MINUTES

of the First Meeting
of the Unsecured Creditors’ Committee
for the Lorax Corporation Bankruptcy


May 02, 2003 – 16:05 to 17:13 CT

Members in Attendance

Larry Hobbs (joined late) of Boca Raton, Florida

Keith Langenbeck of Dallas, Texas

Art Leerskov of Athens, Texas

Rudy Sauseda (left early) of Grand Saline, Texas

Mike Williams of Palm Desert, California

Bruce Wood of Dallas, Texas

Danny Zavelson (stand-in for David Black) of Cleveland, Ohio

Creditors’ Committee Attorney

Marc Taubenfeld

Meeting

The meeting was originally scheduled for a conference call to begin at 15:00. However, conferencing limitations with Mr. Taubenfeld’s phone system required using a conferencing service provided by the phone company and the meeting was rescheduled for 16:00.

 

The meeting began at 16:05 after Rudy Sauseda joined the group. Each member identified himself. At this time, it was determined that Larry Hobbs had not yet joined but it was decided to begin the meeting because of the lateness of the hour.

 

Mr. Taubenfeld, who presided over the first meeting, began with a reference to the draft of proposed bylaws he had distributed earlier, saying it was a plain vanilla document similar Chapter 11 committees had used in the past. (The draft, in Word format, and a finalized version in HTML format are available.)

 

Mr. Leerskov indicated the bylaws, as proposed, were acceptable to him. Mr. Langenbeck indicated he would like to continue to review the Bylaws and wait for direction from the court before adoption. Mr. Taubenfeld indicated there would not be any direction from the court until May 20 at the earliest and that committee actions would be required in the meantime.

 

Mr. Leerskov said that the US Trustee (Bill Parkinson) recommended the first priority of the Creditors’ Committee would be to adopt rules of governance. Mr. Taubenfeld said that was what was typically done at the first meeting of the Creditors’ Committee and that was his recommendation as well. Mr. Langenbeck indicated he wished to raise two additional items in writing at a later date whereupon Mr. Taubenfeld said any such recommendations should be shared with everyone.

 

A motion to adopt the Bylaws as proposed was made by Mr. Leerskov and seconded by Mr. Wood.

 

A vote on the motion proceeded as follows: Mr. Langenbeck, No; Mr. Zavelson, Yes; Mr. Leerskov, Yes; Mr. Sauseda, No; Mr. Wood, Yes; Mr. Williams, Yes; Mr. Hobbs was not yet present.

 

Mr. Taubenfeld acknowledged a vote of 4 to 2 in the affirmative and declared the Bylaws adopted by the Committee.

 

As the next order of business, Mr. Taubenfeld suggested a vote on the Committee Chair. He pointed out that a person local to the Dallas-Fort Worth area would facilitate the activities of the Committee and reduce the necessity for extensive travel. Mr. Wood asked who on the Committee would have the desire to serve in this capacity. Mr. Langenbeck and Mr. Leerskov each indicated he was willing to serve.

 

Mr. Sauseda said he would prefer to have a meeting where we could look each other “in the eye.” Mr. Zavelson responded that was not possible as he lived in Cleveland, Ohio. Mr. Langenbeck said, “Well, get on an airplane.” Mr. Taubenfeld added that there are Committee members in Florida and California as well and that it was very common to have such Committee meetings by conference call.

 

At this time, Mr. Hobbs joined the conference saying he had been detained by business calls.

 

Mr. Taubenfeld continued, pointing out the Committee should be unified in working to get the Lorax property into the estate, adding there is a fiduciary duty of each Committee member to do what is in the best interest of all unsecured creditors, not just a subset of them. He went on to cover the benefits of serving on a Committee and to point out that we should avoid “class lines” because we all have the common interest of supporting the efforts of the Chapter 11 Trustee.

 

Mr. Wood asked if a co-Chair situation was feasible and Mr. Taubenfeld agreed that would be good. Mr. Leerskov pointed out provisions in the Bylaws for a Vice-Chairman.

 

A motion to appoint co-Chairmen, Mr. Langenbeck and Mr. Leerskov was made by Mr. Wood. Mr. Williams seconded the motion.

 

A vote on the motion proceeded as follows: Mr. Sauseda, No; Mr. Langenbeck, No; Mr. Leerskov, No.

 

Mr. Wood and Mr. Hobbs then remarked that if neither of the proposed co-Chairmen believed it would work, it didn’t make sense. Mr. Zavelson then voted No ending the motion.

 

A motion to appoint Mr. Leerskov as Chairman was made by Mr. Wood. Mr. Williams seconded the motion.

 

A vote on the motion proceeded as follows: Mr. Sauseda, No; Mr. Langenbeck, No; Mr. Leerskov, Yes; Mr. Williams, Yes; Mr. Hobbs, Yes; Mr. Wood, Yes; Mr. Zavelson, Yes. At this point, Mr. Sauseda abruptly left the group.

