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September 24, 2009
To: All Sun-Times Media Group employees
From: Jeremy L. Halbreich
Subject: Questions and answers related to recent events
(entire memo follows)
As you know, we announced earlier this month that a group of Chicago investors have made a bid to purchase our Company’s newspapers, Web sites and other assets. Though the proposed sale is a very positive development, there is a lot of uncertainty right now with major change looming before us all. I want you to know that I am confident, as I have told many of you in our employee town hall meetings, that we can get this deal done and create an exciting future for our employees and our award-winning newspapers and Web sites.
I know this has been a challenging time for all. Many of you have questions. I want to be as straightforward as we can about where we are, and what could happen, rather than let erroneous rumors flourish.
Here is a Q&A of some of the frequently asked questions we’ve received from employees across the Company. This is one in what will be a series of communications we will be sharing with you. In future communications we will discuss other important matters, such as pension benefit questions. I hope you will find these answers and this information helpful.
For your convenience, the Q&A below is divided into four categories:
• What happens if the sale that was announced last week goes through?
• What happens if the sale does not go forward and the Company is forced to liquidate?
• What is the role of the Sun-Times Media Group’s bargaining units in the potential sale of the Company’s assets?
• Other questions.
We understand that this Q&A contains quite a bit of information and some of it becomes complicated. Please read this information carefully, and should you need clarifications or have any further questions, feel free to send them to STNGquestions@suntimes.com and we will do our best to answer them.
WHAT HAPPENS IF A SALE GOES THROUGH?
Q. Can I expect to have a job if the Company’s assets are sold to the prospective Buyer?
A. While the Buyer is not legally or contractually obligated to do so, we expect and the Buyer has repeatedly indicated its intent to hire virtually all current employees.
Q. What happens to my vacation if the sale goes through?
A. If the Company’s assets are sold, the Buyer has said that it will create a vacation bank to allow all transferred employees to have generally the same vacation benefit that they have currently.
Q. Will my benefits change if the Company’s assets are sold?
A. Any changes in benefit programs will be decided and announced by the Buyer. However, the Buyer has said that it intends to assume sponsorship of existing health, welfare and Section 125 plans at closing. Based on this, we anticipate that you would continue to receive those existing benefits going forward. In the future, it will ultimately be the Buyer’s decision regarding what benefits it offers.
Q. Will the Buyer assume our current 401(k) plans? If not, can we roll our current accounts into the Buyer’s 401(k) plan?
A. As an initial matter, you should be aware that the Buyer has informed us that it intends to offer a 401(k) defined contribution plan to all of its employees in the future. There are a couple of different possible outcomes for the existing 401(k) plans that depend on the Buyer’s decisions about how to handle this benefit. If the Buyer assumes sponsorship of the existing 401(k) plans, the transition will appear seamless to you. If, however, the Buyer does not assume the existing 401(k) plan and decides to establish its own new plans, then it is likely that the Buyer would allow you to roll over your 401(k) account into a new Buyer-established 401(k) plan, or you could roll over your account into an IRA, or take a distribution of the amount in your account. Note that if you take a distribution, the amount of the distribution would be taxable to you and may also be subject to a penalty surtax, depending upon your age at the time of the withdrawal.
Q. I have an outstanding 401(k) loan balance. If the Company’s assets are sold, what will happen to this loan? Will I have to repay the balance? Will I be penalized if I can’t repay the balance?
A. If the Company’s assets are sold, and if the Buyer assumes sponsorship of the 401(k) plans, the loans would continue to be paid off through payroll deductions with no interruption. If the Buyer does not assume sponsorship of the 401(k) plans, it is possible there would be no change in loans, though the Buyer will have to determine whether it will allow you to roll over the loan to the 401(k) established by the Buyer. If the Buyer does not allow loan rollovers, your unpaid loan balance would become taxable to you if you do not repay the loan. The plan has a 90-day grace period, meaning the participant has 90 days from the date of the last payroll payment before the loan is considered to be in default. Once in default, the unpaid balance becomes taxable. If the borrower is under the age of 59 ½, there will be an additional 10 percent penalty.
WHAT HAPPENS IF THE COMPANY IS FORCED TO LIQUIDATE?
Q. If we close our doors, would I get my last paycheck and when would I get it?
A. If it is necessary to liquidate our business, all employees will be paid through their last day worked. This date would be determined by the Board of Directors in consultation with management. Employees would be paid on the next scheduled payroll date after the employee’s termination date.
