Debt Financing with a ThinEquity Capital Structure

June 20, 2014Presented by Opus Connect

Moderator:Britt Terrell, Backbone Capital Advisors

Panelists:David Ellis, GemCap Solutions

Stewart Kim, PGP CapitalJR Matthews, Tregaron CapitalJohn Stuart, Full Circle Capital

Sponsored by:

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• Founded by Lou Sokolovskiy

– Managing Partner of Genero Capital Partners

• Chapters: LA, New York, San Francisco, Chicago, Orange County

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– Specialty: webinars, Deal Connect “speed-networking”

• Membership by invitation only

– Only accomplished senior executives, vetted by selection committee

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Britt TerrellFounder & Managing Director

Backbone Capital was established in 2011 byBritt Terrell, a 25-year veteran in the middlemarket corporate finance industry. Britt hasbeen underwriting, structuring, closing andmanaging credit portfolios since the mid-80s,with a focus on middle market acquisitions andcorporate debt restructuring over the lastdecade. He has worked on both the borrowerand lender sides, working mainly in the middlemarket debt financing arena with transactionsranging from $10 million to $ 50 million.

In 2001, Britt joined the Wells Fargo FoothillLos Angeles headquarters to manage itsUnderwriting Department, representingapproximately $1 billion in commitments. In2002, Britt joined the Gores Group in LosAngeles to arrange and manage all acquisitiondebt financings and recapitalizations for itsPrivate Equity Fund. During his 9 year tenure atGores, Britt led and closed approximately $2billion in debt financing.

Britt is a member of the Association forCorporate Growth (ACG), TurnaroundManagement Association, Opus Connect and AllCities Group, and has participated in multiplediscussion panels at the Commercial FinanceAssociation (CFA) conferences. He holds a BADegree in Business Economics from Universityof California, Santa Barbara, with an emphasisin Accounting.

(818) 508-8462 www.backbonecap.com

Backbone Capital Advisors is a full-service professional financing arranger, providing traditional and non-traditional capital sourcing, with complete execution, for middle market businesses that require debt financing and other capital solutions.

Maximum Financing at Optimum Terms — We work closely with each borrower and sponsor to procure maximum financing at optimum terms, while assisting, advising and driving each step of the process from inception to funding.

Corporate Financings — We accommodate transactions for leveraged acquisitions, leveraged recapitalizations, financing for growth and shareholder liquidity and refinancing existing debt.

Transaction Types — We have expertise in all types of debt, including asset-based, senior cash flow, 2nd lien, mezzanine, unitranche, and other solutions across the capital structure of the borrower.

Who We Work With — We support private equity firms, independent sponsors, professionals and direct operating companies to achieve all outsourced financing solutions.

Established Relationships — We have strong relationships with more than 200 banks, finance companies, and debt and private equity funds in all areas of financing, including special situations for more challenging capital sourcing.

Local to Global — We have access to both domestic and international lenders for large and small deals, with average deals ranging from $5 million to $50 million. And, we can easily accommodate deals outside this range.

Professional Execution — We combine service, flexibility and extensive knowledge of the marketplace to ensure that our clients’ needs are met with the highest level of expertise.

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Target Market

GemCap: Asset Based Lender specializing in underserved niche market

• GemCap was launched June 2008 to fill the underservedniche within the asset-based lending community for seniorcommercial loans ranging between $0.5 million and $ 10million.

• Target clients are lower middle market companies whoseworking capital needs are no longer being met by their localbanks.

• 12 - 24 month typical loan duration.

• Collateral typically includes receivables, equipment andinventory; occasionally includes intellectual property and realestate.

• Inventory & equipment loans based on percentage of assetliquidation value; receivables competitive with market.

• Personal and validity guarantees are common.

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Typical Clients include:

Import / Export

Small Business Owners

Rapid Growth Companies

Start-Ups

Inventory Greater Than Receivables

Bridge Loans

Low Cashflow; No Cashflow

Niche Market

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• David Ellis is Co-President and a co-founder of GemCap. As a leadingexpert in the liquidation and asset appraisal industries, Mr. Ellis applieshis experience and connections throughout all facets of GemCap.

• Through 2006, David Ellis served as President of Buxbaum Group andcompiled 20 years of experience in the liquidation business. Hecompleted 13 years of experience with Buxbaum Group, having joinedthe company in 1988, and following a three-year hiatus in 1991,rejoined the company during 1994. Under Mr. Ellis’s direction,Buxbaum Group grew from a five person liquidation firm to a diverseinternational company with over 1,000 employees. Areas of focus wereasset disposition, asset appraisal, asset-based lending, turnaroundmanagement, and distressed equity.

• During his 1991-1994 hiatus from Buxbaum Group, Mr. Ellis served asa member of H.J. Heinz Corporation's consulting team. At Heinz, Mr.Ellis implemented the structure and operational procedures for a globalfood segment's acquisition program and their marketing, production,and distribution functions.

• David Ellis has served on the board of directors for Talon International(TALN) since 2010.

