RadioShack The Unitranche Structure Tested American Bar Association Business Law Section Annual Meeting September 17, 2015 Presented by: Rick Antonoff, Partner, Blank Rome

Disclaimers  General Disclaimer – Statements made during this presentation are solely those of the presenters and are not those of, or attributable to, Blank Rome LLP or any of its clients, partners or employees.  Ongoing Representation – Blank Rome LLP is co-counsel to the “First Out ABL Lenders” in the RadioShack bankruptcy case. As the case and Blank Rome’s representation are active and ongoing, anything said during the presentation or appearing in any of these slides is not and may not be deemed to be or used as a statement or position on any issue Blank Rome or any of its clients may take in the RadioShack case or in any other case.  Pending and Threatened Litigation – There is currently pending and threatened litigation claims in the RadioShack case in which the First Out ABL Lenders are parties or potential parties. The presenters decline to comment on or say anything substantive about the pending and threatened litigation claims and defenses RadioShack – The Unitranche Structure Tested2

Agenda  RadioShack Debt Structure – ABL Unitranche & AAL – Term Loan Unitranche & AAL – Split Collateral Arrangement – Intercreditor Agreement  Selected Provisions Relevant to Rulings – Term Loan AAL – Prohibition on Right to Object to Bankruptcy Sale – ABL Loan – Prohibition to Right to Credit Bid unless “Paid in Full”  Bankruptcy Court Rulings – Standing of last-out lender to object to sale supported by first-out lender – Revocation of first-out lenders’ instruction to agent – Last-out lender’s credit bid conditioned upon first-out lenders being “paid in full”  Other Issues – DIP Loan  “Roll-up” of Prepetition ABL Loan – Use of Cash Collateral – Adequate Protection – Plan Classification and Voting RadioShack – The Unitranche Structure Tested

RadioShack Secured Debt Structure  ABL Loan (Unitranche) -- $585 million; 1 st Lien on Inventory & Receivables (Liquid Assets)  Term Loan (Unitranche) -- $250 million; 1 st Lien on IP, Subsidiary Stock, Real Property, Personal Property, FF&E (Non-Liquid Assets)  Split Collateral – ABL 2 nd Lien on Non-Liquid Assets / Term Loan 2 nd Lien on Liquid Assets  Intercreditor Agreement between ABL and Term Loan RadioShack – The Unitranche Structure Tested4

RadioShack Secured Debt Structure RadioShack – The Unitranche Structure Tested5

Selected AAL Provisions Relevant to Rulings  Term Loan AAL – §14(c) “Bankruptcy Sale” First Out Lenders may direct the agent to consent or object to any sale or other disposition under Section 363 of the Bankruptcy Code; no Last Out Lender shall object to or oppose any such sale on any grounds that only may be asserted by a holder of a Lien on such Collateral if the First Out Lenders or the Agent (on instruction from First Out Lenders) has consented to such sale or disposition... Notwithstanding the foregoing, any Last Out Lender may raise any objections to any such sale or disposition of assets that could be raised by any creditor of the Borrower whose claims are not secured by any Liens on the applicable Collateral, provided that such objections are not based on grounds that only may be asserted by a holder of a Lien on such Collateral. – Issue: To what extent can Last Out Lender object to a bankruptcy sale that is supported by the First Out Lender? RadioShack – The Unitranche Structure Tested6

Selected AAL Provisions Relevant to Rulings  Background :  “Stalking Horse” bidder (affiliate of Standard General; Last Out Lender under ABL) offered to purchase ½ RS stores under credit bid of its secured ABL claim  Last Out Lender under Term Loan (Salus) objected to sale on several grounds: – Unfair Sale Process -- Confusing, not transparent, controlled by insider, discouraged competitive bidding; unfairly discounted Salus bid – Standard General bid undervalues intellectual property that is Term Loan collateral – Free and Clear sale of Term Loan collateral without consent of Last Out Lender violates BC §363(f) – Proposed royalty-free license of trademark (Term Loan collateral) violates Last Out Lender’s right to adequate protection – AAL §14(c) does not prohibit Last Out Lender objection because First Out Lender’s initial consent is irrevocable  First Out Lender under Term Loan (Cerberus) argues that court should “disregard and strike” Last Out Lender Sale Objection – Term Loan AAL §14(c) prohibits Last Out Lender from opposing a sale supported by First Out Lender – Subordination provision of AAL is enforceable in bankruptcy same as subordination provisions in intercreditor agreements. “It is well-accepted that intercreditor agreements (like the AAL) are enforceable in bankruptcy to the same extent enforceable under state law.”  Court Ruling: – “The matter before the Court is the application of certain prohibitions or provisions contained in Section 14(c) of the agreement among lenders. I note, at the outset, that the parties have acknowledged and consented to my jurisdiction to construe and enforce the AAL and other loan documents in this case.” RadioShack – The Unitranche Structure Tested7

