While today’s hearing about the rules and procedures for the bidding was given a pretty high-drama buildup in a 1B St. Petersburg Times story and in the Chicago Reader last week, it didn’t live up to its billing and was actually a complex, confusing, and undramatic court session.

Delano approved the negotiated set of bidding rules that was contested for two hours today, but she left some core issues unresolved and said, “I’ll make my ruling as to what the highest and best offer is” on Aug. 25.

If there was real news out of today’s hearing, it was that Creative Loafing CEO Ben Eason is considering stepping down temporarily to focus on formulating a new equity bid for the post-bankruptcy company.

“There is this big fight about [my] fiduciary obligations,” Eason said after the hearing. “It’s just a very tricky sort of thing.”

How tricky? So tricky that Eason, as the CEO of the debtor Creative Loafing, had one set of lawyers in court today who had negotiated and filed the bidding rules and sought Judge Delano’s approval. He also had another lawyer in court representing him and family members who would be part of the new equity bid, and that lawyer — for Eason (the bidder) — took issue with the bidding rules that Eason (the debtor) had OK’ed.

Eason said he has not made up his mind about stepping aside as CEO and did not have a timetable in mind for it.

But back to the equity auction for a minute.

To recap for those not living through the fun of this Chapter 11 for nearly the past year, it has come down to this: Two competing interests want very badly to own Creative Loafing post-bankruptcy. The first is Atalaya Capital Management, an Atlanta-based hedge fund that loaned $30 million to Creative Loafing in 2007 to finance the purchase of the Chicago Reader and the Washington City Paper and that, for fairly understandable reasons, isn’t real happy that it didn’t get repaid. On the other side is a coalition put together by Eason, his family and another CL investor, BIA Digital Partners, which lost $10 million in that same 2007 financing deal.

Here is a preview of the arguments both sides will make to Judge Delano at the Aug. 25 equity auction:

Atalaya will insist that the “highest return” for the company in the equity auction would be an all-cash bid, as it has already made in the amount of $2 million. It likely will question any in-kind considerations in the expected BIA-Eason Family bid, which could include free office rents valued at nearly $1 million. Atalaya will ask the judge to rule that cash is king in the bidding. “It’s what the creditors get … cash on the barrelhead,” he said. And the only creditors not envisioned being repaid in the current bids are Atalaya and BIA, so if bids rise and there is more money to repay those debts, that would be beneficial, Atalaya’s lawyer Tyler Brown argued.

Eason’s personal lawyer and a lawyer for BIA, however, said Delano must not allow Atalaya simply to bid up as much as it wants, under the theory that every dollar it puts in for equity it can take right back out to satisfy the unpaid portion of its owed $30 million. They argued it was “taking money out of one pocket and putting it another,” which would not be in the best interests of the newspaper chain going forward. They labeled it “credit bidding.”

“This is a hedge fund,” Eason said outside the courtroom. “The question is are they really going to operate the business? This is just a financial deal for them. We’re prepared to run it for the long term.”

Atalaya, during hearings earlier this year, also said it plans to operate the business as a news media company and has a management consultant lined up. It also said it would make an additional $1 million line of credit available to the new CL if it is the successful bidder, for operational needs. “We’ve committed some real money here,” Brown said in court.

In the meantime, you can download the proposed rules and procedures in .pdf.

Or perhaps I should write, ownership of the alt-digital media company. Much of Eason’s testimony concerned the collapse of the print news publishing economic model starting in 2005 and accelerating with the advent of the current recession in mid-2008. Under direct examination from CL’s bankruptcy lawyer David Jennis, Eason detailed how the company responded to 20 percent decreases in advertising revenues that he says company officials started seeing in July 2008.

“There’s been significant changes in our business…” Eason said in what qualified as the understatement of the day.

Eason described how he realized by September of last year — after revenues remained “soft” for the papers’ best month and special issue, the Best Of’s — that the print business model was going away and that he would have to shift to an online emphasis, with its lower revenues but greater ability to cut costs and increase margins. The print dominnance in classified ads and community news that papers once had was finis.

“You don’t have the full attention of that user,” Eason said. “You don’t have the monopoly that we once had.”

Eason detailed how the company’s “Digital Transformation Plan” was first implemented in Tampa in a matter of a few months after the bankruptcy court filing; staffing cuts were made (ironically, one of those cut, Alex Pickett, was in the courtroom with a reporter’s notebook), and news was put on a “Web First” basis, later published in a redesigned weekly newspaper designed to highlight online offerings and guide readers to the web. Eason testified that web traffic, both pageviews and unique visitors, is dramatically increased in Tampa as a result, but efforts to introduce those stats into evidence beyond his testimony were blocked by lawyers for Atalaya Capital Management LP on procedural grounds. Atalaya, which is owed $31 million, is seeking control of the company, claiming it is being harmed by a dropping value in the company as it is protected in bankruptcy court.

