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/raid1/www/Hosts/bankrupt/TCR_Public/980409.MBXT R O U B L E D C O M P A N Y R E P O R T E R Thursday, April 9, 1998, Vol. 2, No. 69 Headlines 2CONNECT EXPRESS: Motion to Convert Case to Chapter 7 AL TECH: Debtor Applies to Hire Professionals APS: Court Extends Time to Assume or Reject Leases APS: Meeting Of Creditors Held March 20, 1998 AUSTRALIS MEDIA: Subsidiary Files for Reorganization BRAUN'S FASHIONS: Same-Store Sales Increase 10% in 1998 DOW CORNING: Reply of Tort Committee to Modify Exclusivity ERNST HOME: Motion to Extend Time on FADCO Leases GREATE BAY: Meeting of Creditors and Bar Date GULF RESOURCES: Order Approves Trustee's Professionals INTERNATIONAL HERITAGE: Judge Backs SEC LA GEAR: Supplement to Employment of Financial Advisors PARAGON TRADE: Applies to Employ Special Counsel PARAGON TRADE: Creditors To Employ Price Waterhouse PEGASUS GOLD: To Sell Subsidiary "Pullalli Project" POWER DESIGNS: Order Authorizes Employ of Vantage Partners RELIANCE ACCEPTANCE: Motion for Appointment of an Examiner SEARCH FINANCIAL: Equity Objects to Use of Cash Collateral SEARCH FINANCIAL: Order Approves Counsel on Interim Basis SUN CITY: Court Approves Consolidation TOSHOKU AMERICA: Committee Seeks to Employ Counsel TOSHOKU AMERICA: Debtor Seeks to Employ Accountants VENTURE STORES: Proposed Order for DG Hart for Committee ********* 2CONNECT EXPRESS: Motion to Convert Case to Chapter 7 ----------------------------------------------------- The Official Creditors' Committee in the case of 2Connect Express, Inc. has filed a motion seeking to convert this Chapter 11 case to a Chapter 7 case. The Committee states that the debtor allegedly now operates anywhere from 3 to 5 locations, that the debtor is losing money on a monthly basis, that the payroll is running over $100,000 per month and there appears to be no likelihood of any possible way that a successful plan of reorganization can be presented to the creditors and approved. APS: Court Extends Time to Assume or Reject Leases -------------------------------------------------- Judge Peter Walsh Granted the Debtors' Motion in all respects, extending the deadline for the Debtors to assume or reject leases of nonresidential real estate through December 31, 1998. Judge Walsh commented that it was unusual in a case where some 500 Leases were under consideration to receive so few objections. (APS Bankruptcy News Issue #6 6-Apr-1998) APS: Meeting Of Creditors Held March 20, 1998 --------------------------------------------- Betinna Whyte, appearing on the Debtors' behalf to give testimony under oath, testified that, since the Petition Date, she has served as the Debtor's President and Chief Executive Officer. Ms. Whyte is a principal with the turnaround consulting firm of Jay Alix & Associates. Ms. Whyte explained that, in her opinion, the events leading to the Debtors' chapter 11 filings were the result of the company's attempts to grow too quickly through acquisitions without proper controls and MIS system integration. When the company tried to renegotiate its working capital facility with the pre-petition lenders, those negotiations fell apart, Ms. Whyte explained. Since August 1997, Ms. Whyte reminded creditors the Company has: 1. Reduced inventory by $40,000,000; 2. Closed 54 ISW's; 3. Closed 12 company stores; and 4. Reduced SG&A by $7,000,000 Unfortunately, these steps were not enough, leading to these chapter 11 filings. Ms. Whyte reported that all vendors are shipping to the Debtors, and about 50% are extending ordinary trade credit at this time. When asked about the sufficiency of a $7,000,000 limit under the DIP Facility Ms. Whyte indicated that the Debtors' MIS budget exceeds $7,000,000 (excluding Year 2000 Compliance expenses) and this limitation under the DIP Facility will be renegotiated when a Replacement DIP Facility or an Exit Facility is negotiated toward the end of the year. Ms. Whyte was asked for her reaction to market perceptions that the DIP Facility is "not intact." Ms. Whyte said she had no idea what that term meant. The Debtors are in compliance with the terms of the DIP Facility, and $5,000,000 has been drawn to date. (APS Bankruptcy News Issue #6 6-Apr-1998) AL TECH: Debtor Applies to Hire Professionals --------------------------------------------- Al Tech Specialty Steel Corporation, debtor, seeks to employ McDonald & Company Securities, Inc. as the debtor's investment banker. The debtor anticipates that McDonald will render a number of services during the term of its