KIRKLAND ELLIS INTERNATIONAL LLP A AL AL W

KIRKLAND & ELLIS INTERNATIONAL LLP A AL AL W A WF I FRI M R MS ESRE VRIVNI G N GG LGOL B O AB LA LC LCI LEINE TNST S Recent Trends in Financial Restructurings: How to Avoid a Value Destructive Insolvency Bucharest, 30 May 2013 Leo Plank – Partner – Kirkland & Ellis International LLP CHICAGO 90389651. 1 HONG KONG LONDON LOS ANGELES MUNICH NEW YORK PALO ALTO SAN FRANCISCO SHANGHAI WASHINGTON, D. C. www. kirkland. com | 1

KIRKLAND & ELLIS INTERNATIONAL LLP A AL AL W A WF I FRI M R MS ESRE VRIVNI G N GG LGOL B O AB LA LC LCI LEINE TNST S Issues Presented § Introduction to LBO Restructurings – How the Financial Creditors Set Up Structures to avoid an Insolvency § Klöckner Pentaplast Case Study § Rodenstock Case Study www. kirkland. com | 2

KIRKLAND & ELLIS INTERNATIONAL LLP A AL AL W A WF I FRI M R MS ESRE VRIVNI G N GG LGOL B O AB LA LC LCI LEINE TNST S Introduction to LBO Restructurings – How the Financial Creditors Set Up Structures to avoid an Insolvency www. kirkland. com | 3

KIRKLAND & ELLIS INTERNATIONAL LLP A AL AL W A WF I FRI M R MS ESRE VRIVNI G N GG LGOL B O AB LA LC LCI LEINE TNST S Set Up of a Typical LBO Structure Aim is to create efficient contractual and structural subordination and a clean enforcement structure to avoid value destructive insolvencies Intercreditor Agreement All Debt Tranches are Party Investor Op. Co T 1 Hold. Co Investor Debt Hold. Co D/Lux Mezzanine/2 nd Lien Debt Op. Co Senior Debt Op. Co T 2 Value Break Considerations Value EV Value / Trading Value of debt over time Time Op. Co T 3 Share pledge www. kirkland. com | 4

KIRKLAND & ELLIS INTERNATIONAL LLP A AL AL W A WF I FRI M R MS ESRE VRIVNI G N GG LGOL B O AB LA LC LCI LEINE TNST S Restructuring Solutions Consensual out-of-court restructuring § Usually unrealistic for a debtor facing severe financial and operational difficulties. § Particularly time-intensive. § Diverse constituent groups generally assert often conflicting interests. § Minority investors and shareholders likely to obstruct process unless bought off (hold out, free rider dilemma). Enforcement of share pledge(s) / Use Release Powers under the Intercreditor Agreement § Involves assuming control of operating entities by creditor holding share pledge. § Use the powers granted to the Security Agent under the Intercreditor Agreement to release debt and force creditors to take a haircut. § May involve new investment. www. kirkland. com | 5

KIRKLAND & ELLIS INTERNATIONAL LLP A AL AL W A WF I FRI M R MS ESRE VRIVNI G N GG LGOL B O AB LA LC LCI LEINE TNST S Restructuring Solutions (cont/. . . ) Controlled (pre-arranged/negotiated) coercive process (Scheme of Arrangement / COMI Shift, Chapter 11, Local Bankruptcy) § Necessary when the Intercreditor Agreement is defective / does not work as intended. § May also be necessary when operational issues (leases, bilateral debt at the operating companies etc) must be addressed. www. kirkland. com | 6

KIRKLAND & ELLIS INTERNATIONAL LLP A AL AL W A WF I FRI M R MS ESRE VRIVNI G N GG LGOL B O AB LA LC LCI LEINE TNST S Obtaining Control Share Pledge Enforcement in Luxembourg Investor Hold. Co Share Pledge Enforcement Hold. Co Lux Op. Co T 1 Op. Co T 2 Op. Co T 3 www. kirkland. com | 7

KIRKLAND & ELLIS INTERNATIONAL LLP A AL AL W A WF I FRI M R MS ESRE VRIVNI G N GG LGOL B O AB LA LC LCI LEINE TNST S Obtaining Control Share Pledge Enforcement in Luxembourg (cont’d) Key Steps § Pledge of shares in accordance with Luxembourg law. § The Security Agent can acquire the shares itself (in the context of a private sale at fair market value). § Certain “fair dealing” rules apply and the Security Agent will be required to conduct a market valuation prior to sale and transfer. § Due Diligence must be commenced prior to enforcement, as the sale will occur nearly immediately after the Security Agent calls the loan. § Credit bidding also is possible. www. kirkland. com | 8

