in the united states bankruptcy court for the … ton motion to pay... · 2018-12-10 · 9013-1(m)...

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IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

In re: THE BON-TON STORES, INC., et al.,1 Debtors.

Chapter 11 Case No. 18-10248 (___) (Joint Administration Requested)

DEBTORS’ MOTION FOR ENTRY OF AN ORDER (I) AUTHORIZING DEBTORS TO HONOR AND CONTINUE CERTAIN CUSTOMER PROGRAMS

AND CUSTOMER OBLIGATIONS IN THE ORDINARY COURSE OF BUSINESS, AND (II) AUTHORIZING THE DEBTORS TO PAY CERTAIN PREPETITION

CLAIMS HELD BY ESSENTIAL ADVERTISING SERVICE PROVIDERS

The above-captioned debtors and debtors in possession (collectively, the

“Debtors”) hereby file this motion (this “Motion”) for the entry of an order (the “Proposed

Order”), substantially in the form attached hereto as Exhibit A, pursuant to sections 105(a), 363,

1107(a), and 1108 of title 11 of the United States Code (the “Bankruptcy Code”), Rules 6003 and

6004 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), and Rule

9013-1(m) of the Local Rules of Bankruptcy Practice and Procedure of the United States

Bankruptcy Court for the District of Delaware (the “Local Rules”), (i) authorizing the Debtors to

honor and continue their Customer Programs and meet their Customer Obligations (each, as

defined below) in the ordinary course of the Debtors’ business, and (ii) authorizing the Debtors

to pay certain prepetition claims held by a limited number of essential advertising service

providers. The facts and circumstances supporting this Motion are set forth in the concurrently-

filed Declaration of Michael Culhane in Support of Debtors’ Chapter 11 Petitions and First-Day

1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification number, are: The Bon-Ton Stores, Inc. (5229); The Bon-Ton Department Stores, Inc. (9309); The Bon-Ton Giftco, LLC (2805); Carson Pirie Scott II, Inc. (2140); Bon-Ton Distribution, LLC (5855); McRIL, LLC (5548); Bonstores Holdings One, LLC (8574); Bonstores Realty One, LLC (8931); Bonstores Holdings Two, LLC (8775); and Bonstores Realty Two, LLC (9075). The headquarters for the above-captioned Debtors is 2801 East Market Street, Bldg. E, York, Pennsylvania 17402.

Case 18-10248-MFW Doc 8 Filed 02/04/18 of 38

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Motions (the “First Day Declaration”). In further support of this Motion, the Debtors

respectfully state as follows:

JURISDICTION AND VENUE

1. The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157

and 1334, and the Amended Standing Order of Reference from the United States District Court

for the District of Delaware, dated as of February 29, 2012. This is a core proceeding pursuant

to 28 U.S.C. § 157(b) and, pursuant to Local Rule 9013-1(f), the Debtors consent to the entry of

a final order by the Court in connection with this Motion to the extent that it is later determined

that the Court, absent consent of the parties, cannot enter final orders or judgments in connection

herewith consistent with Article III of the United States Constitution. Venue is proper before the

Court pursuant to 28 U.S.C. §§ 1408 and 1409.

2. The statutory predicates for the relief requested herein are sections 105(a),

363, 1107(a) and 1108 of the Bankruptcy Code, Bankruptcy Rules 6003 and 6004, and Local

Rule 9013-1(m).

BACKGROUND

A. General Background

3. On the date hereof (the “Petition Date”), each of the Debtors commenced

a voluntary case under chapter 11 of the Bankruptcy Code. The Debtors are authorized to

operate their business and manage their properties as debtors in possession pursuant to sections

1107(a) and 1108 of the Bankruptcy Code. No official committees have been appointed in these

chapter 11 cases and no request has been made for the appointment of a trustee or examiner.

4. Additional information regarding the Debtors’ business, capital structure,

and the circumstances leading to the filing of these chapter 11 cases is set forth in the First Day

Declaration.


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B. The Debtors’ Customer Programs

5. Prior to the Petition Date, both in the ordinary course of the Debtors’

business and as is customary in the retail industry, the Debtors offered and engaged in certain

customer-related programs and practices (collectively, the “Customer Programs”). The

Customer Programs include, but are not limited to, the following: (1) the LoveStyle Membership

Program; (2) the YOUR REWARDS credit card program; (3) the Charitable Partnerships

(defined below); (4) gift cards; (5) extended warranties and related service programs; (6) returns,

refunds, and exchanges program; (7) the furniture assembly and delivery program; (8) the price

match and adjustment policy; (9) the Registry Rewards Program (defined below); (10) third

party credit card agreements; and (11) promotions and all such other similar policies, programs,

and practices of the Debtors; and (12) accept payment on member accounts for amounts owed by

holders of YOUR REWARDS cards.

6. To effectuate a smooth transition into chapter 11, the Debtors submit that

they must maintain customer loyalty and goodwill by maintaining and honoring the Customer

Programs. Indeed, the Debtors implemented the Customer Programs in the ordinary course of

business prior to the Petition Date as a means by which to maintain positive, productive, and

profitable relationships with their customers, encourage new purchases, enhance customer

satisfaction, and ensure that the Debtors remain competitive in their industry. All of the

Customer Programs are designed and implemented to encourage the Debtors’ customers to

increase their purchasing frequency and volume, resulting in larger net revenues for the Debtors

and, in return, greater satisfaction for the customers.

7. Accordingly, the Debtors’ ability to honor the Customer Programs in the

ordinary course of business is necessary to retain their customer base and reputation within their


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industry. On account of the Customer Programs, the Debtors may owe certain obligations to

their customers, arising both before and after the Petition Date (collectively, the “Customer

Obligations”).

8. The success and viability of the Debtors’ business, and ultimately the

Debtors’ ability to maximize the value of the Debtors’ estates, are dependent upon the patronage

and loyalty of their customers. In this regard, the Customer Programs are essential, and any

delay in honoring Customer Obligations will severely and irreparably impair customer relations,

thereby harming the Debtors’ efforts to maximize value for all interested parties.

9. Accordingly, the Debtors seek authority to continue to honor the Customer

Programs in their discretion, including Customer Obligations arising therefrom, at each of the

Debtors’ retail locations and via their e-commerce platform, including any stores that may be

undergoing store liquidation sales.2 Significant Customer Programs are described in more detail

below.

(1) LoveStyle Rewards Program

10. In the ordinary course of business, the Debtors offer promotional points

(each a “Point” and, collectively, the “Points”) to members of a loyalty program called

“LoveStyle Rewards” (the “LoveStyle Program”). As of the Petition Date, there were

approximately 851,000 customers enrolled as LoveStyle Program members (each a “LoveStyle

Member,” and collectively, the “LoveStyle Members”). LoveStyle Members earn one Point for

every $1 spent purchasing goods from the Debtors. Points accumulate as purchases are made

2 The Debtors filed concurrently herewith the Debtors’ Emergency Motion for Interim and Final Orders (A) Authorizing the Debtors to Assume the Store Closing Agreement, (B) Authorizing and Approving Store Closing Sales Free and Clear of All Liens, Claims, and Encumbrances, (C) Approving Dispute Resolution Procedures, (D) Authorizing Customary Bonuses to Employees of Closing Stores, and (E) Approving the Debtors’ Store Closing Plan (the “Store Closing Motion”), pursuant to which the Debtors are seeking, among other things, authorization to conduct store closing sales at certain retail locations (the “Store Closing Sales”).


