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45-90 DAY TRIAGE CHECKLIST- ASSESSMENT & PLANNING

Date:Client:Referred by:Primary Contacts:Proposal Letter attached:Engagement Letter attached:Retainer Agreement attached:

Part One: Critical Issue Summary

o Work through Situation Analysis Checklist (Part Two)o Form crisis management teamo Address cash burn rate:

Take control over purchase requisitions, Purchase orders, disbursements Open new bank accounts Review lock box and sweep arrangements Review rights of set-off Formulate initial balance sheet and income statement strategies 13-week rolling cash/collateral and LOC availability forecast Determine fixed and discretionary claims on cash, use contribution margin approach to cash

forecasting.o Forecast and build war chest-Liquidation preventive, plus source of short-term funds in case of loss of

borrowing availability and/or to fund first 30-day cash requirements, post Chapter 11 petition filing.o Viability assessment:

Core business Capital structure & availability of funding-existing and alternative sources, including DIP

prospects.o Decide initial Strategy:

Restructuring Liquidation In court Non-judicial/out of court

o Creditor meetings, communications & relationship management: Lenders Trade

o Stabilize and determine initial critical resource requirements: Crisis team Senior Management Middle Management & Supervisory Salaried and support Hourly

o Coordinate with legal counsel & consider outside bankruptcy counsel supporto Assess accuracy, availability, and utility of financial, management, and operating reporting systems.

Identify value gaps and determine financial literacy capability.o Develop short-term punch list and daily/weekly priority meeting processes

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o Corporate risk management: Trust tax payments Tax lien potential Insurance & liability coverage/exposure Sarbanes Oxley and other reporting compliance OSHA EEOC, Wage & Hour

o Crisis communications: Policy & restrictions on communications authorization Internal communications coordination Coordination of third party professionals SOP for vendor, customer, shareholder, bondholder, creditor, media, and other Replace fear with information

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Part Two: Situation Analysis Checklist

General Operational Information

1. Trade creditor status: COD? Commenced debt collection actions? Shipper status?

2. Lender status: Default conditions-Specifics & length of time of default? Cure period (s) provided? Cross covenant default? Inter-creditor agreement? Performance vs. financial/operating covenant violations? Forbearance agreement in place? Expiration date? Origination date and frequency of renewals to

date? Covenant waiver letter in place? Meeting process in place? Have loan and security agreements been modified? Over-advance condition? Amount and duration? Collateral audit status? Additional security pledged? Availability of additional, unencumbered collateral/assets? Existence of personal guarantees, or related party guarantees? Who? Unlimited? Expiration date? LOC availability? Out of formula? Accuracy of financial and other bank reporting? Borrowing base? Potential for collateral value shrinkage/impairment? Potential for fraud and/or misrepresentation? Demand letter received? Oral request to exit the bank(s)? Degree of perceived lender fatigue? Are forecasts being provided? Frequency? Detailed? Variances/accuracy?

3. Creditor Payments: Returned checks? Post dated checks outstanding? Policies for creditor payment? Days COGS in A/P? Availability of additional trade credit, extended dating/terms?

4. Insurance: Risk of coverage cancellation? Periodic or lump sum payments? Assigned risk pool status? Self insured? If so, compliance with financial covenants?

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5. Customer status: Business concentration risk? Backlog analysis available and condition? Order allocation policies? Availability of financing, working capital, and capacity for backlog fulfillment? Cumulative lead times? Customer and vendor order minimum requirements? Letter of credit conditions? Customer? Vendor? Customer order cancellation history? Controls over customer owned inventory, tooling, and other assets? Internal controls over revenue and conversion cycles? Pricing, customer service, and credit/returns policies? Consignment inventory? Dealer floor planning programs? Soft sale exposure?

6. Employee relations: Union or non-union? State of employee relations? Expiration date of union contract? Existence of default with employee withholdings? Vacation pay policy? Accuracy of vacation accruals? Changes that require advanced notification/reporting, or contractual provisions/restrictions?

7. Pension: Defined benefit or contribution? Funding? Participant in multi-employer pension plan? Adequacy/accuracy of pension liability? Under/over funding condition? If over-funded, availability of cash for working capital? Discrimination, top-heavy and other plan testing current/ in compliance?

