EFTA02672819

Galloway Partners Introduction EFTA02672819 Contents Executive Summary 3 Market p port u rat-y Strateg Lxecution I I Track Record: Bruce Galloway 11 cISL, . LI I LS 19 Investment Tar(iets 77 Appendix 26 2 EFTA_R1_01947036 EFTA02672820 Executive Summary • Galloway Partners ("GP") is a newly established investment management company that specializes in acquiring influential ownership stakes in undervalued, micro & small cap companies. GP's strategy is to use an "activist" approach to drive a turnaround in corporate value which will benefit both stakeholders and shareholders of GP's portfolio companies. • GP's primary focus is on US-listed companies which are in the Tech/Telcom, Natural Resources, Consumer Retail, Healthcare Services and Business Services sectors. GP's target return is 2-5x on invested capital over a 2-4 year investment horizon. • Due to a unique confluence of events, valuations for many small and micro cap companies have been pushed to distressed levels. Market inefficiencies are at an all- time high due to a dramatic reduction in the number of buy-side and sell-side participants in the Small and Micro cap space. As a result, GP believes that current market conditions are ripe for producing once-in-a-generation returns. • Co-founded and controlled by Bruce Galloway, GP is uniquely positioned to capitalize on the current market opportunity. Bruce Galloway has over 25 years of experience researching and investing in the Small and Micro cap sector. In addition to being recognized as one of the industry's leading investors, he has an unparalleled network of contacts and relationships to help source and assess potential investments. GP has identified several initial investments which meet its investment requirements. GP is seeking to raise US$50 million in a first closing for a new hedge fund ("Strategic Turnaround Fund") which will invest in Small and Micro caps. GP intends to transfer all control stakes to a newly formed investment holding company ("LISTCO") and file a registration statement in order to affect a public listing of LISTCO's shares. 3 EFTA_R1_0 1947037 EFTA02672821 Executive Summary - Indicative Term Sheet Level %It Illttli I urnao.und I, urn', I IP Scuunty IX,cnotoci Serie, A 1-•clumgeribk Ka :enable Pruterred !dun,. I hi itteri,l R ire :s.-. pc.ahl, ...di ar In-kind] Maturity Ihite ($i ;arc, from Cloiang Is.tre Pnee I ',SI II 9 per shirr trim Sire US$30.000.000 eliming Date IN‘nernher In' Zoi 1 Cornet-don Scrim A Preferred comet at any time after *Qualified I.isting at a PM) discount to the lastme Price Antilhlutton the Comvnion Price will be subject to a qmcm if the Company itsue. Ndii tonal at a price per 'hare less than the them applicable Conerrqor Prier, VOini Rights Each share of Preferred st.ock will have the right to a number of antes equal to the number of 'hares of (lam A common onck rssuahk uµ a-. comersion of each share of preferred stock Irrotectiae Pruci ton, t 'or itt of the holder. of at le-aq .7,0 I'out the Scne, A Picfermi will be requtred to • Alter any pain iNilin of the attic Its of incorporat ii,ra or the l, laws: • Appnwe am INSILICI ion or wrier. of trans.se ' deemed to bc a liquidarren of the CorneurY. • Approve am mimed pans. inuractions. • Apprv‘e any merger or other e.irporate reorsranuatien. • IX-clan:or pay any dnidend ocdrqnhution or trppiroae ran rcpurch.b.: with respect to die l'n:terred or Common stock. hrentor Rights • Maintain propertionate ownrrihip. • ROI of First Refusal: • Co-Sale Rights. • DratAlons Rights 4 EFTA_R1_0 1947038 EFTA02672822 Executive Summary — Organizational Structure Galloway Partners (Mgmt Co) Operations Galloway Holdings (LISTCO) Strategic Turnaround Fund (Hedge Fund) Bruce Galloway (Co-Chairman & Co-CEO) Eugene Kim (COO) Finance Aaron Braun (Co- Chairman & Co• CEO) Investments Control stakes transferred to LISTCO. which will be a publicly traded holding