Eason also testified about how the 2007 purchase of the Chicago Reader and Washington City Paper, financed by Atalaya, for $17 million-$18 million gave CL a national platform to do deals with small, tech-savvy firms to develop new online media products. “We realized that we needed to be on a national stage…” he said. He also detailed how CL’s new Digital Ad Network, which puts together large-scale online ad buys for the CL websites and others beyond, had its largest revenue month in Feburary, $25,000.

Under a withering cross-examination by Atalaya’s lawyer Tyler Brown, a different picture emerged. Brown painted the digital plan as futile, not producing enough profits to make up for print losses for at least the next 10 years by Creative Loafing’s own projections. Brown attacked what he saw as Eason’s lack openness with Atalaya’s rep, Michael Bogdan, insisting that the company hadn’t fully disclosed its increasingly difficult revenue situation as it adopted a budget in Sept. 11 last year. (Eason has testified that enough financial data was sent to Atalaya weekly that it should have been able to tell that revenues were falling and advertisers were struggling. He also said he discussed the matter on a telephone call with Bogdan, but acknowledged not mentioning it during a budget presentation to Atalaya on Sept. 11.)

Brown meticulously walked Eason through his own financials, getting Eason to begrudgingly acknowledge that online revenues have dropped month-over-month since CL went into bankruptcy court on Sept. 29, 2008. (Eason countered that those aren’t “real” decreases, and that the numbers are explained by differently sized months, some with four weeks and others with five weeks, as well as seasonality. On a month vs. previous year’s month basis, online advertising is significantly up, he testified. “I believe that the trends that we put out there are positive.” He elaborated on the company’s online growth during rebuttal testimony early in the evening.)

Brown asked Eason about the $3.5 million-$4 million in cuts made to the current year’s budget, which resulted in about 50 layoffs, 40 percent of which came in editorial news departments. Brown’s questions insinuated that the cuts actually hurt the chain and profits and forced Eason to admit that the chain’s “preeminent position” in its cities slid in Atlanta, where the paper was founded. A Media Audit in November showed the rival weekly Sunday Paper having a higher readership than the Atlanta flagship paper, a fact that it took 3-4 attempts by Brown to get Eason to agree, although Eason added that he believes the papers are still the top alt-products in their respective cities. (In later re-direct testimony, the judge asked if what was meant by Sunday Paper, feeding the notion that the rival weekly’s readership is inflated by  misunderstandings by those surveyed by Media Audit who may have thought “the Sunday Paper” referred to the weekly or to the Sunday edition of the Atlanta Journal-Constitution.)

The cross-exam was tense but not openly contentious, with Eason making one sotto voce snide remark aimed at Brown at one point and disagreeing strongly with the dire portrayal of the company by Atalaya throughout. His most common answers were “That’s not true” and that’s “not necessarily the case.” The cross went after 6:30 p.m., after which rebuttal testimony was expected.

Finally, Eason was asked about morale at the newspapers. In blog stories and in anonymous blog comments, some CL employees have said morale is low, and an attempt by Atalaya’s Bodgan on Wednesday to testify about that digital chatter was blocked on hearsay grounds. Eason disagreed under direct examination: “I actually think that our morale has been really good.

“All of our employees have an understanding of the challenges in this industry. [We challenged them to ask themselves,] ‘Can I reach within myself and make a big change?’ They’ve done that, and now they are more confident they can do this…, to be able to do more with less.”

Those who have made the digital adjustment are “confident and happy,” Eason said. “So the morale has actually been pretty good.”

On Tuesday, CL’s CFO Angela LaFon and its valuation expert are set to testify. The judge will then rule on who gets control of Creative Loafing.

For those who think I’ve let lapse my casual obsession with the Creative Loafing Inc. bankruptcy, rest easy. There’s more news! Turns out that Brian Conley, who once owned the alternative newspaper in Knoxville, TN, and is now helping to finance the Sunday Paper’s expansion into other cities, has offered to buy all six papers in the Creative Loafing chain. Offer price? $13.3 million.

In a response to an email I sent him, Ben Eason, Creative Loafing Inc.’s CEO, said his company’s financial adviser, Bryan Crino, has been in touch with Conley. However, Eason wouldn’t characterize what reaction, if any, he has to the offer. “You can read any and all about CL on our websites when there is something to report,” he wrote in the email.

Because it’s in bankruptcy, CLI is under the watchful eye of a judge. So any move-and certainly one as major as a sale-would have to clear many hurdles. What’s more, Conley’s offer price is based on financial figures submitted by CLI last fall in court. Since then, those figures-basically, earning projections that provided the basis for Conley’s offer price-have changed dramatically. In court documents submitted recently by Creative Loafing, the company projects those earnings (called EBIDTA, or earnings before things like interest, taxes and amortization) for the current fiscal year to be $1.7 million. Conley says these latest figures may alter his offer price, which is usually based on a multiple of EBIDTA.

