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/raid1/www/Hosts/bankrupt/TCR_Public/030825.mbx T R O U B L E D C O M P A N Y R E P O R T E R Monday, August 25, 2003, Vol. 7, No. 167 Headlines 3D SYSTEMS: Court Issues Rulings in Patent Infringement Suit AAMES CAPITAL: Fitch Affirms Class B2F Note Rating at BB ALLEGIANCE TELECOM: Holland Lauds FCC's Triennial Review Ruling ALL STAR GAS: Secures Nod to Access $3-Million DIP Financing AMERCO: Court Gives Nod on Crowell's Retention as Counsel AMERICAN TECH: Insufficient Funds Spur Going Concern Doubts AMERICREDIT CORP: Look for Q4 and FY 2003 Fin'l Results Today ANC RENTAL: Court Gives Go-Ahead for Asset Sale to Cerberus BOYD GROUP: Discloses Second Quarter 2003 Results CATELLUS DEV'T: S&P Affirms Rating & Revises Outlook to Positive CELL-LOC: Commencing 56% Reduction of Non-Management Employees CBR BREWING CO.: Red Ink Continued to Flow in June 2003 Quarter CHAMPION ENTERPRISES: S&P Removes Low-B Level Ratings from Watch CHERRY VALLEY FURNITURE: Voluntary Chapter 11 Case Summary CINCINNATI BELL: S&P Places Unsecured Debt Ratings on Watch Pos. CIENA CORP: Third-Quarter 2003 Net Loss Stands at $89 Million COLD METAL: Tranzon Auctioning Indianapolis Facility CONSECO: Fitch Withdraws Default Sr. Debt & Preferred Ratings COOPERATIVE COMPUTING: Holding Q3 2003 Conference Call Tomorrow CROWN CASTLE: Declares Quarterly Dividend for 12-3/4% Preferreds CUMMINS INC: S&P Removes Low-B Level Ratings from CreditWatch DENNY'S CORP: Lloyd Miller, III Discloses 14.5% Equity Stake DIRECTV LATIN AMERICA: Raven Media's Bid for Trustee Denied DLJ MORTGAGE: Fitch Takes Rating Actions on Series 1998-2 Notes EAGLE FOOD: Court Clears 2 Separate Purchase Pacts for 4 Stores EASYLINK SERVICES: Half-Year Revenues Plummets to $51M from $60M ENRON CORP: Court Clears BT Exploration Sale to SGA for $21-Mil. ENVOY COMMS: Has Until October 20 to Meet Nasdaq Requirements FANSTEEL: Court Extends Lease-Related Decisions through Nov. 7 FEDERAL-MOGUL: Committees Hire Russell Reynolds for Exec. Search FRIEDE GOLDMAN: Court to Consider Proposed Plan on November 18 GAP INC: Second-Quarter 2003 Results Show Improved Performance GAP INC: Names Patti DeRosa to Head Creative Talent Development GENEVA: Taps Health and Safety to Conduct Environmental Survey HEADLINE MEDIA: Closes $4.9 Million Private Equity Placement HEALTHSOUTH: Appoints Robert P. May to Head Ambulatory Services HERCULES: Rights Pact Amended to Expire on Sept. 19 HORIZON TELECOM: Ability to Continue as Going Concern in Doubt HUDSON TECHNOLOGIES: Falls Below Nasdaq Min. Listing Requirement INDYMAC: Fitch Cuts Class BF Rating to Speculative Grade Level INFOUSA INC: S&P Assigns BB Rating to $145M Senior Secured Debt KMART CORP: Seeks Clearance for Settlement Agreement with JDA KMART: Ratings on Two Related Credit Lease Transactions Cut to D KRYSTAL CO: Declining Operations Spur Outlook Revision to Neg. LOUIS FREY CO.: Case Summary & 20 Largest Unsecured Creditors MAGELLAN HEALTH: Brings-In Accenture as Operations Consultants MED DIVERSIFIED: SEC to Commence Formal Probe into Financials METROMEDIA FIBER: Bankruptcy Court Confirms Chapter 11 Plan MOBILE COMPUTING: Conv. Debentures Maturity Extended to Friday MOONEY AEROSPACE: Meets Business Objectives for First Half 2003 NATIONAL STEEL: Court Finds the Disclosure Statement Adequate NORSKE SKOG: Exchange Offer Extended Until August 29, 2003 NOVA CHEMICALS: Expects Power Outage to Impair Q3 Fin'l Results NRG ENERGY: Court Okays Proposed Lease Rejection Procedures NVIDIA CORP: Completes Acquisition of MediaQ, Inc. Business OHIO CASUALTY: Appoints Myra C. Selby to Board of Directors ONESOURCE TECH.: June 30 Balance Sheet Upside-Down by $570,000 PARTHENON: Class B Notes Rating Down to Speculative-Grade Level PG&E NAT'L: USGen Will Honor Prepetition Critical Vendor Claims PILLOWTEX: Look for Schedules & Statements Around Sept. 28 POLAROID CORP: Court Extends Lease Decision Time to November 30 PRIMUS: Will Present at New York & Toronto Investor Conferences QWEST COMMS: Applauds FCC Decision in Broadband Communications REVCARE: Pursuing Additional Financing from Shareholder FBR SAFETY-KLEEN: Seeks OK to Buy Land to Implement SCDEC Settlement SINGING MACHINE: Selling $4 Million of Convertible Debentures SMITHFIELD FOODS: Reports Improved 1st Quarter Financial Results STARWOOD COMMERCIAL: Series 1999-C1 Note Ratings Cut & Affirmed TALKPOINT COMMS: Ability to Continue as Going Concern Doubted TEMBEC: Inks Agreement to Purchase Nexfor Sawmills in Canada TENFOLD: Hires Two New Sales Executives in San Francisco Office TRENWICK GROUP: Selling Trenwick International to Bestpark Ltd. UNICCO: S&P Affirms Low-B/Junk Ratings After Debt Refinancing UNITED AIRLINES: Turns to Ernst & Young for Valuation Advice UNITEDTRUST BANK: On Watch Positive After Merger Announcement US AIRWAYS: Stipulation Settles APG-America Claims U.S. STEEL: Names Susan Kapusta as GM of Community Affairs US UNWIRED: S&P Raises Corporate Credit Rating to CCC- from CC WARNACO GROUP: Alvarez Adopts Trading Plan under SEC Rule 10b5-1 WARNACO GROUP: Third Point Demands Seat on Warnaco Board WILLIAMS CONTROLS: UAW Union Ratifies to New Portland Labor Pact WORLDFCOM INC: MCI Reacts to Release of Triennial Review Order * Fitch Says Trailing Twelve Month Default Rate Falls in July * Sheppard Mullin Hires Victoria Spang as Chief Mktg. Officer * BOND PRICING: For the week of August 25 - 29, 2003 ********* 3D SYSTEMS: Court Issues Rulings in Patent Infringement Suit ------------------------------------------------------------ 3D Systems Corp. (NASDAQ: TDSC) announced that the United States District Court for the Central District of California issued claim construction and summary judgment rulings August 20, 2003, in the EOS GmbH Electro Optical Systems vs. DTM Corporation and Compression, a division of Moll Industries, Inc., and 3D Systems, Inc. patent infringement lawsuit. 3D Systems acquired DTM in August 2001. As a result of a 1997 license agreement, EOS was licensed under the 3D Systems' patents to the extent the patents pertain to the field of laser sintering. The Court ruled that one claim of one of the 13 asserted 3D Systems' patents, US Patent No. 5,630,981 ('981 patent), licensed to EOS was infringed by the DTM machines at issue. The Court also ruled with respect to a patent issued to DTM, US Patent No. 5,990,268 ('268 patent) that a key term was not able to be construed. The '268 patent covers the use of nylon powders in laser sintering. In addition, the Court ruled that EOS' assertion of infringement against DTM, under the licensed 3D Systems' patents, was not barred by laches and estoppel. Three other summary judgment motions on behalf of 3D Systems and DTM were denied. The motions dealt with willful infringement of the powder '268 patent, validity of the '268 patent, and license agreement interpretation with respect to EOS being licensed under the DTM patents acquired by 3D Systems in the merger with DTM. In other rulings, the Court construed three patent claim terms in a manner that excludes as being applicable to laser sintering 11 of the 37 claims EOS has asserted from the 3D Systems' patents as practiced by DTM. "3D Systems is disappointed with the rulings but views this as one step in a long process," said G. Walter Loewenbaum II, Chairman of the Board of Directors. "3D Systems will appeal the rulings and believes that the law and the facts favor its position and will ultimately prevail, particularly given that these issues will be reviewed anew in the appellate court." Founded in 1986, 3D Systems(R), the solid imaging company(SM), provides solid imaging products and solutions that reduce the time and cost of designing products and facilitate direct and indirect manufacturing. Its systems utilize patented technologies to create physical objects from digital input that can be used in design communication, prototyping, and as functional end-use parts. 3D Systems currently offers the ThermoJet(R) solid object printer, SLA(R) (stereolithography) systems, SLS(R) (selective laser sintering) systems, and Accura(R) materials (including photopolymers, metals, nylons, engineering plastics, and thermoplastics). 3D Systems is the originator of the advanced digital manufacturing (ADM(SM)) solution for manufacturing applications. ADM is the utilization of 3D Systems solid imaging technologies to accelerate production of smaller volumes of customized/ specialized parts. A typical ADM center is expected to contain multiple 3D Systems' SLA, MJM and/or SLS systems dedicated to full-time manufacturing applications. Product pricing in the U.S. ranges from $49,995, for the ThermoJet printer, to $799,000 for the high-end SLA 7000 system. 3D Systems' multiple platform product line enables companies to choose the most appropriate systems for applications ranging from the creation of design communication models to prototypes to production parts More information on the company is available at http://www.3dsystems.com * * * At June 27, 2003, the Company's balance sheet shows that its total current liabilities exceeded its total current assets by about $1.4 million. As reported in Troubled Company Reporter's August 8, 2003 edition, Deloitte and Touche LLP informed 3D Systems in April that it did not intend to stand for reelection as the Company's principal independent accountant. On July 16, 2003, Deloitte advised the Company that the client-auditor relationship between the Company and Deloitte had ceased. Deloitte's 2002 report contained an explanatory paragraph relating to a going concern uncertainty. AAMES CAPITAL: Fitch Affirms Class B2F Note Rating at BB -------------------------------------------------------- Fitch Ratings has affirmed the following Aames Capital Corp issue: Series 1997-C Group 1: -- Classes A5F, A6F affirmed at 'AAA'; -- Class M1F affirmed at 'AA'; -- Class M2F affirmed at 'A'; -- Class B1F affirmed at 'BBB'; -- Class B2F affirmed at 'BB' and removed from Rating Watch Negative. The affirmations on these classes reflect credit enhancement consistent with future loss expectations. Class B2F is removed from rating watch negative due to lower projected losses on the collateral pool. Fitch will continue to closely monitor this transaction. ALLEGIANCE TELECOM: Holland Lauds FCC's Triennial Review Ruling --------------------------------------------------------------- Royce J. Holland, chairman and chief executive officer of Allegiance Telecom, Inc. (OTC Bulletin Board: ALGXQ), the leading nationwide local exchange carrier, congratulated the Federal Communications Commission for issuing its long-awaited Triennial Review ruling. Thursday's release of the FCC 's Triennial Review Order deals with the FCC's unbundling rules for local competition. The FCC's rules provide the basis for facilities-based competitors, like Allegiance, to compete against the Bell companies in the small and medium-sized enterprise market by having equal access to bottleneck facilities controlled by the Bells. Holland congratulated the Commission "for implementing a more granular analysis for local transport and for ensuring that the local loop bottleneck remains accessible by facilities-based competitors using today's technology." Holland stated, "We believe the FCC has done its best to follow the DC Circuit Court's directive to modify its rules to require a more granular assessment of competition in a number of areas. Specifically, the Commission did a good job in developing a new unbundling test for loops and transport that reflect the level of competition in these markets. In addition, we are extremely pleased in how the Commission changed its rules to curtail the anticompetitive activities of Verizon in denying competitors bottleneck facilities under their phony "no-facilities" policy." However, despite the Commission's preservation of access to loop facilities using today's TDM (time division multiplexing) technology, it expanded the availability of resale of the platform (UNE-P) while simultaneously denying access to advanced packet- switching technologies for facilities-based competitors. According to Holland, this action undermines the real-world investments that many facilities-based carriers, like Allegiance, have plowed into the economy in exchange for hollow, worn out promises of investments by the Bell companies. Furthermore, the Commission has frozen Moore's Law for facilities-based competitors and small businesses across America. This Commission action -- promoted as a way to incent deployment of new technology -- will deny competitors access to bottleneck local loop facilities for the deployment of advanced technology and ultimately relegate small businesses to one monopoly supplier for advanced broadband services. "Unlike the residential market, the SME market does not enjoy any significant amount of competition from cable, satellite or wireless," Holland said. "The deployment of broadband solutions in this vital segment of the economy has been driven almost entirely by facilities-based competitors, and it is critical that the FCC take another look at its decision on broadband to recognize the distinct market differences that exist between the residential market and the small and medium business sector." "Being restricted to the use of today's TDM technology will allow us to remain competitive in the near term. After that, due to the continuing price-performance improvements in advanced packet technology, competitors will be placed in the same untenable position that old analog cell phones face today in competing with advanced digital handsets." Holland added, "[T]hat the continued technological improvements in advanced packet technologies will allow telecom service providers to deliver more calling features, higher bandwidths, and the ability to rapidly add lines and new features at lower costs." "If the FCC fails to revise or clarify this aspect of the Triennial Review decision," Holland continued, "the economic impact to this vital segment of the American economy will be felt for years to come as productivity and competitiveness in this sector will be held hostage by a single monopoly supplier without any incentive to respond to the market forces of competition." "It is our hope that the Commission will reconsider its denial of a competitive choice for integrated broadband services to small businesses across America or that the courts will do so. In either case, we believe this decision should not stand for it ultimately harms the competitive position of America's critical small business sector and discourages investment for competitive facilities," said Holland. Allegiance Telecom is a facilities-based integrated communications provider headquartered in Dallas, Texas. As the leader in competitive local service for medium and small businesses, Allegiance offers "One source for business telecom(TM)" -- a complete package of telecommunications services, including local, long distance, international calling, high-speed data transmission and Internet services and a full suite of customer premise communications equipment and service offerings. Allegiance currently serves 36 major metropolitan areas in the U.S. with its single source provider approach. Allegiance's common stock is traded on the over the counter market under the symbol ALGXQ.OB. For more information, visit http://www.algx.com As reported in Troubled Company Reporter's August 8, 2003 edition, Fitch Ratings withdrew its 'D' senior unsecured and 'DD' senior secured debt ratings of Allegiance Telecom. Allegiance filed for Chapter 11 bankruptcy-court protection on May 14, 2003. Fitch will no longer be providing financial analysis on this company. ALL STAR GAS: Secures Nod to Access $3-Million DIP Financing ------------------------------------------------------------ All Star Gas Corporation announced that Debtor-in-Possession financing has been arranged with its senior secured lenders and approved by the U.S. Bankruptcy Court. The approximately $3 million in interim financing will be used to support current operations and to purchase gas in anticipation of delivery requirements in the coming 2003-2004 fall and winter season. All Star Gas filed for Chapter 11 reorganization protection on July 21, 2003, and at the time of the filing noted that the company had reached agreement in principle with its major creditors on a post-petition financing plan. The U.S. Bankruptcy Court has approved the financing on an interim basis, limited to budgeted needs by the company of approximately $3 million. Final approval of the financing providing access to additional funding during the upcoming year is scheduled for hearing before the Court in September. "Our number one priority has been and remains today to continue operating as a safe, reliable supplier of propane for our customers throughout the restructuring process, and the DIP financing provides the resources to continue purchasing gas now for this fall and winter," said John Gordon, chief executive officer of All Star Gas. "This financing, therefore, is an important part of providing our existing and new customers with high levels of service. "The restructuring of debt was the first step toward improving the long-term health of All Star Gas, and this financing is another positive step for the company and its customers," said Gordon. "Additionally, it's worth noting that the company has met its propane delivery goals for July and currently is well ahead of its August goals." All of the company's 59 retail locations are continuing to operate throughout the restructuring process. For more than 30 years, All Star Gas has provided dependable, affordable propane to residential and business customers. The company and its subsidiaries currently supply approximately 48,000 customers in Arkansas, Arizona, Colorado, Missouri, Oklahoma and Wyoming. Further information on All Star Gas is accessible at http://www.allstargas.com AMERCO: Court Gives Nod on Crowell's Retention as Counsel --------------------------------------------------------- AMERCO sought and obtained the Court's authority to employ Crowell & Moring as its special counsel in connection with the SEC's "fact-finding inquiry" concerning Amerco's financial statements. Crowell & Moring's employment will be under the terms of an Engagement Letter dated March 20, 2003, and supplemented on March 21, 2003. As special counsel, Crowell & Moring will: (a) manage and conduct Amerco's response to the SEC Investigation, including, but not limited to, responding to the SEC's information and related requests; (b) represent Amerco and certain of its current and former employees in testimony before the SEC; and (c) counsel Amerco in other aspects of the SEC Investigation and related proceedings. Jeffrey F. Robertson, Esq., a partner in the Securities Regulation and Enforcement group of Crowell & Moring LLP, tells the Court that the firm will charge the Debtor these hourly rates: Partners $335 - 550 Counsel and associates 195 - 550 Paraprofessionals 120 - 250 Crowell & Moring will also seek Court approval of its out-of- pocket expenses in connection with its performance of the agreed services. (AMERCO Bankruptcy News, Issue No. 5; Bankruptcy Creditors' Service, Inc., 609/392-0900) AMERICAN TECH: Insufficient Funds Spur Going Concern Doubts ----------------------------------------------------------- American Technology Corporation is engaged in design, development and commercialization of sound, acoustic and other technologies. Its primary focus is on marketing four of its proprietary sound reproduction technologies and supplying components based on these technologies to customers. The Company's financial statements are presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The ability of the Company to continue as a going concern is contingent upon it obtaining sufficient financing to sustain its operations and its ability to ultimately generate profits and positive cash flow from operations. The Company has funded its operations primarily through the issuance of securities and debt financings. Other than cash of $1,866,335 at March 31, 2003 the Company has no other material unused sources of liquidity at this time. Based on its current cash position and projections for future revenues and currently planned expenditures, the Company will need to raise additional capital of approximately $2 million to continue operations at planned levels during the next twelve months. While management believes that investment capital in sufficient amounts will be available to the Company, there can be no guarantee that American Technoloty will be able to raise funds on terms acceptable to it, or at all. The Company has significant debt that comes due in December 2003 and December 2004. Based on its current plan and assumptions, the Company anticipates that it will be able to meet its cash requirements for the next twelve months. Management believes increased product sales may provide additional operating funds and believes that any additional investment capital will be available if required. Management has significant flexibility to adjust the level of research and development and selling and administrative expenses based on the availability of resources. Management expects to incur additional operating losses as a result of expenditures for research and development and marketing costs for sound and other products and technologies. The timing and amounts of these expenditures and the extent of the Company's operating losses will depend on many factors, some of which are beyond management's control. Management anticipates that the commercialization of the Company's technologies may require increased operating costs, however management cannot currently estimate the amounts of these costs. There can be no assurance that any funds required during the next twelve months or thereafter can be generated from operations or that such required funds would be available from the aforementioned or other potential sources. The lack of sufficient funds from operations or additional capital could force the Company to curtail, scale back operations, or cease operations and would therefore have a material adverse effect on the Company's business. As such, there is substantial doubt about the Company's ability to continue as a going concern. AMERICREDIT CORP: Look for Q4 and FY 2003 Fin'l Results Today ------------------------------------------------------------- AmeriCredit Corp. (NYSE:ACF) will release its complete fourth quarter and fiscal year 2003 operating results today. The company will issue this earnings release after market close. A conference call to discuss the results will begin at 5:30 p.m. EDT. The conference call will be broadcast live for all interested parties via the company's Web site at http://www.americredit.com It is necessary to go to the company's Web site to register, download and install any necessary audio software prior to the call. For those who cannot listen to the live broadcast, a replay will be available shortly after the call is completed. AmeriCredit Corp. is a leading independent middle-market auto finance company. Using its branch network and strategic alliances with auto groups and banks, the Company purchases retail installment contracts entered into by auto dealers with consumers who are typically unable to obtain financing from traditional sources. AmeriCredit has more than one million customers and over $14 billion in managed auto receivables. The Company was founded in 1992 and is headquartered in Fort Worth, Texas. For more information, visit http://www.americredit.com As reported in Troubled Company Reporter's August 11, 2003 edition, Fitch Ratings said it maintained the 'B' rating and Negative Rating Outlook for AmeriCredit Corp.'s senior unsecured debt following ACF's announcement of a delay in releasing operating results for quarter and fiscal year ended June 30, 2003. Approximately $375 million of debt is affected by this action. Standard & Poor's Ratings Services placed its 'B+' long-term counterparty credit rating of AmeriCredit Corp. on CreditWatch with negative implications. ANC RENTAL: Court Gives Go-Ahead for Asset Sale to Cerberus ----------------------------------------------------------- ANC Rental Corporation and its debtor-affiliates sought and obtained Court nod to sell substantially all of their assets free and clear of claims, liabilities and encumbrances, pursuant to an Asset Purchase Agreement, dated as of June 12, 2003, executed by: 1. the Debtors; 2. CAR Acquisition Company LLC and any direct or indirect subsidiaries of Cerberus Capital Management, L.P., affiliates of Cerberus Capital Management or any newly formed entity affiliated with Cerberus Capital Management, as Cerberus Capital Management may in its sole discretion designate; and 3. Cerberus Capital Management, L.P.; Lessors Want Section 365 Satisfied At least 25 lessors and parties-in-interest object to the sale and the resultant assumption and assignment of their contracts and leases to the successful purchaser, unless the Debtors and the proposed assignee first satisfy all of the requirements of Sections 365(b) and (f) of the Bankruptcy Code. The Objecting Parties include: 1. Union Station Venture, Ltd.; 2. General Electric Capital Corporation; 3. Metropolitan Nashville Airport Authority; 4. The City of Albuquerque International Sunport; 5. Broward County - Ft. Lauderdale - Hollywood International Airport; 6. Metropolitan Washington Airports Authority; 7. The City of Oakland, a municipal corporation, acting through its Board of Port Commissioners; 8. Pensacola Regional Airport-City of Pensacola; 9. Sarasota-Manatee Airport Authority; 10. Tulsa Airports Improvement Trust; 11. Charlotte/Douglas International Airport; 12. Port Authority of New York and New Jersey; 13. Dallas Fort Worth International Airport Board; 14. Port of Portland; 15. Kansas City Missouri Aviation Department; 16. Walt Disney World, Co.; 17. CIT Communications Finance Corporation; 18. Rockwell Firstpoint Contact Corp.; 19. Denver International Airport; 20. City of Palm Springs; 21. National Union Fire Insurance Company of Pittsburgh; 22. San Francisco International Airport; 23. City of Los Angeles, Dept. of Airport; 24. H & W Computer Systems, Inc.; and 25. MBIA Insurance Corporation. Pursuant to Section 365, a debtor may not assume an executory contract or unexpired lease if there has been a default in the contract or lease unless, at the time of assumption, it: -- cures, or provides adequate assurance that it will promptly cure, the default; -- compensates, or provides adequate assurance that it will promptly compensate, affected contract parties for any actual pecuniary loss resulting from the default; and -- provides adequate assurance of future performance under the contract or lease. The Objecting Parties complain that the Debtors have not provided any financial information regarding the proposed purchaser. It does not appear from that the Purchaser's financial condition and operating performance is similar to the Debtors' financial condition and operating performance at the time the Debtors became the lessee under the Leases, as required by Section 365(b)(3)(A). The Objecting Parties demand strict proof of the fulfillment of this requirement. Texas Taxing Authorities Seek Tax Payment Certain Texas Taxing Authorities seek payment of various taxes owed to them by the Debtors. The Taxing Authorities object to the Sale if the payment is not satisfied. Alternatively, the Taxing Authorities ask the Court to order the Debtors to allocate a portion of the sale proceeds for the payment of these taxes. The Texas Taxing Authorities are: 1. Bell County; 2. County of Comal; 3. County of Denton; 4. Longview Independent School District; 5. County of Guadalupe; 6. City of Seguin; 7. City of Selma; 8. Seguin Independent School District; 9. Lateral Roads; 10. Midland Central Appraisal District; 11. County of Taylor; 12. City of Abilene; 13. Abilene Independent School District; 14. County of Williamson; 15. Williamson County RFM; 16. City of Arlington; 17. Bexar County; 18. Cameron County; 19. City of Carrollton; 20. Coppell ISD; 21. Cypress-Fairbanks ISD; 22. Dallas County; 23. City of El Paso; 24. City of Harlingen; 25. Harlingen CISD; 26. Harris County/City of Houston; 27. Hidalgo County; 28. Houston ISD; 29. Humble ISD; 30. Jefferson County; 31. Katy ISD; 32. City of McAllen; 33. Montgomery County; 34. New Braunfels ISD; 35. Nueces County; 36. City of Richardson; 37. Round Rock ISD; 38. Tarrant County; 39. Lubbock Central Appraisal District; 40. Midland County Tax Office; 41. Potter County Tax Office; 42. Randall County Tax Office; 43. Spring Branch Independent School District; 44. Clear Creek Independent School District; 45. Alief Independent School District; 46. Spring Independent School District; 47. Brazoria County; 48. Brazos River Harbor Navigation District; 49. Special Road & Bridge; 50. Brazosport Independent School District; 51. Brazosport College; 52. Velasco Drainage District; 53. Northwest Harris County MUD #21; 54. Northwest Harris County MUD #22; 55. Arlington ISD; 56. City of Lake Jackson; 57. City of Fort Worth; 58. Fort Worth ISD; 59. City of Hurst; 60. Grapevine Colleyville; and 61. Clayton County Tax Commissioner. Property taxes constitute a valid, liquidated secured claims against the Debtors' property and are entitled to priority over other secured claims under Section 506 of the Bankruptcy Code. The laws of the State of Texas, Property Tax Code, Section 32.05(b), give the tax liens securing the property taxes superiority over the lien of any other claim or lien against the property. This tax claim is entitled to priority as a secured claim, and over other secured claims, pursuant to Bankruptcy Code Section 506. These Taxing Authorities have each filed prepetition secured proofs of claim against the Debtors for ad valorem property taxes assessed against the Debtors' real and personal property for years 2001 and prior. The aggregate prepetition tax debt asserted by the Taxing Authorities is: Tax Authority Prepetition Tax Debt ------------- -------------------- City of Arlington $10,019 Bexar County 506,684 Cameron County 7,023 City of Carrollton 5,888 Coppell ISD 18,063 Cypress-Fairbanks ISD 23,058 Dallas County 775,444 City of El Paso 42,314 City of Harlingen 10,009 Harlingen CISD 28,576 Harris County/City of Houston 984,167 Hidalgo County 25,966 Houston ISD 168,435 Humble ISD 13,321 Jefferson County 42,617 Katy ISD 111,493 City of McAllen 4,891 Montgomery County 27,661 New Braunfels ISD 12,305 Nueces County 28,087 City of Richardson 22,496 Round Rock ISD 10,720 Tarrant County 714,893 Cure Amount Objections These entities object to the cure amounts determined by the Debtors: Cure Amount Cure Amount Determined Determined Entity by the Entity by the Debtors ------ ------------- -------------- Charleston County Aviation Authority $74,195 $8,347 Port Authority of New York & New Jersey 2,438,504 not stated Dallas Fort Worth International Airport 59,188 not stated Port of Portland 1,233,000 not stated * * * Judge Walrath affirms the Debtors' business judgment and approves the sale of substantially all of their assets to Cerberus Capital Management LP. Cerberus emerged as the winning bidder at the Auction. Cerberus will assume $2,060,000,000 of the Debtors' liabilities. Aside from the sale price, Cerberus will provide the Debtors a line of credit of up to $150,000,000. The sale is expected to close by September 30, 2003. The offspring car rental company will be named Vanguard, which will be managed by William Lobeck as chief executive officer. Mr. Lobeck used to head National, which became AutoNation Inc. after a series of buy-outs and mergers. Mr. Lobeck will replace William Plamondon, ANC Rental's current CEO. Tribune Business News reports that most of the proceeds of the sale will be distributed to the Debtors' secured creditors like Lehman Brothers and Liberty Mutual Insurance Company. Unsecured creditors like General Motors, Walt Disney World and Perot Systems stand to gain little from the transaction. The Court is yet to issue a final order. Several objections to the sale have been resolved. (ANC Rental Bankruptcy News, Issue No. 37; Bankruptcy Creditors' Service, Inc., 609/392-0900) BOYD GROUP: Discloses Second Quarter 2003 Results ------------------------------------------------- Boyd Group Income Fund (TSX: BYD.UN) announced its financial results for the second quarter and six months ended June 30, 2003. These results reflect two months of the operations of The Boyd Group Inc. and four months operating as Boyd Group Income Fund. Distributable cash generated for the four months as an income trust was $2.4 million ($0.421 per unit and non-controlling share) and distributions paid or declared for the four months were $1.7 million ($0.38 per unit and $0.152 per non-controlling share for a weighted average of $0.294 per unit and non-controlling share). Net income for the quarter was $563 thousand compared to $656 thousand in the second quarter a year ago. Net income for the first six months, before non-recurring expenses, was $1.5 million compared to net income of $1.8 million in the same period last year. ($000s) Three Months Six Months Ended Ended June 30 June 30 2003 2002 2003 2002 ---- ---- ---- ---- Sales $32,386 $34,817 $68,533 $71,225 Net Income (before non-recurring expenses) $563 $656 $1,497 $1,764 Net Income $563 $656 $302 $1,764 Distributable Cash (since Feb 28,2003) $1,834 N/A $2,394 N/A Cash Distributions Declared (since Feb 28, 2003) $1,264 N/A $1,675 N/A The second quarter decline in sales and earnings is primarily attributable to the impact of translating the results from Boyd Group's U.S. operations at a lower U.S. to Canadian dollar exchange rate relative to the corresponding period a year ago. Boyd Group's sales and earnings for the first six months of 2003 were also impacted by the U.S. to Canadian dollar exchange rate. Additionally, Boyd Group's net income for the first three months of 2003 was negatively impacted by one-time costs related to its reorganization from a corporation to an income trust and its subsequent initial public offering. In spite of these factors, distributable cash generated, both for the second quarter and since the inception of Boyd Group Income Fund, exceeded cash distributions declared by 45% and 43% respectively. "The Boyd Group Income Fund provides a top quartile yield for its unit holders, relative to other income trusts, and we continue to generate distributable cash in excess of our current distribution targets," said Terry Smith, President and CEO. "Our strategy to build the business and enhance unit holder value involves realizing greater operational efficiencies, expanding our network of repair centres, building brand awareness and ultimately, further increasing cash flow from operations." The conversion of Boyd Group into an income trust took place following the overwhelming approval of securityholders, to support a Plan of Arrangement proposed at a special meeting held in January 2003. The reorganization of Boyd Group into an income trust was completed concurrently with the completion of the Fund's $9.0 million initial public offering, which closed on February 28, 2003. The Boyd Group will host a conference call to discuss its 2003 first half results on August 27th at 11:00 a.m. EST. The call will be audio-cast live and archived for 90 days at http://www.financialdisclosure.caand http://www.boydgroup.com. The Boyd Group operates 64 corporate locations with annualized sales of approximately $140 million. It is the largest operator of collision repair shops in Canada and among the largest in North America. In addition to its corporate locations, Boyd also has eight franchise locations