UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
x TIMOTHY A. HUTCHINSON, Individually : Civil Action No. 1: 12-cv-01073-HB and on Behalf of All Others Similarly Situated, CLASS ACTION Plaintiff, SECOND AMENDED COMPLAINT FOR vs. VIOLATION OF THE FEDERAL SECURITIES LAWS ANTONIO M. PEREZ, et al.,
Defendants. DEMAND FOR JURY TRIAL
806584_i Case 1 :12cv-01073-HB Document 51 FUed 01/23/13 Page 2 of 100
TABLE OF CONTENTS
Page
1. INTRODUCTION ...... 1
II. JURISDICTION AND VENUE ...... 4
III. PARTIES ...... 4
IV. FACTUAL BACKGROUND ...... 7
V. FRAUDULENT SCHEME AND COURSE OF BUSINESS ...... 14
VI. DEFENDANTS' FALSE AND MISLEADING STATEMENTS AND OMISSIONS ISSUED DURING THE CLASS PERIOD...... 16
A. False and Misleading Statements and Omissions Made in Connection with the Company's July 26, 2011 Press Release and Earnings Conference Call...... 16
B. False and Misleading Statements and Omissions Made in Connection with the Company's September 23, 2011 Press Release ...... 19
C. False and Misleading Statements and Omissions Made in Connection with the Company's November 3, 2011 Press Release and Earnings Conference Call...... 24
D. Defendants' False and Misleading Certifications During the Class Period...... 29
E. The Truth Is Revealed When Kodak Files for Bankruptcy ...... 31
VII. SCIENTER ...... 32
A. Defendants' Restructuring of Kodak's Loan Agreement to Avoid Defaulting on a Debt Covenant Requiring a Minimum Cash Balance in U.S. Is Highly Probative of Scienter...... 34
B. Defendants' Violation of Accounting Standards, SEC Materials and SEC Regulation by Concealing the Fact that Most of Kodak's Cash Was Tied Up Overseas Is Highly Probative of Scienter ...... 36
C. Admissions Made in Defendants' Bankruptcy Filings Are Highly Probative of Scienter...... 39
D. Confidential Witness Statements Supporting that Defendants Had Access to Facts Directly Contravening Their Public Statements When They Made Them Are Highly Probative of Scienter ...... 45
806584_i Page
1. Confidential Witness Allegations Support that Defendants Were Informed that the Company's Core Business Was Failing Before September30, 2011 ...... 45
2. Confidential Witness Allegations Support that Kodak's Reduction of Investment in Inkjet and Hiring of Jones Day in September Was "Internally Viewed as Pulling the Life-Plug from Inklets and Scuttling Kodak into Bankruptcy" ...... 48
3. Confidential Witness Allegations Support that Data Throughout 2010 and 2011 Showed Ink and Inkjet Sales to Be Declining and that Kodak Was Too Large and Moved Too Slowly to Prepare for Bankruptcy in Just a Month ...... 49
4. Confidential Witness Allegations Support that, in Contrast to Perez's Statements to the Contrary, the Sale of Kodak's Digital Imaging Portfolio Was Critical for Kodak to Remain Solvent...... 50
E. Defendants' Certifications Filed with the SEC Are Further Indicative of Scienter...... 51
F. Defendants' Violation of Kodak's Own Policies Further Evidences Scienter...... 51
VIII. LOSS CAUSATION...... 52
IX. NO SAFE HARBOR ...... 54
X. CLASS ACTION ALLEGATIONS ...... 54
XI. PRAYER FOR RELIEF.. 57 XII. JURY DEMAND 57
806584_i I. INTRODUCTION
1. This is a securities class action for violations of the anti-fraud provisions of the
federal securities laws on behalf of all persons who purchased or otherwise acquired the publicly traded securities of Eastman Kodak Company ("Kodak" or the "Company") between July 26, 2011
and January 19, 2012, inclusive (the "Class Period") and who were damaged thereby (the "Class").
The claims asserted herein are brought against certain of Kodak's officers and/or directors: Antonio
M. Perez ("Perez"), the Company's Chairman of the Board of Directors (the "Board") and Chief
Executive Officer ("CEO"); and Antoinette P. McCorvey ("McCorvey"), the Company's former
Chief Financial Officer ("CFO") and Senior Vice President (collectively, "Defendants").
2. During the Class Period, Defendants engaged in multiple violations of §§ 10(b) and
20(a) of the Securities Exchange Act of 1934 ("1934 Act") (15 U.S.C. §78j(b), 78t(a)) and Rule
1 Ob-5 promulgated thereunder by the U. S. Securities and Exchange Commission ("SEC") (17 C.F.R.
§240.1 Ob-5), by making materially false and misleading public statements and omissions concerning the Company's financial condition. Defendants' misrepresentations and omissions obfuscated
growing problems with Kodak's ability to function as a going concern while artificially inflating the
price of Kodak's publicly traded securities. As the truth was revealed throughout the latter part of
2011 and January 2012, Kodak's stock price plummeted, and the Company's shareholders suffered
millions of dollars in damages.
3. Remarkably, during the Class Period and until November 3, 2011, Defendants made
positive statements about Kodak's financial health while utterly failing to disclose that more than
70% of Kodak's cash was tied up overseas and unavailable to fund domestic operations. This
material omission made many of Defendants' positive statements about Kodak's financial condition
false and misleading. For example, in July 2011, Perez unabashedly assured investors that, "[sb far
-1- 806584_i with the best data we have, we fret very comfortable with the level of cash we have and we feel
very comfortable with the level we will have at the end of the year." In fact, the Company had just
been forced to renegotiate its Amended and Restated Credit Agreement because Kodak had been
dangerously close to violating the covenant's requirement that minimum amounts of cash be held
domestically.
4. On September 26, 2011, on news that Kodak borrowed $160 million from its
revolving credit facility, Defendants misleadingly assured investors that the "purpose" of the loan
was simply "to bridge timing differences between cash outflows and inflows" when it was actually to stave off a liquidity crisis caused by the fact that more than 70% of the Company's cash was tied
up overseas and unavailable to be repatriated - a truth altogether omitted from Defendants'
September disclosures as well.
5. On September 30, 2011, when Kodak disclosed that it had hired a known bankruptcy
firm, Jones Day for restructuring advice, CEO Perez countered the bad news by assuring investors
Kodak had "no intention offiling for bankruptcy." In fact, Kodak had already engaged known
bankruptcy advisors, Lazard Frères & Co. LLC ("Lazard"), and specifically expanded the scope of that engagement on September 12, 2011 to include a possible Chapter 11 filing. Exhibit A at ¶11;
Ex. C at 1 n.4 and accompanying text and at 2-3 (J1.h).i
6. On November 3, 2011, CEO Perez stated, "[mjore than anything, the results ofthis
quarter reflect our continuedprogress toward establishing digital growth businesses that willform
the nucleus of anew Kodak," when Confidential Witnesses ("CW5") explain that, in reality, all of
All exhibits referenced herein are to the bankruptcy proceeding, In re Eastman Kodak Co., No. 12-10202 (Bankr. S.D.N.Y.), and are attached hereto unless otherwise indicated.
-2- 806584_i Kodak's main segments were declining, including the core inkjet business which missed every
internal forecast in 2011. Because of the staggering declines, CEO Perez had already "pull[ed] the
life-plug" on that core business by reducing its funding in September 2011.
7. Further, on November 3, 2011, Perez assured investors that Kodak's financial
viability was not dependent upon an IP sale ("[kjeep in mind that our expected year end cash position does not contemplate a new financing or the sale of our IPportfolio"), when in reality,
and as corroborated by Kodak's later bankruptcy pleadings and the CWs, it was widely understood throughout the Company and discussed by management at the time, that an IP sale was critical to
Kodak's ability to continue to function as a going concern.
8. Also, on November 3, 2011, with respect to a potential sale of Kodak's IP portfolio,
Defendants further stated, "the company is pleased with the progress and level of interest in the portfolios," when they were anything but. According to CWs 2 and 3, the efforts to execute such a
sale were frustrated as early as September 2011, as potential buyers had expressed legitimate fears a
purchase would constitute a fraudulent transfer should Kodak become insolvent. Thus, Defendants
had no basis to assure investors in November 2011 that they were "pleased with the progress" and
had a "high degree of confidence" in completing such a sale.
9. Finally, the Company's boilerplate, cautionary statements were too vague to be
meaningful. Indeed, Perez expressly negated the statements in the November 3, 2011 disclosure
accompanying Form 10-Q by characterizing them on the conference call as mere "requirement
statements" that should not be misconstrued as a "dampening [of his] optimism." Perez's foregoing
statements transgressed the policy underlying the reason for cautionary statements in the first place
by essentially advising the public it was okay to ignore them. The true facts about Kodak's financial
-3- 806584_i and operating conditions were not fully revealed until January 19, 2012, when Kodak filed for
bankruptcy.
II. JURISDICTION AND VENUE
10. The claims asserted herein arise under §10(b) and 20(a) of the 1934 Act [15 U.S.C.
§78j(b) and 78t(a)I and pursuant to Rule lob-S promulgated thereunder by the SEC [17 C.F.R.
§240.10b-5].
11. This court has jurisdiction over the subject matter ofthis action pursuant to 28 U.S.C.
§1331 and §27 of the 1934 Act [15 U.S.C. §78aa].
12. Venue is proper in this District pursuant to 28 U.S.C. §1391(b) because many of the
acts and practices complained of herein occurred in substantial part in this District.
13. In connection with the acts alleged in this complaint, Defendants, directly or
indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to, the mails, interstate telephone communications and the facilities of the national securities markets.
III. PARTIES
14. Lead Plaintiff Bret S. Jones purchased the publicly traded securities of Kodak during the class Period as set forth in the certification attached hereto and was damaged as a result of
Defendants' wrongdoing as alleged in this complaint.
15. Defendant Antonio M. Perez is, and at all relevant times was, the company's
Chairman of the Board and CEO. He has held these positions since joining the company in April
2003. Prior to joining Kodak in 2003, Perez held several high level positions at Hewlett Packard for
25 years.
(a) During the class Period, Perez issued false and misleading statements about
Kodak and failed to disclose the true and material facts about the company's digital transformation,
-4- 806584_i liquidity, financial condition, financial prospects and bankruptcy considerations. In addition to issuing false and misleading statements throughout the Class Period, Perez had repeated opportunities to correct the misstatements and omissions by and on behalf of Kodak, and failed to do so.
(b) As CEO and Chairman, Perez directed Kodak's financial and business affairs.
Specifically, during conference calls with analysts and investors, Perez held himself out as knowledgeable about the Company's digital transformation, liquidity, financial condition, financial prospects and bankruptcy considerations. Moreover, in conjunction with each of Kodak's Class
Period financial reports publicly filed with the SEC, Perez assured investors that he, together with
Defendant McCorvey, was personally "responsible for establishing and maintaining disclosure controls and . . . [designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under [their] supervision, to ensure that material information relating to [Kodak], including its consolidated subsidiaries, [was] made known to [Perez and
McCorvey] by others within those entities." At no time during or after the Class Period did Perez or
McCorvey assert that they were unaware of material aspects of Kodak's business operations and financial condition. Indeed, Perez and McCorvey repeatedly assured investors that Kodak's SEC filings did not "contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading."
(c) Perez signed Kodak's SEC filings throughout the Class Period, including, but not limited to, the Company's Forms 10-Q for the periods ending June 30, 2011 and September 30,
2011, and the Company's Form 10-K for the period ending December 31, 2011. Perez also
-5- 806584_i participated in the Company's earnings conference calls and other conference calls, including, but
not limited to, the conference calls held on July 26, 2011 and November 3, 2011.
16. Defendant Antoinette P. McCorvey was Kodak's CFO and Senior Vice President
from November 2010 to September 2012. She now reports to CEO Perez in a project leadership
capacity.
(a) During the Class Period, McCorvey issued false and misleading statements
about Kodak and failed to disclose the true and material facts about the Company's digital transformation, liquidity, financial condition, financial prospects and bankruptcy considerations. In
addition to issuing false and misleading statements throughout the Class Period, McCorvey had
repeated opportunities to correct the misstatements and omissions by and on behalf of Kodak and
failed to do so.
(b) As CFO, McCorvey directed Kodak's financial and business affairs.
Specifically, during conference calls with analysts and investors, McCorvey held herself out as
knowledgeable about the Company's digital transformation, liquidity, financial condition, financial
prospects and bankruptcy considerations. Moreover, in conjunction with Kodak's Class Period
financial reports publicly filed with the SEC, McCorvey assured investors that she, together with
Defendant Perez, was personally "responsible for establishing and maintaining disclosure controls
and. . . [designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under [their] supervision, to ensure that material information relating to
[Kodak], including its consolidated subsidiaries, [was] made known to [McCorvey and Perez] by
others within those entities." At no time during or after the Class Period did McCorvey or Perez
assert that they were unaware of material aspects of Kodak's business operations and financial
condition. Indeed, McCorvey and Perez repeatedly assured investors that its SEC filings did not
-6- 806584_i "contain any untrue statement of a material fact or omit to state a material fact necessary to make those statements made, in light of the circumstances under which such statements were made, not
misleading."
(c) McCorvey signed Kodak's SEC filings throughout the Class Period,
including, but not limited to, the Forms 10-Q for the periods ending June 30, 2011 and September
30, 2011, and the Company's Form 10-K for the period ending December 31, 2011. McCorvey
further participated in Kodak's earning conference calls and other conference calls, including, but
not limited to, the conference calls held on July 26, 2011 and November 3, 2011.
17. Defendants, because of their positions with the Company, possessed the power and
authority to control the contents of Kodak's quarterly reports, press releases and presentations to
securities analysts, money and portfolio managers and institutional investors, i.e., the market. The
Company provided Defendants with copies of the Company's reports and press releases alleged
herein to be misleading prior to, or shortly after, their issuance. Defendants had ample opportunity to prevent their issuance or cause them to be corrected. Because of their positions with the
Company, and their access to material non-public information, Defendants knew that the adverse
facts specified herein had not been disclosed to, and were being concealed from, the public; and that the positive statements made were materially false and misleading.
IV. FACTUAL BACKGROUND
18. Kodak is a New Jersey corporation headquartered in Rochester, New York. It was
founded by George Eastman in 1888 to develop the first simple camera for mass production to
consumers. In 1900, it popularized photography by marketing the world's first flexible roll film and transforming picture taking into amass commodity with the $1.00 Brownie camera. Since that time,
Kodak has become known for developing an abundance of photography products, including, for
-7- 806584_i example, photo CD systems, digital camera systems, health imaging units, dental radiography film
and digital radiography systems. Kodak grew into a global industrial and commercial giant. In
1976, Kodak commanded 90% of film sales and 85% of camera sales in the U.S. The Company
describes itself as "the world's foremost imaging innovator." On January 19, 2012, Kodak
announced that it and its U.S. subsidiaries filed voluntary petitions for Chapter 11 business
reorganization in the U.S. Bankruptcy Court for the Southern District of New York. Accordingly,
Kodak is not named as a Defendant in this action.
19. Although Kodak was one of the first companies to invest in digital imaging technologies and, in fact, invented the digital camera in 1975, it was this very invention which went
on to kill its core businesses. Instead of capitalizing quickly on its new wave of know-how and
exploiting the hunger for digital photography, Kodak stayed firmly focused on its 20th-century cash
cow: film. As a result, Kodak has been forced to undergo almost constant reorganization since the
1990s and has been playing catch-up for the past decade. By 2004, Kodak found itself being
pummeled by Wall Street over its dwindling cash reserves and its stumbling attempts to reinvent
itself as a profitable player in digital imaging and printing.
20. In an effort to address these problems, Perez embarked upon a patent "monetization"
strategy of approaching other firms Kodak believed were infringing on its patents. Many settled
without litigation, allowing Kodak to generate additional income during a time when its legacy film
products were failing and its new products were equally unsuccessful. On January 24, 2011,
however, an administrative law judge issued a highly anticipated ruling, in an action involving
Blackberry and Apple, Inc. ("Apple"), that Kodak's patent claim was invalid and not infringed.
Kodak's stock dropped significantly on this news as investors became concerned about Kodak's
future.
-8- 806 584_i 21. During the Class Period, Defendants engaged in a campaign to convince investors of
Kodak's imminent transformation to a profitable, digital company, and falsely assured the public of the Company's financial stability and that such stability was not dependent on revenue to be
generated from a sale of its IP portfolio, which, in any event, they also falsely assured was likely
imminent.
22. According to the CWs, throughout 2011, it became clear that the Company's digital
growth initiatives failed to enable the Company to achieve sustainable and profitable growth by the
end of 2011. The consumer inkjet business, which relied primarily on the sale of ink and other
supplies to recoup investments lost on printer sales and to fund expansion, was failing, missing
internal forecasts for every quarter in 2011. Internal reports showed that consumers were not
utilizing Kodak's printers with sufficient frequency or duration to achieve profitability in ink sales,
hammering the Company's core business.
23. Compounding matters, Kodak's liquidity had been declining for some time; as a
consequence, cash flow from the licensing and sale of intellectual property had been delayed due to
litigation tactics employed by a small number of infringing technical companies with strong balance
sheets and an awareness of Kodak's liquidity crisis.
24. By July 2011, Kodak resorted to hawking an entire portfolio of digital patents,
reportedly valued at $2-$3 billion, 2 all the while continuing to assure investors that its transformation to profitability was imminent. For example, on July 26, 2011, Perez assured investors that, "[sjofar
2 On December 19, 2012, The New York Times published an article entitled, "Kodak to Sell Digital Imaging Patents for $525 Million," reporting that Kodak's estimation appeared to be an exaggeration of the portfolio's value, given that on December 19, 2012, Kodak sought court approval to sell its portfolio for a meager $527 million.
-9- 806584_i with the best data we have, we fret very comfortable with the level of cash we have and we feel
very comfortable with the level we will have at the end of the year."
25. In actuality, more than 70% of that cash was unavailable for use in the U.S.
Moreover, in addition to the problems Kodak experienced with IP negotiations and inkjet
profitability that constrained the Company's liquidity and financial outlook, Kodak's bankruptcy
filings reveal that Kodak had, at the time, declined into a state of crisis management, requiring it to
retain Lazard on July 20, 2011 to assist with securing a patent sale. When that didn't work, Kodak
expanded Lazard's engagement on September 12, 2011 specifically to include bankruptcy and
restructuring.
26. The true magnitude of the problems facing Kodak began to seep into the market. For
example, on September 11, 2011, SeekingAipha published an article entitled "Eastman Kodak: On the Road to Bankruptcy," painting a bleak picture of Kodak's financial condition and future. On
September 23, 2011, Kodak issued a press release announcing that the Company borrowed $160
million against its revolving credit line "for general corporate purposes." On this news, the stock
plummeted. Shares of Kodak dropped $0.64, to close at $1.74 per share on September 26, 2011, a
decline of nearly 27% on volume of approximately 43 million shares. The next week, on September
30, 2011, it was further disclosed that Kodak retained Jones Day, a major restructuring law firm, a
move which many interpreted as a precursor to a bankruptcy filing. Investor fears sent Kodak stock tumbling to an all-time closing low of $78 per share.
27. In response, Defendants continued with their campaign of reassurance to effectively
counterbalance the bad news. With respect to the $160 million draw on its credit, Perez explained it
away by stating it was a simple, commonplace effort to address timing differences:
"The purpose of the revolving creditfacility is to bridge timing differences between cash outflows and inflows, which is a common practice at many corporations. As - 10- 806584_i we have said in the past, our cash flow is highly seasonal. This is a tool to help manage that seasonality."
28. These statements are remarkable given that, in reality, Kodak faced a liquidity crisis
in the U. S. Most of its available cash was tied up overseas and could not be repatriated due to the
need to fund local country operations abroad, Chinese restrictions on repatriation and U.S. tax
penalties as high as 35%. 3 These facts were not disclosed until November 3, 2011. Moreover, by this time, as consumer inkjet had missed every internal forecast so far in 2011 and failed to achieve
profitability, management had already severely curtailed its investment in the digital businesses,
lowering unit productions and halting penetration into new markets - essentially "pulling the plug"
on the digital growth initiatives that were key to Kodak's transformation and survival. Kodak's
financial status was so dire that, as evidenced by its first-day bankruptcy filings, Kodak had already
engaged Lazard to handle its bankruptcy and restructuring issues at the time these statements were
made.
29. Because Defendants failed to disclose this information to investors, their misleading
assurances had the desired effect on the market. Dow Jones reported that shares of Kodak rose 47% to $1.15 in after-hours trading on September 30, 2011 as a result of Company assurances that it was
"committed to meeting all of its obligations and ha[dJ no intention offiling for bankruptcy."
30. As late as November 2011, while Kodak engaged in fire-sale efforts to raise
desperately-needed cash by offloading such components as its online photo-sharing business, Perez
nevertheless assured investors and analysts during a November 3, 2011 conference call of his
"optimism," essentially telling them to disregard the cautionary statements in the Form 8-K:
See Accounting Standards Codification 210-10-S99, SEC Materials and SEC Regulation S-X, Rule 5-02 —Balance Sheets, Assets and Other Debits.
-11- 806584_i The[] require[d cautionary] statements shouldn't be misunderstood in anyway as dampening my optimism in [Kodak's] ability to complete the sale of [its] digital imaging patent portfolio, which is very high.. . . I want to emphasize again that our 2012 cash performance from our digital business will be significantly better than this year. That 2011 was the peak of our cash usage.... [And that] by the end of 2012, we're going to [be] this self-standing digital company.
31. On November 3, 2011, Perez further assured investors that Kodak was not dependent
on an IP deal ("[k]eep in mind that our expected year end cash position does not contemplate a
new financing or the sale of our IPportfolio"), when nothing could have been further from the truth. In fact, most of the Company's cash was tied up overseas; and as corroborated by CWs 1, 2
and 3, the Company's main business segments, including its touted core digital businesses, were
failing. CWs further confirm that management viewed an IP deal as a desperate measure to obtain the much-needed cash, not just to maintain the Company's cash position, but to save it from
bankruptcy.
32. Moreover, as is revealed in Kodak's recent bankruptcy filings, the Company had been
in crisis management mode for several months and had already retained bankruptcy and restructuring
advisors as a result. The bankruptcy filings further reveal that, at a minimum, between July 13, 2011
and September 12, 2011, it had "bec[o]me clear that [Kodak's] U.S. liquidity was declining and
might reach a critical level before a sale of the digital imaging patents could be completed,"
suggesting that, contrary to Defendants' statements on November 3, 2011, it was clear that an IP sale
was absolutely necessary. Ex. AatJ11.
33. In stark contrast to Defendants' materially false and misleading assurances and
omissions during the Class Period, on January 19, 2012, the Company filed for Chapter 11
It is further noted that, in late December, the Company disclosed that three of its then-current directors, Adam H. Clammer, Herald Y. Chen and Laura D. Tyson, had notified the Company's
- 12- 806584_i bankruptcy protection, causing the stock to plummet and the NYSE to delist Kodak shares. Finally, it was clear to all, despite the seemingly credible and consistent denials by those at the helm of the
Company, that Kodak's main lines, including its inkjet business, were failing and the sale of its IP portfolio was both necessary and unobtainable outside bankruptcy.
34. The following chart illustrates how Defendants' false and misleading statements and omissions caused the price of Kodak securities to be maintained at an inflated price during the Class
Period and how Class members were damaged when the Company's true financial and operating conditions were revealed to the market:
Board of Directors of their resignations from the Board. Moreover, on January 3, 2012, the Company disclosed that it had received a continued listing standards notice from the New York Stock Exchange (the "NYSE") because the average closing price of the Company's common stock had been less than $1.00 per share over a period of 30 consecutive trading days.
- 13 - 806584_i I....
V FRAUDULENT SCHEME AND COURSE OF BUSINESS
35. Plaintiff alleges that, during the Class Period, Defendants devised and carried out a fraudulent scheme to misrepresent and conceal the Company's true financial condition by failing to disclose (until November 2011) that more than 70% of the Company's cash was overseas and unavailable for use in the U.S. and by repeatedly and aggressively assuring investors that the
Company had "no intention" of filing for bankruptcy, that the inkjet business was making "continued progress toward. . . form[ing] the nucleus of a new Kodak" and that an IP sale was likely but in any event unnecessary. Defendants issued false and misleading statements in press releases, analyst conference calls and quarterly reports filed with the SEC regarding the Company's financial and operating conditions. The true and material facts, which were known by Defendants but concealed from the investing public during the Class Period, are as follows:
- 14- 806584_i (a) Kodak's business model was not working - the Company was unable to
leverage its extensive portfolio and scale of products and services in a strategically beneficial
manner; and Kodak's main lines, including Consumer Inkjet, Kodak's "core" business, missed every
internal forecast in 2011;
(b) Kodak's cash position was much more precarious than Defendants stated
because most of its cash was tied up overseas and unavailable for use in the U.S., and its U.S.
liquidity was declining to critical levels; as such, Kodak expanded Lazard's engagement by
September 12, 2011 to include a possible bankruptcy filing;
(c) Kodak's survival was dependent upon an IP sale, which could not be executed
due to buyers' reasonable fears that if Kodak became insolvent, the purchase would be considered a
fraudulent transfer, and their reasonable expectations that a much better price could be obtained
when Kodak was in bankruptcy; and
(d) Based on the foregoing, Defendants lacked a reasonable basis for their
positive statements about Kodak's digital transformation, financial conditions and prospects during the Class Period.
36. As a result of Defendants' false statements, Kodak's stock traded at artificially
inflated prices during the Class Period, reaching a high of $3.40 per share on August 30, 2011.
However, after the above revelations seeped into the market, the Company's shares were hammered
by massive sales, sending them down 91.2% on January 19, 2012 from their Class Period high.
37. Defendants are liable for: (a) making false statements; and/or (b) failing to disclose
material, adverse facts known to them about Kodak. Defendants' fraudulent scheme and course of
business that operated as a fraud or deceit on purchasers of Kodak's publicly traded securities was a
success as it: (i) deceived the investing public regarding Kodak's financial prospects and business;
- 15 - 806584_i (ii) artificially inflated the prices of Kodak's publicly traded securities; and (iii) caused Plaintiff and other members of the Class to purchase Kodak's publicly traded securities at an inflated price.
VI. DEFENDANTS' FALSE AND MISLEADING STATEMENTS AND OMISSIONS ISSUED DURING THE CLASS PERIOD
38. During the Class Period, Defendants made materially false and misleading statements and omissions concerning Kodak's financial and operating conditions, including statements and omissions related to the Company's cash position, the need to draw $160 million, the need for and negotiations of an IP sale, the performance of core product lines and preparations for bankruptcy.
As bad news seeped into the market, Defendants maintained inflation in the stock price by stepping up their efforts to publicly counter the bad news. They were effective in doing so because the bad news was not of a degree of intensity and credibility sufficient enough to effectively counterbalance
Defendants' resounding false assurances.
A. False and Misleading Statements and Omissions Made in Connection with the Company's July 26, 2011 Press Release and Earnings Conference Call
39. On July 26, 2011, Defendants filed a Form 8-K and a press release announcing
Kodak's second quarter 2011 financial results. The Company reported a second-quarter loss from continuing operations of $179 million, or $0.67 diluted earnings per share, and revenue of $1485 billion for the second quarter of 2011. Defendants additionally updated Kodak's 2011 financial guidance, forecasting a full-yeartotal revenue of $6.4-$6.7 billion for the Company and targeting a
2011 loss in the range of $200-$400 million, up from its previously forecasted loss in the range of
$100-$300 million. The press release stated in part:
"We are investing in these growth businesses to create a new profitable, sustainable digital company by 2012," Perez said. "At the same time, we continue to fund legacy liabilities associated with the traditional businesses. This was especially evident in our cash usage during the second quarter, in which we typically use cash because of seasonal patterns. We have every expectation our cash flow pattern this year will mirror the pattern of previous years, with sizeable cash
- 16- 806584_i generation in the second half of the year, primarily in the fourth quarter. In summary, while we continue to face challenges, I remain confident in Kodak's future and in our ability to maintain the investments necessary to complete our transformation."
40. After releasing its second quarter 2011 financial results on July 26, 2011, Kodak hosted a conference call with investors, media representatives and analysts, during which Defendants represented the following:
[PEREZI In summary, the announcement reinforces the strategy of the company. We are committed to completing our transformation to a digital, profitable and sustainable company by 2012.
We used approximately $350 million in cash this quarter, essentially in line with our 2010 cash performance when you adjust for two things. One, the cash that we received from non-recurring intellectual property license and revenue in the second quarter of 2010. And second, the timing of our contribution to the U.K. pension plan. The contribution of the U.K. pension plan was moved from the fourth quarter in 2010 to the second quarter this year.
When we evaluate our cash performance in the first half combined with our outlook for the second half, we willfinish the year with between $1.6 billion and $1.7 billion, in line with our prior year end cash balance. We finished the quarter, the second quarter, with around $1 billion in cash and our heaviest cash usage periods are already behind us. Consistent with prior years, we will generate cash in the second half of this year.
So far with the best data we have, we feel very comfortable with the level of cash we have and we feel very comfortable with the level we will have at the end of the year.
41. During the second-quarter 2011 earnings call, an analyst followed up with questions about whether the Company had enough cash on hand to run the business:
[Shannon S. Cross, Cross Research:] Andthen, how much cash doyou need to run the business? Do you think on an ongoing basis the cash bal ance you're comfortable with?
[McCorvey:] We expect that we'll end the year with about $1.6 billion to $1. 7 billion and we're comfortable with that. - 17- 806584_i [Cross:] Okay. But usually, I think it used to be about $1 billion that you - a minimum cash balance. Again, I'm just trying to get numbers out there so that with your CDS trading where it's at I think people need to understand what your liquidity position is versus what they've seen just in terms of cash burn in thefirst half
[McCorvey:] We're comfortable with where we think our cash balance is going to be at the end of the year and comfortable with what that means for what will be necessary for the first half of 2012. Because some of the things we've talked about that are going to improve the back half of2011 of course, will already be in place for the first half of2012.
42. In response to the materially false and misleading statements and omissions made in the Company's July 26, 2011 press release and earnings conference call, Defendants were able to
maintain and increase the artificial inflation in the Company's stock price, which traded as high as
$3.34 on August 18, 2011.
43. The statements contained in ¶J39-41 above concerning the timing of the Company's
digital transformation and its cash flow patterns and free cash expectations were materially false and
misleading when made because Defendants failed to disclose the true and material facts, including:
(a) The Company lacked the financial resources necessary to achieve profitability
in the Company's core digital growth business and complete the digital transformation;
(b) A significant portion of Kodak's cash balance was only available in Europe or
China, not the United States, and thus the amount of cash available to fund domestic operations -
including the Company's "key digital growth businesses" and digital transformation - was
significantly less than the Company portrayed as the balances overseas were subject to repatriation
restrictions, and taxes as high as 35% even if they could be repatriated. See infra §VII.B. (discussing
Accounting Standards Codification 210-10-S99, SECMaterials and SEC Regulation S-X, Rule 5-02
- Balance Sheets, Assets and Other Debits);
- 18- 806 584_i (c) The Company was desperate for cash as it had failed to derive any income from patent sales or licenses in the second quarter of 2011, had already hired bankruptcy and debt advisors for crisis management and continued to burn through its cash reserves;
(d) As corroborated by CWs 1-3, internal reports demonstrated that all of Kodak's main product lines, including ink and inkjet, were failing, missing internal forecasts for each quarter in 2011; and
(e) As a result of the foregoing, Defendants lacked a reasonable basis for their positive statements about Kodak's digital transformation, financial resources, key financial metrics, and cash and cash flow expectations.
B. False and Misleading Statements and Omissions Made in Connection with the Company's September 23, 2011 Press Release
44. After the market closed on Friday, September 23, 2011, Kodak filed a Form 8-K and press release with the SEC announcing the Company was borrowing $160 million against its credit line. Kodak failed to disclose any specific purposes for the loan in its filing. The Form 8-K stated, in pertinent part:
On September 23, 2011, Eastman Kodak Company (the "Company") initiated a draw of $160 million under the Second Amended and Restated Credit Agreement, dated as of April 26, 2011 (the "Restated Credit Agreement"), for general corporate purposes. The revolving credit advance bears interest at applicable margins over the Base Rate, as defined in the Restated Credit Agreement. The borrowing will bear interest initially at 1.5% (the applicable margin) plus the Base Rate, which fluctuates daily based on the highest of the following reference rates: the Federal Funds Rate plus 0.5%, Bank of America's prime rate, and a one- month Eurodollar rate plus 1.0%. The Company may repay the advances at any time without penalty, subject to certain conditions if the advances have been converted to a Eurodollar rate.
45. The public was surprised by Kodak's need for a loan. As financial analyst Shannon
Cross with Cross Research put it, "I'm surprised - given the cash balance they had at the end of the last quarter - that this is necessary." And according to Dave Novosel, an analyst with Gimme
- 19- 806584_i Credit, "Kodak's decision to access its credit line now is particularly alarming since the fourth quarter is typically when it generates a decent chunk of cash." Paul R. La Monica, "Kodak: Death of an American Icon?," CNN Money, September 28, 2011. As reported in The New York Times,
Deutsche Bank Securities Analyst Chris Whitmore commented that given Kodak's recent confirmation that it had $957 million in cash and expected to end the year with $1.7 billion,
"investors were expecting Kodak to be selling [its] assets to generate cash, not borrowing."
46. On Monday, September 26, 2011, as reported by The New York Times, Defendants issued a false and misleading statement to effectively counter the bad news about the $160 million loan, reassuring investors by explaining the draw as a simple, commonplace effort to address "timing differences." As reported by The New York Times, Kodak stated that:
"Thepurpose of the revolving creditfacility is to bridge timing differences between cash outflows and inflows, which is a common practice at many corporations. As we have said in the past, our cash flow is highly seasonal. This is a tool to help manage that seasonality."
47. On news of the loan, Kodak's stock dropped $0.64, to close at $1.74 per share on
September 26, 2011, a decline of nearly 27% on volume of approximately 43 million shares.
However, the stock price remained inflated because the false and misleading statements and omissions set forth above in ¶J44 and 46, about the purpose of the draw on the revolving credit line, mitigated the Company's stock decline.
48. As a result of this news, on September 27, 2011, Moody's Investors Service lowered all of Kodak's ratings and issued a Negative Outlook, and the following day, Fitch Ratings ("Fitch") downgraded Kodak's IDR to "CC" with a Negative Outlook, also in direct response to the
Company's draw on its credit facility, which Fitch believed "likely signifies weaker than expected cash flow in the second-half of 2011 . . . resulting in cash flows below historical levels" and that a
- 20 - 806584 1
"default of some kind appears probable." Between September 27 and 28, 2011, Kodak's stock
declined nearly $0.30 from $1.82 to $1.55 on news of Kodak's ratings downgrades.
49. The statements regarding the purpose for the loan alleged in ¶J44 and 46 above were
materially false and misleading because Defendants failed to disclose the true and material facts,
including that:
(a) The reason for the loan was not, as stated, merely to manage seasonal cash
flows but rather because of the fact that more than 70% of Kodak's cash was tied up overseas and
unavailable for domestic use. The Company had only $230 million of cash and cash equivalents left
within the U. S., and the cash abroad was needed to support local country operations, restricted by
China's stringent requirements related to net asset balances impeding Kodak's ability to repatriate
cash, and heavily taxed in event of repatriation;
(b) Also necessitating the loan was, as corroborated by CWs 1-3, that Kodak's
main lines, including its core inkjet business, were failing, missing every internal forecast in 2011;
(c) Also necessitating the loan was that Kodak was facing increasing difficulties
executing a desperately-needed patent sale as potential buyers were expressing concerns that any
such sale would be viewed as a fraudulent conveyance in the event of a bankruptcy and that a much
better deal could be obtained once Kodak filed for bankruptcy; and
(d) Kodak had already specifically expanded Lazard's engagement (on September
12, 2011) to include a potential bankruptcy filing (Ex. A at ¶11; Ex. C at 1 n.4 and accompanying
text and at 2-3 (J1.h.)).
50. On September 30, 2011, TheStreet.coni reported that Kodak had hired the law firm
Jones Day, a major restructuring firm, to consider a possible bankruptcy as a way to speed up the
sale of valuable intellectual property to potential buyers such as Google. On October 1, 2011, The
-21 - 806584 1 Wall Street Journal and Bloomberg News reported the same. Kodak later confirmed reports of the
hiring. Investor fears sent Kodak stock tumbling nearly 54% from $1.69 to an all-time closing low
of $0.78 per share. Because Defendants did not reveal the true extent of the Company's domestic
cash shortfall, however, the stock inflation was not completely removed.
51. On September 30, 2011, to counter the bad news that had leaked into the marketplace
about Kodak's hiring of Jones Day, Defendants issued a press release entitled, "Kodak States No
Intention to Filefor Bankruptcy." Defendants mitigated investors' fears by aggressively denying they had any intention of filing for bankruptcy:
Eastman Kodak Company (NYSE:EK), in response to rumors circulating in the capital markets, issued the following statement:
"Kodak is committed to meeting all of its obligations and has no intention of filing for bankruptcy. The company also continues to actively pursue its previously announced strategy to monetize its digital imaging patent portfolio. Kodak remains focused on meeting its commitments to customers and suppliers, and on delivering on its strategy to become a profitable, sustainable digital company."
"It is not unusual for a company in transformation to explore all options and to engage a variety of outside advisers, including financial and legal advisers. Jones Day is one of a number of advisers that Kodak is working with in that regard."
52. The statements in ¶51 above were materially false and misleading as Defendants
failed to disclose the true and material facts, including that:
(a) The Company lacked the financial resources necessary to achieve profitability
in the Company's core digital growth business and complete the digital transformation;
(b) As admitted in Kodak's subsequent bankruptcy filing, by September 12, 2011,
it had already "bec[o]me clear" that Kodak's liquidity might reach critical levels before an IP sale
could be executed (Ex. A at ¶11), and thus Kodak had already expressly expanded Lazard's
- 22 - 806584 1 engagement to include a potential filing for bankruptcy (Ex. Cat 1 n.4 and accompanying text and at
2-3 (J1.h.));
(c) More than 70% of Kodak's cash was tied up overseas and unavailable for
domestic use; thus, by September 30, 2011, the Company had only $230 million of cash and cash
equivalents left within the U.S. to meet its financial obligations and fund domestic operations,
including the Company's "key digital growth businesses" and digital transformation (see infra
§VII.B.);
(d) Internal reports demonstrated that all of Kodak's main product lines, including
ink and inkjet, were failing, missing every internal forecast in 2011; thus, by September 30, 2011,
Defendants had already "pull[ed] the plug" on Kodak's core product line by reducing investment in
ink and inkjet, the lines executives viewed as key to Kodak's survival;
(e) Kodak was having difficulties procuring a buyer for its patents because the
uncertainty surrounding Kodak's financial condition left prospective buyers concerned that if Kodak
became insolvent, the purchase could be a fraudulent transfer and creditors might sue for recovery
and because potential buyers knew they could get a better deal after bankruptcy; accordingly, as
corroborated by CW2, the "offers were not there";
(f) Because Kodak's financial condition and liquidity had seriously deteriorated, the Company was experiencing delays in its licensing negotiations with various vendors, including
Apple, Research in Motion, Corp. ("RIM") and HTC Corporation, which Kodak believed owed the
Company substantial royalties for use of its digital capture technology; 5 and
The January 2011 U. S. International Trade Commission ("ITC") ruling that Apple and RIM had not infringed Kodak's patent had a significant negative impact on the Company's ability to generate cash via IP deals and/or sales that were necessary to fund Kodak's digital transformation
- 23 - 806584 1 (g) According to CW3, Jones Day was hired by September 30, 2011 because
Lazard and management had failed to execute an IP sale and Kodak was already preparing for
bankruptcy, a process which would take a company of Kodak's size approximately six months.
53. Defendants' false statements had the desired effect on the market because, on this
news, Dow Jones reported that shares of Kodak rose 47% to $1.15 in after-hours trading as a result
of the Company's assurances.
C. False and Misleading Statements and Omissions Made in Connection with the Company's November 3, 2011 Press Release and Earnings Conference Call
54. On November 3, 2011, Defendants issued a press release announcing Kodak's third
quarter 2011 financial results. The Company reported a wide $222 million loss for the third quarter
of 2011, announcing that cash reserves had fallen almost 10% and that the 131-year-old corporate
icon was now seeking to raise an additional $500 million in financing to support "ongoing
operational needs." To counter this bad news, Defendants falsely touted the progress made in
connection with their efforts to execute an IP sale and in connection with the Company's digital
growth businesses.
55. Specifically, in the Form 8-K, Defendants stated how pleased they were with the
progress of the patent sale negotiations:
[T]he company announced in July its intention to explore strategic alternatives for approximately 1,100 U.S. digital imaging patents, which represent about 10% of its patent portfolio and which are not core to its future. The company is pleased with
strategy. These problems were exacerbated by the ITC's June 30, 2011 decision to affirm in part, reverse in part and remand in part the administrative lawjudge's January 2011 Initial Determination, the October 24, 2011 reassignment of the case and the October 27, 2011 notice setting a December 30, 2011 target date for completion of the investigation, which would necessarily delay resolution until well into 2012.
- 24 - 806584 1 the progress and level of interest in the portfolios...... More than anything, the results of this quarter reflect our continued progress toward establishing digital growth businesses that willform the nucleus of a new Kodak"
56. Also on November 3, 2011, Defendants held a conference call in which they commented on the financial results. Notably, Perez expressly negated the cautionary statements made in connection with the November 3, 2011 Form 8-K by essentially advising investors to disregard them. He specifically urged investors not to "misunder[stand]" the cautionary statements as a "dampening [of his] optimism," while at the same time falsely assuring investors that Kodak's projected cash position was not dependent on an IP sale and that he had a "high degree of confidence" in Kodak's ability to complete the digital transformation:
[PEREZI Thank you, Sandy, and good morning, everyone.
Before I share with you my observations on the third quarter, I would like to spend a few minutes to address several points relating to our liquidity position and the status of our sale of digital imaging patent portfolios.
And I'll start by making some comments about the statements included in the liquidity section of our 10-Q. A few things on this. First, as you know, under SEC rules companies are required to identify all potential risks that could impact business performance and results and to communicate various scenarios. These requirement statements shouldn't be misunderstood in anyway as dampening my optimism in our ability to complete the sale of our digital imaging patent portfolio, which is very high. We have been successfully monetizing our IP portfolio for seven years and we have both the value in the portfolio and the expertise in our team to execute this well.
Second, to be clear, we outlined several things that we can fund our operations, including continuing our successful IP licensing strategy that we have had in place for years, the sales of assets, and other actions. We are an asset rich company and we have many tools in our kit. Keep in mind that our expectedyear end cash position does not contemplate a new financing or the sale of our IF portfolio. We expect to reach this range by executing our operational plans and generating full year sales of non-strategic assets of approximately $200 million and intellectual property licensing transactions between $250 million and $350 million.
In relation to the recent speculation in the market place about the future of Kodak, I want to note that I have a high degree of confidence in our ability to
- 25 - 806584_i execute this plan. We continue to be highly focused in completing our transformation to a digital, profitable, and sustainable company. I want to emphasize as well that we recognize the importance of all of our stakeholders, including our customers and our suppliers. Importantly, we have fulfilled and remained committed to fulfilling all of our obligations.
And now an update on our sale of our digital imaging patent portfolio. As the company has previously discussed, Kodak intellectual property strategy has three goals. Number one, to provide the company with design freedom to develop and introduce innovative new products; number two, to provide access to new markets and partnerships; and number three, to generate income and cash.
In recent years, in keeping with that strategy, we have actively monetized our intellectual property through a series of individual transactions in a way to fund our digital transformations. We are building a new product, based on our technology advantages, at the intersection of material science and digital imaging science. Based on these technology advantages, we have introduced differentiated product lines that are growing very rapidly. They will be the nucleus of the new Kodak
We announced in July our intention to explore strategic alternatives for approximately 1,100 new digital imaging patents. These patents represent approximately 10% of our patent portfolio and are not strategic to the new company that we're building. We are very pleased with the progress that we have made with this project and with the level of interest in the portfolios.
Our Consumer Inkjet Printer growth continuedto significantly outpace the market We continued to increase our market share in all ofthe markets where we are participating in. Year-to-date, we have increased our printer shipments by more than 50%, far exceeding the overall industry growth in this very large market.
We fully understand our challenges and we are focused on creating a sustainable, profitable, digital Kodak. The installed base we've been creatingfor our Consumer Inkjet business is paying off. The increase in ink gross profit is impressive.
57. These falsely positive statements had its desired effect on the market. On November
3, 2011, it was reported by Ben Dobbin, AP Business writer, that CEO Perez "remain[ed] bullish about Kodak 'sprospects ofreinventing itselfby 2012 as aprofitableplayer in digital imaging and
- 26 - 806584 1 printing." As a result of the false and misleading statements about the timing and extent of the
Company's digital transformation, its financial resources, its ability to meet its financial obligations,
its expected year-end cash position and its patent sale negotiations, Defendants were able to maintain
and increase the artificial inflation in the Company's stock price, which traded as high as $1.38 per
share on November 17, 2011.
58. The statements infl55-56 above were materially false and misleading as Defendants
failed to disclose the true and material facts, including that:
(a) The Company lacked the financial resources necessary to achieve profitability
in the Company's core digital growth business and complete the digital transformation;
(b) As admitted in Kodak's subsequent bankruptcy filing, by September 12, 2011,
it had already "bec[o]me clear" that Kodak's liquidity might reach critical levels before an IP sale
could be executed (Ex. A at ¶11), and thus Kodak had already expressly expanded Lazard's
engagement to include a potential filing for bankruptcy (Ex. C at 1 n.4 and accompanying text and at
2-3 (J1.h.));
(c) Contrary to Defendants' statements, the digital imaging and printing
businesses were not flourishing. As has now been admitted in recent bankruptcy pleadings (Ex. B
¶10) and corroborated by CWs 1-3, Kodak's consumer inkjet business had been suffering since 2008
and throughout 2011. Kodak was heavily invested in the consumer inkjet business, which ran on a
"razor/blade" model in which "profits are not made on the sale of the printers, but on the aftermarket
sales of ink and other consumables." Id. at ¶37. However, due to "market conditions since 2008," there had been slower growth in the installed base than Kodak had projected and in lower printer
prices in the market. Id. at ¶34. Thus, the Company had been unable to realize expected "profits through the sale of ink and consumables." Id. at ¶37. Moreover, internal reports shared with
- 27 - 806584 1 executive management before the September 30, 2011 hiring of Jones Day demonstrated that all of
Kodak's main product lines, including ink and inkjet, were failing; thus, by September 30, 2011,
Defendants had already "pull[ed] the plug" on Kodak's core product line by reducing investment in
ink and inkjet, the lines executives viewed as key to Kodak's survival;
(d) Kodak was having difficulties procuring a buyer for its patents because the
uncertainty surrounding Kodak's financial condition left prospective buyers concerned that if Kodak
were insolvent, the purchase could be a fraudulent transfer and creditors might sue for recovery and
because potential buyers knew they could get a better deal after bankruptcy; accordingly, as
corroborated by CW2, the "offers were not there";
(e) Because Kodak's financial condition and liquidity had seriously deteriorated, the Company was experiencing delays in its licensing negotiations with various vendors, including
Apple, RIM and HTC Corporation, which Kodak believed owed the Company substantial royalties
for use of its digital capture technology;
(f) According to CW3, Jones Day was hired by September 30, 2011 because
Lazard and management had failed to execute an IP sale and Kodak was already preparing for
bankruptcy, a process which would take a company of Kodak's size approximately six months;
(g) Unbeknownst to investors, Kodak's liquidity had suffered a significant and
critical decline; and because it had been unable to monetize its patent portfolio through litigation or
licensing transactions, it had already retained bankruptcy and restructuring advisors. See Ex. A at
¶11; Ex. C at 1 n.4 and accompanying text and at 2-3 (J 1.h.). As a result of the foregoing,
Defendants lacked a reasonable basis for their positive statements about Kodak's digital transformation, financial resources, ability to meet their financial obligations and cash projections
for year-end 2011; and
- 28 - 806584 1 (h) According to CWs 1 and 4, a sale of Kodak's digital imaging portfolio was considered critical for Kodak to remain a solvent, viable entity.
D. Defendants' False and Misleading Certifications During the Class Period
59. Throughout the Class Period, Defendants Perez and McCorvey signed false and misleading certifications that assured investors about the integrity of Kodak's disclosure controls and procedures and its financial statements, ensuring that all material information was disclosed to investors.
60. In connection with the Company's Quarterly Reports on Form 10-Q, filed, inter al/a, on November 3, 2011, Perez and McCorvey both signed the following certification:
I, [Antonio M. Perez/Antoinette M. McCorvey, certify that:
1. I have reviewed this [report] of Eastman Kodak Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
- 29 - 806584_i preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
C) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
/s/ [Antonio M. Perez/Antoinette M. McCorvey
61. The certifications identified in ¶60 above were materially false and misleading because, as set forth in ¶J38-58, Defendants failed to disclose material facts necessary to make their public statements not misleading and failed to fairly present, in all material respects, the Company's financial condition.
62. Certifications pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the
Sarbanes-Oxley Act of 2002, stating:
I, [Antonio M. Perez, Chairman and Chief Executive Officer of the Company/Antoinette P. McCorvey, Chief Financial Officer of the Company, certify,
- 30 - 806584_i pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the company.
/s/ [Antonio M. Perez/Antoinette P. McCorvey
63. The certifications identified in ¶62 above were materially false and misleading
because, as set forth in ¶J38-58, Defendants failed to fairly present, in all material respects, Kodak's
financial condition and results of operations.
E. The Truth Is Revealed When Kodak Files for Bankruptcy
64. Despite Perez's repeated assertions during the Class Period about the strength of the
Company, on January 3, 2012, Kodak filed a Form 8-K with the SEC, revealing that it had received
a notice from the NYSE that the Company was below continued listing criteria under §802.0 1C of the NYSE's listing standards because the average closing price of Kodak common shares was less than $1.00 over a consecutive 30-day trading period. Kodak stock declined nearly 28% from $0.65
per share to $0.47 per share on the news.
65. On or around January 4, 2012, it was leaked that Kodak would, in fact, seek
bankruptcy protection. The following day, January 5, 2012, The Wall Street Journal published an
article entitled, "Kodak Teeters on the Brink," reporting that sources indicated the Company was
"making preparations for a filing. . . including talking to banks about some $1 billion in financing to
keep it afloat during bankruptcy proceedings." According to the article, "[t]he company and its
board have weighed a potential bankruptcy filingfor months."
66. Several media outfits sought Kodak's comments and reported that the Company
declined, stating only that it was the Company's "long-standing policy not to comment on market
-31- 806584_i rumors or speculation." The Company's position contrasted sharply with the stance taken in
September 2011, when it issued a press release in direct response to market rumors that Kodak's
hiring of Jones Day signaled bankruptcy.
67. On January 19, 2012, Kodak filed a Form 8-K with the SEC attaching a press release that announced the Company had filed for protection under Chapter 11 of the U.S. Bankruptcy Code.
Kodak stock declined 35% from trading highs of $0.55 to $0.36 on this news, trading as low as
$0.29 per share on January 23, 2012.
68. As a result of Defendants' materially false and misleading statements and omissions,
Kodak securities traded at artificially inflated prices during the Class Period. After the above
revelations seeped into the market, however, the Company's shares were hammered by massive
sales, sending them down 91% from their Class Period high.
VII. SCIENTER
69. As alleged in the following paragraphs, Defendants had actual knowledge of the
falsity of their Class Period financial statements or acted in reckless disregard of the truth or falsity
of those statements. In doing so, Defendants committed acts and participated in a course of conduct that operated as a fraud or deceit on purchasers or acquirers of Kodak's stock during the Class
Period.