engagement, including investment banking services related to a possible sale of the debtor. McDonald will, among other things, advise and assist the debtor in all aspects of a possible Sale Transaction, search for potential purchasers, evaluate structures of a Sale Transaction, assist in evaluating any offer, and provide court testimony if necessary. The debtor has also applied for an order approving the employment and retention of Harris Beach & Wilcox as special counsel, in connection with the debtor's involvement in five litigation and arbitration matters, in which the firm has ongoing involvement. AUSTRALIS MEDIA: Subsidiary Files for Reorganization ---------------------------------------------------- Australis Media Limited announced that its immediate wholly owned subsidiary, Australis Holdings Pty Limited has filed for reorganization relief under Chapter 11. AML and its subsidiaries (the "Australis Group") comprise the leading provider of digital pay television channels across Australia. These channels include 'Showtime' and 'Encore' 'TV1' (a general entertainment channel comprising product from Universal, Paramount and Sony) and 'FoxSports' (a sports channel comprising product from or otherwise sourced by Prime Sports and Liberty Sports). The company is attempting to extinguish in excess of $375 million of the approximately $445 million accreted value of Holdings' outstanding bond and guarantee obligations, as well as AML's and all related subsidiaries' obligations in respect thereof and to provide an avenue for the infusion of permanent new capital into a reconstructed Australis Group. After at least three months of almost daily negotiations with representatives of the U.S. bondholders and the new capital investors, the Directors of AML believe that a successful reorganization of the Australis Group is realistically achievable prior to June 15, 1998. The new capital investors and a majority of the U.S. bond holders have already reached agreement to support a reorganization plan that will include the elimination of more than $375 million of existing debt and guarantee obligations of the Australis Group. BRAUN'S FASHIONS: Same-Store Sales Increase 10% in 1998 -------------------------------------------------------- Braun's Fashions Corporation boasted a record performance in fiscal 1998, with pro forma operating income up 28% on 10% growth in same-store sales for the year," said Bill Prange, President and Chief Executive Officer. "In fiscal 1998, we initiated our new store expansion program with sixteen new openings. We also closed seven stores as their leases expired, resulting in 179 stores at year-end. We have maintained our strong inventory control disciplines and our inventories are current and on plan as we begin the new year." For the fiscal year ended February 28, 1998, Braun's net sales increased to $99.5 million from $87.2 million last year. Net income climbed 46% to $4.9 million from $3.4 million, while earnings per share rose 26% to $1.02 from $0.81 in fiscal 1997. Earnings per share comparisons were affected by a 15% increase in weighted average shares outstanding due to the issuance of 618,000 shares of common stock in the company's debt for equity exchange during the reorganization in fiscal 1997. On an as reported basis, net sales in the fourth quarter increased 11% to $27.3 million, paced by a 5% rise in same- store sales. The positive effect of the fourth quarter sales growth was partially offset by a slight decrease in gross margin, which resulted from higher mark-downs taken to keep inventories current. DOW CORNING: Reply of Tort Committee to Modify Exclusivity ---------------------------------------------------------- The Tort Claimants' Committee states, once again, that the fact that the debtor has filed three successive plans that it did not negotiate, or even share in a draft with the Tort Committee, warrants a modification of exclusivity. The Tort Committee states that a comparison of the competing plan proposals now before the court make the case for modifying exclusivity all the stronger. The Committee states that the debtor's second amended plan is onerous and one-sided in innumerable respects. The Committee states that a modification of exclusivity is the obvious and long overdue remedy. The Committee reiterates that the debtor has made little progress towards a confirmable plan, and that the current plan is unconfirmable on its face. The Tort Committee states that the Tort Claimants will reject the plan. The Tort Committee states that its plan is fair, and it