operating under its trade names. The Boyd Group is focused on acquiring additional corporate locations as part of its plan to be a leader in the consolidation of the highly fragmented North American collision repair industry, recently estimated to generate approximately $50 billion (Cdn.) in revenue annually. * * * As previously reported in Troubled Company Reporter, Standard & Poor's assigned its 'B+' rating to Boyd Gaming Corp.'s $300 million senior subordinated notes. Standard & Poor's also affirmed it 'BB' corporate credit rating on Boyd. The outlook is stable. CATELLUS DEV'T: S&P Affirms Rating & Revises Outlook to Positive ---------------------------------------------------------------- Standard & Poor's Ratings Services revised its outlook on Catellus Development Corp. to positive from stable. At the same time, it affirmed its 'BB' corporate credit rating on Catellus. Currently, the San Francisco-based real estate company has no rated securities outstanding. "The outlook revision reflects the potential benefits from Catellus' planned conversion to a real estate investment trust (REIT), including potential for greater operating stability and broader access to capital. These benefits will continue to be offset by Catellus' ongoing pursuit of development and investments in new markets," said Standard & Poor's credit analyst Scott Robinson. Catellus has appropriately capitalized on this past cycle's development opportunities to profitably expand its stabilized operating portfolio. This expansion bolstered both the overall size and geographic diversity of the core portfolio, which in turn has created a more stable revenue stream. Catellus has accomplished this while maintaining fairly stable financial measures. Once the REIT conversion is completed, a thorough review of Catellus' revised operating and financial strategy will be conducted to determine the extent to which ratings might improve. CELL-LOC: Commencing 56% Reduction of Non-Management Employees -------------------------------------------------------------- Cell-Loc Inc. (TSX: CLQ) announced that it has provided working notice to 56 percent of its staff. No management positions were eliminated. The working notice to employees will result in reduced staffing during the next one to five weeks. Cell-Loc Inc. ( http://www.cell-loc.com), a leader in the wireless location industry, is the developer of Cellocate(TM), a family of network-based wireless location products that enable location-based services. Located in Calgary, Alberta, Cell-Loc currently develops, markets and supports its patented wireless location technology in Asia as well as North and South America, with a view to expanding globally. Cell-Loc is listed on the Toronto Stock Exchange under the trading symbol: "CLQ." * * * As reported previously, the company's December 31, 2002 total cash balance of $562,000 represents a $1.0 million, or 63 percent, decrease from the first quarter cash balance of $1.5 million. The working capital balance has increased to $307,000 from a working capital deficiency of $2.47 million for the period ended September 2002. The increase in working capital for the period ended December 31, 2002 is a direct result of de- consolidating TimesThree Inc. Subsequent to the quarter end, the Company received $970,400 from the January 2003 private placement. The Company has entered into contracts to sell a portion of the assets formerly classified as available for deployment, the proceeds from which will be a source of near term cash. In the absence of the Company selling the network equipment contracted for sale or the Company generating cash by licensing its technology to third parties, the Company will deplete its cash reserves at the end of March 2003. The Company's monthly use of cash continues to be scrutinized to ensure optimal use of cash resources. CBR BREWING CO.: Red Ink Continued to Flow in June 2003 Quarter ----------------------------------------------------------- CBR Brewing Company, Inc. (OTC Bulletin Board: CBRAF) announced the results of its operations for the three months ended June 30, 2003, reporting net sales of $13,155,359 and a net loss of $3,074,051, as compared to net sales of $18,723,223 and a net loss of $15,869,060 for the three months ended June 30, 2002. Included in net loss for the three months ended June 30, 2002 was a charge of $9,879,518 for the impairment of property, plant and equipment. Net loss per common share (basic and diluted) was $0.38 in 2003 and $1.98 in 2002. Weighted average common shares outstanding were 8,010,013 in 2003 and 2002 (basic and diluted). For the six months ended June 30, 2003, the Company reported net sales of $22,312,323 and a net loss of $23,838,419, as compared to net sales of $40,189,722 and a net loss of $15,923,237 for the six months ended June 30, 2002. Included in net loss for the six months ended June 30, 2003 was a charge of $7,861,446 for the impairment of property, plant and equipment, as compared to a charge of $9,879,518 for the impairment of property, plant and equipment for the six months ended June 30, 2002. Net loss per common share (basic and diluted) was $2.98 in 2003 and $1.99 in 2002. Weighted average common shares outstanding were 8,010,013 in 2003 and 2002 (basic and diluted). For the six months ended June 30, 2003, the Company's affiliate, Noble Brewery, recorded a charge of $26,457,831 for the impairment of property, plant and equipments. During the three months ended June 30, 2003 and 2002, the Company sold 34,458 metric tons and 40,816 metric tons of beer, respectively, a decrease of 15.6%. During the six months ended June 30, 2003 and 2002, the Company sold 59,429 metric tons and 80,530 metric tons of beer, respectively, a decrease of 26.2%. The decrease in sales volume in both dollars and tonnage during the three months and six months ended June 30, 2003, as compared to the three months and six months ended June 30, 2002, was mainly attributable to the following factors: a decrease in the volume of beer sold, which the Company attributes to the reorganization of the Company's marketing teams and marketing strategies; the reduction in sales branch offices; the outbreak of severe acute respiratory syndrome in China; reduced demand for Pabst Blue Ribbon beer, as a result of increasing competition from local brand beers, which sell at lower price points; the lowering of the selling price for some of the Company's Pabst Blue Ribbon beer products, in order to encourage distributors to enhance their respective promotional activities; and an increased proportion of local brand beers, which are sold at lower price points. The beer market in China has continued to experience a weakening in consumer demand for foreign branded premium beers in China and increasing competition from local and foreign premium brands of beer. In response, the Company has overhauled its operations and marketing programs, reduced costs and introduced several new local brand beers. The Company expects that these adverse market conditions will continue in 2003, resulting in operating losses at least for the remainder of 2003. The Company, through its subsidiaries and affiliates, is engaged in the production, distribution and marketing of Pabst Blue Ribbon beer in China. As of June 30, 2003, the Company owned effective interests of 60%, 24% and 33% in three brewing facilities in China producing Pabst Blue Ribbon beer that are managed by the Company. The Company produces Pabst Blue Ribbon beer under a sub-license agreement with Guangdong Blue Ribbon Group Co. Ltd., an affiliated company, which expires concurrently with the expiration of the existing master license agreement between Guangdong Blue Ribbon Group Co. Ltd. and Pabst Brewing Company on November 6, 2003. Licensing Matters Noble China Inc., is a Canadian public company that is the 60% owner of Noble Brewery, a Pabst Blue Ribbon brewing facility located in the City of Zhaoqing, People's Republic of China, in which the Company has a 24% net equity interest. In May 1999, Noble China entered into a license agreement with Pabst Brewing Company granting it the right to utilize the Pabst Blue Ribbon trademarks in connection with the production, promotion, distribution and sale of beer in China for 30 years commencing November 7, 2003. To date, the Company and Noble Brewery have not renewed their respective Pabst Blue Ribbon sub-license agreements, which expire on November 6, 2003. The inability of the Company or Noble Brewery to enter into an agreement with Noble China under acceptable terms and conditions to allow the Company and Noble Brewery to continue to produce, distribute and market Pabst Blue Ribbon beer in China subsequent to November 6, 2003 would have a material adverse effect on the Company's future results of operations, financial position and cash flows, including the possible formation of strategic alliances with other brewing groups in China. Zhaoqing City Lan Wei Alcoholic Beverage (Holdings) Limited, a company controlled by the City of Zhaoqing, owns Mega Gain Investment Co. Ltd., which in turn owns a 19.6% equity interest in Noble China. On November 12, 2002, a new board of directors of Noble China was elected, consisting of three candidates nominated by Lan Wei. As previously announced, Noble China continues to face serious liquidity concerns in ongoing funding of its corporate operations and interest on its CDN$30,000,000 of 9% Convertible Subordinated Debentures, and as a result is in default of its obligations under the Debentures. The holders of the Debentures are therefore in a position to enforce their rights on default. If the Trustee or the holders of the Debentures elect to enforce these rights, Pabst Brewing Company may be in a position to terminate the Pabst master license agreement previously granted to Noble China, which becomes effective on November 7, 2003. Both Noble Brewery and the Company have substantial investments in property, plant and equipment dedicated to the production of Pabst Blue Ribbon beer in China. In order to maintain each entity's respective rights to produce, distribute and market Pabst Blue Ribbon beer in China subsequent to November 6, 2003 and thus preserve the value of these investments, Lan Wei has been exploring various ways to reorganize Noble China and preserve the Pabst master license agreement in a manner that would inure to the benefit of the Company. Accordingly, representatives of the City of Zhaoqing have been in discussions with the holders of a majority of the Debentures regarding a reorganization of Noble China and with Pabst Brewing Company regarding a reorganization of Noble China and a restructuring of the master license agreement. These discussions have led to a preliminary agreement in principle with the holders of a majority of the Debentures regarding the reorganization of Noble China, which would involve the settlement in full of the outstanding Debentures. In addition, a non-binding term sheet has been entered into with Pabst Brewing Company that contemplates the preparation of a new master license agreement, effective upon the reorganization of Noble China. These preliminary agreements are both conditional on Noble China being able to implement a formal reorganization of its Debentures and its issued capital. The successful reorganization of Noble China is subject to the preparation and execution of definitive agreements and a plan of compromise or arrangement, compliance with all applicable laws and regulations, and the funding, approval and consummation of a court-approved plan of compromise or arrangement of Noble China. In order to fund such reorganization efforts, Lan Wei borrowed approximately $3,241,000 from the Company in March 2003, with interest at 3.9% per annum, due and payable no later than December 31, 2003. On May 27, 2003, Noble China announced that it had entered into a loan facility with Mega Gain, which provides for advances limited to the minimum necessary to pay for short-term operating expenses and for the cost to reorganize Noble China's debt and equity. The advances will bear interest at 6% per annum, payable monthly, and will be secured by all of Noble China's presented and after- acquired assets, property and undertakings pursuant to a general security interest. As a result of the uncertainty with respect to these matters, there can be no assurances that Noble China will be successfully reorganized or that the Company or Noble Brewery will be able to retain the right to produce and distribute Pabst Blue Ribbon beer in China subsequent to November 6, 2003. CHAMPION ENTERPRISES: S&P Removes Low-B Level Ratings from Watch ---------------------------------------------------------------- Standard & Poor's Ratings Services said that it affirmed its 'B+' corporate credit rating on Champion Enterprises Inc. In addition, ratings on the company's senior unsecured notes are affirmed. Furthermore, all ratings are removed from CreditWatch, where they were placed with negative implications on July 8, 2003, following the announcement of senior management changes and consequent uncertainty regarding the company's strategic direction. The outlook is negative. "The current ratings are supported by the company's substantial cash balances and limited near-term refinancing needs. The removal from CreditWatch follows the recent announcement that Champion will exit its capital-intensive and unprofitable consumer lending business," said Standard & Poor's credit analyst James Fielding. Auburn Hills, Michigan-based Champion's sales, as is now the case with most industry participants, have been adversely affected by the prolonged recession in the sector. Rating stabilization is contingent upon the new management team's ability to improve operating efficiencies and cost structure, as evidenced by a return to sustainable profitability. Continued operating losses would result in further downgrades. CHERRY VALLEY FURNITURE: Voluntary Chapter 11 Case Summary ---------------------------------------------------------- Debtor: Cherry Valley Furniture, Inc. 887 Rutledge Avenue Charleston, SC 29403 Bankruptcy Case No.: 03-21896 Type of Business: Furniture maker Chapter 11 Petition Date: August 13, 2003 Court: Southern District of West Virginia (Charleston) Judge: Ronald G. Pearson Debtor's Counsel: William W. Pepper, ESq. 8 Hale Street Charleston, WV 25301 Tel: 304-346-0361 Estimated Assets: $500,000 to $1 Million Estimated Debts: $1 Million to $10 Million CINCINNATI BELL: S&P Places Unsecured Debt Ratings on Watch Pos. ---------------------------------------------------------------- Standard & Poor's Ratings Services placed its corporate credit rating for incumbent local exchange carrier Cincinnati Bell Inc. on CreditWatch with positive implications. The secured debt ratings (i.e., the bank loan and senior secured notes ratings) are not on CreditWatch. Cincinnati Bell had over $2.4 billion of debt at June 30, 2003. "The CreditWatch placement reflects Standard & Poor's increasing confidence that recent changes in the management and board of directors at Cincinnati Bell are indicative of the company's intent to remain focused on maintaining strong operations at the ILEC and improving the balance sheet," said credit analyst Michael Tsao. Cincinnati Bell has regained its strong business risk profile as the result of divesting the long-haul data business. Nevertheless, the company remains exposed to sizable financial risks due to substantial debt incurred to finance the unsuccessful long-haul data venture, which left the company aggressively leveraged with debt to annualized EBITDA of about 4.6 times for the quarter ended in June 2003 (after adjusting out about $51 million in a one-time charge related to a contract dispute). If the current management team can demonstrate a commitment to reducing debt and refrain from aggressively pursuing acquisitions, Standard & Poor's will raise the ratings that are on CreditWatch by one notch. In this event, the secured debt ratings would not be raised because a higher corporate credit rating would significantly lessen any analytical argument for a notching differential. * * * 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. CIENA CORP: Third-Quarter 2003 Net Loss Stands at $89 Million ------------------------------------------------------------- CIENA(R) Corporation (NASDAQ: CIEN) (S&P, B Corporate Credit Rating, Negative), a leading global provider of innovative networking solutions, reported its third quarter results for the period ending July 31, 2003. Revenue for the quarter totaled $68.5 million, an increase of 37% from same period a year ago. On a generally accepted accounting principles (GAAP) basis, CIENA's reported net loss for the period was $88.9 million. Revenue for the nine months ending July 31, 2003 totaled $212.5 million. On a GAAP basis, CIENA's net loss for the nine-month period was $271.5 million. "Our actions to restore profitability and positive operating cash flow to our business are focused simultaneously on driving revenue, improving gross margin and aligning our costs in pursuit of growth market opportunities," said Gary Smith, CIENA's president and CEO. "This quarter we recognized meaningful revenue from our recently completed acquisition of WaveSmith, improved our gross margin and achieved our operating expense targets a quarter ahead of plan. "CIENA is a very different company than it was just a year ago, and we're not finished," said Smith. "We have been taking deliberate steps to evolve into a more comprehensive network solutions provider. That transformation extends to every facet of our business - from the markets we target and the products we sell to the way we receive and process orders to the way we prioritize R&D dollars. "This transformation is not an option," continued Smith. "If CIENA is going to thrive in today's telecom environment, we must get bigger, not smaller. We continue to believe that we cannot simply cost-cut our way back to sustainable profitability. We believe restoring growth and profitability to our business will require the combination of expanding our addressable markets while simultaneously reducing and realigning our spending with the opportunities we see." As of the nine months ended July 31, 2003, CIENA's weighted average shares outstanding were approximately 438,133,000. Adjusting CIENA's nine-month GAAP results as noted would reduce the Company's net loss for the period to $0.30 per share. Third Quarter Performance Highlights -- Recognized revenue from a record-high 72 customers. -- Added seven new customers in the quarter, including two incumbent carriers. -- Lowered cash burn 13% sequentially. -- Ended the quarter with cash and short- and long-term securities valued at $1.75 billion, using cash of $68.2 million in the quarter. -- Closed the acquisition of WaveSmith Networks and recognized meaningful revenue from the DN platform in the quarter. -- Achieved operating expense target of low-to-mid $80 million one quarter ahead of plan. -- Reduced inventory for the eighth sequential quarter. Third Quarter Solution Highlights -- Launched ONLINE(TM) Metro Service Aggregator to support multiple data services in one platform. -- Integrated management of multiservice solutions extending CIENA's point-and-click service provisioning and other management functions into the data layer. -- Introduced enhancements to MetroDirector K2 enabling flexible new Ethernet services on existing networks. -- Announced new CoreStream capabilities enabling end-to-end data service offerings and lower network costs. -- Released ON-DesignerT software suite for automated design, validation and turn-up of end-to-end networks. -- Delivered integrated Ethernet multiplexing on ONLINE Edge(TM). Business Outlook "We continue to win new customers and to expand the solution set sold to existing customers," said Smith. "However, the timing of revenue recognition, particularly with incumbent carriers, remains difficult to predict with certainty. As a result, we believe revenue in our fourth fiscal quarter is likely to be between five percent up or down from our fiscal third quarter revenue, depending on the timing of significant orders. "As part of ongoing efforts to transform CIENA and restore profitability, we also have set new operating expense targets," said Smith. "CIENA has consistently viewed cost reduction holistically - as a process ultimately leading toward a different CIENA. We believe the restructuring steps taken previously make it possible for us to reduce ongoing operating expenses by an additional 10% to 20% over the next year without jeopardizing customer commitments or near- or long-term growth opportunities. "Further, we expect to realize a significant portion of our total longer-term cost savings starting in the first half of fiscal 2004. We also expect to continue to take steps that enable us to lower our quarterly cash burn and improve our already strong balance sheet," concluded Smith. Separately today, CIENA announced its intent to acquire Akara Corporation, signaling its entree into the growing market for SONET/SDH-based extended storage area networking (SAN) solutions. CIENA expects this transaction to be completed in its fourth fiscal quarter 2003. CIENA Corporation delivers innovative network solutions to the world's largest service providers, increasing the cost-efficiency of current services while enabling the creation of new carrier- class data services built upon the existing network infrastructure. Additional information about CIENA can be found at http://www.ciena.com COLD METAL: Tranzon Auctioning Indianapolis Facility ---------------------------------------------------- By order of the U.S. Bankruptcy Court for the Northern District of Ohio, Tranzon will be auctioning Cold Metal Products, Inc.'s 147,900 square foot industrial facility located on 30-plus acres of land at 2301 S. Holt Road in Indianapolis, Indiana. The 147,900 square foot facility features: * 30-foot ceiling height; * dock-height and drive-in doors; and * two 10-ton cranes and one 27-ton crane. The property, zoned I-4-U and I-3-U, features: * primary site consists of 17.8 acres; * excess land consists of 13 acres; * 90-car parking lot; * close proximity to Indianapolis International Airport; and * rail service adjacent to property. Sealed bids must be delivered to Tranzon by 5:00 p.m. on September 10, 2003. Additional details about the property and bidding procedures are available at http://www.tranzon.comor by calling 1-800-868-0458. Cold Metal Products, Inc. is an intermediate steel processor of strip and sheet steel for precision parts manufacturers in the automotive, construction, cutting tools, consumer goods and industrial goods markets. The Company filed for chapter 11 protection on August 16, 2002 (Bankr. N.D. Ohio Case No. 02- 43619). Joseph F. Hutchinson Jr., Esq., at Brouse McDowell represents the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed $65,430,000 in assets and $96,484,000 in debts. CONSECO: Fitch Withdraws Default Sr. Debt & Preferred Ratings ------------------------------------------------------------- Fitch Ratings has withdrawn the 'D' rating of the senior debt and preferred stock issued by Conseco, Inc. and its financing units. The 'D' ratings were assigned on September 9, 2002 following expiration of the 30-day grace period on unpaid bond interest payments. Conseco is currently in the process of reorganizing under Chapter 11 of the US Bankruptcy Code. Fitch expects to assign ratings to new debt issued upon emergence from bankruptcy. The timing of such issuance is uncertain. Conseco, Inc. -- Long-term rating, withdrawn 'D'; -- Senior debt issues, withdrawn 'D'; -- Preferred stock rating, withdrawn 'D'. Conseco Financing Trust I-VII -- Preferred securities, withdrawn 'D' COOPERATIVE COMPUTING: Holding Q3 2003 Conference Call Tomorrow --------------------------------------------------------------- Cooperative Computing Inc. will hold a conference call tomorrow, at 3 p.m. Eastern Standard Time to discuss its third quarter 2003 financial results. Interested parties may listen to the call toll free by dialing 1-877-716-4287. The call will be led by Greg Petersen Senior Vice President Finance and Administration and joined by Christopher Speltz Vice President Finance and Treasurer. A recording will be available for replay two hours after the completion of the conference call by calling 1-800-839-7074 passcode 2137. As reported in Troubled Company Reporter's June 4, 2003 edition, Standard & Poor's Ratings Services assigned its 'B+' rating to the proposed new $175 million senior unsecured notes issue of Cooperative Computing Inc., issued under Rule 144a with registration rights. Proceeds from the sale of the new notes are expected to be used to tender for the existing $100 million senior subordinated notes, pay off remaining senior bank debt, and buy out certain equity holders. At the same time, Standard & Poor's affirmed its 'B+' corporate credit, 'BB-' senior secured bank loan, and 'B-' subordinated debt ratings on the Austin, Texas-based company. CCI will have $175 million of debt outstanding following the issuance of the notes and the tendering of the existing notes and repayment of existing senior bank debt. The outlook is stable. CROWN CASTLE: Declares Quarterly Dividend for 12-3/4% Preferreds ---------------------------------------------------------------- Crown Castle International Corp. (NYSE: CCI) announced that the quarterly dividend on its 12-3/4% Senior Exchangeable Preferred Stock will be paid on September 15, 2003 to holders of record on September 1, 2003. The dividend will be paid in shares of the Preferred Stock at a rate of 31.875 shares per 1,000 shares. Fractional shares will be paid in Preferred Stock. Contact Regarding Dividend Payments: Patti Knight, Mellon Investor Services at 214-922-4420. Crown Castle International Corp. engineers, deploys, owns and operates technologically advanced shared wireless infrastructure, including extensive networks of towers and rooftops as well as analog and digital audio and television broadcast transmission systems. Crown Castle offers near-universal broadcast coverage in the United Kingdom and significant wireless communications coverage to 68 of the top 100 United States markets, to more than 95 percent of the UK population and to more than 92 percent of the Australian population. The Company owns, operates and manages over 15,500 wireless communication sites internationally. For more information on Crown Castle visit: http://www.crowncastle.com As reported in Troubled Company Reporter's July 11, 2003 edition, Standard & Poor's Ratings Services assigned its 'CCC' rating to the $230 million convertible senior notes issued by wireless tower operator Crown Castle International Corp. Simultaneously, Standard & Poor's affirmed its 'B-' corporate credit rating on the Houston, Texas-based Crown Castle. The outlook remains negative. The company had total debt of about $3.2 billion at March 31, 2003. CUMMINS INC: S&P Removes Low-B Level Ratings from CreditWatch ------------------------------------------------------------- Standard & Poor's Ratings Services affirmed its 'BB+' corporate credit rating and other ratings on Cummins Inc. At the same time, Standard & Poor's removed all ratings from CreditWatch, where they were placed April 15, 2003. "The affirmation reflects our view that although Cummins' unfunded retiree obligations are a concern, the company's cash funding requirements appear to be manageable relative to cash flow generation, assuming several of the company's key end-markets continue to strengthen," said Standard & Poor's credit analyst Eric Ballantine. The outlook is negative. Columbus, Indiana-based Cummins had about $1.6 billion of debt outstanding at June 30, 2003. The negative outlook reflects concerns about Cummins increased exposure to unfunded pension obligations, which increased by $250 million, to about $650 million at the end of December 2002 from about $390 million in December 2001. "We expect that Cummins' unfunded pension obligations will not materially increase from current levels," Mr. Ballantine said. Even considering the improving equity markets, which should cause a rebound in pension portfolio performance, Cummins is going to have to make relatively large cash contributions (about $100 million in both 2003 and 2004) in the near term to significantly reduce this exposure. In addition, Cummins had unfunded other postretirement employee obligations of approximately $645 million at the end of 2002, bringing the company's total pension and OPEB liability to just over $1.2 billion at year-end 2002. This is an increase of about 18% from 2001 levels of about $1 billion. Cummins is a leading global manufacturer of diesel engines, natural gas engines and engine components, power-generation systems, and engine-filtration and exhaust systems. Although the market for power generation equipment remains very soft, other key end-markets such as heavy-duty truck are showing signs of improvement. It is expected that the heavy-duty truck market will continue to pick up for the rest of 2003 and should gain further momentum in 2004. Ratings could be lowered if the company's unfunded postretirement benefit obligations continue to rise materially, despite increased funding and other actions to rein in such costs, causing its debt- like obligations to increase beyond Standard & Poor's current expectations. Credit quality could also be negatively affected should end-market recovery de delayed. Under this scenario, Cummins would probably be unable to strengthen credit measures to levels sufficient for maintenance of the current rating. DENNY'S CORP: Lloyd Miller, III Discloses 14.5% Equity Stake ------------------------------------------------------------ Lloyd I. Miller, III, beneficially owns 5,895,117 shares of the common stock of Denny's Corporation, representing 14.5% of the outstanding common stock of Denny's. Mr. Miller holds sole voting power over 3,864,733 such shares, shared voting power over 2,030,384 shares, sole dispositive power over 3,423,859 shares, and shared dispositive powers over 2,471,258 shares. Mr. Miller shares dispositive power over the 2,471,258 of the securities as an investment advisor to the trustee of certain family trusts, the trustee to a certain grantor retained annuity trust, and an investment advisor to certain family members and other individuals. He shares voting power with respect to 2,030,384 of the securities as an investment advisor to the trustee of certain family trusts, and an investment advisor to certain family members and other individuals. Mr. Miller has sole dispositive power with respect to 3,423,859 shares as an individual, the manager of a limited liability company that is the general partner of certain limited partnerships, the trustee to certain family trusts, and as the custodian to accounts established under the Florida Uniform Gift to Minors Act. He has sole voting power with respect to 3,864,733 shares as an individual, the manager of a limited liability company that is the general partner of certain limited partnerships, the trustee to a certain retained annuity trust, as the custodian to accounts established under the Florida Uniform Gift to Minors Act, and as the trustee to a certain grantor retained annuity trust. Mr. Miller's principal business address is in Naples, Florida. * * * As reported, Standard & Poor's Ratings Services lowered its corporate credit rating on family dining restaurant operator Denny's Corp. to 'B-' from 'B', its senior secured bank loan rating to 'B+' from 'BB-', and its senior unsecured notes to 'CCC' from 'CCC+'. At the same time, all ratings were placed on CreditWatch with negative implications. "The rating actions are based on Denny's deteriorating operating performance and cash flow protection measures, and Standard & Poor's concern that continued poor performance will constrain its liquidity," said credit analyst Robert Lichtenstein. DIRECTV LATIN AMERICA: Raven Media's Bid for Trustee Denied ----------------------------------------------------------- As previously reported, William H. Sudell, Jr., Esq., at Morris, Nichols, Arsht & Tunnell, in Wilmington, Delaware, noted that there is a pervasive interrelationship between DirecTV Latin America, LLC and Hughes Electronics Corporation and its remaining affiliates: -- Hughes owns 75% of DirecTV's equity; -- four of the five members of DirecTV's executive committee and six of DirecTV's seven senior officers are Hughes employees; -- Hughes is DirecTV's DIP financing lender; and -- Hughes affiliates provide DirecTV with critical satellite services and are many of the local operating companies to whom DirecTV provides programming services and funding. Mr. Sudell argues out that these incestuous relationships preclude DirecTV from proceeding objectively with its business restructuring, which requires the re-evaluation and probable renegotiation of virtually all relationships. Furthermore, even DirecTV's business relationships with independent programmers are subject to conflicts regarding Hughes because those same programmers also deal extensively with Hughes' 100% owned United States subsidiary, DirecTV, Inc. Raven Media Investments LLC, as a holder, inter alia, of a general unsecured claim against DirecTV of not less than $189,000,000, sought the Court approval to appoint a Trustee or Examiner for DirecTV's case. Alternatively, Raven asked the Court to appoint an examiner with the responsibility to investigate and file a report on: (i) the validity and effect of all inter-company transactions between DirecTV and Hughes and its affiliates and insiders; (ii) the treatment of Hughes' claims against DirecTV, including, without limitation, as to issues regarding re-characterization; (iii) potential claims available to DirecTV's estate against its insiders and affiliates, especially Hughes; and (iv) substantive consolidation of DirecTV with any of its affiliates. Hughes Reacts Hughes Electronics Corporation addresses the highly inflammatory, and false, statement made by the Creditors' Committee that the purported "resistance it has encountered [from DIRECTV Latin America, LLC in the investigation] is the result of Hughes' influence. . . ." Mark D. Collins, Esq., at Richards, Layton & Finger, in Wilmington, Delaware, notes that nowhere in the Committee's Opposition is there any support for the assertion that Hughes has in any way obstructed the Committee's investigation of DirecTV. The Committee has issued no less than five separate document requests to Hughes of truly extraordinary breadth. Hughes determined to cooperate fully by producing virtually all non- privileged documents it can reasonably locate that pertain in any way to DirecTV. In fact, Mr. Collins reports, over 2,000 hours of attorney time have been spent to date collecting, reviewing, and producing responsive documents to the Committee. Yet the Committee conspicuously neglects to mention that Hughes has already produced to the Committee on a voluntary, informal basis 47 boxes of documents and is in the process of producing many additional documents. Mr. Collins assures the Court that Hughes has never interfered with the Committee's discovery efforts or indeed with any of the Debtor's obligations to the Committee. The Committee's statement, that it "has no doubt that the resistance [by the Debtor] it has encountered is the result of Hughes' influence," is nothing short of outrageous, particularly in light of Hughes' agreement to allow the Committee to use up to a total of $2,000,000 of the proceeds of the DIP financing facility that Hughes has provided to the Debtor and the proceeds of Hughes' collateral to fund the Committee's investigation. In addition, Huron