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and do not expire as long as the LoveStyle Member makes a purchase under their LoveStyle

account every 24 months. For every 200 Points earned throughout the year, LoveStyle Members

receive a rewards card (each such card, a “Rewards Card”), issued by email for redemption in the

Debtors’ retail stores or on the Debtors’ website. These Rewards Cards have a value of $5 or

$10, depending on the type of item purchased, and are redeemable for purchases over a

designated amount. Unused Points are rolled over month-to-month. LoveStyle Members may

receive a maximum of 10 Rewards Cards for any calendar month. LoveStyle Members may also

double the number of Rewards Cards received (subject to the 10 per month maximum) by either

(1) purchasing products both at the Debtors’ retail locations and online in the same calendar

month or (2) purchasing products both in a featured department (as designated monthly by the

Debtors) and any other department in the same calendar month.

11. LoveStyle Members also receive other benefits, such as birthday

promotional gift cards and early notification about upcoming events and sales. As of the Petition

Date, the Debtors estimate that approximately 97 million Points have accrued and remain

outstanding. The Debtors estimate, based on historical redemption rates,3 that they may be liable

for approximately $2.4 million worth of Rewards Cards on account of such Points, of which

approximately $123,000 is expected to be redeemed before they expire. The Rewards Cards are

valid for approximately 45 days and are not redeemable for cash. Periodically, the Debtors may

extend the expiration dates for Rewards Cards and offer customers a ‘second chance’ at

redemption.

12. The Debtors believe that continuing the LoveStyle Program, continuing to

award and honor the Rewards Cards, and continuing to offer additional promotional benefits to 3 Historically, 3% of LoveStyle Members reach the 200 Point threshold that is required to earn a Rewards Card each month. On average, of those members who earn a Rewards Card, 3 Rewards Cards are earned. Approximately 5% of earned Rewards Cards are redeemed before they expire.


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LoveStyle Members are all essential to maintaining customer relationships and driving sales.

Accordingly, the Debtors request authority to continue the LoveStyle Program and to continue to

award and honor the Rewards Cards issued thereunder.

(2) YOUR REWARDS Credit Card Program

13. In addition to the LoveStyle Program, the Debtors offer three levels of

enhanced membership rewards to customers who apply, and are approved, for a private label

YOUR REWARDS credit card (such program, the “YRCCP”) administered by Comenity Bank

(“Comenity”): (1) the “Signature” level; (2) the “Elite” level; and (3) the “VIP” level.

Customers are upgraded to higher levels in the YRCCP based on how much they spend annually

on the Debtors’ merchandise, with “Signature” level members spending $0-499 annually, “Elite”

level members spending $500-$1,499 annually, and “VIP” level members spending at least

$1,500 annually.

14. Much like the LoveStyle Program, YRCCP members receive one Point for

every $1 they spend on the Debtors’ merchandise using their YOUR REWARDS credit card.

Points under the YRCCP accumulate as purchases are made and do not expire as long as the

customer makes a purchase on its YOUR REWARDS credit card every 24 months. For every

200 Points earned throughout the year, YRCCP members receive a Rewards Card. The Rewards

Card has a value of $10 or $20, depending on the type of item purchased. Unused Points are

rolled over month-to-month. Once a member earns 200 Points, a Rewards Card is mailed at the

end of the following month. YRCCP members may double the number of Rewards Cards they

earn by either (1) purchasing products both in one of the Debtors’ retail locations and on the

Debtors’ website in the same calendar month or (2) purchasing products both in a featured


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department (as designated monthly by the Debtors) and any other department in the same

calendar month.

15. YRCCP members receive additional benefits depending upon their

membership tier. “Signature” cardholders receive exclusive savings and a birthday promotional

gift card. In addition to these benefits, “Elite” cardholders receive exclusive coupons six times

per year and a free shipping offer that is valid for certain threshold online purchase per month.

“VIP” cardholders receive a more valuable birthday promotional gift card, exclusive coupons

twelve times per year, access to invitation-only events, and free shipping on certain threshold

online purchases when they use their YOUR REWARDS credit card. As of the Petition Date,

the Debtors estimate that approximately 4 million $20 Rewards Cards are in circulation. The

Debtors estimate, based on historical redemption rates, that approximately $24 million worth of

Rewards Cards will ultimately be redeemed. The Rewards Cards are valid for approximately 45

days and are not redeemable for cash. Periodically, the Debtors may extend the expiration dates

for Rewards Cards and offer customers a ‘second chance’ at redemption.

16. Comenity approves all applications for the YOUR REWARDS credit card,

collects all the receivables for charges made to the YOUR REWARDS credit card, bears all risk

of loss associated with the credit extended to cardholders, and receives all fees associated

therewith. Except as provided above, the Debtors recognize sales charged to the YOUR

REWARDS credit card at the point of sale in the same manner as all other credit cards. In

connection with this contract, Comenity pays the Debtors approximately $4 million monthly.

The current contract with Comenity expires in July 2022.

17. The Debtors believe that continuing the YRCCP, continuing to award and

honor the Rewards Cards, and continuing to offer cardholder discounts, including, but not


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limited to, free shipping, are all essential to maintaining customer relationships and driving sales.

Accordingly, the Debtors request authority to continue and honor, as applicable, the YRCCP, the

Rewards Cards, and enhanced cardholder discounts.

(3) Charitable Partnerships

18. The Debtors generate substantial goodwill in their local communities by

participating in charitable partnerships (collectively “Charitable Partnerships”), specifically

(i) community day events (“Community Days”), (ii) Goodwill sale events (“Goodwill Sales”),

and (iii) certain other miscellaneous charitable initiatives pursuant to which the Debtors commit

to making charitable donations and, simultaneously, encourage customers to do the same through

designated retail purchases. The Charitable Partnerships generate significant customer

engagement and foot traffic at the Debtors’ retail locations and on the Debtors’ website.

19. Community Days are 4-day events, held twice per calendar year. In the

weeks leading up to a Community Day, applicable local tax-exempt charitable organizations

(collectively, the “Charities”) register to distribute booklets containing coupons valid during the

Community Day (such booklets, the “Coupon Books”). The Charities retrieve the Coupon

Books from the Debtors’ retail locations free of charge and, in turn, sell them to customers for a

de minimis amount. Proceeds generated by the Charities’ sale of Coupon Books remain with the

Charities.

20. The Charities also benefit from Coupon Books sold at stores and online

through the Debtors’ e-commerce platform, which allow customers to select a Charity of choice

to allocate the purchase price of each Coupon Book. If Coupon Books are ordered online, the

Debtors ship them to customers free of charge. At the conclusion of each Community Day

event, the Debtors reconcile the total amount of proceeds allocated by customers to each Charity


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and remit payment to subject Charities on account thereof (the “Community Day Payments”).

Historically, the Debtors have made approximately $850,000 of Community Day Payments each

Community Day on account of Coupon Books sold in stores and online.

21. In addition to the Community Days, the Debtors host the Goodwill Sales,

which are 17-day events, held twice per calendar year (historically in March and September).

During the Goodwill Sales, customers are encouraged to donate gently-used clothing, footwear

or household items to one of the Debtors’ retail locations or, in the alternative, make cash

contributions to Goodwill Industries. In exchange for their donations, customers are given one

promotional discount coupon (the “Goodwill Coupons”) for each item donated (or cash

equivalents), redeemable in-store or on the Debtors’ website. The Goodwill Coupons are worth

between 15% and 30%, depending on the type of item purchased. As of the Petition Date, there

are no promotional discount coupons outstanding. The coupons are valid only during the 17-day

length of the Goodwill Sales and are not redeemable for cash.

22. At the conclusion of the Goodwill Sales, the Debtors deliver to Goodwill

Industries all of the clothing items donated by customers, as well as cash donations received

from customers. In the past, the Debtors have delivered, on average, approximately 2.1 million

customer-donated clothing items each Goodwill Sale to Goodwill Industries (collectively with

the Community Day Payments and other charitable donations, the “Charity Payments”).

