Grabbing Your Share of the Private Equity Bonanza

2008 CEBI Executive Summit April 24, 2008 LG MANAGEMENT CORPORATION “Empowering the American Dream” Current Portfolio Includes. . . Harry D. Loyle, CFE 7086 Corporate Way Dayton, OH 45459 -4294 Phone: 937 -291 -1900 ext. 255 Email: hloyle@gmail. com 2

2008 CEBI Executive Summit April 24, 2008 WHAT IS PRIVATE EQUITY (PE)? . . . a broad term that encompasses a range of strategies for investing in companies whose stock is not traded on public stock exchanges. Venture Capital Investment in a new or developing company Buy-out Acquisition Special usually with control Situation Unique opportunity. . . distressed, macro change Merchant Banking 3

2008 CEBI Executive Summit April 24, 2008 WHY ALL OF THE EXCITEMENT WITH PE? Deal Flow Approaching $200 B per QT Appearance of Higher Transaction Values Limited Transparency and Public Information Tax Treatment: Debt – Capital Gains – Public Concern with Wealth Distribution Disparity 4

2008 CEBI Executive Summit April 24, 2008 HOW DO PE GROUPS MAKE MONEY? Exit Strategies Partial Carried Sale, Complete Sale, Recapitalization Interest Percentage of transaction profits (80/20 split) Management Fees Charged to. . . Minority Investors (typically 1. 5% to 2. 0%) Portfolio Company (shared with Minority Investors) Transaction Fees 5

2008 CEBI Executive Summit VALUATION - QUANTITATIVE Book Value Liquidation or Net Asset Value Comparable Companies Earnings Multiple Discounted Cash Flow Precedent Transactions or Replacement Value April 24, 2008 EVALUATION - QUALITATIVE People VALUES “Warren Buffet” Business Model Understanding Professional Management Clean, Straightforward Structure and Governance Other Investors VISION and Business Opportunities WHAT'S MY COMPANY WORTH? TO WHOM? 6

2008 CEBI Executive Summit April 24, 2008 HOW DOES BUSINESS GENERATE VALUE Company Operating Performance Reinvestment Net Profit (NOI) EBITDA: Earnings Before Interest Taxes Depreciation and Amortization Post-Debt Cash Flow Personal Benefit W-2 Income Standard of Living (SOL) Owner Distributions or Withdrawals ∆ Equity: Change in Equity Over Time 7

2008 CEBI Executive Summit April 24, 2008 TYPICAL ACQUISITION TRANSACTION CASH for Equity Sale (± 80%) Opportunity for “Second Bite of the Apple” (± 20%) Potential for Continued Employment Potential Equity for Management Team 8

2008 CEBI Executive Summit April 24, 2008 TYPICAL ACQUISITION PROCESS ¨ ¨ ¨ ¨ Decision on Consulting Representation Prepare Confidential Investment Memorandum Research, Select and Submit to PE Firm Options Receive Preliminary Indication of Interest Meet and Review Detailed Information Receive Letter of Intent (LOI: price, structure, etc. ) Due Diligence: Legal, Accounting, IT, Customers, etc. Review and Negotiate Definitive Acquisition Agreement (APA) PE to Arrange Debt Financing (Your Obligations? ) Completion of Due Diligence and Credit Agreement(s) Negotiate Any Management Employment Agreements Exercise Definitive Agreements Settlement. . . Back to Operations! 9

2008 CEBI Executive Summit April 24, 2008 PE MANAGEMENT STRATEGIES Clear Exit Goal: Buy – Fix – Grow – Sell With a 3 to 5 Year Horizon Driving Change is Paramount EVERYONE Knows You’re On a Sprint Compensation is Clearly Tied to the Goal Often Managers have “Skin in the Game” Back a Superb Management Team and Liberate Them The Board is “On Board” and Focused and Involved Private versus Public Reduces QT Whipsaws and the Reporting and Stock Market Attention Required The Objective is Clear. . . CASH 10

