turnarounds Inside workouts News for People Tracking Distressed Businesses

NOVEMBER 2011 VOLUME 25, NUMBER 11 Latest Reports: Distress High in High-Tech Sectors • High-Tech Industry at Risk Consumer Electronics, Telecom Industries Most at Risk of Financial Distress by Dave Buzzell • David Resnick to Receive When Karl Roberts and Michael Weyrich of AlixPartners began looking at the numbers Harvey Miller Award at 2011 collected from their global survey of the high-tech industry, they expected to find an Distressed Investing industry that had emerged from the recession in decent shape and well positioned in the near term, with healthy balance sheets and good growth prospects. “What we found, Conference instead,” says Roberts, “were more companies than expected that are currently at risk of • Distressed Situations Alter financial distress or in financial distress.” Directors’ Responsibilities Roberts is head of AlixPartners’ high-tech practice in North America and Weyrich is co-head of the firm’s high-tech practice in Europe, Middle East, and Asia. Their findings, published in AlixPartners Global High-Tech Industry Outlook, are based on a Research Report: continued on page 2 Who’s Who in Jackson Hewitt Tax Service Inc. Resnick Honored with Miller Award Special Report: Presentation at 2011 Distressed Investing Conference by Julie Schaeffer Nation’s Largest Claims When the Turnaround and Restructuring group at the University of Chicago Graduate Administrators School of Business invited alumnus David Resnick to speak about changes in the restructuring industry at its 2009 annual conference, he paused. Worth Reading: “I never really thought of myself as having done it that long,” he laughs. Truth be told, Resnick is a veteran of the restructuring industry, with a rich history George Eastman: Founder that spans almost 26 years and four notable firms, including Merrill Lynch & Co., Lazard of Kodak and the Photography Freres & Co., Peter J. Solomon Company, and now Rothschild Inc., where he is chairman of the firm’s global financing advisory business. Business continued on page 2

Special Report: Distressed Assets, Fiduciary Duties Outstanding Turnaround Board Responsibilities Change with Company’s Health Firms – 2011 by Julie Schaeffer When a company is healthy, most boards of directors know their fiduciary duties regarding asset sales – but those duties change dramatically when the company is distressed, according to restructuring professionals. “When a company is healthy, the board must consider its primary constituents, the company’s shareholders, and maximize recovery for them,” says Patrick Burns, an associate in Dinsmore & Shohl’s business restructuring and reorganization group. “However, as a company slips toward insolvency, creditors of the corporation become the primary stakeholders concerned with maximizing value.” This, says Burns, has led to “substantial confusion and significant case law regarding continued on page 2 2 Turnarounds & Workouts November 2011

