IN THE UNITED STATES BANKRUPTCY COURT FOR THE …strettodocs.s3.amazonaws.com/files/dfe4f1f1-674d-4614... · 2019-08-30 · ”) and administrative claimholders, and (iii) financial

IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

In re:

THE NEWS-GAZETTE, INC., et al.,1

Debtors.

Chapter 11

Case No. 19-11901 (KBO)

(Joint Administration Pending)

MOTION OF THE DEBTORS FOR INTERIM AND FINAL ORDERS PURSUANT TO SECTIONS 105(a), 363(b), 503(b)(9), 1107(a) AND 1108 OF THE BANKRUPTCY CODE

AUTHORIZING (I) THE DEBTORS TO HONOR CERTAIN PREPETITION OBLIGATIONS FOR THE BENEFIT OF CUSTOMERS, SUBSCRIBERS AND

ADVERTISERS; (II) THE DEBTORS TO PAY THE PREPETITION CLAIMS OF CERTAIN CRITICAL VENDORS AND ADMINISTRATIVE CLAIMHOLDERS;

AND (III) FINANCIAL INSTITUTIONS TO HONOR AND PROCESS PREPETITION CHECKS AND TRANSFERS TO CERTAIN CRITICAL VENDORS

The above-captioned debtors and debtors-in-possession (each a “Debtor” and,

collectively, the “Debtors”), by and through their proposed undersigned counsel, submit this

motion (the “Motion”) for entry of an interim order (the “Interim Order”) and a final order (the

“Final Order”) attached hereto, pursuant to sections 105(a), 363(b) 503(b)(9), 1107(a) and 1108

of title 11 of the United States Code (the “Bankruptcy Code”); Rules 6003 and 6004 of the

Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”); and Rule 9013-1 of the Local

Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the District

of Delaware (the “Local Rules”), authorizing (i) the Debtors to honor, in their sole discretion,

certain prepetition obligations for the benefit of their customers, advertisers, and subscribers in the

ordinary course of their businesses, (ii) the Debtors to pay the prepetition claims of certain critical

vendors (the “Critical Vendor Claims”) and administrative claimholders, and (iii) financial

institutions to honor and process prepetition checks and transfers to certain critical vendors. In

1 The Debtors in these Chapter 11 Cases, along with the last four digits of each Debtor’s federal tax identification

number, are as follows: The News-Gazette, Inc. (0894) and D.W.S., Inc. (7985). The Debtors’ headquarters are located at 15 East Main Street, Champaign, Illinois 61820.

Case 19-11901-KBO Doc 12 Filed 08/30/19 Page 1 of 16

-2-

support of the Motion, the Debtors rely upon and incorporate herein by reference as if set forth in

full the Declaration of Traci E. Nally in Support of Chapter 11 Petitions and Related Motions (the

“First Day Declaration”), filed with the Court concurrently with this Motion. In further support

of the Motion, the Debtors respectfully represent as follows:

JURISDICTION

1. The United States Bankruptcy Court for the District of Delaware (the “Court”) has

jurisdiction over these Cases and the Motion pursuant to 28 U.S.C. §§ 157 and 1334. This is a

core proceeding within the meaning of 28 U.S.C. § 157(b)(2).

2. Venue of these Cases and the Motion in this district is proper under 28 U.S.C. §§

1408 and 1409.

3. The Debtors consent, pursuant to Rule 9013-1(f) of the Local Rules of Bankruptcy

Practice and Procedure of the United States Bankruptcy Court for the District of Delaware (the

“Local Rules”), to the entry of a final judgment or order by the Court in connection with this

Motion to the extent it is later determined that the Court, absent consent of the parties, cannot enter

final orders or judgments consistent with Article III of the United States Constitution.

4. The statutory bases for the relief requested herein are sections 105(a), 363(b)

503(b)(9), 1107(a) and 1108 of the Bankruptcy Code.

BACKGROUND

A. CHAPTER 11 FILINGS AND PROPOSED ASSET SALE.

5. On the date hereof (the “Petition Date”), the Debtors each filed a voluntary petition

for relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the

District of Delaware (the “Court”), thereby commencing these cases (the “Chapter 11 Cases”).


-3-

6. Concurrently with the filing of this Motion, the Debtors have requested procedural

consolidation and joint administration of these Chapter 11 Cases pursuant to Bankruptcy Rule

1015(b).

7. The Debtors continue to be in possession of their properties, operate their

businesses, and manage their properties as debtors-in-possession pursuant to sections 1107(a) and

1108 of the Bankruptcy Code.

8. No trustee, examiner, or official committee of unsecured creditors has been

appointed in these Chapter 11 Cases.

9. Additional factual background regarding the Debtors, including their business

operations, their capital structure, and the events leading to the filing of these Chapter 11 Cases, is

set forth in the First Day Declaration, which is fully incorporated here by reference.

10. Despite undertaking a number of initiatives intended to stabilize the business and

position it for the future as a stand-alone community media company, it has become apparent to

the Debtors that they are no longer a sustainable stand-alone business. Accordingly, the Debtors

have made the decision to sell substantially all of their assets pursuant to section 363 of the

Bankruptcy Code. The Debtors believe that such a sale will maximize the value for all

stakeholders, preserve hundreds of jobs and enable the Debtors to continue serving the Champaign

County community.

B. The Debtors’ Need for the Customer Programs

11. Prior to the Petition Date, and in the ordinary course of business, the Debtors

engaged in certain practices the (“Customer Programs”), to develop and maintain their hard-

earned reputation with subscribers, advertisers and the broader marketplace.


-4-

12. If the Debtors are not authorized to seamlessly continue to honor these prepetition

programs after the Petition Date and pay amounts accrued prepetition after the Petition Date, the

Debtors risk harming their relationships with subscribers. In other words, the maintenance of the

Customer Programs is essential to the continued viability of the Debtors’ businesses and,

ultimately, to the prospects of a value-maximizing sale.