2008 CEBI Executive Summit POTENTIAL ADVANTAGES CASH Marketplace Valuations “Professional” Buyers Potential for Continued Management Involvement Management Team Equity Additional Resources: Money, People, Knowledge, etc. Additional Opportunity to Sell April 24, 2008 POTENTIAL DISADVANTAGES It’s NOT your company anymore. . . “Yes Boss” “Professional” Buyers Extensive Due Diligence Financing Contingency Management Accountability Relatively Short Term Focus Transactional Focus CONSIDERATIONS FOR A PE TRANSACTION 11

2008 CEBI Executive Summit April 24, 2008 PICKING THE “RIGHT” PE FIRM People VALUES Industry Experience Situational Experience Typical Size of Portfolio Companies Management Style: Active versus Passive Planned or Discussed Exit Strategy Capital Structure: Debt versus Equity % Willingness for Additional Cash Injection 12

2008 CEBI Executive Summit April 24, 2008 LG MANAGEMENT CORPORATION Portfolio Company Transaction Options: 1. Lending / Financial Investments Creative Non-bank Lending with Security Interest Coupled with Participation and/or Equity Kicker 2. Operating Partnerships (OP) Marriage of Strengths. . . Management & Operations 50% Financial and 50% Equity Investment 3. Acquisitions / Active Management Active OR Competent in Daily Management 100% Financial and Minimum of 80% Equity Plus. . . Company Consulting and Personal Coaching 13

2008 CEBI Executive Summit April 24, 2008 LG TRANSACTION CONSIDERATIONS Make the PEOPLE Decisions First Portfolio Composition and Balancing ROI: Internal Rate of Return Objective of 25% to 35% Transaction Exposure of 5% to 10% of Portfolio Bias Toward Operating Partnerships Company and Concept Search Criteria Existing Management and Structure Considerations Understandable Product and Business Model Our Ability to Add Value through the Transaction Management or Operations Upside (with Discount) Financial Turnaround Relationship Challenges: Vendors, Franchisees, Associates, etc. Organizational Improvements: HR, etc. Synergy with Existing Companies or Brands Overhead Reduction Real Estate Complementary Business: Consumer or Company / Brand 14

2008 CEBI Executive Summit April 24, 2008 NON-TYPICAL ACQUISITION TRANSACTION Moto Photo, Inc. (NASDAQ: MOTO) PUBLIC to PRIVATE 363 Bankruptcy Filing In 2001 Moto Photo was Hit by “The Perfect Storm”. . . 1. Photography Industry Revolution 2. Macro Economics 3. Cumulative Poor Company Financials 15

2008 CEBI Executive Summit April 24, 2008 POTENTIAL TRANSACTION CONSTITUENTS General Vendors Critical Vendors Kodak Agfa & Trebla Board of Directors Senior Management Company Associates Franchisees Area Developers Master Licensee (CAN) Building Partnership FUJI Photo Film USA Bank(s) Retail Consumers Trade Competition Retail Landlords Personal Family Business Partners Post-Transaction City and County Business Community 16

2008 CEBI Executive Summit April 24, 2008 TRANSACTION STRUCTURE & FINANCING Equity (LG Management Corporation at 75%) Area Developer Participation Equity (6 entities at 25%) Critical A/P Vendor into Debt Assumption KODAK – Discounted for Non-secured Creditors Agfa & Trebla – Face Value Mezzanine Financing (LG Management Corporation) Fifth Third Bank Financing Personal Loan to Facilitate an AD Participant Working Capital – 2 Different Term(s) Loans Building Mortgage Financing Montgomery County ED/GE Grant Vendor Trade Payables 17

2008 CEBI Executive Summit April 24, 2008 Show Me The Money! IS A PRIVATE EQUITY LIQUIDATION TRANSACTION RIGHT FOR YOU? The good news is that you do not have to wait for a PE firm to swoop into your organization. By using private-equity strategies you can improve your results and become more successful, starting right now! 18