High-Tech, from page 1 Resnick, from page 1 Distressed, from page 1 compilation and analysis of financial data It’s no surprise, then, that Resnick has the fiduciary obligations of a board of from over 1,200 high-tech companies. been honored with the 2011 Harvey R. directors when the economic conditions of It is an industry that generated almost Miller Outstanding Achievement Award a business falter and eventually deteriorate $5 trillion in revenues in 2010 and is a for Service to the Restructuring Industry. into insolvency and/or bankruptcy.” presence in nearly every business and The lessons he’s learned through his The question is, to whom do directors household around the world. career make Resnick a natural choice – to owe fiduciary duties – and who may The study divides the high-tech industry everyone but him, perhaps. Humility, it bring a claim against the board for alleged into nine key sectors: channel (distribution seems, is also one of his strengths. violations of their fiduciary obligations? and retail), contract manufacturing, “Harvey is someone with whom I “Delaware case law indicates that, as internet/digital media, computer hardware worked early in my career, and from whom a corporation approaches insolvency, the and electronic equipment, software, I have learned a great deal, but he is much directors continue to have a fiduciary semiconductors, consumer electronics, more knowledgeable than me, so I was obligation to maximize the value of the telecom, and technology companies, which honored that he and those involved in enterprise,” says Paige Connelly, also an include corporations such as Apple that cut selecting the nominee felt my contributions associate in Dinsmore & Shohl’s business across several sectors. A comparison of the merit this recognition,” says Resnick. restructuring and reorganization group. financial performance among these sectors, Perhaps that humility stems from “Once the corporation is insolvent, the and the further delineation within each of Resnick’s childhood in Baltimore, where directors’ fiduciary obligations remain those sectors by quartile of performance, his mother (a social worker) and father the same, but the beneficiary stakeholders produced some intriguing findings. (who owned a dry cleaner and later helped become the creditors of the corporation.” For example, the study found that top run a local candy manufacturer) taught The Delaware Supreme Court clarified quartile performers generate 4.5 times as him the values that would guide him this issue in 2007 in Gheewalla, when it much EBITDA as a percent of revenue through his professional pursuits. ruled that when a corporation is insolvent, as the bottom 25 percent of performers. As is the case with most teenagers, that insolvency “makes the creditors the Of even more significance, those top however, Resnick was eager to spread his principal constituency injured by any quartile performers are reinvesting capital wings, and left Baltimore at 18 to attend fiduciary breaches that diminish the at a much higher rate than their low- Wesleyan University in Middletown, firm’s value,” and gives those creditors achieving counterparts. Characterizing Connecticut. After obtaining a bachelor’s standing to make derivative claims against these findings as surprising, Roberts says, in European history with high honors, he directors for breaches of fiduciary duties “My takeaway is that winners and losers found his way to the University of Chicago, (although creditors may not bring direct are beginning to emerge. The winners where he received a master’s degree in claims against directors for breach of their are reinvesting and getting stronger over business administration and a juris doctor. fiduciary duties). time and the losers are frankly losing their As it turns out, law was not Resnick’s Thus, in evaluating asset sales of ability to compete.” calling. “I always thought I would practice distressed companies, directors must Weyrich adds that this finding is a law, and I worked as summer associate understand where a company is in its possible harbinger of increased mergers at several law firms, but I wasn’t happy,” lifecycle in order to be aware of their and acquisitions in this industry. “For the says Resnick. “Eventually I realized that fiduciary obligations and potential pitfalls. winners, there is an increasingly attractive it wasn’t the firm, it was me.” According to Burns and Connelly, one M&A opportunity in companies that are More specifically, Resnick was pitfall is directors not being informed not doing well in the current environment.” interested in finance, as reflected by his when determining whether to approve Speaking of winners and losers, some first post-graduate job in the investment a transaction prior to submitting the high-tech sectors are faring considerably banking division of Merrill Lynch & Co. proposal to the corporation’s shareholders. better than others as measured by their Initially a generalist, after two years he In determining whether directors are Altman Z-score, a predictor of future found his niche in the merchant banking/ informed, the business judgment rule, financial condition. The financial stress restructuring and mergers and acquisitions which presumes directors made their in the consumer electronics and telecom groups. His timing couldn’t have been decisions “on an informed basis, in good sectors is particularly acute. Ninety percent better: It was 1987. The stock market had faith, and with the honest belief that the of consumer electronics companies are crashed and the high-yield debt market had action was in the best interest of the either “at risk” or “high risk,” and 70 come to a halt. “Merchant banking activity corporation” usually applies, says Burns. percent of telecom companies fall into one slowed dramatically, but many companies, However, he continues, that of these two upper-end risk categories. including Merrill, had made a number of presumption can be rebutted “if the Roberts believes that the high level of investments they needed to restructure,” plaintiff can show that the directors were stress being experienced in the consumer says Resnick. “That’s how I found my way self-interested, lacked independence, were electronics sector is a consequence of low into the restructuring business.” grossly negligent in properly informing product demand and increased competition. Resnick had a good run at Merrill Lynch, themselves of the details of the transaction, “Some very large companies have suffered but by 1990, the economic environment or that the transaction cannot be attributed from the economic downturn. Demand had changed and business was slowing. to any rational business purpose.” has not recovered, but the technological Seeking a position with more stability, Another pitfall occurs when the directors challenges remain. Most devices have a Resnick turned to Lazard, which was seek hurried sale transactions, as was the continued on page 4 continued on page 4 continued on page 4 November 2011 Turnarounds & Workouts 3 Research Report Who’s Who in Jackson Hewitt Tax Service Inc. by Francoise C. Arsenault

