1. Bankruptcy ABCs For Healthy Companies Morris S. Bauer, Esq. The material provided herein is for informational purposes only and is not intended as legal advice or counsel.

2. 2 LOOK OUT! Bankruptcy Filings On The Rise

3. 3 The Economic Indicators Unemployment, Interest Rates, Housing Market (Foreclosures), Stock Market, Consumer Spending, Bad Credit Card Debt

4. 4 Factors Leading to Financial Distress Liquidity Crisis Asset-Based Loan Default Loss of Major Client/Customer Loan Maturity and Unable to Refinance Drop in Revenue Increased Operating Costs

5. 5 Commencement of a Bankruptcy Case Minimum Documents Necessary to File a Case: –Petition, Corporate Resolution, Creditor List, List of Twenty Largest Unsecured Creditors, and List of Equity Interest Holders Timing: –Minutes With the Advent of Electronic Filing

6. 6 Commencement of a Bankruptcy Case (Cont.) Effect of Filing: –Automatic Stay (Section 362 of the Bankruptcy Code) –Requirement for Court Approval of the Disposition of Any Assets of the Debtor –Jurisdiction of Court Over Debtor’s Assets and Any Causes of Action against the Debtor

7. 7 The Chapters of Bankruptcy Chapter 7 Chapter 9 Chapter 11 Chapter 13 Chapter 15

8. 8 Chapter 7 What is Chapter 7? – Liquidation – Business No Longer Operating Who is a Chapter 7 Trustee? Do I receive notice of the Chapter 7 case? Do I file a proof of claim? Will I have to give back any money? –Preference Actions –Will I receive any monies on my claim?

9. 9 Chapter 11 Utilization of Chapter 11 –Reorganization –Sale as a Going-Concern –Orderly Liquidation Who Can File Chaper 11 –Corporations, Limited Liability Companies, Partnerships, Sole Proprietorships, Individuals

10. 10 The Players What is a Debtor-in-Possession? My company is losing money. I get to stay in control and keep collecting the same compensation. What more can I ask for? Yippee!

11. 11 Debtor’s Professionals Who are they? Counsel Special Counsel Chief Restructuring Officer Accountants Investment Bankers Environmental Engineers Brokers (real estate or business)

12. 12 United States Trustee’s Office Role: Monitoring Chapter 11 Cases –Conducting Committee Formation Meeting –Conducting Meeting of Creditors –Professional Retention and Fee Application Oversight –Quarterly Fees

13. 13 Types of Creditors Banks (Pre-Petition Lenders) Equipment Lessors Landlords Trade Payables Taxing Authorities (Priority Claim) Priority Claims (Wages, Commissions, Benefits, including Union Claims) Equity Holders (Shareholders)

14. 14 Creditors’ Committee Formation Process Role of Committee Committee Professionals Compensation of Committee Professionals and Committee Members

15. 15 Types of Notices Mailed to Creditors Committee Formation Meeting First Day Motions to Largest Unsecured Creditors Notice of the Section 341 Meeting Notice of Bar Date Along With a Proof of Claim Form Notice of Sale of Assets Notice of Settlements/Abandonment Notice of Professional Fee Application Hearings Notice of Disclosure Statement Hearing Notice of Plan Confirmation

16. 16 Should I Continue to Do Business With a Debtor?  Access to Financial Information of Debtor  Business Terms  Administrative Expense Claim  Emotions v. Profit

17. 17 Available Information Schedules of Assets and Liabilities and Statement of Financial Affairs Monthly Operating Reports Counsel to Creditors Committee Other Creditors The Web Court’s Website – Pacer Newspaper Articles, etc.

18. 18 Claims Process Bar Date (Deadline to File a Claim) Filing a Proof of Claim Motion Objecting to Claims

19. 19 Preference Actions Adding Insult to Injury Preference Payments – Typically, any payment received within 90 days of the Petition Date Dunning Letter from Debtor or Liquidating Trustee’s Counsel Defenses –Contemporaneous Exchange –New Value –Ordinary Course of Business or financial affairs of the debtor and the transferee or made according to ordinary business terms

20. 20 Executory Contracts An Executory Contract is a contract in which both parties still have continuing obligations. Examples: Residential or Commercial Leases, Certain Equipment Leases, Service Contracts, License Agreements, and Collective Bargaining Agreements A non-Debtor party is required to continue with performance under the contract. Motion to Assume or Reject Lease or Contract

21. 21 Landlords Debtor must assume or reject Non- Residential Lease within 210 days unless Landlord consents to further extension Debtor required to make all lease payments in accordance with lease terms Motion for stay relief to terminate lease and other recourse Assumption of Lease and Assignment to Third Party

22. 22 Time Line of a Chapter 11 Case First Day Motions DIP Financing/Use of Cash Collateral Financial Reporting Sale or Liquidation of Business Plan of Reorganization/Plan of Orderly Liquidation

23. 23 First Day Motions Use of Cash Collateral or Debtor-in- Possession Financing Payment of Wages and Other Employee Benefits Customer Refunds and Rebates Pre-Petition Critical Vendors Payment of Sales, Use and Other Taxes Maintaining Cash Management Systems Utility Companies

24. 24 Financial Reporting Schedules of Assets and Liabilities and Statement of Financial Affairs Budget for Use of Cash Collateral and DIP Financing Monthly Operating Reports Disclosure Statement Provides Historical Financial Information and Forecasts

25. 25 Sales of Assets in Chapter 11 Notice of Asset Sale Sale Free and Clear of All Liens, Claims and Encumbrances Assumption and Assignment of Executory Contracts –Payment of Arrearages –Adequate Assurance of Future Performance Higher and Better Offers

26. 26 Plan of Reorganization and Disclosure Statement Process

27. 27 Plan of Reorganization Contents of Plan Classification of Claims –Secured Claims (Lender) –Priority Claims (Taxes, Wages) –Unsecured Claims (Trade) Treatment of Claims –Negotiations with Lender and Committee

28. 28 Disclosure Statement Content: Similar to a Prospectus Provide Sufficient Information for a Reasonable Person to Vote on the Plan Notice of Disclosure Statement Hearing Objections to Disclosure Statement Approval of Disclosure Statement

29. 29 Requirements for Approval of Plan of Reorganization Consent of Impaired Classes of Creditors Fair Treatment of Creditors –Class of Creditors Must Receive More Than What They Would Receive in a Liquidation –Absolute Priority Rule -Junior Class of Creditors Cannot Receive Anything Until the Senior Class of Creditors is Paid in Full Unless Senior Class Consents –New Value –LaSalle – Is Equity Paying Fair Value to Retain Ownership? Feasibility Cram-Down

30. 30 Plan of Orderly Liquidation Contents of Plan and Approval Process Liquidation Trust Assets Available for Unsecured Creditors –Remaining Sale Proceeds, if any –Preference Actions –Other Causes of Action

31. Questions and Answers Thank you for coming!