IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: ) ) FOAMEX INTERNATIONAL INC., et al., ) ) Debtors. ) ) ) ) Chapter 11 Case No. 05-12685 (PJW) (Jointly Administered) Hearing Date: October 17, 2005 at 1:30 p.m. (ET) Objection Deadline: October n, 2005 at 4:00 p.m. (ET) NOTICE OF MOTION TO: UNITED STATES TRUSTEE FOR THE DISTRICT OF DELAWARE, (II) THE CREDITORS IDENTIFIED ON THE DEBTORS' CONSOLIDATED LIST OF THEIR TWENTY-FIVE LARGEST UNSECURED CREDITORS, (III) COUNSEL TO THE AGENTS FOR THE DEBTORS' PREPETITION BANK GROUP AND TERM LOAN LENDERS, (IV) COUNSEL TO THE AGENTS FOR THE DEBTORS' PROPOSED POSTPETITION LENDERS, (V) COUNSEL TO THE AD-HOC COMMITTEE OF SENIOR SECURED BONDHOLDERS, (VI) THE INDENTURE TRUSTEES FOR EACH OF THE DEBTORS' BOND ISSUANCES, AND (VII) COUNSEL TO STEEL PARTNERS II, L.P. The above-captioned debtors and debtors in possession (collectively, the "Debtors") have filed the attached Motion of the Debtors for an Order Pursuant to 11 U.S.C. §§ 105(a) and 331 Establishing Procedures for Interim Compensation and Reimbursement of Expenses of Professionals (the "Motion"). Responses to the Motion, if any, must be filed on or before October 11, 2005 at 4:00 p.m. (ET) (the "Objection Deadline") with the United States Bankruptcy Court for the District of Delaware, 3rd Floor, 824 Market Street, Wilmington, Delaware 19801. At the same time, you must also serve a copy ofthe response upon the undersigned counsel to the Debtors. A HEARING ON THE MOTION WILL BE HELD ON OCTOBER 17, 2005 AT 1:30 P.M. BEFORE THE HONORABLE PETERJ. WALSH IN THE UNITED STATES BANKRUPTCY COURT, 824 NORTH MARKET STREET, WILMINGTON, DELAWARE 19801. DB02:5058155.1 064397.1001
Transcript
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ))
FOAMEX INTERNATIONAL INC., et al., ))
Debtors. ))))
Chapter 11
Case No. 05-12685 (PJW)
(Jointly Administered)
Hearing Date: October 17, 2005 at 1:30 p.m. (ET)Objection Deadline: October n, 2005 at 4:00 p.m. (ET)
NOTICE OF MOTION
TO: UNITED STATES TRUSTEE FOR THE DISTRICT OF DELAWARE, (II) THECREDITORS IDENTIFIED ON THE DEBTORS' CONSOLIDATED LIST OFTHEIR TWENTY-FIVE LARGEST UNSECURED CREDITORS, (III)COUNSEL TO THE AGENTS FOR THE DEBTORS' PREPETITION BANKGROUP AND TERM LOAN LENDERS, (IV) COUNSEL TO THE AGENTSFOR THE DEBTORS' PROPOSED POSTPETITION LENDERS, (V)COUNSEL TO THE AD-HOC COMMITTEE OF SENIOR SECUREDBONDHOLDERS, (VI) THE INDENTURE TRUSTEES FOR EACH OF THEDEBTORS' BOND ISSUANCES, AND (VII) COUNSEL TO STEELPARTNERS II, L.P.
The above-captioned debtors and debtors in possession (collectively, the"Debtors") have filed the attached Motion of the Debtors for an Order Pursuant to 11U.S.C. §§ 105(a) and 331 Establishing Procedures for Interim Compensation andReimbursement of Expenses of Professionals (the "Motion").
Responses to the Motion, if any, must be filed on or before October 11, 2005 at4:00 p.m. (ET) (the "Objection Deadline") with the United States Bankruptcy Court for theDistrict of Delaware, 3rd Floor, 824 Market Street, Wilmington, Delaware 19801.
At the same time, you must also serve a copy ofthe response upon theundersigned counsel to the Debtors.
A HEARING ON THE MOTION WILL BE HELD ON OCTOBER 17, 2005 AT1:30 P.M. BEFORE THE HONORABLE PETERJ. WALSH IN THE UNITED STATESBANKRUPTCY COURT, 824 NORTH MARKET STREET, WILMINGTON, DELAWARE19801.
DB02:5058155.1 064397.1001
IF YOU FAIL TO RESPOND IN ACCORDANCE WITH THIS NOTICE, THECOURT MAY GRANT THE RELIEF REQUESTED IN THE MOTION WITHOUTFURTHER NOTICE OR HEARING.
