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Kodak Wants Bonuses for its Top Executives

Bankruptcy Attorney

When Eastman Kodak Co. went into bankruptcy proceedings six months ago, it left creditors holding unpaid bills and the world with questions about whether the company would simply shut down.

Now, Kodak’s top executives could be in line for big bonuses if creditors get some payback and if the company successfully emerges from bankruptcy or gets acquired.

The printing and imaging company on Wednesday filed a motion in U.S. Bankruptcy Court seeking approval for as much as $17.6 million in bonuses payable to 15 executives.

CEO Antonio M. Perez could receive up to $4.4 million if unsecured creditors — those who have no assurance they’ll get paid — get back every dime they’re owed. If they get back 30 cents on the dollar, which is Kodak’s target, Perez would receive $2.2 million.

Kodak’s chief restructuring officer, James Mesterharm, said in a memo to employees Wednesday that the proposed Emergence Performance Plan “provides our leaders an opportunity to earn market-competitive compensation … for their achievement of this goal” of getting out of bankruptcy.

Such bonus programs are common in Chapter 11 cases of publicly held companies, said Robert J. Rock, senior bankruptcy attorney with Albany-based law firm Tully Rinckey PLLC.

“The concept is that these bonuses are given to key executives in order to keep them with the reorganizing company at a time when that company desperately needs them,” Rock said. “The contingency that the company emerge from bankruptcy gives the executives a strong incentive to see that the Chapter 11 succeeds. The contingency that creditors receive a meaningful payment on their claims ensures that the reorganization is run for the benefit of the creditors and not the company executives.”

Bankrupt companies ranging from Blockbuster Inc., the movie rental retailer, to Pilgrim’s Pride Corp., a giant meat processor, have paid out executive bonuses. And even bankrupt companies that are shutting their doors and liquidating their assets can get court approval for handsome executive bonuses tied to maximizing the returns to creditors, as was the case with electronics retailer Circuit City Inc. and bookstore chain Borders Group.

In its motion, Kodak didn’t identify by name the people who would be eligible for bonuses, saying only that nine executive officers and six key managers were in the pool. But the chief executive officer, Perez, and the chief financial officer, Ann McCorvey, were identified by title. McCorvey could receive as much as $1.6 million.

Company co-President Laura G. Quatela, who is helping lead an effort to sell a portfolio of 1,100 digital imaging patents, could receive a separate bonus of up to $1.5 million depending on terms of that sale.

If the bankruptcy case winds up with creditors getting 10 cents or less on the dollar, Kodak executives would receive nothing. Under another provision, the bonuses would shrink the longer the bankruptcy process takes, with the company’s goal being to emerge in January 2013.

According to Kodak, the unsecured creditors committee supports the bonus plan.

Along with creditors getting paid, the bonuses also would depend on the company surviving in some fashion, though perhaps not as “Kodak.” For example, if the assets were sold so that the surviving entity would be a stand-alone operation or have different ownership than today, the bonuses could be paid.

“It’s not a requirement there be an ongoing Eastman Kodak Company,” spokesman Christoper Veronda said.

Bonuses tied to company performance traditionally have been a big part of executives’ paychecks. Perez, for example, was eligible for as much as $8.6 million in cash in 2010, including $7.5 million in bonuses tied to the company achieving certain financial milestones. That year he received bonuses of $341,000 atop his $1.1 million base salary.

Kodak executives received no cash bonuses in 2011. And base salaries currently are frozen.

In it motion, Kodak argues that the Emergence Performance Plan would serve much the same purpose of tying top bosses’ pocketbooks directly to the company’s performance.

The bonuses — good news for executives — could also represent some good news for Kodak shareholders. If creditors receive 50 cents or more on the dollar, Kodak executives would receive bonuses half in cash and half in deferred stock shares, which indicates the company’s confidence that its stock will have value, said Ken Luskin, president of California wealth management firm Intrinsic Value Asset Management.

Under another scenario, however, people still holding shares today might not see any benefit. The bonus proposal contains a provision that Kodak executives could receive cash instead of stock if Kodak shares are illiquid after the company gets out of bankruptcy.

The bonus proposal is scheduled for a hearing in federal bankruptcy court in New York City on Aug. 6.

Bob came to Tully Rinckey PLLC with over three decades of legal experience. He joined the team after running his own general practice firm in Albany for a dozen years. Throughout his 30-plus-year legal career, Bob has always practiced law in the Capital Region.

Bob has significant experience in both state and federal courts fighting for clients in the civil litigation arena. His experience includes the representation of both plaintiffs and defendants. When Tully Rinckey PLLC’s clients believe they have been wronged by the action or inaction of another party, they may be entitled to sue for damages. Clients may also find themselves being sued and in need of the kind of proactive defense provided by Bob and the Tully Rinckey PLLC civil litigation team. Together, their experience includes disputes between individuals, businesses, non-profit organizations, municipalities, and the full range of legal entities. Bob and the team can provide aggressive representation to any of these parties to secure the best possible legal outcome for them. 

A long-time ally of distressed and insolvent businesses and individuals throughout New York’s Capital Region, Bob has been expanding Tully Rinckey PLLC’s bankruptcy practice, particularly in the areas of Chapter 11 (business) and Chapter 12 (farm) reorganization. He continues the firm’s tradition of representing debtors and creditors in Chapter 7 and Chapter 13 proceedings and bankruptcy litigation. At the firm, he provides free initial bankruptcy consultations.

Bob has successfully confirmed Chapter 11 plans in diverse cases, including a rural Delaware County acute care hospital, a swimming pool builder and water park developer, a major printing company and an ante-bellum ladder manufacturer. He has also represented creditors committees in a Broome County and Pennsylvania baker, a mid-Hudson building products supplier and a consortium of banks in a case involving a purported investment company behind a massive Ponzi scheme. Bob has represented secured and unsecured creditors as well as Chapter 7 and Chapter 11 trustees in virtually every aspect of bankruptcy.

Bob received a juris doctorate from Albany Law School and a bachelor’s degree in political science from LeMoyne College. His admissions include the New York State Bar, the U.S. District Courts for the Eastern, Southern and Northern Districts of New York, and the 2nd U.S. Circuit Court of Appeals.

When not at work, Bob enjoys hiking in the Adirondacks and Catskills, music, local history and travel.



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