IN THE UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION In re: COLLINS & AIKMAN CORPORATION,

et al.1 Debtors. ) ) ) ) ) ) ) ) Chapter 11 Case No. 05-55927 (SWR) (Jointly Administered) (Tax Identification #13-3489233) Honorable Steven W. Rhodes

RESPONSE OF KZC SERVICES, LLC AND JOHN R. BOKEN TO REPORT OF FEE EXAMINER

1The

Debtors in the jointly administered cases include: Collins & Aikman Corporation; Amco Convertible Fabrics, Inc., Case No. 05-55949; Becker Group, LLC (d/b/a/ Collins & Aikman Premier Mold), Case No. 05-55977; Brut Plastics, Inc., Case No. 05-55957; Collins & Aikman (Gibraltar) Limited, Case No. 05-55989; Collins & Aikman Accessory Mats, Inc. (f/k/a the Akro Corporation), Case No. 05-55952; Collins & Aikman Asset Services, Inc., Case No. 05-55959; Collins & Aikman Automotive (Argentina), Inc. (f/k/a Textron Automotive (Argentina), Inc.), Case No. 05-55965; Collins & Aikman Automotive (Asia), Inc. (f/k/a Textron Automotive (Asia), Inc.), Case No. 05-55991; Collins & Aikman Automotive Exteriors, Inc. (f/k/a Textron Automotive Exteriors, Inc.), Case No. 05-55958; Collins & Aikman Automotive Interiors, Inc. (f/k/a Textron Automotive Interiors, Inc.), Case No. 05-55956; Collins & Aikman Automotive International, Inc., Case No. 05-55980; Collins & Aikman Automotive International Services, Inc. (f/k/a Textron Automotive International Services, Inc.), Case No. 05-55985; Collins & Aikman Automotive Mats, LLC, Case No. 05-55969; Collins & Aikman Automotive Overseas Investment, Inc. (f/k/a Textron Automotive Overseas Investment, Inc.), Case No. 05-55978; Collins & Aikman Automotive Services, LLC, Case No. 05-55981; Collins & Aikman Canada Domestic Holding Company, Case No. 05-55930; Collins & Aikman Carpet & Acoustics (MI), Inc., Case No. 05-55982; Collins & Aikman Carpet & Acoustics (TN), Inc., Case No. 05-55984; Collins & Aikman Development Company, Case No. 05-55943; Collins & Aikman Europe, Inc., Case No. 05-55971; Collins & Aikman Fabrics, Inc. (d/b/a Joan Automotive Industries, Inc.), Case No. 05-55963; Collins & Aikman Intellimold, Inc. (d/b/a M&C Advanced Processes, Inc.), Case No. 05-55976; Collins & Aikman Interiors, Inc., Case No. 05-55970; Collins & Aikman International Corporation, Case No. 05-55951; Collins & Aikman Plastics, Inc., Case No. 05-55960; Collins & Aikman Products Co., Case No. 05-55932; Collins & Aikman Properties, Inc., Case No. 05-55964; Comet Acoustics, Inc., Case No. 05-55972; CW Management Corporation, Case No. 05-55979; Dura Convertible Systems, Inc., Case No. 05-55942; Gamble Development Company, Case No. 05-55974; JPS Automotive, Inc. (d/b/a PACJ, Inc.), Case No. 05-55935; New Baltimore Holdings, LLC, Case No. 05-55992; Owosso Thermal Forming, LLC, Case No. 05-55946; Southwest Laminates, Inc. (d/b/a Southwest Fabric Laminators Inc.), Case No. 05-55948; Wickes Asset Management, Inc., Case No. 05-55962; and Wickes Manufacturing Company, Case No. 05-55968.

