================================================================= 360 BANKRUPTCY NEWS Issue Number 1 ----------------------------------------------------------------- Copyright 2001 (ISSN XXXX-XXXX) June 30, 2001 ----------------------------------------------------------------- Bankruptcy Creditors' Service, Inc. 609-392-0900 FAX 609-392-0040 ----------------------------------------------------------------- 360 BANKRUPTCY NEWS is published by Bankruptcy Creditors' Service, Inc., 24 Perdicaris Place, Trenton, New Jersey 08618, On an ad hoc basis (generally every 10 to 20 days) as significant activity occurs in the Debtors' cases. Each issue is prepared by Peter A. Chapman, Editor. Subscription rate is US$45 per issue. Reproduction and re-mailing of 360 BANKRUPTCY NEWS is prohibited. ================================================================= IN THIS ISSUE ------------- [00000] HOW TO ORDER A SUBSCRIPTION TO 360 BANKRUPTCY NEWS [00001] BACKGROUND & DESCRIPTION OF 360NETWORKS [00002] CONSOLIDATED BALANCE SHEET AT MARCH 31, 2001 [00003] COMPANY'S PRESS RELEASE CONCERNING CHAPTER 11 FILING [00004] 360 DEBTORS' CHAPTER 11 DATABASE [00005] LIST OF 360 DEBTORS' 30 LARGEST UNSECURED CREDITORS [00006] DEBTORS' MOTION FOR JOINT ADMINISTRATION OF PROCEEDINGS [00007] DEBTORS' MOTION TO HONOR PREPETITION EMPLOYEE OBLIGATIONS KEY DATE CALENDAR ----------------- 06/28/01 Voluntary Petition Date 07/13/01 Deadline for filing Schedules of Assets and Liabilities 07/13/01 Deadline for filing Statement of Financial Affairs 07/13/01 Deadline for filing Lists of Leases and Contracts 07/18/01 Deadline to provide Utilities with adequate assurance 08/27/01 Deadline to make decisions about lease dispositions 09/26/01 Deadline to removal actions pursuant to F.R.B.P. 9027 10/26/01 Expiration of Debtors' Exclusive Plan Proposal Period 12/25/01 Expiration of Debtors' Exclusive Solicitation Period 06/27/03 Deadline for Debtors' Commencement of Avoidance Actions Organizational Meeting with UST to form Committees Bar Date for filing Proofs of Claim First Meeting of Creditors pursuant to 11 USC Sec. 341 ----------------------------------------------------------------- [00000] HOW TO ORDER A SUBSCRIPTION TO 360 BANKRUPTCY NEWS ----------------------------------------------------------------- 360 BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. 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Name: ---------------------------------------------- Firm: ---------------------------------------------- Address: ---------------------------------------------- ---------------------------------------------- Phone: ---------------------------------------------- Fax: ---------------------------------------------- E-Mail: ---------------------------------------------- ----------------------------------------------------------------- [00001] BACKGROUND & DESCRIPTION OF 360NETWORKS ----------------------------------------------------------------- 360networks inc. 1066 West Hastings Street Suite 1500 Vancouver, British Columbia V6E 3X1 Telephone (604) 681-1994 Fax (604) 681-6822 http://www.360networks.com 360networks inc. (NASDAQ:TSIX and TSE:TSX) and its subsidiaries work together to form a leading independent provider of fiber optic communications network products and services worldwide. The Company's network uses state of the art optical technologies intended to reduce complexity and costs as well as enhance reliability and provide increased flexibility to accommodate both technological upgrades and offer a wider range of services and products on a timely basis. The 360 Group employs approximately 1,900 workers worldwide, of which approximately 1,000 are in the United States. Prior to May 2001, the Company pursued a capital-intensive business plan to complete construction of its global network. The Company anticipated that, by mid-year 2002, its global network would consist of approximately 89,000 route miles linking 100 major population centers throughout North America, Europe and South America. In North America, the network was expected to consist of approximately 26,700 route miles linking in excess of 50 cities. As of May 31, 2002, approximately 22,500 route miles were completed and approximately 14,100 route miles were activated in North America. 