In any case, perhaps what’s most amazing is that there’s someone out there who sees a future in newspapers beyond a long, inexorable slide into obsolescence. I spoke briefly by phone this afternoon with Conley, who is primarily a real estate developer in Knoxville. He has dabbled in publishing, though, having owned for four-and-a-half years Metro Pulse, that city’s alternative weekly. Conley also founded Knoxville Magazine in 2006, which, like Metro Pulse, he has since sold. The obvious question is, when everyone else is running away from newspapers, why is Conley running toward them?

(The Sunday Paper had already offered $1 million for the Atlanta Creative Loafing.)

Read the full story here.

It is the unfortunate direction of all print media. Newspapers, magazines, and such media depend on advertising to survive. Why would someone want to pay $10-30 for 3-4 lines of text in classified advertising when a free ad with unlimited text, anonymized response links (so unknowns do not call your home), and multiple photos on a place like Craig’s List [tampa.craigslist.com]? The Tribune, TBT, and Creative Loafing still get more overall local readers, but until they update, they cannot compete. One would think by now the Tribune would even have special links in the ads so that those that pay to list them can have pictures added online.

I like Creative Loafing because of the activity listings and local stories (the Tribune seems to have little real local content that isn’t focused on car crashes, press releases, or celebrity news). When is the last time anyone recalls the Tribune really doing an in-depth, politically dangerous expose on any subject? They did have a long article regarding accidental arson in Plant City years ago, but I wouldn’t really term that as an expose. — comment on tbo.com

Eric Deggans reports on a dispute between CL and one of the investors who financed the Chicago-Washington purchase last year:

Despite a story on the Washington City Paper Web site quoting Creative Loafing Inc. president Ben Eason saying “this filing has little to do with the acquisition,” documents included with the bankruptcy filing indicate the company had trouble keeping up with payments on a $30-million loan taken last year to pay down $15-million in debts and to purchase the two newspapers.

According to documents included with the bankruptcy filing, Creative Loafing missed an interest payment of $282,219 on Dec. 24, a $10,000 servicing fee on Dec. 31 and an interest payment of $294,369 due Jan. 24.

Also according to the documents, as the media economy grew worse, Creative Loafing negotiated agreements to modify the financing terms with Atalaya Funding in New York and BIA Digital Partners. But last week, Atalaya said the company was in default, though Creative Loafing disagrees, according to the court document.

Creative Loafing has asked the court to prevent Atalaya or Atalaya and BIA from taking control of the company, allowing Eason to focus on reorganizing to better meet its debt obligations and develop the online revenue sources prompting the Reader and City Paper purchases.

From Erik Wemple, editor at our sister Washington City Paper:

The move does contain good news for editorial departments in the chain. Eason announced that cuts to edit staffs at all the papers would be rolled back but stressed that all the papers should proceed with “Web-first” publishing strategies, in which writers and editors customize their content for the Internet and subsequently transfer that content into their print products.

From The Business Journal in Tampa Bay:

The bankruptcy filing comes the same day Creative Loafing sued Atalaya Administrative LLC, Atalaya Funding II LP and BIA Digital Partners SBIC II LP asking a judge to stop a default on $40 million in loans. In the suit, filed with the same court, Creative Loafing said the lenders failed to act in good faith when they refused to negotiate lowering the financial covenants. Without the injunction, Creative Loafing says it has no other options in stopping the default, as it would be “too late to save the debtors’ businesses, reputation, and close-knit and effective management.”

From paidcontent.org at Washington Post:

Likely means the BIA funding went south, somewhere along the line, as of course did the company’s fortunes. The company also denies any connection between the acquisitions last year and Ch 11, and says there won’t be any major layoffs…lotsa spin in there, if you ask me.

From our sister Chicago Reader:

In a telephone conversation with executives of his newspapers, Eason sounded relentlessly chipper, and he emphasized that all his company seeks from bankruptcy is the opportunity to restructure its debts. Liquidation is not being considered. “This is a profitable business,” he declared. “The company has a good cash flow. It has a good market position. Online revenues more than doubled in the last year.” But print revenues have fallen off dramatically over the past year at Creative Loafing and throughout the newspaper business. He said in the past three months total revenues were down 10 to 15 percent from the same months a year ago.

The douchebags at Philebrity:

Food for thought: So Creative Loafing, an alt-weekly chain/parent company thing that mostly covers cities you would not live in with even with somebody else’s dick, totally screwed the pooch and declared bankruptcy so that its papers — including Washington City Paper — can better “focus” their efforts online. You can see where we might be going with this: With the Philadelphia Weekly having been rumored to have slashed its freelance budget entirely (no shit! more on this later!) and the City Paper spectacularly lunching its most spectacular issue of the feckackular year, is this a trend that might look juicy to guys like Paul Curci and Anthony Clifton? Our guess: Not yet, but it will.

The Gawker:

This may be just a foreshadowing of some painful days to come for alt-weeklies in general—we also hear the Village Voice may be on the verge of some layoffs.