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0555927071120000000000007

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KZC Services, LLC and John R. Boken (Boken) (collectively, KZCS), respectfully submit their Response to the Report of Judy A. ONeill, Fee Examiner, dated October 22, 2007, and respectfully show and allege as follows: 1. On May 17, 2005 (the Petition Date), the Debtors (sometimes referred to as the Company) filed their voluntary petitions for relief under chapter 11 of the Bankruptcy Code and commenced the above-captioned chapter 11 cases. On the

Petition Date, the Court entered an order jointly administering these cases pursuant to Bankruptcy Rule 1015(b). During the pendency of these cases, the Debtors operated their businesses and managed their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 2. On July 18, 2007, the Court confirmed the Debtors chapter 11 plan, which outlined how proceeds from the sale and wind down of the Debtors operations were to be distributed to creditors. The Debtors chapter 11 plan became effective on October 12, 2007, after the Debtors had met all of the conditions to effectiveness of the plan. 3. By this Courts orders dated June 9, 2005 and July 18, 2005 (collectively, the Retention Orders), the Debtors were authorized to retain KZCS under the terms of the Services Agreement, as amended by the Retention Orders, to provide restructuring services, with Boken serving in the capacity of Chief Restructuring Officer, effective as of the Petition Date. The Retention Orders authorize the Debtors to compensate KZCS at KZCSs hourly rates charged for services of the type contemplated in the chapter 11 cases and to reimburse KZCS for actual and necessary out-of-pocket expenses and direct costs incurred, subject to application to this Court in accordance with applicable law.

4. By Order dated May 24, 2007 the Court entered an Order (the Fee Examination Order) appointing Judy A. ONeill as Fee Examiner and granting related relief. The Fee Examiner was appointed pursuant to Rule 706 of the Federal Rules of Evidence and 11 U.S.C. 105. Parties in interest are permitted to file a response to the Fee Examiners Final Report (the Report) within thirty days after its filing, which occurred on October 22, 2007.2 RESERVATION OF RIGHTS 5. Initially, KZCS reserves all of its rights to challenge the admissibility of the Fee Examiners testimony on any matter on which she may be called upon to render an opinion as an expert. KZCS respectfully submits that a preliminary Daubert3 hearing is necessary to determine whether the Fee Examiner may express expert opinion.4 KZCS also reserves all of its rights to object to the admissibility of all or any portion of the Report.5 KZCS further requests that the Court order that the Federal Rules of Civil

On November 12, 2007 KZCS filed its Final Fee Application For Compensation And Reimbursement Of Expenses For Restructuring Services Provided To The Debtors For The Period From May 17, 2005 Through October 12, 2007 (Final Application). v. Merrell Dow Pharms., 509 U.S. 579 (U.S. 1993)

3 Daubert

Appointment by the Court of a putative expert under Evidence Rule 706 does not eliminate the need for the Court to determine whether the witness testimony should be admitted as expert testimony under the Daubert standard. See Nemir v. Mitsubishi Motors Corp., 2006 U.S. Dist. LEXIS 8399 (2006) (considering Daubert factors with respect to court-appointed expert); DeAngelis v. A. Tarricone, Inc., 151 F.R.D. 245, 248 (S.D.N.Y. 1993) (directing parties to propose potential experts for appointment and ruling that the evidence proffered by such court-appointed experts will not be conclusive or binding upon any party, and will be tested for admissibility and persuasiveness under the same standards, citing Daubert, as other evidence submitted by experts or otherwise in the case). Moreover, the Court should not rubber stamp the conclusions reached by a court-appointed expert. Gonzales v Galvin, 151 F. 3d 526, 535 (6th Cir. 1998).

5 Substantially all of the interviews relied upon by the Fee Examiner in preparing the Report are hearsay. None of the interviews were taken under oath, and KZCS was not offered the opportunity to participate in the interviews of other persons whose unsworn statements are relied upon in the Report. Hence, the factual findings in the Report, on which the ultimate conclusions are based, are largely hearsay, and should not be admissible. Rickel & Associates Inc. v. Smith (In re Rickel & Assocs.), 272 B.R. 74, 87 (Bankr. S.D.N.Y. 2002); In re FiberMark, Inc., 339 B.R. 321, 326 (Bankr. D. Vt. 2006).