360 offers customers a range of broadband network services and infrastructure for telecommunications companies, next generation service providers and multi-national corporations. These services include: (A) Wavelengths is a point-to-point, bi-directional optical service for transmission of high capacity traffic. Wavelength service is an economic alternative to dark fiber for high bandwidth users. Customers can use this unprotected service with their own switching and routing equipment. The service uses Dense Wavelength Division Multiplexing (DWDM) technology to increase the capacity of a fiber optic strand by transmitting voice, video and data on multiple wavelengths of light. Wavelengths (also known as lambdas) are available at speeds of 2.5 gigabits per seconds and 10 gigabits per second under indefeasible right of use (IRU) or lease. IRU is a long-term right of use, usually 15 to 20 years. At the end of an IRU, title of ownership can be transferred to customers. (B) Optical Transport services provide our customers reliable and scalable bandwidth over our global intelligent optical mesh network. Optical transport services include: (1) Optical Point-to-Point - Intercontinental service provides customers with fixed point-to-point optical channel capacity on 360atlantic and 360americas - 360networks' undersea fiber optic cables. The service can carry voice, video and data traffic. It is available in OC-3/STM-1 (155.5 megabits per second), OC-12/STM-4 (622 megabits per second) and OC-48/STM-16 (622 megabits per second) speeds. (2) Optical Point-to-Point service provides fixed point-to-point optical channel capacity on 360networks' global optical mesh network. The service is capable of carrying voice, video and data traffic. It is delivered over an optical mesh network that can support both SONET and SDH framed signals. Optical Point-to-Point is available in OC- 3/STM-1 (155.5 megabits per second), OC-12/STM-4 (622 megabits per second), OC-48/STM-16 (622 megabits per second) and, maybe this year, OC- 192/STM-64 (10 gigabits per second) speeds. (3) Optical Virtual Private Network (OVPN) service provides customers with dedicated optical channel capacity between two or more locations throughout 360networks' global network. The service can carry voice, video and data traffic. Using OVPN, customers can purchase optical network capacity between locations in small increments (52 megabits per second) up to the maximum capacity supported on the customer facing port. This scalable solution offers customers the flexibility to upgrade capacity quickly when needed without upgrading the port and local access facility. OVPN is available in OC-3/STM-1 (155.5 megabits per second), OC- 12/STM-4 (622 megabits per second), OC-48/STM-16 (622 megabits per second), OC-192/STM-64 (10 gigabits per second) (perhaps this year) and Gigabit Ethernet speeds. (C) IP Transit service provides customers throughout North America with reliable high-speed access to the Internet using Internet Protocol (IP) and Multi-Protocol Label Switching (MPLS) technologies. The service is designed for telecommunications carriers and next generation service providers that need high capacity upstream connectivity to the Internet for resale to their customers. IP Transit is offered on scalable platform from points of presence (POPs) on our global IP network and supports a number of bandwidth speeds: OC-3 (155 megabits per second), OC-12 (622 megabits per second), OC-48 (2.5 gigabits per second), Gigabit Ethernet and Fast Ethernet. The service provides customers with individual ports, network monitoring, a range of service level agreements and other performance and protection features. (D) IP Transport will soon, 360 says, provide virtual private network connectivity between various locations on 360networks' Internet Protocol network in North America. This service will use IP and Multi-Protocol Label Switching (MPLS) technologies to deliver fast, secure and scalable connectivity between two or more sites. IP Transport will support a variety of speeds between OC-3 (155 megabits per second) and OC-12 (622 megabits per second) as well as offer different classes of service: guaranteed bandwidth, prioritized and best effort. (E) 360 offers customers convenient access and interconnection to its network in major cities worldwide. 360's colocation provides secure space in a carrier-class operating environment to support customers' network hardware. 360 also sells and leases dark fiber and conduit, and constructs and maintains fiber optic networks on a contract basis. * * * Vanessa A. Wittman, 360's CFO explains that due to, among other things, widespread problems in the telecommunications industry, the Company began implementing a revised business plan in May 2001 designed to reduce near term capital expenditures. Meanwhile, the Company sought new sources of financing. When the Company was not successful in attracting sufficient funding, 360 "determined chapter 11 filings were the best means available to recapitalize and restructure their businesses." Management, Ms. Wittman says, "continues to believe the Company's core businesses are viable." Ms. Wittman notes that the Company has made extensive investments over the last three years in the Company's fiber-optic network. Also, the Company has been revising the emphasis of its business plan from building networks to providing infrastructure and network services