Decleration for Artic Ice Bankruptcy
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Transcript of Decleration for Artic Ice Bankruptcy
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Vincent P. Slusher, State Bar No. 00785480 [email protected] DLA PIPER LLP (US) 1717 Main Street, Suite 4600 Dallas, Texas 75201 Telephone: (214) 743-4572 Facsimile: (972) 813-6267 Gregg M. Galardi, NY Bar No. 4535506 [email protected] Gabriella L. Zborovsky, NY Bar No. 4851614 [email protected] Sarah E. Castle, NY Bar No. 4932240 [email protected] DLA PIPER LLP (US) 1251 Avenue of the Americas New York, New York 10020 Telephone: (212) 335-4500 Facsimile: (212) 335-4501
Proposed Attorneys for Reddy Ice Holdings, Inc. and Reddy Ice Corporation, Debtors and Debtors in Possession
IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
In re: REDDY ICE HOLDINGS, INC. and REDDY ICE CORPORATION, Debtors.
§ § § § § §
Case Nos.: 12-_______ and 12-_________ Chapter 11 Joint Administration Pending
DECLARATION IN SUPPORT OF CHAPTER 11 PETITIONS AND VARIOUS FIRST
DAY APPLICATIONS AND MOTIONS
I, Steven J. Janusek, declare as follows under penalty of perjury:
1. I am the Executive Vice President, Chief Financial Officer and Treasurer of
Reddy Ice Holdings, Inc. (“Reddy Holdings”), a corporation organized under the laws of the
state of Delaware and the parent of Reddy Ice Corporation (“Reddy Corp”), the other debtor and
debtor in possession in the above-captioned chapter 11 cases (collectively, the “Debtors”)1.
1 Reddy Ice Holdings, Inc. is located at 8750 N. Central Expressway, Suite 1800, Dallas, Texas 75231. Its tax identification number is 56-xxx1368. In addition to Reddy Ice Holdings, Inc., Reddy Ice Corporation, Case No.
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During my tenure, I have developed a great deal of institutional knowledge regarding the
Debtors’ operations, finances and systems. I submit this declaration (the “Declaration”) in
support of the Debtors’ (a) voluntary petitions for relief under chapter 11 of title 11 of the United
States Code (the “Bankruptcy Code”) and (b) “first day” motions and applications, including
with respect to the Debtors Joint Plan of Reorganization of Reddy Ice Holdings, Inc. and Reddy
Ice Corporation (the “Plan”) and the Disclosure Statement Soliciting Acceptances of a Joint Plan
of Reorganization of Reddy Ice Holdings, Inc. and Reddy Ice Corporation (the “Disclosure
Statement”), which are all being filed with the Court concurrently herewith (collectively, the
“First Day Pleadings”). I am authorized by each of the Debtors to submit this Declaration in
support of the Debtors’ chapter 11 petitions and the First Day Pleadings described herein.2
2. In my capacity as the Debtors’ Chief Financial Officer, I am familiar with the
Debtors’ day-to-day operations, financial conditions, business affairs, and books and records.
Except as otherwise indicated, all statements in this Declaration are based upon my personal
knowledge; information supplied or verified by the Debtors’ personnel in departments within the
various business units of the Debtors; my review of the Debtors’ books and records as well as
other relevant documents; my discussions with other members of the Debtors’ management
team; or my opinion based upon experience, expertise, and knowledge of the Debtors’ operations
and financial condition. In making my statements based on my review of the Debtors’ books and
records, relevant documents, and other information prepared or collected by the Debtors’
employees, I have relied upon these employees accurately recording, preparing, collecting, or
12-_____, is a debtor in these related cases. Reddy Ice Corporation is located at 8750 N. Central Expressway, Suite 1800, Dallas, Texas 75231. Its tax identification number is 75-xxx4985. 2 Unless otherwise defined, capitalized terms used herein shall have the meaning ascribed to them in each relevant First Day Pleading.
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verifying any such documentation and other information. If I were called to testify as a witness
in this matter, I would testify competently to the facts set forth herein.
3. Section I of this Declaration provides an overview of the Debtors’ businesses and
operations. Section II of the Declaration describes the Debtors’ corporate and capital structure.
Section III describes the developments that led to the Debtors’ filing for relief under chapter 11
of the Bankruptcy Code.
I. THE DEBTORS’ BUSINESS AND OPERATIONS
A. The Chapter 11 Cases
4. Contemporaneously with the filing of this Declaration (the “Petition Date”), each
of the Debtors filed a voluntary petition commencing a case in this Court under chapter 11 of the
Bankruptcy Code. The Debtors will continue to operate their businesses and manage their
properties as debtors-in-possession pursuant to Bankruptcy Code sections 1107(a) and 1108.
B. Overview of the Debtors’ Businesses
5. Reddy Holdings, operating through its wholly owned subsidiary Reddy Corp
(collectively, the “Company”) is the largest manufacturer and distributor of packaged ice in the
United States. The Company employs approximately 1300 people on a full time basis and
between 300 to 1400 additional employees on temporary basis depending on the time of the
season.. None of the Company’s employees are covered by collective bargaining agreements.
6. The Company serves a variety of customers in 34 states and the District of
Columbia under the Reddy Ice® brand name. The principal product is ice packaged in 4 to 50
pound bags, which is sold to a highly diversified customer base, including supermarkets, mass
merchants and convenience stores. For the year ended December 31, 2011, the Company sold
approximately 1.7 million tons of ice. The Company’s products are primarily sold throughout
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the southern United States (the “Sun Belt”), one of the most attractive regions in the country for
packaged ice sales due to warm weather, extended peak selling seasons and historically favorable
population growth patterns. For the year ended December 31, 2011, the Company had revenues
of $328.5 million and a net loss of $68.6 million. Over the last three years, the Company’s
business and the ice industry in general has been adversely impacted by macroeconomic factors
such as reduced consumer demand, fluctuating and generally higher commodity prices and the
reduced availability of credit.
7. The Company markets its ice products to satisfy a broad range of customers,
primarily under the Reddy Ice brand name. The Company produces ice in cube, half-moon,
cylindrical and crushed forms (collectively referred to as “cubed ice”) as well as block forms.
The Company’s primary ice product is cubed ice packaged in ten pound bags, which is
principally sold to convenience stores and supermarkets. The Company also sells cubed ice in
assorted bag sizes ranging from 16 to 50 pounds to restaurants, bars, sporting and other special
events, airlines, vendors, caterers, and public and private disaster relief organizations and block
ice in 10, 25 and 300 pound sizes to commercial, agricultural and industrial users. The majority
of the Company’s sales are direct to supermarket chains, convenience stores, mass merchants
and other commercial customers. In addition, a portion of the Company’s products is sold
through distributors who deliver ice to the Company’s customers on behalf of the Company and
who resell ice to their own customers. The Company also contracts with ice manufacturers
outside its geographic footprint to produce and deliver ice to the Company’s customers on behalf
of the Company.
8. The Company maintains a strong customer base by providing a high level of
service and quality at competitive prices through an extensive network of ice manufacturing
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plants, distribution centers and proprietary in-store bagging equipment (“ISB”) known as The Ice
Factory®. The Ice Factory machines are located in high volume locations and produce, package
and store ice through an automated, self-contained process that significantly reduces distribution
and delivery costs. The Company’s customer base is diverse, with long-standing relationships
across all major retail channels, evidenced by the Company’s high retention rates with prominent
supermarkets, mass merchants, value stores and convenience stores such as Circle-K, Dollar
General, ExxonMobil, Food Lion, Kroger, Safeway, 7-Eleven, SuperValu and Wal-Mart. In
addition, the Company is expanding non-retail sales channels, including sales to construction,
airline, sporting and other special events and agricultural customers. In 2010 and 2011, the
Company’s largest customer accounted for approximately 14% of the Company’s revenue. Most
of the Company’s major customers, including virtually all of its top twenty retail ice customers
based on revenues, have purchased ice from the Company and its predecessor companies for
over a decade. In its primary sales markets, the Company supplies substantially all of the
packaged ice to most of its top twenty retail ice customers. As retail channels have consolidated,
national and regional convenience and grocery store chains have represented an increased
percentage of the Company’s total revenue and volume sold. The Company has benefited from
supplying national and regional retailers, as many of these customers have grown at rates in
excess of industry averages.
9. As of March 30, 2012, the Company owned or operated 58 ice manufacturing
facilities, 77 distribution centers and approximately 3,500 ISB machines. As of the same date,
the Company maintained an aggregate daily ice manufacturing capacity of approximately 17,000
tons.
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II. THE DEBTORS’ CORPORATE AND CAPITAL STRUCTURE
A. Organizational Structure
10. Reddy Ice Corporation is the wholly owned subsidiary and operating company of
Reddy Ice Holdings, Inc. Reddy Ice Holdings, Inc. is a public company (OTCQB: RDDY) and,
as of March 15, 2012, had over 23.9 million outstanding shares of common stock. Reddy Ice
Corporation maintains a 63% ownership interest (on a fully diluted basis) in Easy Ice, LLC, a
non-debtor entity that provides commercial ice machine subscriptions
B. The Debtors’ Assets and Liabilities
11. The Company generates revenue by the sale of its products to customers across 34
states and the District of Columbia. During the year ending December 31, 2011, the Company
generated revenue of approximately $328 million. As of December 31, 2011, the Company had
assets totaling approximately $434 million and total liabilities of approximately $531 million.
The bulk of the liabilities were total debt outstanding of approximately $471.5 million, which is
described in greater detail below.
(a) 11.25% Senior Secured Notes
12. On March 15, 2010, Reddy Corp issued $300.0 million in aggregate principal
amount of 11.25% Senior Secured Notes due 2015 (the “First Lien Notes”) in a private
placement offering. The First Lien Notes were subsequently registered with the Securities and
Exchange Commission effective August 2, 2010. Cash interest accrues on the First Lien Notes
at a rate of 11.25% per annum and is payable semi-annually in arrears on March 15 and
September 15. The First Lien Notes mature on March 15, 2015. The First Lien Notes are senior
secured obligations of Reddy Corp and are: (i) guaranteed by Reddy Holdings; (ii) secured on a
first-priority basis by liens on substantially all of the assets of Reddy Corp and Reddy Holdings;
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(iii) senior in right of payment to all of Reddy Corp’s and Reddy Holdings’ future subordinated
indebtedness; and (iv) effectively senior to all of Reddy Corp’s and Reddy Holdings’ existing
and future unsecured senior indebtedness.
13. The First Lien Notes include customary covenants that restrict, among other
things, Reddy Corp’s and its future subsidiaries’ ability to incur additional debt or issue certain
preferred stock, pay dividends or redeem, repurchase or retire its capital stock or subordinated
indebtedness, make certain investments, create liens, enter into arrangements that restrict
dividends from its subsidiaries, merge or sell all or substantially all of its assets or enter into
various transactions with affiliates. From and after March 15, 2013, Reddy Corp may redeem
any or all of the First Lien Notes by paying a redemption premium, which is initially 5.625% of
the principal amount of the First Lien Notes and declines to 0% for the period commencing on
March 15, 2014 and thereafter. Prior to March 15, 2013, Reddy Corp may redeem any or all of
the First Lien Notes by paying a “make-whole” redemption premium. If Reddy Corp
experiences a change of control, Reddy Corp will be required to make an offer to repurchase the
First Lien Notes at a price equal to 101% of their accreted value, plus accrued and unpaid
interest, if any, to the date of purchase. Reddy Corp may also be required to make an offer to
purchase the First Lien Notes with proceeds of asset sales that are not reinvested in the
Company’s business or used to repay other indebtedness. Additionally, the indenture governing
the First Lien Notes restricts the amount of dividends, distributions and other restricted payments
Reddy Corp may make.
(b) 13.25% Senior Secured Notes.
14. On March 15, 2010, Reddy Corp issued $137.6 million in aggregate principal
amount of 13.25% Senior Secured Notes due 2015 (the “Second Lien Notes”) in the initial
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settlement of a private placement exchange offer for the outstanding Discount Notes (the
“Exchange Offer”). On March 24, 2010, Reddy Corp issued an additional $1.8 million in
aggregate principal amount of Second Lien Notes in the final settlement of the Exchange Offer.
The Second Lien Notes were subsequently registered with the SEC effective August 2, 2010.
Reddy Corp received no cash proceeds from the issuance of the Second Lien Notes. Cash
interest accrues on the Second Lien Notes at a rate of 13.25% per annum and is payable semi-
annually in arrears on May 1 and November 1, with the first payment occurring on November 1,
2010. The Second Lien Notes mature on November 1, 2015.
15. The Second Lien Notes are senior secured obligations of Reddy Corp and are: (i)
guaranteed by Reddy Holdings; (ii) secured on a second-priority basis by liens on substantially
all of the assets of Reddy Corp and Reddy Holdings; (iii) senior in right of payment to all of
Reddy Corp’s and Reddy Holdings’ future subordinated indebtedness; and (iv) effectively senior
to all of Reddy Corp’s and Reddy Holdings’ existing and future unsecured senior indebtedness.
16. The Second Lien Notes include customary covenants that restrict, among other
things, Reddy Corp’s and its future subsidiaries’ ability to incur additional debt or issue certain
preferred stock, pay dividends or redeem, repurchase or retire its capital stock or subordinated
indebtedness, make certain investments, create liens, enter into arrangements that restrict
dividends from its subsidiaries, merge or sell all or substantially all of its assets or enter into
various transactions with affiliates. From and after March 1, 2013, Reddy Corp may redeem any
or all of the Second Lien Notes by paying a redemption premium, which is initially 6.625% of
the principal amount of the Second Lien Notes and declines to 0% for the period commencing on
March 1, 2014 and thereafter. Prior to March 1, 2013, Reddy Corp may redeem any or all of the
Second Lien Notes by paying a “make-whole” redemption premium. If Reddy Corp experiences
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a change of control, Reddy Corp will be required to make an offer to repurchase the Second Lien
Notes at a price equal to 101% of their accreted value, plus accrued and unpaid interest, if any, to
the date of purchase. Reddy Corp may also be required to make an offer to purchase the Second
Lien Notes with proceeds of asset sales that are not reinvested in the Company’s business or used
to repay other indebtedness. Additionally, the indenture governing the Second Lien Notes
restricts the amount of dividends, distributions and other restricted payments Reddy Corp may
make.
(c) 101/2% Senior Discount Notes.
17. On October 27, 2004, Reddy Holdings issued $151 million in aggregate principal
amount at maturity of 101/2% Senior Discount Notes due 2012 (the “Discount Notes”) in a
private placement offering. The Discount Notes were subsequently registered with the SEC,
effective August 26, 2005. Each Discount Note had an initial accreted value of $663.33 per
$1,000 principal amount at maturity. The accreted value of each Discount Note increased from
the date of issuance until November 1, 2008 at a rate of 101/2% per annum such that the accreted
value equaled the stated principal amount on November 1, 2008. Thereafter, cash interest began
accruing November 1, 2008 and is payable semi-annually in arrears on May 1 and November 1
at a rate of 101/2% per annum. The Discount Notes mature and are payable on November 1,
2012. During the years ended December 31, 2011 and 2010, Reddy Corp paid cash dividends to
Reddy Holdings in the amount of $1.2 million and $6.7 million, respectively, to fund the semi-
annual interest payments on the Discount Notes.
18. On February 22, 2010, Reddy Corp launched the Exchange Offer, offering $1,000
in aggregate principal amount of Second Lien Notes for each $1,000 of Discount Notes
exchanged. In addition, for Discount Notes exchanged on or prior to March 5, 2010, Reddy Corp
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offered an early tender premium of $5 in aggregate principal amount of Second Lien Notes for
each $1,000 of Discount Notes exchanged. In conjunction with the Exchange Offer, Reddy Corp
solicited consents to eliminate substantially all of the restrictive covenants from the indenture
governing the Discount Notes. At the expiration of the Exchange Offer on March 19, 2010,
approximately 92.2% of the aggregate principal amount of the Discount Notes had been tendered
into the Exchange Offer. Following the final settlement of the Exchange Offer, $11.7 million in
aggregate principal amount of the Discount Notes remain outstanding.
19. The Discount Notes are unsecured obligations of Reddy Holdings and are: (i) not
guaranteed by Reddy Corp; (ii) senior in right of payment to all of Reddy Holdings’ future
subordinated indebtedness; (iii) equal in right of payment with any of Reddy Holdings’ existing
and future unsecured senior indebtedness; (iv) effectively subordinated to Reddy Holdings’
existing and future secured debt, including the debt under the First Lien Notes, the Second Lien
Notes and the credit facility, which are guaranteed on a secured basis by Reddy Holdings; and
(v) structurally subordinated to all obligations and preferred equity of Reddy Corp. As of
November 1, 2010, Reddy Holdings may redeem any or all of the Discount Notes without paying
any redemption premium.
(d) Senior Credit Facilities.
20. On March 15, 2010, Reddy Corp entered into a revolving credit facility with a
syndicate of banks, financial institutions and other entities as lenders, including JPMorgan Chase
Bank, N.A., as Administrative Agent (the “March 2010 Credit Facility”). The March 2010
Credit Facility provided for a $35 million revolving credit facility. Under the March 2010 Credit
Facility, Reddy Corp had the right to request the aggregate commitments to be increased to
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$50 million provided certain conditions were met. On August 4, 2010, the aggregate
commitments under the March 2010 Credit Facility were increased to $50 million.
21. The March 2010 Credit Facility was an obligation of Reddy Corp and was
guaranteed by Reddy Holdings. The March 2010 Credit Facility was scheduled to mature on
January 31, 2014. On October 22, 2010, Reddy Corp and the lenders party thereto amended and
restated the March 2010 Credit Facility (the “New Credit Facility”). The New Credit Facility
provides for a $50 million revolving credit facility. Macquarie Bank Limited (“Macquarie”), a
lender under the March 2010 Credit Facility, is currently the sole lender under the New Credit
Facility. On December 10, 2010, Macquarie became the successor administrative agent under
the New Credit Facility.
22. The obligations under the New Credit Facility are fully and unconditionally
guaranteed by Reddy Holdings and will also be guaranteed by any future domestic subsidiaries
of Reddy Corp, subject to certain exceptions.
23. The New Credit Facility does not require any scheduled principal payments prior
to its stated maturity date. Subject to certain conditions, mandatory repayments of the New
Credit Facility (and mandatory commitment reductions of the New Credit Facility) are required
to be made with portions of the proceeds from (1) asset sales, (2) the issuance of debt securities
and (3) insurance and condemnation awards, subject to various exceptions. In the event of a
change in control, as defined in the New Credit Facility, an event of default will occur under the
New Credit Facility.
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III. EVENTS LEADING TO THE CHAPTER 11 FILINGS
A. Events Leading to the Filing of the Chapter 11 Cases
24. Due to the deterioration in the Debtors’ business related principally to declines in
same store sales driven by macroeconomic factors, coupled with rising commodity prices,
increased competition and high interest costs resulting from their highly leveraged capital
structure further described above, the Debtors experienced significant net losses in 2010 and
2011. In 2011, as the Debtors’ EBITDA declined, the Debtors began to explore alternatives to
address their capital structure. In recent months these efforts accelerated, with an informal
committee of the largest holders of the First Lien Notes and Second Lien Notes (the “Ad Hoc
Committee”) negotiating the terms of a restructuring of the Debtors’ debt obligations (the
“Restructuring”). One of the members of the informal committee is Centerbridge Capital
Partners II, L.P. and one or more of its parallel funds and related vehicles (collectively,
“Centerbridge”).
25. In addition to addressing the Company’s declining EBITDA and current debt, the
Restructuring is also intended to provide the Company with the opportunity to pursue a strategic
acquisition (the “Strategic Acquisition”) of all or substantially all of the businesses and assets of
Arctic Glacier Income Fund and its subsidiaries (“Arctic”). As is the case with the Company’s
business, Arctic has encountered financial difficulties due to adverse trends in our industry in
recent years. On February 22, 2012, Arctic filed for protection under the Companies’ Creditors
Arrangement Act in Canada and Chapter 15 of the Bankruptcy Code in the United States. Arctic
has initiated a Sale and Investor Solicitation Process (“SISP”). The purpose of the SISP is to
seek sale proposals and investment proposals from qualified bidders and to implement one or a
combination of them in respect of Arctic’s property and business.
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26. On March 28, 2012, the Company submitted a non-binding letter of intent to
Arctic regarding participation in the SISP. The letter of intent contemplates the Company’s
acquisition of substantially all of Arctic’s business and assets. On April 5, 2012, the Company
was advised by the financial adviser to Arctic that the Company has been approved to move to
phase 2 of the SISP. The successful bidder will be selected at the end of phase 2 of the SISP.
The Company’s interest in Arctic remains subject to, among other things, completion of due
diligence, negotiation of acceptable transaction documents, and receipt of sufficient
commitments for debt and equity financing for the acquisition. Centerbridge has indicated its
interest in providing the entire amount of the equity financing for the Arctic acquisition.
27. In order to have the ability to acquire Arctic, the Company must restructure its
debt obligations in a manner which creates a sustainable capital structure and permits the
Company to obtain additional debt and equity financing.
B. The Proposed Plan of Reorganization
28. In compliance with the Investment Agreement (defined below) and in order to
consummate the Restructuring described above, including, but not limited to the re-working of
the Company’s capital and debt structures as well as the Strategic Acquisition, the Company, just
prior to the Petition Date, commenced the solicitation of acceptances with respect to their Plan.
Additionally, it is my understanding that support agreements for the Plan have been executed by
holders of approximately 60% of the principal amount of the First Lien Notes, 58% of the
principal amount of the Second Lien Notes and 92% of the principal amount of the Discount
Notes. It is also my understanding that such support agreements require the holders of the First
Lien Notes, the Second Lien Notes and the Discount Notes to, among other things, vote to accept
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the Plan. In short, the Plan proposes, among other things, the following restructuring
transactions.
29. First Lien Notes. The Plan seeks to amend the indenture governing the First Lien
Notes to, among other things, permit (i) the incurrence of incremental pari passu first lien
acquisition financing for the Arctic transaction, (ii) an amendment to the change of control
provisions to prevent the occurrence of a change of control as a result of the Restructuring and
(iii) an amendment to the reporting requirements to eliminate the need to continue as a reporting
company under the Securities Exchange Act of 1934. The First Lien Notes will continue to be
guaranteed by Reddy Holdings and will otherwise maintain the same obligations.
30. In the event that the Company fails to consummate the Strategic Acquisition,
Centerbridge has agreed to convert approximately $68.2 million in aggregate principal amount
and accrued and unpaid interest of its First Lien Notes into preferred stock of Reddy Holdings
with a liquidation preference of $75 million.
31. Second Lien Notes. Pursuant to the Plan, the Company seeks to have holders of
the Second Lien Notes exchange those Notes for their ratable share of (i) 6,094,327 shares of
common equity of reorganized Reddy Holdings, subject to dilution in accordance with the other
provisions of the Plan and a further distribution of certain of such shares upon the occurrence of
certain events and (ii) new preferred stock of reorganized Reddy Holdings pursuant to the rights
offering (to the extent such holder elects to participate in the rights offering).
32. Discount Notes. Under the Plan, the Discount Notes will be cancelled; however,
subject to Bankruptcy Court approval and other conditions, the holders of the Discount
Notes will receive such holder’s ratable share of: (i) $4.68 million in cash on the consummation
of the Restructuring and (ii) promissory notes in an initial amount of $1.17 million payable on
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the three month anniversary of the consummation of the Restructuring. The Discount Notes
payment due under the promissory notes will accrue interest at a rate of 7% per annum from the
consummation of the Restructuring to the three month anniversary of the consummation of the
Restructuring. In the event that the Strategic Acquisition is consummated prior to the three
month anniversary of the consummation of the Restructuring, the principal amount of the
promissory notes will be increased and the holders of the Discount Notes will receive their
ratable share of an additional $2.34 million, which additional amount will accrue interest at a rate
of 7% per annum from the consummation of the Restructuring until the three month anniversary
of the consummation of the Restructuring. In the event that the Strategic Acquisition is
consummated after the three month anniversary of the consummation of the Restructuring, the
additional payment will be made within ten (10) business days following the Strategic
Acquisition and will accrue interest at a rate of 7% per annum from the consummation of the
Restructuring until the payment date. Such payments to the existing holders of the Discount
Notes will be made from the distributions under the Plan to the holders of the Second Lien
Notes.
33. Common Stock. Under the Plan, the common stock of Reddy Holdings will be
cancelled. Subject to this Court’s approval and other conditions existing holders of our common
stock will be entitled to receive a cash payment of approximately $0.12 per share for their shares,
with an additional payment of approximately $0.05 per share made in the event the Strategic
Acquisition is consummated. Holders of common stock who hold at least 25,000 shares will be
entitled to elect to receive common shares of reorganized Reddy Holdings in lieu of the cash
payment. Assuming all existing shares converted into stock of reorganized Reddy Holdings,
following the consummation of the Restructuring, holders of the existing common stock of
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Reddy Holdings would initially hold approximately 2.0% of the equity of reorganized Reddy
Holdings (inclusive of the New Preferred Stock on an as converted basis). In the event that the
Debtors consummate the Strategic Acquisition, holders of the existing common stock of Reddy
Holdings who elected to receive shares of common stock of reorganized Reddy Holdings will be
entitled to an additional distribution of shares of common stock of reorganized Reddy Holdings.
Such payments and the issuance of shares of reorganized Reddy Holdings to the existing holders
of common stock will be made from the distributions made under the Plan to the holders of the
Second Lien Notes.
34. Class A Common Stock. Under the Plan, Centerbridge will receive one share of
class A common stock of the reorganized Reddy Holdings. The holder of the share of the class
A common stock will be entitled to vote with all voting securities of reorganized Reddy
Holdings on all matters submitted to the holders of voting securities for vote. The share of class
A common stock of reorganized Reddy Holdings will be entitled to 10,000,000 votes. Class A
common stock of reorganized Reddy Holdings will not be entitled to the payment of any
dividends or distributions and is redeemable by Reddy Holdings for $0.01 upon (x) the
liquidation, dissolution or winding up of the affairs of Reddy Holdings or (y) the consummation
or termination of the Strategic Acquisition.
35. Preferred Stock. Holders of Second Lien Notes who participate in the rights
offering and Centerbridge, in connection with the Investment Agreement, the equity financing of
the Strategic Acquisition (if applicable) and the conversion of a portion of its First Lien Notes (if
applicable), will receive new preferred stock of reorganized Reddy Holdings. The preferred
stock will be perpetual, participating, cumulative preferred stock, with a 7.0% cumulative
coupon payable in cash or in-kind at the option of Reddy Holdings. The preferred stock will
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mandatorily convert into common stock upon the earlier of (x) our achievement of a total net
debt to EBITDA ratio of less than 3.0:1.0 for a period of four consecutive quarters or
(y) completion of a qualifying initial public offering of reorganized Reddy Holdings’ common
stock. The preferred stock may be optionally converted by the holder at any time. Holders of
preferred stock will vote with the common stock on an as converted basis.
36. Investment Agreement. In order to fund costs associated with the Restructuring
and further reduce the Company’s level of indebtedness upon emergence, as well as to help
enable us to acquire Arctic in the event we are the successful bidder, we have entered into an
investment agreement with Centerbridge (the “Investment Agreement”). The Investment
Agreement includes commitments of Centerbridge to (a) backstop the Rights Offering, (b)
directly purchase New Preferred Stock in an amount not less than $7.5 million, (c) provide
equity capital for the acquisition of Arctic and (d) in the event of the failure to acquire Arctic,
exchange First Lien Notes for New Preferred Stock of Reddy Holdings, in each case subject to
certain terms and conditions.
37. Rights Offering. In order to fund costs associated with the Restructuring and
further reduce the Company’s level of indebtedness upon emergence, the Company will
undertake and consummate a $17.5 million rights offering for preferred stock of Reddy Holdings
in connection with our emergence from protection under the Bankruptcy Code. The rights
offering will be open to existing holders of our Second Lien Notes on a ratable basis. I believe
that the Rights Offering is an integral part of the Plan. It will (a) fund costs associated with the
Restructuring, (b) reduce the Debtors’ level of indebtedness upon emergence, and (c) enable the
Debtors to acquire Arctic in the event the Debtors are the successful bidder for those assets.
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38. If consummated, the effect of the Plan will be to significantly deleverage the
Company’s balance sheet and provide it with additional liquidity. The Company believes that,
through the Plan, holders of claims will obtain a substantially greater recovery from the estates
than the recovery they would receive if the Company liquidated. The Company further believes
that the Plan, if consummated, will substantially enhance the Company’s capital structure and
liquidity position, afford the Company the opportunity and ability to continue its business as a
viable going concern and enable it to acquire Arctic in the event that the Debtors are the
successful bidder for those assets.
C. Debtor in Possession Financing and Cash Collateral
39. As part of the Restructuring, the Debtors are seeking authority to enter into and
borrow under a debtor in possession financing facility. Specifically, Reddy Corp, in its capacity
as Borrower, and Reddy Holdings, in its capacity as Guarantor, have negotiated an agreement to
receive debtor-in-possession financing, the terms of which are memorialized in that certain
Senior Secured Priming Debtor-in-Possession Credit Facility attached to the DIP Motion as
Exhibit A, with Macquarie as DIP Agent and the other DIP Lenders, to obtain postpetition
revolving loans (collectively, the “DIP Facility”) in an aggregate principal amount not to exceed
$70,000,000, which shall consist of (i) a loan to refinance all of the amounts outstanding under
the Prepetition Credit Agreement and (ii) new money loans to fund the ongoing working capital
needs and general corporate purposes of the Debtors, subject to the Approved Budget, and make
adequate protection payments and pay other expenses incurred during the pendency of the
chapter 11 cases.
40. Prior to the Petition Date, the Debtors and the Debtors’ financial advisor and
investment banker, Jefferies and Company, Inc. (“Jefferies”), engaged in an intensive search for
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financing alternatives in which multiple bids and proposals were considered. In fact, the Debtors
and Jefferies contacted several potential lending parties in connection with the search for DIP
financing. The initial search universe was comprised of leading financial institutions with the
capabilities to provide the Debtors with an adequate level of DIP financing at market rates and
on an expedited basis. From this initial universe, the Debtors received non-binding DIP
financing proposals from approximately five parties. The Debtors and their advisors conducted
multiple follow-up calls with each party in an effort to improve upon terms, and assess the
likelihood of closure by the Petition Date. The Debtors and their advisors elected to move three
parties into detailed due diligence. As a result of their search, the Debtors have selected
Macquarie’s debtor in possession financing proposal based on the reasonableness of the
proposed terms in light of other proposals the Debtors received, Macquarie’s ability to close
quickly, Macquarie’s advanced knowledge of the Debtors, and the lender dynamics described
above.
41. The Debtors have, in their business judgment, determined that entering into the
DIP Facility will give them the financing needed to operate in chapter 11 with minimum
interruption or disruption to their operations and thus preserve and maintain the going concern
value of the Debtors’ estates. In addition, the Debtors have, in their business judgment,
determined that the DIP Facility provides the Debtors with the greatest degree of flexibility to
implement the Restructuring.
42. The DIP Facility provides the Debtors’ estates with an additional approximately
$20 million of liquidity over and above that provided under their Prepetition Credit Agreement.
The Debtors think it important to note that approximately $23.5 million of the total amounts
advanced under the Prepetition Credit Agreement was advanced by the Prepetition Credit
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Agreement Lender in the ten weeks leading up to the Petition Date as an accommodation to the
Debtors in order to address the Debtors’ immediate liquidity needs and to provide an opportunity
to explore and fund restructuring discussions with the Debtors’ constituencies and third parties.
Thus, the Debtors submit that only a portion of the Prepetition Credit Agreement (about $26.5
million) represents “vintage” pre-petition loans which are being “rolled up”. Furthermore, and
importantly, the Debtors were unable to obtain any proposals for DIP financing that did not
require the Prepetition Revolver Indebtedness to be “taken out” in full, and therefore the “roll-
up” portion of the DIP Facility is the functional equivalent to all other DIP financing proposals
received by the Debtors.
43. The DIP Facility, through the repayment of the Prepetition Revolver
Indebtedness, enhances the Debtors’ economic position by retiring outstanding prepetition
obligations under that facility and permitting the availability of the remainder of the DIP Facility.
In addition to eliminating the expense and need for separate counsel to the Prepetition Agent and
the DIP Agent, repaying the Prepetition Credit Agreement through the Refinancing Loan will
significantly simplify and expedite the Debtors’ restructuring by allowing the Debtors to avoid
an unnecessary and costly priming fight. The Prepetition Secured Parties, who have consented to
the priming of their liens pursuant to the DIP Facility, are generally supportive of the Debtors
and the Debtors believe that certain of such lenders would not consent to the priming of their
liens pursuant to DIP financing other than the DIP Facility provided on the terms described
herein. The dynamics surrounding the Debtors’ restructuring efforts have been complex enough
without bringing new lenders into the process. Accordingly, the Debtors believe that any
concerted effort to enter into DIP financing other than the DIP Facility described herein, and the
issues that would likely arise in the context of a third-party lender’s demands for priming liens,
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would have caused insurmountable difficulties with their existing prepetition lenders and other
stakeholders and thus jeopardized the Debtors’ proposed Restructuring.
44. Finally, entry into the DIP Facility on the terms described herein, including the
contemplated “roll-up” of the Prepetition Revolver Indebtedness, benefits the Debtors’
constituencies in that the DIP Lenders and the DIP Agent have agreed, subject to the terms
described in the DIP Facility Agreement, to provide the Debtors with exit financing with reduced
fees in the event the parties enter into the DIP Facility. Thus, the Debtors believe that the total
costs to finance their Restructuring will be lower under the DIP Facility than under any of the
other proposals received by the Debtors for DIP and exit financing, and the prearranged exit
financing will save the Debtors significant search and transactional costs that would otherwise
have been incurred by the Debtors separate and apart from the process associated with the DIP
Facility. The prearranged exit financing, which is an integral provision of the DIP Facility,
further benefits the Debtors’ estates by increasing certainty that the Debtors will consummate the
Plan. Finally, and importantly, the prearranged exit financing contemplated by the DIP
Agreement would help pave the way for the consummation of the Company’s potential
acquisition of Arctic and provide adequate funding for the Company’s operations after such an
acquisition. The Debtors therefore believe that the DIP Facility on the terms described herein
gives them the greatest degree of flexibility to pursue restructuring alternatives.
45. Additionally, the Debtors do not have sufficient available sources of working
capital or cash to continue the operation of their businesses without accessing the Cash
Collateral. The ability to obtain sufficient working capital and liquidity through the DIP Facility
and use of the Cash Collateral is vital to the preservation and maximization of the value of the
Debtors’ estates. The proposed usage of the Cash Collateral requested in the DIP Motion will
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fund the Debtors’ operating expenses, marketing expenses, professional fees, fees due under 28
U.S.C. § 1930, insurance, taxes, and other miscellaneous costs. I believe that the Debtors’
failure to timely pay such items will result in immediate and irreparable harm to their assets.
46. Finally, the Debtors have an immediate need for liquidity to finance their
operations during these chapter 11 cases. Without access to the Cash Collateral and the DIP
Facility, the Debtors will jeopardize their ability to fulfill obligations and commitments to trade
creditors, employees, lenders, and other stakeholders upon whose trust and confidence the future
viability of the business depends. The Debtors thus seek immediate authority to use the Cash
Collateral and enter into the DIP Facility Agreement as set forth in the DIP Motion and in the
Interim Order to prevent immediate and irreparable harm to the Debtors, pending a final hearing.
IV. FIRST DAY MOTIONS AND ORDERS
47. In furtherance of the Debtors’ restructuring objectives, and concurrently with the
filing of their chapter 11 petitions, the Debtors are seeking orders approving the First Day
Pleadings (collectively, the “First Day Orders”). Generally, the First Day Pleadings have been
designed to meet the Debtors’ goals of: (a) continuing their operations in chapter 11 with as
little disruption and loss of productivity as possible, while ensuring preservation of value for the
estates; (b) maintaining the confidence and support of their employees, customers, vendors,
suppliers and service providers during the Debtors’ reorganization process; and (c) establishing
procedures for the smooth and efficient administration of these chapter 11 cases. The Debtors
request that each of the First Day Orders be entered, as each constitutes an integral element in
maximizing the value of these estates for the benefit of all parties in interest. A list of the First
Day Pleadings is attached hereto as Exhibit A.
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48. In connection with the preparation of these bankruptcy cases, I have reviewed
those First Day Pleadings and First Day Orders that are described herein (including the exhibits
thereto) with Debtors’ counsel, and the facts set forth therein are (a) true and correct to the best
of my knowledge, information, and belief, and based upon the information supplied or verified
by various employees of the Debtors and (b) incorporated herein by reference. Furthermore, it is
my belief that the relief sought in each of the First Day Pleadings is tailored to meet the goals
described above and, ultimately, will be critical to the Debtors’ ability to achieve a successful
reorganization and preserve the value of their estates. I also believe that all of the relief
requested in the First Day Pleadings on an interim basis, to the extent applicable, is necessary to
prevent immediate and irreparable harm to the Debtors, pending a final hearing.
A. Administrative and Procedural Matters
Joint Administration of Cases
49. The Debtors seek the joint administration of their chapter 11 cases for procedural
purposes only. I believe that it would be far more practical and expedient for the administration
of these chapter 11 cases if the Court were to authorize their joint administration. Many of the
motions, hearings, and other matters involved in these chapter 11 cases will affect both of the
Debtors. Hence, joint administration will reduce costs and facilitate the administrative process
by avoiding the need for duplicative notices, applications and orders.
List of Creditors and Initial Notices
50. To ease the administrative burden of these cases on the Debtors’ estates, the
Debtors are seeking authorization to (a) prepare a consolidated list of creditors in electronic
format only, identifying their creditors in the format or formats currently maintained in the
ordinary course of business in lieu of any required mailing matrix, and (b) mail initial notices.
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The Debtors are proposing that the Noticing and Claims Agent will assist the Debtors in
preparing creditor lists and mailing initial notices to the consolidated mailing matrix, such as
(a) a notice of filing of the chapter 11 cases, (b) a notice of a meeting of creditors under
Bankruptcy Code section 341 in the event that the United States Trustee schedules such a
meeting, (c) notice of the time fixed for filing objections to and the hearing to consider approval
of the Debtors’ Disclosure Statement and to consider confirmation of the Debtors’ Plan and
(d) any correspondence the Debtors may wish to send to creditors as part of the Debtors’
communication efforts to keep their creditors informed with respect to the status of these
chapter 11 cases.
51. I believe that the relief requested will reduce the administrative costs of these
chapter 11 cases and is in the best interests of the Debtors’ estates.
Time to File Schedules and Statements
52. The Debtors have requested an order (i) extending the deadline by which the
Debtors must file their schedules of assets and liabilities and statements of financial affairs
(collectively, the “Schedules and Statements”) to thirty seven (37) days after the Petition Date,
(ii) permanently waiving the requirement to file the same upon confirmation of the Debtors’ Plan
within the extension period and (iii) waiving the requirement to file a list of all equity security
holders (the “Equity List”) within fifteen (15) days after the Petition Date.
53. Given the substantial burdens already imposed on the Debtors’ management by
the commencement of these chapter 11 cases, the limited number of employees available to
collect the information, the competing demands upon such employees, and the time and attention
the Debtors must devote to the restructuring process, the Debtors submit that “cause” exists to
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extend the current deadline by thirteen (13) days until the Schedules and Statements Filing
Deadline (a total of 37 days after the Petition Date).
54. The request for a final waiver of the requirement to file Schedules and Statements
is appropriate in a case such as this, where the Debtors have already commenced solicitation of a
Plan. In general, a debtor is required to file the Schedules and Statements in order to permit
parties in interest to understand and assess the debtors’ assets and liabilities and thereafter
negotiate and confirm a plan of reorganization. In these chapter 11 cases, the Debtors have
already negotiated a plan of reorganization and are in the process of soliciting votes from those
parties entitled to vote thereon. Accordingly, one of the primary justifications for requiring the
filing of Schedules and Statements does not exist in these cases.
55. In addition, much of the information that would be contained in the Schedules and
Statements is already available in the disclosure statement to the Plan. To require the Debtors to
file the Schedules and Statements would be duplicative and unnecessarily burdensome to the
Debtors’ estates.
56. The Debtors submit that preparing the Equity List and sending the Notice of
Commencement to all parties on the Equity List will be burdensome, time consuming, expensive
and serve little or no beneficial purpose. The Debtors will provide the parties on the Equity List
with notice of the bar date and an opportunity to assert their interests, in the event that they are
required to file proofs of interest. Thus, the Debtors submit that the requested relief does not
prejudice the equity security holders.
B. Retention of Notice, Claims and Solicitation Agent
57. The Debtors are seeking to retain Kurtzman Carson Consultants LLC (“KCC”) as
its Notice, Claims and Solicitation Agent. The Debtors have thousands of potential creditors. In
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addition to these creditors, there are thousands of other parties in interest in the Debtors’ chapter
11 cases. Although the office of the Clerk of the United States Bankruptcy Court for the
Northern District of Texas (the “Clerk’s Office”) ordinarily would serve notices on the Debtors’
creditors and other parties in interest and administer claims against the Debtors, the Clerk’s
Office may not have the resources to undertake such tasks, especially in light of the sheer
magnitude of the Debtors’ creditor body and the tight timelines that frequently arise in chapter
11 cases.
58. It is my understanding that KCC is a bankruptcy administrator that specializes in
providing comprehensive chapter 11 administrative services including noticing, claims
processing, balloting and other related services critical to the effective administration of
chapter 11 cases. Indeed, KCC has developed efficient and cost-effective methods to handle
properly the voluminous mailings associated with the noticing, claims processing and balloting
portions of chapter 11 cases to ensure the orderly and fair treatment of creditors, equity security
holders and all parties in interest. Further, KCC will work with the Clerk’s Office to ensure that
such methodology conforms with all of the Court’s procedures, the Local Rules and the
provisions of any orders entered by this Court.
59. I believe that KCC is well qualified to provide such services, expertise,
consultation, and assistance based on its expertise in the industry and competitive fee structure.
C. Business Operations of the Debtors
Cash Management and Business Forms
60. The Debtors request that this Court enter an Order authorizing the continued
maintenance and use of the Cash Management System (defined below) and the Bank Accounts
(defined below). The Cash Management System is an ordinary course, customary, and essential
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business practice, and is similar to cash management systems employed by other large
businesses. The Cash Management System allows the Debtors to efficiently identify their cash
requirements, transfer cash as needed to respond to these requirements, and track liquidity and
cash flow.
61. In the ordinary course of their businesses, the Debtors maintain a complex cash
management system (the “Cash Management System”), which includes lockbox, collection,
operating, disbursement, checking, investment, and other accounts. Prior to the commencement
of this chapter 11 case, in the ordinary course of its business, the Debtors maintained 129 active
bank accounts, and several inactive bank accounts3, out of which they manage cash receipts and
disbursements (the “Bank Accounts”). Each of the Bank Accounts are maintained at financial
institutions insured by the Federal Deposit Insurance Corporation (the “FDIC”).
62. The Cash Management System is integral to the operation and administration of
the Debtors’ businesses. In this regard, the Cash Management System, in conjunction with the
financial and accounting systems, allows the Debtors to efficiently (a) identify cash
requirements, (b) transfer cash as needed to respond to these requirements and (c) track all inter-
Debtor transfers, if any.4 For the reasons set forth herein, maintenance of the Debtors’ cash
3 The Debtors are in the process of closing certain of their inactive accounts. In an abundance of caution, the Debtors request authorization to complete the process of closing these accounts, to the extent the process was not completed prior to the Petition Date. 4 Only one of the Bank Accounts – account number 649671393 (the “Holdings Bank Account”) – is owned by Reddy Ice Holdings, Inc. (“Holdings”). The Holdings Bank Account currently has a zero balance, but has been used in the past to receive dividends from Reddy Ice Corporation and to pay the dividends and fees and expenses of certain advisors of Holdings. The Holdings Bank Account is subject to a Blocked Account Control Agreement (“Shifting Control”) among (a) Holdings, (b) Wells Fargo Bank, National Association, as trustee and collateral agent under that certain Indenture with respect to 11.25% Senior Secured Notes due 2015, dated as of March 15, 2010 (in such capacity, the “First Lien Notes Agent”), (c) Wells Fargo Bank, National Association, as trustee and collateral agent under that certain that certain Indenture, with respect to 13.25% Senior Secured Second Lien Notes due 2015, dated as of March 25, 2010 (in such capacity, the “Second Lien Notes Agent”), (d) Macquarie Bank Limited, as administrative agent under the Debtors’ prepetition secured revolving facility (in such capacity, the “Prepetition Agent”), and (e) JPMorgan Chase Bank, N.A. The Debtors to not anticipate that any funds will be distributed to the Holdings Bank Account during these chapter 11 cases.
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management functions within the existing Cash Management System is essential to the efficient
execution and achievement of the Debtors’ strategic business objectives and, ultimately, quick
exit from chapter 11.
63. While complex due to the broad geographic reach of the Debtors’ businesses and
operations, the Cash Management System generally operates in the same manner as cash
management systems of other large national corporations. Funds received (including by wire
transfer, automated clearinghouse (“ACH”) transfer, check and cash) are collected and
concentrated into the relevant collection accounts, transferred to the relevant master and/or
concentration accounts and, in turn, transferred to disbursement accounts to be used to satisfy
outstanding payroll, accounts payable, or other obligations of the Debtors.
64. If the Debtors are permitted to use the Cash Management System in its current
form, the Debtors will continue to disburse funds through the existing Bank Accounts. The
anticipated short duration of these chapter 11 cases does not justify the great amount of expense
and disruption to the Debtors’ business that would inevitably occur if the Debtors were required
to conform the Debtors’ cash management system to the U.S. Trustee Guidelines.
65. The continued use of the Cash Management System and the Bank Accounts
during the pendency of these chapter 11 cases is essential to the Debtors’ business operations and
the goal of maximizing value. Requiring the Debtors to adopt new cash management systems
and open new bank accounts would be expensive, impose needless administrative burdens, and
cause undue disruption. Additionally, the Debtors are proceeding towards confirmation of their
proposed plan of reorganization. It is the Debtors’ expectation, accordingly, that the duration of
their chapter 11 cases will be brief. Thus, a wholesale alteration of the current Cash
Management System would likely take longer than the duration of these chapter 11 cases to
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implement. Further, any such disruption caused by modification of the Cash Management
System would adversely (and perhaps irreparably) affect the Debtors’ abilities to survive these
chapter 11 cases.
66. As a result, in order to ensure an orderly transition into chapter 11, the Debtors
have requested authority to continue to use their existing cash management system as maintained
and operated by the Debtors in the ordinary course of business. I believe that such relief is
necessary to avoid immediate and irreparable harm to the Debtors.
67. Consistent with the relief described above, the Debtors seek a waiver of the UST
Requirement that they close the existing Bank Accounts and open new DIP Accounts. As
mentioned, continued use of the Bank Accounts is essential to the goal of maximizing value and
is in the best interests of all parties. In order to minimize expenses to their estates, the Debtors
also seek authority to use all correspondence and other business forms (including, without
limitation, letterhead, purchase orders, and invoices) without reference to the Debtors’ status as
debtors in possession.5
68. Most parties doing business with the Debtors will be aware of the Debtors’ status
as debtors in possession as a result of publicity of these cases and notice of the commencement
of these cases to creditors and other parties in interest provided by the Debtors. Changing the
Debtors’ existing correspondence and other business forms (other than checks) would be
expensive, unnecessary, and burdensome to the Debtors’ estates. Further, such changes would
be disruptive to the Debtors’ business operations and would not confer any benefit upon those
dealing with the Debtors. For these reasons, the Debtors request that they be authorized to use
5 The Debtors will cause all postpetition checks to bear the “Debtor In Possession” designation, as required by the UST Requirements. The Debtors do not believe the UST Requirements impose any limitation on the Debtors’ other correspondence and business forms. Nevertheless, out of an abundance of caution, the Debtors seek explicit authority to continue using their existing correspondence and business forms without reference to the Debtors’ status as debtors in possession.
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all correspondence and business forms (other than checks) without being required to place the
label “Debtor in possession” on any of the foregoing.
69. I believe that the Debtors will suffer immediate and irreparable harm absent the
granting of the relief described herein.
Employee Wages, Salaries and Benefits
70. The Debtors’ workforce is comprised of full-time salaried employees (the
“Salaried Employees”), full-time6 hourly employees (the “Hourly Employees”, and together with
the Salaried Employees, the “Full Time Employees”), and Seasonal employees (the “Seasonal
Employees”, and together with the Full Time Employees, the “Employees”). As of March 20,
2012, the Debtors employed approximately 1079 Hourly Employees and 458 Salaried
Employees, for a total of 1537 Full Time Employees, and 390 Seasonal Employees. The average
weekly payroll, including amounts for employer paid taxes, for Hourly Employees is $916,429.
The average bi-weekly payroll, including amounts for employer paid taxes, for Salaried
Employees is $1,189,053. The total payroll cost for the Debtors for each two week period is
$3,021,911. The estimated accrued but unpaid wages, salaries, and employer paid portion of
employee taxes as of April 5, 2012 is $1,511,000.
71. Pursuant to the Employee Motion, the Debtors are seeking the following relief:
(a) authorization to pay, in their discretion, any obligations arising under the Employee Programs which were accrued or earned but unpaid as of the Petition Date;
(b) confirmation by the Court of their right to continue each of the Employee Programs in the ordinary course of business during the pendency of these cases in the manner and to the extent that such Employee Programs were in effect immediately prior to the filing of these cases and to make payments in connection with expenses incurred in the administration of any Employee Program;
(c) confirmation that the Debtors’ are permitted to pay any and all local, state and federal withholding and payroll-related or similar taxes relating to the
6 “Full time” hourly employees work at least 32 hours per week.
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Prepetition Employee Obligations including, but not limited to, all withholding taxes, social security taxes and Medicare taxes (the “Payroll Taxes”), whether remitted or paid by the Debtors.
(d) confirmation that the Debtors’ are permitted to pay to third parties any and all amounts deducted from Employee paychecks for payments on behalf of Employees for garnishments, benefit plans, insurance programs, and other similar programs (the “Payroll Deductions,” and together with the Payroll Taxes, the “Employee Withholdings”).
(e) express authorization, with respect to any Employee Programs and Prepetition Employee Obligations that are administered or paid through a third-party administrator or service provider (collectively, “Providers”), to pay any prepetition claims of such Providers in the ordinary course of business to ensure the uninterrupted delivery of payments or other benefits to the Employees.
(f) express authorization to pay outstanding amounts, if any, owed to agencies that supply the Debtors with Seasonal workers;
(g) authorization and direction to all banks to receive, process, honor and pay any and all checks drawn on the payroll and other bank accounts used by the Debtors to satisfy their Prepetition Employee Obligations, whether presented before, on or after the Petition Date, and authorizing the banks to rely on the representations of the Debtors as to which checks are subject to this Motion, provided that sufficient funds are on deposit in the applicable accounts to cover such payments;
(h) authorization to issue new postpetition checks to replace any checks that may be dishonored and to reimburse any expenses that Employees may incur as a result of any bank’s failure to honor a prepetition check.
72. I believe that the payment of the Prepetition Employee Obligations serves the
sound business purpose of maximizing the value of the Debtors’ estates. The Debtors’ success in
these cases hinges in large part on the morale and continued efforts of the Employees. Through
the payment of the Prepetition Employee Obligations, the Debtors seek to motivate and
encourage the Employees to continue to support the Debtors’ restructuring efforts.
73. With respect to the Employees, the Debtors have examined other options short of
payment of the Prepetition Employee Obligations and have determined that to avoid significant
disruption of the Debtors’ business operations there exists no practical or legal alternative to
payment of such obligations. Therefore, the I believe that the Debtors can only meet their
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fiduciary duties as debtors in possession under Bankruptcy Code sections 1107(a) and 1108 by
payment of the Prepetition Employee Obligations.
74. I also believe that the Debtors will suffer immediate and irreparable harm absent
the Court’s entry of an order granting the relief requested in the Employee Motion.