KIRKLAND & ELLIS INTERNATIONAL LLP A AL AL W A WF I FRI M R MS ESRE VRIVNI G N GG LGOL B O AB LA LC LCI LEINE TNST S Obtaining Control Share Pledge Enforcement Necessary Steps § Missed payment or nonpayments, causing an “event of default” under various loan covenants. § Restructuring or “lock up” agreement negotiated and executed with participating lenders. § Generally, 2/3 majority under applicable credit agreements necessary. § All or a portion of the debtor’s available credit is called; guarantees (if any) triggered. § Actual insolvency (and obligation to file for bankruptcy) avoided through standstill. § Security Agent commences share pledge enforcement. § Intensive negotiations necessary due to legal and practical difficulties. § Lender-controlled and -financed New. Co entity formed; bids on the shares in a controlled sale subsequent to share pledge enforcement. www. kirkland. com | 9 § Payment in cash or as a “credit bid, ” pursuant to § 1239 of the German Civil

KIRKLAND & ELLIS INTERNATIONAL LLP A AL AL W A WF I FRI M R MS ESRE VRIVNI G N GG LGOL B O AB LA LC LCI LEINE TNST S Obtaining Control Share Pledge Enforcement Risks § Risk regarding improper sale process. § Change of control issues. § Approval requirements in credit agreements. § Security Agent risks, including willingness to follow through and indemnification issues. § Antitrust challenge issues. § Shareholders or prior sponsors seek to undermine the enforcement and transfer to the SPV. § In particular, insolvency risks must be considered and comprehensively analyzed. www. kirkland. com | 10

KIRKLAND & ELLIS INTERNATIONAL LLP A AL AL W A WF I FRI M R MS ESRE VRIVNI G N GG LGOL B O AB LA LC LCI LEINE TNST S KLÖCKNER PENTAPLAST CASE STUDY www. kirkland. com | 11

KIRKLAND & ELLIS INTERNATIONAL LLP A AL AL W A WF I FRI M R MS ESRE VRIVNI G N GG LGOL B O AB LA LC LCI LEINE TNST S www. kirkland. com | 12

KIRKLAND & ELLIS INTERNATIONAL LLP A AL AL W A WF I FRI M R MS ESRE VRIVNI G N GG LGOL B O AB LA LC LCI LEINE TNST S Description of the Transaction § § § EUR 822. 2 million outstanding under pre-restructuring First Lien Facilities and EUR 369. 9 million outstanding under our pre-restructuring Junior Facilities (2 L and Mezz). Total consolidated debt as of March 31, 2012 was EUR 1, 219. 9 million, which was 8. 5 x our Adjusted EBITDA for the twelve months ended March 31, 2012. Leverage ratio covenant breach for the period ended December 31, 2011. Company obtained a waiver of this breach until June 22, 2012 from pre-restructuring Senior Lenders. On June 21, 2012, KP was recapitalized and the equity of one of the Luxembourg holding companies was purchased by way of a private enforcement sale by an entity financed by certain of former Junior Lenders, including funds affiliated with SVP. As part of the transaction EUR 904. 8 million was paid in cash to repay in full the liabilities under our pre-restructuring First Lien Facilities (including accrued interest and cash paid to settle outstanding interest rate hedge agreements). Recovery by holders of the group’s liabilities under the pre-restructuring Junior Facilities was effected through the equitization of their claims. www. kirkland. com | 13

KIRKLAND & ELLIS INTERNATIONAL LLP A AL AL W A WF I FRI M R MS ESRE VRIVNI G N GG LGOL B O AB LA LC LCI LEINE TNST S Implementation Alternatives Available Transaction documentation contained an ability to release or “flip-up” debt, security and guarantees on enforcement but did not allow for transfer or warehousing of old debt. This resulted in significant tax challenges for both competing proposals. Scheme plus pledge enforcement Intercreditor buy-out plus pledge enforcement Contractual amendment plus pledge enforcement Scheme would be proposed to deal with tax issues in the absence of clearance from German tax authorities Requires senior acceleration to trigger Intercreditor amendment required to deal with tax issues Timing issues given waiver timetable and new money commitments Only implementation route that could be implemented unilaterally but impractical due to drafting Specific intercreditor amendment provisions helpful Requires company consent Useful leverage points Absent buy-out the senior pre-payment requires company consent Also requires a scheme or contractual amendment to deal with tax issues www. kirkland. com | 14

KIRKLAND & ELLIS INTERNATIONAL LLP A AL AL W A WF I FRI M R MS ESRE VRIVNI G N GG LGOL B O AB LA LC LCI LEINE TNST S Rodenstock Case Study www. kirkland. com | 15

KIRKLAND & ELLIS INTERNATIONAL LLP A AL AL W A WF I FRI M R MS ESRE VRIVNI G N GG LGOL B O AB LA LC LCI LEINE TNST S The Rodenstock Group The Scheme Company: Rodenstock Gmb. H (“Rodenstock”) § German limited liability company with its headquarters in Munich. § German and foreign subsidiaries and a German parent but ultimately owned by a private equity sponsor (the “Sponsor”). The Rodenstock business § Europe’s fourth largest manufacturer and distributor of frames and spectacle lenses. § Maintained around 40 sales offices across the globe and major production facilities in Europe and Thailand. The financial situation § Rodenstock Gmb. H (“Rodenstock”) was main operating company in the Group with a turnover of approximately EUR 258. 3 million. Rodenstock Group’s aggregate annual turnover was approximately EUR 361. 5 million. § Outstanding senior debt of approximately EUR 305, 335, 000 secured by a market standard collateral package. § The syndicate primarily consisted of major banks. Only very few CLOs and hedge funds were present in the lending group. www. kirkland. com | 16