Consulting, the Committee's financial advisor, has been collecting numerous documents directly from DirecTV's restructuring advisors, Alix Partners, LLC. In view of the fact that DirecTV has certain confidential business information within its possession concerning some Hughes affiliates, i.e., several Local Operating Companies, the California Broadcast Center, LLC, and PanAmSat Corporation, of which Hughes is a majority stakeholder, DirecTV has, on occasion, appropriately informed Hughes of certain Huron requests before producing Hughes-related confidential information to Huron. For instance, Huron asked for certain technical satellite information that involved the potential disclosure of CBC and PanAmSat proprietary data. Alix Partners, through DirecTV's counsel, communicated the request to Hughes' counsel, and Hughes promptly responded that it had no objection to DirecTV's production. Accordingly, Hughes is equally offended and perplexed by the Committee's gratuitous falsehood in the papers filed with the Court concerning Hughes' supposed interference in its investigation. * * * Judge Walsh denies Raven Media's request to appoint a trustee or examiner. (DirecTV Latin America Bankruptcy News, Issue No. 11; Bankruptcy Creditors' Service, Inc., 609/392-0900) DLJ MORTGAGE: Fitch Takes Rating Actions on Series 1998-2 Notes --------------------------------------------------------------- Fitch Ratings has taken the following rating actions on the DLJ Mortgage Acceptance Corp. mortgage pass-through certificates listed below: DLJ Mortgage Acceptance Corp, mortgage pass-through certificate, series 1998-2 Group 1 -- Class IPP A-1 affirmed at 'AAA'; -- Class IPP B-1 upgraded to 'AAA' from 'AA'; -- Class IPP B-2 upgraded to 'AAA' from 'A'; -- Class IPP B-3 upgraded to 'AAA' from 'BBB'; -- Class IPP B-4 upgraded to 'A' from 'BB'; -- Class IPP B-5 upgraded to 'BBB-' from 'B'. DLJ Mortgage Acceptance Corp, mortgage pass-through certificate, series 1998-2 Group 2 & 3 -- Classes IIA, IIIA affirmed at 'AAA'; -- Class CB1 affirmed at 'AAA'; -- Class CB2 affirmed at 'AAA'; -- Class CB3 upgraded to 'AAA' from 'A'; -- Class CB4 upgraded to 'A' from 'BBB'; -- Class CB5 upgraded to 'BB+' from 'B+'. These upgrades are being taken as a result of low delinquencies and losses, as well as increased credit support. The affirmations indicate credit enhancement consistent with future loss expectations. EAGLE FOOD: Court Clears 2 Separate Purchase Pacts for 4 Stores --------------------------------------------------------------- Eagle Food Centers, Inc., which owns and operates supermarkets in Illinois and Iowa, announced that the U.S. Bankruptcy Court for the Northern District of Illinois approved the sale of certain Eagle stores. The Court approved two separate purchase agreements for certain assets related to three of its stores to Hy-Vee and one store to J.B. Sullivan, Inc. Hy-Vee purchased certain of the assets related to stores in Dubuque, Iowa; Bettendorf, Iowa and Moline, Illinois including the buildings and land of the Dubuque and Bettendorf stores all for approximately $10.83 million in cash. Under a separate agreement, J.B. Sullivan, Inc. purchased certain of the assets of the store in Rochelle, Illinois for $800,000 plus an amount to be determined for inventory. Completion of the transactions remain subject to certain conditions with a final closing expected by September 22, 2003 for the Hy-Vee transaction and September 5, 2003 for the J.B. Sullivan purchase. As previously announced, a court hearing has been scheduled for September 11, 2003 to consider the sale of certain stores as determined in last week's auction to The Kroger Company, SVT LLC, and Harold E. Wisted. In addition, the Company selected J.B. Sullivan, Inc. as the highest and best offer in connection with the Eagle store located in Freeport, IL, and the sale is anticipated to be approved at the September 11th hearing. The Company continues to pursue opportunities for the balance of its stores, including setting a subsequent auction for 10 of its stores on August 28th and extending the bid deadline to September 11th for the remaining stores. The Company operates 50 Eagle Country Markets in Iowa and Illinois. EASYLINK SERVICES: Half-Year Revenues Plummets to $51M from $60M ---------------------------------------------------------------- For the six months ended June 30, 2003, total revenues of EasyLink Services Corporation were $51.5 million compared to $60.3 million for the six months ended June 30, 2002. Net income was $49.7 million for the six months ended June 30, 2003 as compared to a net loss of $3.9 million for the six months ended June 30, 2002. The 2003 results included gains on debt restructuring and settlements of $53.7 million. Although Company revenues for the quarters ended June 30, 2003, March 31, 2003 and December 31, 2002 have been stable, EasyLink has experienced declines in revenues for the three and six month periods ended June 30, 2003 as compared to the comparable periods ended June 30, 2002. The decrease primarily occurred in the production messaging services, which include fax, telex and email hosting, as a result of lower volumes and negotiated customer price reductions. The Company expects that the declines in revenues from production messaging services may continue in the future. Its strategy to grow revenues and to mitigate the effects of this decline includes the sale of existing and new services to its large base of existing customers, as well as offering its services to new customers. Among the new services that EasyLink has recently introduced are trading community enablement services such as Web EDI and document capture and management services. For the years ended December 31, 2002, 2001 and 2000, EasyLink received a report from its independent accountants containing an explanatory paragraph stating that the Company suffered recurring losses from operations since inception and has a working capital deficiency that raise substantial doubt about EasyLink's ability to continue as a going concern. As of June 30, 2003, the Company had $7.1 million of notes payable and capitalized interest payable within one year. Although the Company has substantially reduced its outstanding debt obligations, cash payments of principal and interest due within one year from June 30, 2003, amount to $6.6 million. If the Company's cash flow is not sufficient it may need additional financing to meet this debt service requirement and other cash requirements for its operations. However, if unable to raise additional financing, restructure or settle additional outstanding debt or generate sufficient cash flow, the Company has indicated that it may be unable to continue as a going concern. ENRON CORP: Court Clears BT Exploration Sale to SGA for $21-Mil. ---------------------------------------------------------------- Bonne Terre Exploration Company, L.L.C., a non-debtor Delaware limited liability company, was formed in 1998 as a joint venture between Enron and certain of its affiliates, to the extent of 62.5% of the membership interests, and BT Management -- a subsidiary of Samuel Gary, Jr. and Associates, Inc., to the extent of 37.5% of the membership interests. BT Management is the managing member of BTEC. On November 6, 2000, Enron and certain of its affiliates formed BT Exploration by transferring their 62.5% membership interest in BTEC and their interest in certain of BTEC's assets to BT Exploration, in exchange for 100% of the membership interests in BT Exploration. Beginning in November 2002, Enron North America Corporation began exploring a possible sale of BT Exploration. However, BT Exploration is restricted under various agreements and mineral leases from disclosing geophysical and drilling information to third parties absent written consent. Moreover, the mineral leases in the project area that are held by BTEC require landowner consent before they can be assigned to a third party. During the BTEC dissolution process, BTEX solicited the consent to assign from all the landowners and not all agreed to provide their consent. Hence, BT Exploration's ability to market its assets has been severely limited. ENA concluded that a sale to SGA was in its best interest. ENA, through its affiliates, then moved forward with the negotiation of a definitive agreement. The Purchase and Sale Agreement On July 9, 2003, BT Management, SGA and BT Exploration executed a Purchase Agreement containing these salient terms: A. Purchase Price The purchase price for the Assets to BT Management will be $21,000,000. The Purchase Price is subject to the Preliminary Adjustment Amount and an additional adjustment amount in the amount of any deviation of the Final Adjustment Amount and the Preliminary Adjustment Amount. BT Management has placed in escrow an Earnest Money Deposit equal to 10% of the Purchase Price and will pay the remainder of the Purchase Price at Closing. B. Assets The Assets include, among others: (i) the Leases, (ii) the Wells, (iii) Hydrocarbons attributable to production from the Leases after the Effective Time and net proceeds from the sale thereof, (iv) to the extent assignable, the Contracts, (v) the Equipment, (vi) the Easements, (vii) to the extent transferable, the Permits, (viii) to the extent transferable, the Seismic Rights; (ix) the Records; and (x) BT Exploration's 62.5% membership interest in BTEC. C. Assumed Liabilities BT Management will assume the liabilities set forth in the Purchase Agreement, including, without limitation: (i) all Liabilities arising out of, in connection with or related to the ownership, development, exploration, operation, use or maintenance of the Assets, whether relating to periods before or after the Effective Time, including, without limitation, all Environmental Liabilities and Obligations, and (ii) Liability for payment of the amounts with respect to the Contracts. D. Termination of Agreement The Purchase Agreement and the transactions contemplated therein may be terminated prior to the Closing by, inter alia: (i) the mutual written agreement of BT Management and BT Exploration; (ii) by either party if the Closing has not occurred on or before 60 days after the execution of the Purchase Agreement; and (iii) by either party if BT Exploration determines an Alternative Transaction could reasonably be expected to result in a Superior Transaction. E. Alternative Transaction BT Exploration's obligation to close under the Purchase Agreement is subject to its right to respond to an unsolicited bona fide proposal for an Alternative Transaction and, if BT Exploration determines in good faith that the Alternative Transaction could be reasonably expected to result in a Superior Transaction, BT Exploration may seek Bankruptcy Court approval of the Alternative Transaction. F. Guarantee SGA has unconditionally, irrevocably and absolutely guaranteed the due and punctual performance and discharge of BT Management's obligations under the Purchase Agreement. Pursuant to Sections 105 and 363 of the Bankruptcy Code and Rules 2002 and 6004 of the Federal Rules of Bankruptcy Procedure, ENA sought and obtained Court permission to the: (a) sale and assignment of substantially all of the assets and liabilities of BT Exploration LLC pursuant to the Purchase Agreement between BT Exploration, BT Management and SGA; and (b) consummation of the transactions contemplated therein. (Enron Bankruptcy News, Issue No. 77; Bankruptcy Creditors' Service, Inc., 609/392-0900) ENVOY COMMS: Has Until October 20 to Meet Nasdaq Requirements ------------------------------------------------------------- Envoy (NASDAQ: ECGI/TSX: ECG) announced that the Nasdaq Listing Qualifications Hearings Panel has granted Envoy an extension to allow for approval by the U.S. Securities and Exchange Commission of modifications to the minimum bid price rule as proposed by Nasdaq on March 18, 2003, with the exception that, on or before October 20, 2003, Envoy must evidence a closing bid price of at least US$1.00 per share for a minimum of ten consecutive trading days (or such longer period as the Panel, in its discretion, may determine) and otherwise continue to comply with at least one additional compliance requirement for continued listing. As previously announced, at a special meeting held on August 14, 2003, Envoy's shareholders passed a special resolution authorizing a consolidation (reverse split) of Envoy's common shares on a basis to be determined by its Board of Directors, such consolidation not to exceed one new common share for each ten common shares issued and outstanding. Geoff Genovese, CEO of Envoy, said: "We will consolidate our common shares at the appropriate rate to achieve the ten day closing bid price of at least US$1.00 before October 20, 2003, in the event that we are not granted additional time by the Panel (as a result of modifications to the minimum bid price rule proposed by Nasdaq) to achieve the closing bid price of US$1.00. Envoy Communications Group (NASDAQ: ECGI/TSX:ECG) is a marketing and international consumer and retail branding company with offices throughout North America and Europe. Combining strategy, creativity and innovation, Envoy's interconnected network of companies delivers business-building solutions to over 200 leading global brands and has successfully completed assignments in more than 40 countries around the world. "john st." is a member of the Envoy Group of Companies. * * * Financial Condition and Liquidity In its Form 10-Q filed on August 30, 2002, the Company reported: "As at June 30, 2002 and September 30, 2001, the Company was not in compliance with its covenant calculations under the terms of its revolving credit facility in respect to 12 month earnings before interest, taxes, deprecation and amortization. The lenders have the right to demand repayment of the outstanding borrowings. Additional borrowings under the facility are subject to the approval of the lenders. The Company is continuing to have discussions with its lenders regarding amendments to the terms of the facility. "The Company is considering all of the options available to it to finance the amounts owing under the restructuring plans and expected cash flow shortfalls in the next three months (or other operating obligations). These options include additional debt or equity financing under private placements, renegotiating its bank facilities and the sale of some of its businesses. In addition, management has made every effort to negotiate the restructuring charges in such a way as to minimize short-term cash requirements. "The ability of the Company to continue as a going concern and to realize the carrying value of its assets and discharge its liabilities when due is dependent on the continued support of its lenders and/or successful completion of the actions discussed above. "During fiscal 2001, the Company established an extendable revolving line of credit under which it can borrow funds in either Canadian dollars, U.S. dollars or U.K. pounds sterling, provided the aggregate borrowings do not exceed $40.0 million Canadian. Advances under the line of credit can be used for general purposes (to a maximum of $2.0 million) and for financing acquisitions that have been approved by the lenders. As at June 30, 2002, approximately $9.8 million had been borrowed under the facility, none of which was used for general corporate purposes. "As at June 30, 2002 the Company had a working capital deficit of $5.4 million compared with a working capital deficit of $430,000 at September 30, 2001. This working capital deficiency arises due to the fact that the borrowings under the bank credit facility must be classified as a current liability as a result of the Company not being in compliance with its covenant calculations. The decrease in working capital in this period was primarily the result of the operating loss during the period. "During the third quarter, the Company negotiated new repayment terms for the Promissory Note due June 30, 2002. The Promissory Note is to be repaid in five monthly installments commencing July 1, 2002 with interest on the principal balance charged at 8%. "On April 29, 2002, the Company issued $1.8 million in convertible debentures. The net proceeds from the sale of the debentures were used for general working capital purposes to support the Company's restructuring activities." FANSTEEL: Court Extends Lease-Related Decisions through Nov. 7 -------------------------------------------------------------- By order of the U.S. Bankruptcy Court for the District of Delaware, Fansteel, Inc., and its debtor-affiliates obtained an extension of their lease decision period. The Court gives the Debtors until November 7, 2003 to decide whether to assume, assume and assign, or reject unexpired nonresidential real property leases. Fansteel Inc., a specialty metal manufacturer of engineered metal components and tungsten carbide products, filed for chapter 11 protection on January 15, 2002 (Bankr. Del. Case No. 02-10109). Laura Davis Jones, Esq., at Pachulski, Stang, Ziehl Young Jones & Weintraub represents the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed $64,805,176 in total assets and $91,585,665 in total debts. FEDERAL-MOGUL: Committees Hire Russell Reynolds for Exec. Search ---------------------------------------------------------------- Federal-Mogul Corporation and its debtor-affiliates' reorganization plan provides that 100% of the common stock will be distributed to the holders of noteholder claims and holders of asbestos personal injury claims. The Noteholders and Asbestos Claimants, as the sole shareholders, are entitled to select directors and officers of the Reorganized Debtors. Accordingly, the Official Committee of Unsecured Creditors and the Official Committee of Asbestos Claimants, seek the Court's authority to retain the executive search firm, Russell Reynolds Associates, to assist in the selection of post-confirmation management personnel, specifically, the chief executive officer and chief financial officer. In connection with the searches, Russell Reynolds is expected to: * assist in developing position specifications; * provide competitive market intelligence; * develop detailed strategic plan for executing the searches; * agree on target organizations for each position; * build a universe of candidates for each position within 15 days; and * present at least three qualified candidates for each position in 30 days. Russell Reynolds estimates that it will take 90 days to conduct and conclude a search for each position. Moreover, the searches may be staggered by 30 days so the CEO can be selected first and then be included in the CFO selection. The entire search process may span 120 days, creating the need to commence the executive search process immediately in order to have the selected management in place upon confirmation of the Plan. The Committees agree to share the results and recommendations of Russell Reynolds with all of the other Plan Co-Proponents. Russell Reynolds is a well-known and highly regarded search firm that has significant experience in the automotive manufacturing field, and has provided its services in a search for a CEO in a number of major reorganizations, including, Altera Corporation, Maidenform, SAFECO, Pillowtex Corporation and Polaroid Corporation. In addition, Russell Reynolds assisted the Debtors in a recently concluded senior vice president search in May 2003. The Committees agree that Russell Reynolds will be compensated on a flat rate of $100,000 per search, for a total of $200,000 for both the CEO and CFO searches. The search fee will be paid in three monthly payments invoiced at the initiation of each search and at the end of 30 and 60 days, specifically distributed as payments of $33,400, $33,300 and $33,300. In addition, Russell Reynolds will be reimbursed for actual expenses including expenses incurred during the recruiting phase of the search. Moreover, the Committees will have the right to terminate either or both of the searches at any time. If either search is completed or terminated before the due dates for the second or third monthly payments, any remaining payments will not be paid to Russell Reynolds. With respect to the nature of Russell Reynolds' services and practice, the Committees ask the Court not to subject its fee application in accordance to Chapter 11 case procedures. Instead, the Committees ask the Court to: (a) direct Russell Reynolds to invoice the Debtors on a monthly basis with copies provided to all of the Plan Co- Proponents and the Office of the United States Trustee; and (b) authorize the Debtors to promptly pay all invoices upon receipt. The Committees acknowledge that Russell Reynolds, its principals and its employees do not represent or hold any interest adverse to the Debtors and its estates, and is a "disinterested person" as defined by Section 101(14) of the Bankruptcy Code. (Federal- Mogul Bankruptcy News, Issue No. 41; Bankruptcy Creditors' Service, Inc., 609/392-0900) FRIEDE GOLDMAN: Court to Consider Proposed Plan on November 18 -------------------------------------------------------------- Friede Goldman Halter, Inc. (OTCBB:FGHLQ) said that on August 19, 2003, the Bankruptcy Court entered an Order approving its Disclosure Statement. The Disclosure Statement provides information on the Company and its proposed Plan of Reorganization. Approval of the Disclosure Statement clears the way for the Company to begin soliciting votes for its Plan from its creditors and to ultimately exit bankruptcy. The Disclosure Statement and Ballot will be mailed to over 50,000 claimants in the bankruptcy case and votes will be due no later than October 17, 2003. A hearing to confirm the Plan is scheduled for November 18, 2003. Equity holders will receive nothing under the Plan and all stock will be cancelled. The remaining assets of the Company and its subsidiaries will be transferred into a trust for the benefit of holders of claims approved by the Bankruptcy Court. Friede Goldman Halter designs and manufactures equipment for the maritime and offshore energy industries. The company's primary customers are drilling contractors with operations in eastern Canada, the Gulf of Mexico, South America, the North Sea, and West Africa. Chairman J. L. Holloway owns about 20% of FGH. GAP INC: Second-Quarter 2003 Results Show Improved Performance -------------------------------------------------------------- Gap Inc. (NYSE: GPS) reported that earnings for the second quarter, which ended August 2, 2003, rose more than three times over last year to $209 million, driven by double-digit percentage increases in sales and gross profit. Summer marketing helped strengthen customer traffic, particularly at Gap and Old Navy, while better product assortments and inventory management resulted in more merchandise being sold at slightly better margins than during the same period last year, the company said. On a diluted basis, earnings per share for the second quarter were $0.22, compared with $0.06 per share for the same period last year. Net income was $209 million, compared with $57 million for the same period last year. The company has reported four consecutive quarters of earnings growth. Second quarter net sales increased 13 percent to $3.7 billion, compared with $3.3 billion for the same period last year. Comparable store sales were up 10 percent, compared with a prior year decrease of 7 percent. "We're very pleased with our momentum and the increased customer acceptance of our merchandise and marketing -- our strategies are clearly gaining traction," said Gap Inc. President and CEO Paul Pressler. "With each quarter, our product assortments are stronger, our consumer messages are more targeted, our customer service focus is sharper and our operations are more disciplined and efficient. Our teams are doing an exceptional job." Store Sales Results By Division The company's second quarter comparable store sales by division were as follows: * Gap U.S.: positive 9 percent versus negative 13 percent last year * Gap International: positive 13 percent versus negative 12 percent last year * Banana Republic: positive 5 percent versus negative 5 percent last year * Old Navy: positive 11 percent versus negative 1 percent last year Net sales for the second quarter in each division were as follows: * Gap U.S.: $1.2 billion versus $1.1 billion last year * Gap International: $468 million versus $374 million last year * Banana Republic: $497 million versus $465 million last year * Old Navy: $1.5 billion versus $1.3 billion last year Year-to-Date Sales Results Year-to-date sales of $7.0 billion for the 26 weeks ended August 2, 2003, represent an increase of 14 percent over sales of $6.2 billion for the same period last year. The company's year- to-date comparable store sales increased 11 percent compared with a decrease of 12 percent in the prior year. Real Estate Outlook For the second quarter, Gap Inc. decreased net square footage by 1 percent from the same period last year. The company reiterated its guidance for 2003 of an expected 2 percent decline in square footage for the full fiscal year. Gap (S&P, 'BB+' corporate credit and senior unsecured ratings, Negative) brand stores are reported based on concepts and locations. Any Gap Adult, GapKids, babyGap or GapBody that meets a certain square footage threshold has been counted as a store concept, even when residing within a single physical location that may have other concepts. GAP INC: Names Patti DeRosa to Head Creative Talent Development --------------------------------------------------------------- Gap Inc. (NYSE: GPS) announced that specialty retail veteran Patricia "Patti" DeRosa will join the company in a newly created human resources position as senior vice president, creative talent development. Ms. DeRosa, 50, will lead talent development for the company's New York based product design teams. "Developing creative people is and has been a cornerstone of the company," said Gap Inc. President and CEO Paul Pressler. "We're pleased to have lured Patti out of retirement to be our 'professor' of creative excellence and share her vast experience with our design talent." The move underscores Gap Inc.'s emphasis on product design and on identifying, attracting, developing and sustaining design talent across the company's brands. Ms. DeRosa will report to Eva Sage- Gavin, executive vice president of human resources for Gap Inc. In this role, Ms. DeRosa will be responsible for fostering a creative design environment, facilitating the growth and development of creative teams and building relationships with design schools. Ms. DeRosa began her career with Gap Inc. as a store manager in training. Throughout her 18-year career at Gap, she held various merchandising, operations and management roles including executive vice president of Gap brand and president of GapKids. She left Gap Inc. in 1995 to lead business development for Charming Shoppes, Inc. and in 1996 was named president and CEO of Ann Taylor Stores. She retired from Ann Taylor in 2001. Gap Inc. is a leading international specialty retailer offering clothing, accessories and personal care products for men, women, children and babies under the Gap, Banana Republic and Old Navy brand names. Fiscal 2002 sales were $14.5 billion. As of August 2, 2003, Gap Inc. operated 4,230 store concepts (3,095 store locations) in the United States, the United Kingdom, Canada, France, Japan and Germany. In the United States, customers also may shop the company's online stores at gap.com, Banana Republic.com and oldnavy.com. As reported in Troubled Company Reporter's July 30, 2003 edition, Standard & Poor's Ratings Services assigned its 'BBB' rating to apparel retailer The Gap Inc.'s $750 million senior secured bank loan that matures on June 24, 2006. The 'BB+' corporate credit and senior unsecured ratings on The Gap were also affirmed. The outlook is negative. The San Francisco, California-based company had about $2.9 billion of funded debt as of May 3, 2003. The revolving credit facility is rated two notches higher than the corporate credit rating based on a very strong likelihood of full recovery of principal in the event of default or bankruptcy. This rating is supported by collateral coverage of more than 2.0x at the company's seasonally low inventory period. The loan is secured by a first priority perfected security interest in all U.S. inventory of The Gap and the stock of its domestic subsidiaries. The credit agreement requires as a condition to new borrowings that there be no material adverse effect. Financial covenants include a maximum leverage ratio and a minimum fixed coverage ratio. Covenants also limit capital spending, prohibit increases in the common dividend and share repurchases, and limit debt repurchase. GENEVA: Taps Health and Safety to Conduct Environmental Survey -------------------------------------------------------------- Geneva Steel LLC sought and obtained approval from the U.S. Bankruptcy Court for the District of Utah to employ Health and Safety Services to conduct environmental hazard assessment survey. Health and Safety has mainly developed particular expertise in the management and control of situations where asbestos or lead is involved. The Firm is also staffed to provide support for virtually all industrial hygiene issues, including both chemical and physical hazards. Health and Safety, headed by Jeff Throckmorton, will undertake an environmental hazard assessment survey of structures and buildings associated with the plant located on the Debtor's property. Specifically, the Firm will review records, conduct an on-site inspection, take samples of asbestos and lead and, as needed, other compounds of and from the administrative buildings, the rolling mill, the pipe mill, the open hearth/Q-BOP, the blast furnaces and supporting structures, the continuous caster facility, the coke ovens, the byproducts plant, coal handling area, the change houses, the sintering plant, "skull cracker" building, the mixer building, and scale buildings to identify friable and non-friable asbestos materials, devices or areas containing mercury, PCBs, freon compounds, and lead paint. The hourly rates of the Firm professionals are: Dr. Lowell White $95 per hour Mr. Throckmorton $85 per hour field technician $50 per hour clerical $30 per hour Geneva Steel owns and operates an integrated steel mill located near Provo, Utah. The Company filed for chapter 11 protection on January 25, 2002 (Bankr. Utah Case No. 02-21455). Andrew A. Kress, Esq., Keith R. Murphy, Esq. and Stephen E. Garcia, Esq. at Kaye Scholer LLP represent the Debtor in its restructuring efforts. When the Company filed for protection from its creditors, it listed $264,440,000 in total assets and $192,875,000 in total debts. HEADLINE MEDIA: Closes $4.9 Million Private Equity Placement ------------------------------------------------------------ Headline Media Group Inc. (TSX: HMG) announced that it has closed the previously announced private placement issue of 16,333,333 Class A Subordinate Voting Shares at a price of $.30 per share. The issue, completed on a non-brokered basis, was fully subscribed and secured $4.9 million gross proceeds for the Company. The private placement was subject to the preemptive right of certain major shareholders under a Respective Rights Agreement, which entitled them to acquire their pro-rata share of the private placement. Levfam Holdings Inc., Headline's controlling shareholder and one other party subject to the Respective Rights Agreement elected to participate in the private placement. Approximately $2.5 million of the private placement was subscribed for by a company owned by Insight Sports Ltd. Insight Sports is a leading broadcasting and television production company with sports as its core. The company produces programming for broadcast television, in-arena scoreboards, and DVD home entertainment. Insight also specializes in broadcast quality computer animation; plus multi-media, web design and corporate/educational video productions. Insight Sports also holds an equity position in three digital networks including the NHL Network. Insight Sports' shareholders include Kilmer Enterprises Inc.; MWI Nominee Company Ltd. (private equity fund); IMG-Canada, Limited; Ignite Communications Inc., Don Metz and Insight Production Company. According to John Levy, Headline's Chairman and Chief Executive Officer, "I am very pleased with the support for this financing from our existing base of shareholders and also excited that Insight Sports has decided to make a significant investment in our Company." "We are thrilled to be able to make this investment in Headline Media group. The essence of their assets, The Score Television Network, is a jewel in the Canadian sports broadcasting arena. To have the opportunity to be partnered with that jewel was one that we could not pass by," said Brian Cooper, President of Insight Sports. Headline Media Group Inc. (TSX: HMG) is a media company focused on the specialty television sector through its three assets: The Score Television Network, PrideVision and The St. Clair Group. The Score is a national specialty television service providing sports, news, information, highlights and live event programming. PrideVision offers programming which focuses on the gay community and was launched in September 2001. The St. Clair Group is a recognized leader in the Canadian sports marketing and specialty publishing arena. At Feb. 28, 2003, Headline Media's working capital deficit tops $12 million while its total shareholders equity deficit is $11 million. HEALTHSOUTH: Appoints Robert P. May to Head Ambulatory Services --------------------------------------------------------------- HealthSouth Corporation (OTC Pink Sheets: HLSH) announced a change in its divisional leadership. In addition to continuing with his current duties as Interim Chief Executive Officer, Robert P. May will also serve as acting head of HealthSouth's Ambulatory Services Division. Daniel J. Riviere, 43, the former President and Chief Operating Officer of the Ambulatory Services Division, has resigned to pursue other opportunities. "We appreciate Dan's service and commitment to HealthSouth over the past 16 years, and we wish him the best in his future endeavors," said Mr. May. "The Ambulatory Services Division remains an integral part of HealthSouth's core business. I look forward to working closely with this division as we move forward." HealthSouth said that it would begin a search process to identify a permanent division head, and will consider both internal and external candidates. HealthSouth's Ambulatory Services Division includes all of the Company's freestanding outpatient rehabilitation and sports medicine facilities, diagnostic imaging facilities and outpatient specialty programs. The division operates 1,003 outpatient rehabilitation facilities and 127 diagnostic imaging centers across the country. HealthSouth is the nation's largest provider of outpatient surgery, diagnostic imaging and rehabilitative healthcare services, with nearly 1,700 locations in all 50 states and abroad. HealthSouth can be found on the Web at http://www.healthsouth.com * * * As previously announced, on August 12, 2003, HealthSouth paid $117 million to its lending banks and the trustees under its indentures representing payment of all past due interest owed by the Company under its various borrowing agreements. It is expected that payment of the past due interest will be made to the holders of Company's notes shortly after the record date. HealthSouth also noted that its banks had previously issued a payment blockage notice with respect to the Company's 10.75% Senior Subordinated Notes due 2008 and its Convertible Subordinated Debentures, which