EFTA00505807.pdf

Galloway Partners Introduction O.ber.13 v3.0 EFTA00505807 This presentation is for discussion purposes only, for use by its authors and those who have been furnished this information by the authors. This presentation does not constitute an offer or solicitation in any jurisdiction to any person or entity. Offers to sell interests in any fund managed by Galloway Partners or any of its affiliated entities will be made only by way of a separate Private Placement Memorandum (collectively the "PPM") and not by this presentation. A potential investor considering any investment in a fund should read the respective PPM for purposes of making its investment decision. The relevant PPM contains a more complete description of each funds' investment practices, icman..nunz, iim‘z aiiu unici I Lu1J icicvaii tu a uc%.,I lun tu Luvct.. No representations or warranties, express or implied, have been made as to the accuracy or the completeness of the information in this presentation and this presentation should not be relied upon for making an investment decision. 2 EFTA00505808 Contents Executive Summary 4 Market Opportunity 7 Strategy & Execution 12 Track Record: Bruce Galloway 20 Case Studies 22 Investment Targets 25 Appendix 28 3 EFTA00505809  Executive Summary • Galloway Partners ("GP") is a newly established investment management company that specializes in acquiring influential ownership stakes in distressed, small & micro 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$50-100 million in a first closing for a new hedge find ("Strategic Opportunities 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. 4 EFTA00505810 Executive Summary - Indicative Term Sheet Issuer Strategic Turnaround Fund, LP Security Description Series A Exchangeable Redeemable Preferred Shares Dividend Rate [4%, payable in cash or in-kind] Maturity Date [5] years from Closing Issue Price USS[10,000] per share Issue Size US$50,000,000-100,000,000 Closing Date [November 30" 2013] Exchange Series A Preferred exchangeable at any time after a Qualified Listing Voting Rights Each share of Preferred stock will have the right to a number of votes equal to the number of shares of Class A common stock issuable upon conversion of each share of preferred stock Protective Provisions Consent of the holders of at least 50.1% of the Series A Preferred will be required to: • Alter any provision of the articles of incorporation or the bylaws; • Approve any transaction or series of transaction deemed to be a liquidation of the Company; • Approve any related party transactions; • Approve any merger or other corporate reorganization; • Declare or pay any dividend or distribution or approve any repurchase with respect to the Preferred or Common stock. lin cstor Rights • Maintain proportionate ownership; • Right of First Refusal; • Co-Sale Rights; • Drag-Along Rights 5 EFTA00505811 Executive Summary — Organizational Structure Galloway Holdings Galloway (LISTCO) Control stakes transferred to LISTCO, which Partners will be a publicly traded holding company (Mgmt Co) • Standard 2%I20% management fees paid by LISTCO ("GH") and Hedge Fund to the Mgmt Co. Bruce Galloway • Additional 10% Incentive Fee of Net (Chairman & CEO) Appreciation which exceeds 2.5x return of • Mgmt Co. is owned by Galloway and Kim Eugene Kim Investments • Galloway Holdings is a [C-corp] (COO) established in [Delaware] • Preferred Shares will be exchangeable into LISTCO shares Operation: I mani 6 EFTA00505812  Market Opportunity EQUITY MARKET CAPITALIZATION (USS billions) Saudi Arabia Singapore Mexico Russian Federation Korea Hong Kong SAR, China Brazil India US (Small & Micro Cap + OTC) China SOO 1,000 1,500 2,000 2,500 3,000 3,500 4,000 US (Small Hong Russian ro Saudi China India Brazil Kong SAR, Korea Federatio Mexico Singapore Arabia Cap + &Mic China in OTC) • Equity Market Capitaliza ion 3,697 3,354 1,263 1,230 1,108 1,180 875 525 414 373 At approximately US$3.3 trillion, the combined market capitalization of exchange-traded US Small & Micro Caps and OTC equities is comparable in size with the largest emerging market stock markets, but with significantly better trading liquidity, transparency and regulation Source: World Bank and (Data as of December 31, 2012) 7 EFTA00505813  Market Opportunity US Equity Market Composition OTC QX The Beet