Case 12-36187 Document 10 Filed in TXSB on 08/17/12Docket #0010 28 Filed: 8/17/2012 Page 1 of Date

IN THE UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION In re: ATP Oil & Gas Corporation, Debtor. Chapter 11

Case No.: 12-____________

DEBTORS EMERGENCY MOTION FOR ENTRY OF ORDERS: (1) AUTHORIZING THE DEBTOR TO PAY PRE-PETITION EMPLOYEE SALARIES, REIMBURSABLE EMPLOYEE EXPENSES, EMPLOYEE BENEFITS AND OTHER COMPENSATION; (2) DIRECTING ALL BANKS TO HONOR CERTAIN RELATED PRE-PETITION TRANSFERS; AND (3) GRANTING CERTAIN INTERIM AND FINAL RELATED RELIEF NOTICE UNDER BLR 9013-1(b) AND 9013-1(i) THIS MOTION SEEKS AN ORDER THAT MAY ADVERSELY AFFECT YOU. IF YOU OPPOSE THE MOTION, YOU SHOULD IMMEDIATELY CONTACT THE MOVING PARTY TO RESOLVE THE DISPUTE. IF YOU AND THE MOVING PARTY CANNOT AGREE, YOU MUST FILE A RESPONSE AND SEND A COPY TO THE MOVING PARTY. YOU MUST FILE AND SERVE YOUR RESPONSE WITHIN 21 DAYS OF THE DATE THIS WAS SERVED ON YOU. YOUR RESPONSE MUST STATE WHY THE MOTION SHOULD NOT BE GRANTED. IF YOU DO NOT FILE A TIMELY RESPONSE, THE RELIEF MAY BE GRANTED WITHOUT FURTHER NOTICE TO YOU. IF YOU OPPOSE THE MOTION AND HAVE NOT REACHED AN AGREEMENT, YOU MUST ATTEND THE HEARING. UNLESS THE PARTIES AGREE OTHERWISE, THE COURT MAY CONSIDER EVIDENCE AT THE HEARING AND MAY DECIDE THE MOTION AT THE HEARING. EMERGENCY RELIEF HAS BEEN REQUESTED. IF THE COURT CONSIDERS THE MOTION ON AN EMERGENCY BASIS, THEN YOU WILL HAVE LESS THAN 21 DAYS TO ANSWER. IF YOU OBJECT TO THE REQUESTED RELIEF OR IF YOU BELIEVE THAT THE EMERGENCY CONSIDERATION IS NOT WARRANTED, YOU SHOULD FILE AN IMMEDIATE RESPONSE. REPRESENTED PARTIES SHOULD ACT THROUGH THEIR ATTORNEYS. ATP Oil & Gas Corporation (ATP or the Debtor) submits this Emergency Motion for Entry of Orders (1) Authorizing the Debtor to Pay Pre-petition Employee Salaries,
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Reimbursable Employee Expenses, Employee Benefits and Other Compensation; (2) Directing All Banks to Honor Certain Related Pre-petition Transfers; and (3) Granting Certain Interim and Final Related Relief (the Motion).1 In support of this Motion, the Debtor respectfully states as follows: I. 1. JURISDICTION AND VENUE

This Court has jurisdiction over this Motion pursuant to 28 U.S.C. 157 and

1334. Venue of the Debtors Chapter 11 case in this district is proper pursuant to 28 U.S.C. 1408 and 1409. This is a core proceeding pursuant to 28 U.S.C. 157(b). The statutory predicates for the relief sought hereby are Sections 105(a) and 363 of Title 11, United States Code (the Bankruptcy Code), and Rule 6003 of the Federal Rules of Bankruptcy Procedure. II. 2. PROCEDURAL STATUS

On the date hereof (the Petition Date), the Debtor filed a voluntary petition for

relief pursuant to Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the Bankruptcy Court). 3. The Debtor continues to operate its business as debtor-in-possession pursuant to

Sections 1107(a) and 1108 of the Bankruptcy Code. The U.S. Trustee has not yet appointed any official committees in this case, and no request has been made for the appointment of a trustee or an examiner. III. 4. FACTUAL BACKGROUND

ATP is a Texas corporation based in Houston, Texas, which was organized in

1991, and, together with its domestic and foreign subsidiaries, is engaged in the acquisition, development and production of oil and natural gas properties in the Gulf of Mexico, North Sea,
1

Capitalized terms used but not otherwise defined herein have the meanings attributed to them in the Declaration of Albert L. Reese, Jr. in Support of First Day Motions filed contemporaneously herewith. 2
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and Eastern Mediterranean Sea. ATP is an experienced development and production company with significant expertise in drilling and operating offshore wells, both in the deepwater and on the shallower Outer Continental Shelf in the Gulf of Mexico. In 2012, ATP, through one of its non-debtor foreign subsidiaries, also commenced drilling operations in the Eastern Mediterranean Sea (offshore Israel). As of December 31, 2011, ATP owned leasehold and other interests in the Gulf of Mexico in 38 offshore blocks and 49 wells, including 23 subsea wells. ATP operates approximately 90% of its wells in the Gulf of Mexico, including all of its deepwater wells. 5. ATPs properties in the Gulf of Mexico contain proved reserves of approximately

75.9 million barrels of crude oil equivalent (MMBoe), as reported at December 31, 2011 and based on ATPs internal reserve report, are estimated at 76.6 MMBoe at June 30, 2012. ATP owns, through wholly or majority owned non-debtor domestic subsidiaries, two floating production facilities in deepwater of the Gulf of Mexico: the ATP Titan, which operates at its Telemark Hub, and the ATP Innovator, which operates at its Gomez Hub. In addition to its reserves in the Gulf of Mexico, ATP also owns, through its wholly-owned foreign subsidiaries, estimated proved reserves of approximately 42.9 MMBoe as reported at December 31, 2011 in the Cheviot and other fields in the North Sea, interests in other valuable oil and gas properties in the North Sea and the recently successfully-drilled Shimshon natural gas well in the Eastern Mediterranean Sea (offshore Israel). ATPs UK subsidiary commissioned the construction of a floating drilling and production platform intended for use at ATP UKs Cheviot field. 6. ATPs development plans and cash flows were dramatically impacted by the

April 20, 2010 blowout of BPs Macondo well and the resulting explosion of the Deepwater Horizon in the Gulf of Mexico. Following the U.S. governments subsequent moratorium on

