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THE LONG SPIRAL: EASTMAN KODAK’S BANKRUPTCY

Nathaniel Greene* &

Wesley Rich**

TABLE OF CONTENTS

CAST OF CHARACTERS ..................................................................................................................... 3

I. INTRODUCTION ............................................................................................................................ 5 A. History of Kodak ....................................................................................................................... 6

1. The Founding and Success of Kodak .................................................................................... 72. Emerging Competition and the Digital Revolution ............................................................ 103. A New Era? ........................................................................................................................ 18

B. The Road to Bankruptcy .......................................................................................................... 21

II. DECLARING BANKRUPTCY ......................................................................................................... 27

III. FILING FOR BANKRUPTCY ......................................................................................................... 28A. Filing the Petition ................................................................................................................... 28 B. Legal Effects of Kodak’s Filing .................................................................................................. 29 C. First Day Motions and Resulting Orders ................................................................................... 30

1. Motion for Joint Administration ........................................................................................ 322. Motion for Changes to Notice Format ............................................................................... 333. Application for Appointment of Claims and Noticing Agent ............................................. 344. Motion for Extension of Time to File Schedule of Assets and other Reports on FinancialInformation ............................................................................................................................ 35 5. Motion to Establish Certain Notice, Case Management, and Administrative Procedures ... 376. Motion to Restrict Certain Transfers of Interests in the Debtors ........................................ 387. Motion for Payment of Taxes and Fees .............................................................................. 398. Motion for Payment of Prepetition Wages and to Continue Employee Benefit Programs .. 419. Motion for Payment of Prepetition Claims Related to Shipping, Warehousing, Processingand Related Import Duties ..................................................................................................... 42 10. Motion for Continued Maintenance of Customer Programs and Honoring of PrepetitionObligations to Customers ...................................................................................................... 43 11. Motion for Payment of Prepetition Claims of Foreign Vendors ....................................... 4412. Motion for Payment of Prepetition Claims of Critical Vendors ........................................ 4613. Motion for Continued Use of the Debtor’s Financial System ........................................... 4814. Motion for Postpetition Financing ................................................................................... 5015. Motion to Establish Procedures for the Assertion, Resolution, Allowance, and Satisfactionof Unpaid Claims ................................................................................................................... 54 16. Motion to Reject Unexpired Aircraft Leases ..................................................................... 5617. Motion to Continue Prepetition Insurance Coverage ....................................................... 5618. Motion to Establish Procedures for Interim Compensation .............................................. 5819. Motion to Reject Unexpired Nonresidential Property Leases ........................................... 59

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20. Motion to Authorize the Retention of Professionals ......................................................... 60 21. Motion to Establish Procedures for Treatment of Reclamation Claims ............................ 61

D. Other Early Motions ............................................................................................................... 63 1. Motion for an Order Approving Expedited Procedures for the Sale, Transfer, Donation and/or Abandonment of De Minimis Assets ........................................................................... 63 2. Motion to Reject Kodak Theatre Naming Rights Contract to Kodak Theatre .................... 64

IV. MIDDLE OF THE CASE .............................................................................................................. 67 A. Patent Sale ............................................................................................................................. 68 B. Kodak Gallery Sale to Shutterfly ............................................................................................... 70 C. Legacy Costs ............................................................................................................................ 74

V. EXORBITANT COST OF KODAK’S BANKRUPTCY .......................................................................... 80 A. Monthly Billing Reports ........................................................................................................... 80 B. Interim Compensation Approval .............................................................................................. 87 C. Observations on Total Billing .................................................................................................. 89

VI. AND MILES TO GO BEFORE KODAK SLEEPS, AND MILES TO GO BEFORE KODAK SLEEPS ......... 90 A. Summary of Accomplishments .................................................................................................. 91 B. Challenges Ahead .................................................................................................................... 94 C. Conclusion .............................................................................................................................. 95

* Nathaniel Greene is a J.D. candidate at the University of Tennessee College of Law. Nathaniel currently serves as an Articles Editor of the Tennessee Law Review and as a Research Editor of Transactions: The Tennessee Journal of Business Law. Nathaniel completed his undergraduate studies at Middle Tennessee State University where he received a B.S. in Political Science and a B.B.A. in Economics with a minor in Business Administration. ** Wesley Rich is a dual J.D./M.B.A. candidate at the University of Tennessee College of Law and the University of Tennessee College of Business Administration with a concentration in business transactions. Wesley currently serves as a Student Materials Editor on the Tennessee Law Review, and his research focuses on cross-border and international transactions. Wesley received his B.A. from Birmingham-Southern College, majoring in interdisciplinary history and political science and minoring in German.

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CAST OF CHARACTERS

Dan Carp Took over Kodak from George Fisher in 2000, but failed to improve Kodak’s position in the market. He stepped down in 2005.

Colby Chandler CEO of Eastman Kodak when Sony introduced the first digital

camera to the market. Chandler assured employees that consumers would stick to color film and insisted that Kodak’s future relied on silver-halide technologies. While Chandler did create Kodak’s digital imaging division in 1983, his commitment to new technologies proved tenuous. Instead, under Chandler, Kodak invested in hybrid technologies using traditional film and electronics. His tenure also saw large decreases in Kodak’s U.S. market share due to the emergence of foreign competitors like Fuji Film.

George Eastman The founder of Eastman Kodak Company and the inventor of the

KODAK camera in 1888. Eastman pioneered a number of early developments in the photography industry and he remained committed to research and development to improve Kodak’s products. Eastman’s strategic legacy drove Kodak to incredible success for over 100 years.

George M. C. Fisher Former Motorola CEO who replaced Kay Whitmore as CEO of

Kodak in 1993. His Asian contacts from Motorola helped him carve out a large percentage of the Chinese market. Fisher, a former engineer, also used his technical expertise to bring Kodak into digital camera production by focusing on the production of digital hardware. Although Kodak’s digital cameras sold well, they failed to produce the profits the company had come to expect. Before his exit in 2000, Fisher oversaw the development of a network of consumables such as online services and photo digitization kiosks.

Antonio Perez Antonio Perez is currently the CEO of the Eastman Kodak

Company. He joined Kodak in 2003 after a 25-year career at Hewlett-Packard, and he became CEO of Kodak in 2005. Under Perez Kodak shares declined to less than a dollar, and the workforce reduced from 60,000 to 7,000 employees. Perez oversaw Kodak’s transition into the highly competitive inkjet printing industry as well as strengthening Kodak’s commercial printing business.

Steve Sasson Kodak engineer and inventor of the first digital camera in 1975.

Sasson and his supervisor, Gareth Lloyd, received the first US patent for a digital camera in 1978.

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Kay Whitmore Whitmore became a vice president at Kodak in 1978 and was named

president in 1983. He succeeded Colby Chandler as CEO of Kodak in 1989. Whitmore attempted to initiate cost-savings by laying-off employees and narrowing Kodak’s core competencies. Many viewed Whitmore’s attitude as one of indifference, and investors ultimately criticized him for not doing enough. He stepped down as CEO in 1993.

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I. INTRODUCTION

Many critics blame Eastman Kodak’s downfall on failing to properly adjust to the digital

photography revolution while stubbornly clinging to the vestiges of its dying film industries. While

this sentiment is true in many respects, it represents a vast oversimplification of the long series of

events that ultimately led to Kodak’s bankruptcy filing in January 2012. The emergence of Japanese

competitors such as Fuji Film began to weaken Kodak’s foothold in the U.S. film market as early as

1976. The gradual decline in film sales coupled with the appearance of digital technologies

throughout the 1980s forced Kodak to make drastic changes in its core business model. Having

invented the world’s first digital camera in 1975, Kodak had the technologies in place to pursue the

digital future. Nonetheless, Kodak feared that digital photography would cannibalize its highly

profitable film production business. Thus, Kodak focused its energies on hybridized electronic

products that utilized both film and digital technologies, while simultaneously ballooning into a

massive corporate bureaucracy with little coordination between separate divisions.

Complications arising from pension debts and a quickly changing industry led to dire

financial problems in the 1990s. Kodak CEO George Fisher took over in 1993 and attempted to

effectuate a new digital strategy for Kodak by focusing on the production of digital camera hardware.

This strategy, however, failed to produce the high margins Kodak grew accustomed to from the film

industry, and Kodak’s management resisted Fisher’s efforts to alter the company’s direction. Leading

into the 2000s, Kodak’s film business deteriorated quickly, leaving the company without a viable

business model and creating years of successive losses. CEO Antonio Perez buoyed Kodak by

leveraging the company’s massive intellectual property holdings by employing an aggressive licensing

and litigation strategy.

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Despite such efforts, the global recession in 2008 resulted in a stagnated market and

considerable debts. Kodak’s financial position forced the company to file for chapter 11 bankruptcy

on January 19, 2012. Following the bankruptcy filing, Kodak sold its wealth of intellectual property

pursuant to its post petition financing deal and abandoned its film offerings to focus on commercial

imaging. As of today, Kodak remains in chapter 11 bankruptcy proceedings, but the company

persists that they will file a plan to exit bankruptcy by the summer of 2013.

A. History of Kodak

In 1880 a young banker named George Eastman invented a new dry plate formula and

patented a machine for applying the formula to multiple dry plates.1 Eastman’s years of

experimentation yielded two valuable innovations, and in April of 1880, he leased the third floor of a

building in Rochester,2 New York to begin the commercial manufacture of dry plates.3 The success

of Eastman’s venture led businessman Henry A. Strong to invest in the fledging industry.4 A year

later Eastman left his job as a banker to focus on improving his process and partnered with Strong to

form the Eastman Dry Plate Company.5 Eastman introduced film rolls to the industry in 1883

1 George Eastman, KODAK, http://www.kodak.com/ek/US/en/Our_Company/History_of_Kodak/George_Eastman.htm (last visited Mar. 30, 2013). 2 Id. 3 Building the Foundation, KODAK, http://www.kodak.com/ek/US/en/Our_Company/History_of_Kodak/Building_the_Foundation.htm (last visited Mar. 30, 2013). 4 Id. 5 Id.

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followed by the production of the original KODAK camera in 1888.6 The KODAK camera radically

changed the availability of photography thanks to an aggressive advertising campaign featuring the

catchy slogan, “you press the button, we do the rest.”7 The Eastman Kodak Company (“Kodak”) was

formed under New York law in 1892, but the firm was incorporated under New Jersey law in 1901.

Today Kodak remains incorporated in New Jersey with the headquarters located in Rochester, New

York.8 Kodak’s innovative approach and rapid growth through the twentieth century provide a

necessary backdrop to the company’s decision to file Chapter 11 bankruptcy in January 2012.

1. The Founding and Success of Kodak

George Eastman founded his company on four basic principles: mass production at low

cost, international distribution, extensive advertising, and focusing on the customer.9 These

principles guided Kodak to financial success, as the company expanded to Europe and the brand

developed into a worldwide household name.10 Eastman wished to keep the company in sync with

6 Id. 7 George Eastman, KODAK, http://www.kodak.com/ek/US/en/Our_Company/History_of_Kodak/George_Eastman.htm (last visited Mar. 30, 2013). 8 Business Entity Status Report, STATE OF NEW JERSEY DEPARTMENT OF THE TREASURY DIVISION OF REVENUE AND ENTERPRISE SERVICES, https://www.njportal.com/DOR/businessrecords/EntityDocs/BusinessStatCopies.aspx (select “Business Name”; then type “Eastman Kodak” into the form; then click continue to see the Business Entity Status Report). 9 Building the Foundation, KODAK, http://www.kodak.com/ek/US/en/Our_Company/History_of_Kodak/Building_the_Foundation.htm (last visited Mar. 30, 2013). 10 Id.

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the budding photography industry, so Kodak invested heavily in research and development.11

Following Thomas Edison’s invention of motion cameras,12 Kodak introduced the first commercial

motion picture film in 1896.13 The company continued adapting to changes in the photography

world, producing film for motion pictures with sound in 192914 and switching from a nitrate base to

a tri-acetate base for motion picture film in 1948.15 The change to a “safety base” reduced the hazard

of inflammable nitrate based film, increased the longevity of the film, and earned Kodak an

Academy Award in 1949.16 Altogether the Eastman Kodak Company has won 9 Academy Awards,

while another 80 Academy Awards for Best Picture have been presented to films shot on Kodak

film.17

Kodak’s focus on innovation paid off, as the emergence of color photography bestowed

Kodak with further success. From 1921 to 1957, the company spent $60 million on the research and

11 Id. 12 History of Edison Motion Pictures, LIBRARY OF CONGRESS AMERICAN MEMORY, http://memory.loc.gov/ammem/edhtml/edmvhist.html (last visited Mar. 30, 2013). 13 Broadening the Impact of Pictures, KODAK, http://www.kodak.com/ek/US/en/Our_Company/History_of_Kodak/Milestones_-_chronology/1878-1929.htm (last visited Mar. 30, 2013). 14 Id. 15 Id. 16 Id. 17 Id.; see Kodak: Academy Awards, KODAK, http://motion.kodak.com/motion/About/Awards/Oscars/index.htm (last visited on Mar. 30, 2013). Most recently Kodak film captured six of the nine best picture nominees for the 2013 Academy Awards. Carolyn Giardina, Kodak Film Used For 6 of 9 Best Picture Nominees, HOLLYWOOD REPORTER (Feb. 23, 2013, 11:57 PM), http://www.hollywoodreporter.com/race/kodak-film-used-6-9-423640.

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development of color film.18 Kodak first introduced KODACHROME color film to the market in

1935,19 and improved its offerings over the decades by creating the first color negative film and

continually simplifying the development process.20 Kodak’s color film came to represent an industry

standard by the early fifties.21 Nonetheless, in 1957 Kodak ramped up R&D spending with a push

to “achieve new quality standards in color film.”22 In only six years, Kodak spent another $60

million to accomplish that goal, adding up to a total of $121 million spent on color film technology

by 1963.23 Kodak’s escalation in the production and processing of color film gave the company a

significant competitive advantage because few companies were capable of leveraging so much money

on R&D.24 This success drove Kodak’s sales to over $1 billion in the 1960s.25

In 1975 Kodak Engineer Steve Sasson took on the notable challenge of creating a camera

using solid state electronics and an electronic sensor that gathers optical information.26 The fruits of

18 JOHN SUTTON, TECHNOLOGY AND MARKET STRUCTURE: THEORY AND HISTORY 119 (2001), available at http://books.google.com/books?id=z2QJ94mbcRYC&printsec=frontcover&dq=Technology+and+Market+Structure&hl=en&sa=X&ei=KshYUemFL5GI9QS0l4GwCg#v=onepage&q&f=false/. 19 Milestones- chronology 1930-1959, KODAK, http://www.kodak.com/ek/US/en/Our_Company/History_of_Kodak/Milestones_-_chronology/1930-1959.htm (last visited Mar. 30, 2013). 20 Id. 21 SUTTON, supra note 18 at 119. 22 Id. 23 Id. 24 Id. 25 Giovanni Gavetti, Simona Giorgi & Rebecca Henderson, Kodak and the Digital Revolution (A), HARVARD BUSINESS SCHOOL (2005).

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Sasson’s labor produced the world’s first digital camera, which received a U.S. patent in 1978.27

Despite this development, Kodak chose not to pursue digital imaging for fear that it would harm

their film business.28 Throughout the 60s and 70s, Kodak instead relied on its silver-halide

technology to generate incremental advancements in their products, introducing new camera models

while expanding into the fields of medicine, graphic arts, document imaging, printing, and space

exploration.29 Thus, Kodak controlled 90% of the film market and 85% of the camera market in

1976, and by 1981, the company reached $10 billion in sales.30

2. Emerging Competition and the Digital Revolution

By the 1980s, Kodak was struggling. The company faced multiple onslaughts to their

traditional business model because while Kodak had remained focused on film production, its

competitors were exploring other ways to break into the market. Prior to the 1970s, Kodak only had

one real rival for over a century.31 But Kodak’s market share started dropping as new competitors

entered the market with lower prices and innovative products.32 Simultaneously, the introduction of

26 Ralf Jurrien, Steve Sasson named to CE Hall of Fame, LETSGODIGITAL, (Sept. 18, 2007, 9:37 PM), http://www.letsgodigital.org/en/16859/ce-hall-of-fame/. 27 Id. (Sasson shared the patent with his supervisor at the time, Gareth Lloyd). 28 Editorial, Kodak’s Last Days, NEW STRAITS TIMES (Feb. 5, 2012), http://www.nst.com.my/opinion/editorial/kodak-s-last-days-1.42251/. 29 Id.; see also Broadening the Impact of Pictures, KODAK, http://www.kodak.com/ek/US/en/Our_Company/History_of_Kodak/Impact_of_Pictures.htm (last visited Mar. 30, 2013) (exploring the expansion of Kodak into new fields). 30 Gavetti et. al, supra note 25 at 2 31 SUTTON, supra note 18 at 129. 32 Id. at 2-3.

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new electronic products jeopardized Kodak’s core film business. The emergence of viable

competitors and new technologies shook the attitude of complacence instilled in Kodak by decades

of incredible success.

The company faced multiple onslaughts to their traditional business model. The first notable

threat from a foreign firm arose in 1976 with Fuji Film Company’s (hereinafter “Fuji”) introduction

of 400-speed color film.33 Fuji produced similar quality products but sold them for twenty percent

less than Kodak.34 Consumers quickly realized they could get high quality film at lower costs, and

retailers willingly devoted shelf space to such alternatives because they produced higher margins than

Kodak film. 35 A case study circulated to Kodak’s management warned them of Fuji’s encroachment

into Kodak’s market share, but senior management “didn’t believe the American public would buy

another film.”36

In 1981 Kodak attempted to secure sponsorship for the upcoming 1984 Olympics, but

negotiations stalled when Kodak insisted on a lower price.37 Meanwhile, Fuji seized the opportunity

from Kodak, essentially telling the Olympic Organizing Committee to name an amount.38 Fuji’s

clever maneuver forced Kodak to take the competitor seriously. Following the Olympic sponsorship,

33 ALECIA SWASY, CHANGING FOCUS: KODAK AND THE BATTLE TO SAVE A GREAT AMERICAN COMPANY (1997). Fuji’s 400-speed color film was faster than any produced by Kodak at the time. Id. 34 Id. 35 Gavetti et. al, supra note 25 at 3. 36 SWASY, supra note 33 at 27. 37 Id. at 28. Fuji eventually paid $7 million for the sponsorship. Id. 38 Id.