Marketplace with Chia Idled Companies The OTCOXC -aneblace errs die rev .niorneit and not Odor,. easing U S. and global condone. To qualty hot no OiCOX,arkontam, com0anos mustnootngn loan., standards. Oa unem n mar thSCIOS.,re. and be SCOnSC, ed by a or.asonal nrdIsartyachisor. Designer, br ine most reuua0le. igiod and onsuor.tnencly co-orses. OTCOX ~es rat elves:ash.. the informants necessary is notigenny an lyre. value and nada tied mantes • Large Cap cYrr. • Mid Cap kJ •-• 3% The Venture Stage Marketplace with Currant U.S. Reposing Companies ne OnCe, natketOla“. OR, Wort. Itiong br secur sea t , railer of deinnogN convenes real are Small Cap tepottnopouS took.tato, (sEcre.... or Murat.). Sacs 000,70 nas no trimmer, inanoal standards r. otit.des shells and penny docks nal ate Current el toes dICICYLle b toit, t,a,.• • Micro loo 01COS,VROVa. nas anomvoh roo.00 to FtiRA °domed OTC Whom Mora 1010881 as no swats 00.1,4. lot SEC and bank reporIN securaes two -Ma on Sr. exchanges 1% hi Ultra Micro arf3Pink The Open Marketplace with Variable Reposing Companies the OTC PistS vheUlaoe eters tradng is wade roectirn of cowry seoxst.111,0.911 any broker. Inn rrylaiggi.00 y tot an to. Of 0,tylve$1,4: 0/0 nen, al reasons or dehirs damns 0r riesdihrdinti atm., hey re tumor 9.0.1090,Zad by no Ineb of etternabon mat !telt:m.o. • 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 Source and Math as of December 31. 2012) 8 EFTA00505814  Market Opportunity "A Perfect Storm" • Increased capital requirements and costs of compliance has forced many of the traditional broker-dealers in the sector to merge or close Increased • FINRA is aggressively cracking down on market Regulation misconduct and raising the standards for issuers • Stocks of many lower ranked Small & Micro Caps remain at or near all- • Market collapse due to the Credit Crisis of 2007-8 led to a time lows wave of hedge funds, which specialized in the sector, shutting down • Fund flows out of the sector resulted in forced liquidation Redemptions of positions into a market with no new buyers • Valuations are compelling • Very few experienced players in the sector • Clearinghouses unwilling to take in OTC securities remaining • Limited research coverage • Reputational concerns Source: Company data 9 EFTA00505815 Market Opportunity Limited Competition RIP Selhide Buyside • The winnowing of broker-dealers which Rodman & Renshaw Willowcreek were active in the Small & Mid Cap First Montauk Laurus sector has dramatically altered the First Tennessee Vision Capital competitive landscape V Finance Special Situations • Hedge fund participation is virtually not Gleecher Barron Partners existent. Position sizes of large funds Think Equities Yorkville are too large for the sector and most of Pali Capital Trinad the smaller, dedicated funds have shut Morgan Joseph down due to poor performance Merriman Curham • Traditional long-only funds are GTAX constrained by restrictions on buying Jessup & Lamont shares trading below US$1.00 and/or Empire Capital owning shares with small floats and Rochdales Securities limited daily trading volumes • No true Micro Cap ETFs Due to the sharp reduction in market participants, there are veryfew ways to get exposure to the most attractive small and micro cap names 10 EFTA00505816  Market Opportunity Ideal point in the cycle Current Market r•F-- US economic growth expected to lea all developed markets • Monetary policy remains extremely accommodative • Low interest rates spurring increased Growth Distressed risk appetite (2011-2015 (2007-2008) • Liquidity is beginning to move out of Mid-Large Caps. Small & Micro Cap valuations remain compelling relative to larger caps which have already Recapitalization (2009-2010) recovered to pre-Lehman levels Markets no longer punishing "bad" news Expect favorable momentum to be supportive for the next 2-4 years 11 EFTA00505817 Strategy & Execution Turnaround • Fundamental Valuation Catalyst Metrics • Financial Analysis • Historical Highs • Management Change • Industry Dynamics • Asset Value • Financial Recapitalization • Economic Conditions • Macro Environment • Competitive Landscape • Industry/Product cycle change Distressed Growth Valuation Potential • 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 12 EFTA00505818  Strategy & Execution Utilize an Activist approach