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UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK. The Floating Rate Debtors are borrowers under a certain Loan Agreement. Lehman ALI Inc. ("Lehman") 1 submits this objection to the Debtors' Motion for the Entry of an Order Pursuant to Section 363 of the bankruptcy code.
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK. The Floating Rate Debtors are borrowers under a certain Loan Agreement. Lehman ALI Inc. ("Lehman") 1 submits this objection to the Debtors' Motion for the Entry of an Order Pursuant to Section 363 of the bankruptcy code.
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UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK. The Floating Rate Debtors are borrowers under a certain Loan Agreement. Lehman ALI Inc. ("Lehman") 1 submits this objection to the Debtors' Motion for the Entry of an Order Pursuant to Section 363 of the bankruptcy code.
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DECHERTLLP 1095 A venue of the Americas New York, New York 10036-6797 Telephone: (212) 698-3500 Facsimile: (212) 698-3599 Michael J. Sage Brian E. Greer Andrew L. Buck Attorneys for Lehman ALI Inc. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK. ------------------------------------------------------------ ){ In re: Chapter 11 INNKEEPERS USA TRUST, et al. Case No. 10-13800 Debtors. Jointly Administered ------------------------------------------------------------ ){ OBJECTION OF LEHMAN ALI INC. TO DEBTORS' MOTION TO AUTHORIZE PAYMENT OF INDEPENDENT COMMITTEE FEES AND EXPENSES Lehman ALI Inc. ("Lehman") 1 submits this objection to the Debtors' Motion for the Entry of an Order Pursuant to Section 363 of the Bankruptcy Code (i) Approving the Debtors' Twenty of the Debtors (the "Floating Rate Debtors") in the above-captioned cases are borrowers under that certain Loan Agreement, dated as of June 29, 2007, in the original principal amount of $250,000,000.00, between and among the Floating Rate Debtors, as borrowers, and Lehman, as lender (as amended, the "Floating Rate Loan Agreemenf"'). The Floating Rate Debtors' obligations under the Floating Rate Loan Agreement are secured by twenty separate mortgages (each, a "Floating Rate Mortgage") that each grant Lehman (i) a first lien mortgage on the applicable hotel property, (ii) a lien on all cash, accounts, and proceeds of the applicable borrower, and (iii) an absolute assigmnent of rents of the applicable hotel property. The Floating Rate Debtors are: (1) KPA/GP Valencia LLC;.(2) Grand Prix West Palm Beach LLC; (3) KPA/GP Ft. Walton Beach LLC; (4) Grand Prix Ft. Wayne LLC; (5) Grand Prix Indianapolis LLC; (6) KPA/GP Louisville (HI) LLC; (7) Grand Prix Bulfmch LLC; (8) Grand Prix Woburn LLC; (9) Grand Prix Rockville LLC; (10) Grand Prix East Lansing LLC; (11) Grand Prix Grand Rapids LLC; (12) Grand Prix Troy (Central) LLC; (13) Grand Prix Troy (SE) LLC; (14) Grand Prix Atlantic City LLC; (15) Grand Prix Montvale LLC; (16) Grand Prix Morristown LLC; (17) Grand Prix Albany LLC; (18) Grand Prix Addison (SS) LLC; (19) Grand Prix Harrisburg LLC; and (20) Grand Prix Ontario LLC: 16012172.6 Undertaking to Compensate Fried, Frank, Harris, Shriver & Jacobson LLP as Counsel to the Independent Committee ofthe Board of Trustees oflnnkeepers USA Trust and Authorizing the Payment of Such Compensation by the Debtors and (ii) Authorizing the Debtors to Compensate the Members of the Independent Committee [Dkt. No. 587] (the "Motion"i and respectfully states as follows: Preliminary Statement Lehman does not object to the Debtors' appointment of the Independent Committee, the Independent Committee's determination to retain Fried Frank or the proposed fees for the members of the Independent Committee set forth in the Motion. However, Lehman should not be required to bear the cost of additional professionals when the Debtors are already represented by sophisticated bankruptcy counsel and financial advisors. The Motion is particularly concerning because (a) the Debtors have not demonstrated that the fees and expenses incurred by Fried Frank are expenses which properly fall within the scope of the indemnification provisions under the Debtors' organizational documents, (b) the Debtors have not required Fried Frank to be paid from any applicable insurance proceeds in light of the significant fees and expenses already charged by professionals retained by the estate, (c) the Debtors have not demonstrated any basis for charging Lehman's cash collateral for such fees and expenses, and (d) parties in interest and the Court are precluded from challenging Fried Frank's fees and expenses. Accordingly, the Motion should be denied and Fried Frank should seek reimbursement of its fees and expenses solely from any applicable insurance policies maintained by the Debtors to 2 Capitalized terms used but not defmed herein shall have the meanings ascribed thereto in the Motion. 