UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

In re: Collins & Aikman Corporation Debtors, Case No.05-55927-SWR Chapter 11 Honorable Steven W. Rhodes

C&A POST-CONSUMMATION TRUSTS EVIDENTIARY HEARING BRIEF IN OPPOSITION TO KZC SERVICES APPLICATION FOR APPROVAL OF FEES

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INTRODUCTION This hearing is less about what KZC Services, LLC (KZCS) did than what it failed to do. The Debtors filed for bankruptcy in May 2005. That same month, the Debtors hired KZCS as financial advisor and subsequently appointed John Boken of KZCS Chief Restructuring Officer (CRO). It is largely undisputed that critical aspects of the Debtors 2006 Operating Plan, prepared under his watch and issued on January 24, 2006, and the subsequent revised business plan, known as the 4 + 8 Plan,1 issued on June 8, 2006, were later revealed as untenable, and their projections and underlying financial assumptions unjustified. The projected earnings before interest, taxes, depreciation and amortization (called the EBITDA) is the key indicator in all the projections. The projected EBITDA went from $265 Million in the 2006 Operating Plan, to $180 Million in the 4+8 Plan, to $105 Million in the 6+6 Plan. Because EBITDA is the measure of value of the enterprise, the projected value was reduced by 60% between the first and last Plan. The principal question to be addressed in the instant hearing is when these deficiencies should have been discovered. The Post-Consummation Trust submits that KZCS, as the presenter and advocate for each of the Plans, should have discovered these flaws much earlier in the bankruptcy proceeding through the exercise of its own independent due diligence. KZCSs separate but additional failure to institute appropriate detailed financial reporting, to perform adequate evaluation and monitoring of plant level results and to bring appropriate Professional Skepticism from the onset of its involvement in the case was also a breach of its duties. These failures also contributed to the belated discovery that the projections forecasted in the 2006 Operating Plan and the 4+8 Plan were unachievable and were in strong The 4+8 numbers refers to four months of actual results and eight months of projections.
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contradiction to KZCSs self-professed expertise as one of the most highly qualified firms in the world to [a]ssess the viability/potential viability of the business, the Business plan, and [o]perations improvement and cost reduction. KCZS Retention App., at 11. When the detailed financial reporting that the Debtors Treasurer Timothy Trenary instituted in January 2006 exposed in July 2006 critical misses2 in the Plastics Divisions performance under the 4 + 8 Plan, Trenary conducted an intensive one week plant-by-plant review and analysis of the Plastics Divisions operations and performance later that month. Through this analysis, Trenary learned that the projections in the 4 + 8 Plan were completely unfounded. The Post-Consummation Trust submits that KZCS could have and should have conducted greater independent analysis before the 2006 Operating Plan or the 4 + 8 Plan were originally presented to the Board, Creditors, OEMs, potential purchasers, and this Court (the Constituents). If it had done so, these business plans would have been exposed as non-starters, the restructuring would have taken a different direction, and millions of dollars in losses could have been prevented. But instead of doing so, KZCS deferred to and vouched for these unrealistic projections to the Constituents without performing adequate independent evaluation and without informing the Constituents that it was not independently assessing these plans. Because the facts regarding KZCSs failure to conduct independent due diligence and apply an appropriate level of Professional Skepticism to its review of the Debtors business plans before they were presented to the Constituents is beyond dispute, KZCS now contends in its deposition testimony that it had no obligation to perform an independent due diligence and analysis of these Plans and that the responsibility for these deficient Plans is entirely

The first month of projections for the 4+8 Plan was May 2006. The projected EBITDA for the Plastics Division for May was $21.5 million and the actual results for May for the Plastics Division was $11.7 million.

