BUYER (AND SELLER) BEWARE: DISTRESSED M&A AND SUCCESSOR LIABILITY Robert Richards Partner Dentons US LLP T 1-312-876-7396 robert.richards@dentons.com Samuel Schlessinger Partner Dentons US LLP T 1-312-876-2827 samuel.schlessinger@dentons.com

Key Causes of Distress Overleverage Mismanagement Uninsured or Legacy Liabilities Disadvantageous Contracts or Leases Industry Challenges Long-Term Industry Challenges Short-Term General or Regional Economic Problems June 8, 2016

Key Distressed Acquisition Structures Asset Acquisition Purchase from Foreclosure Sale Purchase Debt/Loan to Own Buy from Receiver or Assignee for the Benefit of Creditors Section 363 Bankruptcy Purchase Chapter 11 Plan Modified Equity Purchase June 8, 2016

Asset Acquisition Generally Do Not Assume Liabilities The More Liabilities Assumed, the Greater the Risk on Successor Liability. Also Need to Evaluate Other Successor Liability Factors Need Lien Releases May Need Consents to Assignments of Contracts, Leases, IP Licenses Preclosing Due Diligence is Key Evaluate Whether any Assets are Owned by Insiders or Affiliates June 8, 2016

Purchase from Foreclosure Sale UCC Article 9 for Most Personal Property - Nonjudicial and Quick Real Property - Judicial versus Deed of Trust States Need Willing Lender to Conduct Sale Sale Needs to Be Conducted on Commercially Reasonable Basis Need to Confirm Lender Can Deliver All Assets Needed for Operating Business Can Include Foreclosure on an Equity Pledge/Mezzanine Deal (but de facto Subject to Liabilities at the Subsidiary Level) June 8, 2016

Purchase Debt/Loan to Own Purchase Debt from Original Lender Secured Debt - May be Able to Conduct Foreclosure Sale to Get Assets; Some Recent Caselaw Suggestions Credit Bid Rights May be Limited to Actual Amount Paid for the Debt or Otherwise Limited in Certain Scenarios Unsecured Debt - Need Sufficient Amount - May Need to Force Chapter 11 Case to Convert Debt to Equity Negotiated Change of Control Generally Requires Insider Cooperation June 8, 2016

Buy from Receiver or Assignee for the Benefit of Creditors Risk of Competitive Bidders Risk of Credit Bid if Do Not Have Advanced Deal with the Secured Lender Generally "Where Is/As Is" Can be Quicker/Cheaper than Bankruptcy Purchase Confirm Powers of Receiver/Assignee June 8, 2016

Bankruptcy Code Section 363 Asset Purchase Free and Clear Order Most Antiassignment Provisions in Contracts and Leases Overridden; Need Further Analysis on IP Licenses and Personal Services Contracts Generally Competitive Auction Process Sale Process may get Delayed or Derailed Possible Stalking Horse Bid Protections June 8, 2016

Chapter 11 Plan Bankruptcy Court Protections Ability to Take Clear of Transfer Taxes Longer and More Expensive Than Section 363 Purchase Creditor Voting Process on Plan - Generally Have to Address Division of Proceeds May be Possible to Preserve Tax NOL Carryforwards Third Party Releases and Injunctions May be Possible - Often Desirable in Asbestos and Other Mass Tort Situations June 8, 2016

Modified Equity Purchase Sometimes Used if There is a Material Nonassignable Contract, License or Leases Where There is no Change of Control Default Can have Certain Key Creditors Agree to Release Claims and any Liens or Sell Claims and Liens to an Ally at a Discount Take Subject to any Unknown or Contingent Claims June 8, 2016

Special Concerns for Buyers Successor Liability Trust Fund Taxes Environmental, Especially for Ongoing Owned and Operating Real Properties Union and Pension Effective Acquisition of All Assets Needed to Operate Business Holdback Notes or Other Post-Closing Effective Remedies Post-Closing Cooperation may be Illusory Subsequent Fraudulent Transfer Attacks by Unpaid Creditors or Bankruptcy Trustee June 8, 2016

Special Concerns for Sellers and Their Officers/Directors/Shareholders Trust Fund Taxes Guarantees Any Required Equityholder Approvals or Vote Fiduciary Duty to Creditors Aiding or Abetting Fraudulent Transfer Application of Proceeds and any Arguable "Diverted" Proceeds June 8, 2016

Special Concerns for Lenders Public Auction v. Private Sale Stalking Horse Bid v. Open Auction Commercially Reasonable Sales Including Advertising, Other Direct Marketing and Length of Bid Process Limiting Buyer Recourse to Lender Lender Liability How to Operate Collateral if Credit Bid/Holding Periods Potential Higher Protections and/or Recoveries from Operating or Selling Collateral through a Receiver June 8, 2016

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