70. As described in §IV above, even prior to the Class Period, Kodak was struggling to
gain a foothold in the digital age. As a result of the mass migration in which consumers abandoned
film for digital, Kodak was forced to reinvent itself. But by the start of the Class Period, its new
businesses, focused on Consumer and Commercial Inkjet, Workflow Software and Services and
Packaging Solutions, were actually failing; and the Company was relying on a patent-monetization
strategy to raise cash. As a result, the Company suffered from declining revenues, liquidity and
- 32 - 806584 1 profitability and increasing debt. Investors were understandably concerned. Since 2004, the
Company reported only one full year of positive earnings - in 2007— and was anticipating losses to
continue in 2011. Kodak continued to burn cash. At the beginning of 2010, the Company had $2
billion in cash and burned through another $400 million, ending the year with just $1.6 billion. By the middle of 2011, the Company had just $1.0 billion in cash and was still unprofitable. Indeed, the
Company had equity value of more than $30 billion at its peak in the 1990s and had shed more than
98% of that value by 2011. Defendants were thus highly motivated to assure investors that Kodak
would remain viable and complete the transformation to a sustainable, profitable digital enterprise
despite the Company's waning financial condition.
71. Consumer Inkjet was Kodak's key digital growth business essential to the Company's
survival and the center point of its digital transformation. As is corroborated by CWs 1-3, contrary to Defendants' public statements about the business's success and growth prospects, inkjet was not
producing sufficient revenue or profits in 2011. Because the Company lost money in the printer
sales, ink sales were critical not only to recoup the Company's investment in the printers but to fund the business's expansion and enable market penetration sufficient to enable the business to achieve
sustainable profitability. The business, however, repeatedly missed its forecasts, including forecasts
for every quarter in 2011, signaling that it would not achieve profitability as quickly as Defendants
hoped, if at all. Moreover, Defendants knew that the data available to prepare forecasts was not
granular enough to generate forecasts for the ink business with any reasonable degree of accuracy
because the forecasts indicated deficiencies in data concerning printer life span and frequency of use that was critical to the forecast's accuracy.
72. Throughout 2011, it became clear that Kodak's printers were not being utilized with
sufficient frequency or duration to generate enough revenue and profit from ink sales. As
- 33 - 806584_i corroborated by CW1, throughout the Class Period, Defendants received reports exhibiting this trend.
73. Throughout 2011, Defendants had sufficient knowledge of the profitability problems
in consumer inkjet that they began reducing investments in the growth of the printer/ink business.
As corroborated by CW2, by the third quarter of 2011, management was forced to lower its unit
production and stopped penetrating new countries and markets, halting growth in the very business that was key to Kodak's digital transformation and survival. This was internally viewed as pulling the life plug from inkjets and scuttling Kodak into bankruptcy.
74. By the time the Company announced its hiring of Jones Day on September 30, 2011,
Defendants had curtailed their cash-generating digital growth initiatives and continued to suffer from
a lack of cash-generation via IP licensing or sales, exacerbating their liquidity position.
Nevertheless, they continued to falsely assure investors that the Company had no intention of filing
for bankruptcy, was not dependent on an IP sale and, in any event was likely to execute one.
A. Defendants' Restructuring of Kodak's Loan Agreement to Avoid Defaulting on a Debt Covenant Requiring a Minimum Cash Balance in U.S. Is Highly Probative of Scienter
75. Scienter is further evidenced by the facts surrounding Kodak's cash position and loan
agreements. In March 2009, Kodak entered into an Amended and Restated Credit Agreement
("March 2009 Loan Agreement") with various lenders and Citicorp USA, Inc. as agent. This
agreement imposed a negative covenant on Kodak, requiring it to maintain a minimum level of cash
in the U.S., stating: "The Company is also requiredto maintain cash and cash equivalents inthe U.S.
of at least $250 million." The agreement provides that "[s] long as any Advance or any other
payment obligation of any Loan Party of which the Company has knowledge under any Loan
Document shall remain unpaid, any Letter of Credit is outstanding or any Lender shall have any
- 34- 806584 1 Commitment hereunder, the Company will not. . . (j) Maintenance of Cash and Cash Equivalents.
Permit the aggregate balance of cash and Cash Equivalents in Deposit Accounts (other than any
checking accounts) in the Un ited States as to which the Agent has a perfected security interest to be
less than $250,000,000 at any time."
76. Article VI of the March 2009 Loan Agreement, §6.0 1, entitled "Events of Default,"
states that in the event Kodak violates this covenant, the agent is authorized to terminate "the
obligation of each Lender to make Advances. . . and of the Issuing Banks to issue Letters of Credit."
77. Thus, in April 2011, when Defendants were aware that they were dangerously close to violating (if not already in violation of) this debt covenant, they entered into a Second Amended
and Restated Credit Agreement ("April 2011 Amended Loan Agreement") removing the negative
covenant requiring a minimum level of $250 million cash in the U.S. However, rather than disclose to investors that they had so little cash on hand in the U.S., they were in jeopardy of defaulting on their debt covenants and thus were forced to renegotiate their loan agreement, they told investors
how "pleased" they were "to take advantage of improvements in the credit market to increase [the
Company 's]financialflexibility" by entering into an amended loan agreement, that they were "on track" to achieve positive cash generation and that their "strategy [was] working." This Pre-Class
Period information demonstrates that Defendants were well aware during the Class Period (and
earlier) that a large majority of Kodak's cash was tied up overseas and unavailable for use in the
U.S.; however, they conveniently omitted this material information from disclosures until November
3, 2011 when, even then, they downplayed the cash shortage by telling investors the Company's
solvency was not dependent upon an IP sale.
-35 - 806584_i B. Defendants' Violation of Accounting Standards, SEC Materials and SEC Regulation by Concealing the Fact that Most of Kodak's Cash Was Tied Up Overseas Is Highly Probative of Scienter
78. Defendants knew that their statements about Kodak's liquidity during the Class
Period were materially false and misleading and violated Generally Accepted Accounting Principles
("GAAP") and SEC rules, including Accounting Standards Codification 210-10-S99, SEC Materials
and SEC Regulation S-X, Rule 5-02 —Balance Sheets, Assets and Other Debits, which states that:
Cash and cash items. Separate disclosure shall be made ofthe cash and cash items which are restricted as to withdrawal or usage. The provisions of any restrictions shall be described in a note to the financial statements.
79. GAAP are those principles recognized by the accounting profession as the
conventions, rules and procedures necessary to define accepted accounting practice at a particular time. SEC Regulation S-X, Rule 4-01 (17 C.F.R. §210.4-01(a)(1)) states that financial statements
filed with the SEC that are not prepared in compliance with GAAP are presumed to be misleading
and inaccurate, despite footnote or other disclosure. Regulation S-X requires that interim financial
statements must also comply with GAAP, with the exception that interim financial statements need
not include disclosure that would be duplicative of disclosures accompanying annual financial
statements. 17 C.F.R. §210.10-01(a). 6
80. Defendants were aware of significant restrictions on their use of cash to meet their
obligations and fund the Company's digital transformation but failed to disclose these restrictions in
0 On June 30, 2009, the Financial Accounting Standards Board ("FASB") issued a Statement of Financial Accounting Standards No. 168, the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FA SB Statement No. 162. FASB Accounting Standards Codification became the source of authoritative U. S. accounting and reporting standards for non-governmental entities, in addition to guidance issued by the SEC, effective for financial statements issued for reporting periods that ended after September 15, 2009. The Accounting Standards Codification did not change existing U.S. GAAP requirements.
- 36 - 806584 1 a "separate disclosure" as required. In other words, Kodak's liquidity was much weaker than
disclosed in its SEC filings and other public statements.
81. In 2011, Kodak began touting $1,624 million in cash. The Company drained $324
million in cash in the first quarter of 2011, bringing the cash balance down to $1,300 million. Kodak
drained another $343 million in cash in the second quarter of 2011, bringing the cash balance down to $957 million— Kodak's lowest level in more than five years. The Company continued to drain its
cash balance throughout 2011, ending the third quarter of 2011 with just $862 million and the fourth
quarter of 2011 with just $861 million.
82. Defendants, however, were aware of and, prior to November 3, 2011, failed to
disclose that the Company's problems with its cash drain were worse than portrayed. Indeed, the
vast majority of Kodak's cash was overseas and unavailable. As of September 30, 2011, Kodak had just $230 million in cash in the U.S., with the remaining $630 million in Europe and China, and such
balances were "not available" to fund U.S. operations. The Company's third quarter 2011 Form
10-Q, filed November 3, 2011, admitted for the first time:
Cash and cash equivalents are held in various locations throughout the world. At December 31, 2010 and September 30, 2011, approximately $580 million and $230 million, respectively, of cash and cash equivalents were held within the U.S. During the nine month period ended September 30, 2011 approximately $310 million of cash was repatriated, or loaned, from foreign subsidiaries to the U. S., net of loans and repayments of loans to foreign subsidiaries, at an incremental cash tax cost of $4 million. The Company utilizes a variety of tax planning and financing strategies in an effort to ensure that cash is available in locations where it is needed; however, as of September 30, 2011 cash balances held outside of the U.S. are generally required to support local country operations and are therefore not available for operations in other jurisdictions. Additionally, in China, where approximately $320 million in cash and cash equivalents was held as ofSeptember 30, 2011, there are limitations related to net asset balances that impact the ability to make cash available to otherjurisdictions in the world The Company plans to meet its current U.S. liquidity needs through existing cash balances, operating earnings from foreign subsidiaries, including Chinese subsidiaries, when available, proceeds from planned sales of businesses and assets, and through monetization of its digital imaging patent portfolio.
- 37- 806584 1 w7muramal wall W1 *= Dow 12M,1111111 11111111 i ii 1 1 1 _1
83. By the end of the year, Kodak had drained its cash available to fund U.S. operations even further, 7 explaining in the Form 10-K for 2011:
Cash and cash equivalents are held in various locations throughout the world. At December 31, 2011 and December 31, 2010, approximately $170 million and $580 million, respectively, of cash and cash equivalents were held within the U.S. During the twelve month period ended December 31, 2011, approximately $320 million of cash was repatriated, or loaned, from foreign subsidiaries to the U.S., net of loans and repayments of loans to foreign subsidiaries, at an incremental cash tax cost of $4 million. The Company utilizes a variety of tax planning and financing strategies in an effort to ensure that cash is available in locations where it is needed; however, as of December 31, 2011, cash balances held outside of the U.S. are generally required to support local country operations and are therefore not available for operations in other jurisdictions. Additionally, in China, where approximately $340 million in cash and cash equivalents was held as ofDecember 31, 2011, there are limitations related to net asset balances that impact the ability to make cash available to other jurisdictions in the world The Company plans to meet its current liquidity needs through existing cash balances, operating earnings from foreign subsidiaries, including Chinese subsidiaries, when available, financing available under the DIP Credit Agreement, proceeds from sales of businesses and assets, and through monetization of its digital imaging patent portfolio.
84. The fact that most of Kodak's cash was maintained in financial institutions in Europe and China, and that there were critical limitations on Kodak's cash held overseas, was a material omission of fact prior to November 3, 2011.
85. The SEC clarified the principles of materiality in Staff Accounting Bulletin ("SAB")
99, issued August 1999, and as subsequently revised in SAB 114, issued March 7, 2011. Neither
SAB 99 nor SAB 114 presents new materiality standards but, instead, reaffirms long-accepted concepts expressed in auditing and accounting literature. It also provides interpretative guidance to ensure those concepts are properly applied.
/ As explained in Kodak's motion to allow post petition financing, filed January 19, 2012, (Dkt. No. 16 of the bankruptcy proceeding), "[immediately prior to the Petition Date, the Debtors had been operating on approximately $56.7 million in cash in the United States." Ex. F at ¶32 (at 27) and at ¶43.
-38- 806584_i 86. Among the most important of SAB 99's and SAB 114's points are that: (a) registrants
and auditors may not rely solely on quantitative criteria to evaluate an item's materiality; (b) the
materiality of items can be determined reliably only if they are evaluated both individually and
collectively; and (c) an intentional misstatement may be illegal even if the item it concerns is
immaterial.
87. Additionally, according to SAB 99 and SAB 114, "quantifying, in percentage terms, the magnitude of a misstatement is only the beginning of an analysis of materiality; it cannot
appropriately be used as a substitute for a full analysis of all relevant considerations. Materiality
concerns the significance of an item to users of a registrant's financial statements. A matter is
'material' if there is substantial likelihood that a reasonable person would consider it important."
88. Investors clearly would have wanted to know prior to November 3, 2011 that a
substantial portion of Kodak's cash was held in overseas financial institutions and that cash balances
held outside of the U.S. were generally required to support local country operations and were therefore not available for operations in other jurisdictions.
C. Admissions Made in Defendants' Bankruptcy Filings Are Highly Probative of Scienter
89. Kodak adamantly denied that it was considering filing for bankruptcy, expressed a
"very high" probability of completing a digital patent sale before year end and had provided firm
guidance that the Company would end 2011 with at least $1.3-1.4 billion in cash - and
"substantially" more cash after completion ofthe digital patent sale, which it did nothing to dispel in
advance of the January 2012 bankruptcy.
90. However, Defendants' admissions contained in their bankruptcy court pleadings
directly contravene their public statements leading up to the bankruptcy because they demonstrate that by September 12, 2011 Defendants were concerned that a patent sale might not be completed,
- 39 - 806584_i mm-muramal wall W1 -*= Dow 12M,1111111 11111111 i ii 1 1 1 -1
resulting in the Company's liquidity reaching a "critical level" where bankruptcy could not be avoided.
91. On January 19, 2012, Kodak filed its Chapter 11 Bankruptcy Petition in the
Bankruptcy Court for the Southern District of New York. In connection with that petition, Kodak filed a declaration, attached hereto as Exhibit A, prepared by Matthew J. Hart of Lazard Frères &
Co. LLC (the "Lazard Declaration"). Lazard is a "financial advisory and asset management firm" well known for its involvement with large, complex bankruptcies, including:
. In reNw. Airlines Corp., Case No. 05-17930 (Bankr. S.D.N.Y. filed Sept. 14,2005); and
• In re Calpine Corp., Case No. 05-60200 (Bankr. S.D.N.Y. filed Dec. 20, 2005).
• In reLehnianBros. Holdings Inc., Case No. 08-13555 (Bankr. S.D.N.Y. filed Sept. 15, 2008);
• In re Charter Coninic 'ns, Inc., Case No. 09-11435 (Bankr. S.D.N.Y. filed Mar. 27, 2009);
• In re Citadel Broad. Corp., Case No. 09-17442 (Bankr. S.D.N.Y. filed Dec. 20, 2009);
• In re The GreatAtl. & Pac. Tea Co., Inc., Case No. 10-24549 (Bankr. S.D.N.Y. filed Dec. 12, 2010);
• In re Dynegy Holdings, LLC, Case No. 11-38111 (Bankr. S.D.N.Y. filed Nov. 7, 2011);
92. Contrary to Defendants' assertions that Lazard was hired in July 2011 merely to advise on a potential patent sale and not to consider the possibility of a Chapter 11 restructuring, the
Lazard Declaration disclosed the fact that it "became clear" between July 13, 2011 and September
12, 2011 that Kodak's U.S. liquidity was declining and that, absent a patent sale, Kodak's liquidity might reach a critical level. The declaration stated:
On July 13, 2011, the Debtors [Kodak] engagedLazardto advise them with respect to a potential sale of their digital imaging patent portfolio. In the course of this engagement, it became clear that the Debtors' U.S. liquidity was declining and
- 40 - 806584_i mm-Muramal wall W1 -*= 611M 12M,1111111 11111111 i ii 1 1 1 -1
might reach a critical level before a sale of the digital imaging patents could be completed Hence, on September 12, 2011, Lazard's engagement was expandedto encompass a variety ofpossible strategic,financing and restructuring alternatives, including, if necessary, a restructuring through chapter 11.8
93. Indeed, the engagement letter between Kodak and Lazard specifically contemplated a
potential reorganization through Chapter 11 bankruptcy, stating that Kodak "hereby retains Lazard
as investment banker to provide Kodak with general financial and strategic advice and to advise it in
connection with any. . . [restructuring," defined as "any restructuring, reorganization (whether or
not pursuant to Chapter 11 ofthe United States Bankruptcy Code) and/or recapitalization of all or
a material portion of the Company's outstanding indebtedness."
94. The Lazard Declaration further indicates that Lazard assisted the Company "in
exploring and evaluating a number of such alternatives," but "a transaction could not be arranged
in an amount that would have provided adequate assurances that a chapter 11 filing could be
avoided." In other words, the Company and its advisors knew that bankruptcy was inevitable unless they could increase their liquidity via a patent sale.
95. In a declaration signed by McCorvey that was filed in support of Kodak's bankruptcy
petition, attached hereto as Exhibit B, Kodak made additional admissions concerning its business
and financial condition that were material and had not been disclosed to investors during the Class
Period. The declaration supports that Defendants had increasing knowledge of a number of forces
negatively impacting Kodak's liquidity position since at least 2008 and deteriorating in 2011:
See Ex. A at ¶11; see also Lazard's expanded engagement letter attached hereto as Exhibit C.
-41 - 806584_i mm-muramal wall W1 -*= Dow 12M,1111111 11111111 i ii 1 1 1 -1
(a) The Company's liquidity shortfall exists "primarily in the United States," and
"[flhe Company's non-U.S. businesses are expected to be funded primarily from non-U.S. sources and should not be affected by the filing of these chapter 11 proceedings" (Ex. B at ¶J16-17);
(b) "Since 2008, despite Kodak's best efforts, restructuring costs and recessionary forces have continued to negatively impact the Company's liquidity position, ultimately leading to the commencement of these chapter 11 cases" (Ed. at ¶10);
(c) An increasing proportion of Kodak's revenues was being earned overseas, and in 2011, just 33% of the Company's total revenue was generated in the U.S.;
(d) Kodak was suffering from declining liquidity, and "cash flow from the licensing andsale ofint ellectual property [had] been delayed due to litigation tactics employed by a small number of infringing technology companies with strong balance sheets and an awareness of Kodak's liquidity challenges" (Ed at ¶34); and
(e) Kodak was heavily invested in its consumer inkjet business, which ran on a
"razor/blade" model in which "profits are not made on the sale oftheprinters, but on aftermarket sales ofink and other consumables." Id. at ¶37. Because market conditions since 2008 "resulted in slower growth in the installed base than Kodak hadprojected and in lower printer prices in the market," the Company was unable to realize expected "profits through the sale of ink and consumables." Id. As is corroborated by CWs 1-3, this segment declined significantly, missing each internal forecast in 2011.
96. "Revenue generated through monetization of the digital capture portfolio over the past several years has been an integral part of the funding for Kodak's digital transformation." Ex.
B at ¶40. "When Kodak's financial condition started to deteriorate, Kodak began to experience delays in licensing negotiations with [Apple, RIM and HTC Corporation,] all of which owe
- 42 - 806584 1 substantial royalties for use of Kodak's digital capture portfolio." Id. at ¶41. "As an alternative to
lengthy patent litigation, Kodak has explored the sale of the Imaging Portfolio to third parties.
However, the Company has faced difficulties executing the sale due to uncertainty about its financial condition." Id.
97. These recent admissions belie the repeated false assurances that were made
consistently throughout the Class Period to the effect that Kodak's inkjet business was flourishing,
an IP sale was likely and in any event unnecessary, and the Company had sufficient cash to effect a
complete transformation to profitability by 2012.
98. Defendants' knowledge of Kodak's impending bankruptcy is further bolstered by an
additional pleading filed in the bankruptcy case, the Verified Statement ofAdHoc Committee of
Second Lien Noteholders Pursuant to Bankruptcy Rule 2019 ("Verified Statement"), filed on
January 30, 2012 (Dkt. No. 153 of the bankruptcy proceeding, Ex. D). The Verified Statement
provides that:
In October 2011, certain holders of the Second Lien Notes contacted Akin Gump Strauss Hauer & Feld LLP ("Akin Gump") to represent them in connection with a potential restructuring of the Debtors. In the intervening months before the chapter 11 cases were filed, certain additional holders of the Second Lien Notes joined the ad hoc group and created the Second Lien Noteholders Committee.
Ex. D at ¶1. That Kodak's creditors were taking concrete actions (including forming an ad hoc
committee and seeking bankruptcy counsel) in preparation for Kodak's bankruptcy as early as
October 2011 supports a strong inference that Kodak itself was doing the same.
99. In the Second Lien Noteholders' objections to first day relief request, filed on January
19, 2012 (Dkt. No. 39 of the bankruptcy proceeding, Ex. E), the Second Lien Noteholders stated that
Kodak had been travelling a path toward Chapter 11 "for quite some time" and objected to Kodak's
request to spend $100 million on "critical vendor payments" in the next 13 weeks:
- 43 - 806584_i mm-Muramal wall M1 *= 611M 12M,1111111 11111111 i ii 1 1 1 _1
1. The Debtors have been travelling a path toward chapter 11 for quite some time. In the last two years alone, EKC has burned through approximately $2 billion in cash, including losses exceeding $1 billion through the first three quarters of 2011. The monumental losses will not stop with the commencement of these proceedings. In fact, the Debtors' own budget projects that they will spend/lose an additional $364 million in the next thirteen weeks. This must stop.
2. Notwithstanding these staggering losses, the Debtors have continued to adhere to a misguided strategy of funding businesses that are not profitable or viable. In addition, for several years, the Debtors' management has followed a practice akin to "burning the furniture" - selling off valuable assets in one-time cash generation events to stave off a bankruptcy filing. These efforts have failed and the Debtors, after depleting all of their cash, are now forced to commence these proceedings.
3. It is entirely unclear at this point what the Debtors intend to do in chapter 11. What is clear is that the Debtors must not be permitted to continue the same destructive practices that resulted in the loss of in excess of $2 billion in the last two years alone. While we do know that the Debtors have spent many months attempting to sell a substantial number of patents, the value of that portfolio, and the impact of that decision upon the Debtors' operations and remaining assets and, most importantly, its creditors, is as yet unknown. Through the variety of relief they have sought, the Debtors appear to want carte blanche to operate in chapter 11 as they did outside of chapter 11. Among other things, the Debtors have requested unfettered authority to (i) spend up to $100 million in "critical vendor" payments in the first days of these cases without identifying which vendors are critical or providing a shred of evidence that any such payments are necessary, (ii) continue their existing Intercompany Transactions netting scheme such that funds may flow outside of the United States to the detriment of creditors of these estates, and (iii) continue their bonus compensation program for senior management, many of whom may well be responsible for the Debtors' current state of affairs - all of this before their creditors have had a chance to fully educate themselves about the Debtors and their businesses and what is the right path to maximize value.
100. That Kodak suffered losses exceeding $1 billion in the first three quarters of 2011 raises a strong inference that Defendants' Class Period statements about how comfortable they were with Kodak's level of cash were knowingly false. That Kodak needed $100 million for "critical vendor payments" in January of 2012 raises a strong inference that Defendants' November 3, 2011 statement that "we have fulfilled and remained committed to fulfilling all of our obligations" was also knowingly false.
- 44 - 806584_i D. Confidential Witness Statements Supporting that Defendants Had Access to Facts Directly Contravening Their Public Statements When They Made Them Are Highly Probative of Scienter
101. The allegations contained herein are also based upon first-hand accounts of former
Kodak employees, including the Confidential Witnesses described below.
1. Confidential Witness Allegations Support that Defendants Were Informed that the Company's Core Business Was Failing Befor September 30, 2011
102. CW 1 was a Business Research Manager in the Consumer Inkj et Systems Division at
Kodak from June 2010 through January 1, 2012. As part of his/her job responsibilities, CW1
supervised a group that researched data and created forecasts for Kodak printer and inkjet sales.
CW1 created and contributed to various reports that were distributed to upper management and
executive management, including Defendants.
103. CW 1 tracked Kodak's printer/inkjet market share and used data from Lyra and MPD
for statistical research on how many printers were sold, how many pages were printed and how many
cartridges were used in order to project Kodak sales using estimated pricing and Kodak's steady gain
in market share. S/he stated that new information came to light throughout 2011 that caused the forecast models to be questioned, and management was informed of the emergence of certain
discovered variables that gave less confidence to forecasts for this line.
104. CW1 explained that money was actually lost on each printer sold and that it was the
future sales of ink cartridges that were expected to be so profitable that it would absorb this expense.
However, growth in a market that starts with a loss leader is expensive, and the forecasted future
growth in market share, revenue and margin was completely dependent on Kodak's continued cash
infusion into this line. The idea came down to stuffing as many stores with as many Kodak printers
as possible by eroding into the shelf space of Kodak's competitors. This meant continuously
- 45 - 806584_i developing, designing, manufacturing, marketing and distributing printers at a per-unit loss to grow
inkjet sales, with a key component of success being the life span of the printer and how much inkthe
user will buy for that unit before buying a new printer.
105. CW 1 stated that one trendthat became clear throughout 2011 was that the low-end,
low-cost print ers where Kodak was gaining market share were not generating much in cartridge
sales. The main reason appeared to be that the more expensive the printer, the more it was actually
used to print. The cheaper ones were not lasting as long as projected and were not being used as
much as projected. This meant that Kodak would be continually selling printers at a loss without following with enough ink sales to turn the losses to profits. The data showed that consumers were
either throwing these cheaper printers away rather than buying new cartridges orjust not using them
for very long due to quality problems and the cost of cartridges. In any event, it became clear that the profits in the market were loaded toward the mid- to higher-end models, where Kodak was less
competitive. In order to continue growing market share, Kodak still had to fill shelves with models
at the lower price bands, and this fundamentally changed the forecast models throughout 2011;
and it became clear in 2011 that the "magic day" when inkjet would become profitable would be
much later than planned. S/he said that theflaws in assumptions for theseforecasts became known
especially as Kodak missed internalforecasts each quarter in 2011. Another major issue was the
size of Kodak's market share for Kodak ink as companies like Costco were springing up and selling
ink refill cartridges. Management continued to run the Company based on theflawedforecasting.
The printer/ink side ofthe business needed continued cash investments to become profitable, and the
Company was burning through cash faster than anticipated.
106. CWlfurth er statedth at the hiring ofLazard was internally regarded as an effort to
look at reorganization to reduce costs and bureaucracy so the Company could respond to
- 46 - 806584 1 emerging trends; however, the hiring of Jones Day signaled that Kodak had tried andfailed to
avoid bankruptcy. At the time Jones Day was hired (which was September 30, 2011), Rochester
management began reducing investment in the growth of the printer/ink business. They lowered
unit production and stopped penetrating new countries and markets, contrary to the strategy
Kodak had employed as away to survive - keep investing and growing the inkjet business until it
became profitable and transitioned the Company to digital.
107. CW1 attended meetings and conference calls with management ofthe division and
the executives. CW1 said this information was given to executive management by s/he and others
once the seriously declining trends were evident in 2011, sometime before Jones Day was hired.
108. CW 1 also stated that another trend that was made clear in 2011 and earlier was in the
camera business - where Kodak had significantly invested in its "point and shoot" models, but the
market was turning to SLRs - cameras that attach large lenses. This caused significant misses in
camera sales forecasts. Kodak's patents for digital cameras applied to both its own designs and the
SLRs, so this was another reason Kodak management looked at patent sales as a way to turn profits
(large and immediate) on the camera business in order to fund the printer and inkjet growth. S/he
said that management saw the efforts to execute an IP sale as "an act of desperation" to avoid
bankruptcy with Kodak missing internal forecasts while spending so much cash on its future
"core" product, which was failing.
109. CW1 also stated that Kodak moved engineering for the Inkjet Division from San
Diego to Singapore in early 2011. S/he said this was an indication that Kodak was already taking
costs out of this line. S/he said that in forecasting to what product managers described would be the
new Kodak printer models, once units hit the shelves, they were different from what forecasting had
used to project sales. S/he said that most of these decisions were made by corporate management.
- 47 - 806584_i 2. Confidential Witness Allegations Support that Kodak's Reduction of Investment in Inkjet and Hiring of Jones Day in September Was "Internally Viewed as Pulling the Life-Plug from Inkjets and Scuttling Kodak into Bankruptcy"
110. CW2 was a Director of Finance at Kodak from approximately February 2005 to
January 1, 2012. S/he states that in 2011, Kodak's main business lines all declined in sales, and
most failed to meet sales forecasts. S/he states that the main focus of the 2011 annual "plan" was
cost reduction along with adjusting sales targets downward to reflect known trends. The plan
resulted from an exercise that involved submission of drafts by CW2 for his/her region to his/her
boss, a Regional Finance Director who reported to a Worldwide Director of Finance; and that s/he
went "back and forth" with corporate finance, including the CFO, until settled as a plan.
111. CW2 stated that there were significant declines in main business lines in 2011. S/he
said that as far as s/he knew, from being in meetings and on finance-related conference calls, the
main reason why Kodakfiledfor bankruptcy at year end revolved around the Company 'sfailure
to sell patents. S/he said that after Kodak suffered an adverse appellate ruling in the Apple RIM
litigation from a court that had made favorable rulings on the same issues before, according to what
Defendants claimed to believe internally, Kodak could not find a buyer for its patents. S/he saidthat
buyers were afraid to pay money for fear Kodak would file early and the assets they just purchased would be held by the trustee.
112. CW2 described a "continuous exercise" for increased annual cost reduction
campaigns each year since at least 2009. S/he said that when CEO Perez announced the sale of patents aroundthe same time that the Company hiredLazard, it was already clear that Kodak was
in "serious trouble." In September, Jones Day was hired because Lazard and management had failed to sell patents, and executives began to plan the bankruptcy at that time with Jones Day - as
- 48 - 806584_i bankruptcy is something that would take afew months to prepare for as away to keep operating
as Kodak has done.
113. CW2 stated that with respect to the investment in inkjet, this was an area that was not
initially reduced because "the executives viewed growth of that product line as key to Kodak's
survival." However, executives could not sustain this needed level of investment due to declines in the other lines and a miss in inkj et as well and significantly cut the investment into inkjet, which was
internally viewed as "pulling the life-plug from inkjets and scuttling Kodak into bankruptcy."
114. CW2 learn edfrom his own managers about what the executives were doing and
why. S/he stated that once Jones Day, a known bankruptcyfirm, was hired, the executives saw no
hope to sell thepatents as other companies had done to stay solvent and transform andthat such
hope had been dashed because the offers were not there. S/he understood the reason for no buyers to be the Apple RIM ruling and also that such assets could bepurchased later at extreme discounts
in bankruptcy.
3. Confidential Witness Allegations Support that Data Throughout 2010 and 2011 Showed Ink and Inkjet Sales to Be Declining and that Kodak Was Too Large and Moved Too Slowly to Prepare for Bankruptcy in Just a Month
115. CW3 worked with Kodak from 1983 through April 2012 in various positions. From
May 2009 through April 2012, s/he served as Technology and Intellectual Property Manager.
Among his/her responsibilities was to review the Company's IP patents and analyze their value.
His/her group reported to the Chief Technology Officer. S/he stated that Kodak's valuation for the
IP portfolio of $3 billion was inflated and that $1 billion was closer to reality. S/he further stated
that "the clear strategy among potential buyers of the portfolio was to wait," as "the value was
dropping and would continue to do so." S/he also said that Apple and RIM (Blackberry) were the targets most spoken about as likely buyers.
- 49 - 806584_i 116. Additionally, CW3 stated that plenty of data showed inkjet and ink sales in 2010
and throughout 2011 to be declining. S/he said it was well known at Kodak that printers were not
selling atprojeeied rates and, worse, th at printer usage was not generating the amount ofink sales
that Kodak projected prior to bankruptcy. S/he further indicated that although Kodak executives
were touting printer and ink sales as the business that would carry the Company through to its
new digital base, internally employees wondered how this declining market could possibly replace a
significant part of the hole left from dying film sales.
117. CW3 states that Kodak was preparing for bankruptcy with the hiring of Lazard and then, especially, Jones Day. With IP sales lagging on as it became clear it was advantageous to
buyers to wait; and the decline in ink demand particularly —the one component where Kodak could
make a profit, the prognosis for recovery was poor. CW3 statedthat because the Company was still
so large and moved too slowly to react in the face of its changing market, there was no way it
could have made a bankruptcy decision andpreparedfor itinjust a month andthat preparation for bankruptcy would have had to have begun six months earlier when Lazard was hired to help
with restructuring and IP sales.
4. Confidential Witness Allegations Support that, in Contrast to Perez's Statements to the Contrary, the Sale of Kodak's Digital Imaging Portfolio Was Critical for Kodak to Remain Solvent
118. CW4 worked with Kodak, in relevant part, from 2010 to 2012 in several capacities.
In 2011, s/he served as General Manager of New Products. In this position, s/he was required to
attend monthly Operational Counsel Meetings, during which Kodak's key officers would review
monthly operations reports. Defendant Perez regularly attended these meetings.
119. CW4 stated that during the foregoing meetings, s/he had frank discussions with
Defendant Perez regarding Kodak's digital imaging segment.
- 50 - 806584_i 120. CW4 confirmed it was clear that a sale of Kodak's digital imaging portfolio was
critical for Kodak to remain a solvent, viable entity.
E. Defendants' Certifications Filed with the SEC Are Further Indicative of Scienter
121. As set forth in §VI.D., Defendants' "review" of Kodak's quarterly and annual reports
and their responsibility for "establishing and maintaining disclosure controls and procedures. . . and
internal control over financial reporting . . . to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those entities
[and] to provide reasonable assurance regarding the reliability of financial reporting . . . in
accordance with [GAAP]," that Defendants certified they had personally performed as of the dates they signed the above certifications, would clearly have alerted Defendants to the presence of the
false and misleading statements and omissions disseminated to the public and alleged herein.
According to their certifications, every quarter throughout the Class Period, Defendants "[e]valuated the effectiveness of [Kodak's] disclosure controls and procedures" and "internal control over
financial reporting" and reported in every quarterly and annual filing that those procedures, in fact,
"were effective." Therefore, Defendants either knew of the material misrepresentations and
omissions disseminated to the public or knowingly failed to carry out the required review of the
Company's disclosure controls and procedures. In either case, Defendants knew or recklessly
disregarded that the certifications they signed were false.
F. Defendants' Violation of Kodak's Own Policies Further Evidences Scienter
122. Kodak's Business Conduct Guide further supports a strong inference of scienter.
According to Kodak's own internal policy, "[flhe Company maintains a system of internal controls
and disclosure controls and procedures to ensure that. . . transactions are executed in accordance
with management's authorization. . . [and] the Company accurately andtimely discloses required
- 51 - 806584_i financial and non-financial information." The guide specifically mandates that "[ajll Company financial reports, accounting records, research reports, sales reports, expense accounts, time sheets,
and other documents must accurately and clearly represent the relevantfacts or the true nature of
a transaction. Improper or inaccurate accounting, documentation, or financial reporting are contrary to Company policy and may also be in violation of applicable laws."
123. Kodak mandated accurate and clear representation of all relevant facts in "[a]ll
Company financial reports . . . and other documents," ensuring that all reports provided to
management were not only accurate with regard to the information contained therein but contained
clear representations of all facts relevant to the provided information.
124. The policy was widespread and included "written policies and procedures, budgetary
controls, supervisory review and monitoring, auditing, a roll-up process for internal certifications for
accuracy and completeness, ongoing self-evaluations, and [other] safeguards."
125. Kodak was clear that "[responsibility for compliance with these policies [to provide
clear, accurate and complete information] rests with all employees, not solely with the Company's
finance and accounting personnel."
126. The policy's stringent requirements concerning accuracy and clear representation of
all relevant facts would have revealed to Defendants the information set forth in §VI, VII and IX.
Nevertheless, Defendants failed to disclose this information to investors, which itself violated the
Company's policy of providing "accurate[] and timely disclos[ur]es."
VIII. LOSS CAUSATION
127. During the Class Period, as detailed herein, Defendants made false and misleading
statements concerning the current and future financial condition of the Company and engaged in a
scheme to deceive investors regarding the same. These materially false representations caused
- 52 - 806584 1 Kodak's stock to trade at an inflated level and operated as a fraud or deceit on the Class. Later,
when the relevant truth regarding the Company's financial condition and prospects was disclosed, the prices of Kodak securities fell precipitously as the prior artificial inflation came out of the stock
price. As a result, Plaintiff and other members of the Class suffered economic loss, i.e., damages,
under the federal securities laws.
128. Defendants' false statements and omissions, identified herein at §VI, had the intended
effect and caused Kodak's stock to trade at artificially inflated levels up to and above $3 per share
during the Class Period. As the truth began to leak into the market, and as a direct result of the
disclosures on September 23, 2011, September 30, 2011 and January 19, 2012, Kodak's stock price
suffered material, statistically significant declines.
129. On September 23, 2011, when Kodak disclosed during after-market hours that it was
drawing $160 million from its revolving credit line, the Company's stock price dropped nearly 21%
from $2.38 to $1.89 before the market opened on September 26, 2011, the next trading day, and only
continued its decline, closing at $1.55 on September 28, 2011. The New York Times published an
article on September 26, 2011 entitled, "Kodak Stock Dives After Credit Line Is Tapped," noting that shares were down 25% since the announcement.
130. On September 30, 2011, rumors surfaced, confirmed by Kodak, that the Company
had hired Jones Day - an entity well known as an advisor to major companies considering
restructuring and bankruptcy. In response, Kodak's stock price tumbled to an all-time low, closing
at $0.78 per share - down nearly 54% from $1.69 the prior trading day. The Company's stock
continued to decline throughout the remainder of 2011 and 2012 as the truth about Kodak's business
and financial condition continued to enter the market.
- 53 - 806584_i 131. Finally, on January 19, 2012, Kodak filed for bankruptcy under Chapter 11. The remaining artificial inflation in the Company's stock price was eliminated as shares fell another
$0.25 from $0.55 on January 18, 2012 to $0.30 on January 19, 2012, when news of the bankruptcy petition surfaced.
132. Individually and collectively, these drops removed the inflation from Kodak's stock price, causing real economic loss to investors who purchased the stock during the Class Period.
IX. NO SAFE HARBOR
133. Kodak's verbal safe-harbor warnings accompanying its oral forward-looking statements ("FLS") issued during the Class Period were ineffective to shield those statements from liability. Moreover, Perez's statements that the warnings were "requirement statements" that should not be misunderstood as a "dampening [of his] optimism" negated the warnings made on November
3,2011.
134. Defendants are also liable for any false or misleading FLS pled because, at the time each FLS was made, the speaker knew the FLS was false or misleading and the FLS was authorized and/or approved by an executive officer of Kodak who knew the FLS was false. None of the historic or present-tense statements made by Defendants were assumptions underlying or relating to any plan, projection or statement of future economic performance as they were not stated to be such assumptions underlying or relating to any projection or statement of future economic performance when made, nor were any of the projections or forecasts made by Defendants expressly related to or stated to be dependent on those historic or present-tense statements when made.
X. CLASS ACTION ALLEGATIONS
135. Plaintiff brings this action as a class action pursuant to Rule 23 of the Federal Rules of Civil Procedure on behalf of all persons who purchased or otherwise acquired Kodak's publicly
- 54- 806584 1 traded securities during the Class Period. Excluded from the Class are Defendants and their families, the officers and directors of the Company at all relevant times, members of their immediate families
and their legal representatives, heirs, successors or assigns and any entity in which Defendants have
or had a controlling interest.
136. The members of the Class are so numerous that joinder of all members is
impracticable. The disposition of their claims in a class action will provide substantial benefits to the parties and the Court. Kodak has over 272.34 million shares of stock outstanding owned by
hundreds, if not thousands, of persons.
137. There is a well-defined community of interest in the questions of law and fact
involved in this case. Questions of law and fact common to the members of the Class that
predominate over questions which may affect individual Class members include:
(a) Whether the 1934 Act was violated by Defendants;
(b) Whether Defendants omitted and/or misrepresented material facts;
(c) Whether Defendants' statements omitted material facts necessary to make the
statements made, in light of the circumstances under which they were made, not misleading;
(d) Whether Defendants knew or deliberately disregarded that their statements
were false and misleading;
(e) Whether the prices of Kodak publicly traded securities were artificially
inflated; and
(f) The extent of damages sustained by Class members and the appropriate
measure of damages.
138. Plaintiff's claims are typical of those of the Class because Plaintiff and the Class
sustained damages from Defendants' wrongful conduct.
- 55 - 806584_i 139. Plaintiff will adequately protect the interests of the Class and has retained counsel
who are experienced in class action securities litigation. Plaintiff has no interests that conflict with those of the Class.
140. A class action is superior to other available methods for the fair and efficient
adjudication of this controversy.
COUNT I For Violation of Section 10(b) of the 1934 Act and Rule lOb-S Against All Defendants
141. Plaintiff incorporates §I, III and V-TX by reference.
142. During the Class Period, Defendants disseminated or approved the false statements
specified above, which they knew or deliberately disregarded were misleading in that they contained
misrepresentations and failed to disclose material facts necessary in order to make the statements
made, in light of the circumstances under which they were made, not misleading.
143. Defendants violated §10(b) of the 1934 Act and Rule 1Ob-5 in that they:
(a) Employed devices, schemes and artifices to defraud;
(b) Made untrue statements of material facts or omitted to state material facts
necessary in order to make the statements made, in light of the circumstances under which they were
made, not misleading; or
(c) Engaged in acts, practices and a course of business that operated as a fraud or
deceit upon Plaintiff and others similarly situated in connection with their purchase of Kodak
publicly traded securities during the Class Period.
144. Plaintiff and the Class have suffered damages in that, in reliance on the integrity of the market, they paid artificially inflated prices for Kodak publicly traded securities. Plaintiff and the Class would not have purchased Kodak publicly traded securities at the prices they paid, or at all,
- 56 - 806584 1 if they had been aware that the market prices had been artificially and falsely inflated by Defendants' misleading statements.
COUNT II For Violation of Section 20(a) of the 1934 Act Against All Defendants
145. Plaintiff incorporates §I, III and V-TX by reference.
146. Defendants acted as controlling persons of Kodak within the meaning of §20(a) ofthe
1934 Act. By virtue of their positions with the Company and their ownership of Kodak stock,
Defendants had the power and authority to cause Kodak to engage in the wrongful conduct complained of herein. By reason of such conduct, Defendants are liable pursuant to §20(a) of the
1934 Act.
XI. PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for judgment as follows:
A. Declaring this action to be a proper class action pursuant to Fed. R. Civ. P. 23;
B. Awarding Plaintiff and the members of the Class damages, including interest;
C. Awarding Plaintiff reasonable costs and attorney's fees; and
D. Awarding such equitable/injunctive or other relief as the Court may deem just and proper.
XII. JURY DEMAND
Plaintiff demands a trial by jury.
- 57- 806584 1 Case 1:1 2cv01 073HB Document 51 Filed 01/23/13 Page 61 of 100
H Imuary 23 2013
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[cad (oui:xcl hr Plaintiff
CERTIFICATE OF .
I, Kelly Stadelmann, hereby certify that on Januw r 23, 2013, I caused a true and
correct copy of the annexed:
Second Amended r Violation of the Federal Securities Laws
to !": (1) filed by hand with di k the Unurt of the Southern District of New York;
. ) red byU.S mail to I •. . .
in Case 1:1 2cv01 073HB Document 51 Filed 01/23/13 Page 63 of 100
.KODAK 12 Service: List 1/2312013 (12-0028) Pacie: 1 oil
t For Defendant(s)
J ...:....0 Dickey Jt: ::L. :onn E, Levin Gibson, Dunn & Crutcher LLP 200. Park Avenue, 47th Floor New York, NY 101680193 212/3514000 212/351.4035.(F
Counsel Fcp:.....:...:.:::.
Jeffrey A. Cor 3 r. St : .iu Suite 300 L.LC orth, Suite 30t.
I. T H
kD .•idLLP :..) .HvdLLP 1800 ii: 7 4 J100 5 73(Fax) CERTIFICATION OF LEAD PLAINTIFF PURSUANT TO FEDERAL SECURITIES LAWS
The undersigned declares, as to the claims asserted under the federal securities laws, that:
Plaintiff has reviewed the complaint and authorized its filing.
Plaintiff did not purchase and/or acquire the security that is the subject of this action at the direction of Plaintiffs counsel or in order to participate in any private action under the federal securities laws.
Plaintiff is willing to serve as a representative party on behalf of the class, including providing testimony at deposition and trial, if necessary. I understand that this is not a claim form, and that my ability to share in any recovery as a member of the class is not dependent upon execution of this Plaintiff Certification.
Plaintiffs transactions in the security that is the subject of this action during the Class Period are as follows:
Purchases:
Name of Company pate(s) Purchased # Shares Purchased Cost
EK See Attached Schedule A
Sales: Name of Company Date(s) Sold # Shares Sold Proceeds 13K See Attached Schedule A
During the three (3) years prior to the date of this certification, Plaintiff has not sought to serve or served as a class representative in an action filed under the federal securities laws except for the following (if any):
Case 1 12cv-01O73-HB Document 51 Filed 01/23/13 Page 65 of 100
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1 I I• EXHIBIT A 1W1!IV
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK
) In Chapter 11
) Case No. 12-10202 ( EASTMAN KODAK COMPANY, et al.,1 ) ) ) (Joint Administration Requested) Debtors. )
)
DECLARATION OF MATTHEW .L HART IN SUPPORT OF DEBTORS' MOTION FOR ENTRY OF INTERIM AND FINAL ORDERS 1) AUTHORIZING THE DEBTORS (A) 10 OBTAIN POSTPFTITION FINAN( F".G PURSUANT TO Ii U S C §* 105, 361, 362, 363, 364(C)(1), 364(c)2), 364(C )( , 364D)(1) AND 364(E), AND (B) TO UTILIZE CASH COLLATERAL PURSUA.'N T TO 11 U S C § 363, (II) GRANTING ADEQUATE PROTECTION TO PREPETITION SECURED PARTIES PURSUANT TO 11 U S C §* 361, 362, 363,364, AND (III) SCHEDULING A FINAL HEARING PURSUANT TO BANKRUPTCY RULES 4001(B) AND (C)
Pursuant to 28 U.S.C. § 1746, 1, Matthew J. Hart, hereby declare as follows:
1. I am a Director in the Restructuring Group of Lazard Frères & Co. LLC
("Lazard"), which has its principal office at 30 Rockefeller Plaza, New York, New York 10020,
I am authorized to execute this affidavit on behalf of Lazard,
2. I submit this declaration in support of the Debtors 'Motion For Entry ofInterim and Final Orders (I) Authorizing the Debtors (A) to Obtain Postpetition Financing Pursuant to
11 USC. §' 105, 361, 362, 363, 364(41(1,), 364(c) (2,1, 364(c) (3), 364(d) (1) and 364(e), and (B) to Utilize Cash Collateral Pursuant to 11 U.S.C. § 363, and (II) Granting Adequate Protection to
The Debtors in these chapter 11 cases, along with the last four digits of each DehioCs federal tax identifi cation number, are Eastman Kodak Company (7150), Crc [unit rl 114 America LLC (4412), Eastman Kodak International Capital Company, Inc. (2341); Far East DevuLmnic[n L:. (2300); FPC Inc. (9183); Kodak (1 JcxIr East), Inc. (7936); Kodak Aineticas, Ltd. (6256); Kodak Aviation Leasing LLC (5224) Kodak In ging Networking, Inc (4107) Kodak Philippines, L -4 i '862), Kodak Portuguesa Limited (9171 Feally, inc (2045) Laser-Pacific Media Corporation (4617, NPEC Inc (5677) Pakon, Inc. (3 , 16-2 ) and (,2ualex Inc. (6019). The location of the Debtors' corporate headquarters is: 343 State Street, Roe] cster, NY 14650.
S Cl :3174584,10 TO Pg 3 of 12
Prepetition Secured Parties Pursuant to 11 U.S. C. §' 361, 362, 363, 364, jIll) Scheduling a
Final Hearing Pursuant to Bankruptcy Rules 4001(&) and 'c) (the "Motion')?
3. In forming the opinions set forth herein, I have relied upon and/or considered, among other things, the following: (a) my experience in chapter 11 cases, including with debtor- in-possession ('DIP") financing facilities; (h) the Motion; (c) the Declaration of Antoinette P.
MeCorvey Pursuant to Rule 1007-2 of the Local Bankruptcy Rules for the Southern District of
New York in Support of First Day Pleadings (the "First Day Dec1arationt); (d) certain of the
Debtors' financial statements and reports; (e) documents related to the proposed DIP financing -,
(1) certain third party appraisals; (g) Lazard's analyses regarding the proposed DIP financing and
DIP financings in comparable chapter 11 cases; (Ii) discussions with the Debtors' management concerning the Debtors' business and finances; (i) discussions with, and proposals by, prospective sources of DIP financing, including with regard to the proposed DIP financing; and
(3) discussions with certain other professionals atLazard and other advisors to the Debtors.
4. I am authorized to submit this Declaration on behalf of the Debtors. I am not being compensated specifically for this testimony other than through payments received by
Lazard as a professional proposed to be retained by the Debtors in these chapter 11 cases. If called upon to testify, I could and would testify to the facts set forth herein.
A. Qualifications
5. Lazard is the U.S. operating subsidiary of an international financial advisory and asset management firm. Lazard, together with its predecessors and affiliates, has been advising clients around the world for more than 150 years. The current managing directors, directors, vice
Capitalized tenns used but not otherwise defined herein shall have the meanings ascribed to such teuns in the Motion.
-2- Pg 4 of 12 presidents and associates at Lazard have extensive experience working with financially-froubled companies in complex financial restructurings both out-of-court and in chapter 11 proceedings.
Lazard and its principals have been involved as advisors to debtors, creditors, equity constituencies and government agencies in many reorganization cases. Since 1990, Lazard's professionals have been involved in over 250 restructurings, representing more than $1 trillion in debtor :iscjts,
6 Notably, Lazard has been retained as a financial advisor and investment banker in numerous large and complex chapter 11 cases, including, among others, recent chapter 11 cases in the Southern District of New York such as In re DynegyHoiclings, LLC, Case No. 11-38111
(Bankr. S.D.N.Y. filed Nov. 7, 2011); In re The Great Atlantic& Pacific Tea Co., Case No. 10-
24549 (Bankr. S.D.N.Y. filed Dec. 12,2010); In re Citadel Broadcasting Corp., Case No. 09-
17442 (Bankr. S.D.N.Y. filed Dec. 20, 2009); In re Charter Communications, Inc., Case No. 09-
1143 5 (Bankr. S.D.N.Y. filed Mar, 27, 2009); In re Lehman Brothers Holdings Inc., Case No.
08-13555 (Bankr. S.D.N.Y. filed Sept. 15, 2008); In re Northwest Airlines, Inc., Case No. 05-
17930 (Banicr. S.D.N.Y. filed Sept. 14, 2005); and In re Ca/pine Corp., Case No. 05-60200
(Bankr. S.D.N.Y. filed Dec. 20, 2005).
Prior to joining Lazard in 2008,1 was a Managing Director at Eris Partners and a partner in the firm's credit investment funds, where I invested in distressed companies in the
United States and Europe and assisted in the general management of the funds. From 2001 to
2006, 1 was employed by Merrill Lynch, most recently as a Vice President and investment analyst in the firm's principal investments area, where I invested in distressed companies on behalf of the firm. Earlier in my career I was involved in the mortgage-backed and asset-backed securities market as a credit analyst and trader.
-3- MMM Pg 5 of 12
8. I am a. Certified Insolvency & Restructuring Advisor (CIRA) and a Chartered
Financial Analyst (CFA). I hold FINRA Series 7 General Securities and Series 63 State Law licenses. I have an M.B.A. in finance and accounting from the University of Chicago Booth
School of Business and a B. in economics from the University of Michigan, lam a member in good standing of the Association of Insolvency & Restructuring Advisors, the American
Bankruptcy Institute, the CFA Institute and the New York Society of Securities Analysts.
9. I have extensive experience as an advisor and investor in corporate restructurings, as well as public and private debt and equity offerings and mergers and acquisitions. I have advised companies, creditors and investors in connection with numerous in-court and ouL-of- court restructurings and recapitalizations, including Nortel Networks, Lehman Brothers, AMR
Corporation, Cooper Standard Automotive, SiriusXM, LNR Property Corp., White Birch Paper and Satélites Mexicanos ("SatMex"). I also have significant expertise in procuring, structuring, and negotiating DIP and exit financing facilities, and have previously submitted declarations and/or affidavits or have had testimony proferred with regards to such financings in SatMex and
White Birch Paper.