8. Financial reporting: Financial literacy assessment? Value gap analysis and initial bridge strategies? Initial review and assessment of financial and internal operating control environment? External reporting for past two years? In compliance with external reporting requirements? Audit or review requirements? Qualified opinion? Any recent changes in auditors? Reasons? Risk of material modifications to reported financials? Status of payments to accounting firm? Recipients of financial and operating reporting? Availability of current financials? Use of “hard” and “soft” closing techniques? Closing cycle times? Review meetings of financials; Internal? External?

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9. Cash: Seriousness and initial root cause analysis of cash flow problem? Quality and availability of forecasts/projections? Underlying assumptions? Accuracy scorecard and variance analysis/reconciliation cycle? 13-week rolling/detailed?

10. Quality control: Overall assessment of performance, and process/ product control environment? Availability and visibility of “localized” and global performance measures? Cost of quality reporting availability? Returns history and status? Order cancellation history and status? Scrap, waste, and off-fall reporting and performance? Warranty policies and exposure? Product development and “reverse” engineering exposure?

11. Customer base: Is debtor sole supply source for any of its customers? Customer deposit review and status? Risk of serious ill will due to inability to meet customer order requirements and shipping schedules? Litigation risk? Need for and travel schedules for key customer calls? Tradeshow requirements:

Deposits made? Scheduling and show commitments? Budget and available funding? Appointments made? Sponsorship commitments? Communications strategy and policies?

Availability of back-up supply alternatives for key customers? Competitive concerns? Existence of special customer Q/C and inspection standards/requirements? Business concentration/dependency risk analysis and trends? Financial condition review of key customers? Pricing policies? Credit & collection policies? Profitability reporting and review processes by market channel/customer segment, product line/key

product? Floor plan, consignment, display unit, and other debtor owned, and customer owned asset

complications? Internal asset control evaluation? LOC implications? Sales and use tax, property tax issues with off-site assets?

12. Vendor base: Off-shore sourcing issues, incl. letter of credit complications? Debtor owned tooling and other equipment located off-site? Tax implications? Status of UCC filings? Internal asset control evaluation? LOC implications? Essential supply contract terms and considerations for price, default, termination, ownership of

special assets and the like?

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Status of any workout arrangements in place? Availability of extended terms, seasonal dating, and vendor lines of credit? Availability of vendor-owned inventory, consignment, and other vendor-managed programs? Financial condition review of key vendor base? Review and evaluation of critical supply chain decision cycle:

What to make/buy? How many? When?

Business concentration/dependency risk analysis of vendor base? Evaluate supply chain management processes, systems, and overall logistics management capability?

13. Avoidable transfers-initial assessment of potential avoidable powers of DIP or potential Trustee: Existence of substantial company payments that may be preferential under the Bankruptcy Code?

Initial strategies for defenses, or repayment? Fraudulent transfer potential (both constructive and statutory) under the Code, state, or federal law?

Initial strategies for defense or repayment?

Review of Debtor’s Assets

1. General asset review and evaluation: Fixed assets system assessment? Fixed asset internal control environment review and evaluation? Date and availability of most recent fixed assets physical inventory? Inventory internal control environment review and evaluation? Breakdown of raw, WIP, and FGI? Have A/R been audited, reviewed, or tested by outside auditors? Real estate ownership analysis? Existence of patents, trademarks, licenses, or other intangibles/special assets? Valuation issues?

SFAS 142 implications? Existence of contracts that are critical to the continued viability of the business? Company owned motor vehicles, road equipment, other rolling stock, ships, boats, or airplanes? Availability of appraisal, tax information, and other relevant information? Leased assets? Properly accounted for? Physical location of assets?

2. Inventory: Slow moving, discontinued, obsolete and excess inventory status and controls/policies to prevent and

accelerate disposition? Out of balance conditions? Exploded bill of material analysis of order backlog and forecast/rough cut production schedule to

identify key outages and overages? Inventory Quality Ratio inventory performance analysis? % current customer orders that can be filled from available stock; from FGI? If converted? Aged inventory analysis? Do repair and warranty requirements prelude disposition? Assessment of overall inventory control environment:

Cycle counting, bin-bay audits, exception/reasonableness reviews? “Problematic” (distressed) inventory controls?

