1. Joseph V. Rizzi Amsterdam Institute of Finance October, 2014

2.  Goal of deal structure should be to maximize value – but different parties have different objectives.  Some Buyer Shareholder Objectives: – Minimize after-tax price paid for the acquisition – Minimize the dilution of their pre-merger ownership stake  Some Seller Shareholder Objectives: – Maximize after-tax price received – Minimize risk of the offer (for a given dollar value of the deal) 2 Amsterdam Institute of Finance October, 2014

3.  Price  Form of Transaction  Form of Payment  Control and Governance  Social Issues  Timing and Deadlines  Transaction Hedges 3 Amsterdam Institute of Finance October, 2014

4. Accounting Tax Corporate Law Securities Regulatory and Antitrust Contract Business Plan Transaction Characteristics Financial Preferences Market Conditions Deal Competing Bidders Creditors Rights Amsterdam Institute of Finance October, 2014 4

5. Contract Form Consideration Pricing Conditions Repos and Warranties Indemnities Change of Control Covenants Tax Capital Gains to Seller WHT on divs and int Basis NOL’s Interest deductibility Tax treaties Consolidation Exit planning Rating Agencies Regulatory Competing Bids Size Financial Strength Dilution Analysis Strategic Fit Securities Notice S/H Vote Tenders Preemption Rights Triggers Bankruptcy Framework (Inter-creditor Concerns) Subordination Guarantees Corporate Notice Percent by Region/State Lock-Up/Break Up Fee/No Shop Pills/Defenses Merger/Consolidation Antitrust Hart/Scott/Rodino Sherman Act HHI European Commission Monopolies & Mergers Commission Accounting Goodwill Fair Market Value Net Worth Consolidation Amsterdam Institute of Finance October, 2014 5

6. HSR Review Period (30 Calendar Days) Engage Investment Bankers Prepare Merger Agreement, Stockholders Agreement & HSR Premerger Notification Due Diligence Fairness Opinion Issued and Boards Approve Merger Agreement Arrange Financing Determine Structure (Tax, Accounting, Form, Consideration) Sign Merger Agreement & Stockholders Agreement File HSR Premerger Notification Commence Preparation of Preliminary Proxy Materials (Schedule 14A) Issue Press Release File 8Ks and Schedules 13D File Preliminary Proxy Materials (Schedule 14D) with SEC Print and Mail Proxy Materials To Target Stockholders (Assumes Definitive Proxy Materials Are Available) HSR Waiting Period Expires, Assuming No Second Request Target Stockholder Meeting Close Merger Pre-Commencement Day 1Calendar Week 7 Period (1 Week) Week 2 Day 10 Day 20 Day 30 Day 40 6 Amsterdam Institute of Finance October, 2014

7. Financial Flexibility Target Credit Rating Determine Capital Structure HedgeNo Action Bank Funding Acquisition Bridge Takedown Credit Rating Fixed Income Asset Carveout Securitization \ Prop Co Bank Financing Equity / Near Equity Refinance Bridge Fixed- Rate Floating- Rate Advisory / OriginationUnderwriting Product Execution Amsterdam Institute of Finance October, 2014 7

8. Purchase/Sale Nondisclosure Agreement Offering Memorandum Data Room Letter of Intent Sale and Purchase Agreement Financing Commitment Letter(s) Term Sheet Credit Agreements Intercreditor Agreements Amsterdam Institute of Finance October, 2014 8

9. Business Legal Entity Basis Bankruptcy Payment Priorities Provisions Reps/Warranties: What are the facts? Operating Covenants: Stop digging Financial Covenants: Preserve deal Remedies Structures to reduce credit risk Guarantees Pledges of Stock Subordination Amsterdam Institute of Finance October, 2014 9

10. Parties Definitions Form: Merger, Tender, Asset Sale,… Consideration: Type, Payment, Mechanics, Calculation,… Reps/Warranties: Duration, Survival Target: MAC Buyer: Issue when stock used Ordinary Course Covenants: Target will operate as usual during signing/closing gap period Other Agreements: Filings, Meetings,… Closing Conditions: Regulatory, Shareholder Termination & Expenses: Drop Dead Fee, Drop Dead Date, Termination Fees Other Stuff: Choice of Law, Specific Performance Useful Sites apps.americanbar.org/…/mspd-letter-of-I contracts.onecle.com PLI.edu 10 Amsterdam Institute of Finance October, 2014

11. Commitment Letters MAC Due Diligence Syndication Flex Marketing Periods Fraudulent Conveyance Loan Documentation Intercreditor Covenants Conditions See: lma.eu.com/documents for drafts Amsterdam Institute of Finance October, 2014 11