16012172.6 2 the extent that the Court determines that such insurance proceeds are not property of the Debtors' estates. Argument I. The Debtors Have Not Demonstrated that Fried Franks' Fees and Expenses are Indemnified Expenses Under the Debtors' Organizational Documents. 1. Without providing a legal or factual basis in support of the reimbursement of Fried Frank's fees and expenses, the Debtors merely assert that the Board Resolutions appointing the Independent Committee authorized that committee to retain counsel, and that the Independent Committee has selected Fried Frank as that counsel. [Motion at p.2-3]. The Debtors do not allege that the fees and expenses are indemnified expenses under the Debtors organizational documents and that such fees should be paid by the Debtors and their estates. 2. In a small number of cases, courts have authorized the reimbursement of fees of counsel to a debtor's employees or directors where doing so provided a benefit the estates and the role of that counsel was clearly defined. See, e.g., Official Committee of Enron Corp. v. Enron Corp. (In re Enron Corp.), 335 B.R. 22, (S.D.N.Y. 2005) (retention oflaw firm to represent employees was necessary to ensure employee retention in an environment of intense government scrutiny of the debtor's business); see also In re Tubular Techs., LLC, 372 B.R. 820, 823-24 (Bankr. D.S.C. 2007) (authorizing payment oflitigation expenses in connection with malpractice action that offered a reasonable chance of recovering funds to pay administrative creditors and provide creditor recoveries); In re RNI Wind Down Corp., Case No. 06-10110 (CSS) (Bankr. D. Del. July 17, 2006) ("RNr') (authorizing advancement of defense costs and expenses in connection with committee investigation of causes of action against directors, to the extent directors would be entitled to indemnification under organizational documents and applicable law); In re Northwest Airlines Corp., Case No. 05-17930 (ALG) (Bankr. S.D.N.Y. 16012172.6 3 June 8, 2006) ("NWA") (authorizing advancement of defense costs with respect to litigation involving directors where those directors were entitled to indemnification under organizational documents and applicable law). 3 3. Here, the Debtors have not asserted any business justification for the payment of such costs. Instead, the Motion offers only the conclusory statement that "the Debtors believe that Fried Frank, in their role as counsel to the Independent Committee and in conjunction with the significant role the Independent Committee will play, will provide services that benefit the Debtors estates and creditors." [Motion a t ~ 18]. The Debtors' assertion that the Independent Committee is serving an "enhanced role" is belied by the fact that the members of the Independent Committee are members of the Board, with the exact same fiduciary duties in that role as they do as members of the Independent Committee. 4. Moreover. the Debtors do not even attempt to defme the scope of Fried Frank's services or how those services would differ meaningfully from those already being provided by the Debtors' primary restructuring counsel. Rather, the Motion vaguely states that "Fried Frank will advise, assist, and represent the Independent Committee and its members in connection with (a) the Chapter 11 Cases and (b) other matters that the Independent Committee may request from time to time." [Motion a t ~ 10]. 5. Given the limitless scope of Fried Frank's proposed representation, it is impossible to imagine a circumstance where Fried Frank's services would not duplicate those already being provided by the Debtors' primary restructuring counsel. 6. Moreover, to the extent Fried Frank intends to provide advice to the Independent Committee with respect to any claims asserted by the estate, as well as corporate governance Copies of unpublished orders cited herein are attached hereto as Exhibit A .. 16012172.6 4 advice, it is inappropriate for Fried Frank to receive any compensation from the Debtors' estates. The Debtors should not be paying the counsel of potential defendants. That is the purpose of insurance. Therefore, the Motion should be denied. II. Fried Frank Should be Compensated Solely From the Proceeds of the Debtors' Applicable Insurance Policies. 7. These are large and complex chapter 11 cases that have required the services of many professionals on behalf of numerous constituencies. To date, legal professionals retained by the Debtors and their estates have sought Court approval for fees and expenses in excess of $5 million from the commencement of these cases through the end of September, representing approximately two-and-a-half months of work. Although Lehman is not taking any position at this time as to whether any incurred fees and expenses are reasonable, Lehman submits that it is hard to justify the payment by the Debtors' estates of additional fees and expenses for counsel to the Independent Committee when the Debtors are already represented by sophisticated legal counsel and financial advisors. 