IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION ) ) ) ) ) ) ) Chapter 11

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1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION In re: CHESAPEAKE CORPORATION, et al., Debtors. 1 ) ) ) ) ) ) ) Case No. 08- Chapter 11 MOTION OF THE DEBTORS (A) FOR AUTHORITY TO CONTINUE USING THEIR EXISTING CASH MANAGEMENT SYSTEM, BANK ACCOUNTS AND BUSINESS FORMS, (B) TO GRANT POSTPETITION INTERCOMPANY CLAIMS ADMINISTRATIVE EXPENSE PRIORITY AND (C) FOR AUTHORITY TO CONTINUE INTERCOMPANY TRANSACTIONS AND HISTORICAL PRACTICES The above-captioned debtors and debtors-in-possession (collectively, the Debtors ), by their undersigned counsel, hereby move the Court for entry of an order, the proposed form of which is attached hereto as Exhibit A, pursuant to sections 363, 364 and 507 of Title 11 of the United States Code, 11 U.S.C (as amended, the Bankruptcy Code ): (a) authorizing the Debtors to continue using their existing cash management system, bank accounts and business forms, (b) granting postpetition intercompany claims administrative expense 1 The Debtors and the last four digits of their respective taxpayer identification numbers are as follows: Chesapeake Corporation (6880), Chesapeake Printing and Packaging Company (9208), Chesapeake Pharmaceutical Packaging Company, Inc. (0010), Chesapeake International Holding Company (1532), WTM I Company (1080), Sheffield, Inc. (6314), Chesapeake Assets Company (5293), Chesapeake Recycling Company (9383), Chesapeake Display and Packaging Company (4207), The Chesapeake Corporation of Virginia (6783), Chesapeake Corporation (Wisconsin) (7682), Chesapeake Corporation (Massachusetts) (7686), Chesapeake Corporation (D.C.) (7684), Chesapeake Corporation (Illinois) (7685), Chesapeake Corporation (Louisiana) (7681), Chesapeake Forest Products Company, LLC (6880), Cary St. Company (9092), Delmarva Properties, Inc. (7160), and Stonehouse Inc. (2481). Benjamin C. Ackerly (VSB No ) Jason W. Harbour (VSB No ) HUNTON &WILLIAMS LLP Riverfront Plaza, East Tower 951 East Byrd Street Richmond, Virginia Telephone: (804) Telecopier: (804) Peter S. Partee (VSB No ) HUNTON &WILLIAMS LLP 200 Park Avenue, 53 rd Floor New York, New York Telephone: (212) Telecopier: (212) Proposed Attorneys for Debtors and Debtors-in-Possession

2 priority and (c) authorizing the Debtors to continue intercompany transactions and historical practices (collectively, the Motion ). In support of this Motion, the Debtors rely on the Declaration of Andrew J. Kohut in support of Chapter 11 Petitions and Related Motions (the Kohut Declaration ). In further support of this Motion, the Debtors submit as follows: I. Jurisdiction and Venue 1. On the date hereof (the Petition Date ), each of the Debtors filed with the Court its voluntary petition for relief under chapter 11 of the Bankruptcy Code, commencing the above-captioned chapter 11 cases. 2. The Debtors continue to operate their businesses and manage their properties as debtors-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 3. No creditors committee has been appointed in these cases. No trustee or examiner has been appointed. 4. The Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and This matter is a core proceeding within the meaning of 28 U.S.C. 157(b)(2). 6. The statutory bases for the relief requested herein are sections 363, 364 and 507 of the Bankruptcy Code. II. Background 7. A full description of the Debtors business operations, corporate structure, capital structure, and reasons for commencing these cases is set forth in full in the Kohut Declaration, which was filed contemporaneously with this Motion and which is incorporated herein by reference. Additional facts in support of the specific relief sought herein are set forth below. 2

3 A. Description of the Debtors Cash Management System 8. In the ordinary course of business, the Debtors utilize an integrated, centralized cash management system (collectively, the Cash Management System ) under which funds are, among other things, collected by the Debtors, transferred to a concentration account and disbursed, through other accounts, to pay operating expenses of the Debtors and facilitate transfers with certain of the Debtors non-debtor subsidiaries. 9. The Cash Management System performs cash management functions for Debtor Chesapeake Corporation ( Chesapeake ), Debtor Chesapeake Printing and Packaging Company ( Printing ), Debtor Chesapeake Pharmaceutical Packaging Company, Inc. ( Pharmaceutical ; together with Printing, the US Operating Subsidiaries ), Debtor WTM I Company ( WTM ) and Debtor Cary Street Company ( Cary Street ). The bank accounts of the Debtors are identified on Exhibit 1 annexed to Exhibit A attached hereto, and are discussed in greater detail below. Further, the Cash Management System facilitates ordinary course transfers between Chesapeake and Chesapeake s non-debtor subsidiaries in other countries (collectively, the Foreign Subsidiaries ). 10. The transfers among and between the Debtors and the Foreign Subsidiaries are ordinary course transactions based on the operation of the Cash Management System and various intercompany claims (collectively, the Intercompany Claims ). The Intercompany Claims arise from, among other things, (i) intercompany loans which result in the accrual and transfer of principal and interest with interest calculated at the end of each month; (ii) dividends and capital contributions made prior to the Petition Date; (iii) management fees owed by the US Operating Subsidiaries and certain other subsidiaries to Chesapeake; and (iv) trade receivables and payables 3

