================================================================= COLLINS & AIKMAN BANKRUPTCY NEWS Issue Number 2 ----------------------------------------------------------------- Copyright 2005 (ISSN XXXX-XXXX) May 20, 2005 ----------------------------------------------------------------- Bankruptcy Creditors' Service, Inc. 215-945-7000 FAX 215-945-7001 ----------------------------------------------------------------- COLLINS & AIKMAN BANKRUPTCY NEWS is published by Bankruptcy Creditors' Service, Inc., 572 Fernwood Lane, Fairless Hills, Pennsylvania 19030, on an ad hoc basis (generally every 10 to 20 days) as significant activity occurs in the Debtors' cases. New issues are prepared by Marie Therese V. Profetana, Riza M. Deloria, Christopher G. Patalinghug, Frauline S. Abangan and Peter A. Chapman, Editors. Subscription rate is US$45 per issue. Any re-mailing of COLLINS & AIKMAN BANKRUPTCY NEWS is prohibited. ================================================================= IN THIS ISSUE ------------- [00011] DEBTORS' MOTION FOR JOINT ADMINISTRATION OF CASES [00012] DEBTORS' APPLICATION TO HIRE KIRKLAND & ELLIS AS COUNSEL [00013] DEBTORS' APPLICATION TO HIRE CARSON FISCHER AS CO-COUNSEL [00014] DEBTORS' MOTION TO PAY PREPETITION TAX OBLIGATIONS [00015] DEBTORS' MOTION TO CONTINUE USING CASH MANAGEMENT SYSTEM [00016] DEBTORS' MOTION TO MAINTAIN EXISTING BANK ACCOUNTS [00017] DEBTORS' MOTION TO USE EXISTING BUSINESS FORMS [00018] DEBTORS' MOTION TO GIVE PRIORITY TO INTERCOMPANY CLAIMS [00019] DEBTORS' MOTION TO PAY PREPETITION EMPLOYEE OBLIGATIONS KEY DATE CALENDAR ----------------- 05/17/05 Voluntary Petition Date 06/01/05 Deadline for filing Schedules of Assets and Liabilities 06/01/05 Deadline for filing Statement of Financial Affairs 06/01/05 Deadline for filing Lists of Leases and Contracts 06/06/05 Deadline to provide Utilities with adequate assurance 06/20/05 Final DIP Financing Hearing 07/16/05 Deadline to make decisions about lease dispositions 07/17/05 DIP Financing Facility Financial Covenant Release Date 07/31/05 Deadline to Challenge Pre-Petition Lenders' Liens 08/15/05 Deadline to remove actions pursuant to F.R.B.P. 9027 09/14/05 Expiration of Debtors' Exclusive Plan Proposal Period 11/13/05 Expiration of Debtors' Exclusive Solicitation Period 05/17/07 Deadline for Debtors to Commence Avoidance Actions 05/17/07 $300,000,000 JPMorgan-Led DIP Financing Facility Matures Organizational Meeting with UST to form Committees First Meeting of Creditors pursuant to 11 USC Sec. 341 Bar Date for filing Proofs of Claim ----------------------------------------------------------------- [00011] DEBTORS' MOTION FOR JOINT ADMINISTRATION OF CASES ----------------------------------------------------------------- At the Debtors' request, the Court directs the joint administration of Collins & Aikman Corporation and its 38 debtor-affiliates' individual Chapter 11 cases, for procedural purposes only, pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure. Bankruptcy Rule 1015(b) provides for the joint administration of estates where two or more petitions are pending by or against a debtor and an affiliate in the same court. The Court directs that all pleadings and papers filed in the Debtors' cases be captioned: UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF MICHIGAN In re: ) Chapter 11 ) COLLINS & AIKMAN CORPORATION, et al. ) Case No. 05-55927-R Debtors. ) (Jointly Administered) ) ) (Tax Identification ) #13-3489233) ) ) Honorable Steven W. Rhodes Joseph M. Fischer, Esq., at Carson Fischer, P.L.C, in Birmingham, Michigan, explains that the numerous pleadings, hearings, and orders in the cases will jointly affect the Debtors. Accordingly, joint administration of the Debtors' Chapter 11 cases will avoid the unnecessary time and expense of duplicative pleadings, hearings, and orders, therefore, saving considerable time and expense for the Debtors and resulting in substantial savings for their estates. Mr. Fischer assures the Court that the substantive rights of the Debtors' creditors will not be adversely affected by the joint administration of the Debtors' Chapter 11 cases. ----------------------------------------------------------------- [00012] DEBTORS' APPLICATION TO HIRE KIRKLAND & ELLIS AS COUNSEL ----------------------------------------------------------------- Jay B. Knoll, vice president and general counsel of Collins & Aikman Corporation, tells the Court that Kirkland & Ellis LLP has extensive experience and knowledge in the field of debtors' and creditors' rights and business reorganizations. During its preparation of the Debtors' Chapter 11 Cases, Mr. Knoll discloses that Kirkland & Ellis has become familiar with the Debtors' businesses and many of the potential legal issues that may arise in the context of the Chapter 11 Cases. Accordingly, the Debtors seek the Court's authority