8. Notwithstanding the substantial administrative expenses incurred to date, the Motion does not identify the Debtors' director and officer insurance policies and does not address whether the fees a n ~ expenses by Fried Frank may be reimbursable under such policies as indemnified expenses. 9. Assuming the Debtors can demonstrate that the fees and expenses for such advice are indemnified expenses under the Debtors' organizational documents, it is likely that Fried Frank would be able to receive reimbursement from the Debtors' applicable insurers to the extent that the Court determines thatsuch insurance proceeds are not property of the Debtors' estates. In light of the foregoing, the Motion should be denied. 16012172.6 5 III. The Debtors Should Not be Permitted to Use Lehman's Cash Collateral to Reimburse Fried Frank 10. Lehman does not consent to the use of its cash collateral to compensate Fried Frank unless and until the Debtors can demonstrate that Fried Frank's services will directly benefit the estates of the Floating Rate Debtors and will not be duplicative of fees and expenses incurred by the Debtors' counsel. See In re Flagstaf!Foodservice Corp. (Flagstaff!), 739 F.2d 73, 75-76 (2d Cir. 1984) (holding that fees payable from a secured creditor's collateral over its objection must be for fees that benefit that creditor, not merely the debtor or other creditors); see also In re Flagstaf!Foodservice Corp. (Flagstaff II), 762 F.2d 10 (2d Cir. 1985); Harvis Trien & Beck, P.C. v. Federal Home LoanMortgage Corp. (In re Blackwood Assocs., L.P.), 153 F.3d 61 (2d. Cir. 1998); In re Hotel Syracuse, Inc., 275 B.R. 679 (Bankr. N.D.N.Y. 2002). 11. Unless and until the Debtors can satisfy the requirements applied in the Second Circuit with respect to the use of Lehman's cash collateral, the Motion should be denied. IV. Payment of Independent Committee Expenses Must Be Subiect to Review 12. To the extent the Court permits the Debtors to reimburse Fried Frank from their estates, the Court should impose a cap on the total amount of Fried Frank's fees, as well as review Fried Frank's fees and expenses for reasonableness and Fried Frank should be required to comply with the Order Establishing Procedures for Interim Compensation and Reimbursement of Expenses for Professionals and Official Committee Members [Dk:t. No. 189] (the "Interim Compensation Order") entered by this Court. The fee application process is designed to provide all parties in interest and the Court with sufficient transparency to determine whether or not the services provided are legitimate, appropriate, and reasonable. 13. In the handful of cases that have permitted the reimbursement of directors' and officers' counsel fees from estate assets where the debtor has demonstrated a direct and actual 16012172.6 6 benefit to be derived from the payment of such fees, courts have placed caps on the total authorized reimbursements. See, e.g., In re Genuity Inc., Case No. 02-43558 (PCB) (Bankr. S.D.N.Y. Oct. 23, 2003) (authorizing payment ofpostpetition expenses ofpostpetition directors up to an agreed $250,000 cap); In re Kmart Corp., Case No. 02-02474 (SPS) (Bankr. N.D. Ill. Aug. 29, 2002) a t ~ ~ 2 and 3 (approving postpetition agreement to utilize funds for payment of fees and expenses incurred by special counsel to independent directors to the agreed $750,000 cap, with right of parties in interest to review budgets prepared by such counsel); RNI at ~ ~ 3 and 5 (authorizing indemnification and advancement of defense costs and expenses to certain officers and directors up to $500,000 and subject to fee applications); NWA at p. 2 (authorizing debtors to advance legal defense costs of certain current and former directors up to insurance retention amounts). 14. The Debtors, however, have not proposed any limits. Lehman can only assume, therefore, that the Debtors are requesting approval to write Fried Frank a blank check without any review by parties in interest and the Court. 15. The lack of appropriate limits on Fried Frank's potential compensation is particularly egregious because the Debtors do not purport to give Lehman notice of any of Fried Frank's fees and expenses to be paid, let alone those that would be paid from Lehman's cash collateral. Instead, the Motion proposes only to provide the United States Trustee and certain other parties - not including Lehman - with copies of Fried Frank's monthly invoices. [Motion a t ~ 13]. However, those parties would not have the specific right to object to the payment of Fried Frank's fees or otherwise seek redress from the Court. Instead, Fried Frank's fees and expenses would simply be paid by the Debtors upon receipt of monthly invoices in the ordinary course of business. That process is unacceptable and should not be countenanced by the Court. 