Pg 1 of 9 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: EASTMAN KODAK COMPANY, et al., 1 Debtors. Chapter 11 Case No. 12-10202 (ALG (Jointly Administered DECLARATION OF MATTHEW J. HART IN SUPPORT OF DEBTORS MOTION FOR AN ORDER AUTHORIZING THE DEBTORS TO (I ENTER INTO DOCUMENTS IN CONNECTION WITH SECURED EXIT FINANCING; (II INCUR AND PAY ASSOCIATED FEES, COSTS AND EXPENSES; AND (III FURNISH RELATED INDEMNITIES I, Matthew J. Hart, declare, pursuant to 28 U.S.C. 1746, under penalty of perjury: 1. I am over the age of 18 and am competent to testify. I am a Director in the Restructuring Group of Lazard Frères & Co. LLC ( Lazard, which has its principal office at 30 Rockefeller Plaza, New York, New York 10020. 2. I submit this declaration in support of the Debtors Motion for an Order Authorizing the Debtors to (I Enter into Documents in Connection with Secured Exit Financing; (II Incur and Pay Associated Fees, Costs and Expenses; and (III Furnish Related Indemnities (the Motion [Docket No. 4085]. 2 3. Except as otherwise indicated, the facts and opinions set forth herein are based upon (a my personal knowledge, including my experience with exit financings generally, 1 2 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, are: Eastman Kodak Company (7150; Creo Manufacturing America LLC (4412; Eastman Kodak International Capital Company, Inc. (2341; Far East Development Ltd. (2300; FPC Inc. (9183; Kodak (Near East, Inc. (7936; Kodak Americas, Ltd. (6256; Kodak Aviation Leasing LLC (5224; Kodak Imaging Network, Inc. (4107; Kodak Philippines, Ltd. (7862; Kodak Portuguesa Limited (9171; Kodak Realty, Inc. (2045; Laser-Pacific Media Corporation (4617; NPEC Inc. (5677; Pakon, Inc. (3462; and Qualex Inc. (6019. The location of the Debtors corporate headquarters is: 343 State Street, Rochester, NY 14650. Capitalized terms not otherwise defined herein are to be given the meanings ascribed to them in the Motion or the Amended Plan (as defined below, as the context so requires.
Pg 2 of 9 (b my review of the relevant documents, (c information provided to me or verified by executives or employees of the Debtors or the Debtors professional advisors, (d Lazard s analyses regarding the Emergence Financing Syndication Documents, (e discussions with and proposals by certain Syndication Parties, and (f my opinion based upon my experience with and knowledge of the business and operations of the Debtors. I am authorized to make this declaration on behalf of Lazard. I am not being compensated specifically for this testimony other than through payments received by Lazard as professionals retained by the Debtors in these chapter 11 cases. If called upon to testify, I would testify competently to the facts set forth herein. Qualifications 4. Lazard is the primary U.S. operating subsidiary of an international financial advisory and asset management firm. Lazard, together with its predecessors and affiliates, has been advising clients around the world for more than 150 years. The current managing directors, directors, vice presidents and associates at Lazard have extensive experience working with financially troubled companies in complex financial restructurings both out-ofcourt and in chapter 11 proceedings. 5. Lazard and its principals have been involved as advisors to debtors, creditors, equity constituencies and government agencies in many reorganization cases. Since 1990, Lazard s professionals have been involved in over 250 restructurings, representing more than $1 trillion in debtor assets, including sales of assets under section 363 of the Bankruptcy Code. Notably, Lazard has been retained as a financial advisor and investment banker in numerous large and complex chapter 11 cases, including, among others, recent chapter 11 cases in the Southern District of New York such as In re TBS Shipping Services Inc., Case No. 12- -2-
