================================================================= ADELPHIA BANKRUPTCY NEWS Issue Number 3 ----------------------------------------------------------------- Copyright 2002 (ISSN XXXX-XXXX) April 9, 2002 ----------------------------------------------------------------- Bankruptcy Creditors' Service, Inc. 609-392-0900 FAX 609-392-0040 ----------------------------------------------------------------- ADELPHIA 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. Any re-mailing of ADELPHIA BANKRUPTCY NEWS is prohibited. ================================================================= IN THIS ISSUE ------------- [00024] U.S. TRUSTEE APPOINTS UNSECURED CREDITORS' COMMITTEE [00025] DEBTORS' FIRST MOTION FOR MORE TIME TO FILE SCHEDULES [00026] DEBTORS' APPLICATION TO EMPLOY BSI AS CLAIMS AGENT [00027] DEBTORS' MOTION TO RETAIN ORDINARY COURSE PROFESSIONALS [00028] DEBTORS' MOTION TO PAY PRE-PETITION SALES & USE TAX KEY DATE CALENDAR ----------------- 03/27/02 Voluntary Petition Date 04/16/02 Deadline to provide Utilities with adequate assurance 05/26/02 Deadline to make decisions about lease dispositions 06/10/02 Deadline for filing Schedules of Assets and Liabilities 06/10/02 Deadline for filing Statement of Financial Affairs 06/10/02 Deadline for filing Lists of Leases and Contracts 06/25/02 Deadline to remove actions pursuant to F.R.B.P. 9027 07/25/02 Expiration of Debtor's Exclusive Plan Proposal Period 09/23/02 Expiration of Debtor's Exclusive Solicitation Period 03/26/04 Deadline for Debtor's Commencement of Avoidance Actions 03/26/04 Expiration of ACC-Backed DIP Financing Facility Bar Date for filing Proofs of Claim First Meeting of Creditors pursuant to 11 USC Sec. 341 ----------------------------------------------------------------- [00024] U.S. TRUSTEE APPOINTS UNSECURED CREDITORS' COMMITTEE ----------------------------------------------------------------- Pursuant to Section 1102 of the Bankruptcy Code, the United States Trustee for Region II appoints these Creditors, being among the largest unsecured claimants who are willing to serve, to the Committee of Unsecured Creditors: A. Bell South Corporation 1155 Peachtree St., Suite 1929, Atlanta, GA 30309-3610 Attn: Bradley O. Greene, Exec. Dir. - Corp. Development Phone: (404) 249-4506 Fax: {404} 249-4740 B. Fidelity Management & Research Co. 82 Devonshire St., E20E, Boston, MA 02109 Attn: Nate VanDuzer Phone: (617) 392-8129 Fax: (617) 476-5174 C. Morgan Stanley Investment Management 1 Tower Bridge, 100 Front St., W. Conshohacken, PA 19428 Attn: Deanna L. Loughnanne, Executive Director Phone: (610) 940-5000 Fax: (610) 260-7088 D. Wilmington Trust Co. Rodny Square North, 1100 Malat St., Wilmington, DE 19801 Attn: Michael Diaz Phone: (302) 656-8326 Fax: (302) 636-4140 E. The Bank of New York 5 Penn Plaza, 13th Floor, New York, NY 10001 Attn: Loretta Lundborg, Vice President Phone: (212) 896-7273 Fax: (212) 328-7302 F. Bank of America 901 Main St., Dallas, Texas 75202 Attn: Robin Phelan Phone: (214) 209-0966 Fax: (214) 290-9490 ----------------------------------------------------------------- [00025] DEBTORS' FIRST MOTION FOR MORE TIME TO FILE SCHEDULES ----------------------------------------------------------------- The Debtors obtained an order from the Court extending the 15 day period to file their respective schedules of assets and liabilities, schedules of current income and expenditures, schedules of executory contracts and unexpired leases, and statements of financial affairs. They have received an additional 60 days, to June 10, 2002, without prejudice to the Debtors' right to request additional time should it become necessary. Judy G.Z. Liu, Esq., at Weil Gotshal & Manges LLP in New York, relates that the Debtors provide telecommunications services to thousands of direct customers and also provide services to other companies who in-turn provide the Debtors' services to their direct customers. In order to prepare the Schedules, the Debtors must gather extensive information on all such services and clients throughout the country. Such a task requires an enormous expenditure of time and effort on the part of the Debtors and their employees. Ms. Liu assures the Court that the Debtors are mobilizing their employees to work diligently and expeditiously on the preparation of the Schedules. Nonetheless, due to the additional demands placed on the Debtors' employees as a result of the Chapter 11 process, personnel resources are strained. The Debtors likely will not be able to properly and accurately complete the Schedules within the 15-day time period imposed under the Bankruptcy Rules. This becomes obvious when considering the large amount of work entailed in completing the Schedules and in dealing with the competing demands upon the Debtors' employees to assist in efforts to stabilize business operations during the initial post-petition period. Accordingly, in view of the size of the Debtors' cases, the amount of information that must be assembled and compiled, the location of such information, and the significant amount of employee time that must be devoted to the task of completing the Schedules, the Debtors submit that ample cause exists for the extension. ----------------------------------------------------------------- [00026] DEBTORS' APPLICATION TO EMPLOY BSI AS CLAIMS AGENT ----------------------------------------------------------------- The Debtors obtained authorization to retain Bankruptcy Services LLC (BSI) as the claims and noticing