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Book to perpetual reconciliations? Physical inventory processes and performance trends? Inventory accuracy and performance measurement systems? Use of formal ERP/MRP planning and control disciplines? Use of inventory location/warehouse locator system? Automated data collection capability? Overall visibility of and priority to effective inventory management?

3. Accounts receivable: Aging analysis and condition? Collectibility controls and status? Disputed and deducted balance levels and trends? Volume rebate, sales allowance, and discount deductions and reserves? Allowance for doubtful accounts processes, and write-off trend analysis? Offset arrangements/potential for customer/vendor relationships? Concentration risk and analysis? Export concentration and export credit policies?

4. M&E: Cap ex. Policies and controls? Is M&E standardized or specialized? M&E age and condition? Existence of “fixtured” M&E that could cause relo. And/or RE concerns? Overall PM processes, systems, controls? Integration with CRP and fixed assets systems? M&E utilization analysis? Disposition and replacement controls? Tool and die systems and controls?

5. Real estate: Location and use of each property? Business viability and essential use of each property? Salable condition? Recent appraisals? Liens? For leased property, essential terms of the lease re rent, term, use of premises, right of assignment and

sublease, option to buy, default and termination? Environmental issues? Avoidablity potential under Chapter 11, rent savings vs. limited, unsecured damage claim exposure? Sale/leaseback potential?

6. Special assets: Owned or leased airplanes, vessels, rolling equipment, boxcars, construction equipment or the like? If so, locations? Exact ownership of these assets? Offshore interests? Syndicate participation, racehorses, precious metals, or other special assets or interests? Other, non-operating assets that should be reclassified?

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7. Patents, trade secrets, propriety items: Any essential to continued business viability? Expiration dates, other factors which could terminate exclusive rights? Security issues related to preservation of rights? Does debtor have resources to protect position in exclusive areas? Evaluation of intangible asset control systems, especially if off-balance sheet?

8. Governmental licenses, permits, and authority certificates: Any essential to operations? Danger of revocation or sanction from regulatory authority (especially self-insurance financial

condition and reserve requirements)? Effect of Chapter 11 filing? Transferability? Conditions of transfer? Value? Competitive advantage?

9. Deposits, prepayments, refunds, credit and debit balances, and unclaimed property: Existence of any in debtor favor? Significance? Can funds be freed and available to the debtor? Subject to set-off, attachment, or execution?

10. Off- balance sheet asset value: Impairment risk? Asset values unrecorded (e.g., company name)? Excess of appraised value over and above book available to borrow against?

11. Use of assets: Significant assets devoted to functions that could be purchased from other sources (outsourcing

opportunities)? Collateral and borrowing availability considerations and potential restrictions? Debtor’s product lines? All assets necessary for production of the profitable product lines? Substantial, non-essential assets available for sale or additional pledged collateral for working

capital? Disposition timeframe and expected net realizable value upon orderly liquidation? Likely economic effect of disposition to debtor?

12. Tort, contract, and other claims against third parties: Are the claims/potential claims important to viability and profitability of the business? Status of negotiations or litigation? Likelihood of a successful outcome?

13. Letter of credit beneficiary status: Is the company beneficiary of any letters of credit? Terms and conditions for drawing on letters of credit?

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Special Contractual Relationships

1. Lease, franchise, royalty, distributorship, and other contractual agreements: Control systems and policies? Specific agreements in place? Default conditions? Details and recent history? Can defaults be cured? Danger of termination of important contractual arrangements? Nature of debtor’s obligations under each contract? Advantages in chapter 11 to reject executory leases? Limited, unsecured damage exposure in chapter

11?

2. Supply & sales contracts: Beneficial or burdensome? Default provisions?

3. Special industry contracts? Toll metal? Consignment? Barter? Beneficial or burdensome? Enforceable against third parties?

Review of Debtor’s Liabilities

1. General liability review and evaluation: Nature and extent of trade obligations. A/P aging? Effect of slow payment on suppliers? Unmanageable to point of requiring major balance sheet adjustment? Current payment plans, workout arrangements? UCC filing status? Enforceability? Nature of non-trade unsecured obligations-sub debt, bonds, and debentures? Non-trade debt in default or likely to be in near future? Composition opportunities? Any trade creditors willing to consider equity, long-term note, or other capital-like contribution?