4 that arise in part from the Cash Management System s lockbox account clearing of the US Operating Subsidiaries accounts and transfers to the US Operating Subsidiaries account payable accounts. 11. The Cash Management System is managed primarily by Chesapeake s financial personnel at its headquarters in Richmond, Virginia. The Cash Management System enables the Debtors to (a) forecast and report the Debtors cash position, (b) monitor collection and disbursement of funds, (c) maintain control over and access to the administration of the various bank accounts, (d) determine the amounts owed among the Debtors and between Chesapeake and the Foreign Subsidiaries on a daily basis and (e) efficiently aggregate cash data for GAAP accounting journalization. B. The Debtors Accounts 12. The Cash Management System consists of numerous accounts, each of which is described herein. Chesapeake maintains a concentration account, a payroll disbursement account, and an accounts payable controlled disbursement account (collectively, the Chesapeake Accounts ). The US Operating Subsidiaries each maintain zero balance depository lockbox accounts and accounts payable depository accounts which maintain only small balances to cover outstanding checks (collectively, the US Operating Subsidiaries Accounts ). WTM maintains a single account for deposits and disbursements (the WTM Account ). Cary Street maintains a single account for deposits and disbursements (the Cary Street Account ; together 4

5 with the Chesapeake Accounts, the US Operating Subsidiaries Accounts and the WTM Account, the Debtors Accounts ) The Debtors Accounts are each maintained at Bank of America ( BofA ), except for the Cary Street Account, which is maintained at Wilmington Trust Company ( Wilmington Trust ). BofA has been designated as an authorized depository by the Office of the United States Trustee for the Eastern District of Virginia (the U.S. Trustee ) pursuant to the U.S. Trustee Chapter 11 Guidelines for the Eastern District of Virginia (the U.S. Trustee Guidelines ). 3 C. Flow of Funds in the Cash Management System 14. The transfer of funds through the Cash Management System is illustrated in the flowchart attached hereto as Exhibit B (the Flowchart ) and is described below: a. Concentration Account. Chesapeake s concentration account (the Concentration Account ) receives funds from third parties, including from the Debtors prepetition secured lenders, other Debtors and the Foreign Subsidiaries. The Concentration Account disburses funds to (i) Chesapeake s payroll account; (ii) Chesapeake s account payable account; (iii) the US Operating Subsidiaries accounts payable accounts; (iv) the WTM Account and the Cary Street Account; (v) the Foreign Subsidiaries accounts; and (vi) third parties. b. Chesapeake s Payroll Account. Chesapeake s payroll account (the Payroll Account ) receives funds from the Concentration Account and disburses funds in satisfaction of Chesapeake s payroll as well as the payroll of the US Operating Subsidiaries. At any given time, the Payroll 2 3 The Debtors do not utilize any investment accounts. All funds remain within the concentration and disbursement bank accounts. As such, section 345 of the Bankruptcy Code is not implicated by this Motion. Generally, only one of the Debtors Accounts, the Concentration Account, contains a balance in excess of $100,000, though the other Debtors Accounts may contain deposits in excess of $100,000 for limited periods of time to cover outstanding checks. 5

6 Account carries a relatively small balance to cover outstanding payroll checks. c. Chesapeake s Accounts Payable Account. Chesapeake s accounts payable account ( Chesapeake s A/P Account ) receives funds from the Concentration Account and disburses funds to third parties to satisfy obligations of the Debtors and sometimes to satisfy obligations of the Foreign Subsidiaries as part of the Cash Management System. At any given time, Chesapeake s A/P Account carries a relatively small balance to cover outstanding checks. d. US Operating Subsidiaries Depository Accounts. The US Operating Subsidiaries each maintain a zero balance lockbox depository account (the Lockbox Accounts ). The Lockbox Accounts receive funds from third parties, which funds are sent on a daily basis to the Concentration Account. Because an automatic sweep functionality is not in place on these Lockbox Accounts, Chesapeake assesses cash receipts on a daily basis and manually sweeps these funds to the Concentration Account. e. US Operating Subsidiaries Accounts Payable Accounts. The US Operating Subsidiaries each maintain an accounts payable account (the Other A/P Accounts ). The Other A/P Accounts receive funds from the Concentration Account and disburse funds to third parties to satisfy obligations of the respective US Operating Subsidiaries. At any given time, the Other A/P Accounts carry a relatively small balance to cover outstanding checks. f. WTM Account. WTM maintains a single bank account. The WTM Account receives funds from the Concentration Account and from various third-party obligors and disburses those funds to various other third parties to satisfy obligations of the WTM including a limited amount of payroll for certain employees of the WTM administering those third-party obligations. The WTM Account generally only contains a relatively small balance of less than $50,000. g. Cary Street Account. Cary Street maintains a single bank account. The Cary Street Account receives a small amount of funds from the Concentration Account and disburses those funds to satisfy the limited obligations of Cary Street including a limited amount of payroll for the sole part-time employee of Cary Street administering those obligations. The Cary Street account generally carries a relatively small balance of less than $30,000. h. Foreign Subsidiaries Accounts. The Foreign Subsidiaries maintain numerous accounts and generally manage their cash through their own 6

