Surviving Lender Action Pacific Coast Builders Conference

1. Surviving Lender ActionPacific Coast Builders Conference June 2010 OSAS Inc. Odyssey Strategic Advisory Services 12340 El Camino Real, Suite 250 San Diego, CA 92130 Office 619-519-7889

2. Anticipation & Preparation • Warning Signs of Impending Bank Action • How to prepare • Immediate Actions • Communication “The time to repair the roof is when the sun is shining” John F. Kennedy

3. Internal Warning Signs • Your numbers • Cash flow projections & sales forecasts don’t seem reasonable or feasible • Bank balance shrinking • Your team is telling you • Sales team reporting increase in cancellations and unusual buyer behavior • Finance and accounting getting unusual questions from your lender • You have debt maturing

4. Warning Signs from Lenders • Increased focus on collateral value and security interests • Appraisals • Loan document issues brought to light • New guarantees or guarantee modifications • Personal financial statements requested • Difficulty and delay in routine banking matters • Your long time relationship manager tells you everything is ok but you need to • Inject cash into the business • Provide more collateral (including guaranties) • Anticipate interest rate increases • The bank is bringing a new team member onto your account • You hear the word ‘re-margin’

5. Beware banker transition • From: Relationship Manager • Uses words like “partner” and “investment in long-term relationship • Good golfer • Now extinct in real estate industry • To: Special Assets or Workout • Cash Collector and Collateral Magnet • Workout group, special assets, scheduled assets • Only role is to maximize bank’s recovery Squeeze & Squash

6. Bank Workout Team Most borrowers

7. Know Leverage Points with Creditors • Map collateral and security against each debt • Determine priority • Identify collateral committed to multiple creditors • Find bank mistakes in securing collateral and/or documentation • Bank’s situation and status • Is one creditor dependent upon your success? • FDIC taking over?

8. Develop a Negotiator Mindset • Water under the bridge syndrome • What happens in history stays in history – there is no credit given for previous concessions • No good deed goes unpunished • Nothing given without something received • Including documents introduced to “complete a file” or “satisfy a new rule” • Any sacrifice or passed opportunity caused by lender request or requirement

9. Preparation • Get information - have your team prepare current • External market data, projects status, sales forecast • Historical financial and operational detail • Debt schedule - maturity, guaranty structure, etc. • Personal tax and estate planning information • Create a conservative, cash-based forecast • Layout a high-level response plan to lender action • Including pre-emptive action avoidance (see communication) • Consider this a fire drill • Assign key areas to team members • Finance & Legal, Sales, Marketing and PR • Share your concerns and actions with your accountant and attorney; get good advice early

10. Immediate Actions • Make operating decisions from conservative mindset - worse case scenario forecast • Seize any opportunities to reduce long-term commitments • Move to cash preservation mode • Use 80/20 to focus efforts on best projects • Mothball or delay if feasible • Cut all costs not directly tied to profitable revenue • Create a war chest at a non-lender bank • Evaluate your team’s ability to manage through lender action and related challenges • Experience matters, if they haven’t done it before identify support for them and secure those resources now

11. Over Communicate • Share reasonable detail with your team members • Need to know basis • Assume they’re worried • Be straight, if you can’t share tell them why not • Be proactive with lenders and subs • Clearly explain both problems and solutions • Be better prepared than they are, and reduce it to numbers • Tell them when to expect an update and follow through • Share more information than you have historically • Avoid surprises with all interested parties • Lenders especially hate surprises • If potential lender action has visible consequences to market • Understand your responsibilities to disclose to buyers • Prepare factual, succinct press releases

12. Questions? Thank you

13. Michael Bergthold OSAS clients benefit from Mike’s broad experience working with distressed companies in public accounting, operational management, strategy consulting, and business development. His specific areas of expertise include profitability improvement, financial restructuring, and sales strategy. Profitability improvement through creative and mutual problem solving with customers is a hallmark of Mike’s approach to restructuring. He served as Chief Financial Officer and Chief Restructuring Officer for a publicly held preschool chain, and privately held trucking and distribution companies. He has led companies through Chapter 11 and 7. As a turnaround consultant, he provided advice to clients in the restaurant, building products manufacturing, real estate development, financial consulting, and IT services industry. Mike is currently co-managing the restructuring of more than $250 million in debt for OSAS clients. Mike also held CFO and senior executive roles at non-distressed privately and publicly held companies.  He has a strategic focus developed through numerous turnaround and restructuring assignments obtained through varied operating, administrative, and consulting roles over the course of his 25-year professional career. Mike earned his CPA as an auditor at Arthur Andersen and his BS in Accounting from Arizona State University. Email - MBergthold@osasinc.com Cell - 602.885.3795