Vol. 18/No. 6 June 2005Investors Warn: Be Skeptical, Hands-On, Disciplined Navigating Debt-for-Equity Swaps in the Middle Market Rebuilding Tattered Board Credibility Independence,

CORPORATETHE JOURNAL OF

T U R N A R O U N D M A N A G E M E N T A S S O C I A T I O N

INVESTING INUNDERPERFORMING

COMPANIES

How toDistinguish Train Wrecks from Derailments

Competition for Good Distressed DealsIs IntenseInvestors Warn: Be Skeptical, Hands-On,Disciplined

Navigating Debt-for-Equity Swapsin the Middle Market

Rebuilding Tattered Board CredibilityIndependence, Courage toChange Are Required

Vol. 18/No. 6 June 2005

W W W. T U R N A R O U N D . O R G

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Editorial Advisory BoardRobert D. Katz, CTP, Chairman

Executive Sounding Board Associates Inc.Mark Barbeau

Corporate Revitalization Partners, LLCPeter S. Clark II

Reed Smith LLPJohn M. Collard, CTP,

Strategic Management Partners, Inc.Colin P. Cross

Back Bay Capital Funding LLCVincent J. Harper

CoBankLisa N. Johnson

Wells Fargo Business Credit, Inc.Ronald Reuter

RJ Reuter, LLC Linc A. Rogers

Blake Cassels & Graydon LLPAlan D. Smith

Perkins Coie LLPSteven J. Weisz

Blake Cassels & Graydon LLPJeffrey A. Wurst,

Ruskin Moscou Faltischek PCEddy McNeil

Managing Editor

TMA StaffLinda M. Delgadillo, CAE, Executive Director

Design and ProductionKearns|Markle Design

Advertising OpportunitiesReach your target audience 12 times a year. The Journal reaches more than 10,000 industry-related professionals.

For details and reservations, contact Joseph R. Karel at (312) 578-6900.

About The Journal The Journal of Corporate Renewal (ISSN 1094-0472)is published 12 times a year by the TurnaroundManagement Association, a not-for-profit organizationand the premier professional community dedicated tocorporate renewal and turnaround management. Articlesin The Journal express the opinions of their authors anddo not necessarily reflect the views of the directors,officers, or members of the TMA. Articles in TheJournal are intended as an information source andshould not be construed as specific advice. Readersshould not act on the information in The Journal withoutfirst consulting a qualified professional advisor. Views of individual members are encouraged, especially lettersto the editor and feature articles. Address manuscriptsand editorial correspondence to: Editorial Board, TMA, 100 South Wacker Drive, Suite 850, Chicago,IL 60606 or call (312) 578-6900.

© 2005 Turnaround Management Association. All rights reserved.

Dedicated To Corporate Renewal June 2005 • 1

From the Chairman ..................................... 2

Legal Bulletin ............................................ 24

TMA in the News ..................................... 26

Top 10 CTP Firms ...................................... 28

Members On the Move ........................... 30

Welcome New Members ....................... 33

Straight From the Chapters .................... 41

Member Benefits ..................................... 48

C O N T E N T S

Catherine CramNicole GibbyCecilia Green, APR, CAELaura J. IvaldiJoseph R. KarelEddy McNeil

Lupe SimpsonDebra SmithDonna SteigerwaldDale WestAngela Worlds

4COVER STORY

How to Distinguish Train Wrecks from DerailmentsDeciding Where to Invest

Navigating Debt-for-EquitySwaps in the Middle Market

8

Rebuilding Tattered Board Credibility

Independence, Courage toChange Are Required

14

INVESTORS SYMPOSIUM:

Competition for GoodDistressed Deals Is IntenseInvestors Warn: Be Skeptical,

Hands-On, Disciplined

18

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• Our International Task Force has examinedour commitment to be a global organizationand will recommend new initiatives toenhance our global brand and increasemembership outside of North America.

• We are committed to delivering regional conferences on a regularbasis and are working with various chapters to develop appropriatecontent and formats.

• Our Cornerstone Council will be reviewing proposals for fundingexciting new educational programs that will further our outreach andadd significant value to the turnaround profession.

• Our annual convention planning team, led by Tom Allison, BobMorris, and David Mack, is organizing a remarkable conference inChicago. Their devotion to improving the quality of the educationalcontent and to harnessing the energy of our Chicago Chapter willensure success.

It has been a very busy year for TMA. Our management team inChicago has worked tirelessly to move TMA forward and to addresswith enormous efficiency the many details that allow us to achieve ourstrategic objectives. Thanks to their efforts we are on schedule, and ournew initiatives will add significant value for our members.

2 • June 2005 Turnaround Management Assoc ia t ion

It almost seems impossible that it is already June and that we arehalfway through the year. It seems that it was only a couple of weeksago that we embarked upon the process of developing a new strate-

gic plan for TMA, when in fact we have now been in the process ofimplementing our plan for the past six months.

This week I received TMA’s 2004 Annual Report, and it is an out-standing reflection of our accomplishments and our value commitmentto our members. Cecilia Green, TMA International’s director of publicrelations, put together a report that truly distinguishes our organization.It not only highlights our international activities, but also celebrates the accomplishments of many of our chapters and the enormous com-munity outreach of the association. Each of our members can be proudof all aspects of our annual report, and I suggest that you share it withfriends and colleagues who are not members to encourage their interestin our organization.

As I said, many new initiatives are in process to comply with ourstrategic plan. Here is a quick summary:• The Association of Certified Turnaround Professionals (ACTP) is

revamping its marketing efforts and broadening its outreach toincrease the number of CTPs. Enormous work has gone into this pro-ject, and a new Body of Knowledge has helped us re-energize ourcommitment to certification.

The prescription to renewed health andreturns is to bring leadership, set strategy, builda quality management team, acquire new busi-ness/sales, establish a sound capital structure,implement processes to drive the business, andprepare to cash out. An investor must know whento exit — Earnings and cash capacity plusachieved X multiple on investment plus demonstrated Improvementsplus function management Team in place equals time to sell.

This issue of The Journal features comments from a panel discus-sion, “Buying and Managing Distressed Companies,” that occurred atthe Thomson Venture Economics 2004 Buyouts Symposium. In addi-tion, Christopher R. West, a principal with Semmes, Bowen &Semmes, discusses structuring investments to protect assets.

Other authors include Anthony DiSimone, a managing directorwith HIG Capital Management, who discusses restructuring debt asa strategy. Terry Lee Brubaker, vice chairman and chief operatingofficer of Gladstone Capital Corporation, offers an article about usingboards to implement strategy.

John M. Collard is chairman of Annapolis, Maryland-basedStrategic Management Partners, Inc., a turnaround managementfirm specializing in interim executive leadership and investing inunderperforming companies. Collard is also a past TMA chairmanand can be reached at [email protected] or (410) 263-9100.

G U E S T E D I T O R

BY JOHN M. COLLARD, JUNE GUEST EDITOR

Investing in underperforming companies can be profitable if youknow what to look for and how to execute. The fundamentalpremise to distressed investing involves obtaining at the right price

a company that can be turned around, managing a turnaround toincrease the value of the business, and selling the company at a pricethat reflects its increased value.

Determining turnaround viability requires understanding whatcaused a company’s breakdown. One shouldn’t misinterpret symp-toms or listen to current senior management. After all, if these exec-utives knew what was wrong, they would have fixed the problems.

A distressed investor should always take active control of thebusiness. Perhaps the investor can bring new non-cash resources or applications to the revitalization or take advantage of mispricedmaterial inputs, labor, assets or capacity, and intellectual property.

A distressed investor should never just add cash and shouldalways implement new leadership. Being a passive investor and trust-ing prior management to handle a turnaround is a placebo that maycost the entire investment.

While many investors have run financial or investing institutionsin the past, few have operated other kinds of companies, and manyare ill equipped to do so. Investors who also have senior operatingleadership experience add substantial value. Many equity firms areadding C-level operating executive talent to complement their man-aging partners, even when resources are tight.

F R O M T H E D E S K O F

Ward K. Mooney, TMA Chairman

CR

Host of Projects Are Underway

Investing in Underperforming Companies

Can we lose a couple lines this page?

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TURNAROUND MANAGEMENT ASSOCIATION

2004 OfficersWard K. Mooney, ChairmanHolly Felder Etlin, PresidentJohn R. Rizzardi, Immediate Past ChairmanRandall S. Eisenberg, CTP, Penultimate ChairmanN. Lynn Hiestand, SecretaryEdgar C. Howbert, General CounselKathleen Z. Lepak, Vice President – Chapter RelationsJames B. Matthews, Vice President – Public AffairsLisa M. Poulin, CTP, Vice President – ACTP RelationsJames B. Shein, Vice President – University RelationsWilliam E. Skelly, Vice President – International RelationsSheila T. Smith, Vice President – EducationSteven J. Weisz, Vice President – Finance

Executive CommitteeHolly Felder EtlinAnthony N. Bergen, CTPHoward Brod Brownstein, CTPMichael D. ChartockW. Douglas CheyneColin P. CrossN. Lynn HiestandEdgar C. HowbertPatrick C. Lagrange

Operations CommitteeHolly Felder Etlin Linda M. Delgadillo, CAEWard K. Mooney Steven J. Weisz

DirectorsThomas J. Allison, CTPEdward I. AltmanWilliam J. BrasserHoward Brod Brownstein, CTPKaren A. CaplanW. Douglas CheyneRobert N. DangremondWilliam R. DavisGayle P. EhrlichRandall S. Eisenberg, CTPWarren H. FederJoe FosterKevin P. GendaBrent P. HazzardThomas S. HendersonEdith HotchkissHon. Barbara J. HouserRobert D. Katz, CTPMichael Knight

Chapter Presidents*Gerald O’Connor, ArizonaRon H. Turcotte, AtlantaNicholas G. Samios, AustraliaScott B. Brubaker, CTP, California – NorthernMichael A. Cavan, CTP, California – Southern William A. Barbee, CarolinasR. Timothy Bryan, ChesapeakeDaniel F. Dooley, CTP, Chicago/MidwestThomas M. Kim, ColoradoLorenzo Mendizabal, ConnecticutPatrick O’Keefe, DetroitLunelle Siegel, FloridaRenaud Cormier, FranceYoshinobu Konomi, JapanEdward H. Arnold III, LouisianaMichel Gratton, MontrealHarvey Gross, New JerseyRobert Raskin, New York CityStephen B. Mischo, New York – Long IslandGarry Graber, New York – UpstateDennis Orme, New ZealandEdward I. Shifman, Jr., NortheastRichard A. Carlson, CTP, NorthwestBarry K. Sullivan, OhioJ. Scott Victor, PhiladelphiaBeverly Weiss Manne, PittsburghMichael T. Lewis, St. Louis/Tri-StateJohn C. Tishler, TennesseeMichael M. Parker, Texas – CentralJ. James Jenkins, CPA, Texas – Dallas/Ft. WorthD. Bobbitt Noel Jr., Texas – HoustonTracy C. Sandler, TorontoAlan Tilley, United KingdomJames Hajek, Upper Midwest

Past Chairmen’s CouncilThomas J. Allison, CTPDavid L. Auchterlonie, CTPGerald P. Buccino, CTPJohn Wm. Butler Jr.Melanie Rovner CohenJohn M. Collard, CTPPeter DusinberreRandall S. Eisenberg, CTP

*Chapter Presidents are de facto Directors.

Theodore L. KoenigPatrick C. LagrangeHugh C. Larratt-SmithDavid E. MackHon. Robert D. MartinHenry S. MillerRandall Wright Patterson, CTPArthur T. Perkins Jr.Ronald J. ReuterVictor D. RussoTracy C. SandlerMichael S. SitrickRonald R. SussmanKellee Ann ThomasDavid M. WeinsteinRichard W. WirthMelvin C. ZwaigLinda M. Delgadillo, CAE

Kathleen Z. LepakJames B. MatthewsWard K. MooneyLisa M. Poulin, CTPJohn R. RizzardiJames B. SheinWilliam E. SkellySheila T. SmithSteven J. WeiszLinda M. Delgadillo, CAE

William J. Hass, CTPThomas D. Hays III, CTPF. Richard MatthewsMartin J. McKinleyGilbert C. Osnos, CTPJohn R. RizzardiPeter L. Tourtellot, CTP

ISSUE

January

February

March

April

May

June

July

August

September

October

November

December

THEME

Hot Topicsin Corporate Renewal

International Issues

Workout Issues(Spring Meeting issue)

Compensation Issues

Capital Markets/Liquidity

Investing in UnderperformingCompanies

Mitigating Risk

Fraud

Marketing/Growing Your Practice

2005 Annual Convention Issue(Topic TBD)

Industry Focus: Agribusiness

Private Equity/Hedge Funds

GUEST EDITOR

Steven J. WeiszBlake Cassels & Graydon LLP

(416) [email protected]

Lisa N. JohnsonWells Fargo Business Credit, Inc.


Linc A. RogersBlake Cassels & Graydon (U.S.) LLP


Colin P. CrossBack Bay Capital Funding LLC


John M. CollardStrategic Management Partners, Inc.


Ron ReuterRJ Reuter, LLC


Jeffrey A. WurstRuskin Moscou Faltischek, P.C.


Lisa N. JohnsonWells Fargo Business Credit, Inc.

Robert D. Katz, CTP, ChairmanExecutive Sounding Board Associates Inc.


Vincent J. HarperCoBank


Peter S. Clark IIReed Smith LLP(215) 851-8142

[email protected]

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2 0 0 5 E D I T O R I A L C A L E N D A R


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BIS

COVER STORY How toDistinguish

Train Wrecksfrom Derailments

Deciding Where to InvestBY CHRISTOPHER R. WEST, PRINCIPAL, SEMMES, BOWEN & SEMMES

Investing in a profitable, well-run company is difficult; putting money intoan underperforming company is much harder. Some of the wheelsalready have jumped the rails at a troubled company, and a prospectiveinvestor must ascertain whether the company is headed for an inevitable

train wreck or can be put back on track.Always essential to making an investment decision, due diligence is even

more important for an investor considering whether to put money into anunderperforming company. The most important task is to ascertain why thecompany is underperforming. Extensive and intensive due diligence must beconducted in at least four areas:• The market and competitive landscape• Financial/accounting• The technology/product• Management

The size of the available market, its growth rate, and the forecastedpenetration rate by the company must be determined and then revised andreformulated after cross-correlating internal market diligence provided by thecompany with various external resources, such as analyst reports, indepen-dent market research reports, industry experts, and the competition’s businessplans and 10-K and 10-Q filings.