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further drilling operations. While the moratorium adversely affected all companies involved in deepwater drilling in the Gulf of Mexico, the impact was especially profound on ATP, which is a smaller company than its principal competitors, with a heavier concentration of operations in the deepwater Gulf of Mexico. The moratorium blocked ATPs plans to drill and bring online six wells during 2010 and 2011. ATP had already spent in excess of $1 billion in infrastructure construction and other capital expenditures related to five of these wells, and was denied the anticipated cash flow from these wells. In the years leading up to the moratorium, ATP funded a major component of its capital expenditures with debt that it expected to service with revenues from new wells, and ATP incurred significant interest costs during the moratorium from these debts. The moratorium also required ATP to interrupt two drilling operations that were then in process at significant cost to ATP, without providing for any relief from the resulting costs of ceasing those drilling operations and demobilizing the related drilling equipment and personnel. During the moratorium, ATP made significant capital expenditures to geographically diversify its footprint, including continuing construction on the Octabuoy platform for development in the North Sea and acquiring licenses in three blocks in the Eastern Mediterranean off of Israel. All of these factors contributed to a substantial weakening of ATPs liquidity position during and following the moratorium. The moratorium lasted 10 months, effectively ending on February 28, 2011, when the first deepwater drilling permit was issued. 7. In late 2011 ATP successfully completed and tested two new wells in Green

Canyon Block 300 (the Clipper Wells) in the deepwater Gulf of Mexico. The Clipper Wells production tests substantially exceeded expectations, but those wells are 16 miles from the sales point and require construction of additional pipeline infrastructure in order to begin production. ATPs post-moratorium liquidity limitations have prevented it from generating all of the funds it

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needed to complete the final connection of the Clipper Wells to the sales pipeline; however, this relatively straightforward project remains a source of significant near-term cash flow and considerable potential value to the estate and its constituencies. 8. ATPs management closely monitored the impact of these challenging conditions

and evaluated potential alternatives to try to address its operational and financial issues and improve its liquidity. ATP made diligent effort to identify and solicit partners, joint operators, or investors for its operations, to share the costs of developing reserves with potentially significant value. However, ATP has been unable to timely complete these transactions. 9. One option available to improve ATPs liquidity position was the sale to third

parties of overriding royalty (ORRI) and net profits interests (NPI) in future production from specified wells. ATP relied heavily on such sales to provide immediate funds, selling more than $700 million in ORRIs and NPIs in the last approximately three and a half years. While providing much-needed liquidity, these reduced the cash flows available to ATP from its existing and future production and added further pressure on ATP to bring ton-line he already-drilled Clipper Wells and the additional wells at its Telemark hub. Despite its best efforts, ATPs costs of debt and working capital needs put it in the untenable position of running out of cash before it could complete the Clipper Wells pipeline project and generate the revenues necessary to remedy its liquidity position. 10. As a result, ATP seeks Chapter 11 protection in order to protect and preserve its

assets and to obtain through a DIP loan facility the funds needed to fund working capital requirements and complete the critically important Clipper Wells pipeline project, and certain other specified capital projects that ATP needs to augment its producing reserves and revenues. The DIP loan facility also ensures there will be sufficient funds available to pay employees,

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professionals and other necessary expenses associated with the administration of the Chapter 11 case. This should then enable ATP and its stakeholders to negotiate and implement an orderly restructuring of its capital structure in order to operate profitably and maximize value for the benefit of all of its stakeholders. ATP has determined, in the prudent exercise of its business judgment, that the proposed course of action is the best alternative to ensure that maximum value can be preserved for the benefit of its estate constituencies. 11. As of the Petition Date, ATP has aggregate funded debt outstanding of

approximately $1.9 billion, consisting of: (i) approximately $366 million owed under a first lien term credit facility due in January 2015 evidenced by a Credit Agreement dated as of June 10, 2010 among ATP, as borrower, certain lenders party thereto and Credit Suisse, AG as administrative agent and collateral agent, as amended in February 2011 and March 2012, which amounts are secured by a first lien against approximately 80% of ATPs proved oil and gas reserves in the Gulf of Mexico, a portion of the capital stock of material subsidiaries and certain infrastructure assets, other than the ATP Innovator and the ATP Titan; (ii) approximately $1.5 billion owed to the noteholders under the 11.875% senior second lien bond indenture dated as of April 23, 2010, payable on May 1, 2015, with principal payments due on May 1 and November 1 of each year and secured by a second lien on the collateral securing the first lien debt; and (iii) $35 million under a convertible note and a warrant to purchase 3,923,767 shares of the ATPs common stock issued under a private placement to an institutional investor in June 2012. As of the Petition Date, ATP has outstanding trade and other payables in excess of $170 million and outstanding balances under the ORRIs and NPIs in excess of $489 million. IV. 12. RELIEF REQUESTED

By this Motion, the Debtor requests the entry of an order authorizing, but not

directing, the Debtor to pay, continue or otherwise honor pre-petition obligations (collectively, 6
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the Pre-petition Employee Obligations) to or for the benefit of its current employees (collectively, the Employees) for salaries and other compensation and benefits under all plans, programs and policies implemented by the Debtor prior to the Petition Date (as set forth below, the Employee Programs). The Debtor seeks immediate authority to make payments to the Employees on account of Pre-petition Employee Obligations up to the priority expense limit imposed on employee claims under Section 507(a)(4) of the Bankruptcy Code (the 507(a)(4) Limit) and seeks further authority to pay the balance of such Pre-petition Employee Obligations following a final hearing to be scheduled by this Court.2 13. Specifically, (a) under Sections 105(a) and 363(b)(1) of the Bankruptcy Code, the

Debtor asks the Court to authorize, but not direct, the Debtor to pay any obligations arising under the Employee Programs that were accrued or earned but unpaid as of the Petition Date; (b) under Section 363(c)(1) of the Bankruptcy Code, the Debtor requests that the Court confirm its right to continue each of the Employee Programs described herein in the ordinary course of its business during the pendency of this case, to continue to make payments thereunder in the manner and to the extent consistent with and required by the Employee Programs that were in effect immediately prior to the Petition Date, and to make payments in connection with expenses incurred in the administration of any Employee Program.3

The Debtor may separately seek authorization to implement new programs designed to incentivize employee performance, preserve employee morale, encourage continuing employment and otherwise ameliorate the effects on Employees of this Chapter 11 case.
3

By this Motion, the Debtor does not seek to modify the terms of any Employee Program and does not seek to assume or reject any Employee Program to the extent that such Employee Program is deemed to be an executory contract within the meaning of Section 365 of the Bankruptcy Code. Moreover, the Debtor does not waive its right to modify or terminate any Employee Program to the extent that such right exists under the terms of the Employee Program or as may be permitted or required by applicable law or further order of the Bankruptcy Court. 7
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14.

The Employee Programs under which the Pre-petition Employee Obligations arise

are described more fully herein and include, without limitation, plans, programs, policies and agreements providing for (a) regularly incurred salaries, incentive bonuses, ordinary course severance, paid time off and other accrued compensation, (b) reimbursement of business, travel and other reimbursable expenses and (c) various insured and self-insured employee health and welfare benefits, as described below. 15. The Debtor also seeks authorization to pay any and all local, state and federal

withholding and payroll-related or similar taxes relating to the Pre-petition Employee Obligations, including, but not limited to, all withholding taxes, Social Security taxes and Medicare taxes. In addition, the Debtor seeks confirmation that it is permitted to pay to third parties any and all amounts deducted from Employee paychecks for payments on behalf of Employees, including, without limitation, garnishments, charitable contributions, support payments, tax levies, benefit plans, insurance programs and other similar programs. 16. As more particularly identified and discussed below, the Debtor further requests

that it be authorized, but not directed, to pay the hourly fees of four independent contractors (the Independent Contractors) and one worker that has been hired on a temporary basis (the Temporary Worker) for pre-petition services that, with respect to the Independent Contractors, provide crucial, highly specialized geological and engineering skills and, with respect to the Temporary Worker, involve important accounting services, all of which the Debtor depends upon for the continued operation of its business. The Debtor seeks authority (but not direction) to continue the payments that may come due to its Independent Contractors and Temporary Worker post-petition in the ordinary course of its business.