13. Pursuant to the Customer Programs, which are common in the Debtors’ industry

and also expected and relied upon by the Debtors and their customers, the Debtors (1) offer minor

billing adjustments and refunds to advertisers and subscribers, (2) fulfill prepaid subscriptions and

prepaid advertisements, (3) provide customer service to subscribers, and (4) accept payments from

advertisers and subscribers via credit card. Each of the Customer Programs is used to generate

goodwill and ensure customer satisfaction, thereby retaining customers and ultimately enhancing

revenue.

14. As set forth below, the Debtors currently owe money in regard to some of the

Customer Programs. The Debtors’ Customer Programs include, inter alia, the following:

i. Billing Adjustments and Refunds

15. Despite the Debtors’ best efforts, from time to time, subscribers, advertisers and

other customers are invoiced incorrectly or invoiced correctly for services that they do not receive.

In these circumstances, the Debtors owe their customers refunds (the “Refunds”). The vast

majority of these Refunds are for home delivery subscription accounts in an average of

approximately $55.00. The Debtors process these Refunds in the ordinary course of business.

16. Because there is necessarily some interval of time from the discovery of the basis

for a Refund and the processing of that Refund, it is difficult to predict with certainty the amount

outstanding on account of such Refunds. As of the Petition Date, however, the Debtors estimate


-5-

that they owe refunds to approximately seventy-five (75) customers in the total amount of

approximately $4,200.00.2

ii. Prepaid Newspaper Delivery and Advertising

17. A significant portion of the Debtors’ revenue comes from subscriptions and

advertising. The Debtors receive payments from many of their customers in advance of providing

newspaper delivery or advertising (the “Prepaid Subscriptions” and “Prepaid

Advertisements”). The Debtors do not typically incur cash liability on account of the Prepaid

Subscriptions and Prepaid Advertisements; instead, the Debtors incur an obligation to print, insert

and deliver the Prepaid Subscriptions and Prepaid Advertisements.

18. Continuing the Debtors’ practices with respect to the Prepaid Subscriptions and

Prepaid Advertisements is essential to the Debtors’ ongoing business operations. Any interruption

in newspaper delivery or advertisement placement would threaten the Debtors’ operations. It is,

therefore, crucial that the Debtors obtain authorization to continue performing such obligations in

the ordinary course.

iii. Customer Service Program

19. To serve their customers, the Debtors have engaged certain third-party call centers

to handle customer service calls and address inquiries related the Debtors’ media products

(the “Call Centers”). The Call Centers function as essential intermediaries between the Debtors

and their customers. Accordingly, the Debtors believe that failure of the Call Centers to perform

their services could severely undermine customer loyalty, and ultimately, revenue. The Debtors

estimate that they owe the Call Centers approximately $2,500.00 as of the Petition Date.

2 Such customers may have setoff or recoupment rights that would permit them, with Court approval to the extent

necessary, to offset the Debtors’ obligations to them against prepetition amounts they owe the Debtors.


-6-

iv. Credit Card and Other Payment Processors

20. In addition to cash and checks, the Debtors accept Visa, MasterCard, Discover and

American Express credit cards (collectively, “Cards”) at both their offices and online points of

sale. To process the Cards, the Debtors are party to certain agreements (collectively, the “Payment

Processing Agreements”) with merchant banks, payment processors, and payment gateway

providers (collectively, the “Payment Processing Companies”). Pursuant to the Payment

Processing Agreements, the Debtors generally receive the gross customer sales less any billing

adjustments or Refunds (as defined above). The processing fees charged by each company vary,

but are in the range of 2.5% to 3.5% (the “Processing Fees”) of the transaction value. The fees

owing to the Payment Processing Companies are automatically debited from the Debtors’ general

operating account on a monthly basis and average approximately $8,767.00 per month.

21. The Debtors’ continued acceptance of Card payments is essential to the operation

of the Debtors’ business because they represent a significant percentage of all payment

transactions. Requiring all purchases to be made in cash would have a severe negative effect on

the Debtors’ ongoing operations, the cost of which would be borne by their estates. To avoid

disrupting these vital payment processing services, the Debtors seek authority to continue paying

the Processing Fees in the ordinary course of their business pursuant to the terms of the Payment

Processing Agreements, whether arising before or after the Petition Date, in a manner consistent

with past practices.

C. THE DEBTORS’ SELECTION OF CRITICAL VENDORS.

22. In addition to the Customer Programs, the Debtors believe that the payment of the

Critical Vendor Claims is vital to the Debtors’ reorganization efforts because, in various instances,

the Critical Vendors are the only source from which the Debtors can obtain certain goods and


-7-

services within a time frame and at a price that will permit the Debtors to continue operating their

businesses. A failure to pay the Critical Vendor Claims would likely result in many of the Critical

Vendors refusing to provide goods and services to the Debtors postpetition and may force the

Debtors to obtain such goods and services elsewhere at a higher price or in a quantity or quality

that is insufficient to satisfy the Debtors’ requirements.

23. In this context, the Debtors have examined the extent to which payment of Critical

Vendor Claims is necessary to avoid irreparable harm and to ensure the Debtors have access to

adequate amounts of trade credit on a postpetition basis. Specifically, the Debtors have reviewed

their accounts payable and have undertaken a process to identify those vendors who are truly

essential to the Debtors’ operations. The Debtors have further developed certain procedures that,

when implemented, will ensure that vendors receiving payment of Critical Vendor Claims will

continue to supply trade credit necessary to the Debtors’ operations on a postpetition basis and in

accordance with the terms of the parties’ prepetition dealings (“Customary Trade Terms”), or

on terms otherwise acceptable to the Debtors.