2. Short-term debt: Working capital facility details? Secured? Nature and extent of collateral? Lender continuing to advance? If no, opportunities to negotiate restructure of facility? Participating lenders in facility? Lead/agent structure?

3. Term debt: Institutional debt? Public debt? Security?

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Collateral? Trustee for bondholders? Defaults in existence? Subordination agreements in place? Are there subordination’s of debt and collateral priority, or only collateral priority? If IRB, what bond indenture defaults exist? Have bondholders been notified? If lease agreement in

place, have covenants been violated (e.g., min. profitability requirements, min. rental requirements)?

4. Taxes: Past due obligations? Trust taxes in default? Actions taken by authorities? Personal or criminal liability exposure for officers and other responsibilities with respect to taxes? Interest and penalty exposure? Work comp exposure? Can debtor move to payroll service that will automatically withhold, remit taxes and process payroll

tax returns? Past company and ownership history in working out tax defaults? Have liens been filed? Are lenders aware? Continuing to advance? Considerations of tax ramifications of Chapter 11 filing? Advantageous to file? NOL carry back opportunities?

5. Warranty and products liability: Customary warranty provided on the debtor’s products? Will potential claims impact collectibility of accounts receivable? Are there potential problems known to the debtor but not known in the marketplace or by the

customers? Potential for product recall? Serious risk for significant product liability exposure? Insurance available for warranty and products liability? Adequacy of balance sheet reserves and accruals?

6. Unfunded and unpaid employee and retiree liabilities: Pension obligations? Accrued vacation pay? Health benefits? Wages and salaries?-Particularly an issue if petition filing is likely. Commissions? Expense reimbursements? Other incentive and bonus amounts?-Note that a thorough review should be made of all payments and

programs in place to make sure they have been properly authorized and consistent with shareholdervalue maximization objectives.

Stock option expense accruals?

7. Guarantor, surety, and L/C contingent obligations: Guarantors of notes and other obligations? Surety bonds? Financial guaranty bonds? Standby letters of credit?

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Performance bonds? Nature of parties and relationship to debtor? Nature of the reimbursement obligation of the debtor to the guarantor, surety, or issuer of the letter of

credit? Has debtor pledged collateral to secure the reimbursement obligation of the company in the event of

payment by the guarantor, surety, or letter of credit issuer? Any special purpose finance entities, or other off-balance sheet financing? Derivatives? Futures

contracts or other financial risk management obligation exposures?

8. Environmental: Is there a known problem to be corrected? Steps taken to determine cost of correction? Is debtor primarily liable for the costs, or will the company have a claim for reimbursement against a

third party?

9. Fines and penalties: Is company subject to fines and penalties? What will economic and P/R effect be if fines and penalties are imposed?

Employee Agreements and Benefits

1. Executive and other employment contracts: Any burdensome to debtor? Advantages of petition filing to reject these and other executory

contracts? Are key employees bound by enforceable non-compete agreements? Likelihood of enforceability? Do any contracts have large severance provisions? Will downsizing of company involve large severance payments? Consideration for key person retention programs and retention bonuses, should petition filing be

under consideration? Local district history with these programs/payments?

2. Collective bargaining agreements/other labor issues: Are economic terms of collective bargaining agreement an impediment to rehabilitation? Likelihood of organizational attempt if non-union? Will contract provisions prevent sale, merger, downsizing, or other possible action needed to create

viability for the debtor? State of labor-management relations? Wage and hour compliance/exposure? EEOC compliance/exposure? INS exposure? OSHA exposure? Contractual restrictions on implementation of work standards, automated data collection, skill-based

pay, pay for performance incentive programs?

Creditor Composition

1. Unsecured competitors: Number of creditors? Breakdown by size, geography?

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20 largest creditors? Industries represented by 20 largest? Long-term goals and interests of largest creditors in relation to the debtor? Credit associations likely to be active in the workout process? Anticipated business interrelationships among creditors possibly relevant in the workout? Who are the most mission critical vendors in terms of keeping the business operating in the short-

run? Relevant in terms of non-judicial workout, and consideration of critical vendor payments inChapter 11.