This top-down approach to analyzing a potential opportunity must thenbe augmented with bottom-up diligence at the customer level. A potentialinvestor must make numerous calls to a company’s existing and prospectivecustomers to validate why they are purchasing its products and how muchthey expect to buy over the next several quarters. This information then mustbe correlated with sales and bookings forecasts. Detailed notes should bedocumented in individual customer diligence memorandums that are aggre-gated and included in a separate section of a formal due diligence book.

Most companies tend to underestimate their competition, so as a part ofits due diligence, a prospective investor must assess the competition in detailand map out a company’s position relative to its competition. A potentialinvestor should examine a minimum of three years of historical and projectedfinancial statements, obtain a copy of the management letter from the busi-ness’s auditors, and interview the auditors about any accounting issues. An investor also must determine whether the auditors capitulated to manage-ment on any material issues, such as valuing inventory, accounts receivable,and accounts payable.




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A prospective investor also should hire an accoun-tant who has expertise in investigating and documentingprofessional negligence, fraud, and fiduciary viola-tions to determine whether the company’s financialrecords reflect its true financial status. If necessary, acompany’s projected financial statements should bereforecast more conservatively and realistically in lightof information gleaned from the market diligence.Particular attention should be paid to the monthlyfinancials and the bookings forecast.

A prospective investor should consider retainingtechnical consultants to scrutinize sophisticated tech-nology that is essential to a company’s operations. Forexample, if the company has patents that have beenissued, are pending, or are yet to be filed, it is criticalto determine the scope of proprietary protection thatthey provide to the company.

Phone conversations or meetings should beconducted with members of the board of directors andkey investors to uncover material issues concerningthe company’s management. In addition, a prospectiveinvestor should be prepared to conduct numerousmeetings with key members of the company’s man-agement team and to complete exhaustive referenceand background checks and verifications on theseindividuals. In some cases, private investigatorsshould conduct examinations on the CEO and otherkey company executives.

A crucial issue is whether the company is operatingat or near positive cash flow or is running deficits. As

long as a company is at least marginally profitable,time is on its side, and it will be easier to address itsproblems. A company that already is running deficitswhen a potential investor arrives on the scene, how-ever, always has a proverbial Sword of Damocleshovering overhead and will need periodic infusions ofnew capital to survive until it achieves profitability.

Many companies that had compelling businessplans have closed their doors over the past five yearswhen neither they nor their leading investors couldsecure additional capital to sustain them until theycould become profitable. Therefore, any decision toinvest in a company that is running deficits shouldhinge on whether a committed, reliable source ofadditional capital is waiting in the wings.

Plan to SellAssuming that the due diligence checks out and aninvestor decides to put money into the underperform-ing company, the next threshold issue is valuation.How much is the company worth today, and howmuch does the investor believe it will be worth to aprospective buyer after all of its problems have beenresolved and it has been transformed into an attractivepurchase opportunity? A number of books are availableon valuation techniques. However, the basic principleshould always be the same: from the outset, aninvestor should plan to sell the business and thereforeto build its value by enhancing components thatprospective purchasers find desirable.

continued on page 6

As long as a company is at least marginallyprofitable, time is on itsside, and it will be easierto address its problems.


continued from page 5


INVESTING IN UNDERPERFORMING COMPANIES

reduced price of the company’s securities soldin a down round plus the number of securitiesissued in the down round. In contrast, the fullratchet formula reduces the conversion price to the price of the company’s securities sold ina down round, without regard for the numberof securities issued.

For investments in underperforming com-panies, the term sheet frequently containsdetailed provisions setting forth the number ofdirectors an investor has the right to elect.Sometimes this right can be exercised immedi-ately after the company receives the invest-ment; more often, the number of directors aninvestor has the right to elect increases whendefined events occur that signify deteriorationin the company’s prospects of recovery. Ofcourse, the greater the percentage of boardmembers an investor controls, the more theinvestor will regard itself as a share “owner”rather than a share “holder.”

The term sheet also will incorporate theinvestor’s exit strategy. It may include one ormore of the following: demand registrationrights, which accord the investor the right torequire the company to initiate and pursue the registration of a public offering, includingthe investor’s shares; piggyback registrationrights, which provide the investor with theright to sell all or a portion of its shares if thecompany initiates a public offering; and tag-along rights, which give the investor the rightto include its shares in any sale of control ofthe company (and at the offered price).

Just the BeginningThese considerations barely touch the surfaceof the possible provisions that might be includ-ed in the term sheet to protect an investor’sinterests. However, they illustrate the overridingprinciple that when considering an investmentin an underperforming company, it is better toerr on the side of proactive overprotection thanon cavalier inattention.

Christopher R. West is a principal in Semmes,Bowen & Semmes, a full-service law firm founded in 1887 and headquarteredin Baltimore, with offices in Washington, D. C.;Hagerstown and Salisbury,Maryland; and McLean, Virginia. West co-chairs the firm’s venture capital andcommercial lending practice. He is a graduateof Williams College and the University ofPennsylvania School of Law. West can bereached at [email protected].

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For any investment in an underperformingcompany, a term sheet should be crafted care-fully to accord the investor an appropriate levelof control over the company and its manage-ment. In some cases, an investor simply willpurchase the company outright, dismiss currentmanagement, and take over functionalmanagement. Typically, however, an investordoes not want to assume ongoing operationalresponsibilities for a company; it does, however,want to retain the right to pull the plug oncurrent management under certain circum-stances. In either event, the term sheet is critical.

The first important decision reflected inthe term sheet is the choice of security to beused for the investment. Generally, an investor inan underperforming company insists on obtain-ing securities that are senior to the company’scommon stock. Such senior securities carry aliquidation preference, thus providing theinvestor with the right to be paid out — andpossibly to receive profit on the investment aswell — before existing common stockholders

receive any proceeds if a liquidation, merger,change of control, or other significant liquidityevent occurs.

An investor can loan money to an under-performing company and take back a note.However, notes do not provide for an equitycomponent. To obtain an ownership interest ina company and position themselves to realizecapital appreciation if a company recovers itsequilibrium, most investors insist on a seniorsecurity that is convertible to common stockor, alternatively, a nonconvertible senior secu-rity coupled with warrants that can be exer-cised for common stock.

Senior securities also typically includeanti-dilution protection, which provides for anupward adjustment in the number of sharesissued upon a conversion of the senior security,according to a rather complicated formula, ifthe company issues additional shares ofcommon stock at a price that is lower than theconversion price.

Two types of formulas are typically usedin term sheets: weighted average and fullratchet. There is an important differencebetween the two for investors. The weightedaverage formula is less beneficial to aninvestor, as it reduces the conversion price tothe investor by taking into account both the


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Competition for Good DistressedDeals Is Intense

Investors Warn: Be Skeptical, Hands-On, Disciplined

Editor’s Note: This piece is excerpted withpermission from “Buying and ManagingDistressed Companies,” a panel discussionat the Thomson Venture Economics’ 2004Buyouts Symposium. The panel discussionwas moderated by John M. Collard, chair-man of Strategic Management Partners,Inc., Annapolis, Maryland.

Participants included Robert D.Denious, managing director of Questor,Southfield, Michigan; Michael Psaros, amanaging principal of KPS SpecialSituations Funds, New York; Mark J.Schwartz, president and CEO of GordonBrothers Group, Boston; and Bhavin B.Shah, vice president of Ewing ManagementGroup, L.P., Dallas.

Shah: There is an incredible amount of money out there and sometimes thereis a perception that you need to…put $200 million a year out of a $1 billion fund to work. Otherwise, in five years you may not have investedall of the money. Sometimes we do four or five deals a year. Some years we don’t do any. It’s a matter of instilling that type of approach, not just inpeople, but also in the strategy of the firm.

Denious: Look at the multiples that are being paid. Whether it’s pressure toinvest because there is a lot of dry powder or whether it’s because there isliquidity in the market and you can borrow debt again at healthier levels, themultiples are going up.

Shah: Most of us are not necessarily used to paying eight, nine, or 10 timesmultiples for most companies…that would go for four, five, or six timesmultiples. People who have not done turnarounds and restructurings beforesuddenly have emerged in this marketplace and paid seven, eight, nine timesmultiples for companies that I would believe necessarily are not worth thatmuch. Maybe that is setting us up for two or three years from now,when…they hit their covenants and the distressed debt market is not strong.Maybe we can restructure them.

Schwartz: There is talk of 30 or 40 companies showing up at auctions. Whenyou see some of the investment banks providing staple-on financing now offour or five — we are seeing in excess of five times leverage — clearly you willsee people paying higher multiples.

I think one of the things that is driving it is that as larger funds have beenraised…you see certain groups getting content with lower returns on theirinvestments. So before, if someone had a minimum hurdle of 30-plus percent

per investment, we are seeing a lot of the pure private equity funds looking at transactions…thatcan generate returns in excess of maybe the high teens or low 20s, which from our perspectivereally changes the risk/reward ratio.

Q.Collard: There is a distinct advantage to using professionals who bring C-level operational,transactional, and turnaround expertise together to determine what’s wrong, how to fix it,and how much to pay for it…

How much pressure is there within private equity funds to put capital to work? How doesthis affect competition for deals?

Bhavin Shah

Robert Denious

Mark Schwartz


Q.

yg

continued on page 10


“In a lot of these situations,people are looking to thedistressed investor as asolution to their problem. It is their problem before you get in. As soon as youwrite the check, it becomesyour problem, too.”

Psaros: We look for greatcompanies with strong marketshares, competitive advan-tages, and strong franchisesthat have encountered a seriesof very material operatingproblems and, in most cases,financial problems. We getexcited about an opportunitywhen we can go in and con-

cretely identify the problems from an operatingstandpoint and the solution to those problems.

We try to avoid, as a turnaround fund, busi-nesses with rapid technological change. So, wetend to avoid, obviously, high-tech, biotech,media, and telecom. We like to focus on themore mundane aspects of the manufacturing and service economy, where we can go andimplement a cost-based versus a revenue-basedturnaround.

Schwartz: You see companies coming aroundonce, twice, three, or four times. When you startseeing a fourth or fifth time around, you realizein some situations that people are getting realis-tic, and it might be the right time to start lookingat a restructuring or turnaround. We look atcompanies that are in some level of distress buthave a definable brand, product, or service thatgives them a competitive advantage. To effectthe turnaround, in our experience, will take 12 to 18 months, and you don’t want to have thewhole product shifting from you during thattime period, as you are trying to improve thecash flow and make some of the necessarychanges. From our perspective, it’s trying to finda good company that is being managed ineffec-tively, as opposed to something that purely hasbeen overleveraged.

Collard: How do you control your investmentwhen you are putting money into a company asequity to ensure that it will be used to fundfuture needs as opposed to pay for past sins?

Schwartz: Even though it may end up as equity,we don’t always look at putting in equity rightaway. Also, obviously, the ownership, in termsof whether or not we have control, is a big issue. If it’s a company you would like to own, youwant to get in there as quickly as possible beforethe business deteriorates. We have to resist thaturge because you don’t want to put money into asituation prematurely. If you are putting it ineither before you have control or before you

have the right structure, money can quickly disap-pear to existing creditors. In a lot of these situa-tions, people are looking to the distressed investoras a solution to their problem. It is their problembefore you get in. As soon as you write the check,it becomes your problem, too. We are very sensi-tive about when we get in there.

It is critical for us to analyze the cash flow in terms of what the company needs, short termand long term. Who can afford to take a haircut?Who do you need long term? Where is the cashgoing to be going once we complete the restruc-turing, and what’s going to be needed during the time frame? We also critically look at howmuch cash is needed, not just initially but also in a long-term view. We don’t want to find ourselvesinvested and — if the process takes six monthslonger than what we thought — not be in a posi-tion to reinvest.

To make sure the cash flows the right way,there are two different approaches. If we need to put money in quickly, we often try to come in as a secured lender. We will try to attach some typeof collateral so…at least we are protected if thewhole thing blows apart. We are very sensitive tothings like standstills and availability and whatsome of the other lenders can do in terms of

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Q.Collard: Where are the good deals? Pleasedescribe the characteristics that you look for.

Michael Psaros


Q.


affecting our collateral base. When we come in as anequity investor, if we have control that is easybecause then, obviously, you’re affecting the deci-sions so you can make sure you put in the right man-agement team.

We will also invest in situations in which wedon’t have control. There, we use fairly typicalstructures. Whether it’s preferred stock or evenwhen it’s convertible debt, we make sure that wehave negative control so that nothing can be donewithout the approval of the securities we control,whether it’s changes in management, budget, capital,any type of expenditure, or additional debt.

Psaros: We try to structure in some protection,despite the fact that we are control investors. Wehave done a lot of deals…in which the capital wehave invested has gone into the company in the formof senior secured securities…so I agree with youthat the structuring is very important. I think themost important thing that you said was that youalways need that cushion, especially with the kindof companies that we invest in, no matter how wellthe execution of the plan goes.

Shah: I think there are a couple operational struc-tural components that are pretty important as well.We find two big dynamics of companies in thedistressed world, or especially for companies thatare deeply distressed. One, they are just bleedingcash like crazy…and two, there either are signifi-cant holes in management or the management is notcorrect for that company…Half of our guys are dealguys and the other half are guys who will roll uptheir sleeves and go into the companies four or fivedays a week and take on positions within the com-pany, from CEO to the head of purchasing,…to reallytake control of the cash. We put into place aggressive,in-depth, heavily involved management, whether acombination of the existing management, new man-agement and ourselves, or whatever.

The second big piece from an operational per-spective is to take control of all of the cash, in termsof a managed cash flow from day one. We developrolling cash flows for the company as soon as webuy it. Every cash disbursement that’s spent andevery cash item that is collected is something thatwe control pretty carefully, from capital expendi-tures on the high end to checks that are written topay for new improvement to the office, whateverthat might be.

Schwartz: We find this is critical, even if there aresome good management teams within the company.Over time, we will promote from within and try tofind out who is good and who is bad, but we thinkit’s critical to be able to have our own people withoperational expertise go in there and analyze every-thing, whether it’s real estate, information technology(IT), cash flows, or even just what the projections

look like. What we are not willing to do is just relyon the management team…because we have foundin those situations that we come up short most often.

Collard: How do you address the issue of leader-ship during a transition or a turnaround? Is it betterto handle the operational aspects in-house or getoutside help and focus on your next acquisition?