Jackson Hewitt Tax Service Inc. might be at risk. The restrictions caused W. Clark, Gregory A. Fernicola, Stuart (Jackson Hewitt) is the second largest tax difficulties with lenders when the company M. Finkelstein, J. Gregory Milmoe, preparation service in the United States failed to secure full funding for the loans, a Kenneth A. Plevan, and Stephanie L. behind H&R Block. In 2010, Jackson key covenant in its credit agreement. Teicher, partners with the firm, and Joy Hewitt tax preparers filed more than 2.2 At the end of January 2011, Jackson E. Maddox, of counsel million federal, state, and local individual Hewitt owed more than $363 million, Alvarez & Marsal North America, income tax returns for its customers using with a $30 million payment due in April LLC is providing financial advisory its proprietary ProFiler decision-tree 2011. The company had announced that it services. Richard J. Mizak, senior director software. The company operates more would default on the loan if the regulators in the firm’s New York office, Dennis than 5,800 franchise outlets and 724 banned the refund anticipation loans. Stogsdill, a managing director in the New owned offices in 48 states and the District In its pre-packaged bankruptcy filing, York office, and Elizabeth Babbitt, a of Columbia. Approximately one-fourth Jackson Hewitt reported $388.6 million managing director in the Chicago office, of Jackson Hewitt’s offices are located in assets and $444.8 million in liabilities. are leading the engagement. inside Wal-Mart and Kmart stores and in On August 8, 2011, Jackson Hewitt won Moelis & Company LLC is providing shopping mall kiosks. bankruptcy court approval of its amended investment banking services. Steven G. Jackson Hewitt was founded in Norfolk, plan of reorganization (filed on August 5, Panagos, managing director and vice Virginia in 1982 by former H&R Block 2011). The amended plan, which had the chairman of the Recapitalization and employee John Hewitt and his wife. approval of 100 percent of the company’s Restructuring Group, directs the work. With about a dozen investors, the couple lenders, provides that the company will Deloitte & Touche LLP is serving as purchased the six-location Mel Jackson’s emerge from bankruptcy under the control independent auditor. Michael Power, a Tax Service and renamed it Jackson Hewitt. of lenders led by Bayside Capital. The partner with the firm, heads up the team. By 1992, Jackson Hewitt had become the Bayside Capital group will take a 75 to Hilco Real Estate, LLC is special real country’s second largest tax preparer. In 80 percent stake in Jackson Hewitt, with estate consultant. Joseph A. Malfitano, 1998, Jackson Hewitt was acquired by the remainder of the company going to executive vice president of Hilco Trading, Cendant Corporation for $480 million. Wells Fargo & Co and the Bank of Ireland. LLC and managing member of Hilco Real Jackson Hewitt Tax Service Inc. was spun The creditors have agreed to provide the Estate, LLC, directs the work. off as a separate company in 2004. company with a new $115 million loan. The Beckerman Public Relations is Jackson Hewitt, which is headquartered plan of reorganization also creates a $1.1 providing public relations and in Parsippany, New Jersey, had more than million trust to be paid out to unsecured communications advisory services. $213 million in revenue in 2010 and creditors and will also allow a trustee Michael J. LaCosta, a vice president employed more than 6,000 workers. About to pursue approximately $2 million in with the firm, leads the engagement. 94 percent of the company’s revenues avoidance actions on behalf of unsecured The Official Committee of Unsecured are generated during the tax season of creditors. Shareholders will recover Creditors January 1 through April 30. nothing under the plan of reorganization. The Committee includes Christian Jackson Hewitt and five of its subsidiaries Jackson Hewitt officially emerged from and Elizabeth Harper; Sherita Fugate; filed for Chapter 11 reorganization on May bankruptcy on August 16, 2011. and Fastax Properties of Baltimore. 24, 2011, in the United States Bankruptcy The Debtor Duane Morris LLP is serving as Court for the District of Delaware. Margaret Richardson is Chairman counsel. The team includes Walter J. According to Jackson Hewitt officials, the of the Board. Philip H. Sanford is the Greenhalgh, Paul D. Moore, Michael company filed for bankruptcy protection President and the Chief Executive Officer. R. Lastowski, Richard W. Riley, Sheila after regulators with the Federal Deposit Daniel P. O’Brien is an Executive Vice R. Wiggins, Christopher M. Winter, and Insurance Company, the Office of the President, the Chief Financial Officer, Jocelyn M. Borowsky, partners. Comptroller of the Currency, and other and Treasurer. Steven L. Barnett is BDO Consulting is providing financial agencies began clamping down on the an Executive Vice President, General advisory services to the Committee. David high interest refund anticipation loans Counsel, and the Corporate Secretary. E. Berliner, a partner in the firm’s New that tax preparers such as Jackson Hewitt Deborah K. Dowd is Senior Vice York office, leads the engagement. provide to customers expecting refunds. President and the Chief Marketing Officer. The Trustee The regulators called the loans unsafe, Skadden, Arps, Slate, Meagher The U.S. trustee is Roberta A. making it more difficult for tax preparers & Flom LLP is bankruptcy counsel DeAngelis. to secure funding for them. The IRS also to Jackson Hewitt. The team includes The Judge stopped providing tax preparers with Richard L. Brusca, M a r k A . The judge is the Honorable Mary F. advance notice of filers whose returns McDermott, Mark S. Chehi, Anthony Walrath. ¤ 4 Turnarounds & Workouts November 2011