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17.

The Debtor further requests that, with respect to any Employee Programs and Pre-

petition Employee Obligations that are administered or paid through a third-party administrator, agent, consultant or provider (the Administrators), the Debtor be expressly authorized to pay any pre-petition fees of the Administrators and to continue such payments post-petition in the ordinary course of its business in order to ensure the uninterrupted delivery of payments or other benefits to the Employees. 18. In aid of the foregoing relief, the Debtor requests that the Court authorize and

direct all banks to receive, process, honor and pay any and all checks drawn on the payroll and other bank accounts used by the Debtor to satisfy its Pre-petition Employee Obligations, whether presented before, on or after the Petition Date, and authorizing the banks to rely on the representations of the Debtor as to which checks are subject to this Motion, provided that sufficient funds are on deposit in the applicable accounts to cover such payments. The Debtor additionally requests that the Court authorize it to issue new post-petition checks to replace any checks that may be dishonored and to reimburse any expenses that Employees may incur as a result of any banks failure to honor a pre-petition check. V. 19. BASIS FOR RELIEF

The Debtors ability to preserve its business and successfully reorganize is

dependent on the continued enthusiasm, services and expertise of its Employees. Due to the disruption and stressful uncertainty that typically accompanies Chapter 11 filings, the Debtor believes that the morale of its Employees may be adversely affected if it is not able to assure them that they will be fully paid for the work they have performed, whether before or after the Petition Date, and can rely on the benefits provided to them under the Employee Programs. The Debtor has determined that continuation of the Employee Programs is vital to its ability to preserve Employee morale during the pendency of this Chapter 11 case and to reduce the level of 9
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Employee attrition that might otherwise occur. Minimizing such attrition and the consequent disruption to the Debtors business operations is critical to the Debtors ability to preserve and enhance value for the benefit of the Debtor, its estate and all stakeholders. 20. In addition, if the Debtor fails to pay the Pre-petition Employee Obligations in the

ordinary course, its Employees will suffer extreme personal hardship. Many employees live paycheck to paycheck and would suffer severe adverse consequences if they failed to receive their full compensation. Such a result would have a highly negative impact on the morale of Employees who have a reasonable expectation of compensation for services rendered and likely would result in unmanageable turnover, thereby resulting in immediate and irreparable harm to the Debtor and its estate. Honoring the Pre-petition Employee Obligations will minimize the level of disruption and preserve the loyalty of Employees so necessary for any successful reorganization. By this Motion, the Debtor seeks authorization, but not direction, to pay

approximately $52,798 in expense reimbursements, and approximately $15,000 in other Employee Benefits and related fees (as defined below). 21. The Debtor seeks further authorization to make payments of up to $841,000 in the

aggregate to its forty-seven (47) non-insider Employees (collectively referred to at times as the Non-Insider Employees) who remain employed by the Debtor and who have earned but, as of the Petition Date, have yet to receive bonus compensation previously awarded to them under the Debtors existing bonus plan (the Pre-petition Bonus Plan). A. 22. Payment of Pre-Petition Salary, Benefits and Other Compensation As of the Petition Date, the Debtors workforce was comprised of approximately

sixty (60) Employees. Currently, fifty-two (52) Employees are based in Houston, and eight (8) Employees work on various Gulf of Mexico platform drilling vessels. All of the Debtors Employees are salaried employees. The Debtors senior management is comprised of thirteen 10
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(13) officers (hereinafter referred to at times collectively as Senior Management), including the Executive Chairman, President, Chief Operating Officer, Chief Financial Officer, Chief Accounting Officer, Chief Communications Officer and seven (7) other Employees with a title of vice president or higher. In the ordinary course of the Debtors business, the Debtors

Employees earn and are paid salaries and/or other compensation semimonthly. 23. As a general matter, the Debtor uses one payroll account for paying the salaries

and related employment benefits to Employees semimonthly, on the fifteenth (15th) and last day of each month or on the last business day before those dates (collectively, the Payrolls). In addition, the Debtor is required by law to (i) match the Social Security and Medicare taxes, (ii) based on a percentage of gross payroll, pay additional amounts for state and federal unemployment insurance and (iii) remit these payroll taxes to various taxing authorities (the Employer Payroll Taxes). The Debtor processes the Payrolls internally and makes all

payments via direct deposits. For the period ending July 31, 2012, the Debtors monthly Payrolls for earned salaries, including all applicable Employer Payroll Taxes, total approximately $922,915. The Debtor requests the authority to pay and continue to pay the regularly scheduled Payrolls, including Employer Payroll Taxes, in the ordinary course of business, including any pre-petition amounts that may have accrued but not become payable as of the Petition Date. 24. In the ordinary course of business, the Debtor also causes certain Payroll

deductions to be automatically made for Employee obligations, such as federal income taxes, Social Security and Medicare contributions, court-ordered garnishment and support payments, benefit plan insurance programs, and other similar programs (collectively, the Deductions). The Debtor pays a semimonthly subscription fee of approximately $430 to Paychex of New York LLC (including its successors and assigns, Paychex) to handle the Deductions and the

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Employer Payroll Taxes and to remit the amounts due to relevant governmental authorities or other proper third parties. 25. To the extent that the Debtor is holding funds belonging to Employees that are

collected from Employees and remitted to others, the Debtor maintains that such funds are not property of the bankruptcy estate. The amounts deducted are generally held in trust by the Debtor until they are forwarded to third parties. However, in an abundance of caution and to the extent that such funds relate to pre-petition periods, the Debtor seeks authority to remit the applicable Deductions to appropriate governmental authorities and other third parties in accordance with the Debtors regular policies and procedures.4 Further, the Debtor seeks the authority, but not the direction, to continue using Paychex to handle the Deductions and Employer Payroll Taxes. B. 26. Payment of Pre-Petition and Other Compensation to Independent Contractors and Temporary Worker The Independent Contractors whom the Debtor intends to continue to utilize post-

petition in the ordinary course of business provide highly specialized geological and engineering services to the Debtor that are integral to the ongoing operation of the Debtors business. The hourly rates for those four Independent Contractors range from $137.50 to $212.50 per hour, and the monthly billings per contractor total approximately $28,000.00. The Temporary Worker was hired through Kindrick & Luther, which is a temporary outplacement agency for accountants (the Temp Agency). The Debtor intends to continue utilize the services of the Temporary Worker post-petition in the ordinary course of business to provide essential accounting services for the
4