Denious: Obviously leadership is key. When youare investing in a company…with negative cashflow, it is pretty obvious that time and momentumare your enemies. There is a law of physics that Ionce learned. As things start in a certain direction,they continue in that same direction, unless somesignificant force changes the outcome. We all facegoing into a distressed property and trying to figureout very, very quickly who will lead the companythrough significant change and drive the operationalturnaround.

One of the dangerous things that we confront islooking at a company and not being sure in our heartof hearts whether the current management team isup to the task. Very often, we feel they’re not.Indeed, that’s why the company is where it is. If wedon’t have somebody on a bench that we clearlyhave identified as being appropriate to drive a com-pany forward, do we still move forward, buy thecompany, and do something temporarily? Do we putsomebody in on a temporary basis, do a search, andthen bring in a long-term manager? We decided inmost cases that’s a dangerous road to go.

Right when you buy a company, basically thefield of workers, right down to the guy on theassembly line, is ready for change. Change is diffi-cult; it’s a human condition. Right after an invest-ment is made is the appropriate time to go in andshake things up, not only because you are going tohave a hemorrhaging cash flow statement, but alsobecause people are ready for it. If you don’t do it asan owner, you will lose your audience, so to speak.

I am pretty convinced as an investor in an oper-ational turnaround, it’s important not to be totallyout of that process. We sit down with our manage-ment teams and devise what we call a 100-day plan.I think it’s important to be side by side with yourmanagement team, understanding at a very granularlevel what will happen or should happen.

Schwartz: I think it’s critical when you are invest-ing in a company that whoever you pick — whetherit’s an outside manager or an inside manager —someone has to be there full-time. It can’t be thatsomeone is flying in, spending two days, and thengoing to do something else. We will only go forwardwhen we have identified who that person is. Wewant to make sure that person will be there five daysa week working with a team trying to in fact changebecause things are happening probably three or fourtimes more quickly than in a normal company thatis operating well.


SYMPOSIUM

“Leadership is key. When you are investing in a company… withnegative cash flow, it ispretty obvious that timeand momentum are yourenemies.”


Q.Collard: What are some of the most commonobstacles that you run into when buying adistressed company, and how do you over-come them?

Shah: Sometimes the timing in which we getinvolved in potentially buying a company ispretty tight. We either will buy it in fourweeks…or in four weeks the company mightrun out of cash. We’re almost viewed as theequity of last resort because our capital is veryexpensive. That means you have to deal withit very quickly. If you can get your handsaround valuation of the assets quickly, and ifyou can get a sense of how you will improvethe operations of the company and with whatresources very quickly, that’s one way to manage an obstacle.

Another obstacle we have come across iscompetition. The fact of the matter is, thereare a lot more people in this industry nowlooking at the whole turnaround, restructur-ing, and distressed space, from funds thatdon’t necessarily do turnarounds and restruc-turing…to a lot of distressed debt funds. Ithink there is more than $100 billion focusedon distressed debt today. So by the time you buy this company, will the value of the up side

be something that you are comfortable with,and will you have any up side?

Also, you are going to be dealing withmultiple parties to try and get a deal done, asopposed to just the original equity holder. Youhave to find out what the fulcrum security isin the capital structure. Is it the equity? Is itunsecured debt holders? Is it the secured debtholders? Is it the guys that were providing thedebtor-in-possession (DIP) loan to the bank-rupt company? You must negotiate with allthose parties because any one of those guyscould put a roadblock in front of you so…thatthey can get their money out to whateverextent they want to.

Denious: Visibility is another obstacle.Broken companies have broken systems —always. The information that you are getting,the profit and loss statement (P&L), the balance sheet, the cash flow statement — allof it is probably wrong to a greater degreethan you will find in other companies. I guessthe solution that we all come to is…to over-equitize. You have to be ready to absorb morehemorrhaging than you expect or hope to find.

Schwartz: As the distress continues, obviously,there is a loss of confidence, not only internally

with employees in the company, but also, mostoften, externally with customers, vendors, andservice providers. How do you quickly getyour arms around the different constituenciesand regain that trust? Sometimes we’ve foundthat a company has deteriorated to a point that,no matter what you do, you will not regain thatconfidence quickly enough to get the productflowing again. You can fix everything finan-cially, but people have moved on and they nowhave alternatives.

Psaros: Another competitor is how the credi-tors perceive — and I use that term “perceive”very, very selectively — liquidation value. Wewill spend six months developing a turnaroundplan to know what our cash flows are, we willknow what our returns will be, if we’ll be ableto finance for X. But some bank has it in itshead that the liquidation value is 2X. We havelost a lot of opportunities to save companies, savejobs and create value for our investors becausethe bank has chosen — and I am using “thebank” generically — for the secured creditorspulled the plug and liquidated it. And invariablyinstead of getting 2X, they get less than whatwe were prepared to pay — in some cases 10or 20 percent of what we were prepared to pay.


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Q.

Q.


Collard: What is the single-most importantattribute a distressed investor needs to have?

Denious: When you are talking about a deep opera-tional turnaround, you have to have an appreciationfor operations and how you fix them. It’s one thingto identify a problem. I think that can be done pret-ty easily sometimes, but it’s another thing to identi-fy the fix…How will your management team fix it?And is it really realistic that they will move the dialas much as is needed to create value?

Schwartz: You have to have a fair degree of humil-ity and also realize that you will make some mis-takes in these situations. No matter how well youplan and how much you think you know aboutwhat’s going on, Murphy’s Law will come into playin all these situations. What you can’t do is freezeand not act because I think that is even worse. A lotof different things go wrong, but people need theleadership. If it starts getting to be more than threeor four things that we have to fix, you have to startthinking, “Can I really fix all of those things?” Notall of them will go according to plan. And dependinghow much, one of them can drag the company down.

Psaros: We have been in deals where we have doneeverything right. We had a turnaround plan wherewe just shot the lights out — where we did absolute-ly everything right in executing the plan — and therewas some third-party unforeseen event that led toresults that weren’t what we anticipated. You alwayshave to be prepared to recover when that happens.

We go into businesses that have no managementbecause management has failed, earnings beforeinterest, taxes, depreciation, and amortization(EBITDA) is negative, operating in bankruptcy, butwe see value. In many instances by bringing in newmanagement, by perfecting a turnaround plan, bybuying the thing out of bankruptcy or an out-of-court restructuring, you, the sponsor or general part-ner, really exert a force of will. In many cases, wehave just willed a lot of these companies back toprofitability through good execution.

Collard: Coming from a turnaround perspectivewith 35 years in this business, what I have learnedis to always expect the unexpected. Just when I begin to think that I have seen everything thatcould possibly happen, I am surprised when some-thing new manifests itself and I find myselfdealing with it.

Collard: How do you influence the exit processto maximize your return on investments, and arewe seeing trends in this area?

Psaros: We want to sell, number one, when wehave actually effected the turnaround and, numbertwo, when the turnaround has been reflected in thefinancial results of the company we seek to sell.We are not growth investors. In many cases wehave been very lucky in terms of how rapidly wewere able to effect our turnaround plan. But in thelast three years, as you know…we have a manu-facturing depression in this country — not a reces-sion, a depression — and it has not been the timeto sell manufacturing companies.

My impressions are that there will be anavalanche of exits over the next 24 months out offunds like ours that have been disciplined andsophisticated buyers of distressed companiesthrough this recession. The trends are all there.With the economy recovering we now will be ableto sell the investments in our portfolios.

And I would like to thank the capital marketsfor basically manufacturing today the opportuni-ties for those of us at this table to take advantageof 24 months from now. People are drinking theKool-Aid again. I don’t think I have ever seen any-thing quite like it.

We were at a company two weeks ago — a$500 million company with negative EBITDA,serious capital expenditure requirements — thatneeded a fix. If you fixed it, maybe it would do $30 million maybe 24 months from now after a lotof blood, sweat, and tears. Usually we are the onlyguys involved in a situation like that. There is agroup, we’ve been told by the seller, of what Iwould call vanilla leveraged buyout funds thatwere talking about paying $100 million for thiscompany. Our offer to the seller was not $1, butsome upside in the form of warrants or somethingafter we put our capital in and fixed the business.

Shah: We may complete the turnaround from anoperational perspective in 12, 18, or 24 months,but sales and renewed confidence in the companywill not show up for another 12 to 18 months afterthat. You could think about exiting… but if youpotentially want to realize full value, you mightwant to wait another couple of years and reallyrealize that renewed confidence in the business.

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SYMPOSIUM

CR



As interest rates rise andcredit markets tighten,companies that findthemselves unable to

manage their debt burdens willface an altered landscape, onepopulated with new opportuni-ties and new risks. As advisorsto these companies, turnaroundprofessionals must manage bothfinancial and operational restruc-turings. In many cases, findinga partner to effect a debt-for-equity restructuring that pro-vides additional capital for abusiness is critical to maximiz-ing value for all constituencies.

In the last cyclical down-turn, one of the surest forms ofliquidity for middle marketlenders was the blunt instru-ment of a bankruptcy filing,followed by a U.S. BankruptcyCode Section 363 sale of adebtor’s assets. This option,while offering a definitive out-come, was often difficult toimplement and could lead tolower recovery rates because ofthe significant tangible andintangible costs associated withthe process. Another viableoption for a lender was torestructure the debt into a mixof reconfigured illiquid debtsecurities. This required more patience and a longer time horizon.

During the past 18 months, aggressive lending markets haveallowed stressed companies to meet their liquidity challenges byexpanding their borrowing rather than by implementing more difficultoperational restructurings. As the credit markets tighten, these deferredoperational restructurings inevitably will be required.

In addition to the myriad operational challenges turnaround profes-sionals often encounter, they also must contend with complex balancesheets that feature multiple lenders in various tranches. Many of these


Navigating Debt-for-EquitySwaps in the Middle Market

lenders are new marketentrants who lack workoutexperience and may not havethe appetite for the challengesahead. As the classes of debtchange hands, new constitu-encies can complicate arestructuring. While thisliquidity has provided moreoptions to borrowers, it alsohas made debt restructuringssignificantly more complex.

In the next cyclicaldownturn, the altered land-scape is likely to lead to asignificant growth in debt-for-equity conversions in themiddle market.

Potential PitfallsHistorically debt-for-equityconversions have producedmixed results for a number of reasons. Typical pitfallsincluded:• A lack of a long-term partner.Traditional lenders and manynew hedge fund lenders oftenare interested primarily inshort-term recoveries ratherthan in long-term value cre-ation. This focus on immedi-ate monetization may be atodds with the long-term bestinterests of a business.

• An inability to raise additional funds. Impaired lenders are frequentlyuninterested in extending additional funds to troubled companies. Asa result, a distressed company is unable to invest in its business andeffect the changes necessary for an operational restructuring.

• A lack of strategic direction and corporate governance issues. Bankworkout groups typically are not comfortable providing active corpo-rate governance to their credits. This can leave a company rudderlessat a time when it most needs decisive action. A syndicated senior debt

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structure involving several lenders assuming con-trol makes effective governance even more diffi-cult because of conflicting interests and a lack ofclear leadership. This issue has grown in impor-tance as syndicated debt structures have becomemore pervasive in the middle market since the lastfinancial downturn.

• Mismatched management incentives. Com-pounding the problem, management incentivesoften are not aligned in a distressed situation aslenders seek to exercise their rights under theBankruptcy Code’s absolute priority rule. Withouta specific plan, management has little incentive tomake the extraordinary efforts required to achievea successful turnaround, and morale suffers.

• An inability to address operational issues.Companies frequently are unable to address theiroperating restructurings effectively because ofcash constraints or governance issues. Without theability to make and implement bold and decisiveplans, companies flounder.

Mainly for these reasons, many debt-for-equityconversions fail to provide lenders with the maxi-mum recoveries.

Key ConsiderationsIn many cases, conversion of all or a portion of acompany’s debt to equity will be the most effective

way to maximize value. There are several key fac-tors to consider in executing a debt-for-equity con-version successfully.

Bolster the Team. Turnaround professionalsshould be brought in to augment management, sta-bilize the company, and begin the operatingrestructuring. They should be engaged early tohelp manage the process. A team of seasoned pro-fessionals adds credibility in the eyes of potentialinvestors, increasing the chances of attracting out-side capital for a company. Investors are more will-ing to rely on the expertise of a third party withwhom they are familiar than they are to trust amanagement team that may have contributed to thecurrent state of the company.

Turnaround professionals also provide man-agement with additional capacity to deal with the extra workload that arises in a restructuring.Moreover, a turnaround professional provides anindependent voice that can facilitate agreementsamong various constituencies, both within thelending group and with third parties.

Find Suitable Financing. An investor should besought who is willing both to provide liquidity forexisting lenders and to support the companythrough its operating restructuring.

In many cases, turnaround professionals willfind it helpful to look to distressed debt investorswho can assess a situation promptly and focus onfinancial and professional support in both the shortand long term. Investors who have experience withfinancially and operationally distressed companiescan manage the complexity of the situation andfocus on the key issues, freeing the managementteam and turnaround professionals to focus onimproving operations.

Financial support should be flexible to allowfor the most appropriate timing and structure tosuit a company’s complex needs. Ideal investorsact quickly and provide fresh capital in manyforms, including debtor-in-possession (DIP) loans,subordinated debt, or equity infusions. In addition,it can be beneficial to have an investor who willprovide liquidity to existing lenders who arefatigued or who are not constructive in the restruc-turing process.

Turnaround professionals must be carefulwhen navigating the changing and complex dis-tressed debt market. They must differentiatebetween short-term investors chasing yield andlong-term capital providers who will support acompany through a successful turnaround. Theideal investor has significant experience with chal-lenged companies, a long-term view on the successof a business, and a permanent capital base which,combined with an operational restructuring, createslong-term value.


DEBT-FOR-EQUITY


Manage Ahead of the Crisis. A conversion shouldbe implemented promptly to preserve the highestvalue. Often lenders recognize the need to restruc-ture a company several months before the businesshits the wall. Unfortunately, due to the increasingcomplexity of capital structures and multipleconstituencies, reaching agreement among allinterested parties on the best course of action isfrequently difficult and time-consuming. It isduring this period that the company loses direction,and value is often destroyed needlessly. The earliera conversion can be implemented, the higher thelikely recovery will be for all stakeholders.

Assess Directors and Management. The post-conversion board and management team should becomposed of professionals and investors who haveextensive turnaround experience and an economicinterest at stake.