in order to maximize the value of investments 13D Filing Medium Term Board Changes Publicly announce GP's plan for improving shareholder value Management ws- Replacement Short-Term Jong-Tenn Share Buy-Back Asset Sales Capital Structure Dividend Rate Engage Board Special Dividend Issue list of specific actions to be Maximize implemented by the Board Shareholder Value Appeal to Shareholders • Of the US$85 billion in "Activist" hedge fund assets, In the event the Board is unwilling to execute none are focused on the Small & Micro cap sector the Plan, need to initiate a proxy battle in order to take control of the company • Activism has been shown to improve shareholder returns by over 16%") ( I) - Wall Street: Back to Basics- by Alex Gavrish. Chapter 4 13 EFTA00505819 Strategy & Execution Key changes which GPfocuses Management Capital Technology Market Geopolitical on as Turnaround Structure Psychology Catalystsfor the revaluation of a company's shares Shareholder Turnaround Value Activism Catalysts Maximization 14 EFTA00505820  Strategy si Execution Russell Investments Microcap Indexes Performance 350 300 250 200 t•Micro index Within the Microcap 150 sector, Value stocks 100 M -Value have consistently so outperformed Growth 0 stocks in both up and cfPrt. 1. cridg' 'V vsk rt. dr11.co e 'V ,ss.%11.do• "t• down markets Russell Microcap Value Index (M-Value) Russell Microcap Growth Index (M-Growth) Bloomberg ticker symbo RMICROV Bloomberg ticker symool RMICROG Reuters ticker symbol Reuters boar symbol Weighted average mantra cap (SB) 0.357 Weighted average market cap (58) 0 428 Median market Cap (5B) 0.194 Median market cap (58) 0.184 Largest company by market cap (SB) 1.200 Largest company by market cap (SB) 1 200 Characteristics Characteristics Pncefficok 1.26 Price/gook 3.65 0mdend yield 1.83 Dividend yield 0.48 Price/Earnings (ex-negative cantles) 15.89 Price/Earnings (ex-negatve earnings) 22.09 IBES long-term (vowel forecast (%) 12.00 IBES long-term growth forecast (%) 17.47 EPS 5-year growth 8.79 EPS 5 -year qty,th 14 33 Source: (Index data as of August 3). 20)3) 15 EFTA00505821 Strategy & Execution Clearly defined and historically successful Investment Process Due Screening Execution Monitoring Exit Diligence • "Bottoms-Up" • Financial • Negotiations • Board/Mgmt role • Approach Analysis with • Regular • Block Sale • Pending • Scenario stakeholders Reporting • Market Sell- Catalysts/News Analysis • Legal, Tax & requirements Down • Fundamental • Business Risk Compliance • Management Metrics: Assessment sign-off Updates ✓ EV/Book Value • Supply Chain • Trading • Tracking to ✓ Revenue/EV Verification strategy Operational Plan ✓ Discount to • Industry • Hedging • Management Historical Outlook Requirements meetings • STEP-score • Competition • Settlement • Financial Review • Proprietary Analysis Procedures • Assist with network • Corporate Investor • Recent Trading Governance & Communications Range & History Legal Review • Participate in • Management discussions with meetings stakeholders such • Site Visit as creditors or labor 16 EFTA00505822 Strategy & Execution • GP's core investment universe consists TechiTelec of approximately 500-1,000 companies om across five key sectors, which collectively represent approximately 50% of the total market cap in the small and micro cap sector Healthcare Natural Services Resources • Median market cap of GP's target companies is approximately US$75 Value million and max is US$1,200 billion. Many of the target companies are former Midcap companies which have been sold down so much that they now classify as Micro and Nano caps Business Consumer • Typically target companies will have Services Retail been trading at historically low valuations for close to 36-60 months already 17 EFTA00505823  Strategy & Execution A Share Price • Change • Sharp share catalyst+ • Ntornentum • No Sell Side t price decline implementral Buyers coverage nom Highs • Improvement GroxM • Sell Side • Limited • Forced visible in t coverage trading tilling quarterly return,: pawls Entry point (x) First Exit (2x) r Complete Exit (5-I0x) Time I 12-24 months 4 4 9-12 months 44 12-36 months • 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 18 EFTA00505824  Strategy & Execution Investment Buckets • Although Deep Value, Turnaround investments will represent the main a