Robert A. Siegel Tom A. Jerman O’MELVENY & MYERS LLP 555 13th Street, NW, Suite 500W Washington, DC 20004-1109 (202) 383-5300 Attorneys for Debtors and Debtors-in-Possession IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF VIRGINIA ALEXANDRIA DIVISION ) In re: ) Chapter 11 Cases ) Case No. 02-83984-91 (SSM) US AIRWAYS GROUP, INC., et al., ) Hon. Stephen S. Mitchell ) Jointly Administered Debtors. ) ) SECOND INTERIM AND FINAL APPLICATION OF O’MELVENY & MYERS LLP FOR ORDER AUTHORIZING AND APPROVING COMPENSATION AND REIMBURSEMENT OF EXPENSES O’Melveny & Myers LLP (“O’Melveny”), special labor, regulatory, antitrust and litigation counsel for US Airways Group, Inc. and seven of its subsidiaries and affiliates,1 debtors and debtors-in-possession in the above-captioned cases (collectively, the “Debtors” or the “Company”), hereby submits its application (the “Application”) for an order (i) approving compensation and reimbursement of expenses for the period from December 1, 2002 through March 31, 2003, and (ii) approving on a final basis compensation and reimbursement of expenses under the First Interim Application (as hereinafter defined) as well as this Application, pursuant to sections 330(a)(1) and 331 of Chapter 11, Title 11 of the United States Code (the 1 The seven subsidiaries and affiliates are the following entities: US Airways, Inc., Allegheny Airlines, Inc., PSA Airlines, Inc., Piedmont Airlines, Inc, MidAtlantic Airways, Inc., US Airways Leasing and Sales, Inc. and Material Services Company, Inc. The Application is submitted before the Eastern District of Virginia, Alexandria Division, Bankruptcy Court (the “Court”). -1- “Bankruptcy Code”), and Rule 2016 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), the proposed form of which is attached hereto as Exhibit “A”. O’Melveny certifies that the Debtors have received a copy of this Application, but have not completed this review. In addition, O’Melveny certifies that a copy of this Application has been served on the United States Trustees, counsel to the Official Committee of Unsecured Creditors and counsel for the postpetition lenders. In support of the Application, O’Melveny respectfully represents as follows: I. PRELIMINARY STATEMENT 1. O’Melveny previously filed its first interim application for allowance of compensation and reimbursement of expenses on January 16, 2003 (the “First Interim Application”) in the aggregate amount of $1,642,179.18, which O’Melveny has since reduced to $1,639,631.33.2 The First Interim Application covered the period from August 11, 2002 (the "Petition Date") through November 30, 2002 (the “First Application Period”). As of the date of this Application, the Court has not issued a ruling regarding O’Melveny’s First Interim Application. O’Melveny seeks final allowance of its fees and expenses for the First Application Period. 2. In addition, O’Melveny requests that this Court authorize compensation to O’Melveny in the amount of $1,391,360.40 and reimbursement of expenses in the amount of $95,811.57 for the period from December 1, 2002 through March 31, 2003 (the “Second 2 In reviewing its fee application data subsequent to the filing of the First Interim Application, O'Melveny discovered two errors in the First Interim Application. First, three individuals were inadvertently noted in the First Interim Application as having higher rates than the rates actually billed to US Airways. Second, a single time entry was inadvertently billed to US Airways twice, on separate invoices. After correcting the erroneous rates and eliminating one of the time entries, O'Melveny has lowered its request for fees by $2,547.85, the amount of O’Melveny’s inadvertent errors. O’Melveny provided notice of the errors, as well as corrected backup data reflecting the proper billing information, to the Office of the U.S. Trustee on January 28, 2003. -2- Application Period”). These amounts are net of $171,292.60 in legal fees O’Melveny has written off by virtue of an automatic 10% discount and other voluntary write-downs.3 3. Pursuant to the Fee Protocol, the Debtors have been routinely paying O’Melveny 85% of its fees and 100% of its expenses for the First and Second Application Periods. O’Melveny continues to hold its retainer from the Debtors in the amount of $812,316.48, which it proposes to apply against the 15% of fees that remain unpaid (the “Holdback”) and any other amounts that remain unpaid for the First or Second Application Periods. O’Melveny also proposes to apply any balance of the retainer to future fees and expenses. 4. By this Application, O’Melveny seeks the entry of an order (a) finally allowing all compensation that was the subject of the First Interim Fee Application, (b) finally allowing compensation for the Second Application Period, and (c) authorizing and directing O’Melveny to apply the retainer to payment of the Holdback and any remaining unpaid disbursements for the First and Second Application Periods and permitting O’Melveny to apply any balance of the retainer to future fees and expenses. 