A post-conversion board should be limited insize so that key issues of strategy and direction canbe agreed upon expeditiously and executed. Theability to act decisively is critical in a turnaround.

Board members should have several keyattributes. They should have extensive experienceworking with companies implementing turn-around strategies. They also should have a signifi-cant economic interest in the company. It is criticalthat board members take a medium- to long-rangeview of a business to maximize value. Turnaround

professionals should be engaged to support man-agement during the initial phases of the turnaroundwhile management is assessed for augmentationand potential upgrade in areas of need.

Looking ForwardThe skills required to complete debt-for-equityconversions successfully in the middle market willbecome more relevant over the next several years,when many companies that underwent balancesheet restructurings recently will need to reducedebt permanently. Turnaround professionals mustremain sensitive to the issues surrounding debt-for-equity conversions and should develop relation-ships with investors who will work with them to effect operational restructurings that generatecurrent and long-term value for their clients.

Anthony DiSimone is co-headof Bayside Capital, a $500million private equity fundthat focuses on special situa-tion opportunities in the mid-dle market. The firm is anaffiliate of H.I.G. Capital, amiddle market private equityfirm with more than $2 billion of equity capitalunder management. DiSimone can be reached at(305) 379-8686.


A post-conversion boardshould be limited in size so that key issues of strategyand direction can be agreedupon expeditiously andexecuted.

CR

imagination at work



An important but often overlooked real-ity when lending to or investing in atroubled company is that many boardsof directors today are ineffective.

Many are considered primarily as controlmechanisms staffed by directors who areexpected to protect the interests of those who appoint them — generally the equityinvestors — and to echo their views.

But isn’t that exactly what investors want?After all, who wants to endure the nightmaresthat an obstructive board can cause? Isn’t itbetter to have a friendly board that bringscredibility and some good industry connec-tions without second-guessing how to run thebusiness? While in one sense, this is true, italso can seal a company’s doom. The follow-ing scenario illustrates how.

Management’s board presentation was themost comprehensive strategic plan the bank’slending officer had seen since his Fortune 100company days. It even included a new globalinitiative that the CEO was kicking off the nextday with a trip to India. While one directorquestioned management’s ability to execute

on public company governance and boards ofdirectors in recent years. Even before then,McKinsey & Company’s Robert F. Felton hadbeen at the forefront in trumpeting the defi-ciencies with boards of directors and suggest-ing methods of correcting them. In his article,“Change Across the Board,” in The McKinseyQuarterly (2004, No.4), Felton offered twoparticularly astute insights:

• “The most important decision that any boardmakes — beyond approving major constitu-tional issues such as mergers — is theappointment of a chief executive officer.”

• “Separate the independence of the board and give it clear leadership separate frommanagement.”

Fulton went on to prescribe changes thatcertainly would improve today’s boards, butthey involve incremental shifts that fall shortof the sweeping changes that are required tocorrect the problems. Transforming boards(public and private) into effective instrumentsthat truly add value to a company will requireconsiderable change and courage.

such an ambitious plan, the board congratulatedthe CEO for fine work and expressed its confi-dence that the plan would lead to greatness.

The directors were impressed. The lendingofficer, on the other hand, was appalled.

This $160 million company was boggeddown in its attempt to absorb a recent acquisi-tion and was coming up short on almost everyother established goal. Explaining the dilemmaprior to the meeting, one top manager grousedprivately to the lending officer that he was not meeting customer delivery dates becausevendors had put shipments on hold until theywere paid.

It was clear to the lender that this companyhad a cash crisis, yet management had justconvinced the board to sanction a plan tohotrod the company. If ever there was a case in which a board needed to earn its keep, thiswas it. Instead, directors dodged that obliga-tion by failing to intervene.

Sweeping ChangesBecause of highly publicized public companyscandals, a wave of material has been published ©

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Rebuilding Tattered Board Credibility

Independence, Courage to Change Are RequiredBY TERRY LEE BRUBAKER, CHAIRMAN & COO, GLADSTONE CAPITAL CORPORATION



Directors should examine how the com-pany performs versus its competitors and itsestablished goals, but they also must considerhow the CEO leads company operations. Thehighest standards of ethics must take priorityover all else in every transaction, and the CEOmust establish and enforce a culture of honestyand full disclosure throughout the company.The directors’ message should be clear andunequivocal: responsibility in this regard over-rides any measure of performance, and noamount of operational brilliance on the part ofa CEO can save the executive from immediatetermination for any perceived ethical lapse.

If performance falls short on eithermeasure, the board must decide if the CEOis the right person to fix the problems anddeliver the needed results. If not, the executiveshould be replaced.

In addition, just as writers cannot edit theirown work effectively, those who had a hand inselecting a CEO or in sanctioning or alteringstrategy and operational plans in the first placecannot judge the executive’s performanceobjectively. But boards should be the mainsource of insight regarding the future of theCEO. This was the main obstacle confrontingthe board in the scenario outlined at the begin-ning of this article. Directors had been review-ing and sanctioning management’s choices

Investors in troubled companies — or anycompany — should structure their boards ofdirectors around these five principles:1

• Give the board a singular role — to assessCEO performance.

• Appoint truly independent directors.

• Tie directors’ compensation to companyperformance.

• Provide the board with its own staff support.

• Direct the board to set its own agendas.

One Role. Irrespective of their business expe-rience, directors cannot be expected to knowor to learn on the job how to judge the meritsof a company’s strategy. Nor should they beexpected to offer sound advice on operationaland organizational issues. It is foolish toexpect board members to accept or overridemanagement’s judgment; the board’s job is to judge management, not to do their jobs for them.

It is unrealistic to expect a CEO to be fullyaccountable for delivering results if the boardmakes all final decisions. In this sense, thescenario described at the beginning of thisarticle was not a problem. Boards should notbe in the business of assessing or approving acompany’s strategy. Board members shouldhave only one role — to judge the company’sCEO on the basis of results.2



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and actions over the years and were simplyunable or unwilling to see the flaws in thosepast judgments. The unrealistic strategy wasonly a symptom of the real problem, whichwas the need to replace the CEO.

Equity firms, having recruited, selected,and worked jointly with the CEO, must rec-ognize how that history can hinder theirobjectivity when assessing CEO perfor-mance. Accurate insight on this key decisionrequires independence.

Independence. One cannot expect unbiasedwork from a director who is beholding tomanagement. Yet staffing boards with mem-bers of the management team, friendly indus-try experts, and trusted friends of manage-ment is a time-honored tradition in the busi-ness world.

Whether out of courtesy, respect, or fearof losing their board fees, such board mem-bers too often are reluctant to criticize orsecond-guess management. Consequently,board meetings are often nothing more thanmanagement report-outs masquerading ascorporate governance. These boards do littleto reassure lenders, who value directors whoprovide a crosscheck to keep companies fromlanguishing and independent oversight tolook after their interests if a companyapproaches insolvency.

Building an independent board with amission to monitor and assess CEO perfor-mance requires appointing directors who aretough-minded and savvy about leadership.They do not need industry knowledge. Toachieve the necessary objectivity and credibil-ity, board members must be independent.Therefore, no members of the managementteam should serve as directors, nor shouldboard members have prior or existing connec-tions or relationships with management or theequity firm.

Compensation. Paying directors to attendboard meetings is silly. The best way toensure that a director is fully engaged andaligned with all stakeholders’ interests is tolink board members’ compensation to compa-ny performance.

Stock awards work best because theyhelp focus directors on results, but a full arrayof financial or competitive performancemetrics could be used. The point is that the

metrics used should be as close as possible towhat stakeholders’ desire. This not only givesdirectors proper incentives, but it also lendsweight to their views because their own com-pensation is on the line.

Staff Support. Having the right CEO in placeis the single most significant factor determ-ining small-company success. Accordingly,the board must have reliable data on theperformance of the company and the CEO todetermine whether the right leader is in place.

A board needs funding to retain outsidehelp to measure competitive performance andthe means used by the CEO and the companyto achieve it. Most likely, this help will comefrom a management consultant or turnaroundmanagement firm that can provide more thanan academic insight into performance and helpdirectors grasp the underlying reasons for it.

Agenda. In line with its mission to evaluatecompany and CEO performance, a board mustbe free to establish the timing, content, andprocess for all meetings. Directors typicallyexpect management to go through traditionalfinancial and operational reviews during boardmeetings. The board also usually will engageoutside marketing and consulting firms to assessand summarize how the company is doingversus its competition and how customers viewthe company’s products and service.

Tough ScenarioIf a buyout firm takes a controlling interest ina troubled company in which management ismaintaining significant ownership and debt isprovided by a senior lender and a sub-debtlender, will the board add value?

A tough scenario would involve a CEOwho is a significant shareholder but is judgedby the board to be the wrong person to deliverthe needed results. The board should beinstructed by the equity firm to document itsreasoning and deliver its report to all stake-holders, except the CEO. The buyout firmwould then convene a meeting of those stake-holders to discuss the board’s conclusion andseek consensus on the best course of action.

The final decision clearly remains withthe buyout firm, but it now will have a betterbasis and rationale for making its decision.More importantly, it will have built credibilityand garnered support from the lenders andother shareholders. In the scenario cited at thebeginning of the article, the lending officer hadbeen expressing concern for 18 months aboutthe CEO, but he was not the appropriate voiceto build a case for a change. This revised boardstructure solves that problem because it gives


REBUILDING BOARD CREDIBILITY

any stakeholder a forum in which to airconcerns about the business.

If the equity firm or others believe theboard’s reasoning and conclusion are off themark, they have two options: (1) convince theboard that they are wrong or (2) name newdirectors. Lenders will be highly interested infollowing this process and will make their owndetermination of whether the reconfiguredboard meets the test of objectivity. If not, theboard’s value is gone, the situation reverts totoday’s status quo, and time will once again bewasted on specious board deliberations.

Worth the EffortAs mentioned earlier, instituting changes to aboard of directors takes courage. Giving out-siders the responsibility to assess “its” CEOrequires unusual confidence and maturity onthe part of a buyout firm. But a firm that is con-templating making such changes need onlyweigh the benefit of such a course of actionagainst accepting boards of directors as exten-sions of management and equity firms.

Many of today’s boards have no credibilitywith lenders, the stakeholders whose supportand patience are most needed in troubled situa-tions. Having an objective board in place to findand analyze problems with CEO performanceis a giant step forward in building a collabora-tive relationship with a company’s lenders.

This may not be good news in the shortterm for turnaround management firms becauseit would reduce the incidence of lenders pres-suring owners to bring in outside resources introubled situations. But in a broader sense, itwould result in more timely corrective actionand collaborative efforts on the part of a com-pany’s stakeholders. That alone makes suchchanges worthwhile.

1 This prescription builds on insights and recommen-dations on board governance offered by O.G.Sexton, a retired Morgan Stanley executive.

2 Boards also must meet governance obligationsmandated by regulatory authorities, which shouldnot impair their objectivity.

Terry Lee Brubaker is co-founder, vice chairmanand COO, and a director of GladstoneCapital Corporation(www.gladstonecapital.com),a NASDAQ-traded specialtyfinance firm based inMcLean, Virginia. He also serves as president,and as a director of Gladstone Commercial, a public real estate investment company. He can be reached at (703) 287-5800

CR


Turnarounds • Workouts • Crisis Management • Manufacturing Efficiency • Bankruptcy & Financial Advisory • Corporate Finance

© G

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To deal with distressed companies, you’ve got totell it like it is. In turnaround consulting and crisis management, there’s

no time for anything but honesty. No matter how unpopular. We have 35 years

of experience in determining necessary actions, making critical decisions and

implementing change that’s rapid and pragmatic. Because every day and every

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Frankly, it isas bad as you think.



It is an unsettling prospect for a purchaserwho buys property in a bankruptcy salefree and clear of the debtor’s liabilities tothink that after an arduous U.S.

Bankruptcy Court approval process, a statecould try to invalidate the sale order and forcethe buyer to honor those liabilities. Yet that isexactly the circumstance the buyer of ConeMills Corporation found itself facing just a fewmonths ago.

Cone Mills Corporation and related entitiesfiled voluntary petitions under Chapter 11 of theU.S Bankruptcy Code in September 2003. Thedebtors then prepared to sell substantially all ofthe company’s assets in accordance with theBankruptcy Code. Notably, the assets did notinclude former real property the debtors hadonce owned in Newark, New Jersey, becausethat site had been sold nearly 25 years earlier.

Following extensive marketing efforts bythe debtors, WLR Recovery Fund II, L.P., andInternational Textile Group, Inc. (formerlyknown as WLR Cone Mills Acquisition LLC),were found to be the highest and best biddersfor the assets. In February 2004, the U.S.Bankruptcy Court for the District of Delawareapproved the sale and specifically ordered thatthe sale was free and clear of all liens andencumbrances, including environmentalclaims. Neither the New Jersey Department ofEnvironmental Protection nor the administra-tor of the New Jersey Spill CompensationFund—or any other agency or subset of thestate of New Jersey—challenged entry of thesale order.

Six months later, however, the buyerswere surprised to receive notice from theDepartment of Environmental Protection andthe administrator of the Spill Compensation

Fund of a legal action against them in NewJersey state court for alleged violations of thestate’s environmental protection laws at thesite in Newark.1 The agencies premised theaction on a theory of successor liability.

After unsuccessfully seeking a voluntarydismissal from the agencies, the buyers chal-lenged the state’s contentions in BankruptcyCourt through an action to enforce the saleorder. The agencies responded by filing amotion in Bankruptcy Court seeking to invali-date portions of the sale order that would bartheir claims. The New Jersey agencies reliedon the 11th Amendment to the U.S.Constitution, which states:

The Judicial power of the UnitedStates shall not be construed to extendto any suit in law or in equity, com-menced or prosecuted against one ofthe United States by Citizens of anotherState, or by Citizens or Subjects to anyForeign State.

In other words, the 11th Amendment pro-tects states from being forced into federal courtto defend lawsuits brought by private citizens.