Dated: September 27, 2005Wilmington, Delaware
36 0)IVUJDll.,y (No 221)
Th and uilding..........._....-c1000 West Street, 17th Floor
PAUL, WEISS, RIFKlND, WHARTON & GARRISON LLPAlan W. KornbergBrian S. Hermann1285 Avenue of the AmericasNew York, New York 10019-6064Telephone: (212) 373-3000Facsimile: (212) 757-3990
Proposed Counsel for Debtors and Debtors in Possession
DB02:5058155.1 2 064397.1001
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ))
FOAMEX INTERNATIONAL INC., et al., ))
Debtors. ))))
Chapter 11
Case No. 05-12685 (PJW)
(Jointly Administered)
Hearing Date: October 17,2005 at 1:30 p.m. (ET)Objection Deadline: October ll, 2005 at 4:00 p.m, (ET)
MOTION OF THE DEBTORS FOR AN ORDER PURSUANT TO 11 U.S.C. §§ 105(a)AND 331 ESTABLISHING PROCEDURES FOR INTERIM COMPENSATION
AND REIMBURSEMENT OF EXPENSES OF PROFESSIONALS
Foamex International Inc. ("Foamex International" or the "Company"), Foamex
L.P., Foamex Latin America, Inc. ("Foamex Latin America"), Foamex Asia, Inc. ("Foamex
energy absorbing foams and molded seat cushions. The Debtors' automotive foam products are
sold through a range of tiers in the automotive industry's supply chain. The Debtors primarily
supply Tier 1 system integrators that in turn supply original equipment manufacturers, or so
called "OEMs" (M" General Motors, Ford and Daimler Chrysler).
11. The Debtors' carpet cushion segment is primarily a by-product business
utilizing the scrap foam generated by the foam manufacturing operations to create carpet
underlay. This scrap by-product is re-bonded to form rebond carpet underlay which accounts for
approximately 90% of the revenue of this SBU. The Debtors' carpet cushion products are sold
through various wholesalers, "big box" home centers (M" Home Depot), retail buying groups
and chains and independent retailers and contractors.
DB02:5044071.4 4 064397.1001
D. The Debtors' Capital Structure.
12. The Debtors have a relatively complex capital structure. At the top of the
Debtors' capital structure are three primary layers of secured debt consisting of a bank revolving
credit and term loan A facility, a term loan B facility and second-lien bond indebtedness. 1
Specifically, Foamex L.P. is a borrower under a $190 million revolving credit facility (as
amended, the "Bank Facility") with Bank of America, N.A., as agent, and certain other lenders
party thereto. Foamex L.P. is also the borrower under two separate secured term loans: a term
loan A (as amended, the "Term Loan A") in the approximate principal amount of $33 million
with Bank of America, as lender, and other lenders party thereto, and an $80 million principal
amount term loan B (as amended, the "Term Loan B," and together with the Term Loan A,
collectively, the "Term Loans") with Silver Point Finance, LLC, as agent, and the other lenders
party thereto. The Debtors' obligations under each facility are guaranteed by each of the Debtors
that is not a primary obligor and by Foamex Canada Inc., a Canadian wholly-owned subsidiary
of Foamex L.P., and are secured by a first priority lien on, and security interest in, substantially
all of the assets of Foamex L.P. and the guarantors."
13. In addition to the Bank Facility and the Term Loans, pursuant to an
indenture, dated as of March 25, 2002, Foamex L.P. and Foamex Capital issued $300 million
(original principal amount) of 10 3/4% Senior Notes (the "10 3/4% Senior Notes") due April 1,
2009. Payment of the 103/4% Senior Notes is guaranteed by each of the other Debtors except
In addition to these three primary layersof secureddebt, as of the PetitionDate, the Debtorshad approximately$7.0million of other secureddebt, including, interalia, two industrial revenue bonds ("IRBs") with faceamounts of$I.O millionand $6.0 million. The IRBsare securedby letters of credit and lienson the Debtors'property that was developedwith the proceeds of the IRBs.
2 Theobligations under the Bank Facilityand the TermLoans rankpari passu in right of payment; however,pursuant to an intercreditoragreementbetween the agentfor the BankFacilityand the Term Loan A, on the onehand, andthe Term Loan B agent, on the other, the lenders under the Bank Facilityand the Term LoanA haveprior rights in and to the Debtors' collateral that secures the obligations under the Bank Facilityand the TermLoanA.
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Foamex Intemational and FMXI. The 10 3/4% Senior Notes are secured by second liens on
substantially the same collateral that secures the obligations under the Bank Facility and the
Term Loans.
14. The Debtors also have outstanding two tranches of subordinated bonds.
Specifically, pursuant to an indenture, dated as of June 12, 1997, Foamex L.P. and Foamex
Capital issued $150 million (original principal amount) of9 7/8% Senior Subordinated Notes
(the "9 7/8% Subordinated Notes") due June 15,2007. Separately, pursuant to an indenture,
dated as of December 23, 1997, Foamex L.P. and Foamex Capital issued $98 million (original
principal amount) of 13 1/2% Senior Subordinated Notes (the "13 1/2% Subordinated Notes,"
and together with the 9 7/8% Subordinated Notes, collectively, the "Subordinated Notes"), that
matured on August 15,2005.3 The Subordinated Notes are unsecured obligations of Foamex
L.P. and Foamex Capital (as well as the Debtors that have guaranteed the obligations thereunder)
and are subordinated in right of payment to the secured debt, but rank pari passu in right of
payment with each other and with the Debtors' other unsecured obligations.
