This document summarizes strategies for suppliers dealing with debtors, including offering supply agreements or purchase orders to form valid contracts, ensuring terms and conditions are consistently applied, obtaining thorough credit applications, using personal guaranties, requesting adequate assurance of performance if a customer's financial stability is in question, exercising remedies like reclamation or stoppage of goods, dealing with executory contracts in bankruptcy, and strategies for both customers and suppliers in bankruptcy proceedings.

1. Fifty Ways to Leave Your Debtor: Strategies for Suppliers Deborah L. Thorne, Esq. Barnes & Thornburg LLP (312) 357-1313 [email_address]

2. Offer Supply agreement Purchase order Purchase agreement Telephone call (Parol Evidence Rule) Email Anything that invites acceptance by the seller

3. Acceptance Action that is made in a reasonable time evidencing acceptance Promise to ship by certain date Shipment Note: offer and acceptance may be by electronic means

4. Conflicting Terms (Battle of the Forms) Written acceptance can add additional terms to contract that are different from the original offer. Additional terms may not alter the terms unless expressly consented to by the parties– although conduct by the accepting party may signal acceptance of the additional terms Required Terms: quantity and term Other terms may remain open: exact time of contract formation and certain nonmaterial contract terms (so long as intent to form a contract is shown)

5. Terms & Conditions Must be consistent on all of your company documents. If internet orders accepted must agree to T&C before order is accepted.

6. Credit Application May be method to slip in terms and conditions early in the relationship By signing the credit application the buyer agrees to terms and conditions

7. Credit Applications Know your customer Gather accurate information Type of entity Date of organization State of organization Federal tax identification number Ownership Details Officers’ (managers’) names, titles, home address and ownership interest References Bank references and information Certification that information is true and correct and that buyer is authorizing seller to obtain information about buyer’s credit history and to contact its references

8. Credit Applications Other terms and conditions Interest/Service charges Attorneys’ fees Jurisdiction and venue Credit Reports Individuals Individual partners (if partnership is buyer)

9. Personal Guaranty Clear delineation from the credit application Guaranty should be signed without any designation of title Credit application should be signed separately

10. Remedies Available to Nondefaulting Party

11. Request for Adequate Assurance (when your customer is in financial difficulty) Demand Adequate Assurance of due performance If Adequate Assurance is not provided, performance may be suspended Uniform Commercial Code (UCC) requires a clear demand for adequate assurance and the customer must respond within 30 days What are reasonable grounds for insecurity? Question of fact Objective factual basis must exist

12. Anticipatory Repudiation To qualify for anticipatory repudiation, the performance repudiated must substantially impair the value of the contract Easily satisfied in cases of non-payment under a non-requirements contract In a Requirements Contract, customer may not have repudiated if it does not order its yearly requirements Aggrieved supplier is better off requesting adequate assurance of performance first

13. Sellers’ Remedies Under UCC Termination of Credit Terms

14. Sellers’ Remedies Under UCC State Law Reclamation 10 day delivery of goods Demand should be in writing Identify the goods by invoice number, bill of lading number Send or deliver demand to those in command of buyer and those with knowledge of delivery Subject to liens of secured creditors

15. Sellers’ Remedies Under UCC Bankruptcy Reclamation 45 day delivery of goods prior to petition date Written demand required Send to Debtor’s attorney, Debtor’s principal and others with knowledge of delivery Subject to liens of secured creditors Goods must be in existence Don’t forget the 20-day administrative claim

16. Sellers’ Remedies Under UCC Stoppage of Goods in Transit Send, Deliver Notice to Shipper, to Buyer Shipper must stop delivery and hold the goods Seller will be responsible for cost of return of goods This remedy is good in or outside of bankruptcy case

17. Sellers’ Remedies Under UCC Identification and Salvage of Goods

18. Executory Contract Issues What is an executory contract? Contract under which the obligations of both the bankrupt and the other party to the contract are so far unperformed that the failure of either to complete performance would constitute a material breach excusing the performance of the other

19. General Bankruptcy Code Provisions Governing Executory Contracts “ Limbo” Period When can a contract be assumed or rejected? What can be assumed or rejected? Prerequisites for assumption Assignment of executory contracts

20. Strategies for Customers with Executory Contracts Customers entitled to adequate assurance of performance if contract is to be assumed plus cure Assumption is good defense to preference recovery action Compel rejection if customer lacks confidence in the ability of the debtor to perform

21. Strategies for Suppliers with Executory Contracts If terms of contract are unsatisfactory to the supplier, urge rejection If debtor customer is unlikely to be able to perform, urge rejection If sales have been substantial, urge assumption (with cure of payment of past due) Beware of attempts of customer debtor who tries to renegotiate terms May seek extension of term May seek more favorable terms May seek waiver of supplier’s right to seek adequate assurance of future performance May seek assumption without the cure

22. Thank You Deborah L. Thorne, Esq. Barnes & Thornburg LLP (312) 357-1313 [email_address]