10. In connection with the proposed use of cash collateral and DIP financing, I participated directly in discussions, due diligence and negotiations with potential sources of DIP financing, including with regard to the proposed DIP facility. In doing so I worked closely with the Debtors' management, outside counsel and other advisors.
B. Background
11. On July 13, 2011, the Debtors engaged Lazard to advise them with respect to a potential sale of their digital imaging patent portfolio. In the course of this engagement, it became clear that the Debtors' U.S. liquidity was declining and might reach a critical level
-4- Pg 6 of 12
before a sale of the digital imaging patents could be completed. Hence, on September 12, 2011,
Lazard's engagement was expanded to encompass a variety of possible strategic, financing and
restructuring alternatives, including, if neeessMy, a restructuring through chapter 11. In the time
since, Lazard has assisted the Debtors in exploring and evaluating a number of such alternatives.
One such alternative, which was announced publicly and pursued for several months, was an
attempt to supplement or replace the Debtors' $400 million prepetition asset-based revolving
credit facility ("ABE') with incremental prepetition first lien financing of up to $500 million.
12. Unfortunately, for a variety of reasons, such a transaction could not be arranged in
an amount that would have provided adequate assurances that a chapter 11 filing could be
avoided. This prcpetition financing process did, however, provide significant insight into what
the Debtors' financing options might be on a postpetition basis. The Debtors determined that
seeking a reorganization of their operations under chapter 11 protection might be in the best
long-term interests of the Debtors and their stakeholders, and on December 8, 2011, the Debtors
authorized Lazard to initiate the process of securing DIP financing to fund a potential filing.
C. The DIP Facility Was Fully Marketed and Negotiated In Good Faith
13. On December 9, 2011, the Debtors and Lazard reached out to eleven (11) parties who were viewed as qualified to provide the Debtors with fully-committed DIP financing in the short timeframe required (the "Potential Financing Parties"). The Potential Financing Parties
included five (5) banks which are lenders under the prepetition ABL; two (2) other large global banks, one (1) large global commercial finance company, the lending affiliates of two (2) large asset management firms who had been actively involved in the earlier out-of-court financing process, and Blackstone Advisory Partners ("Blackstone"), as advisor to an ad hoc group (the 17- MN"EMMUNW-11 Pg 7 of 12
"Second Lien Group") of holders of the Debtors' 9.75% Senior Secured Notes due 2018 and
10,625% Senior Secured Notes due 2019 (the "Second Lien Notes").
14. All eleven of the Potential Financing Parties entered into non-disclosure agreements ("NDAs") with the Debtors and were thereafter granted access to an electronic dataroom that contained public and non-public information provided for their due diligence,
15 On December 14, 2011, representatives of the Debtors, I a7ard and the Debtors' counsel Sullivan &. Cromwell met with ten of the Potential Financing Parties to discuss their qualifications and the terms under which they might be willing to provide DIP financing. One of the eleven Potential Financing Parties had previously declined such a meeting, citing the fact that after reviewing the initial due diligence materials, they were unlikely to be willing to commit to any such financing. While several of the Potential Financing Parties expressed interest in committing to some portion of an ABL DIP financing, a more limited number expressed interest in committing to any term DIP financing. Because all of the proposals required the repayment of the Debtors' $400 million prepetition ABL, such term DIP financing would be the primary source of incremental liquidity for the Debtors. None of the Potential Financing Patties was willing to commit to postpetition financing on an unsecured or junior secured basis.
16. 'the Debtors and Lazard actively continued to facilitate the due diligence activities of all of the remaining Potential Financing Parties, on both a formal and ad hoc basis.
This included a day of presentations by members of the Debtors' intellectual property management team, representatives of Lazard, and 284 Partners, LLC 3 on the Debtors' digital imaging patent portfolio, licensing business, and other intellectual property assets on December
A digital imaging patent portfolio valuation conducted by 284 Partners, LLC is explained in greater detail in the Declaration of Michael Lasiasid filed in Support of the Motion.
-6- Pg 8 of 12
19, 2011; a day of management presentations on the Debtors' other operating businesses,
financial results and projections on December 21, 2011; and several focused conference calls on
selected due diligence topics thereafter.
17. On December 31, 2011, Blackstone, on behalf of the Second Lien Group,
provided to the Debtors an indicative, non-binding financing proposal, a significant portion of
which would have consisted of a. "roll-up" of the prepetition claims of participating holders of
Second Lien Notes into postpetition debt. This "roll-up" debt would have significantly increased
the interest expense of the DIP financing, been required to be paid in full in cash in the context of
any plan of reorganization, and potentially been adverse to the interests of other stakeholders.
The non-binding proposal was also contingent on providing certain material non-public
information to members of the Second Lien Group and publicly disclosing this information
shortly thereafter, which management of the Debtors indicated could have had an adverse impact
on the operations of the Debtors. Lastly, a significant portion of the facility was proposed to be
provided by an A.BL, yet no party was identified as being prepared to provide the ABE
18. Eventually, three binding commitment letters with associated term sheets were
proposed by five of the Potential Financing Parties, The first commitment letter was submitted
by Citibank Global Markets Inc. ("Citibank"), and evolved into the proposed DIP facility. The second of the three commitment letters was subsequently withdrawn. The last of the three
commitment letters was a joint proposal by three of the Potential Financing Parties. The portion
of the financing that would have been fully committed, however, was significantly less than the
Citibank proposal and the pricing was meaningfully higher. Upon further discussion, one of the three Potential Financing Parties also expressed doubts as to whether their commitment could be fully approved by the date at which the Debtors were preparing to file for chapter 11.
-7- Pg 9 of 12
19. In comparison, Citibank continued to indicate confidence in its ability to fully
commit to up to Si billion of total postpetition financing within the tirneframe required, inclusive
of up to a $300 million ABL and $700 million term loan. As an existing lender and former
administrative agent of the Debtors' prepetition AEL, Citibank is also extremely familiar with
the Debtors' operations and finances, which should increase the likelihood of a successful
transaction.
20. Because Citibank was the only party who appeared both willing and able to
provide filly committed financing in the amount and within the timeframe required, the Debtors
entered into negotiations with Citibank and their respective advisors on the terms and conditions
of the proposed DIP facility. As a result of these negotiations, the Debtors were able to improve
upon Citibank's proposals before eventually entering into a commitment for the proposed DIP
facility on January 17, 2011. The proposed DIP facility is comprised of a $250 million ABL
(including a $25 million tranche for a Canadian subsidiary of the Debtors) and up to a $700
million term loan.
21. Based upon my personal participation, I believe that the Debtors' process of
arranging the proposed DIP financing was comprehensive and produced the best available financing option given the circumstances.
C. The Terms of the Proposed DIP Facility Are Reasonable Under Current Market Conditions
22. Due to this extensive marketing process and subsequent negotiations, I believe the terms of the proposed DIP facility are reasonable under current market conditions. Negotiations were informed by precedent DIP financings when possible, as well as the terms under which the
Debtors had been offered prepetition financing. As a result, I believe the economic terms of the
It' Pg 10 of 12
proposed DIP facility are generally within the range of other large, broadly-syndicated DIP
facilities in recent years.
D. The Prepetition Secured Parties are Protected by a Significant Equity Cushion
23 In addition to the Adequate Protection Liens and the Junior Adequate Protection
Liens outlined by the Debtors in the Motion, I believe that the prepetition secured creditors
(including holders of the Second Lien Notes) are also protected through the existence of an
"equity cushion" in their collateral. Based upon certain third party appraisals, borrowing base
certificates and preliminary December 31, 2011 book values of the Debtors U.S. assets as
provided by the Debtors4, I estimate the value of a portion of the prepetition secured creditors'
collateral at a range of $3.4 to $4.3 billion 5. These amounts are comprised of (a) 284 Partners,
LLC's estimated value range for the digital imaging patent portfolio of $2.2 to $2.6 billion 6 ; (b)
the Debtors' estimated pro forma domestic cash and equivalents of $820 million; (c) U.S. Million accounts receivable valued at an estimated $142 to $257 7; (d) U.S. inventory valued at an
estimated $149 to $369 million 7; and (e) U.S. machinery & equipment valued at an estimated
$32 to 294 million 7.
24. This analysis notably does not give any credit to other prepetition collateral such
as the Debtors' globally-recognized and highly reputable brand, stock of certain foreign
subsidiaries, or over 9,000 other patents beyond the digital imaging patent portfolio. This
In performing my analysis, I have relied upon such information without the independent verification thereof and have not conducted any appraisal.
See analysis attached hereto as Exhibit A.
6 The digital imaging patent portfolio valuation, conducted by 284 Partners, LLC, is explained in greater detail in the Declaration of Michael Lasinski filed in Support of the Motion.
Based upon certain third party appraisals and preliminary December 31, 2011 book values of the Debtors assets as provided by the Debtors. Pg 11 of 12
analysis also does not represent what is likely a materially higher enterprise value for the Debtors
as a going concern.
25. As explained in the First Day Declaration, the Debtors have outstanding Second
Lien Note claims of approximately $777 million, inclusive of accrued and unpaid interest up to
the chapter II filing. Pro forma for a full draw of the $925 million U.S, portion of the proposed
DIP facility, total secured debt would total approximately $1.7 billion. Even at the $3.4 billion
low end of the valuation range of the selected collateral, there still exists over $1.6 billion of
equity cushion above the estimated $1.7 billion of pro forma secured debt, equal to 97 0,0 of the
total pro firma secured debt. Even if one were to remove all of the estimated $820 million of
pro forma cash from the low end of the valuation range, the equity cushion would remain at over
$800 million, equal to 490% of the total pro fornia secured debt. At the mid-point and high end of
the valuation range the equity cushions are obviously much greater.
K The Debtors' Request for Interim Authority is Appropriately Sized
26. The Debtors have sought the authority, in the Motion, for up to $700 million of
availability under the proposed DIP facility. This would be comprised of a $450 million cash
draw of the DIP term loan and full availability of the $225 million U.S. portion of the $250
million DIP ABL. Based on the Debtors' 13-Week Projections, the Debtors require this amount
of liquidity during the next four weeks to meet their working capital needs, including, without
limitation, to repay drawings under the prepetition revolving credit facility, cover letters of credit
and secured agreements (primarily related to hedging activities), make various restructuring- related disbursements (professional fees, critical/foreign vendor payments, utility deposits, etc.), pay fees, interest and expenses related to the proposed DIP facility, and meet the minimum
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liquidity covenant of the proposed DIP facility8. The $225 million U.S. portion of the DIP ABL
is only projected to be utilized during the interim period for the unfunded letters of credits and
secured agreements and to meet the minimum liquidity covenant; it is not projected to be drawn.
27. I believe that the Debtors' request for interim authority is appropriately sized and
tailored to cover their projected liquidity needs pending a final hearing. Absent interim or final
approval of the proposed DIP facility, the Debtors' may have to curtail or even terminate their
business operations, to the material detriment of all stakeholders.
Conclusion
28. Under current market conditions and the circumstances of these chapter 11 cases,
I believe the proposed DIP facility provides financing that is otherwise unavailable to the
Debtors on more favorable terms and best meets the Debtors' projected financing needs during these chapter 11 cases, while adequately protecting the collateral of prepetition secured creditors.
29. I declare under penalty of perjury under the laws of the United States of America
that I believe the foregoing is true and correct.
New York. New York Dated: January 19, 2012
US2 Matthew J. Hart Director, Lazard Frères & Co LLC
See analysis attached hereto as Exhibit B.
-11- EXHIBIT B IMflfA flfl.t.4..fltk1. fl_. 12-1 O2G2asCthd 2cFO4OD1-kIB/1 Doc in1r' Docket #0002 Date Filed 1/19/2012 1 OT 9b
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK
Chapter 11 In re:
EASTMAN KODAK COMPANY, et al.,' Case No. 12- ( )
(Joint Administration Requested) Debtors. )
DECLARATION OF ANTOINETTE P. MCCORVEY PURSUANT TO RULE 1007-2 OF THE LOCAL BANKRUPTCY RULES FOR THE SOUTHERN DISTRICT OF NEW YORK IN SUPPORT OF FIRST DAY PLEADINGS
Antoinette P. McCorvey, being duly sworn, deposes and states:
1. I am the Chief Financial Officer and Senior Vice President of Eastman Kodak
Company ("EKC"), a publicly owned corporation organized under the laws of the State of New
Jersey and a debtor and debtor in possession in the above-captioned cases of EKC and certain of
its affiliates (collectively, the "Debtors"). In such capacity, I am generally familiar with the
Debtors' businesses, day-to-day operations and financial affairs.
2. I submit this declaration (this "Declaration") pursuant to rule 1007-2 of the Local
Rules for the United States Bankruptcy Court for the Southern District of New York (the "Local
Rules") in support of the voluntary petitions for relief filed by each of the Debtors under chapter
11 of title 11 of the United States Code (the "Bankruptcy Code") and the motions and
applications for related relief filed as of January 19, 2012 (the "Petition Date") or concurrently
The Debtors in these chapter 11 cases, along with the last four digits of each Debtor's federal tax identification number, are: Eastman Kodak Company (7150); Creo Manufacturing America LLC (4412); Eastman Kodak International Capital Company, Inc. (2341); Far East Development Ltd. (2300); FPC Inc. (9183); Kodak (Near East), Inc. (7936); Kodak Americas, Ltd. (6256); Kodak Aviation Leasing LLC (5224); Kodak Imaging Network, Inc. (4107); Kodak Philippines, Ltd. (7862); Kodak Portuguesa Limited (9171); Kodak Realty, Inc. (2045); Laser-Pacific Media Corporation (4617); NFEC Inc. (5677); Pakon, Inc. (3462); and Qualex Inc. (6019). The location of the Debtors' corporate headquarters is: 343 State Street, Rochester, NY 14650.
SC1:3 172181.13 111111111111111111111111111111111111111111111111111111111 1210202120118000000000016 F;:flZ1;TflWrTfllif 2 of 96
herewith (collectively, the "First Day Pleadings"). I have reviewed the First Day Pleadings or
have otherwise had their contents explained to me and, to the best of my knowledge, insofar as I
have been able to ascertain after reasonable inquiry, I believe that approval of the relief requested therein is necessary to minimize disruption to the Debtors' business operations so as to permit an
effective transition into chapter 11, preserve and maximize the value of the Debtors' estates and,
ultimately, achieve a successful reorganization. I also believe that, absent immediate access to
additional financing, use of cash collateral and authority to make certain essential preplan
payments and otherwise continue conducting ordinary course business operations as set forth
herein, and described in greater detail in the First Day Pleadings, the Debtors would suffer
immediate and irreparable harm to the detriment of their estates.
3. Except as otherwise indicated, the facts set forth in this Declaration are based
upon my review of relevant documents, information provided to me or verified by other
executives, employees or the Debtors' professional advisors, including Sullivan & Cromwell
LLP, Young Conaway Stargatt & Taylor, LLP, Lazard Frères & Co. LLC and FTI Consulting,
Inc., and my experience, knowledge and information concerning the Debtors' operations,
financials and the film and digital imaging industry generally. Unless otherwise indicated, the
financial information contained in this Declaration is unaudited and subject to change. This
financial information is presented on a consolidated basis for the Debtors and their non-Debtor
affiliates, except where noted. I am authorized to submit this Declaration on behalf of the
Debtors, and, if called upon to testify, I would testify competently to the facts set forth herein.
Preliminary Statement
4. The Debtors and their non-Debtor affiliates (collectively, "Kodak" or the
"Company") operate a globally integrated enterprise. The Company has approximately 17,000
2 SC1:3 172181.13 F;:flZ1TflWrTfllif 3 of 96
employees worldwide (approximately 9,100 of whom are in the U.S.), and in fiscal year 2011 had sales of approximately $6.0 billion.
5. Kodak is a materials science company with a long history of innovation and successful commercialization of proprietary technologies. The Company was once the world's leading producer of film and cameras, and today has a diverse collection of mature and growth businesses. Kodak has invested significantly in research and development ("R&D") for over a century, and continues to do so today. The Debtors have approximately 13,100 foreign patents and trademark registrations or pending registration in approximately 160 countries.
Additionally, the Debtors have approximately 8,900 patent and trademark registrations and applications in the United States.
6. Over the past several years, the Company has been working to transform itself from a business primarily based on film and consumer photography to a smaller business with a digital growth strategy focused on the commercialization of proprietary digital imaging and printing technologies. Digital businesses generated approximately 75%, or $4.5 billion, of
Kodak's revenue in fiscal year 2011. Kodak's digital products include consumer devices such as self-service photo kiosks and ink jet printers, and business-to-business products and services such as its technologically advanced PROSPER commercial inkjet printing systems, electrophotographic printing systems, digital printing plates, high-volume document scanners and new technologies related to packaging and workflow software solutions.
Kodak has transitioned to a digital company, as the market for film based products has declined rapidly over the past ten years. Kodak's global workforce has been reduced from approximately 63,900 employees in 2003 to approximately 17,000 employees in
2011. This transition also has led to a financially smaller Kodak, with revenues declining from
SC1:3 172181.13 F;Z1rTflWflllZf 4 of 96
approximately $13.3 billion in 2003 to about $6.0 billion in 2011. Kodak has funded its business
restructuring costs from a combination of licensing fees generated by Kodak's digital capture
patents sale proceeds from the disposition of non-core assets and cash from its cash generating
film and digital business.
8. Kodak innovations enabled the digital transformation that has effectively replaced
film. In 1975, Kodak scientists invented the first digital camera. Kodak then went on to develop
a vast collection of patented technologies to enhance digital image capture and processing, technologies that are used in virtually every modem digital camera, smartphone and tablet, as
well as numerous other devices. From 2003 to 2010, the Company negotiated approximately
$3.0 billion of licensing revenue from its digital capture patent portfolio; however, the company
only generated $98 million in licensing revenue in 2011. The Company anticipates substantial
future revenue from licensing its intellectual property for use in smartphones and tablets that
employ digital cameras, as well as in next-generation products that utilize Kodak technology, or
from the disposition of related patents to third parties.
9. Since initiating its digital transformation strategy in 2003, Kodak has generated
approximately $4.0 billion from the sale of assets and businesses, including the Health Group,
Remote Sensing Systems, HPA, Light Management Films, Image Sensor Solutions, Eastman
Gel, Silver Operations, a variety of chemical operations, OLED and Kodak's ownership interest
in Lucky Film.
10. Since 2008, despite Kodak's best efforts, restructuring costs and recessionary
forces have continued to negatively impact the Company's liquidity position, ultimately leading to the commencement of these chapter 11 cases. In 2011, Kodak took actions to enhance its cash
position, including: (i) issuing $250 million in senior secured notes due 2019; (ii) entering into a
4 SC1:3 172181.13 F;:flZ1iTflWrTfllZf 5 of 96
second amended and restated credit agreement with its lenders that facilitated a draw of
approximately $160 million; and (iii) selling certain non-strategic businesses and assets. Despite these actions, the Company's liquidity has been impaired further by difficulties collecting
licensing fees from infringers of Kodak's intellectual property, who Kodak believes have
employed a strategy of delay in light of Kodak's liquidity position, and by substantial foreign
and U.S. legacy costs.
11. In order to resolve their liquidity challenges, the Debtors, with the assistance of their advisors, have evaluated strategic alternatives for new lending facilities, strategic transactions, intellectual property monetization, and asset sales. The Debtors have determined that seeking the debtor-in-possession financing described in my declaration in support of the
Debtors' motion authorizing them to obtain postpetition financing (the "Financing
Declaration"), and reorganizing under chapter 11 protection is in the long-term best interests of the Debtors, their estates and their stakeholders.
12. To familiarize the Court with the Debtors' businesses, operations, key creditor
constituencies and other parties in interest in these chapter 11 cases, together with the relief
sought by the Debtors in the First Day Pleadings, this Declaration is organized as follows: Part I
describes Kodak's history and the Debtors' current corporate structure and prepetition
indebtedness; Part II describes the Debtors' businesses and operations; Part III describes the
events leading up to the commencement of these cases and the Debtors' prepetition restructuring
initiatives; and Part IV sets forth the relevant facts in support of each First Day Pleading. To the
extent not otherwise provided herein, the information required under Local Rule 1007-2, relating to, among other things, the Debtors' businesses, employees, assets and parties in interest in these
SC1:3 172181.13 .-nk; F;:flZ19TflWflllZf
chapter 11 cases, is set forth on Schedules 1-12 attached hereto and incorporated by reference
herein.
I. Company Overview
A. Company History and Corporate Structure
13. Founded in 1880 by George Eastman, the Company helps businesses and
consumers unleash the power of pictures and printing. The Company has been headquartered in
Rochester, New York since its founding. In 1888, with the slogan "you press the button, we do the rest", George Eastman put the first film camera into the hands of a world of consumers. In
April 1905, Kodak went public, offering shares of its common stock on The New York Stock
Exchange. The Company was added to the Dow Jones Industrial Average index in July 1930.
14. Since its founding, Kodak has prided itself on its reputation. In April 2011, for the second year in a row, Kodak ranked among the top 20 "most reputable" American companies
by the Reputation Institute, an independent consulting company. The survey was based on
nearly 33,000 consumers' opinions, and measured trust, esteem, admiration and good feelings toward companies. For ten years in a row, Kodak has been named to the Dow Jones
Sustainability North American Index, one of the most prestigious and well-known hallmarks of
sustainability performance among leading corporations.
15. EKC is incorporated under the laws of New Jersey, which has a corporate
governance statute commonly called an "Other Constituency" statute. The Other Constituency
statute permits the board of directors, in discharging its duties, to consider the effects of its
actions not merely on shareholders and creditors, but also on employees, suppliers, customers,
and the community. It states:
In discharging his duties to the corporation and in determining what he reasonably believes to be in the best interest of the
6 SC1:3 172181.13 F;:flZ1f;TflWflhiif 7 of 96
corporation, a director may, in addition to considering the effects of any action on shareholders, consider any of the following: (a) the effects of the action on the corporation's employees, suppliers, creditors and customers; (b) the effects of the action on the community in which the corporation operates; and (c) the long term as well as the short term interests of the corporation and its shareholders, including the possibility that these interests may best be served by the continued independence of the corporation.
N.J. Stat. Ann § 14A:6-1. Consistent with the Other Constituency statute and George Eastman's
legacy, Kodak strives to be a good corporate citizen.
16. The Company's worldwide offices operate as an integrated global enterprise. A
detailed organizational chart is attached hereto as Exhibit A. The Company has approximately
120 subsidiaries. In fiscal year 2010, the Company earned approximately 57% of its revenue
abroad. The percentage of the Company's revenue earned abroad had increased to 67% for the
first three quarters of 2011. The Company's patents and intellectual property generally are held
by EKC, and the Company's research and administrative functions are located primarily in the
United States. As a result, the Debtors have been a net receiver of cash through the Company's
ordinary course global intercompany netting and financing system.
17. The Company's international operations are structured for, among other things, tax and regulatory efficiencies. Business units often cross geographic borders. For example,
much of the Company's Asian business involves taking semi-raw goods from other entities (e.g.,
ink produced in New York) and adding value in China by converting them into finished products
(e.g., printer cartridges) for sale in other markets. The Company's non-U.S. businesses are
expected to be funded primarily from non-U.S. sources and should not be affected by the filing
of these chapter 11 proceedings.
18. Orderly funding of the Company's global operations involves intercompany
lending and netting by Kodak International Finance Limited, a company organized under the
7 SC1:3 172181.13 F;Z1rTflWflllZf 8 of 96
laws of the United Kingdom ("KIFL"). Intercompany netting currently occurs once a month.
The Company believes that the continued operation of KIEL in the ordinary course is critical to
minimize non-U.S. liquidity requirements and avoid business interruptions within and outside the U.S.
B. Prepetition Capitalization and Indebtedness
19. The Debtors have significant legacy liabilities. 2 These include $1.2 billion in non-
U.S. pension liabilities (calculated in accordance with U.S. GAAP), $1.3 billion of Other Post-
Employment Benefit ("OPEB") liabilities and approximately $100 million in environmental
liabilities.
20. As of the Petition Date, the Debtors have outstanding funded debt in an aggregate
amount of approximately $1.6 billion, consisting primarily of approximately: (a) $100 million
outstanding under the first lien revolving credit facility plus an additional $96 million in face
amount of outstanding letters of credit; (b) $750 million in principal amount of second lien
secured notes; (c) $400 million in principal amount of convertible notes; and (d) $283 million in
principal amount of other senior unsecured debt. The Debtors also have approximately $425
million in outstanding trade debt.
II. Current Businesses and Operations
21. Research and development drives Kodak's product and service offerings, which
in 2011 were organized across three business segments: (i) Graphic Communications Group,
(ii) Consumer Digital Imaging Group, and (iii) Film, Photofinishing and Entertainment Group.
2 Contingent, unliquidated, disputed; estimate for illustrative purposes. Amounts with respect to OPEB and Pension are based on preliminary estimates as of December 31, 2011. Estimate for illustrative purposes only.
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Beginning in 2012, the Company reorganized its business into a Commercial and Consumer segment. New segment-based financial reporting will begin with the first quarter 2012 results.
A. Product Offerings
22. Graphic Communications Group ("GCG") has a portfolio of digital products, primarily aimed at business customers, which accounted for 45% of the Company's consolidated revenue for 2011. GCG generates revenue from a traditional commercial plate and equipment printing business, innovative high-speed commercial inkjet printing (which prints on a variety of surfaces), electrophotographic printing systems, high speed document scanners, workflow software and services to business clients.
23. Consumer Digital Imaging Group ("CDG") offers printers, cameras and accessories to consumers, accounting for 29% of the Company's consolidated revenue for 2011.
CDG generates revenues from digital cameras and accessories, the largest installed base of retail photo kiosks in the world, desktop inkjet printers and Kodak Gallery, an online merchandise and photo sharing service.
24. Film, Photofinishing and Entertainment Group ("FPEG") provides consumers, professionals and the entertainment industry with film and paper products and related software and services. FPEG is the industry leader in large markets, such as motion picture film, and accounted for 26% of the Company's consolidated revenue for 2011. FPEG sells color motion picture film, services for the entertainment industry, traditional photofinishing products, and specialized industrial film and chemical products.
B. Research and Development
25. Kodak's digital growth strategy is centered on exploiting its competitive advantage at the intersection of materials science and digital imaging science. Kodak's materials
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science research is relevant both to innovative printing and fundamental scientific disciplines, as
illustrated below:
1. Materials Science (inks, toners, coatings, paper and other media): Materials, inks, toners and papers used in Kodak systems draw upon a deep understanding of the sophisticated properties of these materials, and Kodak conducts cutting-edge research in polymer science, chemistry modeling and atomic scale assembly.
2. Nano-/Micro-Scale Devices: Research includes microfluidic systems that have a wide range of potential applications, such as inkjet printing, blood cell separation, biochemical assays, chemical synthesis, genetic analysis, drug screening, electrochromatography, surface micromachining, laser ablation and mechanical micromilling.
3. Computational Science: Research in labeling, organizing, compressing and interacting with digital data.
26. Most of the Company’s R&D is performed in the U.S., with R&D taking place in
Rochester, New York; Boston, Massachusetts; New Haven, Connecticut; Dayton, Ohio; and San
Jose, Emeryville and San Diego, California; however, several comparatively smaller R&D
operations are located outside the U.S. in Canada, England, Israel, Germany, Japan, China and
Singapore. These groups work in close cooperation with manufacturing units and marketing
organizations to develop new products and applications to serve both existing and new markets.
Historically, the Company has spent between $300-500 million per year on R&D.
27. It has been the Company’s general practice to protect its investment in R&D and
its freedom to use its inventions by obtaining patents. As noted above, the Debtors have
approximately 13,100 foreign patents and trademark registrations or pending registrations in
approximately 160 countries. Additionally, the Debtors have approximately 8,900 patent and
trademark registrations and applications in the United States. Kodak continues to produce patented technologies at a considerable pace, with 590 priority applications filed in 2011 and 482
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in 2010. The ownership of these patents contributes to the Company’s ability to develop and
market innovative products.
28. The Company’s major products are not dependent upon a single material patent.
Rather, the technologies that underlie the Company’s products are supported by an aggregation
of patents having various remaining lives and expiration dates. There is no individual patent
expiration or group of patent expirations that is expected to have a material impact on the
Company’s results of operations.
29. As announced publicly on July 20, 2011, the Company has been exploring, and
continues to explore, strategic alternatives related to its digital capture and imaging systems and
services portfolios of approximately 1,150 patents with related foreign and pending applications
(the “Imaging Portfolio”). The Imaging Portfolio pertains to capturing, processing, storing,
organizing, editing, sharing and monetizing digital images, and is fundamental to the digital
imaging industry, including the cell phone, tablet and social networking markets.
30. The Imaging Portfolio comprises one of the world’s richest collections of
imaging-related intellectual property, reflecting decades of scientific innovation and billions of
dollars of investment in R&D.
III. Restructuring Initiatives and Events Leading to Chapter 11
31. At least ten years ago, the Company recognized the inevitable decline in its
traditional film business, and began working to restructure its operations. Since 2003, the
Company has actively managed its workforce and post-employment benefit costs. The
Company’s transition to a digital business, however, has been interrupted by a liquidity shortfall, primarily in the United States.
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A. Restructuring Initiatives
32. From 2003 to 2010, Kodak reduced its workforce by 50,000 employees, and
closed 13 of its 15 film plants and 130 photo labs. The following chart shows the decline in
Kodak’s global workforce over this eight-year period.
Worldwide Employment
*The change between 2006 and 2007 reflects the divestiture of 8,100 Health Group employees. During the period from 2003 to 2010, 13 operations and 130 labs were closed.
33. In addition to consistently managing reductions of its workforce, Kodak actively
managed its benefit costs, including with respect to U.S. OPEB. 5 Cost savings came from the
Company exercising its unilateral rights to reduce or eliminate certain retiree benefits, in addition
to increasing employee and retiree health care contributions. The following shows the declining
cost of U.S. retiree benefits over the same eight-year period.
5 Kodak has approximately 65,000 retirees worldwide.
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Cash Cost for U.S. Retiree Benefits
300
Medical Cost
Survivor Income Benefit Cost
250
200
- 171 - 150 169 169 156 146 130
111 100 102
19 19 - 20 ____ 21 22 23 50
24 25 44 35 37 33 35 35
21 24 11 0 5 3
2003 2004 2005 2006 2007 2008 2009 2010
Year
As of 2010, the U.S. plan represents 93% of total other post-employment benefit plans.
B. Events Leading to Chapter 11
34. There are several key drivers for the Debtors’ near-term liquidity issues. First,
market conditions since 2008 have caused losses in Kodak’s historically profitable traditional
businesses, reduced revenue, earnings and cash from the Company’s digital cash generating
business and delayed revenue generation from Kodak’s digital growth initiatives. Second,
legacy post-employment benefits continue to consume a substantial amount of the Debtors’ cash.
Third, cash flow from the licensing and sale of intellectual property has been delayed due to
litigation tactics employed by a small number of infringing technology companies with strong
balance sheets and an awareness of Kodak’s liquidity challenges. Fourth, near the end of 2011,
negative publicity and other external issues caused substantial strains on trade credit.
(i) Market Conditions in 2008 to Present
35. Since 2008, the Company has been negatively impacted by market conditions.
The Company has seen both a decline in profits from its traditional businesses, such as FPEG,
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and slowed revenue growth in its newer initiatives due in part to reduced revenue and earnings
from its digital cash generating business.
36. When it began its business transformation, Kodak planned to source funds for
restructuring costs and investment in new businesses from its historically profitable film business. Even though Kodak had projected FPEG to generate less cash as film was replaced by
digital imaging, the FPEG business was still anticipated to generate substantial cash flow. The
rate of the decline of the market for film between 2008 and 2010, however, was significantly
steeper than anticipated by nearly all observers: the industry projected a 10% decline, Kodak
forecasted a 20% decline and the actual decline was approximately 40%. In addition to demand
impairment, increasing commodity prices negatively impacted FPEG’s cash flow. FPEG purchased approximately $300 million of silver in 2011. Silver prices have ranged between
199% and 294% higher than 2008 prices. Because of the lingering effects of the economic crisis,
Kodak cannot pass through all of these price increases to its customers.
37. One of the businesses in which Kodak invested heavily was consumer inkjet. The
consumer inkjet business runs on the “razor/blade” model – profits are not made on the sale of
the printers, but on aftermarket sales of ink and other consumables. Kodak can only expand its
market share, and create a market for the highly profitable ink, by increasing its global installed base. However, the financial crisis of 2008 resulted in slower growth in the installed base than
Kodak had projected and in lower printer prices in the market, delaying the realization of profits
through the sale of ink and consumables.
38. Similarly, during the financial crisis and immediately thereafter, the market for
Kodak’s commercial products, many of which represent significant investments for the businesses that purchase them, shrank significantly. This reduced the profitability of Kodak’s
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digital growth initiatives, which require establishing an installed base of Kodak products to
create economies of scale and build a market for highly profitable services and consumables.
(ii) Costs of Post-employment Benefits
39. Post-employment benefit liabilities consumed approximately $245 million of the
Debtors’ cash in 2011. Kodak’s largest single cash cost in 2011 was approximately $119 million
spent on OPEB. The Debtors also made an approximately $60 million annual contribution to the
U.K. pension. Despite actions taken, the Debtors have been unable to reduce the amount of cash
consumed by post-employment benefit obligations to make them proportional to a financially
smaller Kodak.
(iii) Delays in Licensing of Intellectual Property
40. Revenue generated through monetization of the digital capture portfolio over the past several years has been an integral part of the funding for Kodak’s digital transformation.
Over 30 companies have licensed the digital capture portfolio, including such leading mobile-
device companies as LG, Motorola, Samsung and Nokia, all of which are royalty-bearing to
Kodak.
41. When Kodak’s financial condition started to deteriorate, Kodak began to
experience delays in licensing negotiations with Apple Inc. (“ Apple”), Research In Motion,
Corp. (“RIM”) and HTC Corporation (“HTC”), all of which owe substantial royalties for use of
Kodak’s digital capture portfolio. Kodak has pursued patent litigation against each of Apple,
RIM and HTC to enforce its rights relating to the digital camera functionality included in their
smartphone handsets and, in the cases of Apple and HTC, in their tablets. In addition, Kodak believes Apple’s operating system itself, which employs object-linking capability, infringes
Kodak’s patents (now expired) directed to such fundamental technology. The Company expects
that these lawsuits, once resolved, will benefit Kodak stakeholders substantially. As an
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alternative to lengthy patent litigation, Kodak has explored the sale of the Imaging Portfolio to
third parties. However, the Company has faced difficulties executing the sale due to uncertainty
about its financial condition.
(iv) Trade Credit and Market Rumors
42. Persistent negative press has caused concern among many of Kodak’s suppliers.
In the last few weeks leading up to these chapter 11 proceedings, some vendors have stopped
shipping and providing services to Kodak, making it more difficult to operate. Vendors also
have been demanding shorter payment terms and/or additional guarantees. The Debtors
anticipate that approval of the debtor-in-possession financing, together with vendor preplan payment authorization, will provide confidence to the supplier community that Kodak will be a
reliable and long-term partner to its global vendors.
C. Discussions Concerning U.K. Pension Plan
43. Although the Debtors are reviewing documentation and reserve rights, the
Debtors currently expect KPP Trustees Limited (the “ Trustee”), the trustee for the Kodak pension plan (the “Plan”) in the United Kingdom, to have a significant general unsecured claim
against Eastman Kodak Company by virtue of the Guaranty Agreement, effective October 9,
2007 (as amended) (the “ Guarantee”), among EKC, the Trustee and EKC’s U.K. subsidiary,
Kodak Limited. The Guarantee is governed by English law and on its face, among other things,
and subject to certain terms and conditions, guarantees the ability of Kodak Limited to contribute
to the Plan (i) the minimum amount of assets necessary such that the Plan will have sufficient
assets to make member benefit payments as they are immediately due and payable if the Plan
would not otherwise have sufficient assets needed to make such benefit payments; and (ii) such
that the Plan will achieve a “Full Funding status” (as defined in the Guarantee) by December 31,
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2022. The Debtors have not determined a valuation of the Trustee’s potential claim in
connection with the Guarantee.
44. As part of the preparation for these proceedings, representatives of the Debtors
traveled to London to meet with the Board of Directors of the Trustee and the Pension Regulator
of the United Kingdom. The meetings occurred on January 11th and 12th, 2012. At these
meetings, representatives of the Debtors discussed confidentially the prospect of these proceedings and our intent that only the U.S. entities of the Kodak group file for chapter 11, and
that non-U.S. companies continue to conduct operations in the ordinary course of business. The
Debtors’ representatives discussed their plans to ensure for adequate funding for European
operations during these proceedings. The representatives also informed the Trustee and the
Pension Regulator of the Debtors’ view that ordinary course operations around the world, and
the absence of non-U.S. insolvency proceedings, are in the best interest of the Trustee and
critical to maximizing value for all stakeholders of the Debtors, including the Trustee. The
Debtors intend to work collaboratively with the Trustee and have invited them to take an active
role in the proceedings.
IV.
First Day Pleadings
45. Contemporaneously herewith, the Debtors have filed a number of First Day
Pleadings. I believe that, among other things, the relief requested in the First Day Pleadings is
necessary to enable the Debtors to operate with minimal disruption during the pendency of these
chapter 11 cases. A description of the relief requested and the facts supporting each of the pleadings is set forth below.
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A. Administrative Motions
(i) Debtors’ Motion for an Order Authorizing Joint Administration of Their Related Chapter 11 Cases (the “ Joint Administration Motion ”)
46. The Debtors request entry of an order authorizing joint administration of these
chapter 11 cases for procedural purposes only pursuant to Bankruptcy Rule 1015(b).
Specifically, the Debtors request that the Court maintain one file and one docket for all of the jointly administered cases under the lead case, Kodak. Further, the Debtors request that an entry be made on the docket of each of the Debtors’ chapter 11 cases other than Kodak to indicate the joint administration of these chapter 11 cases. Finally, the Debtors seek authority to file the
monthly operating reports required by the Operating Guidelines and Reporting Requirements for
Debtors in Possession and Trustees, issued by the Office of the United States Trustee for the
Southern District of New York (the “ U.S. Trustee”), on a consolidated basis.
47. Given the integrated nature of the Debtors’ businesses, joint administration will
allow for the efficient and convenient administration of these chapter 11 cases without harming
the substantive rights of any party in interest. Furthermore, joint administration of these
chapter 11 cases will reduce fees and costs by avoiding duplicative filings, objections and
hearings, and will allow the U.S. Trustee and all parties in interest to monitor these chapter 11
cases with greater ease and efficiency.
48. I believe that the relief requested in the Joint Administration Motion is in the best
interests of the Debtors’ estates, their creditors and all other parties in interest and will enable the
Debtors to continue to operate their businesses in chapter 11 without disruption. Accordingly, on behalf of the Debtors, I respectfully submit that the Joint Administration Motion should be
approved.
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(ii) Debtors’ Motion for an Order Authorizing the Debtors to (A) Prepare a List of Creditors in Lieu of a Formatted Mailing Matrix, (B) File a Consolidated List of the Debtors’ 50 Largest Unsecured Creditors and (C) Mail Initial Notices (the “Creditor Matrix Motion”)
49. The Debtors seek entry of an order authorizing the Debtors to (a) prepare a
consolidated list of creditors in the format or formats currently maintained in the ordinary course
of business in lieu of submitting any required mailing matrix, (b) file a consolidated list of the
Debtors’ 50 largest unsecured creditors, and (c) mail initial notices through the Debtors’ proposed notice and claims agent, Kurtzman Carson Consultants LLC (“ KCC”)
50. The Debtors have many thousands of creditors and, therefore, converting the
Debtors’ computerized information to a format compatible with the matrix requirements would be an exceptionally burdensome task. Furthermore, the Debtors, working together with KCC,
already have prepared a single, consolidated list of the Debtors’ creditors in electronic format.
The Debtors are prepared to make that list available in electronic format to any party in interest
who so requests (or in non-electronic format, at such requesting party’s sole cost and expense) in
lieu of submitting a mailing matrix to the clerk of the Court.
51. Additionally, because the top 50 creditor lists of several of the Debtors would
overlap, and compiling separate top 50 creditor lists for each individual Debtor would consume
an excessive amount of the Debtors’ scarce time and resources, I believe that allowing the
Debtors to file a single, consolidated list of the Debtors’ 50 largest unsecured, non-insider
creditors will promote efficiency and better aid the U.S. Trustee in its efforts to communicate
with these creditors.
52. Finally, KCC’s assistance with mailing and preparation of creditor lists and
notices will ease administrative burdens that otherwise would fall upon the Court and the U.S.
Trustee. Accordingly, I respectfully submit that the Creditor Matrix Motion should be approved.
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(iii) Debtors’ Application for an Order Appointing Kurtzman Carson Consultants LLC as Claims and Noticing Agent in these Chapter 11 Cases (the “ Claims and Noticing Agent Retention Application”)6
53. The Debtors anticipate having tens of thousands of potential creditors in these
chapter 11 cases. Accordingly, to relieve the Court and the Office of the Clerk of the Court (the
“Clerk’s Office”) of the burdens associated with noticing these parties and other related burdens,
including maintaining the claims register for these chapter 11 cases, the Debtors propose to
engage KCC to act as the Debtors’ claims and noticing agent. Engaging KCC is an effective and
efficient means for, among other things, providing notice to creditors and parties in interest of
the commencement of these chapter 11 cases and other developments in these proceedings.
Therefore, I believe that the Court’s approval of the Claims and Noticing Agent Retention
Application is in the best interests of the Debtors, their estates and creditors. Accordingly, I
respectfully submit that the Claims and Noticing Agent Retention Application should be
approved.
(iv) Debtors’ Motion for an Order (a) Extending the Time to File (i) Schedules of Assets and Liabilities, Schedules of Current Income and Expenditures, Schedules of Executory Contracts and Unexpired Leases and Statements of Financial Affairs and (ii) Reports of Financial Information and (b) Waiving Requirements to File Equity List and Serve Notice of Commencement on Equity Security Holders (the “Schedules and Statements Motion”)
54. The Debtors seek entry of an order (a) granting the Debtors an extension of the
time to file their (i) schedules of assets and liabilities, schedules of current income and
expenditures, schedules of executory contracts and unexpired leases and statements of financial
affairs (collectively, the “ Schedules and Statements ”) and (ii) reports of financial information
with respect to entities in which the Debtors’ estates hold a controlling or substantial interest (the
6 The Debtors also anticipate filing the Application of the Debtors for an Order Authorizing the Employment and Retention of Kurtzman Carson Consultants LLC as Administrative Agent for the Debtors and Debtors in Possession Nunc Pro Tunc to the Petition Date.
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“2015.3 Reports”) or a motion seeking a modification of such reporting requirements and (b)
waiving the requirements to (i) file a list of all equity security holders (the “ Equity Holders
List”) within 14 days after the Petition Date and (ii) give notice of the commencement of these
chapter 11 cases to all of the Debtors’ equity security holders.
55. The Debtors have tens of thousands of potential creditors and, together with their
non-debtor affiliates, operate an integrated global business network comprised of over one
hundred domestic and foreign entities. Given the scope and complexity of the Debtors’ businesses, coupled with the limited time and resources available to the Debtors to compile the
required information, I submit that requiring the Debtors to complete the Schedules and
Statements during the period of time following the Petition Date would be unnecessarily burdensome to the Debtors. Therefore, I believe that an extension of the deadline to file the
Schedules and Statements is warranted.
56. Additionally, the Debtors consist of 16 separate entities, many of which may hold
a substantial or controlling interest of another entity within the meaning of Bankruptcy Rule
2015.3. I believe that cause exists to extend the deadline for filing the 2015.3 Reports as
requested herein, based on (a) the size, complexity and geographic reach of the Debtors’ businesses and (b) the substantial burdens imposed by compliance with Bankruptcy Rule 2015.3
in the early days of these chapter 11 cases. Furthermore, extending the deadline for filing the
2015.3 Reports will enable the Debtors to work with their financial advisors and the U.S. Trustee
to determine the appropriate nature and scope of the 2015.3 Reports and any proposed
modifications to the reporting requirements established by Bankruptcy Rule 2015.3.
57. Finally, the Debtors submit that preparing the Equity Holders List and sending the
notice of commencement of these chapter 11 cases to all parties on the Equity Holders List will
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the Debtors will provide the parties on the Equity Holders List with notice of the bar date and an
opportunity to assert their interests, in the event that they are required to file proofs of interest.
Thus, the relief requested by the Debtors will not prejudice the equity security holders.
58. I believe that the relief requested in the Schedules and Statements Motion is in the best interests of the Debtors’ estates, their creditors and all other parties in interest, and will
enable the Debtors to continue to operate their businesses in chapter 11 without disruption.
Accordingly, I respectfully submit that the Schedules and Statements Motion should be
approved.
(v) Debtors’ Motion for an Order Authorizing the Establishment of Certain Notice, Case Management and Administrative Procedures (the “ Case Management Motion”)
59. The Debtors seek entry of an order authorizing the establishment of certain notice,
case management and administrative procedures (the “ Case Management Procedures ”). The
Debtors believe that the Case Management Procedures will promote the efficient and orderly
administration of these chapter 11 cases by, among other things: (a) limiting service of
documents filed in these cases to those parties that have an interest in the subject matter thereof;
(b) authorizing electronic service; and (c) fixing monthly omnibus hearings. At the same time,
the Case Management Procedures ensure that appropriate notice is provided and do not seek to
waive the substantive rights of any party in interest in these chapter 11 cases.
60. I believe that the relief requested in the Case Management Motion is in the best
interests of the Debtors’ estates, their creditors and all parties in interest and will enable the
Debtors to continue to operate their businesses in chapter 11 without disruption. Accordingly, I
respectfully submit that the Case Management Motion should be approved.
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B. Operational Motions Requesting Immediate Relief 7
(i) Debtors’ Motion for Interim and Final Orders (a) Authorizing, but Not Directing, the Debtors to Pay Taxes and Fees and (b) Authorizing Financial Institutions to Honor all Related Payment Requests (the “ Taxes Motion”)
61. The Debtors request entry of interim and final orders authorizing, but not
directing, the Debtors to pay certain income, sales, use, franchise and property taxes and other
taxes, assessments, fees (including intellectual property fees) and similar charges.
62. In the ordinary course of operating their businesses, the Debtors collect and/or
incur income taxes, sales taxes, use taxes, franchise taxes and fees, property taxes and other
taxes, assessments, fees (including intellectual property fees) and similar charges (collectively,
the “Taxes and Fees ”).8 The Debtors remit the Taxes and Fees to various federal, state and local
(including foreign) taxing, licensing and other governmental authorities (collectively, the
“Authorities”). The Debtors pay the Taxes and Fees monthly, quarterly, annually or biennially
to the respective Authorities, in accordance with any applicable laws and regulations. The
Debtors estimate that payments made pursuant to the proposed form of interim order for the
Taxes Motion will not exceed $4.5 million; however, if payments exceed that amount, the
Debtors will promptly notify the U.S. Trustee.
63. The Debtors believe that many of the Taxes and Fees collected prepetition are not property of the Debtors’ estates, and must for that reason be turned over to the Authorities. In
any event, even if certain Taxes and Fees are not actually the property of the Authorities, they
may give rise to priority claims. Moreover, failure to pay the Taxes and Fees could result in
7 The proposed orders with respect to these operational motions requesting immediate relief each provide that to the extent there is any inconsistency between the terms of the interim or final order approving the DIP Financing, if and when entered, and the proposed order, the terms of the interim and final order approving the DIP Financing, as applicable, shall govern. 8 The Debtors do not seek authority to collect and pay state and federal employee withholding taxes under this Motion, but rather request such authority as part of the Employee Wages and Benefits Motion (as defined below).
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Authorities taking actions that might interfere with the Debtors’ successful reorganization,
including possibly bringing personal liability actions against directors, officers and other
employees, which likely would distract key personnel, whose full-time attention to the Debtors’
reorganization efforts is essential at this juncture. Any such business disruptions would likely
erode the Debtors’ customer base and negatively impact these chapter 11 cases. Accordingly, I
respectfully submit that the Taxes Motion should be approved.
(ii) Debtors’ Motion for Entry of Interim and Final Orders Authorizing, But Not Directing, Debtors to (a) Pay Certain Prepetition Wages and Reimbursable Employee Expenses, (b) Pay and Honor Employee Medical and Other Benefits and (c) Continue Employee Benefits Programs (the “ Employee Wages and Benefits Motion ”)
64. The Debtors request the entry of interim and final orders authorizing, but not
directing, the Debtors to pay prepetition wages, salaries, commissions and other compensation,
taxes, withholdings and related costs and reimbursable employee expenses, pay and honor
obligations relating to employee medical, insurance and other benefits programs, and continue
their employee medical, insurance and other benefits programs on a postpetition basis.
65. As of the Petition Date, the Debtors employ approximately 9,100 employees, of
whom approximately 8,000 are full-time employees (including full-time employees who are on
vacation, temporary layoff, leaves of absence, sick leave or short- or long-term disability)
regularly scheduled to work a minimum of 35, 37.5 or 40 hours per week, depending on location,
on a continuing basis and approximately 1,100 are part-time employees (collectively, the
“Employees”). The Debtors pay approximately 5,500 of their Employees (61%) on an hourly basis, while the remaining approximately 3,600 (39%) are paid on a salaried basis.
66. In addition to their Employees, the Debtors regularly supplement their workforce
through the use of temporary employees and independent contractors. On an annual basis, the
Debtors retain temporary employees through temporary staffing agencies (the “ Staffing Agency
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Employees”) and (b) independent contractors (the “ Independent Contractors”; together with
the Employees and the Staffing Agency Employees, the “ Workforce”).
67. The Workforce performs a variety of critical functions, including sales, customer
service, information technology, R&D, engineering, purchasing and a variety of administrative,
legal, accounting, finance and management-related tasks. The skills and experience of the
Workforce, as well as their relationships with customers and vendors and their knowledge of the
Debtors’ infrastructure are essential to the Debtors’ ongoing operations and ability to effectively
reorganize their businesses.
68. In providing benefits to the Workforce, the Debtors pay and incur a number of
obligations (including employee contributions, claims and administrative fees to benefit providers) such as compensation, deductions and payroll taxes, cash incentive programs, equity plans, termination allowance programs, reimbursement expenses, relocation and expatriates
expenses, health benefits, workers’ compensation benefits, vacation time, life insurance,
accidental death and disability benefits, retirement and savings benefits and other benefits that
the Debtors have historically provided in the ordinary course of business (collectively, and as
more fully described herein, the “ Employee Obligations”). Although the Debtors have honored
the Employee Obligations in the ordinary course of business prior to the Petition Date, as of the
date hereof, certain Employee Obligations may nevertheless be due and owing.
69. I believe the vast majority of the Workforce relies exclusively on their
compensation to pay their daily living expenses. Consequently, the members of the Workforce
will be exposed to significant financial difficulties if the Debtors are not permitted to honor
obligations for unpaid compensation, benefits and reimbursable expenses. Moreover, if the
Debtors are unable to satisfy such obligations, Employee morale and loyalty will be jeopardized
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at a time when Employee support is critical. In the absence of such payments, I believe that the
Employees may seek alternative opportunities, perhaps with the Debtors’ competitors. Such a
development would deplete the Workforce, thereby hindering the Debtors’ ability to meet their
customer obligations and likely diminishing stakeholder confidence in the Debtors’ ability to
successfully reorganize. Moreover, it is my opinion that loss of valuable Employees and the
recruiting efforts that would be required to replace such Employees would be distracting at a
time when the Debtors should be focusing on maintaining their operations.