High-Tech, from page 2 financing market is very tight.” One result, observes Weyrich, is that, product life cycle of six to nine months. If as the Western European markets have that investment cycle is not timed right or matured, capital has begun flowing demand is softer than anticipated, it doesn’t elsewhere. “There has been a significant take many product cycles to put a company step up in investment in the Middle East into real trouble.” and Africa by Western Europe players in The telecom sector is even more troubled, the telecom space.” Calendar with more than one half of all global Regionally, companies based in Asia/ companies at “high risk” of financial distress. the Pacific Rim account for 47.7 percent Practising Law Institute Roberts says the telecom companies’ high of global revenue generated by the high- Nuts and Bolts of Corporate stress level is largely due to their high debt tech companies. North American firms are Bankruptcy 2011 Seminar loads. “Among the telecoms, a lot of capital next with a 30.5 percent share, followed by November 17-18, 2011 is required to keep pace with technological Europe at 16.2 percent. Roberts says this San Francisco, CA change. In the cell phone universe, for disparity, as well as the factors underlying Contact: www.pli.edu example, cell phones have progressed from it, were another interesting finding of the second generation to third generation, and survey. “A lot of high-tech companies ALI-ABA now many regions are moving into fourth emerging over time have been based in Asia.” Commercial Real Estate Defaults, generation. Every time that technological One reason, says Roberts, is that Asian Workouts, and Reorganizations crank is turned, companies have to upgrade companies are more accepting of lower November 17-19, 2011 the infrastructure that supports it. Telecom overall profit margins. “We were quite The Westin Casuarina companies have a big appetite for capital, surprised to find that Asian companies Las Vegas, NV and have been borrowing heavily to meet it.” on average generate EBITDA of only Contact: www.ali-aba.org According to Weyrich, the picture in one half the rate of North American and Beard Group Europe is even less attractive, with EBITDA European companies. They are leveraging 18th Annual Conference on of European telecoms having dropped 5 that willingness for lower margins to grow Distressed Investing percentage points over the last four years. market share. As it turns out, the Asian November 28, 2011 “Regulatory changes have caused roaming companies are actually growing faster than The Helmsley Park Lane Hotel and data-use prices to fall substantially. companies based in North America and New York, NY At the same time, the European market is Europe.” Contact: (240) 629-3300 heavily saturated. People can only have so More findings of this nature can be found many cell phones. That puts pressure on in an abbreviated version of the study, American Bankruptcy Institute profitability. A lot of capital is required to available at http://www.alixpartners.com/ 23rd Annual Winter Leadership build 4G networks, increase capacity, and en/WhatWeThink/HighTech/2011GlobalH Conference make other upgrades at a time when the ighTechOutlook.aspx. ¤ December 1-3, 2011 La Quinta Resort & Club La Quinta, CA Resnick, from page 2 By 1996, the restructuring boom had Contact: www.abiworld.org waned, and Lazard was shifting its staff to looking to build a restructuring business. mergers and acquisitions, which didn’t work VALCON 2012 “Lazard had a different culture because it for Resnick, who preferred the complexity February 22-25, 2012 was purely an advisory firm,” says Resnick, of restructuring and the fact that each Four Seasons Hotel who found the mentoring he obtained, in project is different from the last. But when a Las Vegas, NV particular from David Supino, invaluable. headhunter called and said Peter J. Solomon Contact: www.aira.org “The senior people were much more hands- Company (PJSC) was looking for someone on because Lazard didn’t do the same volume to launch its restructuring group, Resnick National Association of Bankruptcy as a large investment bank, and I was given knew taking the job would be a risk. “I Trustees a tremendous amount of responsibility. It didn’t know if I had the skills to build a team 2012 Spring Seminar was sink or swim: They gave you the rope and develop business on my own,” he says, March 30-31, 2012 and you either pulled everything forward or The Venetian/Palazzo hung yourself with it. That worked for me.” continued on page 6 Las Vegas, NV Contact: www.nabt.com

Distressed, from page 2 important decision-making authority to a Turnaround Management restructuring professional, and by failing to Association case in Bridgeport Holdings v. Boyer. There, sufficiently monitor the execution of the sale. TMA 2012 Spring Conference a board of directors sought a hasty asset sale “Bridgeport Holdings is a warning to April 3-5, 2012 on the eve of a bankruptcy filing. In response, directors of companies suffering from Grand Hyatt Atlanta the Delaware Bankruptcy Court ruled deteriorating financial conditions,” says Atlanta, GA that the directors breached their fiduciary Connelly. “The board of directors of a Contact: www.turnaround.org duty by failing to inform themselves of all material information, by abdicating continued on page 8 ¤ November 2011 Turnarounds & Workouts 5 Special Report

Nation’s Largest Claims Administrators

Firm Key Contacts Recent Cases

AlixPartners Information Meade Monger Barry Folse Claims agent, claims administration, or post-confirmation Management Services Michelle Campbell Carrianne Basler services in Solyndra, Nebraska Book, Borders Group, ChemRX, Dallas, TX John Franks David Head Movie Gallery, Innkeepers, Lauth Investments, Centaur Gaming, www.alixpartners.com Todd Brents Texas Rangers, Victor Valley Hospital, Freedom FCH Litigation Trust, Trico Marine Services, Millennium (LyondellBasell) trust, and Madoff Securities.

BMC Group Tinamarie Feil Varouj Bakhshian BK: Allegro Law, Barcalounger, Corus Bankshares, Erickson Los Angeles, Minneapolis, New York, Rocio Crespo “MJ” Myrtle John Retirement Communities, FairPoint Commnuications, Graceway London Lynne Long Terri Marshall Pharmaceuticals, Harrington West Financial Group, Insight Health www.bmcgroup.com Oliver Zurbel Melissa Coopersmith Services, Jennifer Convertibles, Palm Harbor Homes, Taylor, Bean & Whitaker Mortgage, Ultimate Escapes, Urban Brands. In Class Action: Dell, H&R Block, ING, Proctor & Gamble.