managements. The argument is incredible. As a matter of law, KZCS -- in its role as financial advisor hired by the Debtors and approved by the Court, with one of its principals appointed as CRO (a part of management) and with two members, including the Chair, on the Debtors Board of Directors -- had the duty to make an independent, objective assessment of the feasibility of these Plans, the financial foundation for the reliability of the projections and to perform a root cause analysis of the red flagged concerns with the Plastics Division before either the 2006 Operating Plan or the 4 + 8 Plan were presented to the Constituents. Moreover, in contrast to its newly announced position in recent depositions that it had no obligation to conduct this independent due diligence, KZCS repeatedly represented to the Court and to key constituents in its previous fee applications that it was in fact conducting its own due diligence on the financial forecasts and business planningand, in fact, sought payment for these activities. Apparently, if it was engaged in these activities in some respects in 2005, KZCSs analysis was superficial or simply inadequate given that Trenary, a first time CFO when the vacant position was finally filled in March 2006, subsequently exposed the overwhelming deficiencies of the 2006 Operating Plan and the 4 + 8 Plan as it applied to the Plastics Division in less than one week in July of 2006. KCZSs multiple failures to meet its standard of care requires a substantial reduction in the professional fees it requests. I. KZCS OWED THE DEBTORS FIDUCIARY AND PROFESSIONAL DUTIES IN ITS MULTIFACETED ROLES IN THE COLLINS & AIKMAN BANKRUPTCY CASE. The Debtors hired KZCS to provide a wide range of management, operational, and financial advisory services to the Debtors in connection with its restructuring efforts, with KZCS supplying a team of restructuring advisors (30 consultants in total over the course of the proceeding), a CRO (KZCS principal John Boken), and two members of the Board of Directors, 3

including the Chairman of the Board (KZCS chairman Stephen Cooper) and Chairman of the Debtors Restructuring Committee (KZCS managing director Leonard LoBiondo). The Services Agreement between Collins & Aikman and KZCS granted KZCS and Boken broad authority over all aspects of the Debtors business: KZCS and Boken shall be authorized to make decisions with respect to all aspects of the management and operation of the Debtors business including, without limitation, organization and human resources, marketing and sales, logistics, finance and administration and such other areas as he may identify, in such manner as he deems necessary or appropriate in his sole discretion in a manner consistent with the business judgment rule and the provisions of the local law and the United States Bankruptcy Code applicable to the obligations of persons acting on behalf of corporation, subject only to appropriate governance by the Board in accordance with the Debtors Charters, Bylaws, other governing documents (if any) (collectively the Constitutive Documents) and applicable state law. Services Agreement, 2(b). Along with the many hats that KZCS woreand along with the handsome compensation KZCS now seeks to receivecame specific obligations critical to the restructuring as well as a high standard of care. A. Duties As Financial Advisor

As a financial advisor, KZCS and its representatives were fiduciaries to the Debtors. See In re Allegheny Int'l, Inc., 100 B.R. 244, 246-47 (Bankr. W.D. Pa. 1989). In Allegheny, the court held as follows in recognizing the fiduciary duties bankruptcy professionals owe to their clients: The debtor in possession is a fiduciary. Commodity Futures Trading Commission v. Weintraub, 471 U.S. 343, 105 S. Ct. 1986, 85 L.Ed.2d 372 (1985). This court has held that members of official committees, and the committees counsel, are also fiduciaries. United Steelworkers of America v. Lampl (In re Mesta Machine Co.), 67 B.R. 151 (Bankr. W.D. Pa. 1986). We now hold that the investment bankers/financial advisors hired by the debtor and the Creditors' Committee are also fiduciaries. As such, they have obligations of fidelity, undivided loyalty and 4

impartial service in the interest of the creditors they represent. Id. at 156. At this juncture, we should be reminded of Judge Cardozos celebrated remarks in Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545, 546 (1928): Many forms of conduct permissible in a workaday world for those acting at arms length, are forbidden by those bound by fiduciary ties ... Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. In this connection, indemnification for negligence may be acceptable in the workaday world for those acting at arms length. However, holding a fiduciary harmless for its own negligence is shockingly inconsistent with the strict standard of conduct for fiduciaries. Id. at 247; see also In re Gillett Holdings, 137 B.R. 452, 458 (Bankr. D. Colo. 1991) (same); In re RDM Sports Group, Inc., 260 B.R. 905 (Bankr. N.D. Ga. 2001) (holding that a breach of fiduciary duty claim against financial consultant of Chapter 11 debtor arose out of and related to consulting agreement between management company and debtor). Financial advisors and business consultants are held to a professional negligence standard of care; in other words, they have the duty of a professional to use such skill, prudence, and diligence as other members of the profession commonly possess and exercise. See Bear Stearns & Co. v. Daisy Systems Corp. (In re Daisy Systems Corp.), 97 F.3d 1171, 1175 (9th Cir. 1996)). Moreover, in the bankruptcy context they may owe a higher level of care than in ordinary practice. In re United Artists Theatre Co., 315 F.3d 217, 231 fn. 4 (3d Cir. 2003). B. Duties As Chief Restructuring Officer