Procedure be made fully applicable to the contested matter involving KZCS Final Application in order that KZCS be entitled to take the discovery which it may need as part of its right to due process in connection with its fee request.6 KZCS also reserves the right to amend or supplement this Response after the completion of discovery. 6. KZCS has informed the Fee Examiner that if she were to testify as an expert, it would like to conduct her deposition, and the deposition of Ms. ONeills collaborator, Fred Caruso of Development Specialists, Inc. Although KZCS has received certain documents from the Fee Examiner, it has been informed that not all of the documents in the Fee Examiners possession, custody or control have been provided, notwithstanding KZCS request for same.7 KZCS intends to issue a subpoena to the Fee Examiner at its earliest opportunity8. KZCS respectfully submits that the Court should consider addressing the foregoing procedural issues in a scheduling conference or hearing prior to any hearing in which the Report or Ms. ONeills opinions may be offered into evidence, and prior to the Court taking any action which relies upon the validity of any of the findings or conclusions in the Report. RESPONSE TO REPORT9 7. KZCS respectfully submits that the Report should not be relied upon by the Court in the analysis of KZCS Final Application. In this Response, KZCS will focus on

6 Thomas

v. Bankr. Estate of Jones, 360 B.R. 624 (E.D. Mich. 2007).

If the Fee Examiner is to testify as an expert, KZCS is entitled to discovery of everything received by her from any source, regardless whether it was relied upon. Reg'l Airport Auth. v. LFG, LLC, 460 F.3d 697, 716-717 (6th Cir. 2006). KZCS will not issue such a subpoena until after the Court determines the scope of permissible discovery.

9 For ease of reference capitalized terms not otherwise defined herein have the meaning used in the Report.

the principal conclusions in the Report with which it strongly disagrees, without waiver of the right to challenge other findings or conclusions not specifically addressed herein. a. The conclusion that there was a delay between June and August 2006 in the realization that achievable 2006 EBITDA was going to be substantially less than $179 million, due to the inability to fix the problems in Plastics (the response to Question (a)), is unsupportable by the record, utilizes a subjective methodology which has no place in consideration of whether fees are allowable, and required the Fee Examiner to make determinations of fact which are outside the province of an expert witness.10 b. The conclusion that the Pre-Petition Lenders (the Lenders) suffered a loss as a result of the alleged two month Delay (the answer to Question (b)) required Ms. ONeill to engage in unwarranted speculation, and is based upon erroneous factual analysis.11 8. The Fee Examiners answer to Question (a), to the effect that there was a incomplete and

Delay in the realization that the problems in the Plastics Division made achievement of the 4+8 Plan impossible, employs a subjective analysis, is not supported by a fair reading of all the facts, and is actually contradicted by the evidence recited in the Report. The

10

U.S. v Collins, 78 F. 3d 1021, 1037 (6th Cir. 1996); Kalamazoo River Study Group v. Rockwell International Corp., 171 F. 3d 1065 (6th Cir. 1999). While the Report speculates that the Customers may have also suffered a loss, it is impossible to determine from the Report whether the Fee Examiner believes that such a loss was incurred by the Customers and the magnitude of any such loss. KZCS disputes that the Customers suffered a loss for the same reasons that it disputes that the Lenders suffered a loss. KZCS agrees with Ms. ONeill that there was not substantial diminution in the value of the estates.

11

thrust of the Fee Examiners conclusion, that the Debtors should have skipped the 4+8 Plan and gone straight to the projections in the 6+6 Plan, ignores the reality of what occurred. March 2006 results were issued on May 8, 2006 and, although first quarter EBITDA was $3.7 million below budget, February and March EBITDA were both above plan on a consolidated basis, by $0.9 million and $3.1 million, respectively. March results did not warrant a downward revision in the projections in the judgment of all concerned. April results were not reported until June 2, 2006, and management immediately started working on a reforecast to address the issues raised by Aprils results. KZCS received the first income statement model from operating management that included a substantially reduced EBITDA estimate on or about June 6, 2006.12 Over the next two weeks, the Debtors management and advisors reviewed the forecast and supplemented the information with the requisite working capital, capital expenditures and other balance sheet and cash flow assumptions. The 4+8 Plan was completed and formally presented to the Lenders on June 20, 2006. On Thursday, June 29, 2006, the Company issued its May 2006 results. May 2006 EBITDA on a consolidated basis outperformed the 4+8 Plan forecast, although the shortfall in operating performance in Plastics continued. Within a matter of days after issuance of the May numbers, in early July 200613, the Debtors management recognized that Plastics was not responding to the turnaround initiatives as quickly as was hoped, and immediately began working seven days a week to further analyze the Plastics issues through a plant-by-plant review, and to formulate a new forecast for 2006 EBITDA, which ultimately became the 6+6 Plan. Very significant and
12

On June 7, 2006 Capstone, the Pre-Petition Lenders (the Lenders) financial advisor issued a report that included an analysis of the expected results for April, 2006. In that report to its clients, Capstone noted the improvement in March results, the weakness of Aprils results, and the fact that the Company had already begun a downward reforecast of the numbers in the 2006 Plan. first business day of July 2006 was Wednesday, July 5.