70. I have no doubt that the Debtors must do their utmost to retain the Workforce by,
among other things, continuing to honor wage, benefit and related obligations, including the
Employee wages and certain benefits that accrued prepetition. Accordingly, I believe that the
relief requested is in the best interests of the Debtors’ estates and will enable the Debtors to
continue to operate their businesses during these chapter 11 cases without disruption so as to
avoid immediate and irreparable harm to the Debtors’ estates. Accordingly, I respectfully submit
that the Employee Wages and Benefits Motion should be approved.
(iii) Debtors’ Motion for an Order Authorizing Restrictions on Certain Transfers of Interests in the Debtors and Establishing Notification Procedures Relating Thereto Pursuant to Sections 105(a) and 362 of the Bankruptcy Code (the “ Transfers Motion”)
71. The Debtors request that the Court enter an order authorizing the Debtors to
establish procedures to protect the potential value of the Tax Attributes (defined below).
72. The Debtors have recently incurred, and are currently incurring, significant net
operating losses (“ NOLs”) for U.S. federal income tax purposes. For tax periods through the
2010 tax year, the Debtors have reported on their federal income tax returns, as adjusted to
account for certain settlements, (i) approximately $1.1 billion of consolidated NOLs, and the
Debtors estimate that as of December 31, 2011, they have incurred additional NOLs of
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approximately $800 million; (ii) approximately $592 million of foreign tax credits (“ FTCs”),
and the Debtors estimate that as of December 31, 2011, they have incurred additional FTCs of
approximately $64 million; and (iii) approximately $17 million of Federal Research and
Development Credits (“R&D Credits”), and the Debtors estimate that as of December 31, 2011,
they have incurred additional R&D Credits estimated to be approximately $1.5 million. The
Debtors also have additional state, local and foreign tax attributes, and may have net unrealized built-in tax losses (collectively, the “ Tax Attributes”).
73. The Debtors expect to sell significant assets during the pendency of these chapter
11 cases, and in connection with these transactions, they may recognize substantial gain or other
income and may, depending on market conditions, recognize significant additional income or
gain in connection with certain other events. The Tax Attributes are of significant value to the
Debtors and their estates because the Debtors can carry them forward to offset future taxable
income. Any reduction in the Debtors’ tax liability would enhance the Debtors’ cash position for
the benefit of all parties in interest.
74. The ability of the Debtors to use the Tax Attributes to offset future income,
however, is subject to certain statutory limitations. Accordingly, the Debtors are seeking the
approval of the procedures set forth in the Transfers Motion to preserve the Debtors’ ability to
use their tax attributes and their ability to propose a chapter 11 plan and related transactions that
maximize the value of the Tax Attributes following a chapter 11 plan.
75. I believe that the Tax Attributes are extremely valuable assets of the Debtors’
estates, the availability of which will facilitate the Debtors’ successful reorganization and potentially serve to significantly improve creditor recoveries. Accordingly, I respectfully submit
that the Transfers Motion should be approved.
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(iv) Debtors’ Motion for Entry of Interim and Final Orders (A) Authorizing, But Not Directing, Debtors to (I) Pay Prepetition Claims of Shippers, Warehousers, Processors and Lien Claimants and (II) Pay Certain Customs Duties and Similar Incidental Prepetition Import Expenses and (B) Authorizing All Financial Institutions to Honor All Related Payment Requests (the “ Shippers, Lien Claimants and Customs Duties Motion ”)
76. The Debtors request entry of an order authorizing, but not directing, the Debtors
to (a) pay certain prepetition claims of shippers, warehousers, processors and lien claimants and
(b) pay certain prepetition customs duties and similar incidental prepetition import expenses.
77. The Debtors require the delivery of raw materials on a regular basis for the production and distribution of their finished products. The Debtors’ pricing policies, marketing
strategies and business operations rely on their ability to receive raw materials and distribute
finished products in a timely fashion. To maintain their operations and efficiently transport raw
materials and finished products, the Debtors depend upon the use of reputable domestic common
carriers, truckers, rail carriers, barge owners and stevedores (the “ Shippers”) to deliver raw
materials to the Debtors’ production facilities and distribute finished products to the Debtors’
customers. At any given time, there are numerous shipments of raw materials, works in progress
and finished products en route to or from the Debtors’ manufacturing facilities. If the Debtors do
not pay prepetition ordinary course obligations owed to these Shippers, the Shippers might refuse
to deliver or release such property to the Debtors until they are paid.
78. In the ordinary course of their businesses, the Debtors also rely upon certain third- party contractors to store raw materials and finished products (the “ Warehousers”). These
Warehousers hold the Debtors’ goods and may refuse to release them pending payment from the
Debtors in satisfaction of their claims, thereby disrupting the Debtors’ operations. Furthermore,
the Debtors rely on third-party processors to manufacture or finish goods to the Debtors’ exact
specifications (the “ Processors,” and, together with the Shippers and Warehousers, the
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“Possessory Lien Holders”). At any given time, in the ordinary course of business, the
Processors may be performing services on, and therefore have possession of, the Debtors’
supplies, raw materials, works in progress and finished goods.
79. The Debtors also rely on a number of third parties for maintenance and repair of
machinery, tools and equipment used at and outside their facilities, as well as of the facilities
themselves. Under applicable state law, under certain circumstances, many parties maintaining
and repairing the Debtors’ property have a right to assert and perfect construction,
materialmen’s, mechanics’ or other similar statutory liens, which attach to the Debtors’ property
(the “Statutory Lien Claimants ”). The Statutory Lien Claimants will be entitled to assert and perfect liens against the Debtors’ property during these chapter 11 cases with respect to their prepetition claims against the Debtors (such claims, to the extent of a valid statutory lien right
under applicable state law, the “ Statutory Lien Claims ”).
80. In the ordinary course of business, the Debtors purchase from overseas certain of
the raw materials, parts, components, finished goods, tooling, machinery and equipment that they
use in the operation of their businesses, and then import such goods into the U.S. (the “ Imported
Goods”). Without the continued and uninterrupted purchase and delivery of the Imported
Goods, the Debtors could not continue business in the ordinary course with their suppliers and
maintain the continued and uninterrupted distribution of their finished products. If the associated
Customs Duties9 are not timely paid, the United States Customs and Border Protection Agency
and other similar authorities may demand liquidated damages, assess interest, impose sanctions
or take other precipitous actions on account of the unpaid Customs Duties.
9 Customs Duties shall be defined as customs duties and similar incidental import expenses, including, without limitation, any prepetition amounts owed to the Debtors’ customs brokers, even if the Debtors incurred the relevant liability prior to the Petition Date.
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81. In light of the foregoing, the Debtors request authorization, but not direction, to pay (a) any amounts owed to the Possessory Lien Holders, (b) the Statutory Lien Claims and (c)
the Customs Duties to the extent that the Debtors determine, in the exercise of their business judgment, that such payment is critical to ensure the continued operation of the Debtors’ businesses on a postpetition basis; provided, however, that within 21 days after the Petition Date,
the Debtors only will pay such amounts to the extent that the Debtors determine, in the exercise
of their business judgment, that such payment is necessary to avoid immediate and irreparable
harm to the Debtors; provided further, that in no event shall the Debtors pay any Shipping
Charges, Statutory Lien Claims or Customs Duties before such amounts are due and payable. I believe that such relief is in the best interests of the Debtors, their estates and creditors, and will
enable the Debtors to continue to operate their businesses in chapter 11 without disruption.
Accordingly, I respectfully submit that the Shippers, Lien Claimants and Customs Duties Motion
should be approved.
(v) Debtors’ Motion for Entry of Interim and Final Orders (A) Authorizing, But Not Directing, Debtors to Maintain and Administer Customer Programs and Honor Related Prepetition Obligations to Customers and (B) Authorizing All Financial Institutions to Honor All Related Payment Requests (the “ Customer Programs Motion”)
82. The Debtors seek entry of an order authorizing, but not directing, the Debtors to
(a) continue to maintain and administer prepetition customer programs, promotions and practices
and pay and otherwise honor their obligations to customers relating thereto in the ordinary course
of business consistent with past practice and (b) continue to develop and/or maintain and
implement their customer programs postpetition in the ordinary course of business consistent
with past practice, as the Debtors determine is necessary in the exercise of the Debtors’ business judgment.
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83. The Debtors have been at the forefront of highly competitive industries for more
than 100 years, including film, digital imaging and printing, and have achieved this by
engendering strong brand loyalty among their end-user consumers and establishing substantial
credibility among distributors, merchants and competitors. To develop and sustain their positive
reputation in the marketplace, the Debtors have dedicated extensive time and resources to
creating and implementing a wide variety of programs and practices designed to acquire and
retain customers, grow market share and, ultimately, generate sales and enhance long-term
viability. The Debtors believe such programs and practices have been successful business
strategies that play an important role in the purchasing decisions of customers within the
Debtors’ markets and distribution channels.
84. The Debtors market and sell their products both directly to retail and business
consumers and merchants as well as through distributors (collectively, the “ Customers”). In the
ordinary course of business, the Debtors develop and implement a diverse range of customer programs and practices to attract these consumers and distributors, which, for purposes of the
Customer Programs Motion, are organized into the following broad categories (as each of the
same may be amended, modified or supplemented from time to time in the ordinary course,
collectively, the “ Customer Programs”):
Warranties. Consistent with industry practice, the Debtors maintain warranty policies, which the Debtors believe are essential to their reputation and encourage a greater number of orders. The Debtors provide warranties on both the consumables sold to consumers and merchants and equipment, such as photo-printing kiosks, installed at various retail and commercial locations. To further support their Customers’ concerns and questions regarding problems with products or services, the Debtors engage third-party call centers to answer questions and take repair service requests.
2. Refunds, billing adjustments and other credits. Consistent with industry practice, the Debtors maintain return policies for the benefit of, and make certain billing adjustments and issue various other minor credits to, their
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Customers. The Debtors believe that these practices are essential to their reputation and encourage a greater number of orders from their Customers.
3. Purchasing incentives and marketing allowances. In the ordinary course of business, the Debtors offer various consumer purchasing incentives and marketing allowances in an effort to, among other things, attract new consumers and/or market cross- or up-selling opportunities to existing Customers. Although the nature and extent of these consumer promotions tend to vary over time and among businesses, customary examples include rebates, price protection or free gifts with the purchase of the Debtors’ products.
4. Revenue Sharing Programs. The Debtors engage in various revenue sharing programs. In a typical arrangement, the Debtors collect all proceeds, take their agreed upon percentage, and remit the remainder to the Customer at a later date. The Debtor typically remits the predetermined share of the revenue back to the Customer on a monthly or bi-monthly basis.
5. Financing Programs. The Debtors maintain various financing programs with financial institutions that allow Customers to finance high-cost products. Customers lease the products from the applicable financial institution, and make monthly lease payments to the financial institution lessor. The financial institution pays the Debtors the full purchase price of the financed product.
6. Trade Associations. The Debtors participate in several trade shows sponsored by associations for which it is a member throughout the year as a way to showcase their latest products with potential and existing Customers. In order to maintain a consistent presence, deposits and equipment purchased and designed for the shows must be placed up to a year in advance to secure a prime location.
7. Indemnification and limitations on liability. To incentivize merchants and distributors to purchase the Debtors’ products and services, the Debtors frequently provide indemnity and other limitations on liability. For example, the Debtors typically indemnify Customers from any claim that an electronic consumable, such as an inkjet printer, infringes a U.S. patent or a copyright enforceable in the U.S., and generally indemnify purchasers from any personal or bodily injury or property damage caused by a defect in the product.
85. It is critically important to the Debtors’ long-term viability that they maintain the
loyalty and trust of their Customers, preserve their brand equity and protect their reputation,
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and send a strong message to the marketplace that they are willing and able to honor their prepetition obligations to their Customers and continue to maintain and/or develop, implement
and administer their Customer Programs in the ordinary course of business consistent with the
same integrity and accountability for which they are well known. Therefore, I believe that
maintaining the Customer Programs will help preserve the Debtors’ valuable relationships with
their Customers and goodwill, which will inure to the benefit of all the Debtors’ creditors and benefit their estates. Accordingly, I respectfully submit that the Customer Programs Motion
should be approved.
(vi) Debtors’ Motion for Entry of Interim and Final Orders (A) Authorizing, But Not Directing, Debtors to Pay Certain Prepetition Claims of Critical Vendors and Approving Related Procedures and (B) Authorizing All Financial Institutions to Honor All Related Payment Requests (the “ Critical Vendors Motion”)
86. The Debtors request entry of an order authorizing, but not directing, the Debtors
to pay certain prepetition claims (the “ Critical Vendor Claims”) of their Critical Vendors (as
defined below) up to an aggregate cap of $40 million (the “ Critical Vendor Cap ”) in
accordance with certain procedures set forth more fully in the Critical Vendors Motion, to the
extent that the Debtors determine, in the exercise of their business judgment, that such payment
is critical to ensure that a Critical Vendor will provide essential goods and services to the
Debtors on a postpetition basis; provided, however, that within 21 days after the Petition Date,
the Debtors only will make payments to a Critical Vendor to the extent that the Debtors
determine, in the exercise of their business judgment, that such payment is necessary to avoid
immediate and irreparable harm to the Debtors; provided further, that in no event shall the
Debtors pay any Critical Vendor Claims before such amounts are due and payable.
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87. In order to stabilize the Debtors’ operations, and to smoothly transition into
chapter 11, it is imperative that the Debtors normalize their global supply relationships. Failure
to do so would result in extremely adverse business effects given the current pressure on the
Debtors’ already strained supply chain. The Debtors believe that the majority of their vendors
will be comforted by the increased liquidity made available to them under the Debtors’
anticipated debtor-in-possession financing; therefore, the Debtors are optimistic that their trade
terms ultimately will stabilize over the course of these chapter 11 cases. In some limited
instances, however, the Debtors anticipate that certain vendors may refuse to do business with
the Debtors unless those vendors are paid their prepetition claims in full.
88. With the assistance of their professional advisors, the Debtors have spent
significant time reviewing and analyzing their books and records and consulting operations
management and purchasing personnel to identify certain critical business relationships and/or
suppliers of goods and services, the loss of which could immediately and irreparably harm the
Debtors’ businesses, shrink their market share, reduce their enterprise value and/or impair going-
concern viability (the “ Critical Vendors”). The Debtors only propose to pay Critical Vendor
Claims, up to the Critical Vendor Cap, where such payment is necessary to ensure that the particular Critical Vendor will provide necessary goods and services to the Debtors postpetition.
89. To ensure that the Debtors’ business operations will be minimally impacted
during these chapter 11 cases, the Debtors seek to condition payments to a Critical Vendor upon
an agreement by such Critical Vendor to: (a) provide normal, reasonable and customary price,
service, quality and payment terms (“ Customary Trade Terms”) to the Debtors on a postpetition basis; and (b) continue to extend Customary Trade Terms to the Debtors’ non-debtor
foreign subsidiaries (the “ Debtors’ Foreign Affiliates ”) and not attempt to recover from the
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Debtors’ Foreign Affiliates any prepetition amounts due to such vendor from the Debtors, to the
extent applicable.
90. The Debtors also propose that if a Critical Vendor refuses to supply goods and/or
services to the Debtors on Customary Trade Terms following receipt of payment on its Critical
Vendor Claim, or fails to comply with any other agreement entered into between such Critical
Vendor and the Debtors, the Debtors may declare that such Critical Vendor is in breach of its
agreement. To the extent that such Critical Vendor fails to cure such default or reach a more
favorable alternative agreement with the Debtors, the Debtors may: (a) seek injunctive relief to
compel performance pursuant to the existing agreement; (b) declare the payment of the
applicable Critical Vendor Claim an avoidable postpetition transfer pursuant to section 549(a) of
the Bankruptcy Code; and (c) demand that the creditor immediately return such payments in
respect of the Critical Vendor Claim to the extent that the aggregate amount of such payments
exceeds the postpetition obligations then outstanding without giving effect to alleged setoff
rights, recoupment rights, adjustments or setoffs of any type whatsoever.
91. Authority to satisfy the Critical Vendor Claims in the initial days of these chapter
11 cases without disrupting the Debtors’ operations will send a clear signal to the marketplace
that the Debtors are willing and, importantly, able to conduct business as usual. Given the highly
competitive nature of the industries in which the Debtors operate and the fact that, in many
instances, the Debtors’ competitors are ready and willing to attempt to fill any voids created by
these cases, it is imperative that the Debtors be able to pay or otherwise satisfy the Critical
Vendor Claims. Doing so is necessary to ensure that the Debtors maintain their reputation and
market share notwithstanding the commencement of these cases. Any loss of reputation and
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market share could have a ripple effect throughout the Debtors’ businesses and, in turn, jeopardize their reorganization efforts.
92. For the foregoing reasons, I believe that the relief requested in the Critical
Vendors Motion is in the best interests of the Debtors, their estates and creditors. Accordingly, I
respectfully submit that the Critical Vendors Motion should be approved.
(vii) Debtors’ Motion for Entry of Interim and Final Orders (A) Authorizing, But Not Directing, Debtors to Pay Prepetition Claims of Certain Foreign Vendors and Approving Related Procedures and (B) Authorizing All Financial Institutions to Honor All Related Payment Requests (the “ Foreign Vendors Motion”)
93. The Debtors request entry of an order authorizing, but not directing, the Debtors
to pay certain prepetition claims (the “ Foreign Vendor Claims”) of their Foreign Vendors (as
defined below) up to an aggregate cap of $60 million (the “ Foreign Vendor Cap”) in
accordance with certain procedures set forth more fully in the Foreign Vendors Motion, to the
extent that the Debtors determine, in the exercise of their business judgment, that such payment
is critical to ensure that a Foreign Vendor will provide essential goods and services to the
Debtors on a postpetition basis; provided, however, that within 21 days after the Petition Date,
the Debtors only will make payments to a Foreign Vendor to the extent that the Debtors
determine, in the exercise of their business judgment, that such payment is necessary to avoid
immediate and irreparable harm to the Debtors; provided further, that in no event shall the
Debtors pay any Foreign Vendor Claims before such amounts are due and payable.
94. Given the size, sophistication and global nature of their businesses, the Debtors
regularly transact business with vendors located outside of the U.S. and its territories. Certain of
these foreign vendors provide goods and services that are absolutely essential to the Debtors’
operations and may refuse to continue to do business with the Debtors after the commencement
of these chapter 11 cases (the “ Foreign Vendors ”). Notably, these Foreign Vendors include
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vendors, service providers or other non-governmental entities that are not known to have assets
within the U.S. that would be subject to the jurisdiction of the Court and that would otherwise be
available to satisfy a judgment entered by the Court if such entities were to violate the automatic
stay or take any actions contrary to an order of the Court. The Debtors only propose to pay
Foreign Vendor Claims, up to the Foreign Vendor Cap, where such payment is necessary to
ensure that particular Foreign Vendor will provide necessary goods and services to the Debtors postpetition.
95. As with Critical Vendors, the Debtors seek to condition payments to a Foreign
Vendor upon an agreement by such Foreign Vendor to: (a) provide Customary Trade Terms to
the Debtors and, to the extent applicable, the Debtors’ Foreign Affiliates on a postpetition basis,
and (b) not attempt to recover from the Debtors’ Foreign Affiliates any prepetition amounts due
to such vendor from the Debtors, to the extent applicable. Furthermore, the Debtors also propose
that if a Foreign Vendor refuses to supply goods and/or services to the Debtors on Customary
Trade Terms following receipt of payment on its Foreign Vendor Claim, or fails to comply with
any other agreement entered into between such Foreign Vendor and the Debtors, the Debtors
may seek to exercise remedies substantially similar to those set forth immediately above in
connection with the Critical Vendors Motion.
96. Any delay in payments that could cause any of the Foreign Vendors to terminate,
especially suddenly, their complex relationship with the Debtors would impose significant and
unnecessary administrative burdens at a critical stage of these chapter 11 cases. In addition to
the concerns associated with all essential vendors, it is critical that the Debtors have the
flexibility to deal with their Foreign Vendors, as they may have confused and guarded reactions
to U.S. bankruptcy laws and process. The Debtors believe that many such vendors may threaten
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to cease supplying the Debtors unless the Debtors make payments on account of prepetition
obligations. Although the Debtors believe any such threats may in theory be actionable as a
violation of the automatic stay and, in other instances, the Debtors are willing to replace one
recalcitrant foreign vendor with another one willing to do business, there are certain Foreign
Vendors as to which any short-term disruption could harm the Debtors’ ability to receive raw
materials necessary to produce numerous key products or finished goods necessary to fulfill
outstanding orders, or otherwise jeopardize the Debtors’ ability to operate going forward.
97. In light of the foregoing, I believe that the relief requested in the Foreign Vendors
Motion is in the best interests of the Debtors, their estates and creditors. Accordingly, I
respectfully submit that the Foreign Vendors Motion should be approved.
(viii) Debtors’ Motion for Interim and Final Orders Authorizing the Debtors to (A) Continue Using Their Existing Cash Management System, Bank Accounts and Business Forms, (B) Maintain Existing Investment Practices, (C) Continue Intercompany Transactions and (D) Provide Postpetition Intercompany Claims Administrative Expense Priority (the “ Cash Management Motion”)
98. The Debtors request the entry of an order authorizing the Debtors to continue
using their existing cash management system, bank accounts and business forms, continue
intercompany transactions and providing postpetition intercompany claims administrative
expense priority, and maintain their existing investment practices.
(a) The U.S. Banking System
99. In the ordinary course of business, the Debtors utilize a coordinated, centralized
cash management system (the “U.S. Banking System”) through which funds are received,
aggregated and disbursed to pay various business-related expenses. The Debtors maintain
current and accurate accounting records of all daily cash transactions with third parties and by
and between Debtor entities.
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100. The Debtors’ businesses and financial affairs are exceedingly complex, requiring
the collection, disbursement and movement of funds through numerous bank accounts. The U.S.
Banking System is an essential business practice that the Debtors utilize in the ordinary course to
manage their finances as efficiently as possible and to ensure the availability of cash when and
where necessary in the Debtors’ enterprise.
101. The U.S. Banking System is managed primarily by the Debtors’ U.S. Treasury
Operations team with assistance from the Debtors’ U.S. Purchasing Operations team, both
located in Rochester, New York. 10 The U.S. Banking System facilitates certain control,
forecasting, reporting and monitoring processes that are vital to the Debtors’ operations and
management of their cash flows. The U.S. Banking System is composed of approximately 66 bank accounts (collectively, the “ Bank Accounts ”) maintained at 12 banks. The focal point of
the Debtors’ U.S. Banking System is a concentration account maintained at Citibank. The
Debtors also maintain concentration accounts at Mellon Bank, PNC Bank, Bank of America,
KeyBank and two branches of Citizens Alliance Bank.
102. The continued use of the U.S. Banking System will facilitate the transition into
these chapter 11 cases by, among other things, avoiding administrative inefficiencies and
expenses and minimizing delays in payment of postpetition debts. The Debtors respectfully
submit that parties in interest will not be harmed by their maintenance of the existing U.S.
Banking System because, with the assistance of their professionals, the Debtors have
implemented appropriate mechanisms to ensure that unauthorized payments will not be made on
account of obligations incurred prior to the Petition Date.
(b) The Debtors’ Existing Business Forms and Checks
10 The U.S. Treasury Operations team also participates in cash management of non-Debtor Canadian affiliates Kodak Graphic Communications Canada Company (“ KGCCC”) and Kodak Canada Inc.
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103. In the ordinary course of business, the Debtors use a multitude of check types.
Additionally, the Debtors use a variety of correspondence and business forms, including, but not
limited to, letterhead, purchase orders and invoices. To minimize the expense to the Debtors’
estates associated with developing and/or purchasing entirely new forms, the delay in conducting business prior to obtaining such forms and the confusion of employees, customers and suppliers,
the Debtors seek authority to continue to use all correspondence and business forms as such
forms existed immediately prior to the Petition Date, without reference therein to the Debtors’
status as debtors in possession. The Debtors will use their reasonable best efforts to mark
“debtor in possession” on their business forms as soon as reasonably practicable following the
Petition Date.
104. The Debtors have prepared communications materials to distribute to the various parties with whom they conduct business, which will, among other things, inform such parties of
the commencement of these chapter 11 cases. The Debtors believe that these direct
communications will provide adequate notice of the Debtors’ status as debtors in possession.
(c) Intercompany Transactions
105. The Debtors’ businesses are operationally and functionally linked, both to each
other and to those of their non-Debtor affiliates. In order to permit ordinary course operations of
the Debtors’ businesses and to preserve the value of their investments in their non-Debtor
subsidiaries, certain intercompany transactions (the “ Intercompany Transactions ”) must be preserved. If the Intercompany Transactions are discontinued, the Debtors’ operations will be
significantly disrupted.
106. At any given time, claims may exist among the Debtors and among the Debtors
and their non-Debtor affiliates. These claims result from the Intercompany Transactions made in
the ordinary course of business that are an essential component of the U.S. Banking System. The
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Intercompany Transactions ensure that cash and materials are available to support the operations
of Debtors and are necessary for the operation of non-Debtor affiliates expected to produce long-
term value to the Debtors’ estates. Maximization of the Debtors’ equity interests in their
subsidiaries and affiliates is in the best interest of the Debtors, their estates and all parties in
interest.
(d) Investment Practices
107. During the course of these chapter 11 cases, the Debtors will invest any excess
cash (a) in certain money market accounts (the “ Money Market Funds”) that (i) only invest in
obligations issued or guaranteed by U.S. government agencies, authorities, instrumentalities or
sponsored enterprises and (ii) carry the highest possible ratings under Standard & Poor’s Ratings
Services and Moody’s Investor Service, Inc. or (b) in banking institutions that are designated as
authorized depositories by the U.S. Trustee Operating Guidelines and Financial Reporting
Requirements for Debtors in Possession and Trustees. By investing in the Money Market Funds,
the Debtors will be able to earn interest on excess cash, as contemplated by section 345(a) of the
Bankruptcy Code, without incurring the administrative costs and compliance risk associated with
managing a portfolio of direct purchases of U.S. Government Securities.
108. Given the substantial economic scale and geographic reach of the Debtors’ business operations, I believe that any disruption to the U.S. Banking System could impede a
successful reorganization of the Debtors’ businesses. I believe that the relief requested in the
Cash Management Motion is in the best interests of the Debtors’ estates and will enable the
Debtors to operate their businesses during these chapter 11 cases without disruption.
Accordingly, I respectfully submit that the Cash Management Motion should be approved.
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(ix) Debtors’ Considerations Related to Venue
109. The Debtors considered their venue options in light of the best interests of the
Debtors, their estates and their stakeholders.
110. The initial chapter 11 petition was filed by Debtor Kodak Realty Inc. (“ Kodak
Realty”), a corporation organized under the laws of the State of New York since 1965, and a
100% owned subsidiary of EKC. The Debtors determined that the Southern District of New
York (“SDNY”) is the optimal venue for the Debtors’ chapter 11 cases, balancing each of the
following considerations: the location of Kodak’s (i) creditors and their advisors, (ii) employees
and retirees, (iii) professional advisors, (iv) postpetition lenders and their advisors, and (v)
operations and assets.
111. Although Kodak is headquartered in Rochester, New York, its employees,
operations and assets are located throughout the world. Moreover, approximately 70% of
Kodak’s sales and half of its employees are located outside the United States. Even within the
United States, Kodak has major operations and employees in, among other places, Atlanta,
Dayton and San Diego. As a global business, Kodak’s creditors are substantially international.
In addition to holders of its public debt securities, Kodak anticipates working constructively with
significant creditors from the United Kingdom, as well as other foreign jurisdictions, who have
substantial claims against the Debtors. For these reasons, the Debtors believe that SDNY is the
most convenient point of access for all parties involved, and will lend itself well to the economic
and efficient administration of the Debtors’ chapter 11 cases.
112. Kodak is mindful, however, of its substantial and important connection to
Rochester. In particular, Kodak intends to give its Rochester stakeholders, such as its resident
employees and retirees, access to information through its restructuring website, for which there is
a link on www.kodak.com, advertisements that will run in local Rochester papers that will
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contain website and phone numbers for more information on these chapter 11 cases, and other
communications directed at resident stakeholders. Additionally, Kodak has arranged with
CourtCall to provide no cost listen-only access to hearings for those non-attorney stakeholders
outside the New York City area for which paying CourtCall’s normal rates would be a financial
hardship.
V. Local Rule 1007 Disclosures
113. Pursuant to and in accordance with Bankruptcy Rule 1007(d) and Local Rule
1007-2, the following information is attached hereto and incorporated by reference herein:
114. Schedule 1 . Schedule 1 sets forth a list of the names and addresses and, where
available, telephone numbers of the creditors holding the 50 largest unsecured claims against the
Debtors (on a consolidated basis), excluding insiders, and (where available) the name of the person familiar with the Debtors’ account. This list also includes the amount of each claim, and,
if appropriate, an indication whether such claim is contingent, unliquidated, disputed or partially
secured, subject to the Debtors’ rights to dispute the validity of any claims.
115. Schedule 2 . Schedule 2 sets forth a list of the names and addresses of the
creditors holding the five largest secured claims against the Debtors (on a consolidated basis).
This list also includes the amount of each claim, a brief description of the type of collateral
securing the claim, and whether the claim or lien is disputed, subject to the Debtors’ rights to
dispute the validity of any claims. The value of the collateral securing these claims remains
undetermined.
116. Schedule 3 . Schedule 3 sets forth a summary of the assets and liabilities of the
Debtors on a consolidated basis, as of June 30, 2009, which has not been audited and is subject
to change.
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117. Schedule 4 . Schedule 4 lists the number and classes of shares of stock,
debentures, and other securities of the Debtors that are publicly held and the number of holders
thereof.
118. Schedule 5 . Schedule 5 sets forth a list of the Debtors’ property that is in the possession or custody of any custodian, public officer, mortgagee, pledgee, assignee of rents or
secured creditor (other than bank accounts which may be subject to claims or setoff), or agent for
any such entity.
119. Schedule 6. Schedule 6 sets forth a list of the premises owned, leased or held
under other arrangement from which the Debtors operate their business.
120. Schedule 7. Schedule 7 sets forth a list of the locations of the Debtors’ substantial
assets and books and records, and the nature, location and value of any assets held by the
Debtors outside the territorial limits of the U.S.
121. Schedule 8 . Schedule 8 sets forth a list identifying the nature and present status of
each action or proceeding, pending or threatened, against the Debtors or their property, where a judgment against the Debtors or a seizure of their property may be imminent.
122. Schedule 9 . Schedule 9 sets forth a list of the names of the individuals who
comprise the Debtors’ existing senior management, their tenure with the Debtors and a brief
summary of their relevant responsibilities and experience.
123. Schedule 10 . Schedule 10 sets forth a list identifying the estimated amount of the
gross weekly payroll to employees (exclusive of officers and directors) and the estimated amount
to be paid to officers, directors, stockholders, and financial and business consultants retained by
the Debtors, for the thirty-day period following the filing of the Debtors’ chapter 11 petitions.
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124. Schedule 11 . Schedule 11 sets forth a list of the estimated cash receipts and
disbursements, net cash gain or loss, and unpaid obligations and receivables expected to accrue but remaining unpaid (other than professional fees), for the thirty-day period following the filing
of the Debtors’ chapter 11 petitions.
125. Schedule 12 . Schedule 12 sets forth a list of the committees formed prior to the
filing of the Debtors’ chapter 11 petitions..
126. Notwithstanding anything in this Declaration or on any of the exhibits attached
hereto to the contrary, nothing contained in this Declaration or on any of the exhibits or
schedules attached hereto is intended to be, or should be deemed or construed as, an admission
with respect to: (a) the liability for, the amount of, the enforceability of or the validity of any
claim; (b) the existence, validity, enforceability or perfection of any lien, mortgage, charge, pledge or other grant of security for any claim; (c) the proper characterization of any transaction
or financing as a sale or financing; or (d) any interest, or lack of interest, of the Debtors in property. The Debtors specifically reserve the right to challenge any claim or any transaction or
any alleged security for any claim on any and all bases, and to seek turnover of any property to
the full extent permitted under the Code.
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Conclusion
127. To minimize any loss of value to their business, the Debtors’ immediate objective
is to engage in business as usual following the commencement of these chapter 11 cases with as
little interruption to the Debtors’ operations as possible. If this Court grants the relief requested
in the First Day Pleadings, I believe the prospect of achieving these objectives—to the maximum benefit of the Debtors’ estates, creditors and parties in interest—will be substantially enhanced.
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Pursuant to 28 U.S.C. § 1746, I declare under penalty of perjury that the foregoing
is true and correct.
Dated: January 18, 2012 New York, New York
By: /s/ Antoinette P. McCorvey Name: Antoinette P. McCorvey Title: Chief Financial Officer and Senior Vice President
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EXHIBIT A
CORPORATE CHART
Ex. A-1 SC1:3172181.13 12-102
n IL
1J
r II I
N
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SCHEDULES 1-12
Local Rule 1007-2(a)
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Schedule 1
Consolidated List of the Holders of the 50 Largest Unsecured Claims of the Debtors
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Schedule 1
Consolidated List of 50 Largest Unsecured Claims (Excluding Insiders) 1
Pursuant to Local Rule 1007-2(a)(4), the following is a list of creditors holding, as of November 21, 2011, the 50 largest unsecured claims against the Debtors, on a consolidated basis, excluding claims of insiders as defined in 11 U.S.C. § 101.
NAME, TELEPHONE NUMBER INDICATE IF AND COMPLETE MAILING CLAIM IS DOLLAR ADDRESS, INCLUDING ZIP NATURE OF CONTINGENT, AMOUNT OF NAME OF CREDITOR CODE, OF EMPLOYEE, AGENT CLAIM (trade UNLIQUIDATED, CLAIM (if AND COMPLETE OR DEPARTMENT OF debt, bank loan, DISPUTED, OR secured also MAILING ADDRESS, CREDITOR FAMILIAR WITH government SUBJECT TO state value of INCLUDING ZIP CODE CLAIM contract, etc.) SETOFF security) The Bank of New York The Bank of New York Mellon, as Unsecured Notes 406,066,667 Mellon as Indenture Trustee Indenture Trustee (2017 Sr. ATTN: Corporate Trust Unsecured Administration Convertibles - 101 Barclay Street, 8W 7.00%) New York, NY 10286 Tel: (212) 815-4779 Fax: (732) 667-9185
The Bank of New York The Bank of New York Mellon as Unsecured Notes 252,416,667 Mellon as Indenture Trustee Indenture Trustee (2013 Sr. ATTN: Corporate Trust Unsecured Notes Administration - 7.25%) 101 Barclay Street, 8W New York, NY 10286 Tel: (212) 815-4779 Fax: (732) 667-9185
AOF IMAGING AOF IMAGING TECHNOLOGY Trade Debt 31,187,577 TECHNOLOGY (USA) INC. (USA) INC. ATTN: Albert Lin - VP 2/F., Continental Electric Building, No. 17 Wang Chiu Road Kowloon Bay, Kowloon Hong Kong Tel: 86-769-85535435 ext 6143 Fax: 86-769-85534957 Email: [email protected]
1 The information herein shall not constitute an admission of liability by, nor is it binding on, the Debtors. All claims are subject to customary offsets, rebates, discounts, reconciliations, credits, and adjustments, which are not reflected on this Schedule.
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NAME, TELEPHONE NUMBER INDICATE IF AND COMPLETE MAILING CLAIM IS DOLLAR ADDRESS, INCLUDING ZIP NATURE OF CONTINGENT, AMOUNT OF NAME OF CREDITOR CODE, OF EMPLOYEE, AGENT CLAIM (trade UNLIQUIDATED, CLAIM (if AND COMPLETE OR DEPARTMENT OF debt, bank loan, DISPUTED, OR secured also MAILING ADDRESS, CREDITOR FAMILIAR WITH government SUBJECT TO state value of INCLUDING ZIP CODE CLAIM contract, etc.) SETOFF security) ATLC, Ltd. ATLC, Ltd. Settlement 26,400,000 ATTN: Ed Andre Agreement and 100 Rialto Place, Suite 950 Release Melbourne, FL 32901 Tel: (321) 725-9605 Fax: (321) 725-1527
------
Rumberger, Kirk & Caldwell, P.A. ATTN: David C. Willis, Esquire 300 S. Orange Ave., Suite 1400 (32801) P.O. Box 1873 Tel: (407) 839-2186 Fax: (407) 835-2086
CAL-COMP OPTICAL CAL-COMP OPTICAL Trade Debt 23,687,280 ELECTRONICS ELECTRONICS ATTN: Nova Chen - Director CP2 Div., Computer Peripherals BU 147, Section 3, Beishen Rd. Shenkeng Shiang, Taipei Taiwan 222, R.O.C. Tel: 886-2-7705-8001 ext 27410 (w) Email: [email protected]
ALTEK CORPORATION ALTEK CORPORATION Trade Debt 22,008,354 ATTN: Jason Lin - VP 3F, No. 10, Li-Hsin Road Science-Based Industrial Park, Hsinchu Taiwan Tel: 886-3-578-4567 ext 1102 (Hsinchu) 886-2-875-6620 ext 3606 (Taipei) Email: [email protected]
Sun Chemical Corporation WEESP UNLIMITED Term Note 20,000,000 ATTN: G.R. E. Jurgens, Managing Director Glenside Works, Mil Lane, palmerston, Dublin 20, Ireland Tel: 353 01 6206868 Fax: 353 01 6262573
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NAME, TELEPHONE NUMBER INDICATE IF AND COMPLETE MAILING CLAIM IS DOLLAR ADDRESS, INCLUDING ZIP NATURE OF CONTINGENT, AMOUNT OF NAME OF CREDITOR CODE, OF EMPLOYEE, AGENT CLAIM (trade UNLIQUIDATED, CLAIM (if AND COMPLETE OR DEPARTMENT OF debt, bank loan, DISPUTED, OR secured also MAILING ADDRESS, CREDITOR FAMILIAR WITH government SUBJECT TO state value of INCLUDING ZIP CODE CLAIM contract, etc.) SETOFF security) SONY STUDIOS SONY STUDIOSATTN: Stefan Trade Debt Contingent 16,666,667 Litt10202 W. Washington Blvd Culver City, CA 90232Tel: (310) 244- 6268 Email: [email protected]
WARNER BROTHERS WARNER BROTHERS Trade Debt Contingent 14,175,000 ATTN: Darcy Antonellis 4000 Warner Blvd Burbank, CA 91522 Tel: (818) 977-4016 [email protected]
XPEDX XPEDX Trade Debt 12,949,939 ATTN: Steve Bowden 6285 Tri Ridge Blvd. Loveland, Ohio 45140 Tel: (513) 965-2918 Email: [email protected]
Nokia Corporation Nokia Corporation Amended and 12,000,000 ATTN: Vice President Intellectual Restated Sensor Property Rights Agreement P.O. Box 226 FIN-00045 Nokia Group Finland Tel: 358-7180-08000 Email: [email protected]
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NAME, TELEPHONE NUMBER INDICATE IF AND COMPLETE MAILING CLAIM IS DOLLAR ADDRESS, INCLUDING ZIP NATURE OF CONTINGENT, AMOUNT OF NAME OF CREDITOR CODE, OF EMPLOYEE, AGENT CLAIM (trade UNLIQUIDATED, CLAIM (if AND COMPLETE OR DEPARTMENT OF debt, bank loan, DISPUTED, OR secured also MAILING ADDRESS, CREDITOR FAMILIAR WITH government SUBJECT TO state value of INCLUDING ZIP CODE CLAIM contract, etc.) SETOFF security) PRIMAX ELECTRONICS PRIMAX ELECTRONICS LIMITED Trade Debt 11,585,196 LIMITED ATTN: Jack Pan - President No. 669, Ruey Kuang Road Neihu Taipei, Taipei Taiwan, R.O.C. Tel: 886-2-2798-9008 Fax: 886-2-8797-7730
WALMART WALMART Trade Debt 11,421,973 ATTN: Kevin Oconnor 702 SW 8th Street Bentonville, Arkansas 72716 Tel: (479) 273-6281 Email: [email protected]
The Bank of New York The Bank of New York Mellon as Unsecured Notes 10,220,209 Mellon as Indenture Trustee Indenture Trustee (2021 Sr. ATTN: Corporate Trust Unsecured Notes Administration - 9.20%) 101 Barclay Street, 8W New York, NY 10286 Tel: (212) 815-4779 Fax: (732) 667-9185
NBC Universal Inc. NBC Universal Inc. Trade Debt Contingent 9,275,570 (UNIVERSAL STUDIOS & ATTN: Marcia Haynes UNIVERSAL - FEATURES) 100 Universal City Plaza Universal City, CA 91608 Tel: (818) 777-3741 Email: [email protected]
TARGET TARGET Trade Debt 9,009,509 ATTN: Nik Nayar 1000 Nicollet Mall Minneapolis, MN 55403 Tel: (612) 696-8234 Email: [email protected]
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NAME, TELEPHONE NUMBER INDICATE IF AND COMPLETE MAILING CLAIM IS DOLLAR ADDRESS, INCLUDING ZIP NATURE OF CONTINGENT, AMOUNT OF NAME OF CREDITOR CODE, OF EMPLOYEE, AGENT CLAIM (trade UNLIQUIDATED, CLAIM (if AND COMPLETE OR DEPARTMENT OF debt, bank loan, DISPUTED, OR secured also MAILING ADDRESS, CREDITOR FAMILIAR WITH government SUBJECT TO state value of INCLUDING ZIP CODE CLAIM contract, etc.) SETOFF security) BEST BUY BEST BUYATTN: Lisa Farrell7601 Trade Debt 8,397,115 Penn Ave South Richfield, MN 55423-3645 Tel: (612) 291-5608 Email: [email protected]
PARAMOUNT STUDIOS PARAMOUNT STUDIOS Trade Debt Contingent 6,750,000 ATTN: Mark Christiansen 5555 Melrose Ave Los Angeles, CA 90038 Tel: (323) 956-7722 Email: [email protected]
SANYO ELECTRIC CO., SANYO ELECTRIC CO., LTD. Trade Debt 4,994,354 LTD. ATTN: Satoru Hotta - VP 5-5, Keihan-hondori 2-chome Moriguchi City, Osaka 570-8677 Japan Tel: 81-6-6994-1045 Email: [email protected]
OFFICE MAX OFFICE MAX Trade Debt 4,658,704 ATTN: Igor Anshakov 263 Shuman Blvd. Naperville, IL 60563 Tel: (630) 864-6423 Email: [email protected]
PREFERRED CARE INC PREFERRED CARE INC Employee 4,350,643 ATTN: Lisa Brubaker - Exec. VP Benefits 220 Alexander St Rochester, NY 14607 Tel: (585) 258-8674 Email: [email protected]
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NAME, TELEPHONE NUMBER INDICATE IF AND COMPLETE MAILING CLAIM IS DOLLAR ADDRESS, INCLUDING ZIP NATURE OF CONTINGENT, AMOUNT OF NAME OF CREDITOR CODE, OF EMPLOYEE, AGENT CLAIM (trade UNLIQUIDATED, CLAIM (if AND COMPLETE OR DEPARTMENT OF debt, bank loan, DISPUTED, OR secured also MAILING ADDRESS, CREDITOR FAMILIAR WITH government SUBJECT TO state value of INCLUDING ZIP CODE CLAIM contract, etc.) SETOFF security) DISNEY STUDIOS DISNEY STUDIOS Trade Debt Contingent 4,162,500 ATTN: Jeff Miller 500 S Buena Vista Burbank, CA 91521 Tel: (818) 560-3050 Email: [email protected]
FELIX SCHOELLER FELIX SCHOELLER HOLDING Trade Debt 4,105,358 HOLDING GMBH & CO. GMBH & CO. KG KG ATTN: Guido Hofmeyer, Sr VP PO Box 3667 D-49026 Osnabruck, Lower Saxony Germany Tel: (05 41) 38 00-0 Fax: (05 41) 38 00-425 Email: ghofmeyer@felix- Schoeller.com NANJING WANLIDA NANJING WANLIDA Trade Debt 3,663,550 TECHNOLOGY CO LTD TECHNOLOGY CO LTD ATTN: Jason Zeng - VP No. 618, Jiahe Road Xiamen, Fujian China 361006 Tel: 86-592-5700999 (8354) Email: [email protected]
FLEXTRONICS FLEXTRONICS INTERNATIONAL Trade Debt 3,478,974 INTERNATIONAL LTD. LTD.
ATTN: EC Sykes -President Industrial 1007 Gilbraltar Drive, Building # 7 Milipitas, CA 95035 Tel: (408) 576-5060 Email: [email protected]
STAPLES STAPLESATTN: Mark Mettler500 Trade Debt 3,182,384 Staples Drive Framingham, MA 01702Tel: (508) 253-5000Fax: Email: [email protected]
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NAME, TELEPHONE NUMBER INDICATE IF AND COMPLETE MAILING CLAIM IS DOLLAR ADDRESS, INCLUDING ZIP NATURE OF CONTINGENT, AMOUNT OF NAME OF CREDITOR CODE, OF EMPLOYEE, AGENT CLAIM (trade UNLIQUIDATED, CLAIM (if AND COMPLETE OR DEPARTMENT OF debt, bank loan, DISPUTED, OR secured also MAILING ADDRESS, CREDITOR FAMILIAR WITH government SUBJECT TO state value of INCLUDING ZIP CODE CLAIM contract, etc.) SETOFF security) CVS CVS Trade Debt 3,168,410 ATTN: Jim Shiels 1 CVS Drive Woonsocket, RI 02895 Tel: (401) 770-2400 Email: [email protected]
WYNIT WYNIT Trade Debt 3,126,229 ATTN: Pete Richichi 5801 East Taft Rd North Syracuse, New York 13212 Tel: (315) 437-1086 Email: [email protected]
The Bank of New York The Bank of New York Mellon as Unsecured Notes 3,104,000 Mellon as Indenture Trustee Indenture Trustee (2018 Sr. ATTN: Corporate Trust Unsecured Notes Administration - 9.95%) 101 Barclay Street, 8W New York, NY 10286 Tel: (212) 815-4779 Fax: (732) 667-9185
AMAZON.COM AMAZON.COM Trade Debt 3,027,401 ATTN: Heather Cartwright 701 5th Ave Seattle, Washington 98104 Tel: (206) 683-7447 Email: [email protected]
OFFICE DEPOT OFFICE DEPOT Trade Debt 2,899,193 ATTN: Randy Wick 6600 North Military Trail Boca Raton, FL 33496 Tel: (561) 438-4800 Email: [email protected]
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NAME, TELEPHONE NUMBER INDICATE IF AND COMPLETE MAILING CLAIM IS DOLLAR ADDRESS, INCLUDING ZIP NATURE OF CONTINGENT, AMOUNT OF NAME OF CREDITOR CODE, OF EMPLOYEE, AGENT CLAIM (trade UNLIQUIDATED, CLAIM (if AND COMPLETE OR DEPARTMENT OF debt, bank loan, DISPUTED, OR secured also MAILING ADDRESS, CREDITOR FAMILIAR WITH government SUBJECT TO state value of INCLUDING ZIP CODE CLAIM contract, etc.) SETOFF security) ALCOA, INC. ALCOA, INC. Trade Debt 2,817,978 ATTN: Jennifer Fredieu - Account Manager 2300 North Wright Road Alcoa, TN 37701-3141 Tel: (865) 977-2386 Email: [email protected]
RYDER SYSTEM, INC. RYDER SYSTEM, INC. Trade Debt 2,711,174 ATTN: Steve Sensing VP-General Manager 1000 Corporate Centre Drive, Suite 350 Franklin, TN 37067 Tel: (615) 771-4039 x208 Fax: (615) 771-9914 Email: [email protected] SAMS WHOLESALE CLUB SAMS WHOLESALE CLUB Trade Debt 2,709,212 ATTN: Joe Hartsig 2101 Simple Savings Drive Bentonville, Arkansas 72716 Tel: (479) 273-4000 Email: [email protected]
ADECCO S.A. ADECCO S.A.ATTN: Deborah J. Trade Debt 2,484,451 Cave-Harnden National Account Manager1330 Lexington Ave Rochester, NY 14606Tel: (585) 546- 1660Fax: (585) 262-3266Email: [email protected]
GE RICHARDS GRAPHIC GE RICHARDS GRAPHIC Trade Debt 2,345,011 SUPPLIES CO INC SUPPLIES CO INC ATTN: Jeff Wagner 928 Links Avenue (PO Box 339) Landisville, PA 17538 Tel: (717) 940-2384 Email: [email protected]
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NAME, TELEPHONE NUMBER INDICATE IF AND COMPLETE MAILING CLAIM IS DOLLAR ADDRESS, INCLUDING ZIP NATURE OF CONTINGENT, AMOUNT OF NAME OF CREDITOR CODE, OF EMPLOYEE, AGENT CLAIM (trade UNLIQUIDATED, CLAIM (if AND COMPLETE OR DEPARTMENT OF debt, bank loan, DISPUTED, OR secured also MAILING ADDRESS, CREDITOR FAMILIAR WITH government SUBJECT TO state value of INCLUDING ZIP CODE CLAIM contract, etc.) SETOFF security) DEUTSCH INC DEUTSCH INC Trade Debt 2,295,056 ATTN: Erica Grau - EVP, Dir. Of Client and Agency Operations 111 8th Ave. NY, NY 10011 Tel: (212) 981-8091 Fax: (212) 981-7525 Email: [email protected]
MATSUSHITA ELECTRIC MATSUSHITA ELECTRIC Trade Debt 2,274,068 INDUSTRIAL CO., LTD. INDUSTRIAL CO., LTD. ATTN: Rick Martin 1-1 Matsushita-cho Moriguchi City, Osaka 570-8511 Japan Tel: (704) 992-1657 Email: [email protected]
JOHNSON CONTROLS, JOHNSON CONTROLS, INC. Trade Debt 2,247,999 INC. ATTN: Tom Bourke, VP and GM 507 E Michigan St, PO Box 423 Milwaukee, WI 53201-0423 Tel: (810) 714-0445 Email: [email protected]
TORAY INDUSTRIES, INC. TORAY INDUSTRIES, INC. Trade Debt 1,924,227 ATTN: Richard R. Schloesser - CEO 50 Belver Avenue North Kingstown, RI 02852-7500 Tel: (401) 294-4511 ext 2203 Email: [email protected]
SANMINA-SCI SANMINA-SCI CORPORATION Trade Debt 1,912,926 CORPORATION ATTN: Tom Clawson - President Industrial 2700 North First Street San Jose, CA 95134 Tel: (408) 964-3298 Email: tom.clawson@sanmina- sci.com
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NAME, TELEPHONE NUMBER INDICATE IF AND COMPLETE MAILING CLAIM IS DOLLAR ADDRESS, INCLUDING ZIP NATURE OF CONTINGENT, AMOUNT OF NAME OF CREDITOR CODE, OF EMPLOYEE, AGENT CLAIM (trade UNLIQUIDATED, CLAIM (if AND COMPLETE OR DEPARTMENT OF debt, bank loan, DISPUTED, OR secured also MAILING ADDRESS, CREDITOR FAMILIAR WITH government SUBJECT TO state value of INCLUDING ZIP CODE CLAIM contract, etc.) SETOFF security) COLLINS INK CORP. COLLINS INK CORP. Trade Debt 1,889,468 ATTN: Lawerance Gamblin-Owner 1201 Edison Drive Cincinnati, OH 45216 Tel: (513) 948-9000 Email: [email protected]
INTERNATIONAL INTERNATIONAL BUSINESS Trade Debt 1,874,781 BUSINESS MACHINES CO MACHINES CO ATTN: Anthony Martinez - GM Managed Business Process Services 3301 Carrack Court Raleigh, NC 27613 Tel: (914) 766-4810 Email: [email protected]
CHAMPION CHAMPION PHOTOCHEMISTRY Trade Debt 1,746,376 PHOTOCHEMISTRY INTERNATIOATTN: R. Fraser INTERNATIO Mason - CEOPO Box 44105 RPO Wexford Plaza Brampton, ON L6Z 4V7, CanadaTel: (905) 670-7900Fax: (905) 670-2581Email: [email protected]
OPTIMATION OPTIMATION TECHNOLOGY INC Trade Debt 1,736,932 TECHNOLOGY INC ATTN: Bill Pollock, President and CEO 50 High Tech Drive Rush, NY 14543 Tel: (585) 321-2300 Fax: (585) 321-2700 Email: [email protected]
MOSAIC SALES MOSAIC SALES SOLUTIONS Trade Debt 1,663,980 SOLUTIONS ATTN: Angie Damron-Beene Senior Director, Client Services 6051 N State Hwy 161 Irving, TX 75038-2236 Tel: (972) 870-4824 (direct) Fax: (972) 870-4845 Email: [email protected]
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NAME, TELEPHONE NUMBER INDICATE IF AND COMPLETE MAILING CLAIM IS DOLLAR ADDRESS, INCLUDING ZIP NATURE OF CONTINGENT, AMOUNT OF NAME OF CREDITOR CODE, OF EMPLOYEE, AGENT CLAIM (trade UNLIQUIDATED, CLAIM (if AND COMPLETE OR DEPARTMENT OF debt, bank loan, DISPUTED, OR secured also MAILING ADDRESS, CREDITOR FAMILIAR WITH government SUBJECT TO state value of INCLUDING ZIP CODE CLAIM contract, etc.) SETOFF security) CRANEL INCORPORATED CRANEL INCORPORATED Trade Debt 1,645,643 ATTN: Craig Wallace 8999 Gemini Pkwy Columbus, Ohio 43240-2010 Tel: (614) 431-8000 Email: [email protected]
WIPRO LIMITED WIPRO LIMITED Trade Debt 1,640,773 ATTN: NS Bala - Senior VP 425 National Ave # 200 Mountain View, CA 94043 Tel: (650) 316-3522 Fax: (650) 316-3467 Email: [email protected]
State of California Franchise State of California Franchise Tax Tax Claim Contingent, Unknown, but Tax Board Board Unliquidated, and estimated at over ATTN: Ms. Mary Genoese Disputed $1,640,772 1212 Avenue of the Americas – 4th Floor New York, NY 10036-1601 Tel: (718) 687-0145 (cell) Fax: (212) 575-1524 Email: [email protected] New York State Department New York State Department of Tax Claim Contingent, Unknown, but of Taxation and Finance, Taxation and Finance, Buffalo District Unliquidated, and estimated at over Buffalo District Office Office Disputed $1,640,772 ATTN: Mr. David Agnew 77 Broadway, Suite 112 Buffalo, NY 14203-1670 Tel: (716) 855-5843 Email: [email protected]
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Schedule 2
Consolidated List of Holders of 5 Largest Secured Claims
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Schedule 2
Consolidated List of Holders of 5 Largest Secured Claims
Pursuant to Local Rule 1007-2(a)(5), the following lists the creditors holding, as of November 28, 2011, the five largest secured, noncontingent claims against the Debtors, on a consolidated basis, excluding claims of insiders as defined in 11 U.S.C. § 101.