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Fuji’s U.S. market share rose to 12%, effectively establishing Fuji as a worthy competitor to Kodak.39

Further evidence of foreign incursion came in 1981 when Sony released a digital camera capable of

taking photos without film and displaying them on a television or printing them onto paper.40

Kodak CEO Colby Chandler balked at Sony’s digital contender, asserting that customers preferred

color film and insisting that Kodak could produce its own digital camera.41 Despite Chandler’s

reassurances, the release of Sony’s digital camera frightened Kodak’s employees.42 One employee

characterized the feeling as “my goodness, photography is dead.”43

Kodak had talked about change for many years without acting, but rapid changes in the

market soon forced Kodak to evolve.44 Declining film sales, strong U.S. currency, and foreign

competition characterized Kodak’s highly publicized struggles in the early 1980s.45 In response, the

company expanded into the floppy disk and video markets as well as forming divisions to produce

electronic components and biological materials.46 The entire company underwent a strategic

39 Gavetti et. al, supra note 25 at 3. 40 Id. at 2. 41 Id. 42 Id. 43 ALECIA SWASY, CHANGING FOCUS: KODAK AND THE BATTLE TO SAVE A GREAT AMERICAN COMPANY (1997), quoted in Gavetti et. al, supra note 25 at 2. 44 Elaine Johnson, Kodak Facing Big Challenges in Bid to Change: Slowing of Photo Business Forces Firm to Look Elsewhere, WALL ST. J., May 22, 1985, at 6. 45 Id. 46 Id.

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reorganization in an effort to save costs.47 The new structure yielded a messy and entangled

bureaucracy, and employment skyrocketed to a peak of 93,000 in 1982.48

Kodak’s fear of competition led the company to scale back investment in color film and to

focus on developing new digital products.49 Chandler initiated the creation of a new digital imaging

division in 1983.50 Nonetheless, obstinacy tempered Kodak’s willingness to adapt to the digital

world.51 Kodak wanted to do things their way,52 and Chandler remained convinced that Kodak’s

future depended on its silver-halide technology.53 This attitude ultimately obstructed Kodak’s goals

because Kodak’s traditional business model failed to mesh with the digital industry.54

As losses in profits and market share continued to plague Kodak, the company initiated

efforts to reduce costs.55 Although Kodak had moved rapidly to embrace the digital market, Kodak’s

chosen strategy proved ineffective. The shift from traditional film to digital photography occurred

much more slowly than Kodak anticipated.56 By 1989 the company produced over 50 different

47 SWASY, supra note 33 at 31. 48 Id. at 29. 49 Id. 50 Gavetti et. al, supra note 25 at 3. 51 See SWASY, supra note 33 at 30. 52 Id. 53 Gavetti et. al, supra note 25 at 3. 54 SWASY, supra note 33 at 30. 55 Id. at 31. Sensing the company was too large to succeed in an increasingly competitive market, Kodak announced an early retirement package in 1983. In total 5,000 Kodak workers opted for the package deal, but the reduction in employment failed to generate cost savings. Id.

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electronic products,57 but Kodak’s expansion into new products proved less profitable and harder to

manage. Moreover, Kodak sought to rely on hybrid technologies incorporating film and digital

imaging because silver halide film produced the highest quality images.58 Thus, despite Kodak’s

introduction of the world’s first electronic image sensor in 1986, one of the company’s first widely

available digital products was the Photo CD.59 The Kodak Photo CD allowed customers to receive

developed photos on a CD in addition to having prints.60 On the one hand, Kodak had quickly

recognized and responded to the advent of digital photography, yet the company ultimately chose a

dubious strategy of diversification and blending old and new technologies to create new products.61

Heading into the 1990s, Kodak’s market share continued to erode, while Fuji’s market share

increased to 21% by 1993.62 In 1989 Kay Whitmore took over the position of CEO from Colby

Chandler.63 Whitmore inherited many of the problems from Chandler’s tenure, but he ultimately

failed to correct Kodak’s course. In the six years prior to Whitmore’s ascension to CEO, Kodak had

undergone four failed efforts to cut costs.64 Kodak’s inability to increase profits created lingering

56 Id. at 30. One executive lamented that Kodak overreacted to the rise of foreign and digital competition by shifting focus away from film and camera production. Id. 57 Gavetti et. al, supra note 25 at 4. 58 Id. 59 Id. 60 Id. 61 Gavetti et. al, supra note 25 at 3. 62 Id. 63 John Holusha, Click: Up, Down and Out at Kodak, N.Y. TIMES, Dec. 9, 1989, available at http://www.nytimes.com/1989/12/09/business/click-up-down-and-out-at-kodak.html?pagewanted=print&src=pm/. Whitmore had previously served as President of Kodak. Id.

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credibility problems on Wall Street.65 Among Whitmore’s first actions as CEO was to announce

layoffs of up to 5,000 employees.66 Whitmore also seemed to realize that the various acquisitions and

new ventures of Chandler’s tenure had stretched Kodak too thin.67 He sought to focus and more

accurately define Kodak’s core business sectors, which he identified as “imaging, chemicals, and

health.”68

Notwithstanding Whitmore’s efforts to refine Kodak’s focus, the company remained

committed to a vision that blended traditional film with digital imaging. Believing that profits had

to come from traditional film and photo paper products, Whitmore’s leadership saw the

introduction of the Photo CD and other traditional products enhanced with digital offerings.69 The

company also sought to license their technologies to computer manufacturers, but Whitmore lacked

the enthusiasm to convince major players like Microsoft’s Bill Gates.70 The blended technology

approach lacked mass consumer appeal, and consumers continued to prefer products offered by

rivals like Fuji.71 Within Kodak managers continued to make optimistic reports, seemingly ignoring

the signs of trouble.72 Many upper-level executives advocated for the creation of strategic plan, but

64 Id. 65 Id. 66 Id. 67 Id. 68 Id. 69 Gavetti et. al, supra note 25 at 4 70 Id.; see also SWASY, supra note 33 at 44 (noting that Whitmore reportedly fell asleep during a meeting with Bill Gates). 71 SWASY, supra note 33 at 45.

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Whitmore countered by announcing another round of layoffs.73 Kodak offered employees the chance

for another early retirement package expecting around 3,000 employees to seize the opportunity, but

8,300 eventually opted for the plan.74 In the wake of the downsizing, investor discontent became

more and more evident.75

Amid pressure to sell off some of Kodak’s divisions and criticism over the composition and

indifference of the board, Whitmore hired a renowned cost-cutter as chief financial officer in 1993

to help manage the company’s $10.3 billion in debt.76 He coupled this maneuver with a plan to link

management compensation to performance, 77 which sent Kodak’s stock price soaring from $3.25

per share to a close of $45.78 Nonetheless, Whitmore decided to release another 2,000 Kodak

employees.79 By May of 1993, Whitmore and Kodak’s board had lost the confidence of many

important investors.80

As a final rallying effort, Whitmore announced that Kodak would divest the Eastman

Chemical Company (hereinafter “Eastman”) based in Kingsport, Tennessee.81 Eastman had proved

72 Id. 73 Id. at 46. 74 Id. at 48. 75 Id. 76 Id. at 50. 77 Id. 78 Id. 79 Id. This round of layoffs is especially notable because Whitmore targeted Kodak’s prestigious research staff, long considered the backbone of the company. Id. 80 Id. at 54.

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that it could succeed without Kodak; at the time of Whitmore’s proposal, only eight percent of

Eastman’s sales consisted of film production chemicals.82 The spin off of Eastman would allow

Kodak to remove $2 billion in debt and another 17,500 employees from the books.83 Whitmore’s

last ditch plan came too late, and Kodak’s directors felt that he had missed his opportunity to save

the company.84 At a board meeting in July 1993, investors criticized Whitmore for failing to

strategically implement job cuts, to sell unprofitable divisions sooner, and to ultimately reduce

costs.85 Whitmore’s unsuccessful strategy led Kodak’s board to replace him with George M. C.

Fisher in late 1993.86

Fisher was the former CEO of Motorola and the first outsider to run Kodak.87 With his

arrival, Kodak adopted a new strategy that focused on “imaging” rather than film.88 To pay off debt,

the company initiated the sell of various subsidiaries including Kodak’s health segment,89 and in

1994 Kodak finally divested the successful Eastman Chemical Company.90 Fisher expressed

confidence in the digital future, but also saw opportunities to capitalize on Kodak’s core businesses.

81 Id. at 55 82 Id. 83 Id. 84 Id. 85 Id. at 56. Despite Whitmore’s regular layoffs, the investors argued that a further 20,000 employees needed to depart. Id. 86 Gavetti et. al, supra note 25 at 4; see SWASY, supra note [] at 54. 87 Gavetti et. al, supra note 25 at 4. 88 Id. 89 Id. at 5. Kodak did, however, retain their X-ray film division. Id. 90 Id.

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The CEO felt that the Chinese market had been overlooked, and Fisher used his strong relationships

in China to forge a $1.2 billion joint venture with the Chinese government in 1998.91 His efforts

carved out a sixty-three percent market share in China by 2002.92 From 1993 to 1995, Fisher

successfully shrunk Kodak’s debt from $7.5 billion to a more manageable $1.5 billion.93

3. A New Era?

Kodak had already invested $5 billion in research on digital imaging by 1993, but the

company’s products suffered from fragmentation and disorganization.94 In an attempt to harmonize

Kodak’s business model, Fisher separated the digital imaging department from the silver-halide

division.95 He also wanted to bring Kodak’s various technologies into the market; thus, he

spearheaded the deployment of Kodak’s once ubiquitous digital print stations, which allowed

consumers to create digital copies of film-based photos.96 Under Fisher Kodak reached out to Bill

Gates once again, viewing an alliance with major computer players as the key to producing profitable

hardware.97

91 Id. 92 Id. 93 Kodak’s New Focus, BUS. WK., Feb. 12, 1995, available at http://www.businessweek.com/stories/1995-02-12/kodaks-new-focus/. 94 Gavetti et. al, supra note 25 at 5. 95 Id. 96 Id. 97 Id.

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Digital camera production ramped up under Fisher’s command, and in 1994 Kodak

launched the QuickTake digital camera in conjunction with Apple.98 Fisher also pushed for renewed

efforts at making the Photo CD an industry standard, but Kodak faced significant competition in

the budding digital arena with over 500 serious players in the market.99 When Kodak introduced the

DC40 digital camera in 1995, only two other models sold for under $1,000, yet by 1996 another 22

competitors made it onto the market.100 Moreover, Fisher’s drive to launch Kodak into the digital

frontier met skepticism from management, who struggled to grasp the intricacies of the digital

industry.101 Kodak’s management resisted the idea of selling digital hardware,102 which yielded much

lower profit margins than the company’s traditional bread and butter film products.103

Fisher brought renewed vigor and organization to a struggling Kodak and found success in

many areas. But his hardware based strategy failed to increase Kodak’s profits. In 1997 Fisher stated

that 60% of Kodak’s losses resulted from “costs linked to digital cameras, scanners, thermal printers,

writeable CDs and other products.”104 Following this revelation, Fisher announced the end of

Kodak’s digital hardware based strategy.105 While Kodak’s film sales continued to provide the bulk of

98 Kodak’s New Focus, supra note 93. 99 Id. 100 Gavetti et. al, supra note 25 at 6. 101 Id. 102 Id. 103 Case Study, George Mendes, What Went Wrong at Eastman Kodak?, The Strategy Tank at 9. 104 Gavetti et. al, supra note 25 at 6 (citing Kodak changes digital strategy, ELECTRONICS, November, 17, 1997). 105 Id.

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earnings,106 Kodak decided to chart a new digital course based on providing networked services and

consumables.107 As part of the new digital strategy, Fisher sought to create a niche for Kodak in the

creation of digital products such as online photo albums.108 He realized that few companies in the

digital age did everything, as Kodak had in the chemical business; thus, he ultimately wanted to craft

Kodak into a horizontal company like many other technological firms.109 As Fisher explained in a

1999 interview, “[i]n the computer world, one company specializes in microprocessors, one in

monitors, and another in disk drives . . . [n]o one company does it all.”110 As part of this strategy,

Kodak wanted to source much of their digital equipment to other companies by creating alliances

with Intel and AOL.111

While transitioning into Fisher’s new digital strategy, Kodak’s film business experienced yet

another decline when Fuji undercut Kodak by dramatically reducing prices in 1998.112 Fuji’s

aggressive tactic sent Kodak’s U.S. market share from 46% to 42% in the course of a single year.113

In response Fisher complained that Fuji was “buying presence . . . [and] . . . customers in this

106 George Fisher & Pablo Galarza, Keeping Kodak Focused, MONEY (Jan. 1, 1999), http://money.cnn.com/magazines/moneymag/moneymag_archive/1999/01/01/253692/index.htm. The introduction of the Advantix film camera in 1996 brought increased earnings of $1.5 billion, indicating to many within Kodak that film and film products represented the company’s best hopes of success. See id. (Interview with George Fisher discussing the success of the Advantix camera). 107 Gavetti et. al, supra note 25 at 6. 108 Fisher & Galarza, supra note 106. 109 Id. 110 Id. 111 Id. 112 Gavetti et. al, supra note 25 at 6. 113 Id.

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country, selling film at unbelievably low price[s] because they could afford it and because they had

an infinite source of money coming out of a protected market in Japan.”114 Kodak even made an

appeal to the World Trade Organization in 1995, alleging that anti-competitive practices by Fuji

kept Kodak from establishing a foothold in Japan.115 Kodak’s efforts to defend against Fuji’s rising

eminence proved unsuccessful,116 as Kodak continued to experience the gradual degradation of its

once vaunted film production business. The deterioration of the film industry forced Kodak to cut

$1.2 billion and nearly 20,000 jobs by 1999.117 At the same time, Kodak had captured a 27%

market share for digital cameras in the U.S., placing them at number two behind Sony in percentage

of overall units sold.118

B. The Road to Bankruptcy

Daniel Carp, former Kodak president and COO, ascended to the position of CEO in early

2000.119 Carp took over Kodak with George Fisher’s horizontal network and consumables model

114 Id. (quoting William Patalon III, Kodak chief outlines photo giant's challenges, DENV. POST, Nov. 9, 1997, at J-07). 115 See generally C. O'Neal Taylor, The Limits of Economic Power: Section 301 and the World Trade Organization Dispute Settlement System, 30 VAND. J. TRANSNAT'L L. 209, 273-79 (1997) (explaining Kodak’s appeal to the WTO under Section 301 of the Trade Act of 1974 in which they accused Fuji of anticompetitive practices). Ultimately, Japan refused to negotiate with the U.S. over the matter, insisting that the dispute be handled between the parties privately. Id. 116 Id. 117 Gavetti et. al, supra note 25 at 6. This round of job cuts represented nearly 20% of the company’s total payroll. Id. 118 Id. Sony’s 1999 U.S. market share stood at 53%. Id. at 12. 119 Id. at 6.

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still in place.120 Under Carp’s leadership, Kodak created a new print-on-demand web service and

launched a successful network of 19,000 Picture Maker kiosks.121 Kodak also invested heavily into

the inkjet business, where it could make high margins on ink and paper sales.122 Kodak remained

number two in digital camera sales in 2001,123 but despite the promising appearance of Kodak’s

digital camera sales, the company lost $60 for every digital camera sold in 2001.124 Moreover, the

company’s total market share fell by 12% from 1999 to 2001, an unfortunate development spurred

by the emergence of new competitors.125

In 2002 Kodak saw a major success with the launch of the EasyShare digital camera line.126

The new cameras became popular because they resolved many consumer problems related to

downloading images and poor battery life.127 The success of the EasyShare demonstrated the strength

of Kodak’s intellectual property developments, but digital camera prices plummeted on a yearly

basis, reducing the profitability of the products.128 As an additional sign of Kodak’s troubles, Fuji

120 Id. 121 Id. at 7. 122 Bruce Upbin, Kodak’s Digital Moment, FORTUNE, Aug. 21, 2000, available at http://www.forbes.com/forbes/2000/0821/6605106a.html/. 123 Gavetti et. al, supra note 25 at 12. 124 Id. at 7. 125 Id. at 12. 126 Kodak Is the Picture of Digital Success, BUS. WK., Jan. 3, 2002, available at http://www.businessweek.com/stories/2002-01-03/kodak-is-the-picture-of-digital-success/. 127 Id. 128 Id.

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surpassed the company in worldwide market share for film in 2001. Thus, with digital cameras still

unprofitable and Fuji finally surpassing Kodak,129 the company announced more layoffs in 2003.130

In 2003 Carp assumed that the film industry would fall by around ten percent in the U.S.,

but the actual decrease reached almost thirty percent.131 Sales of film and disposable cameras

dropped drastically as digital cameras took over,132 and the advent of camera phones only exacerbated

Kodak’s troubling outlook.133 Following a series of acquisitions, Kodak saw only a marginal growth

in revenue from 2003 to 2005,134 while net losses totaled $1.3 billion.135 Film sales, which still

accounted for seventy percent of Kodak’s revenue in 2002,136 declined much more rapidly than

expected, and in April 2005, Kodak announced a massive quarterly loss of $142 million, while its

bond ratings saw a downgrade to junk status.137 Accordingly, Daniel Carp stepped down as CEO at

Kodak’s annual meeting in May 2005.

129 Gavetti et. al, supra note 25 at 11. 130 Id. at 7. 131 Another Kodak moment, ECONOMIST, May 12, 2005, available at http://www.economist.com/node/3974772/. 132 Mendes, supra note 103 at 4. 133 See Jordan Cook, What Happened to Kodak’s Moment?, TECHCRUNCH, Jan. 21, 2012, available at http://techcrunch.com/2012/01/21/what-happened-to-kodaks-moment/ (exploring the overall increase of camera phones). 134 Has Kodak missed the moment, ECONOMIST, Dec. 30,2003, available at http://www.economist.com/node/2320143/. 135 Mendes, supra note 103 at 4. 136 Has Kodak missed the moment, supra note 134. 137 Another Kodak moment, supra note 131.

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Antonio Perez succeeded Carp as CEO; a position he retains today.138 Perez spent much of

his career at Hewlett-Packard (“HP”) running the consumer and digital imaging division.139 Upon

assuming the position of CEO, Perez removed a banner from his office reading “EXPAND THE

BENEFITS OF FILM.”140 Under Perez Kodak shifted its focus from the dying film industry to

digital printing, which he essentially built from scratch.141 Originally hired as president at Kodak in

2003, Perez realized that Kodak already possessed many of the technologies and components to

begin a superior inkjet printing business.142 Before Perez’s entrance, Kodak’s printing had focused

primarily on kiosks located at retail locations, but with Perez at the helm, Kodak crafted a secretive

plan to bring high quality photo printers to the market, utilizing vibrant ink formulated to last for

100 years or more.143 Although Kodak entered the consumer printing market relatively late and

against stiff competition, Perez saw the company’s late entry into the market as an opportunity to

change the industry’s traditional business model.144 Perez’s risky new strategy pitted Kodak directly

138 Id. 139 Id. 140 Kevin Maney, Picture Imperfect, UPSTART BUSINESS JOURNAL, Dec. 17, 2007, available at http://upstart.bizjournals.com/executives/features/2007/12/17/Antonio-Perez-Q-and-A.html?page=all/. 141 Id. 142 Kodak’s Moment of Truth, BUS. WK., Feb. 18, 2007, available at http://www.businessweek.com/stories/2007-02-18/kodaks-moment-of-truth/. 143 Id. 144 Id. Under Perez’s new printing strategy, Kodak would abandon the industry’s razor-blade model of selling low cost printers and high costs ink in favor of a higher priced and higher quality printer with cheaper higher quality inks. Id.

