Summary
finding substantial contribution where applicant drafted key plan provisions and prepared necessary corporate documents for debtor, lessening the burden on debtor's professionals
Summary of this case from Katchen v. NeumannOpinion
Case No. 03-11317 (MFW).
April 21, 2004
Christopher S. Sontchi, Gregory Alan Taylor, Liza Haley Sherman, William Pierce Bowden, Ashby Geddes, Wilmington, DE, for Essential Therapuetics, Inc.
Julie L. Compton, Office of U.S. Trustee, Wilmington, DE, U.S. Trustee.
Kathleen M. Miller, Smith, Katzenstein Furlow, LLP, Wilmington, DE, for Official Committee of Security Holders.
MEMORANDUM OPINION
This Opinion constitutes the findings of fact and conclusions of law of the Court pursuant to Federal Rule of Bankruptcy Procedure 7052, which is made applicable to contested matters by Federal Rule of Bankruptcy Procedure 9014.
Before the Court is the Motion of certain Preferred Stockholders and their professionals (Latham Watkins LLP and Young Conway Stargatt Taylor, LLP) for compensation and reimbursement of administrative expenses pursuant to section 503(b)(4) of the Bankruptcy Code. The United States Trustee opposes the Motion. For the reasons set forth below, we grant the Motion in part and deny it in part.
The Preferred Stockholders include New Enterprise Associates, Prospect Venture Partners, and Schroder Ventures. Collectively, the Preferred Stockholders represent approximately 90% of the Series B preferred stockholders.
I. FACTUAL BACKGROUND
Essential Therapeutics, Inc., and its affiliates ("the Debtors") are in the business of developing and commercializing compounds and products to combat certain diseases. In October 2001, the Debtors acquired Althexis, a privately-held biotechnology company. Concurrent with the acquisition, the Debtors issued and sold 60,000 shares of Series B convertible redeemable preferred stock. The Series B preferred stockholders had the right to force the Debtors to redeem their shares upon the occurrence of certain events, including the delisting of the Debtors' common stock.
On April 4, 2003, NASDAQ delisted the Debtors' common stock. Thereafter, the Series B preferred stockholders exercised their right to require the Debtors to redeem their Series B stock. The Debtors had insufficient funds to repurchase the shares, and on May 1, 2003, the Debtors filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code.
On May 19, 2003, the Debtors filed their Joint Plan of Reorganization ("the Plan"). On Motion of Narragansett Asset Management, LLC ("Narragansett") the Court ordered the United States Trustee ("the UST") to appoint an Official Committee of Equity Security Holders ("the Equity Committee"). Following its appointment, the Equity Committee objected to the Plan. The Debtors and the Preferred Stockholders filed separate responses to the Equity Committee's Objection. After a hearing, the Court confirmed the Plan on October 10, 2003.
Pursuant to the Plan, all secured and unsecured creditors of the Debtors were paid in full. The equity interests of the common shareholders were eliminated, and the Series B preferred stockholders received new preferred stock in the Reorganized Debtor.
On December 12, 2003, the Preferred Stockholders filed the Motion seeking reimbursement of their professionals as an administrative expense pursuant to section 503(b)(4) of the Bankruptcy Code. The UST objected to the Motion on January 1, 2004. At the hearing on the Motion the Court directed the Preferred Stockholders to amend their earlier Motion and describe with greater specificity the tasks performed by their professionals in this case. The Preferred Stockholders supplemented their Motion with detailed descriptions on January 26, 2004.
II. JURISDICTION
This Court has jurisdiction pursuant to 28 U.S.C. § 1334 157(b)(2)(A), (B), (O).
III. DISCUSSION
The Preferred Stockholders seek the allowance of an administrative claim in the amount of $842,819.50 for fees and $46,680.45 for expenses for the services rendered by their professionals, pursuant to section 503(b)(4) of the Bankruptcy Code. The UST objects to the Motion contending that the Preferred Stockholders have failed to satisfy the Third Circuit's requirements for compensation under that section.
Section 503(b)(4) provides for the allowance of an administrative expense for:
reasonable compensation for professional services rendered by an attorney or an accountant of an entity whose expense is allowable under paragraph (3) of this subsection, based on the time, the nature, the extent, and the value of such services, and the cost of comparable services other than in a case under this title, and reimbursement of actual necessary expenses incurred by such attorney or accountant.
A. Eligible Party under Section 503(b)(3)
To determine whether the professionals representing the Preferred Stockholders may obtain compensation under section 503(b)(4), we must first determine whether the Preferred Stockholders are covered by section 503(b)(3). 11 U.S.C. § 503(b)(4);Lebron v. Mechem Fin., Inc., 27 F.3d 937, 943 (3d Cir. 1994). Subsection 503(b)(3)(D), the only portion of section 503(b)(3) arguably applicable in this case, provides that four categories of persons may apply for reimbursement: (1) creditors, (2) indenture trustees, (3) equity security holders, and (4) creditor and equity security holder committees other than official committees appointed under section 1102 of the Bankruptcy Code. See 11 U.S.C. § 503(b)(3)(D); Lebron, 27 F.3d at 944.