The amounts collected by the Debtor as Deductions are not included in the calculation of the amounts entitled to priority under Section 507(a)(5) of the Bankruptcy Code, as they constitute the Employees own funds, as opposed to claims for contributions to employee benefit plans within the meaning of that provision. 12
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Debtor. The Debtor is billed $52 per hour for the Temporary Worker, and the monthly billings total approximately $10,000. The Debtor normally pays its Independent Contractors and the Temp Agency with checks drawn from the Operating Account. Since the Debtor requires the continuing, uninterrupted services of the four Independent Contractors and the Temporary Worker, the Debtor seeks the authority, but not the direction, to continue to utilize and pay its Independent Contractors and Temporary Worker in the ordinary course of business, including any amounts invoiced for pre-petition services. C. 27. Payment of Reimbursable Expenses Prior to the Petition Date and in the ordinary course of business, the Debtor

reimbursed Employees for reasonable expenses incurred in performing their jobs, including, but not limited to, business-related travel, automobile expenses, lodging and meals in accordance with certain per diem rates (the Reimbursable Expenses). Reimbursable Expenses were incurred on behalf of the Debtor in the ordinary course of business with the expectation that such expenses would be reimbursed in accordance with past practice. It would be inequitable and would cause harm to employee morale to deny reimbursement of such expenses. Moreover, it is essential to the continued operation of the Debtors business that the Debtor be permitted to continue to reimburse Employees for such business-related Reimbursable Expenses incurred in the ordinary course of the Debtors business, whether incurred by an Employee on a pre- or postpetition basis. 28. Under the Debtors reimbursement policy, the Employees must submit expense

reports, including receipts, or the reimbursement may be denied. Because Employees do not always submit reimbursement claims promptly, it is difficult to determine the exact outstanding amount at any one time, but these amounts are nominal. As of the Petition Date, the Debtor has received, but not paid, expense reimbursement requests totaling approximately $52,798. 13
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D. 29.

Continuation and Payment of Pre-Petition Employee Benefits The Debtors regular, full-time employees scheduled to work more than 35 hours

per week are eligible for various standard employee health and welfare benefits, including, without limitation, (a) medical, dental, vision and prescription drug coverage; (b) flexible spending accounts for health and dependent care under Section 125 of the Internal Revenue Code; (c) basic life and voluntary life insurance; (d) accidental death and dismemberment (AD&D) insurance; (e) short-term and long-term disability benefits; and (f) a 401(k) savings plan (collectively, the Employee Benefits). 30. Medical, Dental, Vision and Prescription Drug Coverage: Regular, full-time

Employees who work more than 35 hours per week and are citizens or legal residents of the United States are eligible for benefits (Eligible Employees). Eligible Employees are offered the choice between one of two PPO Plans offered through Cigna Health Insurance. Medical plan participants are also offered prescription drug coverage provided through Cigna. coverage is provided through Opticare Insurance. Vision

Dental insurance is provided through

Dearborn National Insurance. For these standard health benefits, the Debtor pays a portion of the cost, and the Employee is responsible for paying the balance through payroll deduction. 31. Flexible Spending Accounts: Eligible Employees may elect to enroll in flexible

spending accounts (FSAs) for health and dependent care. FSAs permit employees to make pretax payroll contributions up to $5,000 per year for health care expenses for employees and eligible dependents and up to $5,000 per year per household for dependent care. The employees gross pay is reduced by an amount equal to the employees contributions, as elected annually during the open enrollment period. Paychex is the third-party administrator for the FSA. 32. Life and AD&D Insurance: Eligible Employees are provided basic life and

AD&D coverage through Cigna Group Insurance with the cost paid by ATP. The coverage for 14
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the employee includes one (1) times an employees annual salary, up to a $300,000 maximum. Any Eligible Employees who desire more financial security have the opportunity to purchase Voluntary Life and AD&D coverage at their own expense. 33. Short-Term and Long-Term Disability: Short-term disability benefits are

provided for Eligible Employees who are temporarily unable to work due to injury or illness based on average weekly earnings. ATP also provides long-term disability coverage when an Eligible Employees illness or disability lasts longer than 90 days. The cost of the short-term disability benefits and the long-term disability insurance is fully paid by the Debtor. The longterm disability replaces 60% of earnings to a maximum of $10,000 per month upon approval of the Employees application. 34. Employee Assistance Program: The Employee Assistance Program (EAP)

through Lincoln National Life Insurance Company provides free, confidential professional counseling to assist employees through difficult times of marital, family, financial or legal problems, drug or alcohol abuse, or other personal issues. 35. The 401(k) Savings Plan: All eligible new hires can enroll in ATPs 401(k) Profit The plan is administered by Verisight, Inc.

Sharing Plan at a 100% contribution rate.

(Verisight). Participating Employees may defer a portion of their annual compensation, subject to maximum limitations set by the Internal Revenue Service. Employees are vested in all contributions from the day they begin contributing to the 401(k) Plan. ATP matches the

employees contribution dollar for dollar up to the first 3% of pretax earnings contributed to the 401(k) Plan and 50% on the next 2% of pretax earnings contributed. These matching

contributions are remitted per pay period for each of the Payrolls. As of the Petition Date, the Debtors obligation for pre-petition matching 401(k) contributions is estimated to be

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approximately $15,000 based on the most recent Payroll period. The Debtor asks the Court to authorize, but not direct, the payment of all pre-petition and post-petition amounts attributable to the 401(k) Plan, as well the costs incurred in the ordinary course by its third-party administrator. 36. As of the Petition Date, the Debtor was obligated to pay certain premium

contributions to or provide benefits under the foregoing programs, plans and policies. The Debtor estimates the average monthly cost for Eligible Benefits and related administrative fees is $78,768. That total is calculated based upon the following summary of estimated monthly fees: (i) Cigna Health Insurance ($68,282); (ii) Opticare Insurance ($467); (iii) Dearborn National Insurance ($2,856); (iv) Lincoln National Life Insurance ($1,968); (v) Cigna Life Insurance ($3,195); and (vi) Verisight ($1,000). 37. By this Motion, the Debtor seeks authority to pay in the ordinary course of

business all amounts owed by the Debtor for expenses and fees relating to Employee Benefits, including those incurred prior to the Petition Date. E. 38. Paid Time Off Benefits All Employees receive paid time off (PTO) for vacation, personal or family

illness as part of their overall compensation. The PTO benefits are calculated based on the anniversary date, which is the first day the Employee reported to work. Employees are only eligible to accrue PTO while on active status. In general, vacation is accrued based on years of service in the industry and must be used in minimum half-days. On an annual basis, full-time Employees accrue twelve (12) days of vacation if the Employee has five (5) or fewer years of industry experience, fifteen (15) days of annual vacation if the Employee has between five (5) and fifteen (15) years of experience, and twenty (20) days for fifteen (15) years or more of experience in the oil and gas industry. ATP encourages each Employee to take his or her vacation days and generally does not allow more than three (3) days to be carried over to the next 16
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calendar year. Six (6) sick days may be accrued each year, none of which can be carried over, and these do not get paid upon termination. Upon termination, Eligible Employees are paid for earned but unused vacation days. The Debtor anticipates that Employees will utilize PTO postpetition, including certain PTO that may have accrued before the Petition Date. The Debtor seeks authority (but not direction) to honor all earned PTO in the ordinary course consistent with the existing guidelines and policies described in this paragraph, regardless of whether it accrued during the pre- or post-petition period. F. 39. Other Programs The Debtor maintains insurance for workers compensation claims in compliance