 

Mr. Taubenfeld acknowledged a vote of 5 to 2 in the affirmative and declared Mr. Leerskov was appointed Committee Chairman.

 

Mr. Taubenfeld continued, giving a short outline of his background. He also stated his billing rate was $260 with his firm’s (McGuire, Craddock & Strother, P.C.) other staff ranging from $150 to $300. Mr. Leerskov inquired as to whether any Committee action was required regarding the Employment Application presently before the court. Mr. Taubenfeld said no further Committee action was required and added that he had filed an Amended Order after receiving comments from the US Trustee regarding a $2500 unsecured claim against the debtor. He had agreed to waive the claim with the stipulation it could be reasserted if the case were converted to Chapter 7. Mr. Leerskov requested a copy of the Amended Order to share with the Committee.

 

Finally, Mr. Taubenfeld reviewed the status of the case including the following points:

 

·        There is a motion filed by HCPC (Henderson County Property Corporation) to convert the case to Chapter 7.

 

·        HCPC acquired the rights held by the State of Texas under an Environmental Agreement as beneficiary of the Greenwall Liquidating Trust, the Lorax landlord.

 

·        In August 2002, Art Anderson (of Winstead Sechrest & Minick P.C. for HCPC) sent a letter stating that Lorax had not complied with the underlying terms of the Environmental Agreement and was therefore being terminated. As a result, the Lease based on that agreement evaporated as if it never existed.

 

·        The Environmental Agreement had several conditions HCPC ignored and the State of Texas sent a letter specifically stating that all conditions had either been waived or satisfied except for a monetary payment of $148,028 to reimburse the State for its costs. There was also a provision whereby the debtor could acquire the property for an additional $200,000.

 

·        The Lease itself makes no statement that it ceases to exist if the Environmental Agreement ends. The specific cure for default and termination of the Lease requires a 30-day notice by the Greenwall Liquidating Trust (GLT). But there was never any notice given by the GLT Trustee of default or cure.

 

·        HCPC had the original Trustee of GLT replaced with Phillip Shepherd who then filed a Declaratory Action in Travis County (Austin, Texas) to determine the rights of the parties and who owned the property.

 

·        Enterprise National Bank held a deed of trust in the debtor’s lease interest and an assignment of rents that would activate in a default. The bank declared default before bankruptcy was filed. The bank originally considered aligning with the debtor in opposition to HCPC, then negotiating to buy out the bank at a discount. However, the bank ultimately sold out to HCPC for full value. HCPC, then, has a secured creditor’s interest in whatever interest the debtor has in the property. Foreclosure was stayed by the filing of involuntary bankruptcy. There has been no motion to lift that stay of foreclosure as that would acknowledge the debtor has rights and they would not wish to do that.

 

·        HCPC paid to bring taxes current to 2001.

 

·        The Declaratory Action is pending in Travis county.

 

·        There is an HCPC motion to convert bankruptcy case from Chapter 11 to Chapter 7 set for preliminary hearing on May 20, 2003 and the deadline to answer is Monday, May 05, 2003.

 

·        The Chapter 11 Lorax Trustee (Shawn Brown) has indicated they would answer and asked the Committee to answer as well.

 

·        The contention of HCPC is that the Trustee failed to file monthly operating reports and there are no funds in the estate. The Trustee has indicated he will file such reports and the argument that there are no funds is specious in that it is HCPC blocking rents due the debtor.

 

·        The Chapter 11 Lorax Trustee filed a declaratory judgment complaint in the Fort Worth Bankruptcy Court against the GLT.

 

·        The Trust moved for the Court to abstain and allow the case to go forward in Travis County and to dismiss the complaint. That motion is also scheduled for hearing on May 20, 2003.

 

·        The Declaratory Action filed in Austin was removed from State to Bankruptcy Court by the Trustee. On May 7, 2003 they will hear a motion to transfer the action to the Fort Worth Bankruptcy Court because it has a affects the property of the bankruptcy estate. The GLT has filed an opposition to this move.

 

·        Mr. Taubenfeld said he provided (on 05-01-03) communications with the attorneys of Winstead, et al. that indicated they (Winstead & HCPC) knew in the fall of 2002 there were no further obligations under the Environmental Agreement except the monetary ones with no time-specific requirements. And they also knew they had performed no triggers required under the controlling documents.

 

·        The Trustee’s law firm partner, Mr. Peter Franklin, and Mr. Taubenfeld both believe the issues regarding rights under the Lease and the Environmental Agreement are of law, not of fact. A motion for summary judgment could, therefore, be filed Bankruptcy Court to avoid much testimony.

 

·        An Adversary Action was filed in March 2003 and is on the docket for trial in September, 2003 if a motion summary judgment is not filed beforehand.

 

·        The GLT has filed a motion to dismiss the Adversary Action.

 

The Committee meeting ended at 17:13 CT.