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against his former employer HP, who virtually dominated the inkjet market. By 2007 Kodak’s

printing business produced nearly $4 billion in sales.145

Kodak remained in the top three digital camera makers in 2007, but Kodak models

accounted for only fifteen percent of the market.146 At the time, Nokia, which built camera phones,

represented the world’s largest supplier.147 To compete Perez brokered a deal to supply Kodak

camera components for Motorola in 2006.148 Nonetheless, digital cameras failed to supplement the

loss of Kodak’s profitable film business, and the company underwent yet another downsizing.149

Kodak had 64,000 employees at the time of Perez’s hiring, but that number fell to 40,000 by

2007.150 Perez also increased cash reserves with the sale of Kodak’s health group to Onex Healthcare

Holdings Inc. for $2.5 billion in January 2007.151 While still expressing some wariness about the

future, Perez’s early efforts as CEO led analysts to reverse course on predicting Kodak’s imminent

failure.152

145 Maney, supra note 140. 146 Id. 147 Id. 148 Id. 149 Claudia H. Deutsch, At Kodak, Some Old Things are New Again, N.Y. TIMES, May 2, 2008, available at http://www.nytimes.com/2008/05/02/technology/02kodak.html?pagewanted=print&_r=0/. 150 Maney, supra note 140. Notably, only 20,000 of Kodak’s 40,000 employees in 2007 worked for the company when Perez arrived. Id. 151 Kodak’s Moment of Truth, supra note 142. 152 Deutsch, supra note 149.

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Despite glimmers of hope, Kodak’s aggressive decision to compete with HP proved costly;

2007 represents Kodak’s only profitable year since 2004.153 In the wake of the 2008 recession,

consumer spending dropped significantly, leading to stagnation throughout the company.

Commenters also blamed Kodak’s struggles on the failure of Perez’s inkjet venture,154 but in 2009

Kodak’s board gave the CEO a vote of confidence, announcing the extension of his contract through

2013.155

Kodak holds many patents at core of digital camera technologies, such as the patent for

displaying images on a digital screen,156 and after his inkjet strategy failed to generate profits, Perez

launched an aggressive licensing and litigation strategy to capitalize on Kodak’s expansive intellectual

property holdings.157 Beginning in 2004 Kodak filed lawsuits against or carved out deals with twelve

major technology companies, and between 2009 and 2010, Kodak earned almost $1 billion just

153 Kodak bankruptcy filing leaves 132-year-old company in tough spot, WJLA, Jan. 19, 2012, available at http://www.wjla.com/articles/2012/01/kodak-bankruptcy-filing-leaves-132-year-old-company-in-tough-spot-71596.html/. 154 Sean Williams, Eastman Kodak: How a CEO Destroys an Icon, THE MOTLEY FOOL, Jan. 20, 2012, available at http://www.fool.com/investing/general/2012/01/20/eastman-kodak-how-a-ceo-destroys-an-icon.aspx/; see also Sean Williams, Eastman Kodak’s Flash Goes Dark: What It Means for You, THE MOTLEY FOOL, Jan. 19, 2012, available at http://www.fool.com/investing/general/2012/01/19/eastman-kodaks-flash-goes-dark-what-it-means-for-y.aspx/; Sean Williams, Will Eastman Kodak Innovate or Die?, THE MOTELY FOOL, June 22, 2011, available at http://www.fool.com/investing/general/2011/06/22/will-eastman-kodak-innovate-or-die.aspx/ (blaming Kodak’s bankruptcy on the decision making of Antonio Perez). 155 Paul Ericson, For Perez, this is Kodak’s Moment, ROCHESTER BUS. J., July 23, 2010, available at http://www.rbj.net/article.asp?aID=184609/. 156 Anders Bylund, Can Kodak Save Itself – or Is It Too Late Already?, THE MOTLEY FOOL, Jan. 11, 2012, available at http://www.fool.com/investing/general/2012/01/11/can-kodak-save-itself----or-is-it-too-late-already.aspx/; Dana Mattioli, At Kodak, Patents Hold the Key to the Future, WALL ST. J., Apr. 19, 2010, available at http://online.wsj.com/article/SB10001424052748703757504575194331184972428.html/. 157 Bylund, supra note 156.

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through patent suit settlements with Samsung and LG.158 These efforts to utilize Kodak’s wealth of

intellectual properties kept Kodak afloat for a short period, but as 2012 approached, the Kodak’s

outlook looked bleak.

II. DECLARING BANKRUPTCY Throughout the 2000s Kodak underwent a transition from a massive chemical and film

production corporation to a smaller digitally focused operation.159 Accordingly, Kodak’s workforce

dwindled from approximately 64,000 employees in 2003 to only 17,000 in 2011.160 Kodak’s

financial situation also changed dramatically as a result of the company’s transition.161 Revenue in

2003 totaled over $13 billion as recently as 2003, but in 2011 Kodak only generated sales of

approximately $6 billion.162 Moreover, digital products accounted over seventy-five percent of the

2011 total.163 Nearing the end of 2011, Kodak faced significant legacy liabilities related to pensions

and $1.3 billion in other post-employment benefits as well as $100 million in environmental

liabilities.164 The total outstanding debt for Kodak stood at an aggregate of $1.6 billion in January

158 Mattioli, supra note 156. 159 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 Pleadings, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012) (hereinafter “First Day Declaration”) at 3-4. 160 Id. at 3. 161 Id. 162 Id. at 4. 163 Id. at 3. 164 Id. at 8.

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2012;165 however, the company possessed only $56.7 million in cash.166 Given Kodak’s dire financial

situation, the company had only one option.

III. FILING FOR BANKRUPTCY

A. Filing the Petition

On January 19, 2012, Eastman Kodak and fifteen affiliated debtors filed voluntary petitions

for chapter 11 bankruptcy protection.167 Kodak entered bankruptcy with the following four goals in

mind: (1) to enhance Kodak’s liquidity position in order to maintain the confidence of and

relationships with vendors, suppliers, and customers; (2) to monetize Kodak's valuable intellectual

property and enforce its intellectual property rights, against infringement by industry participants of

its digital imaging patents; (3) to reduce Kodak’s legacy costs for its smaller size going forward; and

(4) to reorganize Kodak around its commercial and consumer business units.168 The case was filed in

the Southern District of New York, and Judge Gropper was selected to hear the case.169

165 Id. 166 Transcript regarding Hearing Held on 01/19/2012 at 66-67. 167 Voluntary Petition for Eastman Kodak Company., In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 168 Transcript regarding Hearing Held on 02/28/2012 at 10-11. 169 Judge Gropper was appointed to the Court in 2000. He was a 1969 of Harvard Law School. Prior to his appointment, “he was active in many of the nation’s largest Chapter 11 cases, including Manville Corporation, Texaco, LTV Corporation, Federated Department Stores/Allied Stores Corp, Maxwell Communications Corp., MGM, United States Lines, Pan American World Airways, and Waterman Steamship Corp.”Judge Alan Gropper-Profile, http://www.nysb.uscourts.gov/content/judge-allan-l-gropper (last visited April 15, 2013).

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B. Legal Effects of Kodak’s Filing

A bankruptcy filing, made under 11 U.S.C. § 301, acts as both a shield and an encumbrance

to the debtor. With the filing, the debtor is shielded by the automatic stay provision of section 362,

which acts as an almost complete bar to the collection efforts of the debtor’s creditors.170 It is meant

to give the debtor a limited amount of breathing room in which to maneuver.171 However, the

ability of the debtor to maneuver is at the same time encumbered by the code to ensure that the

debtor’s management does not continue pursuing the same types of activities that lead to the need to

file for bankruptcy in the first place.172 The code is meant to give the debtor the opportunity to take

steps to maximize the return to creditors while providing sufficient oversight to ensure that the

debtor is not just throwing away the remainder of the company’s assets.173

To that end, the code places certain restrictions on the debtor from making payments on

prepetition claims, from making certain expenditures going forward, and from taking certain actions

without appropriate notification and court approval.174 Although these restrictions were probably

well-intentioned, many of the code provisions make it exceedingly difficult for the debtor to conduct

its day to day business efficiently. For example, if a debtor has outstanding unpaid wages, unpaid

critical suppliers, or unpaid taxes, the statutory prohibition of paying those prepetition claims can

170 11 U.S.C. § 362. However, section 362(b) provides limited exceptions to the automatic stay. Id. 171 JONATHAN P. FRIEDLAND,MICHAEL L. BERNSTEIN, GEORGE W. KUNEY & JOHN D. AYE, CHAPTER 11 - 101: THE NUTS AND BOLTS OF CHAPTER 11 PRACTICE: A PRIMER 20, (H. Slayton Dabney, Jr. & John W. Kibler eds., 2007) (hereinafter “Chapter 11-101”). 172 Id. at 11. 173 Id. 174 Id.

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lead to workers seeking employment elsewhere, suppliers cutting ties, and the IRS throwing some

nice interest and penalties onto the tax bill. Furthermore, the limits placed on a debtor’s actions

going forward related to who it can pay and when it can pay them slows down the normal speed of

business.

Therefore, before filing for bankruptcy, the debtor’s attorney normally prepares a series of

motions to deal with many of the code’s restrictions and to take advantage of some of the powers

granted to the debtor in bankruptcy.175 These motions are submitted shortly after the voluntary

bankruptcy petition and are known as “first day motions.”176 Kodak was not an exception from this

normal process.

C. First Day Motions and Resulting Orders

Kodak filed twenty-one first day motions on January 19, 2012 in an attempt to enable the

“[d]ebtors to operate with minimal disruption during the pendency of the chapter 11 cases.”177 The

motions covered everything from joint administration to postpetition financing. Because of Kodak’s

immediate cash crunch, Judge Gropper even agreed to hold hearings on the first day motions on

January 19, even though it was not his normal practice.178 Although each motion and the debate

175 Id. 176 Id. 177 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 Pleadings, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 178 Transcript regarding Hearing Held on 01/19/2012 18-19. When providing an explanation for why he scheduled the first day hearings so quickly, Judge Gropper stated that “chambers was told that you really needed the money today.”

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surrounding it will be described in more detail below, generally speaking, the court acted by first

making interim orders that mirrored the sample orders provided by Kodak. For the motions that had

more potential for objection, the court set a hearing date of February 15, 2012 in which the motions

and objections by the unsecured creditors’ committee and others were discussed prior to the issuance

of any final orders. February 8, 2012 was usually the deadline that was set to file any objections to be

discussed during the February 15 hearing.

However, in order to protect the interests of and make objections on behalf of the unsecured

creditors as a group, the unsecured creditors’ committee first needed to be appointed by the court.

This was accomplished when, pursuant to sections 1102(a) and 1102(b) of the Bankruptcy Code the

United States Trustee for the Southern District of New York appointed the official unsecured

creditors committee (“Unsecured Committee”) on January 25, 2012.179 Shortly after the Unsecured

Committee’s formation, its professionals reached out to Kodak to arrange for an immediate review

and analysis of Kodak’s numerous first day motions and applications to retain professionals.180 As

will be discussed below, many of the suggestions for changes offered by the committee after this

investigation were later adopted in the final orders.

179 Appointment of Official Creditors' Committee filed by Susan D. Golden on behalf of United States Trustee, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). The Committee consisted of: (a) KPP Trustees Limited, (b) Pension Benefit Guaranty Corporation, (c) Primax Electronics Ltd., (d) Sony Pictures Entertainment Inc.,(e) Strategic Procurement Group, (f) U.S. Bank National Association, and (g) Walmart Stores, Inc. Id. 180 Response of the Official Committee of Unsecured Creditors to Motions and Applications Scheduled to be Heard on February 15, 2012, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012) (hereinafter “Unsecured Creditors Response”).

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1. Motion for Joint Administration181

The first motion that Kodak filed was a request for the court to join all of its sixteen

affiliated cases together under Federal Bankruptcy Rule 1015(b).182 Rule 1015(b) “provides that if

‘two or more petitions are pending in the same court by or against . . . a debtor and an affiliate, the

court may order a joint administration of the estates.’”183 According to the motion, Kodak argued

that joint administration was appropriate because it “w[ould] allow for the efficient and convenient

administration of all these chapter 11 cases, w[ould] yield significant cost savings that w[ould] inure

to the benefit of all interested parties, and w[ould] not harm the substantive rights of any party in

interest.”184 Kodak further justified its motion by pointing out the cost-savings joint administration

would cause because of the reduction of duplicative filings and the ease to the U.S. Trustee that

would result from the case consolidation.185

Judge Gropper granted the motion later the same day.186 The order very closely tracked the

language of Kodak’s motion. In it, the judge cited the same ease of administration language

181 Debtors’ Motion for an Order Authorizing Joint Administration of their Related Chapter 11 Cases, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 182 The 15 debtors and affiliates that had their cases joined together with Eastman Kodak were (1) Creo Manufacturing America LLC; (2) Eastman Kodak International Capital Company, Inc.; (3) Far East Development, Ltd.; (4) Kodak (Near East), Inc.; (5) Kodak Americas, Ltd.; (6) Kodak Aviation Leasing LLC; (7) Kodak Imaging Network, Inc.; (8) Kodak Philippines, Ltd.; (9) Kodak Portuguesa Limited; (10) Kodak Realty, Inc.; (11) NPEC Inc.; (12) Pakon, Inc.; (13) Qualex Inc.; (14) Laser-Pacific Media Corporation; and (15) FPC Inc. Id. 183 Id. at 6-7. 184 Id. at 6. 185 Id. at 7. 186 Order Authorizing the Joint Administration of the Debtors' Related Chapter 11 Cases, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012).

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reasoning as the debtors and made clear that the order in no way worked as a substantive

consolidation of the various chapter 11 proceedings.187 To that end, Judge Gropper’s order included

a provision that the monthly operating reports required by the U.S. Trustee would still need to be

broken out on a debtor by debtor basis.188

2. Motion for Changes to Notice Format189

The second motion filed by Kodak was an attempt by Kodak to limit its need to comply

with certain notice requirements of the Bankruptcy Code. The court’s normal procedure required

Kodak to submit its information in a certain matrix format and also to include a list of its 20 largest

unsecured creditors.190 Kodak would have needed to submit the list of 20 creditors for each of the 16

debtors that are part of the consolidated bankruptcy proceeding. Kodak explained that it had “many

thousands of creditors and, therefore, converting the computerized information to a format

compatible with the matrix requirements would be an exceptionally burdensome task.”191 Kodak also

explained that the creditors for each debtor overlapped, and Kodak suggested it should be able to file

187 Id. at 6. 188 Id. 189 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, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 190 Id. at 4-5. 191 First Day Declaration at 19.

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a consolidated list of its top 50 creditors instead of separate top 20 creditor lists for each individual

debtor.192

Furthermore, Kodak, with the help of its claims and noticing agent, had already prepared a

consolidated list of its creditors in electronic format. Kodak indicated that it was willing to “make

that list available in electronic format to any party in interest who so requested (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 [c]ourt.” Following Kodak’s motion, the court made an order similar to Kodak’s

proposed order apparently not seeing a problem with these changes to the notice format or more

likely no objections from other interested parties. The lack of objection was not entirely surprising

because most of the changes were only differences in form but not in substance of the notice.193

3. Application for Appointment of Claims and Noticing Agent194

Kodak then requested that the court appoint Kurtzman Carson Consultants (“KCC”) as the

claims and noticing agent for the case. In a bankruptcy proceeding, one of the protections given to

creditors is that the debtor has to provide notice to the creditors of the bankruptcy proceedings. The

creditors need to be informed that the debtor is seeking various protections in bankruptcy and that

there is a limited window in which they can file their claims against the debtor and object to the

192 Id. 193 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, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 194 Application for an Order Appointing Kurtzman Carson Consultants LLC as Claims and Noticing Agent for the Debtors Pursuant to 28 U.S.C. § 156(c), 11 U.S.C. § 105(a), S.D.N.Y. LBR 5075-1 and General Order M-409, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012).

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debtor’s actions before the court. In its motion, Kodak pointed out that although it had yet to make

its assets and liabilities filings, it expected the need to notify tens of thousands of potential

creditors.195 In order to expedite the process and relieve the clerk from the large quantity of

administrative work such notices would entail, Kodak wanted KCC to shoulder the burden. The

motion also contained requests that KCC’s fees be given administrative expense status and that

prepetition fees be allowed to be repaid out of KCC’s retainer.196 Furthermore, Kodak requested that

KCC’s postpetition fees could be paid without further approval by the court as long as Kodak and

KCC conformed to certain record-keeping practices.197 In its order, the court approved the

appointment of KCC using almost identical language as contained in Kodak’s motion.198

4. Motion for Extension of Time to File Schedule of Assets and other Reports on Financial

Information199

In this motion, Kodak sought additional time in which to file its schedules and statements of

assets and liabilities and also a waiver of the requirement to file with the court a list of all of its equity

195 Id. at 3. 196 Id. at 8. 197 Id. at 7. 198 Order Authorizing Retention and Appointment of Kurtzman Carson Consultants LLC as Claims and Noticing Agent Under 28 U.S.C. § 156(c), 11 U.S.C. § 105(a), S.D.N.Y. LBR 5075-1 and General Order M-409, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 199 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, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012).

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security holders.200 In its motion, Kodak explained that it is a large multinational corporation with

over 100 subsidiaries, and with all the other things its professionals needed to do in the opening days

of the bankruptcy, there was really no way it could make its obligatory asset filings within 14 days

after the initial voluntary petition date as required by section 521 of the Bankruptcy Code and

Bankruptcy Rule 1007(c).201 Kodak suggested instead that it be given 60 days to complete the

filings.202 Kodak went on to explain, as to the equity holder filing requirements, that there was really

no reason to give the court a list of all its equity holders and their equity interests.203 Kodak proposed

instead to provide notice to the equity holders of the bar date and the opportunity to assert their

claims against the debtors. Kodak argued that the equity holders would also be put on alert by the

level of press that the Kodak bankruptcy was getting in the media.204

The court did not appear to have any problem granting Kodak’s motion. The court extended

the asset and liability filing deadline until March 19, 2012 and waived the equity holder

commencement notice requirement.205 It is not really surprising that the court granted the motion.

Kodak was still required to provide the equity holders notice of the bar date to submit their claims.

Because of the large number of shareholders, it seems unlikely that preliminary notice would have

200 Id. at 3. 201 Id. at 3-4. 202 Id. at 5. 203 Id. at 7. 204 Id. 205 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, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012).

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the effect of inspiring any one of the 51,000 or so shareholders in particular to take an active role in

the bankruptcy proceedings. More likely, anyone that had enough money invested to want to be a

part of the proceedings would hear about it elsewhere or slightly later in the bar date notification,

and trying to notify all the other 50,000 mom and pop investors would have just soaked up a decent

amount of time and resources.