15. In addition to the foregoing bank and bond indebtedness, the Debtors also
had approximately $90 million in ordinary course trade debt that was unpaid as of the Petition
Date.
16. Finally, for the quarter ended July 3, 2005, Foamex International had
50,000,000 shares of common stock (the "Common Stock") authorized for issuance of which
24,509,728 shares were outstanding, with an additional 3,489,000 shares issued and held in
treasury. In addition, pursuant to various stock option plans, as of July 3, 2005, there were
outstanding options to purchase an additional 3,811,308 shares of Common Stock. As of March
Through the Debtors' prior repurchases of the 13 1/2% Subordinated Notes, the principal amount outstanding atmaturity was $51.6 million.
DB02:5044071.4 6 064397.1001
11,2005, there were 129 record holders of the Common Stock. Foamex International's
Common Stock is publicly held and, before it was delisted last week, traded on the Nasdaq
National Market ("NASDAQ") under the ticker symbol "FMXI." In addition, as of the Petition
Date, Foamex International had 5,000,000 shares of Preferred Stock authorized for issuance of
which 15,000 Series B shares were outstanding."
E. Events Leading to Chapter 11.
17. The Debtors have experienced a steady and dramatic decline in their
operating performance since 2001. Specifically, the Debtors' gross profit margin has declined
by 3.0% from 14.2% in 2001 to 11.2% in 2004. The Debtors' over-leveraged balance sheet has
significantly contributed to this decline. Also contributing to the deterioration in the Debtors'
operating performance has been a confluence of events, including a significant increase in the
prices of the Debtors' primary raw materials and the severe downturn in the U.S. automotive
industry. These factors are discussed in greater detail below.
18. The Debtors' bank and bond indebtedness - totaling more than $740
million in principal amount - has significantly impaired the Debtors' operating performance in
several key respects. First and foremost, the Debtors' need to service their heavy debt load has
limited their ability during the last three years to make much needed capital investments and
improvements. The lack of capital investment, in turn, has hampered the Debtors' ability to
remain cost-competitive which, in consequence, has resulted in a reduction in unit volume,
particularly in the highly competitive bedding and furniture markets where the Debtors
manufacture commodity-type products. The Debtors, once a low-cost producer in this arena, are
now no longer competitive on price, and, unless they are able to reduce their debt service
4 All of Foamex International's issued and outstanding SeriesB Preferred Stock is held by The Bank of NovaScotiaor its affiliates.
DB02:5044071.4 7 064397.1001
requirements and increase their capital spending, they risk further erosion of revenues.
19. Additionally, the Debtors' customers have grown concerned about the
Debtors' financial condition. In view of their concern, a few of the Debtors' significant
customers have taken steps to source a portion of their business elsewhere and/or suspend
placing new orders with the Debtors. The Debtors believe that this pattern could continue unless
their balance sheet is restructured promptly.
20. Compounding the Debtors' decrease in volume is the dramatic increase
over the past few years in the prices of the chemicals that comprise the vast majority of the
Debtors' raw material requirements - specifically, polyol, TDI and MDI. There are at least five
primary reasons for the price increases: first, worldwide demand for MDI has increased
dramatically which has caused it to be in short supply. Second, a reduction in domestic capacity
of propylene exide, a major chemical component of polyol, has resulted in a significant decrease
in the supply ofpolyol which has caused it to be in short supply. Third, given the Debtors'
financial distress, many of the Debtors' major chemical suppliers have placed strict credit limits
on the Debtors' purchases which, in turn, has compromised the Debtors' ability to leverage its
purchasing scale to obtain more attractive pricing through volume discounts and the like. Fourth,
the primary urethane chemicals used to create polyol, MDI and TDI - propylene, toluene and
benzene - are each oil-based derivatives. The cost of these raw materials generally tracks the
price of oil and energy costs and, consequently, the cost of these chemicals has risen
dramatically over the last year. Lastly, the effects of Hurricane Katrina in the Gulf region have
further eroded the availability and accessibility of these chemicals.
21. Collectively, these factors have contributed to chemical price increases of
more than 20% from the first to the fourth quarter of 2004, and a further increase of more than
10% in the first quarter of2005. Although the Debtors passed a portion of these cost increases
DB02:5044071.4 8 064397.1001
on to their customers, given the highly competitive environment in which they operate, the
Debtors have been unable to pass along all such increases, particularly in certain SBUs, and, as a
consequence, the Debtors have seen their gross margins and operating income erode
dramatically.
22. Finally, the problems facing the North American automotive industry have
negatively impacted the Debtors' automotive business, which is their second largest revenue
source. As this Court is well aware, in recent months, several Tier I automotive suppliers, one
of whom (Collins & Aikman) does significant business with the Debtors, have sought
bankruptcy protection and others have scaled back their production. In addition, many OEMs
are facing their own financial difficulties. These issues, when combined with the Debtors' own
financial issues, have contributed to a reduction in net sales in the Debtors' automotive products
segment from approximately $447 million in 2003 to approximately $351 million in 2004.