CPT Group Henry Arjad Julie Green Jack in the Box, Safeway, Whittier Presbyterian, Longwood, Irvine, CA Nextel Communications, Rite Aid, E-Trade, Taco Bell, T Mobile, www.cptgroup.com Best Buy, LA Fitness, Direct TV, 24 Hour Fitness, K&B Homes, AT&T.

Delaware Claims Agency Joseph L. King Vion Pharmaceuticals, Inc.; Moll Industries, et al.; FPD, LLC, et Wilmington, DE al.; Frank Parson, Inc.; Signatures Styles, LLC. 302- 658-1067 www.delclaims.com

Epiq Bankruptcy Solutions Lorenzo Mendizabal James Katchadurian AbitibiBowater, BankUnited Financial, Chrysler, Frontier NY, Del., Hartford, Chicago, LA, Portland, Ron Jacobs Jane Sullivan Airlines Holdings, Friendly Ice Cream, Los Angeles Dodgers, Phoenix, London, Hong Kong, Brussels Daniel C. McElhinney W. Lance Wickel Lehman Brothers, Nortel Networks, Saint Vincents Catholic www.epiq11.com Thomas Stenson Mitch Ryan Medical Centers, Sbarro, Smurfit-Stone Container, Southwest Georgia Ethanol, Tribune Co., Thompson Publishing.

GCG Karen B. Shaer Emily Gottlieb Borders Group, Harry & David Holdings, Jackson Hewitt Tax Lake Success, NY Jeff Stein Greg Haber Service, Dallas Stars L.P., Howrey, TerreStar Corporation, Inner www.gcginc.com Angela Ferrante City Media Corporation, 155 East Tropicana, Bowe Systec, Evans Oil Company, Manistique Papers, Securities National Properties Funding III, The Philadelphia Orchestra Association, United Gilsonite Laboratories, Summit Business Media Holding Company, The McBruney Corporation, Shengda Tech.

KRyS Global Margot MacInnis Edmund Rahming Fairfield Sentry Limited – The main feeder fund invested in Cayman Islands, British Virgin Islands, Joanna Lau Patrick McPhee Bernard L. Madoff Investment Securities LLC. This engagement Bahamas, Bermuda received successful Chapter 15 recognition in the United States www.KRyS-Global.com despite opposition, and involved creative cross-border litigation strategies to recover client investments.

Kurtzman Carson Consultants Eric Kurtzman Howard Blaustein Ultimate Acquisition Partners, MSR Resort Golf Course, Seahawk www.kccllc.com Jonathan Carson Francine Gordon Drilling Inc., DSI Holdings Inc., Nebraska Book Company, Otero Michael Frishberg Nellwyn Voorhies County Hospital Association, NewPage Corporation, Alexander Benjamin Schrag Sarah Frankel Gallo Holdings, Appleseed’s Intermediate Holdings d/b/a Orchard Bryan Butvick Brands, Constar International Inc., Giordano’s, Marco Polo Seatrade B.V., Barnes Bay Development, Caribe Media Inc.

Logan & Company Kathleen Logan Melissa Mendez RHI Entertainment, Open Range Communications, Amelia Island Upper Montclair, NJ Company, Barzel Industries, BNA Subsidiaries, Condustrial, loganandco.com Freedom Communications Holdings, Goody’s, Goody’s Family Clothing, JGW Holdco, MPC Computers, and others.

Omni Management Group Brian Osborne Eric Schwarz Perkins Marie Callenders, Innkeepers USA, Mervyn’s Holdings, Encino, CA Paul Deutch Metropark USA, Lehr Construction, Molecular Insight www.omnimgt.com Pharmaceuticals, Blockbuster (Committee), Barnes & Noble (Committee), Harry & David (Committee), Round Table Pizza (Committee), Crystal Cathedral (Committee), and others. ¤ 6 Turnarounds & Workouts November 2011