Here, the Preferred Stockholders can be classified as creditors (since they had the right to payment when the Debtors' stock was delisted), equity security holders (since they held Series B stock), or a non-official committee of equity security holders (because they represented the holders of approximately 90% of the Series B stock). They are, therefore, an entity recognized by section 503(b)(3).
B. Substantial Contribution
A party identified in section 503(b)(3) is entitled to compensation or reimbursement of its expenses only for services rendered that made a "substantial contribution" to the debtor's estate. In Lebron, the Third Circuit held that a claimant's efforts provide a "substantial contribution" when they result in an actual and demonstrable benefit to the debtor's estate and its creditors. 27 F.3d at 944. Section 503(b)(3)(D) reconciles two conflicting objectives of encouraging participation in the reorganization process and preserving the value of the estate for creditors. Id. Inherent in substantial contribution, however, is the requirement that the benefit received by the estate be more than incidental to the applicant's self-interest. Id. Creditors are presumed to be self-interested unless they establish that their actions are designed to benefit others who would foreseeably be interested in the estate. Id. at 946. Reimbursement is improper where the activities of the interested parties are designed to serve primarily their own interests and would have been undertaken without an expectation of reimbursement from the estate. Id.
The Preferred Stockholders contend that they provided significant and demonstrable benefit to the Debtors' estate and creditors by playing a critical role in the Debtors' reorganization. In particular, they assert that they made unique and essential contributions by assisting Debtors' counsel in designing and drafting the Plan, sharing insights regarding bankruptcy law and procedure, conducting extensive research, drafting corporate documents establishing the Reorganized Debtor, and working with the Debtors to obtain a fair and accurate valuation of the Debtors. Accordingly, they argue that their work should be compensated pursuant to section 503(b)(4).
The UST objects to the Motion by asserting that the Preferred Stockholders do not satisfy the Third Circuit's requirements for compensation pursuant to section 503(b). While their services may have provided an incidental benefit to the Debtors' estate, the UST contends that the Preferred Stockholders did not overcome theLebron presumption that they were acting primarily in their own self-interest.
After reviewing the Preferred Stockholders' Motion, the fee applications and the various responses, we conclude that the Preferred Stockholders' Motion must be granted in part and denied in part.
1. Not Reimbursable
We conclude that many of the services provided by the professionals for the Preferred Stockholders did not provide a substantial contribution to the Debtors' estate. In fact, we conclude that significant portions of their fee application relate to tasks that can only be described as self-motivated. (Exhibit A.) For example, the fee application includes entries for services rendered in analyzing whether the Preferred Stockholders could force the Debtors into a nonconsensual bankruptcy filing, the impact NASDAQ's decision to delist the Debtors' common stock would have on the Preferred Stockholders' rights, and whether their equity interests were subject to subordination under section 510(b) of the Bankruptcy Code. The Preferred Stockholders also seek reimbursement for preparing and filing their own proofs of claim. These services provided no benefit to the estate or the Debtors' creditors and are not reimbursable pursuant to section 503(b)(4).
The Preferred Stockholders also seek compensation for pre-petition actions by their professionals to protect their interests in the Debtors. Although pre-petition expenses may be recoverable as an administrative expense under section 503(b), the applicant must establish that the pre-petition efforts resulted in a substantial contribution to the estate post-petition. Lebron, 27 F.3d at 945 (noting that the creditor's pre-petition efforts were critical to the appointment of a trustee and the trustee's prompt investigation and report to the Bankruptcy Court). In this case, the pre-petition efforts included preparing an internal "bankruptcy memorandum," which addressed the Preferred Stockholders' strategy in redeeming their Series B stock, participating in the bankruptcy process, and evaluating the benefits of reorganizing versus liquidating the Debtors. While the Preferred Stockholders now contend that this memorandum assisted the reorganization process, they provided no evidence which overcomes the Lebron presumption that it was prepared for their own self-interest.
We also agree with the UST that many of the services rendered by the professionals for the Preferred Stockholders were duplicative of efforts of the Debtors' professionals. (Exhibit B.) For example, both sets of professionals spent considerable time addressing filings and correspondence from Narragansett. Even if the Preferred Stockholders' actions in response to Narragansett's filings were intended to benefit the estate, we conclude that they were not actual and necessary because the Debtors' professionals actively opposed Narragansett. Accordingly, we conclude that these services were either self-serving or duplicative and thus are not compensable pursuant to section 503(b)(4).
The Preferred Stockholders also seek compensation for time spent opposing the appointment of an Equity Committee and responding to that Committee's pleadings. That opposition was certainly self-motivated. Any recovery by the common stockholders would necessarily detract from any recovery the Preferred Stockholders would receive under the Plan. Furthermore, throughout the case, the Debtors also opposed the appointment and actions of the Equity Committee. Thus, the efforts of the Preferred Stockholders in this area were duplicative of the Debtors' efforts and provided no substantial contribution to the estate.
2. Reimbursable
Despite concluding that a significant portion of the services of the Preferred Stockholders' professionals are not reimbursable, we cannot agree with the UST that the Motion should be denied in its entirety. Our review of the applications establishes that they did overcome the Lebron presumption with regard to other services. While the Debtors' professionals may have been able to provide these services, a comparison of the fee applications establishes that they did not.