company • Standard 2%/20% management fees paid by LISTCO ("GH") and Hedge Fund to the Mgmt Co. • Additional 10% Incentive Fee of Net Appreciation which exceeds 2.5x return of S&P • Mgmt Co. is owned by Galloway, Braun and Kim • Galloway Holdings is a [C-corp]., established in [Delaware] • Preferred Shares will be exchangeable into LISTCO shares 5 EFTA_R1_01947039 EFTA02672823 Market Opportunity EQUITY MARKET CAPITALIZATION kt;SSbillions) Saudi Arabia Singapore Mexico Russian Federation Korea Hong Kong SAR, China Brazil India US (Small & Micro Cap OTC) China I Oa Equity Market Capitalization 500 1,000 1,500 2.000 2.500 US (Small Hong Russian & Micro China Cap • India Brazil Kong SARI Korea China Federatto n OTC) 3,697 3,354 1,263 1,230 3,000 3,500 4,000 Mexico 1,108 1,180 875 525 Singaporei Saudi Arabia 414 373 At approximately US$3.3 trillion, the combined market capitalization of exchange-traded US Small & Micro Gaps and OTC equities is comparable in size with the largest emerging market stock markets, but with significantly better trading liquidity, transparency and regulation Swam. World Bank and txmarkets corn (Due as of December 31. 2012) 6 EFTA_R1_0 1947040 EFTA02672824 Market Opportunity US Equity Market Composition 70% a large Cap • Mid Cap 3% • Small Cap • Micro 1% • Ultra Micro OT£= TIM Oat leadiacilaa VIII Galena CaPailia Pe (max, -.mecum res re ea 'info ra plICOVVION te V sn4 go:* CO.Or. To G) e/ b're Otte% nmorepcnr. corprant RY nee mei hum., sranttires. omirf box data,. end Tr4 .cornor.41,4 • r.,44.44crot nrrt3+444164nniX4 DO4nr443 br . annbe Yerray orocrann• OTCCX drnastrit "Inftrel nirrefwribinailfter riair041441, IO.r'r IWO* to Ana na. Two ..f =Ca The Venial Slap Iteritepla• ma Curren U.S Rattling Campania Tb OICOlanailailateeen ranald VIOa ne Wen' te May a. asap an.. repatinala US Waist, ISEC a at. o 14444rWall) &me Otaill nu none...yr Marc. a . Maar Ma do-wry mos na w warn ti nw adoiare t; rep.inan The OTC ineamiam a aka Oa ralinta M FIS operas PC &nem Sat 101‘201M T.• raw, Ann be SW rod blot reconna son., %It vide or/ Ins errouncrei CIEPink Tim Open larkapacie with actable Minding Campania no OTC Pm* meatifra cam annsi a tree 4:44.44u4t amyl en cotes i" 444.1•04, rreOra r ' T x ananao. . la a am co naafi*. !ha an nor 5.044440`441044.41; ee. a oar naa , ^ MI WS LTV sviYealftgen4 Ye t< lanes Trxrannuton natter :IOWA • Combined market capitalization of exchange-traded Small & Micro Cap stocks is approximately US$2.1 trillion. OTC securities have a combined market cap of US$1.3 trillion • OTC securities are bought and sold through brokers in a manner similar to that of NYSE or NASDAQ-listed securities • There are approximately 10,000 OTC securities. Total OTC daily trading volume currently exceeds US$750 billion ▪ Jr.: rt and otantailicts coin (Data as of Dttember M.2012) EFTA_R1_01947041 EFTA02672825 Redemptions Lack of Sponsorship Market Opportunity "A Perfect Storm" Increased Regulation Increased capital requirements and costs of compliance has forced many of the traditional broker-dealers in the sector to merge or close FINRA is aggressively cracking down on market misconduct and raising the standards for issuers Market collapse due to the Credit Crisis of 2007-8 led to a wave of hedge funds, which specialized in the sector, shutting down Fund flows out of the sector resulted in forced liquidation of positions into a market with no new buyers • Clearinghouses unwilling to take in OTC securities • Limited research coverage • Reputational concerns • Stocks of many lower ranked Small & Micro Caps remain at or near all- time lows • Valuations are compelling • Very few experienced players in the sector remaining Source Company data 8 EFTA_R1_01947042 EFTA02672826 Market Opportunity Limited Competition RIP Seaside Rodman & Renshaw lint Montauk First Tennessee V Finance Gktcher think Equities Pali Capital Morgan Joseph Merriman Curham (ITAX Jessup & Lamont Empire Capital Rochdales Securities Bu)side WInom:reek Laums Vision Capital Special Situations Barron Partners Yorkville 'frinad The winnowing of broker-dealers which ere active in the Small & Mid Cap ------ c'sector has dramatically altered the - competitive landscape edge fund participation is virtually not - . existent. Position sizes of large funds Is ul are too large for the sector and most of the smaller, dedicated funds have shut down due to poor performance • Traditional long-only funds are constrained by restrictions on buying shares trading below US$1.00 and/or owning shares with small floats and limited daily trading volumes • No true Micro Cap ETFs Due to the sharp reduction in market participants, there are very few ways to get exposure to the most attractive small and micro cap names 9 EFTA_R1_01947043 EFTA02672827 Market Opportunity Current Nlarket Ideal point in the cycle Growth (2011-2015) Distressed (2007-2(x8) Recapitalization (2009-2010) • US economic growth expected to lead all developed markets • Monetary policy remains extremely accomodative • Low interest rates spurring increased risk appetite • Liquidity is beginning to move out of Mid-Large Caps. Small & Micro Cap valuations remain compelling relative to larger caps which have already recovered to pre-Lehman levels • Markets no longer punishing "bad" news Expect favorable momentum to be supportive for the next 2-4 years EFTA_R1_01947044 EFTA02672828 Strategy & Execution • Fundamental Valuation Metrics • Historical Highs • Asset Value Distressed Valuation Growth Potential • Financial Analysis • Industry Dynamics • Economic Conditions • Competitive Landscape • Management Change • Financial Recapitalization • Macro Environment • Industry/Product cycle change Turnaround Catalyst • Investment strategy is focused on "turnaround" candidates which have been forgotten by the market • Utilize an Activist Approach to expedite implementation of changes and ensure smooth execution • Avoid potential financial restructurings and development stage companies • "Real Companies" with tangible assets and substantial revenue 11 EFTA_R1_01947045 EFTA02672829 Strategy a Execution Russell Investments Microcap Indexes Performance 350 300 250 0 • • e oc)% eeee e e % % 4, —Micro Index em•BA-Growth + . 1*(1.01-Value Russell Mierocap Value Index (M-Value) Russell Microcap Growth Index (M-Growth) wcaov alc.3,Ova:cke-synaoc rtnir,ROG - -a Lacer freed Reuters tiler Syrrtd :. 'o0 average market cap ($8) 0 357 Wognsla average) market Cap (sa) 0428 .'” 'nerket Cap (WI 0 114 Sedan instal cop (SB) 0 'a , -.: company el market ceo (Se) 1200 Swum conosny to mental cap ($B) ' /CO ;- ,ractedstles Chatectarlstles . .c.lo y1111 12f, 1 e - ProeMcok v dere 01111 , am,ngs (a ...germ earrongs) 15 e . 'AC-Wring. lel+.210ve arn.ngs) ,Agterni growth bream 00 12c: ‘ S toetterm growth breast(%) ' cr :.--++.) + ' 5 p, g0 GrClit Within the Microcap sector, Value stocks have consistently outperformed Growth stocks in both up and down markets 12 EFTA_R1_01947046 EFTA02672830 Strategy & Execution Clearly defined and historically successful Investment Process Screening Due Diligence Execution • "Bottoms-Up" Financial • Negotiations • Board/Mgmt role • M&A Approach Analysis with • Regular • Block Sale • Pending • Scenario stakeholders Reporting • Market Sell- Catalysts/News Analysis • Legal. Tax & requirements Down • Fundamental Metrics: • Business Risk Assessment Compliance sign-off • Management Updates  EV/Book Value  Revenue/EV • Supply Chain Verification • Trading strategy • Tracking to Operational Plan  Discount to Historical • Industry Outlook • Hedging Requirements • Management meetings • STEP-score • Competition Settlement Financial Review • Proprietary network • Analysis Corporate Procedures Assist with Investor • Recent Trading Governance & Communications Range & History • • Legal Review Management meetings Site Visit