Allied Building Products 18500 Von Karman Ave, Fifth Floor BROADENING THE SCOPE OF LIABILITY WHEN INSOLVENCY STRIKES YOUR CUSTOMER David Groom Director of Credit, Allied Building Products david.groom@alliedbuilding.com 15 E Union Ave East Rutherford, NJ 07073 David Mannion, Esq. dmannion@blakeleyllp.com 54 W. 40th Street New York, NY 10018 V. (917) 472-9587 | F. (949) 260-0613 www.BlakeleyLLP.com Scott Blakeley, Esq. seb@blakeleyllp.com 18500 Von Karman Ave, Fifth Floor Irvine, CA 92612 V. (949) 260-0611 | F. (949) 260-0613 www.BlakeleyLLP.com

COLLECTION STRATEGIES Claims against Insiders Piercing the corporate veil Alter Ego liability Corporations whose Charters are Revoked Officers, Directors and Controlling Shareholders Claims against Third Parties Concept of Limited Liability. Officers and owners insulated from liability to corporation’s creditors Exceptions to be discussed: Sale Exceptions (where 3rd party buys the debtor’s assets) Mere Continuation De Facto Merger Fraudulent Transfer

WHAT CONTRACTUAL DOCUMENTS GOVERN THE TRADE RELATIONSHIP Sales team Information Credit team pref Credit team Credit Application Information & T’s and C’s Who has the Trade Leverage? Indispensable customers or key supplier? Sales team/customer pref Offer to buy An acceptance of an offer to sell Confirmation of a verbal agreement New Account Set up P.O.’s and Invoices Customer pref Customer-Supplied Vendor Contract

CREDIT ENHANCEMENTS

THE CREDIT APPLICATION AND VENDOR CONTRACT Terms and Conditions Applicant will not withhold payment when disputes arise. Only the disputed portion of a past-due balance may be withheld Applicant agrees to pay all collection costs (attorneys’ fees, collection agency and court costs) Applicant agrees to the specified governing law and forum selection clause Waiver/duty to inspect within fixed time period Default interest Unilateral right to terminate credit sale Unilateral right to arbitrate

CREDIT RISK FLAGS Warning signs of delinquencies A/R aging High credit risk score Timing for what is considered delinquent Collections Judgments Liens Bankruptcy Likelihood of small business to become severely delinquent Monitoring accounts Tighter lending practices Vendors as lenders Monitoring of bank lending, term dates and covenants

DEALING WITH PAST DUE INVOICES YET MAINTAINING SALES Ways to determine type of high risk customer (Is the relationship salvageable?) Request for financial information and confidentiality agreement Third party comment Salesperson and credit pro customer visit Contact customer’s bank Talk to industry group members and other suppliers Landlord Repayment agreements: fixing indebtedness and waiving claims Credit enhancements Dealing with insolvency

OUT OF COURT ALTERNATIVES Bulk Sale Secured Party Sale Negotiated Settlement with Individual Creditors Assignment for Benefit of Creditors Composition Agreement