Sixth Annual In-House Counsel Conference

1. Sixth AnnualIn-House Counsel Conference • Panel 3M&A in 2010: Solutions for • the New Economic Landscape

2. Presenters & Moderator • Jeryl A. Bowers, Partner, K&L Gates LLP • Michael B. Lubic, Partner, K&L Gates LLP • Arash Mostafavipour, General Counsel, Carrington Mortgage Holdings, LLC • Moderator - Adrienne Mead, Commercial Counsel, BT 2

3. Overview • The 10 topics that will prepare you for an M&A transaction: • Transaction structures • Preparing for the M&A transaction • Reasons for “doing the deal” • Creative financing transaction structures • Integration • Indemnification issues • Risk mitigation provisions • Acquisition strategies for distressed assets • Retaining the target’svalue • Approvals and consents 3

4. 1. Transaction Structures • Asset v. stock purchases • All v. cherry-picking • Due diligence/liabilities • Contract issues/consents • Accounting/depreciation • Taxation (seller corp. double-taxation) • Post-closing obligations 4

5. 1. Transaction Structures • Mergers • Tax reasons • Speed of execution • Majority shareholder approval v. unanimous • Equity consideration allows for sharing in appreciation • Equity / debt investments 5

6. 2. Preparing for the M&A Transaction • Due diligence, negotiation and integration teams • Due diligence process; ties to contract • D&O insurance • Assessing parties’ human capital talent • Contract analysis • Material/shared Contracts • Employment contracts, parachute payments • Terms, pricing, exclusivity, non-competes/solicits • Assignment, notice & change-in-control provisions 6

7. 2. Preparing for the M&A Transaction • Customer, vendor and management interviews • Policies and procedures; internal/disclosure controls • Timeline; expect the unexpected! 7

8. 3. Reasons for “Doing the Deal” • Liquidity concerns • Debt covenant issues • Need to raise funds for operations • Poor performance of subsidiary or division • Growth strategies • Increasing market share • Build v. buy analysis • Identifying synergies • Public versus private valuation arbitrage • Defensive strategies: absorbing small competitors 8

9. 4. Creative Financing and Transaction Structures • Seller promissory notes • Earn-out provisions • Zero coupon debt • Payment in kind (“PIK”) instruments • Convertible preferred stock • Multi-step transactions: • Purchase controlling interest • Negotiate option to buy remaining interest 9

10. 5. Integration • In-house counsel’s role (target v. buyer) • Due diligence, negotiation & integration processes • HSR gun-jumping • Corporate approvals, 3rd party consents • Communications (internal, external and coordinated) • Evaluating a target’s corporate culture 10

11. 5. Integration • Human capital • Retention and lay-offs • Compensation and incentive structures • Post-closing duties • Operating systems; conversions of data • Products and services; cross-selling opportunities 11

12. 6. Indemnification Issues • Heavily-negotiated provision • Common negotiated features • Baskets • Caps • Deductibles (first dollar v. true deductible) • Survival periods for reps and warranties • Valuation metrics for losses • Interest on losses? • Insurance payments deducted? • Tax payments grossed-up? 12

13. 7. Risk Mitigation Provisions • Contractual: • Due diligence/reps and warranties • Materiality/knowledge qualifiers (“Big MACs”) • Closing conditions (e.g., retention payments) • Hold-backs (buyer and seller perspectives) • Escrow, amount, timing (release points), when to “dip in” • Project milestones/earn-outs • Post-closing true-ups and independent third party audits • Guarantees • Break-up fees 13

14. 7. Risk Mitigation Provisions • Non-contractual: • Narrowing the window from signing closing • Reps and warranties insurance 14

15. 8. Acquisition Strategies for Distressed Assets • Section 363 bankruptcy sales • Advantages • Results in a final order of bankruptcy court • Unsecured creditors can increase leverage • Disadvantages • Time consuming • Expensive • Business may not survive bankruptcy process 15

16. 8. Acquisition Strategies for Distressed Assets • Article 9 foreclosure sales • Advantages: • Quick: transaction can close in 10 days • Relatively inexpensive • Sale extinguishes all junior liens (see below) • Disadvantages • Successor liability issues • Sale must be commercially reasonable • Federal tax liens require special attention • Generally requires cooperation of borrower/seller • Junior creditors can challenge sale 16

17. 9. Retaining the Target’s Value • Maintaining confidentiality of sale • Motivating old and new management • Retention bonuses • Performance bonuses • Transaction bonuses • Transition service agreements • Vendor and customer communications strategy • Joint preparation of press releases 17

18. 10. Approvals & Consents • Board of directors and stockholder approval • Dissenter’s rights • Hart Scott Rodino • Regulatory approvals • Customer and vendor consents • Conditional consents • Payment for consents • Delayed consents • Mitigation strategies for failure to obtain consent 18

19. Q&A: There Are No Bad Questions… • And, Hopefully, We Do Not Have Any Bad Answers… 19

20. Contact Information • Jeryl A. Bowers • (310) 552-5051 • Jeryl.Bowers@klgates.com, • Michael B. Lubic • (310) 552-5030 • michael.lubic@klgates.com • Arash Mostafavipour • (949) 517-7000 Arash.Mostafavipour@carringtonmh.com 20