Participate in discussions with stakeholders such as creditors or labor 13 EFTA_R1_0 1947047 EFTA02672831 Strategy a Execution Tech/I-elm Healiheare Seri ices Value Business Services Natural Resources Consumer Retail GP's core investment universe consists of approximately 500- 1,000 companies across five key sectors, which collectively represent approximately 50% of the total market cap in the small and micro cap sector • Median market cap of GP's target companies is approximately US$150 million and max is US$1,200 billion • Typically target companies will have been trading at historically low valuations for 12-24 months already 14 EFTA_R1_01947048 EFTA02672832 Share Price Strategy a Execution • Shall" slure &Ant (tom [Wks • ISxcal %drag I I I • Change I I I cicrlysts inPlcIticisted I • M3IIIII0IUOI &Wen I In vonitmil I Set Skit I w.t•ig in %utterly I gni/0g return I reingg• I Complete Exit First Exiti (5-10x) (2x) I ntry point (x) ; 12-24 months Time 9-12 months WK4 '-36 months It • By focusing on "forgotten" companies which trade at historical lows, GP can obtain maximum influence while experiencing minimal disruption to share price while building the position • Exiting in Growth Phase provides for optimal profit maximization. The typical investment holding period is between 2-4 years 15 EFTA_R1_0 1947049 EFTA02672833 Strategy a Execution Investment Buckets Hedges Ugh Growth/International Financial Engineering Deep, Deep Value "Turnaround" • Deep, Deep Value "Turnaround" • Financial Engineering a High Growth/ International a Hedges 0 10 20 30 40 so so (months) Investment Horizon • minimum • Maximum Although Deep Value, Turnaround investments will represent the main focus of the portfolio, GP does make shorter-term opportunistic investments Financial Engineering plays include pre- IPO financings, bridge equity, mezzanine investments, etc. High Growth companies and/or non- US investments will collectively make up less than 10% of the portfolio As a hedge against any sudden, major capital markets meltdown (i.e. Daily drop in major equity indexes of >5%), GP uses deep, out-of-the-money puts and/or CDS • Little to no leverage used 16 EFTA_R1_0 1947050 EFTA02672834 Track Record: Bruce Galloway Proven track record of successful investing: 20+% annual returns over past 15 years Present 2005-2013 1994-2005 •rnham 1983 1979 economics BA Hobart Williams Smith College Securities (MD) • Managed USS100 mil OBA Stern in assets Business School • Published research on distressed companies • l.ed several corporate finance transactions IIIIIILLOWAY i lloway Capital ARTNERS (Co- anagemcnt CEO) (CEO) • Launched STEP • Managed USS25 mil turnaround fund • 26+ years of Small & Micro cap experience • Second to none investment track record • Unparalleled network of relationships • Extensive experience with turnarounds, activist investing and "bear" markets 17 EFTA_R1_01947051 EFTA02672835 Track Record: Bruce Galloway stEr Fund Personal Account Year S&P 500 Russell 2000 Dow Jones Galloway 2009 13.44 2008 -38.49 7.50% -33.84% 41.46% -63.46% •f 2007 3.53' 6.43% -34.81% 2006 13.62 I 16.29% 42.42% 3.00% 45.37 -21.58 -0.61 3.15 aike:Iir"' 8.99' r/22 IlirnilirE 83.24 rEr -13.04 1.03 -16.76% -7.10 .?' -36.99'. C ,, -58.95% -10.14 26.67 31.01 20.26' -4.20% 19.62 M.35 20.52' 26.21 16.10 22.64 26.01 33.45 . 904.63% . -33.47% 1_17.37% ' -8.36 i 98.78 -1.54' . 7.06% -3.18% 17.00% 2.14 ... 