23. In view of these external factors, and cognizant of the need to restructure
their balance sheet, prior to the Petition Date, the Debtors initiated steps to rationalize their
business by refocusing on their core competencies. Along those lines, in 2002 and 2003, the
Debtors attempted to sell their carpet cushion and automotive businesses, however, based on the
results of those sale processes, the Debtors decided not to proceed with either sale because the
prices offered would not have allowed the Debtors to deleverage their balance sheet. In April
2005, the Debtors sold their rubber and felt carpet cushion business to Leggett & Platt,
Incorporated for approximately $38.5 million. The Debtors are pursuing other sale opportunities
as well. In addition, in May 2005 the Debtors combined the management of their technical and
foam products SBUs to increase productivity and efficiency, enhance their market focus and
improve integration and communication among their sales, marketing and manufacturing teams.
And, in the last two years, the Debtors have ceased operating in over ten locations, closed four
DB02:5044071.4 9 064397.1001
offices, reduced SG&A spending by over $25 million, and implemented various strategies
designed to reduce overhead expenses.
24. Although the Debtors have benefited from these restructuring initiatives,
they have proven to be insufficient and more needs to be done. To assist the Debtors in their
restructuring efforts, in May 2005, the Debtors retained Miller Buckfire & Co., LLC ("Miller
Buckfire"), as their investment banker and financial advisor, to evaluate strategic alternatives
designed to strengthen the Debtors' balance sheet. Almost immediately upon being engaged,
Miller Buckfire worked with the Debtors to devise various restructuring alternatives that could
be implemented in, or outside of, chapter 11. As part of this process, Miller Buckfire solicited
various financing and restructuring proposals from the Debtors' existing stakeholders as well as
from third-party financing sources and equity sponsors. The results of this process demonstrated
that, to provide the Debtors with sufficient liquidity to operate effectively for the long-term, any
restructuring would require a significant conversion of the Debtors' debt into equity - something
that, under the circumstances, could only be achieved by means of a chapter II case. In view of
all of these factors and without sufficient liquidity, Foamex L.P. did not make the $51.6 million
payment due on August 15, 2005 upon maturity of the 13 1/2% Subordinated Notes.
25. Despite defaulting on their 13 1/2% Subordinated Notes, as part of their
overall restructuring efforts, the Debtors announced on August 15, 2005 amendments to both
their Bank Facility and the Term Loans to provide for waivers in respect of such payment default
as well as certain covenant defaults. Such amendments also provided additional liquidity under
the Bank Facility to allow the Debtors to continue their restructuring efforts. In addition, the
Debtors announced at such time that the agents under the Bank Facility and Term Loans had
committed to provide the Debtors with debtor-in-possession and exit financing.
DB02:S044071.4 10 064397.1001
26~ Since the Debtors' August 15th announcement, the Debtors and their
professionals have continued to negotiate with their key creditors and their respective
professionals concerning the terms of a consensual restructuring. Those negotiations have
culminated in the Debtors' agreement in principle with members of the ad hoc committee
holding a majority in principal amount of the outstanding 10 3/4% Senior Notes on the key terms
of the Debtors' reorganization.
27. Now, to effectuate their reorganization so that the Debtors may strengthen
their balance sheet and return to profitability, the Debtors have commenced these chapter 11
cases.
RELIEF REQUESTED
28. By this Motion, the Debtors seek entry of an administrative order pursuant
to sections 105(a) and 331 of the Bankruptcy Code establishing certain procedures for (i) the
allowance of interim compensation and reimbursement of expenses of professionals retained by
order of this Court and (ii) the reimbursement of expenses incurred by the Committee Members.
29. Contemporaneously herewith, the Debtors have filed applications to retain
(a) Paul, Weiss, Rifkind, Wharton & Garrison LLP as their general bankruptcy counsel, (b)
Young Conaway Stargatt & Taylor, LLP as Delaware counsel, and (c) Miller Buckfire & Co.,
LLC, as financial advisor and investment banker. The Debtors anticipate that they may also
retain other estate professionals (collectively, the "Estate Professionals") in these chapter 11
cases as the need arises. Moreover, the United States Trustee will likely appoint an official
committee of unsecured creditors pursuant to section 1102(a) ofthe Bankruptcy Code (the
"Committee"). Such Committee, when appointed, will likely seek to retain counsel and may also
seek to retain other professionals (the "Committee Professionals," and together with the Estate
Professionals, the "Professionals").
D802:5044071.4 11 064397.1001
PROPOSED INTERIM COMPENSATION PROCEDURES
30. Pursuant to sections 105(a) and 331 of the Bankruptcy Code, the Debtors
seek the establishment of procedures for compensating and reimbursing the Professionals
pursuant to monthly fee applications. Such an order will streamline the professional
compensation process and enable the court and all parties in interest to more effectively monitor
the fees incurred by the Professionals. Such procedures will also avoid forcing the Professionals
to finance these chapter 11 cases while awaiting final approval oftheir fees and expenses.