refutes the debtor's contention that the Tort Committee's plan is not feasible. ERNST HOME: Motion to Extend Time on FADCO Leases ------------------------------------------------- Ernst Home Center, Inc. and FADCO LLC have filed a joint motion to extend the time within which the debtor must assume or reject FADCO Agreement Leases. The court approved an agreement between Ernst and FADCO on March 10, 1997. Pursuant to the agreement, Ernst sold three real property fee interests and many of Ernst's rights to benefit from the "bonus value" in approximately 59 nonresidential real property leases. The agreement called for a total purchase price of $16 million subject to adjustments. The court granted Ernst an extension through and including April 27, 1998 of its time to assume or reject the FADCO leases. Ernst believes it is in the best interests of Ernst's estate and its creditors for the court to grant an extension. So long as FADCO has the right to market the FADCO leases, Ernst's estate stands to gain economically. There are 14 remaining leases that have not yet been assumed or rejected. Ernst requests that the court extend the deadline to assume or reject the other remaining leases through and including June 29, 1998 and extend Ernst's deadline to assume or reject pending assignment leases through and including the later of June 29, 1998 and 30 days after the court rules on the pending request for assumption and assignment. Ernst argues that the complexity of the cases warrants the extension, and the fact that the leases are among the primary assets of the estate makes it more imperative to grant the extension. GREATE BAY: Meeting of Creditors and Bar Date --------------------------------------------- In the case of Greate Bay Hotel and Casino, Inc., GB Property Funding Corp, and GB Holdings, Inc., debtors, a meeting of creditors is set for April 22, 1998. A last date for creditors to file a proof of claim is July 21, 1998, and October 19, 1998 is the last date for the filing of a claim by a governmental unit. GULF RESOURCES: Order Approves Trustee's Professionals ---------------------------------------------- The court in the case of Gulf Resources Corporation and its affiliated companies, as debtors, approved the Trustee's application to employ Smith Production, Inc. filed by Charles E. Bearden, Chapter 11 Trustee. The court also approved the Trustee's request to employ John C. Nichols as Petroleum Geologist, Turner & Allen as Special Counsel and Jason R. Searcy PC as counsel for the Trustee. INTERNATIONAL HERITAGE: Judge Backs SEC --------------------------------------- An Atlanta federal judge backs charges by the Securities and Exchange Commission that interests sold by International Heritage Inc. were indeed securities as defined by federal laws, the SEC said Tuesday. The preliminary injunction, issued by U.S. District Judge Richard Story in Atlanta, Ga., also found the primary business of recruiting instead of selling products and that the program was fraudulent, the SEC said in a statement. Storey appointed a receiver, Lloyd Whittaker, as a monitor of the North Carolina firm, the SEC said. Under the ruling issued on Friday, International Heritage's management will be permitted to take control of the company upon posting a $5 million bond, the agency said. However, before enlisting additional representatives, the company is required to develop a compensation program which does not violate the court's order and which is approved by Whittaker, the SEC said. The commission charged in a civil complaint filed last month that the company was allegedly running what it believed to be the biggest pyramid scheme in terms of dollars on record. The scheme allegedly raised $150 million from over 150,000 investors since it started in April 1995, the SEC charged. Also, between July 17, 1997 and Nov. 1, 1997, the company was accused of selling $5 million in notes convertible into shares of International Heritage common stock. On March 17, Story had issued a temporary restraining order against International Heritage Inc., its parent International Heritage Inc. and three of its executives. LA GEAR: Supplement to Employment of Financial Advisors ------------------------------------------------------- Due to the fact that the hearing on its Disclosure Statement was continued, LA Gear, Inc. submits a supplement to its application to employ Libra Investments, Inc., as its financial advisor. The success fee provided in the Engagement Letter will apply to the current restructuring plan, and a success fee shall also