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Ohio TMA NewsAugust 2012In This IssueIn Financial Trouble? Here’s an Alternative– File BankruptcyBy Richard Szekelyi, Managing Director, Phoenix Management ServicesPresident’s Report, p.1TMA RegionalConference, p. 4Announcingthe Turnaround/Transactionof the Year Award, p. 5Meeting Schedule, p. 5Over the last few years, alternatives to bankruptcy have grown in popularity. They includeArticle 9 transactions; receiverships (both state and federal); and, in some states (thoughnot Ohio) assignment for the benefit of creditors (ABCs). The driving factors that seem to bebehind this trend include: The perceived cost efficiency of the alternatives The greater degree of privacy afforded the debtor, thus reducing the potential backlashfrom customers, suppliers and competitors Lenders’ increasing acceptance of the alternatives Averting the scrutiny of the creditors’ committee The runaway costs arising from a protracted proceeding.Continues.(Feature Article, p. 3)President’s Reportby John K. LaneAbout TMATMA is the premier nationalorganization of professionalsdedicated to corporate renewaland turnaround management.A note from this month’sFeatured SponsorDear Ohio TMA Members and Friends,A little over three years ago, while my daughter was still in college, she showed me one ofthe school’s many computer labs, which happened to be jam-packed with technology.Feeling a bit like she was making a comment on how our now-joint alma mater hadadvanced greatly since I was a student there, I did respond that the computer lab was nobig deal because “we had a computer when I went here!” The operative word in myexclamation was “a,” as in a singular, room-sized, punch-card-eating IBM 360, representinga 1-to-7,000 computer-to-undergraduate student ratio.Heck, I even had my own personal calculator that performed such advanced functions asadding, subtracting, multiplying and dividing! And, phones were “mobile” back in the day;you just had to buy one of those extra-long cords and you could operate in “mobile” fashion25 to 50 feet away from the phone jack.Continues.(President’s Report, p. 2)For over 25 years, Phoenix has provided effective, operationally focused solutions formiddle market companies in transition. Phoenix Management Services provides turnaround,crisis and interim management, specialized advisory and operational due diligence servicesfor both distressed and growth-oriented companies. Phoenix Capital Resources providesseamless investment banking solutions including: M&A advisory, complex restructuringsand capital placements. Phoenix Capital Resources is a U.S.-registered broker-dealer andmember of FINRA and SIPC. Proven. Results. Visit www.phoenixmanagement.com &www.phoenixcapitalresources.comNorthern Ohio TMA News Page 1

Ohio TMACorporate SponsorsBaker & Hostetler LLPCentrus Group, Inc.Citizens BankBusiness FinanceFirst Business CapitalCorporationInglewood Associates LLCMcDonald Hopkins LLCMorrisAndersonPhoenix Management ServicesTaft Stettinius & Hollister LLPWells Fargo Capital FinancePresident’s Report (continued)Back then, about one in ten students had a TV and were thereby fortunate enough to beable to watch all of four different local stations, at least up until around 1:00 a.m., when atest pattern with a drawing of an Indian came on. Many of those TVs were in black andwhite. Perhaps for the younger readers I should explain that “black and white” is not areference to the color of the device itself, but instead to the picture that was delivered tothe viewer.There were some downsides, though. Anyone lucky enough to have a stereo systemhad to get up to flip the record over about every 20 minutes, which was somewhatintrusive when one was trying to get to know one of the coeds.Okay, so I admit that things have changed since I went to college. My current cell phonehas more computing power than that room-sized IBM 360, and I would haveexperienced a major hernia had I tried to carry my stereo system and my entire recordcollection down the quad like the students of today carry their iPods. And I presume thatchange is not going to stop now.Unfortunately, some of our clients are change-agnostic. Either they do not recognizethat it even exists or they feel that change is not something that is going to impact theirbusiness. Their approach has worked well for the last 40 years, so how could you everconclude that it is not going to work in the future? Besides, their Windows 3.0 is workingjust fine, so why upgrade? (Don’t laugh. Just this week, we asked for an inventory listingfrom a client and were provided numerous pages of hand-written numbers).Obviously, then, we need to be change agents for our clients to keep them frombecoming, as one wag once put it, “road kill on the information superhighway.” Gettingthem past just 1999 would be a service to these clients. Bringing them up to 2012 couldmean the difference between long-term success and failure. Just imagine what couldhappen if you could get them to peek down that superhighway just a few years ahead?Let us talk now about Ohio TMA chapter events.I told everyone not to miss last week’s 16th annual TMA golf outing at Mayfield. Well, Imissed it! One of those persnickety clients insisted that I leave my golf clubs in my trunkand attend to their issues. Total bummer! I was even told that I had won a prize, but lostit because I was not there. However, despite my lack of attendance, I understand thatthe outing was a big hit and that Drew Parobek and his team did a wonderful job. Manythanks go out to Drew and his committee.As to