blockage would preclude holders of those instruments from receiving past due interest. The Company has requested that its banks waive such payment blockage to allow past due interest to be paid to the holders of its subordinated indebtedness. No assurance can be made that such waiver will be granted. HERCULES: Rights Pact Amended to Expire on Sept. 19 --------------------------------------------------- Hercules Incorporated's (NYSE: HPC) board of directors has amended the Company's Rights Agreement to provide for its expiration at the close of business on September 19, 2003. The Company said its board of directors has voted to present to its shareholders proposed amendments to the Company's Restated Certificate of Incorporation and By-laws providing for the right of shareholders to call special meetings when requested in writing by owners of a majority of the outstanding shares and to act by written consent. These amendments require shareholder approval to be effective. Dr. William Joyce, Chairman and Chief Executive Officer, commented, "The board of directors has acted to implement the wishes of the shareholders as expressed at this year's annual meeting. The board has the power to provide for the termination of the Rights Agreement and no further board or shareholder action is required. The shareholder proposal to provide for shareholders to call special meetings and to act by written consent can only be implemented by amending the Company's By-laws and Restated Certificate of Incorporation, which must be submitted to a shareholder vote and approved by 80% of the shares entitled to vote. The board of directors responded to the views of its shareholders as expressed at the annual meeting and provided for the proposed amendments to be considered at the next shareholders meeting." Dr. Joyce continued, "To the extent a majority of our shareholders desire to have the board of directors call a special shareholders meeting prior to the time the proposed amendments are approved by the shareholders, I am confident the board of directors will take those desires into account." Hercules (S&P, BB Corporate Credit Rating, Positive) manufactures and markets chemical specialties globally for making a variety of products for home, office and industrial markets. For more information, visit the Hercules Web site at http://www.herc.com HORIZON TELECOM: Ability to Continue as Going Concern in Doubt -------------------------------------------------------------- Horizon Telecom Inc. is a facilities-based telecommunications carrier that provides a variety of voice and data services to commercial, residential/small business and local market segments. The Company provides landline telephone service, very-high digital subscriber line television service and Internet access services to the southern Ohio region, principally in and surrounding Chillicothe, Ohio. The Company also provides PCS operations to a twelve-state region in the Midwest, including Ohio, Indiana, Pennsylvania, Virginia and West Virginia, as an affiliate of Sprint PCS. During the six months ended June 30, 2003, Horizon PCS incurred a loss of approximately $216,000 related to the disposal of assets from two of its retail stores closed during 2003. During the six months ended June 30, 2002, Horizon PCS retired certain network assets and replaced them with equipment to upgrade the network resulting in a loss of approximately $641,000. On July 28, 2003, Horizon PCS implemented a company-wide work force reduction to further reduce costs that are within Horizon PCS' control. The employment of approximately 300 employees has been terminated, and Horizon PCS has closed approximately 19 of its 42 company-owned sales and service centers to reduce costs in areas where revenues are not currently meeting criteria for return on investment. Horizon PCS is also converting approximately 13 of its other company-owned sales and service centers to customer service centers. Horizon PCS expects to record a restructuring charge in the third quarter of 2003 but has not determined the financial impact. On August 15, 2003, Horizon PCS, Inc., a Delaware corporation, Horizon Personal Communications, Inc., an Ohio corporation and subsidiary of Horizon PCS and Bright Personal Communications Services LLC, an Ohio limited liability company and subsidiary of Horizon PCS, filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of Ohio. The Debtors expect to continue to manage their properties and operate their businesses in the ordinary course of business as "debtors-in- possession" subject to the supervision and orders of the Bankruptcy Court pursuant to Sections 1107(a) and 1108 of the Bankruptcy Code. In general, as a debtor-in-possession, Horizon PCS is authorized under Chapter 11 to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. Under Section 362 of the Bankruptcy Code, the filing of a bankruptcy petition automatically stays most actions against Horizon PCS, including most actions to collect pre- petition indebtedness or to exercise control of the property of Horizon PCS' estate. Absent an order of the Bankruptcy Court, substantially all pre-petition liabilities will be subject to settlement under a plan of reorganization. The Bankruptcy Case was commenced in order to implement a comprehensive financial restructuring of Horizon PCS, including the senior credit facility, the senior notes, the discount notes and preferred and common equity securities. No Reorganization Plan has been submitted to the Bankruptcy Court. It is likely that, in connection with the final Reorganization Plan, the liabilities of Horizon PCS will be found in the Bankruptcy Case to exceed the fair value of its assets. This would result in claims being paid at less than 100% of their face value and holders of preferred and common stock being entitled to little or no recovery. At this time, it is not possible to predict with certainty the outcome of the bankruptcy proceedings. Horizon Telecom's independent auditors have issued their Independent Auditors' Report on Horizon PCS' consolidated financial statements for the fiscal year ended December 31, 2002 with an explanatory paragraph regarding Horizon PCS' ability to continue as a going concern. The consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business. However, as a result of recurring operating losses, such realization of assets and satisfaction of liabilities are subject to uncertainty, which raises substantial doubt about Horizon PCS' ability to continue as a going concern. HUDSON TECHNOLOGIES: Falls Below Nasdaq Min. Listing Requirement ---------------------------------------------------------------- Hudson Technologies, Inc. (Nasdaq: HDSN) received a notice from Nasdaq indicating that the Company is not in compliance with the minimum $2.5 million stockholders' equity requirement for continued listing on The Nasdaq SmallCap Market as set forth in Marketplace Rule 4310(C)(2)(B). Accordingly, the Company's securities are subject to delisting from the Nasdaq SmallCap Market. Hudson has requested a hearing with a Nasdaq Listing Qualifications Panel to review the staff determination. The Company is exploring a number of possible avenues to preserve the listing of its securities on the Nasdaq SmallCap Market, including a stay of the delisting pending the successful completion of corporate actions that would increase the Company's equity above the level required by Nasdaq. However, there is no assurance that the Panel will grant the Company's request for continued listing. Hudson's stock will continue to be traded on the Nasdaq SmallCap Market pending the final decision by Nasdaq. A hearing date has not yet been set by Nasdaq. Hudson Technologies, Inc., is a leading provider of innovative solutions to recurring problems within the refrigeration industry. Hudson's proprietary RefrigerantSide(R) Services increase operating efficiency and energy savings, and remove moisture, oils and other contaminants frequently found in the refrigeration circuits of large comfort cooling and process refrigeration systems. Performed at a customer's site as an integral part of an effective scheduled maintenance program or in response to emergencies, RefrigerantSide(R) Services offer significant savings to customers due to their ability to be completed rapidly and at higher purity levels, and can be utilized while the customer's system continues to operate. In addition, the Company sells refrigerants and provides traditional reclamation services to the commercial and industrial air conditioning and refrigeration markets. For further information on Hudson, please visit the Company's Web site at http://www.hudsontech.com * * * Liquidity and Capital Resources In its Form 10-QSB filed with the Securities and Exchange Commission, Hudson Technologies reported: At June 30, 2003, the Company had working capital, which represents current assets less current liabilities, of approximately $632,000, an increase of $643,000 from working capital deficit of $11,000 at December 31, 2002. The increase in working capital is primarily attributable to new financing in 2003 offset by the net loss incurred during the six months ended June 30, 2003. Principal components of current assets are inventory and trade receivables. At June 30, 2003, the Company had inventories of $2,353,000, a decrease of $614,000 or 21% from the $2,967,000 at December 31, 2002. The Company's ability to sell and replace its inventory on a timely basis and the prices at which it can be sold are subject, among other things, to current market conditions and the nature of supplier or customer arrangements. At June 30, 2003, the Company had net trade accounts receivable of $3,367,000, an increase of $1,396,000 or 71% from the $1,971,000 at December 31, 2002. The increase in the accounts receivable balance relates to seasonal revenue fluctuations. The Company's trade accounts receivables are concentrated with various wholesalers, brokers, contractors and end-users within the refrigeration industry that are primarily located in the continental United States. The Company has historically financed its working capital requirements through cash flows from operations, the issuance of debt and equity securities, bank and related party borrowings. In recent years the Company has not financed its working capital requirements through cash flows from operations but rather from issuances of equity securities and bank borrowings. In order for the Company to finance its working capital requirements through cash flows from operations the Company must reduce its operating losses. There can be no assurances that the Company will be successful in lowering its operating losses, in which case the Company will be required to fund its working capital requirements from additional issuances of equity securities and/or additional bank borrowings. Based on the current investment environment there can be no assurances that the Company would be successful in raising additional capital. The inability to raise additional capital could have a material adverse effect on the Company. Net cash used by operating activities for the six months ended June 30, 2003, was $1,072,000 compared with net cash used by operating activities of $1,034,000 for the comparable 2002 period. Net cash used by operating activities was primarily attributable to the net loss for the 2003 period and an increase in trade receivables offset by an increase in trade payables. Net cash used by investing activities for the six months ended June 30, 2003, was $150,000 compared with net cash used by investing activities of $17,000 for the prior comparable 2002 period. The net cash used by investing activities was due to equipment additions primarily associated with the Company's new production facility in Champaign, IL, as well as additions to patents. Net cash provided by financing activities for the six months ended June 30, 2003, was $950,000 compared with net cash provided by financing activities of $531,000 for the comparable 2002 period. The net cash provided by financing activities for the 2003 period primarily consisted of proceeds from convertible debt of $1,538,000, offset to a lesser extent by a reduction of $148,000 of the amounts outstanding under the revolving line of credit with Keltic Financial Partners, LLP, and repayment of long term debt of $441,000. At June 30, 2003, the Company had cash and cash equivalents of $273,000. The Company continues to assess its capital expenditure needs. The Company may, to the extent necessary, continue to utilize its cash balances to purchase equipment primarily associated with its RefrigerantSide(R) Service offering and consolidation of its reclamation facilities. The Company estimates that capital expenditures during 2003 may range from approximately $400,000 to $500,000. On May 30, 2003, Hudson entered into a credit facility with Keltic which provides for borrowings of up to $5,000,000. The facility consists of a revolving line of credit and a term loan. Advances under the revolving line of credit may not exceed $4,600,000 and are limited to (i) 85% of eligible trade accounts receivable and (ii) 50% of eligible inventory. Advances available to Hudson under the term loan may not exceed $400,000. The facility bears interest at a rate equal to the greater of the prime rate plus 2.0 %, or 6.5%. Substantially all of Hudson's assets are pledged as collateral for its obligations to Keltic under the credit facility. In addition, among other things, the agreements restrict Hudson's ability to declare or pay any cash dividends on its capital stock. As of June 30, 2003, Hudson had in the aggregate $1,886,000 outstanding under the Keltic credit facility and $489,000 available for borrowing under the credit facility. In addition, the Company had $393,000 outstanding under its term loan with Keltic. In connection with the Keltic credit facility, Hudson also entered into a loan arrangement with the Flemings Funds for the principal amount of $575,000. The loan is unsecured, is for a term of three years, and accrues interest at an annual rate equal to the greater of the prime rate plus 2.0%, or 6.5%. In accordance with the terms of the Keltic credit facility, the amount of principal and interest outstanding under this loan arrangement reduces Hudson's aggregate borrowing availability by a like amount under its credit facility with Keltic. This loan is expected to be retired in conjunction with the completion of its pending Rights Offering. The Company is continuing to evaluate opportunities to rationalize its operating facilities and its depot network based on ways to reduce costs or to increase revenues. Recently, based on evaluations by management, the Company has consolidated certain of its facilities. The Company is also considering whether to reduce or eliminate certain of its operations that have not performed to its expectations. Moreover, as the Company begins to implement its sales and marketing strategy to focus on industry rather than geographic markets it may discontinue certain operations, eliminate depot and overhead costs and, in doing so, may incur future charges to exit certain operations. The Company believes that it will be able to satisfy its working capital requirements for the immediate future from anticipated cash flow from operations and available funds under its credit facility with Keltic. The Company believes that it will need additional financing during 2003 to support its continuing operations. In addition, any unanticipated expenses, including, but not limited to, an increase in the cost of refrigerants purchased by the Company, an increase in operating expenses or failure to achieve expected revenues from the Company's depots and/or refrigerant sales or additional expansion or acquisition costs that may arise in the future would adversely affect the Company's future capital needs. There can be no assurances that the Company's proposed or future plans will be successful, and as such, the Company may need to significantly modify its plans or it may require additional capital sooner than anticipated. The Company is currently seeking to obtain additional financing through the issuance of debt and/or equity securities, which includes a registered offering of Common Stock by the Company to, among others, its stockholders. There can be no assurance, however, that the Company will be able to obtain any additional capital on commercially reasonable terms or at all, and its inability to do so would have a material adverse affect on the Company. INDYMAC: Fitch Cuts Class BF Rating to Speculative Grade Level -------------------------------------------------------------- Fitch Ratings has affirmed and taken rating action on the following IndyMac ABS, Inc., Home Equity issue: Series SPMD 2000-A Group 1: -- Classes AF3, R affirmed at 'AAA'; -- Class MF1 affirmed at 'AA'; -- Class MF2 affirmed at 'A'; -- Class BF downgraded to 'BB' from 'BBB' and removed from Rating Watch Negative. The rating action on class BF is a result of adverse collateral performance and the deterioration of asset quality outside of Fitch's original expectations. Indymac SPMD 2000-A Group 1 contained 9.35% of manufactured housing collateral (% of UPB) at closing. As of July 2003, the percentage of MH increased to 18.25%. To date, MH loans have exhibited very high historical loss severities, causing Fitch to have concerns over the available enhancement in this deal. This transaction was structured with mortgage insurance policies provided by both the lender and the borrower on approximately 20% of the mortgage pool. These deals have experienced historically slow resolution of insurance claims and liquidation process on the MH collateral due to illiquidity in the current market. Fitch has been informed by IndyMac that a group has been segregated to specifically handle the MI relationships and the claim submittal and timing process. The structure in the 2000-A transaction is not cross- collateralized, so it does not allow for excess spread to be shared by the groups. This deal is also structured such that there is the ability in future periods for the bond that was written down due to losses to be written back up. Fitch will continue to closely monitor this transaction. INFOUSA INC: S&P Assigns BB Rating to $145M Senior Secured Debt --------------------------------------------------------------- Standard & Poor's Ratings Services raised its corporate credit rating on infoUSA Inc. to 'BB' from 'BB-' and subordinated debt rating to 'B+' from 'B'. These ratings are removed from CreditWatch where they were listed July 25, 2003. The outlook is stable. This Omaha, Nebraska-headquartered company has about $160 million of debt outstanding. "At the same time, a 'BB' senior secured debt rating was assigned to the company's $145 million senior secured credit facilities that were put in place in May 2003," said Standard & Poor's credit analyst Donald Wong. These bank loan facilities consist of a $45 million revolving credit facility due May 2006 and a $100 million term loan due April 2007. The higher ratings reflect the company's stronger financial profile, aided by lower debt levels over the past several years, and the expectation that it can be sustained. The ratings on infoUSA reflect the company's meaningful debt levels, moderate-sized operating cash flow base, and competitive market conditions, including competition from firms who have greater financial resources than infoUSA. These factors are tempered by the company's free operating cash flow generation, strong niche market positions, a broad product and service offering distributed through numerous channels to a diverse base of businesses, and a significant portion of sales derived from existing or former customers. The company grew through debt- financed acquisitions primarily through 1999, the largest of which was Donnelley Marketing Inc., a consumer database and database marketing company for about $200 million in 1999. However, future opportunities are expected to be the considerably smaller, tuck-in types of acquisitions. In addition, infoUSA is expected to continue to focus on strengthening its balance sheet. KMART CORP: Seeks Clearance for Settlement Agreement with JDA ------------------------------------------------------------- The Kmart Corporation Debtors ask the Court to approve their settlement agreement with JDA Software, Inc. to resolve JDA's claims against the estates. JDA asserts a $291,597 administrative expense claim, $1,865,450 in outstanding unsecured prepetition claims and $737,155 in damages arising from rejected agreements. As of the Petition Date, the Debtors and JDA were parties to four agreements concerning the development of software that would enable the Debtors to open a store in Port of Spain, Trinidad and subsequent stores in the Caribbean. However, based on a number of factors, the Debtors determined to reject all four agreements. The Debtors dispute JDA's Administrative Expense Claim. Their evaluation of the Prepetition Claim also found support for all but $45,000 of the amounts outstanding as of the Petition Date. The Debtors also believe that JDA's rejection damages may be overstated. After discussion between parties, JDA agreed to consider the Administrative Expense Claim as a Lease Rejection Claim under Class 5 for $2,894,205. In addition, JDA and the Debtors agree to reduce the Prepetition Claim to $2,800,000. The parties also agree to amend and extend a Software License Agreement and a Software Maintenance Agreement, which the Debtors assumed pursuant to their Plan. Under the Assumed Agreements, the Debtors license and receive support for software used in automated replenishment and layout planning. (Kmart Bankruptcy News, Issue No. 61; Bankruptcy Creditors' Service, Inc., 609/392- 0900) KMART: Ratings on Two Related Credit Lease Transactions Cut to D ---------------------------------------------------------------- Standard & Poor's Ratings Services lowered its ratings on two Kmart Corp. related credit lease transactions to 'D' from 'C'. The lowered ratings follow the allocation of realized losses to certificate holders following the disposition of properties formerly leased to Kmart. DR Structured Finance Corp. 1993 K-1 experienced a 66% loss severity on a $4.7 million loan secured by a property formerly tenanted by a Kmart in Pascagoula, Mississippi. The store was closed after Kmart rejected its lease while in bankruptcy. The loan became delinquent after the last lease payment was received in June 2002. DR Structured Finance Corp. 1994 K-1 experienced a 53% loss severity on a $5.8 million loan secured by a property formerly tenanted by Kmart in Palm Coast, Florida. The loan became delinquent in July 2002. Kmart rejected its lease while in bankruptcy in February 2002. RATINGS LOWERED DR Structured Finance Corp. 1993 K-1 Rating Class To From A-1, A-2 D C DR Structured Finance Corp. 1994 K-1 Rating Class To From A-1, A-2, A-3 D C KRYSTAL CO: Declining Operations Spur Outlook Revision to Neg. -------------------------------------------------------------- Standard & Poor's Ratings Services revised its outlook on The Krystal Co. to negative from stable. The 'B' corporate credit rating on the company was affirmed. The outlook revision is based on Krystal's declining operating performance and cash flow protection measures. Operating performance weakened considerably in the first half of 2003 because of a slow economy and intense competition in the quick-service segment of the restaurant industry. Comparable-store sales at company-owned units fell 5.8% in the first half of 2003, while operating margins for the 12 months ended June 29, 2003, decreased to 11.5% from 12% the year before, primarily due to a decline in sales leverage. As a result, EBITDA coverage of interest in the first half of 2003 fell to 2.1x, from 2.6x in same period the year before. Cash flow protection measures are highly variable because of the company's small EBITDA base of about $21 million. "The ratings on The Krystal Co. reflect its participation in the highly competitive quick-service segment of the restaurant industry, relatively small size, weak credit measures, and a highly leveraged capital structure," said credit analyst Robert Lichtenstein. These factors are somewhat offset by the company's regional brand recognition in the Southeast. Liquidity is adequate, with $12.2 million in cash and a $25 million revolving credit facility, of which $6 million was available as of June 29, 2003. The credit facility matures in June 2004. Covenants currently provide limited cushion. Free operating cash flow was $6.7 million in 2002. Standard & Poor's expects that operating cash flow and the company's revolving credit facility will be Krystal's primary sources to service its debt and fund capital expenditures of about $8 million in 2003. As of Dec. 29, 2002, the company had pension and post- retirement liabilities of $5.4 million; however, Standard & Poor's does not expect this to materially affect cash flows over the near term. LOUIS FREY CO.: Case Summary & 20 Largest Unsecured Creditors ------------------------------------------------------------- Debtor: Louis Frey Company, Inc. 902 Broadway New York, New York 10010 Bankruptcy Case No.: 03-15297 Type of Business: Reprographic services. See http://www.louisfrey.com/ Chapter 11 Petition Date: August 22, 2003 Court: Southern District of New York (Manhattan) Judge: Stuart M. Bernstein Debtor's Counsel: Ronald S. Itzler, Esq. Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP 750 Lexington Avenue New York, NY 10022-1200 Tel: 212-888-8200 Fax: 212-888-7776 Total Assets: $11,140,946 (as of March 31, 2003) Total Debts: $7,538,365 (as of March 31, 2003) Debtor's 20 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ Merrill Lynch $4,584,753 33 W. Monroe 22nd Floor Chicago IL 60603 OCE-USA, Inc. $297,851 5450 North Cumberland Avenue Chicago IL 60656 Executive Color Systems, Inc. $264,298 62 West 39th Street, 6th Floor New York NY 10018 Williams Real Estate Co. $127,875 Xerox Corporation $125,676 Azon Corporation / Intelicoat $77,753 IPP, Inc. $65,280 Interchange Capital Company $53,600 Minolta Business Solutions $38,627 Primeline Reprographics $36,330 Konica Business Technologies $31,086 Citicapital $27,330 W.D. Service Co. Inc. $23,997 Sloyer-Forman Inc. $21,210 Elite Reprographics $18,496 Recovery Systems Inc. $17,840 Tower Paper Company $17,677 Azerty Incorporated $15,132 Metro Duplicating $14,707 Information Leasing Corp. $14,666 MAGELLAN HEALTH: Brings-In Accenture as Operations Consultants -------------------------------------------------------------- Magellan Health Services, Inc., and its debtor-affiliates seek the Court's authority, pursuant to Sections 327(a) and 328(a) of the Bankruptcy Code and Rule 2014(a) of the Federal Rules of Bankruptcy Procedure, to employ Accenture, Ltd. as operations consultants in accordance with the terms of a March 20, 2003 Engagement Letter. The Debtors further ask the Court to approve Accenture's compensation terms in connection with their Engagement Letter. Steven R. Burns, an Accenture partner, informs Judge Beatty that the Accenture partners and employees who are involved in this engagement have substantial experience in providing operations and information technology consulting services to large companies like the Debtors. Accenture is one of the world's largest consulting and technology services companies. With offices around the world and clients in nearly every major industry, Accenture identifies critical areas with potential for maximum business impact, innovates and transforms the processes in those areas and delivers performance improvements and lower operating costs by implementing business processes or computer modifications, or in some cases, by assuming responsibility for certain business functions or areas. Mark S. Demilio, Executive Vice President and Chief Financial Officer of Magellan Health Services, Inc., relates that prior to the Petition Date, the Debtors retained Accenture to provide an assessment of the potential information technology and operational improvements possible for them. In connection with the Engagement Letter, Magellan and Accenture have, and, from time to time, will, enter into certain task orders with respect to each project that Accenture is to perform for them. Each Task Order contains a description of the project including, among other things, a work description, a list of deliverables, staffing and fee arrangements. Currently, five Task Orders are in place, which provides that Accenture will: A. Account Retention -- support the Debtors in the development of a coordinated retention process and specific account plans for the Debtors' top 40 accounts. B. Cost of Care Payout Reduction 1. create a comprehensive list of cost of care payout reduction opportunities; 2. deliver to the Debtors accelerated EBITDA impacts; 3. quantify and verify additional cost of care payout reduction opportunities for subsequent implementations during the course of 2003; 4. after each cost of care reduction opportunity is adequately defined, sized and prioritized, establish an implementation to begin capturing additional savings; and 5. deliver to the Debtors, forms, methodology and analysis for the reduction of cost of care. C. Service Center Transition Planning 1. assist the Debtors in finalizing specific plans for consolidation and improvement of regional centers; 2. deliver to the Debtors: a. detailed consolidation plan and timetables; b. site risk assessment profiles; and c. site profiles, including client information, telephone, applications, staff and knowledge transfer in connection with regional center consolidation; 3. provide linkage and dependencies to IT, customer service and care management operational initiatives; 4. determine network service center improvement cost and benefit; and 5. identify best practices for employee communications and market communication. D. Service Center Transition Launch 1. create detailed service center account transition plan; 2. establish a program management office and associated processes; 3. create detailed service center transition communications plan; 4. establish service center transition project team structure; 5. support account transition database; and 6. provide linkage and dependencies to IT, Customer Service and Care Management operational initiatives. E. Interactive Voice Response Mobilization Project -- design and deploy an effective IVR self-service capability that is durable, usable and value creating. F. Reorganizing and Reducing Corporate and Field Overhead 1. identify cost-reduction opportunities in Magellan's network, finance, clinical and other functions; and 2. develop a detailed, activity-based costing database to enable decision making around cost-reduction efforts in corporate and field centers. G. Rapid Integrated Information Environment Action Plan Given that the Debtors' management has identified collection, analysis and distribution of information as one of three critical strategies and must have core competencies, Accenture will: 1. assist the Debtors in determining the requirements and highest priority demands for the collection and analysis of information related to reducing medical costs and improving service to customers; 2. assess the requirements for information against the status and capabilities of current systems to determine highest priority gaps; 3. design the technical architecture required to support new requirements; and 4. develop the project plans, costs and benefit estimates to establish the business case for implementation. Accenture's compensation and reimbursement will be made according to each Task Order. Each Task Order has or will have separate provisions for compensation and reimbursement. The provisions for compensation with respect to the existing Task Orders are: Reimbursable Task Order Professional Fees Expenses ---------- ----------------- ------------ Account Retention $58,000 $8,700 Cost of Care Payout $360,000, plus Actual Reduction success-sharing Expenses Incentive Services Center $58,000 $8,700 Transition Planning Service Center $87,000 $13,000 Transition Launch IVR Mobilization $206,000 -- with 20% $42,000 Project subject to reduction based on timeliness and quality of work performed Reorganizing and $150,000, plus Actual Reducing Corporate success sharing expenses and Field Overhead incentive) not to exceed $55,000 Rapid Integrated $190,000 -- with 16% $35,000 Information subject to reduction Environment based on timeliness Action Plan and quality of work performed With respect to the Cost of Care Payout Reduction Task Order, in addition to the $360,000 in fees, the Task Order provides for a fee and risk sharing arrangement. Mr. Burns explains that if Magellan incurs $5,500,000 in gross benefits as a result of Accenture's services, Accenture will be paid an additional $370,000. For the next $2,700,000 in gross Magellan benefits or $8,200,000 in cumulative gross benefits, Accenture will be paid an additional $405,000, and for the next $2,300,000 in gross Magellan benefits or $10,500,000 in cumulative gross benefits, Accenture will be paid an additional $230,000. With respect to the Reorganizing and Reducing Corporate and Field Overhead Task Order, in the event that the savings attributable to the task order exceed $11,700,000, Accenture will receive, in addition to the $150,000, 10% of the savings over $11,700,000 up to an overall cap of $500,000. In addition, Accenture has agreed that, with respect to the IVR Mobilization Project Task Order, $41,000 of its professional fees will be subject to reduction if it does not meet certain performance deadlines and provide a certain level of quality of services. With respect to the Rapid Integrated Information Environment Action Plan, 16% of Accenture's professional fees will be subject to reduction if it does not meet certain performance deadlines and provide a certain level of quality of services. Accenture's fee rates pursuant to the Engagement Documents are equal to or below Accenture's customary rates. All of the compensation and reimbursement of expenses paid to Accenture will be subject to final allowance in accordance with the provisions of the Bankruptcy Code, Bankruptcy Rules, Local Rules and orders entered in Magellan's cases. Mr. Demilio says that the Debtors may issue further Task Orders to Accenture in connection with its engagement. Although it cannot be known at this time the exact compensation proposed to be paid to Accenture in connection with any future Task Order, the parties expect that the services required under those future Task Orders will involve services directly related to the Debtors' ordinary business operations. Thus, to conserve estate assets and promote judicial economy, the Debtors seek the Court's permission to pay fees and expenses under the future Task Orders without further Court order, as long as: 1. each future Task Order involves terms of compensation that are substantially similar to the terms of the compensation provided in existing Task Orders; and 2. the Debtors provide notice of the future Task Orders and their terms of compensation to the Office of the United States Trustee for the Southern District of New York, counsel for the statutory committee of unsecured creditors appointed in these cases and counsel for the agent to the Debtors' prepetition lenders. However, the Debtors will seek further Court approval before proceeding further if: 1. the fees and expenses in connection with any individual future Task Order exceed $100,000; or 2. the aggregate fees and expenses payable to Accenture with respect to existing and future Task Orders exceed $1,500,000. Mr. Demilio contends that the fee arrangement is both fair and