Wells Fargo Capital Finance Glenn Noble (703) Government Services Group McLean, Virginia

Discussion Points  Rules of the Road  Planning for Growth  New Biz Considerations  Capital Options  Success Stories  W. T. D. T. G. S.

3 Wells Fargo Capital Finance Overview Businesses within the Asset-Based Lending (ABL) Group have joined together under a common name. Wells Fargo Capital Finance Wells Fargo Trade Capital Wells Fargo PO Finance Wells Fargo Business Credit Wells Fargo Foothill Wells Fargo Distribution Finance Wachovia Capital Finance

4 Wells Fargo Capital Finance Who We Are:  Wells Fargo Capital Finance “WFCF” is a trade name used by certain asset based lending, accounts receivable and purchase order finance services of Wells Fargo & Company and its subsidiaries.  Largest asset-based lender in the US.  Over 1700 employees.  Service over 2600 clients.  Over $23 Billion in outstanding loans.  Geographic reach throughout the U.S. and Canada.  WFCF is comprised of 15 specialty financing groups with multiple divisions which provide addition industry specialties. (Government Services, Trade Capital etc.)

Contract based working capital options VS. The Road Ahead Cash Flow Revolving Line of Credit Tem Debt / Fixed Asset Structure Asset Based AR Financing Facility

6 Your Safety Rules of the Road – page 1  Expect your bank / capital partner to understand your industry & opportunities.  Avoid being an orphan credit or largest client of your bank /capital partner.  Be prepared to have “skin in the game”

7 Your Safety Rules of the Road –page 2  Historic performance is a good indication of one’s ability in delivering on new business. Objectively, is your staff able to handle the contractual obligations & deliverables for the new opportunities?  DO NOT confuse revenue and margin. Know your true cost of delivery.  Have fun!! (lately that does not seem possible)

Planning 101 – Avoiding the potholes  Poor management is cited most frequently as the #1 reason businesses fail, inadequate or ill- timed financing is a close 2nd.  When expanding a business it is not enough to simply have access to capital. Knowledge and planning are required to manage it well. These qualities ensure that ownership avoid common mistakes such as seeking the wrong type of financing, underestimating the amount required, or miscalculating the cost. 8

Planning – Before the award Minimize need of raising sufficient capital to ramp up for future contracts growth by:  Internal business development forecasting should identify and signal situations to senior management. o Allows for proactive review of significant operational, personnel and financial impacts. o Allows for contract negotiations with customer for: Invoice payment terms Extended delivery dates / start up Partial payment upon order placement / commencement Progress payments based on specific performance criteria 9

Planning – New Contract Your company has landed a new contract, one that will result in a significant increase in revenues. The Challenge: In order to fulfill the contract the company must commit to additional:  People (payroll)  Materials (vendors)  Other direct related costs (fixed assets, facilities) 10

Planning – New Award challenges continued Timing: Before customer payment is received. Working capital needed to cover commitments exceeds:  Cash on hand  Resources of ownership  Existing line(s) of credit  Availability of credit card  Vendor credit 11

Planning – the presentation Prepare financing request / loan application (in advance) Nature of Business Company Profile Market served and growth story Management Summary Financing Request Use of Proceeds 12

13 Planning - Due Diligence Requirements  Key Borrower Traits:  Quality products/services  Positive past performance  Financially strong customer base  Management, Management, Management  Growth drivers (contracts, acquisitions, new markets)  Key Borrower Challenges:  Sustained operating losses  Limited retained earnings / net worth  Poor or non-timely accounting/bookkeeping/invoicing  Excessive subcontractor reliance

Asset Based Lending (Revolver) – wide operating range criteria  Unmonitored (cash flow) Line of Credit  Flexible draw method  Covenant heavy  Weighted by past performance  Quality (Audited) Financial Statements  Borrowing Based Working Capital Format  A/R and Inventory advances  Field exams (periodic)  Dominion of funds (assignments)  Limited financial covenants  Quality (Audited) Financial Statements  Accounts Receivable Financing  A/R collateral only  Billed and Unbilled Advances  Primarily service providers  Detailed invoice reporting  No financial covenants

Fixed Asset Finance 15  Used to generate capital (liquidity) from fixed assets that are to be obtained or currently owned by company, such as computers, equipment, furniture and fixtures, vehicles, and real estate.  Banks, financing companies, dealers, and manufacturers provide these more specialized debt instrument.  Company’s credit standing and the quality of the assets involved will determine the amount of capital that can be raised and the terms under which it is provided.  Specifics of the agreement will determine the accounting treatment of these obligations.

Purchase order finance – product oriented 16  Financing based upon your customer purchase/ task order(s).  Typically based upon the credit worthiness of your customer (Federal Government, large corporation).  Prefer direct shipment to end user.  No execution risk.  More difficult to obtain if assembly or manufacturing process involved.

Success story #1 The IT Service Provider  Service Disabled Veteran Owned Company  Established in 2002  Revenues were flat from 2006 to 2008  Became a client in 2008  Revenues in 2008 $15,000,000  Profit in 2oo8 $850,000  After one year  Revenues in 2009 doubled to $29,000,000  Profit in 2009 increased over 3 times to $3,000,000

18 Success story #2 The Small Engineering Company  20-year-old company looking to diversify its client base to include the Federal government.  In 2008 the company was awarded a large multi- year contract with the US Dept of Defense.  Became WFCF client in 2008 during the contract bid process.  Revenues in 2007 $2,000,000 / Profit $13,000  Revenues in 2009 $28,000,000 / Profit $3,000,000

19 Success story #3 The Security Company  An SBA 8(a) Certified Company wanting to grow by bidding on larger Federal government contracts.  Became WFCF Client in 2008 and began bidding larger contracts.  Revenues in 2007 $2,000,000 / Showing losses  Revenues in 2009 $30,000,000 / Will show a profit  With the financial backing of the Government Services Group at WFCF, this company was recently awarded another large contract and will again double their revenues in 2011.

20 Conclusion – it can be done The financing options are NOT mutually exclusive as combinations can be very effective. CAUTION: significant legal and operational differences. The terms of some borrowing agreements may limit your ability to take on additional capital and they should be entered into only as part of a coherent financing strategy.

Questions? Thank you. Glenn Noble (703)