5. Motion to Establish Certain Notice, Case Management, and Administrative Procedures206

Kodak then sought entry of an order authorizing the establishment of certain notice, case

management, and administrative procedures. The motion provided for how notice needed to be

given, how service of process could be accomplished, and when the first seven omnibus hearing for

pleadings would be held, among other things.207 The motion even called for Kodak’s claims and

noticing agent to establish a website, www.kcclcc.net/kodak, where all pleadings in the case would be

posted and available for viewing free of charge.208 Kodak argued that the case management

procedures would “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.”209

206 Debtors' Motion for an Order Authorizing the Establishment of Certain Notice, Case Management and Administrative Procedures, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 207 Id. 208 Id. at 4. 209 First Day Declaration at 22.

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However, the proposed order was not entered wholly unchanged. The Unsecured

Committee negotiated the following terms: Kodak must consult with the Unsecured Committee’s

counsel prior to scheduling any motion for a date other than an omnibus hearing date; wherever

practical, parties must consult with the Unsecured Committee’s counsel as well as Kodak’s counsel

prior to moving for emergency or expedited relief; Kodak must consult with the Unsecured

Committee’s counsel prior to seeking emergency, shortened, or expedited relief; and that the

Unsecured Committee’s consent was required to amend the case management procedures.210 The

court made its order granting Kodak’s motion after adopting these changes. 211

6. Motion to Restrict Certain Transfers of Interests in the Debtors212

The next motion filed by Kodak was an attempt to preserve certain tax benefits by restricting

the sale of Kodak stock during the pendency of the case. According to Kodak, it had sustained large

net operating losses over the past few years, and the tax code allowed Kodak to carry those losses

forward, which it could in turn use to write down gains that would result when it had to sell assets as

part of the bankruptcy proceedings.213 However, the tax code limits the use of these carry-forward

losses in the event of certain changes in ownership. Therefore, Kodak requested that the court place

210 Unsecured Creditors Response at 6. 211 Order signed on 2/15/2012 Authorizing The Establishment Of Certain Notice, Case Management And Administrative Procedures, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 212 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, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 213 Id. at 3

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restrictions on purchases of stock by individuals that would result in greater than 5% ownership of

the company without meeting approval requirements.214 Kodak also requested that sales in violation

of the order would result in the purchaser being forced to sell-down his ownership interest.215

After a hearing on the motion and comment by the Unsecured Committee, the motion was

granted with only minimal changes.216 The main change from the initial motion and one requested

by the Unsecured Committee was that a sale falling under these restrictions could only go through

by the affirmative consent of Kodak rather than by negative notice.217 It appears that the Unsecured

Committee might have been concerned that a sale might slip through the cracks if Kodak was not

forced to make an affirmative decision, a slip which could reduce the possible tax write-offs and thus

the level of recovery available to all unsecured creditors at the end of the bankruptcy proceedings.

7. Motion for Payment of Taxes and Fees218

Kodak submitted another motion on January 19, 2012 that sought the court’s permission to

pay taxes and fees as they came due. In the motion, Kodak provided an analysis of the taxes that it

expected to be due over the next 21 days and also a yearly estimate of taxes and fees in the following

214 Id. at 5. 215 Id. at 13-14. 216 Final 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, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Feb. 15, 2012). 217 Unsecured Creditors Response at 7. 218 Debtors' Motion for Interim and Final Order (A) Authorizing, but not Directing, the Debtors to Pay Taxes and Fees and (B) Authorizing, but not Directing, All Financial Institutions to Honor All Related Payment Requests, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012).

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areas: Sales and Use Taxes; Real and Personal Property Taxes; Income Taxes, Franchise Taxes and

Fees, and Similar Charges; and Intellectual Property Fees.219 In total, Kodak projected that in the

next 21 days it would need to pay $5,435,000 in those areas, with that amount subject to change

based on the future recommendations of Kodak’s tax guy, Thomson Reuters.220 Kodak made the

argument that certain amounts (with the exception of the intellectual property fees) were not really

even part of the estate because the amounts were really property of the respective governments when

incurred and Kodak was a mere holding party.221 Kodak also made a more general argument that

paying all the taxes and fees would just be good business that protects value by not incurring

additional fees for late payment.222

The court, seeing the wisdom of one of these arguments, gave Kodak a 6 million dollar

spending limit to go out and make tax payments.223 For anything over the $6 million, Kodak would

have to give notice to the U.S. Trustee and the counsel for the DIP financer. The order, which again

was nearly identical to the proposed order, provided that this 6 million dollar authorization allowed

Kodak to make payments in both domestic and foreign jurisdictions.224

219 Id. at 2. 220 Id. at 4-9. 221 Id. at 7. 222 Id. at 11. 223 Interim Order (A) Authorizing, But Not Directing, the Debtors to Pay Taxes and Fees and (B) Authorizing, But Not Directing, All Financial Institutions to Honor All Related Payment Requests, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 224 Id.

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8. Motion for Payment of Prepetition Wages and to Continue Employee Benefit Programs225

In its next motion, Kodak sought leave to pay its 9,100 domestic employees (8,000 full-time

and 1,100 part-time), staffing agencies, and independent contractors prepetition wages and other

compensable employment expenses such as employee benefits and payroll taxes. In its proposed

order, Kodak included a reference that the payments to employees would be subject to the priority

cap contained in section 507(a)(4) of the Bankruptcy Code, which puts a limit of $11, 725 on

unpaid prepetition wages.226 It is also interesting to note that, although Kodak references its

executive bonus structure, it was quick to explain that it was not seeking and eligible employees had

not met the requirements to receive any payment under the system, which might have been an

attempt to curry favor with the court.227 In support of its motion, Kodak explained that a majority

of its employees lived paycheck to paycheck or at the very least would suffer an undue hardship from

not receiving their prepetition wages.228

The court issued an interim order whereby it basically just used Kodak’s proposed order, but

also set a hearing on the issues for February 15.229 The court eventually allowed Kodak to make

almost all of the payments that it requested. However, in its final order, just to make it even more

225 Debtors' Motion for Entry of Interim and Final Orders Authorizing, but not Directing, Debtors to (A) Pay Certain Prepetition Wages and Reimbursable Expenses, (B) Pay and Honor Employee Medical and Other Benefits and (C) Continue Employee Benefit Programs, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 226 Id. at 36. 227 Id. at 9-11. 228 First Day Declaration at 25. 229 Interim Order signed on 1/20/2012 Authorizing, But Not Directing, The 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, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012).

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clear, the court explained that payments to executive insiders in the company were currently

restricted, but the court left the subject open to future action by the insider executives.230

9. Motion for Payment of Prepetition Claims Related to Shipping, Warehousing, Processing and

Related Import Duties231

Kodak’s next motion related to maintaining good relations with everyone in its supply chain.

Kodak had a lot of goods and supplies going many different directions, and apparently, a decent

amount of it was sitting on trucks, in warehouses, and in customs. Kodak wanted to pay the

prepetition expenses related to the movement of these goods and supplies because it was concerned

that the trucks would stop running and their goods might be held as collateral.232 The court’s interim

order stipulated that Kodak could, in its own business judgment, determine and pay the costs in the

first 21 days that were necessary to avoid immediate and irreparable harm to Kodak by ensuring the

release and continued movement of its goods and supplies.233

230 Final Order signed on 2/15/2012 Authorizing, But Not Directing, The 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, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 231 Debtors' Motion for Entry of Interim and Final Orders (A) Authorizing, but not Directing, the Debtors to Pay (I) Prepetition Claims of Shippers, Warehousers, Processors and Lien Claimants and (II) Certain Customs Duties and Similar Incidental Prepetition Import Expenses and (B) Authorizing, but not Directing, All Financial Institutions to Honor All Related Payment Requests, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 232 Id. at 3-5. 233 Interim Order (A) Authorizing, But Not Directing, the Debtors to Pay (I) Prepetition Claims of Shippers, Warehousers, Processors and Lien Claimants and (II) Certain Customs Duties and Similar Incidental Prepetition Import Expenses and (B) Authorizing, But Not Directing, All Financial Institutions to Honor All Related Payment Requests, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012).

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The only additions to the final order requested by the Unsecured Committee were that

Kodak would provide the Unsecured Committee with information regarding the claims it intended

to pay in the ordinary course and that Kodak would provide the Unsecured Committee with at least

2 business days notice of claims Kodak proposed to pay outside the ordinary course.234 With those

additions in place, the court made a final order granting Kodak’s motion.235

10. Motion for Continued Maintenance of Customer Programs and Honoring of Prepetition

Obligations to Customers236

Kodak then sought to ensure that it could continue to keep its customers happy by

continuing its customer programs. In its motion, Kodak sought to continue their current practices

and pay prepetition claims related to “(a) warranties; (b) refunds, billing adjustments, and other

credits; (c) purchasing incentives and marketing allowances; (d) revenue sharing programs; (e)

financing programs; (f) trade association memberships; and (g) indemnification and limitations on

liability.”237 Kodak explained that these actions were necessary to ensure that its customers would not

234 Unsecured Creditors Response at 8. 235 Final Order (A) Authorizing, But Not Directing, the Debtors to Pay (I) Prepetition Claims of Shippers, Warehousers, Processors and Lien Claimants and (II) Certain Customs Duties and Similar Incidental Prepetition Import Expenses and (B) Authorizing, But Not Directing, All Financial Institutions to Honor All Related Payment Requests, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 236 Debtors' Motion for Entry of Interim and Final Orders (A) Authorizing, but not Directing, the Debtors to (I) Maintain and Administer Customer Programs and (II) Honor Related Prepetition Obligations to Customers and (B) Authorizing, but not Directing, All Financial Institutions to Honor All Related Payment Requests, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 237 Id. at 3.

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switch to competitors and thus preserve the future viability of the company.238 The only change from

Kodak’s proposed order requested by the Unsecured Committee was that Kodak needed to consult

with the Unsecured Committee before making changes to its customer programs.239 The court

granted Kodak motion to the degree that such payments did not violate the terms of the DIP

financing.240

11. Motion for Payment of Prepetition Claims of Foreign Vendors241

Next, Kodak sought to ensure that critical foreign vendors kept providing the raw materials

and finished products necessary to keep Kodak’s entire business supplied. Kodak explained that the

DIP financing goes a long way to assure vendors that Kodak would be able to pay its bills going

forward. However, there are certain vendors that hold crucial positions in the supply chain.242 For

example, the vendor might be the sole supplier of a certain raw material or Kodak’s only producer of

a particular finished product, and the vendor could use that position as leverage, potentially forcing

entire production facilities to a halt if the vendor was angry enough about not getting its prepetition

238 Id. at 4. 239 Unsecured Creditors Response at 9. 240 Final Order signed on 2/15/2012 (A)Authorizing, But Not Directing, The Debtors To (I)Maintain And Administer Customer Programs And (II)Honor Related Prepetition Obligations To Customers And (B)Authorizing, But Not Directing, All Financial Institutions To Honor All Related Payment Requests, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 241 Debtors' Motion for Entry of Interim and Final Orders (A) Authorizing, but not Directing, the Debtors to Pay Certain Prepetition Claims of Foreign Vendors, (B) Approving Related Procedures and (C) Authorizing, but not Directing, All Financial Institutions to Honor All Related Payment Requests, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 242 Id. at 3-4.

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funds. Therefore, Kodak requested it be allowed to spend no more than $60 million to ensure that

the most important foreign vendors were kept happy.243 In the motion, Kodak also laid out

guidelines for how it would determine what constituted a critical foreign vendor.

During the January 19 hearing on the motion, Judge Gropper explained that one main

reason he was inclined to grant Kodak’s motion was because foreign vendors were an entirely

different animal from Kodak’s domestic critical vendors.244 He noted that many of the vendors

might not fall under the jurisdiction of the court and could attempt to satisfy their claims against

Kodak’s assets in the foreign vendor’s home jurisdiction.245 Judge Gropper did not necessarily agree

with the argument that the vendors were essential to Kodak’s business but more with the fact that, if

left unpaid, the possible litigation of plaintiffs not subject to the bankruptcy stay could wreak havoc

on Kodak’s foreign business, markets from which 70% of sales came in the year preceding

bankruptcy.246

In its order, the court granted Kodak’s motion, but the order contained some interesting

restrictions on foreign debtors that agreed to receive their prepetition sums.247 According to the

order, Kodak was supposed to attempt to condition payment on receiving customary trade terms

from the vendor going forward postpetition. The order also contained a vendor agreement letter

243 Id. at 10-11. 244 Transcript regarding Hearing Held on 01/19/2012 50-52. 245 Id. at 60 246 Id. 247 Final Order signed on 2/15/2012 (A)Authorizing, But Not Directing, The Debtors To Pay Certain Prepetition Claims Of Foreign Vendors, (B)Approving Related Procedures And (C)Authorizing, But Not Directing, All Financial Institutions To Honor All Related Payment Requests, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012).

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whereby the vendor promised to continue providing goods to Kodak in exchange for the prepetition

funds and could be specifically enforced to conform to the agreement if the vendor breached.248

Another interesting aspect of the order was that even though certain vendors delivered their goods

within the 20 day window prior to filing that would allow administrative expense status under

section 503(b)(9) of the Bankruptcy Code,249 those vendors were given the same deal as the vendors

that would have just been unsecured creditors.

12. Motion for Payment of Prepetition Claims of Critical Vendors250

In a motion substantially similar to the motion related to foreign vendors, Kodak sought

permission from the court to make payments for prepetition amounts owed to other vendors it

deemed to be critical. Again, Kodak pointed out that its ability to secure postpetition financing

would go a long way in assuaging the concerns of these unpaid vendors going forward.251 However,

Kodak explained that there were some vendors that may refuse to deliver any future goods until

prepetition claims had been paid in full. Kodak made clear that it had somewhere in the

neighborhood of 2000 vendors with unpaid prepetition claims totaling around 332 million

dollars.252 Kodak then requested the ability to make payments to critical vendors up to a cap of 40

248 Id. at 4-5 249 Following notice and a hearing, administrative expenses shall be allowed for “the value of any goods received by the debtor within 20 days before the date of commencement of a case under this title in which the goods have been sold to the debtor in the ordinary course of such debtor’s business.” 11 U.S.C. § 503(b) (9). 250 Debtors' Motion for Entry of Interim and Final Orders (A) Authorizing, but not Directing, the Debtors to Pay Certain Prepetition Claims of Critical Vendors, (B) Approving Related Procedures and (C) Authorizing, But Not Directing, All Financial Institutions to Honor All Related Payment Requests, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 251 Id. at 3.

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million dollars with the requirement that the critical vendors receiving payments had to agree to

grant Kodak customary trade terms.253

Apparently, Judge Gropper has a well-known aversion to critical vendor motions. During the

January 19 hearing, Judge Gropper said that he was not sure if he had ever approved a first day

motion related to authorizing pre petition expenditures to domestic critical vendors.254 He even

referenced the fact that he had written law review articles that discussed critical vendor motions.255

He refused to even consider the motion on January 19 and delayed arguments on the issue until

February.256 The hearing came and went and Kodak never received its permission to pay its critical

vendors. In an amusing turn of events, counsel for Kodak even thanked Judge Gropper for saving

the company the 40 million when the attorney was arguing for the DIP motion later in February.257

252 Id. at 6. 253 Id. at 33. 254 Transcript regarding Hearing Held on 01/19/2012 at 62. 255 Id. at 51-52. See generally Allan L. Gropper, The Payment of Priority Claims in Cross-Border Insolvency Cases, 46 TEX. INT’L. L.J. 559. 256 Transcript regarding Hearing Held on 01/19/2012 at 53. 257 Transcript regarding Hearing Held on 02/28/2012 at 11.

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13. Motion for Continued Use of the Debtor’s Financial System258

Whenever a debtor files a petition for bankruptcy, one of the protections given to creditors is

that the debtor is barred from using its existing cash management system. The debtor cannot use the

checks or bank accounts that it had prior to bankruptcy without court approval.259 Although the

code seems to favor establishing a set of new accounts and procedures for a debtor in possession,

sometimes the current debtor’s processes are so complicated that it really is not feasible or cost

effective to create a new system. For example, in Kodak’s case it had approximately 66 bank accounts

in 12 different banks.260 Kodak also practiced a system common in large corporations whereby each

subsidiary had its own collection and disbursement accounts and multiple levels of larger

concentration accounts in the parent’s name. In Kodak, at periodic intervals, the money in the

subsidiaries would be drawn up to the concentration accounts and the subsidiaries would need to

request money for necessary expenses that would then be placed in their disbursement accounts.261

Rather than try to recreate a similar system in bankruptcy, Kodak sought to maintain their

current system and use up their current supply of checks and documents before needing to order

anything that indicated Kodak as a debtor in possession.262 The Unsecured Committee negotiated

258 Debtors' Motion for Interim and Final Orders (A) Authorizing, but not Directing, the Debtors to (I) Continue Using Their Existing Cash Management System, Bank Accounts and Business Forms, (II) Maintain Investment Practices and (III) Continue Intercompany Transactions, (B) Providing Postpetition Intercompany Claims Administrative Priority and (C) Authorizing, but not Directing, All Financial Institutions to Honor All Related Payment Requests, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 259 11 U.S.C. § 363(c). 260 Id. at 3 261 Id. at 57-59. 262 Id. at 3.

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certain changes to the original proposed order including that Kodak needed to provide the

Unsecured Committee with advance notice of any new bank accounts and that the Unsecured

Committee would have the same rights as Kodak with respect to challenges to the validity of any

claims paid.263 With these additions in place, the court issued a final order in Kodak’s favor with the

reservation that a later hearing was needed to settle a more recent objection made by the U.S.

Trustee.264

The U.S. Trustee’s objection was based on a provision in Kodak’s motion that sought waiver

from the requirements of Bankruptcy Code section 345(b),265 which provides that a debtor’s funds

shall be insured or guaranteed by the United States or by a department, agency or instrumentality of

the United States or backed by the full faith and credit of the United States.266 Basically, the trustee

was worried that Kodak never disclosed the amount of estate funds that might be stored in accounts

that were not federally insured.267 In a later hearing, it came forward that globally Kodak had nearly

$700 million in cash reserves (following the receipt of DIP financing) and only about $13 million

was stored in non-insured accounts in the Philippines.268 The trustee explained that, although it

was not concerned with the $13 million, it was concerned that a waiver of the protections of section

263 Unsecured Creditors Response at 11. 264 Final Order signed on 2/16/2012 (A)Authorizing, But Not Directing, The Debtors To (I)Continue Using Their Existing Cash Management System, Bank Accounts And Business Forms And (II)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, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 265 Transcript regarding Hearing Held on 02/28/2012 at 37-40. 266 Id. 267 Id. 268 Id.

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345(b) would allow Kodak the ability to move as much money as they wanted into the unprotected

accounts.269 The court eventually settled on a compromise position whereby Kodak would be able to

move cash reserves into money market accounts after consultation with the Unsecured Committee

and the U.S. Trustee.270

14. Motion for Postpetition Financing271

As noted above, one of the goals that Kodak had when it entered bankruptcy was to improve

its liquidity position. On the petition date, Kodak’s outstanding secured debt was $946 million.272

The amount included approximately $100 million of loans outstanding under the first lien revolving

credit facility and an additional $96 million in face amount of outstanding letters of credit, also

secured by the first lien on all or substantially all of Kodak’s assets.273 The remaining $750 consisted

of the principal of second lien secured notes held by the senior secured noteholders (“Secured

Noteholders”).274 The security interest held by the Secured Noteholders was also in all or

substantially all of Kodak’s assets.