13 The

time consuming efforts went into preparation of the 6+6 Plan. In the midst of this effort, on or about July 24, 2006, the Debtors replaced the president of the Plastics division, which was soon followed by appointment of a new VP of financial planning for the division. Given the prior failures to achieve projections, combined with a new Plastics management team that needed to get up to speed, it is not unreasonable that extra effort was made, and extra time spent, to generate the new forecast. The plant-level income statements that served as the basis for the 6+6 Plan were not completed until August 3, 2006. It took management and the advisors additional time to review the forecast and supplement the information with working capital, capital expenditure and other balance sheet and cash flow assumptions. The 6+6 Plan was summarized in a presentation dated August 16, 2006. KZCS respectfully submits that based on the foregoing incontrovertible facts the conclusion that the Debtors delayed for two months in recognizing and responding to the operational turnaround challenges in Plastics is simply unwarranted.14 9. For Ms. ONeill to suggest that the Debtors alone failed to recognize the

impact of the Plastics problems on the achievement of the 4+8 plan is to disregard the way in which this case was managed. Each of the Key Constituents was represented by their own highly qualified financial advisors, all of whom had unfettered access to the Debtors on a daily basis, as a result of having their representatives stationed at the Debtors premises and receiving information as and when it was generated or received by the Debtors. The complete transparency which the Debtors provided the Key
14 The

Reports conclusion requires one to accept the proposition that it is possible, in an enterprise as large as the Debtor, to determine with near mathematical certainty when the failure of a particular set of projections was bound to occur. This conclusion ignores the complexity in reporting and forecasting a manufacturing operation generating $2.5 billion in revenue, with 25,000 employees, and 40 manufacturing facilities in several countries. In the collective experience of KZCS personnel, who have operated numerous large manufacturing enterprises, it is impossible to reach that conclusion except with the benefit of perfect hindsight.

Constituents, and the full disclosure of all of the execution risks in the achievement of the Debtors projections, are undisputed. All parties were told by KZCS in early summer 2005 that the Plastics business was broken, and all of the Key Constituents supported the effort to implement an aggressive operational restructuring of Plastics after full

disclosure by the Debtors of the execution risks. The complete transparency with which the Debtors managed the reorganization process substantially undercuts the conclusion that the Debtors failed to comprehend in June 2006 that the Plastics division was not responding to the turnaround effort and so the Debtors would be unable to achieve the 4+8 Plan at the time it was issued. There is no indication in the Report that any other Key Constituent was able to or did reach that conclusion at that stage either, notwithstanding that they all knew what the Debtor knew when the Debtor knew it.15 The fact that billions of dollars were at stake, all Key Constituents were advised by the best financial advisory and accounting talent available, complete transparency existed, and not a single other party ever suggested at the time that the 4+8 Plan was improvidently adopted, justifies rejection of the Fee Examiners conclusion with respect to the alleged delay. 10. The 4+8 Plan was presented to the Board for approval before it was

issued, and the Board determined to adopt that projection based in large part on Frank Machers representation that the numbers were achievable. Essentially the Fee Examiner has invited the Court to inquire into the merits of the Boards business judgment, without providing anything to support a departure from the respect to which that decision is
15 JPMorgan

Chase (JPM) served in two capacities in this case: it was the Agent for the Lenders and also the Agent for the DIP Lenders, and Capstone Advisory Group was the financial advisor to JPM in both capacities. The Debtors had obligations under the DIP loan agreement to provide both the Agent and its financial advisor with projections and budgets that were in form and substance reasonably satisfactory to each of them. The Agent never objected to 4+8 Plan, nor did the Agent or Capstone propose any adjustments to the 4+8 Plan in order to make it reasonably satisfactory to them, despite the fact that the Agent was in possession of the same information the Debtors had at all stages of the case. In fact, as late as September 20, 2006, Capstone was advising the Agent for the Lenders that the Plastics business was capable of being restructured.

