“Getting the Deal Done”: Asset Sales in Bankruptcy Proceedings American Bankruptcy Institute 23 rd Annual Spring Meet

1. “Getting the Deal Done”: Asset Sales in Bankruptcy Proceedings American Bankruptcy Institute 23rd Annual Spring Meeting, Washington, D.C. April 30, 2005 Presented by: Richard E. Mikels, Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C. HowardBrodBrownstein, NachmanHaysBrownstein, Inc. AndyGrasier, DJM Asset Management CarmenH.Lonstein, Bell, Boyd & Lloyd LLC BenjaminL.Nortman, Hilco Trading Co., Inc. DavidPeress, XRoads Solutions Group, LLC LisaM. Poulin,FTIPalladiumPartners Asset Sales Presentation – ABI 23rd Annual Spring Meeting

2. The Sale: Whether, Who, What, How, Where, To Whom Richard E. Mikels ѩ Howard Brod Brownstein ѩ Andy Grasier ѩ Carmen H. Lonstein ѩ Benjamin L. Nortman ѩ David Peress ѩ Lisa M. Poulin Asset Sales Presentation – ABI 23rd Annual Spring Meeting

3. Which of the Following is a Valid Part of the Analysis when a Company Weighs Whether to Complete a Sale of Assets? • (a) Whether a consensual out of court restructuring/turnaround is too unlikely and/or the needed resources are not available; • (b) Whether the confirmation of a plan of reorganization is too unlikely and/or the needed resources are not available; • (c) Whether a sale as a going concern or a sale of grouped assets have strategic value; or • (d) Whether there is a specter of “deepening insolvency.” Asset Sales Presentation – ABI 23rd Annual Spring Meeting

4. Who Decides to Sell? (a) The bank / other secured creditors; (b) The CRO and the company’s other professionals; (c) The board of directors and officers; (d) The stockholders; or (e) The unsecured creditors. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

5. How Should the Company Sell Assets? • (a) By a secured party sale; • (b) By an assignment for the benefit of creditors; • (c) By a state court receivership; • (d) Through a trust mortgage; or • (e) By a bankruptcy sale (under section 363 or through a plan). Asset Sales Presentation – ABI 23rd Annual Spring Meeting

6. What Professionals Should the Company Hire? (a) A CRO; (b) An Investment Banker; (c) A financial consultant; (d) A bankruptcy lawyer; or (e) All of the above. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

7. Preparing Management and the Company for the Sale Richard E. Mikels ѩ Howard Brod Brownstein ѩ Andy Grasier ѩ Carmen H. Lonstein ѩ Benjamin L. Nortman ѩ David Peress ѩ Lisa M. Poulin Asset Sales Presentation – ABI 23rd Annual Spring Meeting

8. If a Company Makes the Decision to Sell its Assets in a Bankruptcy Process, What Threshold Decisions Should it Make About Potential Buyers? (a) It should consider who should be invited to undertake due diligence; (b) It should consider what qualifications potential buyers must satisfy in order to undertake diligence; (c) It should consider what restrictions are appropriate on the future behavior of buyers in consideration of the opportunity to undertake due diligence; or (d) It should let any interested party undertake due diligence. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

9. What Attributes Should a Potential Buyer Show to Establish Itself as a “Qualified Bidder”? (a) If the buyer is a financial sponsor: - A description of the fund; - “Dry gun powder” i.e. room in the fund to make any equity portion of the investment; - Previous investments, type of securities. (b) If the buyer is a strategic buyer: - Its business situation; - Whether there is cash on the balance sheet or availability under existing credit arrangements; - Its access to capital markets. (c) Any interested bidder should be allowed to participate. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

10. What Limits are Appropriate on the Future Behavior of Potential Buyers in Exchange for the Opportunity to Undertake Due Diligence? (a) No limits should be imposed; doing so might “chill” the bidding process and would be inconsistent with the goal of maximizing value for creditors; (b) The Company may require potential buyers to sign non-disclosure agreements and non-solicitation agreements; (c) The Company may limit potential buyers’ rights to trade claims against and securities of the Company; or (d) The Company may limit potential buyers’ right to form joint ventures or other arrangements between or among potential bidders. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