with applicable state, federal and maritime laws and numerous contracts with customers.5 This workers compensation insurance is provided by TexasMutual Insurance Company, and the premium for that policy is paid following the Debtors annual renewal of policies. No part of the premium can be paid by the Employee. This policy is audited part-way through the following year, and then the Debtor either makes an additional payment or receives a true-up payment on its workers compensation policy. In 2011, the initial premium was approximately $45,000. The audit for 2011 occurred in mid-2012, and the preliminary findings show that the Debtor may receive a refund. The Debtor requests the authority to satisfy workers compensation

obligations, including those incurred prior to the Petition Date, and to pay the additional amount of premium, if any, that may be determined to be due following finalization of the findings from the audit.

The workers compensation policy described herein may also be addressed elsewhere in Debtors Emergency Motion for Authorization to: (1) Continue Pre-petition Insurance Program; (2) Pay Any Pre-petition Premiums And Related Obligations; and (3) Honor Obligations Under Pre-petition Premium Financing Agreement. 17
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G. 40.

Continuation and Payment of Compensation Earned by Non-Insider Employees Under the Pre-petition Bonus Plan The Debtor seeks authority (but not direction) to pay compensation that has been

earned and awarded pre-petition to its Non-Insider Employees under the Debtors Pre-petition Bonus Plan. The payment of bonuses, like those provided under the Debtors Pre-petition Bonus Plan, is an integral element of compensation to workers in the oil and gas industry. Without approval to pay the amounts requested in this Motion, the Debtor believes there is a substantial risk of irreparable harm to its Employees morale and, more importantly, of imminent loss to one or more of its competitors of a substantial number of its Employees. For a business that already has right-sized its workforce, as the Debtor has, to be as leanly and efficiently staffed as possible, any such loss could ultimately result in a crippling adverse impact on its efforts to successfully reorganize and maximize recovery by all stakeholders.6 Pending the final hearing on this

Motion, the amounts to be paid to any employee under the Debtors Prepetition Bonus Plan, together with any other amounts authorized to be paid to such employee herein, will not exceed the 507(a)(4) Limit. 41. In determining the amount of the bonuses that were previously awarded to the

Non-Insider Employees, ranking officers from Senior Management at ATP carefully considered documented industry-wide surveys of bonuses awarded by peer companies in the oil and gas industry to employees who, like those in the Pre-petition Bonus Plan adopted by ATP, take into consideration a range of factors, including an employees scope of responsibilities, tenure and performance. In establishing the range of potential bonuses available to its Employees, those The Debtor is not seeking as part of this Motion authority to pay a pre-petition bonus earned by anyone in Senior Management. As and to the extent necessary or appropriate and otherwise in accordance with the requirements of Section 503(c) of the Bankruptcy Code and other applicable law, the Debtor reserves the right to seek approval of any such pre- or postpetition bonuses to Senior Management upon further notice and motion to the Bankruptcy Court filed at an appropriate time.
6

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senior officers consistently pegged bonuses at levels that were at or below 50% of industry-wide averages. Taking all those factors into account, specific awards were made for Non-Insider Employees that cover the period from July 1, 2010 through December 31, 2011 (the Covered Period). Those bonus awards represent, on average, approximately 9% of each such NonInsider Employees annual base salary and approximately $18,000 per Non-Insider Employee for the Covered Period. 42. While these awards are not insignificant, they are considerably below the amounts

paid by the Debtors peer companies, and the Debtor believes payment is absolutely necessary to its efforts to successfully reorganize. The Debtor is involved in a multibillion dollar business with interests located around the globe with just sixty (60) Employeesall of whom perform vital, and often multiple, functions that are critically necessary to the effective and efficient operation of the Debtors business. Moreover, unlike other areas of the economy that have been slow to recover from the financial crisis in 2008, the oil and gas industry within which the Debtor competes is a highly competitive and dynamic industry with substantial growth and opportunities for employment by skilled, experienced workers like the Non-Insider Employees. As a result, all of the Debtors Employees, including the Non-Insider Employees, remain in high demand and cannot easily be replaced (if at all). While the Non-Insider Employees have shown extraordinary loyalty and patience and extreme dedication to their jobs through a very tumultuous period that, among other things, has seen payment of their earned bonuses repeatedly deferred while the Debtor tried to manage its liquidity problems, it is simply imprudent and unrealistic to expect such extraordinary patience to continue unabated now that the Debtor has commenced this Chapter 11 case. On the contrary, the Debtor is convinced that, without prompt approval of the bonus payments it seeks authority to pay to the Non-Insider Employees, critical

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Employees are likely to leave, employee morale will be curtailed when it is most needed and the Debtors long-term prospects for a successful reorganization will be severely compromised. Further, the Debtors Pre-petition Bonus Plan is consistent with the Debtors past practice and was not implemented in anticipation of the filing of this Chapter 11 case. Accordingly, the Debtor seeks authority (but not direction) to pay (1) Pre-petition Employee Obligations of up to $841,000 based upon prior awards to Non-Insider Employees under the Pre-petition Bonus Plan and (2) such additional amounts as may be earned under the Pre-petition Bonus Plan for periods after January 1, 2012 by Non-Insider Employees, as determined in the ordinary course of operating the Debtors business and otherwise in all respects consistent with the terms of the Prepetition Bonus Plan. H. 43. Direction to Banks Regarding Pre-petition Checks and Electronic Transfers The Debtor requests that, to the extent of funds on deposit, all applicable banks

and other financial institutions be directed to receive, process, honor and pay all checks or electronic transfers drawn on any of the Debtors accounts relating to the Employee Obligations, Deductions, Employment Taxes, Independent Contractors and Temporary Worker as outlined above, whether presented before or after the Petition Date. VI. A. 44. APPLICABLE AUTHORITY

The Proposed Payments Should Be Authorized Under Bankruptcy Code Section 507 Pursuant to Sections 507(a)(4) and 507(a)(5) of the Bankruptcy Code, certain

claims for compensation are accorded priority in payment in an amount not to exceed $11,725 for each employee (to the extent such amounts accrued within 180 days of the petition date). The overwhelming majority of the Employees are owed compensation amounts within the statutory priority cap of Sections 507(a)(4) and 507(a)(5). Thus, granting the relief requested is