Creditor1 Mailing Address & Phone Amount of Type of Collateral Value of Disputed Number Claim Collateral (in millions) (in millions) The Bank of 101 Barclay Street, 8W $517.6 All US assets, Undetermined New York New York, NY 10286 except for any Mellon ATTN: Corporate Trust asset which is or Administration thereafter becomes Telephone: (212) 815-4779 a “Principal Facsimile: (732) 667-9185 Property” as defined in the 1988 Indenture The Bank of 101 Barclay Street, 8W $258.6 All US assets, Undetermined New York New York, NY 10286 except for any Mellon ATTN: Corporate Trust asset which is or Administration thereafter becomes Telephone: (212) 815-4779 a “Principal Facsimile: (732) 667-9185 Property” as defined in the 1988 Indenture Bank of 20975 Swenson Drive, Suite $264.2 All US assets, Undetermined America, 200, Waukesha, WI 53038 except for any N.A. Attn: Brittany Seibert asset which is or (Operations) thereafter becomes a “Principal 200 Front Street West Property” as Toronto, Ontario, M5V 3L2, defined in the 1988 ATTN: Medina Sales De Indenture and all Andrade (Credit), Teresa Tsui assets of Kodak (Operations) Canada in Canada PNC Two PNC Plaza $3.5 Cash Reserve $3.5 Merchant 620 Liberty Avenue Services Pittsburgh, PA 15222 Attn: Cristina Attai Imaging 1120 Crosspointe Lane $3.1 Cash Reserve and $3.1 Financial Suite 8-10 equipment Services, Webster, NY 14580 Inc. d/b/a Telephone: (585) 545-2937 EKCC Fax: (585) 545-2976 1
1 The information set forth herein shall not constitute an admission of liability by, nor is it binding on, the Debtors.
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Schedule 3
Condensed Consolidated Balance Sheet
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Schedule 3
Condensed Consolidated Balance Sheet 1 (unaudited) as of September 30, 2011 and December 31, 2010 (dollars in millions)
September 30, December 31,
2011 2010
ASSETS
Current Assets Cash and cash equivalents $ 862 $ 1,624 Receivables, net 1,052 1,196 Inventories, net 892 746 Deferred income taxes 59 120
Other current assets 85 100
Total current assets 2,950 3,786 Property, plant and equipment, net of accumulated depreciation of $4,970 and $4,985, respectively 948 1,037 Goodwill 285 294 Other long-term assets 919 1,109 TOTAL ASSETS $ 5,102 $ 6,226 LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities Accounts payable, trade $ 673 $ 959 Short-term borrowings and current portion of long-term debt 210 50 Accrued income and other taxes 37 343 Other current liabilities 1,397 1,468
Total current liabilities 2,317 2,820 Long-term debt, net of current portion 1,356 1,195 Pension and other postretirement liabilities 2,552 2,661 Other long-term liabilities 526 625
Total liabilities 6,751 7,301
Commitments and Contingencies (Note 7)
Equity (Deficit)
Common stock, $2.50 par value 978 978
Additional paid in capital 1,114 1,105
Retained earnings 4,273 4,969
Accumulated other comprehensive loss (2,079) (2,135)
4,286 4,917
Less: Treasury stock, at cost (5,937) (5,994)
Total Eastman Kodak Company shareholders’ deficit (1,651) (1,077)
Noncontrolling interests 2 2
Total deficit (1,649) (1,075)
TOTAL LIABILITIES AND DEFICIT $ 5,102 $ 6,226
1 This consolidated balance sheet includes Eastman Kodak Corporation and its Debtor and non-Debtor subsidiaries.
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Schedule 4
Publicly Held Securities
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Schedule 4
Publicly Held Securities
Pursuant to Local Rule 1007-2(a)(7), the following lists the number and classes of
shares of stock, debentures, and other securities of the Debtors that are publicly held
(“Securities”) and the number of holders thereof. The Securities held by the Debtors’ directors
and officers are listed separately.
Eastman Kodak Company Common Stock
Type of Security Number of Shares Approximate As of Number of Record Holders Common Stock 269,954,791 shares 50,096 October 28, 2011 $2.50 par value outstanding
Eastman Kodak Company Common Stock Held by the Debtors’ Non-Employee Directors 1
Name of Non-Employee Number of Shares As of Director Owned Richard S. Braddock 410,698.34 January 3, 2012
Timothy M. Donahue 153,731.33 March 1, 2011
Michael J. Hawley 137,327.71 March 1, 2011
William Hernandes 144,925.09 March 1, 2011
Douglas R. Lebda 178,653.71 July 6, 2011
Kyle P. Legg 58,797 May 3, 2011
Delano E. Lewis 147,183.71 March 1, 2011
William G. Parrett 127,706 March 1, 2011
Joel Seligman 94,758 March 1, 2011
1 Includes stock owned and options to purchase stock, stock appreciation rights, deferred stock, restricted stock and phantom stock units held by the director.
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Name of Non-Employee Number of Shares As of Director Owned Denis F. Strigl 113,213 March 1, 2011
Eastman Kodak Company Common Stock Held by the Debtors’ Executive Officers 2
Name of Executive Number of Shares As of Officer Owned Antonio M. Perez 5,968,904.12 January 5, 2012
Philip J. Faraci 1,647,163 January 5, 2012
Antoinette P. McCorvey 306,910 January 5, 2012
Pradeep Jotwani 687,201 June 6, 2011
Laura Quatela 409,184 January 5, 2012
Includes stock owned and options to purchase stock, stock appreciation rights, deferred stock and restricted stock awarded under incentive plans held by the executive officer.
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Public Bonds and Notes3
Type of Security Aggregate Approximate As of Principal Face Number of Record Amount Holders 10.625% Senior Secured $250,000,000 Undetermined September 30, 2011 Notes due March 15, 2019
9.75% Senior Secured $500,000,000 Undetermined September 30, 2011 Notes due March 1, 2018
7.0% Convertible Senior $400,000,000 Undetermined September 30, 2011 Notes due April 1, 2017
7.25% Senior Unsecured $250,000,000 Undetermined September 30, 2011 Notes due 2013
The Debtors are unable to approximate the number of record holders of their public bonds as only information regarding the registered holder, typically the depository company, is available.
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Schedule 5
Debtors’ Property Not in the Debtors’ Possession
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Schedule 5
Debtors’ Property Not in the Debtors’ Possession
Pursuant to Local Rule 1007-2(a)(8), the following lists the Debtors’ property that is in the possession or custody of any custodian, public officer, mortgagee, pledge, assignee of rents, secured creditor, or agent for any such entity.
In the ordinary course of business, on any given day, property of the Debtors (including security deposits or other collateral with counterparties to certain commercial relationships) is likely to be in the possession of various third parties, including maintenance providers, shippers, common carriers, materialmen, custodians, public officers, secured creditors, letter of credit and surety providers, or agents, where the Debtors’ ownership interest is not affected. Because of the constant movement of this property, providing a comprehensive list of the persons or entities in possession of the property, their addresses and telephone numbers, and the location of any court proceeding affecting the property would be impractical.
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Schedule 6
Owned or Leased Properties
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Schedule 6
Owned or Leased Properties
Pursuant to Local Rule 1007-2(a)(9), the following lists the property or premises owned, leased or held under other arrangement from which the Debtors operate their businesses.
Owned or Lease Address City State Zip Code Country
1 Grace Street Middleway West Virginia 25430 USA
115 Canal Landing Blvd Greece New York 14626 USA
1349 Ridgeway Avenue Rochester New York 14615 USA
1361 Ridgeway Avenue Rochester New York 14615 USA
1391 Ridgeway Avenue Rochester New York 14615 USA
1447 St. Paul Street Rochester New York 14621 USA
1669 Lake Avenue (Eastman Rochester New York 14650 USA Business Park)
1999 Lake Avenue Rochester New York 14650 USA
2000 Lake Avenue, Building 81, Rochester New York 14650 USA Floors Basement, 1, 3, 4 and 5
2144 East State Street Ext. Trenton New Jersey 08619 USA
2235 Langdon Farm Road Cincinnati Ohio 45237 USA
2255 Mt. Read Blvd.- Service Road Rochester New York 14650 USA
961 Ridge Road West Rochester New York 14650 USA
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Owned or Lease Address City State Zip Code Country
2363 Langdon Farm Road Cincinnati Ohio 45237 USA
2720 E Frontage Road Weatherford Oklahoma 73096 USA
343 State Street Rochester New York 14650 USA
Mountain 4575 Highway 91 North Tennessee 37683 USA City
821 N Cahuenga Blvd Hollywood California 90038 USA
823-835 Seward Street Hollywood California 90038 USA
9952 Eastman Park Drive Windsor Colorado 80550 USA
One Polychrome Park Columbus Georgia 31907 USA
East Riverside Avenue Extension New York 12061 USA Greenbush
5430 Pinnacle Point Drive Suite 100 Rogers Arkansas 72758 USA
3110 San Fernando Road Burbank California 91506 USA
1399 64th Street Emeryville California 94608 USA
1480 64th Street Suite 300 Emeryville California 94608 USA
16275 Technology Drive San Diego California 92127 USA
6700 Santa Monica Blvd Los Angeles California 90038 USA
1017 N. Las Palmas Los Angeles California 90038 USA
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Owned or Lease Address City State Zip Code Country
2300 Geng Road Suite 220 Palo Alto California 94303 USA
15 Bank Street Stamford Connecticut 06901 USA
1250 H Street NW Suite 800 Washington DC 20005 USA
4301 Vineland Road Suites E-7, 8, Orlando Florida 32811 USA 9, 10, 11, 12
5224 Miller Road, Section 2B Columbus Georgia 31909 USA Building B
770 Acco Plaza Drive Space A Wheeling Illinois 60090 USA
One Imation Way Oakdale Minnesota 55128 USA
6750 France Avenue South 200 Edina Minnesota 55435 USA
1414 & 1422 Hoff Industrial Drive O’Fallon Missouri 63366 USA
4020 Stirrup Creek Drive Building Durham North Carolina 27703 USA 2A (Premises 100) Greater Rochester International Rochester New York 14624 USA Airport, 1150 Scottsville Road
2600 Manitou Road Rochester New York 14624 USA
360 W 31St Street Floors 1& 2 New York New York 10001 USA
50 Main Street Suite 1000 White Plains New York 10606 USA
3000 Research Boulevard Dayton Ohio 45420 USA
2640 Manitou Road Building 9 Rochester New York 14624 USA
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Owned or Lease Address City State Zip Code Country
2640 Manitou Road Bldg. 13 Rochester New York 14624 USA
1669 Lake Avenue Rochester New York 14650 USA
88 Prestige Park Circle East Hartford Connecticut 06108 USA
401 Merritt 7 Corporate Park Norwalk Connecticut 06851 USA
Stone 1355 Rock Mountain Blvd Georgia 30085 USA Mountain
3003 Summit Blvd 11th, 12th Atlanta Georgia 30394 USA
3003 Summit Blvd – Basement Atlanta Georgia 30394 USA storage
5224 Miller Road Space 6, Bldg. A Columbus Georgia 31909 USA
5224 Miller Road Suite 3B Columbus Georgia 31909 USA
3100 Research Blvd. Pod 7 Kettering Ohio 45420 USA
88 Corporate Center, Unit 2901, Philippine Valero cor.Sedeno Street, Salcedo Makati City Metro Manila s Village United Land Adjacent to Plot B14, Al Saffa Dubai Arab Park Emirates
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Schedule 7
Location of Debtors’ Assets, Books and Records
Location of Debtors’ Substantial Assets
Books and Records
Debtors’ Assets Outside the United States
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Schedule 7
Location of Debtors’ Assets, Books and Records
Pursuant to Local Rule 1007-2(a)(10), the following lists the locations of the Debtors’ substantial assets, the location of their books and records, and the nature, location, and value of any assets held by the Debtors outside the territorial limits of the United States.
Location of Debtors’ Substantial Assets
The Debtors have substantial assets located in each of the U.S. states at the locations reflected on Schedule 7.
Books and Records
The Debtors’ books and records are located at Corporate Headquarters, 343 State Street, Rochester, New York, 14650.
Debtors’ Assets Outside the United States
The Debtors’ assets located outside of the United States include various raw materials, finished goods and fixed assets. The aggregate net book value of all assets located outside the United States as of December 31, 2011 is approximately $13.5 million.
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Schedule 8
Litigation
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Schedule 8
Litigation
Pursuant to Local Rule 1007-2(a)(11), to the best of the Debtors’ knowledge and belief, the Debtors are not aware of any actions or proceedings, pending or threatened, against the Debtors or their properties where a judgment against the Debtors or a seizure of their property may be imminent.
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Schedule 9
Senior Management
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Schedule 9
Senior Management of Eastman Kodak Company
Pursuant to Local Rule 1007-2(a)(12), the following provides the names of the individuals who comprise the Debtors’ existing senior management, a description of their tenure with the Debtors, and a brief summary of their relevant responsibilities and experience.
Name / Position Experience / Responsibilities Antonio M. Perez, Since joining the company in April 2003, Kodak’s current Chairman and Chief Executive Officer, Antonio M. Perez, has Chairman and Chief led the worldwide transformation of Kodak from a business Executive Officer based on film to one based primarily on digital technologies.
Eastman Kodak Mr. Perez brings to the task his experience from a 25-year career Company at Hewlett-Packard Company, where he was a corporate vice president, a member of the company’s Executive Council and President of HP’s Consumer Business. Prior to that assignment, Mr. Perez served as President and CEO of HP’s inkjet imaging business for five years.
After HP, Mr. Perez was President and CEO of Gemplus International, a leading Smart Card-based solution provider in the fast-growing wireless and financial markets, where he led the effort to take the company public.
An American citizen born in Spain, Mr. Perez studied electronic engineering, marketing, and business in Spain and France. In 2009, he received an honorary doctorate degree from the University of Rochester.
Effective January 1, 2012, Mr. Perez announced the creation of a new and simpler business structure for Kodak, one designed to increase productivity, reduce costs, and accelerate Kodak’s transformation into a digital company that delivers sustainable profits and creates value for its stakeholders. The new structure consists of two segments – the Commercial Segment and the Consumer Segment – which replace Kodak’s 3 former business groups, the Graphic Communications Group, the Consumer Digital Group and the Film, Photofinishing and Entertainment Group.
The Commercial and Consumer Segments will report into the newly formed Chief Operating Office. That Office will be co-
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lead by Phil Faraci (Commercial Segment) and Laura Quatela (Consumer Segment). Each reports to Chairman and Chief Executive Officer, Antonio M. Perez. Philip J. Faraci Philip Faraci joined Kodak as Director, Inkjet Systems Program in December 2004. In February 2005, he was elected a Senior President and Chief Vice President of the company. In June 2005, he was also Operating Officer named Director, Corporate Strategy & Business Development. Mr. Faraci was named President and Chief Operating Officer, Eastman Kodak Eastman Kodak Company, in September 2007. Effective Company January 1, 2012, his focus is on the Company’s Commercial Segment and its sales and regional operations.
Prior to joining Kodak, Mr. Faraci served as Chief Operating Officer of Phogenix Imaging and President and General Manager of Gemplus Corporation’s Telecom Business Unit. Prior to these roles, he spent 22 years at Hewlett-Packard, where he served as Vice President and General Manager of the Consumer Business Organization and Senior Vice President and General Manager for the Inkjet Imaging Solutions Group.
Mr. Faraci holds a BA in applied mechanics from the University of California, San Diego, and is a graduate of the University’s Executive Program for Scientists and Engineers. Laura G. Quatela Laura G. Quatela was named President and Chief Operating Officer, alongside Philip J. Faraci, effective January 1, 2012. In President and Chief these roles, Ms. Quatela will focus on the Company’s Consumer Operating Officer Segment . Previously at Kodak Ms. Quatela was appointed General Counsel and elected a senior vice president effective Eastman Kodak January 1, 2011; she held those offices together with that of Company Chief Intellectual Property Officer, which she had been appointed in January 2008. As Chief Intellectual Property Officer, she was responsible for IP strategy and policy, the Senior IP Strategy Council, and external IP affairs.
Prior to those appointments, Ms. Quatela was Managing Director, Intellectual Property Transactions and, since August 2006, a corporate vice president. She joined Kodak in 1999 and initially held various positions in the Marketing, Antitrust, Trademark & Litigation staff in the company’s Legal Department. She was promoted to Director of Corporate Commercial Affairs, Vice President Legal and Assistant General Counsel in 2004.
Prior to joining Kodak, Quatela was in-house counsel at Clover Capital Management, Inc., SASIB Railway GRS, and Bausch & Lomb Inc. In private law practice, she had been a defense
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litigator specializing in mass tort cases.
Quatela is a graduate of Denison University, B.A., International Politics (1979) and Case Western Reserve University School of Law, J.D. (1982). Antoinette P. Antoinette (Ann) McCorvey was elected Chief Financial Officer McCorvey and Senior Vice President, Eastman Kodak Company, effective November 5, 2010. She reports to Kodak Chairman and Chief Chief Financial Executive Officer, Antonio M. Perez. Officer and Senior Vice President Ms. McCorvey is responsible for worldwide financial operations, including Corporate Financial Planning and Analysis, Treasury, Eastman Kodak Audit, Controllership, Tax, Investor Relations, Aviation, Company Corporate Business Development, Worldwide Information Systems, and Global Purchasing.
Ms. McCorvey joined Kodak in December 1999 as Director, Finance, Imaging Materials Manufacturing. In March 2007, she was appointed Director & Vice President of Investor Relations. The Board of Directors elected her a corporate vice president in December 2007.
Prior to joining Kodak, Ms. McCorvey had a 20-year career with Monsanto/Solutia. Her last assignment at Solutia, Inc. (the former Chemical Company of Monsanto) was Vice President/General Manager of Nylon, Plastics, Polymers and Industrial Fibers.
Ms. McCorvey earned a degree in Finance and Accounting and an MBA from the University of West Florida in Pensacola. Patrick M. Sheller Patrick M. Sheller, who has been Secretary of the company since 2009, was named General Counsel December 22, 2011 General Counsel, and Chief Administrative Officer as of January 1, 2012. As Secretary and Chief Chief Administrative Officer, Sheller oversees Administration Administrative and will have day-to-day management responsibility for Legal, Officer Human Resources, Worldwide Information Services, Health, Safety and Environmental, and Communications & Public Eastman Kodak Affairs. As General Counsel, Sheller reports to Kodak Chairman Company and Chief Executive Officer Antonio M. Perez; as CAO, Sheller reports to Chief Operating Officer Quatela.
Mr. Sheller joined Kodak in 1993 as Marketing, Antitrust & Litigation counsel to the company’s former Health Group and has held several roles within Kodak’s Legal Department.
Before joining Kodak, Mr. Sheller was in private law practice
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with the Washington, D.C. firm McKenna & Cuneo (now McKenna, Long & Aldridge) where he specialized in antitrust and health care law. From 1986 to 1989, he worked for the Federal Trade Commission in Washington, D.C., where he served as an Attorney Advisor to Chairman Daniel Oliver and as a Staff Attorney in the Commission’s Bureau of Competition.
Mr. Sheller is a graduate of St. Lawrence University and Albany Law School of Union University. Terry R. Taber Terry R. Taber joined Kodak in 1980. In January 2009, he was named Chief Technical Officer reporting to Kodak Chairman Chief Technical and CEO Antonio M. Perez. The Board of Directors elected him Officer and Senior a corporate vice president in December 2008, and then a senior Vice President vice president in December 2010.
Eastman Kodak Mr. Taber was previously the Chief Operating Officer of Company Kodak’s Image Sensor Solutions (ISS) business, a leading developer of advanced CCD and CMOS sensors serving imaging and industrial markets. Prior to joining ISS in 2007, Mr. Taber held a series of senior positions in Kodak’s research and development and product organizations. During his 30 years at Kodak, Mr. Taber has been involved in new materials research, product development and commercialization, manufacturing, and executive positions in R&D and business management.
He was the worldwide consumer film business product manager from 1999 to 2002, and then became an Associate Director of R&D from 2002 to 2005, followed by a position as the director of Materials & Media R&D from 2005 to 2007.
Mr. Taber received a B.S. degree in Chemistry from Purdue University and a Ph.D. in Organic Chemistry from the California Institute of Technology. He also received an M.S. in General Management from MIT as a Kodak Sloan Fellow. Pradeep Jotwani Mr. Pradeep Jotwani was appointed President of the Consumer Business effective January 10, 2012. This appointment expands President of the his responsibilities to include all of Kodak’s consumer digital Consumer Business and traditional product lines. In this position, Mr. Jotwani and Chief Marketing reports to the Chief Operating Office. He remains Chief Officer Marketing Officer and Senior Vice President and in those capacities he reports to Kodak Chairman and Chief Executive Eastman Kodak Officer Antonio M. Perez. As CMO, Mr. Jotwani is responsible Company for customer relationship management, brand management, business-to-business and business-to-consumer marketing, communications and public affairs, online commerce, and the company’s website, www.kodak.com .
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Mr. Jotwani joined Kodak in September 2010 as President, Consumer Digital Imaging Group, Chief Marketing Officer, and Senior Vice President.
Mr. Jotwani left Hewlett-Packard Company in 2007 as Senior Vice President, Supplies, Imaging and Printing Group. Prior to that assignment, he was President of HP’s Consumer Business Organization, which he formed.
Mr. Jotwani earned a degree in Mechanical Engineering from the Indian Institute of Technology, Kanpur, in 1975, and two years later, a Master’s in Industrial Engineering from the University of Wisconsin. He received an MBA from Stanford University’s Graduate School of Business in 1982. Brad W. Kruchten Effective January 1, 2012, Brad Kruchten was appointed President of the newly formed Graphics and Entertainment & President of Graphics Commercial Film business. Mr. Kruchten was previously and Entertainment & President of the Film, Photofinishing & Entertainment Group Commercial Film (FPEG), which position encompassed responsibility for all silver halide products. Mr. Kruchten was named President of FPEG in Eastman Kodak 2009. The Board of Directors elected him a senior vice president Company in 2009 as well.
Prior to his current position, Mr. Kruchten was also worldwide General Manager for Retail Printing. Before that, Mr. Kruchten was the General Manager for the Consumer and Professional film business. The Board of Directors elected him a corporate vice president in July 2002. Kruchten’s career at Kodak began in 1982 as a Quality Engineer. Prior to joining Kodak, Kruchten worked as a project engineer at Inland Steel and as a tool designer for General Motors Corp.
A native of Flint, Michigan, Mr. Kruchten has a B.S. in Engineering from Michigan State University, an M.S. in Statistics and Quality Management from the Rochester Institute of Technology, and has attended the Executive Management Development program at Penn State University. Gustavo Oviedo Gustavo Oviedo was named Chief Customer Officer and General Manager of Worldwide Regional Operations effective January 1, Chief Customer 2011. He reports to Kodak Chairman and Chief Executive Officer and General Officer Antonio M. Perez. Manager, Worldwide Regional Operations Previously, Mr. Oviedo was General Manager, Worldwide Sales and Vice President and Customer Operations, Consumer Digital Imaging and Graphic Communications Groups. The Board of Directors
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Eastman Kodak elected him a corporate vice president in December 2007. Company Mr. Oviedo’s international career spans more than 25 years working in the United States, Latin America, Asia and Europe. Before joining Kodak (KPG), he spent over 20 years with Schneider Electric, a leader in electromechanical and electronic products, where he held positions of increasing responsibility in regional management.
Mr. Oviedo earned a business degree from The Universidad del Salvador, Buenos Aires, Argentina. He is fluent in English, Spanish, Portuguese, and French.
Eric H. Samuels Eric H. Samuels was appointed Corporate Controller and Chief Accounting Officer in July 2009, and he reports to Ann Chief Accounting McCorvey, Kodak’s Chief Financial Officer. Mr. Samuels Officer and previously served as Kodak’s Assistant Corporate Controller and Corporate Controller brings to his new position nearly 20 years of leadership experience in corporate finance and public accounting. He Eastman Kodak joined Kodak in 2004 as Director, Accounting Research and Company Policy.
Prior to joining Kodak, Mr. Samuels had a 14-year career in public accounting during which he served as a senior manager at KPMG LLP’s Department of Professional Practice (National Office) in New York City. Prior to joining KPMG in 1996, he worked in Ernst & Young’s New York City office.
A native of Rochester, N.Y., Mr. Samuels attended the State University of New York College at Oneonta, where he graduated with a B.S. degree in Business Economics. He is a Certified Public Accountant in New York and a member of the American Institute of Certified Public Accountants. William G. Love Mr. Love joined Eastman Kodak Company in October of 1997 as director, Treasury Operations. He was appointed Assistant Treasurer Treasurer in December of 1999 with responsibilities for domestic and international treasury operations, including operations of Eastman Kodak Kodak’s Treasury Center in the UK, currency and commodity Company risk management, and financing. Mr. Love was elected Treasurer on October 2, 2000. As Treasurer, Mr. Love is responsible for global treasury operations and strategy, insurance risk management, financing, capital markets, Credit and Collections, and worldwide pension investments.
Prior to joining Kodak, Mr. Love worked two and a half years for RJR Nabisco Company as Senior Director of Treasury,
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responsible for international treasury operations. Before joining RJR Nabisco, he worked 11 years at IBM, holding various positions in corporate treasury, finance, and information systems management. Previous to IBM, he worked for six years at the Research Institute of America, holding several positions in accounting and information systems.
Mr. Love earned an MBA in Finance from Fordham University and a BS in Computer Science from Mercy College. Doug Edwards Doug Edwards was appointed President of Digital and Functional Printing effective January 1, 2012. Mr. Edwards was President of Digital named General Manager and Vice President of Prepress and Functional Solutions, Graphic Communications Group, and Vice President Printing of Eastman Kodak Company in October 2006. From April 2005 to October 2006, Mr. Edwards was General Manager and Vice Eastman Kodak President of Prepress Consumables and Graphic Company Communications Group.
Before joining Kodak, Mr. Edwards was Vice President of Research and Product Development, New Business and Strategy Development for Kodak Polychrome Graphics (KPG), a 50/50 joint venture between Eastman Kodak Company and Sun Chemical Corporation. From April 1998 through 2001, Mr. Edwards was KPG Vice President, Research and Product Development.
Mr. Edwards joined KPG in 1998 from International Paper’s Imaging Products Division. He spent two years with worldwide responsibility for technology and product commercialization as Horsell Anitec’s Vice President, Product and Manufacturing Process Development. Before joining International Paper, Mr. Edwards spent 8 years with Zeneca Specialties and ICI Colors & Fine Chemicals in the U.K. in a variety of senior marketing, manufacturing and research positions. Mr. Edwards started his industrial career with Ilford Ltd, Ciba-Geigy in 1985 as a research chemist.
Mr. Edwards gained his PhD in 1985 from the University of London in superconducting organic materials, sponsored by Ciba-Geigy and the British Government’s Science & Engineering Research Council. Mr. Edwards also has a BSc in Chemistry from London University. Dolores Kruchten Dolores Kruchten was appointed President of the Enterprise Services and Solutions business effective January 1, 2012. She President of the previously held the position of General Manager of Business Enterprise Services Solutions and Services. In May 2007, the Board of Directors
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and Solutions elected Ms. Kruchten a corporate vice president. Business Prior to holding these positions, Ms. Kruchten was General Eastman Kodak Manager of Document Imaging and Vice President of Graphic Company Communications Group and General Manager of Global Services and Graphic Communications Group.
Ms. Kruchten’s career at Kodak began in 1981, and she has held leadership positions in many parts of the company, including Site Management, Product Management, Storage Product Business, and Business Imaging Systems. She has led global organizations that included R&D, product manufacturing, sales, service, and marketing for digital, media, and traditional products.
Ms. Kruchten earned a Bachelor of Technology Degree in Mechanical Engineering from Rochester Institute of Technology in 1987. Tim Lynch Tim Lynch was appointed Chief Intellectual Property Officer effective January 1, 2012. Mr. Lynch had previously held since Chief Intellectual January 2008, the position of Managing Director of Intellectual Property Officer Property Transactions. In that role, he was responsible for strategic and royalty-bearing licensing activities. The Board of Eastman Kodak Directors elected him a corporate vice president in December Company 2010.
Mr. Lynch joined Kodak in 1997 as a member of the Corporate and Regulatory Legal Staff, supporting M&A and other transactional activities of the company. He has held increasingly responsible positions in the Intellectual Property area since 2004.
Prior to joining Kodak, Mr. Lynch was in-house counsel at GE Capital and associated with the firm of Nixon Hargrave Devans & Doyle (now Nixon Peabody).
Mr. Lynch holds a B.A. in communications and political science from St. John Fisher College and a J.D. from the University of Dayton School of Law. He is a member of the New York Bar.
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Schedule 10
Payroll
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Schedule 10
Payroll
Pursuant to Local Rule 1007-2(b)(1)-(2)(A) and (C), the following provides the estimated amount of weekly payroll to the Debtors’ employees (not including officers, directors, and stockholders) and the estimated amount to be paid to officers, stockholders, directors, and financial and business consultants retained by the Debtors, for the 30-day period following the filing of the chapter 11 petitions.
Payments to Employees $52,335,0001 (Not Including Officers, Directors, and Stockholders)
Payments to Officers, $415,0002 Stockholders, and Directors
Payments to Financial and Business $04 Consultants3
1 Amount represents a rounded estimate of two bi-weekly payroll runs. 2 Amount represents a rounded estimate of two bi-weekly payroll runs for Section 16 employees, and $0 for directors’ fees. 3 This does not include any payments to the Debtors’ attorneys or auditors. 4 Pursuant to the interim compensation procedures to be proposed in these chapter 11 cases, the Debtors do not anticipate making any payments to financial or business consultants within 30 days following the filing of the chapter 11 petitions.
Sch. 10-2 SC1:3172181.13 12-10202Case Doc 1:12-cv-01073-HB 2 Filed 01/19/12 Document Entered 51- 0/19/121 Filed 0:46:460 1/23/13 Min Pa geDocument 84 of 100 Pg
93 of 96
Schedule 11
Cash Receipts and Disbursements, Net Cash Gain or Loss, Unpaid Obligations and Receivables
Sch. 12-1 SC1:3172181.13 12-10202Case Doc 1:12-cv-01073-HB 2 Filed 01/19/12 Document Entered 51- 0/19/121 Filed 0:46:460 1/23/13 Min Pa geDocument 85 of 100 Pg
94 of 96
Schedule 11
Cash Receipts and Disbursements, Net Cash Gain or Loss, Unpaid Obligations and Receivables
Pursuant to Local Rule 1007-2(b)(3), the following provides, for the 30-day period following the filing of the chapter 11 petition, the estimated cash receipts and disbursements, net cash gain or loss, and obligations and receivables expected to accrue that remain unpaid, other than professional fees.
Cash Receipts $190M
Cash Disbursements $355M
Net Cash Loss $165M
Unpaid Obligations $80M
Unpaid Receivables $120M
Sch. 12-2 SC1:3172181.13 12-10202Case Doc 1:12-cv-01073-HB 2 Filed 01/19/12 Document Entered 51- 0/19/121 Filed 0:46:460 1/23/13 Min Pa geDocument 86 of 100 Pg
95 of 96
Schedule 12
Committees
Sch. 12-1 SC1:3172181.13 12-10202Case Doc 1:12-cv-01073-HB 2 Filed 01/19/12 Document Entered 51- 0/19/121 Filed 0:46:460 1/23/13 Min Pa geDocument 87 of 100 Pg
96 of 96
Schedule 12
Committees
Pursuant to Local Rule 1007-2(a)(3), prior to the Petition Date, certain holders of the Debtors’ Second Lien Secured Notes formed an ad hoc committee represented by Akin Gump Strauss Hauer & Feld LLP, One Bryant Park, New York, New York 10036-6745. To the best of the Debtors’ knowledge and belief, no additional committees have been organized prior to the Petition Date.
Sch. 12-2 SC1:3172181.13 Case 1:12-cv-01073-HB Document 51-1 Filed 01/23/13 Page 88 of 100
EXHIBIT C
Case 1:12-cv-01073-HB Document 51-1 Filed 01/23/13 Page 89 of 100 y T 6 aj a-, k1lU±%iéa U->4Ii'OIi U 2 >Onnh% iIi -Y'Do U>-½ - <" D' êç ± 0 66 LAZARD LAZARD Fars & Co. LLC 30 ROCK LLE-i F't.A2A NW '0PtK. NY 10020 P'0 -6a2-60OC- WWWJ jirjird.cnm
As of September 12, 2011
Eastman Kodak Company 343 Sttc Street Rochester, New York 11650
Dear Ladies and Gentlemen:
This letter agreement (the ccAgrecmCntO) confirms the uiidertanditig and agreement between Lazard Fthrcs & Co. LLC ("Lazard") and Eastman Kodak Company ("Kodak") and its controlled subsidiaries (joint and severally with Kodak, the "Company"). 4gjrnen: Scope: Kodak hereby retains Lazard as investment banker to provide Kodak with general financial and strategk advice and to advise it in connection with any IT' Sale Transaction, Sale Transaction' subect to Lazard's agreement to so act), Financing' and/or Restructuring' (each as defined below,
ils used in this Agrcernent, the teem "111 StiLe Ttaiisacticsi" means asak% directly or indirectly, In OOC or more tumeactionc of dl or a portion of trie Coiane's l)ijitl Capture ("DC) Piarni Portfolio and/or the Company's KCXIak lmagi!Ig Syaa'nis ind S riceit ("KISS') Parcn Portfolio (toethr, the 'Portfolio') to one or mote other coqiototions or buarneax or govemmenta' entities er persons (each, a 'Rnyer"), which rrsnsaction(r) mac take rhe form, without hnatation, or merger a st.le uf itsscta, equity tccutitics, options righla in othea i1 -acrc-5t, (it ii tJflt VetUhirt OtSijflThCflt or -, only to the exvciw ret ftrth ri i-he next Scnteaacc, a license. For the purpose hereof a license (but, note alc) of all tic any 1irirtion of the Portfolio shah ro rnnstjriite an lP sale Iranraction ari:l no fee shall be Jue under pwWitph 4 with 1d thereto unless: (a) die liceiiscc is Apple inc. or any affiliate tltcro.>1; 'i the CWL'CtIVC ltitc of thc bccnse to Apple Inc. or iLs tilhliaL presecuca the data o the lnicrnaionil 'Fradc Comrnss4c-n's Ibnsl )etesmmaticm in In nitigatton 103; and te) as a result of thv granting of the leenae to Apple inc. or its affiliate the Csnnpany discontinues riiankeung the Portfoac for sale. In the event d-aues (e)-(c), inclusiec, of the preceding sentence are satisfied the Con - any shall pay I .aaard a Ice equal to fl')°o if the 11r Sair ]'rantcichnn °ee heard on ::hc Arepte (oosijerstn,n ca 5.culetcd in accordance with Schcduk I hereto. 2 As used ii this Agrcernent, the term "S-tic 'Iransaction" recans' tnt tensaction or series of IrSto-acti-ons inviving one or criore Beycrs, whch trarls-lCtiOfl tiny rkc Ole form, ththout limittioti o (A) an aequhitaitn, naerge, eon olkiation, tsr- ether busincs cnmbtr.aticri puissiaitt as which the buainciit rn ass-ti of the Cornparq are, directly or indirectly, conbircd with a 0uyer or ilityerq b) the acquisition, directly or indirectly, by a kisyer or Bucrs (which term shill iridu:k a grnup" cipericins as defined as Secrinic 13( of the Securities Exchange Act: of 1934, as aincnde, ofcquity interCttS, rights (:1 opiioiis, or coy comhtnation (hereof constituting a majority of the then outstanding stock of the Comptsnv or possesarmg a majority of the then outst-aiding vcflang power - the Cnm pa (except ax may occur with curreiit Se- -eholders (ax delinad below) as a ror.ilt of -a Itecrurin; (c) 2(TV other pulelose or acquisition, directly or in±nxtiv, hi' i. &1ycr or Puycrq of s cant assets, securitIes, nhts, options or other mtCrrSts of the Corn axir or (d) the fornast-irwi iii joint -entorr- or Partnership with the (Toiaipany t,r din.a:t invesinicist in the Company for the purpose of efieccioga tr ,rf'r of an iiitrrest ill. the (,cmilly.ny to a third parr}; prier-ic/cd, however, that the term Sale Transaction shall tniçudc (t) any IF Sale 'l'railsactlon and (ii) any lxcluded ']u -isactiot sc hniriiiaftt'r rkliitieet For purposes hereof, (V any sale of newly itseh seCuriheis (including acCntiC held Al treasury) shall be duenird a lhiaaituiiig ciii! ILUt m Sale l'ransiiction aid (ii) any We Transaction principally involving the Portfolio shall be ticemed an i 1 Sale Tnuwsction and not a Sale Irsuisactiun. In the event that Btink al' Arriericx Coiponritton, Citigroup Inc, Well Fsrgo& Coenpanr, Morgan Stanley or PNC Financial Services Group, lee,, or any of their respective a.lhltate, increase their arrrountfa.vailablc finding to the Company (other than pl.wsuanr to Dbtor-in-Possrcssion financing on other finxrwin8 in connection with a proceeding pursuant to Chapter II of the Unsted States l3anhrupec't Code) and the Company retains such inceeasir;g bin 1k fr,r a trantiacrion described in clauscw (c) or (d) of the definition of Sale l'rtirsctson rrther than art IP SsJeTr-a.nsctiorc), such teansactious shall hedecimial mi "Eseloded ihinsaction" unless otherwise agreed by Kodik tine s.a ured in thu Agreement. the tsrrrn":niancing' ojeares any tra.nsac3on ri series jftoi-ssicticinr invok'in the public or privetciaxesrice, sale, or plruccLvwnt if newly seusi! (including sceusdiet held in cressura) cejwty, cquits-lsnkcd in dcli; secuntics, tristiuments, or obligations of the Company, including any debtor-mn-posseariori financing or exit financing in connecion with a case under the Bsuikrupicy Cole. Ac used in this Agreen-tonit, the term "ILesti-ucturing" shal mean, c&kthscly, any rcarcuctuemg, rccngantaarion (nhehc'r or lull 1,UniU'aIit 10 Chapter II of the United States Banleniptcy thisic) and/or iccapitahsestion ci all or a material portion of the Company's 'tsctstandiiig indchecaiisccx (including batik dht, bond debt and other on and oll balance sheet indebtcdncsi). trade cfairm, leases (bed r)rsajid off baltiriec shcet, uiefuodcd perniol and renLea idjctil liebdities, or other (ccikctivelf, the 'Existing (.>bhpstions") that is achieved, without lirnittibon, through a solicitation ci waivers and Lecosents from the holders of 1-tausting Obligations (cri}lectivcl), the 'Stskthi,ldcra"); rescheduling cii the fliaturilacS of Fixating
PARIS LONDON NEW YQRI( AMSTERDAM ATLANTA SEPLLN ROMFIAY CHICAGO FiiAi4I(FURT HAMBOKO HONG Keiwn HOUSTON L05ANG5E5 MAOFiC MILAN MONTRCA NEW DtHi nOt4c SAN FRANCnSCO 5COLL nu,-InapoRE STOCKHOLM 5YOKT TOKYO TOPQNTC Case 1:12-cv-01073-HB Document 51-1 Filed 01/23/13 Page 90 of 100 I1âOIO1c U±WéIä U/4ôifIñI 02 /5Iñ1fIIITIi LJ 3/'Pó 1 ooi,a •— U>> D1 éô ±0 ee LAZA fl and each a "Transaction) on the terms and conditions set forth herein. By signing this Agreement, we hereby accept our appointment as investment banker under the terms hereof. DepIsoit of Ssrvitec 1. Lazard agrees, in consideration otT the compensation provided in paragraph 4 below, to perform such of the following investment banking services as the Company may reasonably recjn est, includlog:
(a) Reviewing and analyzing the Company's business and financial condition, as well as its business plan and financial projection ,-,;
(b) Assisting the Company in evaluating potential strategic arid capital structure altetnauves, mcludmg one or mote Transactions;
(c) Assisting the Company in evaluating the potential use of any Transaction proceeds;
d) ittericlitig inectiiigs of the Board of Directors of Kodak with respect to matters on which we have been engaged to advise hereunder;
(e) Assisting the Company in any potential JP Sale Transaction, including identifying and interacting with potential Buyers, marketing the Portfolio to potential Buyers, advising the Company in connection with any subsequent negotiations and aiding in diu consummation of any IP Sale Transaction;
(I) Assisting the Company in evaluating and consummating any potential Sale Transactions;
(g) Advising and assisting the Company in evaluating any potential Financing transaction by the Company, and, subject to Lazard's agreement so to act and, if requested by Lazard, to execution of customary agreements, on behalf of the Company, contacting potential sources of capital as the Company may designate and assisting the Company in implementing such Financing; and
(a) Rendering financial advice to the Company in connection with any Restructuring; including;
i. Assisting in the determination of a range of values for the Company on a going concern basis;
ii. Evaluating the Company's potential debt capacity in light of its projected cash flows and assisting in die determination of a capital structure for the Comni,aay;
. ci r n niereat tni, riptitdia.ic, ttknjciit ii liiigivcnn.s iii iiis5i,g Obigbon; cov.tstor ct Ehtin ObIcion. into equity; n QXCIIA?lgc i r ten ul tn th en ncL if nii i.curttic'. iii chni'e lot F i tti Obhgau n h. i IDOCI. 0 iicw cciii tv '.Ji i di pit It_Cit ,E a.scLc, sac oftwht or cquitv sectoltini or ott - si intcst or other seitai ioiction or sesica ;tfnaiiiacions. For the a;'otthrice nfdoobi an irnieniJinent to tile Company's A153. credit fsci1it ant/or 2. ciithitcal OPEB md/or pension plan efang hs11 not in and of ihemackea he dcemcd to cm)nitmI:utc .1 Liest.n,riijring. Case 1:12-cv-01073-HB Document 51-1 Filed 01/23/13 Page 91 of 100 . ITãôIOI' U±éTI U>%ôIiiIiiT U2%OIñInIIIêii U / 7-13 U>>- • 1?:,00.l,/ta •- D1 éï ±0 e LAZAID
iii. Advising the Company on the timing, nature, and terms of new securities, other consideration or other inducements to be offered pursuant to any Restructuring;
iv. Advising the Company on tactics and strategies for negotiating with the Stakeholders
V. Participating in meetings and negotiations with the Stakeholders, rating agencies and/or other appropriate parties;
vi. Assisting the Company in preparing documentation within our area of expertise that is required in connection with any Restructuring; and
vii. Providing testimony, as necessary, with respect to matters on which we have been engaged to advise hereunder in any proceeding before the Bankruptcy Court.
2. In addition to the services outlined above, if requested by the Board of Directors of the Company in circumstances in which investment bankers of similar standing customarily render opinions, we will render an opinion (the "Opinion9) as to the fairness to the Company, from a financial 1)Olt of view, of the consideration to be paid to the Company pursuant to a material IF Sale Transaction or a material Sale Transaction that, in each case, is to be consummated prior to any filing pursuant to chapter 11, and will furnish to the Company a letter expressing such Opinion for . inclusion, if necessary, in material that may he provided to the common stockholders of the Company and filed with the Securities and Exchange Commission. Any Opinion shall be in such customary form and with such reasonable qualifications as determined appropriate by Lazard, including that Lazard has relied upon information furnished to it by the Company and a Buyer and publicly available information, has assumed the accui-ary and completeness of such information and has not assumed any responsibility for independent verification of such information.
3. In connection with our engagement, the Company will use reasonable efforts to furnish or cause to be furnished to Lazard such current and. historical financial information and other in formation regarding the business of the Company and the Portfolio as we may request. In rendering set-vices hereunder, (including the issuance of any Opinion), we will assume that all of the foregoing information will be accurate and complete at the time it is furnished, and the Company will use reasonable cfforts to keep us advised of all material developments affecting the Company, its financial position or the Portfolio. The Company also agrees to use reasonable efforts to cause each potential Buyer to provide us with such information concerning such potential Buyer as we deem necessary for out financial review and analysis and rendering of any Opinion- Lazard shall be entided to rely upon information furnished to it by the Company and any Buyer and information that is publicly available, may assume the accuracy and completeness of such information and shall not assume any responsibility for independent verification of any such information. Laaard will not undertake any appraisal of the assets or liabilities of the Company. the Portfolio or of any third party, of give advice on any issues of solvency. Case 1:12-cv-01073-HB Document 51-1 Filed 01/23/13 Page 92 of 100 IIâôTôI 1 U±VAéIä U/iiiIñI 02 /4ôiIIIIii tJ 3/c'ô éî °èê LAZARD
4. As consideration for the services to be provided, the Company shall pay Lazard the following fees:
(a) A monthly fee of $250,000 (the "Monthly Fee") payable upon execution of this agreement (prorated for the month of Septcinbcr 2011) and on the first day of each month thereafter until the earlier of the completion of a Restructuring or the termination of hazard's engagement pursuant to paragraph 12. All Monthly Fees paid in respect of any months following the 12th mouth of this engagement shall be credited (without duplication) against any IP Sale Transaction Fee, Restructuring Fee or Sale Trans action Fee payable; provided, that, in the event of a Chapter 11 filing, such credit shall only apply to the extent that such fees are approved in entirety by the Bankruptcy Court, if applicable.
() (i) If,, whether in connection with the consummation of a Restructuring or otherwise, the Company consummates an iP Sale Transaction, the Company shall pay Lazard a fee (the "IF sale Transaction Fee") calculated based on the Aggregate Consideration as set forth in Schedule I hereto. 20% of any IP Sale Transaction Fee shall he payable upon the earlier of execution of a de.fintive. agreement with respect to an IF Sale Transaction and delivery of an opinion, and the remainder shall be payable upon consumtmthon of an IP Sale Transaction
(ii) In the event that the Company or its affiliates or its or their respective security holders is paid a break-up, termination, topping or similar fee or payment related to an FP Sale Transaction, a flue, upon receipt thereof, equal to 20% of such amount; provided that the amount payable pursuant to this clause shall not exceed the amount that would have been payable to Lazard had the IP Sale Traii sa ctien consummated, and against which any amounts paid pursuant to clause o)('i) of paragraph 4 shall be credited.
(iii) Any amount actually paid (up to a ina:xlniuvi of $00,000) pursualit to the prior engagement letter dared July 13, 2011 shall be credited (without duplication) against the fee payable pursuant to clauses b)i) or (ii) above.
(c) (i) If, whether in connection with the consummation of a Restructuring or otherwise, the Company couisunimates a Sale Transaction incorporating all or a majority of the assets (excluding or including the Company's Patent Portfolio) or all or a majority or controlling interest in the equity securities of the Company. Lazard shall be paid a fee (the "Sale Transaction Fee") equal to the greater of A) the fee calculated based on the Aggregate Consideration as set forth in Schedule II hereto or (B) the Restructuring Fee. 20% of any Sale Transaction Fee shall be payable upon the earlier of execution of a definitive agreement with respect to a Sale Transaction and delivery of an Opinion, and the remainder shall be payable upon consummation of a Sale Transaction, Case 1:12-cv-01073-HB Document 51-1 Filed 01/23/13 Page 93 of 100 ITãôIOI' U±éTI U>%ôIiiIiiT U2 %OIñInIIIêii U/ 713 U>>- • 1?:,001/t a •- D1 61 ±0 e LAZAJD
(n) In the event that the Company or its affiliates or its or their respective security holders is paid a break-up, terininatioti, topping or shuihir fee or payment related to a Sale Transaction, a fee, upon receipt thereof, equal to 20% of such amount; provided that the amount payable pursuant to this clause shall not exceed the amount that would have been payable to Lazard had the Sale Transaction consummated, and against which any amounts paid pursuant to clause c)(i) of paragraph 4 shall be credited.
(d) (i) If, whether in connection with the consummation of a Restructuring or otherwise, the Company consummates any Sale Transaction not covcrtd by clause (c) above (other than an .Exclucicd Transaction), the Company shall pay Lazard a fee (the 'Minority Sale Transaction Fee") based on the Aggregate Consideration calculated as set forth in Schedule II hereto. One-half of any -Minority, Sale Transaction Fee paid shall be credited (without duplication) against any Restructuring Fee or Sale Transaction Fee subsequently payable. 20% of any Minority Sale Transaction Fee shall be payable upon the earlier of execution of a definitive agreement with respect to a Minority Sale Transaction and delivery of an Opinion, and the remainder shall be payable upon consummation of a Minority Sale Transaction.
(ii) In the event that the Company or its affiliates or its or their respective security holders is paid a break-up, tcrniivaiion, topping or similar fee or payment related to a Minority Sale Transaction, a. fee, upon receipt thereof, equal to 20 of such amount-, provided that the amount payable pursuant to this clause shall not excecd the amount that would have been payable to Lazard had the Minority Sale Transaction consummated, and against which any amounts paid pursuant to clause (d)(i) of paragraph 4 shall be ctedited.
(e) If, whether in connection with the consummation of a Restructuring or otherwise, the Company consummates any Financing, a fee, payable upon consummation of the Financing, equal to the amount set forth in Schedule III (the "Financing Fee"). One- half of any Financing Fee(s) paid shall be credited (without duplication) against any Restructuring Fee or Sale Transaction Fee subsequently payable.