7 cash management systems, including the payment of payroll obligations for employees of the Foreign Subsidiaries. The Cash Management System, however, facilitates the transfer of funds between the Foreign Subsidiaries and Chesapeake and allows Chesapeake and the Foreign Subsidiaries, among other things, to determine the amounts owed between Chesapeake and the Foreign Subsidiaries on a daily basis. D. Benefits of the Existing Cash Management System 15. The Debtors Cash Management System is similar to those commonly employed by corporate enterprises comparable to the Debtors and the Foreign Subsidiaries in economic scope and geographic reach. Indeed, large, multiple-entity businesses use such systems because of the numerous benefits provided, including the ability to: (a) quickly create status reports on the location and amount of funds, allowing management to track and control corporate funds, (b) ensure cash availability and (c) reduce administrative expenses by facilitating the movement of funds. 16. In addition to the overall benefits discussed above, the Debtors Cash Management System allows them to (a) mitigate risk by limiting the number of individuals with access to liquid assets, (b) ensure a more consistent application of their requirements under the Sarbanes-Oxley Act of 2002, and (c) efficiently use available cash to minimize corporate borrowing. 17. The Debtors Cash Management System and the controls implemented thereunder are particularly important because between approximately $13,000,000 and $70,000,000 flows through the Cash Management System on a monthly basis, depending on the month. E. The Debtors Existing Business Forms and Checks 18. In the ordinary course of business, the Debtors use a multitude of checks and other business forms. To minimize expenses to the Debtors estates, the Debtors believe it is 7

8 appropriate to continue to use all correspondence and business forms (including, but not limited to, letterhead, purchase orders and invoices) as such forms were in existence immediately before the Petition Date without reference to the Debtors status as debtors-in-possession rather than requiring the Debtors to incur the expense and delay of ordering entirely new business forms. The Debtors also believe it will minimize expense to the Debtors estates if they are permitted to use their existing check stock. 19. By virtue of the nature and scope of the Debtors business operations and the customers and vendors with whom the Debtors deal on a regular basis, it is important that the Debtors be permitted to continue to use their existing checks and other business forms without alteration or change, except as requested herein. F. The Intercompany Claims 20. In the ordinary course of business, the Debtors and the Foreign Subsidiaries maintain business relationships with each other, resulting in the Intercompany Claims as discussed above. Indeed, in connection with the daily operation of the Cash Management System, funds are disbursed throughout the Cash Management System and at any given time there may be Intercompany Claims owing among the Debtors or between the Debtors and the Foreign Subsidiaries. The transactions that give rise to Intercompany Claims are made among the Debtors or between the Debtors and the Foreign Subsidiaries in the ordinary course of their business (the Intercompany Transactions ). 4 The Debtors maintain records of all fund transfers 4 Because the Debtors engage in Intercompany Transactions on a regular basis and such transactions are common among enterprises similar to the Debtors, the Debtors believe the Intercompany Transactions are ordinary course transactions within the meaning of section 363(c)(1) of the Bankruptcy Code and, thus, do not require the Court s approval. Nonetheless, out of an abundance of caution, the Debtors seek express authority to engage in such transactions on a postpetition basis. The continued performance of the ordinary 8

9 and can ascertain, trace and account for Intercompany Transactions. At the same time, though, if the Intercompany Transactions were to be discontinued, the Cash Management System and related administrative controls would be disrupted to the Debtors substantial detriment. 21. All of the Intercompany Transactions will be accounted for in the respective intercompany accounts of the respective entities as facilitated by the Cash Management System. The Debtors will continue to maintain records related to the Intercompany Transactions so that transactions can be ascertained, traced and accounted for properly on applicable intercompany accounts. 22. The Debtors believe that continued performance under the Intercompany Transactions is not only important to maximizing the return to the Debtors stakeholders, but is necessary to ensure the Debtors ability to operate their businesses as debtors-in-possession. If the Debtors are required to discontinue the Intercompany Transactions, the significant burdens the Debtors would incur would divert the Debtors attention and efforts from ensuring a smooth transition into the chapter 11 process and, ultimately, working towards maximizing the return to the Debtors stakeholders. 23. Finally, to ensure the Debtors will not, at the expense of their creditors, fund the operations of an affiliated entity, the Debtors respectfully request that, pursuant to sections 503(b)(1) and 364(b) of the Bankruptcy Code, all Intercompany Claims against a Debtor by another Debtor or a Foreign Subsidiary, arising after the Petition Date as a result of ordinary course Intercompany Claims, be accorded administrative expense priority. If Intercompany course Intercompany Transactions is integral to ensure the Debtors ability to operate their businesses as debtors-in-possession. 9

10 Claims are accorded administrative expense priority, each entity utilizing funds flowing through the Cash Management System should continue to bear ultimate repayment responsibility for such ordinary course transactions. III. Relief Requested 24. By this Motion, the Debtors respectfully request authority to: (a) continue to use, with the same account numbers, the Debtors Accounts, (b) use, in their present form, all correspondence and business forms (including, but not limited to, letterhead, purchase orders and invoices), as well as checks and other documents related to the Debtors Accounts existing immediately before the Petition Date, without reference to their status as debtors-in-possession, and (c) treat the Debtors Accounts for all purposes as accounts of the Debtors as debtors-inpossession. The Debtors further request that all Intercompany Claims arising after the Petition Date be accorded administrative expense priority. Finally, the Debtors request authority to continue entering into, and performing under and honoring their obligations and commitments under, the Intercompany Transactions. IV. Basis for Relief A. The Continued Use of the Debtors Cash Management System and Existing Bank Accounts Is Essential to the Debtors Ongoing Operations and Restructuring Efforts 25. The U.S. Trustee Guidelines provide that chapter 11 debtors must: (a) close all existing bank accounts and open new debtor-in-possession bank accounts; (b) establish a single debtor-in-possession account for all estate monies required for the payment of taxes, including payroll taxes; (c) maintain a separate debtor-in-possession account for cash collateral; and (d) acquire new checks for all debtor-in-possession accounts which bear the designation Debtor-In- Possession, the bankruptcy case number, and the type of account. For the reasons set forth 10