13.72 , 48, Cumulative 285.80% 3778.52% Avg. Annual 6.02% 6.37% 23.82% Selected Investment Hi hli hts Command Security (MOC) - 2002 • Entry Price: $0.60 • Exit Price: $3.20 • Cumulative Return: 350% • Exit: 2009 2. Radnet (RGX/RDNT) - 2004 • Entry Price: $3.00 • Exit Price: $13.00 • Cumulative Return: 300% • Exit: 2005 3. Seitel (SITL) - 2005 • Entry Price: $0.24 • Exit Price: $4.60 • Cumulative Return: 2000% • Exit: 200? No4e All ivrfonnance munbca+ art autIncd and n‘niIalne upon tcyuni Cunt, k-ni Into I Kunio, ion mode in 2010 Perfonnanm for 2010iTmeni is cnimmed in be npprinatnaicly 10-. pa annum 18 EFTA_R1_0 1947052 EFTA02672836 Case Studies: Command Security MOM Acquire cooiroilink Mock Eray NO. .14..MINts • Rept iccd Redid of Directors • look in cir n ( hitorrisn • Itniushi ituJi Exit 142 t. Pa Y. 112 xn u• U2 O H• nn '.3 Value Creation: • Took over control of the Board and acted as Chairman in order to institute a plan to enhance the company's reputation • Leverage network of relationships to bring in Rudy Guliani to lend credibility to the company's turnaround plan Company Profile: • Command Security is a provider of contract security services with over 30 years of experience and 6,000 personnel. • The company provides armed and unarmed security personnel to governments, companies, schools and residentiaUcommercial buildings as well as customer service personnel for airlines Kcy Investment Considerations: • US$72 mio of annual revenue at time of investment (trading at over I2x Revenue/Market Cap.) Favorable industry dynamics post- 9/ I I Over 4x return on investment So unic oiciniclici, coin and compan,, reponi 19 EFTA_R1_01947053 EFTA02672837 Case Studies: Radiologix/RadNet IRGX/RONT) Exit •IOXISP‘sen. ICU XX? Cot ur A...• VS. so) Soe Col b Cos 2,3“ coS tsw Value Creation: • Advocated for merger or sale of the company • Utilized SEC filings to exert pressure • Merger announcement made within 12 months of establishing a position Company Profile: • Acquired by RadNet in November 2006, Radiologix was a leading, independent provider of diagnostic imaging services in the US. • In addition to providing imaging services such as MRI, CT, PET, etc., it also provides administrative management, and information services to radiology practices. Key Investment Considerations: • Solidly profitable, unleveraged balance sheet and cheap valuation (EV/EBITDA) • Industry leading technology and quality management team • 4x return on investment Souroc °knurl< I. cam and comixtny rerun. 20 EFTA_R1_0 1947054 EFTA02672838 Case Studies: Pier 1 Imports IPIRI Initial Entry Doubkd &sake Exit s4 • In-depth research of operations and store visits • Debt buy-back • Return to operational profitability Company Profile: • • A specialty retailer which focuses on the direct importation of decorative home furnishings and gifts which have a high degree of handcraftmanship and uniqueness. • The company operates over 1,000 stores across the US, Canada and Mexico. Key Investment Considerations: • Strong liquidity position with over USS200 million in unencumbered cash Favorable competitive dynamics due to bankruptcy of leading competitor • Strong profit growth potential with over USS1.0 billion in annual sales • 4x return on investment SOU., c uitirnMet. cOm and CaxtniXtilt fcrtorl‘ EFTA_R1_01947055 EFTA02672839 Investment Targets: Company "A" Share Performance Last 24 months 91)5'20B Turnaround Catalysts: Company Profile: • A Fortune 500 company which operates in the transportation sector • An industry leader in providing supply-chain solutions. Its network has local, regional, national and international capabilites Selected Financial Metrics: • Market Cap: < US$200 million • Annual Revenue: >US$ 4M billion • Cash: > US$100 million • P/E Ratio: N/A • Div. Yield: 0.0% • Down from 52-week High: 55% • New management team Investment Targets: Target Return: [5]x Flolding Period: [24] months • • Restructuring of labour contract Return to profitability Smut< nkm•lct. com comixtny repon. 22 EFTA_R1_0 1947056 EFTA02672840 Investment Targets: Company "B" WY Share Performance Last 60 months 9. 