Utilities
75. Uninterrupted utility services are critical to the Debtors’ ability to sustain their
operations during the pendency of their chapter 11 cases. In connection with the operation of
their businesses and the management of their properties, the Debtors receive utility service from
various Utility Companies, including providers of water, gas, electricity, telephone, waste, sewer
and related services (collectively, the “Utility Services”), covering a number of utility accounts.
Prior to the Petition Date, the Utility Companies provided Utility Services to the Debtors at
various locations. The services provided by the Utility Companies are crucial to the continued
operations of the Debtors. If the Utility Companies refuse or discontinue service, even for a brief
period, the Debtors’ business operations would be severely disrupted.
76. Accordingly, the Debtors seek the entry of an order (i) approving the Debtors’
segregation of blocked funds to be held by JPMorgan Chase Bank, N.A. (“JPMC”) in the amount
of $1,000,000 in a segregated account to be administered in accordance with the Order (the
“Utility Blocked Account”) as providing utilities with “adequate assurance of payment” under
Bankruptcy Code sections 366(b) and 366(c)(1)(A) and deeming all utilities entitled to such
assurance of payment under Bankruptcy Code section 366 to have received adequate assurance
of payment pursuant to section 366(b), (ii) approving the Additional Adequate Assurance
Procedures as the method for resolving disputes regarding adequate assurance of payment, (iii)
scheduling a hearing, to be held on or before the day that is thirty (30) days after the Petition
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Date, on any Additional Adequate Assurance Requests that are disputed by the Debtors, and (iv)
authorizing, but not directing, the Debtors to pay pre-petition amounts owed to Advantage IQ, a
certain Third Party Vendor, in an amount not to exceed $10,000 (the “Third Party Vendor’s
Claims”).
77. I believe that such relief on an interim basis is necessary to avoid immediate and
irreparable harm to the Debtors pending a final hearing.
Prepetition Taxes and Related Relief
78. The Debtors, in the ordinary course of their businesses, incur various tax
liabilities and have generally paid such tax liabilities as they became due. The Debtors’ books
and records reflect that they have paid all Taxes which were due and payable prior to the Petition
Date. The Taxing Authorities, however, will continue to invoice the Debtors for Taxes relating
to periods prior to the Petition Date following the commencement of these chapter 11 cases.
Specifically, in the aggregate, the Debtors expect that approximately $3,200,000 in prepetition
Taxes will become due and payable following the Petition Date. Of that amount, approximately
$520,000 in Taxes will become due and payable within the first 60 days of these chapter 11
cases.
79. The Debtors are subject to the following Taxes:
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(a) Sales and Use Taxes. In the ordinary course of business, the Debtors incur sales and use taxes (the “Sales and Use Taxes”) as the result of providing services, selling merchandise or consuming goods. Certain Taxing Authorities require the Debtors to pay Sales and Use Taxes that are based on a percentage of sales prices. In most cases, the Sales and Use Taxes are paid in arrears once collected. The Debtors estimate approximately $144,800 in prepetition Sales Tax will become due and payable following the Petition Date for prepetition amounts owed. (b) Property Taxes. The Debtors pay property taxes (the “Property Taxes”) to certain of the Taxing Authorities . Property Taxes are assessed based on a statutorily mandated percentage of property value (for both real and personal property) and become payable in the ordinary course of business. Property Taxes are typically due annually, although the precise timing varies by jurisdiction. As of the Petition Date, the Debtors estimate that approximately $2.5 million in Property Taxes accrued but remain unpaid. Certain additional Property Taxes may be the subject of a dispute by the Debtor, or may be late in being invoiced, and therefore remain unpaid. Further additional Property Taxes may be billed during the pendency of these Cases. The Debtors estimate approximately $2.5 million in prepetition Property Taxes will become due and payable following the Petition Date. (c) Franchise and Other Taxes. The Debtors pay franchise taxes and de minimis registration fees and other business license fees (collectively, the “Franchise Taxes”) to certain of the Taxing Authorities so that the Debtors can operate their businesses in the applicable taxing jurisdiction. Some states assess a flat Franchise Tax on all businesses and other states assess a Franchise Tax based upon some measure of income, gross receipts, net worth or other measure of value. Additionally, the Debtors’ failure to pay the Franchise Taxes could cause some states to challenge the Debtors’ right to operate within their jurisdiction. Addressing any subsequent action taken by those states would be costly, place an administrative burden on management and divert management’s attention from the reorganization process. The Debtors estimate approximately $550,000 in prepetition Franchise Tax will become due and payable following the Petition Date. (d) Annual Report Taxes. Various Taxing Authorities require the Debtors to pay annual report or bi-annual report taxes (collectively, the “Annual Report Taxes”) in order to be in good standing for purposes of conducting business within the state. The Debtors estimate approximately $2,500 in prepetition Annual Report Taxes will become due and payable in the sixty days following the Petition Date.
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80. I believe that the continued payment of the prepetition Taxes on their normal due
dates will ultimately preserve the resources of the Debtors’ estates, thereby promoting their
prospects for a successful reorganization. If such obligations are not timely paid, the Debtors
will be required to expend time and money to resolve a multitude of issues related to such
obligations, each turning on the particular terms of each Taxing Authority’s applicable laws,
including (a) whether the obligations are priority, secured or unsecured in nature, (b) whether
they are proratable or fully prepetition or postpetition, and (c) whether penalties, interest,
attorneys’ fees and costs can continue to accrue on a postpetition basis, and if so, whether such
penalties, interest, attorneys’ fees and costs are priority, secured or unsecured in nature. The
Debtors desire to avoid unnecessary disputes with the Taxing Authorities – and expenditures of
time and money resulting from such disputes – over a myriad of issues that are typically raised
by such entities as they attempt to enforce their rights to collect taxes.
81. The Debtors may suffer immediate and irreparable harm if the prepetition Taxes
are not paid when they become due and payable. Additionally, the Taxing Authorities may
cause the Debtors to be audited if Taxes are not paid immediately. Such audits will
unnecessarily divert the Debtors’ attention away from the reorganization process. If the Debtors
do not pay such amounts in a timely manner, the Taxing Authorities may attempt to revoke the
Debtors’ licenses, suspend the Debtors’ operations and pursue other remedies that will harm the
estates. In all cases, the Debtors’ failure to pay Taxes could have a material adverse impact on
their ability to operate in the ordinary course of business. Any disputes that could impact their
ability to conduct business in a particular jurisdiction could have a wide-ranging and adverse
effect on the Debtors’ operations as a whole.
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82. Moreover, certain of the taxes may not be property of the estate, as they are
collected from third parties and held in trust for payment to various Taxing Authorities. The
federal government and many states in which the Debtors operate have laws providing that the
Debtors’ officers, directors or other responsible employees could, under certain circumstances,
be held personally liable for the payment of such Taxes. To the extent any accrued Taxes of the
Debtors were unpaid as of the Petition Date in these jurisdictions, the Debtors’ officers and
directors could be subject to lawsuits during the pendency of these chapter 11 cases. In such
events, collection efforts by the Taxing Authorities would be extremely distracting for the
Debtors and their directors and officers in their efforts to bring these chapter 11 cases to an
expeditious conclusion.
Contractors and Service Providers
83. The Debtors are leading suppliers of packaged ice products, with manufacturing
and distribution facilities in various locations throughout the United States. In connection with
the manufacture and distribution of their products, the Debtors require the ongoing maintenance
and repair of their warehouses, facilities and other properties as well as delivery vehicles and
other equipment essential to the Debtors’ operations. The Debtors employ third-party
contractors, maintenance companies and other service providers (collectively, the “Contractors
and Service Providers”) to provide maintenance and repair services or supply materials pursuant
to contract or other arrangement, giving rise to potential Liens against the Debtors. Unless
satisfied, certain Contractors and Service Providers may refuse to perform their ongoing
obligations, if any. Absent the Contractors’ and Service Providers’ services, the physical
condition of certain of the Debtors’ warehouses, facilities and other properties, as well as their
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vehicles and other equipment, would deteriorate and thus adversely impact the Debtors’ business
operations and hamper their reorganization efforts.
84. Although the Debtors have generally made timely payments to the Contractors
and Service Providers, as of the Petition Date, a number of these parties may not have been paid
for certain prepetition services provided and may attempt to perfect a Lien within the time period
proscribed in Bankruptcy Code sections 362(b)(3) and 547(e)(2)(A).7
85. Therefore, to avoid undue delay and to facilitate the continued operation of the
Debtors’ business, the maintenance of delivery vehicles, warehouses, facilities and other
properties or equipment, and the completion of ongoing construction, maintenance and repair
projects, the Debtors seek entry of an order which will authorize, but not direct, them to pay and
discharge, on a case-by-case basis and in their sole discretion, the claims of all Contractors and
Service Providers that have given or could give rise to Liens against the Debtors’ relevant
property regardless of whether such Contractors and Service Providers have already perfected
their interests (the “Contractor and Service Provider Claims”); provided, however, that with
respect to each Contractor and Service Provider Claim, (i) the Debtors shall not pay a Contractor
and Service Provider Claim unless the Contractor or Service Provider has perfected or, in the
Debtors’ judgment, is capable of perfecting or may be capable of perfecting in the future, one or
more Liens in respect of such claim; (ii) the payment of such claim shall be made with a full
reservation of rights regarding the extent, validity, perfection or possible avoidance of any Liens;
and (iii) the Contractor and Service Provider agrees to promptly release any Liens upon payment
of such Contractor or Service Provider Claim.
7 The Debtors estimate that, as of the Petition Date, Contractors and Service Providers are owed approximately
$150,000 on account of prepetition services.
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86. I believe that the Contractors and Service Providers may assert Liens against
certain of the Debtors’ property. Failure to satisfy these Contractor and Service Provider Claims
would likely result in a Contractor or Service Provider refusing to continue to do business with
the Debtors, jeopardizing the Debtors’ ongoing construction, maintenance and repair projects
(the “Projects”), thus severely disrupting the Debtors’ operations. Second, the harm and
economic disadvantage that would stem from the failure to pay any of the Contractor and Service
Provider Claims is grossly disproportionate to the amount of the prepetition claim that would
have to be paid. Any disruption in the Debtors’ Projects would significantly disrupt the Debtors’
business and could ultimately cost the Debtors’ estates significant amounts in lost revenues and
create administrative claims against the estates for the Debtors’ inability to perform contractual
services postpetition.
87. The Contractors and Service Providers furnish services critical to the preservation
of the Debtors’ estates and the continued operation and maintenance of the Debtors’ delivery
vehicles, warehouses, facilities and other properties or equipment. Because certain of the
Contractors and Service Providers may not be party to enforceable agreements – and may be
unwilling to do business with the Debtors postpetition – the Debtors are requesting that the Court
authorize the payment of the Contractor and Service Provider Claims to ensure that these
essential services continue uninterrupted.