We also conclude that these services made a substantial contribution to the estate. For example, by drafting key Plan provisions, participating in hearings, and providing assistance during the reorganization process the Preferred Stockholders lessened the burden on the Debtors' professionals and expedited a smooth transition through the bankruptcy process. In addition, preparing the necessary corporate documents for the Reorganized Debtor provided a substantial benefit to the Debtors' estate and their creditors. Without this assistance, the Debtors' counsel would have had to devote significant time and resources to perform these services while they were busy with other matters. As a result, the Debtors were able to cut costs by focusing their efforts on their areas of expertise and allowing the Preferred Stockholders to assist where appropriate and beneficial to the estate. Since these efforts provided a substantial contribution, we conclude that these services are reimbursable pursuant to section 503(b)(4). Accordingly, we approve fees for the Preferred Shareholders' professionals in the amount of $330,820.00, which represents the services rendered except those detailed on Exhibit A and B attached hereto.
C. Expenses
Next, we must determine whether the Preferred Stockholders can be reimbursed for the expenses incurred by their professionals. Similar to fees, there can be no award of expenses unless the applicant establishes that the expenses were incurred while providing a substantial benefit to the estate. Lebron, 27 F.3d at 946. Since the UST's objection and the Preferred Stockholders' supplemental motion were limited to an analysis of fees, there is little detail provided with respect to what services the expenses relate. We would be prepared to allow expenses in the same proportion as the approved fees, unless the parties can suggest a better alternative. Accordingly, we approve the reimbursement of the Preferred Stockholders' expenses in the amount of $18,243.40 (39.25% of the requested expenses of $46,480.)
IV. CONCLUSION
For the foregoing reasons, we grant in part the Motion of Certain Preferred Stockholders and their Professionals for reimbursement of fees and expenses pursuant to section 503(b)(3).
An appropriate Order is attached.
ORDER
AND NOW, this 21st day of April, 2004, upon consideration of the Motion of certain Preferred Stockholders and their professionals for compensation and reimbursement of administrative expenses pursuant to section 503(b)(4) of the Bankruptcy Code, it is hereby
ORDERED that the Motion is GRANTED in part and DENIED in part; and it is further
ORDERED that the Preferred Stockholders are awarded an administrative expense pursuant to section 503(b)(4) of the Bankruptcy Code in the amount of $330,820.00 in fees and $18,243.40 in expenses for the services provided by their professionals. Essential Therapeutic Fees — Exhibit A Not a Substantial Contribution Category Date Attorney Hours Hourly Rate Billed amount Description 45 45 45 45
21 all 76.2 n/a $27,834.00 Analyzing and Coordinating the Redemption Claims 23 all 51.1 n/a $17,117.00 Drafting Proofs of Claims 6 23-Jun Davis 5.2 $260.00 $1,352.00 Review documents produced by client 6 24-Jun Davis 6.6 $260.00 $1,716.00 Review documents for a/c privilege . . . discuss privilege . . . for upcoming discovery 6 25-Jun Davis 6.5 $260.00 $1,690.00 Review documents for a/c privilege . . . regarding subpoena, discovery and strategy 6 26-Jun Davis 2.8 $260.00 $728.00 Meet with Ogloza regarding privileged documents 6 28-Jun Davis 1 $260.00 $260.00 Further revise and draft rule 45 letter 6 2-Jul Davis 1.8 $260.00 $468.00 Revise rule 45 letter 6 7-Jul Davis 2 $260.00 $520.00 Review documents for privilege 6 12-Jul Davis 2.6 $260.00 $676.00 Draft memo to Newhall . . . 6 14-Jul Davis 6.7 $260.00 $1,742.00 Revise Newhall memo . . . 5 21-Jan Dawes 0.1 $650.00 $65.00 Conference . . . regarding bankruptcy court 5 4-Feb Dawes 0.1 $650.00 $65.00 Review memorandum regarding strategy regarding bankruptcy issues 5 25-Apr Dawes 1 $650.00 $650.00 Internal team call regarding section 510(b) 5 28-Apr Dawes 1.5 $650.00 $975.00 Review memoranda regarding call to prepare Schnell . . . regarding draft for client call 15 17-Jan Diener 5.9 $260.00 $1,534.00 Discussions . . . regarding redemption/bankruptcy issues . . . drafting memo . . . 