to employ Kirkland & Ellis as their attorneys to perform legal services necessary in their Chapter 11 cases, effective as of the Petition Date. As counsel, Kirkland & Ellis will: (a) advise the Debtors with respect to their powers and duties as debtors-in-possession in the continued management and operation of their business and properties; (b) attend meetings and negotiations with representatives of creditors and other parties-in-interest; (c) take all necessary actions to protect and preserve the Debtors' estates, including prosecuting actions on the Debtors' behalf, defending any action commenced against the Debtors and representing the Debtors' interests in negotiations concerning all litigation in which the Debtors are involved, including objections filed against the estates; (d) prepare all motions, applications, answers, orders, reports and papers necessary to the administration of the Debtors' estates; (e) take any necessary action on the Debtors' behalf to obtain approval of a disclosure statement and confirmation of the Debtors' plan of reorganization; (f) represent the Debtors in connection with obtaining postpetition financing; (g) advise the Debtors in connection with any potential sale of assets; (h) appear before the Court, any appellate courts and the United States Trustee and protect the interests of the Debtors' estates before those Courts and the United States Trustee; (i) consult with the Debtors regarding tax matters; and (j) perform all other necessary legal services and provide all other necessary legal advice to the Debtors in connection with the Chapter 11 cases. Kirkland & Ellis received advance payments for its prepetition and postpetition services rendered and expenses incurred on the Debtors' behalf. The Debtors agreed that the prepetition fees are an advance payment and not a retainer. The Debtors will pay Kirkland & Ellis pursuant to the firm's standard hourly rates: Partners $520 to $800 Of Counsel $280 to $685 Associates $245 to $520 Paraprofessionals $90 to $240 Mr. Knoll discloses that 19 professionals at Kirkland & Ellis will have primary responsibility in providing services to the Debtors, including: Richard M. Cieri $795 Ray C. Schrock $520 Todd F. Maynes, P.C. $690 Linda K. Myers, P.C. $675 Richard M. Cieri, Esq., assures the Court that the firm does not hold or represent any interest adverse to the Debtors' estates and is a "disinterested person" within the meaning of Section 101(14) of the Bankruptcy Code as modified by Section 1107(b). ----------------------------------------------------------------- [00013] DEBTORS' APPLICATION TO HIRE CARSON FISCHER AS CO-COUNSEL ----------------------------------------------------------------- The Debtors seek the Court's authority to employ Carson Fischer, P.L.C., as their co-counsel effective as of the Petition Date. Jay B. Knoll, vice president and general counsel of Collins & Aikman Corporation, tells the Court that Carson Fischer is particularly well-suited to serve as the Debtors' co-counsel because of its expertise in automotive insolvency matters. As co-counsel, Carson Fischer will: (a) advise the Debtors regarding matters related to their customers, including issues concerning possible customer accommodations to the Debtors, possible access and security issues, potential resourcing issues, and negotiate with customers regarding these issues; (b) advise the Debtors regarding their various relationships with vendors, existing supply contracts, continuity of supply issues and related matters, and negotiate with vendors concerning these issues; (c) advise the Debtors on matters relating to the evaluation of the assumption, rejection or assignment of unexpired leases and executory contracts; (d) advise the Debtors with respect to their powers and duties as debtors-in-possession in the continued management and operation of their business and properties; (e) attend meetings and negotiate with representatives of creditors and other parties-in-interest; (f) take all necessary actions to protect and preserve the Debtors' estates; (g) prepare motions, applications, answers, orders, reports, and papers necessary in the administration of the Debtors' estates; (h) take any necessary action on the Debtors' behalf to obtain confirmation of the Debtors' plan of reorganization; (i) represent the Debtors in connection with obtaining postpetition loans if necessary; (j) advise the Debtors in connection with any potential sale of assets; (k) appear before the Court, any appellate courts and the United States Trustee, and protect the interests of the Debtors' estates; and (l) perform all other necessary legal services and provide all other necessary legal advice to the Debtors in connection with Chapter 11 cases. Mr. Knoll assures the Court that the services of Carson Fischer is intended to be complementary and not duplicative of the services rendered by the Debtors' lead counsel, Kirkland & Ellis, LLP. Carson Fischer will handle any matter in which Kirkland & Ellis may have a conflict. Carson Fischer received a $100,000 security retainer from the Debtors. In addition, Carson Fischer will bill for legal services at its standard hourly rates. The attorneys expected to represent the Debtors and their hourly rates are: Joseph M. Fischer $495 Robert A. Weisberg $385 William C. Edmunds $350 Lawrence A. Lichtman $335 Christopher A. Grosman $235 Patrick J. Kukla $210 Gina M. Capua $150 Joseph M. Fischer, Esq., discloses that as part of its diverse practice, Carson Fischer appears in numerous cases, proceedings and transactions, some of which may represent claimants and parties-in-interest in the Debtors' Chapter 11 Cases. Mr. Fischer is confident that based on a conflict check, Carson Fischer does not represent any of the Debtors' creditors in connection with the Debtors' Chapter 11 cases. Mr. Fischer assures the Court that the firm is a "disinterested person" as that term is defined in Section 101(14) of the Bankruptcy Code. ----------------------------------------------------------------- [00014] DEBTORS' MOTION TO PAY PREPETITION TAX OBLIGATIONS ----------------------------------------------------------------- Richard M. Cieri, Esq., at Kirkland & Ellis LLP, in New York, relates that in the ordinary course of business, the Debtors collect sales taxes from their customers and incur taxes necessary to operate their businesses. The Debtors also charge fees, licenses, permits and other similar charges and assessments on behalf of various taxing authorities and pay fees to those Authorities for licenses and permits required to conduct business. By this motion, the Debtors seek the Court's authority to pay, in their sole discretion, the Taxes and Fees to the relevant Authorities in the ordinary course of business. The Debtors want to pay Taxes and Fees that accrued prepetition to the extent that the Taxes and Fees: (a) were not in fact paid prepetition; (b) were paid in an amount that was less than is actually owed; or (c) in the event that any payments made prepetition, were rejected, lost or otherwise not received in full by any Authorities. The Debtors estimate that they owe $2,000,000 in prepetition Taxes and Fees. The Debtors believe that the amount represents a small fraction of their total assets. Mr. Cieri relates that if the Taxes and Fees are not paid immediately, certain Authorities may cause the Debtors to be audited, which will unnecessarily divert the Debtors' attention away from the reorganization process. Furthermore, if the Debtors do not pay the amounts in a timely manner, Mr. Cieri says, the Authorities may attempt to suspend the Debtors' operations, file liens, seek to lift the automatic stay and pursue other remedies that will harm the Debtors' estates. Moreover, Mr. Cieri continues, some of the outstanding tax liabilities may be for trust fund taxes that the Debtors have collected and hold in trust for the benefit of the Authorities. "The funds, therefore, do not constitute property of the estate and could not otherwise be used by the estates." According to Mr. Cieri, the Authorities could also assert that the Debtors' officers and directors may be held personally liable if the Debtors fail to meet the obligations to remit the Taxes and Fees. The Debtors' officers and directors may be subject to lawsuits, which would prove extremely distracting for the Debtors and their officers and directors, whose attention to the reorganization process is required, Mr. Cieri says. * * * Judge Rhodes approves the Debtors' request. ----------------------------------------------------------------- [00015] DEBTORS' MOTION TO CONTINUE USING CASH MANAGEMENT SYSTEM ----------------------------------------------------------------- The Office of the United States Trustee has established certain operating guidelines for debtors-in-possession to supervise the administration of Chapter 11 cases, including changes to a debtor's cash management system. Joseph M. Fischer, Esq., at Carson Fischer, P.L.C., in Birmingham, Michigan, asserts that enforcement of these guidelines in the Debtors' Chapter 11 cases would severely disrupt and likely cripple the Debtors' ordinary financial operations. The Debtors and their non-debtor subsidiaries and affiliates participate in a global cash management system, through which the cash of the Debtors and their non-debtor subsidiaries and affiliates flows through the United States, Canada, Europe, Brazil and Mexico. The Cash Management System consists of numerous accounts: A. Carcorp Securitization On December 10, 2004, General Electric Credit Corporation became the agent and sole lender in a $250 million trade receivables securitization facility. Under the GE Securitization Facility, all eligible receivables are sold to Carcorp, Inc., a non-debtor special purpose entity wholly owned by Collins & Aikman Products Company. B. Cash Collection and Concentration * Concentration Accounts The focal point of the cash management system is several concentration accounts. In the United States, one concentration account exists and is maintained at JP Morgan Chase Bank, NA, by C&A Products. In Canada, cash is concentrated in the Canada Operating Accounts. In Europe, several concentration accounts for individual European subsidiaries exist and are maintained at JP Morgan by Collins & Aikman Europe S.A. * C&A Products Concentration Account The Carcorp Concentration Account receives funds from the U.S. SPE Operating Accounts. These funds and collections are swept daily from the Carcorp Concentration Account into the GE Securitization Account and then are swept daily in the C&A Products Concentration Account. * Canada Operating Accounts Funds received in the Canada Operating Accounts are swept daily into the GE Securitization Account and, as available, are swept to the C&A Products Concentration Account. * Europe Concentration Account Pool The European Concentration Account Pool is funded from several lockboxes and underlying accounts at JPMorgan in the name of Carcorp or a Carcorp affiliate. The lockboxes and underlying accounts are swept daily into various accounts in the Europe Concentration Account Pool. C. Disbursements * U.S. Master A/P Disbursement Account and U.S. Operating Disbursement Accounts In the U.S., the Debtors maintain a master accounts payable disbursement account with JPMorgan in the name of C&A Products. On a daily basis, the C&A Products Concentration Account funds the U.S. Master A/P Disbursement Account, which in turn funds several separate zero balance accounts at JPMorgan that are generally utilized to cover disbursements for vendor payments. * U.S. Master Payroll Account The Debtors fund payroll taxes and direct deposit payroll via wire from the C&A Products Concentration account to an account at JPMorgan held by C&A Products and then to individual recipients via automatic clearing house payments. * C&A Products Concentration Account Disbursement Activity The C&A Products Concentration Account disbursement activity includes reimbursements to third party administrators for the benefit of employees directly from the C&A Concentration Account related to medical benefit payments, 401k match payments, workers' compensation payments, pension payments and other company obligations. * Canada A/P Disbursement Account In Canada, the Debtors maintain a master accounts payable disbursement account with JPMorgan in the name of C&A Canada. On a daily basis, the C&A Products Concentration Account funds the Canada A/P Disbursement Account, which in turn funds several separate zero balance accounts to cover disbursements for vendor payments. * Canada Payroll Account The Debtors fund payroll taxes and direct deposit payroll via wire from the C&A Products Concentration Account to an account at JPMorgan held by C&A Canada and then to individual recipients via ACH Payments. * Europe Concentration Account Pool Disbursement Activity The Europe Concentration Account Pool represents several accounts held in behalf of the Debtors' European subsidiaries and affiliates. Funds received in the Europe Operating Accounts are swept into accounts in the Europe Concentration Account Pool as required on a daily basis. Accounts in the Europe Concentration Account Pool make disbursements, including vendor payments and payroll benefit costs, directly from those accounts. D. Brazil Cash Management The Debtors have three affiliated entities in Brazil. One entity provides all of the collection and disbursement functions for the Brazil Affiliates. Funds received from the Brazil Affiliates are swept into one account and utilized to pay disbursements. E. Mexico Cash Management The Debtors have eight affiliated entities in Mexico. Each entity in Mexico has an individual operating account that are each utilized to collect receivables and to make disbursements. A diagram outlining the structure of the Debtors' Cash Management System is available for free at: http://bankrupt.com/misc/collins-diagram.pdf According to Mr. Fischer, it is critical that the Debtors continue to be able to consolidate their cash management and centrally coordinate fund transfers to effectively operate their large, complex business operations. Mr. Fischer states that substantially disrupting the cash management procedures would: (a) severely impair the Debtors' ability to preserve and enhance their going concern values and successfully reorganize during their Chapter 11 cases; and (b) cripple the Debtors' non-debtor foreign affiliates, perhaps to the point of forcing them to shut down. The Debtors have utilized their Cash Management System substantially in its current basic structure for several years as a mainstay of their ordinary business practice. Given the corporate and financial structure of the Debtors and their non- debtor affiliates, it would be difficult for them to establish an entirely new system of accounts, Mr. Fischer explains. Accordingly, at the Debtors' request, the Court permits the Debtors to use their existing cash management system on an interim basis. ----------------------------------------------------------------- [00016] DEBTORS' MOTION TO MAINTAIN EXISTING BANK ACCOUNTS ----------------------------------------------------------------- The United States Trustee for Region 9 has established certain operating guidelines for debtors-in-possession. Those guidelines include a requirement that a Chapter 11 debtor-in-possession close all existing accounts and open new bank accounts. The U.S. Trustee Guidelines also require that the new bank accounts only be opened in certain financial institutions designated as authorized depositories by the U.S. Trustee. These requirements are designed to provide a clear line of demarcation between prepetition and postpetition claims and payments and help protect against the inadvertent payment of prepetition claims by preventing banks from honoring checks drawn before the Petition Date. Before the Petition Date, the Debtors maintained 115 operational accounts some of which are located at financial institutions other than those designated as authorized depositories by the U.S. Trustee. A list of the Debtors' Bank Accounts is available for free at: http://bankrupt.com/misc/collins-bankaccounts.pdf The Debtors seek a waiver of the U.S. Trustee's requirement that the Bank Accounts be closed and that new postpetition bank accounts be opened at the depositories authorized by the U.S. Trustee. If that requirement enforced, the Debtors believe that their businesses will be enormously disrupted and reorganization efforts will be impaired. Accordingly, the Debtors ask the Court to waive the strict enforcement of bank account closing requirements and replace them with alternative procedures that provide the same protection. The Debtors further ask the Court that the Bank Accounts be deemed debtor-in-possession accounts and that the Debtors be permitted to maintain and continue using these accounts in the same manner and with the same account numbers, styles and document forms as those employed during the prepetition period. Maintaining the Bank Accounts would greatly facilitate the Debtors' "seamless transition" to postpetition operations, Joseph M. Fischer, Esq., at Carson Fischer, P.L.C., in Birmingham, Michigan, relates. * * * The Court approves the Debtors' request on an interim basis. ----------------------------------------------------------------- [00017] DEBTORS' MOTION TO USE EXISTING BUSINESS FORMS ----------------------------------------------------------------- The Debtors use a multitude of checks and other business forms in the ordinary course of business. The United States Trustee requires Chapter 11 debtors-in-possession to obtain checks that bear the designation "debtors-in-possession" and reference the bankruptcy case number and type of account on those checks. To minimize the expenses to their estates, the Debtors seek a waiver of those requirements. On an interim basis, the Court allows the Debtors to continue to use, in their present form, all correspondence and business forms, as well as checks existing immediately before the Petition Date; provided that as soon as practicable, the Debtors will imprint the legend "DIP" on its existing postpetition checks. Upon depletion of the Debtors' check stock or business form stock, the Debtors will obtain new checks and forms reflecting their status as debtors-in-possession. The Debtors believe that since parties doing business with them will undoubtedly be aware of their 'debtors-in-possession' status as a result of the large and highly publicized nature of their Chapter 11 cases, changing business forms is unnecessary and unduly burdensome. The Debtors also sought and obtained the Court's authority to continue using debit, wire and automatic clearinghouse payments. The U.S. Trustee's Guidelines require the Debtors to make all disbursements by check. However, considering the complexity of their operations, the Debtors believe that it is necessary for them to conduct transactions by debit, wire or ACH payments and other similar methods. Furthermore, a portion of the Debtors' customer receipts is received through wire. ----------------------------------------------------------------- [00018] DEBTORS' MOTION TO GIVE PRIORITY TO INTERCOMPANY CLAIMS ----------------------------------------------------------------- Joseph M. Fischer, Esq., at Carson Fischer, P.L.C., in Birmingham, Michigan, tells Judge Rhodes that the Debtors