Resnick, from page 4 though ultimately, he accepted the offer. “I knew it was a fork in the road, but my sense was, I was at a point in my career where I could take the risk,” he says. “If it didn’t work out, I could always go back Worth Reading to a big firm and be an investment banker George Eastman: Founder of Kodak and the doing M&A.” The move to PJSC turned out to be a Photography Business pivotal one in Resnick’s career. “I hit the Author: Carl W. Ackerman road and made pitches, and ultimately Publisher: Beard Books was able to get some business on my own,” he says. “They were small matters Softcover: 522 pages – the first was the restructuring Discovery List Price: $34.95 Zone, one of the first children’s play Eastman Kodak and the company’s founder, George Eastman, were the Apple and centers – so it wasn’t a big deal. But I’ll Steve Jobs of their time. Just as the Apple and Macintosh computer brought personal always remember it because that was computing to the masses, Eastman’s inventions transformed photography into a relatively when I knew I could not only do the inexpensive and enormously popular activity. Jobs’ products have spawned entirely work, but get the business.” new industries. Eastman’s inventions did the same, helping usher in, for example, the By 2000, Resnick had built PJSC’s age of cinematography. restructuring business to 10 people, This biography of Eastman provides a fascinating look at the inventions, which was meaningful in a boutique management style, interests, and causes of one of America’s foremost entrepreneurs. firm of approximately 30 people. He had Eastman was born in Waterville, New York. At the age of 23, while working as a also created a name for himself in the bank clerk, Eastman bought a camera and set in motion a revolution in photography. restructuring business – so when Jerry At the time, photographers themselves mixed chemicals to make light-sensitive Rosenfeld, whom Resnick had worked emulsions and covered glass plates (called “wet plates”) with the emulsions, taking with at Lazard, came calling, Resnick photographs before the emulsions dried. It was an awkward, messy, time-sensitive, was prepared for his next career move. “A undertaking. Eastman developed a process using dry plates and, in 1884, patented a restructuring is a critical event, and you machine to produce coated dry plates. He began selling photographic plates using his find that when a CEO or CFO goes to a machines, as well as leasing his patent to foreign manufacturers. board of directors and says, ‘We’re hiring With the goal of reducing the size and weight of photographic equipment, Eastman Firm X to represent us,’ Firm X had better then began investigating possibilities for a flexible film. He and William E. Walker be a recognizable name, because boards developed the first such film, cut in narrow strips and wound on a roller device aren’t comfortable with the unknown in patented by Eastman. The Eastman Dry Plate and Film Co. began producing the such an important matter,” says Resnick. film commercially in 1885. In 1888, Eastman patented the hand-held Kodak camera, “At PJSC, we were good at what we did, designed specifically for roll film and initially priced at $25. (He made up the word and were recommended by lawyers, but “Kodak” using the first letter of his mother’s maiden name, Kilbourne.) we didn’t have a recognizable brand, so In 1889, Eastman began working with Thomas Edison, inventor of the motion we found ourselves losing some larger, picture camera. Edison’s increasingly sophisticated models required a stronger, more more interesting restructurings. When flexible transparent film, which Eastman was able to deliver. He founded Eastman Jerry suggested I move over to Rothschild, Kodak Co. in 1892 and began mass-producing a range of photographic equipment. where he was running the North American Eastman was an astute businessman. He dealt shrewdly with competitors and business, I saw it as an opportunity to sometimes fell out with former collaborators. Indeed, some of them filed and won market and grow a restructuring business.” patent infringement lawsuits against him. He was tireless in his inventing and Today, Resnick has built Rothschild’s entrepreneurial endeavors, however. In the early day, he often slept in a hammock restructuring group to 40 people, and at the factory and cooked his own food there. His mother regularly showed up and spends his time both on managerial duties, insisted that he go home for a good meal and full night’s sleep. Eastman demanded as well as continuing to advise companies much of his employees, but no more than he demanded of himself. on restructuring transactions. This book draws on the contents of 100,000 letters to and from Eastman’s friends, In addition to providing him with the family, investors, competitors, employees, and fellow inventors, along with Eastman’s opportunity to work on complex and high- records and notes on his various inventions. The result is a meticulously detailed profile deals – such as a recent assignment account of Eastman’s many interests and hands-on management style. advising the AIG board in its restructuring Eastman died in 1932, but the company he created lived on as a major twentieth negotiations with the U.S. Treasury and century corporation. Today, however, Eastman Kodak teeters on the brink of Federal Reserve – the role allows him to bankruptcy, a victim of foreign competition and the digital revolution in photography share a quarter-century of lessons learned – a revolution Steve Jobs and Apple helped create. ¤ in a relatively new business. “One of the most important things I’ve This book may be ordered by calling 888-563-4573 or by visiting www.beardbooks.com. This learned, and try to communicate, is that book and other Beard books are also now available in digital format at a discounted price from Google Books at books.google.com. continued on page 8 November 2011 Turnarounds & Workouts 7 Special Report Outstanding Turnaround Firms – 2011

Firm Senior Professionals Outstanding Achievements

AlixPartners John Castellano Kevin McShea General Motors, the largest industrial restructuring in history, New York, NY Lisa Donahue Jim Mesterharm concluded with successful bankruptcy of Motors Liquidation www.alixpartners.com Peter Fitzsimmons Becky Roof Co. (Old GM). Advisor and/or interim manager to Trico Marine, Holly Etlin Larry Young White Birch Paper, Reader’s Digest, Borders, BearingPoint. Alan Holtz

Alvarez & Marsal Peter Briggs Bill Runge Interim mgmt. roles at Lehman Brothers, Washington Mutual, New York, NY Lawrence Hirsh Jeff Stegenga YRC Worldwide, Blockbuster, Chemtura, European Directories, alvarezandmarsal.com Bill Kosturos Dennis Stogsdill Palm Harbor Homes, Silentnight, and Harry & David. FA to Doug McIntosh John Suckow Appleseed’s Intermediate Holdings and The Tribune Company.