11 herein, the Debtors submit that it is appropriate for the Court to grant the relief requested by this Motion. 26. The requirement to close all prepetition bank accounts and open new debtor-inpossession bank accounts is designed to provide a clear line of demarcation between prepetition and postpetition claims and payments and to help protect against the Debtors inadvertent payment of prepetition claims. In addition, the U.S. Trustee may require a debtor-in-possession to maintain separate accounts for general expenses, payroll and tax escrows. 27. In a complex chapter 11 cases such as these, however, courts in this district and other jurisdictions often waive requirements of this type, recognizing they are often impractical and potentially detrimental to debtors postpetition business operations and restructuring efforts in a manner that is out of proportion to the benefit, if any, the requirements provide to the debtors estates or parties in interest. See, e.g., In re Circuit City Stores, Inc., Case No KRH (Bankr. E.D. Va. Nov. 10, 2008); In re Movie Gallery, Inc., Case No DOT (Bankr. E.D. Va. Oct. 17, 2007); In re The Rowe Cos., Case No SSM (Bankr. E.D. Va. Sept. 20, 2006); In re US Airways, Inc., Case No SSM (Bankr. E.D. Va. Sept. 14, 2004); In re NTELOS, Inc., Case No DOT (Bankr. E.D. Va. Mar. 4, 2003); In re AMF Bowling Worldwide, Inc., Case No DHA (Bankr. E.D. Va. July 3, 2001); In re Fas Mart Convenience Stores, Inc., Case No DOT (Bankr. E.D. Va. Mar. 9, 2001); In re Heilig-Meyers Co., Case No DOT (Bankr. E.D. Va. Sept. 27, 2000). 28. An integrated cash management system allows efficient utilization of cash resources and recognizes the impracticalities of maintaining separate cash accounts for the many different purposes that require cash. In re Columbia Gas Sys., Inc., 136 B.R. 930, 934 (Bankr. 11

12 D. Del. 1992), aff d in part and rev d in part, 997 F.2d 1039 (3d Cir. 1993), cert. denied sub nom. Official Comm. of Unsecured Creditors v. Columbia Gas Transmission Corp., 510 U.S (1994); see also In re US Airways, Inc., Case No SSM (Bankr. E.D. Va. Sept. 14, 2004); In re NTELOS, Inc., Case No DOT (Bankr. E.D. Va. Mar. 4, 2003). The requirement to maintain all accounts separately would be a huge administrative burden and economically inefficient. Columbia Gas, 997 F.2d at 1061; see also In re Southmark Corp., 49 F.3d 1111, 1114 (5th Cir. 1995) (cash management system allows debtor to administer more efficiently and effectively its financial operations and assets ). 29. Consistent with the foregoing authority, the Debtors seek authority to continue to use their integrated Cash Management System, including the continued use of the existing Debtors Accounts, with the same names and account numbers as existed immediately prior to the chapter 11 cases. 5 The Debtors also seek authority to deposit funds in and withdraw funds from the Debtors Accounts by all usual means, including, but not limited to, checks, wire transfers, electronic funds transfers and other debits and to otherwise treat the prepetition Debtors Accounts (and any accounts opened postpetition) for all purposes as debtors-in-possession accounts. The Debtors also request that the Court waive any requirement to establish separate accounts for general expenses, payroll and tax escrows. B. Opening New Accounts Will Cause Substantial Disruption to the Debtors Business 30. The requested relief is appropriate because, given the substantial economical scale of the Debtors business operations, the preservation and enhancement of the Debtors value as 5 The Debtors, however, reserve their rights to close the prepetition Debtors Accounts and open new accounts as may be necessary in the Debtors business discretion and in the ordinary course and consistent with any postpetition debtor-in-possession financing arrangement approved by the Court. 12

13 going concern entities simply cannot be achieved if the Debtors cash management procedures are substantially disrupted and the Debtors Accounts closed. 31. If the Debtors were required to open separate accounts as debtors-in-possession and rearrange their Cash Management System, it would necessitate opening numerous new accounts for collections, cash concentration and disbursements, instituting new procedures regarding the flow of funds with their bank accounts and the bank accounts of the Non-Debtor Subsidiaries, and instituting new Sarbanes-Oxley control procedures. The Debtors treasury, accounting and bookkeeping employees would be forced to focus substantial efforts on opening new accounts and instituting new procedures for the flow of funds with the Debtors Accounts and the bank accounts of the Non-Debtor Subsidiaries, instead of on their daily responsibilities during this critical juncture. The opening of new accounts and instituting new procedures regarding the Debtors Accounts and the bank accounts of the Non-Subsidiaries would certainly increase operating costs, thereby negatively impacting the Debtors cash flow. Most importantly, delays that would result from opening new accounts and revising cash management procedures would negatively impact the Debtors ability to operate their businesses while pursuing these arrangements. 32. Moreover, as discussed above, the payroll function of Chesapeake and the US Operating Subsidiaries is centrally managed by Chesapeake s corporate personnel and processed through Chesapeake s Payroll Account. Should the Debtors be required to close the Payroll Account and open separate payroll accounts, there is a risk that payroll processing would be interrupted. The Debtors believe that even a temporary interruption in payroll may result in their employees seeking alternative employment. The loss of valuable employees and the costs 13