(1) If the Company consummates a Resttucturiiig, a fee equal to $12,500.0, (the "Restructuring Fee"); payable upon consummation of the Restructuring, provided,
As used herein, the ttTtfl "txciL1.ded Trans actien" means (i) ant' ordinary course transaction consistent 'with past practice for which the Aggregate Considerntwrn is less than $SC) million, or (ii) a discrete transaction invoh'ing only any of the following Company busineases and/or assets regardless of the amount of the Aggregate Consideration: Cineite, Eastman Gelatin Corp., Event Imaging Soluiion, Image Sensor Solutions, Kodak Gallery, Paper & Output Systems, polyester fUn-i business or (iii) a discrete transaction involving only Document. Imaging or the motion picture film business if the Company has, at the time of this Agreement, an caccuted engagement letter in place that would require them to pay another irwestmemit bank a fee as a result of the transaction; or (iv) any transaction with FuibJm or any affiliate thereof where the (xMnpsuiy does not engage an investment banking advisor.. Case 1:12-cv-01073-HB Document 51-1 Filed 01/23/13 Page 94 of 100 ITãôIOI' U±éTI U>%ôIiiIiiT U2 %OIñInIIIêl1 U/ 713 U)>- • 1?:,001/ta •- D1 éì ±0 e LAZAIID
however, that if a Restructuring is to he completed through a "pre-packaged" or "pee-ai-range.d" plan of reorganization, the Restructuring Fee shall be carried and shall be pa. able upon the earlier of (i) execution of definitive agreements wiLh respect to such plan and (th delivery of binding consents to such plan by a sufficient number of creditors arid/or bondholders, as the case may he, to bind the creditors or bondholders, as the case may he to the plan; provided, further, that in the event that Lazard is paid a fee in connection with a "pre-packaged" or "prc-arranged" plan and a plan of reorganization is not consummated, Lazard shall return such fee to the Company icss any Monthly Fees that have accrued).
(g For the avoidance of any doubt, more than one fee may be payable pursuant to each of clauses h), (c), (d), (e) and ( above.
S. Regardless of whether any Transaction or this engagement is completed, the Company agrees to reimburse us periodically, upon request, for all of our reasonable expenses incurred in connection with this engagement; provided, however, that reimbursable expenses shall not exceed $100,000 in the aggregate without the Company's consent (not to be unreasonably withheld). Generally these expenses include travel costs, third patty research and credit rating reports, document production and other expenses of this type, and will also include the reasonable fees of outside counsel and other professional advisors.
6. No fee payable to any third party, by the Company or any other person or entity in connection with the subect matter of this cugrigetucili, shall reduce or otherwise affect any fee payable hereunder.
7. On October 24, 2006, the parties hereto entered into an indemnification letter çthe "Indemnification Letter"), which remains in full force and effect Kodak hereby agrees on behalf of its controlled subsidiaries that they shall be parties thereto and joint and severally hound with Kodak thereunder and that the Indemnification Letter shall also apply to our engagement hereunder, The Indemnification Letter shall survive any tern ination or expiration of this engagement. For avoidance of any doubt, the expense limitations set forth in paragraph 4 above shall not apply to the Indemnification Letter.
8. All amounts referenced hereunder reflect United States currency and shall be paid by the Company within 60 days after receipt of invoice therefore.
0. In the event of the commencement of chapter ii proceedings, the Company agrees that it will use reasonable efforts to obtain prompt authorization from the Bankruptcy Court to retain Lazard on the terms and conditions set forth in this Agreement under the provisions of Section 32(a) of the Bankruptcy Code. Subject to being so retained, Lazard agrees that during the pendency of any such proceedings, it shall continue to perform its obligations under this Agreement Case 1:12-cv-01073-HB Document 51-1 Filed 01/23/13 Page 95 of 100 - ITãôIOI' U±éTI U>%ôIiiIiiT U2 %OIñI n IIIêii- U, 3/47-13 ô U>>- • 66 ±0 e LAZAnD
and that it shall fie interim and final applications for allowance of the fees and expenses payable to it under the terms of this Agreement pursuant to the applicable Federal Rules of Bankruptcy Procedure, and the local rules and order of the Bankruptcy Court. The Company shall supply Lazard with a draft of the application and proposed retention order authoriaing Lazard's retention sufficiently in advance of the filing of such application and proposed order to enable Lazard and its counsel to review and comment thereon. Lazard shall be under no obligation to provide any services under this agreement in the event that the Company becomes a debtor under the Bankruptcy Code unless Lazard's retention under the terms of this Agreement is approved under section 328(a) of the Bankruptcy Code by final order of the Banknipt.cy Court, which order is reasonably acceptable to Lazard. The tetejitton application shall note that in so agreeing to seek Lazard's retention under Section 328(a) of the Bankruptcy Code, the Company acknowledges that it believes that Laaard's general restructuring experience and expertise, its knowledge of the capital markets and its merger and acquisition capabilities will inure to the benefit of the Company in pursuing any Restructuring, JP Sale Transaction, Sale Transaction or Financing, that the value to the Company of Lazard's services hereunder derives in substantial part from that expertise and experience and that, accordingly, the structure and amount of the deferred fees, including the Restructuring Fee, IP Sale Transaction, Sale Transaction Fee, Minonty Sale Transaction Fee and Financing Fee is reasonable regardless of the number of hours to be expended by I azard's professionals in the performance of the services to he provided hereunder, and that the deferred fees shall not he considered to be "bonuses" or fee enhancements under applicabic law.
10. In performing its services pur uant to this Agreement, Lazard is not assuming any responsibility for the decision of the Company or any other party to pursue (or not to pursue) any business strategy or to effect (or not to effect) any IP Sale Transaction, Sale Transaction, Financing, Restructuring or other transaction. Lazard shall not have any obligation or responsibility to provide "crisis management" for or business consultant services to die Company, and shall have no responsibility Lot designing or implementing operating, organizadonal, administrative, cash management or liquidity improvements; not shall Lazard be responsible for providing or deemed to have provided any tax, accounting, actuarial, legal or other specialist advice
11. It is understood and agreed that bdthigcontained i this Agreement shall constitute an express or implied commitment by Lazard, Lazard Group, Lazard Capital Markets LLC or any of their respective affiliates to underwrite, place or purchase any securities in a financing or otherwise, which commitment shall only be set forth in a separate underwriting, placement agency or purchase agreement, as applicable, rclating to the financing.
12. Our engagement hereunder will automatically expire on consummation of a Restructuring and may be earlier terminated by the Company or us upon written notice to the other party at any time, without liability or continuing obligation to the Company or us, except that, following any termination or expiration of our engagement we shall remain entitled to any fees accrued pursmnr to paragraph 4 but not yet paid prior to such termination or expiration, as the case may be, and to reimbursement of expenses incurred prior to such tennination or expiration, as the case may be, as contemplated by paragraph 5 In addition, in the case of termination by the Company or any expiration of our engagement, we shall remain entitled to full payrirent of all fees contemplated by paragraph 4 hereof in respect of any Transaction resulting from negotiations Case 1:12-cv-01073-HB Document 51-1 Filed 01/23/13 Page 96 of 100 ITãôIOI' U±éTI U>%ôIiiIiiT U2%OIñInIIIêii U,%-'Iô ±0 U>>- • 1?:,001/ta •- D1 66 e LAZARD occurring during the period from the date hereof until twelve months following such termination or expiration, as the case may be; provided, however, that i.io fee will, be payable with respect to any Transaction for which the principal definitive agreement is executed Following the termination of Lazard due to its bad faith or negligence; and, provided, further, that no fee will be payable with respect to a Financing for which the principal definitive agreement is cxccutcd following the termination or expiration of our engagcmcnt if Lazard did not provide material assistance to the Company in connection therewith prior to such termination or expiration.
13. Any financial advice, written or oral, rendered pursuant to our engagement hereunder is solely for the purpose of assisting senior management or the Board of Directors of Kodak (in their capacities as such) in considering the matters to which our engagement relates. The Company agrees that, notwithstanding any termination or expiration of our engagement, any advise, written or oral, rendered by Lazard and the terms of our engagement hereunder may not be disclosed publicly or made available to third parties without the prior written consent of Lazard, which consent shall not be unreasonably withheld; provided, howcvcr, that the Company may use our Opinion in a judicial or administrative proceedings in defending itself or it Board of Directors against allegations relating to the fairness of the financial consideration received by the Company in the IP Sale Transaction or Sale Transaction to which our Opinion relates, or(ii) as may be requited pursuant to a subpoena or order issued by a court of competent jurisdiction or a judicial or administrative or legislative body or committee, provided that, in the case of clause (i) or (ii) above, the Company shall have (a) promptly notified us of the receipt of any such subpoena or order, (b) consulted with us as to the advisability of taking steps to resist or narrow the scope of the disclosure contemplated thereby, and (c) cooperated with us in any efforts it may make to obtain an order or other reliable assurance that confidential treatment will be accorded to such advice or Opinion and the terms of this Agreement. Notwithstanding the foregoing, nothing herein shall prohibit the Company from disclosing to any and all persons the tax treatment and tax structure of any Transaction and the portions of any materials that relate to such tax treatment or tax structure.
14. The provisions hereof shall inurc to the benefit of and be binding upon the successors and assigns of the Company, Lazard and any other person entitled to indemnity under the Tridemililkadon Letter.
15 Laaard has been retained under this Agreement as an independent contractor to Kodak, and nothing herein is intcndcd to confer any rights or remedies as against Lazard upon any person (including the management, Board of Directors, employees, securiryhoiders and creditors of thc Company) other than Kodak. In addition, it is understood and agreed that this Agreement and our engagement do not Create a fiduciary relationship between Lazard and any person, including the Company or its management, Board of Directors, employees, sccuritvholders and creditors. As you know, a separate team at Lazard is acting as financial advisor to Afga-.Gevaert N.Y. in connection with a possible transaction involving the Company. We shall use reasonable business efforts to ensure that the Company's non-public information (including financial information, Pottfolin information, strategies, structural alternatives and the like) and our analysis, work papers, work product, advice, opinions and other materials relating to our work on behalf of the Company are not, directly or indirectly, available to or disclosed to any persons in the Lazard Group or Case 1:12-cv-01073-HB Document 51-1 Filed 01/23/13 Page 97 of 100 I1â'6IOT 1 U±1/AéI U'xY4ôIIIii1 U2 V4ôIñIñ'IIIlI U%'ó u>- oo.a f l ee ±° èê LAZARD engaged by or on behalf of the Lazard Group who ate not working on the engagement described in this letter agreement. mcluding, without limitation, those persons performing work in respect to our representation of Agfa•••Gevaett.
16. The Company agrees that upon announcement of any Transaction, the Company will include a statement in the press release relating thereto, in a form reasonably acceptable to Lazrd, to the effect that Lazard has acted as an investment banker to the Company in connection with such Transaction.
17. In carrying out services hereunder, Laaarct may, as it considers appropriate, draw upon the resources of and involve as agent other members of the Lazard Group and Lazard Capital Markets LLC and its affiliates. In this latter agreement, "Lazard Group" means Lazard Group LLC and its direct and indirect subsidiaries.
18. This Agreement and any claim related directly or indirectly to this Agreement (including any dium concerning advice provided pursuant to our engagement hcteunder) shall be governed by and construed in accordance with the laws of the State of New York (without giving regard to the conflicts of law provisions thereof). No such claim shall be commenced, prosecuted or continued in any forum other than the courts of the State of New York located in the City and County of New York or the I Inited States District Court for the Southern District of New York, and each of the parties hereby submits to the jurisdiction of such courts. Each of the parties hereby waives on behalf of itself and its successors and assigns any and all right to argue that the choice of forum provision is or has become unreasonable in any legal proceeding. Each of the parties waives all right to trial by jury in any action, proceeding or counterclaim (whether based upon contract, tort or otherwise) related to or arising out of this Agreement or the engagement of Lazard pursuant to, or the performance by Lazard of the services contemplated by, this Agreement.
19. Except as set forth below, this Agreement and the Indemnification Letter constitute the entire agreement between the Company and us with respect to the matters set forth herein and supersede all prior and contemporaneous discussions, agreements (including the engagement letter dated July 13, 2011) and understandings with respect to the matters covered herein and therein. No waiver, amendment or odier moditicatton of this Agreement shall be effective unless in writing and signed by each party to be bound thereby. We and the Company acknowledge that we have entered into a Confidential Disclosure Agreement, effective as ui April 29, 2011. Nothing contained in this letter agreement is intended to amend such Confidential Disclosure Agreement. Case 1:12-cv-01073-HB Document 51-1 Filed 01/23/13 Page 98 of 100 I1â6IOT 1 U±1/AéI U'xY4ôIIIii1 U2 VôIñIñIIIlI U%'ó u>- oo.a f l ee ±° èê LAZAnD
If the foregoing correctly sets for the understanding between us, plcasc so indicate on the enclosed signed copy of this letter in the space provided. therefor and return it to us, whereupon this Agreement shall constitute a binding agreement between
Very truly yours,
LAZARD FRERES & CO. LLC
By David NE Descotcaux Managing Director
AGREED TO AND ACCEPTED as of the date first written above:
Eastman Fodak Cotnpany, on behalf of itself and its Controlled subsidiaries
BV ame: tj,A 4. uATak Title: 5EMI AL 'I-E PioT' Case 1:12-cv-01073-HB Document 51-1 Filed 01/23/13 Page 99 of 100 I1â6IOT 1 U±1/AéI U'xY4ôIIIii1 U2 VôIñIñIIIlI U%'ó oo.a f 1 éç ±0 Ô LAZARD
SCHEDULE I
Fccs for IF Sale irai.isactions
The following table outlines the IP Sale Transaction Fee schedule. The total fee is calculated by multiplying the Aggregate Consideration by the corresponding Fee percentage. Fc:r an IP Sale Transaction in between the aggregate consideration shown in the IP Sale Transaction Fee schedule above, the fee would be determined by interpolating between the two closest percentages. For example, for a transaction in which the Aggregate Consideration paid is $60 million, the fce would be $60,000,000 235% - (($60,(00,000 .- $50,009,000) I (100,000,000 - $50,000,000)) X (2.35°/b 2.051/o))), which equals $l.374 million,
The applicable IP Sale Transaction Fee percentage shall be increased by 0.25% (and the fee shall be increased accordingly) in the event that an IF Sale Transaction is consurmnated on or before December 31, 2011. For example, fora transaction consummated on December 31, 2011 ii which the Aggregate Consideration paid is $60 million, the fee would be $60,000,000 x (2.60% - (($60,000,000 .- $50,000,000) / ($100,000,000 - $50,000,000)) x (2.60% - 230%))), which equals $1.524 million.
Aggregate Consideration ( in mio,n) Fee ,/o $25 2.50% 2.35% $100 2.05% $200 1.68% $30() 1.48V $400 1.36% $500 1.27% $600 1.20% $700 1.15/c $800 1.10.•b $900 1.06% $1,000 1.03% $1,500 0.88% $2,000 0.78% 2,500+ 0.69%
For purposes of an IP Sale Transaction, the term 'Aggregate Consideration" means the total amount of cash and the fair marker value (on the date of payment) of all other property paid or conveyed (including amounts paid into escrow) to the Company and its affiliates and its and their respective security holders in connection with a IP Sale Transaction. In addition, Aggregate Consideraijuzi shall include the amount of alt indebtedness and any other financial liabilities assumed directly or indirectly by the Buyer. If the Aggregate Consideration includes amounts payable in the future or is subject to increase by contingent payments related to future events, the portion of our fee relating thereto shall be calculated based on a mutually agreed in good faith, probability- adjusted an.d present value discounted amount for such contingent payments and paid to us upon consummation of the [P Sale Transaction.
Case 1:12-cv-01073-HB Document 51-1 Filed 01/23/13 Page 100 of 100 IIâö?OIc U±éI5 U-4OIriIiiI U2 /4OIñIñI uTii U-%--1IDó U>-½ - <" D' eo±°ee LAZAIm
SCHEDULE II
Fees for Sale Transactions
The following table outlines the Sale Transaction Fee schedule. The total fee is calculated by breaking down the Aggregate Consideration and multiplying each increment b y the corresponding incremental fee. Fot example, for a transaction in which the Aggregate Consideration paid is $60 million, the fee would be $625,000 $550,000 1- $175,000 which totals $1.35 million.
Aggiegate Consideration 0 in nil/ions,) Incremental Fee % $0 -$25 2.50 S25 - $50 220% $50 - $100 I .75% $100-$200 1.311% - $200 - $300 1.10% $300 - $400 1.0011/C- $400 - $500 0,90% $500 - $600 0.86% $600 $700 0.82% $700 - $800 0.78% $800 - $9()0 0.74% -I--
For purposes of a Sale Transaction, the term "Aggregate Consideration" means (x) the total amount of cash and the fair market value (on the date of payment) of all of the property paid and payable (including amounts paid into escrow) in connection with the Sale Transaction (or any related transaction), including amounts paid and payable in respect of convertible securities, preferred equity securities, warrants, stock appreciation tights, option or similar rights, whether or not vested, plus (y) the principal amount of all indebtedness for borrowed money or other liabilities of the Company or relevant Company entity, as applicable, as set forth on the most recent balance sheet, or. in case of the sale of assets; all Indebtedness for borrowed moneyor-other liabilities assumed, cancelled, exchanged or forgiven by a third party. Aggregate Consideration shall also include the aggregate amount of any dividends or other distributions declared by the Company or relevant Company entity, as applicable, after the dare hereof other than normal quarterly cash dividends, and, in the case of the sale of assets, the net value of any current assets not sold by the Company or relevant Company entity, as applicable. For purposes of calculating Aggregate Consideration, (i) all shares will be deemed ttansferred where a Sale Trallsactk)n is effected by the transfer of shares, (a) constituting more than 30% of the then outstanding equity securities of or equity interest in the Company or relevant Company entity, as applicable, or (b) possessing more than 30% of the then outstanding voting power of the outstanding equity securities of or equity interest in the Company or relevant Company cndty, as applicable, and (ii) the value of securities (whether debt or equity) that are freely tradable in an established public market will be determined on the basis of the average closing price in such market for the 10 trading days prior to the closing of the Sale Transaction (the "Valuation Date'; and the value o securities that have no established public market or other property will be the fair market value of such sccutities or other property on such Valuation Date and any testricted stock i.e., stock in a public company not freely tradeable) received shall be valued
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),. EXHIBIT D AKIN (JUMP STRAUSS HAUER & FELD LLP One Bryant Park New York, New York 10036 (212) 872-1000 (Telephone) (212) 872-1002 (Facsimile) Michael S. Starner David H. Botter Abid Qureshi
Attorneys for Second Lien Noteholders Committee
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ------x In re: Chapter 11
EASTMAN KODAK COMPANY, et al. : Case No. 12-10202 (ALO)
Debtors. (Jointly Administered) ------x
VERIFIED STATEMENT OF AD HOC COMMITTEE OF SECOND LIEN NOTEHOLDERS PURSUANT TO BANKRUPTCY RULE 2019
Pursuant to Rule 2019 of the Federal Rules of Bankruptcy Procedure, amended as of
December 1, 2011 (the "Bankruptcy Rules"), the ad hoc committee of certain holders (the
"Second Lien Noteholders Committee") of the (i) 9.75% Senior Secured Notes (the "2018
Notes") due March 1, 2018 issued pursuant to that certain Indenture dated March 5, 2010, as
amended, supplemented or otherwise modified from time to time (the "2018 Indenture"), by and
among Eastman Kodak Company, as issuer ("LE' and, collectively with the above-captioned
debtors and debtors in possession, the "Debtors"), the guarantors as defined in the 2018
Indenture, and Wilmington Trust, N.A., as successor indenture trustee to The Bank of New York
Mellon, and (ii) 10.625% Secured Notes (the "2019 Notes") and, together with the 2018 Notes, the "Second Lien Notes") due March 15, 2019 issued pursuant to that certain Indenture dated March 15, 2011, as amended, supplemented or otherwise modified from time to time (the "2019
Indenture" and, together with the 2018 Indenture, the "Indentures"), by and among EK, as issuer, the guarantors as defined in the 2019 Indenture, and Wilmington Trust, N.A., as successor
indenture trustee to The Bank of New York Mellon, by and through its undersigned counsel,
hereby submits this verified statement (the "Verified Statement") and in support thereof states:
In October 2011, certain holders of the Second Lien Notes contacted Akin Gump
Strauss Hauer & Feld LLP ("Akin Gump") to represent them in connection with a potential
restructuring of the Debtors. In the intervening months before the chapter 11 cases were filed,
certain additional holders of the Second Lien Notes joined the ad hoc group and created the
Second Lien Noteholders Committee. As of the date of this Verified Statement, Akin Gump
represents only the Second Lien Noteholders Committee and does not represent or purport to
represent any entities other than the Second Lien Noteholders Committee in connection with the
Debtors' chapter 11 cases. In addition, the Second Lien Noteholders Committee does not
represent or purport to represent any other entities in connection with the Debtors' chapter 11
cases.
2. The Second Lien Noteholders Committee holds claims or manages accounts that
hold claims against the Debtors' estates arising from the purchase of the Second Lien Notes. In
accordance with Bankruptcy Rule 2019, attached hereto as Exhibit A is a list of the names,
addresses and "the nature and amount of all disclosable economic interests" held by each
member of the Second Lien Noteholders Committee in relation to the Debtors as of the date of this Verified Statement. It is our understanding that, late last week, certain members of the
Second Lien Noteholders Committee may have become lenders under that certain debtor-in-
possession credit facility authorized pursuant to this Court's Interim Order (I) Authorizing Debtors (A) to Obtain Postpetition Financing Pursuant to]] U.S.C. §§ 105, 361, 362, 364(c)(1),
364(c)(2), 364(c)(3), 364 (d) (1) and 364(e) and (B) to Utilize Cash Collateral Pursuant to]]
U.S.C. §363, (II) Granting Adequate Protection to Pre-Petition Secured Parties Pursuant to]]
U.S.C. §§361, 362,363 and 364 and (III) Scheduling Final Hearing Pursuant to Bankruptcy
Rules 4001(b) and (c) (the "DIP Facility"). Akin Gump will supplement this Verified Statement
when it has obtained from such members of the Second Lien Noteholders Committee their
interests in the DIP Facility.
3. Nothing contained in this Verified Statement (or Exhibit A hereto) should be
construed as a limitation upon, or waiver of, any Second Lien Noteholders Committee member's
rights to assert, file and/or amend its claims in accordance with applicable law and any orders
entered in these cases.
4. Akin Gump reserves the right to amend or supplement this Verified Statement in
accordance with the requirements set forth in Bankruptcy Rule 2019.
Dated: January 30, 2012 New York, New York
AKIN GUMP STRAUSS HAUER & FELD LLP
By: Michael S. Stainer Michael S. Starner David H. Botter Abid Qureshi One Bryant Park New York, New York 10036 (212) 872-1000 (Telephone) (212) 872-1002 (Facsimile) mstamerakingump. com dbotterakingump.com aqureshiakingump. com
Attorneys for Second Lien Noteholders Committee
3 Exhibit A NAl'tItIh\\I) A\IOt\I 01 I)IS( L0SABII: F( i)N0\II( INFEItESI Alden Global 885 Third Avenue 34th floor $12,000,000.00 of 2018 Notes Capital New York, NY 10022 $8,000,000.00 of 2019 Notes 6,000,000 shares of common stock Archview L.P. 70 East 55th Street 14th Floor $10,000,000.00 of 2018 Notes New York, NY 10022 $20,025,000.00 of 2019 Notes 500,000 shares of common stock Avenue Capital 399 Park Avenue $25,000,000.00 of 2018 Notes Group New York, NY 10022
Barclays Capital 200 Park Avenue $13,500,000.00 of 2018 Notes New York, NY 10166 $8,000,000.00 of 2019 Notes $5,500,000.00 in credit default swaps Bennett 2 Stamford Plaza $20,750,000.00 of 2018 Notes Management Stamford, CT 06901 Corporation Brevan Howard St Helier (Jersey), Geneva $5,000,000.00 of 2019 Notes Investment Branch $7,000,000.00 of 7.25% Senior Unsecured Notes due 2013 (the "2013 Products Limited Route d'Italie 10, 1204 Notes") Geneva, Switzerland Capital Ventures do Susquehanna Advisors $18,500,000.00 of 2018 Notes International Group, Inc. $2,000,000.00 of 2019 Notes 401 City Avenue, Suite 220 Bala Cynwyd, PA 19004 Credit Suisse AG Eleven Madison Ave., 5th Floor $5,000,000.00 of 2018 Notes Global Credit New York, NY 10010 Products
The D. E. Shaw 1166 Avenue of the Americas, $48,000,000.00 of 2018 Notes Group 9th Floor $2,000,000.00 of 2019 Notes New York, NY 10036 967,693 shares of common stock Deutsche Bank 60 Wall Street, 4th Floor $6,000,000.00 of 2018 Notes Securities Inc. New York, NY 10005 $5,132,000.00 of 2013 Notes $3,000,000.00 in credit default swaps Greenlight Capital, 140 East 45th Street, 24th Floor $13,000,000.00 of 2018 Notes Inc. New York, New York 10017
GSO Capital 280 Park Ave $11,000,000.00 of 2018 Notes Partners New York, NY 10017 $47,500,000.00 of 2019 Notes The Blackstone $16,900,000.00 of 2013 Notes Group $5,000,000.00 in credit default swaps J.P. Morgan 383 Madison Ave., 3"' Floor $10,000,000.00 of 2018 Notes New York, NY 10179 $10,000,000.00 of 2019 Notes $33,000,000.00 of 2013 Notes J.P. Morgan 8044 Montgomery Road $53,474,000.00 of 2018 Notes Investment Suite 555 Management Inc. Cincinnati, OH 45236 Knighthead Capital 623 Fifth Avenue, 29th Floor $1,000,000.00 of 2019 Notes Management, New York, NY 10022 L.L.C. KS Management 11 West 42nd Street, 30th Floor $2,500,000.00 of 2018 Notes Corp. New York, NY 10036
Linden Advisors LP 590 Madison Avenue $5,000,000.00 of 2018 Notes 15th Floor New York, NY 10022 Litespeed Partners, 237 Park Ave, Suite 900 $27,00,000.00 of 2019 Notes UP. New York, NY 10017 Morgan Stanley & 1585 Broadway, 2nd Floor $8,800,000.00 of 2018 Notes Co., LLC New York, NY 10036 $3,500,000.00 of 2019 Notes $3,000,000.00 in credit default swaps RBS Global 600 Washington Boulevard $15,000,000.00 of 2018 Notes Banking & Markets Stamford, CT 06901 $5,000,000.00 of 2019 Notes $8,000,000.00 in credit default swaps
River Birch Capital, River Birch Capital, LLC $8,500,000.00 of 2018 Notes LLC 1114 Avenue of the Americas, 41st Floor New York, NY 10036 UBS Securities 677 Washington Blvd. $12,000,000.00 of 2018 Notes LLC Stamford, CT 06901 $1,170,000 in credit default swaps EXHIBIT E Pg 1 of 28
AKIN (JUMP STRAUSS HAIJER & FELD LLP One Bryant Park New York, New York 10036 (212) 8721000 (Telephone) (212) 872-1002 (Facsimile) Michael S. Stainer David H. Better Abid Qureshi
Attorneys for Second Lien Noteholders Committee
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK
In re: Chapter 11
EASTMAN KODAK COMPANY, et al. : Case No. 12-10202 (ALO)
Debtors. (Joint Administration Requested)
OMNIBUS OBJECTION OF AD HOC COMMITTEE OF SECOND LIEN NOTEHOLDERS TO DEBTORS' FIRST DAY RELIEF AND STATEMENT REGARDING THE DEBTORS' DIP FINANCING MOTION
The ad hoc committee of certain holders (the "Second Lien Noteholders Committee") of the (i) 9.75% Senior Secured Notes (the "2018 Notes") due March 1, 2018 issued pursuant to
that certain Indenture dated March 5, 2010, as amended, supplemented or otherwise modified
from time to time (the "2018 Indenture"), by and among Eastman Kodak Company, as issuer
("EKC" and, collectively with the above-captioned debtors and debtors in possession, the
"Debtors"), the guarantors as defined in the 2018 Indenture, and The Bank of' New York Mellon,
as indenture trustee and (ii) 10.625% Secured Notes (the "2019 Notes") and, together with the
2018 Notes, the "Second Lien Notes") due March 15, 2019 issued pursuant to that certain
Indenture dated March 15, 2011, as amended, supp c:cd or otherwise modified from time to time (the "2019 Indenture" and, together with the 2018 Indenture, the "Indentures"), by and Pg 2 of 28
among EKC, as issuer, the guarantors as defined in the 2019 Indenture, and The Bank of New
York Mellon, as indenture trustee, by and through its undersigned counsel, hereby submits this
(i) omnibus objection (the "Omnibus Objection") to the "first day" relief requested by the
Debtors and (ii) statement (the "Statement") regarding the Debtors' DIP Financing Motion (the
"DIP Motion").' In support of this Omnibus Objection and Statement, the Second Lien
Noteholders Committee respectfully represents as follows:
PRELIMINARY STATEMENT
The Debtors have been travelling a path toward chapter 11 for quite some time.
In the last two years alone, EKC has burned through approximately $2 billion in cash, including
losses exceeding $1 billion through the first three quarters ol 201 1.2 The monumental losses will
not stop with the commencement of these proceedings. In fact, the Debtors' own budget projects that they will spend/lose an additional $364 million in the next thirteen weeks. This must stop.
2. Notwithstanding these staggering losses, the Debtors have continued to adhere to
a misguided strategy of funding businesses that are not profitable or viable. In addition, for
several years, the Debtors' management has followed a practice akin to "burning the furniture"
selling off valuable assets in one-time cash generation events to stave off a bankruptcy filing.
These efforts have failed and the Debtors, after depleting all of their cash, are now forced to
commence these proceedings.
3. It is entirely unclear at this point what the Debtors intend to do in chapter 11
What is clear is that the Debtors must not be permitted to continue the same destructive practices
Capitalized terms not defined herein shall have the meanings ascribed to such terms in the DIP Motion or applicable "first day" motion.
2 All figures are drawn from publicly available information. EKC has not yet reported its results for the fourth quarter of 2011.
19 Pg 3 of 28 that resulted in the loss of in excess of $2 billion in the last two years alone. While we do know that the Debtors have spent many months attempting to sell a substantial number of patents, the
value of that portfolio, and the impact of that decision upon the Debtors' operations and
remaining assets and, most importantly, its creditors, is as yet unknown. Through the variety of
relief they have sought, the Debtors appear to want carte blanche to operate in chapter 11 as they
did outside of chapter 11 Among other things, the Debtors have requested unfettered authority to (i) spend tip to $100 million in "critical vendor" payments in the first days of these cases
without identifying which vendors are critical or providing a shred of evidence that any such
payments are necessary, (ii) continue their existing Intercompany Transactions netting scheme
such that funds may flow outside of the United States to the detriment of creditors of these
estates, and (iii) continue their bonus compensation program for senior management, many of
whom may well he responsible for the Debtors' current state of'affairs - all of'this befbre their
creditors have had a chance to filly educate themselves about the Debtors and their businesses
and what is the right path to maximize value.
4. Despite the Second Lien Noteholders' grave concern regarding the Debtors' plans
for the course of these proceedings and the businesses, the Second Lien Noteholders Committee
recognizes the necessity of post-petition financing, with appropriate limitations, and is
supportive of the Debtors' efforts to obtain it. In fact, prior to the Petition Date, the holders of' the Second Lien Notes tried repeatedly to engage the Debtors in negotiations for rescue financing to be provided by such holders on a highly competitive and expedited basis, but the Debtors were
almost entirely non-responsive. In the days leading up to the commencement of these cases, the
Debtors continued to be less than fully responsive, failing to give their largest secured creditor
constituency access to vital information regarding the proposed DIP. Despite our Pg 4 of 28
communications with the Debtors prior to filing, the Second Lien Noteholders Committee
learned about the material terms of their DIP financing this morning when the Debtors filed their
first day pleadings.
5. Even with essentially no notice, it is obvious to the Second Lien Noteholders
Committee that approval of the proposed DIP, in its current form, would come at great cost to
the Debtors' estates and creditors, as it gives the Debtors the ability, on a mostly unrestricted
basis, to burn an additional $700 million in what may be further folly. Additionally, the approval
of what we expect are substantial, but as yet undisclosed, fees, fully earned and payable today, in
respect ot a facility that may never be finally approved is entirely inappropriate and harmilil to
all creditors of these estates. It is thus imperative that this Court impose significant restrictions
on the Debtors' ability to borrow and indiscriminately spend until, at the very least, the final
hearing when the Debtors' constituents will have an opportunity to be heard on this issue.
Moreover, the Court should limit the fees payable to Citibank upon interim approval of the DIP to the amount actually lent, rather than the full amount the Debtors are authorized to borrow after
final approval of the DIP. These limitations plainly are in the best interests of the Debtors' estate
and creditors.
6. By limiting the fees payable, as well as the Debtors' ability to fully borrow, the
Court will give other parties, including the holders of the Second Lien Notes, the opportunity to
provide debtor in possession financing to the Debtors on more commercially reasonable terms to the substantial benefit of these estates and all of their creditors. The Second Lien Noteholders
Committee believes that the Court must level the playing field by directing the Debtors to do
what they have resisted in the past: (i) allow the Second Lien Noteholders Committee access to
conduct the due diligence necessary to propose a competing loan, (ii) negotiate alternative
4 Pg 5 of 28
financing with the Second Lien Noteholders Committee promptly and in good faith; and (iii)
independent of the negotiation of alternative DIP financing, provide the Second Lien
Noteholders Committee with consistent, 11111 access to information so that the Debtors' largest
secured creditor constituency can play an appropriate and active role in these cases.
Given the economic realities we all currently face, these Debtors and their
creditors should not he further handicapped by the continuation of poor decision-making and
inability to project performance. As will be demonstrated herein and at the "first day" hearing, the Debtors' management has been unable to project accurately the Debtors' performance for
several years. During this time, the Debtors have consistently missed their own revenue and
earnings projections. Until the Debtors' constituents ---- an official unsecured creditors'
committee and the Second Lien Noteholders, for example have had the opportunity to learn
more about the Debtors' operations and to discuss the appropriate path toward value
maximization, which may involve the liquidation or winding down of some of the Debtors
business units, the Debtors should be limited to maintaining the status quo for all constituents by
making only essential expenditures. 3 All of the creditors of these estates cannot find themselves
subordinated to an additional $700 million of senior secured indebtedness before anyone,
including this Court, knows which direction these cases are going. As such, the Second Lien
Noteholders Committee believes that it is in all parties' best interest to maintain the status quo to the fullest extent possible so that we can move forward in a more infornied and circumspect
manner, without blindly following the dictates of the past, in an effort to maximize value for all.
The Second Lien Noteholders Committee does not take issue with the Debtors' decision to pay or otherwise satisfy their first lien indebtedness with the proceeds of the DIP facility. Pg 6 of 28
BACKGROUND
8. On January 19, 2012 (the "Petition Date"), each of the Debtors commenced a
voluntary case under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code").
The Debtors have requested joint administration of their chapter 11 cases for procedural
purposes pursuant to Rule 10 15(b) of the Federal Rules of Bankruptcy Procedure (the
"Bankruptcy Rules").
9. The Debtors are authorized to continue to operate their businesses and manage their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy
Code.
10. This Court has jurisdiction to consider this matter pursuant to 28 U.S.C. §§ 157
and 1334. 'This is a core proceeding pursuant to section 157(b).
I, The Debtors' Prepetition Capital Structure. 4
A. Prepetition Secured Debt
11. EKC and its subsidiary, Kodak Canada, Inc., together with EKC's U.S.
subsidiaries as guarantors, are patty to that certain Second Amended and Restated Credit
Agreement dated as of April 26, 2011 (the "ABL Facility") with the Bank of America, N.A. as
administrative agent, and the lenders party thereto, which amends and extends that certain
Amended and Restated Credit Agreement dated as of March 31, 2009, as amended. The ABL
Facility provides for an asset-based Canadian and United States revolving credit facility of $400
million ($370 million in the United States and 530 million in Canada). As of'the Petition Date,
The description of the Debtors' prepetition capital structure is derived from public documents and/or the Debtors' first day pleadings.
6 Pg 7 of 28 there is $100 million in outstanding borrowings, plus an additional $96 million in face amount of
outstanding letters of credit under the ABL Facility.
12. EKC also issued (i) $250 million in aggregate principal amount of' 201 8 Notes
pursuant to the 2018 Indenture and (ii) $500 million in aggregate principal amount of 2019 Notes
issued pursuant to the 2019 Indenture. As of the Petition Date, 5500 million in aggregate
principal amount under the 2018 Notes and $250 million in aggregate principal amount under the
2019 Notes was outstanding. The Second Lien Notes are filly and unconditionally guaranteed
on a senior secured basis by each of EKC's existing and future direct or indirect 100 0 "0 owned
domestic subsidiaries, subject to certain exceptions and are secured by second-priority liens,
subject to permitted liens, on substantially all of EKC's domestic assets and substantially all of the domestic assets of the Subsidiary Guarantors (as defined in the Indentures). The Second Lien
Notes are effectively subordinated in right of'payment to indebtedness under the ABL Facility,
which is governed by that certain Intercreditor Agreement, dated as of March 5. 2010 (as
amended, restated, supplemented or otherwise modified from time to time, the "Intercreditor
Agreement") by and among EKC, Citicorp USA, Inc., as agent for the First Lien Secured Parties
(as defined therein), 'The Bank of New York Mellon, as collateral agent for the Second Lien
Noteholders, the other Grantors (as defined therein) and such other parties as shall from time to
time become party thereto.
13. The Second Lien Noteholders Committee is comprised of holders of more than
5600 million in aggregate principal amount of Second Lien Notes, which is approximately 81%
of the total indebtedness under both Indentures. 5
The Second Lien Noteholders Committee promptly will file a statement in accordance with Bankruptcy Rule 2019.
7 Pg 8 of 28
14. Although the Intercreditor Agreement provides that all Liens (as defined therein) created or arising in favor of the Second Lien Noteholders are subordinated to all Liens created or arising in favor otthe First Lien Secured Parties, the Intercreditor Agreement grants to the
Second Lien Noteholders certain rights in respect of the Debtors and the Second Lien
Noteholders' collateral. For example, section 305 of the Intercreditor Agreement provides that, following the commencement of an Insolvency Proceeding (as defined therein), the Second Lien
Noteholders may purchase all of the outstanding First Lien Obligations (as defined therein) section 501 provides the Second Lien Noteholders with certain rights with respect to filing pleadings and taking certain actions in an Insolvency Proceeding; section 5.02 authorizes the
Second Lien Noteholders to, among other things, propose alternative DIP financing to the
Debtors or the Court; section 504 provides for certain adequate protection; and section 9.13 grants to the Second Lien Noteholders broad authority to exercise all rights and remedies
available to unsecured creditors. 6
B. Prepetition Unsecured Debt
15. As of the Petition Date, the Debtors also have outstanding (a) funded unsecured debt consisting of $400 million in principal amount of convertible notes and (ii) $283 million in principal amount of other senior unsecured debt, and (b) trade debt of approximately $300 million.
6 The Intercreditor Agreement also purports to restrict the action of the holders of the Second Lien Notes in connection with the rights of the holders of senior indebtedness. The Second Lien Noteholders Committee believes that, given the Debtors' contemplated action regarding the DIP Motion and the replacement of the ABL Facility, these restrictions no longer apply. However, that issue and all rights related thereto should be reserved for a final hearing to the extent a determination thereof becomes necessary, and any provision in any proposed order, including the DIP orders, which seeks a finding or ruling of this Court should be stricken until a final determination is made.
Fig 9 of 28
IL Historical Perfonnance.
16. in the first three quarters of 2011, the total operational cash burn for EKC and its
Debtor and non-Debtor affiliates (collectively, "Kodak") was approximately Si billion. Kodak's
operational cash now burn (excluding one-time intellectual property transactions, certain post-
employment-related cash costs and restructuring cash costs) over the last three years was
approximately $2.8 billion. All told, Kodak's cash balance has declined by more than S2 billion
since its peak in 2007, while borrowings have simultaneously increased since 2009.
Cash Burn
is in an
$1,500
$1,000
$500
$(500)
5(1,000)
$(1,500) FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 YTO 9/30/2011
Cash Flew from Operations S Adjusted CFO excl. In income
cIuc'.eLic:ensing8 ---- - -(
17. During this prolonged period of'tremendous losses, Kodak's management has
failed to project accurately Kodak's performance. Kodak has consistently underperformed
relative to initial management guidance on both a revenue and earnings-from-operations basis.
9 Pg 10 of 28
Management Guidance Has Failed Since 2008—Revenue
Revenue Forecasts Versus Actuals
($in millions)
$11,000 Guidance Range MActuals
$10,000
$9,000
$8,000 EM
$7,000
$5,000 ------ ------ ------FL:sacU:- 2008 Feb-09 Oct-09 20(9 Feb-10 C-tIC 2010 U 0:1 U UFM 30 I)) Actual _,ictA0) L--7
Forecasts Forecasts Forecasts Forecasts
flrofsflflrs!ssss1.
Management Guidance Has Failed Since 2008— Earnings
Earnings from Continuing Operations Forecasts Versus Actuals is in millions)
$300 IN Guidance Range -\ctuals $100
$100)
($300)
$800)
($700)
$900)
$1,100)
$3,300) ------I] Feb-to i_____y____i-- Asses) 'L2_1211
-; FocI-'- Forecasts
SO .IChsrgel,iscorne I - - (2)5 -- - - If - ; flF3rflIr5,.!1Iac1v3ria5Ce%tbeiOwe5IOfster15g515gIlv5 ---
18. For example, in 2008, actual annual earnings came in 377?/o lower than the midpoint of management's projection; in 2010, annual earnings came in 575% lower than the
10 Pg 11 of 28 midpoint of management's projection made in late October 2010. In 2011, Kodak projected
$300-400 million of asset sales and intellectual property revenue of $250-$350 million. In the first three quarters ot 201 1. however, Kodak realized only $94 million of 'proceeds f'rorn sales of businesses/assets and $40 million in intellectual property revenue. Moreover, Kodak had twice reduced their overly-optimistic 2011 year-end cash balance forecast. 'These dismal results, and management's failure to project what Kodak's economic performance would he, remain painfully clear despite the fact that Kodak's management has continuously changed the metrics
used in their financial reporting. 7
19. Based on available public data, Kodak lags significantly behind its peers in terms of scale, growth and profitability. Kodak's market capitalization reflects this failure in performance and even worse outlook, falling from a high of S8.5 billion in March 2006 to approximately $100 million today. Immediately prior to the Petition Date, the Debtors' cash balance in the United States had dipped to $56.7 million. See DIP Mot., para. 43. ilL The Chapter Ii Cases
20. On the Petition Date, the Debtors filed their chapter 11 cases in the United States
Bankruptcy Court f'or the Southern District of New York. In addition to their chapter 11 petitions, the Debtors filed motions seeking a variety of' 'flrst day" relief certain of which are described below.
Over the past several years, management has used the following metrics without consistency: segment earnings; earnings from operations (nonGAAF); GAAP earnings from continuing operations; GAAP earnings from continuing operations before interest, other income and taxes;GAP A cash provided by operating activities from continuing operations; GA-AP net cash from operating activities; cash generation before dividend payments but after restructuring cash costs; cash generation before dividend payments and restructuring cash costs; EBITDA excluding restructuring costs; and year-end cash balance.
11 Pg 12 of 28
A. The Critical Vendor and Foreign Vendor Motions
21. On the Petition Date, the Debtors filed (i) the Debtors' Motion for Entry of an
Order (A) Authorizing, but Not Directing, Debtors to Pay Certain Prepetition Claims of Critical
Vendors and Approving Related Procedures and (B) Authorizing and Directing All Financial
Institutions to Honor All Related Payment Requests [ECF No. 14] (the "Critical Vendors
Motion") and (ii) the Debtors' Motion for Entry of an Order (A) Authorizing, but Not Directing,
Debtors to Pay Prepetition Claims of Certain Foreign Vendors and Approving Related
Procedures and (B) Authorizing and Directing All Financial Institutions to Honor All Related
Payment Requests [ECF No. 13] (the "Foreign Vendors Motion" and, together with the Critical
Vendors Motion, the "Trade Motions").
22. Pursuant to the Critical Vendors Motion, the Debtors request authority to, among other things, pay domestic trade vendors (the "Domestic Trade Vendors") up to $40 million on account of their prepetition claims. Pursuant to the Foreign Vendors Motion, the Debtors request authority to, among other things, pay foreign trade vendors (the "ForeignTrade Vendors" and, together with the Domestic Trade Vendors, the "Trade Vendors") up to $60 million on account of their prepetition claims.
23. Remarkably, the Trade Motions fail to provide a basis, evidentiary or otherwise, for why such substantial payments are necessary at this early stage of the chapter 11 cases. In addition, by the Trade Motions, the Debtors seek only to make a reasonable effort to condition payment to Trade Vendors upon an agreement by the Trade Vendor in question to provide
Customary Trade Terms to the Debtors on a post-petition basis.
B. The Cash Management Motion
24. In the Debtors' Motion for Interim and Final Orders (A) Authorizing, but Not
Directing, the Debtors to (I) Continue Using 'Their Existing Cash Management System, Bank
12 Pg 13 of 28
Accounts and Business Forms, (II) Maintain Investment Practices and (III) Continue
Intercompany Transactions, (B) Providing Postpetition Intercompany Claims Administrative
Expense Priority and (C) Authorizing, but Not Directing, All Financial Institutions to Honor All
Related Payment Requests [CF No. 15] (the "Cash Management Motion"), the Debtors are
seeking to continue their prepetition accounting practices and centralized cash management
system (the "U.S. Banking System") through which funds are received, aggregated and disbursed to pay the Debtors various business-related expenses. Separate from the [iS. Banking System, the Debtors settle intercompany trade accounts receivable and payable (collectively, the
"Intercompany Claims") through a series of netting arrangements in respect of intercompany trading, financing and reimbursements (the "Intercompany Transactions").
25. According to the Debtors, all Intercompany Transactions are documented in the
Debtors' books and records as part of'their ordinary course accounting process At month-end
(as opposed to through a series of daily cash transactions), Kodak International Finance Ltd.
("KIFL"), a non-debtor, indirect, wholly-owned foreign subsidiary of EKC, acts as a "multi-
lateral 'master netter" for Intercompany Claims among the Debtors and 47 non-Debtor foreign
affiliates (collectively, the "Netting Patties"). The Debtors state that KIFL takes all
Intercompany Claims due to and due from each Netting Party and nets them against one another
to produce a single net sum either owed to or by each specific Netting Party. Each Netting Party
is either paid by, or becomes obligated to pay to, KIEL the relevant netted amount; FIKC is
responsible for making the determination of whether that amount is actually paid in cash or
whether it remains outstanding as an intercompany payable to or from KIFL. The Debtors state that they have historically been, and expect to continue to be, net receivers of cash from KIFL,
such that they do not remit funds to KIFL.
13 101 Ii rcrImg - • -. 14r ;
26. Although the Cash Management Motion is somewhat unclear, it appears that the
Debtors' netting arrangement with their South American Affiliates and Indian Affiliates is separate from KTFL. The Debtors state that they have been and expect to continue to be net receivers of cash in both circumstances.
27. The Cash Management Motion also describes the Debtors' netting arrangement with its Chinese affiliates. Although these claims are accounted for in the monthly netting process administered by KIFL, the Debtors state that local restrictions on currency conversion require the Intercompany Claims due from a Chinese affiliate to a Debtor to be settled directly with that Debtor.
28. In addition, certain of the Debtors operate Foreign Branches (as defined in the
Wage Motion), which are their primary assets. ilie Foreign Branches are located in the
Philippines, Dubai, Turkey, Greece, Peru, Uruguay and Columbia, where they have local bank accounts. The Debtors are seeking authority for each Debtor that operates a Foreign Branch to continue to (i) maintain the applicable Foreign Branch Bank Accounts (as defined in the Wage
Motion) for purposes of conducting business in such jurisdiction and (ii) participate in netting scheme with KIEL, to the extent applicable.
29. The Cash Management Motion does not specify how much money, if any, flows outside of the United States to non-Debtor foreign affiliates and Foreign Branches.
C. The Wage Motion
30. In the Debtors' Motion for Entry of Interim and Final Orders Authorizing, but Not
Directing, Debtors to (A) Pay Certain Prepetition Wages and Reimbursable Employee Expenses,
(B) Pay and Honor Employee Medical and Other Benefits and (C) Continue Employee Benefit
Programs (the "Wage Motion") [ECF No. 10], the Debtors mostly are seeking customary authority to pay certain prepetition wages and reimbursable employee expenses, to pay and
14 Pg 15 of 28 honor employee medical and other benefits, and to continue employee benefit programs. ilie
Debtors also are seeking authority to continue the Executive Compensation for Excellence and
Leadership Plan ("EXCEL"). EXCEL is a cash bonus plan for senior management based on the achievement of certain corporate, segment and strategic product group perfornmnce metrics.
Although the Debtors state that no payments are expected to be earned or paid under EXCEL for the 2011 fiscal year, they do not state affirmatively in the Wage Motion that the program has been discontinued during the chapter 11 cases (as they do for other programs). The Wage
Motion also is unclear regarding the Debtors' plans and/or obligations regarding the Kodak
Unfunded Retirement Income Plan ("KURIP") and the Kodak Company Global Pension Plan for
International Employees ("GPP").
IV. The Proposed DIP Facility.
A. The DIP Loan
31. 'The Debtors seek approval of a S950 million proposed DIP facility (the "Citibank
DIP") from Citibank, NA., consisting of a S225 million revolving credit facility, with an additional $25 million made available to non-debtor affiliate Kodak Canada and (ii) a $700
million term loan, of which S450 million will be available on an interim basis. 8
32. The main economic temis of the Citibank DIP, which are described in more detail in the DIP credit agreement attached to the DIP Motion, include (i) the use of DIP proceeds primarily to refinance the existing first lien ABL Facility and provide working capital, (ii) interest rates of (a) LIBOR plus 325% on the revolving credit facility and (b) LIBOR plus
850% on the term loan, each with a LIBOR floor of 1.50%, (iii) priming liens on the collateral securing the ABL Facility and the Second Lien Notes, (iv) certain financial covenants, including
The terms of the Citibank DIP are summarized ma chart located on pages 19--- 28 of the DIP Motion.
15 101 Ii - • -. 16 t
maintenance of a global operating EBITDA and minimum L 7 .S, liquidity levels, (v) certain milestones, including the following deadlines: (a) June 30, 2012 file a motion for approval of bidding procedures related to the sale of certain ofthe Debtors' patents; (h) January 15, 2013 - deadline to provide Citibank with drafts of a plan of reorganization and disclosure statement; and
(c) February 15, 2013 deadline to file a plan of reorganization and disclosure statement acceptable to Citibank, (vi) mandatory prepayment of the Citibank DIP with 100% of the net cash proceeds from the Debtors' sale of any IT collateral and 75% of other net cash proceeds being paid to Citibank.
B. The DIP Fees
33. The DIP Motion does not disclose the fees to he paid to Citibank under the
Citibank DIP. Instead, the Debtors state that, "[un accordance with the terms of the DIP Loan
Documents, upon request from the Court the Debtors will file a motion seeking to file the complete Fee Letter under seal." DIP Mot,, para. 48, n.4.
OMNIBUS OBJECTION TO FIRST DAY RELIEF
I. The Debtors Should Be Limited to the Bare Minimum of Expenditures Prior to Entry of a Final DIP Order.
A. Given management's repeated failure to meet its projections, the Debtors' spending should be dramatically restricted.
34. Kodak has failed to adapt its business strategy in the face of staggering losses over the past three years. Given Kodak's historic and consistent pattern of overestimating business performance and advancing the interests of; and funneling cash into, underperforming
"growth" businesses over successful segments and valuable assets, the Court should carefully consider how much deference, if any, to accord to management statements and decisions. It is respectfully submitted that, at this stage of these cases, the Debtors cannot he given carte blanche to spend S950 million before their constituents have had a meaningful opportunity to review the
16 Pg 17 of 28
Debtors' businesses and weigh in on the Debtors' proposed course of action. Thus, this Court
should grant the Debtors only that authority necessary to incur indebtedness and expend funds to
maintain the status quo.