24. The Debtors consulted with appropriate members of their management team to

identify those vendors that are essential to the Debtors’ operations using the following criteria: (a)

whether the vendor in question is a “sole source” provider; (b) whether certain customizations

prevent the Debtors from obtaining goods or services from alternative sources within a reasonable

timeframe; (c) if a vendor is not a sole source provider, whether the Debtors have sufficient goods

in inventory to continue operations while a replacement vendor is procured; (d) whether the

Debtors have favorable pricing and other terms with the vendor that would be lost if the Debtors

were to switch to a new vendor; and (e) whether a vendor meeting the standards of (a), (b), (c),

and (d) is likely to refuse to continue providing goods or services postpetition if its prepetition


-8-

claims are not paid. The Debtors have estimated that total prepetition liability to Critical Vendors

is approximately $4,424.00. Of that amount, $2,949.33 was for services received by the Debtors

within twenty (20) days prior to the Petition Date.3

25. The Debtors also propose that all payments of Critical Vendor Claims shall be

applied first to the Critical Vendor’s claims for goods, if any received by the Debtors within twenty

(20) days prior to the Petition Date. These claims are entitled, in most instances, to priority as

administrative claims pursuant to section 503(b)(9) of the Bankruptcy Code. Accordingly, such

payments will only affect the timing of the distribution, but not the amount, of the Critical Vendor

Claims.

26. If a Critical Vendor accepts a payment on account of a prepetition obligation of a

Debtor (a “Vendor Payment”) and thereafter fails to provide the applicable Debtor with the

requisite Customary Trade Terms, the Debtors seek authority to (a) treat any Vendor Payment

received by the Critical Vendor as an unauthorized postpetition transfer under section 549 of the

Bankruptcy Code that the Debtors may (i) recover from the Critical Vendor in cash or goods, or

(ii) at the Debtors’ option, apply as a credit against any outstanding postpetition claims held by

such Critical Vendor, or (b) upon recovery of any Vendor Payment under (i) or (ii), reinstate the

prepetition claim of the Critical Vendor in the amount recovered by the applicable Debtor, less

that Debtor’s reasonable costs incurred in recovering such amounts. In essence, the Debtors seek

to return the parties to their respective positions immediately before entry of the Order if a Critical

Vendor refuses to supply goods to the Debtors on Customary Trade Terms following payment of

its Critical Vendor Claim.4

3 A complete list identifying the Critical Vendors has been provided to the United States Trustee and the Court.

Such list will also be provided promptly to counsel for any official committee appointed in these Chapter 11 Cases. 4 To ensure that Critical Vendors continue to do business with the Debtors, the Debtors propose in their discretion

(i) that a letter substantially in the form of the letter attached hereto Exhibit C (the “Vendor Agreement”) be


-9-

27. For those Critical Vendors who have agreed to provide goods to the Debtors on

different terms otherwise acceptable to the Debtors, the Debtors reserve the right to seek written

acknowledgment of such terms on a case by case basis.

RELIEF REQUESTED

28. By this Motion, the Debtors seek entry of Interim and Final Orders, substantially in

the forms of Exhibit A and Exhibit B attached hereto, authorizing, but not directing, the Debtors

to pay all or a portion of its Critical Vendor Claims to Critical Vendors in an amount not to exceed

$4,424.00 on an interim and final basis (with respect to each of the interim and final periods, as

applicable, the “Critical Vendor Cap”).

BASIS FOR RELIEF

A. HONORING CUSTOMER COMMITMENTS FALLS WITHIN THE ORDINARY COURSE OF BUSINESS AND SHOULD BE AUTHORIZED PURSUANT TO SECTION 363 OF THE BANKRUPTCY CODE.

29. The bankruptcy Code provides that debtors-in-possession will continue to operate

their businesses in the ordinary course.

30. Unless the Court orders otherwise, section 1108 of the Bankruptcy Code authorizes

a debtor-in-possession to “operate the debtor’s business,” and section 363 states that “[i]f the

business of the debtor is authorized to be operated under section ... 1108 ... and unless the court

orders otherwise, the [debtor in possession] may enter into transactions ... in the ordinary course

of business, without notice or a hearing, and may use property of the estate in the ordinary course

of business without notice and a hearing.” 11 U.S.C. § 363(c)(1).

delivered to, and executed by, the Critical Vendors, along with a copy of the order granting the relief requested herein and (ii) that payment of Critical Vendor Claims include a communication of the following statement:

“By accepting this payment, the payee agrees to the terms of the Order of the U.S. Bankruptcy Court for the District of Delaware, dated ________, 2019 in the Chapter 11 Cases of The News-Gazette, Inc., et al. (Case No. 19-11901 (KBO)), authorizing the Debtors to pay prepetition obligations of critical vendors and submits to the jurisdiction of that Court for enforcement thereof.”


-10-

31. Though the Bankruptcy Code does not define whether particular transactions occur

in the ordinary course of a debtor’s business for purposes of section 363, courts engage a two-step

inquiry for determining whether a transaction is in the “ordinary course of business”: a “horizontal

dimension” test and a “vertical dimension” test. In re Roth Am., Inc., 975 F.2d 949, 952 (3d Cir.

1992) (internal citation omitted).

32. The horizontal inquiry considers whether transaction at issue “is of the sort

commonly undertaken by companies in that industry.” Id. at 953.

33. Under the vertical inquiry, otherwise known as the creditor’s expectation test, “[t]he

touchstone of ‘ordinariness’ is ... the interested parties' reasonable expectations of what

transactions the debtor in possession is likely to enter in the course of its business.” Id.

34. The Debtors submit that the Customer Programs are within the ordinary course of

business under both the “horizontal dimension” test and a “vertical dimension” test. The Customer

Programs are not only within the ordinary course of business for their industry, but indeed are

expected and relied upon by the Debtors and their customers, whose loyalty is critical to the value

of the Debtors. Accordingly, Courts have routinely approved similar relief in other cases involving

media companies. See, e.g., In re Reading Eagle Company, et al., Case No. 19-11728 (Bankr.