14 associated with replacing those employees would be costly and would distract the Debtors from their efforts in these chapter 11 cases Additionally, the Debtors would be subject to significant administrative burdens and expenses because they would need to execute new signatory cards and depository agreements and create an entirely new manual system for issuing checks and paying postpetition obligations, all as generally would be required by the U.S. Trustee Guidelines. See U.S. Trustee Guidelines, at 4 5. C. Maintaining the Existing Cash Management System Facilitates a Smooth Transition into Chapter 11 and Does Not Harm Parties in Interest 34. By contrast, maintaining the Debtors Accounts and the Cash Management System would greatly facilitate the Debtors transition in connection with operating under chapter 11 by, among other things, avoiding administrative inefficiencies and expenses and minimizing delays in paying debts incurred postpetition. Thus, the Debtors believe it would be extremely beneficial to continue to maintain the existing Debtors Accounts and, if necessary, to open new accounts and close existing accounts in the ordinary course of business operations. 35. Importantly, parties in interest would not be harmed by the Debtors maintenance of the existing Cash Management System, including the Debtors Accounts, because the Debtors have implemented appropriate mechanisms to ensure that payments will not be made on any debts incurred before the Petition Date, other than those authorized by the Court, and to eliminate the risk of other errors or misunderstandings. Specifically, the Debtors have 6 Contemporaneously herewith, the Debtors have filed a motion for the authority to continue to pay their employees prepetition wages, salaries and benefits and honor their benefits programs (the Wage Motion ). The Debtors believe that the relief requested herein is directly related to and consistent with the relief requested in the Wage Motion. 14

15 implemented procedures that prohibit prepetition payments to be issued without prior approval of the Chesapeake s treasury department. In turn, Chesapeake s senior treasury personnel (led by Alvarez & Marsal, whom the Debtors have sought to continue to employ as financial advisors pursuant to a motion filed contemporaneously herewith) are aware of, and will comply with, the Bankruptcy Code and the U.S. Trustee Guidelines except as modified by order of the Court. Further, the Debtors personnel will consult with the Debtors advisors and bankruptcy counsel as appropriate in connection with payment approvals. Finally, each of the Debtors Accounts are at BofA, which is an approved bank under the U.S. Trustee Guidelines, except for the Cary Street Account, but the Cary Street Account generally has a balance of less than $30,000, which is well under the FDIC limit. 36. Under these circumstances, the Debtors believe that maintaining their Cash Management System is in the best interest of their estates and creditors. Indeed, the Debtors believe preserving the business as usual atmosphere and avoiding the unnecessary distractions that would inevitably be associated with any substantial disruption in the Cash Management System will facilitate the Debtors overall efforts to maximize value for their stakeholders. 37. The Debtors further request that the Court authorize and direct BofA, Wilmington Trust and any other banks at which the Debtors may open new accounts (collectively, the Banks ) to continue to maintain, service and administer such accounts, except that such Banks shall not be authorized to honor any check issued or dated prior to the Petition Date absent an order of the Court. 7 To ensure that prepetition checks are not honored except as provided herein 7 Contemporaneously herewith, the Debtors are filing motions requesting authority to pay, in the ordinary course of business, certain prepetition obligations to their employees and to honor certain other prepetition obligations. 15

16 or pursuant to further order of the Court, the Debtors have or will serve a copy of this Motion with exhibits and any order entered approving the relief requested herein on the Banks that make disbursements under the Debtors Cash Management System as soon as practicable. The Debtors also have or will serve upon such Banks a copy of any pleadings filed by the Debtors on the Petition Date seeking to honor prepetition obligations. D. The Debtors Should Be Granted Authority to Use Existing Checks and Business Forms 38. As described herein, in the ordinary course of business, the Debtors use a multitude of checks and other business forms. To minimize expenses to their estates, the Debtors request authority to continue to use all correspondence and business forms (including, but not limited to, letterhead, purchase orders and invoices) as such forms were in existence immediately prior to the Petition Date. The Debtors also request authorization to use their existing check stock without the debtors-in-possession label. The use of new business forms would greatly increase the Debtors costs. Furthermore, the economical scale of the Debtors businesses would require a substantial amount of resources to implement new business forms. 39. Lastly, because parties doing business with the Debtors undoubtedly will be aware of the Debtors status as a debtors-in-possession (as a result of the size and publicized nature of these chapter 11 cases), changing business forms is unnecessary and unduly burdensome. In addition, all known creditor parties will be sent notices of the commencement of these cases. 40. In large chapter 11 cases in this district and other jurisdictions, courts have granted similar relief to debtors. See, e.g., In re Circuit City Stores, Inc., Case No KRH (Bankr. E.D. Va. Nov. 10, 2008); In re Movie Gallery, Inc., Case No DOT 16

