Republic Technologies International­-Will the Assets Survive?

On May 8, 2002, the company announced that Pegasus Partners II LP has dropped its planned investment in the business and that certain assets are no longer a part of the acquisition as a result.

Unfortunately, the original intent of this merger that occurred in 1999 never materialized and the company is currently fighting for its corporate life. Most of the assets under the corporate umbrella have been held by various companies, many of which have never made money. Several of them have been through the bankruptcy process before, with the assets being sold off or transferred to satisfy debt obligations.

The company is currently working toward a May 31 target date to secure court approval of the sale and close of the transaction. The recently ratified Modified Labor Agreement contains several provisions, including a plan of reorganization that has to be consummated by May 31, 2002. The company has also filed a motion with the Bankruptcy Court to extend the deadline for filing its reorganization plan to June 28, 2002 ­ the company is awaiting the final ruling from the courts.

The company entered into a 2nd forbearance agreement with its lenders because of loan covenant violations through May 31, 2002. As of March 22, 2002, the company had approximately $12.8 million of availability under the terms of its DIP revolver. As of December 31, 2001, the company reported net sales of $993.71 million for the 12-month period (21.5% decrease over the prior year), net loss of $182.56 million, deficit working capital of $116.97 million, total liabilities subject to compromise of $1.24 billion, and a deficit tangible net worth of $741.97 million.

We believe the markets for the company's products are improving ­ both demand and pricing. If or once the company emerges from bankruptcy, the balance sheet should look much different than it does today. The bankruptcy process is allowing the company to shed approximately $1.24 billion of debt from its balance sheet. We feel it is prudent to wait on the sidelines to see if the acquisition is consummated or the company is able to emerge successfully. There remains a great deal of risk until the final plan is a done deal ­ whenever that may be.