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consistent with the Bankruptcy Codes purpose of ensuring that employees are paid in full up to the statutorily imposed limit due to the priority status of their claims. B. 45. The Proposed Payments Are Appropriate Under Bankruptcy Code Section 363 Under Section 363 of the Bankruptcy Code, the Bankruptcy Court is empowered

to authorize a Chapter 11 debtor to expend funds in the Bankruptcy Courts discretion outside the ordinary course of business. See 11 U.S.C. 363. In order to obtain approval for the use of estate assets outside the ordinary course of business, the debtor must articulate a valid business justification for the requested use. See Institutional Creditors of Contl Airlines, Inc. v. Contl Airlines, Inc. (In re Contl Airlines, Inc.), 780 F.2d 223, 1226 (5th Cir. 1986) (holding that Section 363(b) requires that there must be some articulated business justification for using, selling, or leasing the property outside the ordinary course of business); United States Trustee v. Bethlehem Steel Corp. (In re Bethlehem Steel Corp.), No. 02 Civ. 2954 (MBM), 2003 WL 21738964, at *12 (S.D.N.Y. July 28, 2003) (To approve a transaction under 363(b), the Bankruptcy Court must find that there is a good business reason to allow the transaction); In re Terrace Gardens Park Pship, 96 B.R. 707, 714 (Bankr. W.D. Tex. 1989) (applying Continental to require articulated business justification for Section 363 transaction); In re Global Crossing Ltd., 295 B.R. 726, 743 (Bankr. S.D.N.Y. 2003) ([A] 363 application requires a showing that there is a good business reason to grant such an application.) (quoting Comm. Of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1071 (2d Cir. 1983)). 46. The payment of all Pre-petition Employee Obligations, as set forth herein, serves

the sound business purpose of maximizing the value of the Debtors estate. The Debtors success in this case hinges in large part on the morale and continued efforts and dedication of the Employees. Through the payment of the Pre-petition Employee Obligations, the Debtor seeks to 21
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motivate and encourage the Employees to continue to support the Debtors restructuring efforts. Accordingly, the Bankruptcy Court should grant the requested relief under Section 363 of the Bankruptcy Code. C. 47. The Payment of the Deductions Is Appropriate Under the Bankruptcy Code Payment of the Deductions will not prejudice the Debtors estate, because such

withholdings are held in trust for the benefit of the related payees and thus do not constitute property of the Debtors estate under Section 541(b)(7) of the Bankruptcy Code. See Begier v. IRS, 496 U.S. 53 (1990). Accordingly, the Debtor believes that it has authority to direct such funds to the appropriate parties in the ordinary course of business. D. 48. The Debtor Should Be Authorized To Pay the Pre-Petition Employee Obligations Under Bankruptcy Code Sections 1107(a) and 1108 The Debtor, operating its business as debtor-in-possession under Sections 1107(a)

and 1108 of the Bankruptcy Code, is a fiduciary holding the bankruptcy estate[s] and operating the business for the benefit of its creditors and (if the value justifies) equity owners. In re CoServ, L.L.C., 273 B.R. 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 an operating businesss going-concern value. Id. 49. Courts have noted that there are instances in which a debtor-in-possession can

fulfill its fiduciary duty only . . . by the preplan satisfaction of a pre-petition claim. Id.; see also In re Mirant Corp., et al., 296 B.R. 427, 429-30 (Bankr. N.D. Tex. 2003) (allowing debtors to continue their respective business). The CoServ court specifically noted that preplan

satisfaction of pre-petition claims would be a valid exercise of a debtors fiduciary duty when the payment is the only means to effect a substantial enhancement of the estate. Id. The court

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provided a three-pronged test for determining whether a preplan payment on account of a prepetition claim was a valid exercise of a debtors 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 debtors going concern value, which is disproportionate to the amount of the claimants pre-petition 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. 50. Payment of each aspect of the Pre-petition Employee Obligations meets each

element of the CoServ courts standard. As described above, the Employees likely maintain priority claims against the Debtor for a substantial part of the Pre-petition Employee Obligations. In addition, and more importantly, any failure by the Debtor to pay the Pre-petition Employee Obligations would pose a real and substantial risk of loss of critical services now performed by the Debtors Employees, Independent Contractors and Temporary Worker at a critical time for the Debtor and its business. In short, the potential harm and economic disadvantage that would stem from the failure to pay the Pre-petition Employee Obligations is grossly disproportionate to the amount of any pre-petition claim that may be paid. 51. With respect to the Employees, the Debtor has examined options other than

payment of the Pre-petition Employee Obligations and has determined that, to avoid significant disruption to its business operations, there exists no practical or legal alternative to payment of such obligations. Therefore, the Debtor can only meet its fiduciary duties as debtor-in-

possession under Bankruptcy Code Sections 1107(a) and 1108 by payment of the Pre-petition Employee Obligations.

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E. 52.

Payment of the Pre-Petition Employee Obligations Should Be Authorized Under Bankruptcy Code Section 105 and the Doctrine of Necessity The proposed payments of the Pre-petition Employee Obligations should also be

authorized under Section 105 of the Bankruptcy Code, which empowers this Court to issue any orderthat is necessary or appropriate to carry out the provisions of this title. 11 U.S.C. 105(a). For the reasons set forth herein, and in light of the Debtors critical need to preserve the value of its business and effect a successful reorganization through, among other things, preservation of the Debtors workforce and its morale, payment of the requested salary and benefits is proper under Bankruptcy Code Section 105. 53. Payment of the Pre-petition Employee Obligations is further supported by the

doctrine of necessity. This is a well-settled doctrine that permits a Bankruptcy Court to authorize payment of certain pre-petition claims prior to the completion of the reorganization process where the payment of such claims is necessary to the reorganization. See In re Just for Feet, Inc., 242 B.R. 821, 826 (D. Del. 1999) (stating that, where the debtor cannot survive absent payment of certain pre-petition claims, the doctrine of necessity should be invoked to permit payment); CoServ, 273 B.R. at 497 (stating willingness to apply the doctrine of necessity . . . in appropriate cases.); see also In re Babcox & Wilcox Co., 274 B.R. 230, 256 n.208 (Bankr. E.D. La. 2002) (noting that debtors had been authorized . . . to pay many of their [non-asbestos] debts . . . under . . . doctrine of necessity) (citing NextWave Pers. Commcns Inc. v. F.C.C., 254 F.3d 130, 136 (D.C. Cir. 2001)); In re NVR L.P., 147 B.R. 126, 127 (Bankr. E.D. Va. 1992) ([T]he court can permit pre-plan payment of pre-petition obligation when essential to the continued operation of the debtor.). Courts have recognized the applicability of the doctrine of necessity with respect to the payment of pre-petition employee compensation and benefits. See, e.g., Mich. Bureau of Workers Disability Comp. v. Chateaugay Corp. (In re Chateaugay Corp.), 24
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80 B.R. 279, 285-89 (S.D.N.Y. 1987) (under necessity of payment doctrine, it is appropriate for Bankruptcy Court to defer to Debtors business judgment in permitting payment of certain workers compensation claims); In re Ionosphere Clubs, Inc., 98 B.R. at 176 (This rule recognizes the existence of the judicial power to authorize a debtor in a reorganization case to payment of a pre-petition claim where such payment is essential to the continued operation of the debtor.). 54. Accordingly, for all of the foregoing reasons, the Debtor submits that cause exists

for granting the relief requested herein. VII. 55. REQUESTED RELIEF SATISFIES BANKRUPTCY RULE 6003 Pursuant to Bankruptcy Rule 6003, the Court may grant relief regarding a motion

to pay all or part of a pre-petition claim within twenty (20) days after the Petition Date if the relief is necessary to avoid immediate and irreparable harm. Based on the foregoing, the Debtor submits that it has satisfied the requirements of Bankruptcy Rule 6003 to support the requested relief being granted immediately. VIII. 56. SIMILAR RELIEF GRANTED