and internet protocol based products to telecommunications companies, internet service providers, application service providers and data-centric organizations. Further, the Company believes continued operation of activated networks, completing and lighting of additional near-term revenue producing network segments, and continued development of the Company's servicing abilities are each capable of producing significant future revenue streams. Meanwhile, the Company believes that the current unsettled telecommunications market is not a favorable environment for liquidation. Consequently, Ms. Wittman continues, 360 believes that a reorganization of its core business will generate substantially more value than would a liquidation. ----------------------------------------------------------------- [00002] CONSOLIDATED BALANCE SHEET AT MARCH 31, 2001 ----------------------------------------------------------------- 360NETWORKS INC. CONSOLIDATED BALANCE SHEETS At March 31, 2001 (Unaudited, in U.S. Dollars and Prepared Under Canadian GAAP) ASSETS Current assets Cash and cash equivalents $264,000,000 Restricted cash 14,000,000 Accounts receivable 251,000,000 Unbilled revenue 203,000,000 Inventory 450,000,000 Deferred tax asset 29,000,000 Other 27,000,000 -------------- 1,238,000,000 Property and equipment - net 817,000,000 Network assets under construction 2,978,000,000 Goodwill - net 868,000,000 Deferred tax asset 50,000,000 Other 375,000,000 -------------- $6,326,000,000 ============== LIABILITIES Current liabilities Accounts payable and accrued liabilities $639,000,000 Deferred revenue 96,000,000 Income taxes payable 44,000,000 -------------- 779,000,000 Deferred revenue 317,000,000 Deferred tax liability 11,000,000 Long-term debt 2,490,000,000 -------------- 3,597,000,000 STOCKHOLDERS' EQUITY Preferred stock Authorized - 500 billion Preferred Shares Issued and outstanding Series 1 Convertible Preferred 700,000 Shares 720,000,000 Capital stock Authorized - 500 billion Subordinate Voting Shares - 500 billion Multiple Voting Shares, no par value Issued and outstanding Subordinate Voting - 740,757,483 Shares 2,314,000,000 Multiple Voting 81,840,000 Shares 18,000,000 Other capital accounts (46,000,000) Deficit (277,000,000) -------------- 2,729,000,000 -------------- $6,326,000,000 ============== ----------------------------------------------------------------- [00003] COMPANY'S PRESS RELEASE CONCERNING CHAPTER 11 FILING ----------------------------------------------------------------- VANCOUVER, B.C. -- June 28, 2001 -- 360networks today announced that the company and several of its operating subsidiaries have filed for protection under the Companies' Creditors Arrangement Act (CCAA) in the Supreme Court of British Columbia. The company's principal U.S. subsidiary, 360networks (USA) inc. and 22 of its affiliates concurrently filed for protection under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York. Where necessary, appropriate action is being taken in other jurisdictions to protect the company's assets. The company and the subsidiaries covered by the filings currently have approximately US$155,000,000 of unrestricted cash, cash equivalents, short-term investments and marketable securities on hand. 360networks expects to use these funds to maintain service to existing customers in Canada and the United States, and to complete key segments of its North American network. 360networks believes it will be able to complete its North American network using its cash and current backlog of contracted revenues. Further growth will depend on its ability to attract additional financing or strategic investment into the reorganized company. Subject to certain conditions, the company's senior secured lenders have agreed to subordinate their liens to up to $100 million of debtor-in-possessions (DIP) financing, and the company has received a firm proposal for such financing. 360networks also intends to consider additional proposals to enable it to obtain the best available terms and is examining other strategic alternatives, including asset sales. "We are taking these steps to restructure our business and financial position in a difficult telecommunications environment," said Greg Maffei, president and chief executive officer of 360networks. "While very disappointing, we believe today's filings provide us the best opportunity to reorganize and operate our core business." Lazard Freres is assisting 360networks to develop and evaluate options, including restructuring its debt obligations. PricewaterhouseCoopers Inc. has been appointed by the court in Canada as Monitor of the Canadian proceeding. The filings do not include the company's 360americas subsidiaries, which were acquired in connection with the purchase of GlobeNet Communications Group Limited. In addition, 360networks intends to initiate insolvency