maintain business relationships with each other and their non- debtor affiliates and, as a result, there are numerous intercompany claims that reflect intercompany receivables and payments made in the ordinary course of the Debtors' businesses. As of April 30, 2005, the Intercompany Claims include: -- trade receivables and trade payables, -- centrally billed expenses, -- direct loans, -- accrued interest, and -- other miscellaneous items. In many instances, the Debtors' funds are commingled throughout their Cash Management System. Accordingly, at any given time, there may be Intercompany Claims owing by one Debtor to another. The Debtors maintain records of all fund transfers and can ascertain, trace and account for Intercompany Transactions, Mr. Fischer says. If the Intercompany Transactions were discontinued, Mr. Fischer points out that the Cash Management System and related administrative controls would be disruptive to the Debtors. To ensure that each individual Debtor will not fund, at the expense of its creditors, the operations of another entity, the Debtors ask the Court to accord administrative priority expense status to all postpetition Intercompany Claims that result from ordinary Intercompany Transactions through the Cash Management System. Mr. Fischer explains that if Intercompany Claims are accorded administrative priority expense status, each entity utilizing funds flowing through the Cash Management System should continue to bear ultimate repayment responsibility for ordinary course transactions. Intercompany Arrangements The Debtors and their non-debtor affiliates and subsidiaries engage in customary business practices in the ordinary course of their businesses that govern various intercompany relationships. The Debtors believe that continued performance under the Intercompany Arrangements is not only important to their successful restructuring, but it is also absolutely integral to ensure their ability to operate their businesses as debtors-in- possession. Mr. Fischer points out that if the Debtors are required to obtain the services they currently receive under the Intercompany Arrangements on a per company basis, aside from incurring excessive financial burdens in identifying appropriate providers and entering into individual agreements for providing these services, the Debtors would be required to divert their attention and efforts from ensuring a smooth transition into the Chapter 11 process. Thus, while the Debtors are not seeking to assume the Intercompany Arrangement as executory contracts at this time, the Debtors seek the Court's permission to continue performing under the Intercompany Arrangements in the ordinary course of business without need for further Court order. * * * Motion granted on an interim basis, Judge Rhodes rules. ----------------------------------------------------------------- [00019] DEBTORS' MOTION TO PAY PREPETITION EMPLOYEE OBLIGATIONS ----------------------------------------------------------------- The Debtors currently employ 11,707 employees in their domestic locations, of whom: -- 4,805 are hourly union employees; -- 4,664 are hourly non-union employees; and -- 2,238 are full-time salaried employees. Joseph M. Fischer, Esq., at Carson Fischer, P.L.C., in Birmingham, Michigan, relates that the Hourly Union Employees are employed under 16 different collective bargaining agreements. The Employees perform a variety of critical functions. The Employees' skills and their knowledge and understanding of the Debtors' infrastructure, operations and customer relations, Mr. Fischer says, are essential to the effective reorganization of the Debtors' businesses. The Debtors want to minimize the personal hardship that their Employees will suffer if prepetition employee-related obligations are not paid when due or as expected. The Debtors also want to maintain morale and an essential workforce during this critical time of their bankruptcy cases. Accordingly, the Debtors seek the Court's authority to: (a) pay and honor certain prepetition claims for: * wages, salaries, overtime pay and other compensation; * federal and state withholding taxes and other amounts withheld or deducted; and * expenses that are reimbursable by the Debtors under company policy; (b) continue to provide all employee health benefits, insurance benefits, flexible spending accounts, vacation benefits, workers compensation obligations, savings programs and all other Employee benefits that the Debtors have historically paid in the ordinary course of business; and (c) pay all costs and expenses incident to the Employee Obligations. The Debtors' employee obligations include: A. Unpaid Compensation The Debtors estimate that the wages and salaries, overtime pay and other compensation that accrued prepetition but remain unpaid as of the Petition Date total at $3,650,000. Historically, the