16012172.6 7 16. To the extent the Debtors are permitted to reimburse Fried Frank from estate assets, the Court should require the Debtors to submit monthly budgets and require that Fried Frank comport with the Interim Compensation Order and participate in the fee application process regardless of whether the retention is under section 363 or 327 of the Bankruptcy Code. 17. Absent the imposition of appropriate limits and the right to challenge Fried Frank's fees, the Motion should be denied. Conclusion WHEREFORE, Lehman respectfully requests that the Court (i) enter an order denying the Motion; (ii) to the extent the Court determines to grant the Motion, require the Debtors to provide a detailed budget of fees and expenses to be incurred by Fried Frank on a monthly basis and require that Fried Frank seek reimbursement of its expenses in accordance with the Interim Compensation Order and the fee application process; and (iii) grant Lehman such other and further relief as is just and proper. Dated: New York, New York November 3, 2010 16012172.6 DECHERTLLP By:ls/ Michael J. Sage Michael J. Sage Brian E. Greer Andrew L. Buck 8 1095 Avenue of the Americas New York, New York I 0036 Telephone: (212) 698-3500 Facsimile: (212) 698-3599 Exhibit A 16012172.6 In re: IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE Chapter 11 RNI WIND DOWN CORPORATION, et at.! Case No. 06-10110 (CSS) Debtors. Jointly Administered Ref. Docket No. 408 aad 5ZO ORDER AUTHORIZING AND APPROVING ADVANCEMENT OF DEFENSE COSTS AND EXPENSES TO: (A) CURRENT DIRECTORS AND OFFICERS; (B) CERTAIN FORMER DIRECTORS AND OFFICERS; AND (C) CERTAIN CURRENT AND FQRMER This matter coming before the Court on the motion (the "Motion,'l of the above- captioned debtors and debtors in possession (collectively. the "Debtors") for an order pursuant to sections 105(a) and 363(b) of title 11 of the United States Code, II U.S.C. 101 - 1532 (the "Bankruptcy Code .. ), authorizing the advancement of actual defense costs and expenses directly incurred by: (a) the cUITent Dira,-tors and Officers ofthe DebloTS (the .. Current Directors and Officers"); (b) certain former Directors and Officers of the Debtors who objected Motion and requested to be included in the relief sought therein (the "Fonner Directors and Officcrs"); 3 and (c) certain current and former employees of the Debtors (the "Employees". and collectively with the Current Directors and Officers and the Former Directors and Officers, the "Covered Individuals") in connection with the investigation of the Debtors being conducted by the Official Committee of Equity Security Holders (the 'Investigation"); and the Court having reviewed the I The Debtors are RNI Wmd Down Corporation, fonnerly known as Riverstone Networks, Inc. (Tax ID No. xx- XXX6178), BlueCoast Software (Tax ID No. XX-XXX9415), The OASys Group, Inc. (Tax ID No. XX-XXX8093), Riverstone Networks SPC, Inc. (Tax ID No. XX-XXX3518} and Pipal Systems, Inc. (Tax ID No. XX-XX:X6850) eaeh with a mailing address of 5200 Great America Parkway, Santa Clara, CA 95054. 2 Capitalized lcnns not othcrwi=;e defined herein !!hall be given their meaning in the Motion. 3 1be Former Directors and Officers include, without limitation: Romulus Pereira, Suresh GoplllakTishnan, Robert Stanton, John Kern, Christopher Paisley, and Andrew Feldman. 1-PU/2402!26.3 D002:S405S78.S ()64952.1001 objections thereto filed by the Former Directors and Officers, the Equity Holders Committee, and the Creditors Committee, and the reply in support thereof filed by the Current Directors and and the Court finding that (a) the Court has jurisdiction over this matter pu.rsuant to 28 U.S.C. 157 and 1334, (b) this is a core proceeding pursuant to 28 U.S.C. 157(b)(2){A) iind (c) notice of the Motion was adequate under the circumstances and that no other or further notice need be provided; and the Court having determined that the legal and factual bases set forth in the Motion establish just cause for the relief granted herein; and the Court having determined that the relief sought in the Motion is in the best interests of the Debtors and theiT estates; and after due deliberation and sufficient cause appearing therefore, NOW, THEREFORE, IT IS HEREBY ORDERED THAT: 1. The Motion is GRANTED as and to the extent set forth herein. 2. The objections to the Motion filed by the Equity Holders Committee and the Creditors Committee are overruled. 