23. Finally, the Debtors also participate in a number of other miscellaneous

charitable initiatives pursuant to which the Debtors simultaneously commit to making threshold

donations to local and national charities, while also incentivizing customers to buy goods at their

retail locations and on their website. These programs are an essential component of the Debtors’

goodwill efforts, and the Debtors believe that these partnerships not only strengthen the


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company’s commitment to the communities in which it operates, but also generate goodwill and

loyalty from its customer base.

24. The Debtors believe that the customer goodwill and increased foot traffic

generated by the Charitable Partnerships warrant continuation of these programs on a

postpetition basis and, as needed, obtaining authority to honor any outstanding obligations to the

Charities that arose prepetition. Indeed, customers who come to the stores and who utilize the

Debtors’ online platform to affirmatively select a Charity of choice expect the Debtors to honor

their representations regarding charitable donations, and failing to do so would harm the

Debtors’ reputation and customer relationships during a pivotal juncture of the Debtors’

restructuring. Accordingly, the Debtors seek authority to continue to implement the Community

Day program and host the Goodwill Sales, offer Coupon Books to the Charities free of charge,

honor their Charity Payment obligations, and continue to honor the Coupon Books, whether

purchased before or after the Petition Date, consistent with past practice. As of the Petition Date,

there is approximately $460,000 in Charity Payments outstanding that are attributable to the

Charitable Partnerships.

(4) Gift Cards

25. A substantial portion of the Debtors’ revenue is derived from the sale of

prepaid gift cards (the “Gift Cards”) to their customers.

26. Gift cards may be purchased at the Debtors’ retail stores or online on the

Debtors’ website. Once purchased, a Gift Card may be used like cash for purchases at the

Debtors’ retail stores and online on the Debtors’ website, but may not be redeemed for cash or

monetary credit except under limited circumstances as required by law. Gift cards may hold up

to $250 but there is no limit on the number of Gift Cards that can be purchased. Upon purchase,


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the Gift Cards are “activated” and may thereafter be redeemed at any time with no expiration

date. For the avoidance of doubt, Gift Cards are not redeemable for cash.

27. The Debtors do not track and have no information about the holders of

Gift Cards. As of the Petition Date, there is approximately $37 million in Gift Cards

outstanding. The Debtors seek the authority to continue to honor the Gift Cards in the ordinary

course of business during the pendency of these chapter 11 cases, whether purchased before or

after the Petition Date, consistent with past practice.4

(5) Extended Warranties

28. In the ordinary course of business, the Debtors offer their customers the

opportunity to purchase extended warranties, service contracts and, as it relates to fine jewelry, a

protection plan for damage thereto (collectively, the “Warranties”). Customers may buy an

extended warranty for specific product classes that include furniture and mattresses, in addition

to the protection plan available for fine jewelry. As they relate to furniture and mattresses, the

Warranties are sold by the Debtors but provided by third-party provider Furniture Protection

Connection (“FPC”). The Debtors sell the furniture and mattress Warranties upon request by

their customers, collect the fees for such Warranties, and then remit such fees less a premium

charged (the “Warranty Commissions”) to FPC (such remitted fees, the “Warranty Fees”). In the

event that a customer seeks service under the mattress and furniture Warranties, the customer

deals directly with FPC.

4 To the extent that the Debtors issue Gift Cards postpetition, the Debtors will implement a protocol that will enable them to distinguish between Gift Cards that were purchased and issued before the Petition Date and those that were purchased and issued after the Petition Date. Moreover, in the event that the Debtors determine it appropriate to discontinue the practice of accepting Gift Cards, the Debtors shall file a notice regarding such termination, no later than 7 days after terminating such practice, and shall serve such notice on the U.S. Trustee, any statutory committee appointed in these chapter 11 cases, and all parties who file a request for notice under Bankruptcy Rule 2002.


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29. The Debtors believe that their ability to continue to offer and honor the

Warranties is essential to the satisfaction of their customers and the maintenance of customer

relationships. The Debtors seek authority to continue, in their discretion, to offer and honor their

obligations in connection with the Warranties, including the payment of the furniture and

mattress Warranty fees for Warranties purchased after the Petition Date.

(6) Returns, Refunds, and Exchanges

30. Certain customers hold contingent claims against the Debtors for refunds,

returns, exchanges, substitutions, issuance of store credit, price adjustments (including sales

price adjustments to billing), and other credit balances (each, a “Refund,” and collectively, the

“Refunds”) relating to goods sold in the ordinary course of business prior to the Petition Date.

Depending on the type of good being returned, and subject to certain restrictions and

requirements, customers generally have between 30 and 120 days from the date of purchase to

return goods purchased from the Debtors’ retail stores and on the Debtors’ website. An original

receipt is required to receive a Refund of the original purchase price in the original method of

payment. Absent a receipt, a customer may only receive store credit or a credit to the customer’s

YOUR REWARDS credit card for the lowest selling price at which the returned item has ever

been sold. The Debtors’ customers undoubtedly rely on the existence of the Refunds when they

shop in the Debtors’ retail stores or on the Debtors’ website. In addition, the Debtors typically

issue Refunds in the ordinary course of business for damaged or faulty goods. As of the Petition

Date, the current monthly returns reserve is approximately $27 million. The ability to continue

to provide the Refunds is vital to the Debtors’ ongoing relationship with their customers.

31. The Debtors believe that the increase in customer loyalty generated by the

Refunds far outweighs the costs of the Refunds. Accordingly, the Debtors seek authority to


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continue to issue Refunds, in their discretion, in the ordinary course of business, whether related

to purchases made before or after the Petition Date.

(7) Furniture Assembly and Delivery

32. The Debtors offer an assembly and delivery program (the “Assembly and

Delivery Program”), whereby the Debtors offer their customers the opportunity to have their

purchased furniture delivered to their home and assembled on-site. The Assembly and Delivery

Program is an option for customers purchasing furniture at the Debtors’ retail stores or on the

Debtors’ website.

33. The Debtors believe that their ability to continue to offer and honor the

Assembly and Delivery Program is essential to the satisfaction of their customers and to the

maintenance of customer relationships. The Debtors seek authority to continue, in their

discretion, to offer and honor their obligations in connection with the Assembly and Delivery

Program in connection with furniture purchases, whether arising before or after the Petition Date.

(8) Price Match and Adjustment Policies

34. To promote sales and increase their competitive edge, the Debtors offer

customers a price match promise (the “Price Match Policy”) and a price adjustment policy (the

“Price Adjustment Policy”). Pursuant to the Price Match Policy, the Debtors’ retail stores are

committed to match the price offered for an identical product by another retailer within such

retail store’s competitive market, after the Debtors’ retail store contacts the offering competitor

to confirm the product’s price and availability. Additionally, pursuant to the Price Adjustment

Policy and subject to certain conditions, the Debtors’ retail stores offer customers the option to

receive a refund for the difference between their purchase price and the ongoing promotional


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price offered by the Debtors on an identical product if the customer provides an original receipt

demonstrating that the item was purchased within seven (7) days before the promotion began.

35. The Debtors’ ability to continue to offer the Price Match Policy and the

Price Adjustment Policy are essential to the satisfaction of their customers, the maintenance of

customer relationships, and the Debtors’ ability to compete in the marketplace on an ongoing

basis. Accordingly, the Debtors seek authority to continue, in their discretion, to honor their

obligations in connection with the Price Match Policy and the Price Adjustment Policy.

(9) The Registry Rewards Program

36. The Debtors offer their customers a gift registry program, pursuant to

which the Debtors offer various rewards (the “Registry Rewards Program”). As an incentive for

customers to create a registry (such customers, “Registrants”), and to promote sales, the Debtors

offer Registrants cash back in the form of gift cards (the “Registry Cards”) for purchases from

their registry. Once purchases from a Registrant’s registry exceed $1,000, such Registrant will

receive a Registry Card worth 5% of the total price of items purchased from their registry.

