1. Tax Policy Workshop Peter Canellos Brenda Coleman Wachtell Lipton Allen & Overy (New York) (London) Stuart J. Goldring Gordon W. Johnson Weil, Gotshal & Manges LLP The World Bank (New York) (Washington, D.C.) Corporate Restructuring: International Best Practices Washington, D. C. March 22-24, 2004

2. 2 Key Tax Concepts Relating to Corporate Restructurings Cancellation of Indebtedness Income Creditor Interest Accruals Creditor Bad Debt Deductions Creditor Gains and Losses on the Restructuring Gains and Losses, or Transfer Taxes, on Transfer of Assets by Debtor Survival of Tax Attributes Priority and Discharge of Tax Claims

3. 3 Scenario 1 Creditor A and Debtor Corporation enter into an unsecured, working capital facility. The facility has both a term loan and a revolving credit portion. After a couple of years, $10 million is owed under the term loan and $5 million is owed under the revolver. Meanwhile, the Corporation’s business has declined. Desiring to “cut” its losses, Creditor A sells it’s creditor position in the term loan to Creditor B for $7 million. Creditor B may or may not be related to the Corporation. Creditor A Debtor Corporation Working Capital Facility Creditor B $10 M Term Loan Sold at Discount

4. 4 Scenario 2 Creditor A and Debtor Corporation enter into an unsecured, working capital facility, with customary representations and covenants. After a couple of years, $10 million is owed under the term loan portion of the facility and $5 million is owed under the revolver. Meanwhile, the company’s business has declined. Accordingly, management meets with Creditor A and discusses a modification of the debt – including, among other possibilities, extending the time for payment, adjusting the interest rate and adding collateral – as well as a partial forgiveness. The Corporation may be solvent, insolvent, or in bankruptcy at the time of the modification. Creditor A Debtor Corporation Working Capital Facility terms are modified

5. 5 Scenario 3 Debtor Corporation issues $10 million of secured debt in a private placement to a group of institutional holders. After several years, the company’s sales decline and the company develops liquidity problems. The company approaches its larger creditors with a proposal for recapitalizing the company and exchanging their existing debt for (i) new debt with a reduced face amount, (ii) common stock and/or (iii) warrants (total value $7 million). The Corporation may be solvent, insolvent, or in bankruptcy at the time of the restructuring. Debtor Corporation Old $10 M Secured Debt New Debt, Stock and/or Warrants Institutional Lenders

6. 6 Scenario 4 Debtor Corporation issues $10 million of secured debt in a private placement to a group of institutional holders. After several years, the company’s sales decline and the company develops liquidity problems. After considering its alternatives, the company decides to sell its assets to Acquisition Corp. for newly issued common stock and new debt of Acquisition (total value $7 million). The new stock and debt are distributed to the creditors in liquidation. Debtor Corporation may or may not be in bankruptcy. Debtor Corporation Old Debt New Debt and Stock of Acquisition Institutional Lenders Aquisition Corp. Distribute New Debt and Stock of Acquisition Debtor’s Assets

7. 7 Scenario 5 Debtor Corporation issues $10 million of secured debt in a private placement to a group of institutional holders. After several years, the company’s sales decline and the company develops liquidity problems. After considering its alternatives, the company decides to sell its assets for cash in a liquidation sale. Although most assets are sold immediately, some assets are not sold until a year or so later. The net proceeds are distributed to the creditors in liquidation. The Corporation may or may not be in bankruptcy. Debtor Corporation Old Debt Cash Proceeds Institutional Lenders Distribute Net Cash Proceeds Liquidation of Assets