What is a Consolidation Practice?

A Case Study

Presented by Bart Greenberg

Manatt, Phelps & Phillips, LLP

For the Inland Empire Business Forum

What is a Consolidation Practice?

� It is Much More that Numerous, Repeated Acquisitions

� It is a Holistic and Integrative Approach to each of the

Following:

� Acquisitions

� Financings

� Real Estate Leases

� Other Material Contracts

�The Following Case Study Is Illustrative of this Point:

In the Beginning . . .

X

Holding Company

What Happened Next?

� 35 Acquisitions

� 18 Stock Purchases

� 17 Asset Purchases

�Financings

� Seller Financing� Secured

� Unsecured

� Preferred Stock Financings

� Mezzanine Debt Facilities

� Vendor Assisted Financing� Secured

� Unsecured

The Resulting Corporate Structure

D E F G

1 2 3 4

5 6 7 8

9

H I J K

X A B C

AA BB

CC DD

EE FF

GG HH

II JJ

KK LL

Y

Holding Company

The First Restructure

�Goals:

� Correct Corporate Structure

� Certain Subsidiaries at Wrong Level

� Simplify Overall Corporate Structure

� Confusion from Operational Perspective

� Confusion from Investor Perspective

� Reduce Costs Associated with Structure

� Legal Cost of Separate Entities

� Liability Risk of Many Entities

� Not Chase Any Third Party Consents

After First Reorganization

D E F G

1

H

X

AA BB

CC DD

EE FF

GG HH

II

Y

Holding Company

What Happened Next?

� 6 Acquisitions

� 1 Stock Purchase

� 5 Asset Purchases

�Financings

� Seller Financing

� Unsecured

� Preferred Stock Financing

� Vendor Assisted Financing

The Resulting Corporate Structure

D E F G

1

H I

X

AA BB

CC DD

EE FF

GG HH

II

Y

Holding Company

The Second Restructure

�Goals:

� Two of the Same as the First Restructure

� Simplify Overall Corporate Structure

� Reduce Costs Associated with Structure

� Prepare for Anticipated Credit Facility

� Not Chase Any Third Party Consents

The Resulting Corporate Structure

D E F

1

H I

X

AA BB CC

Y

Holding Company

The Anticipated Credit Facility

�New Lender Requested Company to Transfer Secured Assets

of Company “Y” (constituting 10 facilities) to Newco

� Legal Issues to Effect Drop-Down of Assets:

� Only One Landlord Consent

� Notice Only to Four Other Landlords

� “Notice” to one Secured Creditor

The Resulting Corporate Structure

D E F

1

H I

X

AA BB CC

Newco

Y

Holding Company

The Credit Facility

�No Consents Required

Lessons to Be Learned

Planning, Planning and Planning

�Some Key Considerations:

� Broad Prospective Consent of Creditors to Subordination

� Relaxation of Typical Negative Covenants on the Following:

� Mergers and Restructurings

� Investments in Subsidiaries

� Certain Transfers of Collateral

� Broad Flexibility to Conduct Transactions with Affiliated

Persons

� In Sum, LEGAL Planning for All Anticipated Possibilities of

Growth

Thank you!