E.D. Pa. Mar. 26, 2019); In re Hobbico, Inc. et al., Case No. 18-10055 (Bankr. D. Del. Jan. 11,

2018); In re Tribune Company, Case No. 08-13141 (Bankr. D. Del. Dec. 10, 2008); In re Freedom

Communications, Inc., Case No. 09-01346 (Bankr. D. Del. Sept. 2, 2009); In re Freedom

Communications, Inc., Case No. 15-15311 (Bankr. C.D. Cal. Nov. 5, 2015).5

5 Payment of the Obligations Related to the Customer Programs is also authorized under section 105(a) of the

Bankruptcy Code, as essential to ensure the survival of the Debtors. See In re Equalnet Commc’ns, 258 B.R. 368, 369-70 (Bankr. S.D. Tex. 2000); Ionosphere Clubs, Inc., 98 B.R. 174, 175-76 (Bankr. S.D.N.Y. 1989). In particular, failure to refund obligations to customers could crater the reputation of the Debtors’ brands. Further, because the obligations owing to customers who have setoff or recoupment rights would be paid or satisfied from assets of the Debtors’ estates if those customers exercise their setoff or recoupment rights, such payments proposed by this Motion will not reduce the Debtors’ assets available to other creditors.


-11-

B. THIS COURT SHOULD ALLOW PAYMENT OF CRITICAL VENDOR CLAIMS UNDER SECTION 363 OF THE BANKRUPTCY CODE.

35. The relief requested herein is authorized pursuant to sections 363 and 364 of the

Bankruptcy Code. Section 363(b)(1) of the Bankruptcy Code authorizes the trustee to use property

of the estate other than in the ordinary course of business after notice and a hearing. See 11 U.S.C.

§ 363(b)(1).

36. Under this section, a court may authorize a debtor to pay certain prepetition claims.

See In re AbitibiBowater Inc., Case No. 09 11296 (KJC) [Docket No. 67] (Bankr. D. Del. Apr. 17,

2009) (approving payment critical vendors’ prepetition claims); see also In re Ionosphere Clubs,

Inc., 98 B.R. 174, 175 (Bankr. S.D.N.Y. 1989) (affirming order authorizing payment of prepetition

wages pursuant to section 363(b) of the Bankruptcy Code); Armstrong World Indus., Inc. v. James

A. Phillips, Inc. (In re James A. Phillips, Inc.), 29 B.R. 391, 397 (S.D.N.Y. 1983) (authorizing a

contractor to pay prepetition claims of some vendors who were potential lien claimants under

section 363 because the payments were necessary for the general contractors to release funds owed

to the debtors).

37. To do so, “the debtor must articulate some business justification, other than the

mere appeasement of major creditors.” Ionosphere Clubs, 98 B.R. at 175. As discussed above,

the Debtors’ failure to pay the Critical Vendor Claims will severely disrupt the Debtors’ operations

and their businesses.

C. THIS COURT MAY ALLOW PAYMENT OF CRITICAL VENDOR CLAIMS UNDER SECTIONS 105(A) OF THE BANKRUPTCY CODE AND THE NECESSITY OF PAYMENT DOCTRINE.

38. In addition, the Debtors request the authority, but not the direction, to pay any

prepetition amounts due to the Critical Vendors because such payments are essential to the

Debtors’ operations and the benefits achieved by such payments far exceed any incremental

financial benefit from non-payment.


-12-

39. It is well established that a bankruptcy court has power to authorize payment of

prepetition claims where the payment of such claims is necessary to facilitate reorganization. This

principle was first articulated by the Supreme Court in Miltenberger v. Logansport Co., 106 U.S.

286, 311 (1882) (“Many circumstances may exist which may make it necessary and indispensable

to the business . . . and the preservation of the property, for the receiver to pay preexisting debts

of certain classes, out of the earnings of the receivership, or even the corpus of the property, under

the order of the court, with a priority of lien.”), and has been commonly referred to as the “necessity

of payment” doctrine. In re Lehigh & N. E. R. Co., 657 F.2d 570, 581 (3d Cir. 1981) (“if payment

of a claim which arose prior to reorganization is essential to the continued operation of the railroad

during reorganization, payment may be authorized even if it is made out of corpus”); In re Penn

Cent. Transp. Co., 467 F.2d 100, 102 n.1 (3d Cir. 1972) (“[The] ‘necessity of payment’ exception

to the normal deferment of the payment . . . permit immediate payment of claims of creditors where

those creditors will not supply services or material essential to the conduct of the business until

their pre reorganization claims shall have been paid.”).

40. Although the “necessity of payment” doctrine has not been codified in the

Bankruptcy Code, “courts have used their equitable power under section 105(a) of the Code to

authorize the payment of prepetition claims when such payment is deemed necessary to the

survival of a debtor in a chapter 11 reorganization.” Just for Feet, 242 B.R. at 824. Section 105(a)

authorizes the Court to “issue any order, process, or judgment that is necessary to carry out the

provisions of this title.” 11 U.S.C. § 105(a). In addition, it ensures a bankruptcy court’s power to

take whatever action “is appropriate or necessary in aid of the exercise of its jurisdiction.”

2 COLLIER ON BANKRUPTCY ¶ 105.01 at 105 2 (15th ed. 2008). “[U]nder 11 U.S.C. § 105


-13-

the court can permit pre plan payment of a prepetition obligation when essential to the continued

operation of the debtor.” In re NVR, 147 B.R. 126, 127 (Bankr. E.D. Va. 1992).

41. As explained above, it is critical to ongoing operations that the Debtors continue to

receive goods and services from the Critical Vendors. Any interruption in the delivery of goods

and services could impair the Debtors’ cash flow, and crater its reputation among its customer

base. Moreover, by requiring the Critical Vendors to agree to Customary Trade Terms or enter

into a Trade Agreement, the Debtors will ensure that no party secures undue leverage or rights in

their dealings with the Debtors.

42. Where a debtor’s payment of Critical Vendor Claims proves essential to a

successful chapter 11 case, courts in this circuit and other jurisdictions have granted relief similar

to that requested here. See, e.g., In re Reading Eagle Company, et al., Case No. 19-11728 (Bankr.

E.D. Pa. Mar. 26, 2019) [Docket No. 69]; In re Hobbico, Inc. et al., Case No. 18-10055 (Bankr.