5. As hereinafter set forth in detail, the activities performed by O’Melveny, in conjunction with the Debtors and the Debtors’ other retained professionals, were extensive during the Second Application Period, and yielded significant benefits to the estates and their creditors. Moreover, we believe it to be beyond dispute that O’Melveny’s efforts, as set forth below, directly or indirectly contributed to the estates’ receipt of tangible benefits and the successful resolution of the chapter 11 cases. In the circumstances, final allowance of all of O’Melveny’s billable time and disbursements, and payment of the amount unpaid of $829,722.96, is clearly warranted. 3 O’Melveny has applied a discount of 10% off its basic fees generally charged to non-bankrupt clients, amounting to $156,177.55. In addition, O’Melveny has reduced its request by $877.50 to account for 2.6 hours inadvertently billed by an O’Melveny attorney on December 18 to matter number –555 that should have been billed to another client. Finally, because O’Melveny estimated in its First Interim Application that it incurred approximately $37,800.00 in fees in preparation of the First Interim Application, but actually incurred $52,037.55 in fees for the preparation, O’Melveny has voluntarily written-off the difference between the estimated and actual fees in the amount of $14,237.55. -3- II. RETENTION OF O’MELVENY 6. O’Melveny has been the principal outside labor, regulatory, antitrust and litigation counsel to the Company since 1996. 7. On August 11, 2002 (the “Petition Date”), the Debtors filed voluntary petitions in this Court for reorganization relief under chapter 11 of the Bankruptcy Code. The Debtors continued to operate their businesses and manage their properties as debtors-in- possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. On August 12, 2002, this Court entered a provisional order providing for the joint administration of these cases, which have been consolidated for procedural purposes only. On August 20, 2002, the United States Trustee appointed an Official Committee of Unsecured Creditors (the “Creditors Committee”) in these cases. 8. The Debtors filed their application to employ O’Melveny with the Court on August 11, 2002. O’Melveny charges legal fees on an hourly basis at its attorneys’ individual hourly rates, which are based on the attorney’s seniority and experience, and which are adjusted from time to time. During the Second Application Period, hourly rates were adjusted as of January 1, 2003. O’Melveny also charges the Debtors for actual out-of-pocket expenses incurred, such as court services, telecopies, computerized research, delivery services, photocopies, long distance phone calls, fees associated with ongoing litigation, travel and other costs necessarily incurred in connection with its representation of the Debtors. O’Melveny’s fee structure and expense reimbursement policies were disclosed in the Debtor’s application to employ O’Melveny, to which no party objected. This Court approved the O'Melveny retention by order entered on August 12, 2002, a copy of which is attached hereto as Exhibit “B”. III. FEE PROCEDURES AND MONTHLY FEE STATEMENTS 9. On August 16, 2002, the Court approved formation of a joint fee review committee (the “Fee Review Committee”) to review, comment on and, if necessary, object to the -4- various fee applications filed in these cases. The Fee Review Committee has met and agreed upon a protocol in these cases (the “Fee Review Protocol”). 10. On September 6, 2002, this Court entered an Administrative Order Pursuant to 11 U.S.C. §§ 105(a) and 331 Establishing Procedures For Interim Compensation And Reimbursement Of Expenses Of Professionals (Docket No. 445) (the “Administrative Order”). Pursuant to paragraph 2(4) of the Administrative Order, O’Melveny is submitting this Application to the Debtors, as well as to the Debtors’ postpetition lenders, counsel to the Creditors Committee, and the United States Trustee. 11. In compliance with the Administrative Order and the Fee Review Protocol, on or before the last day of each month following the month for which compensation was sought, O’Melveny furnished to the Debtors, counsel to the Debtors, co-counsel to the Debtors, as well as to counsel to the Debtors’ postpetition lenders, counsel to the Creditors Committee, and the United States Trustee, a monthly statement of all professional fees and disbursements incurred during the preceding calendar month. The parties had twenty (20) days to review any such statement. If there were no objections, at the expiration of the twenty (20) day period, the Debtors were ordered to promptly pay eighty-five percent (85%) of the fees and one hundred percent (100%) of the expenses identified in each monthly statement.