31. Specifically, the Debtors propose that the Court adopt the following
procedures (the "Compensation Procedures") for the allowance of interim compensation for
services rendered and reimbursement of expenses incurred by the Professionals:
(a) No earlier than the 25th day of each month following the month for whichcompensation is sought, each Professional seeking interim allowance of itsfees and expenses may file an application (the "Monthly Fee Application")for interim allowance of compensation for services rendered andreimbursement of expenses incurred during the preceding month (the"Compensation Period") and serve a copy of such Monthly FeeApplication on each of the following parties (each a "Notice Party," andcollectively, the "Notice Parties") by first class mail: (i) counsel to theDebtors: Paul, Weiss, Rifkind, Wharton & Garrison, LLP, 1285 Avenueof the Americas, New York, NY 10019, attn: Alan W. Kornberg; andYoung Conaway Stargatt & Taylor, LLP, The Brandywine Building, 1000West Street, Wilmington, DE 19801, attn: Pauline K. Morgan; (ii) counselto the Bank of America, N.A: Kaye Scholer LLP, 425 Park Avenue, NewYork, NY 10022-3598, attn: Albert Fenster and Marc Rosenberg; andBuchanon Ingersoll, The Nemours Building, 1007 North Orange Street,Suite 1110, Wilmington, Delaware 19801, attn: Louis DeLucia and JamiNimeroff; (iii) counsel to Silver Point Finance LLC: Schulte Roth &Zabel LLP, 919 Third Avenue, New York, NY 10022, attn: FredericRagucci and Andrew Gottesman; and Landis Rath & Cobb, LLP, 919Market Street, Suite 600, Wilmington, Delaware 19899, attn: Adam C.Landis; (iv) counsel to the ad hoc committee of senior securednoteholders: O'Melveny & Myers, LLP, Times Square Tower, 7 TimesSquare, New York, NY 10036, attn: Adam Harris; and Richards Layton& Finger, 920 N. King Street, Wilmington, Delaware 19801, attn: JohnKnight; (v) counsel to any official committee, and (vi) the Office oftheUnited States Trustee for the District of Delaware, 1. Caleb Boggs FederalBuilding, Room 2207,844 N. King Street, Wilmington, Delaware 19801,
DB02:5044071.4 12 064397.1001
attn: David Buchbinder, Esq. All Monthly Fee Applications shall complywith the Bankruptcy Code, the Bankruptcy Rules, and the Local Rules ofBankruptcy Practice and Procedure of the United States Bankruptcy Courtfor the District of Delaware (the "Local Rules").
(b) Each Notice Party will have twenty (20) days after service of a MonthlyFee Application to object thereto (the "Objection Deadline"). If noobjections are raised prior to the expiration of the Objection Deadline, theProfessional submitting the Monthly Fee Application shall file a certificateof no objection with the Court, after which the Debtors shall be authorizedto pay such Professional an amount equal to 80% of the fees and 100% ofthe expenses requested in its Monthly Fee Application (the "MaximumInterim Payment"). If an objection is properly filed pursuant tosubparagraph (c) below, the Debtors shall be authorized to pay theProfessional 80% of the fees and 100% ofthe expenses not subject to anobjection (the "Actual Interim Payment"). The first Monthly FeeApplication submitted by each Professional shall cover the period from thePetition Date through and including October 31, 2005.
(c) If any Notice Party objects to a Professional's Monthly Fee Application, itmust, on or before the expiration of the Objection Deadline, file with theCourt and serve on such Professional and each other Notice Party a writtenobjection (the "Objection") so as to be received on or before the ObjectionDeadline. Any such Objection shall identify with specificity theobjectionable fees and/or expenses, including the amount of such objectedto fees and/or expenses, and the basis for such Objection. Thereafter, theobjecting party and the affected Professional may attempt to resolve theObjection on a consensual basis. If the parties are unable to reach aresolution within 20 days after service of the Objection, the affectedProfessional may either: (i) file a response to the Objection with the Court,together with a request for payment of the difference, if any, between theMaximum Interim Payment and the Actual Interim Payment made to suchProfessional (the "Incremental Amount"); or (ii) forego payment oftheIncremental Amount until the next interim or final fee application hearing,at which time the Court will consider and rule on the Objection ifrequested by the parties.
(d) Beginning with the approximate three month period from the Petition Dateand ending on December 31, 2005, and at each three month periodthereafter, each Professional shall file with the Court and serve on theNotice Parties an application (an "Interim Fee Application") for interimallowance of compensation and reimbursement of expenses sought in theMonthly Fee Applications filed during such three month period (the"Interim Fee Period") pursuant to section 331 of the Bankruptcy Code.The Interim Fee Application must identify the covered Monthly FeeApplications and include any other information requested by the Court orrequired by the Local Rules. Interim Fee Applications shall be filed withthe Court and served on the Notice Parties within 45 days after the end of
DB02:5044071.4 13 064397.1001
the applicable Interim Fee Period. Each Professional shall file its firstInterim Fee Application on or before February 14, 2006, and the firstInterim Fee Application shall cover the Interim Fee Period from thePetition Date through and including December 31, 2005.