Corporate officers are a part of management and owe fiduciary duties to the corporations that they serve. Turnaround specialists, such as Mr. Boken in his capacity as the Debtors CRO, are no different. See, e.g., In re Adelphia Communications Corp., 336 B.R. 610, 667 (S.D.N.Y. 2006). While one might not normally expect any individuals so hired to have the powers of a board of directors, see id., Mr. Boken was different and authorized to make decisions with respect to all aspects of the management and operation of the Debtors businessin such manner

as he deems necessary or appropriate in his sole discretion. Services Agreement, 2(b). With such sweeping authority, Mr. Boken owed the highest fiduciary duties of care and loyalty to the Debtors. C. Duties As Directors

The Debtors board of directors, including the two directors who were also KZCS principals, separately owed fiduciary duties to the companys shareholders and its creditors. When a corporation becomes insolvent or enters into the zone of insolvency, the fiduciary duties of a corporation expand from its stockholders to its creditors; that is, the directors obligations are to the firm itself, and while directors continue to have the task of attempting to maximize the economic value of the firm, the fact of insolvency affects the constituency on whose behalf the directors are pursuing that end, and places the creditors in the shoes normally occupied by the shareholders, that of residual risk-bearers. Adelphia Communications Corp. v. Rigas (In re Adelphia Communications Corp.), 323 B.R. 345, 386 (S.D.N.Y. 2005). One of the most important duties of a corporate director is to monitor whether others within the organization are complying with their duties. See, e.g., In re World Health Alternatives, Inc., 385 B.R. 576 (Bankr. D. Del. 2008) (holding that it is the directors charge to exercise a good faith judgment that the corporations information and reporting system is in concept and design adequate to assure the board that appropriate information will come to its attention in a timely manner as a matter of ordinary questions, so that it may satisfy its responsibility) (quoting ATR-Kim Eng Fin Corp. v. Araneta, No. 489-N, 2006 WL 3783520 at *23-24 (Del. Ch. Dec. 21, 2006). The KZCS-affiliated directors, who included the Chairman of the Board and the Chairman of the Restructuring Committee, thus owed a higher duty of care than normal directors because of their association with KZCS and their expertise as turnaround specialists. See, e.g.,

Feit v. Leasco Data Processing Equip. Corp., 332 F. Supp. 544, 576 (E.D.N.Y. 1971); Escott v. BarChris Const. Corp., 283 F. Supp. 643, 688 (S.D.N.Y. 1968). II. KZCS FAILED TO INDEPENDENTLY EVALUATE MANAGEMENTS PROJECTIONS AND ASSUMPTIONS. KZCS was hired based on its expertise as a turnaround financial advisory specialist and its ability to [a]ssess the viability/potential viability of the business and operations improvement and cost reduction. Under the most basic tenets and standard practices of business turnaround and workout advisors, KZCS from the outset of its engagement should have analyzed, challenged and independently assessed the projections in the Debtors proposed business plans and the reliability of the financial foundation underlying those projections as well as the capabilities of each plant in the Plastics Division to achieve the greater cost savings and production levels needed to support a restructuring. KZCS should have performed this independent analysis long before the inadequacies of the Plastics Division were revealed through its failure to meet the budgeted benchmarks for May and June in the 4 + 8 Plan. By July 2006, when the supposed opportunity to restructure was finally exposed by Trenary as futile, millions of dollars had already been wasted as the bankruptcy proceeded down a path destined to fail. A. Initial Assessments At The Outset Of The Engagement

At the outset of a financial advisors engagement, [a]s soon as the Advisor is brought into the workout situation, critical steps include an assessment of the nature of the crisis, the root causes, and potential action plans. Business Workouts Manual, 28:4. The Business Workouts Manual is a leading treatise on business turnarounds and one of the most recognized sources for identifying and providing checklists for professionals in business workout, turnaround, and restructuring situations. A Westlaw search for Business Workouts