B. '[he Debtors' request to pay up to $100 million to Trade Vendors is excessive and unnecessary on the first day of these eases.
35. Consistent with the Debtors' past, free-spending ways, the Debtors request
authority to pay a staggering $100 million in the first days of these cases to Trade Vendors that the Debtors determine, in their sole discretion, are critical to the continued success of their
businesses on account of unsecured prepetition claims. This is yet another example of the
Debtors' attempt to continue their operations as though they had not filed for bankruptcy
protection. The procedures for paying Trade Vendors, as requested by the Debtors, will further
erode the value of the Debtors' estates.
36. Significantly, the Debtors have not presented any evidence to demonstrate that the
Trade Vendors, who have not been identified by the Debtors, are critical to the Debtors'
successful reorganization efforts. See in re Tronox Inc., Case No. 09-10156 (ALU), First Day
Mot. FIr'g 'Fr. 71:8 72:15, July 13, 2009 (the "Tronox Tr.") [ECF No. 59] ("if you can identify
any specific vendor that you must pay before a final hearing on this [critical vendor motion]
I'll consider it. But I'm not going to give Ithe debtors] a slush fund to pay creditors who your
client deems as critical. The parties can wait for a few days and you're going to have to show a
lot more in terms of evidence that this is truly critical.... A generalized fund with parties who are
17 Pg 18 of 28
not identified are not going to pass muster with me, at least on day 1 of the case") 9; see, e.g., In
reKniart Corp., 359 F3d at 863, 873 (finding that in order to permit payment of prepetition
trade claims, the debtor must show that (i) the trade vendor in question would have ceased doing
business with the debtor if the outstanding debts were not paid, and (ii) disfavored creditors
would be better off; or at least not worse off; as a result of the debtor's preferential payments to
trade vendors.); In reJustfbr Feet. Inc., 242 B.R. 821, 826 (D. Del, 1999) (finding that a court
may "authorize the payment of prepetition claims under Bankruptcy Code section 105(a) if such
payment is essential to the continued operation of the debtor"). The Debtors have wholly failed to satisfy this burden. Indeed, they have not even tried.
37. In its simplest form, the Debtors have stated that they have unidentified 'Trade
Vendors who need to be paid up to S100 million in the first weeks of these cases. Remarkably, the Debtors go on to say that, in the first 21 days of these cases, they will only pay those Trade
Vendors to the extent the Debtors determine that such payment is necessary to avoid immediate
and irreparable harm to the Debtors. See Critical Vendor Mot. at para 30; Foreign Vendor Mot.
at para 30. However, nopayinents should he made to any Trade Vendors in the absence otan
evidentiary showing that such payments are critical on day one of these cases and necessary to the Debtors' reorganization efforts. See 'T'ronox Tr. 75:9 - 18 ("What I think you need to do is to
provide me with a more adequate pleading specifying exactly what payments you wish to make
and to which vendors in what I assume will be a limited amount . and can't be obtained
elsewhere and what product you fear they will not supply in the event that you fail to pay for
A true and accurate copy of the "first day" hearing transcript in In a' Tronox Inc., Case No. 09-10156 (AL(l), is attached as Exhibit A to the Declaration of David H. Boner(hereinafter, the "Botter Declaration"), filed contemporaneously herewith.
18 IaIhrcImg - • Pg 19 of 28 this product in a timely fashion. You will also have to show inc that the amounts payable are due today or are due tomorrow and that you can't wait a day or two.').
38. In the absence of providing any such evidence, the Second Lien Noteholders
Committee and the Debtors' other major constituents must be provided sufficient opportunity to
conduct adequate discovery to determine whether the immediate payment of S100 million to
Trade Vendors on account of prepetition claims is critical to the success of the Debtors
reorganization prior to the approval of the Trade Motions. With this company's track record of
billions of dollars of losses in recent years, the Debtors' creditors simply cannot afford to trust the Debtors' contention that spending SI 00 million on the prepetition claims of the Trade
Vendors is in the best interests of the Debtors' estates. Rather, to the extent the Debtors are able to demonstrate that any payments should be made to 'Trade Vendors, the Debtors should he
strictly limited only to those amounts proven to be necessary to their successful reorganization
efforts. See Ed. at 76:8 77:13 ("every [critical vendor motion] I've seen has proved to be a
chimera. If a payment is not made, the customer understands the process and certainly can wait
a week or two ... I'm not interested in abstract concern. Every debtor is concerned about its
relationships with its customers But I've never seen a case yet where critical vendors truly
are critical on day 1 of the case"); see also In re Delphi Corp.. No. 05-44481 (RDD) (Bankr.
S,L,N,Y. Mar. 8, 2006) [ECF No. 2755] (permitting the debtor to grant critical vendor status
only to financially distressed suppliers who made unique goods) in re ionosphere Clubs, Inc.,
98 B.R. 174, 178-79 (Bankr. S.D.N.Y. 1989) (finding that a debtor must "maintain the estate for the benefit of all creditors," and failure to "demonstrate any benefit to the estate or its creditors
other than benefit to the [preferred prepetition claimants]" should preclude payment of the
preferred prepetition claimants).
19 Pg 20 of 28
39. Furthermore, the Debtors propose a process by which, in their sole discretion, they can pay the Trade Vendors without securing customary trade terms going forward with such
Trade Vendors. The Debtors merely request that they be required to "make a reasonable effort to
condition payment to a Critical Vendor [or Foreign Vendor] upon an agreement by the Critical
Vendor [or Foreign Vendor] in question to provide Customary 'Trade Terms to the Debtors on a
postpetition basis." See proposed order to approve Critical Vendor Mot., para. 3; proposed order to approve Foreign Vendor Mot., para. 3. To the extent that the Debtors are permitted to pay
Trade Vendors on account of their prepetition claims at this early stage of the bankruptcy cases, the Debtors should he required to condition such payments on Trade Vendors providing
customary trade terms or better for any ongoing business with the Debtors.
40. In addition, by seeking to pay $100 million to Trade Vendors on account of
unsecured prepetition claims, the Debtors are, in ef'fèct, asking the court to permit them to violate the absolute priority rule and pay $100 million at the outset of these cases. This request is
premature, if not altogether inappropriate. Such actions are detrimental to the Debtors' estates
and will compromise creditor recoveries. Indeed, judges in this district have recognized that a
debtor's request to pay unsecured prepetition trade claims in violation of the absolute priority
rule is an extraordinary request that should be denied except in limited circumstances. See
Tronox Tr. 75:25.76:6 ("[the debtor] filed a bankruptcy petition for certain purposes and that
results in ... certain responsibilities. And one of them is not to pay pre-petition debt.... certain
firms don't seem to understand that critical vendor orders are anathema to the bankruptcy
process"); See In reJennzfèr Convertibles Inc., Case No. 10-13779 (ALO), First Day Mot. Hr'g
Tr. 22:4-7; 26:25; 27:1-4, July 10, 2010 [ECF No. 79] (attached as Exhibit B to the Botter Dccl.)
("For what purpose are we alienating all the other unsecured creditors in the case and possibly
20 Pg 21 of 28
unnecessarily? I have never, never, entered a critical vendor order on day one of the case
without notice and without formation of a creditors' committee. And I've had a lot of lawyers
tell me 'Well, that's the end of the case,' and it's never happened, never"); see also In re Kmart
Corp., 359 F3d 866, 871 (7th Cir. 2004) (finding that bankruptcy courts do not have "discretion to set aside the Code's rules about priority and distribution" and, further, "pre-filing debts are not
administrative expenses; they are the antithesis of administrative expenses"). The Debtors
creditors need adequate time to review the propriety of using substantial amounts of cash at the
beginning of the cases to pay unsecured creditors outside of the Bankruptcy Code's priority
structure, particularly where the Debtors have not provided a shred of evidence that even $1 of the $100 million requested is critical to the Debtors' reorganization efforts. Accordingly, the
Trade Motions should be denied.
41 To the extent the Trade Motions are approved, however, the applicable orders
should be modified to include Akin (Jump Strauss Hauer & Feld LLP, counsel to the Second
Lien Noteholders Committee, as Critical Vendor and Foreign Vendor Matrix Parties (as defined
in the Trade Motions).
C. Prior to entry of a fmal order on the Cash Management Motion, no funds should flow outside of the United States as part of the Debtors' netting arrangement for Intercompany Claims.
42. The Cash Management Motion describes the Debtors' elaborate netting scheme
for Intercompany Claims arising out of Intercompany Transactions. While the Second Lien
Noteholders Committee appreciates the complexity and importance of the US. Banking System
and Intercompany Transactions to the Debtors' global operations, the Debtors' estates and their
creditors in the United States must not be harmed as a result of this accounting arrangement.
43. Accordingly, no hinds should flow out of the United States as part of the netting
process prior to a final hearing on the Cash Management Motion. Based on the Debtors'
21 Pg 22 of 28
assertions in the Cash Management Motion, it should be a simple matter for EKC to stipulate that, at least until a final hearing on the motion, KIEL acting on behalf of a Debtor must pay
Intercompany Claims solely with an intercompany payable instead of an actual cash payment, to the extent that any net payment is required. Although there is a different netting arrangement for the Debtors' South American, Indian and Chinese Affiliates, these Intercompany Claims
similarly could be paid with an outstanding intercompany receivable rather than settled in cash,
at least until a final hearing on the Cash Management Motion. The Debtors also should also be
precluded from funding the Foreign Branch Bank Accounts until a final hearing. The Cash
Management Motion contains no evidence to suggest that these limited restrictions would jeopardize the Debtors' global operations.
44. 'The proposed order granting the Cash Management Motion similarly should be
revised as follows:
• Item (c) in paragraph 9 of the interim order and paragraph 8 of the final order should be expanded to provide reasonable access to the records referenced in that paragraph to the Second Lien Noteholders Committee.
Paragraph 9 of the interim order and paragraph 8 of the final order should end as follows: "provided however, that nothing in the Motion or this Order shall be deemed or construed as a waiver of the right of any party in interest to challenge the Debtors' allocations of expenses and revenues among the Debtor entities pursuant to the Intercompany Transactions. -
D. The portions of the Wage Motion pertaining to benefits and compensation given to insiders must be denied.
45. As part of the Wage Motion, the Debtors brazenly seek authority to continue the
EXCEL cash bonus plan for senior management. Given the circumstances of these cases and the
Debtors' performance over the past several years, it strains credulity for the Debtors to argue that their senior management is entitled to receive performance-driven bonuses. ilie portion of the
Wage Motion pertaining to the Debtors' authority to continue EXCEL must be denied.
22 Pg 23 of 28
Furthermore, the Debtors' directors, officers and senior management employees should receive no payments whatsoever (other than ordinary compensation) for pre- or post-petition claims ---- until further order of the Court.
46. 'The Wage Motion is unclear regarding the benefits the Debtors seek to provide under KURIP, (iPP or the 1982 Executive Deferred Comp Plan. To the extent the Debtors are seeking authority to pay any pre or post-petition amounts to insiders (including the Debtors current and former directors and officers or other senior managers) pursuant to these or other programs, they must not he allowed to do so. Any such payments clearly are not in the best interests of the Debtors' estates and creditors.
47. The following is a list of additional issues that must he addressed prior to entry of an interim or final order in respect of the Wages Motion:
• 'The Debtors must not be authorized to pay Director Obligations on the first day of these cases. Any such payments may only be made following appropriate notice and a hearing.
• Paragraph 67 of the Wages Motion proposes a list of payments for which Debtors arguably are only seeking final authority. Details of such payments must he disclosed to the Second Lien Noteholders Committee prior to approval.
The Debtors should acid limiting language to paragraph 9 of the interim order providing that the Debtors are authorized to implement new employee programs, etc., only after consultation with the creditors' committee and the Second Lien Noteholders Committee and, in the absence of consent by the Second Lien Noteholders Committee, only upon notice and a hearing.
K Additional modifications must be made to certain other "first day" motions to preserve the status quo and provide appropriate notice and an opportunity to be heard.
48. The Second Lien Noteholders Committee is troubled by certain provisions of the
Debtors' other "first day" motions and, as a condition of approval thereof, requests that the following motions be clarified or modified, as appropriate:
23 101 Ii Y mtg' • ar;
Case Management Motion. Paragraph 111.1 of Exhibit ito the order should include notice to the Second Lien Noteholders Committee. This is a global comment. It is unusual, and, indeed, indicative of the Debtors' disregard for their largest secured creditor constituency, that they have consistently and willfully failed to provide notice to the Second Lien Noteholders Committee in numerous pleadings and proposed orders.
Customer Programs Motion. The Debtors should add limiting language to paragraph 3 of the interim order and paragraph 2 of final order providing that the Debtors are authorized to continue Customer Programs "existing as of the Petition Date" and, to the extent the Debtors wish to implement additional proams, they should be required to consult with the creditors' committee and the Second Lien Noteholders Committee.
Shippers Motion. Paragraph 3 of the interim order and paragraph 2 of the final order should include a cap on the Debtors' authority to pay these types of claims, and any amount in excess needs advance notice to, and approval by, the creditors' committee and the Second Lien Noteholders Committee.
Transfers of interest Motion. Based on the Debtors' statement that the Second Lien Noteholders are oversecured, the Second Lien Noteholders should he carved out from the trading procedures. In the event the Debtors are unwilling to carve out the Second Lien Noteholders from the trading procedures, the definition of "ilireshold Amount" in the trading procedures should be modified because it does not include a preliminary minimum amount to be covered by the Sell-Down procedures. As currently defined, holders at certain levels of ownership would never he subject to the Sell-Down (as defined in the motion) procedure. The Threshold Amount should be drafted to reflect that part of the security holder population. Accordingly, the definition of Threshold Amount should never be less than 4.75% of the Securities (as defined in the motion) and it should be made clear that the combined issues of second lien notes constitute one class of Securities.
STATEMENT REGARDING DIP FINANCING
I. The Amount the Debtors Are Authorized to Borrow, as well as the Fees Payable, Under the Citibank DIP Should Be Significantly Curtailed During the Period Between Entry of the Interim and Final DIP Orders.
49. The Second Lien Noteholders Committee does not take issue with the Debtors' decision to refinance the First Lien Credit Facility with the Citibank DIP, as it merely exchanges one debt for another. However, during this initial, crucial period of the chapter ii cases, the
Debtors should not he permitted to borrow and spend more than what is estimated to (i) repay the
24 Pg 25 of 28
ABL Facility and (ii) the bare minimum the Debtors can establish is necessary until the final
hearing.
50. Similarly, the Court should limit the DIP Fees payable and amount of expenses
allowed under the proposed Citibank DIP as much as possible prior to entry of a final order.
Manifestly, it is in the best interests of the Debtors' estates and creditors if the DIP Fees were
keyed to the amount actually borrowed by the Debtors, rather than based on the total amount of the DIP facility. If the Citibank DIP ultimately were approved on a final basis, the Debtors
arguably would be responsible for the full amount of DIP Fees however, if the Debtors
borrowing were restricted, as the Second Lien Noteholders respectfully submit it should be, then
Citibank should not be entitled to its full fee.
IL The Debtors Should Consider Alternative DIP Financing on Better Terms from the Holders of the Second Lien Notes.
51. As stated above, the Citibank DIP essentially provides the Debtors with a new
ABL thcility and $450 million on day one of these cases, with no real limitation on spending. In the Second Lien Noteholders Committee's view, that kind of license is inappropriate tinder the
circumstances of these cases and in light of the Debtors' past performance.
52. In the months leading up to the Petition Date, certain unaffiliated holders of the
Second Lien Notes holding a substantial portion of both issues of Second Lien Notes recognized the significant challenges facing the Debtors and attempted to engage the Debtors in a
constructive dialogue. These holders offered to provide the Debtors with rescue financing on
highly competitive terms, including potential, beneficial modifications to the Indentures. 'The
Debtors refused to engage or even to consider this viable financing alternative. The Second Lien
Noteholders were completely shut out of the financing process and were prevented by the
Debtors from getting the information necessary to provide pre- or post-petition financing.
25 101 Ii Y • Pg 26 of 28
53. Instead, advisors to the Second Lien Noteholders Committee learned
approximately one week before the Petition Date that the Debtors were negotiating a DIP
financing package with Citibank. The Debtors were unwilling to share the proposed terms of the
debtor in possession financing with the advisors to the Second Lien Noteholders Committee until
some days later, when they provided a one-page term sheet, with no material terms. The actual
terms of the proposed DIP financing were not shared with the Second Lien Noteholders
Committee prior to the commencement of these cases.
54. The Intercreditor Agreement expressly authorizes the Second Lien Noteholders to
propose competing DIP financing. The Second Lien Noteholders remain ready and willing to
work toward providing the Debtors and these estates with DIP financing on terms superior to the
Citibank DIP. To be given the opportunity to propose a more competitive DIP that will benefit the Debtors, their estates and all of'their constituents, the Second Lien Noteholders Committee
needs substantial information and the appropriate amount of access to the Debtors. In addition,
and of equal importance, the Debtors need to provide the Second Lien Noteholders Committee
with ongoing access to information and a commitment from the Debtors that the Second Lien
Noteholders Committee will have "a seat at the table" for the duration of these cases. As the
Debtors' largest secured creditor, this should be a given.
55. Thus, to avoid the continuing taint of the Debtors' failure to engage with the
holders of the Second Lien Notes in connection with the financing process, any relief granted by the Court at the first day hearing should be conditioned upon a requirement that the Debtors (i)
permit the Second lien Noteholders Committee to conduct the clue diligence necessary to
propose a competing loan, (ii) negotiate alternative financing with the Second Lien Noteholders
Committee promptly and in good faith, and (iii) independent of the negotiation of alternative DIP
26 Pg 27 of 28
financing, provide the Second Lien Noteholders Committee with consistent, fill access to
information so that the Debtors largest secured creditor constituency can play an appropriate
and active role in these chapter 1 1 cases.
CONCLUSION
WHEREFORE, the Second Lien Noteholders Committee requests that the Court (i) limit
(a) the total amount the Debtors are authorized to borrow on an interim basis under the Citibank
DIP to only the minimal amounts necessary to maintain the status quo (including a refinancing of the first lien indebtedness) prior to the final DIP hearing and (h) the DIP Fees payable and
expenses allowed under the Citibank DIP such that the fees are tied to the actual amount
borrowed by the Debtors and not the amount they are authorized to borrow. (ii) direct the
Debtors to (a) allow the Second Lien Noteholders Committee to conduct the due diligence
necessary to propose a competing loan. (h) negotiate promptly and in good faith with the Second
Lien Noteholders Committee regarding alternative DIP financing and (c) provide the Second
Lien Noteholders Committee with full access to information and involvement in the Debtors
business planning for the duration of the chapter 11 cases, (iii) deny certain of the Debtors'
requests for "first day" relief' as set forth herein, and (iv) grant such other and further relief as the
Court may deem just and appropriate.
Dated: New York, New York January 19, 2012 AKIN (TiUMP STRAUSS HAUER & FELD LLP
By: s/David H. Bolter Michael S. Stainer David H. Boiler Abid Qureshi One Bryant Park w York, New York 10036 (212) 8721000 (Telephone) 872-1002 (Facsimile)
27 Pg 28 of 28
Atto - fbi Second Lien Noteholders Conin e
28 EXHIBIT F ivat.w(M-1prLufl2r Pg 1 of 47
Andrew G. Dietderich John J. Jerome Michael H. Torkin Mark U. Schneiderman SULLIVAN & CROMWELL LLP 125 Broad Street New York, New York 10004-2498 Telephone: (212) 558-4000 Facsimile: (212) 558-3588
Proposed Counsel to the Debtors and Debtors in Possession
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK
In re: Chapter 11
Case No. 12- EASTMAN KODAK COMPANY, et al. I '
Debtors. (Joint Administration Requested)
DEBTORS' MOTION FOR ENTRY OF INTERIM AND FINAL ORDERS (I) AUTHORIZING THE DEBTORS (A) TO OBTAIN POSTPETITION FINANCING PURSUANT TO 11 U.S.C. §§ 105, 361,362, 364(C)(1), 364(C)(2), 364(C)(3), 364(D)(1) AND 364(E) AND (B) TO UTILIZE CASH COLLATERAL PURSUANT TO 11 U.S.C. § 363, (II) GRANTING ADEQUATE PROTECTION TO PREPETITION SECURED PARTIES PURSUANT TO 11 U.S.C. §§ 361, 362, 363, AND 364, AND (III) SCHEDULING FINAL HEARING PURSUANT TO BANKRUPTCY RULES 4001(B) AND (C
The Debtors in these chapter 11 cases, along with the last four digits of each Debtor's federal tax identification number, are: Eastman Kodak Company (7150); Creo Manufacturing America LLC (4412); Eastman Kodak International Capital Company, Inc. (2341); Far East Development Ltd. (2300); FPC Inc. (9183); Kodak (Near East), Inc. (7936); Kodak Americas, Ltd. (6256); Kodak Aviation Leasing LLC (5224); Kodak Imaging Network, Inc. (4107); Kodak Philippines, Ltd. (7862); Kodak Portuguesa Limited (9171); Kodak Realty, Inc. (2045); Laser-Pacific Media Corporation (4617); NIPEC Inc. (5677); Pakon, Inc. (3462); and Qualex Inc. (6019). The location of the Debtors' corporate headquarters is: 343 State Street, Rochester, NY 14650.
Sd :3173818.8 ivat.w(M-1prLufl2r Pg 2 of 47
Eastman Kodak Company ("Kodak" or, the "Company"), on behalf of itself and its
affiliated debtors and debtors in possession in these chapter 11 cases (collectively, the
"Debtors"), respectfully represent:
Relief Requested 2
1. The Debtors have valuable intellectual property, a diverse collection of
mature and growth businesses, and adequate liquidity outside of the United States to fund
foreign operations. In the United States, however, the Debtors have been unable to monetize
illiquid intellectual property assets as expected. The Debtors require immediate access to the
DIP Facility (as defined below) to pay vendors and employees, establish the minimally prudent
cash balances for a business of their size and stabilize their operations.
2. The Debtors' business is affected by seasonal swings in liquidity, with
cash needs highest in the first half of each calendar year. In addition, certain of the Debtors'
businesses are at a point in their life cycle where the businesses require net investment in 2012
in order to preserve significant future revenues generated by sale of consumables and services.
These factors also affect the liquidity needs of the Debtors in the near term. The Debtors
currently project the consolidated global business to be cash positive on an operating basis by
next year (before financing, restructuring costs and pension and post-employment benefit
obligations).
3. Pursuant to this motion (the "Motion"), the Debtors seek entry of (a) an
interim order (the "Interim Order"), substantially in the form attached as Exhibit A.
Capitalized terms used but not otherwise defined herein shall have the meanings set forth in that Debtor-in-Possession Credit Agreement, attached hereto as Exhibit E (the "DIP Agreement") and the Interim Order. This Motion is qualified in it is entirety by reference to the provisions of the DIP Agreement and the Interim Order. To the extent of any inconsistency between this Motion and the proposed DIP Agreement, the DIP Agreement shall govern.
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(i) authorizing the Debtors, on an interim basis, to (A) obtain postpetition financing facilities on
a senior secured, priming, superpriority basis (the "DIP Facility"), and (B) use the funds on
deposit with any Pre-Petition Secured Creditor as of the Petition Date, any proceeds of
prepetition collateral and any other cash collateral of the Pre-Petition Secured Creditors within
the meaning of section 363(a) of the Bankruptcy Code (together, the "Cash Collateral");
(ii) granting adequate protection to the Pre-Petition Secured Creditors; (iii) scheduling a hearing
to consider entry of the Final Order; and (iv) granting related relief; and (b) a final order (the
"Final Order," together with the Interim Order, the "DIP Orders") authorizing the relief
granted in the Interim Order on a permanent basis as described in this Motion. More
specifically, the Debtors seek authority to:
a. obtain postpetition financing up to the aggregate principal amount of $950 million (the actual available principal amount at anytime being subject to those conditions set forth in the DIP Agreement), secured by liens on property of the Debtors' estates pursuant to sections 364(c)(1), 364(c)(2), 364(c)(3), and 364(d)(1) of the Bankruptcy Code;
b. use cash collateral and other collateral pursuant to section 363 of the Bankruptcy Code;
C. borrow or obtain, on an interim basis, loans or letters of credit from the DIP Lenders under the terms of the DIP Agreement up to an aggregate principal amount not to exceed $450 million under the U.S. Term Facility and $225 million under the U.S. Revolving Credit Facility, with an additional $25 million under the Canadian Revolving Credit Facility to be made available for borrowing by Kodak Canada with guarantees from the Debtors;
d. use the proceeds of the DIP Facility to, simultaneously with the initial draw under the DIP Facility, refinance the Prepetition First Lien Debt (other than with respect to certain letters of credit and secured agreements);
e. grant superpriority claims to the DIP Lenders, subject to the Carve-Out, on the terms and conditions set forth herein and in the DIP Agreement;
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grant to the DIP Lenders valid, enforceable, non-avoidable and fully perfected first priority priming liens on and senior security interests in all of the prepetition and postpetition tangible and intangible property of the Debtors, subject to the Carve-Out;
g. grant adequate protection to the First Lien Secured Lenders and the Second Lien Noteholders, whose liens and security interests are being primed by the DIP Facility, as provided for in the Interim Order and consistent with the Existing Intercreditor Agreement; and
h. schedule a final hearing (the "Final Hearing") to consider the entry of the Final Order authorizing, among other things, the balance of the borrowings under the DIP Loan Documents on a final basis, as set forth in the DIP Loan Documents.
4. In further support of this Motion, the Debtors submit the Declarations of
Matthew J. Hart, of Lazard Frères & Co. LLC ("Lazard"), the Debtors' proposed financial
advisor and investment banker in these chapter 11 cases, attached as Exhibit B and incorporated
by reference herein (the "Hart Declaration"), Michael J. Lasinski of 284 Partners, LLC,
attached as Exhibit C and incorporated by reference herein (the "Lasinski Declaration"), and
Antoinette P. McCorvey, the Chief Financial Officer and a Senior Vice President of Kodak,
attached as Exhibit D and incorporated by reference herein (the "McCorvey Declaration";
together with the Hart Declaration and the Lasinski Declaration, the "DIP Declarations").
Concise Statement Pursuant to Local Rule 4001-2
5. The Debtors submit this concise statement listing certain material terms
set forth in the DIP Loan Documents and the proposed DIP Orders. Specifically, the Debtors
believe that the following financing terms are required to be identified pursuant to Bankruptcy
Rule 4001(b) and (c) and Local Rule 4001-2 and, as discussed in detail herein, are necessary
and justified in the context of, and the circumstances relating to, these chapter 11 cases.
a. Cash Collateral. The Debtors seek authority to use Cash Collateral, subject to the granting of adequate protection as provided for in the Interim Order. Interim Order at ¶J 10, 11.
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b. Borrowing. The Debtors seek to borrow an aggregate of up to $950 million under the DIP Facility, as follows: (a) up to $700 million under a senior secured non-amortizing term loan facility, with $450 million available at the Effective Date and an additional $250 million that will be available after entry of the Final Order; and (b) up to $250 million under a senior secured non- amortized asset-based Revolving Credit Facility (provided, however, that $25 million will be available to fund only non-debtor affiliate Kodak Canada). The Revolving Credit Facility shall include a subfacility for letters of credit in the aggregate amount of $200 million. Interim Order at ¶ 5(a); DIP Agmt. at §§ 2.01(a)-(d).
c. Conditions to Closing and Borrowing. Among the conditions for borrowing under the DIP Facilities is entry of the Interim Order within five (5) business days of the Debtors filing these chapter 11 cases, entry, with certain provisos, of the Final Order no later than 30 days after entry of the Interim Order, and the hiring by Debtors of a chief restructuring officer. DIP Agmt. at §§ 3.01, 3.02, 3.03.
d. Pricing. Economic Terms and Fees. The DIP Facility contemplates the payment of fees and reimbursement of expenses to professionals of the Agent, the Issuing Bank, and in certain circumstances, any Lender. Interim Order at ¶J 5(b)(iii), 6(b); DIP Agmt. at § 2.04. The DIP Facility also includes various commitment fees and letter of credit fees. Interim Order at ¶ 5(b)(iii); DIP Agmt. at § 2.04. The provisions with respect to the Base Rate, the Eurodollar Rate and Default Interest are set forth in § 2.07 of DIP Agreement.
e. Effect on Existing Liens. The DIP Facility includes priming liens granted pursuant to section 364(d)(1) of the Bankruptcy Code that prime the Existing Second Lien Debt. DIP Agmt. at § 2.24. Additionally, the Debtors will provide adequate protection to the Pre-Petition First Lien Secured Lenders by deeming certain prepetition letters of credit to be issued pursuant to, and secured under, the DIP Agreement, or backstopping such letters of credit by depositing cash collateral or issuing new letters of credit issued under the DIP Agreement. Outstanding obligations with respect to secured agreements under the Pre-Petition First Lien Credit Agreement will be adequately protected through the issuance of letters of credit, the provision of cash collateral or other arrangements satisfactory to the holders of such secured agreements. The Pre-Petition Second Lien Noteholders will receive adequate protection in the form of administrative claims and adequate protection liens.
Carve-Out. The Carve-Out applies to U.S. Trustee fees and applicable interest, professional fees of the Debtors and the official committee of unsecured creditors incurred prior to the occurrence of an Event of Default and professional fees of the Debtors and the official committee of unsecured creditors incurred after an Event of Default up to $10 million. Cash or other
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amounts on deposit in the L/C Cash Deposit Account shall not be subject to the Carve-Out. Interim Order at ¶ 6(b); DIP Agmt. at § 1.01.
g. Roll-Up Provision. The Interim Order authorizes the Debtors to immediately use proceeds of the Financing to, simultaneously with the initial draw under the Financing, refinance the Pre-Petition First Lien Debt, and, in the case of letters of credit or secured agreements under the Pre-Petition First Lien Credit Agreement, to provide for such obligations in a manner satisfactory to the applicable issuing bank or holder, respectively. Interim Order at ¶ 5; DIP Agmt. at § 3.01.
h. Waivers and Limitations. There is a 60-day period after the entry of the Final Order during which interested parties must bring an adversary proceeding or contested matter, provided, however, that a later date may be agreed to in writing by the Pre-Petition First Lien Agent or ordered by the Court. Interim Order at ¶ 17.
Limitations on Funding. In addition to certain limits on asset dispositions, there are limitations on investments made by the Company in its Subsidiaries that are not Loan Parties under the DIP Facility (with the exception of Kodak Canada, to which these limitations do not apply) in amounts exceeding $100 million at any time outstanding (determined net of any cash repayments in respect of such investments), provided that (a) the aggregate amount of such investments made during any fiscal quarter (net of cash repayments in respect of such investments) cannot exceed $25 million and (b) no such investments are permitted to be made if at the time of their making any default under the DIP Facility exists or would result therefrom. DIP Agmt. at § 5.02.
j. Events of Default. The DIP Facility sets forth a number of Events of Default, including, but not limited to (a) failure to pay principal, interest or any other amount when due under the DIP Facility, (b) postpetition judgments, subject to certain provisos, in excess of $25 million, (c) certain changes to the ownership or control of the Company, (d) the entry of an order appointing a chapter 7 or chapter 11 trustee, (e) reversing, amending, supplementing, staying for a period of five days or more, vacating or otherwise amending the Interim Order or the Final Order in a fashion not satisfactory to the Agent (provided, that any such final order that limits the aggregate amount of the DIP Facility to an amount that is less than $900 million shall not be satisfactory to the Agent), and (f) the occurrence of certain actions or events in respect of UK pension-related proceedings that would reasonably be expected to have a Material Adverse Effect. DIP Agmt. at § 6.01.
k. Change of Control. The occurrence of a "Change of Control," as defined in section 6.01(g) of the DIP Agreement, constitutes an Event of Default thereunder. DIP Agmt. at § 6.01.
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Joint Liability. Each of the Company and each US Subsidiary Guarantor, jointly and severally, absolutely, unconditionally and irrevocably guarantees the punctual payment when due, whether at scheduled maturity or on any date of a required prepayment or by acceleration, demand or otherwise, of all obligations of each other Loan Party and each other Subsidiary of the Company now or hereafter existing under or in respect of the DIP Loan Documents or any Secured Agreement. DIP Agmt. at § 7.01.
m. Funding of Non-Debtor Entities Under DIP Facility. $25 million of the $250 million Revolving Credit Facility shall made available solely to Non-debtor affiliate Kodak Canada. Interim Order at ¶ 5(a); DIP Agmt. at § 2.01(a)(ii).
n. Waiver or Release of Claims. Section 7.03 of DIP Agreement provides, among other things, for the waiver by each Guarantor of any requirement that the Agent or any Lender protect, secure, perfect or insure any Lien or any property subject thereto. DIP Lenders' superpriority liens grant them recourse, after the entry of the Final Order, to proceeds obtained as a result of Debtors' claims and causes of action under sections 502(d), 544, 545, 547, 548, 549 and 550 of the Bankruptcy Code, or any other avoidance actions under the Bankruptcy Code. Interim Order ¶ 7(a); DIP Agmt. at § 2.24(a).
o. Indemnification. The DIP Facility contains customary indemnification provisions whereby the Company, and guaranteed by the other Debtors, agrees to indemnify the Agent, the Collateral Agent, each Issuing Bank and each Lender and each of their Related Parties (the "Indemnified Parties") incurred by or asserted or awarded against any Indemnified Party in connection with the Notes, the DIP Facility, any of the transactions contemplated thererein or the actual or proposed use of the proceeds of the Loans or Letters of Credit and, with certain provisos, the actual or alleged presence of Hazardous Materials on any property of the Company or any of its Subsidiaries or any Environmental Action relating in any way to the Company or any of its Subsidiaries. DIP Agmt. at § 9.04.
p. Milestones or Deadlines. The DIP Agreement provides for certain milestones or deadlines, including: (a) not later than June 30, 2012, the filing of a bidding procedures motion under section 363 of the Bankruptcy Code relating to the sale of the Digital Imaging Patent Portfolio, (b) not later than January 15, 2013, the delivery to the Administrative Agent drafts of (i) a plan of reorganization in the Cases that provides for the termination of the unused commitments and the payment in full in cash of the Loan Parties' obligations under the DIP Facility (an "Acceptable Reorganization Plan") and (ii) a disclosure statement with respect thereto, and (c) not later than February 15, 2013, the filing with the Bankruptcy Court an Acceptable Reorganization Plan and a disclosure statement with respect thereto. DIP Agmt. at § 5.01(s).
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q. Repayment Provisions. The Debtors may, upon notice and at the end of any applicable interest period (or at other times with the payment of applicable breakage costs), prepay in full or in part, without premium or penalty (other than such breakage costs), the Loans; provided that each such partial prepayment shall be in an aggregate amount of $10 million (or $5 million in the case of the Canadian Revolving Credit Facility) or multiples of $1 million in excess thereof (or $5 million in the case of the Term Facility) (or, if less, the then outstanding principal amount of the Revolving Loans or Term Loans, as the case may be). DIP Agmt. at § 2.10(a).
Background
6. On the date hereof (the "Petition Date"), each of the Debtors filed a
voluntary petition in this Court for relief under chapter 11 of title 11 of the United States Code,
11 U.S.C. §§ 101 et seq. (the "Bankruptcy Code"). The Debtors continue to operate their
businesses and manage their properties as debtors in possession pursuant to sections 1107(a)
and 1108 of the Bankruptcy Code. No request for appointment of a trustee or examiner has
been made in these chapter 11 cases. No committees have been appointed or designated.
7. Founded in 1880, Kodak is one of the world's leading materials sciences
companies with a long history of invention and the successful commercialization of proprietary
technologies. Kodak has a diverse collection of mature and growth businesses. Kodak also
holds approximately 10,700 patents, 21,000 trademarks and other valuable intellectual property.
8. Over the past several years, Kodak has been working to transform from a
business primarily based on film and consumer photography to a smaller business with a digital
growth strategy focused on the commercialization of proprietary digital and printing
technologies. The significant restructuring charges and other liabilities arising from this
transition have been funded with cash flow from the legacy businesses, asset sales and the
proceeds of its vast intellectual property portfolio.
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9. As a result of Kodak's deteriorating financial condition, the Company
began to have difficulties in the pursuit of royalties owed to it by Apple Inc., which in turn
triggered difficulties obtaining royalties due from other market leaders Research In Motion
Corp. and HTC Corporation. Kodak has been vigorously pursuing patent litigation to enforce
its rights relating to its Digital Imaging Patent Portfolio used in digital cameras included in
smart phone handsets. Kodak expects that these litigations, once resolved, will benefit Kodak
stakeholders substantially.
10. Additional information regarding the background of the Debtors'
businesses and the commencement of these chapter 11 cases is set forth in the Declaration of
Antoinette P. McCorvey Pursuant to Rule 1007-2 of the Local Bankruptcy Rules for the
Southern District of New York in Support of First Day Pleadings dated January 18, 2012 (the
"First Day Declaration").
Jurisdiction
11. The Court has jurisdiction over this matter pursuant to 28 U.S.C. § § 157
and 1334. Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409. This matter is a core
proceeding pursuant to 28 U.S.C. § 157(b). The bases for the relief requested herein are
sections 105(a), 361, 362, 363, 364, 1107(a) and 1108 of the Bankruptcy Code, Rules 4001 and
6003 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"), and rule 9013-1
of the Local Rules for the United States Bankruptcy Court for the Southern District of New
York (the "Local Rules").
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Facts Specific to the Relief Requested
A. Prepetition Capitalization
12. On the Petition Date, the Debtors' outstanding secured funded debt was
$946 million. This consists of (a) approximately $100 million of loans outstanding under the
first lien revolving credit facility plus an additional $96 million in face amount of outstanding
letters of credit and (b) $750 million in principal amount of second lien secured notes. First
Day Dccl. ¶ 20.
i. Pre-Petition First Lien Credit Agreement
13. As of the Petition Date, the Debtors had approximately $100 million
outstanding in prepetition secured loans arising under the Second Amended and Restated Credit
Agreement, dated as of April 26, 2011 (the "Pre-Petition First Lien Credit Agreement"), by
and among Kodak and certain of its affiliates (including Kodak Canada Inc.), as borrowers,
Bank of America, NA., as administrative agent and co-collateral agent, Citicorp USA as co-
collateral agent, Citibank N . A. and Wells Fargo Capital Finance LLC as co-syndication agents
and Bank of America, NA., Bank of America, N . A. (acting through its Canada branch),
Citigroup USA, Inc., Wells Fargo Bank, NA., Morgan Stanley, PNC Bank, National
Association, Bank of New York Mellon, Industrial and Commercial Bank of China, Sumitomo
Mitsui, as lenders (the "Pre-Petition First Lien Secured Lenders"), which provided the
Debtors with a five (5) year, $400 million revolving line of credit including a $225 million
letter of credit subfacility. The facility contains sublimits of $370 million in the U.S. revolving
credit facility and $30 million under the Canadian revolving credit facility.
The Debtors' complete prepetition capitalization and indebtedness is summarized in the First Day Declaration. See First Day Dccl. ¶J 19-20.
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ipanw(M-y1plruun2r ItsIhYsMJ'%i - ~Ml ff A ' of
14. All obligations under the Pre-Petition Agreement (the "Pre-Petition First
Lien Obligations") are guaranteed by Kodak and substantially all of its direct and indirect
domestic and, for the Canadian facility, Canadian subsidiaries (the "Pre-Petition First Lien
Guarantors"), some of which are Debtors in these chapter 11 cases. The Pre-Petition First
Lien Obligations, and the guarantees thereof, also are secured by substantially all of the tangible
and intangible assets of Kodak and the Pre-Petition First Lien Guarantors and the proceeds
therefrom, subject to certain exceptions including, but not limited to: (a) manufacturing plants
and facilities located within the United States deemed to be materially important by the Kodak
Board of Directors and capital stock or other equity of any subsidiary that owns such a
manufacturing plant or facility; (b) any of the outstanding capital stock of a controlled foreign
corporation in excess of 65% of the voting power of all classes of capital stock; and (c) any
deposit account for taxes, payroll, employee benefits or similar items (collectively, the
"Excluded Assets"). The DIP Agreement provides that the outstanding loans owed to the Pre-
Petition First Lien Secured Lenders will be paid following entry of the Interim Order, while
other Pre-Petition First Lien Obligations, consisting of certain existing letters of credit or other
obligations constituting Existing Secured Agreements, will remain outstanding and (i) be
considered to be issued or outstanding under and secured by the DIP Facility, or (ii) supported
with a back-to-back letter of credit issued under the DIP Facility, cash collateralized or made
subject to other arrangements satisfactory to the holders thereof (including, with respect to any
DIP Lender, having such obligations secured by the DIP Collateral), and all the related
prepetition liens will be released.
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ii. Pre-Petition Senior Secured Notes
15. Prior to the Petition Date, Kodak issued $500 million in 9.75% Senior
Secured Notes due 2018 (the "9.75% Notes") and $250 million in 10.625% Senior Secured
Notes due 2019 (the "10.625% Notes," together with the 9.75% Notes, the "Senior Secured
Notes"). The 9.75% Notes are governed by that certain Indenture dated as of March 5, 2010, by
and among Kodak, as issuer, the other Debtors as guarantors, and the Bank of New York
Mellon, as trustee and second lien collateral agent, and the 10.625% Notes are governed by that
certain Indenture dated as of March 15, 2011, by and among Kodak, as issuer, the other Debtors
as guarantors, and the Bank of New York Mellon, as trustee and second lien collateral agent
(together, the "Senior Secured Notes Indentures").
16. All obligations under the Senior Secured Notes Indentures (the "Pre-
Petition Second Lien Obligations," together with the Pre-Petition First Lien Obligations, the
"Pre-Petition Obligations"), are guaranteed by Kodak and each direct or indirect subsidiary of
the Company listed on the signature pages of that certain Security Agreement dated as of March
5, 2010 (the "Pre-Petition Second Lien Guarantors," together with the Pre-Petition First Lien
Guarantors, the "Pre-Petition Guarantors"), all of which are Debtors in these chapter 11 cases.
The Pre-Petition Second Lien Obligations, and the guarantees thereof, also are secured by
substantially the same collateral that secures the Pre-Petition First Lien Obligations, including
all of the tangible and intangible assets of Kodak and its domestic subsidiaries and the proceeds
therefrom, subject to certain exceptions including, but not limited to the Excluded Assets.
B. Existing Intercreditor Agreement and Adequate Protection
17. The Pre-Petition First Lien Secured Lenders, through their agent, and
those parties owed the Pre-Petition Second Lien Obligations (the "Pre-Petition Second Lien
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Noteholders," together with the First Lien Secured Parties, the "Pre-Petition Secured
Creditors"), through their agents, entered into an intercreditor agreement, dated March 5, 2010,
as amended (the "Existing Intercreditor Agreement") in connection with the Senior Secured
Notes Indentures. Kodak also is a party to the Existing Intercreditor Agreement. The Existing
Intercreditor Agreement establishes, among other things, certain relative rights and priorities
among the Pre-Petition Secured Creditors and provides for certain rights and obligations in the
event of an insolvency proceeding. See Existing Intercreditor Agreement, Article V. A copy of
the Existing Intercreditor Agreement is attached as Exhibit F.
18. The Existing Intercreditor Agreement remains in full force and effect. The
DIP Agreement has been structured to comply with the terms of Section 5.02 of the Existing
Intercreditor Agreement, based on financial information as of September 30, 2011 and
preliminary information as of December 31, 2011. Therefore the Pre-Petition Second Lien
Noteholders have effectively ceded to the Pre-Petition First Lien Secured Lenders the right to
consent to the Debtors' use of Cash Collateral and any debtor-in-possession financing,
including the DIP Facility. Interim Order ¶ 5(d). Amounts owed under outstanding loans to the
Pre-Petition First Lien Secured Lenders will be satisfied from the initial draw from the DIP
Facility pursuant to the terms of the DIP Agreement. Interim Order ¶ 12. The Pre-Petition First
Lien Secured Lenders will be provided, pursuant to sections 361, 363(e) and 364(d)(1) of the
Bankruptcy Code, until indefeasible repayment of the remaining Pre-Petition First Lien
Obligations and the conclusion of the Challenge Period, adequate protection in the form of a
replacement security interest in and lien upon all Collateral subordinate only to the liens
securing the DIP Facility and the Carve-Out in addition to an administrative claim and the right
to receive certain payments. Interim Order ¶ 13.
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19. In accordance with the terms of the Existing Intercreditor Agreement, and
pursuant to sections 361, 363(3) and 364(d)(1) of the Bankruptcy Code, the Pre-Petition Second
Lien Noteholders will be provided as adequate protection, subject to the Carve-Out, (i) liens on
the Collateral that are junior to the liens securing the DIP Facility, the adequate protection liens,
and other liens of the Pre-Petition First Lien Secured Lien Lenders; and (ii) administrative
claims as provided for in section 507(b) of the Bankruptcy Code, junior to the DIP Superpriority
Claims. Interim Order ¶ 14. Moreover, all parties are adequately protected by the Debtors
equity cushion.
Need for Postpetition Financiiw
20. It is essential that the Debtors obtain immediate access to the DIP Facility.
There are several key drivers for the Debtors' near-term liquidity issues. First, market
conditions since 2008, including substantially higher than normal commodity prices and
revenue declines substantially in excess of industry estimates, have caused a significant
reduction in profitability at Kodak's traditional businesses. Second, poor investment
performance and declining interest rates have dramatically changed the Company's aggregate
pension funding status, impairing efforts to reduce contributions toward pension benefits as the
Company becomes smaller. Third, cash flow from the licensing and sale of intellectual property
has been delayed due to litigation tactics employed by a small number of infringing technology
companies with strong balance sheets and a growing sense of Kodak's liquidity challenges.
Fourth, near the end of 2011, negative publicity and other external issues have caused
substantial strains on trade credit. First Day Dccl. ¶J 34-42.
21. Faced with a deteriorating liquidity position, Kodak began to explore
strategic alternatives and ways to enhance liquidity in the summer of 2011. Since then, Kodak
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has explored numerous sale, licensing, merger, financing and other transactions in an attempt to
identify a path to the preservation of stakeholder value that is superior to the commencement of
these chapter 11 cases. Unfortunately, these initiatives have not culminated in a realized
liquidity solution. See Hart Dccl. ¶ 11.
22. The Debtors believe the proposed DIP Facility will allow them to stabilize
U.S. and global operations, establish prudent cash balances and meet their liquidity needs for
the duration of their stay in chapter 11. McCorvey Dccl. ¶J 7. The proceeds of the DIP
Facility will be used to refinance the Prepetition First Lien Debt (except for certain letters of
credit and existing secured agreements), pay vendors and suppliers while minimizing disruption
to day-to-day operations, fund restructuring costs and necessary capital expenditures, and
satisfy working capital requirements. McCorvey Dccl. ¶J 7-8.
23. The Debtors' business is affected by seasonal swings in liquidity, with
cash needs highest in the first half of each calendar year. Id. ¶ 5. In addition, certain businesses
of the Debtors are at a point in their life cycle where the businesses require net investment in
2012 in order to grow and preserve significant future revenues generated by sale of
consumables and services. Id. ¶ 6.
24. Schedule A to the McCorvey Declaration presents draft pro forma 13-
week cash flow projections for the Debtors (the "13-Week Projections"), prepared by the
Debtors in consultation with FTI Consulting, Inc. The 13-Week Projections reflect the Debtors
reasonable judgment as to the cash needs of the business over the identified period. Id. ¶ 9. The
Debtors believe that the level of expenditures reflected in the 13-Week Projections is prudent
for the preservation of the value of their estates. The 13-Week Projections demonstrate an
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ipat.w(M-TmplrUufl2r It$IhY$MJ'%i - ~Ml ff • A
ending operating cash balance of $335.9 million as of the week ended April 6, 2012, which is in
excess of the initial DIP Facility minimum liquidity requirement of $175 milion. Id. ¶ 10.
25. The cash position of the Debtors after the period identified in the 13-Week
Projections will depend a number of factors, such as operational performance, asset
dispositions, intellectual property licensing, the pace of business restructurings, and global
liquidity needs. Id. ¶ 13. The Debtors currently project the consolidated global business to be
cash flow positive on an operating basis by next year (before financing, restructuring costs and
pension and post-employment benefit obligations). Id. ¶ 11.
The Debtors' Marketiiw Efforts for Postpetition Financiiw
26. As set forth in the Hart Declaration, prior to the Petition Date, the Debtors
attempted to procure debtor-in-possession financing from numerous sources, including
prepetition lenders, as well as new potential third party lenders. See Hart Dccl. ¶J 12-19.
27. Facing an increasing liquidity shortfall in the United States, the Debtors
and Lazard began good faith negotiations with parties who were viewed as qualified to provide
the Debtors with fully committed debtor-in-possession financing in the short timeframe
required. Id. ¶ 12. The Debtors and Lazard solicited interest from no less than eleven potential
lenders, including (a) five banks that are the Prepetition First Lien Secured Lenders; (b) two
other large global banks; (c) one large global commercial finance company; (d) the lending
affiliates of two large asset management firms that were actively involved in the earlier out-of-
court financing process; and (e) Blackstone Advisory Partners ("Blackstone"), as advisor to an
ad hoc group (the "Second Lien Group") of holders of the Company's Senior Secured Notes,
regarding their willingness to provide postpetition financing to the Debtors. Id. After active
due diligence and management presentations, only a limited number of the potential lenders
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expressed interest in committing to any term financing, and none was willing to commit
postpetition financing on an unsecured orjunior secured basis. Id. ¶J 13-14.
28. On December 31, 2011, Blackstone, on behalf of the Second Lien Group,
provided to the Debtors an indicative, non-binding financing proposal, a significant portion of
which would have consisted of a "roll-up" of the prepetition claims of participating holders of
Second Lien Notes into postpetition debt. This "roll-up" debt would have significantly
increased the interest expense of the DIP financing, been required to be paid in full in cash in
the context of any plan of reorganization, and potentially been adverse to the interests of other
stakeholders. The non-binding proposal was also contingent on providing certain material non-
public information to members of the Second Lien Group and publicly disclosing this
information shortly thereafter, which management of the Debtors indicated could have had an
adverse impact on the operations of the Debtors. Lastly, a significant portion of the facility was
proposed to be provided by an ABL, yet no party was identified as being prepared to provide
the ABL. Id. ¶ 17.
29. Eventually, three binding commitment letters with associated term sheets
were proposed by five of the Potential Financing Parties. The first commitment letter was
submitted by Citibank Global Markets Inc. ("Citibank"), and evolved into the proposed DIP
facility. The second of the three commitment letters was subsequently withdrawn. The last of
the three commitment letters was ajoint proposal by three of the Potential Financing Parties.
The portion of the financing that would have been fully committed, however, was significantly
less than the Citibank proposal and the pricing was meaningfully higher. Upon further
discussion, one of the three Potential Financing Parties also expressed doubts as to whether their
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ipanw(M-y1plruun2r I8IhYsMJ'%i - ~:'A ff i A
commitment could be fully approved by the date at which the Debtors were preparing to file for
chapter 11. Id. '1J18
30. In the end, the proposal submitted by Citibank Global Markets Inc.
evolved into the Proposed DIP Facility. Id. ¶J 19-20.
The Proposed DIP Facility
31. After extended good faith, arm's-length negotiations, Citicorp North
America, Inc., as syndication agent and administrative agent (the "Administrative Agent") for
the lenders (the "DIP Lenders") agreed to provide the DIP Facility. As set forth in the DIP
Agreement, the DIP Lenders have agreed to extend the DIP Facility in an aggregate amount of
$950 million. Entry of the Interim Order will provide the Debtors with a $450 million term loan
to provide working capital and liquidity. The Debtors will also have access to a $225 million
ABL tied to the Debtors' borrowing base and non-debtor affiliate Kodak Canada shall have
access to up to $25 million tied to its borrowing base.