15 19-Jan Diener 0.7 $260.00 $182.00 Review memos . . . regarding bankruptcy issues and preferred stock ownership 2 12-Mar Eberle 0.6 $390.00 $234.00 Redemption and Plan of Reorganization 2 17-Mar Eberle 1.1 $390.00 $429.00 Review and comment on calendar and plan of bankruptcy issues 2 17-Mar Eberle 4.8 $390.00 $1,872.00 Review and analyze draft holder notice of redemption . . . 11 30-Sep Friedman 2.4 $300.00 $720.00 Research regarding stock redemption laws . . . 2 18-Mar Gilhuly 0.2 $550.00 $110.00 Review delisting time table 4 22-May Gilhuly 0.6 $550.00 $330.00 Drafting memorandum to client group . . . 4 3-Jun Gilhuly 0.2 $550.00 $110.00 Drafting memorandum to clients . . . 15 17-Jan Gilhuly 1.3 $550.00 $715.00 Messages . . . regarding redemption/bankruptcy issues 15 19-Jan Gilhuly 1.2 $550.00 $660.00 Revise bankruptcy strategy memo 15 20-Jan Gilhuly 3.8 $550.00 $2,090.00 Review . . . memo regarding timing and strategy . . . 15 21-Jan Gilhuly 2.9 $550.00 $1,595.00 Review strategy memo . . . 15 24-Jan Gilhuly 0.2 $550.00 $110.00 Review . . . regarding update memo 15 2-Feb Gilhuly 0.5 $550.00 $275.00 Calls . . . regarding nonsconsensual strategy 15 4-Feb Gilhuly 0.8 $550.00 $440.00 Calls . . . regarding 15 26-Feb Gilhuly 0.4 $550.00 $220.00 Review of . . . memo regarding Delaware redemption issue 15 3-Mar Gilhuly 1.1 $550.00 $605.00 Draft memo regarding plan v. liquidation 17 22-Apr Gilhuly 0.2 $550.00 $110.00 Message . . . regarding bar date 17 23-Apr Gilhuly 0.2 $550.00 $110.00 Message . . . regarding bar date 17 4-May Gilhuly 0.6 $550.00 $330.00 Call . . . regarding press release . . . 17 5-May Gilhuly 0.3 $550.00 $165.00 review of bankruptcy press 22 10-Apr Gilhuly 0.3 $550.00 $165.00 Review of draft press release 5 1-Jul Ogloza 5.5 $450.00 $2,475.00 Review documents; draft position letter 6 30-Jun Ogloza 2.2 $450.00 $990.00 Attend to document production 2 20-Mar Pohlen 0.6 $550.00 $330.00 Attention to board severance, NASDAQ delisting . . . 2 14-Apr Pohlen 0.2 $550.00 $110.00 Telephone conference . . . regarding holder optional repurchase 2 14-Apr Pohlen 0.2 $550.00 $110.00 Telephone conference . . . regarding bankruptcy timetable and potential claims against company 2 15-Apr Pohlen 0.3 $550.00 $165.00 Telephone conference . . . regarding exercise of redemption rights 5 16-Jun Pohlen 0.9 $550.00 $495.00 Attention to document production, delisting, and proof of claim 15 19-Jan Pohlen 2.1 $550.00 $1,155.00 Review bankruptcy strategy memo . . . 15 3-Feb Pohlen 3.9 $550.00 $2,145.00 Attention to nonconsensual bankruptcy 15 4-Feb Pohlen 2.7 $550.00 $1,485.00 Review memo regarding bankruptcy issues 15 6-Feb Pohlen 2.6 $550.00 $1,430.00 Attention to board issues . . . redemption 15 17-Feb Pohlen 1 $550.00 $550.00 NASDAQ and other correspondence 15 19-Feb Pohlen 1 $550.00 $550-00 NASDAQ and other correspondence 15 24-Feb Pohlen 2.8 $550.00 $1,540.00 Attention to DGCL issues including redemption . . . 15 4-Mar Pohlen 0.2 $550.00 $110.00 Attention to memo regarding plan v. liquidation 17 4-May Pohlen 1.3 $550.00 $715.00 Telephone conference . . . regarding press release . . . 17 5-May Pohlen 1.5 $550.00 $825.00 Telephone conference . . . regarding press release . . . 22 27-Feb Pohlen 0.4 $550.00 $220.00 Attention to 13D obligations for Preferred Stockholders 22 2-Apr Pohlen 0.4 $550.00 $220.00 Attention to schedule 13D and requirements to file by Preferred Stockholders 22 4-Apr Pohlen 0.7 $550.00 $385.00 Attention to redemption timeline 22 10-Apr Pohlen 0.8 $550.00 $440.00 Review of draft press release 22 14-Apr Pohlen 0.2 $550.00 $110.00 Attention to schedule 13D filing requirements . . . 22 16-Apr Pohlen 0.6 $550.00 $330.00 Attention to press release . . . 2 16-Mar Snow 0.3 $260.00 $78.00 Review trigger of redemption right . . . 