Manual in the database for all law reviews, texts, and bar journals, produces 1,648 hits, with a number of sources referencing the Manual, such as Norton Bankruptcy Law and Practice (3rd Edition); Bankruptcy Service, Lawyer Edition; Bankruptcy Practice for the General Practitioner; American Bankruptcy Industry Law Review; Dispute Resolution Journal; Bankruptcy Developments Journal; Commercial Law Journal; Journal of Bankruptcy Law and Practice; Bankruptcy Desk Guide Database; Bankruptcy Litigation Database; Practising Law Institute; and American Law Institute. Moreover, its contributing authors include members of two highly regarded law firms White & Case and Skadden Arps that KZCS, in fact, touted in its application to the Court for engagement as financial advisor were references to KZCSs stature in this field. A copy of Chapter 28 of this Manual entitled The Financial Advisors Role In A Business Workout, is attached as Exhibit A to this brief. KCZS previously acknowledged that timing was critical in this engagement. Early on, Mr. Boken testified regarding the wreckage that was Collins & Aikman in May of 2005, noting significant accounting irregularities3 and tremendous amounts of inefficiency in the companys manufacturing processes. Boken Testimony, October 14, 2005 Hearing Tr., p. 1828. Nevertheless, KCZS failed to adequately perform a root cause analysis of each division and each plant from the outset. It also failed to initially create the necessary financial reporting documents with adequate detail to test, critically evaluate and challenge division-to-plant level performance. Despite the fact that Steven Cooper testified at his deposition in June of 2008 that such records were required to successfully operate any business, these detailed reports were only instituted in January 2006, after Trenary was hired first as treasurer in October of 2005 and then Attached as Exhibit B to this pleading is a press release issued by the United States Attorneys Office, noting, among other things, accounting fraud at the Debtors. This was known by everyone at the time of the filing of the chapter 11 proceeding. The knowledge of accounting fraud placed an even greater responsibility on KZCS.
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as CFO in March of 2006. KZCS was fully capable of instituting these reports much earlier, but failed to do so and to otherwise perform the duties of CFO while the position was vacant from May 2005 after the Debtors terminated their CFO through March 2006. These failures in testing and securing the reliability of the financial foundations of the Debtors, in effect, delayed the Board from providing appropriate oversight and assurances to track historic performance to ongoing performances in a meaningful fashion. B. Preparing The Business Plan And Reviewing The Underlying Assumptions

A key role of the Advisor is to assist the debtor with the preparation of the business plan and the underlying financial model. Business Workouts Manual 28:7. Most importantly, the retention of an Advisor adds credibility to the debtors business plan and financial model since the Advisor provides an objective perspective. Id. (emphasis added). The advisor provides professional expertise regarding, among other things, feasibility analyses and analyses of accuracy and completeness: The Advisor analyzes the feasibility of the business plan and underlying financial model by drawing on prior technical and industry expertise. The advisor thoroughly reviews the companys historical results and makes comparisons with the projected results to understand the differences and the likelihood of achieving the projections. The assumptions underlying the projections are also specifically reviewed for reasonableness when compared to historical results. Additionally, interviews are conducted at various levels of management to appropriately challenge and validate the key assumptions pertinent to the model. The Advisor also ensures that a tactical plan is tied to each assumption. The feasibility analysis also includes a bottoms-up and top-down analysis of the numbers and underlying assumptions. A bottomsup detailed approach ensures individual line items, such as projected revenue, are achievable in terms of actual available resources to meet the forecasted amounts. Items such as the number of salespeople, units sold, price, and others should be considered. The top-down analysis ensures overall annual growth rates, margins, and ratios appear reasonable based on industry and 9

competitor benchmarks. Comparisons are made and assumptions that are not justified within the model are adjusted to reflect more accurate industry driven assumptions. Throughout the stages of a workout situation, the Advisor utilizes the financial model as a tool to compare actual results on a weekly or monthly basis with the projections to understand the progress of the turnaround. A variance analysis is performed on each line item to identify discrepancies, their causes, and tactical changes are made or the projections are adjusted as necessary.Certain variances may be acceptable or more common in the short-term, however, expedient action to correct problems is required if the turnaround is to be successful. Professional skepticism is a benchmark trait of a successful Advisor. Id. (emphasis added). When the Debtors made projections, first in the August and November 2005 budgets, then in the January 2006 Operating Plan, and then again in the June 2006 4 + 8 Plan, which Boken presented to the Constituents and advocated, KZCS had an obligation to independently verify, test, and critically evaluate those projections long before those presentations and Board approval. It could and should have satisfied this obligation at those times by performing a deep dive into the Plastics Divisions manufacturing capabilities, plant management competence and cost structure early on. Instead, KZCS deferred to others but, nonetheless, vouched for the assumptions in the 4 + 8 Plan even though Mr. Boken himself had concerns that the projections were aggressive. It was well known to KZCS and the Constituents that Machers forte was operations not finances and financial reporting and evaluation. The later role was to be filled by KZCS, which maintained exclusive control over the underlying financial and plant records during all of 2005 and through early 2006. It was not until July 2006, when the data from detailed reporting processes, instituted by Trenary in 2006, became available and highlighted significant misses in the projections for the Plastics Division in May, that Trenary insisted on conducting the