reasonable and should be approved pursuant to Section 328(a), considering: 1. the fact that a significant portion of Accenture's fees are contingent on the success, timeliness and quality of the services rendered; 2. the numerous issues, which Accenture may be required to address in the performance of its services; 3. Accenture's commitment to the variable level of time and effort necessary to address all issues as they arise; and 4. the market prices for retaining consultants of the caliber and with the experience of Accenture. Fee Applications and Interim Compensation and Reimbursement Accenture advised the Debtors that it is not in its general practice to keep detailed time records similar to those customarily kept by attorneys. Nevertheless, Accenture's professionals will keep records detailing and describing their activities, the identity of persons who performed the tasks and the amount of time expended on each activity. In addition, apart from the time-recording practices described, Accenture's restructuring personnel do not maintain their time records on a "project category" basis. According to Mr. Demilio, the proposed time descriptions that Accenture's personnel will provide should be sufficient for any review in connection with a subsequent application for compensation. Accordingly, the Debtors ask Judge Beatty to allow Accenture, in connection with any fee application it may file, to provide the lesser level of detail typically required. Accenture also seeks a waiver of the requirement of filing interim fee applications. The Debtors believe that this request is reasonable because Accenture is seeking to be compensated by a flat fee rather than billing on an hourly basis. Also, for the Cost of Care Payout Reduction Task Order, a substantial portion of Accenture's fees will be contingent on the Debtors' cost savings that are a result of Accenture's services. In addition, Accenture has agreed to make 20% of its fees for the IVR Mobilization Project subject to reduction based on the timeliness and quality of its services. Accenture has also agreed to make 16% of its fees for the Rapid Integrated Information Environment Action Plan Task order subject to reduction based on the timeliness and quality of its services. Instead of interim applications, Accenture will file a final application for the allowance of compensation and reimbursement of expenses. Mr. Demilio contends that Accenture possesses extensive knowledge and expertise particularly useful to the Debtors and their operations, and that Accenture is well qualified to render the necessary operational consulting services to the Debtors. The Debtors selected Accenture because of its expertise in providing consulting services to businesses of similar size and in similar industries as the Debtors and because Accenture has an excellent reputation as operations consultants and in the area of cost reducing measures. Furthermore, Mr. Demilio asserts that Accenture's operations consulting services are necessary to help the Debtors implement important cost-saving initiatives and to provide the Debtors with the information technology support that is integral to the efficient and economical operation of their businesses. Mr. Demilio assures the Court that the services to be rendered by Accenture are not intended to be duplicative in any manner with the services performed and to be performed by any other professional retained by the Debtors. Accenture, in concert with the other professionals employed by the Debtors, will undertake every reasonable effort to avoid any duplication of their services. On March 11, 2003, the Court approved the Debtors' employment of Gleacher Partners, LLC as their financial advisor. Unlike Gleacher, the nature of Accenture's retention is related to the Debtors' business operations and not the Debtors' financial restructuring. Therefore, the services performed by Accenture will not be duplicative of those performed by Gleacher. The Engagement Documents provide that the Debtors will indemnify Accenture with respect to the third party claims arising from the Debtors' use of the services or deliverables provided by Accenture. Mr. Burns assures the Court that Accenture does not represent or hold any interest adverse to the Debtors' estates or their creditors in the matters on which Accenture is to be engaged. Mr. Burns further discloses that Accenture is a "disinterested person," as the term is defined in Section 101(14) of the Bankruptcy Code. (Magellan Bankruptcy News, Issue No. 12: Bankruptcy Creditors' Service, Inc., 609/392-0900) MED DIVERSIFIED: SEC to Commence Formal Probe into Financials ------------------------------------------------------------- Med Diversified, Inc., (PINK SHEETS: MDDVQ) has received a subpoena as part of a formal inquiry by the Securities and Exchange Commission. Items requested in the subpoena include documents and materials, from 1997 to the present, relating to the Company's accounting and auditing matters; relationships with current and former financing sources and analysts; records of current and former directors and officers; various litigation matters; records of stock option and incentive plans; various press releases; various personnel records; and minutes from board of directors meetings. The Company is cooperating fully with the investigation. As publicly disclosed in the Company's Form 10-K for the fiscal years ended March 31, 2003, and 2002, the SEC initiated an informal inquiry in August 2002. The Company noted that the SEC, in a letter to the Company, stated: "This inquiry should not be construed as an indication by the Commission or its staff that any violation of law has occurred, nor should it be considered an adverse reflection on any person, entity or security." Med Diversified operates companies in various segments within the health care industry, including pharmacy, home infusion, management, clinical respiratory services, home medical equipment, home health services and other functions. For more information, see http://www.meddiversified.com Med Diversified filed for Chapter 11 protection on November 27, 2002, in the U.S. Bankruptcy Court for the Eastern District of New York (Central Islip) (Lead Bankruptcy Case No. 02-88564). METROMEDIA FIBER: Bankruptcy Court Confirms Chapter 11 Plan ----------------------------------------------------------- AboveNet, Inc., Metromedia Fiber Network, Inc.'s recently announced brand name, announced that the United States Bankruptcy Court for the Southern District of New York has confirmed its plan of reorganization, allowing the company to emerge from bankruptcy protection in early September. Craig McCaw through Fiber LLC., funds managed by Franklin Mutual Advisers and John Kluge through the Kluge Trust will be among the largest equity holders of the new company. Since filing for bankruptcy protection in May 2002, AboveNet has significantly reduced its expenses and increased its cash position. Upon emergence the company expects to have approximately $70 million in senior bank debt and $73 million in cash by the end of the year. AboveNet continues to win new customers as it has throughout the bankruptcy, including new contracts with the New York Mercantile Exchange, Xerox and Sprint. "We believe that our streamlined operations, low debt level, focused product set and unmatched asset base puts us in a great position to take full advantage of the opportunities in the current market," said John Gerdelman, president and chief executive officer of the Company. "It has been a challenging process for our employees, customers, vendors and stakeholders but we are excited to announce that we have succeeded and are indeed survivors. I am extremely pleased with our accomplishments and thankful for the tremendous support we received from our customers." AboveNet, Inc. will officially become the new name of Metromedia Fiber Network, Inc., upon the effective date. Metromedia Fiber Network, Inc., which plans to change its name to AboveNet Inc. upon emergence from bankruptcy, combines the most extensive metropolitan area fiber network with a global optical IP network, state-of-the-art data centers and award winning managed services to deliver fully integrated, outsourced communications solutions for high-end enterprise companies. The all-fiber infrastructure enables AboveNet customers to share vast amounts of information internally and externally over private networks and a global IP backbone, creating collaborative businesses that communicate at the speed of light. On May 20, 2002, Metromedia Fiber Network, Inc. and most of its domestic subsidiaries commenced voluntary Chapter 11 cases in the United States Bankruptcy Court for the Southern District of New York. The Company has requested a hearing on confirmation of its plan of reorganization on August 21. MOBILE COMPUTING: Conv. Debentures Maturity Extended to Friday -------------------------------------------------------------- Mobile Computing Corporation announced that holders of its convertible debentures have agreed to further extend the maturity date until August 29, 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 late September 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. MOONEY AEROSPACE: Meets Business Objectives for First Half 2003 --------------------------------------------------------------- Nelson Happy, President of Mooney Aerospace Group (OTCBB:MASG), reported that the company has recorded over $4.5 million in revenue for the first six months of 2003 ending June 30, 2003. Eight planes were delivered in that period and additional revenue from parts and service amounted to approximately $1.35 million of the $4.5 million total. "Mooney was able to meet the objectives laid out in its business plan during the first half of the year, and we are now operating the production process more efficiently," commented Mr. Happy. "During the six month period we were able to successfully complete manufacturing of most of the airplanes that were work in process when we restarted the factory in 2002. Completing and delivering eight aircraft in the first half of 2003 is clearly an accomplishment our team at Mooney is quite proud of," concluded Mr. Happy. In addition, the company announced that it has received orders for 13 more planes amounting to over $5.4 million in sales. The majority of these planes are expected to be delivered in the third quarter of 2003. Recently the company has been generating approximately $50,000 per week in parts and service business and expects this revenue stream to continue in support of the over 8,000 Mooney planes in operation. The company currently projects approximately 30 planes will be sold in 2003 the first year of full operation for the company. Annual revenues are expected to approach the $15 million dollar mark. Looking forward Mr. Happy commented on Mooney prospects for the remainder of 2003: "Production capacity for the factory operations is in excess of 30 planes under the current conditions. With our current backlog of 13 planes we expect to meet the approximately 30 planes in sales for 2003, resulting in sales of up to $15 million including parts and service revenue projections. Sales will be somewhat influenced by the availability of the new accelerated depreciation rules. Clearly, the recent award by Plane and Pilot Magazine will propel the Ovation 2 into the forefront of the single engine plane market. I expect that any inventory we can build in the last quarter will be snapped up by tax savvy pilots. "The Mooney team will also be working on our new international projects, especially our affiliation with BAE Systems of Britain, Koskol Group in Russia, and Venture Industries in Detroit along with our core business. The first project in this arena will be the Toxo high performance two place all-composite aircraft," concluded Mr. Happy. Mooney Aerospace Group (OTCBB:MASG) is a re-emerging player in the $41 billion general aviation industry. The Company designs, manufactures and distributes its own line of single engine aircraft sold to the general aviation market. The original Mooney company was established in 1947 by Al Mooney and has sold over 10,000 aircraft over the last 50 years. 8,000 planes are still in operation in the U.S. alone. Mooney is known in the industry as a highly reliable high performance single engine plane that maintains its value in the aircraft aftermarket. In 2002 a new management team took over and Mooney Aerospace Group received Federal Aviation Administration production and repair certificates for its facility in Texas. The company began producing and shipping aircraft in late 2002 generating revenues in excess of $5 million for the year representing both the sales of new aircraft and parts and service revenues. The company operates out of a 350,000 square foot facility near San Antonio, Texas, and employs over 170 people. In the last six months Mooney Aerospace has reached several new milestones and is well positioned to capitalize on the successful completion of a recent financial restructuring and the infusion of $7.5 million in new capital. Since acquiring the assets of the prior Mooney Aircraft Corporation in 2002 the milestones reached include: Creation of a new executive management team; Consolidation of all operations at the Kerrville, Texas, manufacturing plant; Introduction of a new plane, the Ovation2 DX; and formation of a sales and marketing division that combines a direct and indirect domestic sales force and reintroduces international sales. Industry Overview Globally general aviation is a $41 billion industry that is clearly an integral part of our nation's transportation system and economy. The industry generated over $11 billion in new aircraft sales in 2002. U.S. sales figures exceeded $7.8 billion in 2002. Although the sales figures were down from 2001 prior years have set new revenue records. 2002 sales exceeded 1999 figures and the industry has grown threefold from 1996. Numerous steps are being taken by the industry to stimulate sales including: changes in the tax code which allows accelerated depreciation, promotion of innovative new products, financing incentives, innovative ownership strategies (fractional ownership) and continued support from the state and federal government to provide an atmosphere conducive to growth. The industry is broken down into four aircraft categories: single engine piston (Mooney's category); multi-engine piston; turboprops and business jets representing over 2500 total aircraft sold in 2002. Single engine piston aircraft lead the way in 2002 with over 1440 aircraft sold worldwide. Industry leaders include Boeing Business Jets (NYSE:BA), Bombardier (Toronto Exchange: BBDa.TO), Cessna (a division of Textron Inc. NYSE:TXT), Cirrus Designs, Dassault, Mooney Aerospace Group (OTCBB:MASG), Gulfstream (a General Dynamics Company NYSE:GD), Maule Air, Piaggio, Pilatus, Beechcraft (a Division of Raytheon Company (NYSE:RTN), Socata and Piper Aircraft (American Capital Strategies Nasdaq:ACAS). Over 214,000 general aviation airplanes are currently flying in the U.S. ranging from two-seat training aircraft to business jets. Industry trade organizations include General Aviation Manufacturers Association -- http://www.gama.aero-- Aircraft Pilots Owners Associations -- http://www.apoa.org-- and National Business Aviation Association -- http://www.nbaa.com (Source: General Aviation Manufacturers Association 2003 Annual Industry Overview). As reported in Troubled Company Reporter's June 19, 2003 edition, Mooney Aerospace Group reached agreement and implemented a restructuring plan with all of its convertible note holders to waive all outstanding defaults and set fixed note conversion prices. The floating conversion features have been removed. In connection with the restructuring, the Company has received more than $5,000,000 of new funding. NATIONAL STEEL: Court Finds the Disclosure Statement Adequate ------------------------------------------------------------- Judge Squires finds that the Disclosure Statement, as amended, provides adequate information to allow a hypothetical creditor to make an informed decision whether to accept or reject the Debtors' Liquidating Plan. The National Steel Corporation and its debtor- affiliates have successfully ironed out kinks in the Disclosure Statement, which the objectors pointed out. Accordingly, Judge Squires approves the Amended Disclosure Statement. Judge Squires will hold a hearing on October 23, 2003 to consider confirmation of the Amended Liquidating Plan. Judge Squires also rules that JFE Steel's objection is actually an objection to the confirmation of the Plan. The Court will rule on JFE Steel's objection at the Plan Confirmation Hearing. (National Steel Bankruptcy News, Issue No. 34; Bankruptcy Creditors' Service, Inc., 609/392-0900) NORSKE SKOG: Exchange Offer Extended Until August 29, 2003 ---------------------------------------------------------- Norske Skog Canada Limited (TSX: NS), announced that it is further extending the expiration date for its offer to exchange U.S.$400,000,000 aggregate principal amount of its 8-5/8% Series D Senior Notes Due 2011, which have been registered under the Securities Act of 1933, as amended, for U.S.$250,000,000 aggregate principal amount of its 8-5/8% Senior Notes Due 2011 and U.S.$150,000,000 aggregate principal amount of its 8-5/8% Series C Senior Notes Due 2011 until 5:00 p.m. New York City time on August 29, 2003, unless further extended by Norske Skog Canada Limited prior to such time. The expiration date for the Exchange Offer was 5:00 p.m., New York City time, on August 22, 2003, at which point, approximately U.S.$249,500,000 of the U.S.$250,000,000 aggregate principal amount of the outstanding 8-5/8% Senior Notes Due 2011 and U.S.$150,000,000 of the U.S.$150,000,000 aggregate principal amount of the outstanding 8-5/8% Series C Senior Notes Due 2011 had been tendered for exchange. The extension is intended to allow additional time for the holders of the remaining outstanding Old Notes to tender in exchange for the New Notes. As a result of the extension, tenders of the Old Notes, received to date, may continue to be withdrawn at any time on or prior to the new expiration date. There can be no assurance that Norske Skog Canada Limited will further extend the Exchange Offer. Consequently, holders of Old Notes that do not tender their notes for exchange may be left with an illiquid investment. The Company therefore urges holders of Old Notes to tender their notes for exchange as soon as possible. * * * In February 2003, Standard & Poor's lowered its credit rating of the Company's long-term corporate and senior unsecured debt by one level, from BB+ to BB, and affirmed its existing debt on its senior secured debt as BB+. S&P's outlook for the Company's business is stable. NOVA CHEMICALS: Expects Power Outage to Impair Q3 Fin'l Results --------------------------------------------------------------- NOVA Chemicals Corporation (NYSE:NCX)(TSX:NCX) announced that its four plants in Ontario, Canada, and its expandable polystyrene plant in Painesville, Ohio are returning to normal operations after suddenly being brought down by the recent power outage that occurred in the Midwestern and Northeastern United States and Eastern Canada. The company expects to lose roughly 150 million pounds of ethylene, chemical co-products, polyethylene, styrene and expandable polystyrene production by the time its facilities can operate at full capacity. As a result, third quarter earnings will be reduced by approximately $10 million or $.12 per share. "The widespread loss of electrical power impacted our operations more than any of our direct competitors," said Jeffrey M. Lipton, President and Chief Executive Officer, NOVA Chemicals. "However, the loss we suffered was somewhat mitigated by seasonally soft demand in July and August and the fact that margins for the affected products have narrowed over the summer." In addition to the lost profit, NOVA Chemicals faces a temporary surge in working capital needs to cover feedstock shipments that could not be cancelled in time to forestall a build-up in inventory. "The capital requirements will be easily covered by our cash reserves and can be expected to return to normal levels by the fourth quarter," Lipton said. NOVA Chemicals Corporation (S&P, BB+ Long-Term Corporate Credit Rating, Positive) is a focused commodity chemical company, producing olefins/polyolefins and styrenics at 18 locations in the United States, Canada, France, the Netherlands, and the United Kingdom. NOVA Chemicals Corporation shares trade on the Toronto and New York exchanges under the trading symbol NCX. Visit NOVA Chemicals on the Internet at http://www.novachemicals.com NRG ENERGY: Court Okays Proposed Lease Rejection Procedures ----------------------------------------------------------- Edward O. Sassower, Esq., at Kirkland & Ellis, in New York, reports that the NRG Energy Debtors are in the process of evaluating which executory contracts and unexpired non-residential real property leases should be rejected. Accordingly, the Debtors sought and obtained the Court's approval to implement these Rejection Procedures: A. Any Contract or Lease determined by the Debtors to be unnecessary or burdensome to their ongoing business operations will be rejected after five business days written notice, via facsimile or overnight mail, to: (i) the counterparty under the Contract or Lease at the last known available address; (ii) the counsel for the Official Committee of Unsecured Creditors; and (iii) the U.S. Trustee for the Southern District of New York. B. The Rejection Notice will include a copy of the order approving the Rejection Procedures; C. If an objection to a Rejection Notice is filed by (i) a counterparty to a Contract or Lease, (ii) the Unsecured Creditors' Committee, or (iii) the U.S. Trustee, and timely served on, and actually received by, the Debtors' counsel, before the expiration of the five-business day notice period, the Debtors will seek a hearing to consider the objection at the Court's earliest convenience; D. If no objections are timely received, then the applicable Contract or Lease will be deemed rejected as of the date of the Rejection Notice unless otherwise agreed, in writing, by the Debtors and the counterparty; E. If an objection to a Rejection Notice is timely received, and the Court ultimately upholds the Debtors' determination to reject the applicable Contract or Lease, then the applicable Contract or Lease will be deemed rejected as of the date of the Rejection Notice unless otherwise agreed, in writing, by the Debtors and the counterparty; and F. Claims arising out of the rejection of the Contracts and Leases must be filed with the Court or any Court-approved claims processing agent by the later of: (i) the deadline for filing proofs of claim established by the Court; or (ii) 60 days after the effective date of the rejection, unless otherwise agreed by the Debtors and the counterparty. The Court also authorizes: (a) the abandonment of certain personal property, furniture, fixtures or equipment at the rejected leased premises, pursuant to Section 554 of the Bankruptcy Code, on the Effective Lease Rejection Date; and (b) the Debtors to execute and deliver all instruments and documents, and take other actions as may be necessary or appropriate to implement the Rejection Procedures. The Court Order is without prejudice to the Debtors' right to seek further other or different relief regarding the Contracts and Leases. If the Debtors have deposited amounts with a counterparty as a security deposit or other arrangement, the counterparty is not permitted to set off or otherwise use those amounts without a prior Court order. Mr. Sassower relates that the Rejection Procedures fairly balances the creditors' and landlords' need for certainty with the Debtors' need to move quickly and to cut off the accrual of postpetition rent and other charges that are not beneficial to their estates. At the same time, the Rejection Procedures afford parties-in-interest the opportunity to appear and be heard regarding the proposed Contract or Lease rejection. The Rejection Procedures will also save substantial legal expense and Court time that would otherwise be incurred if multiple hearings were held on separate motions with respect to every Contract or Lease that the Debtors determine should be rejected. (NRG Energy Bankruptcy News, Issue No. 8; Bankruptcy Creditors' Service, Inc., 609/392-0900) NVIDIA CORP: Completes Acquisition of MediaQ, Inc. Business ----------------------------------------------------------- NVIDIA Corporation (Nasdaq: NVDA), a worldwide leader in visual processing solutions, has completed its acquisition of MediaQ, Inc., the leading provider of graphics and multimedia technology for wireless mobile devices. MediaQ was founded in 1997 to enable the development of feature- rich mobile consumer devices by providing ultra-low power visual processing solutions. MediaQ customers include leading handset and PDA manufacturers, such as Mitsubishi, Siemens, DBTel, Dell, HP, Palm, Philips, Sharp, and Sony. With its combined expertise in 3D, video, ultra-low power, and wireless mobile architectures, NVIDIA now offers a comprehensive roadmap of products for the rapidly growing mobile and handheld market segments, including: color handsets with high density color displays and multi-media enabled PDAs. NVIDIA Corporation, whose corporate credit rating is rated at B+ by Standard & Poor's, is a visual computing technology and market leader dedicated to creating products that enhance the interactive experience on consumer and professional computing platforms. Its graphics and communications processors have broad market reach and are incorporated into a wide variety of computing platforms, including consumer digital-media PCs, enterprise PCs, professional workstations, digital content creation systems, notebook PCs, military navigation systems and video game consoles. NVIDIA is headquartered in Santa Clara, California and employs more than 1,500 people worldwide. For more information, visit the company's Web site at http://www.nvidia.com OHIO CASUALTY: Appoints Myra C. Selby to Board of Directors ----------------------------------------------------------- Ohio Casualty Corporation (Nasdaq:OCAS) has appointed Myra C. Selby, 48, Indianapolis, Ind., a member of its Board of Directors, effective Aug. 21, 2003. Ms. Selby is a Partner in the Business Section of IceMiller, Legal and Business Advisors, Indianapolis, Ind. Her broad-based practice focuses on the areas of appellate law, compliance counseling, business planning, and strategic and risk management for a diverse group of clients, including insurance companies. She serves as advisor for large institutional clients as well as individuals. Ms. Selby served as a Justice on the Indiana Supreme Court from January 1995 through 1999. Prior to her appointment to the Court, Ms. Selby was Director of Health Care Policy for the State of Indiana, where she was responsible for policy development and the execution of state health care programs, including Medicaid managed care. "Myra brings to the Board a valuable perspective as a successful business advisor, attorney and former State Supreme Court justice," commented Lead Director Stanley N. Pontius. "Her understanding of the insurance industry, legal system, and corporate issues will be a welcome resource, and we feel she will provide meaningful contributions to the Board." A graduate of Kalamazoo College (Mich.), Ms. Selby received a Juris Doctorate Degree from the University of Michigan School of Law. She is a member of the Indiana State Bar Association, American Bar Association, America Health Lawyers Association and the American Law Institute. Ms. Selby has written and lectured widely, serving as a regular columnist for the Indianapolis Business Journal. She is listed in "The Best Lawyers in America" and featured in Indiana's "Trailblazing Women 2000." She also is a member of a number of community, academic, and civic organizations, including: Board of Governors of the Indianapolis Museum of Art; Board of Directors of Ballet Internationale; Committee of Visitors of the University of Michigan Law School; and Board of Visitors of the Indiana University School of Public and Environmental Affairs. This brings the total number of directors on the Ohio Casualty Corporation Board of Directors to 12. Ohio Casualty Corporation is the holding company of The Ohio Casualty Insurance Company, which is one of six property-casualty subsidiary companies that make up Ohio Casualty Group. The Ohio Casualty Insurance Company was founded in 1919 and is licensed in 49 states. Ohio Casualty Group is ranked 45th among U.S. property/casualty insurance groups based on net premiums written (Best's Review, July 2003). The Group's member companies write auto, home and business insurance. Ohio Casualty Corporation trades on the NASDAQ Stock Market under the symbol OCAS and had assets of approximately $5.0 billion as of June 30, 2003. As reported in Troubled Company Reporter's May 15, 2003 edition, Standard & Poor's Ratings Services assigned its preliminary 'BB' senior unsecured debt, 'B+' subordinated debt, and 'B' preferred stock ratings to Ohio Casualty Corp.'s $500 million universal shelf registration filed May 8, 2003. The ratings assignments are based on the counterparty credit and financial strength ratings on Ohio Casualty and its insurance subsidiaries, which Standard & Poor's affirmed on April 30, 2003. "The ratings reflect the group's adequate business position, improved strategic focus, good investment strategy, and improved financial flexibility at the holding company level," said Standard & Poor's credit analyst John Iten. Partially offsetting these factors are the slower-than-expected improvements to operating performance since the implementation of its new strategic plan in 2001, modestly declining premium volume because of continued restructuring and reunderwriting actions, lower-than-expected capital adequacy at the operating level, and continued high expense structure. ONESOURCE TECH.: June 30 Balance Sheet Upside-Down by $570,000 -------------------------------------------------------------- OneSource Technologies, Inc., (OTCBB:OSRC) reported consolidated revenues of $771 thousand for the quarter ended June 30, 2003, a 7% increase over second quarter 2002 revenues of $721 thousand. Consolidated year-to-date revenues of $1.5 million were also 7% greater than the $1.4 million reported for the first six months of 2002. The Company reported Net Losses of $84 thousand and $97 thousand for the quarter-ended June 30 and year-to-date 2003 respectively, compared to Net Income of $54 thousand and Net Losses of $57 thousand respectively for the quarter ended June 30 and year-to-date 2002. "Revenues through the second quarter 2003 continued to show improvement over the prior year", said Michael Hirschey, CEO of the Company. "And both operating divisions continued to contribute positive cash flow," continued Hirschey. "But we elected to settle a number of legacy issues that have been distracting management rather than continue to incur further legal costs of pursuing them and in doing so we incurred settlement fees of about $93 thousand in the quarter that essentially eliminated our profit for the periods", added Hirschey. "The good news though is we now have these distractions behind us so we can concentrate on again growing the business and regain the momentum we enjoyed in the past," concluded Hirschey. OneSource is engaged in three closely related and complimentary lines of IT and business equipment support products and services, 1) equipment maintenance services, 2) equipment installation and integration services, and 3) value added equipment supply sales. Each segment also utilizes the Internet to facilitate distribution of its service and product offerings. OneSource is a leader in the technology equipment maintenance and service industry and is the inventor of the unique OneSource Flat-Rate Blanket Maintenance System(tm). This innovative patent pending program provides customers with a Single Source for all general office, computer and peripheral and industry specific equipment technology maintenance and installation services. OneSource's Cartridge Care division is a quality leader in remanufactured toner cartridge distribution in the southwest and is the supplier of choice for a number of Fortune 1000 companies in that region. OneSource has realigned this division and invested heavily in eCommerce initiatives to stage the division for substantial expansion over the next two years to enable Cartridge Care to extend its high quality reputation beyond its southwestern regional roots. OneSource's June 30, 2003 balance sheet shows a working capital deficit of about $1 million, and a total shareholders' equity deficit of close to $570,000. OneSource is engaged in two closely related and complimentary lines of technology and business equipment support activities; 1) equipment maintenance services, ("Maintenance"), 2) value added equipment supply sales, ("Supplies"). OneSource is a leader in the technology equipment maintenance and service industry and is the inventor of the unique OneSource Flat-Rate Blanket Maintenance System(tm). This program provides customers with a Single Source for all general office, computer and peripheral and industry specific equipment technology maintenance, installation and supplies products. Liquidity and Capital Resources The following table sets forth selected financial condition information as of June 30, 2003 compared to December 31, 2002: Balance Sheet 2003 2002 ------------- ---- ---- Working Capital ($1,031,188) ($1,007,838) Total Assets $1,137,200 $1,205,944 Debt Obligation $1,033,120 $985,310 Shareholders' Deficit ($568,869) ($530,543) Liquidity and capital resources continued to be a problem during the first six months of 2003. Total costs exceed revenues throughout the first six months ended June 30, 2003, but are expected to improve in the third quarter. If not for the loss from legal settlements of $92,768 recorded in the quarter ended June 30, 2003 and the associated legal fees, the Company would have been profitable and would have generated positive cash flow in the second quarter. With these legal issues now behind the Company, management believes it can continue to improve both cash flow and profitability in the near-term through continued new business. In addition, management is continuing its efforts to negotiate additional funding opportunities intended to re-capitalize the Company. In March 2001 the Company and holders of four of the Company's notes payable that were due in March and September of 2001 entered into Note Deferral and Extension Agreements wherein each note holder agreed to defer all principal payments until July 15, 2001. The Company agreed to make a twenty-five percent (25%) principal payment to each note holder on July 15, 2001. The notes' due dates were extend to July 15, 2002, but by that date the Company was unable to make the scheduled partial principle payment or commence making level monthly principal and interests payments over the remaining twelve-month period of the notes. As part of that agreement the Company also agreed to increase the interest rates of the notes from their stated twelve to fourteen percent (12% to 14%) to eighteen percent (18%). The Company has continued to make timely monthly interest payments to the holders. Further, the Company is in communication with the holders and management believes it will be able to negotiate an arrangement that will not adversely impact the Company's continuing operations. At June 30, 2003, the Company