Executive Sounding Board Martin I. Katz Myron A. Bloom Chief trustee after Carlyle Group credit purchase, Metaldyne Associates Robert D. Katz Richard W. Moskwa Liquidating Trust; FA to prominent not-for-profit; CRO, Sonix Philadelphia, PA Michael DuFrayne Roy Lewis Resources; Section 363 sale & refinancing, Classic Brands; www.esba.com Bert Weil Robert Agarwal Restructuring adviser, world-renowned confectionary mfr.

FTI Consulting Michael Buenzow Ron Greenspan CRO to Cagles, Open Range Communications, Allen Family New York, NY Keith Cooper Kevin Lavin Foods; FA to NewPage, Vertis, American Apparel, TXCO www.fticonsulting.com Bob Duffy Bob Medlin Resources; represented UCC of A&P, Terrestar Networks, Harry Michael Eisenband Carlyn Taylor & David Holdings, Lehman; represented bondholders of Nortel.

Getzler Henrich & Associates Joel Getzler Lee Goldberg CRO and FA to National Envelope, largest envelope mfr. in U.S.; New York, NY William Henrich Frank Melazzo Advisor to employee pension fund in Philadelphia Orchestra www.getzlerhenrich.com Peter Furman Marc Adelson Chapter 11; CRO to Innovative Companies, Precision Valve Mark Samson Stephan Pinsly Corp., Vira Manufacturing, etc.; FA to DVI, LDH Energy, etc.

GlassRatner Advisory & Ronald L. Glass Evan Blum National real estate receiver practice currently operating in Capital Group Ian Ratner Jim Fox 18 states; managing assets for Fannie Mae, Sovereign Bank, Atlanta, Miami, New York, Margaret Smith Mike Issa Midland Loan Servicing, Trimont, etc.; CRO and FA advisor Chicago, Southern California Tom Santoro Steve Kunkel to AmTrust Bank Holding Co.; liquidation trustee for CMI. www.glassratner.com

Goldin Associates Harrison J. Goldin David Prager Advisor or interim manager: Bearing Point, Ellen Tracy, Lehman New York, NY David Pauker Gary Polkowitz Brothers, Qimonda, Rescap (directors), Syncora Guaranty, www.goldinassociates.com Seymour Preston Jr. Erik Graber Thornburg Mortgage. Creditor/lender/committee advisor: Boston Rob Vanderbeek Deborah Friedland Generating, City of Harrisburg, Point Blank, Premier Trailer, etc.

Huron Consulting Group Chris Martorella Dawn Gideon CRO to Hussey Copper, New United Motor Manufacturing, Chicago, IL Dalton Edgecomb Dan Wikel Forum Health, JHT Holdings, and Neenah Enterprises. FA to www.huronconsultinggroup. Shaun Martin James Lukenda Banning Lewis Ranch, Federal Signal Corporation, The Great com Hugh Sawyer David Bitterman Atlantic and Pacific Tea Co., AbitibiBowater, and Kazi Foods.

Mesirow Financial Ralph Tuliano Ben Pickering Interim mgmt. to VibrantLiving Communities, Lake County Consulting Tom Allison Kevin Krakora Press, and a major pharmaceutical company. FA to debtor: Brown New York, NY Larry Lattig Stephen Darr Publishing. FA to UCC: Neff, Sbarro , Oscient, Nebraska Book, www.mesirowfinancial.com Jim Nugent Melissa Kibler Knoll Gas City, Bigler, NAPCUS, and Local Insight Media.

NHB Advisors Thomas D. Hays, III Peter Hartheimer Turnaround of $300 MM luxury goods multimedia company; Narberth, PA Edward T. “Ted” Gavin Jon Jensen CRO of national school fund-raising company; turnaround of www.nhbteam.com Harvey L. Nachman Mike Savage wetlands mitigation bank and several auto dealers. Litigation/ Gary Adelson Ross Waetzman liquidating/plan administrator roles in Montgomery Wards, etc.