entitled. The validity of the Boards decision to adopt the 4+8 Plan is to be tested based on the facts that were available to the Board at the time the judgment was made. In re Quality Stores, Inc., 272 B.R. 643 (W.D. Mich 2002), In re Dow Corning Corp., 198 B.R. 214, 232 (Bankr. E.D. Mich 1996).16 The Boards decision to adopt the 2006 Plan and the 4+8 Plan were both valid and should be respected17. In re Dalen, 259 B.R. 586, 609-10 (Bankr. W.D. Mich 2001). (the reorganization of a distressed debtor requires as much, if not more, creativity and risk taking as the management of a healthy entity. Bankruptcy courts should be no more willing to second guess competent disinterested debtors in possession than other courts are willing to second guess competent disinterested directors). 11. The Debtors acted properly in late May 2006, when there were signs that

actual results through April were below the 2006 Plan and confidence in the ability to achieve the balance of the 2006 Plan had softened: They advised all of the Key Constituents of their concerns regarding the achievability of the plan, revised the 2006 Plan significantly for the first time, leading to the 4+8 Plan, and presented the modifications to the Key Constituents. The 4+8 Plan was a reasonable step in response to Aprils results, since some progress was then being made in the turnaround effort, and no Key Constituent advised the Debtors that the effort to achieve an operational turnaround should be abandoned. At the time of creation of the 4+8 Plan, the Plastics business showed some improvement over its performance in 2005. Although there was some success in generating cost savings in Plastics, the outcome of the turnaround effort was

16

Delaware law is in accord. Brehm v. Eisner, 746 A.2d 244, 259-264 (Del. 2000) (the Board is responsible for considering only material facts available at the time of the decision). KZCS respectfully submits that there is likewise no basis for the Court to attempt to substitute its judgment for that of the Board in connection with the adoption of the 2006 Plan in January 2006.

17

still uncertain since most of the anticipated cost savings were to be achieved in the second half of 2006, a fact of which all parties were aware. At the time of the 4+8 Plan, Macher continued to assure everyone that he could meet the cost savings projections through the remainder of 2006. KZCS fully disclosed the execution risks in achievement of the 4+8 Plan, and in the face of those known risks, the Lenders and all other parties determined at that time that there were enough indications of progress to continue with the restructuring effort. Accepting the Fee Examiners conclusion that the Debtors

should have determined to liquidate in June 2006 would have required the Board, the Lenders, the Committee and the Customers to have issued a no confidence vote on Machers ability to achieve the operational turnaround which he vociferously argued he was going to be able to achieve at the time of the 4+8 Plan. Given his previous track record and his remarkable success in solving the production problems at the Hermosillo plant, avoiding the potential launch disaster there, no one was prepared in June to abandon the notion that Macher could have further success in the similarly challenging initiative of turning around the Debtors Plastics business. Hermosillo represented over $300 million in annual revenue to the Company, and a substantial portion of Plastics EBITDA. In November 2005, many were skeptical that the Hermosillo plant could achieve its January 2006 launch date. Macher worked tirelessly and ultimately made it work. On the heels of his extraordinary success at Hermosillo between November 2005 and January 2006, none of the parties who had skin in the game were prepared less than six months later to reject Machers assurances that he would succeed in turning around the entire Plastics operation. The Reports first conclusion simply disregards those facts. 12. The Fee Examiner has clearly employed a subjective standard in her

evaluation of the alleged delay. Use of a subjective standard is contrary to the weight of 10

authority, which holds that an evaluation of requested fees must apply an objective standard which looks to whether at the time the professional rendered the services it reasonably believed the services would be beneficial. Roberts, Sheridan & Kotel, PC v Bergen Brunswig Drug Co. (In re Mednet), 251 B.R. 103,108 (B.A.P. 9th Cir. 2000); In re Vu, 366 B.R. 511, 517 (D. Md. 2007). The majority rule also rejects the hindsight evaluation of services in evaluating requests for compensation. In re Kohl, 95 F. 3d 713, 714 (8th Cir. 1996). Cases in this District are in accord. E.g., In re New Boston Coke Corp., 299 B.R. 432, 439 (Bankr. E.D. Mich. 2003). Applying an objective analysis to the facts of this case demonstrates that the Debtors did not delay in either appreciating the significance of, or reacting to the impact of the Plastics issues on their operating results in mid 2006. 13. At all times during the so-called delay period, the Debtor made