KIRKLAND & ELLIS INTERNATIONAL LLP A AL AL W A WF I FRI M R MS ESRE VRIVNI G N GG LGOL B O AB LA LC LCI LEINE TNST S Restructuring Process Deterioration of the business § During the 2008 -2009 global financial crisis Rodenstock suffered a deterioration in its business. § The deterioration led to a breach of certain financial covenants under the existing senior facilities agreement. Restructuring attempt § In mid-2009 the senior lenders formed a senior coordinating committee but lender group was fractioned and did not appear to act as a homogenous group with aligned interests. § Not able to agree on a straightforward transaction with another private equity sponsor initiated by Sponsor. Scheme in light of imminent threat of insolvency § Rodenstock and the senior coordinating committee took charge of the process in light of the imminent threat of insolvency proceedings. § Ultimately, the parties chose to pursue a restructuring by way of an English Scheme of Arrangement to preserve the going concern value of the Group. www. kirkland. com | 17

KIRKLAND & ELLIS INTERNATIONAL LLP A AL AL W A WF I FRI M R MS ESRE VRIVNI G N GG LGOL B O AB LA LC LCI LEINE TNST S Restructuring Agreement and Scheme Restructuring Agreement § Rodenstock, members of the senior coordinating committee and certain other seniors entered into a Restructuring Agreement providing the framework for the proposed restructuring. § The framework contemplated implementation by means of a Scheme in case the restructuring could not be implemented consensually or by way of any other method. § The only other alternative option available seemed to involve a share pledge enforcement. www. kirkland. com | 18

KIRKLAND & ELLIS INTERNATIONAL LLP A AL AL W A WF I FRI M R MS ESRE VRIVNI G N GG LGOL B O AB LA LC LCI LEINE TNST S Scheme Jurisdiction Re Rodenstock [2011] EWHC 1104 (Ch) Jurisdiction: “liable to be wound up under the Insolvency Act 1986” § Section 895 (2) (b) of the Companies Act 2006 is designed simply to identify the types of companies which may be subject to the Scheme jurisdiction. § Insolvency Act 1986 confers jurisdiction to wind up both insolvent and solvent unregistered companies with no express jurisdictional restriction to the company's place of incorporation, centre of main interest or establishment. § Nothing in either Judgments Regulation or the Insolvency Regulation (both came into force far later than the provisions on the court's jurisdiction to sanction Schemes) was intended to, and in fact does, restrict the scope of the “liable to be wound up” touchstone of jurisdiction, i. e. a company being eligible for the application of a Scheme of Arrangement. § However, Briggs J. left open whether and to what extent the Scheme Creditors must satisfy jurisdiction pursuant to Chapter II of the Judgments Regulation. § Unnecessary to resolve this issue because more than 50 percent (by value) www. kirkland. com | 19

KIRKLAND & ELLIS INTERNATIONAL LLP A AL AL W A WF I FRI M R MS ESRE VRIVNI G N GG LGOL B O AB LA LC LCI LEINE TNST S Chicago Kirkland & Ellis LLP 300 North La. Salle Chicago, IL 60654 United States +1 312 -862 -2000 +1 312 -862 -2200 fax Hong Kirkland & Ellis 26/F, Gloucester Tower, The Landmark 15 Queen's Road Central Hong Kong +852 3761 3300 +852 3761 3301 fax London Kirkland & Ellis International LLP 30 St Mary Axe London EC 3 A 8 AF United Kingdom +44 20 7469 2000 +44 20 7469 2001 fax Los Angeles Kirkland & Ellis LLP 333 South Hope Street Los Angeles, CA 90071 United States +1 213 -680 -8400 +1 213 -680 -8500 fax Munich Kirkland & Ellis International LLP Maximilianstrasse 11 80539 Munich Germany +49 89 2030 6000 +49 89 2030 6100 fax New York Kirkland & Ellis LLP 601 Lexington Avenue New York, NY 10022 -4611 United States +1 212 -446 -4800 +1 212 -446 -4900 fax Palo Alto Kirkland & Ellis LLP 3330 Hillview Avenue Palo Alto, CA 94304 United States +1 650 -859 -7000 +1 650 -859 -7500 fax San Francisco Kirkland & Ellis LLP 555 California Street San Francisco, CA 94104 United States +1 415 -439 -1400 +1 415 -439 -1500 fax Shanghai Kirkland & Ellis International LLP 11/F, HSBC Building, Shanghai IFC 8 Century Avenue, Pudong New District 200120 Shanghai, P. R. China +86 21 3857 6300 +86 21 3857 6301 fax Washington, D. C. Kirkland & Ellis LLP 655 Fifteenth Street, N. W. Washington, D. C. 20005 -5793 United States +1 202 -879 -5000 +1 202 -879 -5200 fax www. kirkland. com | 20