1. NEW MODELS FOR THE FINANCIALLY DISTRESSED CUSTOMER TO DEAL WITH THEIR DEBT: CUSTOMERS RUSHING TO SELL ALL THEIR ASSETS THROUGH CHAPTER 11 AND THE RISE OF THE PREPACKAGED BANKRUPTCY Ronald A. Clifford, Esq. RClifford@BlakeleyLLP.com Peter M. Sweeney, Esq. PSweeney@BlakeleyLLP.com J. Michael Issa Missa@GlassRatner.com GlassRatner Advisory & Capital Group LLC BLAKELEY LLP

2. Now Is Not The Time To Rest On Our Laurels The economy is improving, but chapter 11 cases continue to be filed 26 Large Chapter 11 Filings in Delaware in September 2015 alone 1.Haggen Holdings, LLC 2.Quiksilver, Inc. 3.Samson Resources Corporation 6,672 Chapter 11 cases filed in the 12 month period ending June 30, 2015 (US Bank. Statistics – www.uscourts.gov/uscourts/Statistics)

3. Where are we in the Economic Cycle? The Great Recession officially ended Jun-09. We are six years and four months into this recovery. Only one recovery in the last 45 years lasted longer than eight years and a few months. Based on the historical evidence, one could conclude that we are in the fourth quarter of the game in terms of this recovery and that the next recession will occur within the next couple of years. The economies of the rest of the world look vulnerable as well. Certain industries are more exposed to serious damage in recession.

4. They Filed Chapter 11 Where? The Delaware Train o Over the past 15 years, chapter 11 filings in Delaware have increased year over year. o In recent years, the vast majority of the larger chapter 11 filings are being filed in Delaware and New York. Approximately 70% of the large public chapter 11 filings have been filed in either Delaware or New York. Venue Rules o Place of incorporation, place where principal assets are located, place where headquarters are located. o Recent proposed venue revisions have gone nowhere. Most of the filings in Delaware and New York are based on place of incorporation. o Metropark USA, Inc. – Headquartered in Los Angeles, 80 stores nationwide, with only a handful of stores in New York, filed in New York. o Natrol – Headquartered in Southern California.

5. Is Delaware Really A Better Place To File Chapter 11? Arguments For: Judges experienced with large chapter 11 filings More predictability Quicker exits Arguments Against: Inconvenient for creditors Judges may lack local knowledge pertinent to a case Prevents more convenient forums from gaining experience Expensive for both creditors and the debtors

6. Every War Is Won Before It Is Ever Fought Prepackaged chapter 11 cases and sales of assets in chapter 11 have become increasingly common. In both scenarios, the ending has already been orchestrated prior to the filing.

7. The Prepackaged Bankruptcy Plan of Reorganization has been negotiated prior to filing the chapter 11 case. Plan confirmation is much more certain. Vendor claims normally ride through the chapter 11 process unscathed, normally. Preference liability is normally not an issue, normally. There is usually a very swift exit from bankruptcy with the plan being filed alongside the petition. Professional fees can be substantially less than in a long, hotly contested chapter 11. What should the credit professionals be aware of?

8. Chapter 7 Disguised as Chapter 11 Section 363 of the Bankruptcy Code allows the sale of assets outside the ordinary course of a debtor’s business, while in chapter 11. Bankruptcy Courts have read 363 to allow the sale of substantially all of the debtor’s assets in a chapter 11 sale, thereby leaving the debtor with no operations, and sometimes, no assets.

9. Chapter 7 Disguised as Chapter 11 Reasons for Chapter 11 liquidations: o Management retains control of the sale process o Sales can be done quickly by those that may be in the best position to effectuate the sale o Allows the retention of any going concern value o May allow creditors to maintain some control over the sale proceeds o May relieve the buyer of successor liability o Ability to bind dissenting parties to the terms of the “deal” Downsides to Chapter 11 liquidations: o Can be relatively expensive o Disrupts the purpose of chapter 11 (debtors get the benefits of chapter 11 without paying the price)

10. In re: ICL Holding Company Inc. Background o Debtor LifeCare Holdings signed a Asset Purchase Agreement (APA) with secured lenders prior to filing Chapter 11 (credit bid). o The only cash payments to be made above the credit bid were funds the secured lenders deposited in escrow, for payment of legal and accounting fees and wind down costs. o Committee of Unsecured Creditors and US Government (owed $24 million in tax liability as a result of the sale) objected to the sale. o Committee and secured lender group settled by agreeing that $3.5 million would be placed in trust for unsecured creditors. o Bankruptcy Court found that money in escrow was not the property of the bankruptcy estate and would not implicate creditor-payment hierarchy rules. o Government appealed to Third Circuit arguing that escrow funds should be part of estate, and that settlement unfairly resulted in payday for Unsecured Creditors, while a Senior Creditor, the government, received nothing.

11. In re: ICL Holding Company Inc. Third Circuit Ruling o Because APA stated that LifeCare’s secured debt was forgiven in return for all of LifeCare’s assets, including cash, Third Circuit found that once the sale closed, there no longer was any estate property, and thus escrowed funds could not be estate property. o Court also found that Settlement was not part of estate, as it never made it to LifeCare and LifeCare had no discretion on how it was utilized. Implications o May be used as precedent to bypass administrative claims. Will certain similarly situated administrative claims, like 503(b)(9) claims, be favored over others? o Encourages Debtors to use fast-paced 363 Sale process over Ch. 11 reorganization.