D. Del. Jan. 30, 2018) [Docket No. 129]; In re Pliant Corp., No. 09-10443 (BLS) (Bankr. D. Del.

Feb. 12, 2009) [Docket No. 47]; In re Fluid Routing Solutions Intermediate Holding Corp.,

No. 09-10384 (CSS) (Bankr. D. Del. Feb. 6, 2009) [Docket No. 25]; In re Smurfit Stone Container

Corp., No. 09-10253 (KG) (Bankr. D. Del. Jan. 23, 2009) [Docket No. 378].

43. Furthermore, with respect to Critical Vendor Claims that arise from goods provided

within 20 days of the Petition Date, the issue of payment proves mostly one of timing. Section

503(b)(9) of the Bankruptcy Code provides administrative expense treatment to claims arising

from goods received by the Debtors in the last 20 days prior to the Petition Date. See 11 U.S.C.

§ 503(b)(9). As a result, the Debtors would have to pay these Critical Vendor Claims in full, to

the extent they fall within the scope of section 503(b)(9) of the Bankruptcy Code, regardless of the

timing of such payment.


-14-

CAUSE EXISTS TO AUTHORIZE THE DEBTORS’ FINANCIAL INSTITUTIONS TO HONOR CHECKS AND ELECTRONIC FUND TRANSFERS

44. As a result of the commencement of these chapter 11 cases, and absent an order of

this Court providing otherwise, the Debtors’ financial institutions may dishonor or reject the

Debtors’ prepetition checks and electronic fund transfers with respect to prepetition Customer

Programs or Critical Vendor Claims. Thus, the Debtors request that, with respect to any Customer

Programs or Critical Vendor Claims authorized by the Court, the Court authorize the Banks to

process, honor, and pay all checks and electronic fund transfers to the extent the Debtors have

sufficient good funds standing to their credit at such Bank, and to rely on the representations of

the Debtors as to which checks are issued and authorized to be paid in accordance with this Motion

without any duty of further inquiry and without liability for following the Debtors’ instructions.

RESERVATION OF RIGHTS

45. Nothing contained herein is intended or should be construed as an admission as to

the validity of any claim against the Debtors, a waiver of the Debtors’ right to dispute any claim,

or an approval or assumption of any agreement, contract, or lease under section 365 of the

Bankruptcy Code. Likewise, notwithstanding any authorization that may be granted pursuant to

this Motion, the Debtors maintain the sole discretion to determine whether any claims asserted

against the Debtors related to the Critical Vendor Claims are valid and whether to honor such

claims.

PROCEDURAL ISSUES

46. Bankruptcy Rule 6003 provides that to the extent relief is necessary to avoid

immediate and irreparable harm, a bankruptcy court may approve a motion to “pay all or part of a

claim that arose before the filing of the petition” prior to 21 days after the Commencement Date.

Fed. R. Bankr. P. 6003. The Debtors submit the facts described herein demonstrate that the relief


-15-

requested in this Motion is necessary to avoid immediate and irreparable harm to the Debtors’

business operations and the value of the Debtors’ estates, and that Bankruptcy Rule 6003 has been

satisfied to permit such payments, if any are necessary.

47. Further, the Debtors seek a waiver, for the purposes of this Motion, of the notice

requirements under Bankruptcy Rule 6004(a) and a waiver of the fourteen (14) day waiting period

otherwise required to effectuate an order authorizing the use, sale, or lease of property under

Bankruptcy Rule 6004(h).

NOTICE AND NO PRIOR REQUEST

48. The Debtors have provided notice of this Motion to: (i) the Office of the United

States Trustee for the District of Delaware; (ii) the United States Attorney’s Office for the District

of Delaware; (iii) the United States Department of Justice; (iv) the State Attorney General’s Office

in each state where the Debtors operate; (v) the Internal Revenue Service; (vi) the Securities and

Exchange Commission; (vii) the Federal Communications Commission; (viii) the Secretary of

State for the State of Delaware; (ix) the Secretary of the Treasury for Delaware; (x) the Debtors’

twenty (20) largest unsecured creditors; (xi) the Taxing Authorities; and (xii) the Debtors’

depository banks. As this Motion is seeking “first-day” relief, notice of this Motion and any order

entered hereon will be served on all parties required by Local Rule 9013-1(m). Due to the urgency

of the circumstances surrounding this Motion and the nature of the relief in this Motion, the

Debtors respectfully submit that no further notice of this Motion is required

49. No prior request for the relief sought in this Motion has been made to this or any

other Court.


-16-

CONCLUSION

WHEREFORE, for the foregoing reasons, and such additional reasons as may be advanced

at or prior to the hearing on this Motion, the Debtors respectfully request that the Court enter the

Interim and Final orders, substantially in the forms attached hereto as Exhibit A and Exhibit B,

respectively, (i) the Debtors to honor, in their sole discretion, certain prepetition obligations for

the benefit of their customers, advertisers, and subscribers in the ordinary course of their

businesses, (ii) the Debtors to pay the prepetition Critical Vendor Claims, (iii) financial institutions

to honor and process prepetition checks and transfers to certain critical vendors, and (iv) granting

such other and further relief as it deems just and proper.

Dated: August 30, 2019 CHIPMAN BROWN CICERO & COLE, LLP Wilmington, Delaware

/s/ William E. Chipman, Jr. William E. Chipman, Jr. (No. 3818) Mark D. Olivere (No. 4291) Hercules Plaza 1313 North Market Street, Suite 5400 Wilmington, Delaware 19801 Telephone: (302) 295-0191 Facsimile: (302) 295-0199 Email: [email protected] [email protected]

—and—

NEAL, GERBER & EISENBERG LLP Nicholas M. Miller (Pro Hac Admission Pending) Thomas C. Wolford (Pro Hac Admission Pending) Two North LaSalle Street, Suite 1700 Chicago, Illinois 60602 Telephone: (312) 269-8000 Facsimile: (312) 269-1747 Email: [email protected] [email protected]

Proposed Counsel for the Debtors and Debtors-in-Possession


mailto:[email protected]




EXHIBIT A

Case 19-11901-KBO Doc 12-1 Filed 08/30/19 Page 1 of 5


In re:


Debtors.

Chapter 11

Case No. 19-11901 (KBO)

(Joint Administration Pending)

Related Docket No.