substantially all decisions related to the direction of the case in conjunction with the Lenders, the creditor class which would be impacted most by such decisions, and whose consent was a prerequisite to the success of any reorganization plan. As the Company revised its projections in mid-2006, it involved the Lenders (and the Committees) advisors on a real-time basis. Notwithstanding the ongoing reforecasting, at the urging of the Lenders, the Debtors continued to solicit offers from interested investors to fund a plan. Once offers were received, the Debtors and the Lenders decided to focus their efforts on WL Ross (Ross), which resulted in a revised offer from Ross on or about July 6, 2006. In a meeting on or about July 12, 2006 with Ross to negotiate its offer, the Company and its advisors strongly recommended that the Lenders should accept the increased offer by Ross, but the Lenders determined to reject the Ross offer, to terminate negotiations with Ross, and requested the Debtor to proceed with a plan which distributed 11

the equity in the reorganized Debtor to the Lenders on account of their claims. At that time, the Lenders knew that a substantial downward reforecast of results projected by the 4+8 Plan was underway. As the Debtors informed the Lenders before the Lenders decided to terminate negotiations with Ross, continuing to proceed with the sale effort would have mitigated the downside risk of the stand alone option. Even though Ross would have probably reduced his offer when the revised numbers were issued, the sale process would have been substantially farther along than it was when the Lenders ultimately decided in October to restart it, and had the Lenders agreed with the Debtors recommendation to continue negotiations with Ross in July 2006, the case would have been shortened by four months. If the Lenders suffered any conceptual loss (which KZCS disputes), it can be credibly and reasonably argued that any such loss was largely self inflicted. Though the Debtors disagreed with the Lenders conclusion to terminate

negotiations with Ross in July 2006, they were unable to effectuate a Plan without the Lenders consent, and the Lenders focus was then on a stand alone plan that converted their debt to equity. It would have been foolhardy and wasteful for the Debtors to follow a course with which the Lenders disagreed, and the Lenders had no interest in either a sale to Ross or in a liquidation in the summer of 2006, even in light of the Lenders knowledge of the execution risks associated with the Plastics turnaround effort and the overall operating risks in the industry. 14. The Lenders knew that projected 2006 EBITDA was going to be reduced

to approximately $105 million when they delivered the termsheet for the stand alone plan in August 2006, which they continued to negotiate for a substantial period. The Fee Examiners conclusion that a stand alone plan was unlikely when EBITDA for 2006 was substantially below $180 million, is impossible to reconcile with the fact that the 12

Lenders continued to press forward with the reorganization of the Debtor on a stand alone basis even after they knew that 2006 EBITDA would be substantially below $180 million.18 As long as the Lenders were prepared to accept the risk to their recoveries that such a restructuring entailed, it was essentially irrelevant what the level of 2006 EBITDA was. The issue for the Lenders in evaluating a stand alone against a liquidation was not the amount of 2006 EBITDA; the real issue was the likely EBITDA post confirmation, in 2007 and beyond. For the Debtors, their reorganization options depended entirely on the direction taken by the Lenders, since no plan could be confirmed over the Lenders objection. It was only after the Lenders calculated in October 2006 (after considering the issue for almost a full month) that they could recover more from a controlled liquidation, than they could from a stand alone plan, that they requested the Debtors to abandon the stand alone plan. For the Fee Examiner to suggest that a stand alone reorganization was impossible when EBITDA for 2006 was projected at $105 million demonstrates a fundamental misunderstanding of the role the Lenders played in this process. So long as the Lenders were willing to commit sufficient capital to a stand alone plan, it was feasible. The standalone plan became unrealistic only after the Lenders concluded in October 2006 that their risk adjusted returns were greater in a liquidation than in an income based stand alone plan converting their debt to equity. The suggestion that the Lenders were harmed by the alleged two month delay in this case does not withstand even casual scrutiny, since it was the Lenders who were urging the Debtor to press forward with the stand alone effort even in the face of dramatic downward adjustments to projected 2006 EBITDA.

