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Federal official recommends Jore liquidate

Trustee: Chapter 7 bankruptcy best option

Saying Jore Corp. is on a rapid road to ruin, the U.S. Department of Justice has recommended the
Lake County company be immediately liquidated to repay its creditors.

By JOHN STROMNES of the Missoulian

In court papers filed Monday in the long-running bankruptcy case, a federal trustee said Jore’s
creditors are in peril and the time has come that "hopes and dreams must step aside to reality."

Chapter 7 conversion means closure of the plant, liquidation of assets such as real estate and
patents, and repossession of machinery and equipment financed by lenders. A hearing is scheduled
for April 2 in Missoula on the motion to convert, and other motions in the case.

At least 275 jobs would be lost in Lake County if Jore closes. Close to 600 people are employed
during the busy Christmas season. Local financial institutions, such as Ronan State Bank and
Mountain West Bank, which lent millions to Jore in better days, could also suffer substantially,
according to court papers filed recently with the U.S. Bankruptcy Court. The stock has virtually no
value, and no stockholder or unsecured creditor can expect to be repaid in the bankruptcy action.

The trustee’s analysis of Jore’s financial condition is important, since he represents the public
interest in the Jore Corp. bankruptcy, rather than the narrow financial interest of any one creditor or
class of creditors.

The trustee representative in Great Falls, Neal Jensen, did not return a telephone call Tuesday asking
for general information on the role and responsibilities of the U.S. Trustee’s Office in bankruptcy
actions.

But Jensen, in court papers, suggested that suing Jore’s previous professional advisers, including the
well-known Montana brokerage firm D.A. Davidson Co., which sponsored Jore’s initial public offering
of stock, may be one avenue for a Chapter 7 trustee to take to get money to repay creditors.

”There have been discussions in this case about the viability of claims which might be brought
against (Jore’s) prior accountants, auditors, brokerage agents and other professionals. … A (Chapter
7) trustee would be in the best position to pursue these claims on behalf of (creditors), and may be
able to retain professionals (such as lawyers) on contingency bases,” Jensen said in his court filing.

Jensen’s analysis of Jore’s current financial condition gave little credence to the final proposal by Jore
to salvage the company by borrowing even more money, most of which would come from a proposed
$17.6 million loan from the state Board of Investments. The board has yet to meet to discuss Jore’s
and a participating bank’s application for the loan.

”While neither the court, nor the U.S. trustee, nor seemingly any of the secured creditors in this case
wish to see (Jore’s) business terminated and jobs lost, there comes a time in the life of every Chapter
11 case when losses must be stemmed and reality faced,” Jensen said.

He said creditors have previously refused to release their claims on collateral in return for ”speculative
promises” they will be repaid in the future.

The latest plan, to get new loans from the state Board of Investment and others, is no better in that
respect, he said.

" … This effort will similarly fail and end up leaving the debtor with even more unpaid debt,” Jensen
said.

Jensen listed numerous other reasons why Jore Corp.’s attempt at recovery through Chapter 11
bankruptcy at this late a date isn’t viable. Some are listed here:

Jore’s sales are up, but earnings are not. ”Receivables are insufficient to support ongoing
operations," Jensen said. That means that debtors are not only not getting paid, but that the major
banker of Jore, Wells Fargo, continues to finance Jore’s operations, and is ”now some $3.7 million
down from when this case began,” Jensen said.

Vendors and other lenders who continue to do business with Jore since Jore sought Chapter 11
protection in May of last year are in jeopardy.

According to Jore’s most recent monthly operating report, the company owes more than

$1.1 million in unpaid professional fees, more than $360,000 in license fees and nearly $220,000 to
trade vendors.

Jore has failed to make adequate payments to debtors from current operating revenue; has failed to
propose a plan for restructuring by court-ordered deadlines, and has so far failed to file a motion by
the deadline of March 14 to allow the sale of Jore’s assets at an auction.

”Given the posture of this case, it does not appear possible for a (restructuring plan) to be put forth by
this final drop dead date,” Jensen said in his motion for conversion from Chapter 11 to a normal
Chapter 7 bankruptcy case.

”Chapter 11 cannot be used as a perpetual ‘stay’ device, allowing a business to stay afloat solely by
allowing it (to) use the moneys and collateral of banks and other creditors while not paying them
anything. It is no doubt true that most financially distressed businesses could survive if indefinitely
not required to pay debt service. There comes a time in every Chapter 11 case when hopes and
dreams must step aside to reality. That time is now,” Jensen said.

Jore’s President Gerald McConnell, did not return a telephone call Tuesday seeking comment.

Jore, a manufacturer of power tool accessories and drill bits in Ronan founded by the local Jore
family, was incorporated in Montana in 1990, and became a publicly traded corporation late in 1999.
After an expansion in 2000 , it ran out of money and sought Chapter 11 bankruptcy protection in May
of last year. At that time, it estimated some $90 million in debts and assets of about $60 million.
Assets are now less than $40 million, according to estimates in recent court documents.

Reporter John Stromnes can be reached at 1-800-366-7186 or [email protected].

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