Q. Am I eligible for unemployment compensation if the Company liquidates?
A. Employees are eligible to apply for unemployment benefits. Benefit payments will be subject to the specific state’s unemployment guidelines. Some kinds of compensation, such as pension benefits, may offset your unemployment payment. Since each situation is unique, employees should contact their local unemployment office directly.
Q. How quickly would the Company shut down?
A. It is not possible right now to speculate on the timing of a liquidation, but the liquidation process could begin in a matter of weeks. The Bankruptcy Court along with the IRS, U.S. Trustee and the Unsecured Creditors Committee will all have significant input into the final timing and schedule.
Q. Can a buyer come in and buy individual newspaper titles in a Chapter 7 liquidation and keep the papers going?
A. It is very unlikely that a buyer who would operate the business going forward would emerge once the liquidation process has started. It is only reasonable to assume that any party who is interested in buying a going concern would have participated in the extensive sale process that the Company has engaged in over the past several months. In a liquidation, assets are sold off individually and this immediately follows the shut-down of all Company operations. None of our publications can operate on a stand-alone basis without the substantial centralized functions that are provided by the Sun-Times News Group and these functions would be shut down immediately along with the Ashland production facility. Any buyer who wanted to acquire a single title would also need to buy or create a substantial amount of the centralized infrastructure (such as ad sales, production, front-end systems for news and advertising, insurance, benefits plans, distribution, IT, HR and Interactive Media). This would probably make such a purchase uneconomical and highly impractical. In addition, even in liquidation it would be expensive to purchase any newspaper assets since it is likely the Bankruptcy Court will require that such offers exceed the pure liquidation values of the assets themselves.
Q. How would unused vacation be paid out if the Company is liquidated?
A. If we liquidate, each individual employee would have to file with the Bankruptcy Court a claim for the vacation pay due to them. Approved claims would be satisfied on a pro rata basis based on the funds available within the bankrupt estate. There are three (3) types, or levels, of claims that are paid in this order: Administrative, Priority and General Unsecured claims. Each level of claim must be satisfied in full before the next level can be paid anything. Administrative claims for vacation include any amounts that are earned by employees from the time of our bankruptcy filing (March 31, 2009) until the date of the Company shutdown. These Administrative claims receive the highest priority claim. Priority claims for vacation include amounts earned up to 180 days prior to the bankruptcy filing date. General Unsecured claims include vacation earned prior to this 180 day period. All Administrative claims would receive pro rata disbursements from the estate. It is less clear whether Priority claims would be paid in full and it is unlikely that General Unsecured claims will be paid at all.
Q. What would happen to my health insurance if we shut down?
A. Health insurance coverage would continue for as long as the Company maintains the insurance plans. As a result, any medical, dental and vision insurance will discontinue at the end of the last period for which the Company pays the premiums. You should expect that premiums would be discontinued when the Company ceases to do business. The coverage would not terminate at on the date we close our doors, but would continue until the end of the period for which the latest premium was paid. In any event, this is likely to be only a matter of weeks. Illinois law requires that your current health insurance carrier offer you an individual policy without regard to pre-existing conditions, but the cost of that is not regulated and could be high.
Q. What happens to COBRA?
A. Upon termination of the Company’s health and welfare plans, COBRA continuation under those plans would no longer be possible. If you are a member of a union and not under the Company’s health and welfare plans, check with your bargaining unit’s health insurance representative.
Q. How would the Section 125 plan (flexible spending account for parking reimbursement, dependent care and health care) work in the event of a liquidation scenario?
A. This plan would also be terminated in connection with the shutdown. Benefits would no longer be available once the plan is terminated.
Q. What happens to the 401(k) plans?
A. You will be permitted to take a distribution from the 401(k) plans. You may roll your account balance into an IRA or take a taxable distribution. If you have an outstanding plan loan, your account will become taxable to you if you do not repay the loan. The loan plan has a 90-day grace period before the loan is considered to be in default.
Q. Will there be any severance if we liquidate?
A. Non-union employees will not be paid severance. Unionized employees may be paid some limited severance depending upon the terms of the applicable collective bargaining agreement and the amount of cash available to pay these benefits in the bankruptcy estate. Unionized employees will need to file a claim for severance with the Bankruptcy Court. Claims for severance for union employees for amounts that were earned after our bankruptcy filing date (March 31, 2009) are Administrative claims. Claims for severance for union employees for amounts earned up to 180 days prior to the bankruptcy filing date are Priority claims. Claims for severance for union employees for amounts earned prior to this 180 day period are General Unsecured claims. To provide an example, if a union employee’s collective bargaining agreement says that the employee earns one week of severance pay for each completed six months of service and a liquidation of the Company were to occur on September 30, then the employee would have an Administrative claim equal to one week’s pay, a Priority claim equal to one week’s pay and a General Unsecured claim for all severance amounts earned prior to the 180 day period. All Administrative claims would receive pro rata disbursements from the estate. It is less clear whether Priority claims would be paid in full and it is unlikely that General Unsecured claims will be paid at all.