18 In

this context, the Lenders advisors were a key contributor to the list of requested accommodations form the Customers which the Debtors and the Lenders sought to achieve in connection with the plan filed August 28, 2006

13

15.

The Fee Examiners conclusion in response to Question (b), that the

alleged delay caused a reduction in creditor recoveries equal to two months of unnecessary fees, is likewise unsupportable and adds nothing of value to the Courts task in determining the reasonableness of professional fees. An experts opinion must be supported by more than subjective belief and unsupported speculation and should be founded on facts. Torno v. 2SI, LLC, et. al., 2006 U.S. Dist. LEXIS 43412 (E.D. Mich. 2006) (expert testimony was inadmissible because it was unreliable, would not assist the trier of fact and was also unsupported by sufficient facts or data). Simply put, the subject conclusion is the product of pure speculation which, even if admissible, is entitled to no weight. For example, nowhere in the Report does the Fee Examiner address the effect on creditor recoveries of the decision made by the Lenders to reject the Ross offer and terminate negotiations with Ross, over the strenuous objections of the Debtors, in July 2006. The failure to address the impact of that decision on the purported loss suffered by the Lenders exemplifies why it is simply impossible for there to be a rational analysis of professional fees using the hindsight, subjective analysis of alleged delay engaged in by the Fee Examiner. The speculative possibilities are limitless, but

ultimately of no value in determining what might have been if the Lenders had decided to go down a different path than the one they actually followed in this case. Looking at the impact of the alleged delay strictly from the simplistic perspective of the additional cost of two months in professional fees does nothing to answer the question whether creditors recoveries were really materially affected, positively or negatively, by any of the actions taken or decisions made by any of the parties in this case. 16. As noted above, the Lenders were directly involved in all

significant decisions related to the course of these proceedings. The Fee Examiner 14

appears to recognize this in concluding that work on pursuit of the stand alone plan through October 2006, including pursuit of the Customer Concessions, was reasonable given the Lenders desire to increase value through a stand alone plan, so it is puzzling that the Report goes on to state that the delay caused two months of unnecessary fees. The Fee Examiners conclusion that there were two months of unnecessary fees assumes, incorrectly, that things that the professionals were doing in those two months either were not necessary for estate administration, or could have been done quicker. To the contrary, as set forth at greater length in KZCSs Final Application, a substantial amount of KZCS activity in the summer of 2006 was dedicated to settlements and recovery opportunities (such as the tooling settlement or the recovery on the European affiliate claims) which would not have been accelerated even if the decision to liquidate had been made by the Lenders two months earlier. Nor is it right to equate the cost of the alleged delay with injury to the estate. The Lenders consented to the use of their collateral to fund the administrative claims under the confirmed plan, and it is the Lenders, and not the estate, which will be the primary beneficiaries of any reduction in the fees requested. Since it is the Lenders whose substantial influence as the holder of the fulcrum security shaped the course and direction of this case, it would be unfair to the professionals to penalize them for being so accommodating to the Lenders interests. In this context, the Lenders Agents Statement With Respect to the Appointment of a Fee Examiner (Doc. No. 4159) is particularly insightful: The Agent recognizes that it is unfair and inappropriate to focus the blame on the Estate Professionals for the disappointing results. After all, the reorganization attempts in these cases were unsuccessful principally because of business related reasons and failures, not due to poor legal or financial advice. (At 4). The Court should reject the conclusions in the Report that suggest otherwise. 15

For the foregoing reasons, KZCS respectfully submits that the Court should not rely upon the Report for any purpose in its evaluation of KZCSs Final Application. Respectfully submitted, WOLLMUTH, MAHER & DEUTSCH, LLP

/s/ Paul R. DeFilippo Paul R. DeFilippo 500 Fifth Avenue, 12th Floor New York, NY 10110 (212) 382-3300 Co-Counsel for KCZS

NATHAN, NEUMAN, NATHAN & ZOUSMER, P.C.

/s/ Kenneth A. Nathan Kenneth A. Nathan (P39142) 29100 Northwestern Highway, Suite 260 Southfield, MI 48034 (248) 351-0099 knathan@nathanneuman.com Co-Counsel for KZCS Dated: November 20, 2007

16