269 Id. at 38-39. 270 Id. at 42. 271 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), In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012) (hereinafter “DIP Motion”). 272 Id. at 10. 273 Id. 274 Id. The $750 million of secured notes consists of a $500 million issuance of 9.75% senior secured notes due 2018 and $250 million in 10.625% senior secured notes due 2019. Id.

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In its motion, Kodak sought the court’s approval of postpetition DIP financing in the

amount of $950 million that was to be provided by a syndicate of banks lead by Citibank.275 The

plan provided that the interim order would allow Kodak access to 700 million of the funds and

would be granted access to the remaining $250 million after the court entered its final order.276 The

proposed order also allowed Kodak to basically pay off the first lien holders prepetition amount with

funds from the DIP financing, but it had no similar provision for “roll up funds” for the Secured

Noteholders.277 According to Kodak, the Secured Noteholders’ claims were subject to an

intercreditor agreement by which the Secured Noteholders could be subordinated or primed beneath

future DIP financing as long as certain requirements were met.278

Kodak’s financing order faced objections from all sides. The simplest objections came from

Apple and Samsung. Apple just wanted the court to clarify that because of its current litigation of

patent ownership with Kodak any security provided for in the financing agreement would not

include the disputed patent rights.279 Samsung also just wanted the court to clarify that the financing

agreement in no worked to affect the intellectual property licensing agreements that it had with

275 Id. at 103. 276 Id. at 21. The interim order provided that $450 million would be drawn as immediate working capital and Kodak would also be granted access to $225 million of the revolving credit facility, “with an additional $25 million made available solely to non-debtor affiliate Kodak Canada.” Id. 277 Id. 278 Id. at 38. 279 Limited Objection of Apple Inc. to 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), In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012).

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Kodak.280 Samsung also proposed language to the final order that it claimed would protect its 11

U.S.C. 365(n) licensing rights.281 Kodak readily assented to the changes.

The more serious objection came from the Secured Noteholders. The Secured Noteholders

explained that, prior to bankruptcy, Kodak had been burning through its cash reserves, shedding

more than two billion dollars in the three years running up to bankruptcy.282 Furthermore, the

Secured Noteholders pointed out the Kodak had very frequently missed its earnings projections.283

The Secured Noteholders urged the court to put more restrictions on Kodak’s spending before

giving it access to 700 million dollars that would have priority over the unsecured and Secured

Noteholders prepetition claims.284 The Secured Noteholders also took issue with the fact that the

noteholders did not receive adequate disclosure related to their ability under the intercreditor

agreement to propose alternative financing.285 Here, the complaint did not really center around

whether the claims by the Secured Noteholders would eventually be paid off. As the Court noted

early on, all of the secured parties in the case were, at the very least, “substantially over secured.”286

280 Limited Objection Of Samsung Electronics, Co. Ltd. To Debtors' Motion For Entry of Final Order (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, And (II) Granting Adequate Protection To Prepetition Secured Parties Pursuant To 11 U.S.C. §§ 361, 362, 363, And 364, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 281 Id. 282 Transcript regarding Hearing Held on 01/19/2012 at 55. 283 Id. 284 Id. at 94. 285 Id. at 85. 286 Id. at 148.

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The real sticking point was that they wanted a portion of all the nice interest and fees that would

have been due to them if Kodak had selected them as its DIP lender. Citibank was quick to point

out the hypocrisy of the Secured Noteholders claims by noting that, although the Secured

Noteholders were currently crying foul about Kodak’s business practices, just days before they had

been making an alternative offer for financing.287 After the first day hearing eventually concluded at

8:36 P.M. on January 19, 2012,288 Kodak emerged with a court order allowing interim DIP

financing, which for the most part mirrored Kodak’s proposed order.289

Even after receiving the disclosure the Secured Noteholders requested, the group was unable

to provide a better DIP financing offer to Kodak by the hearing on the final order. On February 16,

2012, the court issued a final order related to the DIP financing provided by Citibank.290 In the final

order, Kodak’s obligation’s to the DIP lender under the agreement were granted super priority over

any and all other administrative expenses, pursuant to section 364(c)(1) of the Bankruptcy Code.291

The DIP financing was also granted superior status to all prepetition secured debt with the

287 Id. at 81. 288 Id. at 151. 289 Interim Order signed on 1/20/2012(I)Authorizing Debtors (A)To Obtain Post Petition 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 Pre Petition 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), In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 290 Final Order signed on 2/16/2012 (I)Authorizing Debtors (A)To Obtain Post Petition 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 and (II)Granting Adequate Protection To Pre Petition Secured Parties Pursuant To 11 U.S.C. §§ 361, 362, 363 and 364, ), In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012) (hereinafter “DIP Final Order”). 291 Here, the Court’s ruling is an acknowledgement that Kodak was unable to secure either unsecured financing or a financing option that did not require the superpriority status. 11 U.S.C. 364(c)(1).

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exceptions of a small portion of first secured debt still outstanding and a Carve Out for court fees,

U.S. Trustee expenses, and the Unsecured Committee’s expenses.292 Furthermore, under the

agreement, Kodak was required to take certain actions with respect to the digital imaging portfolio it

was attempting to sell. Namely, Kodak needed to seek approval with the court of bid procedures for

the I.P. sale by June 30, 2012.293 The agreement also laid out a related repayment scheme based on

the sale of the I.P. where the DIP would be paid off first, followed by Secured Noteholder’s interest,

and if the proceeds were large enough, the remainder would be split between Kodak and the Secured

Noteholders until the Secured Noteholders’ principal was also repaid.294

15. Motion to Establish Procedures for the Assertion, Resolution, Allowance, and Satisfaction of

Unpaid Claims295

In its next motion, Kodak attempted to establish a claims procedure for persons wanting to

assert claims under section 503(b)(9) of the Bankruptcy Code. Section 503(b)(9) provides for

administrative expense status for claims related to goods that Kodak bought in the ordinary course of

business and were received within 20 days of the petition date.296 Kodak estimated that it had about

$65 million in unpaid goods as of the petition date, and Kodak argued that there might be some

292 DIP Final Order at 20-21. 293 DIP Motion at 7. 294 DIP Final Order at 39-41. 295 Debtors' Motion for an Order Establishing Procedures for the Assertion, Resolution, Allowance and Satisfaction of Unpaid Claims Asserted Pursuant to 11 U.S.C. § 503(b)(9), In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 296 Id. at 4-5.

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confusion among vendors about the procedures for asserting a claim.297 Kodak proposed a system by

which vendors would have 75 days from the petition date to make a claims filing with KCC, Kodak

would then have 75 days to file objections to those claims, and the disputes, if not resolved between

Kodak and the vendor, would be scheduled for a hearing.298 Any claim that was not asserted by the

filing deadline would be barred.299

As for suggested changes by the Unsecured Committee, the first demand was that “the

Committee w[ould] receive a copy of all 503(b)(9) claims, objections, and replies.” The Unsecured

Committee also suggested that it should “have the same opportunity as (Kodak) to object to such

claims; the Committee’s consent w[ould] be required for agreements resolving objections or

otherwise settling 503(b)(9) claims, including the payment of any such claims; and nothing therein

w[ould] affect any avoidance actions against a 503(b)(9) claimant.”300 The court approved the order

on February 16, 2012 without too many changes other than those suggested by the Unsecured

Committee.301 The court mainly just provided that the Unsecured Committee and the Secured

Noteholders had to approve claim negotiations.302

297 Id. at 3. 298 Id. at 4. 299 Id. at 5. 300 Unsecured Creditors Response at 13. 301 Order signed on 2/16/2012 Establishing Procedures for the Assertion, Resolution, Allowance and Satisfaction of Unpaid Claims Asserted Pursuant to 11 U.S.C. §503(b)(9). 302 Id.

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16. Motion to Reject Unexpired Aircraft Leases303

In this motion Kodak sought to get rid of two aircraft that it subleased for corporate

purposes. Kodak indicated that, as part of its reorganization efforts, it was attempting to reduce

corporate overhead costs and had no further need of the aircraft. Kodak argued that under section

365(a) of the Bankruptcy Code, Kodak “subject to the court’s approval, (could) reject any executory

contract or unexpired lease.”304 The court agreed and granted the motion with only minimal changes

to the proposed order.305

17. Motion to Continue Prepetition Insurance Coverage306

Kodak explained that as part of its business, it maintains a “comprehensive insurance

program that provides coverage related to, among other things, general liability, excess liability,

directors' and officers' liability, property coverage, crime coverage, automobile coverage, cargo

coverage and travel accident liability.” This first day motion was an attempt by Kodak to seek

permission from the court to maintain its current level of insurance coverage. In support of its

request, Kodak explained that the insurance policies “are essential to the preservation of value of

303 Debtors' Motion for an Order Authorizing Rejection of Certain Unexpired Aircraft Leases Effective as of the Petition Date, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 304 Id. at 6 (quoting 11 U.S.C § 365(a)). 305 Order signed on 2/15/2012 Authorizing Rejection Of Certain UnexpiredAircraft Leases Effective As Of The Petition Date, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 306 Debtors' Motion for an Order (A) Authorizing, But Not Directing, the Debtors to Continue Prepetition Insurance Coverage and Pay Prepetition Obligations Relating Thereto and (B) Authorizing, But Not Directing, All Financial Institutions to Honor All Related Payment Requests, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012).

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(Kodak’s) businesses, properties and assets.” Kodak provided further justification by noting that

some of the insurance policies were required by regulations and laws, and specifically that “the

Bankruptcy Code provides that ‘failure to maintain appropriate insurance that poses a risk to the

estate or to the public’ is ‘cause’ for mandatory conversion or dismissal of a chapter 11 case.”307 As

for the potential cost to the estate, Kodak told the court that the premiums from the previous year

totaled approximately $4.9 million.308 This motion was one that the court granted and then placed

on the February 15 hearing for discussion of objections.

The only main additions that were sought by the Unsecured Committee was language to the

effect that Kodak could not purchase a directors & officers insurance policy covering prepetition

periods absent consultation with the Committee or a separate order of the bankruptcy court; and the

Committee would have the benefit of the same reservation of rights as the Kodak with respect to

challenges to the validity of any claims paid.309 The court, which appeared to agree with the

Unsecured Committee’s additions, passed an order substantially similar in form to Kodak’s proposed

order but with the restrictions on purchasing “tail coverage” to further protect directors and officers

from possible liability because of their actions prepetition.310

307 Id. at 4 (quoting 11 U.S.C. § 1112(b)(4)(C).) 308 Id. at 3. 309 Unsecured Creditors Response at 13. 310 Order signed on 2/15/2012 (A)Authorizing, But Not Directing, The Debtors To Continue Prepetition Insurance Coverage And Pay Prepetition Obligations Relating Thereto And (B)Authorizing, But Not Directing, All Financial Institutions To Honor All Related Payment Requests, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012).

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18. Motion to Establish Procedures for Interim Compensation311

As will be demonstrated in part V, professionals can run up exorbitant fees in a bankruptcy

proceeding. As a general rule, those fees will be given administrative expense priority and will be paid

before other unsecured creditors as long as the employment of the professionals and the fees are

approved by the court. However, without further action by the court, the professionals have to wait

until the end of the proceeding to collect their fees, which could range into the millions or tens of

millions of dollars. This motion by Kodak asked the court to allow Kodak to pay its professionals a

little earlier. Under section 331 of the Bankruptcy Code, “all professionals may submit application

for interim compensation and reimbursement as often as the bankruptcy court permits.”312 The

motion called for the professionals to submit detailed reports of their monthly expenses, and

following a 35 day objection deadline, Kodak would be allowed to pay the professionals 80% of

their billed fees and 100% of the expenses the professionals incurred.313

However, the motion also provided that the professionals still had to file, approximately

every 120 days, an application for interim or final court approval and allowance of the compensation

and reimbursement of expenses requested, pursuant to sections 330 and 331 of the Bankruptcy

Code.314 Failure to follow the code requirements for court approval would result in that

311 Debtors' Motion for an Order Establishing Procedures for Interim Compensation and Reimbursement of Expenses for Professionals, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012) (hereinafter “Interim Compensation Motion”). 312 Id. at 4. 313 Id. at 5 314 Id. at 6.

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professional’s inability to receive future monthly payments.315 The only change to the proposed

order that was sought by the Unsecured Committee was that it would have the same rights as Kodak

with respect to challenging any fee or expense claims.316 The court accepted the revised proposed

order and signed off on the motion following the February 15 objection hearing.317

19. Motion to Reject Unexpired Nonresidential Property Leases318

This motion was in substance very similar to the section 365 motion on unexpired aircraft

leases. In its motion, Kodak explained that on the petition date Kodak was a tenant “under

approximately 34 nonresidential real property leases across 12 states.”319 Furthermore, prior to the

petition date, Kodak did an analysis of what property it actually would need for the slimmed-down

version of itself it expected to emerge on the other side of bankruptcy. Following this analysis,

Kodak filed the petition to reject, pursuant to section 365, five non-integral leases that only

represented a burden and unnecessary expense to the estate.320 Kodak also sought as part of its

motion to be given court approval to abandon personal property at the locations that in Kodak’s

315 Id. 316 Unsecured Creditors Response at 14. 317 Order signed on 2/15/2012 Establishing Procedures For Interim Compensation And Reimbursement Of Expenses For Professionals, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 318 Debtors' Motion for an Order Authorizing Rejection of Certain Unexpired Nonresidential Real Property Leases, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 319 Id. at 3. 320 Id. at 3.

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discretion would be too burdensome to recover.321 The court allowed Kodak to reject all five leases

and abandon the limited amount of property.322

20. Motion to Authorize the Retention of Professionals323

In its next motion, Kodak sought general approval to employ and compensate ordinary

course professionals, which are not required to be specifically approved or required to make fee

applications in the same manner as professionals falling under section 367 of the Bankruptcy

Code.324 In this motion, Kodak was just seeking to ensure that the attorneys and other professionals

that it had on staff prepetition and professionals it would hire for similar purposes going forward

could still continue to work on non-bankruptcy issues and be compensated for that work.325 Kodak

321 Id. at 7. 322 Order signed on 2/15/2012 Authorizing Rejection Of Certain Unexpired Nonresidential Real Property Leases, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 323 Debtors' Motion for an Order Authorizing the Retention and Compensation of Certain Professionals Utilized in the Ordinary Course of Business, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012) (hereinafter “OCP Motion”). 324 Section 327(a) of the Bankruptcy Code provides:

Except as otherwise provided in this section, the trustee, with the court's approval, may employ one or more attorneys, accountants, appraisers, auctioneers, or other professional persons, that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represent or assist the trustee in carrying out the trustee's duties under this title.

11 U.S.C. § 327(a). 325 OCP Motion at 2-3.

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sought permission to pay the ordinary course professionals without further applications to the Court

as long as the monthly fee requests for the professional did not exceed $50,000 individually.326

After reviewing the motion, the Unsecured Committee negotiated with Kodak for a $5,000

limit to be placed on the amount of monthly expenses that could be compensated without court

approval, which was previously uncapped.327 The Court passed a motion similar to Kodak’s original

proposed motion, with the addition of the expense cap, on February 15, 2012 following the first day

objection hearing.328 The order contained a total of 229 ordinary course professionals that Kodak

sought to employ or continue to employ. As part of the order, employment was conditioned on the

professionals filling out an attached form related to disinterestedness.329

21. Motion to Establish Procedures for Treatment of Reclamation Claims330

According to the motion, Kodak bought raw materials, components parts, and finished

goods on credit and had bills outstanding as of the petition date. Although Kodak had previously

filed motions to pay prepetition claims of critical domestic and foreign vendors, another option

available to the vendors was to take back or reclaim its good in satisfaction of the claim.331 Kodak

326 Id. at 15. 327 Unsecured Creditors Response at 14. 328 Order signed on 2/15/2012 Authorizing The Debtors Retention And Compensation Of Certain Professionals Utilized In The Ordinary Course Of Business, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 329 Id. 330 Debtors' Motion for an Order Establishing and Implementing Exclusive Procedures for Treatment of Reclamation Claims, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012) (hereinafter “Reclamation Procedure Motion”). 331 Id. at 4.

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fearing that the vendors might try to interfere with the delivery of shipped goods or attempt

repossession of already delivered goods sought an order by the Court outlining required procedures

for a reclamation action.332 In its motion, Kodak’s proposed reclamation procedures called for a

vendor to file a reclamation claim by the deadlines found in section 546(c) of the Bankruptcy

Code,333 make a reclamation notice filing within 120 days following the reclamation order, and

called for other requirements like a period of objection and hearings on disputed claims.334 The

motion also laid out procedures for settling a reclamation claim.

The Unsecured Committee’s additions to the proposed order consisted of a requirement that

the Committee would receive a copy of all reclamation claims, objections, and replies; Kodak would

consult with the Committee prior to settling any claim; and “no settlement may provide for the

payment of any [r]eclamation [c]laim other than pursuant to a confirmed chapter 11 plan.”335 After

332 Id. at 3. 333 Section 546( c) of the Bankruptcy Code provides:

[S]ubject to the prior rights of a holder of a security interest in such goods or the proceeds thereof, the rights and powers of the [debtor in possession] are subject to the right of a seller of goods that has sold goods to the debtor, in the ordinary course of such seller's business, to reclaim such goods if the debtor has received such goods while insolvent, within 45 days before the date of the commencement of a case under this title, but such a seller may not reclaim such goods unless such seller demands in writing reclamation of such goods - (A) not later than 45 days after the date of receipt of such goods by the debtor; or (B) not later than 20 days after the date of commencement of the case, if the 45-day period expires after the commencement of the case.

11 U.S.C. 546(c). 334 Reclamation Procedures Motion at 4. 335 Unsecured Creditors Response at 15.

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adding the Unsecured Committees’ provisions and a section on notice to the secured creditors, on

February 16, 2012, the Court approved the reclamation motion.336

D. Other Early Motions

1. Motion for an Order Approving Expedited Procedures for the Sale, Transfer, Donation and/or

Abandonment of De Minimis Assets337

On January 31, 2012, Kodak made a motion before the Court requesting approval

procedures for it to sell de minimis assets.338 Kodak explained that, as part of its restructuring efforts,

it was “in the process of identifying certain surplus, obsolete, non-core, or burdensome

Assets . . . to sell, transfer, donate or abandon.”339 Under sections 363 and 554 of the Bankruptcy

Code, a debtor is required to provide notice and receive approval to sell340 or abandon assets,341 with

the exception that sales are allowed if they fall within the ordinary course of business.342 The order

was an attempt by Kodak to limit the number of times that it would be forced to provide notice to

336 Order signed on 2/16/2012 Establishing and Implementing Exclusive Procedures for Treatment of Reclamation Claims, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y.Jan. 19, 2012). 337 Motion to Approve Expedited Procedures for the Sale, Transfer, Donation and/or Abandonment of De Minimis Assets, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y.Jan. 19, 2012). (hereinafter “De Minimis Assets Motion”). 338 Id. at 3. 339 Id. at 3. 340 11 U.S.C. § 363. 341 11 U.S.C. § 554. 342 11 U.S.C. 363(c)(1).