had accrued approximately $47,000 of unpaid payroll taxes, interest and penalties due the IRS. At the end of June 2002, the Company submitted required documentation in support of its "Offer In Compromise" previously filed in 2001 to the IRS. Management believes the Company will be able to successfully liquidate this liability and that the ultimate outcome will not have an adverse impact on the Company's financial position or results of operations. PARTHENON: Class B Notes Rating Down to Speculative-Grade Level --------------------------------------------------------------- Standard & Poor's Ratings Services lowered its ratings on Parthenon CSO 2001-2 PLC's class A and B tranche of credit-linked notes due April 12, 2006. The rating action follows four declared credit events and further deterioration of credit quality that has occurred in the underlying Eur1.0 billion reference portfolio. The ratings reflect the credit quality of the reference credits, the level of credit enhancement provided by subordination, and Parthenon's ability to meet its payment obligations as issuer of the credit-linked notes. RATINGS LOWERED Parthenon CSO 2001-2 PLC Class Rating To From A A+ AAA B B+ BBB PG&E NAT'L: USGen Will Honor Prepetition Critical Vendor Claims --------------------------------------------------------------- Judge Mannes authorizes USGen to pay prepetition Critical Vendor Claims up to $750,000 maximum provided that: (a) the Critical Vendor agrees to continue the supply of goods and services to USGen on customary trade terms; (b) the failure to maintain the customary trade terms during the case will cause USGen to deem the payments as unauthorized postpetition transfers -- USGen may demand payment in cash plus interest as a result; (c) USGen will obtain written verification of the trade terms from the Critical Vendors before issuing payment; and (d) the payments made will not be deemed to constitute postpetition assumption of any contract or lease. USGen is also authorized, but not directed, to pay four prepetition claimants up to $600,000 maximum: (1) O'Connor Constructors, Inc. 45 Industrial Drive Canton, MA 02021 (2) Monson Companies, Inc. P.O. Box 3000 Hartford CT 06150 (3) Waste Management P.O. Box 830003 Baltimore, MD 21283-0003 (4) CEM Compliance Service 219 Ocean Road Narragansett, R.I. 02882 (PG&E National Bankruptcy News, Issue No. 4; Bankruptcy Creditors' Service, Inc., 609/392-0900) PILLOWTEX: Look for Schedules & Statements Around Sept. 28 ---------------------------------------------------------- Pillowtex Corporation and its debtor-affiliates sought and obtained Court approval to extend the time for them to file, pursuant to Local Bankruptcy Rules 1007-1(b) and (c), their schedules of assets and liabilities, a schedule of current income and expenditures, a schedule of executory contracts and unexpired leases and a statement of financial affairs. Judge Walsh extends the deadline for the Debtors to file their Schedules and Statements until September 28, 2003. (Pillowtex Bankruptcy News, Issue No. 48; Bankruptcy Creditors' Service, Inc., 609/392-0900) POLAROID CORP: Court Extends Lease Decision Time to November 30 --------------------------------------------------------------- The Polaroid Corporation Debtors sought and obtained Court approval, under Section 365(d)(4) of the Bankruptcy Code, to extend the time within which they must assume or reject their unexpired leases of non-residential real property through and including: (a) the earlier of November 30, 2003, that is approximately four months from July 31, 2003, the deadline previously ordered by the Court; or (b) the date of confirmation of a plan of reorganization. The Debtors hope to complete the task of analyzing the remaining Unexpired Leases during the time period. The request is without prejudice to the Debtors seeking a further extension of the Section 365(d)(4) deadline if circumstances so warrant. (Polaroid Bankruptcy News, Issue No. 42; Bankruptcy Creditors' Service, Inc., 609/392-0900) PRIMUS: Will Present at New York & Toronto Investor Conferences --------------------------------------------------------------- PRIMUS Telecommunications Group, Incorporated (Nasdaq:PRTL), a global telecommunications services provider offering an integrated portfolio of voice, data, Internet, and Web hosting services, announced that its management has accepted invitations to present at three brokerage firm-sponsored investor conferences to be held next month. On September 4, 2003, PRIMUS will present at the Kaufman Bros. 6th Annual Communications, Media & Technology Conference. The conference will be held in New York at the Hotel W, located at 541 Lexington Avenue, New York City. Kaufman Bros., L.P., is a research-based, full service investment bank, securities trading firm, and brokerage operation serving the communications universe. For more information please go to http://www.kbro.com On September 16, 2003, PRIMUS will present at the BMO Nesbitt Burns - 2003 Telecom Conference. The conference will be held in the York Room, 68th Floor, 1 First Canadian Place, Toronto, Canada. BMO Nesbitt Burns is a full-service Canadian investment bank offering corporate, institutional and government clients access to a broad range of products and services. For more information please go to http://www.bmonesbittburns.com On September 23, 2003, PRIMUS will present at the Jefferies & Company High Yield Communications & Media Conference. The conference will be held in New York at the W Hotel, located at 201 Park Avenue South, New York City. Jefferies is a leading investment bank serving mid-cap investors and issuers. For more information please go to http://www.jefco.com PRIMUS Telecommunications Group, Incorporated (NASDAQ:PRTL) is a global telecommunications services provider offering bundled voice, data, Internet, digital subscriber line, Web hosting, enhanced application, virtual private network, voice-over-Internet protocol, and other value-added services. PRIMUS owns and operates an extensive global backbone network of owned and leased transmission facilities, including approximately 250 points-of- presence throughout the world, ownership interests in over 23 undersea fiber optic cable systems, 19 international gateway and domestic switches, a satellite earth station and a variety of operating relationships that allow it to deliver traffic worldwide. PRIMUS also has deployed a global state-of-the-art broadband fiber optic ATM+IP network and data centers to offer customers Internet, data, hosting and e-commerce services. Founded in 1994 and based in McLean, VA, PRIMUS serves corporate, small- and medium-sized businesses, residential and data, ISP and telecommunication carrier customers primarily located in North America, Europe and the Asia-Pacific regions of the world. News and information are available at PRIMUS's Web site at http://www.primustel.com QWEST COMMS: Applauds FCC Decision in Broadband Communications -------------------------------------------------------------- The following statement on the Federal Communications Commission's Triennial Review order is attributable to Steve Davis, Qwest senior vice president of public policy. "We are in the process of reviewing the 576-page report and need time to fully analyze its effects on our business and customers. Our initial review suggests that the FCC made the right decision in the area of broadband communications - taking a pro-investment and pro-competitive approach to the deployment of new facilities. That's good for consumers and good for economic development. "However, with respect to the traditional telephone network, we remain disappointed with the majority's decision to allow other companies, notably AT&T and MCI, to continue to use our network at below-cost rates rather than invest in facilities of their own. It's unfair to Qwest customers that they continue to be forced to subsidize these giant corporations. We will work with each of our state commissions to do what the FCC was charged with doing, but failed - eliminate these subsidies wherever possible, as soon as possible." 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 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 REVCARE: Pursuing Additional Financing from Shareholder FBR ----------------------------------------------------------- Revcare Inc. has been negotiating a possible financing with its majority stockholder, FBR Financial Services Partners, L.P. On August 13, 2003, the Company executed the relevant documents under which FBR agreed to provide Revcare a $500,000 unsecured loan. Russ Mohrmann (and his affiliated entities) and Rob Perez, the holders of related party indebtedness, have agreed that any repayment of their loans and this new $500,000 loan will be made on an equal, pro rata, basis. This loan is a short-term demand loan, the proceeds of which are to be used for working capital purposes. However, the due date of this loan is subject to extension if certain conditions are met. On August 14, 2003, the Company also executed a non-binding term sheet with FBR regarding a possible additional financing by FBR in the form of a $1,000,000 secured, convertible loan. One of the conditions of the closing of this additional loan is the exchange of certain assets related to the Company's temporary staffing division, known as Hospital Employee Labor Professionals to Mr. Mohrmann. It is anticipated that if the Company enters into this $1,000,000 loan transaction, the maturity date of all indebtedness that it owes to FBR (which will then be in the approximate principal amount of $2,600,000, plus accrued interest of approximately $100,000 which will be added to such principal) will be extended such that all outstanding principal and accrued interest will be due two years from the closing, subject to customary events of acceleration. In addition, Revcare expects that the notes evidencing all of its indebtedness to FBR will be amended and restated into a single promissory note, with the same terms. The use of proceeds for the $1,000,000 loan will be to reduce the collections payable to certain of the Company's California-based delinquent debt collection clients. In Revcare's Form 8-K dated July 10, 2003 and filed with the SEC, the Company reported that the collections payable in arrears as of June 30, 2003 was $1,896,175. The amount in arrears, as of July 28, 2003, has been reduced to $1,782,408. The Company intends to further reduce the remaining balance in arrears of $782,408 (following the application of the $1,000,000 FBR loan) by contacting certain of these clients, who owe the Company approximately $161,000 in service fees, and obtaining their permission to offset Revcare's fees from the amount of collections payable owed to them. Revcare intends to pay off the remaining collections payable balance from additional new financing and funds from operations, although there can be no assurance that any new financing transaction (including this new proposed additional $1,000,000 loan from FBR) can be arranged on terms satisfactory to the Company, or at all, or that the Company's operations will generate funds sufficient to reduce the balance. On August 13, 2003, Revcare also entered into a non-binding term sheet with Mr. Mohrmann regarding the possible exchange of certain assets related to the Company's temporary staffing division, known as HELP, for, among other things: (1) a reduction of approximately $1,900,000 of the indebtedness owed him and his affiliates by the Company, (2) the full subordination of the net remaining indebtedness owed to him and his affiliates to the indebtedness owed to Revcare's other lenders and the release of his security interest and (3) the extension of such net remaining indebtedness, with monthly payments of $25,000 commencing September 1, 2004, all of which terms the Company has been negotiating with Mr. Mohrmann over the past few weeks. In conjunction with the transaction, Mr. Mohrmann would resign his position with Revcare. As previously reported, in September 2001 Revcare borrowed $350,000 from Mr. Mohrmann and its chief executive officer, Manuel Occiano, under a line of credit. The current outstanding principal balance under this loan is $275,000. In connection with negotiations, Revcare began making monthly principal payments on this loan in August 2003 in the amount of $25,000, in addition to its monthly interest payments. Revcare anticipates the closing of the HELP transaction to occur on or about August 31, 2003. Mr. Perez has agreed, like FBR, to extend the due date of his existing indebtedness to two years following the closing of the HELP transaction. Due to the reduction of certain overhead expenses attributable to HELP and the cessation of Mr. Mohrmann's salary and benefits post-closing, Revcare anticipates that the divestiture of HELP will have a minor impact on its income statement. Although the Company has executed the non-binding term sheet with Mr. Mohrmann, there can be no assurance that the transaction will be arranged on terms satisfactory to Revcare, or at all In the report to the SEC dated July 10, 2003, Revcare also reported that the practice of transferring funds collected on behalf of certain California-based delinquent debt collection clients to operating accounts or delay in remitting funds might be deemed a breach of its obligations. The Company also reported that it had discontinued transferring such funds to operating accounts and that it was taking steps to reduce the collections payable balance. As a point of clarification to the prior disclosure, the Company believes that a consequence of any such potential breach is that certain of its California-based delinquent debt collection clients may feel damaged and may request compensation. To the extent it is unable to reach an agreement with entities that request compensation, such entities may initiate legal efforts to pursue claims against the Company. In connection with the process to reduce the collections payable balance owed to certain of its California-based delinquent debt collection clients, the Company intends to contact those clients and offer to pay interest to those who assert a claim of damages as a result of Revcare's past practice. The Company's Audit Committee has continued to take steps to address these practices, including those previously announced and described above. While Revcare's chief financial officer, Fred McGee, agreed with the Audit Committee's decision to discontinue the practice of transferring funds collected on behalf of certain California-based delinquent debt collection clients to operating accounts, he disagrees with its conclusion that certain of the Company's past business practices might be deemed a breach of obligations to such clients. As a consequence of this disagreement, Mr. McGee has resigned as CFO, effective immediately. Revcare anticipates initiating a search for his replacement shortly. * * * as reported in the July 15, 2003, edition of the Troubled Company Reporter, The Company engaged Grant Thornton LLP to audit its consolidated financial statements for the fiscal year ended September 30, 2002. Grant Thornton LLP has not yet completed its audit. All financial statements accompanying the reports being prepared for filing with the SEC have been prepared assuming that the Company will continue as a going concern. However, during the course of the audit work, Grant Thornton LLP informed Revcare of the possibility that its audit report may contain a statement to the effect "that factors discussed in the financial statements raise substantial doubt about the Company's ability to continue as a going concern." SAFETY-KLEEN: Seeks OK to Buy Land to Implement SCDEC Settlement ---------------------------------------------------------------- Safety-Kleen (Pinewood), Inc. operated a hazardous waste treatment, storage and disposal facility and a hazardous waste landfill in Sumter County, South Carolina. On March 21, 1994, DHEC issued a final permit to SK Pinewood, which allowed SK Pinewood to operate the Pinewood Facility and required SK Pinewood to maintain certain financial assurances for closure, post-closure and liability coverage for the Pinewood Facility. As required by its Permit, SK Pinewood provided assurances through surety bonds and insurance, including certain bonds issued by Frontier Insurance Company. On June 1, 2000, the U.S. Department of Treasury announced that it had removed Frontier from its listing of approved sureties and DHEC issued an emergency order on June 9, 2000, in which it directed SK Pinewood to provide alternate financial assurance or commence steps to affect the permanent closure of the Pinewood Facility. On April 4, 2000, the South Carolina Court of Appeals determined that no further capacity remained at the Pinewood Facility under the Permit. This determination became final on June 14, 2000 -- five days after the Petition Date. On June 14, 2000, DHEC demanded that SK Pinewood commence steps to permanently close the Pinewood Facility. The United States Court of Appeals for the Fourth Circuit further determined, on December 19, 2001, that DHEC's June 9, 2000 order was not subject to the automatic stay. As a result of DHEC's orders, SK Pinewood no longer accepts waste for treatment, storage or disposal at the Pinewood Facility. DHEC has asserted that SK Pinewood and other Debtors are responsible for undertaking closure and post-closure care activities at the Pinewood facility. DHEC also filed a motion asserting that it should be allowed an administrative expense claim for $111,477,474 to be used towards any necessary remediation of any releases of hazardous constituents from the Pinewood Facility during the 100 years following closure of that facility. On October 15, 2002, following lengthy and complex negotiations, the Debtors and DHEC entered into a settlement agreement resolving DHEC's claims with respect to the Pinewood Facility. The Settlement Agreement is incorporated into the Plan, which provides, among other things, that to the extent necessary, the Plan constitutes a request for approval of the Settlement Agreement. Under the Plan and pursuant to the terms of the Settlement Agreement, on the Effective Date, SK Pinewood must transfer to the Site Trust: (a) Real Property owned by SK Pinewood and utilized in the operation of the Pinewood Facility; (b) Personal Property owned by SK Pinewood and located at the Pinewood Facility on the Effective Date; (c) Leasehold Interests of SK Pinewood utilized in the operation of the Pinewood Facility; and (d) Permits for the Pinewood Facility issued by DHEC. The Settlement Agreement describes the six pieces of real property leased and utilized by SK Pinewood in the operation of the Pinewood Facility that must be transferred to the Site Trust. To transfer these properties to the Site Trust, Safety-Kleen Pinewood must first purchase the properties from their owners. The Debtors have engaged in arm's-length negotiations with the owners that resulted in these Contracts: A. The Dargan Elliot Contract The Debtors negotiated a contract for the purchase and sale of real property between Dargan P. Elliot, Jr. and SK Pinewood. Under the Dargan Elliot Contract, SK Pinewood will pay $157,068.69 for five properties in Sumter County, South Carolina. These five properties are part of the Pinewood Facility and are indicated on the Sumter County Tax Map as: (i) 11-100-01-019 (26.5 acres); (ii) 11-100-01-022 (26.11 acres); (iii) 11-100-01-023 (19.21 acres); (iv) Parcel P (9.52 acres); and (v) Parcel O (8.43 acres). The Dargan Elliot Contract also requires SK Pinewood to pay $91,931.31 as a reimbursement for the property taxes previously paid on the properties by Mr. Elliot during the period SK Pinewood was leasing the property. The Dargan Elliot Contract is contingent on the Court's approval of both the contract and the Settlement Agreement. B. The Swamp Lot Contract The Debtors negotiated a contract for the purchase and sale of real property between Dargan P. Elliot, Jr., Margaret Elliot King, William L. Elliot and SK Pinewood, dated January 27, 2003. Under the Swamp Lot Contract, SK Pinewood will pay $1,000 for a property in Sumter County, South Carolina. This property also is part of the Pinewood Facility and is indicated on the Sumter County Tax Map as 11-200-01-002 (0.5 acres). The Swamp Lot Contract is contingent upon the Court's approval of both the contract and the Dargan Elliot Contract. Section 105(a) of the Bankruptcy Code permits the Court to "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of [the Bankruptcy Code]." Section 363 provides that the debtor "after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate." In this Circuit, a debtor should be authorized to use assets out of the ordinary course of business pursuant to Section 363 if the debtor can demonstrate a sound business justification for the proposed transaction. Accordingly, Judge Walsh approves the sale contracts. (Safety- Kleen Bankruptcy News, Issue No. 63; Bankruptcy Creditors' Service, Inc., 609/392-0900) SINGING MACHINE: Selling $4 Million of Convertible Debentures ------------------------------------------------------------- The Singing Machine Company (AMEX:SMD) has entered into a definitive agreement to sell $4 million of convertible debentures to an unaffiliated group of institutional investors. "This transaction is yet another vote of confidence in Singing Machine's business model and our entire team. The $4 million convertible debenture financing is in addition to the new $12.5 million credit facility with LaSalle Business Credit we announced earlier today and the $2.0 million in subordinated debt financing we completed earlier this month. We are confident that we have the resources we need to implement our business plan and achieve our objectives for the year," said Chief Executive Officer Robert Weinberg. Convertible Debentures The 8% convertible debentures have a term of 30 months and are redeemable at Singing Machine's option under certain conditions. Holders have the option to convert their debentures into shares of Singing Machine common stock, subject to certain conditions, at a conversion price of $3.85 per share, representing approximately 1,039,000 shares if all the debentures are converted. The debentures include three-year warrants to purchase up to approximately 416,000 additional Singing Machine common shares at exercise price of $4.03 per share. The Company has agreed to register the re-sale of these shares. Incorporated in 1982, The Singing Machine Company develops and distributes a full line of consumer-oriented karaoke machines and music under The Singing Machine(TM), MTV(TM), Nickelodeon(TM), Hardrock Academy(TM) and Motown(TM) brand names. The first to provide karaoke systems for home entertainment in the United States, Singing Machine sells its products in North America, Europe and Asia. As reported in Troubled Company Reporter's July 29, 2003 edition, Grant Thornton LLP, Miami, Florida, in reporting on the financial condition of Singing Machine Co., Inc., stated in its Auditors Report dated June 24, 2003: "The accompanying financial statements have been prepared assuming the Company will continue as a going concern. [O]n March 14, 2003, the Company was notified of its violation of the net worth covenant of its Loan and Security Agreement with its commercial lender and the Company was declared in default under the Agreement. As of June 24, 2003, the Company has minimal liquidity. In June 2003, this Lender amended the Agreement through July 31, 2003 but did not waive the condition of default. This continuing condition of default raises substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty." SMITHFIELD FOODS: Reports Improved 1st Quarter Financial Results ---------------------------------------------------------------- Smithfield Foods, Inc. (NYSE: SFD) announced that earnings for the first quarter of fiscal 2004 were $22.1 million, or $.20 per diluted share, versus $11.8 million, or $.11 per diluted share, a year ago. Following are the company's sales and operating profit by segment: 13 Weeks Ended (in millions) July 27, 2003 July 28, 2002 Sales Pork $1,158.5 $1,054.9 Beef 605.4 559.0 International 373.8 322.8 Hog Production 335.8 273.8 2,473.4 2,210.5 Intersegment (267.2) (209.8) Total Sales $2,206.2 $2,000.7 Operating Profit Pork $(20.1) $3.6 Beef 32.0 21.9 International 7.6 13.7 Hog Production 58.1 18.9 Corporate (14.8) (14.9) Total Operating Profit $62.6 $43.2 The improved results were due to sharply higher earnings in hog production as a result of a 22 percent increase in domestic average live hog market prices, partially offset by increased grain costs, compared to the same quarter last year. The increase in live hog prices moderated significantly during the quarter due to higher shipments of live hogs from Canada into the United States. Prior to the first quarter, live hog prices had been depressed in the U.S., and generally below break-even, for nearly a year. During the quarter, higher shipments of live hogs from Canada resulted from lower Canadian live cattle prices following the report of a single case of bovine spongiform encephalopathy in that country in May. The U.S. Department of Agriculture imposed a ban on the importation of ruminants and ruminant products from Canada, including beef, cattle and animal feed in response to the report. This sharply lower cattle market in Canada triggered a decline in demand for pork and an increase in live hog and fresh pork exports to the U.S., where prices were higher. The environment for fresh pork continued to remain very poor throughout the first quarter. The summer months and the company's first fiscal quarter are historically the weakest period for fresh pork. The impact of rising hog costs, combined with an influx of Canadian fresh pork, further pressured fresh pork margins and contributed to the disappointing results. Average unit selling prices for fresh pork and processed meats rose only about one-half as much as the increase in the cost of hogs. Fresh pork volume declined five percent compared to the same quarter a year ago. Processed meats volume grew more than five percent, although at lower margins than last year's first quarter. Hot dogs, dry and pre-cooked sausage, pre-cooked meat entrees and pre-cooked ribs grew volume at double-digit rates. Beef operations continued to experience strong margins in spite of higher cattle costs. Beef demand remained at high levels in the face of record high prices. International results were below those of last year as a result of lower earnings in Canada and Poland. "The quarter was difficult for Smithfield and the industry as factors beyond our control altered the otherwise improving environment," said Joseph W. Luter, III, chairman and chief executive officer. "The hog breeding herd in the United States is at a record low, production of all proteins should be lower in calendar 2003 and frozen inventories of all proteins continue to trend downward and are approaching normalized levels. All of the fundamentals for a healthy protein complex are in place, except for rising imports of hogs and fresh pork from Canada," he said. Mr. Luter noted that U.S. live hog and fresh pork prices have been depressed by this external event. The recent partial lifting of the Canadian beef ban should slow Canadian hog exports in the future, he said. Mr. Luter stated that he expects market conditions for pork processing to improve over time. "Seasonally, our fresh pork operations should recover in the fall. Meanwhile, our processed meats and beef operations remain strong. We believe that earnings in fiscal 2004 will be well above those of 2003," Mr. Luter said. With annualized sales of $8 billion, Smithfield Foods is the leading processor and marketer of fresh pork and processed meats in the United States, as well as the largest producer of hogs. For more information, please visit http://www.smithfieldfoods.com * * * As reported in Troubled Company Reporter's July 17, 2003 edition, Standard & Poor's Ratings Services placed its 'BB+' corporate credit rating and senior secured notes ratings on Smithfield Foods Inc., on CreditWatch with negative implications. The 'BB' senior unsecured and 'BB-' subordinated debt ratings on Smithfield Foods were also placed on CreditWatch with negative implications. STARWOOD COMMERCIAL: Series 1999-C1 Note Ratings Cut & Affirmed --------------------------------------------------------------- Standard & Poor's Ratings Services lowered its ratings on classes C-1 and D-1 of Starwood Commercial Mortgage Trust's commercial mortgage pass-through certificates series 1999-C1. At the same time, ratings on three other classes are affirmed. The lowered ratings reflect the decline in operating performance of this all-lodging mortgage pool. When Standard & Poor's affirmed its ratings on the transaction in June 2002, net cash flow (NCF) for the pool had only declined 1% from its level at issuance. NCF has now declined 16% since issuance. The rating actions also reflect the moderate increase (8%) in subordination levels since issuance due to planned amortization, the sponsorship from the parent company, Starwood Hotels & Resorts Worldwide Inc. ('BB+'), as well as the strong name recognition of the collateral, which includes the Westin and Sheraton hotel flags and the Phoenician Resort. Using results for the full year ending Dec. 31, 2002, Standard & Poor's adjusted the borrower's net operating income for management fees, franchise fees, furniture, fixtures, and equipment fees to arrive at an adjusted NCF of $79.8 million. Utilizing a blended capitalization rate of 11.4%, the loan-to-value ratio is estimated at 71% and the debt service coverage ratio is 1.52x, based on a refinance constant of 10.5%. These levels compare to a LTV of 65% and a DSCR of 1.71x at the time of Standard & Poor's initial rating in March 1999. The DSCR, based on the actual fixed-rate of 6.981% in place, was 2.35x for the full year 2002. This transaction consists of one loan secured by 11 cross- collateralized and cross-defaulted hotels including: the Phoenician, Sheraton San Diego Hotel & Marina, Westin Mission Hills, Westin Horton Plaza, Sheraton Parsippany, Sheraton Colony Square, Westin Waltham, Westin Washington, Westin Atlanta North at Perimeter, Westin Cincinnati, and Sheraton Needham. The two largest assets are the Phoenician in Arizona and the Sheraton San Diego Hotel & Marina (representing 26% and 27% of the pool's total 2002 NCF, respectively). Overall occupancy at the 11 hotels declined to 66.3% in 2002 from 72.4% as of March 1999. There is geographic concentration risk, with California and Arizona representing 37% and 28%, respectively, of the allocated loan balance. Operating performance of this portfolio of hotels has declined slightly for the first half of 2003 compared to last year (overall occupancy at 70.0%, average daily rate at $168.39, and revenue per available room at $120.50, for the first six months of 2003 compared to 69.1%, $175.72, and $123.27, respectively, for the same period last year). Standard & Poor's believes that operating performance for this portfolio of hotels will decline somewhat further in 2003, and stabilize in 2004 at levels comparable to those reported in 2002. RATINGS LOWERED Starwood Commercial Mortgage Trust Commercial mortgage pass-thru certs series 1999-C1 Rating Class To From Balance ($ mil.) C-1 BBB- BBB 74.8 D-1 BB+ BBB- 41.5 RATINGS AFFIRMED Starwood Commercial Mortgage Trust Commercial mortgage pass-thru certs series 1999-C1 Class Rating Balance ($ mil.) A-1-1 AA 73.2 A-2-1 AA 218.2 B-1 A 91.8 TALKPOINT COMMS: Ability to Continue as Going Concern Doubted ------------------------------------------------------------- TalkPoint Communications Inc. has suffered recurring losses from operations, has experienced recurring negative cash flow from operations, has a working capital deficiency and has a significant accumulated deficit. The Company expects to continue to incur significant operating expenses to support TalkPoint product development efforts and to enhance its TalkPoint products, Webcasting Services, sales and marketing capabilities. At this stage, it is difficult to estimate the level of the Company's sales in future periods, or when marketing initiatives will result in additional sales. Accordingly, the Company expects to continue to experience significant, material fluctuations in its revenues on a quarterly basis for the foreseeable future. The Company has required substantial funding through debt and equity financings since its inception to complete its development plans and commence full-scale operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's funding of operating losses to date and plans to ultimately attain profitability include the effects of the recent acquisition of certain Webcasting Services assets. On August 13, 2003 the Company executed a secured credit agreement with a related party in the amount of $400,000. TalkPoint's accumulated deficit was $90,097,000 from its inception through June 30, 2003 and the Company expects to incur additional operating losses for the foreseeable future, principally as a result of expenses associated with product development efforts and anticipated sales, marketing and general and administrative expenses. During the second quarter of 2003, TalkPoint satisfied its cash requirements principally from cash on hand as of March 31, 2003, which was obtained primarily from the closing of the Stock Purchase Agreement with Moneyline and other investors in May 2002 and from cash flows from operations primarily derived from Webcasting Services. The Company had cash and cash equivalents of $508,000 at June 30, 2003 compared to $6,498,000 at December 31, 2002, a decrease of $5,990,000, or 92%, primarily due to first and second quarter losses and $844,000 placed in restricted cash as a security deposit for its New York facility. TEMBEC: Inks Agreement to Purchase Nexfor Sawmills in Canada ------------------------------------------------------------ Tembec announced, that it has reached an agreement to purchase the Nexfor sawmills, located at La Sarre and Senneterre, Quebec, for $CDN 49.2 million plus working capital. The transaction is expected to close in the fourth calendar quarter of 2003 and is subject to certain conditions being met as well as government and other required approvals. "This acquisition is part and parcel of our strategy to contribute much needed consolidation in the softwood lumber industry in North America," said Frank Dottori, Tembec President and CEO. "In addition to providing a secure long-term fibre base for other Tembec pulp and paper manufacturing operations in this area, this latest acquisition should allow us to generate an additional $5 to $10 million worth of synergies with Tembec's four existing sawmills in the region, particularly in forest resource management" added Mr. Dottori. The acquired sawmills have a softwood allocation of approximately 1.1 million m3/yr, produce 260 million board feet of lumber annually and employ close to 450 people. The acquisition will boost Tembec's annual lumber capacity to over 1.7 billion board feet. On June 19, 2003, Tembec and Domtar announced that they had reached an agreement-in-principle to create a joint venture with equal ownership by the two companies. The new company, which would include 21 sawmills owned by Tembec and Domtar, would have a capacity of 2.1 billion board feet and a sales capacity of 2.6 billion board feet, making it the second-largest solid wood product company in Canada and the fourth-largest in North America. The joint venture transaction is expected to close by September 30, 2003, and is subject to certain conditions, including due diligence, negotiations