Numerous courts, including this Court, have permitted the payment of pre-petition

compensation, benefit and expense reimbursement obligations on the first day or in the early stages of other Chapter 11 bankruptcy cases. See, e.g.. In re Spectrum Jungle Labs Corp., et al., Case No. 09-50455 (RBK)(Bankr. W.D. Tex. Feb. 5, 2009) [Docket No. 48]; In re Pilgrims Pride Corp., et al., Case No., 08-45644 (DML) (Bankr. N.D. Tex. Dec. 2, 2008) [Docket No. 65]; In re Scotia Development LLC, Case No. 07-20027(RSS) (Bankr. S.D. Tex. Jan. 24. 2007) (Docket 73]; In re The Bombay Co., Inc., Case No. 07-44084 (DML) (Bankr. N.D. Tex. Sept. 20, 2007) [Docket No. 64]; In re CEI Roofing, Inc. et al., Case No. 04-35113 (HDH) (Bankr. N.D. Tex. May 5, 2004) [Docket No. 42]. 25
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IX. 57.

ADEQUATE FUNDING AVAILABLE

Payment of all Pre-petition Employee Obligations, including amounts earned and

awarded in respect of the Pre-petition Bonus Plan to the extent approved by the Bankruptcy Court in granting the relief requested in this Motion, are provided for in the budget accompanying the Debtors proposed DIP financing. Likewise, if such DIP financing is

approved by the Court there will be sufficient cash available to continue to pay all pre- and postpetition obligations described herein relating to its Employees, the Independent Contractors and Temporary Worker as such amounts become due. By this Motion, the Debtor seeks the

authority, but not the direction, to pay in the ordinary course of business all such amounts owed by the Debtor. X. 58. RESERVATION OF RIGHTS

Nothing contained herein is or should be construed as, (a) an admission as to the

validity of any claim against the Debtor, (b) a waiver of the Debtors right to dispute any claim on any grounds, (c) a promise to pay any claim, (d) an assumption or rejection of any executory contract or unexpired lease pursuant to Section 365 of the Bankruptcy Code or (e) otherwise affecting the Debtors rights under Section 365 of the Bankruptcy Code to assume or reject any executory contract with any party subject to this Order. If this Court grants the relief requested herein, any payments made pursuant to the Courts order is not intended and should not be construed as an admission to the validity of any claim or a waiver of the Debtors rights to dispute such claim subsequently. 59. The Debtor is in the process of reviewing certain employment contracts and

expressly reserves all of its rights under the Bankruptcy Code with respect thereto. Specifically, by this Motion, the Debtor is not seeking to assume any employee contract or proposing to pay any Change of Control obligations unless expressly provided for herein. 26
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XI. 60.

REQUEST FOR WAIVER OF STAY

To the extent that any aspect of the relief sought herein constitutes a use of

property under Section 363(b) of the Bankruptcy Code, the Debtor seeks a waiver of the 14-day stay under Bankruptcy Rule 6004(h). As described above, the relief sought in this Motion is immediately necessary in order for the Debtor to be able to continue to operate its business and preserve the value of its estate. Accordingly, the Debtor respectfully requests that the Court waive the 14-day stay imposed by this rule, as the exigent nature of the relief sought herein justifies immediate relief. XII. 61. NOTICE

Notice of this Motion has been provided by overnight delivery and electronic mail

or facsimile to: (a) Credit Suisse AG, as Administrative Agent for the Senior Lenders and Administrative Agent for the DIP Lenders; (b) Cravath, Swaine & Moore LLP, as counsel to Credit Suisse AG; (c) Bingham McCutchen LLP and Winstead PC, as counsel to certain DIP Lenders and certain Senior Lenders; (d) The Bank of New York Mellon Trust Company, N.A., as Indenture Trustee for the Senior Second Lien Noteholders; (e) the 30 largest unsecured creditors of the Debtor; (f) the holders of Net Profits Interests and Overriding Royalty Interests; (g) the United States Trustees Office; (h) the Securities and Exchange Commission; and (i) the Internal Revenue Service. The Debtor believes that the notice provided is fair and adequate and that no further notice is necessary. WHEREFORE, the Debtor respectfully requests that the Court enter an interim order authorizing (but not directing) the Debtor (i) to continue its Employee Programs pending a final hearing on this Motion, (ii) to immediately pay the Pre-petition Employee Obligations to the Employees and make payments under the Pre-petition Bonus Plan up to an aggregate amount not in excess of the 507(a)(4) Limit as to any Employee and (iii) scheduling a final hearing for the 27
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purpose of entering an order authorizing payments to Non-Insider Employees under the Prepetition Bonus Plan in excess of the 507(a)(4) Limit and granting such further relief as may be just and necessary under the circumstances. Dated: August 17, 2012 Respectfully submitted, MAYER BROWN LLP By: /s/Charles S. Kelley Charles S. Kelley Attorney-in-Charge State Bar No. 11199580 Southern District of Texas Bar No. 15344 700 Louisiana Street, Suite 3400 Houston, TX 77002-2730 Telephone: 713 238-3000 Facsimile: 713 238-4888 and Howard S. Beltzer (pro hac vice application pending) Frederick D. Hyman (pro hac vice application pending) 1675 Broadway New York, NY 10019 Telephone: 212 506-2500 Facsimile: 212 262-1910 and Stuart M. Rozen (pro hac vice application pending) Sean T. Scott (pro hac vice application pending) 71 South Wacker Drive Chicago, IL 60606 Telephone: 312 782-0600 Facsimile: 312 701-7711 PROPOSED ATTORNEYS FOR THE DEBTOR AND DEBTOR-IN-POSSESSION

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IN THE UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION In re: ATP Oil & Gas Corporation, Debtor. Chapter 11

Case No.: 12-____________

ORDER (1) AUTHORIZING DEBTOR TO PAY PRE-PETITION EMPLOYEE WAGES, SALARIES, REIMBURSABLE EMPLOYEE EXPENSES, EMPLOYEE BENEFITS AND OTHER OBLIGATIONS; (2) DIRECTING ALL BANKS TO HONOR CERTAIN RELATED PRE-PETITION TRANSFERS; AND (3) GRANTING CERTAIN INTERIM AND FINAL RELATED RELIEF (Relates to Docket No. ___) Upon the motion of ATP Oil & Gas Corporation (ATP or the Debtor) for entry of an order (1) authorizing the Debtor to pay pre-petition employee wages, salaries, reimbursable employee expenses, employee benefits and other obligations; (2) directing all banks to honor certain related pre-petition transfers; and (3) granting certain interim and final related relief (the Motion); and the Court having jurisdiction to consider the Motion and the relief requested therein pursuant to 28 U.S.C. 1334 and 28 U.S.C. 157(b); and proper and adequate notice of the Motion and the hearing thereon having been given; and it appearing that no other or further notice being necessary; and the relief requested being in the best interest of the Debtor and its estate and creditors; and the Court having reviewed the Motion; and the Court having determined that the legal and factual bases set forth in the Motion establish just cause for the relief granted herein; and upon all of the proceedings had before the Court and after due deliberation and sufficient cause therefor; it is hereby 1. is further ORDERED that the Motion is GRANTED, as and to the extent provided herein; it

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2.