INTERIM ORDER PURSUANT TO SECTIONS 105(a), 363(b) 503(b)(9), 1107(a) AND 1108 OF THE BANKRUPTCY CODE




Upon the motion (the “Motion”)2 of the Debtors for entry of an interim order (this

“Interim Order”) authorizing (i) the Debtors to honor, in their sole discretion, certain prepetition

obligations for the benefit of their customers, advertisers, and subscribers in the ordinary course

of their businesses, (ii) the Debtors to pay the prepetition claims of certain critical vendors (the

“Critical Vendor Claims”), all as more fully set forth in the Motion; and the Court having

reviewed the Motion and the First Day Declaration; and the Court having determined that the relief

requested in the Motion is in the best interests of the Debtors, their estates, their creditors, and

other parties in interest; and the Court having jurisdiction to consider the Motion and the relief

requested therein in accordance with 28 U.S.C. §§ 157 and 1334 and the Amended Standing Order

of Reference from the United States District Court for the District of Delaware to 28 U.S.C. §



2 Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Motion.


- 2 -

157(b)(2) and that this Court may enter a final order consistent with Article III of the United States

Constitution; and the Court having found that venue of this proceeding and the Motion in this

district is proper pursuant to 28 U.S.C. §§ 1408 and 1409; and it appearing that proper and adequate

notice of the Motion has been given and that no other or further notice is necessary; and upon the

record herein; and after due deliberation thereon; and good and sufficient cause appearing therefor,

IT IS HEREBY ORDERED THAT:

1. The Motion is GRANTED on an interim basis, as set forth in this Order.

2. The Debtors are authorized, but not directed, to continue to (a) honor and perform,

in their sole discretion, prepetition obligations related to the Customer Programs in the ordinary

course of their business, (b) continue, renew, replace, implement or terminate such of the Customer

Programs in the ordinary course of business, without further application to the Court, and (c)

payments under the Customer Programs from the date of this Interim Order until the date that a

final order is entered on this matter, unless otherwise ordered by the Court, shall not exceed (i)

$10,000.00 for Refunds, (ii) $3,500.00 for Call Centers, and (iii) $12,000.00 for Card payments,

subject to the conditions set forth in this Order.

3. The Debtors are authorized, but not directed, in their sole discretion and in the

reasonable exercise of their business judgment, to pay prepetition claims of certain Critical

Vendors (the “Critical Vendor Claims”) subject to the conditions set forth in this Order.

4. The Debtors’ payment of Critical Vendor Claims shall not exceed $6,000.00 in the

aggregate during the period from the date of this Interim Order until the date that a final order is

entered in this matter (during such period, the “Critical Vendor Cap”), unless otherwise ordered

by the Court, as set forth herein.


- 3 -

5. The Debtors may, in their discretion, apply all payments of Critical Vendor Claims

first to the Critical Vendor’s claims for goods received by the Debtors within twenty (20) days

prior to the Petition Date.

6. The Debtors are hereby authorized, but not directed, to obtain written verification

before issuing payment to a Critical Vendor that such Critical Vendor will continue to provide

goods and services to the applicable Debtor on Customary Trade Terms for the remaining term of

the Critical Vendor’s agreement with the Debtor or until the conclusion of these Chapter 11 Cases,

whichever occurs first; provided, however, that the absence of such written verification will not

limit the Debtors’ rights hereunder.

7. The Debtors’ financial institutions are authorized, at the Debtors’ request, to

receive, honor, process, and pay any and all checks and electronic transfers related to the

prepetition Critical Vendor Claims, whether presented before or after the Petition Date, provided

that the Debtors have sufficient good funds standing to the Debtors’ credit with such Bank in the

applicable accounts to cover such payments.

8. Nothing in the Motion or this Order, or the Debtors’ payment of any claims

pursuant to this Order, shall be deemed or construed (a) as an admission as to the validity of any

claim or lien against the Debtors or their estates, (b) as a waiver of the Debtors’ right to dispute

any claim or lien, (c) to prejudice any of the Debtors’ rights to seek relief under any section of the

Bankruptcy Code on account of any amounts owed or paid to any Critical Vendor, or (d) an

assumption of any executory contract.

9. The requirements of Bankruptcy Rule 6003 are satisfied by the contents of the

Motion and the arguments and evidence presented at the hearing.


- 4 -

10. Notwithstanding Bankruptcy Rule 6004(h), the terms and conditions of this Interim

Order are immediately effective and enforceable upon its entry.

11. The Debtors are authorized to take all actions necessary to effectuate the relief

granted in this Interim Order in accordance with the Motion.

12. A final hearing (the “Final Hearing”) on the full relief requested in the Motion

shall be held on , 2019 at : .m. (Prevailing Eastern

Time). Any objections or responses to entry of a final order on the Motion (each, an “Objection”)

shall be filed on or before 4:00 p.m. Prevailing Eastern Time on , 2019,

and served on the following parties: (a) the Debtors, The News-Gazette, Inc., 15 East Main Street,

Champaign, Illinois 61820 (Attn: John L. Reed, Chief Executive Officer); (b) proposed counsel

for the Debtors, (i) Neal, Gerber & Eisenberg LLP, Two North LaSalle Street, Suite 1700, Chicago,

Illinois 60602 (Attn: Nicholas M. Miller, Esquire and Thomas C. Wolford, Esquire); and (ii)

Chipman Brown Cicero & Cole, LLP, Hercules Plaza, 1313 North Market Street, Suite 5400,

Wilmington, Delaware 19801 (Attn: William E. Chipman, Jr., Esquire and Mark D. Olivere,

Esquire); (c) the Office of the United States Trustee, J. Caleb Boggs Federal Building, 844 King

Street, Lockbox 35, Wilmington, Delaware 19801 (Attn: Linda Richenderfer, Esquire); and (d)

counsel to any official committee of unsecured creditors appointed in this case. In the event no

Objections to entry of a final order on the Motion are timely received, this Court may enter such

final order without need for the Final Hearing.