be due if a subsequent restructuring is substantially different form the current one. The success fee will only be paid from the value or distributions that would otherwise go to current equity holders. The advisory fee of $25,000 per month shall be capped at an aggregate of $150,000. PARAGON TRADE: Applies to Employ Special Counsel ------------------------------------------------ Paragon Trade Brands, Inc. applies to employ Finnegan, Henderson, Farabow, Garrett & Dunner, LLP as its special counsel to evaluate patent matters, product designs, and provide product clearance opinions. The legal service of the Finnegan firm are very similar to the services supplied by Rockey, Milnamow & Katz, Ltd., a firm already approved by the court. The reason for this is that the Finnegan firm's duties are to provide a second opinion on the work being done by the Rockey firm to ensure that the product being developed by Paragon does not infringe on any existing patents. This "backstopping" is important, as it is critical to the debtor's business. PARAGON TRADE: Creditors To Employ Price Waterhouse --------------------------------------------------- The court has entered an order authorizing the Creditors' Committee of Paragon Trade Brands, Inc. to employ Price Waterhouse, LLP as financial advisor on a conditional, interim basis, from the date the application was filed until May 31, 1998. The court states that professionals cannot recover fees for services rendered if the service has not been authorized by a court order. The court states that retroactive orders are limited to extraordinary circumstances to deter professionals from general non- observance of Section 327 of the bankruptcy code. The court also points out that Price Waterhouse's disclaimer of conflicts did not amount to a "Chinese Wall" insulating personnel assigned to the case. PEGASUS GOLD: To Sell Subsidiary "Pullalli Project" -------------------------------------------------- Pegasus Gold Corporation and Zortman Mining, Inc. move for an order authorizing the debtors to sell by means of an auction their wholly owned nondebtor subsidiary, Pegasus Minera de Chile, Ltda. which owns a certain gold development and production project located near Santiago, Chile, called the "Pullalli Project." To date, the debtors' have invested approximately $23 million in developing the project, including investments in equipment in anticipation of production. The Pullalli Project requires considerable ongoing capital investment. The asset has been written down to approximately $6 million on the debtors' consolidated balance sheet. It is the debtors' best business judgment that the interests of their estates and creditors would best be served by auctioning their interests in the project. May 21, 1998 is the date set for the auction. POWER DESIGNS: Order Authorizes Employ of Vantage Partners ---------------------------------------------------------- Upon the application of Power Designs, Inc. and PDIXF Acquisition Corp., debtors, the court entered an order authorizing the retention of Vantage Partners, LLC to provide management and financial services to the debtor. Vantage Partners shall be compensated $4,000 per week subject to certain conditions. RELIANCE ACCEPTANCE: Motion for Appointment of an Examiner ---------------------------------------------------------- The Taylor Group, past officers and directors of the debtors, Reliance Acceptance Group, Inc. et al., are the potential targets of causes of action to be launched by the debtors under the plan and some or all of the Taylor Group are also co-defendants with the ongoing officers and directors of various lawsuits. The Taylor Group is seeking the appointment of an Examiner in this case. The Taylor Group seeks the Examiner to investigate the merits of the proposed litigation and its funding under the plan, and to examine the proposed disparity of treatment in the plan between current and former management, and the propriety of effectively granting releases to officers and directors; and the propriety of the recent conduct of the ongoing officers and directors. SEARCH FINANCIAL: Equity Objects to Use of Cash Collateral ---------------------------------------------------------- The Official Equity Committee in the case of Search Financial Services Acceptance Corporation et al., debtors objects to the debtors' motion for a final order authorizing the use of cash collateral and approving a stipulation with Fleet Bank, NA The debtors filed their motion on March 20, 1998, seeking the court's approval of the terms of a