proceedings for certain of its European subsidiaries. The company also announced the resignation of seven board members: Kevin Compton, Glenn Creamer, John Malone, Claude Mongeau, Christian Reinaudo, John Stanton and Jim Voelker. These resignations took place prior to today's filings. ----------------------------------------------------------------- [00004] 360 DEBTORS' CHAPTER 11 DATABASE ----------------------------------------------------------------- Lead U.S. Debtor: 360networks Inc. (USA) 350 Park Avenue, 21st Floor New York, NY 10022 U.S. Debtor affiliates filing separate chapter 11 petitions: Telecom Central, L.P. 360networks holdings (USA) inc. 360fiber inc. 360fiber (USA 2) inc. 360fiber (USA 3) inc. 360networks (USA) of Virginia inc. 360networks LLC 360networks Illinois LLC 360networks Iowa LLC 360networks Kentucky LLC 360networks Louisiana LLC 360networks Michigan LLC 360networks Mississippi LLC 360networks Tennessee LLC 360carrier management inc. TRES Management LLC Meet Me Room LLC Carrier centers Georgia, inc. Carrier Center LA, Inc. Texas Carrier Centers Inc. 360pacific (USA) inc. 360networks sub inc. Chapter 11 Petition Date: June 28, 2001 Court: United States Bankruptcy Court Southern District of New York One Bowling Green, Fifth Floor New York, NY 10004 Bankruptcy Case Nos.: 01-13721 and 01-13722; 01-13724; 01-13726 and 01-13727; 01-13729 and 01-13730; 01-13733 and 01-13734; 01-13738 and 01-13738; 01-13740; and 01-13742 through 01-13751, inclusive Bankruptcy Judge: Allan L. Gropper Debtors' Bankruptcy Counsel: Alan J. Lipkin, Esq. Shelley C. Chapman, Esq. Willkie Farr & Gallagher 787 Seventh Avenue New York, New York 10019 (212) 728-8000 Debtors' Special Securities Counsel: Roger Andrus, Esq. Cahill Gordon & Reindel 80 Pine Street New York, NY 10005 (212) 701-3000 United States Trustee: Carolyn S. Schwartz, United States Trustee for Region II Greg Zipes, Esq., Staff Attorney 33 Whitehall Street, 21st Floor New York, NY 10004 (212) 510-0500 ----------------------------------------------------------------- [00005] LIST OF 360 DEBTORS' 30 LARGEST UNSECURED CREDITORS ----------------------------------------------------------------- The 360 Debtors filed this (useless) list with the Bankruptcy Court to identify their 30-largest unsecured creditors and, purportedly, to comply with the requirement of providing "a list containing the name, address and claim of the creditors that hold the 20 largest unsecured claims, excluding insiders. . . ." mandated by Rule 1007(d) of the Federal Rules of Bankruptcy Procedure: PIRELLI CABLES - DEPT. CH 14058 DEPT. CH 14058 KAJIMA CONSTRUCTION SERVICES INC. - CA 901 CORPORATE CENTER DRIVE 3RD FLOOR HOWARD S. WRIGHT CONSTRUCTION CO. PIER 9 SUITE 111 PILCHUCK DIVERSIFIED SERVICES INC 11711 NORTHCREEK PARKWAY SOUTH ST D 103 MASTEC - PURCELL OK PO BOX 266 WAGNER EQUIPMENT CO. 18091 EAST 22ND AVENUE ENCOMPASS ELECTRICAL TECHNOLOGIES 2911 WEST FAIRMOUNT AVENUE BIG-D FASTRACK CORP. 420 EAST SOUTH TEMPLE SUITE 550 KAJIMA CONSRUCTION SERVICES INC. - IL 800 E. NORTHWEST HWY CARRIER CORPORATION 3936 PENDLETON WAY EMERSON TELECOM SYSTEMS 610 EXECUTIVE CAMPUS DRIVE SUITE 120 C & S NETWORK CONSTRUCTION P.O. BOX 266 J-TEC INC. PO BOX 477 FIBERNET TELECOM GROUP INC. 570 LEXINGTON AVENUE KAJIMA CONTRUCTION SERVICES INC. - GA 3445 PEACHTREE ROAD SUITE 200 TISHMAN CONSTRUCTION CORPORATION OF DC 5335 WISCONSIN AVE. NW SUITE 750 SPARTAN BUILDING CORP. PO BOX 490 NKF KABEL ZUIBELIJK HALFROND #11 P.O. BOX 325 2800 WOOLDRIDGE CONSTRUCTION CO. LLC 1010 JUNE ROAD MANUEL BROS-908 TAYLORVILLE GRASS VALLEY 908 TAYLORVILLE ROAD STE 104 ROHN INC. 1100 INDUSTRIAL BLVD PO BOX 1740 CROS-AM INDUSTRIES LTD. 21 SOUTH MAIN STREET#204 CISCO SYSTEMS CANADA CO. - TORONTO PO BOX / B.P. 2669 STATION A IMPERIAL PIPE CORPORATION P.O. BOX 1178 573 NEAL DRIVE BATSON COOK COMPANY 801 - 4TH AVENUE KIEWIT CONSTRUCTION-1000 KIEWIT PL OMAHA 1000 KIEWIT PLAZA TURNER CONSTRUCTION - 2 SEAPORT LANE 2 SEAPORT LANE DPR CONSTRUCTION INC. 3020 EAST CAMELBACK SUITE 100 FIBERWAVE CORP. 125 - T 2ND STREET ADOLFSON & PETERSON CONSTRUCTION 15938 MIDWAY ROAD ADC - PO BOX 1101-MINNEAPOLIS P.O. BOX 1101 Because the United States Trustee relies on this list for the purpose of contacting the largest creditors and inviting them to serve on an official committee, the U.S. Trustee's office, no doubt, is pressing the Debtors to provide a complete and coherent list of the Debtors' largest unsecured creditors. ----------------------------------------------------------------- [00006] DEBTORS' MOTION FOR JOINT ADMINISTRATION OF PROCEEDINGS ----------------------------------------------------------------- The Debtors ask, pursuant to Rule 1015(b)(4) of the Federal Rules of Bankruptcy Procedure, that the Court order their chapter 11 cases be jointly administered. Administration of one bankruptcy case on the