2 24-Mar Snow 2.2 $260.00 $572.00 Revise summary time table of events in light of NASDAQ hearing 2 2-May Snow 0.2 $260.00 $52.00 Telephone conference . . . regarding . . . proof of claim 17 8-May Snow 1 $260.00 $260.00 Review and analyze references to redemption price 22 4-Apr Snow 1.8 $260.00 $468.00 Research and review filing obligations under schedule 13D . . . regarding precedent and investors' prior filings 22 16-Apr Snow 0.2 $260.00 $52.00 Review and analyze press release regarding exercise of repurchase rights 6 25-Jun Tate 1 $195.00 $195.00 Meet . . . regarding FRCP letter 6 25-Jun Tate 1.2 $195.00 $234.00 Meet . . . regarding FRCP letter 6 27-Jun Tate 3.9 $195.00 $760.50 Meet . . . regarding FRCP letter 6 2-Jul Tate 0.5 $195.00 $97.50 Meet . . . regarding FRCP letter 2 11-Apr Wang 0.9 $320.00 $288.00 Attention to NASDAQ delisting . . . 5 25-Jun Wang 1.5 $320.00 $480.00 Attention . . . regarding stockholders' equity and delisting 5 25-Jun Wang 1.2 $320.00 $384.00 Attention to stock price and research NASDAQ . . . 15 11-Jan Wang 1.2 $320.00 $384.00 Draft memo regarding options available after stockholder meeting 15 14-Jan Wang 1.1 $320.00 $352.00 Draft and research memo regarding options after stockholder meeting 15 21-Jan Wang 1.8 $320.00 $576.00 Attention to teleconference regarding options after special meeting; attention to bankruptcy memo 15 28-Jan Wang 0.2 $320.00 $64.00 Research Delaware code regarding capital surplus 17 10-Mar Wang 3.5 $320.00 $1,120.00 Complete research on contingent claims of preferred stockholders . . . 22 4-Mar Wang 0.3 $320.00 $96.00 Attention to press release 22 11-Apr Wang 0.9 $320.00 $288.00 Attention to press release 22 14-Apr Wang 0.4 $320.00 $128.00 Attention to schedule 13D filing requirements . . . 22 16-Apr Wang 2.1 $320.00 $672.00 Attention to press release . . . 22 17-Apr Wang 1.2 $320.00 $384.00 Attention to press release 22 3-Jul Wang 0.7 $320.00 $224.00 Attention to approval of plan by client entities 24 30-Sep Wang 1.2 $320.00 $384.00 Attention to inquiries regarding market capitalization and redemption 24 1-Oct Wang 0.6 $320.00 $192.00 Attention to redemption of shares and capital surplus YCST 15-Sep Lucey 0.2 $35.00 $7.00 File affidavit . . . Objection of Preferred Shareholder to applications for orders approving retention of . . . YCST 18-Apr Nestor 0.3 $375.00 $112.50 Teleconference . . . re: timing and case strategy issues YCST 22-Apr Nestor 0.3 $375.00 $112.50 Teleconference . . . re: filing and bar date issues YCST 23-Apr Nestor 0.1 $375.00 $37.50 Correspondence . . . re: bar date and filing issues YCST 30-Apr Nestor 0.4 $375.00 $150.00 Correspondence . . . re: filing issues and local/federal rule re: same YCST 6-May Nestor 0.2 $375.00 $75.00 Correspondence . . . re: date of formation meeting YCST 6-May Nestor 0.7 $375.00 $262.50 Teleconference. . . re: bar date, plam amd Committee formation issues YCST 8-May Nestor 0.4 $375.00 $150.00 Teleconference. . . re: formation meeting and issues re: same YCST 9-May Nestor 0.3 $375.00 $112.50 Additional revisions and correspondence to clients re: same YCST 13-May Nestor 0.1 $375.00 $37.50 Telephone conference. . . re: 5/14 formation meeting YCST 13-May Nestor 0.2 $375.00 $75.00 Correspondence to clients re: ownership interests. . . YCST 14-May Nestor 0.2 $375.00 $75.00 Teleconference. . .in advance of formation meeting YCST 14-May Nestor 0.2 $375.00 $75.00 Telephone conference. . . re: formation meeting YCST 14-May Nestor 0.9 $375.00 $337.50 Appear and represent clients at formation meeting YCST 20-May Nestor 1.5 $375.00 $562.50 Represent clients at hearing YCST 26-Jun Nestor 0.2 $375.00 $75.00 Review correspondence with UST regarding refusal to appoint committee . . . YCST 9-Jul Nestor 0.2 $375.00 $75.00 Review Debtor objection to Narragansett motion . . . YCST 15-Sep Nestor 1.5 $375.00 $562.50 Represent clients at hearing re: Equity Committee retention applications and preferred shareholder objections to same YCST 6-Oct Nestor 1.1 $375.00 $412.50 Review memo filed by Debtor and Equity Committ objection re: same YCST 6-Oct Nestor 1.2 $375.00 $450.00 Revise. . . memorandum in support of confirmation . . . YCST 8-Oct Nestor 5.8 $375.00 $2,175.00 Represent Preferred Shareholders and confirmation hearing. . . YCST 10-Oct Nestor 5.1 $375.00 $1,912.50 Represent Preferred Shareholders at confirmation hearing YCST 16-Jul Petlock 0.3 $35.00 $10.50 Coordinate docketing and filing of pleadings and correspondence YCST 7-May Powell 0.2 $110.00 $22.00 Review and evaluate incoming pleadings and correspondence for distributing to co-counsel and client YCST 13-May Powell 0.3 $110.00 $33.00 Review and evaluate