17 (Bankr. E.D. Va. Oct. 17, 2007); In re The Rowe Cos., Case No SSM (Bankr. E.D. Va. Sept. 20, 2006); In re US Airways, Inc., Case No SSM (Bankr. E.D. Va. Sept. 14, 2004); In re NTELOS, Inc., Case No DOT (Bankr. E.D. Va. Mar. 4, 2003); In re AMF Bowling Worldwide, Inc., Case No DHA (Bankr. E.D. Va. July 3, 2001); In re Fas Mart Convenience Stores, Inc., Case No DOT (Bankr. E.D. Va. Mar. 9, 2001). E. The Debtors Should Be Allowed to Continue the Intercompany Transactions and Intercompany Claims Should Be Afforded Administrative Expense Priority 41. As described herein, under the Cash Management System, funds generated by the business operations of the Debtors generally flow into various centrally-maintained bank accounts. In addition, certain funds in connection with transfers between Chesapeake and the Foreign Subsidiaries also flow through the US Accounts. Each of these transfers is made as part of the Cash Management System. As set forth above, the Intercompany Transactions include, without limitation, (i) intercompany loans which result in the accrual and transfer of principal and interest with interest calculated at the end of each month; (ii) dividends and capital contributions made prior to the Petition Date; (iii) management fees owed by certain of the Debtors and Non-Debtor Subsidiaries to Chesapeake; and (iv) trade receivables and payables that arise in part from the Cash Management System s lockbox account clearing of the US Operating Subsidiaries accounts and transfers to the US Operating Subsidiaries account payable accounts. If the Intercompany Transactions were discontinued, the Debtors would be substantially harmed. Accordingly, the Debtors respectfully submit that the continuation of the Intercompany Transactions is in the best interest of the Debtors estates and creditors and, therefore, the Debtors should be permitted to continue entering into, and performing their obligations under, the Intercompany Transactions. Thus, while the Debtors do not seek to assume any 17

18 Intercompany Transactions, to the extent such Intercompany Transactions constitute executory contracts, the Debtors respectfully request authority to continue entering into and performing under the Intercompany Transactions without the need for further Court order. 42. In particular, although the Foreign Subsidiaries generally maintain their own cash management system, as referenced in the proposed debtor-in-possession financing agreement (the DIP Financing ) (attached as Exhibit B to the Motion of the Debtors for Interim and Final Orders Pursuant to 11 U.S.C. 105, 361, 362, 363 and 364 and Federal Rules of Bankruptcy Procedure 2002, 4001 and 9014 (I) Authorizing the Debtors (A) To Obtain Postpetition Secured Financing and (B) To Use Cash Collateral; (II) Granting Adequate Protection; (III) Scheduling a Final Hearing; and (IV) Granting Related Relief), the Debtors will guarantee the borrowings under the DIP Financing and anticipate using proceeds of the DIP Financing, though certain Foreign Subsidiaries will borrow the funds under the DIP Financing. Funds drawn from the DIP Financing and forwarded to the Debtors will need to be funneled through the Cash Management System. Accordingly, although the Debtors only request relief related to the Cash Management System, the Debtors request relief in scope sufficient to include transactions between the Cash Management System and the cash management systems of the Foreign Subsidiaries that relate to the DIP Financing or Intercompany Transactions. 43. At any given time, there are Intercompany Claims among the Debtors and between the Debtors and the Foreign Subsidiaries. The Intercompany Claims represent, among other things, extensions of intercompany credit made in the ordinary course of business that are an essential component of the Cash Management System and the operations of the Debtors and the Foreign Subsidiaries. The Debtors maintain records of these transfers, and of all other 18

19 Intercompany Claims, and can ascertain, trace and account for all Intercompany Claims. The Debtors, moreover, will continue to maintain such records, including records of all current Intercompany Claims. 44. Finally, to ensure that the Debtors will not, at the expense of their creditors, fund the operations of another entity, the Debtors respectfully request that, pursuant to sections 503(b)(1) and 364(b) of the Bankruptcy Code, all Intercompany Claims be accorded administrative expense priority. If Intercompany Claims are accorded administrative expense priority, each entity utilizing funds flowing through the Cash Management System should continue to bear ultimate repayment responsibility for such ordinary course transactions. 45. Administrative expense priority for Intercompany Claims and authority to continue to enter into and perform obligations under Intercompany Transactions, as requested herein, has been granted in other comparable chapter 11 cases in this district and in other jurisdictions. See, e.g., In re Circuit City Stores, Inc., Case No KRH (Bankr. E.D. Va. Nov. 10, 2008); In re Movie Gallery, Inc., Case No DOT (Bankr. E.D. Va. Oct. 17, 2007). V. Waiver of Memorandum of Points and Authorities 46. The Debtors respectfully request that this Court treat this Motion as a written memorandum of points and authorities or waive any requirement that this Motion be accompanied by a written memorandum of points and authorities as described in Rule (G) of the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the Eastern District of Virginia. 19

20 VI. Notice 47. The Debtors have provided notice of this Motion to: (a) the U.S. Trustee; (b) the Debtors fifty largest unsecured creditors; (c) counsel to the agent for the Debtors prepetition, and proposed postpetition, secured lenders; (d) counsel to the Ad Hoc Committee of Subordinated Noteholders; and (e) BofA and Wilmington Trust. No later than two business days after entry of the order granting the relief requested in this Motion, the Debtors shall serve a copy of this Motion and such order on the Banks. In light of the nature of the relief requested, the Debtors respectfully submit that no further notice is necessary. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 20

21 WHEREFORE, the Debtors respectfully request that the Court (a) enter an order, substantially in the form attached hereto as Exhibit A, granting the relief requested herein, and (b) grant such other and further relief as the Court may deem proper. Dated: Richmond, Virginia December 29, 2008 HUNTON & WILLIAMS LLP /s/ Jason W. Harbour Benjamin C. Ackerly (VSB No ) Jason W. Harbour (VSB No ) Riverfront Plaza, East Tower 951 East Byrd Street Richmond, Virginia Telephone: (804) Telecopier: (804) and Peter S. Partee (VSB No ) 200 Park Avenue, 53 rd Floor New York, New York Telephone: (212) Telecopier: (212) Proposed Attorneys for Debtors and Debtors-in-Possession 21