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interested parties and ask the Court’s permission to sell assets where the monetary value of the

particular transaction was of little concern, even if in the aggregate amount of these small sales was

quite large. Kodak’s proposed procedures were intended to streamline the disposition process.343

In the proposed procedures, Kodak was able to make sales of assets in amounts less than $5

million without further court approval or notice to interested parties, such as the DIP financer or the

Unsecured Committee.344 Furthermore, for asset sales falling in the $5 million to $15 million range,

Kodak still did not need further court approval. In that range, however, Kodak was permitted to

make the sale only after it gave notice to interested parties and if it received no objections by the fifth

day following the notice.345

2. Motion to Reject Kodak Theatre Naming Rights Contract to Kodak Theatre346

Early on in the bankruptcy proceeding, Kodak made one request from the Court that drew

some national attention. Kodak again asked the Court’s permission to reject another executory

contract pursuant to section 365(a) of the Bankruptcy Code, which Kodak argued would lead to

saving of nearly 40 million dollars over the remaining 9 years of the contract.347 What made this

motion particularly interesting is that, rather than aircraft or real property leases, Kodak’s request 343 De Minimis Assets Motion at 3. 344 Id. at 4-5. For the sales falling under $5 million, Kodak explained that, even without the motion, it was authorized to make the sales pursuant to section 363(c)(1) of the Bankruptcy, because the sales were made in the ordinary course of business. Kodak stated that it was only including the sub $5 million bracket out of an “overabundance of caution.” Id. at 3 n.2. 345 Id. at 6. 346 Motion to Reject Lease or Executory Contract Nunc Pro Tunc to January 31, 2012 filed by Pauline K. Morgan on behalf of Eastman Kodak Company. 347 Transcript regarding Hearing Held on 02/16/2012 at 40.

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was to reject a contract in which Kodak paid roughly $4 million per year to have the theatre in

which the Academy Awards are held bear Kodak’s name.

The other party to the contract, CIM/H&H Media, LP (“CIM”), objected to Kodak’s

motion on the grounds that the contract was not executory.348 CIM argued that it had fully

performed the contract and the only performance left was for Kodak to make good on its promise to

pay the yearly amount.349 CIM explained that the Kodak name and signage was installed on the

property since the theatre finished construction, and it had been know as the “Kodak Theatre” since

that time.350 CIM claimed that it would be futile to try and seek an alternative naming rights deal,

because the public would always refer to the location as the Kodak Theatre.351 Kodak countered by

pointing out that CIM was still obligated under the contract to promote and sell tickets to events

and to keep Kodak’s signage installed under the agreement as indicators of the executory nature of

the contract.352 Kodak also noted that the agreement itself forecasted an end date in 9 years, which

showed that both sides contemplated that the naming right could be sold to a different party in the

future, which cast doubt on the suggested notion that the Kodak Theatre would always be its

popular name353

348 Opposition To Motion for an Order Authorizing Rejection of Certain Executory Contract Nunc Pro Tunc to January 31, 2012 9-11, (hereinafter “Opposition to Kodak Theatre Motion”). 349 Id. at 2. 350 Id. 351 Transcript regarding Hearing Held on 02/16/2012 at 46. 352 Id. at 41. 353 Id. at 40-41.

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CIM also made an alternative argument relative to the date that Kodak was allowed to

consider the contract terminated. CIM wanted a later termination date because the costs related to

the extra days’ would have been treated under the Bankruptcy Code as an administrative expense

that would receive priority over general unsecured claims.354 CIM tried to justify this later date by

indicating that the Academy Awards were scheduled to take place in just a few weeks, and at the very

least, Kodak should be held liable until that date because it was currently infeasible to try to remove

the Kodak signage so close to the event.355 CIM pointed out that, although Kodak wanted to frame

its rejection as Kodak handing over the keys and walking way, this was the type of contract that took

time to wind down and could not be cut off immediately. Judge Gropper rejected both of CIM’s

argument and allowed Kodak to reject the contract on the initial date requested. However, he did

indicate that CIM could make the claims about the proximity to the award ceremony later when the

company argued the amount of damages it had sustained up until the point of rejection.356

As an interesting aside, during the hearing on the motion, Judge Gropper warned Kodak

that, although he was inclined to allow Kodak to reject the contract, he guessed that Billy Crystal,

the upcoming host of the Academy Awards, might feature Kodak in some of his jokes.357 During the

awards ceremony, Crystal opened with “we’re here at the beautiful Chapter 11 theater” and

continued to refer to the location as just “the theatre” for the remainder of the evening.358 In a

354 Opposition to Kodak Theatre Motion at 13. 355 Id. at 13-14. 356 Transcript regarding Hearing Held on 02/16/2012 at 56-57. 357 Id. at 52. 358 Palank, Jacqueline. Kodak Stars in Oscar Jokes, Bankruptcy Beat, The Wall Street Journal, http://blogs.wsj.com/bankruptcy/2012/02/27/kodak-stars-in-oscars-jokes/ (last visited April 20, 2013).

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hearing shortly following the awards ceremony, Kodak’s attorney congratulated Judge Gropper on

his prescient comments because Kodak had been the butt of not one but two of Crystal’s jokes.359 All

in all, it is likely the $40 million in savings helped sooth any sting from Crystal’s remarks.

IV. MIDDLE OF THE CASE

Kodak achieved a great deal during the flurry of initial activity in the case. It was able to keep

its employees paid, its products moving, and its business going along fairly uninterrupted. Probably

most importantly, Kodak was able to secure almost a billion dollars to temporarily solve its liquidity

issue, the largest sole reason that Kodak was forced to file its voluntary chapter 11 petitions on

January 19, 2012. With the first day motions and early orders laying the groundwork for a successful

stint in bankruptcy and with liquidity off the table for the moment, Kodak was able to start working

to achieve the remaining three of the four goals Kodak wished to accomplish prior to exiting chapter

11, specifically monetizing its I.P., dealing with legacy costs, and more generally, deciding which

parts of its business to restructure around going forward. As one of its original goals and now a

requirement of its DIP financing agreement, Kodak began the next leg of the case by trying to find a

willing buyer for its digital imaging portfolio.

359 Transcript regarding Hearing Held on 02/28/2012 at 12.

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A. Patent Sale

Kodak’s massive patent holdings related to digital imaging technology, which it had been

using to generate revenue for many years, had been valued between $2.2 and $2.6 billion.360 As a

condition to Kodak’s $950 million post petition DIP financing, the company had to find a way to

monetize these intellectual property holdings.361 Specifically, the Final DIP Order required that

Kodak file a motion with the Court to approve bidding procedures for the sale of Kodak’s

intellectual property portfolio on or prior to June 30, 2012.362 Accordingly, Kodak intended to

leverage its massive patent holdings in a sale free and clear of all holdings pursuant to section 363 of

the Bankruptcy Code.363 Apple Inc. (“Apple”), however, objected to Kodak’s motion to sell its I.P.

portfolio free and clear of interests, and filed a motion to initiate a patent infringement suit against

Kodak.364 In response, Kodak objected to Apple’s motion for relief from the automatic stay, arguing

that Apple had no reason to litigate outside the Bankruptcy Court.365

360 Mike Spector, Dana Mattioli & Peg Brickley, Can Bankruptcy Filing Save Kodak?, WALL ST. J., Jan. 20, 2012, available at http://online.wsj.com/article/SB10001424052970204555904577169920031456052.html/. 361 Final Order (I) Authorizing Debtors (A) To Obtain Post Petition 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 and (II) Granting Adequate Protection To Pre Petition Secured Parties Pursuant To 11 U.S.C. §§ 361, 362, 363 and 364, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 362 Id. at 44. 363 Notice of Debtors’ Motion for Orders (1) (A) Conditionally Authorizing the Sale of Patent Assets Free and Clear of Claims and Interests, (B) Establishing a Competitive Bidding Process and (C) Approving the Notice Procedures and (II) Authorizing the Sale of Patent Assets Free and Clear of Claims and Interests, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 364 Notice Of Filing Of Motion Of Apple Inc. Seeking Authority To Initiate Patent Infringement Actions Against Eastman Kodak Company, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). The Court set a hearing date for February 28, 2012 on Apple’s motion for relief from the automatic stay. Notice Of Filing Of Motion Of Apple Inc. Seeking Relief From The Automatic Stay

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Judge Gropper ultimately sided with Kodak and prevented Apple from initiating a patent

infringement suit against Kodak.366 Thus, on June 11, 2012, Kodak filed the Motion for Orders (1)

(A) Conditionally Authorizing the Sale of Patent Assets Free and Clear of Claims and Interests, (B)

Establishing a Competitive Bidding Process and (C) Approving the Notice Procedures and (II)

Authorizing the Sale of Patent Assets Free and Clear of Claims and Interests.367 Judge Gropper set a

hearing on the motion for July 2, 2012 to (1) consider entry of a court order to approve the bidding

process for a competitive sale of all or any portion of Kodak’s I.P. portfolio and to (2) authorize

Kodak to sell their I.P. portfolio free and clear of claims and interests subject to the bidding

process.368 Kodak sought, from the Court, a determination that any claims or interests holders who

had failed to object or had withdrawn objections be deemed to have consented to the proposed sale

pursuant to section 363(f)(2) of the Bankruptcy Code and that adequate protection had been

established for purposes of section 363(e).369

Kodak filed an adversary complaint against Apple to protect Kodak’s “efforts to sell a

collection of Kodak patents relating to digital imaging.”370 In the adversary complaint, Kodak

To Facilitate Resolution Of Patent Ownership Disputes Prior To The Debtors’ Sale Of Those Patents, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 365 See Debtors’ Objection To Apple Inc.’s Motion Seeking Relief From The Automatic Stay To Facilitate Resolution Of Patent Ownership Dispute Prior To The Debtors’ Sale Of Those Patents, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 366 Order Denying Apple Inc.’s Motion To Initiate Patent Infringement Actions Against Eastman Kodak Company, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 367 Notice of Debtors’ Motion, supra note []. 368 Id. at 2. 369 Id.

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accused Apple of using its superior cash position to delay payment of royalties and to interfere with

Kodak’s planned auction of the I.P. portfolio and sought a judgment declaring any disputed patents

free and clear of claims and interests.371 Kodak emerged victorious from their adversary

proceeding,372 and Judge Gropper issued a final order authorizing the sale of Kodak’s patents free

and clear of claims and interests on January 11, 2013.373 Despite Kodak’s efforts to prevent Apple

from interfering in the sale of its I.P. portfolio, Apple, along with a consortium of other tech

companies, succeeded in purchasing the massive collection of intellectual property for a final sale

price of $527 million.374 A paltry figure compared to the initial valuation of Kodak’s I.P. portfolio.

B. Kodak Gallery Sale to Shutterfly

As one of its goals leading into bankruptcy, Kodak claimed that it intended to reorganize

around its successful commercial units, which naturally entailed shedding units and assets that no

longer meshed well with the reorganized business model. One such business unit Kodak sought to

370 Kodak Complaint for Declaratory and Injunctive Relief, in re Eastman Kodak Company, Case No. 12-10202 (ALG), Adversary Proceding (Case No. 12-01720), (Bankr. S.D.N.Y. Jan. 19, 2012). 1408 371 Id. at 4. 372 David McLaughlin, Kodak Wins Partial Victory Against Apple in Patent Fight, BLOOMBERG, Aug. 1, 2012, available at http://www.bloomberg.com/news/2012-08-01/kodak-wins-partial-victory-against-apple-in-patent-fight.html/. 373 Final Order Authorizing (A) The Sale Of Patent Assets Free And Clear Of Claims And Interests, (B) The License Of Patents, (C) The Assumption Of Patent Cross License Agreements With Fujifilm And (D) The Settlement Of Claims Related To Certain Patents, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 374 David McLaughlin, Apple, Google Deal for Kodak Patents Approved by Judge, BLOOMBERG, Jan. 11, 2013, available at http://www.bloomberg.com/news/2013-01-11/apple-google-deal-for-kodak-patents-approved-by-judge.html/.

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sell was Kodak Gallery.375 Kodak Gallery was a business that “allowed customers to share images

online and to create photo books (and other merchandise) for online purchase from Kodak.376 The

Kodak Gallery business also enabled customers to order prints from their mobile devices for pick-up

at retail chains such as Target and CVS.”377 As a first step in the sale process, on March 1, 2012,

Kodak signed a transfer agreement with Shutterfly, Inc (“Shutterfly”) for Shutterfly to serve as the

stalking horse bidder in a possible section 363 sale and auction of the Kodak Gallery business.378 As a

stalking horse, Shutterfly acted as an initial bidder and agreed to purchase the assets free and clear of

claims for the contracted price if no other eligible bidder came forth with a higher bid. Under the

transfer agreement, the price Shutterfly agreed to pay for the Kodak Gallery was $23.8 million.

To incentivize a party to act as a stalking horse, transfer agreements almost always contain a

break-up fee that will be paid to the stalking horse if it is outbid, which is a way to compensate the

party for the cost of its due diligence. The proposed break-up fee for the Kodak Gallery sale was

$600,000.379 Practically speaking, a higher break-up serves to chill bidding because any new bidder

will have to outbid the stalking horse by at least the amount of the fee for their offer to be considered

375 Motion to Authorize - Motion for Order (I)(A) Authorizing Certain Debtors Entry into the Stalking Horse Purchase Agreement, (B) Authorizing and Approving the Bidding Procedures and Break-Up Fee, (C) Approving the Notice Procedures, (D) Authorizing the Filing of Certain Documents Under Seal and (E) Setting a Date for the Sale Hearing and (II) Authorizing and Approving the Sale of Certain Assets of Kodak Imaging Network Inc. Free and Clear of All Claims and Interests, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012) (hereinafter “Gallery Sale Motion”). 376 Shutterfly Complaint for Damages and Injunctive Relief, In re Eastman Kodak Company, Case No. 12-10202 (ALG), Adversary Proceeding (Case No. 13-01310), (Bankr. S.D.N.Y. Jan. 19, 2012) (hereinafter “Shutterfly Complaint”). 377 Id. at 2. 378 Id. 379 Gallery Sale Motion at 97.

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a better bid. In addition to the break-up fee, the proposed auction procedures also required that a

qualified bid needed to be at least $500,000 over the net value that Kodak would receive under the

stalking horse agreement.380 So, under the proposed procedures, anyone wanting to compete with

Shutterfly would need to come in with a bid at least $1.1 million higher.

The day after the transfer agreement was signed, Kodak sought to have the transfer

agreement and sale procedures confirmed by the Court.381 The sale procedures motions called for an

auction to be held on April 26, 2012 with an initial bid deadline of April 20, 2012382 In the

resulting order confirming the sale procedures, the Court made a couple changes to the proposed

order. First, it reduced the break-up fee to $250,000, while retaining the $500,000 bid requirement,

meaning that a qualified bid need only to have been $750,000 higher than Shutterfly’s initial

offer.383 The Court also removed Shutterfly from the proposed list of “notice parties,” after an

objection by the Secured Noteholders.384 The Secured Noteholders argued successfully that under

the proposed motion Shutterfly would have been privy to the early bids made by third parties which

would have given it a distinct advantage and potentially had a chilling effect on bidding. 385

380 Id. at 69. 381 Id. at 1. 382 Id. at 68. 383 Order signed on 3/22/2012 authorizing certain Debtors' entry into the stalking horse purchase agreement, authorizing and approving the bidding procedures and break-up-fee, approving the notice procedures, authorizing the filing of certain documents under seal and setting a date for the sale hearing, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 384 Id. at 13. 385 Id. at 2-3.

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However, even after all this back and forth, no other bidders came forward with a qualified

bid, and therefore, Kodak sought to have the sale with Shuttefly approved for the initial 23.8 million

dollar price.386 James Clancy, a director at one of Kodak’s professional advisors, filed a declaration in

support of the sale outlining everything his firm had done to try and wrangle up additional

bidders.387 Clancy explained that Lazard had contacted over 70 likely bidders, 18 showed enough

interest to request additional information, and 5 were eventually designated as qualified bidders.388

However, not one of the five ever submitted a qualified bid by the bid deadline. With the motion

and declaration in hand, the Court authorized the sale and declared the entire process had been

conducted in good faith.389 The inclusion of this good faith language was very important because of

section 363(m) of the Bankruptcy Code. Judge Gropper’s finding of good faith under 363(m) and

the lack of a grant of stay before the sale closed meant that anyone attempting to appeal the final sale

order would likely have his appeal dismissed as moot.390 If you scramble the eggs fast enough, there

just is not a great deal a dissenter can do.

As an interesting aside, Judge Gropper repeatedly made disclosures during the hearings on

the Kodak Gallery sale related to the fact that his son might have once created a Kodak Gallery

386 Declaration of James R. Clancy in Support of the Debtors' Motion for Orders (I)(A) Authorizing Certain Debtors' Entry into the Stalking Horse Purchase Agreement, (B) Authorizing and Approving the Bidding Procedures and Break-Up Fee, (C) Approving the Notice Procedures, (D) Authorizing the Filing of Certain Documents Under Seal and (E) Setting a Date for the Sale Hearing and (II) Authorizing and Approving the Sale of Certain Assets of Kodak Imaging Network Inc. Free and Clear of All Claims and Interests, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 387 Id. 388 Id. at 6. 389 Order signed on 5/1/2012 authorizing and approving the sale of certain assets of Kodak Imaging Network, Inc. free and clear of all claims and interests 12, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 390 11 U.S.C. § 363(m).

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account for him.391 He explained that he could not remember if he had ever actually ordered pictures

from the account, and he doubted if he ever even knew how to sign on to the account.392 He did

indicate that he was willing to renounce any interest in the account and would be grateful if either

Kodak or Shutterfly could delete the account for him.393 Neither party seemed nearly as concerned

about the possible conflict of interest as did Judge Gropper.394

C. Legacy Costs

Another problem Kodak acknowledged that lead to its bankruptcy was the disproportionality

of the current size of its workforce to the number or retirees and the amount of those retiree’s

benefits. As mentioned previously, Kodak explained that one of its four goals going into bankruptcy

was to bring down legacy costs to an amount that was more in line with Kodak’s new slimmed-down

size. In the U.S., Kodak’s pension plan was separately funded and a distinct entity from Kodak, and

therefore, it was not included in the bankruptcy proceeding. For the most part, when Kodak talked

about legacy restructuring, it really meant cutting off retiree medical, dental, life insurance, and

survivor income benefits( “Retiree Medical and Survivor Benefits”).395 According to Kodak, the

aggregate liability for the Retiree Medical and Survivor Benefits was approximately $1.223 billion for

391 Transcript regarding Hearing Held on 05/10/2012 at 18. 392 Id. at 19. 393 Id. 394 Id. at 19. 395 Motion to Authorize Debtors to Terminate Non-Vested Medicare Enhancement Benefits for Post-1991 Retirees, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012) (hereinafter “Post-1991 Termination Motion”).