2. Secured: Details as to type of debt, nature and extent of collateral, and enforceability of secured position? UCC, RE record, and other document and filing searches required? Availability of summary and detailed information regards the above? Controls?

Utilities

1. Current with utilities?2. Magnitude of past-due balances, if any?3. Seasonal usage fluctuations?

Third-Party Analysis

1. External financial party stakeholders critical for workout participation?2. Nature of their various interests?3. To what extent will actions of any of these parties affect the others?4. Will the character, the composition, or other factors when considering the shear number and geographical

dispersion of creditors require the filing of a chapter 11 petition?5. Could these considerations also impact or impair the likelihood of a consensual chapter 11 plan?

Lender, Bondholder, and Investor Profile

1. Is there public debt?2. Is there a trustee?3. Trustee discretion in dealing with default problems?4. Current default status?5. Is common or preferred stock held by employees, private investors, or a larger group?6. Were securities laws with respect to both registration and disclosure complied with when the public

issues were sold?7. Are there rights of rescission as a result of a failure to disclose properly in accordance with securities

laws?8. Are copies of the original offering, disclosure statement, or prospectus available, together with any

subsequent disclosures and filings?9. Are there lender, bondholder, and investor groups that require a majority or larger vote to provide the

debtor with consents, waivers, approvals, or other actions under default conditions?10. Likely effect on debtor of the lender, bondholder, or investor group decision-making process during the

workout?11. Can the group decision making process be made more flexible to deal with the day-to-day problems?12. Leadership and decisions making structure within each financial partner’s organization?13. Are all critical stakeholders in these various groups known to the debtor? Do they have relationships with

them? Status and quality of these relationships?

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Litigation Analysis

1. Status of major litigation, if any? Details?2. Have shareholders individually or as a class commenced suit against the debtor?3. Relief being sought?4. Nature of the case (s)?5. If not commenced, likelihood of shareholder litigation during the workout?

Management Profile, Internal Organization, and Control

1. Internal organization: Org Chart? Critical employees below management level? Using financial literacy assessments, organizational diagnostics, and management processes,

evaluate:a. Alignment and orientation of management processesb. Policy making elements/dynamics as to authority, accountability, and resource allocationc. Degree of planning and controld. Senior executive meeting processese. Communications processes and systemsf. Performance measurement/managementg. Compensation, rewards, and recognitionh. Human capital training and development processesi. Recruiting, hiring, processesj. Culture

2. Management profile: Can management deal effectively with challenges of the workout? Evaluation of capability of senior management? Personal interests, goals, agenda items, and obsessions of management? Do management and shareholders own important assets used or leased by the company? Do management and shareholders have special relationships with vendors, customers, lenders,

lessors, or others that have an important relationship with the company? Documentation and thorough understanding of all related party relationships? Conflict of interest policy/checklist available? Potential for less than arms length-dealings with management and ownership? Has forensic examination been performed to explore concerns raised from work performed above? Are there manager/owners? Are patents, licenses, franchises, permits, or other important rights held by management and

shareholders? Does management have stock options? Properly accounted for? Loans/amounts due to/from owners and/or managers? Related parties? Any other facts or circumstances arising out of personal interests and possible liability that may affect

the judgment and motivation of management in the conduct of a workout?

3. Control: Who has sufficient power in the exercise of voting rights to control policy determinations and

management of the debtor company? Potential alliances, combinations of votes to exercise decisionauthority and power?

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Are there splits and divisions among controlling interests to create impediments to a potentialworkout?

Are there interrelationships among those who control the voting power of the debtor and creditors? Can these interrelationships create conflicts of interests?

Financial Structure

1. Reasonable debt/equity structure?2. Is there a specific problem in the debt and equity structure that must be addressed before serious attention

may be given to a workout plan?3. Anything about the debtor or its industry that will make it especially difficult to use conventional lending

sources as part of a restructuring?4. Have the past 3-5 year financials been sufficiently analyzed as to leverage, solvency, liquidity, and

ability to assess cash flow capability to service debt-trade and other? 4-variable Z-factor bankruptcypredictive analysis complete?