3. Pursuant to sections lOS{a) and 363(b) ofthe Bankruptcy Code, the Debtors are authori:.r.ed to advance and reimburse all reasonable, actual and necessary costs and expenses incurred by the Covered Individuals to defend or to otherwise respond to the to the extent that such Covered Individuals are entitled to the same pursuant to agreements with the DebtoTs, the Organizational Documents or in accordance with applicable law ("Defense C..osts"), up to an aggregate amount of $500,000 on an interim basis, subject to possible further upon request and order of this Court. 4. The payment of Defense Costs shall be made directly to the law firms or professionals retained by the Covered Individuals, except that any documented> reasonable and necessary travel or other related expenses personally incurred and paid by a Covered Individual Dfi02:5405S7lU 2 0649Sl.l001 to defend or to otherwise respond to the Investigation shall be paid directly to such Covered Individual. 5. Any (i) Covered Individual or (ii) law finn or other professional retained by a Covered Individual shaH file monthly fee applications with this Court {with copies to the Committees and the U.S. Trustee) in accordance with, and shall otherwise comply with (and shall be paid in accordance with), this Court's Order Establishing Procedures for Interim Compensation and Reimbursement of Expenses of Professionals Pursuant to 1 OS(a) and 331 [Docket No. 203] (the "Fee Order") and Ru1e of the Local Rules of Bankruptcy Practice and Procedure for the United States Bankruptcy Court for the District of Delaware. Defense Costs jucurred by such professionals on behalf of the Covered Individuals shall be subject to objection by parties in interest and review by this Court in accordance with the Fee Order. 6. Nothing in this Order shall prejudice or be deemed a waiver of(a) the rights of the Debtors or any other party, including without limitation the Covered Individuals, to seck recovery of any fees, expenses or other cosL-q from any insurance policy to which the Debtors or any other party, including without limitation the Covered Indivjduals, arc a party or a beneficiary or under which the Debtors or any other including without limitation the Covered Individuals, may have any rights of recovery, or (b) the right of any party to seek disgorgcment of any amounts paid hereunder (or any defenses to any such right or recovery). I.>K02:540SS78.l 3 064952.1001 7. All amounts paid hereunder arc deemed to be paid subject to disgorgement and final aJiowance by further order of this Court provided however, tllat Covered Individuals shall be excused from the filing of any final fee application. This Court shall retain jurisdiction to interpret and enforce the tenns of this Order. Dated: (/ v /Jl /1 . . 2006 ~ g t o , Delaware D'B02: 5405578.1 4 (164952.1001
SOUTHERN DISTRICT OF NEW YORK In re: NORTHWEST AIRLINES CORPORATION, et al., Debtors. ---------------- ----- ----x Chapter 11 Case No. 05-17930 (ALG) Jointly Administered X ORDER AUTIIORIZING mE DEBTORS TO ADVANCE LEGAL DEFENSE COSTS OF CERTAIN CURRENT AND FORMER DIRECTORS AND OFFICERS Upon consideration of the motion (the "Motion") 1 of Northwest Airlines Corporation (''NW A Corp."), and certain of its direct and indirect subsidiaries, as debtors and debtors in possession (collectively, the "Debtors")/ seeking entry of an order authorizing the Debtors to advance the legal defense costs of certain current and former directors and officers of the Debtors who are defendants in certain ERISA and securities class actions; and the Court having jurisdiction to consider the Motion and the relief requested therein in accordance with 28 U.S.C. 157 and 1334; and due notice of the Motion having been provided to the parties in interest listed on the Master Service List (as defined in the Court's Order establishing notice 1 Capitalized terms not defined herein shall have the meaning ascribed to them in the Motion. 2 Specifically, in addition to NWA Corp., the Debtors consist of: NWA Fuel Services Corporation ("NFS"), Northwest Airlines Holdings Corporation ("Holdings"), NW A Inc. ("NWA Inc."), Northwest Aerospace Training Corp. ("NATCO"), Northwest Airlines, Inc. ("Northwest Airlines"), MLT Inc. ("ML T''), Compass Airlines, Inc. flk/a Northwest Airlines Cargo, Inc. ("Compass"), NW A Retail Sales Inc. ("NW A Retail''), Montana Enterprises, Inc. ("Montana"), NW Red Baron LLC ("Red Baron"), Aircraft Foreign Sales, Inc. ("Foreign Sales"), NWA Worldclub, Inc. ("WorldClub") and NWA Aircraft Finance, Inc. ("Aircraft Finance"). NYLIB5 898793.3 procedures and a master service list, dated September 15, 2005); and it appearing that no other or further notice of the Motion need be provided; and the Court having determined that the relief sought in the Motion is in the best interests