• David is active with the Young President’s Organization (YPO),Turnaround Management Association, and Commercial FinanceAssociation. Mr. Ellis received a 1984 Bachelor of Arts degree fromTexas A&M University.

David Ellis

24955 Pacific Coast Highway, Suite A202

Malibu, California 90265

T: 310.593.9074

E: dellis@gemcapsolutions.com

David Ellis – Co-President

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Executive Summary

Snapshot of Firm

Headquarters: Los Angeles

Established: 2003

Products: M&A Advisory

Private Placements

Fairness Opinions

Target Niches: Ethnic-owned Businesses

Cross-border Asia

Key Industries: Media

Technology

Financial Services

Consumer

Strategic Investors: East West BankCashCall, Inc.

Latest Transaction: Placement agent for Creative

Artists Agency Ventures LP $20m fund closing (March 2014)

Company Website:http://www.pgpcapital.com

Founder / Managing Partner Bio

Stewart Kim:

Over 25 years of experience in the financial services industry with the last 15 years spent as CEO of PGP(investment banking) and Pacific Gemini Partners (asset management); former M&A banker at Merrill Lynch & Co. from 1988 - 1995

Current Mandates

M&A advisory for major Asia-based smartphone game developer. Potential JV in U.S. with leading media company

Sale of privately-held business services company

Equity private placement for leading distributed database software provider

Debt private placement to finance acquisition by publicly-traded mobile solutions provider. Fairness opinion requested as well

Equity private placement for leading audio on-demand platform provider looking to raise equity

Equity private placement for leading global producer of all-natural, zero-calorie sweetener alternative to stevia

PGP Summary

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have formed a

$440,000,000

Joint Venture

We acted as advisor to EarthLink, Inc.

in negotiating this joint venture

&

have entered into a strategic

relationship and formed

Nicklaus Companies, LLC

We acted as exclusive financial advisor

to Golden Bear International, Inc.

&

Golden Bear International, Inc.

Executive Summary

has acquired

We acted as financial advisor to

MultiCultural Radio Broadcasting, Inc.

in both negotiating the acquisition and

obtaining financing for the transaction

Has merged with

We acted as exclusive M&A advisor

to Nimble Commerce Inc., a portfolio

company of SK Telecom, the largest

wireless network operator in Korea, in

originating and negotiating this

transaction

Recapitalization

We acted as exclusive financial

advisor to Broadway Financial

Corporation and assisted with

arranging the private placement as

well as negotiating terms of the

recapitalization with the U.S Treasury

and other security holders

$12,025,000

Common Stock

We acted as financial advisor

to Saehan Bancorp and assisted with

arranging the placement

Has merged with

We acted as M&A advisor to

Salient Stills, Inc. in

consummating this transaction

$40,000,000

Debt Facility

We acted as financial advisor

to CashCall, Inc.

and arranged this facility

Selected Transactions

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About TregaronInvesting out of a $65 million fund closed in 2011, Tregaron Capital is a Palo Alto-based private equity firm that specializes in investing in small to mid-sized companies with annual EBITDA of $1 to $5 million. We focus on providing capital for growth and owner liquidity, as well as strategic support to achieve the next level of success.

Tregaron is designed to provide senior attention to each opportunity and portfolio company. Our senior partners bring substantial skills, experience, and energy to each situation, enabling fast and confident decision making and meaningful support in building the business.

Industries of Interest• Technology-Enabled Business Services

• Nutraceuticals

• Information Services

• Commercial Landscape Maintenance

• For-Profit-Education

• Environmental Services

Transaction Types

• Control Equity

• Mezzanine Debt

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JR Matthews

JR has been performing successful buyouts for nearly 20 years, as both an executive and an investor. While still in his twenties, he led the buy-out and served as CEO of his family’s wholesale, retail and real estate companies. Over 10 years, he grew the companies to over $80 million in revenue and 300 employees and successfully exited through a strategic sale.

As an investor, JR has focused on special situation and growth opportunities. Before founding Tregaron, he invested actively as both a venture capital and private equity investor focusing on growth and special situation opportunities.

Matthews received a BSE in Electrical Engineering from Duke University with Phi Beta Kappa, summa cum laude honors and Distinction and an MBA from Harvard Business School. He is on the Board of Visitors of The Pratt School of Engineering at Duke University and is a past Board Member of Leadership Public Schools a charter school network serving diverse students in Richmond, Oakland, Hayward, and San Jose.