Pg 3 of 9 22224 (Bankr. S.D.N.Y. filed Feb. 6, 2012; In re Dynegy Holdings, LLC, Case No. 11-38111 (Bankr. S.D.N.Y. filed Nov. 7, 2011; In re The Great Atlantic & Pacific Tea Co., Case No. 10-24549 (Bankr. S.D.N.Y. filed Dec. 12, 2010; In re Citadel Broadcasting Corp., Case No. 09-17442 (Bankr. S.D.N.Y. filed Dec. 20, 2009; In re Charter Communications, Inc., Case No. 09-11435 (Bankr. S.D.N.Y. filed Mar. 27, 2009; In re Lehman Brothers Holdings Inc., Case No. 08-13555 (Bankr. S.D.N.Y. filed Sept. 15, 2008; In re Northwest Airlines, Inc., Case No. 05-17930 (Bankr. S.D.N.Y. filed Sept. 14, 2005; and In re Calpine Corp., Case No. 05-60200 (Bankr. S.D.N.Y. filed Dec. 20, 2005. 6. Prior to joining Lazard in 2008, I was a Managing Director at Eos Partners and a partner in the firm s credit investment funds, where I invested in distressed companies in the United States and Europe and assisted in the general management of the funds. From 2001 to 2006, I was employed by Merrill Lynch, most recently as a Vice President and investment analyst in the firm s principal investments area, where I invested in distressed companies on behalf of the firm. Earlier in my career I was involved in the mortgage-backed and asset-backed securities market as a credit analyst and trader. 7. I have an M.B.A. in finance and accounting from the University of Chicago Booth School of Business and a B.A. in economics from the University of Michigan. I am a Certified Insolvency & Restructuring Advisor (CIRA and a Chartered Financial Analyst (CFA. I hold FINRA Series 7 General Securities and Series 63 State Law licenses. I am a member of the Association of Insolvency & Restructuring Advisors, the American Bankruptcy Institute, the CFA Institute and the New York Society of Securities Analysts. 8. I have extensive experience as an advisor and investor in corporate restructurings, as well as public and private debt and equity offerings and mergers and -3-
Pg 4 of 9 acquisitions. I have advised companies, creditors and investors in connection with numerous incourt and out-of-court restructurings and recapitalizations, including Nortel Networks, Lehman Brothers, AMR Corporation, Cooper Standard Automotive, SiriusXM, LNR Property Corp., Quiznos, White Birch Paper, Satélites Mexicanos, and Maxcom Telecomunicaciones. I have previously submitted declarations and/or affidavits or have had testimony proffered in White Birch Paper and Satélites Mexicanos, in addition to in this case. Background 9. On January 31, 2012, the Debtors applied to retain Lazard as their investment banker in these chapter 11 cases pursuant to the Debtors Application for an Order Authorizing the Retention and Employment of Lazard Frères & Co. LLC as Investment Banker for the Debtors and Debtors in Possession Nunc Pro Tunc to the Petition Date [Docket No. 171]. On February 28, 2012, the Court entered its Order Authorizing the Retention and Employment of Lazard Frères & Co. LLC as Investment Banker for the Debtors and Debtors in Possession Nunc Pro Tunc to the Petition Date [Docket No. 442]. 10. On June 18, 2013, the Debtors filed the First Amended Joint Chapter 11 Plan of Reorganization of Eastman Kodak Company and its Debtor Affiliates [Docket No. 4073] (the Amended Plan and the Debtors Motion for an Order Authorizing the Debtors to (A Execute a Backstop Commitment Agreement, and (B Incur, Perform and Abide by the Initial Commitment Obligations [Docket No. 4070]. 11. In connection with the Debtors entry into the Backstop Commitment Agreement, the Debtors agreed to seek emergence financing on terms that are superior to the Rollover Financing. Although the Rollover Financing contemplated the incurrence of emergence term loans to satisfy a portion of the DIP Term Loans in connection with the consummation of -4-
Pg 5 of 9 the Amended Plan (assuming the Debtors could satisfy certain conditions precedent, the Rollover Financing did not include a revolving credit facility to replace the DIP ABL Credit Agreement. This would require the Debtors to maintain much higher cash balances than has been their practice, both for liquidity purposes and to cash-collateralize their existing and future letters of credit. Marketing Process 12. Over the past seven weeks, Lazard conducted both formal and informal discussions with seven leading global financial institutions and solicited proposals for emergence financing that would be superior to the floor established by the Rollover Financing. This group included certain of the Debtors existing debtor-in-possession lenders, certain prepetition lenders and other qualified parties with whom the Debtors have not recently had a lending relationship. 