Registry Cards are delivered by mail 90 days after the Registrant’s event date and may be

redeemed at any of the Debtors’ retail locations or on the Debtors’ website.

37. The Debtors believe that the significant customer goodwill and increased

bulk sales generated by the Registry Rewards Program warrant the continuation of this program

and, as needed, obtaining authority to honor any outstanding obligations to the Registrants that

arose prepetition. Accordingly, the Debtors seek authority to continue to implement the Registry

Rewards Program, honor their Registry Rewards Program obligations and issue Registry Cards,

whether items were purchased on the registry before or after the Petition Date. As of the Petition


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Date, the Debtors estimate that approximately $6,000 in Registry Rewards has accrued and

remains outstanding.

(10) Third Party Credit Card Agreements

38. Many of the Debtors’ sales are paid with credit or debit cards. To

facilitate such transactions, the Debtors entered into certain agreements with credit card

companies and processors (collectively, the “Credit Card Agreements”), including agreements

with, among others, (a) American Express, (b) Discover Card, (c) Visa, and (d) Mastercard (each

a “Credit Card Company” and, collectively, the “Credit Card Companies”). The Credit Card

Agreements enable the Debtors to accept credit and debit card purchases, subject to customer

refunds, returns, exchanges, substitutions, price adjustments, and other credit balances. Under

the terms of the Credit Card Agreements, the Debtors are required to pay the Credit Card

Companies certain fees for their services (collectively, the “Credit Card Fees”).

39. When customers return merchandise bought with a credit card, or when

customers dispute certain charges with their credit card issuer, the Debtors may be obligated to

refund to such issuer the purchase price of the returned or disputed merchandise, subject to

certain adjustments (collectively, “Chargebacks”). Generally, Chargebacks are satisfied by

netting the amount charged back against pending payments owed by a Credit Card Company to

the Debtors under the Credit Card Agreements (the “Credit Card Processor Payments”).

40. It is possible that certain Chargebacks incurred by the Debtors

immediately prior to the Petition Date may not have been fully netted out against the Credit Card

Processor Payments received by the Debtors prior to the Petition Date. Moreover, although the

Debtors believe that Chargebacks arising after the Petition Date are postpetition obligations of

the Debtors, it may be argued that such Chargebacks nevertheless are prepetition obligations


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where the merchandise returned or disputed was purchased from the Debtors prior to the Petition

Date. In such circumstances, to the extent that the netting of the parties’ obligations would not

constitute recoupment, the Debtors seek the Court’s approval to allow the Credit Card

Companies to setoff Chargebacks against Credit Card Processor Payments pursuant to section

362(d) of the Bankruptcy Code.

41. The Debtors request authority to continue to pay the Credit Card

Companies the Credit Card Fees, whether arising before or after the Petition Date, in the

ordinary course of their business to avoid disrupting vital credit card processing services. The

Debtors’ ability to honor and process credit and debit card transactions is essential to the

Debtors’ ability to sell their merchandise and maintain customer loyalty. Without this ability, the

Debtors would lose their main source of revenue for sales transactions in the ordinary course of

business. The Credit Card Companies that provide services to the Debtors should continue to

perform under the Credit Card Agreements. The Debtors request that the Court provide that no

new or extraordinary offsets will be imposed (including, without limitation, Chargebacks), and

that the relationships with the Credit Card Companies that provide services to the Debtors be

handled using the same prepetition procedures.

(11) Promotions and Other Customer Programs

42. In the ordinary course of their business, the Debtors issue additional

promotions, offers, and discount codes (collectively, the “Promotions”) to be presented by

customers when they purchase of goods at the Debtors’ retail stores or on the Debtors’ website.

Examples of these promotions include coupons and gift programs.

43. The Debtors believe that continuing to honor the Promotions along with

all other Customer Programs is essential to maintaining their relationships with their customers.


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Accordingly, the Debtors seek the authority to continue, in their discretion, to administer and

honor the Promotions and other Customer Programs in the ordinary course of business,

consistent with historical practice.

C. The Essential Advertising Service Providers

44. In the ordinary course of business, the Debtors utilize certain advertising

services which allow the Debtors to reach their consumer base through a variety of mediums,

including the internet, television, radio, and print media. Of these advertising partners, certain

providers (collectively, the “Essential Advertising Service Providers”) play a pivotal role in

generating foot traffic in the Debtors’ retail stores and driving ecommerce business on the

Debtors’ website. The Essential Advertising Service Providers provide, among other things,

platforms for marketing the Debtors’ retail goods, printing and broadcast support, banner

remarketing services, and models for print, web and broadcast initiatives. Without the Essential

Advertising Service Providers, the Debtors’ ability to reach their customer base in an effective

and value-maximizing manner would be severely undermined. Accordingly, the Debtors hereby

seek authority, but not direction, to pay a limited number of Essential Advertising Service

Providers, in an amount not to exceed $2.5 million, to maintain the core components of their

advertising structure during the pendency of these chapter 11 cases. All of the amounts due to

the Essential Advertising Service Providers are presently due or will come due in the first thirty

days following the Petition Date.

45. In the event that the Essential Advertising Service Providers refused to

provide services to the Debtors post-petition, any such interruption could have drastic

consequences for the operations of the Debtors’ business due to the unique—and very

essential—role that the Essential Advertising Service Providers play in the Debtors’ operations.


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Such an interruption would negatively affect the Debtors’ revenue and further strain the Debtors’

liquidity. Thus, to ensure a seamless transition into Chapter 11 and prevent significant harm to

these estates, the Debtors seek the relief requested herein with respect to the Essential

Advertising Service Providers.

46. The Debtors, in consultation with their advisors, have thoroughly

reviewed their business relationships and identified the Essential Advertising Service Providers,

the loss of whose services would cause immediate and irreparable harm to the Debtors’ business

and operations. In identifying the Essential Advertising Service Providers, the Debtors generally

considered the following criteria: (a) whether the provider’s services drive generation of a

substantial portion of the Debtors’ sales revenue; (b) whether the provider would be prohibitively

expensive or time-consuming to replace; (c) whether the provider is the only service provider

available in a particular market, without whom the Debtors could not continue to operate without

disruption; and (d) whether the provider has a monopoly on the industry in which it operates and

is the most impactful provider of its nature. In addition, the Debtors considered the extent to

which a potential Essential Advertising Service Provider had an executory contract with the

Debtors such that the Debtors could compel performance on a postpetition basis. Accordingly,

the Essential Advertising Service Providers identified by the Debtors are service providers who

are not under a contract through which the Debtors could otherwise seek to compel performance

under section 362 of the Bankruptcy Code.

RELIEF REQUESTED

47. By this Motion, the Debtors seek entry of the Proposed Order authorizing

the Debtors, in their sole discretion, to (i) maintain and administer all Customer Programs and to

honor the Customer Obligations in the ordinary course of business, and (ii) satisfy prepetition


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claims held by the Essential Advertising Service Providers in an amount not to exceed $2.5

million.

48. The Debtors also seek authority for banks and other financial institutions

to receive, process, honor, and pay checks or electronic transfers used by the Debtors to pay the

foregoing and to rely on the representations of such Debtors as to which checks are issued and

authorized to be paid in accordance with this Motion and relief granted in connection herewith.

BASIS FOR RELIEF

A. Continuation of the Customer Programs is Warranted Pursuant to Section 363 of the Bankruptcy Code

49. Courts have authorized payment of prepetition obligations under section

363(b) of the Bankruptcy Code where a sound business purpose exists for doing so. See, e.g., In

re Ionosphere Clubs. Inc., 98 B.R. 174, 175 (Bankr. S.D.N.Y. 1989) (finding that a sound

business justification existed to justify payment of prepetition wages); see also Armstrong World

Indus., Inc. v. James A. Phillips, Inc., (In re James A. Phillips, Inc.), 29 B.R. 391, 397 (S.D.N.Y.