13. This Court shall retain jurisdiction to hear and determine all matters arising from

or related to the implementation or interpretation of this Order.


EXHIBIT B


- 2 -


In re:


Debtors.

Chapter 11

Case No. 19-11901 (KBO)

(Jointly Administered)

Related Docket No.

FINAL ORDER PURSUANT TO SECTIONS 105(a), 363(b) 503(b)(9), 1107(a) AND 1108 OF THE BANKRUPTCY CODE




Upon the motion (the “Motion”)2 of the Debtors for entry of a final order (this “Final

Order) (i) the Debtors to honor, in their sole discretion, certain prepetition obligations for the

benefit of their customers, advertisers, and subscribers in the ordinary course of their businesses,

(ii) the Debtors to pay the prepetition claims of certain critical vendors (the “Critical Vendor

Claims”), all as more fully set forth in the Motion; and the Court having reviewed the Motion, the

First Day Declaration, and the Interim Order [Docket No. ] entered on September ______,

2019; and the Court having determined that the relief requested in the Motion is in the best interests

of the Debtors, their estates, their creditors, and other parties in interest; and the Court having

jurisdiction to consider the Motion and the relief requested therein in accordance with 28 U.S.C.

§§ 157 and 1334 and the Amended Standing Order of Reference from the United States District



2 Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Motion.


- 3 -

Court for the District of Delaware dated as of February 29, 2012; and it appearing that proper, and

adequate notice of the Motion has been given and that no other or further notice is necessary; and

upon the record herein; and after due deliberation thereon; and good and sufficient cause appearing

therefor,

IT IS HEREBY ORDERED THAT:

1. The Motion is GRANTED on a final basis, as set forth in this Order.

2. All objections to the entry of this Final Order, to the extent not withdrawn or settled,

are overruled.

3. The Debtors are authorized, but not directed, pursuant to sections 105(a), 363(b),

and 503(b)(9) of the Bankruptcy Code, in the reasonable exercise of their business judgment, to

pay some or all of the Critical Vendor Claims.

4. The Debtors are authorized, but not directed, in their sole discretion and in the

reasonable exercise of their business judgment, to pay prepetition claims of certain Critical

Vendors (the “Critical Vendor Claims”) subject to the conditions set forth in this Order.

5. The Debtors’ payment of Critical Vendor Claims shall not exceed $__________ in

the aggregate unless otherwise ordered by the Court, as set forth herein.

6. The Debtors are authorized to negotiate trade terms with any Critical Vendor, as a

condition to payment of any Critical Vendor Claim, that vary from the Customary Trade Terms

(the “Negotiated Trade Terms”) to the extent the Debtors determine that such terms are necessary

to procure essential goods or services or are otherwise in the best interests of the Debtors’ estates.

7. A Critical Vendor’s acceptance of payment is deemed to be acceptance of the terms

of this Final Order, and if the Critical Vendor thereafter does not provide the Debtors with

Customary Trade Terms or Negotiated Trade Terms during these Chapter 11 Cases, then any


- 4 -

payments of prepetition claims made after the Petition Date may be deemed to be unauthorized

postpetition transfers and therefore recoverable by the Debtors in these Chapter 11 Cases.

8. The Debtors, in their sole discretion, may require Critical Vendors (including

Critical Vendors with claims under section 503(b)(9) of the Bankruptcy Code) to enter into an

agreement (the “Vendor Agreement”) including provisions substantially in the form attached to

the Motion as Exhibit C as a condition to paying a Critical Vendor Claim. However, the Debtors’

inability to enter into a Vendor Agreement shall not preclude them from paying a Critical Vendor

Claim when, in their sole discretion, such payment is necessary to the Debtors’ operations.

9. As a further condition of receiving payment on a Critical Vendor Claim, the

Debtors are authorized, in their sole discretion, to require that such Critical Vendor agree to take

whatever action is necessary to remove any trade liens at such Critical Vendor’s sole cost and

expense and waive any right to assert a trade lien on account of the paid Critical Vendor Claim.

10. In accordance with this Final Order and any other order of this Court, each of the

financial institutions at which the Debtors maintain their accounts relating to the payment of the

obligations described in the Motion is authorized to receive, process, honor, and pay any and all

checks, drafts, wires, and automated clearing house transfers issued, whether before or after the

Petition Date, for payment of obligations described in the Motion to the extent that sufficient funds

are on deposit in such amounts.

11. The Debtors are authorized to issue postpetition checks, or to affect postpetition

wire transfer requests, in replacement of any checks or wire transfer requests in respect of

payments of prepetition obligations described in the Motion that are dishonored or rejected.

12. If the Debtors, in their sole discretion, determine that a Critical Vendor has not

complied with the terms and provisions of the Vendor Agreement or has failed to continue to


- 5 -

provide Customary Trade Terms following the date of the Vendor Agreement, or on such terms as

were individually agreed to between the Debtors and such Critical Vendor, the Debtors may

terminate a Vendor Agreement, together with the other benefits to the Critical Vendor as contained

in this Final Order, provided, however, that the Vendor Agreement may be reinstated if (i) such

determination is subsequently reversed by the Court for good cause after it is shown that the

determination was materially incorrect after notice and a hearing following a motion from the

Critical Vendor, (ii) the underlying default under the Vendor Agreement is fully cured by the

Critical Vendor not later than five business days after the date the initial default occurred, or (iii)

the Debtors, in their sole discretion, reach a subsequent agreement with the Critical Vendor.

13. If a Vendor Agreement is terminated as set forth above, or if a Critical Vendor that

has received payment of a prepetition claim later refuses to continue to supply goods or services

for the applicable period in compliance with the Vendor Agreement or this Final Order, then the

Debtors may declare such payments to have been unauthorized postpetition transfers under section

549 of the Bankruptcy Code, and may take any and all appropriate steps to cause such Critical

Vendor to repay payments made to it on account of its Critical Vendor Claim, or, at the Debtors’

option, apply such payments as credits against any outstanding postpetition claim held by such

Critical Vendor. Upon recovery of a payment made in respect to a Critical Vendor Claim, such

claim shall be reinstated as a claim in the amount so recovered, less the Debtors’ reasonable costs

of recovery.

