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January 29, 2009 4:13 PM

Exposed: Willkie, Lindquist Untangle Polaroid from Petters in $42 Million Deal

Posted by Zach Lowe

Rachel Strickland, a partner at the New York office of Willkie Farr & Gallagher, has worked on a lot of deals for assets in bankruptcy court over the last decade, but few have been messier--or more interesting--than the $42 million deal for Polaroid she negotiated on behalf of the private equity fund PHC Acquisitions. 

"This was a fun deal," says Strickland, "and Polaroid is an iconic brand." PHC, a unit of Genii Capital in Luxembourg, will be the stalking horse bidder at an auction scheduled for March--if a federal bankruptcy judge approves the set-up, lawyers say.

As we wrote last month, Polaroid blamed its second Chapter 11 filing since 2001 on the September arrest of Tom Petters, head of Polaroid's parent company (the Petters Group), on charges of forging bogus purchase agreements to drum up investment in a $2 billion Ponzi scheme.

Several Petters entities filed for Chapter 11, including about ten separate Polaroid units, says George Singer, a partner at the Minnesota firm Lindquist & Vennum, the firm representing the Petters entities in bankruptcy.

The entanglements between Petters and Polaroid made the deal complicated, according to Stringer and Strickland. PHC, a new client that Willkie's Paris office brought in recently, was only interested in the most valuable Polaroid assets, including old photographs, domain names, and tech companies that produce televisions and digital toys, the lawyers say.

Other Petters entities own some of those assets (including a few key domain names), and Stringer had to orchestrate the release of those assets to Polaroid so that PHC in turn could agree to buy them, Singer and Strickland say. PHC will also assume certain liabilities and contracts to be determined later, Singer says.

"We needed to figure out who gets what and what belongs to whom," Strickland says.

They were not interested in other Polaroid assets, including the rights to sue Petters in the future, Strickland says.  

Strickland says It was the first time in her career that a client had to compete to win stalking-horse status. In the other cases she's handled, the company chooses a stalking horse early on and negotiates exclusively with them; in this case, four finalists were bidding until the final few days, according to a court filing explaining the purchase agreement.

PHC would be subject to a $1.2 million fee if it wins the auction and backs out of the deal.

That's unlikely, since PHC and Genii know exactly what they are getting. For example, the private equity fund and Polaroid both own stakes in Zink Imaging, a Bedford, Mass.-based maker of "inkless" printing paper, the Boston Herald reports.

A judge is scheduled to rule on the stalking horse bid on Feb. 18.

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You folks need to follow the money. It's more complicated than this. Tom Petters and Bob White (indicted co-conspirators/Bob White pled guilty already) are investors in ZINK with "alleged" ill-gotten funds. they are also investor/owners of Polaroid. ZINK originally spun out of Polaroid while in its 1st bankruptcy when owned by BankONE. The same people that were Polaroid execs allegedly conspired with Petters to extract an unvalued bit of IP (zink patents). This is a fishy fishy deal. The investments into ZINK were made by White and Petters using allegedly fraudulently obtained assets. This deal stinks. All this on the backs of the huge screwing of longtime Polaroid employees who all lost their pensions, benefits, stock, etc. FOLLOW THE MONEY. THIS IS ANOTHER PONZI SCHEME!

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