1983) (relying on section 363 to authorize a contractor to pay prepetition claims of some

suppliers who were potential lien claimants because payments were necessary for general

contractors to release funds owed to the debtors). In addition, section 363(c) allows a debtor in

possession to enter into transactions involving property of the estate in the ordinary course of

business without an order of the court. See, e.g., In re James A. Phillips, 29 B.R. at 395 n.2

(“Insofar as transactions are actually in the ordinary course, they are authorized automatically by

§ 363(c)(1) and § 1107(a), and do not require Bankruptcy Court approval.”). Indeed, where

retaining the loyalty and patronage of customers is critical to a successful reorganization, courts

have not hesitated to grant the relief requested. In In re Federated Dep’t Stores, Inc., Case Nos.

1-90-00130 to 1-90-00196, 1990 Bankr. LEXIS 102 (Bankr. S.D. Ohio Jan. 15, 1990), the court


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authorized debtors to treat deposits or prepayments on goods and services “in the same manner

as Debtors treated Deposits prior to the commencement of [the] cases.”

50. The Debtors submit that the relief requested herein is appropriate under

each of the foregoing standards. The Customer Programs are an integral part of the Debtors’

business and enable the Debtors to attract and retain customers. If the Debtors do not honor their

Customer Programs in the ordinary course of business, the Debtors would be significantly less

competitive, to the detriment of all interested parties.

51. Moreover, the Debtors would risk alienating certain customer

constituencies or, possibly, even encouraging them to initiate business relationships with the

Debtors’ competitors. The failure to honor the Customer Programs could erode the Debtors’

hard-earned reputation and brand loyalty which, in turn, could adversely affect the Debtors’

ability to maximize the value of their estates. Accordingly, in the exercise of their sound

business judgment, the Debtors believe that a sound business purpose exists for the relief

requested herein because it will pay dividends with respect to the value of the Debtors’ business,

both in terms of profitability and the engendering of goodwill, especially at this critical time

following the commencement of the chapter 11 cases.

52. In addition, because the Debtors pay the Customer Obligations in the

ordinary course of business, the Debtors submit that Court approval of the Debtors’ payment of

postpetition Customer Obligations is not necessary because of the authority granted to them by

section 363(c) of the Bankruptcy Code. Indeed, most, if not all, of the Customer Programs are

standard practice in the Debtors’ industry. Nonetheless, out of an abundance of caution, the

Debtors request that the Court grant the relief requested herein and enter an order authorizing

them to pay the Customer Obligations in the ordinary course of the Debtors’ business.


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B. Continuation of the Customer Programs is Warranted Pursuant to Section 105(a) of the Bankruptcy Code and Under the Doctrine of Necessity

53. The Debtors believe that their proposed maintenance of the Customer

Programs and payment of the Customer Obligations should also be authorized pursuant to

section 105(a) of the Bankruptcy Code and the “doctrine of necessity.”

54. Section 105(a) of the Bankruptcy Code empowers the Court to “issue any

order, process, or judgment that is necessary or appropriate to carry out the provisions of [the

Bankruptcy Code].” 11 U.S.C. § 105(a). A bankruptcy court’s use of its equitable powers to

“authorize the payment of pre-petition debt when such payment is needed to facilitate the

rehabilitation of the debtor is not a novel concept.” In re Ionosphere Clubs, Inc., 98 B.R. 174,

175 (Bankr. S.D.N.Y. 1989). “Under [section] 105, the court can permit pre-plan payment of a

pre-petition obligation when essential to the continued operation of the debtor.” In re NVR L.P.,

147 B.R. 126, 127 (Bankr. E.D. Va. 1992) (citing Ionosphere Clubs, 98 B.R. at 177); accord In

re Just for Feet, Inc., 242 B.R. 821, 825 (D. Del. 1999) (“To invoke the necessity of payment

doctrine, a debtor must show that payment of the prepetition claims is ‘critical to the debtor’s

reorganization.’”) (quoting In re Fin. News Network, Inc., 134 B.R. 732, 736 (Bankr. S.D.N.Y.

1991)); see also In re Eagle-Picher Indus., Inc., 124 B.R. 1021, 1023 (Bankr. S.D. Ohio 1991)

(“[T]o justify payment of a pre-petition unsecured creditor, a debtor must show that the payment

is necessary to avert a serious threat to the Chapter 11 process.”).

55. In a long line of well-established cases, federal courts have consistently

permitted postpetition payment of prepetition obligations where necessary to preserve or enhance

the value of a debtor’s estate for the benefit of all creditors. See, e.g., Miltenberger v.

Logansport Ry., 106 U.S. 286, 311-12 (1882) (payment of pre-receivership claim prior to

reorganization permitted to prevent “stoppage of [crucial] business relations”); In re Lehigh &


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New Eng. Ry. Co., 657 F.2d 570, 581 (3d Cir. 1981) (holding that “if payment of a claim which

arose prior to reorganization is essential to the continued operation of the . . . [business] during

reorganization, payment may be authorized even if it is made out of [the] corpus”); Dudley v.

Mealey, 147 F.2d 268 (2d Cir. 1945), cert. denied, 325 U.S. 873 (1945) (extending doctrine for

payment of prepetition claims beyond railroad reorganization cases); Michigan Bureau of

Workers’ Disability Comp. v. Chateaugay Corp. (In re Chateaugay Corp.), 80 B.R. 279

(S.D.N.Y. 1987) (approving lower court order authorizing payment of prepetition wages,

salaries, expenses, and benefits).

56. The “doctrine of necessity” functions in a chapter 11 case as a mechanism

by which the bankruptcy court can exercise its equitable power to allow payment of essential

prepetition claims not explicitly authorized by the Bankruptcy Code. See In re Boston & Me.

Corp., 634 F.2d 1359, 1382 (1st Cir. 1980) (recognizing the existence of a judicial power to

authorize trustees to pay claims for goods and services that are indispensably necessary to the

debtors’ continued operation); In re Just for Feet, Inc., 242 B.R. at 824 (“[C]ourts have used

their equitable power under section 105(a) of the Code to authorize the payment of pre-petition

claims when such payment is deemed necessary to the survival of a debtor in a chapter 11

reorganization.”). The doctrine is frequently invoked early in a chapter 11 proceeding,

particularly in connection with payment of prepetition claims. The court in In re Structurelite

Plastics Corp., 86 B.R. 922, 931 (Bankr. S.D. Ohio 1988), noted that the decisional authority

that supports “the principle that a bankruptcy court may exercise its equity powers under section

105(a) to authorize payment of prepetition claims where such payment is necessary to ‘permit

the greatest likelihood of survival of the debtor and payment of creditors in full or at least

proportionately’” (quoting In re Chateaugay Corp., 80 B.R. at 287). The court stated that “a per


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se rule proscribing the payment of prepetition indebtedness may well be too inflexible to permit

the effectuation of the rehabilitative purposes of the Code.” Id. at 932. The rationale for the

doctrine of necessity rule is consistent with the paramount goal of chapter 11: “facilitating the

continued operation and rehabilitation of the debtor . . . .” Ionosphere Clubs, 98 B.R. at 176.

57. As stated above, maintaining the Customer Programs and fulfilling the

Customer Obligations are essential to preserving the Debtors’ relationships with their customers,

maximizing value for all interested parties, and allowing the Debtors to successfully reorganize.