WHAT IS THE ROLE OF THE COMPANY’S BARGAINING UNITS IN THE POTENTIAL SALE?
Q. What is the role of the Sun-Times Media Group’s bargaining units in the asset purchase bid made by the local investor group?
A. The Buyer has made a number of demands of the Company to reduce costs. The Company has responded with a number of initiatives, all of which have been accomplished or are in process, except for the amendments to the union contracts, which require the approval of the union members. The amendments, which are economic and work-rule related in nature, will allow the Buyer maximum flexibility in creating a viable business during these challenging times in our industry and across the general economy. If we do not implement the union cost-reduction and work-rule related initiatives, the Buyer does not believe it can justify investing the millions of dollars it is committing to the future viability of our business and it will withdraw its bid to purchase the assets of the Company. This condition imposed by the Buyer is included in the formal Purchase Agreement filed with the Bankruptcy Court earlier this month and it is the required, necessary step prior to the Buyer committing millions of dollars behind the future of our Company.
Q. If the unions don’t vote for the amendments by September 29, what is likely to happen?
A. Getting all of the required union concessions is one of several conditions that must be met before the closing of the transactions contemplated by the Asset Purchase Agreement that we filed with the Bankruptcy Court in Delaware. September 29th is an important deadline that has been set by the Buyer of our assets. If we don’t have all of the required union amendments by that time, the Buyer has said that it will not close on the transaction since this important condition to the sale will not have been met. This would likely lead to the other interested parties in the bankruptcy (IRS, U.S. Trustee, UCC) quickly moving to convert our bankruptcy case to a Chapter 7 Liquidation on or before October 8, the date on which the final sale hearing is currently scheduled. Any such conversion would preclude the possibility of a sale.
Q. If some of the unions vote “yes” will the properties that voted “no” be cut loose and will the Buyer only buy the “yes” properties?
A. No. The Buyer has signed an agreement to buy all of the newspapers, Web sites and other assets owned by Sun-Times News Group if certain conditions are met. If all 18 of the Company’s bargaining units do not approve the Buyer’s required amendments to the collective bargaining agreements, the Buyer does not have to buy the assets and has said it will withdraw its bid.
Q. Can the unions re-vote by September 29?
A. Yes, they have the opportunity if they choose to do so, but all 18 of our bargaining units must vote in favor of the required contract amendments no later than the September 29 date established by the Buyer.
Q. If all unions vote “no” will we close on that day?
A. No. If the sale falls through, we will shortly run out of cash and we will be forced to shut down all of our publications and Web sites and liquidate the business. This will result in the loss of all jobs across the Company. That won’t happen all at once, but it will likely occur over the course of a few weeks.
Q. Why is it up to the unions to decide if we stay in business?
A. The Buyer established that several cost reduction and work-rule flexibility conditions be met before agreeing to buy the Company. Since these conditions represent changes to the existing union contracts, the conditions must be voted on and approved by the respective union memberships. All of these conditions have been met except the cost reduction amendments to the collective bargaining agreements. The union groups have until September 29 to approve these amendments. These amendments are vital to allowing the Buyer to successfully transform our business in a changing news and information environment. The status quo is no longer acceptable or financially viable.
Q. Should we be working hard on selling existing or new products, given the uncertain environment that we are in?
A. Yes. The Buyer’s bid to purchase our assets represents a new beginning for the Company’s newspapers, Web sites and other products. The sale will create a new Company that is entirely debt-free, rid of the longstanding liability to the IRS and financially capable to make needed capital investments in plant and technology. It is an exciting development and we should continue to give our best efforts to our customers and our products, which we pride ourselves in. We should all operate on the assumption that the deal is going to happen.
Q. What happened to the ESOP idea at the Post-Tribune?
A. Our Board of Directors believes the sale of our assets as a whole to a single buyer is in the best interests of the Company’s creditors, employees and other stakeholders. Therefore, the Board did not elect to pursue offers for pieces of the business in light of the Buyer’s offer to acquire all of the Sun-Times newspapers, Web sites and other businesses. In addition, the Gary Guild decided to wait until a new owner emerged for the Company and then it plans to approach the new owner regarding the possibility of a sale.