for a definitive agreement, approvals of both companies' boards of directors, as well as government and other required approvals. Under the Tembec agreement with Nexfor, the acquisition may be concluded by Tembec or through the proposed joint venture. If the transaction with Nexfor were to be concluded by the joint venture between Tembec and Domtar, it would increase the joint venture's annual production capacity to approximately 2.4 billion board feet and its annual sales capacity to close to 3 billion board feet. Tembec is an integrated Canadian forest products company principally involved in the production of wood products, market pulp and papers. The Company has sales of approximately $4 billion, with over 55 manufacturing sites in the Canadian provinces of New Brunswick, Quebec, Ontario, Manitoba, Alberta and British Columbia, as well as in France, the United States and Chile. Tembec's Common Shares are listed on The Toronto Stock Exchange under the symbol TBC. Additional information on Tembec is available on its website at http://www.tembec.com * * * Standard & Poor's Ratings Services lowered its long-term corporate credit rating on Tembec Inc. to 'BB' from 'BB+'. The downgrade reflects the company's depressed profitability and cash flow protection due to protracted weakness across the company's primary markets, and inability to reduce debt in the near term to improve credit measures. At the same time, all ratings outstanding, including those on subsidiary Tembec Industries Inc., were lowered to 'BB' from 'BB+'. The outlook is stable. Temiscaming, Quebec-based Tembec currently has C$1.9 billion of debt outstanding. TENFOLD: Hires Two New Sales Executives in San Francisco Office --------------------------------------------------------------- TenFold(R) Corporation (OTC Bulletin Board: TENF) provider of the Universal Application(TM) platform for building and implementing enterprise applications, announced that Lou Perrelli and Joe Khoei have joined the company as sales executives in its San Francisco office. "We are extremely pleased to welcome Lou Perrelli and Joe Khoei as part of our direct sales force," said Dr. Nancy Harvey, TenFold's President, CEO and CFO. "Both are seasoned executives with tremendous experience in the technology sector and will help us convey the extraordinary Speed, Quality and Power of TenFold's remarkable Universal Application technology to companies who need to build new or replacement enterprise applications," added Dr. Harvey. "TenFold is fortunate to have been able to attract and hire two such experienced information technology sales professionals," said Dudley Morris, TenFold's Senior Vice President of Business Development. "Both Lou and Joe have deep experience in the IT world -- Lou from over twenty years building sales organizations with a number of leading technology companies, and Joe from nearly a decade with Oracle. Their addition will bolster our reemerging sales force and is a sign of our positive business outlook and our commitment as a sales organization. We are glad to have them aboard," added Mr. Morris. Lou Perrelli joins TenFold after serving as a founder and as Vice President of Sales and Business Development for Indus International, Inc., a leading provider of asset and customer management software solutions. During his ten years with Indus, Mr. Perrelli saw annual revenues increase to approximately $175 million. Mr. Perrelli has also held senior executive positions in sales and business development with i-Drive, Inc., a managed storage provider and with Tenera, an enterprise software and engineering services company. Mr. Perrelli began his professional career as an Engineer with Bechtel Corporation. Mr. Perrelli has a Bachelor of Science degree in Civil Engineering and a MBA from Lehigh University. Joe Khoei has almost a decade of experience in high tech sales, business development and project management. Prior to joining TenFold, Mr. Khoei was an account manager with Oracle Corporation. He started his career in the semiconductor industry at Novellus Systems. Mr. Khoei has a Bachelor of Science degree in Industrial Technology from San Jose State University and an MBA from the University of Phoenix. TenFold (OTC Bulletin Board: TENF) -- whose June 30, 2003 balance sheet shows a total shareholders' equity deficit of about $12 million -- licenses its breakthrough, patented technology for applications development, the Universal Application platform, to organizations that face the daunting task of replacing legacy applications or building new applications systems. Unlike traditional approaches, where business and technology requirements create difficult IT bottlenecks, Universal Application technology lets a small, primarily non-technical, business team design, build, deploy, maintain, and upgrade new or replacement applications with extraordinary speed and limited demand on scarce IT resources. For more information, visit http://www.10fold.com TRENWICK GROUP: Selling Trenwick International to Bestpark Ltd. --------------------------------------------------------------- Trenwick Group Ltd.'s subsidiary Trenwick Holdings Limited entered into a definitive agreement with Bestpark Limited, an affiliate of Litigation Control Group Limited, to sell to Bestpark all of the capital stock of Trenwick International Limited, Trenwick's London-based specialty insurance and reinsurance subsidiary, currently in runoff, as well as all of the capital stock of Trenwick Management Services Ltd. and Specialist Risk Underwriters Limited. TMS is Trenwick International's management services company. SRU is a company that has carried out underwriting agency services for Trenwick International and other entities. Upon completion of the acquisition, LCL will manage the runoff of Trenwick International. It is anticipated that substantially all of the initial consideration to be paid by Bestpark will be used to pay transactional fees and expenses. The remaining consideration, if any, will be contingent upon a successful runoff of the Trenwick International business. Completion of the sale is subject to the fulfillment of customary closing conditions, including the approval of the Financial Services Authority of the United Kingdom. Trenwick is a Bermuda-based specialty insurance and reinsurance underwriting organization with subsidiaries located in the United States, the United Kingdom and Bermuda. Trenwick's operations at Lloyd's, London underwrite specialty insurance as well as treaty and facultative reinsurance on a worldwide basis. Trenwick's United States specialty program business, specialty London market insurance company, Trenwick International Limited, and its United States reinsurance business through Trenwick America Reinsurance Corporation are now in runoff. In 2002, Trenwick sold the in-force business of LaSalle Re Limited, its Bermuda based subsidiary. On August 20, 2003, Trenwick and its affiliates LaSalle Re Holdings Limited and Trenwick America Corporation, as a step in its previously announced restructuring and in accordance with its August 6, 2003 letter of intent with creditors, filed for protection under chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court for the District of Delaware. Additionally, Trenwick and LaSalle Re Holdings filed proceedings in the Supreme Court of Bermuda, known under Bermudian law as "winding up", as a further step in the restructuring and in accordance with the previously announced Letter of Intent. Trenwick's insurance company subsidiaries, Trenwick America Reinsurance Corporation, The Insurance Corporation of New York, Dakota Specialty Insurance Company and LaSalle Re Limited, all of which are in runoff, and its Lloyd's operations are not subject to the proceedings in the Bankruptcy Court or the Supreme Court of Bermuda and their operations continue. UNICCO: S&P Affirms Low-B/Junk Ratings After Debt Refinancing ------------------------------------------------------------- Standard & Poor's Ratings Services affirmed its 'B' corporate credit rating and 'CCC+' subordinated debt rating on privately- owned facility services provider UNICCO Service Co. Inc. and its wholly-owned subsidiary Unicco Finance Corp. All ratings have been removed from CreditWatch where they were placed Oct. 1, 2002. At the same time, Standard & Poor's has removed from CreditWatch and withdrawn its 'B+' senior secured bank loan rating on UNICCO's $60 million senior secured credit facility due Aug. 15, 2005. This bank facility has been refinanced with a new $60 million senior secured revolving credit facility due 2006. The new bank loan is not rated. The outlook on the Auburndale, Massachusetts-based UNICCO is stable. The company had about $65 million of total debt outstanding at March 30, 2003. "The rating actions follow UNICCO's recent announcement that it had refinanced its senior secured revolving credit facility and obtained waivers for covenant violations under its notes indenture," said Standard & Poor's credit analyst David Kang. "These actions resolved covenant compliance issues resulting from the company's financial support of affiliated insurance company Ashmont Insurance Company Limited." Before UNICCO began self-insuring its workers' compensation and general liability risks in April 1, 2002, its insurance program was administered by a fronting insurance carrier, and its deductible obligations were reinsured by Ashmont. Due to the adverse financial performance and the relative illiquidity of its investment portfolio, Ashmont became unable to make required ongoing deductible payments relating to prior policy years. Subsequently, UNICCO has made loans and payments to fund Ashmont's obligations, and this may have violated certain covenants and provisions of its notes indenture. Furthermore, Ashmont's illiquid financial situation has resulted in the accumulation of a net deficit of $14.4 million on its balance sheet. UNICCO has been advised by its independent auditors that its balance sheet is required to reflect a liability for Ashmont's net deficit under Generally Accepted Accounting Principles. UNICCO's management estimates that the remaining liabilities of Ashmont total approximately $18 million. The notes indenture has now been amended to permit UNICCO to make loans, advances, and contributions to the affiliate totaling up to $18 million over a period of five years. The amendment to the notes indenture also provides for the following: The interest rate payable on the notes has been increased from 9- 7/8% to 13% per year until maturity (on Oct. 15, 2007). UNICCO is required to repurchase $1 million of notes each fiscal quarter, beginning in the quarter ending Dec. 28, 2003. The company is also required to apply 50% of its excess cash flow to make additional note repurchases at the end of its fiscal year ending June 27, 2004, and apply 75% of excess cash flow at the end of each subsequent fiscal year. These repurchases will be subject to senior lender provisions. UNICCO is required to reduce selling, general, and administrative (SG&A) expenses, and compensation expenses. The company's requirement to file periodic reports with the SEC has been suspended through the fiscal quarter ending March 2006. The notes repurchase provisions should provide for more rapid debt reduction and partially offset the effect of the higher interest rate. Standard & Poor's expects UNICCO's industry conditions to remain challenging; however, the company should be able to somewhat improve EBITDA margins in its low-margin business in fiscal 2004. This is because of UNICCO's new obligation to reduce SG&A and compensation expenses and because the higher professional and auditor fees related to Ashmont in 2003 will not be recurring in 2004. The speculative-grade ratings on UNICCO reflect its leveraged financial profile and very competitive industry conditions. These factors are somewhat mitigated by the company's modest but fairly predictable cash flow generation from its portfolio of diverse services and the attractive growth rates in its fragmented niche markets. UNICCO is a provider of integrated facility services to a broad base of industrial and commercial customers throughout the U.S. and Canada. The company provides maintenance, operations, engineering, cleaning, lighting, and administrative/office services to 1,200 commercial, corporate, industrial, education, government, and retail customers. UNITED AIRLINES: Turns to Ernst & Young for Valuation Advice ------------------------------------------------------------ United Airlines Inc., and its debtor-affiliates want to employ Ernst & Young as Valuation Advisors, nunc pro tunc to June 12, 2003. James H.M. Sprayregen, Esq., at Kirkland & Ellis, relates that since June 12, 2003, E&Y has rendered valuation advisory services to the Debtors. During this period, E&Y has become familiar with the Debtors' operations and strategy. E&Y's compensation for the services will be a flat fee equal to $480,000. This will include services directly associated with the valuation of the Debtors' assets as well as their two reporting units. Fees do not include activities indirectly related to these efforts or activities subsequent to the delivery of E&Y's final report. Normal and reasonable expenses associated with E&Y's engagement will be reimbursed. Matthew Howley, a partner at Ernst & Young, assures the Court that the firm is a "disinterested person" within the meaning of Section 101(14) of the Bankruptcy Code and as required by Section 327(a) of the Bankruptcy Code; and holds no interest adverse to the Debtors and their estates in matters for which E&Y is to be employed. E&Y's recommendation of fair value will be used to assist United in implementing fresh start accounting reporting. E&Y will submit its final report during the week of August 25, 2003. (United Airlines Bankruptcy News, Issue No. 25; Bankruptcy Creditors' Service, Inc., 609/392-0900) UNITEDTRUST BANK: On Watch Positive After Merger Announcement ------------------------------------------------------------- Standard & Poor's Ratings Services has placed its 'BBB-/A-3' counterparty credit ratings on UnitedTrust Bank and its 'B+' trust preferred ratings of UNB Capital Trust I on CreditWatch with positive implications. The CreditWatch action follows the announcement that PNC Financial Services Group has agreed to acquire United National Corp. The $3 billion United National would benefit from the financial, managerial, and technological resources of the $68 billion PNC Financial Services Group Inc. (A-/Negative/-). When the transaction closes in first-quarter 2004, the ratings of United National will most likely be equalized with those of PNC Financial. The acquisition of United National will modestly extend PNC Financial's consumer and small business banking franchise in New Jersey-where it already ranks number three in statewide deposit market share-and in eastern Pennsylvania. The $638 million deal is being financed through a combination of cash and common stock. The transaction will generate approximately $500 million of goodwill, thereby putting some downward pressure on consolidated capital ratios. Standard & Poor's expects PNC Financial to partially offset the effects on capital by reducing share buybacks through the remainder of this year. PNC Financial's formal agreements with the Federal Reserve Bank of Cleveland and the Office of the Comptroller of the Currency remain in place. "Standard & Poor's believes PNC Financial is making progress strengthening its risk management and financial controls," said credit analyst John K. Bartko, C.P.A. US AIRWAYS: Stipulation Settles APG-America Claims -------------------------------------------------- APG-America, Inc., and US Airways, Inc. are parties to a construction contract dated January 5, 2001. The Debtors assumed the Contract pursuant to the Plan. The Reorganized Debtors are authorized to compromise and settle claims without further Court order. APG-America filed Claim Nos. 4266, 4267, and 4268, asserting claims for $11,496,782, $9,900,000, $3,654,575, $480,000, and $492,000 against US Airways Group, Inc. The Reorganized Debtors promptly objected to these claims. In accordance with a Stipulation by both parties, the Reorganized Debtors and APG America agree that the claims are withdrawn. Any other general unsecured claims are disallowed. (US Airways Bankruptcy News, Issue No. 36; Bankruptcy Creditors' Service, Inc., 609/392-0900) U.S. STEEL: Names Susan Kapusta as GM of Community Affairs ---------------------------------------------------------- United States Steel Corporation (NYSE: X) promoted Susan M. Kapusta to general manager-community affairs & United States Steel Foundation. Most recently Kapusta has been director-community affairs & United States Steel Foundation. The promotion reflects the added responsibilities Kapusta will assume, including community relations for all U. S. Steel and former National Steel facilities, oversight of all non-Foundation corporate donations and management of the company's United Way Campaign. In her new position, which is effective September 1, Kapusta will report to U. S. Steel Chairman and CEO Thomas J. Usher. "Susan's keen marketing and business sense along with her personal commitment to the community have helped keep U. S. Steel a leader in community service and philanthropy," said Usher. "She brings imagination, innovation and strong management skills to her new position at a time when the company needs capable managers most." Kapusta, 52, began her career with U. S. Steel in 1969 as a clerical employee and progressed through a series of increasingly responsible positions. She was promoted into management in 1989 as communication and administration services manager in the employee relations department. In 1990, she was named recycling coordinator in the marketing and sales department of tin mill products and was promoted to manager of recycling in the company's environmental affairs department in 1993. In 1996, Kapusta was appointed manager-public affairs for U. S. Steel Group. She was promoted to director-community affairs in 1998 and in 2002 assumed added responsibility for managing the United States Steel Foundation. Kapusta earned a bachelor's degree in business administration from Robert Morris University in 1981, and received a master's degree in corporate communication from Duquesne University in 2001. Kapusta is also a graduate of Leadership Pittsburgh XVI. She is a member of the board of directors of the Community College of Allegheny County where she has also served as a member of the adjunct faculty. Among her many community activities are the U. S. Steel STEP program, an award winning environmental education program, and Junior Achievement. For more information about U. S. Steel visit its Web site at 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 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 assigned its 'BB-' rating to United States Steel Corp.'s proposed $350 million senior notes due 2010. US UNWIRED: S&P Raises Corporate Credit Rating to CCC- from CC -------------------------------------------------------------- Standard & Poor's Ratings Services raised its corporate credit rating on US Unwired Inc. to 'CCC-' from 'CC' and removed the rating from CreditWatch following the expiration of the subpar tender offer on the 13.375% senior subordinated discount notes due 2009. Standard & Poor's would have viewed completion of the transaction as tantamount to a default on original debt issue terms. The 'CC' corporate credit rating on US Unwired's wholly owned subsidiary, IWO Holdings Inc., is affirmed and removed from CreditWatch. The outlook on US Unwired and IWO Holdings, both Sprint PCS affiliates, is negative. "The ratings reflect very high financial risk from an overwhelming debt load and weak liquidity caused by negative discretionary cash flow incurred during the companies' extended wireless business start-up period," said credit analyst Eric Geil. Operating cash flow has been slow to ramp up given heavy industry competition and the soft economy, while capital expenditures to construct wireless networks have been high. Ratings further reflect limited recoverable asset value because the wireless spectrum licenses used by the companies are held by Sprint Corp. These factors are slightly mitigated by the company's 593,000 wireless subscribers. US Unwired had $53.4 million cash as of June 30, 2003. The company's bank borrowing availability was about $64 million, following the departure of one bank participant subsequent to the end of the second quarter. However, the company may lose access to its credit facility if it fails to comply with covenants in September or December 2003. US Unwired is attempting to renegotiate its bank covenants to preserve its borrowing availability. IWO Holdings had $21.3 million in cash and $30.3 million restricted cash for interest payments on the 14% senior notes as of June 30, 2003. The restricted cash balance was subsequently reduced following the scheduled interest payment on the senior notes in July 2003. Because of covenant violations and a payment default, the company has no access to its credit facility. US Unwired is restricted from providing cash to IWO Holdings. IWO Holdings is negotiating with its banks to arrive at a restructuring plan. US Unwired and IWO Holdings have limited noncore assets that could be sold to alleviate financial stress. The affiliate business arrangement in which Sprint PCS holds the wireless spectrum licenses used by US Unwired and IWO Holdings may limit recovery value for lenders and noteholders in the event of bankruptcy. WARNACO GROUP: Alvarez Adopts Trading Plan under SEC Rule 10b5-1 ---------------------------------------------------------------- The Warnaco Group, Inc. (NASDAQ: WRNC) announced that Antonio C. Alvarez II, a member of its board of directors, is initiating a pre-arranged disposition of shares of Warnaco's Common Stock. Under the terms of the plan, adopted in compliance with SEC Rule 10b5-1, Mr. Alvarez will sell approximately 0.2 million shares of Warnaco's Common Stock. At August 21, 2003 the Company had approximately 45.0 million shares of Common Stock outstanding. The planned selling program, which Mr. Alvarez entered into after the Company's earnings release on August 11, 2003 and 10-Q filing on August 18, 2003, covers certain of the shares received by Mr. Alvarez from the Company for services rendered by him and Alvarez & Marsal Inc. (of which he is a founder and managing director) in connection with the Company's filing for bankruptcy, restructuring and subsequent emergence from Chapter 11 bankruptcy protection. The Warnaco Group, Inc., headquartered in New York, is a leading manufacturer of intimate apparel, menswear, jeanswear, swimwear, men's and women's sportswear, better dresses and accessories sold under such owned and licensed brands as Warner's(R), Olga(R), Lejaby(R), Body Nancy Ganz(TM), Chaps Ralph Lauren(R), Calvin Klein(R) men's and women's underwear, men's accessories, men's, women's, junior women's and children's jeans and women's and juniors swimwear, Speedo(R) men's, women's and children's swimwear, sportswear and swimwear accessories, Anne Cole(R), Cole of California(R), Catalina(R), and Nautica(R) women's and girls' swimwear, and A.B.S. by Allen Schwartz(R) women's sportswear and better dresses. WARNACO GROUP: Third Point Demands Seat on Warnaco Board -------------------------------------------------------- Third Point Management Company L.L.C. issued the following letter: Warnaco Board of Directors The Warnaco Group Inc. 90 Park Avenue New York, NY 10016 Dear Ladies and Gentlemen: Third Point Management Company L.L.C., is investment advisor to Third Point Partners L.P. and certain affiliates that have acquired 2,252,000 shares of Warnaco Corporation Inc., representing 5.0% of the issued and outstanding stock, carrying a market value of $35.8 million at yesterday's closing price of $15.90. Do not confuse our significant equity stake with a vote of confidence in the Company's Chairman, C.E.O. or certain members of the Board of Directors. In fact, we have grave concerns about the competency, judgment and motivation of these individuals for reasons that shall be set forth in this letter. Nor are we bitter shareholders, significantly under water, like the commercial banks that inherited a stock position because they exercised poor judgment in lending money to a Linda Wachner-led Warnaco at par. We came about our initial holdings via opportunistic purchases of bank debt in the secondary market at prices as low as 27% of face value. These timely initial purchases allowed us to create equity in Warnaco at the equivalent of approximately $6.50 per share, a 59% discount to yesterday's closing price. We purchased additional shares after the Company emerged from Chapter 11 bankruptcy and made our most recent purchase of 52,000 shares over the past ten days. As a result of that purchase, we are required by Regulation 13D of the Securities Exchange Act of 1934 to file with the SEC a statement reflecting the views set forth in this letter. This letter is the outcome of an ongoing investigation by Third Point and certain parties into current Board Members' qualifications and their histories that we have been conducting as part of our due diligence process. Our decision to set forth our findings and recommendations in a written communication is due to a series of actions by various members of the Board and management reflecting a refusal to discuss our concerns with us in good faith, culminating in management's failure to take our call during the question and answer period on the Company's August 11, 2003 quarterly conference call. It saddens me to have to communicate with the Board in this way; however, the fact that we were shut out of the question and answer period and that Mr. Gromek, the C.E.O., has declined to meet with us despite numerous invitations has left us with no other choice but to produce our concerns in writing and to share those concerns with our fellow shareholders in order to protect our investment. Our poor opinion of Company management does not extend into the ranks of those working to build the Warnaco brands at the operating level. On the contrary, we believe the achievements of the Company's operating divisions have been obscured by its corporate management and its Board. We fear the spirit of Warnaco's former management has not yet been completely exorcised from the Company. Accordingly, we demand that Third Point be permitted to designate either its Managing Member, Daniel S. Loeb, or an appointee to the Company Board. Although we have not discussed this matter with other shareholders, we demand that the other two largest post- bankruptcy shareholders be allowed to appoint one representative each for a total of three representatives. We have spoken to financial advisors and industry participants who believe that there would be significant interest in the Company's operations if broken up and sold in an auction process and that a value significantly in excess of the Company's current market price could be realized. In fact, during the bankruptcy process, it was reported that the Company was in discussions to sell the Calvin Klein brands to a strategic competitor. We demand that an investment banker be retained to evaluate options to maximize shareholder value and to determine whether it is in shareholders' interests for the Company to continue as an independent concern. Investigation Summary and Conclusions Stuart Buchalter, Chairman of the Board of Directors, extracted $500,000 as a non-executive Chairman in 2002 and currently receives the indefensible salary of $250,000 -- an outrageously high sum for a non-executive Chairman who has already been gifted 12,975 free shares. Appallingly, Mr. Buchalter also received a one-time cash bonus of $210,004 upon the Company's emergence from bankruptcy in February 2003. It is surprising to us that Mr. Buchalter has managed to insinuate himself as Chairman of the Company given his past experience and prior role in the destruction of Standard Brands Paint. (Details of this woeful tale of apparent mismanagement, self-dealing, abuse of corporate defenses, and ultimate financial failure, are chronicled in Appendix I to this letter). As Chief Executive Officer of Standard Brands Paint, Buchalter rejected a $310 million offer for that company and erected takeover defenses to entrench himself. Standard Brands subsequently filed for bankruptcy resulting in the elimination of equity value and impairment to Standard Brands' creditors. Mr. Buchalter is also director of bankrupt E4L, Inc. This affiliation is omitted from his biography contained in the Company's Proxy Statement. We were interested to learn that Mr. Buchalter's law firm, Buchalter, Nemer and Fields was named for his late father, Irwin and that Mr. Buchalter served on the Board of Earl Scheib, a company chaired by his father. With regard to Warnaco, it appears to us that Mr. Buchalter seems to be most interested in receiving as much cash and free shares from the Company as possible. Note that Mr. Buchalter has never purchased a single share in the Company. Notwithstanding Mr. Buchalter's evident disregard for shareholders, he is Chairman of the Company's "Nominating and Corporate Governance Committee" and a member of both the Company's "Compensation Committee" and "Audit Committee." As shall be discussed below, the directors hired by the Buchalter-led Nominating Committee, have little economic interest in the Company and were, in our view, put in place to entrench Mr. Buchalter. Mr. Buchalter's interests are not aligned with shareholders' and we insist that he resign from the Board of Directors effective immediately. Joseph Gromek, Chief Executive Officer, has been generally unresponsive to us and other shareholders. He had not been formally employed, to the best of our knowledge, for over 15 months when offered the position at the Company. His background running Brooks Brothers, a staid retailer of out-dated men's fashions catering to the country club set -- http://www.brooksbrothers.com/countryclub/landing_countryclub.tem -- was marked by a series of disappointments, according to press reports. We were surprised by the Board's choice to hire Mr. Gromek, particularly considering the better-qualified internal candidates. His initial efforts at Warnaco do not suggest the necessary abilities required to effectively run the Company. We were particularly chagrined by Gromek's handling of the Company's recent high yield offering where we believe that the Company paid an unduly high interest rate in a deal that was substantially oversubscribed. We urge Mr. Gromek to resign as Chief Executive Officer and Board Member and to assume the role of Executive Vice President of Communications and Director of Investor Relations for the remainder of his contracted term as an officer of this Company. Tony Alvarez, in his capacity as Chief Restructuring Officer, did a commendable job as Interim Chief Executive Officer of the Company, for which he was paid immensely well. According to the Company's Proxy Statement dated April 29, 2003, Mr. Alvarez was paid over $6 million in base salary and cash incentive bonuses during his tenure. In addition, Mr. Alvarez received 266,400 shares currently valued in excess of $4 million upon reorganization. It appears that Mr. Alvarez continues to be paid $750 per hour for ongoing "transitional services," a sum that we find difficult to condone. Mr. Fogarty, the interim CFO, has been billing his time at a rate of $475 per hour, an annualized salary in excess of $950,000. Such a high rate of compensation brings to question the incentives to find a permanent CFO. In fact, when triangulating the information contained in the June 30, 2003 10Q, the April 2003 proxy and the May 27, 2003 Debt Prospectus it was revealed that Alvarez & Marsal, Inc., a firm where Mr. Alvarez and Mr. Fogarty are partners, extracted over $12 million in cash and shares from the Company. During the second quarter of 2003, a period that began well after the completion of the restructuring and about the time of Mr. Gromek's hire, Alvarez & Marsal, Inc. received $514,000 in payments for executive services. When factoring in a full quarter of compensation for Mr. Fogarty and a month of compensation for Mr. Alvarez at the rates of $475 per hour and $125,000 per month respectively, this leaves approximately $140,000 of cash compensation unaccounted for. We can only guess that this $140,000 represented an additional 180 hours-plus of "transitional" billing time from Mr. Alvarez. Our call to Mr. Fogarty on this matter, among others that became apparent in the recent 10Q filing, went unanswered. The high sums Mr. Alvarez and Mr. Fogarty have received suggest to us and others that they view this Company as a "honey pot" from which to extract as much "nectar" (shareholders' cash) as possible. It is high time that Mr. Alvarez move onto his next bankruptcy assignment where the courts are generous in permitting exorbitant fees for professional services. We insist that Mr. Alvarez cease and desist from providing such high-priced "transitional services" to the Company effective immediately and, if unwilling to terminate such fees, resign effective immediately from the Board of Directors. We further demand that Mr. Fogarty resign as a $475 per hour CFO and that a new CFO be appointed immediately. Sheila Hopkins, recently elected to the Company Board, is currently Vice President and General Manager of U.S. Personal Care at Colgate Palmolive Corp. and was previously a Vice President at Tambrands Inc. As part of the Investigation, we conducted a series of interviews with her and fellow employees. We inquired about the relevance of her experience as a mid-level executive marketing consumer brands such as Lady Speed Stick and Tampons to a diversified apparel concern such as the Company. She stated that her 20 years of experience in marketing would be useful to the Company. When we probed further, she responded by saying that it was not appropriate for her to discuss her views with shareholders. We explained that as a significant shareholder we believed it was appropriate for her to share her marketing insights as they applied to the Company. We then asked her how many shares she had purchased with her own money. She replied that it was none of our business. I explained to her that, on the contrary, as one of the Company's largest shareholders holding 2,252,000 shares, it was my business to ensure that we were represented by like-minded individuals who shared a stake in the Company, or as Warren Buffett of Berkshire Hathaway says, have "skin in the game." As the interview proceeded, it became clear to me how important it is for directors to own a stake in the companies they serve. When I asked her how many Company shares were outstanding, her reply was: "I don't have that information in front of me." Wrong answer. She was also unable to tell us the Company's revenues generated in the most recent quarter. We shareholders demand that the Directors have a rudimentary knowledge of the Company's financial position, including an approximate idea of the market capitalization and sales. This is not an unreasonable request, even for directors new to the job, who should have done their own due diligence and read recent financial statements. Accordingly we demand that Sheila Hopkins resign immediately from the Company's Board of Directors due to our impression of her inability to carry out her fiduciary duties. Charles Perrin was abruptly relieved of his duties as Chief Executive Officer of Avon Products in November 1999 when the stock plummeted from $36 to about $26 in one day (already down from the mid-50s during the summer of 1999) as a result of significant disappointment in Avon's results under his management. Evidently, Mr. Perrin has not been formally employed since his departure from Avon except as a director of Warnaco. We are curious what specific insights Mr. Perrin offers to Warnaco. We are also concerned that, with no other apparent source of income, Mr. Perrin might become reliant upon the $65,000 in annual salary and free stock grant to sustain himself, thus clouding his judgment on such matters that might bring an end to this source of income (aside from severance from Avon). Mitigating our concerns, however, is the fact that Mr. Perrin did purchase 10,000 Warnaco shares. We do not insist upon Mr. Perrin's resignation as we applaud him for being the only non- executive director to purchase Company shares. Additional Demands and Recommendations * The Investor Relations function, currently being handled by Alison Malkin at Integrated Corporate Relations, is wholly inadequate for a company of Warnaco's size. Many shareholders and potential shareholders have complained that ICR lacks the depth of knowledge required to satisfy the investor relations function. As mentioned above, we believe that Joseph Gromek should handle that function until such time that his employment agreement expires. Otherwise, we urge the Company to assign the task to a full-time employee and terminate the ICR relationship immediately. * The Warnaco website is a debacle. It is shocking that the website is in such disarray given that the Company Board boasts several supposed experts in marketing. It is poorly designed and provides scant information for investors or others interested in the Company. The image projected of the Company is cheap and tawdry. When you click on to the Warnaco site -- http://www.Warnaco.com-- the first image that you are welcomed with is a collage of mostly semi-nude models, the centerpiece of which is that of a buff hairless boy bulging out of his Calvin Klein underwear. The site then shifts to a page of poorly reproduced black and white logos before bringing the user to the Home Page, which contains several links. Under "Presentations," there are none. Under "Analyst Coverage," there is no reference. Most insulting, under "Management", there is a list of the Company's directors, three senior officers (including Jay Galuzzo, the 28 year old General Counsel), but no mention of the corporate officers who are so integral to the success of the Company, namely John Kourakos Head of Sportswear, Roger Williams, Head of Swimwear and Tom Wyatt, Head of Intimate Apparel. Compare this to the Phillips Van Heusen website -- http://www.pvh.com-- where the links to the "Management" section provides a detailed list of corporate executives. I only wish that the marketing geniuses on the Company Board were too busy reading the Company's financial statements to check out the Company website. Such a wish has about as much probability of fulfillment as one duly lodged with the tooth fairy. * While Speedo's wholesale business appears to be healthy, Speedo Retail stores need a face-lift, both in store design and merchandising. If the Company plans to fill its admirable mission described by Mr. Gromek as taking the Speedo Brand "out of the pool, onto the beach and onto the street" there must be something done to fix the stale designs and poor merchandising. I only hope that Mr. Gromek does not attempt to reinvigorate the collection with designers from his days at Brooks Brothers. The Speedo stores need an immediate design and merchandising plan to fix the dated image that Speedo has in its retail outlets now. Background to the Investigation Third Point was attracted to Warnaco for its world-class brands and ability to generate significant cash flow. We believed Linda Wachner, the utterly disgraced and notoriously incompetent former CEO who presided over the demise of the Company, had left behind a taint that affected the valuation of the Company even after her involuntary removal from the Company. The odor left behind by Ms. Wachner's malfeasance was so pronounced that even vulture investors turned away from investing in the Company at the equivalent of $6.50 a share. Since we base our investment decisions on facts and financial results as opposed to sentiment, in early 2002, we leapt at the opportunity to enter the business at approximately 3.7x EBITDA and to relieve the banks of approximately $85 million face amount of bank loans, while the Company was still in bankruptcy, making Third Point one of the Company's largest creditors. In 2002, we caught wind of a disturbing development in the restructuring process reported in a November issue of Women's Wear Daily, namely that the Board and the Steering Committee of Creditors were attempting to sell the Company's crown jewel, its Calvin Klein brands, at a bargain basement price. We believed that transaction served neither the long-term interests of the Company nor those of its future shareholders. The transaction, recommended by a financial advisor, in our opinion, did not make financial sense. It appeared to us that such a transaction only served the fee-generating interests of the restructuring professionals -- who had already extracted millions in fees. We concluded that we needed a "seat at the table" and offered to serve on the Company's Steering Committee with other creditors. I explained to Mr. Buchalter that since we were creditors that planned to be long- term shareholders, we would like a voice in the restructuring process. Our offer to serve on the Steering Committee was rebuffed, notwithstanding our large debt holdings. Frustrated by the Steering Committee and Board's unwillingness to represent our interests in the restructuring process, we and two other disenfranchised creditors sent a detailed letter dated December 5, 2002 addressed to James Fogarty, C.F.O of the Company and a partner at Alvarez & Marsal, Inc. Although the sale was not completed, its failure was due to technicalities in the transaction and not a withdrawal of the process as we recommended. It became clear to us that the Company needed a strong voice on the Board representing shareholders who had actually purchased shares voluntarily as opposed to receiving them via free stock options or inheriting them as a result of a failed loan. I offered to serve as a Company Director to Mr. Buchalter, Chairman of the Nominating Committee and was assured by him that I would be contacted by a representative of Heidrich & Struggles, the firm retained to conduct the search for new directors. I submitted my qualifications to serve on the Board: * I am a graduate of Columbia University with a degree in economics, 41 years of age and have approximately twenty years of investment experience, including a career that started in the venture capital firm of E. M. Warburg Pincus and Co. I worked at Jefferies and Co. as a high yield and distressed debt analyst and trader and then Citicorp Securities in the high yield department. I am President of the Daniel S. Loeb/Third Point Foundation, a charitable entity dedicated to providing financial support to organizations involved in education, healthcare and women's rights. * I founded Third Point, a firm dedicated to event-driven value- oriented investing, in June 1995. Our firm has one of the top track records and in 1997 we were voted "Best Event-Driven Manager" by a body of investment professionals and won the Alternative Investment Award. Third Point's assets under management have grown from $3.0 million at inception to over $500 million today. A dollar invested in Third Point Partners, LP at its inception would be worth over seven dollars today. * I was a Director of Radia Communications, an 802.11(a/b/g) wireless LAN semiconductor company, where I made a significant impact on its success. David Fisher, its C.E.O, has said that without my personal efforts Radia would not have succeeded. At Radia, Third Point was the initial and founding shareholder as well as lead investor. We led several rounds of subsequent venture financing during the most difficult periods in memory for such financing. Radia has since been sold to Texas Instruments for an undisclosed sum. While we cannot reveal the terms of the transaction, Third Point, Radia's management, and our advisors, Thomas Weisel Partners were pleased with the outcome. To read more about the transaction, please see the press release: http://www.ti.com/corp/docs/press/company/2003/c03041.shtml * As Managing Member of Third Point, advisor to funds controlling over 5% of the Company shares valued at over $35 million, I have a significant economic stake in the Company. Several months after my initial approach, I was finally contacted by the executive search firm. What ensued was the equivalent of a Kangaroo Court to determine my qualifications to join the Board. Given my stake in the Company, my success as an investor and my track record as a corporate director, I fully expected my candidacy to be approved or at least taken seriously. However, how seriously could it have been taken since nobody from Heidrich & Struggles bothered to contact anyone with whom I served on the Radia Board? I demand to see the minutes from the Board Meeting where my candidacy was discussed and what the rationale was for blackballing me. I was surprised that, as one of the Company's largest owners, I was treated so shabbily by Mr. Buchalter, the Chairman of the Nominating Committee. I was not even informed that I had been passed over for the Board position but had to surmise it from the announcement of the appointment of others. Nevertheless, I swallowed my pride and trusted that the Committee must be considering another large shareholder or at least individuals who are considered giants in the field of marketing and brand management and who could make a substantial contribution to the Company. On April 28, 2003 the Company announced the appointment of David A, Bell, Chairman and CEO of Interpublic Group Inc. and Charles R. Perrin, former CEO of Avon Products and Duracell. Most recently, Sheila Hopkins, a Vice President of Colgate Palmolive was appointed to the Board. Conclusion The dipping into of Warnaco's coffers by greedy advisors and directors must stop now. We demand a seat on the Company's Board of Directors. We have reviewed the Company's bylaws and understand that shares representing 15% of the outstanding stock can call a special meeting to replace the Board of Directors. Should you not accept our demands, we may organize with other disgruntled shareholders to convene such a special meeting. We look forward to your response to this letter and hope that your response reflects an understanding and appreciation of your fiduciary duties, including the duties of good faith, due care and candor, to the shareholders of the Company. Sincerely, Daniel S. Loeb Appendix A: Stuart Buchalter Background Information After our initial investigation of the above Directors, I began to grow uneasy and it appeared as if the Nominating Committee, now named the Nominating and Corporate Governance Committee, was intentionally hiring light-weight directors with no economic stake so as to insulate Mr. Buchalter and Mr. Alvarez and to allow them to make their numerous trips to the Warnaco "honey pot" where they so readily helped themselves to generous fees and free stock grants. I knew little of Mr. Buchalter other than what he told me about himself. He informed me that he had known my father, a former partner at Irell and Manella in Los Angeles and had known my late, great-aunt, Ruth Handler, the legendary founder of Mattel, Inc. I met Mr. Buchalter in person at a Warnaco Annual Meeting, a handsome middle-aged gentleman, his shock of gray hair and beard and his bold red striped shirt and polka dot red tie made him look oddly like Burt Reynolds character, the pornographic producer, in the film, "Boogie Nights". His wife, who came to the Annual Meeting, informed me that we were somehow distant cousins and told me that she would send me an invitation to a family reunion in Denver (an invitation that never arrived). At the meeting, I stood up and expressed my views on corporate governance reading a section from Mr. Warren Buffett's annual letter to shareholders in which he discusses the importance of directors' true ownership in a company. (The full text of the letter is on the Berkshire Hathaway website http://www.berkshirehathaway.com/letters/2002.html) and should be mandatory reading for all corporate directors. Mr. Buchalter proclaimed his dedication to shareholder rights and claimed that the Warnaco Board would be a model in corporate governance. But alas, it was not to be so. Hence, one can imagine my shock and dismay as we conducted our investigation into Mr. Buchalter's compensation on the Warnaco Board as well as his prior employment history. Mr. Buchalter mentions his membership on the City National Corp.'s Board of Directors, a Beverly Hills-based bank known for lending to the entertainment industry. What he does not mention is his membership on the Board of Directors of E4L, the former National Marketing, whose shares trade on the Pink Sheets at one one hundredth of a cent and is currently operating under bankruptcy protection. Evidently, Stuart Buchalter attracts bankruptcies the way Pigpen (of Charlie Brown fame) attracts a cloud of filth hovering overhead. Nor does he mention his prior membership to the Board of Earl Scheib ("I'll paint any car for $99.99"), a company on which his father served as Chairman. Unfortunately, as the Investigation revealed, Mr. Buchalter's career is like an Earl Scheib paint job, attractive on the surface but soon to peel off and reveal the rust that lays beneath the surface. The cornerstone of Mr. Buchalter's career was his role in the management of Standard Brands, a company where he rose from the ranks of General Counsel to Chairman and Chief Executive Officer. The search for ways to cut costs is intense. "We all got a little bit lazy, and now we're forced to look at each expense and figure out what's it doing for me," said Stuart Buchalter, chairman of the Standard Brand Paint Company of Torrance, Calif. His company has not been able to raise prices for 18 months due to competition from off- price warehouse stores. "We've learned that inventories don't have to grow by 10 percent a year." (New York Times August 11, 1985) A Forbes article dated June 29, 1987 chronicled the sorry performance of Standard Brands under Mr. Buchalter's management in an article entitled "Painted into a corner." "RUMORS, ONLY RUMORS," Chairman Stuart Buchalter told his shareholders at Standard Brands Paint Co.'s May 29 annual meeting. The story was that someone had been buying blocks of shares of the Torrance, Calif.-based do-it-yourself paint discounter. Given the company's stock performance in recent years, shareholders could be forgiven for wishing that the takeover talk was more than rumor. At a recent $ 23 a share, Standard Brands fetches less than it did in 1983, when the bull market was still a calf. Last year Standard Brands earned $ 15 million on sales of $327 million, less than it earned in 1980 on sales of $ 210 million. Profits are off nearly 28% since the 1984 peak. These mediocre results are all the more surprising since Standard Brands caters to the do-it-yourself home repair crowd, one of the fastest-growing retail segments around. It sells home decorating products such as paint, carpet, wallpaper, window coverings and art supplies at discount prices through 140 company-owned stores in 95 cities in nine western states. Standard Brands makes 80% of the paint it sells... Standard Brands' policy of promoting from within, another article of faith, seems to have produced an overwhelming case of management myopia. President Marvin Wager, 62, has been around since 1952. When Sidney Greenberg, son of Dan (one of the cofounders), retired as chairman in 1981, the board of directors looked to an outsider for new ideas. It got no further than Stuart Buchalter, corporate counsel. Buchalter, 49, is personable and quick, but a merchandising star on the Samuel Walton or Leslie Wexner model he is not. (Forbes, June 29, 1987) Evidently, not only was Mr. Buchalter no merchandising star but he was not much of a financial star either for on July 28 1987, the United Press reported that Stuart Buchalter and the Standard Brands Board had "rejected a $300 million takeover bid from New Zealand's Chase Corp." in an article entitled "Standard Brands rebuffs $300 million offer." "The board's decision was based on many factors," said Stuart Buchalter, Standard Brands chairman and chief executive officer. Buchalter said the offer was based on what he termed a "wholly unrealistic" business plan "which reflects no understanding of Standard Brands business and assets and is inconsistent with the maximization of shareholder value." The price of company's shares have increased in recent weeks on rumors of a possible takeover, despite actions taken by Standard Brands to thwart an unwanted suitor. In May, the company reincorporated in Delaware and adopted anti-takeover measures. Standard Brands said its directors determined the unsolicited $28- a-share offer was not in the 'best interests' of shareholders. (United Press International, July 28, 1987) After having reached a high of $31.88 in the wake of the hostile bid, Standard Brands shares plummeted over 30% to $21.50 per share when Mr. Buchalter and his Board made the ill-fated decision to leverage up Standard Brands' balance sheet with $185 million in debt to repurchase shares in a 1987 tender offer. So great was shareholder disgust in Mr. Buchalter and his "management" of Standard Brands, that in 1991, John Latshaw, a private investor attempted to wrestle control of the Company via a proxy contest. Yet another article chronicled the steady decline in earnings per share under the Buchalter regime. SIX YEARS OF PAIN Earnings of Torrance-based Standard Brands Paint Co. have fallen for six straight years -- and now, several big shareholders have decided that enough is enough. Earnings per share '84: 1.87 '85: 1.40 '86: 1.33 '87: 0.79 '88: 0.57 '89: 0.36 '90: -0.80 '91*: -0.95 *Estimate Earnings exclude gains and losses from discontinued operations Source: Value Line Investment Survey By August 1991, not only had Mr. Buchalter lost the confidence of his shareholders but his employees were publicly venting their disgust with his reign. In an August 19, 1991 article in the Los Angeles Business Journal entitled "Standard Brands paints a brighter scene:" Meanwhile, half of the company's employees have been without a labor contract since December, with no progress reported. Adding fuel to an already kindled fire, a group of employee shareholders -- who control about 20 percent of the company's stock -- sued to force the company to hold an annual meeting. Standard Brands officials said last week the suit has been dismissed, but the plaintiff says it hasn't. The group has also waged a proxy fight, which the employee shareholders say is still going on but the company says is null and void. (Los Angeles Business Journal, August 19, 1991) Particularly disturbing, in the course of the Investigation was Mr. Buchalter's apparent lining of his own pockets while he was in the process of ruining the company. In a Los Angeles Times article dated February 7, 1992 titled "Investors Seeking Voice On Execs' Pay May Get It," Stuart Buchalter is held out as a poster-child of self-dealing: Take the case of Standard Brands Paint Co., a Torrance-based paint retailer whose profits have been falling for six years. The company, with $300 million in annual sales, now teeters on the verge of Chapter 11 bankruptcy. Its stock, $31 in 1987, now trades for $1.88. Stuart Buchalter, the CEO who has presided over Standard's long decline, earned $429,874 in fiscal 1990. In addition, he was paid $23,750 under a "target bonus plan" -- even as the company's earnings plunged further. Why would Standard's board of directors pay a bonus to Buchalter in a disastrous year? A company spokesman says the bonus was based on Buchalter's ability to reach certain cash-flow targets "to keep the company going. In other words, though Standard was collapsing, it hadn't yet collapsed completely -- so the directors decided Buchalter deserved a bonus. (Los Angeles Times, February 7, 1992) Just 7 months after this scathing article and 5 years after Stuart Buchalter rejected a $310 million offer for the company, Mr. Buchalter's term as CEO ended ignominiously when Standard Brands filed its Plan of Reorganization with the U.S. Bankruptcy Court in Los Angeles. One can only wonder how, with this blight on his record, Stuart Buchalter would be allowed a position as an officer or director of a public company. We at Third Point believe that Warnaco shareholders and employees deserve better. WILLIAMS CONTROLS: UAW Union Ratifies to New Portland Labor Pact ---------------------------------------------------------------- Williams Controls, Inc. (OTC: WMCO) has reached a five-year labor agreement with the United Auto Workers local 492 for its Portland facility, ending an eleven month strike that commenced on September 9, 2002. The agreement was ratified by the union membership on Sunday, August 17, 2003. The new agreement will run through August 31, 2008. As part of the agreement, the union and the company have dropped all unfair labor practice claims pertaining to the strike and have agreed to cease filing such claims related to the labor negotiations. Since inception of the strike the Company has been operating the Portland facility and meeting customer requirements with replacement workers. The striking workers that wish to return to work will return on a pre-established orderly basis over a four-month phase in period. The remaining positions will continue to be filled by the replacement workers, who will become members of the union. Williams Controls' Board Chairman Gene Goodson stated, "We are very pleased to have this very difficult labor negotiation behind us. This process has been a significant distraction and economically difficult for our union membership." He continued "This contract will help Williams to remain competitive in the marketplace while retaining these jobs in the Portland community." Williams Controls is a designer, manufacturer and integrator of sensors and controls for the motor vehicle industry. For more information, you can find Williams Controls on the Internet at http://www.wmco.com Williams Controls, Inc.'s June 30, 2003 balance sheet shows a total shareholders' equity deficit of about $13 million. WORLDFCOM INC: MCI Reacts to Release of Triennial Review Order -------------------------------------------------------------- Background: The FCC Thursday released its written order in the "Triennial Review" proceeding. The order allows MCI and other competitive carriers to continue offering local voice services to consumers nationwide. Unfortunately, the FCC's new rules could dramatically reduce competition in the high-speed Internet access market. MCI will work with the states to facilitate the transition to its own facilities wherever feasible. The company will also work to overturn any restrictions on use of the so-called "last mile" broadband facilities. The following statement should be attributed to Wayne Huyard, President of MCI Mass Markets: "We are very encouraged that the FCC has preserved competition in the residential market. Unfortunately, the Commission has jeopardized competition in the broadband market -- which we believe will hurt consumers, and ultimately impede local competition. MCI stands ready to work with the FCC and states to ensure continued access to the Bell-controlled public phone networks at cost-based rates. Together with regulators, we will work to remove the barriers that deter competition in the local phone market, and we will consider appropriate avenues to reverse the unfortunate decision restricting competition in the broadband marketplace." * Fitch Says Trailing Twelve Month Default Rate Falls in July ------------------------------------------------------------- Following a fairly benign first half, defaults on a par basis increased from a monthly average through June of approximately $3 billion to $8.4 billion in July, due in large part to Mirant's bankruptcy filing (affecting $3.2 billion in bonds in Fitch's default index). As a result, the year to date default rate rose to 4% in July from 2.8% in June. In total twelve issuers defaulted on their bond obligations in July, bringing the year to date defaulted issuer count to 69. The average monthly defaulted issuer count for the first half of the year was approximately 10. The year to date par value of defaults totaled $26.3 billion in July. In 2002, defaults had reached an extraordinary $85 billion by July, with nearly a third of that concentrated in WorldCom. In fact, despite the uptick in the 2003 year-to-date default rate noted above, from 2.8% in June to 4% in July, the trailing twelve month default rate fell to single digits in July thanks to WorldCom's exit from the rolling twelve month series. The twelve month default rate-ended July at 7.7%, down from 10.3% in June, the first time the twelve month series has fallen below 10% since mid 2001. While defaults may fluctuate from month to month this year, not wholly surprising given the still vulnerable state of the high yield market, defaults have nonetheless clearly decelerated. For a full recap of first half default activity please refer to Fitch's press release (dated July 23) titled 'Defaults Down 69%, Recovery Rates Up 50%, in Promising First Half of 2003', available on the Fitch Ratings Web site at http://www.fitchratings.com in the 'Credit Market Research' section under 'Press Releases'. Overview of the Fitch U.S. High Yield Default Index Fitch's default index is based on the U.S., dollar denominated, non-convertible, speculative grade bond market (the rating equivalent of 'BB+' and below, rated by Fitch or one of the two other major rating agencies). Fitch includes rated and non-rated, public bonds and private placements with 144A registration rights. Defaults include missed coupon or principal payments, bankruptcy, or distressed exchanges. Default rates are calculated by dividing the volume of defaulted debt by the average principal volume outstanding for the period under observation. Fitch's high yield default studies are also available at http://www.fitchratings.com * Sheppard Mullin Hires Victoria Spang as Chief Mktg. Officer ------------------------------------------------------------- Sheppard, Mullin, Richter & Hampton LLP announced that Victoria Spang has joined as Chief Marketing Officer, an inaugural position at the firm. Spang, who will reside in the Los Angeles office, joins the firm from the San Francisco office of Bingham McCutchen LLP, where she held the position of Director of Business Development. "We are pleased to welcome Vickie, who has extensive experience in a variety of strategic marketing and business development initiatives, including client satisfaction programs and marketing audits," said Guy Halgren, Chair of the firm's Executive Committee. Added Larry Braun, Corporate Practice Group Chair and marketing partner, "Our commitment to clients is reflected in our transition from having a Director of Business Development to a Chief Marketing Officer. Vickie will be working closely with our attorneys to ensure we understand our clients' needs and that we are doing all we can to deliver quality services to meet those needs." Spang was previously the Director of Marketing at McCutchen, Doyle, Brown & Enersen LLP for seven years, prior to the firm's merger with Bingham Dana in mid-2002. Following the merger, she became firmwide Director of Business Development for the 850- attorney, 11-office firm. Prior to this, Spang was the Marketing Director at Pettit & Martin. Commented Spang, "I look forward to joining Sheppard Mullin. I am impressed by the firm's leaders and their dynamic vision for the firm. Clearly, Sheppard Mullin has a lot of momentum, and our marketing efforts will capitalize on it." In addition to her legal marketing expertise, Spang also has a wealth of experience in business planning, media relations, and market research. She was a former Chapter President of the Legal Marketing Association Bay Area Chapter, and received the LMA Bay Area Chapter Year 2000 Professional Achievement Award in recognition of professionalism and career-long contributions to the practice of legal marketing. Spang has written a number of articles and lectured extensively on various subjects relating to legal marketing, law firm mergers and acquisitions, client feedback programs, crisis communications, and media relations. She received her undergraduate degree from Wheaton College in 1973 and her graduate degree from Golden Gate University in 1985. Spang is a former Trustee of Wheaton College. Sheppard Mullin has more than 380 attorneys among its eight offices in Los Angeles, San Francisco, Orange County, San Diego, Santa Barbara, West Los Angeles, Del Mar Heights, and Washington, D.C. The full-service firm provides counsel in Antitrust and Trade Regulation; Business Litigation; Construction, Environmental, Real Estate and Land Use Litigation; Corporate; Entertainment and Media; Finance and Bankruptcy; Financial Institutions; Government Contracts and Regulated Industries; Healthcare; Intellectual Property; International; Labor and Employment; Real Estate, Land Use, Natural Resources and Environment; Tax, Employee Benefits, Trusts and Estates; and White Collar and Civil Fraud Defense. The Firm celebrated its 75th anniversary in 2002. * BOND PRICING: For the week of August 25 - 29, 2003 ---------------------------------------------------- Issuer Coupon Maturity Price ------ ------ -------- ----- Adelphia Communications 3.250% 05/01/21 23 Adelphia Communications 6.000% 02/15/06 23 Ahold Financial USA 6.875% 05/01/29 74 AK Steel Corp. 7.750% 06/15/12 75 Alexion Pharmaceuticals 5.750% 03/15/07 70 American & Foreign Power 5.000% 03/01/30 62 AMR Corp. 9.000% 08/01/12 63 AMR Corp. 9.000% 09/15/16 63 AnnTaylor Stores 0.550% 06/18/19 69 Best Buy Co. Inc. 0.684% 06/27/21 75 Burlington Northern 3.200% 01/01/45 52 Burlington Northern 3.800% 01/01/20 73 Calpine Corp. 7.875% 04/01/08 71 Calpine Corp. 8.500% 02/15/11 67 Calpine Corp. 8.625% 08/15/10 70 Calpine Corp. 8.750% 07/15/07 73 Charter Communications 8.625% 04/01/09 74 Charter Communications 10.000% 04/01/09 75 Charter Communications 10.000% 05/15/11 73 Charter Communications 10.250% 01/15/10 75 Cincinnati Bell Telephone 6.300% 12/01/28 69 Comcast Corp. 2.000% 10/15/29 29 Coastal Corp. 6.950% 06/01/28 67 Coastal Corp. 7.420% 02/15/37 70 Coastal Corp. 7.750% 10/15/35 73 Cox Communications Inc. 0.348% 02/23/21 72 Cox Communications Inc. 0.426% 04/19/20 49 Cox Communications Inc. 2.000% 11/15/29 34 Crown Cork & Seal 7.500% 12/15/96 70 Cummins Engine 5.650% 03/01/98 61 Delta Air Lines 7.900% 12/15/09 71 Delta Air Lines 8.300% 12/15/29 61 DVI Inc. 9.875% 02/01/04 32 Dynex Capital 9.500% 02/28/05 2 Elwood Energy 8.159% 07/05/26 69 Fibermark Inc. 10.750% 04/15/11 73 Finova Group 7.500% 11/15/09 44 GB Property Funding 11.000% 09/29/05 65 Goodyear Tire & Rubber 7.857% 08/15/11 74 Gulf Mobile Ohio 5.000% 12/01/56 64 Hasbro Inc. 6.600% 07/15/28 73 Health Management Associates 0.250% 08/16/20 63 IMC Global Inc. 7.300% 01/15/28 70 Kaiser Aluminum & Chemicals 9.875% 02/15/49 72 Liberty Media 3.750% 02/15/30 56 Liberty Media 4.000% 11/15/29 59 Lucent Technologies 6.450% 03/15/29 63 Lucent Technologies 6.500% 01/15/28 65 Mirant Corp. 2.500% 06/15/21 40 Mirant Corp. 5.750% 07/15/07 39 Missouri Pacific Railroad 4.750% 01/01/30 71 Missouri Pacific Railroad 5.000% 01/01/45 59 Northern Telephone 7.875% 06/15/26 75 Northwest Airlines 7.875% 03/15/08 75 Northwest Airlines 8.700% 03/15/07 72 Northwest Airlines 8.875% 06/01/06 72 Northwest Airlines 9.875% 03/15/07 72 Northwestern Corporation 7.875% 03/15/07 73 Northwestern Corporation 8.750% 03/15/12 71 NTL Communications Corp. 7.000% 12/15/08 19 Reliant Resources 5.000% 08/15/10 74 Revlon Consumer Products 8.125% 02/01/06 64 Salomon SB Holdings 0.250% 02/18/10 74 Silicon Graphics 5.250% 09/01/04 73 Sonat Inc. 7.000% 02/01/18 73 Tenet Healthcare 6.875% 11/15/31 75 US Timberlands 9.625% 11/15/07 57 US West Communications 6.875% 09/15/33 73 US West Communications 7.125% 11/15/43 74 Xerox Corp. 0.570% 04/21/18 65 ********* Monday's edition of the TCR delivers a list of indicative prices for bond issues that reportedly trade well below par. Prices are obtained by TCR editors from a variety of outside sources during the prior week we think are reliable. Those sources may not, however, be complete or accurate. The Monday Bond Pricing table is compiled on the Friday prior to publication. Prices reported are not intended to reflect actual trades. Prices for actual trades are probably different. Our objective is to share information, not make markets in publicly traded securities. Nothing in the TCR constitutes an offer or solicitation to buy or sell any security of any kind. It is likely that some entity affiliated with a TCR editor holds some position in the issuers' public debt and equity securities about which we report. Each Tuesday edition of the TCR contains a list of companies with insolvent balance sheets whose shares trade higher than $3 per share in public markets. At first glance, this list may look like the definitive compilation of stocks that are ideal to sell short. Don't be fooled. Assets, for example, reported at historical cost net of depreciation may understate the true value of a firm's assets. A company may establish reserves on its balance sheet for liabilities that may never materialize. The prices at which equity securities trade in public market are determined by more than a balance sheet solvency test. A list of Meetings, Conferences and Seminars appears in each Wednesday's edition of the TCR. Submissions about insolvency- related conferences are encouraged. Send announcements to conferences@bankrupt.com. Bond pricing, appearing in each Thursday's edition of the TCR, is provided by DebtTraders in New York. DebtTraders is a specialist in global high yield securities, providing clients unparalleled services in the identification, assessment, and sourcing of attractive high yield debt investments. For more information on institutional services, contact Scott Johnson at 1-212-247-5300. To view our research and find out about private client accounts, contact Peter Fitzpatrick at 1-212-247-3800. Real-time pricing available at http://www.debttraders.com/ Each Friday's edition of the TCR includes a review about a book of interest to troubled company professionals. All titles are available at your local bookstore or through Amazon.com. Go to http://www.bankrupt.com/books/to order any title today. For copies of court documents filed in the District of Delaware, please contact Vito at Parcels, Inc., at 302-658-9911. For bankruptcy documents filed in cases pending outside the District of Delaware, contact Ken Troubh at Nationwide Research & Consulting at 207/791-2852. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Trenton, NJ USA, and Beard Group, Inc., Washington, DC USA. Yvonne L. Metzler, Bernadette C. de Roda, Donnabel C. Salcedo, Ronald P. Villavelez and Peter A. Chapman, Editors. Copyright 2003. All rights reserved. ISSN: 1520-9474. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR subscription rate is $675 for 6 months delivered via e- mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. For subscription information, contact Christopher Beard at 240/629-3300. *** End of Transmission ***