58. Moreover, if the Debtors do not honor the Customer Obligations, the

Debtors would risk reputational damage from certain customer constituencies or, possibly, even

encourage them to shop with the Debtors’ competitors. The failure to honor the Customer

Programs could erode the Debtors’ hard-earned reputation and brand loyalty which, in turn,

could adversely affect the Debtors’ ability to maximize value for the estates, including with

respect to proceeds generated by the Store Closing Sales proceeding at certain locations.

Accordingly, in the exercise of their sound business judgment, the Debtors believe that a sound

business purpose exists for the relief requested herein because it will pay dividends with respect

to the Debtors’ ability to maximize value for all interested parties, both in terms of profits and

goodwill, especially at this critical time following the commencement of these chapter 11 cases.

C. Payment of the Essential Advertising Service Provider Claims is Warranted Pursuant to Sections 105(a) and 363 of the Bankruptcy Code

59. The Court may authorize payment of claims held by the Essential

Advertising Service Provider claims pursuant to section 363 of the Bankruptcy Code. Section

363(b)(1) of the Bankruptcy Code provides that a debtor may “after notice and a hearing, use,

sell, or lease, other than in the ordinary course of business, property of the estate.” 11 U.S.C.

§ 363(b)(1). A debtor’s decision to use, sell, or lease assets outside the ordinary course of


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business must be based upon the sound business judgment of that debtor. See Official Comm. of

Unsecured Creditors of LTV Aerospace & Def. Co. v. LTV Co. (In re Chateaugay Corp.), 973

F.2d 141, 143 (2d Cir. 1992) (holding that a court determining an application pursuant to section

363(b) must find from the evidence a good business reason to grant such application); In re

Ionosphere Clubs, Inc., 100 B.R. 670, 675 (Bankr. S.D.N.Y. 1989) (standard for determining a

section 363(b) motion is whether the debtor has a “good business reason” for the requested

relief); In re James A. Phillips, Inc., 29 B.R. 391, 397 (S.D.N.Y. 1983) (authorizing a contractor

to pay prepetition claims of some suppliers who were potential lien claimants pursuant to section

363 because the payments were necessary for the general contractors to release funds owed to

the debtors). “Where the debtor articulates a reasonable basis for its business decisions (as

distinct from a decision made arbitrarily or capriciously), courts will generally not entertain

objections to the debtor’s conduct.” Comm. of Asbestos-Related Litigants and/or Creditors v.

Johns-Manville Corp. (In re Johns-Manville Corp.), 60 B.R. 612, 616 (Bankr. S.D.N.Y. 1986).

60. Numerous courts have also used their section 105(a) equitable powers

under the necessity of payment doctrine to authorize payment of a debtor’s prepetition

obligations where, as here, such payment is necessary to effectuate the “paramount purpose” of

chapter 11 reorganization, which is to prevent the debtor from going into liquidation and to

preserve the going concern value of the Debtors. See, e.g., In re Lehigh Co. & New England Ry.

Co., 657 F.2d 570, 581 (3d Cir. 1981) (“[T]he necessity of payment doctrine . . . [permits]

immediate payment of claims of creditors where those creditors will not supply services or

material essential to the conduct of the business until their pre-reorganization claims shall have

been paid.” (citation omitted)). This doctrine “recognizes the existence of the judicial power to

authorize a debtor in a reorganization case to pay prepetition claims where such payment is


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essential to the continued operation of the debtor,” which is consistent with a paramount goal of

chapter 11: “facilitating the continued operation and rehabilitation of the debtor.” In re

Ionosphere Clubs, Inc., 98 B.R. 174, 176 (Bankr. S.D.N.Y. 1989). See also In re Just For Feet,

Inc., 242 B.R. 821, 825 (Bankr. D. Del. 1999) (collecting cases); In re Columbia Gas Sys., Inc.,

136 B.R. 930, 939 (Bankr. D. Del. 1992) (recognizing that “[i]f payment of a prepetition claim

‘is essential to the continued operation of [the debtor], payment may be authorized”).

61. As discussed above, the Essential Advertising Service Providers play an

essential role in the Debtors’ advertising structure. Without their services, the provision of

which facilitates the Debtors’ efforts to reach their loyal customers nationwide, the Debtors

advertising initiatives would be significantly undermined. The Debtors respectfully submit that

payment of claims held by the Essential Advertising Services Providers is warranted in these

chapter 11 cases. Certain Essential Advertising Service Providers have implicitly informed the

Debtors that they may cease doing business with the Debtors or fundamentally change their

terms of dealing with the Debtors if their prepetition claims are not satisfied. Such a disruption

could cripple the Debtors’ ability to successfully maximize value for all interested parties,

particularly given the business’s reliance on a seamless advertising strategy to augment revenue.

62. As the foregoing authority provides, where the ability to promptly pay

prepetition claims of essential vendors or service providers is necessary to prevent disruption to a

debtor’s business operations, courts are fully empowered to authorize such payments. Further,

the satisfaction of the prepetition claims of the Essential Advertising Service Providers will

enable the Debtors to preserve the value of their estates and safeguard the confidence and

goodwill of their customers. Without the requested relief, which is based on a rational exercise

of the Debtors’ business judgment, the Debtors’ efforts to maximize the value of these estates


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will be jeopardized. The relief requested in this Motion contemplates the payment of claims held

by only those Essential Advertising Service Providers that agree to provide postpetition services

to the Debtors on customary trade terms or other terms acceptable to the Debtors, and is

therefore consistent with and appropriate under sections 105 and 363 of the Bankruptcy Code.

63. As detailed above, maintaining the services provided by the Essential

Advertising Service Providers is vital to the Debtors’ continuing business operations and the

success of these chapter 11 cases. In addition, and as also detailed above, the Debtors and their

advisors have conducted an extensive analysis and review of the Debtors’ immediate advertising

and marketing needs and have concluded that there is a significant risk that the Essential

Advertising Service Providers will cease doing business with the Debtors unless their claims are

satisfied. Should any Essential Advertising Service Provider stop providing advertising and

support-related services to the Debtors, or choose to significantly downgrade the Debtors’ trade

terms, their business would be adversely affected as a result of, among other things, an adverse

impact on the Debtors’ ability to reach their customers. As such, the Debtors submit that the

amount which the Debtors seek to pay the Essential Advertising Service Providers pales in

comparison to the likely damage to the Debtors’ business and estates should the relief requested

herein not be granted. In light of the foregoing, the Debtors submit that payment of the claims

held by the Essential Advertising Service Providers is in the best interests of their estates and

creditors.

64. Additionally, the Debtors’ calculation of the cap applicable to such claims

is also reasonable. To determine the maximum amount the Debtors seek to pay to the Essential

Advertising Service Providers, the Debtors and their advisors considered, among other things,

which service providers: (a) are absolutely needed to continue to operate without disruption;


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(b) are essential to reaching the maximum number of potential customers, and in the most

effective manner; (c) would be prohibitively expensive or difficult to replace under the

circumstances; and (d) would present an unacceptable risk to the Debtors’ business should they

threaten to discontinue providing services postpetition. The Debtors also ensured that no

Essential Advertising Service Provider was subject to an executory contract that the Debtors

could enforce postpetition. Once the Debtors gathered this information, they estimated the

amounts that would be required to pay each Essential Advertising Service Provider to ensure the

continued supply of advertising and related services. The cap applicable to the claims held by

the Essential Advertising Service Providers comprises this estimated amount. Therefore, the

Debtors respectfully submit that payment of the claims held by the Essential Advertising Service

Providers up to an aggregate amount not to exceed $2.5 million, and the other relief sought

herein, is fully justified pursuant to sections 105 and 363 of the Bankruptcy Code as well as the

“doctrine of necessity.”

65. The essential services provided by the Essential Advertising Service

Providers are vital to the Debtors’ continuing business operations and ability to maximize estate

assets. If the relief sought in this Motion is not granted, Essential Advertising Service Providers

may assert their considerable leverage and deny the Debtors essential services going forward.

