NEW ISSUES IN INTERNATIONAL DISTRIBUTION Panel on the impact of the distributor's bankruptcy in different jurisdictions Turin, 11 June 2010 © Reed Smith LLP. All rights reserved.

Panel on the impact of the distributor's bankruptcy Anders Fernlund, Advokatfirman NOVA AB, Stockholm Simon Hotte, Fidal, Lyon Paolo Lombardi, Buffa Bortolotti & Mathis, Torino Ingrid Meeussen, LVP Law, Brussels Olga Sztejnert, Drzewiecki, Tomaszek & Partners, Warsaw Edward Miller, Reed Smith, London © Reed Smith LLP. All rights reserved.

Scenario One – Cause for Concern © Reed Smith LLP. All rights reserved.

Scenario One – Cause for Concern (1) Optimistic Apparel appoint Dodgy Distribution as their exclusive distributor for a five year fixed term The first season goes well, but then Optimistic Apparel start to hear rumours about the financial situation of Dodgy Distribution Optimistic request financial information from Dodgy, but do not receive it. After making some enquiries of their own, Optimistic discover that although Dodgy have honoured all obligations to optimistic to date, they seem indeed to be in some financial difficulty. © Reed Smith LLP. All rights reserved.

Scenario One – Cause for Concern (2) Optimistic meet Dodgy and suggest that Dodgy considers the following: a reduction in credit limit shorter payment terms some larger customers becoming Optimistic house accounts Dodgy say everything is OK and there is no need to make any changes © Reed Smith LLP. All rights reserved.

Scenario Two – Getting in Deeper © Reed Smith LLP. All rights reserved.

Scenario Two – Getting in Deeper Trading between Dodgy and Optimistic continues. Dodgy does not make payments on time and builds up debt. Optimistic meets Dodgy again and agrees to give Dodgy extra time to pay. Optimistic and Dodgy also discuss whether a guarantee might be available from Dodgy’s parent, Sharp Practice Group, and whether Dodgy could offer some security over its European Distribution Centre building © Reed Smith LLP. All rights reserved.

Scenario Three – Mine is mine © Reed Smith LLP. All rights reserved.

Scenario Three – Mine is mine (1) The discussions on guarantees and security come to nothing and debts continue to build up Optimistic finally looses patience and send a lorry to Dodgy’s European Distribution Centre to pick up all Optimistic’s garments delivered to Dodgy © Reed Smith LLP. All rights reserved.

Scenario Three – Mine is mine (2) Dodgy refuses to hand over the garments, making the following points: Optimistic has agreed to extend credit so no payment is overdue Some orders have in fact been paid for – Optimistic can’t identify which garments are paid for and which are not In any event, garments delivered less recently have all now been sold Furthermore, any retention of title right should have been registered © Reed Smith LLP. All rights reserved.

Scenario Four – Bad to worse © Reed Smith LLP. All rights reserved.

Scenario Four – Bad to worse (1) Having failed to get any goods back, Optimistic’s lorry returns empty In desperation, Optimistic decides that it will now cease all further deliveries to Dodgy © Reed Smith LLP. All rights reserved.

Scenario Four – Bad to worse (2) In response, Optimistic receives a letter from Dodgy’s lawyers making the following points: Optimistic is contractually bound to make deliveries to Dodgy Dodgy has committed no breach of its obligations to Optimistic, and in any event has committed no breach of the outstanding orders in respect of which payment is not yet due If Optimistic continues to withhold delivery, this will cause serious loss to Dodgy because they are economically dependent on Optimistic. In the current circumstances, ceasing delivery could put Dodgy out of business. Dodgy will hold Optimistic legally responsible for this © Reed Smith LLP. All rights reserved.

Scenario Five – Disaster strikes © Reed Smith LLP. All rights reserved.

Scenario Five – Disaster strikes (1) Optimistic reluctantly agrees to release the deliveries, only to receive a few days later a document stating that Dodgy has entered some form of insolvency procedure © Reed Smith LLP. All rights reserved.

Scenario Five – Disaster strikes (2) In shock, Optimistic wonders what to do: should Optimistic terminate the Distribution Agreement can Optimistic now suspend deliveries can Optimistic get its stock back can Optimistic prevent its high class garments being sold at knock down prices in local markets can Optimistic now appoint a new distributor © Reed Smith LLP. All rights reserved.