incoming pleadings and correspondence for distributing to co-counsel and client YCST 21-May Powell 0.2 $110.00 $22.00 Review and evaluate incoming pleadings and correspondence for distributing to co-counsel and client YCST 12-Jun Powell 0.5 $110.00 $55.00 Review and evaluate incoming pleadings and correspondence for distributing to co-counsel and client YCST 19-Jun Powell 0.2 $110.00 $22.00 Review and evaluate incoming pleadings and correspondence for distributing to co-counsel and client YCST 20-Jun Powell 0.2 $110.00 $22.00 Review and evaluate incoming pleadings and correspondence for distributing to co-counsel and client YCST 25-Jun Powell 0.2 $110.00 $22.00 Review and evaluate incoming pleadings and correspondence for distributing to co-counsel and client YCST 17-Jul Powell 0.3 $110.00 $33.00 Prepare documents. . . re: 7/18/03 hearing YCST 2-Sep Powell 0.2 $110.00 $22.00 Review and evaluate incoming pleadings and correspondence for distributing to co-counsel and client YCST 6-Oct Powell 0.8 $110.00 $88.00 Finalize. . . memorandum in support of confirmation of plan YCST 8-Oct Powell 0.7 $110.00 $77.00 Prepare hearing documents . . . YCST 6-Oct Talley 0.1 $35.00 $3.50 Coordinate services for memorandum of certain Series B holders. . . YCST 9-Jun Villoch 1.3 $205.00 $266.50 Attend 341 meeting of creditors YCST 11-Jun Villoch 0.3 $205.00 $61.50 Draft memo. . . re: 341 meeting of creditors Totals 285.6 $103,243.50 Essential Therapeutic Fees — Exhibit B Not actual and necessary (duplicative) Category Date Attorney Hours Hourly Rate Billed amount Description 45 9 all 146.9 n/a $74,437.50 Defense Strategy in Support of Confirmation 10 all 181.9 n/a $72,183.50 Opposing the Motions of the Equity Committee 12 All 116.4 n/a $44,985.00 Deposing Expert Witnesses, Debtors' Management, and Former Directors 13 All 98.1 n/a $31,910.00 Preparing Responses to the Equity Committee's Objection to the Plan 14 All 238.8 n/a $97,150.00 Preparing for and participating in the Confirmation Hearing 6 9-Jul Burton 0.5 $130.00 $65.00 Meet . . . regarding future document production . . . 6 15-Jul Burton 1.8 $130.00 $234.00 Review Debtor's produced documents 5 20-Jun Davis 2.9 $260.00 $754.00 Review subpoena . . . 6 28-Jun Davis 3.3 $260.00 $858.00 Review documents produced to Narr 6 30-Jun Davis 4.9 $260.00 $1,274.00 Review documents produced by Debtor; draft rule 45 letter 6 1-Jul Davis 6.3 $260.00 $1,638.00 Telephone conference . . . regarding . . . 6 2-Jul Davis 2.9 $260.00 $754.00 Meet . . . to review letters and plan document production strategy . . . 6 3-Jul Davis 4.8 $260.00 $1,248.00 Review documents produced by Debtor 6 4-Jul Davis 2.9 $260.00 $754.00 Review documents produced by Debtor 6 5-Jul Davis 6 $260.00 $1,560.00 Review documents produced by Debtor; Review documents for privilege 6 7-Jul Davis 2.1 $260.00 $546.00 Review documents produced by Debtor 6 8-Jul Davis 2.5 $260.00 $650.00 Meet . . . regarding response to discovery subpoena 6 8-Jul Davis 1.1 $260.00 $286.00 Review documents produced by Debtor 6 9-Jul Davis 8.8 $260.00 $2,288.00 Review documents produced by Debtor 6 10-Jul Davis 7.3 $260.00 $1,898.00 Review documents produced by Debtor . . . 6 11-Jul Davis 4.9 $260.00 $1,274.00 Review Debtor document production . . . 11 21-Jul Davis 2.7 $260.00 $702.00 Research bankruptcy court proceeding involving equity committee 11 29-Jul Davis 0.5 $260.00 $130.00 Confer . . . regarding research on challenges to equity committee 11 5-Aug Davis 0.6 $260.00 $156.00 Review order appointing equity committee . . . 11 6-Aug Davis 1.4 $260.00 $364.00 Call . . . regarding recent developments in equity comm . . . review Narr expert report 11 7-Aug Davis 0.2 $260.00 $52.00 Call . . . regarding equity committee challenge to the Plan 11 15-Aug Davis 0.3 $260.00 $78.00 Review court records related to litigation involving members of the equity committee 11 6-Sep Davis 1.5 $260.00 $390.00 Review documents produced by Debtor 5 19-Jun Dawes 1 $650.00 $650.00 Conference regarding depositions . . . 5 20-Jun Dawes 3 $650.00 $1,950.00 Conference call with team regarding Schnell . . . 