88. I believe that such relief on an interim basis is necessary to avoid immediate and
irreparable harm to the Debtors pending a final hearing.
Shippers and Warehousemen
89. In the normal course of their businesses, the Debtors incur certain fees and
charges to the Carriers to ship, transport, store and deliver goods through the Debtors’
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established distribution networks. At any given time, the Carriers are shipping goods to and
from the Debtors’ production facilities, warehouse storage locations, and customers. The
Carriers are generally not paid in advance but rather invoice the Debtors for shipping services
previously rendered.
90. Further, in the normal course of their businesses, the Debtors incur certain fees
and charges to the Warehousemen to store the Debtors’ goods through the Debtors’ established
distribution network. At any given time, the Warehousemen are storing goods at various
locations to facilitate the distribution of the Debtors’ goods to their customers. The
Warehousemen are generally not paid in advance, but rather invoice the Debtors for storage
services previously rendered.
91. The Debtors seek to pay the prepetition Shipping Charges and the Warehouse
Charges for several reasons. First, if the prepetition Shipping Charges are not paid, many of the
Carriers may refuse to perform additional services for the Debtors. In such event, the Debtors
will incur additional expenses (such as premium shipping costs) to replace the Carriers or other
services, which amounts will likely exceed the amount of unpaid prepetition Shipping Charges
that the Debtors request permission to pay hereunder. Additionally, if the prepetition Warehouse
Charges are not paid, many of the Warehousemen may refuse to release the goods currently in
storage, subjecting those goods to diminution in value if they are not properly preserved, and
forcing the Debtors to produce replacement goods to deliver to their customers, resulting in a
substantial burden on the Debtors’ production facilities.
92. Second, because of the nature of the Debtors’ product, any delay in shipments or
requirement that the Carriers and Warehousemen preserve the Debtors’ goods could cause a
reduction in the value of the goods. Such reduction will undoubtedly result in lost value to the
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estate, would frustrate the expectations of customers who rely on receipt of the Debtors’ goods to
stock their own stores, causing a loss of customer goodwill, and would impose a significant
burden on the Debtors’ production facilities to produce replacement goods for delivery to
customers. Such an outcome could be devastating to the Debtors’ reorganization efforts.
93. Finally, any delays in payment of Shipping Charges and Warehouse Charges with
respect to goods that are in the possession of the Carriers and the Warehousemen as of the
Petition Date will likely result in the assertion, under applicable law, of possessory liens upon the
Debtors’ property in the possession of such parties. Thus, the Debtors may have no alternative
but to pay the Shipping Charges and Warehouse Charges in full in any event in order to effect
the release of any liens securing payment of such charges.
94. I believe that if the Carriers halt the shipment of products due to non-payment of
the Shipping Charges or if the Warehousemen refuse to release the products in their possession
due to non-payment of the Warehouse Charges, the Debtors will likely have inadequate
inventory to satisfy the orders of its customers, which would reduce sales, frustrate the
expectations of the Debtors’ customers, and cause a loss of customer goodwill. Therefore, to the
extent that the requirements of Bankruptcy Rule 6003 are applicable to the relief requested in the
motion, I submit the relief requested therein is necessary to avoid immediate and irreparable
harm.
Customer Practices
95. The Debtors operate in a very price sensitive and competitive business
environment. Prior to the Petition Date, in the ordinary course of their business, the Debtors
provided their customers with cash rebates based on the volume of the Debtors’ products (the
“Products”) purchased by the customer. Certain customers who purchase a significant volume of
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Products from the Debtors are entitled to submit rebates for cash payment pursuant to
agreements with the Debtors (the “Rebates”). The calculation and payment of the Rebates varies
according to a number of factors, including the quantity of Products purchased, existing
contractual provisions, and a variety of other factors. The Debtors estimate that as of the Petition
Date they may owe up to approximately $330,000 plus amounts for local plants with respect to
unpaid Rebates.8
96. The success and viability of the Debtors’ business, and ultimately the Debtors’
ability to successfully reorganize, is entirely dependent upon the loyalty of their customers. In
the highly competitive atmosphere of the Debtors’ business, customer loyalty and satisfaction is
vital to the success of the business. In this regard, the Debtors’ Customer Programs are critical,
and any delay or failure to continue to honor the Debtors’ obligations thereunder will severely
and irreparably harm customer relations. Any failure to honor prepetition Customer Programs or
pay the prepetition Customer Claims, for even a brief time, may well drive away valuable
customers or cause the Debtors to lose some customers completely, thereby harming the
Debtors’ efforts to reorganize.
97. I submit that the relief requested in the motion is necessary to avoid immediate
and irreparable harm because the continuation of the Customer Programs, which helps to
maintain customer loyalty and satisfaction, prevents the driving away of valuable customers.
Critical Suppliers
98. The Debtors rely on hundreds of vendors whose goods or services may be
“critical.” However, due to the Debtors’ limited funds, the Debtors are only able to pay the
8 This amount includes a very recent claim by a customer for potentially $250,000 in past-due rebates. The Debtors
are currently in negotiations with such customer. The Debtors are unable to calculate with certainty the amount of prepetition Rebates outstanding with respect to their local plants, but note that this amount is, on average, approximately $50,000 per month in the aggregate.
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claims of a very few Critical Vendors. Although the Debtors desire to resume normal business
relationships with all vendors, and all vendors and their goods and services are important to the
Debtors’ business and operations, the immediate need to maintain the relationships with their
Critical Vendors is essential for the Debtors’ successful reorganization. Thus, the Debtors are
requesting authority to pay their Critical Vendors on the terms set forth in the motion.
99. To ensure that the Debtors identified only those vendors/providers that are most
critical to the Debtors’ businesses or the preservation of value for their estates, certain of the
Debtors’ employees and professionals, who are familiar with and responsible for maintaining the
Debtors’ trade relationships, extensively analyzed and reviewed the Debtors’ immediate
trade/service needs and supplier base. In performing this analysis, the Debtors used the
following criteria, among others: (a) whether the vendor in question is effectively a “sole source”
provider; (b) whether the vendor in question is likely to refuse to deliver goods and services on
reasonable credit terms absent payment of prepetition claims, thereby requiring the Debtors to
access their limited availability under the proposed postpetition financing; (c) whether quality
requirements or other specifications prevent the Debtors from obtaining a vendor’s products or
services from alternative sources within a reasonable timeframe; (d) if a vendor is not a sole
source provider, whether it would be practical for the Debtors to find a replacement vendor
without causing significant disruption to the Debtors’ operations; and (e) whether a vendor
would suffer significant financial hardship absent the Debtors’ payment of prepetition claims.
The Debtors are confident that this process has appropriately identified only those vendors that
meet some or all of the foregoing stringent guidelines.
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100. Based on the analysis described above, the Debtors estimate that the Critical
Vendors may be owed up to approximately $3.5 million in the aggregate as of the Petition Date.3
101. I believe that the Debtors, their creditors and their estates may suffer immediate
and irreparable harm if the Debtors were unable to pay the Critical Vendor Claims in the
ordinary course.
102. Payment of the Critical Vendor Claims in the ordinary course of business
mitigates certain risks to the Debtors’ business. The Debtors are making every effort to avoid
interruptions in their ability to procure the goods and services necessary to their ongoing
operations. The Debtors respectfully submit that the relief requested herein is necessary to
preserve their ability to continue their operations without interruption or otherwise preserve the
value of the estates. Absent payment of the Critical Vendor Claims in the ordinary course of
business, the Debtors’ business may be disrupted and certain Critical Vendors may delay
delivery of goods and services or demand trade terms that are less favorable to the Debtors,
including payment in advance, as a condition to continuing a business relationship with the
Debtors. Any short term disruption could generate instability and would undermine the Debtors’
efforts to repair customer confidence.
3 Upon request, the Debtors will provide a breakdown of such amounts to this Court, the United States Trustee for the Northern District of Texas, and any official committee of unsecured creditors to be appointed in these chapter 11 cases. More than half of the aggregate amount is attributable to contingent obligations relating to a tri-party arrangement with a vendor (“Supplier”) who is critical vendor of Easy Ice, LLC (“Easy Ice”) – an entity in which the Debtors hold a 63% ownership interest on a fully-diluted basis. The goods provided by Supplier to Easy Ice are integral to Easy Ice’s operations, and without such goods Easy Ice’s operations and the Debtors’ ownership interests would be jeopardized. Supplier is not obligated to provide goods to Easy Ice, and Easy Ice does not have a practical alternative to the goods provided by Seller as Seller is effectively a sole source provider of such goods on the terms Supplier has historically provided. Through the Debtors’ significant ownership interest in Easy Ice, the Debtors consider Supplier to be a Critical Vendor of the Debtors and believe that payment of Supplier’s prepetition claims in the ordinary course of business is necessary to preserve value of the estates.
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103. Moreover, in that regard, the Debtors do business with many of the Critical
Vendors without the benefit of contracts and, therefore, these Critical Vendors generally are not
obligated to do business with the Debtors or to honor particular trade terms in the future. As
such, failure to pay the Critical Vendor Claims would likely result in a disruption or cancellation
of deliveries of goods and services and thus, undermine the Debtors’ operations. This is
especially significant right now as the Debtors are preparing to enter into the summer months,
which typically account for a majority of the Debtors’ annual business, during which time the
Debtors rely heavily on certain of their Critical Vendors to supply additional light and heavy
equipment on an as-needed basis. Even if the Debtors were able to locate suitable replacement
Critical Vendors or service providers, the disruption in the flow of goods and services to or at the
sites of the Debtors’ offices would jeopardize the Debtors’ ability to provide services to their
customers on a timely basis, thereby reducing the value of the estates. Conversely, the continued
availability of trade credit will be extremely valuable to the Debtors to allow them to preserve
working capital while maintaining optimal production levels. Thus, by the motion, the Debtors
have reserved the right to ensure that the Critical Vendors will continue to supply trade credit
necessary to the Debtors’ operations.
104. Finally, the relief requested in the motion also may help to avert the institution of
reclamation claims, adversary proceedings, and other creditor motions. Avoiding the time and
expense of addressing such issues in this Court will maximize judicial efficiency and will benefit
the Debtors, their estates, and their creditors. Such relief, therefore, will allow the Debtors to
focus on effectuating the provisions of the proposed Plan.
