GREATER WASHINGTON BOARD OF TRADE

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• GREATER WASHINGTON BOARD OF TRADE
• SMALL BUSINESS NETWORK
• ACCESS TO CAPITAL
• May 24, 2005

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Panel Participants

• Panelists
• John May New Vantage Group
• Pascal Luck Core Capital Partners
• Ron Voigt Bank of America
• Moderator
• Sulee Clay DLA Piper Rudnick Gray Cary US
  LLP

3
Types of Financing
RISK v. REWARD

• Senior Debt
• Secured by assets
• First priority on liquidation
• Mezzanine Debt
• Unsecured and subordinated to senior
• Preferred Stock
• Accruing dividend
• Can be convertible to common stock
• Common Stock
• All of the upside and all of the downside

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A. Senior Debt

• 1. Revolving Lines of Credit
• (a) Asset-Based Revolver
• Term 3 to 5 years
• Interest Rate Variable (Avg. return 5 to 8)
• Collateral All assets of the borrower
• Draws Based on borrowing base 75-85
  Accounts Receivable 50-65
  Eligible Inventory
• Payment Lockbox with daily sweep
• Covenants Regular reporting, fewer financial
  covenants (fixed charge, senior leverage,
  total leverage)

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Senior Debt continued

• (b) Cash Flow Line of Credit
• Term 3 to 5 years
• Interest Rate Variable (Avg. return 5 to
  8)
• Collateral All assets of the borrower
• Draws Based on pro forma financial
  performance Often for acquisitions
• Payment No lockbox
• Covenants Similar to asset-based (fixed
  charge, senior leverage and total
  leverage)

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Senior Debt continued

• 2. Term Debt
• Term 3 to 7 years
• Interest Rate Fixed (Avg. return 7 to 10)
• Collateral All assets of the borrower
• Draw Fully funded at closing
• Payments Scheduled principal amortization and
  mandatory prepayments from
  asset sales, certain debt and equity
  transactions and excess cash flow, premium on
  optional repayments
• Covenants Financial reporting, limitations on
  debt, liens, investments, acquisitions and
  affiliate transactions (Fixed charge, interest
  coverage, senior leverage, total leverage,
  minimum EBITDA, maximum capex)

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B. Mezzanine Debt

• Term 5 to 7 years
• Interest Rate Fixed
• - in addition to current interest, mezzanine
  debt often provides for compounding of a
  portion of the interest (PIK Interest)
• - Portion of total return to lender can
  include an equity component such as penny
  warrants
• Collateral Often unsecured
• Draw Fully funded at closing
• Payment Interest only with bullet payment at
  maturity of all principal
• Covenants Similar to term debt, but more
  equity-like covenants
• Board Observer

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C. Preferred Stock

• Characteristics
• Cumulative dividend
• Anti-dilution protection
• Redemption right 5 to 7 years
• Class voting rights/restrictive covenants
• Board representatives
• Control?

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Common Stock

• Characteristics
• Equity participation for management
• Upside/Downside