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necessary plant-by-plant review and analysis of the Plastics Division that KZCS should have long before independently conducted itself. The Trenary analysis revealed the fact that the 4 + 8 Plan was not feasible and the best that could be achieved was the 6 + 6 Plan, which was insufficient to support a restructuring without substantial additional support from the OEMs. Millions of dollars were lost in the months wasted pursuing an unachievable business plan. If the monthly detailed financial statements that Mr. Trenary instituted in 2006 had been put in place at the outset of the case, or if KZCS drilled down on existing financial reports to examine the available detail in 2005 when the business plans were proposed, the flaws in the 4 + 8 Plan would have been exposed months earlier. The need for additional OEM support would then have been apparent, and failing to obtain that support, which was the ultimate result, the process of orderly liquidation could have begun months earlier. Until its fee request was challenged in 2008, KZCS never informed the Constituents that it did not conduct the requisite deep dive into the Plastics Division or independently test the forecasts and financial foundations to the 2006 Operating Plan or the 4 + 8 Plan. Indeed, to the contrary, KZCS represented to the Court through its prior interim fee requests and otherwise that it was actively involved in analyzing the projections and underlying assumptions. Everyone rightfully assumed this was the case. It should have been. But as KZCS now discloses, it was not. III. A SUBSTANTIAL REDUCTION IN KZCSS REQUESTED FEES IS

NECESSARY. KZCS seeks fees in the amount of $44 million. The burden of whether it is entitled to the fees requested is not on the Trust, but KZCS. In re Edna B. Williams, 378 B.R. 811, 822 (Bankr.

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E.D. Mich. 2007) (The burden of proof is on the professional requesting compensation for his or her services from the bankruptcy estate.). Given the Bankruptcy Codes overriding concern for keeping administrative expenses to a minimum so as to preserve as much of the estate as possible for the creditors, courts must carefully review the legitimacy of professional fees. In re Citation Corp., 493 F. 3d 1313 (11th Cir. 2007). In assessing the reasonableness of fees, courts must examine the quality of advocacy required and delivered, and whether the professional was negligent in the performance of its duties. For example, in In re EWI, Inc., 208 B.R. 885 (Bankr. N.D. Ohio 1997), the court reduced a financial advisors fee 25% because the advisor failed to solicit additional bids after obtaining a stalking horse bidder for one of the debtors divisions. The parties objecting to the fee argued that the consulting firms compensation should be denied or reduced because the firm failed to perform its fiduciary duties to the estate. Id. The court agreed and reduced the applicants fee. Id. See also In re Chas. A. Stevens & Co., 105 B.R. 866 (Bankr. N.D. Ill. 1989) (reducing the fees of a management consulting firm where the requested fees greatly exceeded the firms original projection and the firm incurred substantial fees after it should have been apparent that a reorganization was doomed to fail). Here, KZCSs requested fees should be substantially reduced based on its failure to independently conduct timely due diligence regarding the proposed Plans, timely disclose its failure to do so and to timely implement detailed financial reporting and plant monitoring systems. IV. KZCSS EXCUSES ARE UNJUSTIFIED. A. Not Told to Assist with Forecast; or, Told Not to Assist with Forecast

Incredibly, KZCS has also taken the position in the instant fee dispute that either (a) it was not its responsibility to assist in the forecasting work associated with developing the 2006 12