22 EXHIBIT A 1

23 IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION In re: CHESAPEAKE CORPORATION, et al., Debtors. 1 ) ) ) ) ) ) ) Case No. 08- Chapter 11 ORDER (A) AUTHORIZING THE DEBTORS TO CONTINUE USING THEIR EXISTING CASH MANAGEMENT SYSTEM, BANK ACCOUNTS AND BUSINESS FORMS, (B) GRANTING POSTPETITION INTERCOMPANY CLAIMS ADMINISTRATIVE EXPENSE PRIORITY AND (C) AUTHORIZING THE DEBTORS TO CONTINUE INTERCOMPANY TRANSACTIONS AND HISTORICAL PRACTICES Upon the motion (the Motion ) 2 of the above-captioned debtors and debtors-inpossession (collectively, the Debtors ) for entry of an order (the Order ): (a) authorizing the Debtors to continue using their existing cash management system, bank accounts and business forms, (b) granting postpetition Intercompany Claims administrative expense priority and (c) 1 2 The Debtors and the last four digits of their respective taxpayer identification numbers are as follows: Chesapeake Corporation (6880), Chesapeake Printing and Packaging Company (9208), Chesapeake Pharmaceutical Packaging Company, Inc. (0010), Chesapeake International Holding Company (1532), WTM I Company (1080), Sheffield, Inc. (6314), Chesapeake Assets Company (5293), Chesapeake Recycling Company (9383), Chesapeake Display and Packaging Company (4207), The Chesapeake Corporation of Virginia (6783), Chesapeake Corporation (Wisconsin) (7682), Chesapeake Corporation (Massachusetts) (7686), Chesapeake Corporation (D.C.) (7684), Chesapeake Corporation (Illinois) (7685), Chesapeake Corporation (Louisiana) (7681), Chesapeake Forest Products Company, LLC (6880), Cary St. Company (9092), Delmarva Properties, Inc. (7160), and Stonehouse Inc. (2481). Capitalized terms used but not otherwise defined herein shall have the meanings set forth in the Motion. Benjamin C. Ackerly (VSB No ) Jason W. Harbour (VSB No ) HUNTON &WILLIAMS LLP Riverfront Plaza, East Tower 951 East Byrd Street Richmond, Virginia Telephone: (804) Telecopier: (804) Peter S. Partee (VSB No ) HUNTON &WILLIAMS LLP 200 Park Avenue, 53 rd Floor New York, New York Telephone: (212) Telecopier: (212) Proposed Attorneys for Debtors and Debtors-in-Possession

24 authorizing the Debtors to continue Intercompany Transactions and historical practices; the Court finds that: (i) it has jurisdiction to consider the Motion and the relief requested therein pursuant to 28 U.S.C. 157 and 1334; (ii) this is a core proceeding pursuant to 28 U.S.C. 157(b); (iii) venue is proper before this court pursuant to 28 U.S.C and 1409; (iv) the relief requested in the Motion is in the best interests of the Debtors, their estates and creditors; (v) proper and adequate notice of the Motion and the hearing thereon has been given and no other or further notice is necessary; and (vi) upon the record herein, and after due deliberation thereon, good and sufficient cause exists for the granting of the relief as set forth herein. Therefore, IT IS HEREBY ORDERED THAT: 1. The Motion is GRANTED. 2. The Debtors are authorized to continue using their integrated cash management system as described in the Motion (the Cash Management System ). 3. The Debtors are authorized to: (a) continue to use, with the same account numbers, the Debtors Accounts; (b) use, in their present form, all correspondence and business forms (including, but not limited to, letterhead, purchase orders and invoices), as well as checks and other documents related to the Debtors Accounts existing immediately before the Petition Date, without reference to their status as debtors-in-possession; and (c) treat the Debtors Accounts for all purposes as accounts of the Debtors as debtors-in-possession. 4. The Debtors are authorized to open any new bank accounts or close any existing bank accounts as they may deem necessary and appropriate in their sole discretion. 2

25 5. Except as otherwise expressly provided in this Order, all banks at which the Debtors Accounts are maintained or at which the Debtors may open additional accounts (collectively, the Banks ) are authorized and directed to continue to service and administer such accounts (collectively, the Accounts ) as accounts of the Debtors as debtors-in-possession, without interruption and in the ordinary course, and to receive, process, honor and pay any and all checks, drafts, wires and automated clearing house transfers issued and drawn on the Accounts after the Petition Date by the holders or makers thereof, as the case may be. 6. All Intercompany Claims against a Debtor by a Debtor or a Foreign Subsidiary arising after the Petition Date shall be accorded administrative expense priority in accordance with sections 503(b) and 507(a)(2) of the Bankruptcy Code. 7. The Debtors are authorized, but not required, to continue performing under and honoring their obligations and commitments under, and to enter into new, Intercompany Transactions in the ordinary course of the businesses of the Debtors and the Foreign Subsidiaries. 8. The Debtors are authorized to direct the Banks and the Banks are authorized and directed to pay obligations in accordance with this or any separate order of this Court. 9. Except as otherwise provided in this Order or in a separate order of this Court, all Banks provided with notice of this Order maintaining any of the Bank Accounts shall not honor or pay any bank payments drawn on the listed Bank Accounts or otherwise issued prior to the Petition Date. 10. Those certain existing deposit agreements between the Debtors and the Banks shall continue to govern the postpetition cash management relationship between the Debtors and 3