32. The proceeds of the DIP Facility, which the Debtors estimate will be
sufficient to support them through the pendency of these chapter 11 cases, will be used (a) for
general working capital and other strategic purposes, (b) to fund the costs of administering these
chapter 11 cases, (c) to back to back or cash collateralize certain prepetition obligations that are
remaining outstanding, and (d) to pay all fees and expenses provided under the DIP Agreement
and authorized by the Court. The following summarizes the significant terms of the DIP
Facility and the Interim Order:
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DIP .urceI11cI1t Debtor Parties: Parties Borrower: Eastman Kodak Company (the "Company") Guarantors: Each of the Debtors (collectively, the "Guarantors")
Non-Debtor Parties: Borrower: Kodak Canada Inc. (collectively with Eastman Kodak Company, the "Borrowers")
Bank Parties: Administrative Agent: Citicorp North America, Inc. (the "Administrative 'gent) ('llateral Agent: Citicorp North America, Inc. (the "Collateral Agent") Sole Lead Arranger and Bookrunner: Citigroup Global Markets Inc. (the "Arranger") Syndication Agent: Citicorp North America, Inc. Lenders: An affiliate of the Arranger and other financial institutions or entities identified by the Arranger in consultation with the Company (the "Lenders")
\ lain riP. Earliest of (a) 18 months after the Effective Date, (b) 30 days after the entry of the Interim Order if the Final Order has not been entered prior to the expiration of such 30-day period (provided, however, that such date shall be 45 days after the entry of the Interim Order if entry of the Final Order is delayed by any requirements as a result of an evidentiary hearing or similar hearing or process associated with objections being made to entry of the Interim Order or the Final Order), (c) the substantial consummation (as defined in section 1101 of the Bankruptcy Code and which for purposes hereof shall be no later than the "effective date" thereof) of a plan of reorganization filed in the Cases that is confirmed pursuant to an order entered by the Bankruptcy Court and (d) the acceleration of the loans and the termination of the commitment with respect to such DIP Facility in accordance with the Loan Documents.
(DIP Agmt. at definitions of "Maturity Date" and "Termination Date"; DIP Agmt. at § 2.06)
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Piirpusc DIP Facility: The proceeds of the Loans and the Letters of Credit shall be available solely for general corporate purposes of the Company and its Subsidiaries (including to refinance obligations outstanding under the Pre- Petition First Lien Credit Agreement) or to otherwise provide for the continuing prepetition obligations as more fully described in the Interim Order. (DIP Agmt. at 2.17)
Cash Collateral: For working capital and general corporate purposes of the Loan Parties and their Subsidiaries. (Interim Order at ¶ 11)
tnt crest Rat vs Interest Rate: Loans will bear interest, at the option of the applicable Borrower, at one of the following rates: • (i) the Applicable Margin (as defined below) plus the Base Rate, payable monthly in arrears; or • (ii) the Applicable Margin plus the current LIBO Rate as quoted by the Administrative Agent, adjusted for reserve requirements, if any, and subject to customary change of circumstance provisions, for interest periods of one, two, three or six months (the "LIBO Rate"), payable at the end of the relevant interest period, but in any event at least quarterly; provided that the LIBO Rate in respect of Term Loans shall be not less than 1.50% (the "LIBOR Floor").
-- \pplicable Margin" means: • (i) in the case of Revolving Loans, (x) 2.25% per annum, in the case of Base Rate Loans and (y) 3.25% per annum, in the case of LIBO Rate Loans; and • (ii) in the case of Term Loans, (x) 7.50% per annum, in the case of Base Rate Loans and (y) 8.50% per annum, in the case of LIBO Rate Loans "Base Rate" means the highest of (i) Citibank, NA. 's base rate, (ii) the Federal Funds Effective Rate plus 1/2 of 1% and (iii) the LIBO Rate for an interest period of one month (in the case of Term Loans, giving effect to the LIBOR Floor) plus 1.00%. Interest shall be calculated on the basis of the actual number of days elapsed in a 360-day year (or a 365/366-day year, in the case of Base Rate Loans).
Default Interest Rate: During the continuance of an Event of Default, Loans will bear interest at an additional 2% per annum.
(DIP Agmt., at § 2.07)
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DIP ( munli till unts DIP Agreement: Total aggregate term loan commitment of $950 million to be disbursed as: Initial DIP Loan: $450 million of the Term Facility drawn and $225 million of the Revolving Credit Facility made available, with an additional $25 million made available solely to non-debtor affiliate Kodak Canada. Final DIP Loan: $950 million (less the amount of the initial DIP Loan actually borrowed)
(DIP Agmt, at § 2.01)
Icucr ,i(rcdii ExistinLetters of Credit: Citibank,N.A. 's existing letters of credit will be rolled up into the DIP Facility whereas other existing letters of credit will be either cash collateralized or backed by new letters of credit issued under the Revolving Credit Facility.
New Letters of Credit: New letters of credit can be issued under the DIP Agreement as a subfacility under the U.S. Revolving Facility in an aggregate amount of up to $200 million.
(DIP Agmt, at § 2.03)
Inn din 2 fi diii ns Customary borrowing conditions, including: (i) entry of Interim Order and Final Orders acceptable to the Arranger; (ii) delivery of required guarantees; (iii) evidence of required consents and approvals; (iv) delivery to the Administrative Agent of the Operating Forecast and the initial 13-Week Projection and certain other financial reports and projections; (v) payment of all fees and expenses due and owing pursuant to the DIP Agreement; (vi) hiring of a Chief Restructuring Officer reasonable satisfactory to the Arranger; and (vii) no chapter 7 or chapter 11 trustee or examiner with enlarged powers beyond those set forth in section 1106(a)(3) and (4) of the Bankruptcy Code being appointed with respect to the Debtors or their estates.
(DIP Agmt. at §§ 3.01, 3.02)
Borrowi i z li lni lN Limited to borrowing up to $700 million on an interim basis and up to $950 million in the aggregate. In addition, borrowing from the asset-backed Revolving Credit Facility is further limited based upon the size of the Borrowing Base.
(DIP Agmt. at Introductory Statement; definition of "Borrowing Base"; § 2.01)
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Ites Unused Commitment: Fee of 0.50 per annum will accrue as a percentage of the daily average unused portion of the Revolving Facility.
Letter of Credit Fees: A percentage per annum equal to the Applicable Margin for Revolving Loans that are LIBO Rate Loans, payable to the Revolving Administrative Agent for the account of the Revolving Lenders, and 0.25% per annum, payable to the applicable Issuer, will accrue on the outstanding undrawn amount of any Letter of Credit. In addition, the applicable Borrower will pay to the applicable Issuer standard opening, amendment, presentation, wire and other administration charges applicable to each Letter of Credit. During the continuance of an Event of Default, the Letter of Credit Fees will increase by an additional 2% per annum.
Upfront and other Arrangement Fees: As provided for in the fee letter dated January 17, 2012 between the Company and the Arranger.
(DIP Agmt. at § 2.04)
I lulls and Prinri iu, ui Liens: The obligations under the DIP Facility will have a first priority senior DIP Obh 2atit lns security interest in and lien upon all pre- and post-petition property of the Debtors, whether existing on the Petition Date or thereafter acquired, that, on or as of the Petition Date (or as a result of the refinancing of the Pre-Petition First Lien Debt) is not subject to valid, perfected and non-avoidable liens (including, upon entry of the Final Order, proceeds from Avoidance Actions).
In addition, such obligations will have first priority senior priming security interest in and lien upon all pre- and post-petition property of the Debtors whether now existing or hereafter acquired, that is subject to the existing liens presently held by any of the Existing Second Lien Debt.
Lastly, such obligations will have a security interest in and lien upon all pre- and post-petition property of the Debtors whether now existing or hereafter acquired, that is subject to valid, perfected and unavoidable liens in existence immediately prior to the Petition Date, or to any valid and unavoidable liens in existence immediately prior to the Petition Date that are perfected subsequent to the Petition Date as permitted by section 546(b) of the Bankruptcy Code.
Priorities: The obligations under the DIP Facility will constitute superpriority administrative expenses in the Debtors' chapter 11 cases.
(DIP Agmt, at § 2.24)
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(ar c-Out Carve-Out: The Carve-Out applies to U.S. Trustee fees, professional fees of the Debtors and the official committee of unsecured creditors incurred prior to the occurrence of an Event of Default and professional fees of the Debtors and the official committee of unsecured creditors incurred after an Event of Default up to an additional $10 million. Cash or other amounts on deposit in the L/C Cash Deposit Account shall not be subject to the Carve-Out.
(Interim Order at ¶ 6(b); DIP Agmt. at § 1.01)
• \dcq ti ale Priitccl tin The Existing Second Lien Debt holders whose liens will be primed as described above, and whose cash collateral will be authorized for use by the Loan Parties, will be entitled to receive as adequate protection (i) liens on the Collateral that are junior to the liens securing the DIP Facility, the adequate protection liens, and other liens of the Pre-Petition First Lien Secured Lien Lenders; and (ii) administrative claims as provided for in section 507(b) of the Bankruptcy Code, junior to the DIP Superpriority Claims.
(Interim Order at 13(a) and (b))
ITh'. iii ciii s on All first lien lenders's Loans will be fully paid with cash proceeds of the DIP Prepctiiiiiii Debi: (ash Facility. Certain reimbursement obligations in respect of undrawn letters of C o l IaicraIiiaiion credit and amounts due under Existing Secured Agreements, together with fees and interest in respect thereof under the Pre-Petition First Lien Credit Agreement will be (i) deemed outstanding under and secured by the DIP Facility, (ii) supported by a back-to-back letter of credit or cash collateral, or, (iii) with respect to any DIP Lender, having such obligations secured by the DIP Collateral. The first lien lenders' liens will release liens in connection with such repayment.
at $ 3.
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(uven ;tiil s Financial Covenants: Among other things, (i) provide unaudited "carve-out" financial statements for each of the "Consumer" and "Commercial" business units; (ii) maintain minimum global operating EBITDA (to be defined to exclude restructuring charges and the impact of IP dispositions and settlements); and (iii) maintain minimum US liquidity at all times.
Affirmative Covenants: Among other things, (i) deliver financial statements; (H) deliver periodic updates of the cash flow forecast; (Hi) deposit proceeds of Digital Imaging Patent Portfolio Dispositions or IP Settlement Agreements, subject to certain provisos; (iv) provide documents and instruments required to create and perfect the Administrative Agent's first priority security interest in the Collateral in certain jurisdictions outside the U.S. and Canada; (v) maintain all material properties necessary in the operation of the Debtors' business; (vi) maintain insurance as to each of the Debtors; and (vii) employ and maintain a Chief Restructuring Officer.
Negative Covenants: Among other things, the Debtors shall not incur any debt or liens, subject to exceptions set forth in the DIP Agreement. The Debtors also are limited in effecting mergers or transactions with affiliates, sales and sale leaseback transactions, payments to subsidiaries, and making certain investments, including investing in Subsidiaries that are not Loan Parties in an amount exceeding $100 million at any time outstanding (determined net of any cash repayments in respect of such investments), provided that (a) the aggregate amount of such investments made during any fiscal quarter (net of cash repayments in respect of such investments) cannot exceed $25 million and (b) no such investments is permitted to be made if at the time of its making any default under the DIP Facility exists or would result therefrom.
(DIP Agmt. at Introductory Statement; definitions of "Permitted Debt" and "Permitted Liens"; §§ 5.01-5.03)
VI Is iii. I )c iau It The DIP Agreement contains certain customary Events of Default, including the following: (a) failure to pay principal, interest or any other amount when due under the DIP Facility, (b) postpetition judgments, subject to certain provisos, in excess of $25 million, (c) certain changes to the ownership or control of the Company, (d) the entry of an order appointing a chapter 7 or chapter 11 trustee, (e) reversing, staying for a period of five days or more, vacating or otherwise amending the Interim Order or the Final Order, and (f) the occurrence of certain actions or events in respect of UK pension-related proceedings that would reasonably be expected to have a Material Adverse Effect; (g) when any Loan Party or any Subsidiary thereof shall take any action in support of any matter set forth in clauses (a) to (g) above.
(DIP Agmt. at § 6.01)
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(h an 2u ui ( ontrol The occurrence of certain changes to the ownership or control of the Company constitutes an Event of Default under the DIP Agreement.
(DIP Agmt. at § 6.01(g))
\ Iii csi n cs Compliance with restructuring milestones related to the Debtors' chapter 11 cases within the time periods set forth in DIP Agreement, as follows:
Filing of Bid Procedures: On or prior to June 30, 2012, file a motion with the Bankruptcy Court to approve bid procedures relating to a sale of all or substantially all of the Digital Imaging Patent Portfolio, which bid procedures shall contemplate a time frame that is reasonably satisfactory to the Administrative Agent.
Draft of Plan and Disclosure Statement: On or prior to January 15, 2013, deliver to the Agent drafts of an Acceptable Reorganization Plan and a disclosure statement with respect thereto.
Filing of Plan and Disclosure Statement: On or prior to February 15, 2013, file with the Bankruptcy Court an Acceptable Reorganization Plan and a disclosure statement with respect thereto, and at all times thereafter diligently pursue the receipt of orders of the Bankruptcy Court approving such disclosure statement and confirming such Acceptable Reorganization Plan.
(DIP Agmt. at § 5.01(s))
1cpa iii ciii Optional termination or reduction of the Commitments by the Debtors is permitted. All commitment fees accrued shall be paid on the Termination Date. In addition, Mandatory prepayments of the Loans (and cash collateralization of outstanding Letters of Credit) shall be required with 100% of the Net Cash Proceeds from sales (including from licenses of Intellectual Property effected in connection with IP Settlement Agreements or Other Proceeds from such IP Settlement Agreements), or Casualty Events of any Collateral (excluding sales of inventory in the ordinary course of business and other exceptions to be agreed); provided, that prior to the Term Facility Termination Date, the applicable percentage of Net Cash Process required to be applied to the Loans as a prepayment with respect to IP Settlement Proceeds and Other Proceeds is 75% and in all other cases, such prepayment is 100% of Net Cash Proceeds; provided that if a percentage of Net Cash Proceeds is not required to be applied as a prepayment per the above, the aggregate dollar amount of such Net Cash Proceeds that has not been applied as a result may not exceed $150 million.
(DIP Agmt. at Introductory Statement; definition of "Applicable Prepayment Percentage"; §§ 2.04; 2.05; 2.10; 5.01(o))
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Ii iiil liabilitx Each of the Company and each US Subsidiary Guarantor, jointly and severally, absolutely, unconditionally and irrevocably guarantees the punctual payment when due, whether at scheduled maturity or on any date of a required prepayment or by acceleration, demand or otherwise, of all obligations of each other Loan Party and each other Subsidiary of the Company now or hereafter existing under or in respect of the DIP Loan Documents or any Secured Agreement.
(DIP Agmt. at § 7.01)
Nmi - I)chtm lIiliatcs Investments made by Loan Parties in Subsidiaries of the Company that are not Loan Parties are not to exceed $100 million at any time outstanding (determined net of any repayments in respect of such Investments received in Cash Equivalents by any Loan Party); provided that (x) no Default can exist at the time such Investment is made or would result therefrom and (y) the aggregate amount of such Investments made during any fiscal quarter (net of any repayments in respect of such Investments received in Cash Equivalents by any Loan Party during such fiscal quarter) cannot exceed $25 million.
(DIP Agmt. at § 5.02(i))
~ 1011 111 at ic St a x It is an Event of Default under the DIP Facility if the Bankruptcy Court enters an order or orders granting relief from the automatic stay applicable under section 362 of the Bankruptcy Code to the holder or holders of any security interest to permit foreclosure (or the granting of a deed in lieu of foreclosure or the like) on any assets of any of the Debtors that have a value in excess of $10 million in the aggregate or permit other actions that would have a Material Adverse Effect on the Debtors or theft estates (taken as a whole).
(Interim Order at ¶ 8(b); DIP Agmt. at § 6.01(m))
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\\ ;ti ci', and (uiiscnls Non-Bankruptcy Law: Under the terms of the DIP Agreement, each Guarantor waives any requirement that the Administrative Agent or any DIP Lender protect, secure, perfect or insure any Lien or any property subject thereto. (DIP Agmt. at § 7.03)
Estate Claims: Debtors stipulate as to the validity of the Pre-Petition First Lien Debt and release all claims, defenses or causes of action pertaining to it including any right to seek avoidance of the debt. (Interim Order at ¶ 3(a))
Indemnification: The Company agrees to indemnify and hold harmless the Administrative Agent, the Collateral Agent, each Issuing Bank and each Lender and each of their Related Parties (each, an 'Indemnified Party") in connection with or as a result of the DIP Agreement (as more fully described in the DIP Agreement). (DIP Agmt. at § 9.04)
Section 506(c): Upon entry of the Final Order, subject to the Carve-Out, no expenses of administration of the Debtors' cases or any future proceedings shall be recovered from the Collateral pursuant to section 506(c) without prior written consent of the Administrative Agent. (Interim Order at ¶ 9)
Granlin2 I.iciis oil The Debtors' claims and causes of action under sections 502(d), 544, 545, Certain (atises of 547, 548, 549, and 550 of the Bankruptcy Code, or any other avoidance cI ion actions under the Bankruptcy Code are excluded from the DIP Liens, however, upon entry of the Final Order, the proceeds or property recovered by final judgment, settlement or otherwise is included in the unencumbered property lien granted to the Administrative Agent for its own benefit and the benefit of the DIP Lenders.
(Interim Order at ¶ 7(a); DIP Agmt. at § 2.24(a))
Pu r pi c of1 'c of( a 'Ii Cash Collateral is to be used to provide working capital for, and for other (iiIIaieraI general corporate purposes of, the Debtors. As of the Petition Date, Cash Collateral totaled approximately $56.7 million.
(Interim Order at ¶ 11)
1 crins oil sc of ('ash The Debtors are seeking to use Cash Collateral of the Prepetition Secured C d I ;il end Lenders, subject to the terms of the DIP Agreement and Interim Order.
(Interim Order at ¶ 11)
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• d cci u ;tl e Prutuci i nfl ni Other than the Continuing Pre-Petition First Lien Obligations (as defined in Pre-Pelilitin I1ri lien the Interim Order) the Pre-Petition First Lien Debt (as defined in the Interim Secured lenders Order) is being repaid, and upon repayment, the existing liens on the Pre- Petition First Lien Collateral (as defined in the Interim Order) will be released and terminated. With respect to Continuing Pre-Petition First Lien Obligations, certain outstanding letters of credit under the Pre-Petition First Lien Credit Agreement will be deemed to be issued pursuant to, and secured under, the DIP Agreement, or backstopped by new letters of credit issued under the DIP Agreement. Outstanding obligations with respect to secured agreements under the Pre-Petition First Lien Credit Agreement will be adequately protected through the issuance of letters of credit, the provision of cash collateral or other arrangements satisfactory to the holders of such secured agreements (the "Adequate Protection Liens").
(Interim Order at ¶ 12)
• duci u ale Prutuci tin ii The Pre-Petition Second Lien Noteholders will receive adequate protection in ricrei liii n Sect n the form of administrative claims and adequate protection liens (the "Junior I lull \i (tiu Iders Adequate Protection Liens").
(Interim Order at ¶ 13, 13(a), 13(b); DIP Agmt. at § 2.24)
Basis for Relief
33. The Debtors' ability to preserve the value of their estates depends on
immediate access to the DIP Facility. Absent access to the DIP Facility, the Debtors will not be
able to pay suppliers and customers, pay the costs of administering these chapter 11 cases,
retain critical employees, make necessary capital and other investment in their valuable
businesses and provide liquidity for continuing operations, among other things. At this time,
the Debtors' request authorization to use Cash Collateral and borrow up an aggregate of $950
million with $700 million available on an interim basis, comprised of up to a $450 million term
loan, with $450 million available on an interim basis, and up to a $250 million asset-based
lending Revolving Credit Facility with a subfacility for letters of credit in the aggregate amount
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of $200 million, with $25 million available solely for the use of non-debtor affiliate Kodak
Canada.
34. As set forth above and in the DIP Declarations and the First Day
Declaration filed in support of the Motion, the Debtors believe that DIP Facility is the best
financing available to the Debtors at this time. The Debtors have been unable to procure
sufficient financing (a) in the form of unsecured credit allowable under section 503(b)(1) of the
Bankruptcy Code, or (b) solely as an administrative expense under section 364(a)-(b) of the
Bankruptcy Code. See Hart Dccl. ¶ 14. Moreover, the other financing alternatives considered
had either more onerous terms, less certainty, or both. Therefore, for the reasons stated herein,
the Debtors submit that they have satisfied the requirements to access postpetition financing on
a superpriority, secured basis pursuant to section 364 of the Bankruptcy Code. Importantly, the
Pre-Petition First Lien Secured Lenders have consented to the terms of the DIP Facility.
Moreover, the Pre-Petition Second Lien Noteholders are deemed to have consented pursuant to
Sections 5.02 and 5.04 of the Existing hitercreditor Agreement.
35. Section 364 of the Bankruptcy Code distinguishes among (a) obtaining
unsecured credit in the ordinary course of business, (b) obtaining unsecured credit out of the
ordinary course of business and (c) obtaining credit with specialized priority or with security, if
a debtor in possession cannot obtain sufficient postpetition credit on an unsecured basis, section
364(c) of the Bankruptcy Code permits a bankruptcy court to authorize a debtor to obtain credit
or incur debt, repayment of which is (x) entitled to superpriority administrative expense status
or (y) is secured by a senior lien on unencumbered property or ajunior lien on encumbered
property, or both. Furthermore, section 364(d) of the Bankruptcy Code permits a bankruptcy
court to authorize a debtor to obtain postpetition credit secured by a senior or equal lien on
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encumbered property (i.e., a priming lien) when a debtor is unable to obtain credit elsewhere
and the interests of existing lienholders are adequately protected. 11 U.S.C. §§ 364(c), (d).
36. As discussed, the DIP Facility is secured by substantially all of the assets
of the Debtors' estates through superpriority claims, security interests, and secured liens
pursuant to section 364, causing the Court to examine both sections 364(c) and 364(d) of the
Bankruptcy Code.
A. Financing Under Section 364(c) of the Bankruptcy Code
37. Section 364(c) of the Bankruptcy Code provides that if a debtor is unable
to obtain unsecured credit allowable as an administrative expense, the court may authorize the
debtor to obtain credit or incur debt (a) on a superpriority administrative basis, (b) secured by a
lien on the debtor's unencumbered assets, or (c) secured by ajunior lien on the debtor's already
encumbered assets. 11 U.S.C. § 364(c).
38. Courts consider various factors in determining whether obtaining
postpetition financing pursuant to section 364(c) is appropriate, including whether (i) a debtor is
unable to obtain unsecured credit under section 364(b), (ii) the transaction is necessary to
preserve the assets of the debtor's estate, and (iii) the terms of the transaction are fair,
reasonable and adequate under the circumstances. See In re Los Angeles Dodgers LLC, 457
B . R. 308, 312-13 (Bankr. D. Del. 2011) (noting these three factors in considering proposed
postpetition financing) (citations omitted); see also In re Ames Dep 't Stores, Inc., 115 B . R. 34,
37 (Bankr. S.D.N.Y. 1990) (noting that a court "may not approve any credit transaction under
subsection (c) unless the debtor demonstrates that it has reasonably attempted, but failed, to
obtain unsecured credit under sections 364(a) or (b)") (citations omitted); In re Farmland
Inc/us., Inc., 294 B . R. 855, 879 (Bankr. W.D. Mo. 2003) (noting that courts look to various
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factors including whether "the proposed financing is an exercise of sound and reasonable
business judgment").
L The Debtors Could Not Obtain Unsecured Financing
39. As set forth above and in the Hart Declaration, the Debtors could not
obtain postpetition financing of the type and magnitude required for these chapter 11 cases on
an unsecured or on a junior secured basis. Hart Dccl. ¶ 14. Despite their best efforts and
discussions with eleven potential lenders, the Debtors were simply unable to obtain unsecured
or junior secured financing. Id. ¶J 12-19.
ii. Entry Into the DIP Facility Is Necessary to Preserve Assets of the Estates and Is In the Best Interests of Creditors.
40. The Debtors' decision to enter into the DIP Agreement is the culmination
of an extensive process whose goal was to procure the best available financing under the
circumstances. Ultimately, the Debtors' decision to enter into the DIP Agreement was no
decision at all: borrowing under the terms of the DIP Facility is clearly the best option available
to the Debtors and entry of the DIP Orders is in the best interests of the Debtors, their estates
and their stakeholders.
41. The DIP Facility will provide immediate access to capital to pay vendors
and employees, establish the prudent cash balances for a business of the Debtors' size and
stabilize operations. McCorvey Dccl. ¶ 7. Moreover, certain of the Debtors' businesses require
net investment in 2012 in order to preserve their current and future value. Id. ¶ 6. A portion of
the proceeds from the DIP Facility will be used to refinance a portion of the existing Pre-
Petition First Lien Obligations (except for certain letters of credit and existing secured
agreements), satisfy working capital requirements, and fund restructuring costs and capital
expenditures. Id. ¶ 8.
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42. As reflected in the 13-Week Projections, the Debtors will emerge from
their seasonal need for liquidity with a prudent cash balance. See McCorvey Dccl. ¶ 7 and
Ex. A. The Debtors currently project that the consolidated global business will be cash flow
positive by next year on an operational basis (before financing, restructuring costs and pension
and post-employment benefit obligations), and that they will remain in compliance with the
financial covenants contained in the DIP Agreement. McCorvey Dccl. ¶J 11-12. The DIP
Facility permits the Debtors to stabilize and preserve the value of their existing businesses. The
cash position of the Debtors after the period identified in the 13-Week Projections will depend a
number of factors, such as operational performance, asset dispositions, intellectual property
licensing, the pace of business restructurings, and global liquidity needs. Id. ¶ 13.
43. Failure to obtain this DIP Facility would gravely harm the Debtors and
their stakeholders. Immediately prior to the Petition Date, the Debtors had been operating on
approximately $56.7 million in cash in the United States. Without access to the DIP Facility,
the Debtors could potentially be forced to liquidate their businesses to the detriment of all
parties in interest. See In re Farmland, 294 B.R. at 885 (approving postpetition financing that
"gives the Debtors sufficient time to market and sell several of their major assets so as to pay
down the debt to the DIP Lenders and then reorganize around their remaining core assets.
Without the continued financing, the Debtors would likely be forced into a Chapter 7 or 11
liquidation, to the detriment of all creditors").
44. Under the circumstances, the Debtors' decision to enter into the DIP
Facility is a reasonable exercise of their business judgment, and the DIP Orders accordingly
should be entered. See, e.g., In re Ames, 115 B.R. at 38 (noting that courts permit debtors to
"exercise their basic business judgment" when obtaining debtor-in-possession financing under
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section 364 of the Bankruptcy Code); Trans WorldAirlines, Inc. v. Travelers Int'lAG (In re
Trans WorldAirlines, Inc.), 163 B.R. 964, 974 (Bankr. D. Del. 1994) (approving postpetition
loan and receivables facility because the facility "reflect[ed] sound and prudent business
judgment"); see also In re Simasko Prod. Co., 47 B . R. 444, 449 (Bankr. D. Cob. 1985)
("[D]iscretion to act with regard to business planning activities is at the heart of the debtor's
power.") (citation omitted).
iii. The Terms of the DIP Facility Are Fair and Reasonable Under the Circumstances.
45. In determining whether the terms of postpetition financing are fair and
reasonable, courts consider the relative circumstances of both the debtor and the potential
lender. In re Farmland, 294 B . R. at 886-89; see also Unsecured Creditors' Comm. Mobil Oil
Corp. v. First Nat'l Bank & Trust Co. (In re Ellingsen MacLean Oil Co., Inc.), 65 B. R. 358,
364-65 n.7 (W.D. Mich. 1986) (recognizing a debtor may have to enter into "hard" bargains to
acquire funds for its reorganization). Judged from that perspective, the terms of the DIP
Facility are fair and reasonable. The DIP Facility provides the Debtors the liquidity they need
to operate their business during these chapter 11 cases, thus permitting the Debtors to
effectively restructure, while establishing an appropriate cash balance for a company of Kodak's
size. McCorvey Dccl. ¶ 7. After thorough analysis by the Debtors and their advisors, they have
concluded that the terms of the DIP Facility are reasonable and appropriate under the
circumstances. Id. ¶J 14-15; Hart Dccl. ¶ 20.
46. The DIP Facility was expressly structured to comply with the terms of the
Existing Intercreditor Agreement and adequately protect the Pre-Petition Secured Creditors.
Furthermore, numerous provisions of the DIP Agreement facilitate the preservation of value for
creditors and other stakeholders. For example, the mandatory prepayment provisions permit the
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Debtors to retain reinvestment rights with respect to 25% of net cash proceeds received from
sales or settlements involving assets of Term Priority Collateral, other than from the sale of
assets included in the digital imaging patent portfolio (which are subject to a 100% prepayment
obligation), up to $125 million. DIP Agmt. §2.04; 2.05; 2.10.
47. Furthermore, the DIP Facility subjects the security interests and
administrative expense claims granted to the DIP Lenders to the Carve Out for certain
administrative and professional fees, including (i) fees required to be paid to the Court and to
the United States Trustee, (ii) reasonable fees and expenses incurred by a trustee up to
$100,000, any allowed unpaid fees of the Debtors or the statutory committee of unsecured
creditors appointed in these chapter 11 cases prior to a default and up to $10 million more
following default. DIP Agmt. § 2.24 and Definitions. Carve-outs for professional fees have
been found to be reasonable and necessary to ensure that statutory creditors' committees and
debtors' estates are adequately assisted by counsel and other professionals. See In re Ames, 115
B.R. at 38.
48. The various fees and charges associated with obtaining the DIP Facility
are within the range of reasonableness under the circumstances. Courts recognize that lender
fees often are the only way to obtain financing, and routinely approve them. See, e.g.,
Resolution Trust Corp. v. Official Unsecured Creditors' Comm. (In re Defender Drug Stores,
Inc.), 145 B . R. 312, 316-19 (B.A.P. 9th Cir. 1992) (approving financing facility pursuant to
section 364 of the Bankruptcy Code that included a lender "enhancement fee"). 4
In accordance with the terms of the DIP Loan Documents, upon request from the Court the Debtors will file a motion seeking to file the complete Fee Letter under seal.
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B. Financing Under Section 364(d) of the Bankruptcy Code
49. Section 364(d)(1) of the Bankruptcy Code provides that a court may
authorize a debtor to incur postpetition debt on a senior or "priming" basis if (a) the debtor is
unable to obtain credit otherwise and (b) there is "adequate protection of the interest of the
holder of the lien on the property of the estate on which such senior or equal lien is proposed to
be granted." See 11 U. S.C. § 364(d)(1); In re YL West 87th Holdings ILLC, 423 B.R. 421, 441
(Bankr. S.D.N.Y. 2010).
i. Any Available Financing Requires Priming Pursuant to Section 364(d)(1).
50. Courts require that a debtor have made a reasonable effort to seek credit
from other sources available under section 364(a) and (b), but section 364(d) does not require an
exhaustive search. In re Snowshoe Co., 789 F.2d 1085, 1088 (4th Cir. 1986); see also In re 495
Central ParkA ye. Corp., 136 B.R. 626, 630-31 (Bankr. S.D.N.Y. 1992) ("Section 364(d)(1)
does not require the debtor to seek alternate financing from every possible lender. However, the
debtor must make an effort to obtain credit without priming a senior lien."); In re Reading Tube
Inc/us., 72 B.R. 329, 332 (Bankr. E . D. Pa. 1987) ("Courts have found 20 attempts [to secure
funding] and 2 attempts [to secure funding] to be sufficient under the particular circumstances
of each case but. . . one attempt is not sufficient.").
51. The Debtors contacted eleven potential lenders regarding debtor-in-
possession financing. Hart Dccl. ¶ 12. As detailed in the Hart Declaration, the Debtors and
Lazard engaged in vigorous arm's length negotiations that produced the best available financing
option under the circumstances. Id. ¶J 12-20. Nevertheless, none of the potential lenders was
willing to commit to postpetition financing on an unsecured or junior secured basis. Id. ¶ 14.
Indeed, the DIP Lenders have insisted upon secured liens pursuant to section 364(d)(1).
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ipat.w(M-TmplrUufl2r It$IhY$MJ'%i ~Ml ff - •. 36 of 47
52. The Debtors have succeeded in securing both a fully committed term
financing and ABL revolver that meet their needs to continue their operations and preserve and
maximize the value of their estates. The DIP Facility also is essential to provide the Debtors'
various stakeholders, including global customers, employees, vendors, service providers and
other key constituencies, with confidence in the Debtors' ability to successfully reorganize. See
McCorvey Dccl. ¶ 15. Accordingly, the Debtors submit that the priming liens contained in the
DIP Facility are appropriate under the circumstances here.
fl. The Debtors' Proposed Grant of Adequate Protection is Appropriate.
53. Adequate protection is decided on a case-by-case basis and can be
provided in various forms, including granting of replacement liens and administrative claims.
In reMosello, 195 B.R. 277,289 (Bankr. S.D.N.Y. 1996) ("[T]he determination of adequate
protection is a fact-specific inquiry. . . left to the vagaries of each case."); see also In re Realty
Sw. Assocs., 140 B.R. 360 (Bankr. S.D.N.Y. 1992); In reBekerIndus. Corp., 58 B.R. 725, 736
(Bankr. S.D.N.Y. 1986) (the application of adequate protection "is left to the vagaries of each
case, but its focus is protection of the secured creditor from diminution in the value of its
collateral during the reorganization process") (citation omitted), rev 'd on other grounds, 89
B.R. 336 (S.D.N.Y. 1988). "A finding of adequate protection should be premised on facts, or
on projections grounded on a firm evidentiary basis." In reMosello, 195 B. R. 277, 292 (Bankr.
S.D.N.Y. 1996).
54. In accordance with the Existing Intercreditor Agreement, the Pre-Petition
Secured First Lien Lenders have consented to being primed, while the Pre-Petition Second Lien
Noteholders are, under the Existing Intercreditor Agreement, deemed to have consented to
being primed based on the terms of the DIP Facility, and subject to the adequate protection
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provided for therein and which is provided for under the proposed Interim Order. See Existing
Intercreditor Agreement § § 5.02, 5.04; see also Anchor Says. Bank v. Sky Valley, Inc., 99 B. R.
117, 122 (N.D. Ga. 1989) (consenting to imposition of a priming lien "relieved the debtor of
having to demonstrate that [the lienholders] were adequately protected").
55. The Existing Intercreditor Agreement precludes the Pre-Petition Second
Lien Noteholders from challenging the DIP Facility or seeking adequate protection beyond what
is provided for in the Existing Intercreditor Agreement. Id. § 5.02. The Existing Intercreditor
Agreement was negotiated by sophisticated parties and should be interpreted based on its plain
language. When interpreting contracts, New York courts apply the "familiar and eminently
sensible proposition of law that, when parties set down their agreement in a clear, complete
document, their writing should. . . be enforced according to its terms." Vt. Teddy Bear Co., Inc.
v. 538Madison Realty Co., 807 N.E.2d 876, 879 (N.Y. 2004) (citations omitted). This rule
applies with particular force to intercreditor agreements among sophisticated parties. See In re
Ion Media Networks, Inc., 419 B.R. 585, 594-98 (Bankr. S.D.N.Y. 2009) ("Giving effect to the
plain language of the Intercreditor Agreement also reinforces general principles of public policy
[by] lead[ing] to more predictable and efficient commercial outcomes and minimiz[ing] the
potential for wasteful and vexatious litigation."). Here, the DIP Agreement and Interim Order
provide for the contractually required adequate protection.
56. The DIP Facility provides that the Debtors will immediately repay Loans
constituting Pre-Petition First Lien Secured Obligations, while certain letters of credit and
existing secured agreements will remain outstanding and supported under the DIP Documents,
and the Pre-Petition First Lien Secured Lenders will release their prepetition liens. The Debtors
propose to provide adequate protection to the Pre-Petition First Lien Secured Lenders with the
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Adequate Protection Liens until Continuing Pre-Petition First Lien Obligations are satisfied.
The Debtors further propose to provide adequate protection to the Pre-Petition Second Lien
Noteholders in accordance with the terms of the Existing Intercreditor Agreement. Interim
Order ¶ 13. The Debtors will provide the Pre-Petition Second Lien Noteholders a replacement
security interest in and lien upon all of the Collateral, subordinate to the DIP Liens, the
Adequate Protection Liens and the Carve-Out. Id.
iii. The Debtors Will Provide Further Adequate Protection Through an Equity Cushion.
57. In addition to the adequate protection package provided and the deemed
consent to the DIP Facility resulting therefrom under the Existing Intercreditor Agreement, the
Pre-Petition Second Lien Secured Noteholders are further adequately protected through the
existence of a substantial equity cushion in their collateral. See In re YL West 87th Holdings I
LLC, 423 B.R. at 441 (noting that "the existence of an equity cushion seems to be the preferred
test in determining whether priming of a senior lien is appropriate under section 364")
(quotation omitted).
58. As explained in the Hart Declaration, Lazard estimates that a portion of
the Pre-Petition Secured Creditors' collateral is valued at a range of $3.4 to $4.3 billion. Hart
Dccl. ¶ 23. These amounts are comprised of (a) 284 Partners, LLC's estimated value range for
the digital imaging patent portfolio of $2.2 to $2.6 billion; (b) the Debtors' estimated pro forma
domestic cash and equivalents of $820 million; (c) U.S. accounts receivable valued at an
estimated $142 to $257 million; (d) U. S. inventory valued at an estimated $149 to $369 million;
and (e) U.S. machinery & equipment valued at an estimated $32 to 294 million Id. Kodak's
Digital Camera and Kodak Imaging Systems and Services patent portfolios were independently
valued and determined to have a net present value of $2.2 to $2.6 billion. Id. & n.5; see also
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Lasinski Dccl. ¶J 29-30. As set forth in detail in the Lasinski Declaration, 284 Partners, LLC
projected the pre-tax cash flows from these patent portfolios to be $3.07 billion during the
period 2012-2020, which is consistent with Kodak's historical licensing revenues over a similar
period. Id. ¶ 29. The realized value through additional licensing or an asset sale is likely to be
substantially higher. See id. ¶ 18, 29. The analysis submitted does not give any credit to other
prepetition collateral to the valuation, such as the Debtors' globally-recognized and highly
reputable brand, the stock of certain foreign subsidiaries, or the Debtors' more than 9,000 other
patents beyond the digital imaging patent portfolio, all of which have substantial value. Id.
¶ 22. The valued assets alone provide more than enough of an equity cushion to support the
DIP Facility along with the remaining outstanding Pre-Petition Secured Debt. See Ed. ¶ 23.
59. The proceeds from the DIP Facility will themselves create additional value
for these estates by helping to stabilize operations and permit the Debtors to make investments
in businesses requiring net investment in 2012 in order to preserve annuities on consumables
and services in the future. McCorvey Dccl. ¶J 6-7; see also In re 495 Central Park, 136 B . R. at
631-32 (finding that adequate protection existed based on evidence of current market value of
collateral and projections of future performance after investment of debtor-in-possession
funding). The Debtors' ample equity cushion further supports a finding that the Pre-Petition
Secured Parties are adequately protected. See In re Franklin Equip. Co., 416 B . R. 483, 528
(Bankr. E . D. Va. 2009) ("Whether an equity cushion provides adequate protection. . . is
determined on a "case-by-case basis rather than by mechanical application of a formula.").
60. Finally, in cases where the adequate protection is an equity cushion, courts
have held that debtors may use cash collateral for operating expenses without diminishing the
adequate protection where the continued operation of the debtor's business preserves the equity
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cushion. See In re Salem Plaza Assocs., 135 B.R. 753, 758 (Bankr. S.D.N.Y. 1992) (holding
that a debtor may use postpetition financing for operating expenses without diminishing the
adequate protection where the continued operation of the debtor's business preserves the equity
cushion). Here, the liquidity provided by the DIP Facility will provide immediate access to
capital to pay employees and vendors while minimizing disruptions of day-to-day operations,
thereby stabilizing global operations. McCorvey Dccl. ¶ 7. This will prevent harm to the
Kodak brand and its valuable assets and enable the Debtors to generate cash from their existing
businesses. Accordingly, the Debtors believe that the adequate protection proposed herein and
in the DIP Orders is fair and reasonable and is sufficient to satisfy the requirements of sections
363(c) and 364(d) of the Bankruptcy Code.
C. The DIP Facility was Negotiated in Good Faith and Should be Afforded the Protection of Section 364(e) of the Bankruptcy Code.
61. Pursuant to section 364(e) of the Bankruptcy Code, any reversal or
modification on appeal of an authorization to obtain credit or incur debt or a grant of priority or
a lien under section 364 of the Bankruptcy Code shall not affect the validity of that debt
incurred or priority or lien granted as long as the entity that extended credit "extended such
credit in good faith." See 11 U.S.C. § 364(e).
62. Courts generally hold that "good faith" in the context of postpetition
financing means, consistent with the Uniform Commercial Code, honesty in fact in the conduct
or transaction concerned. See Unsecured Creditors' Comm. v. First Nat'l Bank & Trust Co. (In
re Ellingsen MacLean Oil Co.), 834 F.2d 599, 605 (6th Cir. 1987) (citing U.C.C. § 1-201(19)).
Additionally, "[good faith is measured with respect to the good faith of the lender as contrasted
to that of the borrower." Transcript of Record (Court Decision) at 736:24-25, In reLyondell
Chem. Co., No. 09-10023 (Bankr. S.D.N.Y. Mar. 5, 2009). Moreover, a lender's desire to
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ensure that it is repaid, to make money on interest and fees and to protect prepetition positions
are understandable and acceptable motivations for a postpetition lender in negotiating a deal.
Id. at 737:6-14.
63. As explained in detail herein, the terms of the DIP Facility were
extensively negotiated at arm's length and reflect the most advantageous terms (including
availability, pricing, fees and covenant flexibility) available to the Debtors in light of their
financial circumstances and the current volatile credit market. See McCorvey Dccl. ¶ 14; Hart
Dccl. ¶J 12-20. Ultimately, after difficult arm's length negotiations, the Debtors succeeded in
obtaining the DIP Facility in an amount sufficient for the Debtors' working capital needs.
McCorvey Dccl. ¶J 7, 14-15; Hart Dccl. ¶ 19.
64. All of the DIP Facility obligations will be extended by the DIP Lenders in
good faith (as such term is used in section 364(e) of the Bankruptcy Code). No consideration is
being provided to any party to, or guarantor of, obligations arising under the DIP Facility, other
than as set forth herein and in the Interim Order. Moreover, the DIP Facility has been extended
in express reliance upon the protections offered by section 364(e) of the Bankruptcy Code, and
each DIP Lender should be entitled to the full protection of section 364(e) of the Bankruptcy
Code in the event that the Interim Order or any provision thereof is vacated, reversed, or
modified on appeal or otherwise.
D. Approval of the DIP Facility on an Interim Basis is Necessary to Prevent Immediate and Irreparable Harm.
65. Bankruptcy Rule 400 1(c)(2) governs the procedures for obtaining
authorization to obtain postpetition financing and provides, in relevant part:
The court may commence a final hearing on a motion for authority to obtain credit no earlier than 14 days after service of the motion. If the motion so requests, the court may conduct a hearing before
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ipat.w(M-TmplrUufl2r It$IhY$MJ'%i - ~Ml ff A '
such 14 day period expires, but the court may authorize the obtaining of credit only to the extent necessary to avoid immediate and irreparable harm to the estate pending a final hearing.
FED. R. BANKR. P. 4001(c)(2).
66. Similarly, to the extent the Debtors are seeking authority to sell, use or
otherwise incur an obligation regarding property of their estates, Bankruptcy Rule 6003
provides that the Court may only grant such relief to the extent it is necessary to avoid
immediate and irreparable harm. FED. R. BANKR. P. 6003(b).
67. Generally, courts find "immediate and irreparable harm" exists where loss
of the business threatens ability to reorganize. See In re Ames Dep 't Stores, Inc., 115 B. R. 34,
36 n.2 (Bankr. S.D.N.Y. 1990). Approval of a DIP facility on an interim basis under Rule
4001(c)(2) is left to the discretion of the court as informed by the facts of each case. See In re
Pan Am Corp., No. 91-8319, 1992 WL 154200, at *6 (S.D.N.Y. June 18, 1992). There is no
limit to the amount of funding that the court can approve on an interim basis. Id. After the 14-
day period, the request for financing is not limited to those amounts necessary to prevent the
destruction of the debtor's business, and the debtor is entitled to borrow those amounts that it
believes are prudent to the operation of its business. Ames Dept. Stores, 115 B . R. at 36.
68. Immediate and irreparable harm would result if the relief requested herein
is not granted on an interim basis. As described in the McCorvey Declaration, the Debtors need
to obtain immediate access to liquidity under the DIP Facility in order to, among other things,
continue the operation of their businesses, maintain business relationships with vendors and
customers, make payroll and capital expenditures, and satisfy other working capital and
operational needs. McCorvey Dccl. ¶J 7-8. Without immediate financing, stakeholders will
lose confidence in the Debtors, thereby causing irreparable harm to the Kodak brand. Id. ¶ 15.
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Indeed, the Debtors have already begun to suffer disruptions in its supply chain due to its lack
of liquidity in the U.S., a problem that will be exacerbated without immediate access to the DIP
Facility. Id. ¶ 16. Funding each of these expenditures is necessary to the Debtors' ability to
preserve and maintain their going-concern values for the benefit of all parties in interest.
69. The crucial importance of a debtor's ability to secure postpetition
financing to prevent immediate and irreparable harm to its estate has been repeatedly recognized
in this district in similar circumstances. See, e.g., In re Hostess Brands, No. 12-22052 (Bankr.
S.D.N.Y. Jan. 12, 2012) (order approving postpetition financing on an interim basis); In re
Chenitura Corp., No. 09-11233 (Bankr. S.D.N.Y. March 20, 2009) (same); In re Tronox Inc.,
No. 09-10156 (Bankr. S.D.N.Y. Jan. 13, 2009) (same); In reLyondell Chem. Co., No. 09-10023
(Bankr. S.D.N.Y. Jan. 8, 2009) (same); In re Lenox Sales, Inc., No. 08-14679 (Bankr. S.D.N.Y.
Nov. 25, 2008) (same); In re Wellman, Inc., No. 08-10595 (Bankr. S.D.N.Y. Feb. 27, 2008)
(same).
70. Accordingly, the Debtors believe that, under the circumstances, entry of
the Interim Order is necessary to prevent immediate and irreparable harm to the estates and
therefore is warranted under the requirements of Bankruptcy Rule 4001 (c)(2).
E. Modification of the Automatic Stay Provided Under Section 362 of the Bankruptcy Code is Appropriate Under the Circumstances.
71. Paragraph 8(b) of the proposed Interim Order provides that the automatic
stay imposed under section 362(a) of the Bankruptcy Code is hereby lifted to the extent
contemplated by the provisions of the DIP Agreement as described above. Stay modification
provisions of this sort are ordinary and usual features of debtor-in-possession financing facilities
and are reasonable under the present circumstances. Accordingly, the Court should modify the
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ipanw(M-y1plruun2r I8IhYsMJ'gi - ~:'A ff A '
automatic stay to the extent contemplated under the DIP Agreement and the proposed DIP
Orders.
Request for a Final Hearing
72. Pursuant to Bankruptcy Rules 400 1(b)(2) and 400 1(c)(2), the Debtors
request that the Court set a date, which is no sooner than 14 days after the date of this Motion
and no later than 30 days after the entry of the Interim Order, to hold a hearing to consider entry
of the Final Order and the permanent approval of the relief requested in this Motion. 5 The
Debtors also request authority to serve a copy of the signed Interim Order, which fixes the time
and date for the filing of objections, if any, to entry of the Final Order, by first class mail upon
the notice parties listed below, and further request that the Court deem service thereof sufficient
notice of the hearing on the Final Order under Bankruptcy Rule 400 1(c)(2).
Bankruptcy Rule 6003 Is Satisfied
73. The Debtors have demonstrated that they will suffer "immediate and
irreparable harm" if the Interim Order is not entered and the Debtors are not provided
immediate access to the DIP Facility. See In re Ames Dep 't Stores, Inc., 115 B.R. 34, 36 n.2
(Bankr. S.D.N.Y. 1990) (finding that "immediate and irreparable harm" exists where loss of the
business threatens ability to reorganize). Accordingly, the Debtors respectfully submit that they
have satisfied Bankruptcy Rule 6003 as it relates to the relief requested herein.
Waiver of Bankruptcy Rules 6004(a) and 6004(11)
74. Given the nature of the relief requested herein, the Debtors respectfully
request a waiver of (a) the notice requirements under Bankruptcy Rule 6004(a), and (b) the 14-
The DIP Agreement requires that the Final Order be entered no later than 30 days after entry of the Interim Order, which is extended to 45 days if entry of the Final Order is delayed by objections interposed. (DIP Agmt. § 2.06.)
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day stay under Bankruptcy Rule 6004(h). As set forth above, the DIP Facility is essential to
prevent irreparable damage to the Debtors' operations, value and ability to reorganize.
Accordingly, the Debtors submit that ample cause exists to justify a waiver of the requirements
under Bankruptcy Rule 6004(a) and 14-day stay imposed by Bankruptcy Rule 6004(h), to the
extent they apply.
Debtors' Reservation of Rights
75. 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 rights to contest any
claims related to any obligations that are the subject of this Motion under applicable non-
bankruptcy law. Likewise, if the Court grants the relief sought herein, any payment made
pursuant to the Court's order is not intended to be, and should not be construed as, an admission
as to the validity of any claim or a waiver of the Debtors' rights to dispute such claim
subsequently.
Notice
76. Notice of this Motion has been provided to: (a) the U. S. Trustee; (b) the
entities listed on the Consolidated List of Creditors Holding the 50 Largest Unsecured Claims;
(c) the agent under the prepetition revolving credit facility; (d) the indenture trustee for the
prepetition 9.2% Senior Notes due June 1, 2021; (e) the indenture trustee for the prepetition
10.625% Senior Secured Notes due March 15, 2019; (f) the indenture trustee for the prepetition
9.95% Senior Notes due July 1, 2018; (g) the indenture trustee for the prepetition 9.75% Senior
Secured Notes due March 1, 2018; (h) the indenture trustee for the prepetition 7.00%
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Convertible Senior Notes due April 1, 2017; (i) the Securities and Exchange Commission; (j)
the United States Attorney for the Southern District of New York; (k) the Internal Revenue
Service; (1) the Environmental Protection Agency; (m) the Pension Benefit Guaranty
Corporation; (n) counsel to KPP Trustees Limited, the trustee of the Kodak Pension Plan; (o)
counsel to the Ad Hoc Committee of Holders of Senior Secured Notes; and (p) counsel to the
agent under the proposed Debtor-In-Possession Credit Agreement. Due to the urgency of the
circumstances surrounding this Motion and the nature of the relief requested herein, the Debtors
respectfully submit that further notice of this Motion is neither required nor necessary.
No Prior Request
77. The Debtors have not previously sought the relief requested herein from
this or any other court.
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WHEREFORE, the Debtors respectfully request that the Court enter the DIP
Orders and grant such other and further relief to the Debtors as is appropriate.
Dated: January 19, 2012 /5/ Andrew G. Dietderich New York, New York Andrew G. Dietderich John J. Jerome Michael H. Torkin Mark U. Schneiderman SULLIVAN & CROMWELL LLP 125 Broad Street New York, New York 10004 Telephone: (212) 558-4000 Facsimile: (212) 558-3588
- and -
Pauline K. Morgan Joseph M. Barry YOUNG CONAWAY STARGATT & TAYLOR, LLP 1270 Avenue of the Americas Suite 2210 New York 10020 Telephone: (212) 332-8840 Facsimile: (212) 332-8855
Proposed Counsel to the Debtors and Debtors in Possession
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