U.S. Court's dockets, Alan J. Lipkin, Esq., at Willkie, Farr & Gallagher explains, will reduce costs and facilitate a more efficient administrative process, unencumbered by the procedural problems otherwise attendant to the administration of multiple chapter 11 cases. At the First Day Hearing, Judge Gropper directed that the Debtors' chapter 11 cases be consolidated, solely for administrative purposes, and that all pleadings and papers be captioned: UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK _____________________________________ ) In re ) Chapter 11 Case ) 360networks (USA) inc., et al., ) Case No. 01-13721 (ALG) ) Debtors. ) Jointly Administered _____________________________________) Further, Judge Gropper made it clear that his Order neither contemplates a substantive consolidation of the Debtors' estates nor prejudices the right of any party-in-interest to seek a substantive consolidation of the Debtors' estates. ----------------------------------------------------------------- [00007] DEBTORS' MOTION TO HONOR PREPETITION EMPLOYEE OBLIGATIONS ----------------------------------------------------------------- Prior to the Petition Date, the Debtors paid their employees' wages, salaries and other compensation and benefits in the ordinary course of their Debtors' businesses. As employee obligations accrue on an ongoing basis, but are paid periodically in arrears, the intervening chapter 11 filings signify there are accrued unpaid prepetition wages, salaries, commissions, incentive compensation and/or other compensation owed to the Debtors' employees and related third-parties, such as employee benefit plan administrators. By this Motion, the Debtors seek immediate authority to honor the Prepetition Employee Obligations because payment of these obligations "is critical to maintaining the morale and stability of the Debtors' workforce," Vanessa A. Wittman, the Debtors' Chief Financial Officer, told Judge Gropper. "It is axiomatic that continued loyalty of a debtor's employees is a necessary component to any successful reorganization," Alan J. Lipkin, Esq., at Willkie, Farr & Gallagher says. The filing of a chapter 11 petition is a stressful and uncertain time for a debtor's employees, most of whom are not schooled in the nuances of bankruptcy that certain practitioners often take for granted. Such stress and uncertainty often causes poor employee morale just at that critical time when a debtor most needs its employees' loyalty. Such low morale may be compounded if certain employees perceive themselves to have received less favorable treatment than others. Moreover, many employees would suffer severe adverse personal economic consequences if they failed to receive full compensation. All those concerns are magnified here because the Debtors made substantial employee layoffs just prior to the chapter 11 filings -- 800 positions were cut the day before the filing. Mr. Lipkin notes that the severance payments to such employees were funded and issued prepetition. 360's Prepetition Employee Obligations A. Wages, Salaries, and Other Compensation Historically, the Debtors' employees have been paid every other Friday for the two week period ending the preceding Saturday. The Debtors' workforce is divided, as of the date hereof, into approximately 360 "Network" employees and 130 "Fiber" employees. The Network employees and the Fiber employees are paid on alternate weeks. The Debtors' approximate gross bi- weekly payroll for all Network employees aggregates $1,000,000 and for Fiber employees aggregates $195,000. Approximately 3% of the Debtors' payroll costs represent compensation paid to Senior Executives: Weekly Name Title Compensation ---- ----- ------------ Greg Maffei President $3,846.15 Vanessa Wittman Director 4,326.92 Jimmy Byrd COO and Treasurer 5,096.15 Patrick Summers Vice President, General Counsel & Secretary 3,327.29 with the balance representing compensation to "rank and file" employees. Historically, prior to each pay date, the Debtors transferred funds to payroll accounts maintained by ADP, Inc., the Debtors' payroll processor, in the name of ADP, and other Plan Administrators. Prior to the Petition Date, the Debtors transferred to the payroll accounts funds the Debtors believe were sufficient to pay all employees for compensation owing through the Petition Date. Accordingly, the Debtors believe they are substantially current with respect to prepetition payroll obligations. B. Reimbursable Business Expenses Prior to the Petition Date and in the ordinary course of their businesses, the Debtors reimbursed employees for certain business expenses incurred in the scope of their employment. The Debtors estimate that, as of the Petition Date, the Debtors' employees had incurred unreimbursed expenses aggregating approximately $150,000, relating to, among other things, business travel, business meals, car rentals, and miscellaneous related expenses All the Reimbursable Expenses were incurred on the Debtors' behalf in connection with employment by the Debtors and in reliance upon the understanding such expenses would be reimbursed. The Debtors estimate that no one employee is owed more than $15,000 of Reimbursable Expenses. C. Employee Benefits In the ordinary course of their businesses, and as is customary for most large companies, the Debtors have established various employee benefit plans and policies that provide employees with medical, dental, disability and life insurance, employee savings, and other similar benefits. 