26 the Banks, and all of the provisions of such agreements, including, without limitation, the termination and fee provisions, shall remain in full force and effect. 11. The Debtors and the Banks may, without further Order of this Court, agree to and implement changes to the Cash Management System and procedures in the ordinary course of business, including, without limitation, the opening and closing of bank accounts. 12. In the course of providing cash management services to the Debtors, each of the Banks is authorized, without further Order of this Court, to deduct from the appropriate accounts of the Debtors its customary fees and expenses associated with the nature of the deposit and cash management services rendered to the Debtors, whether arising prepetition or postpetition, and further, to charge back to the appropriate accounts of the Debtors any amounts resulting from returned checks or other returned items, including, without limitation, returned items that result from automated clearing house transactions, wire transfers or other electronic transfers of any kind, regardless of whether such items were deposited prepetition or postpetition and regardless of whether the returned items relate to prepetition or postpetition items or transfers. 13. The Debtors shall at all times maintain sufficient balances in accounts at each of the Banks so as to secure the obligations to the Banks for cash management and related services to the Debtors. 14. Should any of the Banks honor a prepetition check, automated clearing house debit, wire transfer or other item drawn on any account that is the subject of this Order: (a) at the direction of the Debtors to honor such prepetition check or item, (b) in a good faith belief that the Court has authorized such prepetition check or item to be honored or (c) as the result of an innocent mistake made despite implementation of customary item handling procedures, it shall 4

27 not be deemed to be nor shall be liable to the Debtors or their estates or otherwise in violation of this Order. 15. Nothing contained herein shall prevent any of the Banks from terminating any cash management services not less than sixty (60) days prior written notice to the Debtors and upon terms reasonably satisfactory to the Banks. 16. As soon as practicable after the entry of this Order, the Debtor shall serve a copy of this Order on those Banks that make disbursements pursuant to the Debtors Cash Management System. 17. The Debtors are authorized to take all actions necessary to effectuate the relief granted pursuant to this Order in accordance with the Motion. 18. The terms and conditions of this Order shall be immediately effective and enforceable upon its entry. 19. The Court retains jurisdiction with respect to all matters arising from or related to the implementation of this Order. Dated: Richmond, Virginia, 2008 United States Bankruptcy Judge 5

28 Chesapeake Corporation Concentration Account Acct No EXHIBIT 1 ACH ABA Atlanta Plaza Building Wire ABA Peachtree ST NE Routing Number Atlanta, GA Chesapeake Corporation Accounts Payable Account Acct No ACH ABA Atlanta Plaza Building Wire ABA Peachtree ST NE Routing Number Atlanta, GA Chesapeake Corporation Payroll Account Acct No ACH ABA Atlanta Plaza Building Wire ABA Peachtree ST NE Routing Number Atlanta, GA Chesapeake Printing & Packaging Company Accounts Payable Account Acct No ACH ABA Atlanta Plaza Building Wire ABA Peachtree ST NE Routing Number Atlanta, GA Chesapeake Printing & Packaging Company Depository Account Acct No Account Address Lockbox Address ACH ABA Bank of America Plaza P.O. Box Wire ABA Main Street Atlanta, GA Routing Number Dallas, TX Chesapeake Pharmaceutical Packaging Company Inc Accounts Payable Account Acct No ACH ABA Atlanta Plaza Building Wire ABA Peachtree ST NE Routing Number Atlanta, GA

29 Chesapeake Pharmaceutical Packaging Company Inc Depository Account Acct No ACH ABA Account Address Lockbox Address Wire ABA Bank of America Plaza P.O. Box Routing Number Main Street Atlanta, GA Dallas, TX WTM I Account Acct No ACH ABA Bank of America Plaza Wire ABA Main Street Routing Number 94-72/1224 Dallas, TX Cary Street Company Account Acct No ACH ABA Wilmington Trust Co. Wire ABA N/A 1100 North Market St. Routing Number Wilmington, DE

30 Foreign Customers Foreign Subsidiaries' Employees Foreign Creditors Printing & Packaging's Customers Pharma. Packaging's Customers Pre-Petition Secured Lenders Various Foreign Subsidiaries' Accounts Chesapeake Printing & Packaging Lockbox Account (Acct. # ) Chesapeake Pharmaceutical Packaging Lockbox Account (Acct. # ) Concentration Account (Acct. # ) Third-Party Obligors Chesapeake Corporation Payroll Account (Acct. # ) Chesapeake Printing & Packaging A/P Account (Acct. # ) Chesapeake Corporation Accounts Payable Account (Acct. # ) Chesapeake Pharmaceutical Packaging A/P Account (Acct. # ) Cary Street Account (Acct. # ) WTM I Account (Acct. # ) Chesapeake's Employees Printing & Packaging's Creditors Chesapeake's Creditors Pharma. Packaging's Creditors Cary St. Creditors WTM Creditors US Operating Subsidiaries' Employees Cary St. Employee WTM Employees

31 PRIORITY HANDLING COVER SHEET Proponent shall include this cover sheet along with any paper filed within 72 hours prior to a hearing or trial in which the paper is to be considered by the Court pursuant to Local Rule (D)(7), or with any motion requesting an expedited hearing pursuant to Local Rule (N). In ECF cases, proponent shall also notify the Court telephonically upon filing this document. Hearing Date: Time: Judge: Attorney: for: December 30, :00 a.m. The Honorable Frank J. Santoro Benjamin C. Ackerly Chesapeake Corporation, et al. ver. N-07/02]