12.  Rule of Thumb Measures ◦ Balance Sheet Model ◦ Cash Flow Model  Detailed Model ◦ Matching markets to the need ◦ Reverse inquiry ◦ Projections (amortization capability) Amsterdam Institute of Finance October, 2014 12

13. Deal Financial Arithmetic Amsterdam Institute of Finance October, 2014 13

14.  Purchase Price ◦ Minimum/Maximum ◦ Recapitalization Dividend  Debt Refinancing ◦ Callability ◦ Premiums ◦ Tax Issues  Expenses  Other Uses Amsterdam Institute of Finance October, 2014 14

15.  Revolver oTied to advance against current assets oCrossing liens  Term Loan A oMacro: Ratio of 3-4x EBITDA oMicro: Amortization analysis tied to cash flow in years 1-7  Term Loan B oSenior debt ratio less Term Loan A amortization o1% P.A./Balloon Second Lien oMacro: 0.5-1x EBITDA oLimited amortization oLonger term Senior/Subordinated Unsecured  Other Debt oTotal Debt/EBITDA less Senior Debt/EBITDA  Equity oFunding need less Total Debt/EBITDA Senior Secured First Lien Amsterdam Institute of Finance October, 2014 15

16.  Current Asset approach ◦ Use standard advance rates  Accounts Receivable 80%  Inventory 60%  PP&E/Net40% ◦ Consider the following factors  Seasonal Needs  Future Working Capital Growth  Unexpected Liquidity Needs Amsterdam Institute of Finance October, 2014 16

17.  Term Loans = Maximum Senior Debt - Revolver  Focus is on Free Operating Cash Flow  Market conditions also dictate the maximum tenor of the loan and the amount required to be amortized  Acceptable asset coverage is also a consideration in determining the size of the term loans Amsterdam Institute of Finance October, 2014 17

18.  Typical bank financings as structured as follows: Revolving Credit Term Loan A (amortising) Term Loans B & C (bullet/balloon) T/LC Rare Large unfunded revolvers are seldom used today due to the fact that it is capital unfriendly to banks and companies don’t like to pay for unused commitments. In the interest of keeping flexibility for the long term, additional indebtedness baskets should be negotiated upfront. This allows companies to access either the bank or bond markets under their existing credit agreements and saves the costs of having to refinance. Amsterdam Institute of Finance October, 2014 18

19.  Long Term Debt = Max Total Debt - Max Senior Secured Debt ◦ Senior unsecured ◦ Sub Debt  Equity: ◦ Equity = Total Uses - Max Total Debt ◦ Common ◦ Hybrids Amsterdam Institute of Finance October, 2014 19

20. Senior lenders are concerned with the implications of having high yield investors at the table during a restructuring. EURO High Yield investors to date have not been as vocal as senior bank lenders, viewing the issue as one of pricing rather than principle. All other things being equal, sophisticated investors will probably price structural subordination at 60-120 bps premium. Amsterdam Institute of Finance October, 2014 20

21. Holding Company Intermediate Holding Company Operating Company Operating Company 100% Equity Interest Issues High Yield Bonds Subordination Agreement Senior Secured Loan Amsterdam Institute of Finance October, 2014 21

22. Holding Company Intermediate Holding Company Operating Company Operating Company 100% Equity Interest Issues High Yield Bonds Support Package Senior Secured Loan Amsterdam Institute of Finance October, 2014 22

23.  There are no standard covenants.  They must be tailored to fit each deal and loan structure.  The steps in structuring the covenants are: o Identify the risks (business, financial and structural) o Select Covenants to monitor the risks Need to prioritize the risks to monitor because it will be impossible to monitor every risk The time and cost to monitor the covenants must be considered (i.e., sometimes one covenant can cover multiple risks) o Set Appropriate Levels Want the covenants to trigger a warning before any principal or interest payments become delinquent. Need to factor in any seasonal needs to the covenant levels. Amsterdam Institute of Finance October, 2014 23

24. Major Covenants (financial maintenance) – Industry Variation CAPEX Debt Service Fixed Charge Funded Debt Reason for Decline Institutional Loan Investors High Yield Market Competition Amsterdam Institute of Finance October, 2014 24

25. – Legal  Contingencies: ABB – Accounting: McKesson/HBOC – Business  Licenses  Employment  Leases  EPA – Etc. Earnings Revisions Study (Messod D. Beneish) Typical violations of U.S. GAAP include: – Recording revenues that are fictitious, unearned, or uncertain – Recording fictitious inventory – Improperly capitalizing costs Violators tend to be smaller (by sales and assets), more leveraged, and faster growing. Warning signs include: – Increase in days receivables – Decrease in gross margin – Increase in percentage of total assets represented by assets other the PP&E. – Comparatively hgh rate of sales growth – Increase in percentage of total assets represented by accruals. Making sure you get what you thought you were getting 25 Amsterdam Institute of Finance October, 2014