In this instance, the New Jersey agenciesessentially asserted that the sale order could beinvalidated because, by purporting to approvea sale of assets free and clear of the state’sinterest, it improperly affected New Jersey’srights, in violation of the 11th Amendment.The Bankruptcy Court disagreed and upheldthe sale order in its entirety, stating:

I think that I do under the BankruptcyCode and Supreme Court precedent havethe authority to enter orders generally ina bankruptcy case –– discharge orders,DIP orders, sale orders that are not

addressed specifically to states but thatdo, in fact, affect states and other governmental entities’ rights –– and thatthose orders will be effective as to thosegovernmental entities.2

In its argument, the buyer relied primarilyon In re Sun Healthcare Group, Inc.,3 in whichthe same court upheld a debtor-in-possession(DIP) financing order in the face of challengesfrom the Medicaid agencies of several states.In Sun Healthcare, the Bankruptcy Courtfound that a motion for post-petition financingwas not a “suit” barred by the 11thAmendment because the Medicaid agencieswere not compelled to appear in federal courtas a result of the request for relief made by thedebtors. This was true, despite the fact that theDIP order granted liens to the lender, whichprimed the agencies’ interests.

The court analogized the DIP order to other types of orders routinely entered byBankruptcy Courts that have been found not toviolate the 11th Amendment.4 These types oforders, the Bankruptcy Court found, do notviolate the amendment because they do notrequire the state to appear in federal court.5

Additionally, the Bankruptcy Court heldthat the DIP order did not constitute a moneyjudgment against the states and accordinglydid not run afoul of the 11th Amendment.Specifically, the DIP order merely effectuatedthe provisions of the Bankruptcy Code as itapplied to priming liens and did not direct theMedicaid agencies to pay money to thedebtors. “The fact that [an] Order may affectthe rights of the states, and other parties, doesnot mean it is a suit against the states prohibit-ed by the [11th] Amendment,” the BankruptcyCourt ruled.6

Bankruptcy Sale SurvivesState’s Attack

BY WENDELL H. ADAIR JR., PARTNER, AND MARY E. MCEACHERN, STROOCK & STROOCK & LAVAN LLP

BulletinLEGAL


Protecting the ProcessThe findings in these cases and similar hold-ings in courts throughout the country play animportant role in protecting the bankruptcyprocess. If the 11th Amendment were to beinterpreted as the New Jersey agencies arguedin Cone Mills and as the various Medicaidagencies argued in Sun Healthcare, fundamen-tal protections for debtors would be strippedaway, leaving orders of bankruptcy courtsessentially meaningless in the face of chal-lenges lodged in state courts.

Recognizing that bankruptcy orders, suchas sale and financing orders, are not “suits”against a state, which would violate the 11thAmendment, courts have allowed the orderlyand efficient administration of bankruptcycases to continue, as Congress intended. Ifstates were allowed to invalidate such orders,debtors would be hard-pressed to sell propertybecause they would not be able to provideclear title to purchasers. Buyers would facelooming threats of states asserting pre-sale lia-bilities against them down the road.

Such restrictions on ownership would sig-nificantly reduce the price a debtor could hopeto obtain for its property. Similarly, in attempt-ing to obtain post-petition financing, debtorswould find it difficult to identify creditors will-ing to extend credit, because a state couldalways challenge the validity of a post-petitionfinancing order and assert a lien senior to a pri-ority lien granted to the post-petition lender bya Bankruptcy Court. A post-petition creditorundoubtedly would shift as much of the risk aspossible onto the debtor, which could makepost-petition financing prohibitively expensive,leaving many debtors without the funds neces-sary to keep their businesses operating throughthe administration of their bankruptcy cases.

This line of cases does not strip states oftheir rights to protect their interests. Rather, itpresents them with a choice. “The state, ofcourse, may well choose not to appear in fed-eral court. But that choice carries with it theconsequence of foregoing any challenge of thefederal court’s action.”7

In Cone Mills, the New Jersey agencieswere formally notified of the hearing for thesale order that they later challenged. The agen-cies chose not to appear in the BankruptcyCourt at that time to argue against the orderand, as a result of that choice, they lost theiropportunity to challenge the order later.Accordingly, the sale order was preserved, andthe Bankruptcy Court directed the New Jerseyagencies to cease and desist prosecution of theaction against the buyers.8 As a result, the buyerand the bankruptcy process were protected.

1 N.J. Dept. of Envtl. Prot. v. Cone Mills LLC,Case No. L-6599-04, Superior Court of N.J.,Law Division, Essex Vicinage.

2 Transcript of Hearing at 57, In re Cone MillsCorp., (Bankr. D. Del. Feb. 28, 2004) (Case No.03-12944(MFW)).

3 245 B.R. 779 (Bankr. D. Del. 2000).4 See, e.g., In re Collins, 173 F.3d 924 (4th Cir.

1999) (motion to reopen bankruptcy case todetermine the dischargablility of a debt to statenot a “suit”); Maryland v. Antonelli Creditors’Liquidating Trust, 123 F.3d 777 (4th Cir. 1997)(confirmation order not a “suit” although pro-vided for waiver of transfer tax); In rePsychiatric Hosps. of Fla., Inc., 216 B.R. 660(M.D. Fla. 1998) (section 505 motion to deter-mined tax liability not a “suit”); In re Int’lHeritage, Inc., 230 B.R. 306 (determination ofscope of automatic stay not a “suit”).

5 245 B.R. at 785.6 Id. at 786. On appeal, the District Court con-

curred with the conclusion of the BankruptcyCourt in Sun Healthcare, determining that no“suit” had been commenced in that matter andaccordingly, the Eleventh Amendment had notbeen implicated. Eleven State MedicaidAgencies v. CIT Group/Bus. Credit, Inc. (In reSun Healthcare Group, Inc.), No. 99-3657-MFW, 99-3841-MFW, Civ. A. 00-475-GMS,

Civ. A. 00-476-GMS, Civ. A. 00-632-GMS, 99-3199-MFW, 2002 WL 31155179, at *6 (D. Del.Sept. 27, 2002).

7 Antonelli, 123 F.3d at 787.8 Order Granting Motion of Int’l Textile Group,

Inc. for Order Directing the N.J. Dep’t of Envt’lProtection, the Adm’r of the N.J. Spill Comp.Fund, Crompton Colors, Inc. and CromptonCorp. to Comply with Sale Order at 1, In reCone Mills Corp., (Bankr. D. Del. Feb. 28,2004) (Case No. 03-12944(MFW)).

Wendell H. Adair, Jr., andMary E. McEachern arewith Stroock & Stroock &Lavan LLP’s FinancialRestructuring Group.Adair can be reached at(212) 806-5870 [email protected], andMcEachern can be reachedat (212) 806-5532 or [email protected].

Members Sought for Hong Kong Subcommittee

TMA members who have connections with firms in Hong Kong or who have officesin China are invited to participate in the work of a new Hong Kong Subcommitteethat has been created under the leadership of Howard Brownstein to promote the formation of a TMA chapter in the region.

Any TMA member interested in participating on the Hong Kong Subcommittee,or who wishes to provide contact information to aid in its work, is invited to contactDale West, TMA International's director of chapter relations, [email protected] or (312) 242-6038.

T M AIn the News

Who’s in the NewsThe changes in the Bankruptcy Code openedopportunities for expert comment in thepress by TMA members in the past month. The Certified Turnaround Professional designation also gained new visibility, partlybecause of one of the provisions in the bank-ruptcy law that “directs the court to considerwhether a professional person is board certi-fied or has otherwise demonstrated skill and experience in the bankruptcy field.Following are a few of the articles featuringTMA members.

Daily Bankruptcy Review, May 4, 2005,“Changes to Bankruptcy Code MakeCertification More Important than Ever,” byAnthony Bergen, CTP, written as presidentof the Association of Certified TurnaroundProfessionals (ACTP).

Bankruptcy Court Decisions, May 3, 2005,“Bill’s Impact on Retail Likely To Be a Wash”

“This new law really puts retailers underthe gun. Seven months [to assume orreject leases] sounds like a long time, butit’s not, especially if it doesn’t include theChristmas selling season.”

– Harold Bordwin, Keen Realty, LLC(New York City Chapter)

Association Management, May 2005, con-tains two articles about how to turn aroundan association, which quote TMA leaders.One features the turnaround of TMA when ithit rough times in the early 1990s.

“Merchants of Change”

“[Approach the board frankly with] ‘Iknow you’ve given your time and moneygenerously, but next year we’ll need morethan you’ve ever given in the past and thisis why.’ They’re on the board for a reason– because they care. Don’t be afraid. Callon their commitment and time.”

– Rob Katz, CTP, Executive SoundingBoard Associates Inc. (PhiladelphiaChapter)


“How Turnaround Association Saved Itself”

“We had a vision and we just believed inour ability to deliver, so much so that wemade it happen. That’s the way you have tobe in our business.”

– Randall Wright Patterson, CTP, LakePointe Partners, quoted as a member ofTMA’s Board of Directors

“The irony of the situation was never farfrom the surface for any of us…. We askedourselves, ‘Should this organization sur-vive?’We decided it should. What we do isimportant. At any one time, a couple ofmillion American jobs are on the line andwhat we do is fundamentally important tomaintaining those jobs.”

– Thomas D. Hays, III, CTP,NachmanHaysBrownstein, Inc., quotedas a past TMA chairman

Associated Press, April 30, 2005, “Saks toSell Proffitt’s, McRae’s Stores to Belk”

“The deal is a step toward paring Saksdown to a core luxury business. Saks willhave more value as a separate entity.”

– Michael Appel, Quest TurnaroundAdvisors (New York City Chapter)

Puget Sound Business Journal, April 29,2005, “Bankruptcy Rules Open Window forSmall Creditors”

“Often when a retailer files Chapter 11after Christmas, it doesn’t assume orreject its leases right away – it waits forplan confirmation…. Which locations youkeep and which you abandon are the nameof the game.”

– Jan Ostrovsky, Crocker KunoOstrovsky LLC (Northwest Chapter)

Forbes.com, April 27, 2005, “Licensed toTurnaround,” an article about the CTP designation.

“It’s another thing you consider when you’re[assessing] someone’s credibility, but being a CTP is not the only thing that sells me.”

Lisa Poulin, CTP, FTI PalladiumPartners (Dallas/Ft. Worth Chapter)

“These [CTP] initiatives are necessaryfor the future viability and relevancy of thecertification program in today’s businessenvironment.”

Peter L. Tourtellot, CTP, quoted asACTP chairman

Bankruptcy Court Decisions, April 26, 2005,“Pro Bono Participation Likely to Dropunder the Legislation,” an article written byAndrew Goodman, Greenberg & Bass(Southern California Chapter)

Crain’s Chicago Business, “The NightShift,” April 25, 2005, a feature that focuseson Chicago law firms.

“…Firms that have started off in thedirection of growth for growth’s sake willkeep going, adding cities to their letter-head…. I think firms like ours will be increasingly attractive to lawyers who want to service clients without debilitating conflicts.”

– Harold L. Kaplan, Gardner Carton &Douglas LLP (Chicago/Midwest Chapter)

The Deal, April 25, 2005, “Second Thoughts:Why All those ‘B’ Loans Could Spell Trouble”

“Second-lien debt will become a big, bigissue in the next round of defaults. As bor-rowers run into financial trouble, first andsecond lien holders will quickly find theirinterests at odds.”

– Bill Lenhart, BDO Seidman LLP(New York City Chapter)

The Deal, April 18, 2005, “Hybrid Loans:Now with Extra Stretch,” an article writtenby Terry Mech, PNC Business Credit(Northern California Chapter)

Nashville Business Journal, April 22, 2005,“Bankruptcy Reform Raises New Questions,”an article by Bill O’Bryan, Miller & MartinPLLC (Tennessee Chapter)


Portland (Ore.) Business Journal, April 15,2005, “Bankruptcy Plan Has Small-BizImplications”

“Depending on the complexity of the case,it could have significant effect on compa-nies like K-Mart to sell their under-marketleases. This is actually good legisla-tion…for the real estate lobby.”

– Steve Hedberg, Perkins Coie(Northwest Chapter)

The Deal, April 17, 2005, “No Piece ofCake,” an article about labor issues inInterstate Bakeries Corp.’s bankruptcy.

“The company has its share of liabilities,but we believe there’s a lot of equity too.We’re hopeful that our clients are going toreap some value when this whole thing iswrapped up.”

– D. Farrington Yates, SonnenscheinNath & Rosenthal LLP (New York City Chapter)

“It’s hard going. [Justifying] rejection ofthe contracts is absolutely necessary.”

– Marc Pfefferle, Carl Marks AdvisoryGroup LLC (New York City Chapter)

Find out today why more and more professionals are turning to BankruptcyInsider’s insightful newsletter and extensive online resource center to get theinformation they need. News, data and insight unavailable anywhere else isnow just a click away.

Bankruptcy Insider – the PDF newsletter that gives you a weekly look atthe latest information in the most concise format, including:

• Deal doctors• Curtain raisers• New filings• Hearings• Exits• Dire stats and more

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Bankruptcy Court Decisions, April 5, 2005,“Bill’s Fine Print Reveals Sneak Attack onChapter 11 Practice.”

“The bill is poorly thought out, poorlywritten, poorly executed and a recipe forlots of litigation as to the meaning ofwhat’s been enacted.”

– James H.M. Sprayregen, Kirkland & Ellis(Chicago/Midwest Chapter)

“It seems that what Congress has sought todo in this legislation is to let debtors whofile a commercial Chapter 11 know thatthey are not going to be allowed to lingerin Chapter 11. You’re going to have tomove your case faster, confirm a planfaster and pay your creditors faster thanever before.”

– Andrew Goodman, Greenberg & Bass(Southern California Chapter)

Bankruptcy Insider, April 4, 2005,“Conversions May Be on the Rise”

“Some creditors might want to keep the busi-ness as a going concern long enough to con-vert raw materials into finished goods, forinstance, so they can then sell at a higherprice.”

– Melanie Rovner Cohen, Quarles &Brady LLP (Chicago/Midwest Chapter)

Buyside, April 2005, “Turnaround Plays andBeyond,” an article that focuses on the CTPdesignation and features Marc Pfefferle, CTP,Carl Marks Advisory Group LLC (New YorkCity Chapter), and Anderson BaumanTourtellot Vos & Co., an ALTMA Group LLCcompany.

Ohio Chapter Produces Insert forCrain’s Cleveland Business

The Ohio Chapter, following the model estab-lished by the Philadelphia Chapter’s success-ful project with a local American BusinessJournals publication last year, was the firstchapter to strike an agreement with the CrainCommunications publishing company for asimilar project. The Ohio Chapter’s 12-pageadvertising insert was published on March 28,2005, and was supported by advertising from Ohio Chapter members and TMAInternational. Chapter President BarrySullivan wrote the opening editorial. Otherprofessionally written articles quoted mem-bers around the theme, “Specialists PutTogether Pieces of the Turnaround Puzzle.”Sidebars and graphics featured TMA TrendWatch statistics.