agent in connection with the Debtors' Chapter 11 cases pursuant to the terms and conditions of the Bankruptcy Services Agreement, dated March 26, 2002. John b. Glicksman, Esq,., Vice President of the Debtors, estimate that there are in excess of 1,000 creditors and parties in interest in these Chapter 11 cases, many of which are expected to file proofs of claim. It appears that the noticing, receiving, docketing, and maintaining proofs of claim would be unduly time consuming and burdensome for the Clerk's Office. The Debtors believe that the retention of BSI as the Court's outside agent is in the best interests of their estates and parties in interest. Ron Jacobs, President of BSI, informs the Court that BSI is a nationally recognized specialist in Chapter 11 administration. BSI has considerable experience in noticing and claims administration in Chapter 11 cases. Subject to the Court's approval, BSI has agreed to provide, at the Debtors' request, these and other services: A. notifying all potential creditors of the filing of the bankruptcy petitions and of the setting of the first meeting of creditors pursuant to Section 341(a) of the Bankruptcy Code, under the proper provisions of the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure; B. maintaining an official copy of the Debtors' schedules of assets and liabilities and statements of financial affairs, listing the Debtors' known creditors and the amounts owed thereto; C. notifying all potential creditors of the existence and amount of their respective claims as evidenced by the Debtors' books and records and as set forth in the Schedules; D. furnishing a form for the filing of a proof of claim, after such notice and form are approved by this Court; E. filing with the Clerk a copy of any notice served by BSI, a list of persons to whom it was mailed (in alphabetical order), and the date the notice was mailed, within 10 days of service; F. docketing all claims received, maintaining the official claims registers for each Debtor on behalf of the Clerk, and providing the Clerk with certified duplicate unofficial Claims Registers on a monthly basis, unless otherwise directed; G. specifying in the applicable Claims Register, the following information for each claim docketed: 1. the claim number assigned, 2. the date received, 3. the name and address of the claimant and agent, if applicable, who filed the claim, and 4. the classification of the claim (e.g., secured, unsecured, priority, etc.); H. relocating, by messenger, all of the actual proofs of claim filed to BSI, not less than weekly; I. recording all transfers of claims and providing any notices of such transfers required by Bankruptcy Rule 3001; J. making changes in the Claims Registers pursuant to an order of this Court; K. upon completion of the docketing process for all claims received to date by the Clerk's office, turning over to the Clerk copies of the Claims Registers for the Clerk's review; L. maintaining the official mailing list for each Debtor of all entities that have filed a proof of claim, which list will be available upon request by a party-in-interest or the Clerk; M. assisting with, among other things, the solicitation and the tabulation of votes and the distribution as required in furtherance of confirmation of plan(s) of reorganization; N. submitting an Order, by 30 days prior to the close of these cases, dismissing the Agent and terminating the services of the Agent after completion of the Agent's duties and responsibilities and after the closing of these cases; and O. at the close of the case, boxing and transporting all original documents in proper format, as provided by the Clerk's office, to the Federal Records Center. In addition, the Debtors are authorized to compensate and reimburse BSI in accordance with the payment terms of the BSI Agreement for all services rendered and expenses incurred in connection with the Debtors' Chapter 11 cases. The Debtors believe that such compensation rates are reasonable and appropriate for services of this nature and comparable to those charged by BSI in other Chapter 11 cases in which it has served as claims and notifying agent, and by other providers of similar services. The Debtors are also authorized to obtain a special post office box for the receipts of proofs of claim. In an effort to reduce the administrative expenses related to BSI's retention, Judge Gerber directs the Debtors to pay BSI's fees and expenses in accordance with the provisions of the BSI Agreement, without the necessity of BSI filing formal fee applications. Mr. Jacobs assures the Court that BSI will continue to perform the services contemplated by the BSI Agreement in the event the Debtors' Chapter 11 cases are converted to Chapter 7 cases. In the event that BSI's services are terminated, BSI will perform its duties until the occurrence of a complete transition with the Clerk's Office or any successor claims/noticing agent. Mr. Jacobs assures the Court that neither BSI nor any of its members or employees hold or represent any interest adverse to the Debtors' estates or creditors with respect to the services described herein. ----------------------------------------------------------------- [00027] DEBTORS' MOTION TO RETAIN ORDINARY COURSE PROFESSIONALS ----------------------------------------------------------------- The Debtors sought and obtained authority to retain Ordinary Course Professionals that are used by the Company in the ordinary course of their businesses. This