(e) The Debtors shall request that the Court schedule a hearing on Interim FeeApplications at least once every six (6) months or at such other intervalsas the Court deems appropriate.
(f) The pendency of an Objection to payment of compensation orreimbursement of expenses shall not disqualify a Professional from thefuture payment of compensation or reimbursement of expenses pursuant tothe Compensation Procedures.
(g) Neither (i) the payment of or the failure to pay, in whole or in part,monthly interim compensation and reimbursement of expenses under theCompensation Procedures, nor (ii) the filing of or the failure to file anObjection to any Monthly Fee Application or Interim Fee Application willbind any party in interest or the Court with respect to the allowance ofinterim or final applications for compensation for services rendered andreimbursement of expenses of Professionals. All fees and expenses paidto Professionals in accordance with the Compensation Procedures aresubject to disgorgement until final allowance by the Court.
32. The Debtors further request that each Committee Member be permitted to
submit statements of expenses (excluding any attorneys' fees and expenses) and supporting
vouchers to counsel to the Committee, who will collect and submit such requests for
reimbursement in accordance with the Compensation Procedures as if such Committee Member
was a Professional.
33. The Debtors further request that the Court limit service of the Monthly Fee
Applications, Interim Fee Applications, final fee applications and Hearing Notices (as defined
herein) as follows: (i) the Notice Parties shall be entitled to receive the Monthly Fee
Applications, Interim Fee Applications, final fee applications, and notices of any hearing thereon
(the "Hearing Notices") and (ii) the parties in interest requesting notice pursuant to Bankruptcy
Rule 2002 shall be entitled to receive only the Interim Fee Applications and Hearing Notices.
Providing notice of fee applications in this manner will permit the parties most active in these
DB02:5044071.4 14 064397.1001
chapter II cases to monitor the fees and expenses incurred by Professionals and will avoid
unnecessary duplication and mailing expenses.
34. Based on the foregoing, the Debtors respectfully submit that the proposed
Compensation Procedures will (i) enable the Debtors, the Court and other parties in interest to
closely monitor the costs of administering these chapter II cases, and (ii) reduce the financial
burdens imposed on the Professionals.
BASISFORRELIEF
35. Section 331 of the Bankruptcy Code provides, in relevant part, as follows:
A trustee, an examiner, a debtor's attorney, or any professionalperson employed nnder section 327 or 1103 of this title may applyto the court no more than once every 120 days after an order forrelief in a case under this title, or more often if the Court permits,for such compensation for services rendered before the date ofsuch an application or reimbursement for expenses incurred beforesuch date as provided under section 330 of this title. After noticeand a hearing, the court may allow and disburse to such applicantsuch compensation or reimbursement.
11 U.S.C. § 331.
36. Congress' intent in enacting section 331 is expressed unequivocally in the
House and Senate Reports accompanying enactment ofthe Bankruptcy Code:
The court may permit more frequent applications if thecircumstances warrant, such as in very large cases where the legalwork is extensive and merits more frequent payments. The court isauthorized to allow and order disbursement to the applicant ofcompensation and reimbursement that is otherwise allowable undersection 330.
H.R. Rep. No. 595, 95th Congo l st Sess. 330 (1977); S. Rep. No. 989, 95th Cong., 2d Sess.
41-42 (1978).
37. Section 105(a) of the Bankruptcy Code provides, in pertinent part, that
"[t]he court may issue any order, process, or judgment that is necessary or appropriate to carry
DB02:5044071.4 15 064397.1001
out the provisions of this title." 11 US.C. §105(a). As set forth below, courts have regularly
entered orders, in accordance with section 105(a) of the Bankruptcy Code, establishing
procedures providing for the interim compensation and expense reimbursement of professionals
on a monthly basis. Factors generally considered by the courts in determining whether such
relief is warranted include "the size of [the] reorganization cases, the complexity of the issues
involved, and the time required on the part of the attorneys for the debtors in providing services
necessary to achieve a successful reorganization of the debtors." In re International Horizons,
Inc., 10 B.R. 895, 897-98 (Bania. N.D. Ga. 1981). In considering these factors, courts have
determined that interim compensation procedures are appropriate to avoid having the
professionals fund the debtor's reorganization proceedings. See id. at 897.
38. The Debtors submit that the Compensation Procedures are appropriate and
consistent with interim compensation procedures established in other large chapter 11 cases in
this District. See,~, In re Meridian Automotive Systems - Composites Operations, Inc.,
Ch. 11 Case No. 05-11168 (Bania. D. Del. 2005) (Walrath, 1.); In re AstroPower, Inc., Ch. 11
Case No. 04-10322 (Bania. D. Del. 2004) (Walrath, J.); In re The Thaxton Group, Inc., Ch. 11
Case No. 03-13183 (Bania. D. Del. 2003) (Walsh, 1.); In re Orion Refining Corp., Ch. 11 Case
No. 03-11483 (Bania. D. Del. 2003) (Walrath, 1.); In re Fleming Cos., Inc., Ch. 11 Case No. 03
10945 (Bania. D. Del. 2003) (Walrath, 1.).