Term Loan AAL – Court Ruling  Is First Out Lender’s Initial Consent to Last Out Lender’s Objection Irrevocable? – No. “The plain language of Section 14(c) does not restrict Cerberus from settling or otherwise changing its position or its mind and, indeed, to construe the document otherwise would be demonstrably contrary to Cerberus’s presumed contractual expectations as well as to the common expectation of parties in these proceedings, that positions are taken and resolved.”  To what extent can Last Out Lender object to a bankruptcy sale that is supported by the First Out Lender? ‒Objections based on free and clear sale under BC §363(f) and lack of adequate protection are “classic secured creditor objections” prohibited by AAL §14(c). ‒Last Out Lender’s other objections based on fairness of process and undervaluing assets may proceed as “objections otherwise available to an unhappy, unsecured creditor....” RadioShack – The Unitranche Structure Tested8

Selected AAL Provisions Relevant to Rulings  ABL AAL and Subordinated Participation Agreement – §4(d) “Second Out Lender Purchase Option” Upon the occurrence of certain events (return of cash deposit to Second Out Lender upon termination of LC) “Second Out Lender shall... promptly apply an amount equal to the amount of such returned cash collateral to purchase from each of the First Out Lenders, on a pro rata basis at par, a ‘last-out’ participation interest... in each such First Out Lender’s right, title and interest in outstanding [First Out Loans]” – §6(b)(vii) “Bankruptcy and Insolvency” “... Lenders in any Junior Class do not waive any rights to credit bid in any sale or disposition in accordance with Section 363(k) of the Bankruptcy Code, so long as any such credit bid provides for the immediate discharge in cash of the Senior Claims of each Senior Class” RadioShack – The Unitranche Structure Tested9

Selected AAL Provisions Relevant to Rulings  Subordinated, Last-Out Participation Agreement – §13(h) “Standing” “Notwithstanding... Section 4(d) of the AAL, the Participant [Second Out Lender] shall, at all times, have the right to direct the Existing First Out Lenders to credit bid the Participated Obligation in any sale of ABL Priority Collateral under Section 363 of the Bankruptcy Code... And the Existing First Out Lenders hereby agree to comply, or instruct the Agent to comply, with such direction; provided that, in each case, the terms of such sale... provide for immediate discharge in cash of the First Out Tranche....” RadioShack – The Unitranche Structure Tested10

Selected AAL Provisions Relevant to Rulings  AAL Waterfall §3(a) – Second priority (after Agent’s fees) “payment of any attorney’s fees or other costs and expenses of, and any indemnification obligations owing to, the First Out Lenders”  Participation Agreement §3(a) – Participant (Last Out Lender) “acknowledges and agrees that no repayment to the Participant in respect of the Participated Obligation shall be made until all other Senior Claims (including... Indemnification obligations... ) of the First Out Lenders in respect of the First Out Debt... have been paid in full in cash....” RadioShack – The Unitranche Structure Tested11

ABL AAL and Participation Agreement Court Ruling  Background – Last Out Lender (Standard General) proposed to credit bid its secured ABL claim and its last-out participation to purchase ABL collateral which, in effect, is payment of the Last Out Lender claim by way of setoff – First Out ABL Lenders would be paid all principal and interest owed to them under the ABL (now DIP) Agreement – Unsecured Creditors Committee files motion for Rule 2004 discovery identifying potential causes of action for unspecified amounts against numerous parties including ABL Lenders – Two weeks before sale hearing, Term Loan Lenders commenced an adversary proceeding against ABL Lenders alleging violation of the intercreditor agreement and seeking disgorgement of $129 million paid to the ABL Lenders prior to RadioShack bankruptcy  Issue: Does “paid in full” require payment of First Out Lenders’ contingent indemnification claims as a condition to permitting Last Out Lender to credit bid? RadioShack – The Unitranche Structure Tested12

ABL AAL and Participation Agreement Court Ruling  First Out Lenders ’ Position – Under the ABL credit agreement, RadioShack’s obligation to indemnify constitutes part of First Out Lenders’ secured claim that must be paid in full to allow Last Out Lender to credit bid – Since Term Lenders commenced litigation and Unsecured Creditors Committee has threatened litigation against ABL Lenders, right to indemnification is not contingent  Last Out Lender’s Position – Just the First Out Lenders’ claim then due and owing (principal and interest) must be paid in full and not indemnification claims that are unliquidated, speculative and contingent RadioShack – The Unitranche Structure Tested13

ABL AAL and Participation Agreement Court Ruling  Court’s “Position” “As to the first-out ABL lenders and the agent... to me, it boils down to a question of the treatment of a secured creditor. That secured creditor has rights that must be respected under the documents and rights that must be respected under the [Bankruptcy] Code.” “At a minimum, I would regard the indemnification rights as part of the collateral package and part of the rights that the first-out ABL lenders have and that I am obliged to treat and respect them and that I would do so by way of a reserve. That reserve is not $120 million. It’s not even anything close to it.” “I believe that the concerns of the first-out ABL lenders are well founded and principled, based upon their documents.”  Resolution – Last Out Lenders permitted to credit bid – Sale order included provision for indemnification reserve for First Out Lenders -- $5 million for expenses incurred defending litigation and $7 million for liability on judgment or settlement of litigation claims RadioShack – The Unitranche Structure Tested14

Other Issues  DIP Loan – “Roll-up” of ABL Credit Facility  Prepetition AAL Provisions  Amendments to AAL  Use of Cash Collateral  Adequate Protection  Plan Classification and Voting RadioShack – The Unitranche Structure Tested15

Q & A ? ? ? RadioShack – The Unitranche Structure Tested16