13. The Debtors received multiple proposals for both best-efforts and underwritten financings, and initiated arm s-length negotiations with certain of these parties. Based on these proposals and negotiations, the Debtors determined that the most desirable and cost-effective option for the Debtors would be a partially-committed Emergence ABL Facility with the remainder of the emergence financing arranged on a best-efforts basis, to avoid the substantial incremental expense associated with a fully-underwritten transaction. 14. To maximize the portion of the Emergence ABL Facility that would be committed, as well as to obtain the best overall emergence financing package, the Debtors decided to bring together three of the institutions that had presented the most attractive individual proposals and were judged most likely to deliver the best final terms via the syndication process, namely the Syndication Parties. Accordingly, the Debtors thereafter focused their efforts on -5-
Pg 6 of 9 negotiating the Proposed Emergence Financing with the three Syndication Parties. Subject to certain conditions, the Syndication Parties have agreed to commit $130 million of the proposed $200 million ABL Emergence Facility, leaving only $70 million to be syndicated on a bestefforts basis. Commitment and Engagement Obligations 15. As a condition to commencing the syndication process, the Syndication Parties required the Debtors to obtain approval from the Bankruptcy Court of the Commitment Obligations and Engagement Obligations. As described in the Motion, these obligations include the payment up to approximately $25.3 million in a variety of fees, equivalent to approximately 2.8% of the Proposed Emergence Financing. This amount includes (i fees compensating the Syndication Parties for their syndication efforts, (ii estimated upfront fees payable to the entire syndicate as a component of the overall pricing of the loans (which will be finalized at the time of syndication, and (iii following the closing of the Proposed Emergence Financing, the aggregate annual fees to compensate the administrative agents for administering the Proposed Emergence Financing through its maturities. 16. Based upon my personal participation, these fees were negotiated extensively at arm s-length and based on my professional experience I believe that they are within the range of other financings of this type. Superior Terms 17. Although the syndication is being conducted on a best-efforts basis, based on the market views expressed by the Syndication Parties to the Debtors and their advisors, and memorialized in the term sheets attached to the Emergence Financing Syndication Documents, -6-
Pg 7 of 9 the Proposed Emergence Financing is expected to be superior to the Rollover Financing in a variety of ways, including: 1 The estimated interest rates are expected to result in significant cost savings as compared to the Rollover Financing; 2 The proposed covenant packages are expected to offer generally greater flexibility than the Rollover Financing; 3 The Proposed Emergence Facility includes the Emergence ABL Facility, providing for incremental liquidity and the issuance of letters of credit in a more cost-effective manner than the Rollover Financing, which does not contain any revolving credit facility; 4 The Emergence Term Loan Facilities are expected to provide the Debtors with over $25 million of incremental net proceeds compared to the Rollover Financing; and 5 The Emergence ABL Facility and Emergence Term Loan Facilities are expected to include an accordion and incremental feature, respectively, to increase the size of the facilities to fund future growth, subject to certain conditions. Conclusion 18. In summary, based upon my personal participation in the negotiation process, prior experience and professional judgment, I believe that the Emergence Financing Syndication Documents were negotiated in good faith and at arm s-length among the Debtors and the Syndication Parties through an extensive competitive process and the associated fees are reasonable in comparison to similar financings. -7-
Pg 8 of 9 19. Moreover, although the Proposed Emergence Financing is best-efforts and subject to syndication, I believe the Debtors incurrence of the Commitment Obligations and Engagement Obligations present the most attractive option currently available to finance the Debtors emergence from chapter 11 and obtain emergence financing superior to the Rollover Financing. -8-
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