D. The Plan and Related Relief
Motion to Approve Disclosure Statement and Procedures for Soliciting Votes on the Plan
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105. In connection with the Plan, the Debtors prepared the Disclosure Statement
describing, among other things, the proposed reorganization and its effects on holders of claims
against and interests in the Debtors. The Debtors, through their voting agent, Kurtzman Carson
Consultants LLC (the “Voting Agent”), caused copies of the Disclosure Statement and the Plan
(attached as an exhibit to the Disclosure Statement) and the appropriate Ballot (as defined herein)
(together, a “Solicitation Package”) to be transmitted to the agents or nominees for the debt
securities included in Class 2A First Lien Notes Claims, Class 3A Second Lien Notes Claims,
Class 2B First Lien Notes Guarantee Claims, Class 3B Second Lien Notes Guarantee Claims and
Class 7B Reddy Holdings General Unsecured Claims. Additionally, Solicitation Packages were
sent directly to the holders of claims in Class 7B Reddy Holdings General Unsecured Claims
who do not hold their claims through an agent or nominee. In accordance with applicable non-
bankruptcy law, the Debtors established 11:59 p.m. (prevailing Eastern Time) on May 8, 2012 as
the deadline to return ballots to the Voting Agent indicating acceptance or rejection of the Plan
(the “Voting Deadline”).
106. The Debtors are continuing to solicit votes on the Plan following the Petition
Date. After expiration of the Voting Deadline, the Debtors will file a declaration of David M.
Sharp certifying the results and methodology for tabulation of ballots accepting or rejecting the
Plan (the “Tabulation Declaration”). David M. Sharp continues to monitor the solicitation and
will audit the results of the solicitation following expiration of the voting deadline.
107. The Debtors have requested various relief with respect to the Disclosure
Statement, the Plan and the solicitation of votes for the Plan. I submit that the relief requested in
the motion is fair and reasonable and in the best interests of the Debtors and their estates.
Rights Offering Procedures and Indemnification Provisions
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108. As described more fully in the Plan and Disclosure Statement, and as mentioned
above, the overall purpose of the Plan is to provide for a restructuring of the Debtors’ balance
sheet liabilities and capital structure in a manner designed to maximize recoveries and to enhance
the financial viability of the Reorganized Debtors in order to achieve a quick emergence from
these Chapter 11 Cases. While developing the Plan with its advisors and various creditor
constituencies, the Debtors determined that consummating a confirmable restructuring on the
terms set forth in the Plan would require a new money investment. Prior to the Petition Date, the
Debtors and the Debtors’ financial advisor and investment banker, Jefferies engaged in an
intensive search for financing alternatives in which multiple bids and proposals were considered.
As a result of, among other things, the Debtors’ prepetition capital structure and financial
condition, the Debtors and their advisors determined that any new money investment could best
be accomplished through the Rights Offering backstopped by a party in their existing debt
structure, such that, if the Rights Offering were not fully subscribed, the backstop party could be
relied upon to fund the entire amount of the required new money investment. As a result, the
Debtors entered into the Investment Agreement, dated April 11, 2012 by and among Reddy
Holdings, Reddy Corp and Centerbridge (the “Investment Agreement”).
109. In short, the Investment Agreement includes commitments of Centerbridge to (a)
backstop the Rights Offering, (b) directly purchase New Preferred Stock in an amount not less
than $7.5 million, (c) provide equity capital for the acquisition of Arctic and (d) in the event of
the failure to acquire Arctic, exchange First Lien Notes for New Preferred Stock of Reddy
Holdings, in each case subject to certain terms and conditions.
110. The Investment Agreement also provides that Reddy Holdings and Reddy Corp
shall indemnify Centerbridge and its affiliates, members, partners, equityholders, officers,
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directors, employees, representatives, agents, advisors and controlling persons against any losses
incurred by such persons in connection with the Rights Offering, the Plan (or the solicitation
thereof), the Chapter 11 Cases and the Investment Agreement and the transactions contemplated
thereby (the “Indemnification Provisions”). See Article X of the Investment Agreement. The
Investment Agreement serves as the foundation for the Debtors’ Restructuring and the Rights
Offering and is vital to the success of these Chapter 11 Cases.
111. A critical aspect of the Restructuring is the Debtors’ plan to undertake a
$17.5 million rights offering for preferred stock of Reddy Holdings in connection with the
Debtors’ emergence from these Chapter 11 Cases. The Rights Offering will be open to existing
holders the Debtors’ Second Lien Notes on a ratable basis. Additionally, to facilitate the
consummation of the Rights Offering, pursuant to the Investment Agreement and as part of the
transactions contemplated by the Plan, the Investor has provided a backstop to the Rights
Offering and has agreed, among other things, to purchase on the Effective Date of the Plan, at the
Rights Exercise Price (as defined in the Rights Offering Procedures), the aggregate amount of
New Preferred Stock (as defined in the Rights Offering Procedures) that have not been
subscribed for by Eligible Holders by the Rights Offering Deadline.
112. The Rights Offering Procedures will allow the Debtors to efficiently transmit to
Eligible Holders the materials necessary to participate in the Rights Offering and afford such
Eligible Holders a fair and reasonable opportunity to subscribe for the Subscription Rights.
Accordingly, the Debtors seek approval of the Rights Offering Documents (including the Rights
Exercise Forms), as well as the authority to implement the Rights Offering Procedures. It is my
understanding that courts in various jurisdictions have approved similar procedures pursuant to
which a debtor is authorized to conduct a rights offering.
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113. After careful analysis and in the exercise of its business judgment, the Debtors
have determined that conducting the Rights Offering is essential to their expeditious emergence
from chapter 11 protection. The Rights Offering provides the Debtors with the best opportunity
to consummate the Plan, obtain additional liquidity and successfully emerge from these Chapter
11 Cases in a way that maximizes value for the Debtors’ estates.
114. The Debtors further submit that the Indemnity Provisions in the Investment
Agreement, in their business judgment, are fair, reasonable and necessary to implementing the
Investment Agreement and in particular, the Rights Offering.
V. CONCLUSION
Accordingly, for the reasons stated herein and in each of the First Day Pleadings, the
Debtors request that the relief sought in the First Day Pleadings be approved.
I swear under penalty of perjury that the foregoing is true and correct.
Dated: April 12, 2012 Dallas, Texas
/s/ Steven J. JanusekSteven J. Janusek
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EXHIBIT A (List of First Day Pleadings)
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First Day Pleadings
1. Motion for Order Directing the Joint Administration of the Debtors’ Chapter 11 Cases
2. Debtors’ Motion for Order Under 11 U.S.C. § 521 and Fed. R. Bankr. P. 1007(d) Authorizing Debtors to (i) Prepare a Consolidated Mailing Matrix and (ii) Mail Initial Notices
3. Debtors’ Motion for Order Under 11 U.S.C. §§ 105 and 521 (i) Extending Time for Debtors to File Their Schedules of Assets and Liabilities and Statements of Financial Affairs, (ii) Permanently Waiving Same Upon Confirmation of Debtors’ Plan and (iii) Waiving Requirements to File Equity List
4. Application for Entry of Order Authorizing Debtors to Employ and Retain Kurtzman Carson Consultants LLC as Notice, Claims and Solicitation Agent Nunc Pro Tunc to the Petition Date
5. Debtors’ Motion for Interim and Final Orders Authorizing (i) Continued Use of Existing Cash Management System and Bank Accounts, and (ii) Waiver of Certain U.S. Trustee Requirements
6. Motion of Debtors for Order Authorizing Debtors to Pay Prepetition Wages, Compensation, and Employee Benefits
7. Motion of Debtors for Order Under Bankruptcy Code Sections 105(a), 363 and 366, and Bankruptcy Rule 6003 (i) Approving Debtors’ Adequate Assurance of Payment, (ii) Establishing Procedures for Resolving Requests by Utility Companies for Additional Assurance of Payment, (iii) Scheduling a Hearing with Respect to contested Adequate Assurance of Payment Requests, and (iv) Authorizing Debtors to Pay Claims of a Third Party Vendor
8. Debtors’ Motion for an Order Authorizing, But Not Directing, the Debtors to Pay Certain Prepetition Taxes and Related Relief
9. Debtors’ Motion for Order Pursuant to Bankruptcy Code Sections 105(a), 362(b), 506, 546(b), 1107(a), and 1108 and Bankruptcy Rule 6003 Authorizing Payment of Prepetition Claims of Certain Contractors and Service Providers in the Ordinary Course of Business
10. Debtors’ Motion for Order Pursuant to Bankruptcy Code Sections 105, 362(b)(3), 363(b), 506, 546(b), 1107(a) and 1108 and Bankruptcy Rule 6003 Authorizing Payment in the Ordinary Course of Business of (i) Certain Prepetition Shipping and Delivery Charges and (ii) Certain Prepetition Warehouse Charges
11. Debtors’ Motion for Order Authorizing Continuation of Certain Customer Practices
12. Debtors’ Motion Under 11 U.S.C. §§ 105, 363, 503(b)(9), 1107 and 1108 and Fed. R. Bankr. P. 6003 for Order Authorizing Payment of Prepetition Claims of Certain Critical Suppliers in the Ordinary Course of Business
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13. Debtors’ Motion for Entry of Interim and Final Orders (i) Authorizing Debtors to Obtain Postpetition Financing Pursuant to Section 364 of the Bankruptcy Code, (ii) Authorizing the Use of Cash Collateral Pursuant to Sections 105, 361, 362 and 363 of the Bankruptcy Code; (iii) Granting Adequate Protection to the Prepetition Secured Parties Pursuant to Sections 361, 362, 363 and 364 of the Bankruptcy Code; (iv) Granting Liens and Superpriority Claims, and (v) Scheduling a Final Hearing on the Debtors’ Motion to Incur Such Financing on a Permanent Basis Pursuant to Bankruptcy Rules 4001(b) and 4001(c)
14. Debtors’ Motion Under 11 U.S.C. §§ 105, 341, 1125, 1126, and 1129 and Fed. R. Bankr. P. 2002, 3017, 3018, and 3020 (i) For Order (a) Scheduling Combined Hearing on Adequacy of Disclosure Statement and Confirmation of Plan, (b) Establishing Procedures for Objecting to Disclosure Statement and Plan, (c) Approving Form and Manner of Notice of Combined Hearing and (d) Waiving Requirement for Meetings of Creditors or Equity Security Holders, and (ii) For Order (a) Approving Prepetition Solicitation Procedures (b) Approving Adequacy of Disclosure Statement and (c) Confirming Plan of Reorganization
a. Disclosure Statement; and
b. Plan of Reorganization
15. Debtors’ Motion for an Order (a) Authorizing the Debtors to Conduct the Rights Offering Pursuant to the Rights Offering Procedures, (b) Approving Rights Exercise Forms and Related Documents, and (c) Approving the Indemnity Provisions Under the Investment Agreement
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