Second Wind Consultants, Inc.

SBA Workout Strategy

Problem: Distressed Companies

• Definition: Distressed Company Sale– A company that is either failing or struggling to meet it’s obligations– A company that is on a downward revenue path

• Owner’s Solution: – Hire Business Broker– Attempt to sell the company for enough $$$ to cover obligations

• Problem– FMV < less than < Debt/Obligations

• Result– Either the broker passes on the deal, or takes the listing but the

company doesn’t sell, or the broker pulls a rabbit out of his/her hat!

FMV Sale

Solution: Second Wind Workout

Existing Business•Balance Sheet is Upside Down•Income Statement is bleeding•FMV << Debt•Owner doesn’t / can’t accept less because of PGs

Transitional Business•Strip Debt•Clean up Balance Sheet and Income Statement•Settle Vendor Debt•Workout Seller’s PGs and CC debt

New Buyer•Normal Sale at FMV•FMV is enhanced because of “cleanliness” and enhanced operating performance

Liquidation Sale

Second Wind Service Overview

Company Liquidation: Process

Why it Works• Liquidating the company necessary for the debts to be settled• Liquidation process is a four step process dictated by Bank

and SBA regulations

CRED

ITO

RS

BORRO

WER

Our process WORKS 100% because we utilize Bank’s processes and guidelines for the BENEFIT OF THE BORROWER, rather than for the BENEFIT OF THE CREDITORS

Banking Motivation “101”Default

Loan$1,000,000

Default Loan

$1,000,000

Capital Set-Aside

$1,000,000

Capital Set-Aside

$1,000,000

$19,000,000

$190,000,000

Reduce Loan Portfolio

$10,000,000=

$500,000income

Reduce Loan Portfolio

$10,000,000=

$500,000income

Your bad loan become very painful to the Bank! They are highly motivated to settle the loan ASAP, and recover SBA guarantee!

Moreover,Bank can recover 75%-80%of loan from SBA!

Vendor Motivation “101”

Client: ABC

New Co: XYZ

Liquidated

Vendor

3 Options

Alternative: Second Wind vs. Bankruptcy

Comparison Second Wind Bankruptcy

Controlling Interest Borrowers best interests Creditors best interests

Process Business, negotiated Legal, mandated

Timeframe 3 – 12 months 2 – 6 months

Impact on Credit Rating None / limited Severe

Results Save the business, Save the home

Save the Home

Cost Determined by results:15% of debt “eliminated”

Typically $30K - $50K

ABCs of BankruptcyBankruptcy Filing DescriptionChapter 11: Business Reorganization.

Chapter 11 is a re-organization. It attempts to keep the business operating while the debts are sidelined. Debtor must preset court with plan to payback everyone in the following order: 1) Secured creditors 2) Unsecured creditors 3) Preferred stockholders, 4) common stockholders. Typically the secured creditors get the lions share of any assets, or paid back over time, and unsecured creditors get beaten up badly.

For small businesses, 8 out of 10 end up being converted by the courts to Chapter 7s, where the company is shut-down and liquidated. Business owner usually keeps their home.

Chapter 13: Simpler Chapter 11

Chapter 13 is intended to be a less complicated, less expensive workout. Usually the debt is either not reduced, or reduced nominally, with payments stretched out over time. A Chapter 13 can work for a small debtor, with limited assets.

Chapter 7: Dead Duck Chapter 7 is the ultimate bankruptcy. It eliminates all business debt, but costs you all your business assets. If you have personally guaranteed the loan(s), the courts can/will include them in bankruptcy. If you have a good attorney, you can usually keep your home, but you will likely have to refinance it. Bottom line = take away the debt, lose the business, keep the house.

Broker Participation

Existing Business•Upon a referral becoming a SWC client, the referring broker will receive a $5000 referral fee

Transitional Business•Referring Broker will receive a 10% fee on the Liquidation Sale Value

New Buyer•Referring Broker is given the listing and earns a 10% fee

Liquidation Sale FMV Sale

Example: ABC Forktruck (active) • Owner purchased business in FL in 2003 for $1.3M• Revenues have slipped from $2.4M to $850K

• Anticipated business settlement = $30K• Anticipated personal settlement = $25K

Example: ABC Landscaping (active) • Owner purchased business in FL in 2004 for $2.2M• Revenues have slipped from $2.7M to $1.2M

• Anticipated business settlement = $150K• Anticipated personal settlement = $50K

Example: ABC Mfg (active) • Owner purchased business in MA in 2005 for $4.1M• Revenues have slipped from $3.7M to $1.7M

• Anticipated business settlement = $400K• Anticipated personal settlement = $50K

About Us• Firm

– Historical focus on small business consulting– IRS tax lien restructuring, general debt workouts– Since 2006, focus on SBA debt restructuring– Boutique firm, SBA workout focus, 6 professionals

• Don Todrin, Managing Partner– 30+ years expertise in small business consulting– Historical focus on debt restructuring, IRS tax lien elimination, and bankruptcy law– Entrepreneur, Former Bankruptcy Lawyer

• Sean Rosser, Partner– 20+ years as consultant (Mercer Mgt), executive (Mitsubishi Electric, GE), and

entrepreneur (2 start-ups)– Harvard MBA