Analysis of Debtor’s Cash Flow Problems

1. Immediate problem: Can they meet their next payroll? Immediate solution available? Must they temporarily close?

2. Projections: Prepared based on workout conditions and assumptions? Consistent with LOC availability/advance rate structure? Reasonableness and consistency of underlying assumptions? 13-week rolling? Adequate support and detail? Reconciliation and analysis of variances? Accuracy reporting and trends? Required to be shared with external stakeholders? Have forbearance agreement conditions, amended note and security agreements been formulated

based on projections? Do projections reflect potential covenant violations/default? Are financial stakeholders aware?

3. Factors requiring changes in assumptions used for workout cash flow projections? Lower sales, seasonality and other fluctuations? Inadequate cash, availability, working capital to fill order backlog? Overstated collateral borrowing base? Shorter vendor credit terms-COD? Slower A/R collections? Lump-sum payment required when periodic payments were previously accepted? Severance? Price increases from vendors due to lower volumes? Increased professional fees? Higher employee turnover, training costs/leaning curve inefficiencies?

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Cash Management

1. Does debtor have its own cash management control system, or is it involved with a related entity or thirdparty?

2. Details of related entity or third-party cash management control?3. Funds clearly identified as company funds or co-mingled?4. In whose names is the account, centralized or otherwise?5. Mechanics for fund movement?6. Location of company bank accounts?7. How many accounts are there?8. Existence of special bank accounts for deposits or other moneys to which third party may make claim?9. Factoring being used? Details?10. Rights of set-off?11. Should there be a change in the controls over cash?12. Lockbox arrangement?

Corporate, Partnership, or Other Business Structure; Business Records

1. Is debtor’s business concentrated in a single entity or is there a complex corporate and/or partnershipstructure?

2. Which entities operate which parts of the business?3. Does the legal structure dictate the management reporting? Does this facilitate or hinder the

understanding of the business and its operations?4. Have the entities been treated as though they were separate entities by the management, or have their

activities been so blended as to require some form of consolidation?5. Are there different creditors and other parties with different interests in the several entities?6. Nature of inter-company transfers?7. Is the complex structure of the debtor in and itself an impediment to a successful workout?8. Risks of substantive consolidation in bankruptcy?9. Have corporate ownership distributions been used as additional ownership compensation? Loans

to/from? Risk of avoidable preferential insider transfer treatment within chapter 11?10. If Subchapter S Corporation, have distributions complied with basis, passive/active rules under the tax

code? Could they reclassify as a taxable distribution or compensation? Exposure?11. NOL implications of a possible chapter 11 filing been considered?12. Location of records? Are records complete? Are records current? Who has control over records?

Legal Dimension to out of court vs. in-court approach

1. Advantages/disadvantages to resolving litigation in chapter 11?2. Certain elections are available within chapter 11 to treatment of secured vs. unsecured debt, ability to

secure DIP financing and super-priority priming provisions, stalking horse provisions, executory contracttreatment, taxes, automatic stay provisions, etc. Has a thorough examination been performed withqualified counsel to take an informed legal perspective to the prospects of an out-of-court workout?

3. Given recent developments in current case law, what are the risks of liability and exposure to a claim ofdeepening insolvency, constructive fraud?

4. Risks of administrative insolvency? Is there sufficient free and clear and asset value, and cash to fundprofessionals whether in or out of court? Retainers in place? Likelihood of preferential treatment, orsubstantial unpaid professional fee balance at petition date? Prospects of professional fees losing priorityif case were to revert to Chapter 7 and new professionals were hired?

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Public Dimension

1. Is debtor large employer in its geographic area?2. Is debtor a significant supplier of goods and services to government entities?3. Effect on public, business, industry, and government if the company were to cease operations?4. Will business community, industry, and government take an interest in and assist in the process of the

workout?5. When they surface publicly, will debtor problems attract wide attention?6. Existence of securities law disclosure problems that will create major disruption?7. Will publicity create serious market or trade credit problems?

Leveraged Buyout or Other Acquisition

1. Existence of LBO or other acquisition within past three years?2. Details of transaction, especially funding sources, application of funds, collateral given for borrowed

funds and working capital requirements of the business at that time?3. Does transaction require legal analysis under state or federal law, or bankruptcy fraudulent transfer rules?