360's Employee Benefits include: (i) Employee Health Insurance Plans -- An important element of the Employee Benefits is medical and dental insurance. To offer an appropriate level of Health Benefits to their employees and their families, the Debtors maintain four self-insured health plan options, each administered by CIGNA. The Health Benefit plans are fully funded by the Debtors with respect to coverage for individual employees. Employees are entitled to elect dependent coverage upon payment of up to $30 per month, which amount is deducted directly from the employee's compensation. As is typical with most self-insured health benefit plans, after a claim has been filed with CIGNA and processed, the Debtors, through CIGNA, either: (a) reimburse the employee for the cost of the services; or (b) pay the health benefits provider for services rendered to the employee. Payments of these Self- Insured Claims are made by CIGNA who draws directly, on an as and when-needed basis, from an account maintained by the Debtors for such purpose. The Debtors fund such account from time to time. Ordinarily, there is a lag time between when an employee submits a claim and when such claim is paid by CIGNA. If the Debtors fail to pay any Self-Insured Claim, the employee generally is directly liable to the provider. Based upon an average in recent months, the projected Self-Insured Claims, including any Pipeline Claims, paid by the Debtors aggregate up to $300,000 per month, with an average three month accrual of $600,000 to $900,000. The Debtors seek authorization to continue paying the prepetition Pipeline Claims and Self-Insured Claims in the ordinary course. The Debtors also maintain a "stop-loss" and insurance policy that limits the Debtors' exposure an account of self-insured Health Benefits offered. The average monthly premium for the Stop-Loss Policy is approximately $22,000. (ii) Employee Life and AD&D Insurance -- The Debtors provide employees with fully funded life and accidental death and dismemberment insurance. The Debtors make monthly payments of approximately $26,000 on account of such insurance. The Debtors believe they are substantially current on all such payments; however, to the extent that any premiums remain unpaid as of the Petition Date or any portion of the current month's payment may be characterized as a prepetition obligation, the Debtors seek to be authorized, but not directed, to pay those amounts. (iii) Vision Insurance -- The Debtors provide employees with fully funded vision insurance. The Debtors make monthly payments of approximately $14,000 on account of such insurance. The Debtors believe they are substantially current on all such payments; however, to the extent that any premiums remain unpaid as of the Petition Date or any portion of the current month's payment may be characterized as a prepetition obligation, the Debtors seek to be authorized, but not directed, to pay those amounts. (iv) Short and Long-Term Disability Insurance -- The Debtors provide employees with fully funded short-term and long-term disability insurance. The Debtors make monthly payments of approximately $17,000 and $11,000, respectively, on account of such insurance. The Debtors believe they are substantially current on all such payments; however, to the extent that any premiums remain unpaid as of the Petition Date or any portion of the current month's payment may be characterized as a prepetition obligation, the Debtors seek to be authorized, but not directed, to pay those amounts. (v) Withholdings From Employee Paychecks -- The Debtors deduct certain amounts from their employees' paychecks for the payment of flexible medical spending amounts, 401(k) contributions and other miscellaneous amounts, for which the employees contribute one hundred percent of the costs. The Employee Deductions comprise property of the Debtors' employees. The Employee Deductions are forwarded by the Debtors to appropriate third-party recipients at varying times. Employee Deductions total approximately $40,000 per week. The Debtors also may be in possession of various other withholdings, such as payroll taxes, social security, garnishments, child support payments, and the like. It