of the Debtors, their estates and all parties in interest; and upon the Motion, the Declaration of Douglas M. Steenland, dated as of the Petition Date, and the Declaration of Neal S. Cohen Pursuant to Local Bankruptcy Rule 1007-2 and in Support of the Debtors' Chapter 11 Petitions and First Day Orders, dated as ofthe Petition Date; and all of the proceedings had before the Court; and after due deliberation and sufficient cause appearing therefor, it is ORDERED that the Motion is granted; and it is further ORDERED that the Debtors may advance the legal defense costs incurred by those former and current Northwest Airlines directors and officers and other employees who are named as defendants in certain ERISA and securities class actions, including the Class Actions, and who are entitled under applicable state law and Northwest Airlines' bylaws to indemnification by the Debtors, up to the retention amounts under the Policies; and it is further ORDERED that within ten (10) business days of the date of this Order, the Debtors shall report to the Official Committee of Unsecured Creditors (the "Committee") the amount of all legal defense costs incurred by the Class Action Defendants in connection with the Class Actions as of such date, and shall provide subsequent quarterly reports to the Committee of legal defense costs advanced pursuant to this Order, as and to the extent such additional amounts are advanced by the Debtors; and it is further ORDERED that this Court shall retain jurisdiction with respect to any matters, claims, rights or disputes arising from or related to the implementation of this Order; and it is further NYLIBS 898793.3 2 ORDERED that service of the Motion as provided therein shall be deemed good and sufficient notice of such Motion; and it is further ORDERED that the requirement under Rule 9013-1 (b) of the Local Bankruptcy Rules for the Southern District of New York for the filing of a memorandum of law is waived. Dated: New York, New York June 8,2006 NYLIB5 898793.3 Is/ Allan L. Gropper __________ _ UNITED STATES BANKRUPTCY JUDGE 3 UNI1ED STAlES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ------------------------------X In re GENUITY INC., Debtors. ------------------------------x Chapter II Case No. 02-43558 (PCB) (Jointly Administered) ORDER UNDER 11 U.S. C. 363 AND 503 AUTIIORIZlNG PAYMENT OF POST-PETITION EXPENSES OF DIRECTORS Upon the Motion dated October 16,2003 (the "Motion") 1 of the above-captioned debtors and debtors-in-possession (collectively, the "Debtors"), for an orderunder II U.S.C. 363 and 503 authorizing payment of post-petition expenses of directors, as set forth in the Motion; and the Court having jurisdiction to consider and determine the Motion; and it that notice of the Motion was good and sufficient under the particular circumstances and that no other or further notice need be given; and upon the record in these cases; and after due deliberation thereon; and good and sufficient cause appearing therefor, it is hereby ORDERED, ADJUDGED AND DECREED THAT: 1. The Motion is GRANlED. 2. The Debtors are authorized pursuant to Bankruptcy Code Sections I 05 and 363; to pay the fees and expenses ofSRZ, as counsel to the directors of Genuity Inc., in an amount not to exceed $250,000 plus actual expenses. 1 Unless otherwise defmed herein, capitalized terms used herein shall have the meanings ascribed to them in the Motion. 3. The requirement under Local Bankr. R 90 13-l {b) for the service and filing of a separate memorandum of law is satisfied by the Motion. Dated: New York, New York October 22, 2003 Is/ Prudence Carter Beatty The Honorable Prudence C. Beatty United States Bankruptcy Judge Case 02-02474 Doc 6132-1 Filed 08/29/02 Entered 09/04/02 00:00:00 Desc Pleading Page 1 of 5 Eor-- SEP 4 IN THE UNITED STATES BANKRUPTCY COURT . - 2flOZ FOR THE NORTHERN DISTRicr OF ILLINOIS EASTERN DIVISION In re: ) Case No. 02-802474 KMART CORPORATION. et al . ) (Jointly Administered) )Chaptcrll Debtors. ) Hon. Susan Pierson Sonderby ) Hearing Date: August 29, 2002 ) Hearing Time: 11 :00 a.m. ) Obj. Date: August 22. 2002 ORDER PURSUANT TO 11 U.S.C. 3(j3(b) APPROVING POST -PE I IliON AGREEMENT TO UTILIZE ESTATE FUNDS FOR PAYMENT OF FEES AND EXPENSES INCURRED BY SPECIAL COUNSEL TO THE INDEPENDENT DIRECfQRS GROUP Upon the motion dated August 9. 