Phoenix Management Mitchell Arden Brian Gleason CRO of $300+ million Orleans Homebuilders and $45 million Services Vince Colistra Michael Jacoby Gas Turbine Efficiency. CFO of $250 million meat processing Philadelphia, PA James Fleet co.; CRO/CFO of $180 million Hamilton Steel; CEO/CFO of www.phoenixmanagement.com $150 million Encompass Affiliates. FA to Ellery Homestyles, etc

Sitrick Brincko Group John Brincko Alan Faigin Independent director/litigation committee of EMAK with plan Santa Monica, CA David Phelps Paul Meyaart confirmation; expert witness for major financial institution in $3 sitrickbrincko.com Thora Thoroddsen James Cunningham billion damages claim; claims litigation, Spansion; advisor, Egg Larry Candido Yolanda Hoelscher company; advisors to One West Bank; trustee, NCMortgage, etc. ¤ 8 Turnarounds & Workouts November 2011

Resnick, from page 6 Lazard’s Supino had on his approach. If the past is any indication, Resnick “Restructuring is a business where there’s will certainly continue in that vein we, as bankers, can contribute, but we’re not not enough value for everyone,” he says. “As because the restructuring industry going to have all the answers. We can advise a result, a lot of people in the business are – as he told University of Chicago our clients most effectively if we put a team known for screaming and yelling and banging students in 2009 – is still active. together that includes the company’s senior fists on the table. David, in contrast, was calm “We’ve kept business despite the fact management, lawyers, and investment in the midst of difficult situations. He knew if that the big wave of restructurings bankers, and we all work together.” you really want to find a solution, you focus ended. The work is different from To that end, he utilizes skills he learned on bringing people together, laying out all what our group did two years ago from two mentors, one being Nate Thorne, their arguments, doing thorough analysis, and when we were handling many big with whom Resnick worked at Merrill Lynch. looking for a common thread.” cases, like Delphi, LyondellBassell, “He’s one of those people who didn’t have Both of those skills, says Resnick, have Trident Resources, Chrysler, and GM. any constraints in regard to approaching served him well. “I’ve learned to have a lot of Mid-cap companies are the ones in a problem,” says Resnick. “He always patience. You’re much more effective if you trouble now because they don’t have pushed the envelope in terms of finding develop relationships, listen to other people’s access to the capital markets, so they solutions, and that’s what you have to do to ideas, and put yourself in their shoes than if lack liquidity. But there will always be successful in restructuring.” you come in and say, ‘Here’s the answer I’ve be companies that face balance sheet Resnick also acknowledges the impact come up with.’” challenges.” ¤

Distressed, from page 4 be completely frozen out of any recovery and other potential exit proposals, from the sale proceeds.” negotiating on behalf of the debtors, distressed company should seek assistance To counteract potential objections, and approving all actions with from restructuring professionals in a timely Connelly says it is important to ensure that respect to a transaction.” manner, and the directors should oversee the proper steps are taken in establishing the Next, says Burns, the directors actions of such professionals throughout the sales process, marketing the assets, and should market the assets. Typically, due diligence and sales process, rather than entering into an asset purchase agreement so this will be handled by a financial relinquish all authority to them.” the court will be satisfied that the directors advisor or investment banker, and Connelly also urges directors to consider understood and properly satisfied their result in a form asset purchase all creditor constituencies, including senior fiduciary obligations. agreement wherein the counterparty secured lenders, subordinate secured According to Burns, directors should will agree to make a stalking-horse lenders, and general unsecured creditors – start by establishing the sales process, which bid that includes provisions that however difficult it may be. likely involves naming a special committee require the assets to be sold pursuant “In most instances, the interests of these to evaluate possible exit opportunities, to Section 363 of the Bankruptcy parties will vary, especially when a debtor including bids for assets of the company. Code and include a timeline for the is pursuing a sale of assets that is unlikely “Because management may be supportive of sale to occur,” says Burns. “In return, to pay the creditors in full, and often will one buyer, and the board may be affiliated the debtor should seek a lock-up leave the more junior creditors without any with potential bidders, the board should agreement wherein the buyer agrees recoveries at all,” she notes. “As a result, a initially name a special committee consisting to support an open auction process sales process that begins prior to the filing of independent directors (or, in some and not disturb the sale if it is not the of a bankruptcy petition may be subject to instances, a sole director),” says Burns. best bid as determined by the debtor.” objections filed by junior creditors that are “This committee should have clearly defined Finally, says Burns, with a stalking likely to receive minimal distributions, or duties, including evaluating bids for assets horse bidder in place, the debtor should file a motion to establish a bidding and auction process. This process should be long enough to In the Next Issue… fully market the property and allow enough time for interested buyers to • Special Report: Sources of DIP Financing perform appropriate due diligence. • Special Report: Outstanding Restructuring Lawyers – 2011 At the conclusion of the auction, the debtor will seek court approval to • Research Report: Who’s Who in NewPage Corporation close the transaction with the highest or best bid at the auction. ¤

Turnarounds & Workouts is published monthly by Beard Group, P.O. Box 4250, Freder- ick, MD 21705 (240) 629-3300. Fax (240) 629-3360. Copyright 2011 by Beard Group. ISSN 0889-1699. All rights reserved; unauthorized reproduction strictly prohibited. Publisher: Christopher Beard. Editor: Nina Novak ([email protected]). Assistant Edi- tors: David Buzzell, Julie Schaeffer, Francoise C. Arsenault. Subscription Rate: $397/ year. Send comments and coverage suggestions to above address or [email protected].