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Full Circle Capital Corporation

Profile

• Publicly traded business development company; ticker: NASDAQ GM – “FULL”

• Closing price on June 18, 2014: $7.96 per share

• Shares Outstanding: 11.4 million; $88.1 million equity market capitalization

• Annualized Distribution Yield: 10.4% (based on monthly distribution rate of $0.067 cents per share)

Investment Strategy

• Primarily provide first lien senior secured loans and stretch senior secured loan solutions to lower middle market companies in a diverse range of industries

• Lend to companies with both cash flow for debt service and underlying assets as collateral

• Source investments through direct origination platform focused on lower middle market and through purchases in secondary market

Investment / Loan Profile

• Loan sizes: $3 million to $10 million or more

• Focus on companies with $2 million to $10 million of EBITDA

• Term and Revolving Line of Credit facilities

• Use of funds: growth capital, acquisitions, refinancings, recapitalizations

Since Inception in 2005

• Executed over $350 million in senior secured loans to 67 smaller and lower middle market companies

Full Circle Capital Overview

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John E. StuartCo-Chief Executive Officer, Chairman

Gregg J. FeltonCo-Chief Executive Officer, President

Full Circle Advisors, LLC: Managing Member

Full Circle Funding, LP: Managing Partner

Prudential Securities: Managing Director (Investment Banking)

Oppenheimer & Co. Inc.: Vice President (Investment Banking)

Titan Outdoor Holdings, Inc.: Co-Founder, President

25+ years of experience

Full Circle Advisors, LLC: Managing Member and Chief Investment Officer

Goldman Sachs: Partner, Managing Director, Head of Global Credit - GSAM

Goldman Sachs Liberty Harbor: Founder, Chief Investment Officer

Amaranth Advisors: Senior Portfolio Manager, Head of Global Corporate Credit

20+ years of experience

914-220-6250 ● jstuart@fccapital.com 914-220-6280 ● gfelton@fccapital.com

Patrick Stone

Associate

Origination Officer

914-220-6282

pstone@fccapital.com

Michael Gervais

Managing Director

Healthcare Strategies

914-220-6285

mgervais@fccapital.com

Brian Neilinger

Managing Director

Real Estate Strategies

914-220-6292

bneilinger@fccapital.com

Full Circle Capital Team

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Provides borrowers with a more efficient and desirable solution than a senior bank linecombined with a separate second lien or mezzanine loan obtained from another source

• Stretch senior loans advance more againstborrower’s assets and cash flow and staywithin Full Circle’s preferred 2:1 (40% to60% LTV) collateral coverage parameters

Benefits to Borrower

• One-stop financing solution

• Speed and certainty to close

• Flexible terms and structures

Traditional Loan Structure Stretch Senior Loan Structure

35%

15%

20%

30%

40% to 60%

10% - 20%

30%

LTV LTV

Benefits• Higher Advance on Assets

and Cash Flow• Single Set of Documents

(No Intercreditor Agreement Necessary)

• Ability to Close in Compressed Timeframe

The above illustrations are based upon management’s experience and current market conditions. Be advised that these illustrations do not represent the capitalstructure of any particular borrower, and figures included therein could change significantly as a result of future market conditions.

Senior and Stretch Senior Secured Lending

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Overview

• This panel is focused on higher yielding debt/equity investments in the lower middle market

• These companies tend to have more “storied profiles and/or thinner equity capital structures

• In the more “operationally challenged and undercapitalized” companies, Asset Based Lending is the main financing source, or dilutive equity structures

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Acquisition Financing – Independent Sponsor:

• Supporting the Independent, Pledge Fund (backed by HNW) sponsor.

• This usually translates into:

i. Seller structure (seller note, contingent earnout, rollover equity, etc…)

ii. lower cash equity invested by buyer

• Is this a Capital Structure that lenders can get comfortable with, and how?

• Minimum Equity cash investment (%) required ?

• In exchange for less cash invested by buyer, what does your fund look for in terms of structure, collateral, yield, etc …

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Acquisition Financing – Opco buyer

• With operating company (no sponsor) as the buyer acquiring target, using implied rollover equity of buyer with less new cash equity.

• Is this a Capital Structure a lender/investor can get comfortable with?

• Minimum Equity cash investment (%) required ?

• In exchange for less cash invested by buyer, what does your fund look for in terms of structure, yield…

• Equity Warrants or co-invest, when does your firm get them & approximately what %?

• When does bigger minority equity (Preferred) structure begin, and into control equity?

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Investment Banking in lower Middle Market

Raising Equity

• Buy-Out vs. Growth Capital

• Management/Ownership – Stay or Go?

• Size – Minimums Shift Ever Downward

• Investors- Private Equity Fund- Family Office / Multi-Family Office- Entrepreneur / Seasoned Executive- Competitor

• Sourcing- Traditional Bankers- Alternatives

How does your firm compete in a competitive financing process?

What are the key elements of a deal structure you are looking for?

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What are some examples of “thinly capitalized” deals you recently closed?

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What are some of the nuances in the “inefficient” lower end

(EBITDA <$4M)?

• Seemingly less competitive?

• Quality of information, Diligence requirements

• Management, internal controls

• Etc…

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As an investment banker in a sell-side scenario, when you get bids from more

thinly capitalized prospect buyers:

• What are you looking for?

• What are your concerns?

• How do you get comfortable when down-selecting bidders?

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Summary

• Financings are able to get “done” under lower middle market and challenging circumstances, but it’s not cheap and there are controls, restrictions and lender remedies

• Structures can be demanding and can be equity-oriented, but appropriate balance of risk/reward, especially in lower middle market finance with thinner capital structures

Q&A with the Panel

• Please submit your questions via “Q&A” to “All Panelists”

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