stipulation between the debtors and Fleet Bank, NA. The stipulation provides for a carve out of $250,000 for professionals and $10,000 for payment of statutory fees due to the US Trustee. The Committee objects due to a failure of the stipulation to provide for fees necessary for the maintenance of the Committee. The Committee also objects to the use of Fleet collateral to benefit affiliates of the debtors that are not themselves in bankruptcy. The stipulation also improperly allows Fleet to apply payments made post petition by the debtors to interest, penalties, fees and other non-principal items. Fleet should not be allowed to apply payments to anything but principal, according to the Equity Committee unless and until it can show itself to be oversecured. Fleet retains the "right" to finance any third party sale of the MS (an affiliated debtor) collateral. This "right" provides no discernible benefit to the debtors and could have a chilling effect on third-party buyers attempting to acquire the MS's assets. SEARCH FINANCIAL: Order Approves Counsel on Interim Basis --------------------------------------------------------- Upon the application of the debtors, Search Financial Services Inc. and Search Funding Corp., the court authorized and approved the employment of Hale Aston, Seckel & Taubenfeld, PC as its bankruptcy counsel. However, further time is afforded parties to examine the potential conflicts of the Hale firm and the court extended the right to object to the employment, with notice of the objection and the provision for a hearing. SUN CITY: Court Approves Consolidation -------------------------------------- In the case of Sun City Industries, Inc., the court has approved the consolidation of all of the related Chapter 11 cases into the case of Sun City Industries, Inc. The following cases, Sun City Industries, Inc.; Sun City Administrative Co., Inc.; Certified Poultry & Egg Co., Inc.; Certified Food Service of Pa., Inc.; Gulf Coast Foodservice, Inc.; Certified Food Service of Ga., Inc.; Certified Food Service of Orlando, Inc.; Sun City Produce, Inc.; and Sheppard Foodservice, Inc. are substantively consolidated for all purposes. TOSHOKU AMERICA: Committee Seeks to Employ Counsel -------------------------------------------------- The Official Committee of Unsecured Creditors of the debtor, Toshoku America, Inc. and the debtor, jointly seek to employ Hideyuki Sakai, as special counsel to assist, advise and represent the applicants in the case of the debtor's parent in Japan, and to assist in monitoring the case in Japan and to prosecute claims against the debtor's parent. The hourly rate charged by Sakai is $336 per hour. TOSHOKU AMERICA: Debtor Seeks to Employ Accountants --------------------------------------------------- The debtor, Toshoku America, In., applies to employ Coopers & Lybrand as independent auditors, certified public accountants and tax and reorganization consultants for the debtor. The debtor believes that Coopers' familiarity with debtor's industry will be invaluable to its work in this case, and the debtor believes that it is crucial to its reorganization efforts to hire Coopers. In addition, Coopers has ongoing relationships with certain of the debtor's creditors. The debtor is also seeking to retain PENTA Advisory Services, LLC as the debtor's special accountants. PENTA will undertake the necessary litigation support and avoidance analyses services for the debtor based on factual material prepared by Coopers. PENTA will be used if circumstances arise in which Coopers cannot assist the debtor due to a potential conflict. VENTURE STORES: Proposed Order for DG Hart for Committee -------------------------------------------------------- The Official Committee of Unsecured Creditors in the case of Venture Stores, Inc. has submitted a proposed order authorizing the employment and retention of DG Hart Associates, Inc., as real estate consultants to the Committee. ********* The Meetings, Conferences and Seminars column appears in the TCR each Tuesday. Submissions via e-mail to conferences@bankrupt.com are encouraged. Bond pricing, appearing each Friday, is supplied by DLS Capital Partners, Dallas, Texas. 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., Princeton, NJ, and Beard Group, Inc., Washington, DC. Debra Brennan and Lexy Mueller, Editors. Copyright 1998. All rights reserved. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR subscription rate is $575 for six 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 301/951-6400. * * * End of Transmission * * *