11. Once the Universe of Potential Buyers has been Defined, Which of the Following is the Best Method for the Company to Provide Information to those Buyers? (a) Hard copies of materials and physical war rooms; (b) Electronic data rooms; (c) Management presentations; or (d) All of the above. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

12. Confidentiality Issues May Arise as Proprietary and Trade Secret Information is Disclosed. Which of the Following Techniques Would make Sense to Manage These Concerns? • (a) The company should assume that all bidders are honorable; they would never consider diverting any information obtained during the diligence process to their competitive advantage; • (b) All bidders should sign confidentiality/nondisclosure agreements; • (c) The company should consider taking additional steps such as staging disclosure when the buyer is also a competitor; or • (d) The company should not share any proprietary information until the closing. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

13. Structuring the Terms of Sale Richard E. Mikels ѩ Howard Brod Brownstein ѩ Andy Grasier ѩ Carmen H. Lonstein ѩ Benjamin L. Nortman ѩ David Peress ѩ Lisa M. Poulin Asset Sales Presentation – ABI 23rd Annual Spring Meeting

14. What Protections May be Requested by a Potential Stalking Horse or Offered by a Company to Induce the Stalking Horse to Submit a Binding Offer? • (a) Break-up fees, expense reimbursement fees, and topping fees; • (b) Minimum overbid requirements; • (c) Provisions for deposits; • (d) Window shop provisions; or • (e) None of the above. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

15. Is Court Approval of Bidding Procedures Necessary? (a) Court approval should always be sought as soon as possible after execution of the APA and long before the hearing on a sale; (b) Court approval should always be sought, but the parties can have the court consider whether to approve bidding procedures at the hearing on a sale; or (c) Court approval is not necessary – it is a simple matter of contract between the company and stalking horse. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

16. Which of the Following Tests Have Courts Used to Evaluate Proposed Bidding Incentives? (a) Whether the interests of all concerned parties are best served by the incentives; (b) “No objection, no problem”; (c) The business judgment rule; or (d) Whether break up fees are necessary to enhance the estate. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

17. What Type of Payment Priority Should be Given for Break-Up and other Bidding Fees? (a) Super-Administrative priority; (b) Administrative priority; (c) These payments should be secured by a lien or escrow; or (d) No priority is necessary so long as the fees are approved by the court. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

18. What Other Structure Elements Should Also be Considered? (a) Contract rights to approve the substance and form of all documents (including the form of proposed sale order); (b) Conditions to closing (such as the entry of an acceptable sale order, or the assignment of certain executory contracts that are critical to the transaction); (c) Time limitations to meet specific milestones; or (d) Representations and warranties. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

19. Which of the Following Statements is Most True About Representations and Warranties in a Section 363 Sale? (a) They are never available. Everyone knows bankruptcy sales are “where is” and “as is”; (b) When available, they have the potential to be less useful than in a non- bankruptcy context; or (c) They are often less important than they would be in nonbankruptcy sales. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

20. Managing the Sale Process Richard E. Mikels ѩ Howard Brod Brownstein ѩ Andy Grasier ѩ Carmen H. Lonstein ѩ Benjamin L. Nortman ѩ David Peress ѩ Lisa M. Poulin Asset Sales Presentation – ABI 23rd Annual Spring Meeting

21. Which of the Following Elements Should the Company Consider to Set the Timeline and Rules of Engagement? • (a) How bidding procedures may affect the timeline; • (b) Notice requirements; • (c) The need to balance the prospects of a comprehensive sale process against the likelihood that a nervous secured creditor will be unwilling to fund a protracted sale process; or • (d) The distraction of management and the added duties the sale process requires of critical personnel. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

22. Which of the Following is a Worthy Gate-Keeping Requirement Regarding Competing Offers? (a) The Seller should indicate to parties that one factor will be the similarity of the offer to the stalking horse bid; (b) Bidders should be required to make deposits; (c) The company should consider using a standard contract that buyers can bid against; or (d) All of the above. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

