Case Doc 6 Filed 05/04/14 Page 1 of 21 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

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1 Case Doc 6 Filed 05/04/14 Page 1 of 21 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: ) ) Chapter 11 GSE ENVIRONMENTAL, INC., et al., ) ) Case No Debtors. ) ) (Joint Administration Requested) DEBTORS MOTION FOR ENTRY OF AN ORDER (I) AUTHORIZING THE DEBTORS TO (A) PAY PREPETITION CLAIMS OF SHIPPERS AND OTHER LIEN CLAIMANTS, (B) PAY SECTION 503(B)(9) CLAIMS, AND (C) GRANT ADMINISTRATIVE EXPENSE PRIORITY TO ALL UNDISPUTED OBLIGATIONS FOR GOODS AND RAW MATERIALS ORDERED PREPETITION AND DELIVERED POSTPETITION AND SATISFY SUCH OBLIGATIONS IN THE ORDINARY COURSE OF BUSINESS AND (II) GRANTING RELATED RELIEF The above-captioned debtors and debtors in possession (collectively, the "Debtors") file this motion (the "Motion") for entry of an order, substantially in the form attached hereto as Exhibit A, (I) authorizing the Debtors to (a) pay the Shipper Claims (as defined herein) in an amount not to exceed $1.5 million (the "Shipper Claims Cap") and Lien Claimants (as defined herein) in an amount not to exceed $1.8 million (the "Lien Claims Cap"), absent further order of the Court, (b) pay Section 503(b)(9) Claims (as defined herein) in an amount not to exceed $7 million (the "503(b)(9) Claims Cap") absent further order of the Court, and (c) grant administrative expense priority to all undisputed obligations for goods and raw materials ordered prepetition and delivered postpetition and satisfy such obligations in the ordinary course of The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, include: GSE Environmental, Inc. (1074); GSE Environmental, LLC (1539); GSE Holding, Inc. (9069); and SynTec, LLC (2133). The location of the Debtors service address is: Gundle Road, Houston, Texas DOCS_DE:

2 Case Doc 6 Filed 05/04/14 Page 2 of 21 business, and (II) granting related relief. In support of this Motion, the Debtors respectfully state as follows.2 Jurisdiction and Venue 1. The United States Bankruptcy Court for the District of Delaware (the "Court") has jurisdiction over this matter pursuant to 28 U.S.C. 157 and 1334 and the Amended Standing Order of Reference from the United States District Court for the District of Delaware, dated February 29, This matter is a core proceeding within the meaning of 28 U.S.C. 157(b)(2), and the Debtors confirm their consent pursuant to Rule (f) of the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the District of Delaware (the "Local Rules") to the entry of a final order by the Court in connection with this Motion to the extent that it is later determined that the Court, absent consent of the parties, cannot enter final orders or judgments in connection herewith consistent with Article III of the United States Constitution. 2. Venue is proper pursuant to 28 U.S.C and The statutory bases for the relief requested herein are sections 105(a), 363, 503(b), 1107(a), and 1108 of title 11 of the United States Code, 11 U.S.C (the "Bankruptcy Code"), and Rules 6003 and 6004 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"). Relief Requested 4. By this Motion, the Debtors seek entry of an order, substantially in the form attached hereto as Exhibit A: (I) authorizing the Debtors to (a) pay the Shipper Claims in an 2 The facts and circumstances supporting this Motion are set forth in the Declaration of Dean Swick in Support of First Day Motions (the "First Day Declaration"), filed contemporaneously herewith and incorporated by reference herein. DOCS_DE:

3 Case Doc 6 Filed 05/04/14 Page 3 of 21 amount not to exceed the Shipper Claims Cap and Lien Claimants in an amount not to exceed the Lien Claims Cap, absent further order of the Court, (b) pay Section 503(b)(9) Claims in an amount not to exceed the 503(b)(9) Claims Cap absent further order of the Court, and (c) grant administrative expense priority to all undisputed obligations for goods and raw materials ordered prepetition and delivered postpetition and satisfy such obligations in the ordinary course of business; and (II) granting related relief. Background 5. On the date hereof (the "Petition Date"), each of the Debtors filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code. The Debtors are operating their businesses and managing their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. Concurrently with the filing of this Motion, the Debtors filed a motion requesting procedural consolidation and joint administration of these chapter 11 cases pursuant to Bankruptcy Rule 1015(b). No request for the appointment of a trustee or examiner has been made in these chapter 11 cases, and no committees have been appointed or designated. Shippers and Lien Claimants 6. As discussed more fully in the First Day Declaration, the Debtors manufacture highly engineered geosynthetic lining products. Composed primarily of various types of resin-based materials, the Debtors lining products are used in a variety of environmental protection and confinement applications. The Debtors ability to produce and deliver these products in a timely manner is critically important to their financial performance and ultimately depends on the prompt receipt of certain raw materials, fuel, and parts used in the manufacturing process. Seamless interaction with various third-party service providers is also important to the Debtors uninterrupted operations. To that end, the Debtors require truckers, shippers, and other D005_DE:

4 Case Doc 6 Filed 05/04/14 Page 4 of 21 transportation service providers (collectively, the "Shippers") to ship, transport, and deliver raw materials and finished goods. In this process, the Debtors also rely on supplies and services from a number of third parties (collectively, the "Lien Claimants") who may hold or claim a variety of statutory, common law, or possessory liens thatif assertedcould materially impair the Debtors operations. These categories of claimants are discussed in turn. I. The Shippers 7. Generally, the Shippers transport and deliver raw materials, parts, and components to the Debtors, as well as deliver finished products from the Debtors to their customers. The Debtors rely heavily on raw materials, particularly resin. In the normal course of their operations, the Debtors will spend 75 to 80 percent of their total cost of goods sold on resin. All resin is delivered by rail to the Debtors facilities pursuant to contracts under which the supplier agrees to pay the freight bill. Other major materials used in the Debtors manufacturing process include clay, which is delivered by rail, and fabric, which is delivered by truck. Unlike with resin, the Debtors are invoiced for the shipping charges related to clay and fabric deliveries. Absent access to these materials, the Debtors simply could not manufacture their products or stay in business. 8. Once the Debtors have made their products, the finished goods are loaded onto flatbed trucks for delivery to North American customers and onto ocean-going vessels for delivery to customers worldwide. BNSF Logistics LLC handles substantially all of the Debtors ocean freight bookings while the Debtors use a variety of vendors to deliver goods over land. Likewise, the Debtors utilize the services of various logistics providers (the "Logistics Providers") which provide supply chain management solutions to the Debtors, including short-term warehousing, packaging, container handling, and freight forwarding. DOCS_DE:

5 Case Doc 6 Filed 05/04/14 Page 5 of 21 Certain Logistics Providers, for example, are hired by the Debtors to unpack various materials upon arrival at the Port of Houston and repackage them for distribution to the Debtors operations abroad. The Logistics Providers are included as Shippers because they come into possession of the Debtors property for short periods of time and may potentially assert liens against the Debtors on account of any unpaid bills. 9. In addition to their own manufacturing activities, the Debtors have contractual relationships with four "toll manufacturing" entities: Loose Plastics, Inc.; Tenax International BV; Bayland, Inc.; and PFI Molding, Inc.; (collectively, the "Toll Manufacturers"). Toll manufacturing is a process whereby companies such as the Debtors purchase raw materials to have them shipped directly to a toll manufacturer, which in turn, and for a price, will convert those raw materials into a finished product. That finished product is then shipped directly from the Toll Manufacturer to the final customer, who purchased the product from the original manufacturer. The Debtors organize and pay for all of the inbound and outbound shipping for each of their Toll Manufacturers. The Debtors ability to pay Shippers who are involved with transporting raw materials to, and finished products from, the Toll Manufacturers is critically important to Debtors business operations and ongoing relationships with the Toll Manufacturers. 10. Under certain states laws, a Shipper may have a lien on the goods in its possession, which secures the charges or expenses incurred in connection with the transportation or storage of the goods. 3 In addition, pursuant to section 363(e) of the Bankruptcy Code, the 3 For example, section of the Uniform Commercial Code provides, in pertinent part, that a "carrier has a lien on the goods covered by a bill of lading or on the proceeds thereof in its possession for charges after the date of the carrier s receipt of the goods for storage or transportation, including demurrage and terminal charges, and for expenses necessary for preservation of the goods incident to their transportation or reasonably incurred in their sale pursuant to law." U.C.C (a) (2003); Tex. Bus. & Com. Code Ann (West) (same). DOCS_DE:

6 Case Doc 6 Filed 05/04/14 Page 6 of 21 Shippers, as bailees, may be entitled to adequate protection for any valid possessory lien. The Debtors expect that, as of the Petition Date, certain Shippers may have outstanding invoices for goods delivered to the Debtors before the Petition Date or for goods currently in transit. The Debtors estimate that approximately $1.5 million on account of claims held by the Shippers (the "Shipper Claims") have accrued as of the Petition Date If the Debtors do not pay Shipper Claims on a timely basis, the Shippers may assert possessory liens on the goods or raw materials currently in their possession and refuse to deliver or release such goods until their invoices are paid. The Shippers may be unwilling to unilaterally part with goods or raw materials in their possession that are subject to liens without a cash payment as doing so may release alleged security for such Shippers prepetition claims. If Shippers simply refuse to deliver the Debtors goods and raw materials as a result of not being paid, it would severely disrupt the Debtors operations and potentially cost the Debtors a substantial amount of revenue and future business. Additionally, the Debtors do not operate under long-term contracts with any of their Shippers, and instead pay daily spot prices for their shipping needs. This practice allows the Debtors to take advantage of the best rates available to ship goods; however, it also means that the Shippers may not have a long-term interest in doing business with the Debtors and may therefore look to exercise their liens for short-term benefit. Accordingly, to maintain access to raw materials, goods, and equipment that are critical to the continued viability of the Debtors business operations, the Debtors seek authority to honor outstanding invoices related to prepetition services provided by the Shippers in an amount not to exceed the Shipper Claims Cap. The Debtors have provided the Office of the United States Trustee for the District of Delaware with a list of the Shippers, Lien Claimants, and 503(b)(9) Claimants and the amounts to be paid to each pursuant to this Motion. DOCS_DE:

7 Case Doc 6 Filed 05/04/14 Page 7 of 21 II. The Lien Claimants 12. As noted above, the Debtors routinely transact business with a number of third-party contractors and vendors who can assert liens against the Debtors and their property (such as equipment) if the Debtors fail to pay for the goods delivered or services rendered. These Lien Claimants perform a variety of services for the Debtors, ranging from repacking certain of the Debtors products upon arrival at the Port of Houston to installation and repair of critical workplace equipment and machinery. The Toll Manufacturers, who perform valuable manufacturing services for the Debtors, are also Lien Claimants because they can potentially assert various mechanics and warehouse liens against the Debtors on account of any unpaid bills. 13. While the Debtors maintain a highly skilled staff of engineers and mechanics in-house, occasionally, a particular piece of machinery will break down and require the expertise of a specialist. In these cases, the Debtors will either send out parts of machines to be repaired by third-party providers or bring in those third-party providers to repair the equipment onsite. In addition, the Debtors routinely engage certain third-party servicers with specialized knowledge of the Debtors operations to perform installation and repair of health and safety equipment, HVAC systems, and various other workplace repairs. An inability to acquire services from these servicemen and repairmen would render the Debtors unable to maintain their equipment or to deliver their products in violation of their contracts, and would result in severe delays or potential shutdowns of the Debtors entire business operations. For these reasons, replacing certain of these vendorsif even possiblecould take a substantial amount of time and could disrupt or halt production at the Debtors facilities. 14. Although the Debtors generally make timely payments to their vendors, as of the Petition Date, a substantial number of vendors may not have been paid for certain prepetition DOCSDE:

8 Case Doc 6 Filed 05/04/14 Page 8 of 21 goods or services. As a result, many of the Lien Claimants may have a right to assert and perfect mechanics, warehouse, or artisans liens (collectively, the "Miscellaneous Liens") against the Debtors relevant facilities or the Debtors goods or equipment, notwithstanding the automatic stay under section 362 of the Bankruptcy Code. In fact, pursuant to section 362(b)(3) of the Bankruptcy Code, the act of perfecting such Miscellaneous Liens, to the extent consistent with section 546(b) of the Bankruptcy Code, or to the extent the act is accomplished within the 30-day period set forth in section 547(e)(2)(A), is expressly excluded from the automatic stay Unless the Lien Claimants are paid for outstanding prepetition amounts, the Debtors believe Lien Claimants may refuse to perform their ongoing obligations with the Debtors (including installation, servicing, and warranty obligations), may assert Miscellaneous Liens on equipment in the Debtors possession, or may refuse to release finished goods in their possession unless paid cash on delivery. Moreover, the value of the materials in the possession of the Lien Claimants generally exceeds the value of their respective prepetition claims. The Debtors estimate that approximately $1.8 million on account of claims held by the Lien Claimants (the "Lien Claims") have accrued as of the Petition Date. 16. In light of the foregoing, the Debtors seek authority to pay and discharge the claims of Lien Claimants that have given or could give rise to a lien against the materials, goods, and facilities of the Debtors, regardless of whether such Lien Claimants have already perfected their interests, in an amount not to exceed the Lien Claims Cap. Notwithstanding the authority requested, the Debtors will not pay a Lien Claimant on account of any prepetition claims unless 5 Under section 546(b) of the Bankruptcy Code, a debtor s lien avoidance powers "are subject to any generally applicable law that... permits perfection of an interest in property to be effective against an entity that acquires rights in such property before the date of perfection." 11 U.S.C. 546(b)(1)(A). Under section 547(e)(2)(A), a transfer for preference analysis purposes takes place "at the time such transfer takes effect between the transferor and the transferee, if such transfer is perfected at, or within 30 days after, such time." 11 U.S.C. 547(e)(2)(A). DOCSDE:

9 Case Doc 6 Filed 05/04/14 Page 9 of 21 the Lien Claimant has perfected or, in the Debtors judgment, is or may be capable of perfecting one or more liens in respect of such claim irrespective of the automatic stay, nor shall payment of a Lien Claimant s prepetition claim be deemed to be a waiver of rights regarding the extent, validity, perfection, or possible avoidance of such liens. The Debtors expect that they will pay only prepetition claims to the Lien Claimants when they believe, in their business judgment, the benefits to making such payments would exceed the costs, delays, and disruption associated with bringing an action to compel the turnover of goods held by the Lien Claimants or otherwise discharging the lien in question. III. Section 503(b)(9) Claims 17. The Debtors may have received certain goods or other materials from various vendors within the 20 days before the Petition Date (collectively, the "503(b)(9) Claimants"). Many of the Debtors relationships with the 503(b)(9) Claimants are not governed by long-term contracts. Rather, the Debtors often obtain supplies on an order-by-order basis. As a result, a 503(b)(9) Claimant may refuse to supply new orders without payment of its prepetition claims. The Debtors also believe certain 503(b)(9) Claimants could reduce the Debtors existing trade creditor demand payment in cash on deliveryfurther exacerbating the Debtors limited liquidity. The Debtors believe that as of the Petition Date, they owe approximately $7 million on account of goods delivered within the 20 days prior to the Petition Date, the value of which may be entitled to administrative priority under section 503(b)(9) of the Bankruptcy Code Accordingly, the Debtors request that they be authorized to payin an amount not to exceed the 503(b)(9) Claims Capthose undisputed claims arising from the value of such 6 The Debtors do not concede that any claims described in this Motion are conclusively entitled to administrative priority under section 503(b)(9) of the Bankruptcy Code, and the Debtors expressly reserve the right to contest the extent or validity of all such claims. DOCS_DE:

10 Case Doc 6 Filed 05/04/14 Page 10 of 21 goods received by the Debtors within 20 days before the Petition Date that have been sold to the Debtors in the ordinary course of business (each, a "503(b)(9) Claim"). In addition, the Debtors request that payments made on account of such Section 503(b) (9) Clams shall not count against the Shipper Claims Cap or the Lien Claims Cap. 7 The Debtors do not seek to accelerate or modify existing payment terms with respect to the 503(b)(9) Claims. Rather, the Debtors will pay the 503(b)(9) Claims as they come due and in the ordinary course of business. Outstanding Orders 19. Prior to the Petition Date, and in the ordinary course of business, the Debtors may have ordered goods which will not be delivered until after the Petition Date (the "Outstanding Orders"). To avoid becoming general unsecured creditors of the Debtors estates with respect to such goods, certain suppliers may refuse to ship or transport such goods (or may recall such shipments) with respect to such Outstanding Orders unless the Debtors issue substitute purchase orders postpetition. To prevent any disruption to the Debtors business operations, and given that goods delivered after the Petition Date are afforded administrative expense priority under section 503(b) of the Bankruptcy Code, the Debtors seek an order: (a) granting administrative expense priority under section 503(b) of the Bankruptcy Code to all undisputed obligations of the Debtors arising from the acceptance of goods subject to Outstanding Orders; and (b) authorizing the Debtors to satisfy such obligations in the ordinary course of business. Contemporaneously herewith, the Debtors have also sought authority to pay certain prepetition trade claims pursuant to the Debtors Motion for Entry of Interim and Final Orders (A) Authorizing Debtors to Pay Certain Prepetition Claims of Critical Vendors and (B) Granting Related Relief (the "Critical Vendor Motion"). By this Motion, the Debtors do not seek authority to pay prepetition claims that may be paid pursuant to the Critical Vendor Motion. DOCS_DE:

11 Case Doc 6 Filed 05/04/14 Page 11 of 21 Basis for Relief I. The Debtors Should Be Authorized to Pay the Shipper Claims and the Lien Claims Pursuant to Sections 105(a) and 363(b) of the Bankruptcy Code 20. Courts have recognized that it is appropriate to authorize the payment of prepetition obligations where necessary to protect and preserve the estate, including an operating business s going-concern value. See, e.g., In re CoServ, L.L.C., 273 B.R. 487, 497 (Bankr. N.D. Tex. 2002); see also In re Ionosphere Clubs, Inc., 98 B.R. 174, 175 (Bankr. S.D.N.Y. 1989) ("The ability of a Bankruptcy Court to authorize the payment of prepetition debt when such payment is needed to facilitate the rehabilitation of the debtor is not a novel concept."); Armstrong World Indus., Inc. v. James A. Phillips, Inc., (In re James A. Phillips, Inc.), 29 B.R. 391, 398 (S.D.N.Y. 1983). In so doing, these courts acknowledge that several legal theories rooted in sections 105(a) and 363(b) of the Bankruptcy Code support the payment of prepetition claims as provided herein. 21. Pursuant to section 363(b) of the Bankruptcy Code, payment of prepetition obligations may be authorized where a sound business purpose exists for doing so. See Ionosphere Clubs, 98 B.R. at 175 (noting that section 363(b) provides "broad flexibility" to authorize a debtor to honor prepetition claims where supported by an appropriate business justification). Indeed, courts have recognized that there are instances when a debtor s fiduciary duty can "only be fulfilled by the preplan satisfaction of a prepetition claim." CoServ, 273 B.R. at In addition, the Court may authorize payment of prepetition claims in appropriate circumstances based on section 105(a) of the Bankruptcy Code. Section 105(a) codifies the Court s inherent equitable powers to "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." Under section 105(a), courts may authorize DOCS_DE:

12 Case Doc 6 Filed 05/04/14 Page 12 of 21 pre-plan payments of prepetition obligations when essential to the continued operation of a debtor s businesses. See In re Just for Feet, Inc., 242 B.R. 821, 825 (D. Del. 1999). Specifically, the Court may use its power under section 105(a) of the Bankruptcy Code to authorize payment of prepetition obligations pursuant to the "necessity of payment" rule (also referred to as the "doctrine of necessity"). Ionosphere Clubs, 98 B.R. at 176. It is also well-recognized that a bankruptcy court s use of its equitable powers to "authorize the payment of prepetition debt when such payment is needed to facilitate the rehabilitation of the debtor is not a novel concept." Id. at (citing Miltenberger v. Logansport, C. & S. W. Ry. Co., 106 U.S. 286 (1882)). 23. The United States Court of Appeals for the Third Circuit recognized the "necessity of payment" doctrine in In re Lehigh & New England Ry. Co., 657 F.2d 570, 581 (3d Cir. 1981). The Third Circuit held that a court could authorize the payment of prepetition claims if such payment was essential to the continued operation of the debtor. Id. (stating courts may authorize payment of prepetition claims when there "is the possibility that the creditor will employ an immediate economic sanction, failing such payment"); see also In re Penn Central Transp. Co., 467 F.2d 100, 102 n.1 (3d Cir. 1972) (holding necessity of payment doctrine permits "immediate payment of claims of creditors where those creditors will not supply services or material essential to the conduct of the business until their pre-reorganization claims have been paid"); Just for Feet, 242 B.R. at (noting that, in the Third Circuit, debtors may pay prepetition claims that are essential to continued operation of business); In re Columbia Gas Sys., Inc., 171 B.R. 189, (Bankr. D. Del. 1994) (same). 24. This flexible approach is particularly critical where, as here, prepetition creditors are crucial to a debtor s reorganization. In In re Structurlite Plastics Corp., 86 B.R. 922, 931 DOCSDE:

13 Case Doc 6 Filed 05/04/14 Page 13 of 21 (Bankr. S.D. Ohio 1988), the bankruptcy court recognized that "a bankruptcy court may exercise its equity powers under section 105(a) of the Bankruptcy Code to authorize payment of prepetition claims where such payment is necessary to permit the greatest likelihood of survival of the debtors and payment of creditors in full or at least proportionately." Id. The court explained that "a per se rule proscribing the payment of prepetition indebtedness may well be too inflexible to permit the effectuation of the rehabilitative purposes of the [Bankruptcy] Code." Id. at Here, the relief requested herein is appropriate and warranted under both sections 363(b) and 105(a) of the Bankruptcy Code. The authority to satisfy the Shipper Claims and Lien Claims in the initial days of these chapter 11 cases without disrupting their operations will send a clear signal to the marketplace, including key suppliers and customers, that the Debtors are willing and, importantly, able to conduct business as usual during their chapter 11 cases. Indeed, where debtors have shown that the payment of prepetition claims is critical to maximize the value of their estates, courts in this district and other jurisdictions have routinely authorized payments to shippers and other lien claimants under similar circumstances. See, e.g., In re Victor Oolitic Stone Co. d/b/a Indiana Limestone Co., No (Bankr. D. Del. Feb. 18, 2014); In re Long-view Power, LLC, No (BLS) (Bankr. D. Del. Sept. 4, 2013); In re Maxcom Telecomunicaciones, S.A.B. de C. V, No (PJW) (Bankr. D. Del. July 25, 2013); In re Geokinetics Inc., No (KJC) (Bankr. D. Del. Mar. 12, 2013); In re Ormet Corp., No (MFW) (Bankr. D. Del. Feb. 27, 2013).8 8 Because of the voluminous nature of the orders cited herein, such orders have not been attached to this Motion. Copies of these orders are available upon request to the Debtors proposed counsel. DOCS_DE:

14 Case Doc 6 Filed 05/04/14 Page 14 of Failure to pay the prepetition claims of Shippers and Lien Claimants could materially jeopardize the Debtors production ability and reliability. If the Shippers and Lien Claimants are unwilling to provide the Debtors with goods or services postpetition because of their outstanding prepetition claims, the Debtors operations would suffer, compromising the value of the Debtors estates to the detriment of all parties in interest. A lack of raw materials, vital transportation services, and access to a limited universe of specialized service providers would grind the Debtors manufacturing activities to a halt. And a lack of key supplies and components to maintain the Debtors key operating machinery would similarly force an interruption in operations. 27. Moreover, and as noted above, certain Shippers and Lien Claimants may be entitled under applicable non-bankruptcy law to assert certain possessory liens on the Debtors raw materials, goods, or equipment in their possession (notwithstanding the automatic stay under section 362 of the Bankruptcy Code) in an attempt to secure payment of their prepetition claim. As described above, under section 362(b)(3) of the Bankruptcy Code, the act of perfecting such liens, to the extent consistent with section 546(b) of the Bankruptcy Code, is expressly excluded from the automatic stay. 9 As a result, the Debtors anticipate that certain of the Shippers and Lien Claimants may assert and/or perfect liens, simply refuse to turn over goods in their possession, or stop performing their ongoing obligations. Even absent a valid lien, to the extent certain Shippers or Lien Claimants have possession of the Debtors inbound inventory or outbound products, mere possession or retention could severely disrupt the Debtors operations. 9 See 11 U.S.C. 546(b)(1)(A) (providing that a debtor s lien avoidance powers "are subject to any generally applicable law that... permits perfection of an interest in property to be effective against an entity that acquires rights in such property before the date of perfection"). DOCS_DE:

15 Case Doc 6 Filed 05/04/14 Page 15 of In addition, the relief requested herein should not impair unsecured creditor recoveries in these chapter 11 cases. In instances where the amounts owed to Shippers or Lien Claimants is less than the value of the goods that could be held to secure a Shipper Claim or Lien Claim, such parties may be fully-secured creditors of the Debtors estates. In such instances, payment now only provides such parties with what they might be entitled to receive under a plan of reorganization, only without any interest costs that might otherwise accrue during these chapter 11 cases. Conversely, all creditors will benefit from the seamless transition of the Debtors operations into bankruptcy. 29. Based on the dire consequences that could potentially arise if the Shippers or Lien Claimants ceased providing goods and services, the Debtors submit that the relief requested herein represents a sound exercise of the Debtors business judgment, is necessary to avoid immediate and irreparable harm to the Debtors estates, and is therefore justified under sections 363(b) and 105(a) of the Bankruptcy Code. II. The Court Should Authorize the Payment of Claims Entitled to Priority Pursuant to Section 503(b)(9) of the Bankruptcy Code 30. Section 503(b)(9) provides administrative priority for the "value of any goods received by the debtor within 20 days before the date of commencement of a case under this title in which goods have been sold to the debtor in the ordinary course of such debtor s business." These claims must be paid in full for the Debtors to confirm a chapter 11 plan. See 11 U.S.C (a)(9)(A). Consequently, payment of such claims now only provides such parties with what they would be entitled to receive under a chapter 11 plan. Additionally, all creditors will benefit from the seamless transition of the Debtors operations into bankruptcy. 31. The Bankruptcy Code does not prohibit a debtor from paying such claims prior to confirmation. As administrative claims incurred in the ordinary course of business, the Debtors DOCS_DE:

16 Case Doc 6 Filed 05/04/14 Page 16 of 21 believe they may pay such claims in accordance with their business judgment pursuant to section 363(c)(1) of the Bankruptcy Code. See, e.g., In re Dura Auto. Sys. Inc., No (KJC) (Bankr. D. Del. Oct. 31, 2006) Hr g Tr. 49:21-23 ("I think arguably the [D]ebtor could pay its 503(b)(9) claimants without court approval."). The timing of such payments also lies squarely within the Court s discretion. See In re Global Home Prods., LLC, No (KG), 2006 WL , at *3 (Bankr. D. Del. Dec. 21, 2006) (agreeing with parties that "the timing of the payment of that administrative expense claim is left to the discretion of the Court"). 32. The Debtors ongoing ability to obtain goods as provided herein is key to their survival and necessary to preserve the value of their estates. Absent payment of the Section 503(b)(9) Claims at the outset of these chapter 11 caseswhich merely accelerates the timing of payment and not the ultimate treatment of such claimsthe Debtors could be denied access to the equipment and goods necessary to maintain the Debtors business operations. Failure to honor these claims in the ordinary course of business may also cause the Debtors vendor base to withhold support for the Debtors during the chapter 11 process. Such vendors could accelerate or eliminate favorable trade terms. Needless to say, such costs and distractions could impair the Debtors ability to stabilize their operations at this critical juncture to the detriment of all stakeholders. 33. In addition, courts in this district and others have regularly authorized the payment of claims arising under section 503(b)(9) of the Bankruptcy Code in the ordinary course of business. See, e.g., In re Sorenson Commc ns, Inc., No (BLS) (Bankr. D. Del. Mar. 4, 2014); In re Longview Power, LLC, No (BLS) (Bankr. D. Del. Sept. 4, 2013); In re Maxcom Telecomunicaciones, S.A.B. de C. V, No (PJW) (Bankr. D. Del. July 25, 2013); In re Dex One Corp., No (KG) (Bankr. D. Del. Mar. 19, 2013) (same); DOCS_DE:

17 Case Doc 6 Filed 05/04/14 Page 17 of 21 In re Ormet Corp., No (MFW) (Bankr. D. Del. Mar. 20,2013); In re Blitz U.S.A., Inc., No (PJW) (Bankr. D. Del. Dec. 5, 2011). III. The Court Should Confirm that Outstanding Orders are Administrative Expense Priority Claims and that Payment of Such Claims is Authorized 34. Pursuant to section 503(b)(1) of the Bankruptcy Code, obligations that arise in connection with the postpetition delivery of goods and services, including goods ordered prepetition, are in fact, administrative expense priority claims because they benefit the estate postpetition. See 11 U.S.C. 503(b)(1)(A) (providing that the "actual [and] necessary costs and expenses of preserving the estate" are administrative expenses); see also In re John Clay & Co., 43 B.R. 797, (Bankr. D. Utah 1984) (holding that goods ordered prepetition but delivered postpetition are entitled to administrative priority). Thus, the granting of the relief sought herein with respect to the Outstanding Orders will not afford such claimants any greater priority than they otherwise would have if the relief requested herein were not granted, and will not prejudice any other party in interest. 35. Absent such relief, however, the Debtors may be required to expend substantial time and effort reissuing the Outstanding Orders to provide certain suppliers with assurance of such administrative priority. The attendant disruption to the continuous and timely flow of critical raw materials and other goods to the Debtors would force the Debtors to potentially halt operations and production, damage the Debtors business reputation, erode the Debtors customer base, and ultimately lead to a loss of revenue, all to the detriment of the Debtors and their creditors. Accordingly, the Debtors submit that the Court should confirm the administrative expense priority status of the Outstanding Orders and should authorize the Debtors to pay the Outstanding Orders in the ordinary course of business. DOCS_DE:

18 Case Doc 6 Filed 05/04/14 Page 18 of 21 Processing of Checks and Electronic Fund Transfers Should Be Authorized 36. The Debtors have sufficient funds to pay the Shipper Claims, Lien Claims, and 503(b)(9) Claims in the ordinary course of business. Under the Debtors existing cash management system, the Debtors have made arrangements to readily identify checks or wire transfer requests relating to an authorized payment in respect of the Shipper Claims, Lien Claims, and 503(b)(9) Claims. The Debtors believe there is minimal risk that checks or wire transfer requests that the Court has not authorized will be inadvertently made. Thus, the Debtors request that the Court authorize all applicable financial institutions to receive, process, honor, and pay any and all checks or wire transfer requests in respect of the Shipper Claims, Lien Claims, and 503(b)(9) Claims. The Requirements of Bankruptcy Rule 6003 are Satisfied 37. Bankruptcy Rule 6003 empowers a court to grant relief within the first 21 days after the Petition Date "to the extent that relief is necessary to avoid immediate and irreparable harm." For the reasons discussed above, authorizing the Debtors to pay Shipper Claims, Lien Claims, and 503(b)(9) Claims up their respective caps and granting the other relief requested herein is integral to the Debtors ability to transition their operations into these chapter 11 cases. Failure to receive such authorization and other relief during the first 21 days of these chapter 11 cases would severely disrupt the Debtors operations at this critical juncture. For the reasons discussed herein, the relief requested is necessary in order for the Debtors to operate their business in the ordinary course and preserve the ongoing value of the Debtors operations and maximize the value of their estates for the benefit of all stakeholders. Accordingly, the Debtors submit that they have satisfied the "immediate and irreparable harm" standard of Bankruptcy Rule 6003 to support granting the relief requested herein. DOCS_DE:

19 Case Doc 6 Filed 05/04/14 Page 19 of 21 Reservation of Rights 38. Nothing contained herein is intended or should be construed as an admission as to the validity of any claim against the Debtors, a waiver of the Debtors rights to dispute any claim, or an approval or assumption of any agreement, contract, or lease under section 365 of the Bankruptcy Code. The Debtors expressly reserve their right to contest any claim related to the relief sought herein. Likewise, if the Court grants the relief sought herein, any payment made pursuant to an order of the Court is not intended to be nor should it be construed as an admission as to the validity of any claim or a waiver of the Debtors rights to subsequently dispute such claim. Waiver of Bankruptcy Rule 6004(a) and 6004(h) 39. To implement the foregoing successfully, the Debtors request that the Court enter an order providing that notice of the relief requested herein satisfies Bankruptcy Rule 6004(a) and that the Debtors have established cause to exclude such relief from the 14-day stay period under Bankruptcy Rule 6004(h). Notice 40. The Debtors will provide notice of this Motion to: (a) the Office of the United States Trustee for the District of Delaware; (b) the holders of the 25 largest unsecured claims against the Debtors (on a consolidated basis); (c) the administrative agent under the Debtors first lien credit facility; (d) counsel to the administrative agent; (e) local counsel to the administrative agent; (f) the first lien credit facility lenders; (g) counsel to the first lien credit facility lenders; (h) local counsel to the first lien credit facility lenders; (i) the United States Environmental Protection Agency; (j) the United States Attorney s Office for the District of Delaware; (k) the Internal Revenue Service; (1) the office of the attorneys general for the states in which the DOCS_DE:

20 Case Doc 6 Filed 05/04/14 Page 20 of 21 Debtors operate; (m) the Securities and Exchange Commission; (n) Shippers; (o) Lien Claimants; (n) 503(b)(9) Claimants; and (p) any party that has requested notice pursuant to Bankruptcy Rule As this Motion is seeking "first day" relief, within two business days of the hearing on this Motion, the Debtors will serve copies of this Motion and any order entered in respect to this Motion as required by Local Rule (m). The Debtors submit that, in light of the nature of the relief requested, no other or further notice need be given. No Prior Request 41. No prior request for the relief sought in this Motion has been made to this or any other court. [Remainder ofpage intentionally left blank] DOCSDE:

21 Case Doc 6 Filed 05/04/14 Page 21 of 21 WHEREFORE, the Debtors respectfully request entry of an order, substantially in the form attached hereto as Exhibit A, (a) granting the relief requested herein, and (b) granting such other relief as is just and proper. Wilmington, Delaware Dated: May 4, 2014 Iura Da ne(de Bar No ) Timothy P. Cairns (DE Bar No. 4228) PACHULSKI STANG ZIEHL & JONES LLP 919 North Market Street, 17th Floor P.O. Box 8705 Wilmington, Delaware (Courier 19801) Telephone: (302) Facsimile: (302) ljones@pszjlaw.com tcaims@pszjlaw.com - and - Patrick J. Nash, Jr., P.C. (pro hac vice admission pending) Jeffrey D. Pawlitz (pro hac vice admission pending) Bradley Thomas Giordano (pro hac vice admission pending) KIRKLAND & ELLIS LLP 300 North LaSalle Chicago, Illinois Telephone: (312) Facsimile: (312) patrick.nash@kirkland.com jeffrey.pawlitz@kirkland.com bradley.giordanokirkland.com Proposed Co-Counsel for the Debtors and Debtors in Possession DOCSDE:

22 Case Doc 6-1 Filed 05/04/14 Page 1 of 6 EXHIBIT A Proposed Order DOCSDF:

23 Case Doc 6-1 Filed 05/04/14 Page 2 of 6 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: Chapter 11 GSE ENVIRONMENTAL, INC., et al., Debtors. Case No Lj (Joint Administration Requested) Re: Docket No. - ORDER (I) AUTHORIZING THE DEBTORS TO (A) PAY PREPETITION CLAIMS OF SHIPPERS AND OTHER LIEN CLAIMANTS, (B) PAY SECTION 503(B)(9) CLAIMS, AND (C) GRANT ADMINISTRATIVE EXPENSE PRIORITY TO ALL UNDISPUTED OBLIGATIONS FOR GOODS AND RAW MATERIALS ORDERED PREPETITION AND DELIVERED POSTPETITION AND SATISFY SUCH OBLIGATIONS IN THE ORDINARY COURSE OF BUSINESS AND (II) GRANTING RELATED RELIEF Upon the motion (the "Motion.")2 of the above-captioned debtors and debtors in possession (collectively, the "Debtors") for entry of an order (this "Order"), (I) authorizing the Debtors to (a) pay the Shipper Claims in an amount not to exceed the Shipper Claims Cap and Lien Claimants in an amount not to exceed the Lien Claims Cap, absent further order of the Court, (b) pay Section 503(b)(9) Claims in an amount not to exceed the 503(b)(9) Claims Cap absent further order of the Court, and (c) grant administrative expense priority to all undisputed obligations for goods and raw materials ordered prepetition and delivered postpetition and satisfy such obligations in the ordinary course of business, and (II) granting related relief; all as more fully set forth in the Motion; and upon the First Day Declaration; and this Court having jurisdiction over this matter pursuant to 28 U.S.C. 157 and 1334 and the Amended Standing The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, include: GSE Environmental, Inc. (1074); GSE Environmental, LLC (1539); GSE Holding, Inc. (9069); and SynTec, LLC (2133). The location of the Debtors service address is: Gundle Road, Houston, Texas Capitalized terms used but not otherwise defined herein have the meanings ascribed to them in the Motion. DOCS_DE:

24 Case Doc 6-1 Filed 05/04/14 Page 3 of 6 Order of Reference from the United States District Court for the District of Delaware, dated February 29, 2012; and this Court having found that this is a core proceeding pursuant to 28 U.S.C. 157(b)(2), and that this Court may enter a final order consistent with Article III of the United States Constitution; and this Court having found that venue of this proceeding and the Motion in this district is proper pursuant to 28 U.S.C and 1409; and this Court having found that the relief requested in the Motion is in the best interests of the Debtors estates, their creditors, and other parties in interest; and this Court having found that the Debtors notice of the Motion and opportunity for a hearing on the Motion were appropriate under the circumstances and no other notice need be provided; and this Court having reviewed the Motion and having heard the statements in support of the relief requested therein at a hearing before this Court (the "Hearing"); and this Court having determined that the legal and factual bases set forth in the Motion and at the Hearing establish just cause for the relief granted herein; and upon all of the proceedings had before this Court; and after due deliberation and sufficient cause appearing therefor, it is HEREBY ORDERED THAT: 1. The Motion is granted as set forth herein. 2. The Debtors are authorized, but not directed, in the reasonable exercise of their business judgment, to pay all or part of, and discharge, on a case-by-case basis, the Shipper Claims in an amount not to exceed $1.5 million in the aggregate (the "Shipper Claims Cap"), absent further order of the Court. 3. The Debtors are authorized, but not directed, in the reasonable exercise of their business judgment, to pay all or part of, and discharge, on a case-by-case basis, the Lien Claims in an amount not to exceed $1.8 million in the aggregate (the Lien Claims Cap), absent further order of the Court; provided, that, with respect to each Lien Claim, the Debtors shall not pay DOCS_DE:

