporation (Nasdaq: ZICA) (TSX: ZIC), a leading provider of intelligent interface solutions, announced results for its second quarter and first six months ended June 30, 2003. (All monetary amounts in this release are expressed in Canadian dollars unless otherwise indicated.) Chief Executive Officer Michael Lobsinger said that even though the widespread impact of the SARS epidemic in Asia temporarily disrupted the Company's growth rate, its core Zi Technology unit did report year-over year increases in revenue and gross margins in the 2003 second quarter and continued to make solid progress in building its business and expanding its base of strategic partners. For this year's second quarter and first six months, revenues from the Company's core Zi Technology business increased 11 percent and 52 percent, respectively, to $2.3 million and $5.9 million. This compares to revenues of $2.0 million and $3.9 million for the respective 2002 periods. On a company-wide basis, total revenues for this year's second quarter and first six months were $2.4 million and $6.2 million, respectively. This compares to total company-wide revenue of $3.2 million and $5.3 million in the second quarter and first six months of last year, which included $1.1 million and $1.4 million, respectively from the Company's e-Learning segment and its previously owned Magic Lantern operation. Excluding Magic Lantern, which was sold in November of last year, total revenues in the 2002 second quarter and first six months would have been $2.2 million and $4.2 million, respectively. The net loss for the 2003 second quarter was reduced significantly to $2.1 million, or a loss per share of $0.06, from a net loss of $7.1 million, or a loss per share of $0.19, for the second quarter of 2002. For the first six months of 2003, the net loss declined sharply to $3.8 million, or a loss per share of $0.10, from a net loss of $12.7 million, or a loss per share of $0.34, for the comparable year-earlier period. "The temporary interruption in the momentum of our business and the sequential decline in revenues from the first quarter of 2003 can be directly attributed to the SARS epidemic that swept large parts of Asia," Lobsinger said. "SARS affected consumer spending on an unprecedented basis throughout Asia, significantly reducing the purchases of mobile handsets from many of our largest customers, which directly impacted our license fee revenues. "Despite the impact of SARS, we made significant operational and marketing progress during this year's second quarter," Lobsinger added. "We added seven new Original Equipment Manufacturers (OEMs) and Original Design Manufacturers (ODMs) to our growing network of marketing partners, including UTStarcom, Fujitsu I-Network Systems, Vitelcom and Samyang, expanded our penetration of the North American market and took steps to reduce debt and strengthen our balance sheet. I believe we are well positioned to grow our Zi Technology business and we remain firmly committed to reaching profitability and positive cash flow by the end of this year." Gross margin as a percentage of revenue in this year's second quarter was 92 percent compared to 82 percent in the second quarter of the prior year. The year-to-year increase in overall gross margin percentage was a result of higher license fee revenues, which carry a greater gross margin than revenues from the Company's e-Learning operations. A total of 39 new handset models embedded with eZiText were released by OEMs and ODMs during the 2003 second quarter, bringing the total handsets released as of the end of the quarter to 288 compared to 110 at the end of the 2002 second quarter. As of June 30, 2003, the Company had signed a total of 79 licensees, compared to 58 licensees at the end of the 2002 second quarter. Royalties were earned royalties from 32 eZiText licensees during the second quarter of this year, up from 21 in the same period a year earlier. During this year's second quarter, Zi paid and discharged its US$3.3 million secured credit facility that was due May 7, 2003, and entered into a secured US$1.94 million short term credit facility that was due on June 30, 2003. On June 18, 2003, the Company completed a private placement with the sale of 1 million units at US$2.00 per unit and used the proceeds of that placement to repay the US$1.94 million according to the agreed upon terms of the short term credit facility. Continued operation of Zi depends on the Company achieving profitable operations in 2003 and satisfaction of remaining amounts due under a 2002 settlement agreement in respect to patent litigation. Extracts from the notes to financial statements for the period ended June 30, 2003 are included with this press release and provide detailed information respecting these qualifications and contingencies. Zi Corporation -- http://www.zicorp.com-- is a technology company that delivers intelligent interface solutions to enhance the user experience of wireless and consumer technologies. The company's intelligent predictive text interfaces, eZiTap(TM) and eZiText, allow users to personalize the device and simplify text entry providing consumers with easy interaction for short messaging, e- mail, e-commerce, Web browsing and similar applications in almost any written language. eZiNet(TM), Zi's new client/network based data indexing and retrieval solution, increases the usability for data-centric devices by reducing the number of key strokes required to access multiple types of data resident on a device, a network or both. Zi supports its strategic partners and customers from offices in Asia, Europe and North America. A publicly traded company, Zi Corporation is listed on the Nasdaq National Market (ZICA) and the Toronto Stock Exchange (ZIC). For the periods ended June 30, 2003 and 2002 GOING CONCERN BASIS OF PRESENTATION These consolidated financial statements are prepared on a going concern basis, which assumes that the Company will be able to realize its assets at the amounts recorded and discharge its liabilities in the normal course of business in the foreseeable future. The Company has incurred operating losses over the past three years. On December 6, 2002, the Company settled a judgment in favour of Tegic Communications Inc., a division of AOL Online, Inc., as discussed in note 2. Under the terms of the settlement agreement, the Company, among other things, is obliged to pay a further US$1.25 million comprised of two installments between September 2003 and January 2004. Continuing operations are dependent on the Company being able to pay the remaining installment payments due under the settlement agreement with AOL and increase revenue and achieve profitability. These financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that may be necessary should the Company be unable to pay the remaining installment payments due under the terms of the settlement agreement with AOL, raise additional capital, increase revenue and continue as a going concern. CONTINGENT LIABILITIES The US$9 million damages judgment awarded to Tegic was settled pursuant to a written settlement agreement with AOL dated December 6, 2002 and a consent judgment dated December 20, 2002. Settlement costs were included as part of legal and litigation costs as at December 31, 2002, including US$1.25 million, which remains to be paid in scheduled installment payments in September 2003 and on January 2, 2004. In the event that any of the scheduled Outstanding Balance payments are not paid as required under the terms of the settlement agreement, then the amount of US$9 million less all payments made to AOL to the date of such payment default becomes immediately due and payable by the Company to AOL. In the event of any Outstanding Balance payment default, the Default Payment Amount would range between US$4.5 million to US$5.75 million depending upon the date of such payment default. Security agreements entered into by the Company with AOL to secure payment of the Default Payment Amount become enforceable in the event of any Outstanding Balance payment default. When the Outstanding Balance is paid to AOL in full on or before the scheduled payment dates, the security agreements entered into by the Company with AOL are terminated and the Company is fully released from any obligation to pay the Default Payment Amount to AOL. The Default Payment Amount also becomes due and payable by the Company to AOL if, prior to the payment in full of the Outstanding Balance to AOL, any of the following circumstances occurs and are not cured within ten days of occurrence: (i) the Company advances any claims against AOL or its affiliates in respect of patent infringement before July 6, 2003; (ii) the Company or any other person commences any action to avoid any payments made by the Company to AOL including any of the remaining scheduled installment payments; (iii) the Company violates the terms of the Consent Judgement; or (iv) the Company breaches any of the terms of the settlement agreement. * Meetings, Conferences and Seminars ------------------------------------ September 18-21, 2003 AMERICAN BANKRUPTCY INSTITUTE Southwest Bankruptcy Conference The Venetian, Las Vegas, NV Contact: 1-703-739-0800 or http://www.abiworld.org September 12, 2003 AMERICAN BANKRUPTCY INSTITUTE ABI/GULC "Views from the Bench" Georgetown Univ. 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Contact: 1-703-739-0800 or http://www.abiworld.org April 29-May 1, 2004 ALI-ABA Partnerships, LLCs, and LLPs: Uniform Acts, Taxation, Drafting, Securities, and Bankruptcy Fairmont Hotel, New Orleans Contact: 1-800-CLE-NEWS or http://www.ali-aba.org May 3, 2004 AMERICAN BANKRUPTCY INSTITUTE New York City Bankruptcy Conference Millennium Broadway Conference Center, New York, NY Contact: 1-703-739-0800 or http://www.abiworld.org June 2-5, 2004 AMERICAN BANKRUPTCY INSTITUTE Central States Bankruptcy Workshop Grand Traverse Resort, Traverse City, MI Contact: 1-703-739-0800 or http://www.abiworld.org June 24-26,2004 AMERICAN BANKRUPTCY INSTITUTE Hawaii Bankruptcy Workshop Hyatt Regency Kauai, Kauai, Hawaii Contact: 1-703-739-0800 or http://www.abiworld.org July 15-18, 2004 AMERICAN BANKRUPTCY INSTITUTE The Mount Washington Hotel Bretton Woods, NH Contact: 1-703-739-0800 or http://www.abiworld.org July 28-31, 2004 AMERICAN BANKRUPTCY INSTITUTE Southeast Bankruptcy Workshop The Ritz-Carlton Reynolds Plantation, Lake Oconee, GA Contact: 1-703-739-0800 or http://www.abiworld.org September 18-21, 2004 AMERICAN BANKRUPTCY INSTITUTE Southwest Bankruptcy Conference The Bellagio, Las Vegas, NV Contact: 1-703-739-0800 or http://www.abiworld.org October 10-13, 2003 NATIONAL CONFERENCE OF BANKRUPTCY JUDGES Seventy Seventh Annual Meeting Nashville, TN Contact: http://www.ncbj.org/ December 2-4, 2004 AMERICAN BANKRUPTCY INSTITUTE Winter Leadership Conference Marriott's Camelback Inn, Scottsdale, AZ Contact: 1-703-739-0800 or http://www.abiworld.org April 28- May 1, 2005 AMERICAN BANKRUPTCY INSTITUTE Annual Spring Meeting J.W. 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