authorization dispenses with the requirement for the Debtors to submit separate employment applications, affidavits, and secure separate retention orders for each individual non-bankruptcy professional. Judge Gerber also permits the Debtors to pay each Ordinary Course Professional, without a prior application to the Court, 100% of the fees and disbursements incurred. This is upon the submission to, and approval by, the Debtors of an appropriate invoice setting forth, in reasonable detail, the nature of the services rendered and disbursements actually incurred. This can be up to the lesser of $30,000 per month per Ordinary Course Professional or $300,000 per month, in the aggregate, for all Ordinary Course Professionals. If an Ordinary Course Professional seeks more than $30,000 per month in fees, Judy G.Z. Liu, Esq., at Weil Gotshal & Manges LLP in New York, New York, relates that the professional is required to file a fee application for the full fee amount. This filing must be in accordance with Sections 330 and 331 of the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, the Local Bankruptcy Rules, the Fee Guidelines promulgated by the United States Trustee, and any and all orders of the Court. In addition, each Ordinary Course Professional must provide to the Office of the United States Trustee and the Debtors and file with the Court these documents. Such documents must be provided within 15 days after the entry of an order granting this Motion or after the engagement of the professional by the Debtors: A. an affidavit certifying that the professional does not represent or hold any interest adverse to the Debtors or their estates with respect to the matter on which the professional is to be employed and B. a completed retention questionnaire. The Debtors reserve the right to supplement the list of Ordinary Course Professionals from time to time as necessary. In such event, Ms. Liu states that the Debtors propose to file a notice with the Court stating that the Debtors intend to employ additional Ordinary Course Professionals and to serve the notices on: A. the Office of the United States Trustee for the Southern District of New York, B. the attorneys for an informal committee of holders of 12¬% Senior Secured Notes due 2004 issued by ABIZ, C. the attorneys for the statutory committee of unsecured creditors appointed in these cases, D. the attorneys for the Debtors' post-petition lenders, and E. all other parties that have filed a notice of appearance in these Chapter 11 cases. Although certain of the Ordinary Course Professionals may hold unsecured claims against the Debtors for pre-petition services rendered to the Debtors, Ms. Liu does not believe that any of the Ordinary Course Professionals has an interest adverse to the Debtors, their creditors, or other parties-in-interest on the matters for which they would be employed. Thus, all of the Ordinary Course Professionals proposed to be retained meet the special counsel retention requirement under Section 327(e) of the Bankruptcy Code. Ms. Liu assures the Court that all other professionals used by the Debtors in the prosecution of these Chapter 11 cases will be retained by the Debtors pursuant to separate retention applications. The professionals will be compensated in accordance with the applicable provisions of the Bankruptcy Code and the Bankruptcy Rules. According to Ms. Liu, the Debtors desire to continue to employ the Ordinary Course Professionals to render services to their estates similar to those services rendered prior to the Commencement Date. These professionals perform a wide range of legal, accounting, tax, real estate, finance, telecommunications consulting, public relations, and other services for the Debtors that impact the Debtors' day-to-day operations. It is essential that the employment of the Ordinary Course Professionals, many of whom are already familiar with the Debtors' affairs, be continued on an ongoing basis so as to avoid disruption of the Debtors' day-to-day business operations. The Debtors submit that the proposed employment of the Ordinary Course Professionals and the payment of monthly compensation on the basis set forth above are in the best interest of their estates and their creditors. Ms. Liu submits that the relief obtained will save the estates the substantial expenses associated with applying separately for the employment of each professional and will avoid additional fees for the preparation and prosecution of interim fee applications. Likewise, the procedure outlined above will relieve the Court and the United States Trustee of the burden of reviewing numerous fee applications involving relatively small amounts of fees and expenses. The Debtors submit that, in light of the additional cost associated with the preparation of employment applications for professionals who will receive relatively small fees, it is impractical and inefficient for the Debtors to submit individual applications and proposed retention orders for each Ordinary Course Professional. Accordingly, the Court dispenses with the requirement of individual employment applications and retention orders with respect to each Ordinary Course Professional retained from time to time as of the Commencement Date. ----------------------------------------------------------------- [00028] DEBTORS' MOTION TO PAY PRE-PETITION SALES & USE TAX ----------------------------------------------------------------- The Debtors sought and obtained authority to pay any pre-petition