2002 (the "Motion") of Kmart Corporation {"Kmart") and certain of its affiliates, each a debtor and debtor-in-possession in the cases (collectively, the "Debtors"), for entry of an order, pursuant to Section 363(b) ofTitle 11 oftbe United States Code, 11 U.S.C. 101, mim (the "Bankruptcy Code"), approving the Debtors' agreement, as described in this Order, to use estate funds outside the ordinary course ofbusiness to pay Dewey Ballantine LLP ("Dewey Ballantine") for services rendered to the independent members ofKmart's Board of Directors (the "Independent Directors Group") as their special counsel ("Special Counsel"); and due and adequate notice of the Motion having been given; and it appearing that no other :notice need be given; and it appearing that Dewey Ballantine neither holds nor represents any interest adverse to the Debtots' estates Case 02-02474 Doc 6132-1 Filed 08/29/02 Entered 09/04/02 00:00:00 Desc Pleading Page 2 of 5 with respect to the matters for which Dewey Ballantine is to be paid as described in this Order; and it appearing that the Official Financial Institutions Committee (the tbe Official Unsecured Creditors' Committee (the "UCC"). and the Official Committee of Equity Security Holders (the "Equity Committee" and. together with the FJC and the UCC, the "Conunittces") consent to entry of this order; and it appearing that the relief requested in the Motion is in the best interest of the estates and their creditors, and after due deliberation that the relief should be granted as set forth below, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED THAT 1. Pursuant to Section 363(b) .of the Bankruptcy Code, and subject to tbe tenns contained herein, the Debtors, as arc authorized to utilize estate funds to pay Dewey Ballantine from and after the petition date as Special Counsel to represent the Independent Directors Group in connection with these Chapter 11 cases and, more specifically. the perforotance of only the following legal services. (a) review developments in these Chapter 1 1 cases and advise the Inde- pendent Directors Group in connection with these Chapter 11 cases; (b) provide legal advice to the Independent Directors Group in support of the Independent Directors Group s ongoing responsibilities with respect to the Debtors operations, including attendance at meetings of the K.mart Board of Directors, its committees and other third parties; (c) represent the individuals comprising the Independent Directors Group in connection with specific matters involving the stewardship investigation, the Securities and Exchange Commission and the Department of Just1ce 2 Case 02-02474 Doc 6132-1 Filed 08/29/02 Entered 09/04/02 00:00:00 Desc Pleading Page 3 of 5 (including through the U.S. Attorney's Office fur the Eastern District of Michigan); {d) appear betbrc the Bankruptcy Court. any district or appe11atc and the United States Trustee on behalf of the Independent Directors Group with respect to the matters referred to above; and (e) provide the full range oflegal services and advice normally associated with the matters referred to above. 2. All compensation and reimbursement of expenses to be paid to Dewey Ballantine shall be subject to the protocols of the Joint Fee Review Committee. including the rights of the Committees to review budgets proposed by Dewey Ballantine; to object to such budgets; and to object. in accordance with such proto- to payment of requested amounts to Dewey Ballantine. 3. Dewey Ballantine shall be paid from the estates for post-petition services rendered to the Independent Directors Group; provided, however. that Dewey Ballantine shall not be paid from the estates an amount in excess of$750,000 (including amounts already incurred) unless the Committees consent in writing or,. absent such consent. the Court enters an order permitting such further payment. If such consent is not obtainecL Dewey Ballantine may immediately withdraw from its representation of the Independent Directors Group with respect to the matter de- scribed in paragraph 1 hereof. 4. Notwithstanding anything in this Order to the this Order does not authorize the Debtors to pay Dewey Ballantine for any fees or expenses incurred in 3 Case 02-02474 Doc 6132-1 Filed 08/29/02 Entered 09/04/02 00:00:00 Desc Pleading Page 4 of 5 connection with providing legal services to any members of the Independent Direc- tors Group to the extent that such legal services are rendered (i) in connection with claims made or actions asserted by or on behalf of the Debtors or the Committees or (ii) in connection with matters in which such members hold an interest adverse to the Debtors. For purposes of this paragraph. the Debtors shall be solely responsible for in the :ti.Th1 instance and in their reasonable discretion, whether an adverse interest exists; however, that nothing herein shall be deemed to impair the ability of this Court or the right oftbe U.S. Trustee to consider at any time whether an adverse interest exists. The existence of the stewardship investigation referenced in paragraph l(e) of this Order shall not, in and ofitself. constitute or be deemed to create an adverse interest. In the event an adverse interest is determined to exist, the Independent Directors Group and Dewey Ballantine shall be promptly notified in writing of such determination. Subject to the limitations set forth in this Order, the Debtors shall be entitled to pay Dewey Ballantine from the Debtors' estates for services rendered to the Indcpcndmt Directors Group up to the date of their receipt of such notice. 