Accordingly, in the Debtors’ business judgment, the payment of the Essential Advertising

Service Provider claims as set forth herein is necessary to prevent the immediate and irreparable

harm that would arise from a disruption to the Debtors’ business operations.

D. The Court May Also Authorize Payment of the Essential Advertising Service Provider Claims as a Valid Exercise of the Debtors’ Fiduciary Duties

66. The Debtors, operating their businesses as debtors in possession pursuant

to sections 1107(a) and 1108 of the Bankruptcy Code, are fiduciaries “holding the bankruptcy


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estate[s] and operating the business for the benefit of [their] creditors and (if the value justifies)

equity owners.” In re CoServ, 273 BR. 487, 497 (Bankr. N.D. Tex. 2002). Implicit in the duties

of a chapter 11 debtor in possession is the duty “to protect and preserve the estate, including

operating business’s going-concern value.” Id.

67. It has been noted that there are instances in which a debtor in possession

can fulfill its fiduciary duty “only by the preplan satisfaction of a prepetition claim.” The

CoServ court specifically noted that pre-plan of reorganization satisfaction of prepetition claims

would be a valid exercise of a debtor’s fiduciary duty when the payment “is the only means to

effect a substantial enhancement of the estate” and also when the payment was to “sole suppliers

of a given product.” Id. at 497-98. The court provided a three-pronged test for determining

whether a preplan payment on account of a prepetition claim was a valid exercise of a debtor’s

fiduciary duty:

First, it must be critical that the debtor deal with the claimant. Second, unless it deals with the claimant, the debtor risks the probability of harm, or, alternatively, loss of economic advantage to the estate or the debtor’s going concern value, which is disproportionate to the amount of the claimant’s prepetition claim. Third, there is no practical or legal alternative by which the debtor can deal with the claimant other than by payment of the claim.

Id. at 498.

68. The Debtors submit that payment of the Essential Advertising Service

Provider claims meets the test set forth in CoServ. As described above, the Debtors have

narrowly tailored the relief sought herein to encompass only those Essential Advertising Service

Providers that are essential to the Debtors’ business and go-forward operations. Any interruption

of the Debtors’ advertising initiatives could cause the Debtors to lose a significant amount of

customers. The harm that would stem from the failure to pay any of the Essential Advertising

Service Providers greatly outweighs the amount of the prepetition claims that the Debtors are


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seeking to pay hereunder. Moreover, with respect to each Essential Advertising Service

Provider, the Debtors have examined other options short of payment of claims held by such

parties and have determined that to avoid significant disruption of the Debtors’ business

operations, there exists no practical or legal alternative to payment of the Essential Advertising

Service Provider claims. Therefore, the Debtors submit that they can only meet their fiduciary

duties as debtors in possession under sections 1107(a) and 1108 of the Bankruptcy Code by

seeking authority to pay the Essential Advertising Service Provider claims. Accordingly, the

Debtors submit that the Court should grant the relief requested herein.

E. The Court Should Authorize Applicable Banks to Honor Checks and Electronic Fund Transfers in Accordance with the Motion

69. In connection with the foregoing, the Debtors respectfully request that the

Court (a) authorize all applicable banks and other financial institutions (collectively, the

“Banks”) to receive, process, honor, and pay all checks and transfers issued by the Debtors in

accordance with this Motion, without regard to whether any checks or transfers were issued

before or after the Petition Date; (b) provide that all Banks may rely on the representations of the

Debtors with respect to whether any check or transfer issued or made by the Debtors before the

Petition Date should be honored pursuant to this Motion (such banks and other financial

institutions having no liability to any party for relying on such representations by the Debtors

provided for herein); and (c) authorize the Debtors to issue replacement checks or transfers to the

extent any checks or transfers that are issued and authorized to be paid in accordance with this

Motion are dishonored or rejected by the Banks.

F. Immediate Relief is Justified

70. Pursuant to Bankruptcy Rule 6003, the Court may grant relief within 21

days after the filing of the petition regarding a motion to “use, sell, lease, or otherwise incur an


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obligation regarding property of the estate” only if such relief is necessary to avoid immediate

and irreparable harm. Fed. R. Bankr. P. 6003(b). Immediate and irreparable harm exists where

the absence of relief would impair a debtor’s ability to reorganize or threaten the debtor’s future

as a going concern. See In re Ames Dep’t Stores, Inc., 115 B.R. 34, 36 n.2 (Bankr. S.D.N.Y.

1990) (discussing the elements of “immediate and irreparable harm” in relation to Bankruptcy

Rule 4001).

71. Moreover, Bankruptcy Rule 6003 authorizes the Court to grant the relief

requested herein to avoid harm to the Debtors’ customers and other third parties. Unlike

Bankruptcy Rule 4001, Bankruptcy Rule 6003 does not condition relief on imminent or

threatened harm to the estate alone. Rather, Bankruptcy Rule 6003 speaks of “immediate and

irreparable harm” generally. Cf. Fed. R. Bankr. P. 4001(b)(2), (c)(2) (referring to “irreparable

harm to the estate”). Indeed, the “irreparable harm” standard is analogous to the traditional

standards governing the issuance of preliminary injunctions. See 9 Alan N. Resnick & Henry J.

Sommer, COLLIER ON BANKRUPTCY ¶ 4001.07[b][3] (16th ed.) (discussing source of “irreparable

harm” standard under Rule 4001(c)(2)). Courts will routinely consider third-party interests when

granting such relief. See, e.g., Capital Ventures Int’l v. Argentina, 443 F.3d 214, 223 n.7 (2d Cir.

2006); see also Linnemeir v. Bd. of Trs. of Purdue Univ., 260 F.3d 757, 761 (7th Cir. 2001).

72. As described herein and in the First Day Declaration, the Debtors will

suffer immediate and irreparable harm without Court authority to (i) continue the Customer

Programs uninterrupted and (ii) satisfy claims held by the Essential Advertising Service

Providers on the terms set forth herein. Accordingly, the Debtors submit that Bankruptcy Rule

6003 has been satisfied and the relief requested herein should be granted.


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WAIVER OF STAY UNDER BANKRUPTCY RULE 6004(h)

73. Pursuant to Bankruptcy Rule 6004(h), “[a]n order authorizing the use,

sale, or lease of property other than cash collateral is stayed until the expiration of 14 days after

entry of the order, unless the court orders otherwise.” Fed. R. Bankr. P. 6004(h). As set forth

throughout this Motion, any disruption in, among other things, the Debtors’ Customer Programs

and Customer Obligations would be detrimental to the Debtors, their creditors, and their estates,

and would impair their ability to optimize their business performance at this critical time as they

begin the chapter 11 process.

74. For this reason and those set forth above, the Debtors submit that ample

cause exists to justify a waiver of the fourteen day stay imposed by Bankruptcy Rule 6004(h), to

the extent applicable to the Proposed Order.

RESERVATION OF RIGHTS

75. Nothing contained herein is intended or should be construed as an

admission of the validity of any claim against the Debtors; a waiver of the Debtors’ rights to

dispute any claim; or an approval, assumption, or rejection of any agreement, contract, or lease

under section 365 of the Bankruptcy Code. The Debtors expressly reserve their rights to contest

any invoice or claim on account of any Customer Obligation. Likewise, if the Court grants the

relief sought herein, any payment made pursuant to the Court’s order is not intended and should

not be construed as an admission as to the validity of any claim or a waiver of the Debtors’ rights

to dispute such claim subsequently.