23. What Auction Procedures and Logistics Should a Company Consider to Complete an Asset Sale? (a) Whether to use an open outcry or sealed bids format; (b) Whether to have the auction conducted by the court, an auctioneer or the debtor-in-possession; (c) Feeding the auction and other issues regarding the auction setting; or (d) Whether to have an on-site auction, a caravan style auction, an auction at the courthouse or an auction at a neutral location. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

24. Third Party Issues Richard E. Mikels ѩ Howard Brod Brownstein ѩ Andy Grasier ѩ Carmen H. Lonstein ѩ Benjamin L. Nortman ѩ David Peress ѩ Lisa M. Poulin Asset Sales Presentation – ABI 23rd Annual Spring Meeting

25. Bankruptcy Code Section 363(f) Sometimes Permits Sales of Assets Free and Clear of “Interests” in Property. For Purposes of an Asset Sale and Section 363(f), What is an “Interest”? (a) A claim; (b) A lien; (c) Any encumbrance; or (d) anything connected to or arising from the property. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

26. In Which of the Following Circumstances Would a Court be Likely to Approve a Sale Free and Clear of “Interests” Under Section 363(f) ? (a) When applicable non-bankruptcy law permits such sales; (b) When the holder of the interest consents; (c) When the interest is a lien and the price at which the property is to be sold is greater than the aggregate value of all liens on such property; or (d) The interest is in bona fide dispute. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

27. If a Bankruptcy Court Approves a Sale of Assets, is the Buyer Open to Successor Liability Claims? (a) Yes. Any buyer will be an all but defenseless target for claims by parties who dealt with or were injured by the seller or its products or actions; (b) Courts generally will protect asset purchasers from at least successor liability claims based on present injuries if the claimant had notice of the bankruptcy sale and either participated in the bankruptcy case or had the opportunity to do so; (c) Courts will never protect asset purchasers from future claims; or (d) The sale order will shield the buyer from any successor liability claims. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

28. How will the Court Treat a Request to Assign Executory Contacts that the Buyer would like to Acquire? (a) An executory contract cannot be assigned if it has an antiassignment clause, unless the counterparty consents; (b) Any executory contract can be assigned, as long as all defaults are “cured”; (c) While most contracts can be assigned despite restrictions on assignment that may be found in the agreement, some contracts can never be assigned unless the counterparty consents; or (d) An executory contract can be assigned only if there is adequate assurance of future performance. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

29. Preserving Value Pending the Sale / Planning for Post Sale Issues Richard E. Mikels ѩ Howard Brod Brownstein ѩ Andy Grasier ѩ Carmen H. Lonstein ѩ Benjamin L. Nortman ѩ David Peress ѩ Lisa M. Poulin Asset Sales Presentation – ABI 23rd Annual Spring Meeting

30. Which of the Following are Issues that the Company Should Consider to Preserve Asset Value Until the Sale Closes? • (a) There are no such issues. Since the decision to sell has been made, it is for the buyer to sort out and address these issues; • (b) What customer and vendor relationships must be preserved; • (c) What I.P. assets must be preserved – and how should company knowledge be transferred; • (d) What steps should the company take to retain key employees; or • (e) What key expenses should be maintained during the sale process. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

31. Which of the Following Expenses Should be Maintained Pending a Sale? (a) Insurance payments; (b) Payments for licenses and permits; (c) Required maintenance; or (d) Post petition administrative expenses only. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

32. How Should a Company Approach Customer and Vendor Relationships During the Sale Process? (a) Critical vendors must be identified, and the seller must ensure that post- petition payments are timely made to this group; (b) The company might consider assuming any contracts with critical vendors; (c) Depending on the situation, the seller should communicate the sale process to customers and ensure that service will not be interrupted by the transaction; or (d) Any deterioration of customer relationships could mean that there is no business to sell. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

33. Which of the Following Considerations Should the Company Account for With Respect to Key Employees During the Sale Process? (a) A key employee retention plan (“KERP”); (b) An accommodation for those employees that have contributed deferred compensation into a “Rabbi Trust”; (c) Interim service agreements to retain key employees to facilitate the transfer of critical information. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