5. This Order does not address and does not affect the ability of any individual member of the Independent Directors Group to retain Dewey Ballantine to represent him or her individually, and is without prejudice to the rightc; of the Independent 4 Case 02-02474 Doc 6132-1 Filed 08/29/02 Entered 09/04/02 00:00:00 Desc Pleading Page 5 of 5 Directors Group or Dewey Ballantine to request payment of administrative expenses from the Debtors' estates in accordance with applicable law. Dated: Chicago 1
5 onorable Susan Pierson Sonderhy United States Bankruptcy Judge objections thereto filed by the Fonner Directors and Officers, the Equity Holders Committee; and the Creditors Committee, and the reply in support thereof filed by the Current Directors and Officers; and the Court finding that (a) the Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and 1334, {b) lhis is a core procced.fng pursuant to 28 U.S.C. 157(b)(2){A) and (c) notice of the Motion was adequate under the circumstances and that no other or further notice need be provided; and the Court having determined that the legal and factual bases set forth in the Motion estabHsh just cause for the relief granted herein; and the Court having determined that the relief sought in the Motion is in the best interests of the Debtors and thejr estates; and after due deliberation and sufficient cause appearing therefore, NOW, THEREFORE. TT IS HEREBY ORDERED THAT: 1. The Motion is GRANTED as and to the extent set forth herein. 2. The objections to the Motion filed by the Equity Holders Committee and the Creditors Committee are overruled. 3. Pursuant to sections lOS(a) and 363(b) ofthe Bankruptcy Code, the Debtors are authorit.ed to advance and reimburse all reasonable, actual and necessary costs and expenses incurred by the Covered Individuals to defend or to olherwise respond to the Investigation to the extent that such Covered Individuals are entitled to the same pursuant to agreements with the DebtoTS, the Organizational Documents or in accordance with applicable Jaw ("Defense Costs"), up to an aggregate ammmt of$500,000 on an interim basis, subject to possible further increases upon request and order of this Court. 4. The payment of Defense Costs shall be made directly to the law firms or professionals retained by the Covered Individuals, except that any documented, reasonable and necessary travel or other related expenses personally incurred and paid by a Covered Individual DSi02:5405571U 2 064952.1001 to defend or to otherwise I'eb'J)Ond to the Investigation shall be paid directly to such Covered Individual. 5. Any (i) Covered Individual or (ii) law fiiDl OT other professional retained by a Covered Individual shall file monthly fee applications with this Court {with copies to the Committees and the U.S. Trustee) in accordance with, and shall otherwise comply with (and shall be paid in accordance with), this Court's Order Establishing Procedures for Interim Compensation and Reimbursement of Expenses of Professionals Pursuant to 105(a) and 331 [Docket No. 203] (the "Fee Order") and Ru1e 2016-2 ofthe Local Rules of Bankruptcy Practice and Procedure for the United States Bankruptcy Court for the District of Delaware. Defense Costs incurred by such professionals on behalf ofthe Covered Individuals shall he subject to objection by parties in interest and review by this Court in accordance with the Fee Order. 6. Nothing in this Order shall prejudice or be deemed a waiver of (a) the rights of the Debtors or any other party, including without limitation the Covered Individuals, to seck recovery of any fees, expenses or other cosLo:; from any insurance poljcy to which the Debtors or any other party, including without limitation the Covered Indivjduals, arc a party or a beneficiary or under which the Debtors or any other party; including without limitation the Covered Individuals. may have any rights of recovery, or (b) the right of any party to seek disgorgcment of any amounts paid hereunder (or any defenses to any such right of recovery). I)H02:S40SS78.1 3 064952.1001 7. All amounts paid hereunder arc deemed to be paid subject to disgorgement and final allowance by further order of this Court provided however. that Covered Individuals shall be excused from the filing of any final fee application. This Court shall retain jurisdiction to jntcrpret and eJ.iforce the terms of this Order. Dated: . (}..,f'Jl /} . , 2006 Wfulitngto , Delaware ~ 1 ~ ~ ~ r u United States Bankruptcy Judge DB02:S405571U 4 0649S2.1 001