Business Plan or the 4 + 8 Plan, or (b) that the Board of Directors told it not to assist in such work. There is no resolution or other written documentation confirming any such limitation on KZCSs and Bokens otherwise broad, essentially limitless, authority. Moreover, the purported Board-level limitation on KZCSs authority is imbued with a conflict of interest, as two of the Debtors directors, including the Chairman of the Board and the Chairman of the Restructuring Committee, were KZCS principals. See, e.g., In re CF Holding Corp., 164 B.R. 799 (Bkrtcy. D. Conn. 1994). Zolfo, Cooper & Co (Zolfo Cooper) was hired as special financial advisor and bankruptcy consultant to debtors CF Holding Corp. and Colts Mfg. Company. Zolfo Coopers managing partner, Steven Cooper, then invested $2 million in an entity whose controlling principal was seeking to purchase a majority interest in the debtors. Zolfo Cooper failed to disclose this conflict of interest to the court. The court concluded that this investment and the failure to disclose it constituted at the very least an improper appearance of a conflict. The court rejected Mr. Coopers argument that his investment amounted only to that of a teeny, tiny limited partner. Id. at 806-07. At the time of its final fee application, Zolfo Cooper had already received $1.4 in compensation and was seeking $795,000 more. The court denied the balance sought in its entirety. Similarly, in the case at bar, KZCS cannot use its positions on the Debtors Board to absolve itself of responsibility for its failed diligence. Such an arrangement is patently self-interested. The Constituents were kept in the dark about the purported directive from the Board to KZCS not to conduct independent due diligence on the 2006 Operating Plan or the 4 + 8 Plan. Indeed, in contrast to this purported directive, KZCS repeatedly gave the Court and the stakeholders the impression that it was exercising independent judgment regarding the Debtors projections. In its various interim fee applications, KZCS represented that it was conducting

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Financial Forecasting work; had developed a detailed financial forecaston a plant-by-plant basis; had assisted in performing analyses relating to the development of a detailed plant-byplant operating budget for 2006; and had assisted the Debtors incoming Plastics management team in monthly review of operating performance, gaining an understanding of root causes of variances from the 2006 Operating Plan and refining forecasts of and expectations for future performance. First Interim Fee Application (Docket No. 1652), 24(b); Third Interim Fee Application (Docket No. 3051), 32(c) & 38(b) (c). Given these circumstances and representations, even assuming this purported non-written directive of the Board actually occurred, which the Post-Consummation Trust does not assume, KZCS should have advised the Constituents that, contrary to the representations made to the Court in various fee applications, it did not undertake any actions to independently conduct due diligence regarding the feasibility of the 2006 Operating Plan or the 4 + 8 Plan. Had it done so, it is highly unlikely that the Constituents would have permitted the 2006 Operating Plan or 4 + 8 Plan to be instituted or proceed without an independent evaluation by another outside expert. B. Cautionary Language Defense

KZCS has also attempted to rely on cautionary language in the 2006 Operating Plan to suggest that it cannot be held responsible if projections or other forward-looking statements proved to be inaccurate. Essentially, KZCS would have this Court apply the bespeaks caution doctrine applicable to securities fraud actions by brokers and syndicators to limit its professional obligations as a Court approved fiduciary. The bespeaks caution doctrine provides that if a prospectus, offering memorandum, or similar document contains sufficient cautionary language with respect to estimates or predictions of future business results contained therein, then the estimates or predictions are considered immaterial as a matter of law for purposes of securities fraud actions. See, e.g., In re Trump Casino Sec. Litig., 7 F.3d 357, 371 (3d. Cir. 14