is likely that such funds have been deducted from employee wages but have not yet been forwarded to the appropriate third-party recipients. D. Workers' Compensation The Debtors are liable to current and former employees under various workers' compensation policies. Each workers' compensation policy is designed to provide coverage to the Debtors' employees for injuries sustained during the policy year. As is true for all workers' compensation programs, however, the insurer may be required to make payments to injured employees for months or years beyond the policy year. The Debtors purchase premium-based workers' compensation insurance with annual retrospective adjustments. The Debtors' monthly payment on account of their premium based workers' compensation insurance is approximately $250,000. The Debtors believe they are current on all such payments; however, in the unlikely event that the Debtors have amounts owing due to prepetition workers' compensation obligations or to the extent that a portion of the current payments may be characterized as prepetition obligations, the Debtors seek authority to pay such amounts. E. Miscellaneous The Debtors may determine there are additional de minimis prepetition obligations which have not been identified in the motion. For example, although the Debtors have in the past agreed to reimburse certain employees for tuition costs, the Debtors are unaware of any such obligations at this time that would qualify for reimbursement. The Debtors, however, may learn of such amounts subsequent to the date hereof. Accordingly, the Debtors request authority to pay any such additional obligations, up to an aggregate of $150,000, upon five days' prior written notice to counsel to any statutory committee appointed herein, counsel to their prepetition bank lenders, and the Office of the United States Trustee, setting forth the nature and amount of the additional obligation sought to be paid. If an objection is interposed within such five-day period, the Debtors would be required to seek authority from this Court to make such payment. The Debtors also reserve their rights to seek authority from the Court to pay any obligations in excess of the aforementioned cap. Absent prompt payment of amounts owed in connection with the Prepetition Employee Obligations, it is likely employee morale and support would be impaired, 360 argues. Further, as many of the Debtors' employees rely on the timely receipt of their paychecks and/or reimbursement for expenses, any delay in paying amounts owed in respect of the Prepetition Employee Obligations could cause such employees serious hardship. Also, many employees rely on their employee benefits, such as Health Benefits, without which they would be forced to pay for or go without insurance coverage and healthcare for themselves and their families. Any such adverse consequences at this critical time undoubtedly would have a devastating impact on the value of the Debtors' estates. Amounts withheld by the Debtors from employees' paychecks, represent, in many cases, employee earnings specifically designated by employees or, in the case of garnishments, by judicial authorities, to be deducted from employee paychecks and paid accordingly. The failure to make these payments would result in hardship to certain employees. The Debtors expect numerous inquiries from garnishors and other designated recipients regarding the Debtors' failure to submit, among other things, taxes, child support and alimony payments which are not the Debtors' property, but rather have been withheld from employee paychecks. Moreover, if the Debtors are unable to remit certain of these amounts, the employees could face legal action and/or imprisonment. The Debtors' employees are an essential component of a successful Reorganization, Ms. Wittman and Mr. Lipkin stressed to Judge Gropper. Any deterioration in employee morale and welfare at this critical time undoubtedly would have a devastating impact on the Debtors and their ability to reorganize, they emphasized. Persuaded by these arguments, Judge Gropper granted 360 authority to honor these obligations. Judge Gropper finds that the relief sought by 360 is in the best interests of their estates and will enable the Debtors to continue to operate their businesses with minimal disruption and proceed with the important task of stabilizing their operations. Judge Gropper makes it clear that the decision to honor any particular pre-petition employee- related obligation rests solely on the Debtors' discretion to make the payment. Nothing in Judge Gropper's Order compels the Debtors to make a payment nor grants any employee a right to payment. Further, nothing in the Debtors' Motion or the Court's Order shall be construed as an assumption of any executory contract pursuant to 11 U.S.C. Sec. 365. *** End of Issue No. 1 ***