future events, if you have a TMA event listed on your August calendar, I wouldsuggest that you take a hard look into how it got there, as we are taking the entire monthof August off.As reported last month, we will start our fall off with a networking event that will focus onyoung professionals, but which is open to all ages. The event is scheduled for Thursday,September 20. A flier with the event details will be going out to your inboxes shortly.Rounding out the year’s events, we will be having a joint TMA/NEON/IWIRC event onOctober 25, our education seminar held with the Cleveland Metropolitan BarAssociations will be on November 15, and, last but not least, we will be holding ourannual holiday party Thursday, December 13.You can sign up for all of the TMA events at www.turnaround.org. I hope that we will seeyou there!Best regards,John K. LanePresident of Ohio TMAjlane@ingw.com216-533-5860Northern Ohio TMA News Page 2

Ohio TMA OfficersPresidentJohn K. LaneInglewood Associates LLCVice PresidentScott OpincarMcDonald Hopkins LLCSecretaryMark KozelSS&G Parkland Consulting, LLCTreasurerMark KutylowskiSS&G Parkland Consulting, LLCPast PresidentNancy TerrillInglewood Associates LLCOhio TMA Board Members:Sally BartonKeyBankKelly BurganBaker & Hostetler LLPDaniel DeMarcoHahn Loeser & Parks LLPBryan FarkasVorys Sater Seymour & Pease LLPRobert FollandThompson Hine LLPPatricia MissalAurora Management PartnersGreg PikeCorsair Partners LLCMark SeryakFirstMerit BankRick SzekelyiPhoenix ManagementDave WehrleBBP Partners LLCChapter AdministratorLouise WalshTo subscribe, visit the TMA website:www.turnaround.orgFeature Article (continued)However, these alternatives have their own drawbacks, including: The risk that assets sold are not conveyed free and clear of liens and encumbrances Management’s/shareholders’ loss of control under ABCs and receivershipsThe cumbersome nature of managing the process, given that receivership and ABClaws can differ significantly from jurisdiction to jurisdiction Unpredictable rulings from the court, given that receivership and ABC laws tend not tobe as well developed as the U.S. Bankruptcy Code Post-closing challenges from unsecured creditors, particularly in the case of salesunder Article 9 The ever-present risk that unsecured creditors will throw the debtor into an involuntarybankruptcy.So, when considering how to remedy financial stress, do not scratch a traditionalbankruptcy off the list too early. There are times Chapter 11 may be your bestalternative.From the debtor’s perspective, filing Chapter 11 may create an environment providing ahigher degree of control (at least at the front end of the process) than the alternatives.One of the main purposes of Chapter 11 is to calm things down when “unreasonable”creditors are threatening foreclosure, repossession or receivership, so that a plan canbe worked out with the constituents’ participation.However, there are risks to both creditors and debtors by initiating a Chapter 11 filing.One significant risk is aggravating both the secured and unsecured creditors, turningthem into adversarial parties. This tends to make the process a very expensiveundertaking, as fees mount from the various attorneys and financial advisors as theyfight to gain positions for their clients. Planning, the magic pill in many situations, canhelp mitigate this risk.The first order of planning is to determine the end scenario before you start the process.That is, develop an exit strategy before you file. But it must be based in reality. To helpensure that, it is imperative for the debtor to work with advisors that have been throughthe process numerous times. Through their experience they will provide a framework inwhich to develop an exit strategy that has a higher probability of being achieved (that is,accepted by the creditors and the court) in an efficient timeframe, thereby controllingcosts.Debtors’ exit strategies typically fall into one of two general types: filing a plan ofreorganization that allows the debtor to emerge from bankruptcy with a chance to liveagain; or a sale of the debtor’s assets as a going concern to a third party, conveying thetitle free and clear of liens and encumbrances.Achieving a plan of reorganization in bankruptcy requires the debtor to propose acompromise of its obligations to its creditors. The court essentially serves as a powerfulmediator to help craft the reorganization. The debtor’s team of experienced advisorsshould be able to provide realistic scenarios of what the reorganization plan may looklike before the decision to file is made in order to assess the likelihood the debtor will beable to successfully operating post-bankruptcy.Before embarking on the Chapter 11 reorganization path, consideration should be givento accomplishing an out-of-court compromise with the creditors. Whether this can beaccomplished depends on many factors, such as the number of unsecured creditors, aconcentration (or lack thereof) in the amount owed unsecured creditors, and therelationship between the debtor and creditors, just to name a few. If such a compromiseis possible, as difficult as it may be, an out-of-court settlement is usually an attractivealternative to filing bankruptcy.If the debtor is unable to arrange an out-of-court settlement by successfully negotiating acompromise with a high percentage of its creditors (typically over 90%), such efforts canset the stage for a pre-planned bankruptcy that can be accomplished relatively quickly,thereby avoiding the costs of a protracted process.Continues.(Feature Article, p.4)Northern Ohio TMA News Page 3