T he ACTP Body of Knowledge Courses are ideal for all corporate renewal professionals whowant to gain an understanding or refresher on turnaround management. These courses alsoserve as a review for consultants and practitioners interested in attaining the Certified

Turnaround Professional (CTP) designation.

These series of reviews and exams have been developed so that you can customize your learningneeds and register for only those sections on which you want to focus, or take all three sections. Theday after each course section offering, candidates for the CTP designation can take that section’s exam.

2005 ACTPBODY OF KNOWLEDGES E R I E S

Friday, July 8 Tuesday, October 18Law 150 S. Wacker Dr.Suite 1060Chicago, ILHon. Robert D. Martin,U.S. Bankruptcy Court(Western District ofWisconsin)Law section exam offeredSaturday, July 9, andWednesday, October 19

Chicago

Contact Nicole Gibby,

Manager of ACTP Relations,

at 1-312-242-6034 or

[email protected].

Friday, June 10Accounting and FinanceWestin Atlanta Airport4736 Best RoadAtlanta GAJames K. Seward, Ph.D., University of WisconsinAccounting and Finance section exam offered Saturday, June 11

Atlanta

FeesCourse registration

$400/course section

Exam application$595 (one-time, non-refundable fee)

Exam$250/section

InformationFor more information aboutregistering for the coursesand/or applying to take the exam, or for generalquestions about ACTP,please contact NicoleGibby, Manager of ACTPRelations, at 1-312-242-6034or [email protected].

Friday, August 19Accounting and Finance150 S. Wacker Dr.Suite 1060Chicago, ILJames K. Seward, Ph.D.,University of WisconsinAccounting and Finance section exam offeredSaturday, August 20, andWednesday, October 19

Friday, September 16Monday, October 17Management150 S. Wacker Dr.Suite 1060Chicago, ILJames K. Seward,Ph.D., University ofWisconsinManagement section exam offered Saturday, September 17, and Wednesday, October 19

The Bankruptcy Abuse Preventionand Consumer Protection Act of2005, which is scheduled to takeeffect in October, may provide

even more incentive for those interested inachieving certification through the Associationof Certified Turnaround Professionals (ACTP).

One provision of the act in particular iscausing a buzz in the turnaround industry.Section 415 of the new law directs bankruptcycourts to consider in awarding compensationwhether a professional is board-certified orotherwise has demonstrated skill and experi-ence in the bankruptcy field. As a result,judges’ decisions on professional fees inthe future could hinge on whether individualshave earned certifications, such as the

Certified Turnaround Professional (CTP) designation, that attest to a certain level ofexperience and expertise.

The ACTP board of directors in Januaryextended the opportunity to earn CTP desig-nations to workout and applicable portfoliomanagers and to certain corporate execu-tives. The board also created an alternative accreditation process that exempts selectedindustry veterans from taking the three-partCTP examination and provided a processunder which retiring professionals can maintain their certification. In addition, aCTP-designate (CTP-D) certification wascreated for those who pass the examinationbut lack the necessary experience to attainfull CTP status.

Here is a list of firms with the highestnumber of CTPs.

COMPANY NAME CTPs

ALTMA Group, LLC 14

Conway MacKenzie & Dunleavy 14

Glass & Associates, Inc. 12

FTI Consulting, Inc. 11

BBK, Ltd. 10

Alvarez & Marsal LLC 8

Morris-Anderson & Associates, Ltd. 8

BDO Seidman, LLP 7

NachmanHaysBrownstein, Inc. 7

AlixPartners LLC 6

Certification May Affect Turnaround Pros’ Compensation

T O P 1 0 C T P F I R M S


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■ Jonathan E. Aberman and Jill L. Murchhave been promoted to senior counsel in Foley &Lardner LLP’s Chicago office. Both attorneys aremembers of the firm’s Litigation Department andthe Business Reorganizations Practice Group,and specialize in bankruptcy, creditors’ rights,and commercial litigation.

■ Francesco DiGiannantonio has joinedMorris-Anderson & Associates Ltd. as managingdirector for the firm’s newly opened office inCleveland. DiGiannantonio has significant finan-cial and operational restructuring, change man-agement, and valuation experience. He has ledprojects and cross-functional/global teams fororganizations worldwide and has lived andworked in Europe, North and South America, andAsia in a host of industries.

■ Stephen A. Donato has joined Bond,Schoeneck & King, PLLC, as a member and co-chair of the firm’s Creditors’ Rights, Workout andBankruptcy Group. He was previously withHancock & Estabrook, LLP.

■ Dalton T. Edgecomb, CTP, has joined Glass& Associates, Inc., as principal in charge of thefirm’s flagship office in New York, and Jerome P.Sepich has joined the Chicago office as a man-aging director. Edgecomb most recently workedfor Loughlin Meghji & Co. Prior to joining Glass,Sepich was regional credit manager for the 10-state Midwest region at CIT Business Credit.

■ Denise Engelhardt has joined Clear ThinkingGroup LLC’s newly formed claims administra-tion unit, which will handle all facets of bank-ruptcy claims processing and administration onbehalf of debtors. The unit will assist debtorsthrough the process and handle disbursements tobe made in line with plans of reorganization.Prior to joining Clear Thinking Group, Engelhardtwas retail controller of Carpetland/FlooringAmerica, where she became the de facto claimsagent after the company filed Chapter 11 inJune 2000.

■ Douglas C. Finch has joined The Pillar GroupLLC, a Southfield, Michigan-based corporate

restructuring and consulting firm as a director.Prior to joining The Pillar Group, Finch served asvice president of electronics manufacturer PowerEfficiency Corporation. In his new position, he specializes in turnaround consulting in the automotive, high-tech, and manufacturing sectors.

■ GE Commercial Finance Corporate Lendinghas named Stephen M. Flynn senior vice president of origination for the West Region.Before joining the firm, Flynn was a managingdirector for Banc One Capital Markets, Inc. In hisnew position, he is responsible for originatingloans to large corporate customers in a nine-stateregion from Arizona to Washington.

■ Howard R. Korenthal has joined Lake PointePartners, LLC, in Chicago as a managing partner.Prior to joining the firm, Korenthal was CEO ofConnors Sports Flooring Corporation, a portfoliocompany of Code Hennessy & Simmons, LLC,until its recent sale. Before that, he was a seniorpartner at Silverman Korenthal and Company.

■ Gregory Miller-Jones has joined the SouthernCalifornia office of PNC Business Credit as a business development officer in the direct market-ing group. He is responsible for sourcing and orig-inating asset-based loans from $5 million to $200 million throughout Southern California, withan emphasis on Orange and San Diego counties.Before joining PNC, Miller-Jones was theowner/principal of Base Capital Services.

■ Tra Pippin, Arthur Miller, and Michael Sleeperare principals of newly formed Infinite SolutionsGroup, a turnaround firm with offices in Dallas,Houston, Oklahoma City, and San Jose, California.

■ Henry Ritter and Mike Smith have beennamed to serve as managing directors of MogliaAssociates’ new Los Angeles office. MogliaAssociates, a national corporate restructuringfirm also has offices in Chicago and Phoenix.

■ Thomas Traves, LL.B, has joined GlobalTurnarounds Inc. in Toronto as senior vice presi-dent: acquisitions and turnarounds. Most recently,Traves was co-founder and president of MSEMicro Solutions Canada Ltd., which was involvedin manufacturing and distributing compatiblelaser toner and inkjet cartridges. He is a certifiedOntario lawyer. In his new position, he is respon-sible for helping Global Turnarounds acquireunderperforming and distressed manufacturingand distribution companies in partnership withthe various financing sources.

■ Richard E. Wood has joined First BusinessCapital Corp. as vice president – business devel-opment. He is responsible for new business development in Eastern Michigan and Ohio. Priorto joining First Business Capital, Wood owned hisown consulting business.

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Bank of America Retail Finance Group♦ BBK, Ltd.♦ Buccino & Associates, Inc.♦ Cadwalader, Wickersham & Taft LLP♦ Cairncross & Hempelmann, P.S.♦ CapitalSource♦ Congress Financial Corporation♦ Continental Advisory Services, LLC♦ Conway MacKenzie & Dunleavy♦ The Daley-Hodkin Group♦ Deloitte & Touche LLP♦ Executive Sounding Board Associates Inc.♦ Fennemore Craig♦ First American Corp.

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ArizonaJan A. Sell, Sell & Associates Inc.

David C. Tedesco, Tedesco Capital Management

AtlantaGeorge McCarthy, Delta Partners LLC

Michael Whelchel, Morris Capital Management

California – NorthernSudhir Aggarwal, Copia Associates

Jason J. Cosso, Wells Fargo Foothill

Ralph W. Patterson, Strategia Inc.

CarolinasMichael A. Wesley, Clear Thinking Group LLP

Chris J. Wilkins, A.R. Funding Inc.

ChesapeakeJohn Gladys, Textron Financial Healthcare Finance

Chicago/MidwestMichael P. Ban, Capital TempFunds Inc.

Christopher M. Cahill, Schwartz CooperGreenberger & Krauss Chartered

Amy Corrigan, GE Commercial Finance Corporate Lending

Robert Heinz, North Fork Business Capital

Albert T. Kirchhein, Scouler Andrews

Howard R. Korenthal, Lake Pointe Partners LLC

George Z. Lalich, Esq., Marsh Private Equity and M&A Services

Larry Meek, First Growth Capital

William C. Meyers, Esq., Goldberg Kohn Bell Black Rosenbloom & Moritz Ltd.

Todd M. Muscato, AlixPartners LLC

Eric S. Rein, Schwartz Cooper Greenberger & Krauss Chartered

Angie E. Van Scyoc, Solution Resource LLC

ColoradoNorie Baker, The Meeting Edge Inc.

Whitney C. Broach, Broach Services Inc.

Rand Gambrell, BKD LLP

Joel B. Levinson, J.B. Jeffers Ltd.

DetroitRobert W. Bowles, Blue Water Consulting

Richard E. Wood, First Business Capital Corp

FloridaAlbert P. Anderson, Tatum Partners LLP

Allen Archer, Hudson

Matthew I. Kramer, Bilzin Sumberg Baena Price & Axelrod LLP

Michelle M. Miller, Initium LLC

Pamela J. Windham

InternationalJan J. Bicker Caarten,

Credit Management Solutions (Pty.) Ltd.

Ken Chitando, TurnAround Partners Inc.

Rowan R. Gordon, Credit Management Solutions (Pty.) Ltd.

David B. Harding, Corporate Renewal Partners

Johannes F. Klopper, Hans Klopper Trustees (Pty.) Limited

Michael Lin, Taiwan Securities Central Depository

Vincent Marino, Business Renewal & Survival Strategies

Leslie M. Matuson, Credit Management Solutions (Pty.) Ltd.

Michael M. Murray, Value Chain Projects

Garrath G. Rosslee, Retention Strategies cc

Themba September

Patrick P. Von Spreckelsen, Turnaround SA

Andrea W. Wildt, Sustainable Strategies

JapanHidetsugu Agata, Mabuchi Motor Co. Ltd.

Kinnosuke Funahashi, Business Value Creation Ltd.

Toshimi Manabe, Corporate Reconstruction a Conference

Eiki Nakamura, Nakamura Kaikei Co. Ltd.

Yuichi Nishida, Nishida Real Estate Appraisal Services Inc.

W E L C O M ENew Members



N E W M E M B E R SKevin Nystrom, Kroll Zolfo Cooper LLC

Bobby Rajan, PricewaterhouseCoopers Global Restructuring Services LLP

Ameet N. Rane, Delaware Street Capital

Barry Renow, AmSouth Capital Corp.

Bradley A. Robins, Greenhill & Company

Tajudeen O. Solebo, Giuliani Capital Advisors LLC

John W. Stelwagon III

John O. Strek, Conway Del Genio Gries & Co LLC

New York – Long IslandArthur Garcia

Adrian Gauci, Hofstra University

Mahbubul Haque, Hofstra University

Shyla Kannambadi

Darren Parsch

Peter Seideman, Esq., PLS Associates Inc.

Szu-Hsien Tsao, Hofstra University

NortheastLawrence B. Baker, Gulfstream Group LLC

Peter D. Bilowz, Esq., Goulston & Storrs PC

Richard Dorman, Sheaff Dorman Purins Inc.

Rafael Klotz, Goulston & Storrs PC

Albert Rocha, Capital Source

Christopher Runci, EMCC Inc.

John C. Sullivan, Linton Associates

NorthwestDouglas L. McDonald,

Access Business Finance LLC

John Casey Mills, Miller Nash LLP

Elizabeth Pineda, National Bank of Canada

Richard Roos, North Point Capital Corp.

Rich Rudolph, Blue Diamond Capital

David C. Stiffler, Fairway Commercial Mortgage

Geoff Varga, PricewaterhouseCoopers

OhioJeffrey M. Evans, KeyBank Asset Based Lending

Michael A. Gasser, PNC Business Credit

Steve Rosen, Resilience Capital Partners

Christopher D. Zawie, Chase Business Credit

MontrealWhitney J. Larratt-Smith, McGill University

Guy P. Martel, Stikeman Elliott LLP

Keyvan Nassiry, Brouillette Charpentier Fortin

Martin Sills, BCF LLP

New JerseyGregory Russano, Sovereign Bank

Steven A. San Filippo, San Filippo & Associates

New York CityStephen J. Antinelli,

Conway Del Genio Gries & Co LLC

Nancy Chiao, Huron Consultilng Group

Joseph Costanza, LaSalle Business Credit LLC

Stacy L. Ferrone, Keen Consultants LLC

TC Fleming, NYU Stern Management School of Business

Michele S. Girdharry, Huron Consulting Group

Marc A. Goodman, Fifth Street Capital LLC

Paul A. Gordon, Cerberus Capital Management LP

Erik M. Graber, Goldin Capital Management LP

Kenneth S. Grossman, Alpine Associates

Larry G. Halperin, Richards Spears Kibbe & Orbe LLP

Ellen A. Hennessy, Fiduciary Counselors Inc.

Sheldon Kaye, Rosenthal & Rosenthal Inc.