ORDERED that all capitalized terms not otherwise defined herein shall have the

meanings ascribed to such terms as set forth in the Motion; and it is further 3. ORDERED that the Debtor is authorized, but not directed, to the extent permitted

pursuant to the DIP Order, to (i) pay or otherwise honor the Pre-petition Employee Obligations to, or for the benefit of, the Employees under the Employee Programs; provided, however, that, pending a final hearing on this Motion, all payments under this Order shall not exceed $11,725 (the 507(a)(4) Limit) per individual Employee; and (ii) to continue making payments postpetition for Employee Obligations under the Employee Programs as they become due; and it is further 4. ORDERED that, subject to the other provisions of this Order, the Debtor is

authorized, but not directed, to continue the Employee Programs and maintain the Employee Benefits in the ordinary course of business in the manner and to the extent such Employee Programs and Employee Benefits were in effect immediately prior to the filing of this case and to make payments in connection with costs and fees incurred in the ordinary course to administer such Employee Programs, including, but not limited to, Payroll, FSA and 401k plan contributions, to ensure the uninterrupted delivery of payments or other benefits to the Employees; and it is further 5. ORDERED that the Debtor is authorized, but not directed, to (i) pay any accrued

but unpaid pre-petition fees owed to the four Independent Contractors and Temporary Worker identified in the Motion; provided, however, that, pending a final hearing on this Motion, such payments shall not exceed the 507(a)(4) Limit per each Independent Contractor and Temporary Worker (the Independent Contractor/Temporary Worker Fees); and (ii) to continue to pay,

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on a post-petition basis, their hourly rates for services performed by each such Independent Contractor or Temporary Worker; and it is further 6. ORDERED that the Debtor is authorized, but not directed, to (i) pay any pre-

petition fees of any Administrator (the Administrator Expenses) and (ii) continue such payments post-petition in the ordinary course of business to the extent the Debtor determines necessary to ensure the uninterrupted delivery of payments and other benefits to its Employees; and it is further 7. ORDERED that the Debtor is authorized (i) to pay any amounts accrued as pre-

petition Deductions and Employer Payroll Taxes to the proper governmental entities and third parties entitled thereto and (ii) to continue to collect and remit the Deductions and Employer Payroll Taxes on a post-petition basis in the ordinary course of business; and it is further 8. ORDERED that the Debtor is authorized, but not directed, to make payments of

under the Debtors Pre-petition Bonus Plan to Non-Insider Employees of amounts earned and awarded during the Covered Period; provided, however, that, pending a final hearing on this Motion, such payments, together with any other payments relating to pre-petition amounts made pursuant to this Order, do not exceed for each such Non-Insider Employee the 507(a)(4) Limit and in the aggregate for all Non-Insider Employees do not exceed $841,000; and it is further 9. ORDERED that a final hearing to determine whether the Debtor may make any

payments to Non-Insider Employees in excess of the 507(a)(4) Limit and continue to award bonuses to Non-Insider Employees for both pre and post-petition periods arising from and after the Covered Period on terms consistent with the Debtors Pre-petition Bonus Plan, shall be held on _____________ ___, 2012 at ______, Central Standard Time (the Final Hearing), and any objections to granting such relief must be filed with the Clerk of the Bankruptcy Court and

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served upon the Office of the United States Trustee for the Southern District of Texas, counsel to the Debtor, counsel to the DIP Agent, counsel to the Administrative Agent for the Senior Lenders, counsel to the Indenture Trustee for the Senior Second Lien Noteholders and counsel to any statutory committee(s) appointed in this case so as to actually be received at least three (3) days before the Final Hearing on the Motion. This Interim Order shall remain in effect

notwithstanding any objection until further Order of this Court; and it is further 10. ORDERED that the banks and financial institutions (collectively, the Banks)

upon which any checks are drawn or electronic transfers are made in payment of the obligations authorized herein, including, but not limited to, any of the Pre-petition Employee Obligations, Employee Benefits, Reimbursable Expenses, Independent Contractor Fees and Administrator Expenses, either before, on or after the Petition Date, are hereby authorized and directed to honor, upon presentation, any such checks or wires, provided that sufficient funds are available in the applicable accounts to make such payments; and it is further 11. ORDERED that the Banks shall be entitled to rely on the Debtors express

instructions to the Banks regarding which of the amounts referenced in the preceding paragraph have been authorized by the Court to be paid, and no liability shall be imposed on the Banks as a consequence of such reliance; and it is further 12. ORDERED that any third party receiving payment from the Debtor is authorized

and directed to rely upon the representations of the Debtor as to which payments are authorized by this Order; and it is further 13. ORDERED that all payments authorized pursuant to this Order shall be made

pursuant to, and in compliance with, the terms of any debtor-in-possession financing that are approved by interim or final order of this Court; and it is further

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14.

ORDERED that the Debtor is authorized to take all actions necessary to effectuate

the relief granted pursuant to this Order in accordance with the Motion; and it is further 15. ORDERED that nothing in this Order shall prejudice the Debtors right to seek

additional and further relief from this Court concerning Employee Obligations or Employee Programs nor limit the Debtors right to make ordinary course of business changes, in the exercise of its business judgment, concerning any and all matters regarding employee compensation and benefits arising under their programs, plans, and policies; and it is further 16. ORDERED that neither the provisions of this Order, nor any payments made or

not made by the Debtor pursuant to this Order, shall be deemed an assumption or rejection of any Employee benefit plan, program or contract or otherwise affect the Debtors rights under Section 365 of the Bankruptcy Code to assume or reject any executory contract between the Debtor and any Employee; and it is further 17. ORDERED, notwithstanding the relief granted herein or in any actions taken

hereunder, nothing contained in this Order shall create any rights in favor of, or enhance the status of any claim held by, any Employee, Independent Contractor, Temporary Worker, Temp Agency or Administrator. The authorizations granted herein are permissive and not obligatory, and the Debtor may, in the exercise of its discretion, determine whether or not to make any of the payments authorized hereunder; and it is further 18. ORDERED that this Court shall retain jurisdiction with respect to all matters

arising from or related to the implementation of this Order. SIGNED this _______ day of August, 2012. ____________________________________ UNITED STATES BANKRUPTCY JUDGE 5
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