75 1013 Forced selling has run its course • Turning cash flow positive Improving industry dynamics Company Profile: • A leading provider of renewable fuels that primarily operates in the Western US • Vertically integrated operations spanning production, storage and delivery • Low-cost provider while demand growth is outpacing supply Selected Financial Metrics: • Market Cap: < USS100 million • Annual Revenue: >US$ 1.0 billion • Liquidity: > US$10 million • P/E Ratio: N/A • Div. Yield: 0.0% • Down from 52-week High: 50% Investment Targets: Target Return: [Six Holding Period: [361 months Somme oicrinitcs. cam and cowpony repon. 23 EFTA_R1_01947057 EFTA02672841 Investment Targets: Company "C" Share Performance Last 24 months Turnaround Catalysts: 9/25/2013 company Profile: • A leading provider of marine transportation services • Listed on NASDAQ • The company has operations around the world Selected Financial Nletries • Market Cap: < USS100 million • Annual Revenue: > US$1.0 billion • Asset Value: > US$500 million • P/E Ratio: N/A • Div. Yield: 0.0% • Down from 52-week High: 0% • Highly leveraged to global economic growth Investment Targets: Target Return: [S]x Flolding Period: [36] months • • Improving industry dynamics Return to positive cash flow Smut< olanitrixt. own :ind company repon. 24 EFTA_R1_0 1947058 EFTA02672842 Investment Targets: Company "D" Share Performance Last 80 months Turnaround Catalysts: A 9/25/2013 Company Profile: • E-commerce company which provides cloud-based sales solutions • Proprietary technology which enables the Company to service customers of all sizes, ranging from Fortune 500 to small businesses • Global reach Selected Financial Metrics: • Market Cap: > US$50 million • Annual Revenue: < US$100 million • P/E Ratio: N/A • Div. Yield: 0.0% • Down from 52-week High: 65% • New management team Investment Targets: Target Return: [ I Opt Holding Period: [36] months • • Favorable product cycle M&A candidate Sourw oicmirlcs. can and company reran. 25 EFTA_R1_0 1947059 EFTA02672843 Appendix: GP Team Profile Bruce Galloway Co-Chairman & Co-CEO Mr. Galloway oversees and manages all aspects of GP's investments. He is a professional portfolio manager with 26 yrs of experience investing and advising small and micro-cap companies. He is widely recognized as a leading investor of turnarounds, deep value small and micro-cap stocks. He has held scats on the Board of numerous companies and implemented turnarounds of several companies. Mr. Galloway graduated from Hobart Williams Smith College in 1979 and received an MBA from NYU in 1983. Mr. Braun works alongside Mr. Galloway in managing GP's investments. Eugene Kim COO Mr. Kim is responsible for GP's operations and finances, including investor relations and legal/compliance. He has over 20 years of experience in the finance industry and has served as the CFO of a China- based manufacturing company with over USS500 million in annual revenue. His previous experiences include serving as the CIO of a pan-Asian credit hedge fund, an investment banker with ING Barings and Barclays Capital, and as a research analyst with UBS and Nomura. Mr. Kim graduated from Yale University in 1992. EFTA_R1_0 1947060 EFTA02672844 Appendix: Selected Publicly Traded Holding Companies (USS 00th) Fiscal Year ended Berkshire Hathaway (BRICK) 12/31/201 2 Revenue 162,463 Profit Margin 9.2% Total Assets 427,452 Book Equity 187,647 Equity Market Cap. 283,800 PIE 16.1x ROE 10.2x Earnings/Share 10.9 Price/Book 1.5Ix Div/Yield Institutional Ownership Leucadia National (LIAO Harbinger Group Inc. (IIRG) Steel Partners (SPEY) 12/31/201 12/31/201 12/31/201 2 2 9,194 4,500 761 288 497 10.9% 1.8% 5.4% 2.6% 4.6% 9,349 27,400 1,378 62 1,414 6,767 1,599 527 31 9,900 1,449 451 457 8.1x 9.4x 54.6 I 2.8x 14.5x 3.38 1.09 0.28 I .46x 0.91x 0.85x I4.74x 0.53x 0.9% - 4.7% - 66.4% 59.8% 85.4% 28.8% 1.0% 10.2% RCS Capital Corp (RCA P) BFC Financial Corp. (BFCF) 2 12/31/201 12/31/201 2 2 365 194 GH (Pro Forma) 12/31/2013 500-1.000 0-5% 100-2(41 50-100 TBD TBD 'FBI) TBD GH figures Pro Forma consolidation of Target Company "A" and US$50 million Pref. issuance SMIRC CMIC ond company repons. Market share price daa as of 9.27'201? EFTA_R1_01947061 EFTA02672845