5 26-Jun Dawes 0.2 $650.00 $130.00 Review memo regarding equity committee order 5 30-Jun Dawes 0.5 $650.00 $325.00 Review subpoena 5 2-Jul Dawes 0.2 $650.00 $130.00 Review decision in Furst; review memos regarding Narr settlement 5 15-Jul Dawes 0.5 $650.00 $325.00 Review memos regarding deposition status 5 16-Jun Gilhuly 0.2 $550.00 $110.00 Message . . . regarding Narr strategy 5 17-Jun Gilhuly 0.7 $550.00 $385.00 Calls and messages . . . regarding Narr 5 18-Jun Gilhuly 0.2 $550.00 $110.00 Calls and messages . . . regarding litigation matters 5 19-Jun Gilhuly 2.1 $550.00 $1,155.00 Review of deposition notices . . . 5 20-Jun Gilhuly 2.3 $550.00 $1,265.00 Conference . . . regarding litigation strategy 5 23-Jun Gilhuly 1 $550.00 $550.00 Analysis and drafting memos . . . regarding equity committee response 5 24-Jun Gilhuly 1.9 $550.00 $1,045.00 Review and comments . . . regarding equity committee 5 25-Jun Gilhuly 0.8 $550.00 $440.00 Calls and messages . . . regarding deposition and subpoena . . . 5 26-Jun Gilhuly 0.6 $550.00 $330.00 Review of J. McMann letter to Narr regarding equity committee 5 30-Jun Gilhuly 1 $550.00 $550.00 Review . . . regarding Narr discovery . . . litigation strategy 5 4-Jul Gilhuly 2.1 $550.00 $1,155.00 Conference calls . . . regarding litigation and bankruptcy strategy 5 8-Jul Gilhuly 0.5 $550.00 $275.00 Call . . . regarding equity committee strategy 15 4-Mar Gilhuly 0.2 $550.00 $110.00 Review of Essential claims spreadsheet 17 6-Mar Gilhuly 0.2 $550.00 $110.00 Meet . . . regarding contingent claim allowance 17 16-Apr Gilhuly 0.2 $550.00 $110.00 Review of Narr settlement 17 26-Apr Gilhuly 0.3 $550.00 $165.00 Draft litigation claims summary 17 28-Apr Gilhuly 0.8 $550.00 $440.00 Drafting possible litigation claim analysis . . . 11 14-Jul Lee 1.1 $190.00 $209.00 Research Narr 5 19-Jun Ogloza 3.4 $450.00 $1,530.00 Review subpoena and deposition notice . . . 5 20-Jun Ogloza 7.2 $450.00 $3,240.00 Review and analyze subpoena . . . 5 24-Jun Ogloza 6.4 $450.00 $2,880.00 Review documents . . . develop/refine subpoena response plan 5 11-Jul Ogloza 3.8 $450.00 $1,710.00 Research potential causes of action 6 11-Jul Ogloza 1.2 $450.00 $540.00 Document production issues 8 26-Jun Ogloza 12.2 $450.00 $5,490.00 Review documents; deposition preparation 8 27-Jun Ogloza 7.6 $450.00 $3,420.00 Review documents; deposition preparation 8 2-Jul Ogloza 10.9 $450.00 $4,905.00 Deposition preparation 8 9-Jul Ogloza 2.8 $450.00 $1,260.00 Review documents; deposition preparation 8 10-Jul Ogloza 5.3 $450.00 $2,385.00 Review documents; deposition preparation 5 9-Jun Pohlen 2.3 $550.00 $1,265.00 Attention to Narr matters . . . 5 9-Jun Pohlen 0.5 $550.00 $275.00 Review of Narr 2004 request . . . 5 10-Jun Pohlen 0.5 $550.00 $275.00 Telephone conference . . . Narr request 5 16-Jun Pohlen 0.5 $550.00 $275.00 Telephone conference . . . regarding Narr 5 19-Jun Pohlen 1.4 $550.00 $770.00 Review of various bankruptcy filings . . . depositions . . . 5 20-Jun Pohlen 1.8 $550.00 $990.00 Telephone conference . . . regarding litigation strategy 5 22-Jun Pohlen 1 $550.00 $550.00 Telephone conference . . . regarding litigation strategy 5 24-Jun Pohlen 1.3 $550.00 $715.00 Telephone conference regarding . . . litigation strategy 5 25-Jun Pohlen 1 $550.00 $550.00 Telephone conference . . . regarding litigation strategy . . . 5 30-Jun Pohlen 1.5 $550.00 $825.00 Telephone conference . . . regarding litigation strategy . . . 5 1-Jul Pohlen 1.3 $550.00 $715.00 Telephone conference . . . regarding Narr settlement inquiry 6 3-Jul Pohlen 1.8 $550.00 $990.00 Attention to disclosure statement and Narr claim 6 10-Jul Pohlen 0.8 $550.00 $440.00 Attention to document production . . . 6 9-Jul Snow 1 $260.00 $260.00 Conference . . . regarding . . . Narr objection 6 1-Jul Tate 1.1 $195.00 $214.50 Review and edit FRCP letter 6 8-Jul Tate 2.5 $195.00 $487.50 Attend meeting regarding document production 7 8-Jul Tate 2.2 $195.00 $429.00 Research possible claims against Narr 7 10-Jul Tate 5.2 $195.00 $1,014.00 Research possible claims against Narr 7 11-Jul Tate 4.9 $195.00 $955.50 Research possible abuse of bankruptcy process claims against Narr 7 13-Jul Tate 1.1 $195.00 $214.50 Research possible abuse of bankruptcy process claims against Narr 7 14-Jul Tate 5.1 $195.00 $994.50 Research elements of abuse of process tort and possible immunity for interested parties who object to a bankruptcy plan 7 15-Jul Tate 3.8 $195.00 $741.00 Research possible claims and sanctions against parties whose actions intentionally delayed the bankruptcy confirmation process 7 21-Jul Tate 3.9 $195.00 $760.50 Meet . . . regarding appointment of equity committee . . . scope of equity committee 7 22-Jul Tate 5.1 $195.00 $994.50 Meet . . . regarding appointment of equity committee . . . scope of equity committee 7 24-Jul Tate 4.4 $195.00 $858.00 Research scope and power of equity committee 11 25-Jul Tate 3.8 $195.00 $741.00 Research scope of duties and powers of equity committee 11 28-Jul Tate 6.7 $195.00 $1,306.50 Research and draft memo regarding 11 29-Jul Tate 5.1 $195.00 $994.50 Research draft and edit position of letter regarding 11 30-Jul Tate 0.5 $195.00 $97.50 Transfer and edit email challenging committee appointments 5 20-Jun Wang 4.5 $320.00 $1,440.00 Attention to conference call regarding subpoena and deposition . . . 5 23-Jun Wang 0.6 $320.00 $192.00 Attention to board resignations 5 23-Jun Wang 0.6 $320.00 $192.00 Attention to NASDAQ correspondence 5 24-Jun Wang 0.4 $320.00 $128.00 Attention to subpoena and deposition 5 30-Jun Wang 0.6 $320.00 $192.00 Attention to litigation background matters 17 6-Mar Wang 6.9 $320.00 $2,208.00 Research two issues: (1) whether contingent claims will be allowed . . . 17 7-Mar Wang 5.2 $320.00 $1,664.00 Research whether common shareholders can get an unsubordinated claim . . . YCST 19-Jun Nestor 0.8 $375.00 $300.00 Review pleadings and Narragansett letter . . . YCST 22-Jun Nestor 0.2 $375.00 $75.00 Review correspondence re: request for equity committee YCST 23-Jun Nestor 0.4 $375.00 $150.00 Research and review precedent re: opposition to formation of equity committee YCST 2-Jul Nestor 0.4 $375.00 $150.00 Review correspondence re: Narragansett . . . YCST 6-Jul Nestor 0.6 $375.00 $225.00 Review correspondence to and from parties-in-interest re: equity holder discovery YCST 8-Jul Nestor 1.4 $375.00 $525.00 Research precedent re: appointment of equity committee and correspondence to and from Latham Watkins YCST 9-Jul Nestor 0.4 $375.00 $150.00 Correspondence . . . re: Narragansett motion YCST 14-Jul Nestor 0.7 $375.00 $262.00 Review and revise objection to motion to appoint equity committee YCST 16-Jul Nestor 0.4 $375.00 $150.00 Review and finalize objection to motion to appoint Committee . . . YCST 16-Jul Nestor 0.4 $375.00 $150.00 Teleconference . . . re: objection to motion to appoint Committee YCST 18-Jul Nestor 2.6 $375.00 $975.00 Meeting . . . re: motion to appoint equity committee YCST 24-Jul Nestor 0.4 $375.00 $150.00 Review issues . . . re: same YCST 2-Sep Nestor 0.2 $375.00 $75.00 Correspondence . . . re: . . . Committee motion to adjourn YCST 3-Sep Nestor 0.6 $375.00 $225.00 Review and revise objection to Committee motion to adjourn . . . YCST 3-Sep Nestor 0.3 $375.00 $112.50 Teleconference . . . re: Committee motion to adjourn YCST 4-Sep Nestor 0.5 $375.00 $187.50 Research and circulate precedent re: opposition to Equity Committee counsel retention applications YCST 5-Sep Nestor 0.6 $375.00 $225.00 Teleconference . . . re: objections to Equity Committee retention applications . . . YCST 8-Sep Nestor 0.5 $375.00 $187.50 Revise and revise objection to Golden retention . . . YCST 9-Sep Nestor 0.5 $375.00 $187.50 Teleconference . . . re: objections to Golden retention . . . YCST 10-Sep Nestor 0.3 $375.00 $112.50 Review and revise objection to Golden retention . . . YCST 24-Jul Patton 0.3 $510.00 $153.00 Meeting . . . re: strategy with respect to Equity Committee YCST 25-Jul Patton 0.2 $510.00 $102.00 Calls re: strategy with respect to Equity Committee YCST 16-Jul Powell 0.2 $110.00 $22.00 Revisions to Objection to Appoint Equity Security Holders Committee YCST 16-Jul Powell 0.1 $110.00 $11.00 Telephone . . . regarding Objection to Equity Shareholder appointment YCST 3-Sep Powell 0.5 $110.00 $55.00 Finalize for filing . . . objection to motion to adjourn confirmation date YCST 8-Sep Powell 0.5 $110.00 $55.00 Finalize for filing . . . objection to retention of Kane Kessler . . . YCST 11-Sep Powell 0.5 $110.00 $55.00 Finalize for filing . . . Objection to Golden . . . YCST 11-Sep Powell 0.1 $110.00 $11.00 Prepare affidavit of service regarding service of objection Totals 1,040.20 $408,756.00