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the 56,000 retired employees and long-term disability recipients, survivors and dependents that

received the benefits.396 Kodak indicated that, without a court-approved modification, Kodak’s

annual cash cost to provide Retiree Medical and Survivor Benefits was estimated to be approximately

$118 million going forward, as demonstrated in the chart below.397

TABLE I: Cash Costs for U.S. Retiree Benefits398

At the beginning of the proceedings, Kodak only sought to eliminate benefits for post-1991

retirees that were eligible for Medicare.399 Kodak indicated that it had a contractual right to

unilaterally do so because it was not obligated to provide the benefits under ERISA. Furthermore,

because Kodak had reserved the unilateral right to discontinue the benefits, meaning the benefits

396 Id. at 2 397 Id. at 2 398 First Day Declaration at 13. 399 Post-1991 Termination Motion at 3-4.

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were unvested, it was free to do so without court approval and was only seeking approval out of an

abundance of caution.400 Although section 1114 of the Bankruptcy Code provides certain

protections for retirees when an employer attempts to cut off benefits, namely the appointment of a

retiree committee and certain requirements the debtor consult with the committee,401 Kodak pointed

out that section 1114 does not apply when the debtor has a unilateral right to alter the benefits.

Bankruptcy does not act to increase or enhance the contractual rights that the retirees possessed

before a bankruptcy filing.402After Kodak made this initial motion, it mailed notice letters to both

the post-1991 group403 (indicating the elimination of benefits) and the pre-1991 group404 (telling

them not to worry).

Although never formally ruling on the motion, Judge Gropper strongly indicated to Kodak

that it was appropriate for a special committee of retirees, 1114 committee, to be formed in order for

the retirees to have a formal voice in the process.405 Kodak promptly withdrew the original February

27 motion and then requested that the Court approve a motion for the U.S. Trustee to appoint a

400 Id. at 11. 401 11 U.S.C. § 1114. 402 Post-1991 Termination Motion at 15. 403 Letter to Affected Retirees - February 27, 2012, Document Archive for Retirees, Kodak Chapter 11 Reorganization, http://www.kodak.com/ek/US/en/Document_Archive_for_Retirees.htm#retiree-affected. 404 Letter to Unaffected Retirees - February 27, 2012, Document Archive for Retirees, Kodak Chapter 11 Reorganization,http://www.kodak.com/ek/US/en/Document_Archive_for_Retirees.htm#retiree-unaffected. 405 Debtors' Motion for an Order Directing the Appointment of a Section 1114 Committee 5 , In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). Although just speculation, as a judge sitting in the Southern District of New York presiding over a bankruptcy of a beloved New York corporation, Judge Gropper likely did not want to give any indication that he was treating the retirees or employees of the company unfairly.

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retiree committee,406 which the Court did following a hearing held on April 16, 2012.407 There was

some early dispute about the fee cap for the committee being set initially at $50,000 per month, a

mere pittance in comparison to Kodak’s monthly professional fees, but Judge Gropper included the

cap because currently Kodak did not have any motions filed that sought to alter benefits.408 On May

17, 2012, the U.S. Trustee appointed the Retiree Committee to negotiate

with Kodak as the “authorized representative” of the retirees under section 1114 of the Bankruptcy

Code.409 At this point, Kodak and the Retiree Committee began negotiations related to the general

restructuring of legacy costs.

Roughly six months later, on October 10, 2012, Kodak filed a motion seeking approval of a

settlement that had been reached between Kodak and the Retiree Committee.410 Kodak began its

request by explaining the hard fought nature of the negotiations. Kodak’s then reiterated that, in its

current financial state, Kodak really had no way to keep paying the Retiree Medical and Survivor

Benefits, and a restructuring of the benefits was necessary for it to emerge from bankruptcy

406 Id. at 1. 407 Order signed on 4/16/2012 directing the appointment of a section 1114 Committee, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 408 Transcript regarding Hearing Held on 04/16/2012 at 27, 31-32 Judge Gropper added language to the effect that the fee limit was open to reconsideration at any time, especially if Kodak sought a new order for benefit reduction. The cap was later increased. Id. at 31-32. 409 Appointment of Official Committee / Second Amended Appointment of Official Committee of Retired Employees, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 410 Motion to Approve Compromise - Motion for an Order Pursuant to Sections 105, 363 and 1114 of the Bankruptcy Code and Bankruptcy Rule 9019 Approving the Settlement Agreement Between the Debtors and the Official Committee of Retired Employees, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012).

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successfully.411 Kodak also noted that just over the course of the bankruptcy proceeding, it had

continued to pay over 90 million dollars to fund these benefits at a 100% level.412

Under the terms of the settlement, Kodak would continue all Retiree Medical and Survivor

Benefits through December 31, 2012, at which point the benefits would terminate.413 Unlike the

original motion that Kodak withdrew, this agreement applied to all 56,000 retirees and not just the

roughly 16,000 post-1991 retirees covered under the original plan.414 Retirees who lost medical or

dental coverage as a result could continue coverage under COBRA at their own cost.415 Kodak also

agreed to provide 7.5 million to support the creation of a trust account created by the Retiree

Committee to administer possible future benefits, and Kodak agreed to assist in the creation of that

trust account.416 Kodak further agreed to allow a non-priority, general unsecured claim in the

amount of $635 million against the bankruptcy estate. The Retiree Committee or the operator of

the trust account would have the right to sell, assign, or convey the general unsecured claim in order

to provide additional funds for the trust account. Furthermore, the Retire Committee would receive

an allowed administrative claim in the amount of $15 million to be paid pursuant to a confirmed

plan.417 This agreement had the support of the Unsecured Committee and the Secured

Noteholders.418

411 Id. at 2. 412 Id. at 3 Kodak explained that the costs for these benefits required that each current Kodak employee needed to generate almost $17,000 in earnings just to pay for them. Id. at 4. 413 Id. at 9. 414 Id. at 3. 415 Id. at 9. 416 Id. at 9-10.

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On November 7, 2012, Judge Gropper entered an order approving the settlement between

the company and the Retiree Committee to terminate U.S. retiree health care and survivor benefits

on December 31, 2012.419 Following the entrance of the order, Kodak provided notice to the

affected retirees. Kodak again sent letters to both the pre-1991420 and post-1991421 retirees, provided

information on COBRA plans,422 and even held town hall meetings where the retirees could obtain

information on the new state of affairs.423 Going forward, although the specifics were not detailed in

the settlement agreement, the administrator of the trust account was to attempt to provide essential

benefits based on the amount of recovery or sale price of the unsecured claim.424 In the hearing to

approve the settlement agreement, it was discussed that certain survivor benefits would likely receive

priority. 425

417 Id. at 9. 418 Id. at 2. See also U.S. Bankruptcy Court Approved the Motion to Terminate Retiree Benefits, Kodak Chapter 11 Reorganization, http://www.kodak.com/ek/US/en/U.S._Bankruptcy_Court_approved_the_mo tion_to_terminate_retiree_benefits.htm. 419 Order signed on 11/7/2012 Approving Settlement Agreement Between The Debtors And The Official Committee Of Retired Employees Pursuant To Sections 105, 363 And 1114 Of The Bankruptcy Code And Rule 9019 Of The Federal Rules Of Bankruptcy Procedure And Providing For Other Related Relief. 420 Letter to Pre 10/1/91 Retirees, LTD Recipients and Survivors, Kodak Chapter 11 Reorganization, http://www.kodak.com/ek/uploadedFiles/Content/Corporate/KodakTransforms/PB361_US_Retiree_letter_re_Court_Approval_Pre91.pdf. 421 Letter to Post 10/1/91 Retirees, LTD Recipients and Survivors, Kodak Chapter 11 Reorganization, http://www.kodak.com/ek/uploadedFiles/Content/Corporate/KodakTransforms/PB363_US_Retiree_letter_re_Court_Approval_Post91.pdf. 422 COBRA Questions and Answers, Kodak Chapter 11 Reorganization, http://www.kodak.com/ek/ uploadedFiles/Content/Corporate/KodakTransforms/COBRA_Pkg_Q_As_11_16_12.pdf. 423 Information for Retirees, Kodak Chapter 11 Reorganization, http://www.kodak.com/ek/US/en/ Kodak_Transforms/Retirees.htm. 424 Transcript regarding Hearing Held on Monday, November 5, 2012 at 30-31.

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V. EXORBITANT COST OF KODAK’S BANKRUPTCY Someone once said bankruptcy work is not a charitable endeavor, and that fact is clearly

demonstrated by the amount of professional fees billed and collected so far in the Kodak bankruptcy.

In an early hearing in the case, an attorney asked permission from the Court for a moment to

consult before continuing with his argument. Judge Gropper agreed to the break, but very

presciently remarked “But remember, every moment you take costs the company a great deal of

money in terms of legal fees.” By one account, as of January 2013, fees and expenses of Kodak’s

attorneys and other professionals have totaled over 125 million dollars.426 To illustrate the point a

little more clearly it is probably best to look at the costs of the different types of bankruptcy

professionals hired in the case and whom those parties represented in the proceeding.

A. Monthly Billing Reports

As discussed in the interim compensation first day motion and related order, after the Court

assented to the retention of a professional under section 367 of the Bankruptcy Code, that

professional was allowed to submit fee and expense requests on a monthly basis.427 After a 35 day

objection period, Kodak was then allowed to compensate the professional for 80% of their fees and

reimburse them for 100% of their related expenses.428 As indicated below, since the final order

authorizing interim compensation, the system has been used quite extensively to say the least.

425 Id. at 31. 426 Matthew Daneman, Kodak’s Bankruptcy Bill: 125 Million and Climbing, USA TODAY (Jan. 17, 2012), http://www.usatoday.com/story/money/business/2013/01/16/kodak-bankruptcy-legal-bills/1840917/. 427 Interim Compensation Motion at 4-5. 428 Id. at 5.

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To conduct a successful chapter 11 proceeding, it is safe to say that a debtor needs qualified

legal counsel. In Kodak’s case, that meant hiring Sullivan and Cromwell as lead counsel, Young

Conaway as conflict and co-counsel, and Linklaters, LLP as its foreign counsel. The chart below

shows the billing of just those three firms over the first 14 months of Kodak’s bankruptcy.

Sullivan & Cromwell Young Conaway Linklaters

Time Period Fees Sought Expenses Incurred Fees Sought

Expenses Incurred Fees Sought429

Jan. & Feb. 2012 $5,330,542.25430 $92,966.15 $669,607.50431 $22,435.11 $455,195.74 March 2012 $3,067,007.00432 $35,649.28 $364,594.50433 $12,965.18 $214,481.71 April 2012 $2,483,182.00434 $35,142.92 $321,783.00435 $12,865.38 $276,406.96 May 2012 $1,906,965.00436 $18,847.15 $289,311.50437 $9,339.49 $387,061.36 June 2012 $2,459,606.00438 $31,277.63 $237,223.50439 $2,436.27 $256,552.07 July 2012 $2,451,636.00440 $25,600.93 $260,913.38441 $6,351.55 $201,065.67

429 Thirteenth Monthly Statement of Linklaters LLP. 430 First Monthly Statement of Sullivan & Cromwell LLP. 431 First Monthly Statement of Young Conaway Stargatt & Taylor, LLP. 432 Second Monthly Statement of Sullivan & Cromwell LLP. 433 Second Monthly Statement of Young Conaway Stargatt & Taylor, LLP. 434 Third Monthly Statement of Sullivan & Cromwell LLP. 435 Third Monthly Statement of Young Conaway Stargatt & Taylor, LLP. 436 Fourth Monthly Statement of Sullivan & Cromwell LLP. 437 Fourth Monthly Statement of Young Conaway Stargatt & Taylor, LLP. 438 Fifth Monthly Statement of Sullivan & Cromwell LLP. 439 Fifth Monthly Statement of Young Conaway Stargatt & Taylor, LLP. 440 Sixth Monthly Statement of Sullivan & Cromwell LLP. 441 Young Conaway’s sixth monthly statement is currently available. The numbers included for the Young Conaway’s July billing period an estimate based on the averages of the remaining twelve billing requests.

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August 2012 $2,708,680.00442 $47,311.06 $186,919.00443 $1,915.34 $242,367.68 September 2012 $2,720,695.50444 $24,276.47 $162,966.50445 $1,871.04 $323,053.94 October 2012 $4,018,244.50446 $33,283.17 $175,536.50447 $2,163.80 $896,890.12

November 2012 $3,976,717.00448 $19,382.80 $163,281.00449 $2,499.06 $666,974.66 December 2012 $2,709,424.00450 $24,121.30 $133,370.50451 $3,075.71 $367,628.96

January 2013 $3,715,930.90452 $45,457.64 $266,791.50453 $2,410.81 $223,902.81 February 2013 $2,527,360.50454 $32,364.32 $159,575.50455 $2,241.43 $108,796.33

Totals $40,075,990.65 $465,680.82 $3,132,948.50 $76,218.62 $4,620,378.01

TABLE II: Billing and Expenses Sought by Kodak’s Legal Counsel

After being confirmed as Kodak’s lead counsel on February 28, 2012,456 Sullivan and

Cromwell has billed over $40 million so far to date, which makes it look like Kodak’s lead counsel is

442 Seventh Monthly Statement of Sullivan & Cromwell LLP. 443 Seventh Monthly Statement of Young Conaway Stargatt & Taylor, LLP. 444 Eighth Monthly Statement of Sullivan & Cromwell LLP. 445 Eighth Monthly Statement of Young Conaway Stargatt & Taylor, LLP. 446 Ninth Monthly Statement of Sullivan & Cromwell LLP. 447 Ninth Monthly Statement of Young Conaway Stargatt & Taylor, LLP. 448 Tenth Monthly Statement of Sullivan & Cromwell LLP. 449 Tenth Monthly Statement of Young Conaway Stargatt & Taylor, LLP. 450 Eleventh Monthly Statement of Sullivan & Cromwell LLP. 451 Eleventh Monthly Statement of Young Conaway Stargatt & Taylor, LLP. 452 Twelfth Monthly Statement of Sullivan & Cromwell LLP. 453 Twelfth Monthly Statement of Young Conaway Stargatt & Taylor, LLP. 454 Thirteenth Monthly Statement of Sullivan & Cromwell LLP. 455 Thirteenth Monthly Statement of Young Conaway Stargatt & Taylor, LLP.

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not that bad of a job if you can get it. In the detailed reports included in the fee requests, one can see

that several partners billed over 1000 dollars an hour457 and associates appear to be billing between

$550 - $800 an hour.458 Although it is the firm’s job to help steer Kodak through the turbulent

waters of bankruptcy, there are definitely incentives to make sure the debtor stay in the water as long

as possible. At the very least, it appears that the firm has at least a few more months of smooth

billing ahead.

However, Sullivan and Cromwell could not do it alone. Young Conaway was enlisted,

originally as conflict counsel, and then its duties were expanded over the course of the proceeding.459

Early in the case, Judge Gropper congratulated Kodak and Sullivan and Cromwell on the cost

savings they were able to achieve by identifying areas in which Young Conaway was able to handle

matters more cheaply than Sullivan & Cromwell.460 According to the billing statements, it looks like

their partners top at around $700 an hour461 and associates come in between $300 and $350.462 So,

maybe the praise was warranted.

456 Order signed on 2/28/2012 Authorizing The Retention And Employment Of Sullivan & Cromwell LLP As Attorneys For The Debtors And Debtors In Possession Nunc Pro Tunc To The Petition Date, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 457 Ninth Monthly Statement of Sullivan & Cromwell LLP at 5. 458 Id. at 8. 459 Order signed on 3/5/2012 authorizing the retention and employment of Young Conaway Stargatt & Taylor, LLP as conflicts counsel and counsel for the Debtors and Debtors in possession nunc pro tunc to the petition date, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 460 Transcript regarding Hearing Held on 02/28/2012 at 15. 461 Application for Interim Professional Compensation for Young Conaway Stargatt & Taylor, LLP, Debtor's Attorney, period: 1/19/2012 to 2/29/2012, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012).

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Because Kodak was running a company that had foreign affiliates outside of bankruptcy and

had over 70 percent of its revenue coming from overseas in 2011, it also needed foreign counsel to

represent those interests.463 Linklaters LLP was brought on to serve that need.464 Unsurprisingly,

Linklaters assistance with those matters did not come that cheap either. Its partners’ hourly rate was

$1085 and its associates only billed a mere $606, a mere pittance by comparison.465

Bankrupt entities need more than just a firm (or many firms in Kodak’s case) to successfully

emerge from bankruptcy. Kodak, with court approval pursuant section 367 of the Bankruptcy Code,

hired other professionals to help it value and sell its assets. Furthermore, Kodak also was required to

foot the bill for representation for the Unsecured Committee. The following chart shows the

monthly billing for Kodak’s audit and accounting guy, PriceWaterhouse,466 its tax and valuation guy,

Ernst& Young,467 and counsel for the Unsecured Committee, Milbank Tweed.468

462 Id. 463 Transcript regarding Hearing Held on 01/19/2012 50-52. 464 Order signed on 2/28/2012 Authorizing The Retention And Employment Of Linklaters LLP, As Special Foreign Counsel To The Debtors NUNC PRO TUNC To The Petition Date, 465 Application for Interim Professional Compensation for Linklaters LLP, Special Counsel, period: 1/19/2012 to 2/29/2012, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 466 Order signed on 3/22/2012 authorizing the retention and employment of PricewaterhouseCoopers LLP and PricewaterhouseCoopers Aarata as independent auditors, accounting advisors and tax advisors to the Debtors nunc pro tunc to the petition date , In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 467 Order signed on 3/22/2012 authorizing the retention and employment of Ernst & Young, LLP as carve-out financial statement, valuation and tax services provider to the Debtors nunc pro tunc to the petition date, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 468 Order signed on 4/18/2012 authorizing retention and employment of Milbank, Tweed, Hadley & McCloy LLP as counsel to the Official Committee of Unsecured Creditors of Eastman Kodak Company, et

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PriceWaterhouse Milbank Tweed Ernst & Young Time

Period Fees Sought Expenses Incurred Fees Sought

Expenses Incurred Fees Sought

Expenses Incurred

Jan. 2012 $1,307,392.20469 $83,444.27 $2,355,906.00470 $48,446.8

4 $685,441.50471 $49,695.26

Mar. 2012 $1,281,899.77472 $77,297.60 $1,186,908.50473 $41,620.04 $621,356.50474 $41,273.53

Apr. 2012 $47,756.50475 $3,038.09 $994,806.25476 $34,268.52 $341,534.50477 $21,862.01

May 2012 $935,017.40478 $0.00 $845,979.50479 $34,004.65 $183,265.00480 $57,700.92

June 2012 $1,281,899.77481 $77,297.60 $863,266.00482 $29,684.22 $270,048.50483 $17,537.60

al., effective as of Janauary 25, 2012, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012). 469 First Monthly Fee Statement of PriceWaterHouseCoopers LLP 470 First Monthly Fee Statement of Milbank, Tweed, Hadley & McCloy LLP. 471 First Monthly Fee Statement of Ernst & Young LLP. 472 PriceWaterHouseCoopers’s second monthly statement is currently unavailable. The numbers included for the March billing period are an estimate based on the averages of the remaining eleven billing requests. 473 Second Monthly Fee Statement of Milbank, Tweed, Hadley & McCloy LLP. 474 Second Monthly Fee Statement of Ernst & Young LLP. 475 Third Monthly Fee Statement of PriceWaterHouseCoopers LLP 476 Third Monthly Fee Statement of Milbank, Tweed, Hadley & McCloy LLP. 477 Third Monthly Fee Statement of Ernst & Young LLP. 478 Fourth Monthly Fee Statement of PriceWaterHouseCoopers LLP 479 Fourth Monthly Fee Statement of Milbank, Tweed, Hadley & McCloy LLP. 480 Fourth Monthly Fee Statement of Ernst & Young LLP. 481 PriceWaterHouseCoopers’s fifth monthly statement is currently unavailable. The numbers included for the June billing period are an estimate based on the averages of the remaining eleven billing requests. 482 Fifth Monthly Fee Statement of Milbank, Tweed, Hadley & McCloy LLP. 483 Fifth Monthly Fee Statement of Ernst & Young LLP.

