Capital Strategies for Privately Held Businesses Track: Conventional Debt Funding for Privately Held Business

1. Capital Strategies for Privately Held Businesses Track: Conventional Debt Funding for Privately Held Business Wednesday, March 23 7:45 – 8:30 a.m.Sponsored by Goldman, Sachs & Co.

2. Conventional Debt Funding for Privately Held Business Moderator: Robin Engelson, Lazard Middle Market LLC Panel: Stacy Eastland, Goldman Sachs & Co. James Doyle, US Bank Roger Stelle, Meltzer Purtill & Stelle LLP Sponsored by:

3. ABL Pricing Continues to Improve for Issuers Commentary Recent ABL Syndicated Transactions • Market activity picked up in 4Q10, representing mostly refinancings. Lenders will continue to be hungry for new deals in early 2011 and, as a result, borrowers will see more favorable pricing and terms. • Transactions with meaningful usage and/or other capital markets fee opportunities are particularly sought after. • Pricing is routinely L+250 bps for broadly syndicated credits and sometimes below for smaller, more “club” like transactions or retailers • Five year tenors are typical • Most covenants spring once excess availability drops below a certain threshold, most commonly 15% of the facility amount. • 1.1x is the generally accepted fixed charge coverage level • Transactions below $100 million typically have a 1-2 covenants that are tested irrespective of excess availability. Average LIBOR Margins on ABL Loans Syndicated U.S. ABL Issuance by Tenor Average Undrawn Pricing on ABL Loans Source: Reuters

4. Transaction volume begins to pick up, but is mostly refinance driven Quarterly Syndicated ABL Loan Volume & Deal Count 4Q10 Syndicated U.S. ABL Issuance by Industry Syndicated U.S. ABL Volume by Purpose Pending ABL Maturities Source: Thomson Reuters LPC and Moody’s Investor Service.

5. ABL has become an important part of the leveraged finance market; all-in cost compares favorably to cash flow pricing U.S. ABL Volume as Percentage of Leveraged Syndicated U.S. ABL Sponsored Issuance, 1Q05-4Q10 Syndicated U.S. ABL Pro Rata vs. BB Institutional Drawn Spreads Pricing Comparison: ABL vs. Cash Flow Source: Thomson Reuters LPC and Moody’s Investor Service.

6. Over $164 Billion of Non-Sponsored and $65 Billion of Sponsored Loans Coming Due Over the Next Two Years Middle Market Maturing Loan Volume Source: Thomson Reuters LPC

7. Number of Middle Market Deals Source: Standard & Poor’s LCD, MM Quarterly 4Q10 • Middle market transactions rebounded from 2009 trough of 56 deals to 114 deals in 2010 • Activity remains well below 2004 – 2007 levels

8. Debt Multiples of Middle Market LBO Loans Source: Standard & Poor’s LCD, MM Quarterly 4Q10 • Middle market LBOs in 2010 averaged 4.2x, well above the 2009 average of 3.3x • Large LBOs in Q4 averaged 5.2x of total leverage – roughly in line with 2004/2005 levels and in between the 4.0x from 2009 and 6.2x in 2007

9. Average LBO Statistics Source: Standard & Poor’s LCD, MM Quarterly 4Q10 Note: LBO spread includes OID amortized over three years and excess current rate of LIBOR floors • In 2007, the average LBO leverage among high-fliers pushed over 8.0x, compared with 6.2x recently • Pricing permanently higher • Equity contribution permanently higher

10. Number of Middle Market Dividend-Related Deals Source: Standard & Poor’s LCD, MM Quarterly 4Q10 • 2010 saw a strong resurgence of dividends • Middle market dividend-related deals totaled 23, up from 2 in 2009

11. Middle Market Outstandings as a Percent of All Leverage Loans Source: Standard & Poor’s LCD, MM Quarterly 4Q10 • 2010 saw a strong resurgence of dividends • Middle market dividend-related deals totaled 23, up from 2 in 2009

12. Use of the Grantor Retained Annuity Trust (“GRAT”):Gift Tax Free Transfer of Future Short-Term Appreciation and Part of the Current Entity Value to a Trust for the Benefit of the Grantor Family GRAT Grantor Beneficiaries Where significant appreciation is expected, a GRAT can be used to shift some portion of that asset to your beneficiaries, often with significant transfer tax savings. Contributes assets (e.g., stock and/or private investments) which may appreciate At termination of GRAT, remainder of assets pass to beneficiaries (or trusts for beneficiaries) free of additional gift or estate tax GRAT pays an annuity back to grantor for term of trust that is equal or nearly equal to value of contributed assets Advantages Considerations • Ideal vehicle for transferring hard to value assets, because annuity can be defined as a percentage of the fair market value of trust assets which avoids any gift tax “surprise”. • Transfers appreciation in excess of IRS interest rate used to determine annuity to heirs without paying gift tax. • Since only the appreciation is transferred, principal is retained by grantor. • Can be funded with restricted stock. • Grantor remains liable for income tax on sales or earnings within the GRAT, which can be an additional planning tool. • If annuity is paid back “in kind” using contributed assets, no income tax consequences to grantor. • Many clients use the annuity stream to fund additional GRATs, creating cascading GRATs. • Death of grantor during term of GRAT will cause GRAT assets (including appreciation) to be included in grantor’s estate, as if the GRAT had not been created. • If GRAT assets fail to appreciate, any gift tax paid to transfer remainder interest will have been wasted. • Transfer upon termination of the GRAT will likely be reportable as a gift by insiders. • Long-term GRATs do not perform well when interest rates are high (however, interest rates have only a minimum effect on short-term GRATs). • Very difficult to make gifts to grandchildren or more remote descendants using this technique. • Most attractive when IRS required interest rates are low. Source: Goldman Sachs

13. Coming Up Next . . . • Capital Strategies for Privately Held Businesses Track (Betsy) • 8:45 - 9:30 a.m. Beyond Borrowing: An overview of Three Tools for Funding Growth, Liquidity and Exits • 10:00 – 11:00 a.m. Deciding Between One of Three Possible Ownership Outcome • 11:15 a.m. – NoonThe Family Business Alternative • 2:00 – 3:00 p.m.The Sale Alternative • Noon – 1:45 p.m. Lunch & Keynote with General Stanley McChrystal (Ret)Sponsored by Fifth Street Capital (Elizabeth Ballroom)