34. Which of the Following Special Issues May Arise When the Assets Include “Intellectual Property”? (a) The company should determine the time it will take to transfer know-how to the buyer; (b) The company should determine a process to transfer key intellectual property; (c) The company should ensure that senior employees are involved in the process to prevent damage to the intellectual property; or (d) All of the above. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

35. Other Strategic Issues Richard E. Mikels ѩ Howard Brod Brownstein ѩ Andy Grasier ѩ Carmen H. Lonstein ѩ Benjamin L. Nortman ѩ David Peress ѩLisa M. Poulin Asset Sales Presentation – ABI 23rd Annual Spring Meeting

36. If a Sale is Completed Under Section 363(f), Does the Buyer Have to Pay any Transfer Taxes? (a) If tax payments are not required by the order that approves the sale, the buyer does not have to pay them; (b) Section 1146(c) may exempt transfers under a plan from specific transfer taxes, but not under a transfer under Section 363; or (c) Case law is divided as to what transfers are “under a plan” within the meaning of Section 1146(c). Asset Sales Presentation – ABI 23rd Annual Spring Meeting

37. In the Asset Sale Context, What is a “Party-in-Interest”? (a) Tonight’s Final Night Gala and Concert; (b) Any disgruntled or frustrated suitor for assets; (c) The debtor, any trustee, a committee, a creditor, and equity security holder or an indenture trustee; or (d) For purposes of an appeal, only a “person aggrieved.” Asset Sales Presentation – ABI 23rd Annual Spring Meeting

38. What is a “Good Faith” Purchaser for Purposes of Section 363(m) of the Bankruptcy Code? (a) All buyers are presumed to act in good faith; (b) Only buyers that meet exacting requirements can qualify as “good faith purchasers”; or (c) While there is no specific definition, a good faith purchaser is some one who, at a minimum, engaged in a transaction untainted by fraud. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

39. When Should the Court Waive the 10-day Stay Provided by Rules 6004 and 6006? • (a) Whenever a party has objected to the sale at the sale confirmation hearing, and has announced its intent to appeal, jeopardizing a sale everyone has worked so hard to complete; • (b) When no one has objected to the sale; or • (c) Where objections to the sale have been filed, but the court has overruled all objections and the court finds that the objecting parties’ interests can otherwise be protected. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

40. Should a Court Ever Consider a Late Bid? (a) Absolutely not! Its just not fair to everyone else; (b) Always; the Debtor has an absolute obligation to maximize value so bids should always be considered until the sale order is entered; (c) There may be circumstances where a late bid is appropriate, including where the price is grossly inadequate; or (d) Only if accepting a late bid would not unduly frustrate participants’ expectations. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

41. Sales and Transfers Pursuant to Plans of Reorganization Richard E. Mikels ѩ Howard Brod Brownstein ѩ Andy Grasier ѩ Carmen H. Lonstein ѩ Benjamin L. Nortman ѩ David Peress ѩ Lisa M. Poulin Asset Sales Presentation – ABI 23rd Annual Spring Meeting

42. Which of the Following is a Reason to Consider a Plan as an Alternative Way to Complete an Asset Sale? (a) The buyer is interested in using an acquisition tool that involves a direct merger or consolidation, or the consideration involves assets besides cash (e.g. securities); (b) A plan may give better protection against successor liability claims; (c) A plan is a better vehicle to permit sales of all assets; or (d) The plan may be the only option to sell assets that are encumbered by liens. Asset Sales Presentation – ABI 23rd Annual Spring Meeting

43. Can a Plan be Used to Initiate a Hostile Acquisition Strategy? (a) Never; (b) Only if the debtor no longer has the exclusive right to propose a plan; (c) Only if the suitor has (or has acquired) standing to propose a competing plan; or (d) The bankruptcy code permits a potential buyer to file a plan as part of a hostile acquisition strategy at any time. Asset Sales Presentation – ABI 23rd Annual Spring Meeting