Debtors' average aggregate gross monthly payroll for the Salaried Employees is $13,197,184 while the average aggregate monthly compensation for the Hourly Employees is $20,138,764. Overtime Pay is typically paid every pay period. The Debtors have historically paid about $2,400,000 per month in Overtime Pay. However, the Debtors estimate that no more than $178,000 in prepetition Overtime Pay will remain unpaid as of the Petition Date. Certain of the Debtors' Hourly Employees are eligible for shift differentials equal to a range of $0.05 to $0.30 per hour. As of the Petition Date, about $6,500 in shift differentials had accrued but remain unpaid. B. Payroll Costs The Debtors utilize the services of Automatic Data Processing, Inc., to issue payroll checks and remit tax withholdings to the appropriate taxing authorities. As of the Petition Date, the Debtors estimate that they owe Automatic Data Processing $62,000 for prepetition services. The Debtors also employ TALX Corporation to administer their unemployment program. The Debtors pay TALX $59,000 annually for its services. C. Deductions and Withholdings During each pay period, the Debtors routinely deduct certain amounts from paychecks and forward those amounts to various third party recipients. On average, the Debtors historically have deducted $3.2 million from Employees' paychecks per payroll period. The Debtors estimate that no more than $228,000 in Deductions were taken prior to the Petition Date that still have not been forwarded to the appropriate third parties. The Debtors also withhold amounts from an employee's wages for taxes. On average, the Debtors have historically withheld $8,330,200 from Employees' paychecks each month. D. Reimbursable Expenses The Debtors reimbursed Employees for certain expenses incurred on the Debtors' behalf. The Debtors spend about $400,000 on Reimbursable Expenses per month, and the Debtors believe that $1,000,000 in Reimbursable Expenses remains unpaid as of the Petition Date. Employee Benefits The Debtors provide Employees with a number of benefits, including: A. Medical, Health and Dental Plans The Debtors offer a Primary Self-Insured Plan to their Hourly Non-Union and Salaried Employees. The Primary Self-Insured Plan costs the Debtors about $18,652,904 per quarter. Certain of the Debtors' Hourly Union Employees are also offered fully-insured and self-insured health benefit programs. The premiums aggregate around a million dollars per month. B. Insurance Benefits The Debtors provide a number of types of insurance benefit to their Employees, including short and long term disability, life, accidental death, business travel and accident and director and officer liability. The Insurance Benefits cost the Debtors about $500,000 per month. C. Flexible Spending Accounts The Debtors offer their Employees the ability to contribute a portion of their compensation into flexible spending accounts for health and dependent care through Flexible Benefit Administrators, who operate as third-party administrators. As of the Petition Date, about $25,000 in FSA administration costs remain unpaid. D. Vacation Time The Debtors provide vacation time to their Employees as a paid time-off. As of the Petition Date, the Debtors estimate that they had $8,200,000 in unpaid Vacation Time for Employees that accrued prior to the Petition Date. E. Workers' Compensation The Debtors provide certain workers' compensation benefits through AIG. Pursuant to the Workers' Compensation Programs, the Debtors provided AIG with a $26,526,509 letter of credit. The Debtors estimate that their overall claims costs associated with their Workers' Compensation Programs for 2005 will be $625,000. F. 401(k) Plan Prior to the Petition Date, the Debtors maintained a 401(k) savings plan. The Debtors want to continue the plan and to pay any prepetition amounts owed under it. G. Additional Employee Benefits The Debtors provide a myriad of other miscellaneous benefits to their Employees, including: * tuition reimbursement, * scholarship for dependents, * bonuses for perfect attendance, * automobile, telephone and PERQ allowances, * gas cards, * relocation reimbursement, * international assignment tax preparation services, * immigration services, and * family, medical, sick, jury duty, military & funeral leaves. The Debtors believe that the vast majority of the employee claims they seek to pay are entitled to priority status under Section 507(a)(3) and (4) of the Bankruptcy Code and do not exceed $10,000 for each Employee. Therefore, the Debtors will likely have to pay these claims in full to exit from bankruptcy through confirmation of a plan of reorganization. Thus, allowing the Debtors to pay their employee obligations would only affect the timing and not the amounts of those obligations. * * * The Court approves the Debtors' request. *** End of Issue No. 2 ***