Deep, Deep Value focus of the portfolio, GP does make 10% 8% 'Turnaround" shorter-term opportunistic investments 2% a Financial Engineering • Financial Engineering plays include High Growth/ pre-IPO financings, bridge equity, International mezzanine investments, etc. ■ Hedges • High Growth companies and/or non- US investments will collectively make Investment up less than 10% of the portfolio Hedges *II Horizon • As a hedge against any sudden, major High Growth/International : . capital markets meltdown (i.e. Daily ■ Minimum drop in major equity indexes of >5%), ■ Maximum GP uses deep, out-of-the-money puts Financial Engineering and/or CDS Deep, Deep Value "Turnaround" • Little to no leverage will be used 0 10 20 30 40 50 60 (months) 19 EFTA00505825 Track Record: Bruce Galloway Proven track record of successful investing: 20+% annual returns over past 15 years Present 1994-2005 2005-2013 "'Galloway Ca it OGALLO A ERS RT 1983 OBurn hain- .........----1 nagement Securities (MD) (CEO) (CE •Managed US$25 •Managed US$100 mil turnaround 'MBA Stern mil in assets fund (STEP •Published research fund) • 26+ years of Small & Micro cap Business on distressed 1979 School experience companies •Led several • Second to none investment track conomics corporate finance transactions record BA Hobart Williams • Unparalleled network of Smith relationships College • Extensive experience with turnarounds, activist investing and "bear" markets 20 EFTA00505826  Track Record: Bruce Galloway Year =500 Russell 2000 Dow Jones Galloway 2009 13.44% 19.46% 7.50% 41.46% Selected Investment Hi • hli •hts STEP 2008 -38.49% -34.80% -33.84% -63.46% Fund 2007 3.53% -2.75% 6.43% -34.81% 1. Command Security (MOC) - 2002 2006 13.62% 17.00% 16.29% 42.42% • Entry Price: $0.60 r2 -005 3.00% 45.37% -0.61%IMr- 31.75% • Exit Price: $3.20 2004 8.99% -21.58% 3.15% 39.99% • Cumulative Return: 350% 2003 26.38% 45.37% 25.32% 83.24% • Exit: 2009 2002 -23.37% -21.58% -16.76% -36.99% 2. Radnet (RGX/RDNT) — 2004 2001 -13.04% 1.03% -7.10% 56.33% • Entry Price: $3.00 Personal 2000 -10.14% -4.20% -6.17% -58.95% • Exit Price: $13.00 Account • Cumulative Return: 300% 1999 19.53% 19.62% 25.22% 904.63% 1998 26.67% -0.35% 16.10% -33.47% • Exit: 2005 1997 31.01% 20.52% 22.64% 117.37% 3. Seitel (SITL) - 2005 1996 20.26% 14.76% 26.01% -8.36% • Entry Price: $0.24 1995 34.11% 26.21% 33.45% 98.78% • Exit Price: $4.60 1994 -1.54% -3.18% 2.14% -18.87% • Cumulative Return: 2000% 1993 7.06% 17.00% 13.72% 167.06% • Exit: 2007 Cumulative 235.18% 269.96% 285.80% 3778.52% Avg. Annual 5.16% 6.02% 6.37% 23.82% Note: All performance numbers am audited and available upon request. STEP fund wont into liquidation mode in 2010. Perfomrance for 2010-present is estimated to be approximately 30% per annum 21 EFTA00505827  Case Studies: Command Security MOM A Company Profile: • Command Security is a provider \[\ Exit +1\ 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, Acquire controlling block r schools and residential/commercial buildings Initial Entry as well as customer service Replaced Board of Directors Took over as Chairman personnel for airlines Brought in Rudy Guiliani Key Investment Considerations: /IX; $12Wee 2007 2004 200? 2022 • US$72 mil. of annual revenue at time of investment (trading at Value Creation: over 12x Revenue/Market Cap.) • Took over control of the Board and acted as Chairman in order to • Favorable industry dynamics institute a plan to enhance the company's reputation post-9/11 • Leverage network of relationships to bring in Rudy Guliani to • Over 4x return on investment lend credibility to the company's turnaround plan Source: and company reports 22 EFTA00505828  Case Studies: Radiologix/RadNet (RU!RDNTI Company Profile: SID • Immediately prior to being acquired by RadNet in 60 November 2006, Radiologix had merged with Primedic. • The resulting combination 5$ created the largest independent provider of diagnostic imaging services in the US. • In addition to providing imaging SG services such as MRI, CT, PET, Merger closing etc., it also provides SC administrative management, and information services to radiology !Tx: sRrsis practices. 206 203? Feb Ow Jn Ad AA Sco Oct Not Doc 20:8 Fa Mu Key Investment Considerations: Value Creation: Solidly profitable and cheap • Advocated for merger or sale of the company valuation (EV/EBIT