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July 2012 $750,195.30484 $16,395.70 $906,631.68485 $75,627 $968,407.50486 $30,780.61

Aug. 2012 $655,651.00487 $21,734.29 $1,131,312.00488 $60,423.83 $836,397.00489 $66,359.38

Sep. 2012 $1,042,138.00490 $40,570.56 $906,631.68491 $75,627 $1,747,800.00492 $62,018.03

Oct. 2012 $2,192,532.70493 $138,689.89 $963,329.00494 $27,381.11 $1,281,615.99495 $68,527.27 Nov. 2012 $2,490,831.00496 $194,177.56 $700,456.00497 $43,670.56 $3,163,063.18498 $150,066.45

Dec. 2012 $4,459,210.70499 $213,180.11 $357,223.00500 $10,830.86 $2,605,511.80501 $101,007.68

484 Sixth Monthly Fee Statement of PriceWaterHouseCoopers LLP 485Milbank Tweed’s sixth monthly statement is currently unavailable. The numbers included for the July billing period are an estimate based on the averages of the remaining eleven billing requests. 486 Sixth Monthly Fee Statement of Ernst & Young LLP. 487 Seventh Monthly Fee Statement of PriceWaterHouseCoopers LLP 488 Seventh Monthly Fee Statement of Milbank, Tweed, Hadley & McCloy LLP. 489 Seventh Monthly Fee Statement of Ernst & Young LLP. 490 Eighth Monthly Fee Statement of PriceWaterHouseCoopers LLP 491 Milbank Tweed’s eighth monthly statement is currently unavailable. The numbers included for the September billing period are an estimate based on the averages of the remaining eleven billing requests. 492 Eighth Monthly Fee Statement of Ernst & Young LLP. 493 Ninth Monthly Fee Statement of PriceWaterHouseCoopers LLP 494 Ninth Monthly Fee Statement of Milbank, Tweed, Hadley & McCloy LLP. 495Ernst & Young’s ninth monthly statement is currently unavailable. The numbers included for the October billing period an estimate based on the averages of the remaining twelve billing requests. 496 Tenth Monthly Fee Statement of PriceWaterHouseCoopers LLP 497 Tenth Monthly Fee Statement of Milbank, Tweed, Hadley & McCloy LLP. 498 Tenth Monthly Fee Statement of Ernst & Young LLP. 499 Eleventh Monthly Fee Statement of PriceWaterHouseCoopers LLP 500 Eleventh Monthly Fee Statement of Milbank, Tweed, Hadley & McCloy LLP. 501 Eleventh Monthly Fee Statement of Ernst & Young LLP.

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Jan. 2013 $213,180.11502 $139,043.17 $585,766.50503 $10,155.32 $386,890.00504 $7,497.96

Feb. 2013 $6,994.77505 $0.00 $5,556.76506 $491,413.50 $3,569,676.34507 $216,527.82

Totals $16,664,699.62 $1,004,868.84 $11,803,772.87 $983,153.89 $16,661,007.81 $890,854.52

TABLE III: Monthly Billing of Other Kodak Professionals and Unsecured Committee’s Counsel

B. Interim Compensation Approval

As mentioned previously, although the professionals mentioned above and others were paid

the set percentage of their monthly billing statements as long as no one objected, most professionals

were still required to seek court approval of their bills about every 120 days.508 After receiving these

interim compensation motions from all the professionals required to submit them, every 3-4 months

Judge Gropper issued orders approving the compensation for all the requesting parties, after some

minor modifications by the fee examiner. The two following tables demonstrate the level of fees that

can amass between all of the professionals in a proceeding over the course of just a few months.

Applicant Interim Fees Requested Fees Allowed Fees to be Paid

Ernst & Young LLP $1,648,332.50 $1,628,332.50 $1,318,666.00

502 Twelfth Monthly Fee Statement of PriceWaterHouseCoopers LLP 503 Twelfth Monthly Fee Statement of Milbank, Tweed, Hadley & McCloy LLP. 504 Twelfth Monthly Fee Statement of Ernst & Young LLP. 505 Thirteenth Monthly Fee Statement of PriceWaterHouseCoopers LLP 506 Thirteenth Monthly Fee Statement of Milbank, Tweed, Hadley & McCloy LLP. 507 Thirteenth Monthly Fee Statement of Ernst & Young LLP. 508 Order Granting Application for Interim Professional Compensation 1/19/2012 – 4/30/2012, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012).

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Brinks Hofer Gilsion & Lione $1,453,685.25 $1,433,685.25 $1,162,948.20 Wilmer Cutler $1,302,461.98 $1,277,461.98 $1,041,969.58 K&L Gates LLP $983,078.56 $953,078.56 $786,462.85 Jones Day * $293,654.44 $272,736.43 $234,923.55 Nixon Peabody LLC $14,872.00 $10,000.00 $8,000.00 Harter Secrest & Emery LLP $120,974.00 $120,702.00 $96,561.60 Deloitte Consulting LLP $129,235.50 $129,235.50 $103,388.40 MilbankTweed $4,537,620.75 $4,412,620.75 $3,630,096.60 Togut Segal & Segal LLP $130,224.50 $130,224.50 $104,179.60 Global IP Law Group, L.L.C. $150,000.00 $150,000.00 $120,000.00 Alvarez & Marsal $1,601,728.00 $1,581,728.00 $1,281,382.40 Jefferies & Company, Inc. $530,645.16 $530,645.16 $424,516.13 Lazard Freres & Co., LLC $9,604,838.71 $9,604,838.71 $7,683,870.97 Groom Law Group $70,714.00 $67,178.30 $56,571.20 Pricewaterhouse Coopers $1,647,828.80 $1,632,828.80 $1,318,263.04

Sullivan & Cromwell LLP $10,879,675.25 $10,579,675.2

5 $8,703,740.20 Young Conaway $1,355,985.00 $1,345,985.00 $1,084,788.00 Linklaters LLP $894,298.13 $869,140.20 $715,312.16

TOTAL $37,349,852.53 $36,730,096.8

9 $29,779,078.88

TABLE IV: First Interim Fee Approval Covering 1/19/2012 – 4/30/2012509

Applicant Interim Fees Requested Fees Allowed Fees to be Paid

Sullivan & Cromwell $9,526,887.00 $9,376,887.00 $7,621,509.60 Young Conaway $912,033.50 $899,033.50 $729,626.80 Linklaters LLP $1,025,757.66 $1,004,757.66 $834,823.75 Lazard Freres & Co., LLC $1,000,000.00 $1,000,000.00 $800,000.00 Groom Law Group $684,859.50 $663.313.50 $547,887.60 Pricewaterhouse Coopers LLP $2,878,450.70 $2,865,950.70 $2,302,760.56 Ernst & Young LLP $2,258,118.00 $2,233,118.00 $1,806,494.40

509 Id.

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Brinks Hofer Gilsion & Lione $4,554,801.50 $4,504,801.50 $3,643,841.20 Wilmer Cutler $1,329,846.87 $1,309,846.87 $1,063,877.50 K&L Gates LLP $1,775,584.94 $1,730,584.94 $1,420,467.95 Jones Day $107,146.16 $97,146.16 $85,716.93 Nixon Peabody LLC $4,067.00 $2,390.00 $3,253.60 Harter Secrest & Emery LLP $341,291.50 $336,291.50 $273,033.20 Deloitte Consulting LLP $174,726.50 $174,726.50 $139,781.20 Deloitte Tax $57,919.10 $57,919.10 $46,335.28 Phillips Lytle LLP $224,612.65 $217,612.65 $179,690.12 Milbank Tweed $3,561,373.75 $3,466,373.75 $2,849,099.00 Togut Segal & Segal LLP $383,891.00 $382,808.00 $307,112.80 Global IP Law Group, L.L.C. $200,000.00 $200,000.00 $160,000.00 Alvarez & Marsal $2,669,618.00 $2,594,618.00 $2,135,694.40 Jefferies & Company, Inc. $700,000.00 $700,000.00 $560,000.00 Arent Fox LLP $950,542.00 $930,542.00 $760,433.60 Haskell Slaughter $205,197.50 $195,197.50 $164,158.00 The Segal Company $144,001.05 $144,001.05 $115,200.84 Zolfo Cooper, LLC $683,507.25 $673,507.25 $546,805.80 Luskin, Stern & Eisler LLP $155,047.75 $155,047.75 $124,038.20

TOTAL $36,509,280.88 $35,253,161.3

8 $29,221,642.33

TABLE V: Second Interim Fee Approval Covering 5/1/2012 – 8/31/2012510

C. Observations on Total Billing

Bankruptcy is definitely expensive, and it makes one wonder if the high level of billing is

actually worth it sometimes. However, one needs to keep in mind that Kodak willingly chose to

enter into bankruptcy, because on January 19, 2012, it was far and away the best available option.

Sure, $100-$150 million seems like a relatively absurd figure at first pass, but just take a second to

510 Order Granting Application for Interim Professional Compensation 5/1/2012 – 8/31/2012, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012).

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recap a couple of positive changes to Kodak’s business that came about because of the bankruptcy

and the attorneys that facilitated the process.

First, Kodak was able to continue operating because of the DIP financing it was able to

secure because of the priority treatment the DIP financer received under bankruptcy law. It likely

would have been a disaster, financially, if it just had not been able to meet its bills as they came

due.511 Kodak was also able to negotiate a potential $1.2 billion liability related to retiree benefits

down to an unsecured claim under $700 million.512 These actions are made possible not just because

of the powers granted to the debtor in the bankruptcy process, but also because of the hard work and

skill of the bankruptcy professionals. $125 million might seem like a lot of money, but that is just

the market at work. If Kodak or any of the interested parties really thought that, as a whole, the

bankruptcy professionals were not providing more benefit than they were costing Kodak, the

professionals could have been shown the door. Here, it appears to be clear that the attorneys and

other professionals have moved Kodak toward a successful emergence from bankruptcy even if

Kodak is not there yet.

VI. AND MILES TO GO BEFORE KODAK SLEEPS, AND MILES TO GO BEFORE KODAK SLEEPS

Kodak traveled a long path over the first 14 months of the bankruptcy process. The

company came into bankruptcy with a very near term liquidity crisis, forcing it and 15 other

affiliated debtors to file on January 19, 2012, but Kodak did not enter bankruptcy completely

unprepared. The problems that faced Kodak and eventually forced its hand did not arise

511 Transcript regarding Hearing Held on 01/19/2012 at 18-19. 512 Third Motion to Extend Exclusivity Period for Filing a Chapter 11 Plan and Disclosure Statement and Solicit Acceptances 5, In re Eastman Kodak Company, Case No. 12-10202 (ALG) (Bankr. S.D.N.Y. Jan. 19, 2012) (hereinafter “Third Exclusivity Motion”).

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spontaneously. Kodak’s business had taken a long spiral from its once lofty heights as an exemplar of

American industry, and by the time bankruptcy proved necessary, Kodak had already begun the

restructuring of its business model. Prior to bankruptcy, Kodak had shed a majority of its workforce

and had sold many of its ancillary businesses. Bankruptcy was just the next step in a long process

pegged at seeing Kodak reimage itself and reemerge as a successful, albeit much leaner, company.

Kodak came into bankruptcy with four stated goals (1) to monetize Kodak's intellectual

property; (2) to reduce Kodak’s legacy costs; (3) to reorganize Kodak around its commercial and

consumer business units; and (4) to enhance Kodak’s liquidity position.513 So far the company has

been moderately successful at achieving those goals, even if the respected return was sometimes less

than originally projected.

A. Summary of Accomplishments

On February 1, 2013, with the support of the Unsecured Committee and others, Kodak

“consummated the previously-announced intellectual property transaction with Intellectual Ventures

and a consortium of technology companies . . . , yielding $527 million of cash proceeds to their

estates.”514 While obviously far less than the original 2.2 to 2.6 billion valuation, Kodak explained

that $527 million was the full price “established by the market.”515 The patent sale, although

probably a failure on any balance sheet, is still noteworthy for its mere accomplishment.516 According

513 Transcript regarding Hearing Held on 02/28/2012 at 10-11. 514 Third Exclusivity Motion at 4. 515 Id. at 3. 516 Id. at 4

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to Kodak, the “transaction required 13 different companies—many of whom continue[d] to have

litigious relationships with the [Kodak] and each other—to agree simultaneously on purchase terms

and/or long-term licensing arrangements.517 In the field of intellectual property, the deal is regarded

as one of the most complex I.P. transactions ever completed.518

Kodak also managed to face down its “unmanageable U.S. retiree benefit liability,” which

was estimated to exceed $1.2 billion at the beginning of the case.519 After the appointment of the

section 1114 Retiree Committee and six months of hard negotiations, Kodak and the Retiree

Committee reached a crucial agreement that allowed Kodak to terminate Retiree Medical and

Survival Benefits on December 31, 2012.520 In exchange, Kodak agreed to give the retirees an

immediate $7.5 million payment to a form a trust account to administer a limited amount of

benefits going forward, a $15 million allowed administrative claim, and a $635 million general

unsecured claim to help further fund the account.521 Although this elimination of benefits will likely

burden the affected retirees, it was a crucial step is realigning Kodak’s future cost structure with its

reduced size.

Kodak also made several steps towards reaching the new slimmed-down version of the

company. Leading into bankruptcy and during the majority of the proceeding, Kodak reviewed the

profitability of its business units, determining which ones it wanted to keep and which ones it

517 Id. 518 Id. 519 Id. at 5. 520 Id. 521 Id.

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needed to liquidate or change substantially.522 As part of this process, Kodak sold its digital camera

and Kodak Gallery business, liquidated its digital imaging portfolio, proposed the sale of its

document imaging and personal imagining units, and made the decision to change tactics on its

consumer inkjet business.523 Kodak also acknowledged that it still has plans to shrink overhead and

to ensure that ongoing business units make changes leading to greater profitability. On January 22,

2013, Kodak released the “ultimate result of this work,” a publication containing “bottom-up,

multiyear projections for the business of the reorganized [Kodak].”524

Kodak has also worked vigorously over the course of the proceedings to ensure that it would

have the liquidity to both make it through the bankruptcy proceedings and emerge successfully. At

the outset of these cases, Kodak secured initial DIP financing in the amount of $950 million to

provide necessary liquidity until the I.P. could be monetized.525 After the real sale value of the patent

assets became apparent to Kodak, Kodak started looking for supplemental DIP financing.526 On

November 26, 2012, a subset of the Secured Noteholders committed to provide the Debtors with a

522 Id. at 5-6. 523 Id. at 6. Previously, in the consumer inkjet business, Kodak had attempted to expand market share rather than attempting to maximize short-run profits. Id. 524 Id. See also Information for Creditors: Commercial Imaging 2013 Annual Commitment Plan Projections 2014 – 2017, KODAK, http://files.shareholder.com/downloads/EK/2445487662x0x629530/0900bf69-1a2e-4a6d-a8bd-e0617826d758/Kodak_January22_2013_8KFiling.pdf. 525 Third Exclusivity Motion at 7 526 Id.

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supplemental $843 million DIP facility.527 Kodak has said that this supplemental DIP facility is all

that Kodak believes it requires to complete the reorganization process.528

B. Challenges Ahead

As noted previously Kodak has made substantial progress, but its journey is still far from

finished. If Kodak wants to meet its goal of emerging from bankruptcy later this summer, Kodak has

a number of loose strings it needs to tie up. The first major task ahead of Kodak is just completing

all of the case management aspects of the bankruptcy. For example, Kodak still is in the process of

arguing its objections to claims filed by creditor parities, which are quite numerous.529

Furthermore, Kodak has not resolved a potential $1.8 billion claim related to potential

liability resulting from the underfunding of the United Kingdom employees pension plan,530

although it has been in consultation with the creditor throughout the case.531 Kodak has also started

litigating a dispute with Shutterfly over a claim that Kodak has released a product substantially

similar to the assets that Shutterfly purchased in the Kodak Galley Deal.532 The adversary proceeding

related to that claim is just now at the complaint and answer stage.533 Kodak is also continuing to

527 Id. 528 Id. at 8. 529 Id. at 8-9. 530 Transcript regarding Hearing Held on 01/19/2012 136-37. 531 Third Exclusivity Motion at 9. 532 Shutterfly Complaint at 2-3. The complaint was filed on March 23, 2012. Id. at 1. 533 Defendants' Answer and Affirmative Defense to the Complaint for Damages and Injunctive Relief Filed by Shutterfly, Inc., In re Eastman Kodak Company, Case No. 12-10202 (ALG), Adversary Proceeding (Case No. 13-01310) (Bankr. S.D.N.Y. Jan. 19, 2012). Kodak’s answer was filed on April 24, 2013. Id. at 1.

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assess what portion of the supplemental DIP facility it needs to transition to post-exit financing,

which is provided for as part of the agreement.534 Although this is far from a complete list of the

additional steps Kodak must take before it can be finished with the chapter 11 process, it does give

an idea of how hard Kodak still needs to work to meet its stated deadline.

C. Conclusion

Since entering chapter 11 on January 19, 2012, Kodak has met many of the goals it stated

when beginning the bankruptcy process, but it is still not out of the woods yet. To date, Kodak still

has not filed a chapter 11 plan to be examined and voted on by its creditors and stakeholders.

However, it is Kodak’s continued stance is that it still intends to emerge from bankruptcy by late

summer 2013, a projection that appears less likely as the days continue to pass. According to

Kodak’s calculations based on its proposed new business model, its earnings before interest, taxes,

depreciation, and amortization (EBITDA) is forecasted to be $167 million for fiscal year 2013 and

will grow to $494 million in fiscal year 2017. Although the scene Kodak paints might not actually be

as rosy as Kodak indicates, it is at least not completely out of the picture that this American

institution might be with us for another 133 years.

534 Third Exclusivity Motion at 11.