14. Nothing contained in this Final Order shall be deemed to constitute (i) a rejection,

assumption, or postpetition reaffirmation of any executory contract or to require the Debtors to

make any of the payments or to post any of the deposits authorized herein, (ii) a grant of third-


- 6 -

party beneficiary status or bestowal of any additional rights on any third party, or (iii) a waiver of

any rights, claims, or defenses of the Debtors.

15. Nothing in this Final Order or the Motion shall be construed as prejudicing any

rights the Debtors may have to dispute or contest the amount of or basis for any claims against the

Debtors arising in connection with the Critical Vendor Claims.

16. The contents of the Motion satisfy the requirements of Bankruptcy Rule 6003(b).

17. Notwithstanding Bankruptcy Rule 6004(h), the terms and conditions of this Final

Order are immediately effective and enforceable upon its entry.

18. The Debtors are authorized to take all actions necessary to effectuate the relief

granted in this Final Order in accordance with the Motion.

19. The Court retains exclusive jurisdiction with respect to all matters arising from or

related to the implementation of this Final Order.


EXHIBIT C


- 1 -

[DEBTOR NAME]

August 30, 2019

TO: [Critical Vendor] [Name] [Address]

Dear Valued Supplier:

As you are aware, ______________________ (the “Company”) filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Case” and the “Bankruptcy Court,” respectively) on August 30, 2019 (the “Petition Date”). On the Petition Date, the Company requested the Bankruptcy Court’s authority to pay the prepetition claims of certain suppliers in recognition of the importance of the Company’s relationship with such suppliers and its desire that the Bankruptcy Case have as little effect on the Company’s ongoing business operations as possible. On [DATE], the Bankruptcy Court entered an order (the “Order”) authorizing the Company, under certain conditions, to pay the prepetition claims of certain suppliers that agree to the terms set forth below and to be bound by the terms of the Order. A copy of the Order is enclosed.

In order to receive payment on account of prepetition claims, you must agree to continue to supply goods and services to the Company based on “Customary Trade Terms.” In the Order, Customary Trade Terms are defined as the normal and customary trade terms, practices, and programs (including, but not limited to, credit limits, pricing, cash discounts, timing of payments, allowances, rebates, coupon reconciliation, normal product mix and availability, and other applicable terms and programs), that were most favorable to the Company and in effect between you and the Company prior to the Petition Date, or such other trade terms as you and the Company agree.

For purposes of administration of this trade program as authorized by the Bankruptcy Court, you and the Company both agree that:

1. The estimated accrued balance of the prepetition claim (net of any setoffs, credits, or discounts) that is due and owing is $ (the “Claim”).

2. The Company hereby agrees to pay $ (the “Vendor Claim”) on account of the Claim, subject to the terms and conditions set forth in this agreement, it being understood that the remaining amount of your Claim shall be forever released and waived. If you have already filed a proof of claim with the Bankruptcy Court, you will take all necessary steps to withdraw the proof of claim.

3. Nothing herein waives the Company’s or your rights under section 365 of the Bankruptcy Code.


- 2 -

4. You will provide Customary Trade Terms as follows (if more space is required, attach continuation pages), which credit terms shall be no less favorable than those in effect between you and the Company at any time during the one-year period immediately before the Petition Date.

5. You will not demand a lump sum payment upon consummation of a plan of reorganization in the Bankruptcy Case on account of any administrative expense priority claim that you assert, but instead agree that such claims will be paid in the ordinary course of business after consummation of a plan under applicable Customary Trade Terms, if the plan provides for the ongoing operations of the Company.

6. Payment of your Vendor Claim in the manner set forth in the Order may only occur upon execution of this letter agreement by a duly authorized representative of your company and the return of this letter to the Company. The undersigned, a duly authorized representative of [Critical Vendor], has reviewed the terms and provisions of the Order and agrees that [Critical Vendor] is bound by such terms.

7. You will not separately seek payment for reclamation and similar claims outside of the terms of the Order unless your participation in the Vendor payment program authorized by the Order (the “Vendor Payment Program”) is terminated.

8. You will not file or otherwise assert against the Company, the estate, or any other person or entity or any of their respective assets or property (real or personal) any lien (regardless of the statute or other legal authority upon which such lien is asserted) related in any way to any remaining prepetition amounts allegedly owed to you by the Company arising from agreements entered into prior to the Petition Date. Furthermore, you agree to take (at your own expense) all necessary steps to remove any such lien as soon as possible.

9. If either the Vendor Payment Program or your participation therein terminates as provided in the Order, or you later refuse to continue to supply goods to the Company on Customary Trade Terms during the pendency of the Bankruptcy Case, (a) any payments received by you on account of your Vendor Claim (including claims arising under section 503(b)(9) of the Bankruptcy Code) will be deemed to have been in payment of postpetition obligations owed to you, (b) you will immediately repay to the Company any payments made to you on account of your Vendor Claim to the extent that the aggregate amount of such payments exceeds the postpetition obligations, without the right of any setoffs, reclamation, or other rights, and (c) your Vendor Claim will become a general unsecured claim that may be impaired under the Company’s bankruptcy plan.


- 3 -

10. Any dispute with respect to this letter agreement, the Order, and/or your participation in the Vendor Payment Program shall be determined by the Bankruptcy Court.

11. You will keep the existence and the terms of this letter agreement confidential and will not disclose it to any person or entity without the prior written consent of the Company, other than as required by law to any court or governmental authority.

If you have any questions about this Agreement or our financial restructuring, please do not hesitate to call.

Sincerely,

[Debtor Name]

By: Name

Title

AGREED AND ACCEPTED BY:

[VENDOR]

By:

Its:

Dated:


Documents

IN THE UNITED STATES BANKRUPTCY COURT FOR THE …strettodocs.s3.amazonaws.com/files/dfe4f1f1-674d-4614... · 2019-08-30 · ”) and administrative claimholders, and (iii) financial