39. The Debtors further submit that the efficient administration of these
chapter 11 cases will be significantly aided by implementing the Compensation Procedures.
Accordingly, the Debtors submit that the relief requested herein is in the best interests ofthe
Debtors, their estates and creditors, and therefore should be granted.
DB02:5044071.4 16 064397.1001
NOTICE
40. No trustee, examiner or creditors' committee has been appointed in the
Debtors' chapter II cases. Notice of this Motion has been given to (i) the United States Trustee
for the District of Delaware, (ii) the creditors identified on the Debtors' consolidated list of their
twenty-five largest unsecured creditors, (iii) counsel to the agents for the Debtors' prepetition
bank group and term loan lenders, (iv) counsel to the agents for the Debtors' proposed
postpetition lenders, (v) counsel to the ad hoc committee of senior secured bondholders, (vi) the
indenture trustees for each of the Debtors' bond issuances, and (vii) counsel to Steel Partners II,
L.P. Notice of this Motion will also be provided to counsel for the official committee of
unsecured creditors once one has been appointed in these cases.
NO PRIOR REQUEST
41. The Debtors have not previously sought the relief requested herein from
this or any other Court.
DB02:5044071.4 17 064397.1001
WHEREFORE, the Debtors respectfully request that this Court enter an order, in
substantially the form attached hereto as Exhibit A, granting the relief requested herein and
granting such other and further relief as the Court deems just and proper.
Dated: September )1,2005Wilmington, Delaware
-and-
PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLPAlan W. KornbergBrian S. Hermann1285 Avenue ofthe AmericasNew York, New York 10019-6064Telephone: (212) 373-3000Facsimile: (212) 757-3990
Proposed Counsel for Debtors and Debtors in Possession
DB02:5044071.4 18 064397.1001
DB02:5044071.4
EXHIBIT A
064397.1001
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Chapter 11)
FOAMEX INTERNATIONAL INC., et al., ) Case No. 05-12685 (PJW))
Mexico, Inc. and Foamex Mexico II, Inc., the above-captioned debtors and debtors in possession
(each a "Debtor", and collectively, the "Debtors"), for entry of an order, pursuant to sections
105(a) and 331 of the Bankruptcy Code, establishing (i) procedures for interim compensation for
services rendered and reimbursement of expenses incurred by Professionals and (ii) expense
reimbursement procedures for the Committee Members; and upon consideration ofthe Motion
and all pleadings related thereto; and the Court finding that (a) the Court has jurisdiction over
this matter pursuant to 28 U.S.C. §§ 157 and 1334, (b) this matter is a core proceeding within
the meaning of28 U.S.C. § 157(b)(2), and (c) notice of the Motion was due and proper under the
circumstances; and it appearing that the relief requested in the Motion is in the best interests of
the Debtors, their estates and creditors; and after due deliberation, and good and sufficient cause
appearing therefor, it is hereby:
Capitalized terms used aud not otherwise defined herein shall have the meanings ascribed to them in theMotion.
DB02:5044071.4 064397.1001
ORDERED, that the Motion is granted; and it is further
ORDERED that, except as may otherwise be provided in Court orders authorizing
the retention of specific Professionals, all Professionals retained in these cases may seek monthly
compensation in accordance with the following procedures (the "Compensation Procedures"):
(a) No earlier than the 25th day of each month following the month for whichcompensation is sought, each Professional seeking interim allowance of itsfees and expenses may file an application (the "Monthly Fee Application")for interim allowance of compensation for services rendered andreimbursement of expenses incurred during the preceding month (the"Compensation Period") and serve a copy of such Monthly FeeApplication on each ofthe following parties (each a "Notice Party," andcollectively, the "Notice Parties") by first class mail: (i) counsel to theDebtors: Paul, Weiss, Rifkind, Wharton & Garrison, LLP, 1285 Avenueof the Americas, New York, NY 10019, attn: Alan W. Kornberg; andYoung Conaway Stargatt & Taylor, LLP, The Brandywine Building, 1000West Street, Wilmington, DE 19801, attn: Pauline K. Morgan; (ii) counselto the Bank of America, N.A: Kaye Scholer LLP, 425 Park Avenue, NewYork, NY 10022-3598, attn: Albert Fenster and Marc Rosenberg; andBuchanon Ingersoll, The Nemours Building, 1007 North Orange Street,Suite 1110, Wilmington, Delaware 19801, attn: Louis DeLucia and JamiNimeroff; (iii) counsel to Silver Point Finance LLC: Schulte Roth &Zabel LLP, 919 Third Avenue, New York, NY 10022, attn: FredericRagucci and Andrew Gottesman; and Landis Rath & Cobb, LLP, 919Market Street, Suite 600, Wilmington, Delaware 19899, attn: Adam C.Landis; (iv) counsel to the ad hoc committee of senior securednoteholders: O'Melveny & Myers, LLP, Times Square Tower, 7 TimesSquare, New York, NY 10036, attn: Adam Harris; and Richards Layton& Finger, 920 N. King Street, Wilmington, Delaware 19801, attn: JohnKnight; (v) counsel to any official committee, and (vi) the Office oftheUnited States Trustee for the District of Delaware, J. Caleb Boggs FederalBuilding, Room 2207,844 N. King Street, Wilmington, Delaware 19801,attn: David Buchbinder, Esq. All Monthly Fee Applications shall complywith the Bankruptcy Code, the Bankruptcy Rules, and the Local Rules ofBankruptcy Practice and Procedure of the United States Bankruptcy Courtfor the District of Delaware (the "Local Rules").