Charles Kim, Wells Fargo Foothill

Jeffrey A. Kincaid, Bear Stearns

John H. Knight, Esq., Richards Layton & Finger PA

David M. Linn, Oak Point Partners

Michael McGrail, Tiger Capital Group LLC

Darin Milmeister, Delaware Street Capital

Marissa M. Moschel, Bridge Associates LLC

Roberto Munhoz Miranda, NYU Stern School of Business

Pablo A. Navarro, BP America

PhiladelphiaCathy B. Abelson, Abelson Legal Search

William J. Burnett, Esq., Smith Giacometti & Chikowski LLC

Stephen E. Comly, Comly Auctioneers & Appraisers

John M, Greenebaum, St. John Holdings Inc.

Jeremy R. Halford, Triage Funds

Ted S. Lodge, Lodge Special Situations LLC

Kenneth T. Podell, FFG

Gilbert R. Saydah Jr., Morris Nichols Arsht & Tunnell

William H. Sudell Jr., Morris Nichols Arsht & Tunnell

PittsburghJohn J. Len, Len Consulting

TennesseeJosh Holloway, Cobbs Allen & Hall

Texas – CentralFred P. Adams, Binnacle LLC

John M. Willis, Remote Work Central Inc.

David B. Young, McGinnis Lochridge & Kilgore LLP

Texas – Dallas/Ft. WorthWilliam F. Battershell,

American Pad & Paper LLC (AMPAD)

Brandon Bauer, Riviera Finance

John A. Bermingham, American Pad & Paper LLC (AMPAD)

R. Lindsay Gordon, Guaranty Business Credit Corporation

Elizabeth Hastings, Medical Capital Corp

Lori S. Pierce, UHY Advisors

Texas – HoustonKatharine J. Caplan, Weil Gotshal & Manges LLP

Amy L. Cartwright, Wells Fargo Business Credit Inc.

Michael L. Dulaney, XRoads Solutions Group LLC

John A. Hotz Jr.

Lenard M. Parkins, Esq., Haynes and Boone LLP

Michael Skowroenk, Strata Business Consultants

Robin A. Thompson, Robert Half Legal

TorontoHassan Jaffer, Grant Thornton Limited

Wael M. Rostom, McMillan Binch LLP

John S. Willson, Recovery Partners Ltd.

United KingdomChristopher Jones, Irwin Mitchell

Bryan P. Lewin

Parham Pouladdej, The Recovery Group

David Roberts, Venture Turnaround Limited

Upper MidwestMarty Rogers, Tranzon Rogers

Greg Schwarck, Voyager Bank

Alan Thometz, Manchester Companies Inc.


S T R A I G H Tfrom the Chapters

Please send chapter event notices by mail to TMA,100 S. Wacker Drive, Suite 850, Chicago, IL60606; fax (312) 578-8336; or [email protected]. For more informationon these events or others scheduled by chapterssince this list was assembled, please visit theevents listings portion of www.turnaround.org.

ARIZONAJuly 28 – Fourth Annual Lenders’ Panel.Details will be announced closer to the event.

AUSTRALIAJune 8 – Luncheon meeting, 12:30 to 2 p.m.,hosted by NAB. For more information,contact Chapter President Nicholas Samios at9299 8477 or [email protected] registration is available atwww.turnaround.org.

CAROLINASJune 14 – Joint TMA and InternationalWomen’s Insolvency and RestructuringConfederation (IWIRC) reception and dinner,

5:30 p.m., at the Westin Hotel in Charlotte.The event features a panel discussion on“Second Lien Loans: Working with a NewCapital Structure.” Online registration isavailable at www.turnaround.org. For moreinformation about this or other CarolinasChapter events, call Chapter President AndyBarbee at (704) 926-0359 or e-mail him [email protected].

CHESAPEAKEJuly 9 – Breakfast meeting, 8 a.m., at theMarriott Hotel in Tyson’s Corner, Virginia.For more information, contact BrendaLinthicum at (703) 912-3309.

CHICAGO/MIDWESTJune 22 – Fifth Annual Charity Golf Outing, 9:30 a.m. to 7 p.m., at HarborsideInternational Golf Center in Chicago. The event benefits Children’s MemorialFoundation and The Cancer Wellness Center.Registration begins at 9:30 a.m., followed bya shotgun start at 11 a.m. and a reception

featuring awards, a silent auction, andcocktails and dinner buffet beginning at4:30 p.m. Online registration is available atwww.turnaround.org. For more information,contact Sue Fischer at (815) 469-2935 or e-mail [email protected].

July 8 – ACTP Body of Knowledge lawreview session, 8:45 a.m. to 5 p.m., 150 S.Wacker Drive, Suite 1060. The exam for thelaw section for the CTP designation isavailable the following day, Saturday, July 9.

COLORADOJune 16 – Breakfast meeting, 7:30 to 9 a.m., at The Oxford Hotel, TheaterEntrance. For more information about this orother Colorado Chapter events, call ChapterAdministrator Kim Watts at (303) 457-2119 ore-mail her at [email protected].

CONNECTICUTJune 27 – Twelfth Annual Charity GolfTournament, co-sponsored with the CommercialLaw and Bankruptcy Section of the Connecticut

TMA’s Sixth AnnualCross-Border Business

Restructuring & Turnaround Conference

September 22-25, 2005

Presented by the Northwest Chapter of TMA

at the Grand Hyatt Seattle Hotel in Downtown Seattle, Washington

To register or for more information, please visit our

website at www.northwest.turnaround.org or contact

Kathy Million at (503) 223.6222 or [email protected]




Friday, June 17, 2005,7:30 a.m. – 1:00 p.m.IDS Center,50th FloorDowntownMinneapolis

Keynote address byPamela Wheelock, CFO,Minnesota Wild

This program will help business-turnaround and other consultants betterrecognize a potential lending crisis before it explodes, realize the optionsand processes available to rehabilitate an ailing business, and preserve aloan or investment.

Program6:45 a.m. – 7:15 a.m. Registration & Networking 7:15 a.m. – 8:00 a.m. Breakfast/Welcome Introductions 8:00 a.m. – 9:30 a.m. Presentation & Discussion 9:45 a.m. – 11:45 a.m. Five Turnaround Stages 11:45 a.m. – 1:00 p.m. Lunch/Keynote Speaker

RegistrationMembers: $70 Non-Members: $85 Students: $70

Online registration is available at www.turnaround.org or contact ChapterAdministrator Brenda Ryan at (612) 708-0258.There is no charge for cancellations received by Ryan by 5 p.m. (EDT) Wednesday, June 15. Cancellations received after June 15 and all eventno-shows will be charged the full applicable registration fee.

Troubled LoanWorkout Program

Troubled LoanWorkout Program

Minneapolis photo courtesy of T

he Greater M

inneapolis Convention &

Visitors A

ssociation, Copyright ©

2003

Bar Association, 10:30 a.m. to 7:30 p.m., atWoodbridge Country Club in Woodbridge,Connecticut. Chris Dailey, University ofConnecticut women’s basketball associatehead coach is honorary chair of the event,which benefits the Connecticut Children’sMedical Center. Lunch is served 11:30 a.m. to 12:45 p.m., followed by a shotgun start at 1 p.m. and a cocktail reception, awardsceremony, and dinner from 5:30 to 7:30 p.m.For more information on this or otherConnecticut Chapter events, visitwww.cttma.org.

DETROITJune 21 – Eighth Annual Golf Outing, Twin Lakes Golf & Swim Club, Oakland,Michigan. Registration and the driving rangeopen at 11 a.m., followed by lunch from noonto 1:15 p.m. Carts depart at 1:15 p.m. for a1:30 shotgun start. A BBQ dinner follows thetournament at 6:30 p.m. For registrationinformation, contact Chapter AdministratorJennifer Brewer at (248) 593-4810.

FLORIDAJune 15 – South Florida dinner, 5:30 to 8 p.m.,at The Bankers Club of Miami. The eventfeatures a panel discussion on the BankruptcyAbuse Prevention and Consumer Protection

Act of 2005. For more information about this event or other Florida Chapter activities,call Chapter Administrator Tabitha Moor at (561) 882-1331 or e-mail her [email protected]. Online registrationfor Florida Chapter events is available atwww.turnaround.org.

June 28 – Tampa luncheon, noon to 2 p.m.,at The Centre Club, 123 South WestshoreBoulevard.

July 26 – Orlando luncheon, noon to 2 p.m., at the Citrus Club, 255 South OrangeAvenue, 1800 Citrus Center, Orlando. Dr. Steven Wise of Wise Ways, Inc., willdiscuss “Organizational Assessment andIntervention.”

NEW JERSEYJune 9 – 10 – Third Annual Mid-AtlanticSymposium at Caesars Atlantic City, hostedjointly by the New Jersey, Chesapeake, andPhiladelphia TMA Chapters. The eventfeatures a golf tournament; “Views from theBench,” a panel of U.S. Bankruptcy Courtjudges; a second panel discussion on“Financing Options in 2005 and Beyond;”and a question-and-answer and autographsession featuring sportswriter Ray Didingerand former New York Giants star Karl Nelson.

June 28 – Family night, Somerset Patriotsbaseball, 6:05 to 10 p.m., at Commerce BankBallpark in Bridgewater, New Jersey. For moreinformation about this event or other NewJersey Chapter activities, call ChapterAdministrator Betty Mantz at (908) 575-7333or e-mail her at [email protected].

August 1 – Annual Golf Outing at Raritan ValleyCountry Club in Bridgewater, New Jersey.

NEW YORK CITYJune 6 – Members-only Golf & TennisOuting, 9:30 a.m. to 7:30 p.m., at FreshMeadow Country Club, 255 Lakeville Road,Lake Success, New York. Brunch will beserved from 9:30 to 11:45 a.m. The golfpractice range opens at 10 a.m., and thetournament begins with a shotgun start atnoon. The round-robin tennis tournament also begins at noon. There are cocktails and a buffet dinner reception from 4:30 to 7 p.m.,followed by prizes and awards. Onlineregistration and driving directions areavailable at www.turnaround.org. For moreinformation about this or other New YorkChapter events, contact ChapterAdministrators Dorri Weinstein and LaurenBaker at [email protected].

PROGRAM

Thursday, September 8, 2005

10:00 – 11:30 am Registration

11:00 – 12:00 pm Box Lunches provided at Golf Course

12:00 – 5:30 pm Golf Outing (shotgun start)

6:30 – 9:00 pm Networking Reception – Cocktails/Buffet Dinner

Friday, September 9, 2005

8:00 am Buffet Breakfast

9:00 am Panel Discussion – Workouts

10:00 am Coffee Break

10:15 am Panel Discussion – Bankruptcy Asset Purchases

11:30 am Lunch and Keynote Speaker – Hugh Johnson, Chairman,Johnson Illington Advisors, LLC

12:30 pm Conference Adjourns

Northeast Regional TMA ConferenceRegistration Form (if registering by mail and paying by check)

Name: ______________________________________________________________

Name for Badge: ______________________________________________________

Company: ___________________________________________________________

Address:_____________________________________________________________

City / State / Zip: ______________________________________________________

Telephone: ___________________________________________________________

Email: ______________________________________________________________

TMA Chapter:_________________________________________________________

TMA Member # (required) _______________________________________________

Golf: Yes ■■ No ■■ Golf Handicap: ___________________________________

Registration Fee: $ ____________________

Golf Fee: $ ____________________

Total Remitted: $ ____________________

SPONSORSHIPSNumerous sponsorship opportunities are available forthis inaugural event. Please contact Steve Krakower [email protected] or Mark Patchell [email protected] for details.

REGISTRATIONRegistration fees include educational sessions, meals,and social functions. Room charges are additional. Allregistered attendees will receive a TMA name badgethat must be worn for admittance to all conference sessions and social functions. The member registrationfee is for current, active TMA members. If you are not amember, you may join online at www.turnaround.org

Conference On or before After7/29/05 7/29/05

Member $125 $145

Non-member $150 $170

Golf Tournament* $125 $125

*Conference registration is required in order to play golf.

Registration is available either by mail (payment by check only) or online (credit card only) www.turnaround.org.

For those registering by mail (check only), please complete the attached registration form and send it toSharon Graber, 57 Middlebury Road, OrchardPark, NY 14127. Registrations cannot be confirmeduntil after the check is received.

CANCELLATION POLICYThe cancellation deadline is Wednesday, August 31,2005 at 5:00 p.m. No refunds will be granted after thisdate, but substitutions will be allowed. There will be noexceptions.

ROOM RESERVATIONSPlease call the Gideon Putnam Hotel at 518-584-3000,quoting the TMA regional conference room rate of$120, plus tax. Reservations must be guaranteed by amajor credit card and made by August 8, 2005, to takeadvantage of these discounted room rates. Rooms arelimited and subject to a first-come, first-serve basis. Visitwww.gideonputnam.com for detailed driving directions.The closest major airport is in Albany, New York.

ATTIREGolf (Men and Women): Collared shirts are required.No sneakers, cut-offs, tank tops, or sandals.

Educational Sessions and Networking Events:Business Casual

CONTINUING EDUCATION CREDITThis program is eligible for 2 hours of CTP TBD

Hosted by the Connecticut, Long Island,Montreal, New Jersey, New York, Northeast,and Upstate New York TMA Chapters

Please mail this registration form along with your check to:Sharon Graber57 Middlebury RoadOrchard Park, NY 14127

GIDEON PUTNAM HOTEL & CONFERENCE CENTER

SARATOGA SPRINGS, NEW YORK

SEPTEMBER 8 – 9, 2005

Photos courtesy of the Saratoga Convention and Tourism Bureau

Northeast Regional Conference



S T R A I G H T F R O M T H E C H A P T E R S

NEW YORK – LONG ISLANDJune 8 – Women’s Marketing Initiative, 4:30to 6:30 p.m., at Milleridge Inn, 585 NorthBroadway, Jericho, New York. The event is“Afternoon Tea with New York State ParksCommissioner Bernadette Castro. Men are welcome to attend the event. Onlineregistration is available at www.turnaround.org.For more information, contact ChapterAdministrator Irene Howell at (631) 434-9500 or [email protected].

July 14 – Dinner cruise, 6 to 10 p.m.,departing from the World’s Fair Marina,Flushing, New York, across from SheaStadium. Online registration is available atwww.turnaround.org. More details will beavailable nearer the event. For moreinformation, contact Chapter PresidentStephen Mischo at (516) 465-2356 orTreasurer Michael Collins at (631) 434-9500.

NEW YORK – UPSTATEJune 16 – Dinner meeting, 5 to 8 p.m., at the Genesee Valley Club, in Rochester.Carl Sassano will discuss “The SuccessfulTransformation of Transmation to Transcat.For more information about this or otherUpstate New York events, contact ChapterAdministrator Sharon Graber [email protected] or (716) 440-6615.Online registration is available atwww.turnaround.org.