1993). The reliance on this doctrine to shield KZCS from its various responsibilities as financial advisor, board member and CRO is misplaced. First, the bespeaks caution doctrine is based on the premise that sufficient cautionary language renders the projections so qualified that they are immaterial. See, e.g., In re Trump Casino Sec. Litig., supra. However, it is impossible for KZCS to assert that the projections and related business plans that the Debtors submitted to the Court in this Chapter 11 were not crucial, let alone material, to the bankruptcy proceedings and the Debtors restructuring efforts. Indeed, the legitimacy of projections are the heart and soul of any restructuring initiative in the context of a Chapter 11 proceeding. Courts have found that unless the projections are shown to be highly inaccurate, or are fixed in a manner that makes operation of the property unfeasible, the projections need only show that reorganization is possible, or likely. See In re Northgate Terrace Apts., Ltd., 126 B.R. 520, 524 (Bankr. S.D. Ohio 1991). However, a reasonable possibility for reorganization cannot be grounded solely on speculation, and a mere financial pipe dream is insufficient to meet the requirements of 362(d)(2). In re L & M Properties, Inc., 102 B.R. at 484 (citing In re Dublin Properties, 12 B.R. 77, 81 (Bankr. E.D. Pa. 1981)). Further, [t]o determine that there can be an effective reorganization of the debtor's business, the debtor must persuade the Court that the operation of the business will generate sufficient income to pay debt service. In re L & M Properties, 102 B.R. at 485. In re Nattchase Associates Ltd. Partnership, 178 B.R. 409 (Bankr. E.D. Va. 1994). Nevertheless, KZCS -- in its various roles in management of the Debtor (Boken as CRO), financial advisor and through membership on the Board of Directors and Special Committee for Restructuring -- persuaded the Constituents and the Board of Directors that the projections in the 2006 Operating Plan and the 4 + 8 Plan were feasible without conducting any independent due diligence and without disclosing to the Constituents that it had not conducted any independent due diligence itself. Such conduct and failures are inexcusable.

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Second, the bespeaks caution doctrine does not apply where the projections or estimates were not made in good faith based upon the exercise of independent due diligence where that is required. See, e.g., Duke v. Touche Ross & Co., 765 F. Supp. 69 (S.D.N.Y. 1991) (declining to apply the bespeaks caution doctrine where accountants who issued a financial projections review report should have known, through the exercise of due diligence, that the sales and earnings projections and assumptions for the limited partnerships were unreasonable and where the accountants went beyond giving typical accounting advice and vouched for the good judgment of the partners). KZCS should have known, through the exercise of independent due diligence which it did not conduct in derogation of its professional and fiduciary duties to the Debtors, that managements projections were unreasonable. Instead, KZCS vouched for the Debtors management and its projections.4 As a result, KZCS cannot hide behind cautionary
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At an October 14, 2005 hearing on customer agreements, Mr. Boken testified as follows: we believe we have made reasonable reasonably conservative assumptions on what cost reductions we can achieve over the course of in particular the next six months. I have spent a significant amount of time with Mr. Macher and the other new members and some of the existing members of the senior management team looking at cost savings opportunities in speaking with Mr. Macher about his experiences at Federal Mogul and and at other entities and have developed a high level of confidence in his ability to to extract costs from an organization such as ours and a in a bankruptcy environment.

Boken Testimony, Hearing Tr., p. 28. Seven months later, Mr. Boken again testified before this Court that the business plan finalized in May 2006 in his opinion provides the Debtors with an opportunity to efficiently reorganize and preserve and maximize value for the benefit of the stakeholders. He would also describe for the Court how the Debtors are moving to reduce their actual production costs by implementing different manufacturing practices, recycling programs, and other various cost reduction initiatives across the company. Mr. Boken would testify that the Debtors have -- are addressing those issues and he would explainin some detail how the Debtors are planning to reduce manufacturing costs by approximately $50-to-$60 million annually by taking such steps as in-sourcing and out-sourcing various programs, reducing or recycling scrap materials, and utilizing alternative production techniques that Mr. Macher has introduced.

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language in the Debtors business plans to excuse its failure to conduct independent due diligence or at the very least to disclose to the Constituents that it was not doing so. CONCLUSION For the foregoing reasons, KZCS cannot sustain its burden of proof to establish an entitlement to $44 million in fees in this case. The evidence will demonstrate that KZCS failed to timely perform adequate independent due diligence regarding, and apply appropriate Professional Skepticism, to the projections in the 2006 Operating Plan and 4 + 8 Plan, that if this work had been performed in a timely manner the Plans would have been revealed as unrealistic months earlier, and that as a consequence, millions of dollars would have been saved. Accordingly, KZCSs requested fee should be substantially reduced.

Respectfully submitted, By: /s/Ronald L. Rose Samuel C. Damren (P25522) Ronald L. Rose (P19621) Dykema Gossett PLLC Counsel for the C&A Post-Consummation Trust 39577 Woodward Avenue, Suite 300 Bloomfield Hills, MI 48304 (248) 203-0523 rrose@dykema.com Dated: June 20, 2008

DET01\607692.2 ID\AJK

May 11, 2006 Hearing Tr., p. 27.

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