(b) Each Notice Party will have twenty (20) days after service of a MonthlyFee Application to object thereto (the "Objection Deadline"). If noobjections are raised prior to the expiration of the Objection Deadline, theProfessional submitting the Monthly Fee Application shall file a certificateof no objection with the Court, after which the Debtors shall be authorizedto pay such Professional an amount equal to 80% ofthe fees and 100% ofthe expenses requested in its Monthly Fee Application (the "Maximum
DB02:5044071.4 2 064397.1001
Interim Payment"). If an objection is properly filed pursuant tosubparagraph (C) below, the Debtors shall be authorized to pay theProfessional 80% of the fees and 100% of the expenses not subject to anobjection (the "Actual Interim Payment"). The first Monthly FeeApplication submitted by each Professional shall cover the period from thePetition Date through and including October 31, 2005.
(c) If any Notice Party objects to a Professional's Monthly Fee Application, itmust, on or before the expiration of the Objection Deadline, file with theCourt and serve on such Professional and each other Notice Party a writtenobjection (the "Objection") so as to be received on or before the ObjectionDeadline. Any such Objection shall identify with specificity theobjectionable fees and/or expenses, including the amount of such objectedto fees and/or expenses, and the basis for such Objection. Thereafter, theobjecting party and the affected Professional may attempt to resolve theObjection on a consensual basis. If the parties are unable to reach aresolution within 20 days after service ofthe Objection, the affectedProfessional may either: (i) file a response to the Objection with the Court,together with a request for payment of the difference, if any, between theMaximum Interim Payment and the Actual Interim Payment made to suchProfessional (the "Incremental Amount"); or (ii) forego payment of theIncremental Amount until the next interim or final fee application hearing,at which time the Court will consider and rule on the Objection ifrequested by the parties.
(d) Begiuning with the approximate three month period from the Petition Dateand ending on December 31, 2005, and at each three month periodthereafter, each Professional shall file with the Court and serve on theNotice Parties an application (an "Interim Fee Application") for interimallowance of compensation and reimbursement of expenses sought in theMonthly Fee Applications filed during such three month period (the"Interim Fee Period") pursuant to section 331 of the Bankruptcy Code.The Interim Fee Application must identify the covered Monthly FeeApplications and include any other information requested by the Court orrequired by the Local Rules. Interim Fee Applications shall be filed withthe Court and served on the Notice Parties within 45 days after the end ofthe applicable Interim Fee Period. Each Professional shall file its firstInterim Fee Application on or before February 14, 2006, and the firstInterim Fee Application shall cover the Interim Fee Period from thePetition Date through and including December 31,2005.
(e) The Debtors shall request that the Court schedule a hearing on Interim FeeApplications at least once every six (6) months or at such other intervalsas the Court deems appropriate.
(f) The pendency of an Objection to payment of compensation orreimbursement of expenses shall not disqualify a Professional from the
DB02:5044071.4 3 064397.1001
future payment of compensation or reimbursement of expenses pursuant tothe Compensation Procedures.
(g) Neither (i) the payment of or the failure to pay, in whole or in part,monthly interim compensation and reimbursement of expenses under theCompensation Procedures, nor (ii) the filing of or the failure to file anObjection to any Monthly Fee Application or Interim Fee Application willbind any party in interest or the Court with respect to the allowance ofinterim or final applications for compensation for services rendered andreimbursement of expenses of Professionals. All fees and expenses paidto Professionals in accordance with the Compensation Procedures aresubject to disgorgement until final allowance by the Court.
and it is further
ORDERED, that each Committee Member shall be permitted to submit
statements of expenses (excluding any attorneys' fees and expenses) and supporting vouchers to
counsel to the Committee, who will collect and submit such requests for reimbursement in
accordance with the Compensation Procedures as if such Committee Member were a
Professional; and it is further
ORDERED, that service of the Monthly Fee Applications, Interim Fee
Applications, final fee applications and Hearing Notices shall be limited as follows: (i) the
Notice Parties shall be entitled to receive the Monthly Fee Applications, Interim Fee
Applications, final fee applications, and Hearing Notices, and (ii) any parties in interest
requesting notice pursuant to Bankruptcy Rule 2002 shall be entitled to receive only the Interim
Fee Applications and Hearing Notices; and it is further
ORDERED, that this Court shall retain jurisdiction with respect to all matters
arising from or related to the implementation of this Order.
