Sixth Annual In-House Counsel Conference Panel 3 M&A in 2010: Solutions for the New Economic Landscape

22 Presenters & Moderator Jeryl A. Bowers, Partner, K&L Gates LLP Michael B. Lubic, Partner, K&L Gates LLP Arash Mostafavipour, General Counsel, Carrington Mortgage Holdings, LLC Moderator - Adrienne Mead, Commercial Counsel, BT

33 Overview The 10 topics that will prepare you for an M&A transaction: 1. Transaction structures 2. Preparing for the M&A transaction 3. Reasons for “doing the deal” 4. Creative financing transaction structures 5. Integration 6. Indemnification issues 7. Risk mitigation provisions 8. Acquisition strategies for distressed assets 9. Retaining the target’s value 10. Approvals and consents

44 1. Transaction Structures Asset v. stock purchases All v. cherry-picking Due diligence/liabilities Contract issues/consents Accounting/depreciation Taxation (seller corp. double-taxation) Post-closing obligations

55 1. Transaction Structures Mergers Tax reasons Speed of execution Majority shareholder approval v. unanimous Equity consideration allows for sharing in appreciation Equity / debt investments

66 2. Preparing for the M&A Transaction Due diligence, negotiation and integration teams Due diligence process; ties to contract D&O insurance Assessing parties’ human capital talent Contract analysis Material/shared Contracts Employment contracts, parachute payments Terms, pricing, exclusivity, non- competes/solicits Assignment, notice & change-in-control provisions

77 2. Preparing for the M&A Transaction Customer, vendor and management interviews Policies and procedures; internal/disclosure controls Timeline; expect the unexpected!

88 3. Reasons for “Doing the Deal” Liquidity concerns Debt covenant issues Need to raise funds for operations Poor performance of subsidiary or division Growth strategies Increasing market share Build v. buy analysis Identifying synergies Public versus private valuation arbitrage Defensive strategies: absorbing small competitors

99 4. Creative Financing and Transaction Structures Seller promissory notes Earn-out provisions Zero coupon debt Payment in kind (“PIK”) instruments Convertible preferred stock Multi-step transactions: Purchase controlling interest Negotiate option to buy remaining interest

10 5. Integration In-house counsel’s role (target v. buyer) Due diligence, negotiation & integration processes HSR gun-jumping Corporate approvals, 3rd party consents Communications (internal, external and coordinated) Evaluating a target’s corporate culture

11 5. Integration Human capital Retention and lay-offs Compensation and incentive structures Post-closing duties Operating systems; conversions of data Products and services; cross-selling opportunities

12 6. Indemnification Issues Heavily-negotiated provision Common negotiated features Baskets Caps Deductibles (first dollar v. true deductible) Survival periods for reps and warranties Valuation metrics for losses Interest on losses? Insurance payments deducted? Tax payments grossed-up?

13 7. Risk Mitigation Provisions Contractual: Due diligence/reps and warranties Materiality/knowledge qualifiers (“Big MACs”) Closing conditions (e.g., retention payments) Hold-backs (buyer and seller perspectives) Escrow, amount, timing (release points), when to “dip in” Project milestones/earn-outs Post-closing true-ups and independent third party audits Guarantees Break-up fees

14 7. Risk Mitigation Provisions Non-contractual: Narrowing the window from signing  closing Reps and warranties insurance

15 8. Acquisition Strategies for Distressed Assets Section 363 bankruptcy sales Advantages Results in a final order of bankruptcy court Unsecured creditors can increase leverage Disadvantages Time consuming Expensive Business may not survive bankruptcy process

16 8. Acquisition Strategies for Distressed Assets Article 9 foreclosure sales Advantages: Quick: transaction can close in 10 days Relatively inexpensive Sale extinguishes all junior liens (see below) Disadvantages Successor liability issues Sale must be commercially reasonable Federal tax liens require special attention Generally requires cooperation of borrower/seller Junior creditors can challenge sale

17 9. Retaining the Target’s Value Maintaining confidentiality of sale Motivating old and new management Retention bonuses Performance bonuses Transaction bonuses Transition service agreements Vendor and customer communications strategy Joint preparation of press releases

Approvals & Consents Board of directors and stockholder approval Dissenter’s rights Hart Scott Rodino Regulatory approvals Customer and vendor consents Conditional consents Payment for consents Delayed consents Mitigation strategies for failure to obtain consent

19 Q&A: There Are No Bad Questions… And, Hopefully, We Do Not Have Any Bad Answers…

20 Contact Information Jeryl A. Bowers (310) Michael B. Lubic (310) Arash Mostafavipour (949)