Taxes owed to the Taxing Authorities in the ordinary course of business on an un-accelerated basis, as such payments become due and payable. To the extent that the Checks have not cleared as of the Commencement Date, the Court also authorizes the Debtors' banks to honor the Checks. To the extent that the Taxing Authorities have not received payment for pre-petition Taxes due, the Debtors are also authorized to issue replacement checks, or to provide other means of payment to the Taxing Authorities. They are authorized to pay all outstanding pre-petition Taxes due as of the Commencement Date, which amounts may not be due and owing until after the Commencement Date. According to Harvey R. Miller, Esq., at Weil Gotshal & Manges LLP in New York, New York, in connection with the normal operation of their businesses, the Debtors collect sales and use taxes on behalf of various state and local taxing authorities for payment to such Taxing Authorities. The process by which the Debtors remit the Taxes varies depending on the nature of the Tax at issue and the Taxing Authority to which it is to be paid. In the ordinary course of their businesses, Mr. Miller relates that the Debtors collect sales taxes from the purchasers of their communications services on a per sale basis and remit them periodically to the applicable Taxing Authorities. Sales taxes accrue as services are provided and are calculated based upon a statutory percentage of the sale price. For the most part, sales taxes are paid in arrears, ordinarily on a monthly basis, during the month that follows the month in which the taxes were incurred. For some jurisdictions, the taxes are paid on a quarterly basis so that the taxes are paid in the month subsequent to the quarter in which the taxes were incurred. Mr. Miller states that some jurisdictions, however, require the Debtors to remit estimated sales taxes on a monthly or quarterly basis. The Taxing Authority subsequently "true up" the estimated payment to actual liability to determine any payment deficiency or surplus for the applicable period and an appropriate refund or payment is then made. Mr. Miller submits that the Debtors also are obligated to remit use taxes on a periodic basis to the applicable Taxing Authorities. The Debtors incur use taxes in connection with purchase of taxable equipment and supplies for their own use, in circumstances where the vendor of such equipment and supplies failed to collect a sales tax from the Debtors. Generally, the Debtors remit the use taxes to the relevant Taxing Authorities on the same basis as they remit sales taxes. For the month of February 2002, Mr. Miller informs the Court that the Debtors collected approximately $1,034,800 in sales taxes on behalf of the Taxing Authorities. Substantially all these sales taxes were paid prior to the Commencement Date. However, the balance of the February sales taxes, which is approximately $450, remains outstanding and approximately $392 in sales taxes, which accrued during the month of January, has not been paid. Certain Taxing Authorities who were not paid by wire transfer were sent checks beginning on March 15, 2002, and may not have cleared as of the Commencement Date in respect of the February sales tax amounting to $765,900. Mr. Miller adds that approximately $29,500 in use taxes accrued during the month of February, which as of the Commencement Date, have not yet been paid. Lastly, approximately $630 in use taxes accrued during the month of January and, as of the Commencement Date, have not been paid. Mr. Miller contends that the Debtors do not have any equitable interest in such Taxes and should be permitted to pay these Taxes to the Taxing Authorities, as they become due. Sales and use taxes are afforded priority status under Section 507(a)(8) of the Bankruptcy Code and, therefore, must be paid in full before any general unsecured obligations of a debtor may be satisfied. Accordingly, to the extent that the Debtors are successful in confirming a plan of reorganization, the relief will only affect the timing of the payment of pre-petition Taxes and will not prejudice the rights of any other creditors or parties in interest. Moreover, Mr. Miller points out that many state statutes, including those of certain of the states in which the Debtors operate, hold officers and directors of collecting entities personally liable for sales and use taxes owed by those entities. To the extent that any Taxes remain unpaid by the Debtors as of the Commencement Date, the Debtors' officers and directors may be subject to lawsuits or criminal prosecution during the pendency of these Chapter 11 cases. Any such lawsuit or criminal prosecution (and the ensuing potential liability) would distract the Debtors, their officers and directors from their efforts to implement a successful reorganization strategy. This is undesirable for all parties in interest in these Chapter 11 cases. *** End of Issue No. 3 *** ------------------------------------------------------------------------- Peter A. Chapman peter@bankrupt.com http://bankrupt.com ------------------------------------------------------------------------- Recommended Reading: Professor Stuart Gilson's newest title, "Creating Value Through Corporate Restructuring: Case Studies in Bankruptcies, Buyouts, and Breakups." List Price: $79.95 -- Discounted to $55.96 at http://amazon.com/exec/obidos/ASIN/0471405590/internetbankrupt -------------------------------------------------------------------------