NOTICE

76. The Debtors have provided notice of this Motion to: (a) the Office of the

United States Trustee for the District of Delaware; (b) holders of the forty (40) largest unsecured

claims on a consolidated basis against the Debtors; (c) counsel to the DIP Administrative Agent


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and the Prepetition ABL Administrative Agent; (d) counsel to the DIP Tranche A-1

Documentation Agent; (e) counsel to the Ad Hoc Noteholder Group; (f) counsel to the Indenture

Trustee under the Second Lien Indenture; (g) the Banks; and (h) all parties that have filed a

notice of appearance and request for service of papers pursuant to Bankruptcy Rule 2002. Notice

of this Motion and any order entered hereon will be served in accordance with Local Rule

9013-1(m). In light of the nature of the relief requested herein, the Debtors submit that no other

or further notice is necessary.

[Remainder of Page Intentionally Left Blank]


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CONCLUSION

WHEREFORE, the Debtors request that the Court enter the Proposed Order,

granting the relief requested herein and such other and further relief as the Court may deem

just and proper.

Dated: February 4, 2018 Wilmington, Delaware

/s/ Andrew L. Magaziner

Pauline K. Morgan (No. 3650) Sean T. Greecher (No. 4484) Andrew L. Magaziner (No. 5426) Elizabeth S. Justison (No. 5911) YOUNG CONAWAY STARGATT & TAYLOR, LLP Rodney Square 1000 North King Street Wilmington, Delaware 19801 Telephone: (302) 571-6600 Facsimile: (302) 571-1253 -and- Kelley A. Cornish Elizabeth R. McColm Claudia R. Tobler Alexander Woolverton PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP 1285 Avenue of the Americas New York, New York 10019 Telephone: (212) 373-3000 Facsimile: (212) 757-3990

Proposed Co-Counsel to the Debtors and Debtors in Possession


01:22833619.1

Exhibit A

Proposed Order


01:22833619.1

IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

In re: THE BON-TON STORES, INC., et al.,1 Debtors.

Chapter 11 Case No. 18-10248 (___) (Jointly Administered) Ref. Docket No. _____

ORDER (I) AUTHORIZING DEBTORS TO HONOR AND CONTINUE CERTAIN

CUSTOMER PROGRAMS AND CUSTOMER OBLIGATIONS IN THE ORDINARY COURSE OF BUSINESS, AND (II) AUTHORIZING THE DEBTORS TO PAY

CERTAIN PREPETITION CLAIMS HELD BY ESSENTIAL ADVERTISING SERVICE PROVIDERS

Upon the Debtors’ Motion for Entry of an Order (I) Authorizing Debtors to

Honor and Continue Certain Customer Programs and Customer Obligations in the Ordinary

Course of Business and (II) Authorizing the Debtors to Pay Certain Prepetition Claims Held by

Essential Advertising Service Providers (the “Motion”)2 filed by the above-captioned debtors

and debtors in possession (collectively, the “Debtors”); and this Court having reviewed the

Motion; and this Court having found that it has jurisdiction over this matter pursuant to

28 U.S.C. §§ 1334(b) and 157, and the Amended Standing Order of Reference from the United

States District Court for the District of Delaware dated as of February 29, 2012; and this Court

having found that venue of these cases and the Motion in this district is proper pursuant to

28 U.S.C. §§ 1408 and 1409; and this Court having found that this matter is a core proceeding

pursuant to 28 U.S.C. § 157(b); and this Court having determined that it may enter a final order

1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification number, are: The Bon-Ton Stores, Inc. (5229); The Bon-Ton Department Stores, Inc. (9309); The Bon-Ton Giftco, LLC (2805); Carson Pirie Scott II, Inc. (2140); Bon-Ton Distribution, LLC (5855); McRIL, LLC (5548); Bonstores Holdings One, LLC (8574); Bonstores Realty One, LLC (8931); Bonstores Holdings Two, LLC (8775); and Bonstores Realty Two, LLC (9075). The headquarters for the above-captioned Debtors is 2801 East Market Street, Bldg. E, York, Pennsylvania 17402. 2 Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Motion.


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01:22833619.1

consistent with Article III of the United States Constitution; and it appearing that notice of the

Motion has been given as set forth in the Motion and that such notice is adequate and no other or

further notice need be given; and this Court having considered the First Day Declaration; and

this Court having determined that the legal and factual basis set forth in the Motion establish just

cause for the relief granted herein; and this Court having determined that the relief sought in the

Motion is in the best interests of the Debtors and their estates; and after due deliberation and

sufficient cause appearing therefor,

IT IS HEREBY ORDERED THAT:

1. The Motion is GRANTED as set forth herein.

2. The Debtors are authorized, but not directed, to maintain and administer,

in the ordinary course of business and in a manner consistent with past practices, the Customer

Programs and to honor the Customer Obligations thereunder in the ordinary course of business as

set forth in the Motion.

3. To the extent that the Debtors issue Gift Cards postpetition, the Debtors

shall implement a procedure that will enable them to distinguish between Gift Cards that were

purchased and issued before the Petition Date and those that were purchased and issued after the

Petition Date.

4. The Debtors are authorized, but not directed, in the exercise of their

reasonable business judgment, to pay prepetition claims held by the Essential Advertising

Service Providers in an amount not to exceed $2.5 million. The Debtors shall condition the

payment of Essential Advertising Service Providers on the agreement of the individual Essential

Advertising Service Providers to continue providing services to the Debtors on terms that are as

or more favorable to the Debtors as the most favorable trade terms, practices, and programs in


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effect between the Essential Advertising Service Provider and the Debtors in the one (1) year

period preceding the Petition Date, or such other trade terms as are agreed to by the Debtors and

the Essential Advertising Service Provider.

5. If any Essential Advertising Service Provider accepts payment on account

of its prepetition claim and thereafter fails to provide the Debtors with the request customary

trade terms, the Debtors may, at their option, apply such payments as credits against any

outstanding postpetition claim held by such Essential Advertising Service Provider (an

“Application”). Upon an Application, the Essential Advertising Service Provider’s prepetition

claim shall be reinstated in an amount equal to such Application. The Debtors shall provide

notice of such reinstatement to the affected Essential Advertising Service Provider and the

affected Essential Advertising Service Provider shall have until the later of (i) 30 days from the

date of service of the notice of reinstatement, or (ii) any general claims bar date established by

Order of this Court to file a proof of claim.

6. Each Bank is authorized to honor checks presented for payment and all

fund transfer requests made by the Debtors, to the extent that sufficient funds are on deposit in

the applicable accounts, in accordance with this Order and any other order of this Court.

7. The Debtors are authorized to issue postpetition checks, or to effect

postpetition fund transfer requests, in replacement of any checks or fund transfer requests in

connection with the Customer Programs and the Customer Obligations that are dishonored or

rejected.

8. Notwithstanding the relief granted in this Order and any actions taken

pursuant to such relief, nothing in this Order shall be deemed (a) an admission as to the validity

or priority of any claim against the Debtors or their estates; (b) a waiver of the Debtors’ right to


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dispute any claim on any grounds; (c) a promise or requirement to pay any claim; (d) an

implication or admission that any particular claim is of a type specified or defined in this Order

or the Motion; (e) a request or authorization to assume any agreement, contract, or lease pursuant

to section 365 of the Bankruptcy Code; or (f) a waiver of the Debtors’ rights under the

Bankruptcy Code or any other applicable law.

9. Bankruptcy Rule 6003(b) has been satisfied because the relief requested in

the Motion is necessary to avoid immediate and irreparable harm to the Debtors.

10. Notwithstanding Bankruptcy Rule 6004(h), the terms and conditions of

this Order shall be immediately effective and enforceable upon its entry.

11. This Court shall retain jurisdiction over any matters arising from or related

to the implementation, interpretation, and enforcement of this Order.

Dated: _________, 2018 Wilmington, Delaware

United States Bankruptcy Judge


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