NORTHEASTJune 2 – Spring Cocktail Reception in Boston.Details will be announced nearer the event.

OHIO June 14 – Chapter meeting, 11:30 a.m., atthe Columbus Athletic Club. Details will beannounced closer to the event.

July 25 – Golf outing, 10 a.m., at MayfieldCountry Club.

PHILADELPHIAJune 9 – 10 – Third Annual Mid-AtlanticSymposium at Caesars Atlantic City, hostedjointly by the New Jersey, Chesapeake, andPhiladelphia TMA Chapters. The eventfeatures a golf tournament; “Views from the Bench,” a panel of U.S. BankruptcyCourt judges; a second panel discussion on“Financing Options in 2005 and Beyond;” and a question-and-answer and autographsession featuring sportswriter Ray Didingerand former New York Giants star Karl Nelson.

ST. LOUIS/TRI-STATEJune 8 – Texas Hold 'Em PokerTournament, 5 p.m., held in conjunctionwith the Chicago Chapter at the Ritz CarltonHotel in St. Louis. For more information,contact St. Louis/Tri-State Chapter SecretaryNick Franke at [email protected].

TEXAS – DALLASJune 9 – Chapter meeting at CityPlaceConference Center, 5:30 p.m. For moreinformation on this or other Dallas Chapterevents, call Maribeth Canole at (214) 228-9706 or e-mail her at [email protected].

July 14 – Wine tasting event at the TowerClub (Thanksgiving Tower, 48th Floor),5:30 p.m.

TEXAS - HOUSTONJune 2 – Chapter meeting, 7:30 a.m., at the Junior League, 1801 Briar Oaks Lane, in Houston. For more informationabout this or other Houston TMA events,contact Chapter Administrator Dale Wilkins at [email protected] or (713) 839-0808.

June 21 – Baseball outing to a HoustonAstros and Colorado Rockies game atMinute Maid Park, 7:05 p.m. Tickets are limited.

TORONTOJune 24 – Golf tournament, 7 a.m. to 1 p.m., at RattleSnake Point Golf Club, CopperheadCourse. The event features a modified shotgunstart. For more information, contact ChapterAdministrator Sue Anderson at (416) 867-2300or e-mail [email protected].

UNITED KINGDOMJune 8 – London – Chapter meeting, 6 p.m. Formore information, contact [email protected].

June 22 – Southampton – Chapter meeting, 6 p.m. For more information, [email protected].

July 4 – Leeds – Chapter meeting, 5:45 p.m.,For more information contact [email protected].

July 13 – London – Chapter meeting, 6 p.m. Formore information, contact [email protected].

UPPER MIDWESTJune 17 – Troubled Loan Workout program, 7:30 a.m. to 1 p.m., at the IDS Center, 50th floor,Downtown Minneapolis. Pamela Wheelock, chieffinancial officer of Minnesota Sports andEntertainment, will provide a keynote address onthe future of the Wild and the National HockeyLeague. Breakfast and lunch are included. Onlineregistration is available at www.turnaround.org.For additional details, please contact ChapterAdministrator Brenda Ryan at (612) 708-0258 or [email protected].


A D V E R T I S E R S ’ I N D E X

ACTP Body of Knowledge Series.........................................28

ALTMA Group LLC ...................................................................5

CIT........................................................................................... 33

CapitalSource..........................................................................13

Cornerstone ...............................................Inside Back Cover

Cornerstone 15.......................................................................32

The Deal LLC .........................................................................27

DoveBid Valuation Services ..................................................11

GE Commercial FinanceRestructuring Finance ...........................Inside Front Cover

GE Corporate Financial Services..........................................17

GMAC Commercial Finance .................................................19

Getzler Henrich & Associates, LLC ......................................23

Helms Mulliss & Wicker, PLLC .............................................16

The Hilco Organization...................................................20, 21

Hunt Special Situations Group, L.P......................................25

Jon Kris Consultants, Inc.......................................................12

LaSalle Business Credit ...........................................................7

Loeb Equipment.....................................................................39

Merrill Lynch Capital..............................................Back Cover

Michael Fox International, Inc................................................9

Monroe Capital LLC...............................................................35

Northeast Regional Conference ..........................................38

Northwest Chapter Cross-Border Business Restructuringand Turnaround Conference .............................................36

PNC Business Credit ..............................................................15

Prime Locations LLC..............................................................30

Rosenthal & Rosenthal ..........................................................29

SSG Capital Advisors, L.P. .......................................................6

Sun Conference......................................................................34

Union Bank of California ......................................................31

Upper Midwest Chapter Troubled Loan Workout Program................................................................37

Your Association’s Benefits ProgramsEnhancing the value of your membership

B E N E F I T P R O G R A M S

Bankruptcy InsiderThrough an exclusive alliance with The Deal LLC, TMA is the only organization offering its members the new Bankruptcy Insider searchableonline database, newsletter, and Web site access for up to 52 percent off the base rate of $1,950. View the database and newsletter at www.dealsubs.com/TMA, or call 1-888-257-6082 and mention codeG45D8TMA. The special TMA member rate is $930 (includes electronicnewsletter) or $1,170 (includes printed newsletter).

Business NewsTurnaround Executive’s Daily Business News Report lists troubled or fast-growing private and public companies nationwide. The regular subscriptionprice is $500 per year, but a three-month trial subscription (65 issues) isavailable to TMA members for $99. To view a sample issue or subscribe,visit www.turnaround.org/membership/moreBenefits.asp.

Subscribers can use a new Company Tracking System at no addi-tional charge. The system e-mails subscribers when news aboutspecified companies/accounts is available.

Car Rental TMA members can receive as much as 10 percent off regular car rentalrates from Avis. For more information, call (800) 331-1212 and mentionidentification number V368995.

HQ Global Workplaces HQ Global Workplaces provide flexible office solutions and business support services to TMA members. Through HQ’s network of 15,000 furnished offices and 700 conference rooms, a TMA member can quickly establish a business presence on a full-time, part-time, or as-needed basis.

Mail Plus provides a professional business address for mail receipt andcomplimentary mail forwarding. Phone Plus provides members with theirown phone numbers with 24/7 digital voice mail, a receptionist to answercalls during business hours, and access to call forwarding. Contact LisaLingo at (972) 361-8092 for more information.

INSOL Special Interest Section Members can join the International Federation of Insolvency Professionals(INSOL) special interest section of TMA for $75 a year. Benefits include amembership directory, savings on conference rates, a subscription to thequarterly newsletter INSOL World, and access to the password-protectedsection of www.insol.org.

Insurance Professional liability insurance combining traditional consultant E&Ocoverage with specific requirements for TMA members is available. ContactMichael C. Klee with Mesirow Financial at (888) 973-2323, extension 6828,and mention that you are interested in TMA Professional Liability Insurance.

Next Day Delivery Services TMA members can save on next morning, next afternoon, second day, andinternational delivery services. DHL/Airborne Express serves most zipcodes in the U.S. and more than 200 countries, with 24/7 package trackingat www.airborne.com. Call (800) 636-2377 for a DHL/Airborne Expressstarter kit or visit www.membersales.com/ABX.

Relocation ServicesBekins Van Lines offers discounted rates for transportation services, plusreplacement cost coverage at no charge, on state-to-state moves of household goods. For a full listing of benefits for TMA members, pleasevisit www.bekinsmoving.com/promotions/tma.htm.

For interstate rates and information, contact Bekins at (800) 456-6832and mention membership “corpcode” #47215.

ReadyTalk Audio and Web Conferencing ReadyTalk provides reservation-less audio conferencing at group rates andincludes Web conferencing at no additional cost. Local toll-free access num-bers are available worldwide, including Australia, Canada, France, Mexico,New Zealand, and the U.K. Contact TMA member services for information.

Travel and Lodging ■ Hyatt Company Travel Program

The Hyatt Company Travel Program provides special offers and room ratesat Hyatt Hotels and Resorts. Use TMA’s identification number B200601when making reservations at Hyatt Hotels and Resorts throughout the U.S., Canada, and the Caribbean. Click on Rates & Reservations atwww.companytravel.hyatt.com or call (877) 394-6258.

■ Starwood Hotels & Resorts Receive special room rates at Starwood Hotels & Resorts, including WestinHotels & Resorts, Sheraton, Four Points by Sheraton, St. Regis, The LuxuryCollection, and W Hotels. For best available rates, visit www.spg.com.

TMA members are also entitled to complimentary membership in Starwood’sPreferred Guest program at the elevated Corporate Preferred level. Visitwww.starwood.com/preferredguest/corporatePG/corporate_landing.html?part-ner_code+294498. Current Preferred Guests can call (888) 625-4988 and mentionTurnaround Management Association SET#294498 to upgrade their status.

C O N T A C T J O S E P H K A R E L A T ( 3 1 2 ) 2 4 2 - 6 0 3 9 F O R D E T A I L S .

We Would Like To Thank Our

Cornerstone Donors

We Would Like To Thank Our

Cornerstone Donors

Atwell, Curtis & Brooks, Ltd./University Management Associates & Consultants Corp.

Aurora Management Partners Inc.Bear Stearns & Co.The Belet Group, Inc./Belet Acquisitions, Inc.Blank Rome LLP

Abacus Advisors Group LLCAEG Partners, LLCAlixPartners, LLCAtlas Partners, LLC Buccino & Associates, Inc.

Bank of America Commercial FinanceBBK, Ltd.

♦ SUPPORTER DONOR ♦ $500 – $4,999Allomet Partners, Ltd.American Express Tax & Business ServicesARG Recovery, LLCBeane Associates, Inc.Cairncross & Hempelmann, P.S.Caledonia Group Inc.Capital Restoration, LLCCapitalSourceCitadel Investment GroupContinental Advisory Services, LLCThe Daley-Hodkin GroupDickinson Wright PLLCDLA Piper Rudnick Gray Cary US LLP

EMCC, Inc.Emerald Technology Valuations, LLCFennemore Craig P.C.The Finley GroupFirst American Corp.

UCC Insurance DivisionFort Dearborn Partners, Inc.Getzler Henrich & Associates LLCGibson, Dunn & Crutcher LLPGiuliani Capital Advisors LLCGreat American GroupHarvard Turnaround ManagementThe Hilco Organization

Hill & Gertner Capital CorporationHSG Services Inc.Jager Smith P.C.Joe Foster Real Estate AdvisorsKBK Financial, Inc.Lain Faulkner & Co.McShane GroupMehmco Financial Services Inc.The Meridian GroupMichael Fox International Inc.Miles & Stockbridge P.C.Modesitt Associates, Inc.The Nauset Group, Inc.

Northern Healthcare Capital, LLCOzer Valuation ServicesThe Parkland Group, Inc.Penn Hudson Financial Group, LLCPhoenix Advisors & Collections, Inc.Phoenix Management Services, Inc.Project Executive Group, Inc.ProtivitiQuest Turnaround Advisors, LLCRenaissance Partners, L.C.Republic Financial CorporationRJ Reuter Business ConsultingRKG Osnos Partners LLC

Rochelle, Hutcheson & McCullough, LLPRuskin Moscou Faltischek, P.C.SB Capital GroupSherman, Lavallee & Associates, LLCState Securities PLC (United Kingdom)Sterling Supply Co.Stout Risius Ross, Inc.Strategic Management Partners, Inc.Stutman, Treister & GlattTeamWork Technologies, Inc.Tono-Bungay Consulting, Inc.Treadstone Partners, LLCWinternitz, Inc.Wiss & Company, LLP

♦ SUSTAINING DONOR ♦ $25,000 – $49,999

♦ BENEFACTOR DONOR ♦ $10,000 – $24,999

♦ PATRON DONOR ♦ $5,000 – $9,999Cadwalader, Wickersham & Taft LLPCarl Marks Consulting Group LLC /

Carl Marks Capital Advisors LLCConway MacKenzie & DunleavyFINOVA Capital CorporationHorizon Management Inc.JPMorgan Chase & Co.

Kugman AssociatesMesirow Financial Consulting, LLCThe Nassi Group, LLCPhilip + Company, Inc.Quarles & Brady LLPRAS Management Advisors, Inc.Retail Consulting Services

Schulte Roth & Zabel LLPSSG Capital Advisors, L.P.Wells Fargo Bank, N.A.Wells Fargo Retail Finance

DoveBid Valuation ServicesMorris-Anderson & Associates, Ltd.

NachmanHaysBrownstein, Inc.Wells Fargo Business Credit, Inc.

Congress Financial CorporationDeloitte & Touche LLPExecutive Sounding Board Associates Inc.FTI Consulting, Inc.Gardner Carton & Douglas LLP

Huron Consulting GroupKronish Lieb Weiner & Hellman LLPLake Pointe Partners, LLCPrime Locations LLCRavin Greenberg PC

Riemer & Braunstein LLPTrimingham Americas, Inc.Wells Fargo FoothillXRoads Solutions Group

♦ C O R N E R S T O N E C A P I TA L D O N O R ♦ $100,000 and above

Back Bay Capital Funding LLCBank of America Business Capital Bank of America Retail Finance Group

Gordon Brothers Group, LLC

♦ C O R N E R S T O N E D O N O R ♦ $75,000 – $99,999ALTMA Group, LLCCIT

♦ L E A D E R S H I P D O N O R ♦ $50,000 – $74,999Glass & Associates, Inc.Realization Services, Inc.Skadden, Arps, Slate, Meagher, & Flom LLP

©2005 Merrill Lynch & Co., Inc.

ENGINEERED FOR MAXIMUM PERFORMANCE.

FINANCING SOLUTIONS BASED ON A

THOROUGH UNDERSTANDING OF YOUR OBJECTIVES.

Merrill Lynch Capital has the experience to structure deals of all types and sizes, optimizing each one to meet specifi c client needs. We offer solutions that range from senior asset-based and cash fl ow credit facilities to mezzanine and junior secured debt products. The dedicated professionals at Merrill Lynch Capital deliver quick, dependable answers and can satisfy almost any need, including debt restructuring, turnaround, DIP and exitfi nancing. To learn more about how we develop and deliver exceptional fi nancing solutions for exceptional clients, call 1-888-508-9696.

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Documents

Vol. 18/No. 6 June 2005Investors Warn: Be Skeptical, Hands-On, Disciplined Navigating Debt-for-Equity Swaps in the Middle Market Rebuilding Tattered Board Credibility Independence,