25 Case Doc 6-1 Filed 05/04/14 Page 4 of 6 such Lien Claim unless the Lien Claimant has perfected or, in the Debtors judgment, is capable of perfecting or may be capable of perfecting in the future one or more liens in respect of such Lien Claim. 4. The Debtors are authorized, but not directed, in the reasonable exercise of their business judgment, to pay all or part of, and discharge, on a case-by-case basis, the 503(b)(9) Claims in an amount not to exceed $7 million in the aggregate (the "503(b)(9) Claims Cap), absent further order of the Court. 5. The Debtors may condition payment of Shipper Claims, Lien Claims, and 503(b)(9) Claims on the agreement of Shippers, Lien Claimants, and 503(b)(9) Claimants to continue supplying goods and services to the Debtors on the same trade terms given to them prior to the Petition Date or upon new trade terms (to the extent agreed to by the Debtors and the Shippers and Lien Claimants, the "Agreed Terms"). 6. To the extent a Shipper, Lien Claimant, or 503(b)(9) Claimant fails to comply with the Agreed Terms: (a) the Debtors may take any and all appropriate steps to cause such Shipper, Lien Claimant, or 503(b)(9) Claimant to repay payments made to it on account of its prepetition claim to the extent that such payments exceed the postpetition amounts then owing to such Shipper, Lien Claimant, or 503(b)(9) Claimant; (b) upon recovery by the Debtors, any prepetition claim of such party shall be reinstated as if the payment had not been made; and (c) if there exists an outstanding postpetition balance due from the Debtors to such party, the Debtors may cause: (i) any payment made to such Shipper, Lien Claimant, or 503(b)(9) Claimant on account of its asserted claim to be deemed to have been in payment of the then-outstanding postpetition obligations owed to the Shipper, Lien Claimant, or 503(b)(9) Claimant; and (ii) the Shipper, Lien Claimant, or 503(b)(9) Claimant shall be required to immediately repay to the DOCS_DE:

26 Case Doc 6-1 Filed 05/04/14 Page 5 of 6 Debtors any payment made to it on account of its asserted claim to the extent the aggregate amount of such payments exceeds the postpetition obligations then outstanding, without the right of any setoffs, claims, provision for payment of reclamation or trust fund claims, or otherwise; provided, however, that (a) prior to exercising any remedies set forth in this paragraph, the Debtors shall provide the applicable party with notice of their intent to exercise such remedies, and the applicable party shall have seven days from service of such notice to file an objection with the Court and serve it on the Debtors and (b) if such party files and serves such notice, the Debtors shall not exercise any remedies set forth in this paragraph pending further order of the Court or agreement of the parties. The Debtors shall provide a copy of this Order to the applicable party prior to such party s acceptance of any payment hereunder. 7. All undisputed obligations related to the Outstanding Orders are granted administrative expense priority in accordance with section 503(b)(1 )(A) of the Bankruptcy Code. 8. The Debtors are authorized to pay all undisputed amounts related to the Outstanding Orders in the ordinary course of business consistent with the parties customary practices in effect prior to the Petition Date. 9. The banks and financial institutions on which checks were drawn or electronic payment requests made in payment of the prepetition obligations approved herein are authorized to receive, process, honor, and pay all such checks and electronic payment requests when presented for payment, and all such banks and financial institutions are authorized to rely on the Debtors designation of any particular check or electronic payment request as approved by this Order. 10. Notwithstanding the relief granted herein and any actions taken hereunder, nothing contained in the Motion or this Order or any payment made pursuant to this Order shall DOCS_DE:

27 Case Doc 6-1 Filed 05/04/14 Page 6 of 6 constitute, nor is it intended to constitute, an admission as to the validity or priority of any claim or lien against the Debtors, a waiver of the Debtors rights to subsequently dispute such claim or lien, or the assumption or adoption of any agreement, contract, or lease under section 365 of the Bankruptcy Code. 11. The Debtors are authorized to issue postpetition checks, or to effect postpetition fund transfer requests, in replacement of any checks or fund transfer requests that are dishonored as a consequence of these chapter 11 cases with respect to prepetition amounts owed in connection with any Shipper Claim, Lien Claim, or claim arising under section 503(b)(9) of the Bankruptcy Code. 12. Notwithstanding the relief granted in this Order, any payment made by the Debtors pursuant to the authority granted herein shall be subject to the orders approving entry into debtor in possession financing and authorizing use of cash collateral. 13. Notice of the Motion satisfies the requirements of Bankruptcy Rule 6004(a). 14. Notwithstanding Bankruptcy Rule 6004(h), the terms and conditions of this Order are immediately effective and enforceable upon its entry. 15. The Debtors are authorized to take all actions necessary to effectuate the relief granted in this Order in accordance with the Motion. 16. This Court retains exclusive jurisdiction with respect to all matters arising from or related to the implementation, interpretation, and enforcement of this Order. Dated:,2014 Wilmington, Delaware UNITED STATES BANKRUPTCY JUDGE DOCS_DE: