March 23, 2010

Strictly private and confidential

Valuation in the context of a restructuring

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Introduction
Agenda
This presentation will cover the following topics:
1

Overview of Rothschild Inc. Role of valuation in restructuring Valuation methodologies and mechanics Comparable companies analysis Precedent transactions analysis Discounted cash flows analysis

Valuation in a restructuring Case study

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Overview of Rothschild Inc.

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Overview of Rothschild Inc.

Rothschild - Premier international investment bank
2009 EMEA Restructuring Deal of the Year IMO Car Wash

2009 Restructuring House of the Year

2009 European Restructuring House of the Year

World-leading position Restructuring advisor of the year Acquisitions Monthly Awards 2009 and 2010 M&A Bank of the year Acquisitions Monthly Awards 2005 and 2007 Restructuring deal of the year IFR Awards 2009, Acquisitions Monthly Awards 2006 and 2008 Leading restructuring advisor in France restructuring league tables as of January 2010 280 deals worldwide totaling $267 billion in 2008 39 deals over $1 billion in 2008 Recognition from peers and industry with awards from Financial News and Acquisitions Monthly Key focus on advice Mergers & Acquisitions Corporate Restructurings Structured Finance and Securitization Strategic Advisory Services Objective financial advice Objective, senior banker value-added advice unencumbered by the need to cross sell other products Industry expertise Dedicated sector teams provide experience, knowledgeable advice, industry analysis and contacts Rothschild culture A culture of innovation, client service and integrity that has resulted in a reputation for value added practical advice. Rothschild seeks to foster and grow long term relationships with our clients

Most Innovative in Corporate Restructuring "Rothschild has been active in virtually every type of transaction, every sector and every geography. The Banker Restructuring Adviser of the year Debt Advisory House of the Year Restructuring Adviser of the year Restructuring Deal of the Year: Eurotunnel M&A Bank of the Year Restructuring Advisor of the Year Restructuring Deal of the Year

2009 Turnaround and Restructuring Adviser of the Year Buy-side Mandate of the Year: CVC Capital Partners acquisition of a 25.01% stake in Evonik Industries

Global Deal of the Year 2008 RBS-led consortium acquisition of ABN AMRO Mid Market Financial Adviser 2008 & 2007

2008 Transaction of the Year Award Remy International Americas Restructuring Deal of the Year 2006

Global focus on advice, excellence in our chosen markets

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Overview of Rothschild Inc.

Global experience with local experts
Overview Worldwide reputation for excellence, objectivity and impartial advice 289 deals worldwide totaling $192bn in 2008 Restructuring Advisor of the Year Acquisitions Monthly Awards 2009 and 2010 Global perspective and scale
Stockholm Moscow Manchester Leeds Frankfurt Warsaw Birmingham Prague Kiev London Budapest Paris Milan Bucharest Sofia Barcelona Istanbul Rome Lisbon Madrid Athens Tel Aviv Abu Dhabi Mexico City Dubai Mumbai Delhi Hanoi Hong Kong Manila Kuala Lumpur Ho Chi Minh City Singapore Jakarta

950 corporate finance bankers worldwide

Beijing Shanghai

Toronto Washington

Montreal New York

Seoul

640 in Europe including CEE and Russia

Tokyo

120 in US and Canada 100 in Asia 30 in Australia 25 in Latin America 40 in Africa and ME 48 offices in 34 countries Dedicated sector teams providing in-depth industry expertise Rothschild is exclusively focused on M&A advisory, financing and restructuring services No conflicts from underwriting, sales, trading and research activities

Sao Paulo

Johannesburg Sydney Melbourne Wellington Auckland

Offices

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Overview of Rothschild Inc.

Rothschild is one of the few independent houses with a leading M&A market position
Global M&A 1 2 3 4 5 6 7 8 9 Morgan Stanley Citi Goldman Sachs BoA/ML JP Morgan UBS Deutsche Bank Rothschild Credit Suisse US$bn 381.0 350.2 313.9 283.0 222.0 211.6 186.7 159.0 154.8 149.9 No 154 146 143 124 168 149 133 146 112 112
Fomento Economico Mexicano S.A.B. de C.V. Cedar Fair British Energy Unibanco Current Current Advising on strategic alternatives $4.5bn share swap with Perdigo S.A. Advising on $2.1bn offer to acquire Terra Industries Defense against Agriums hostile unsolicited offer Current Advice regarding EDFs $4.5bn acquisition of a 49.99% stake in Constellations nuclear assets Current American Airlines Sadia CF Industries Constellation Energy

10 Lazard

Completed deals by value (1 Jan to 30 Sep 2009) Source Thomson Reuters 2 Oct 2009

US M&A 1 2 3 4 5 6 7 8 9 Morgan Stanley Goldman Sachs Citi JP Morgan Evercore Partners BoA/ML Barclays capital Rothschild Blackstone Group

US$bn

No

295.6 104 232.4 222.8 197.9 154.0 148.1 133.5 73.7 71.6 62.3 84 68 93 16 79 46 39 10 58

$7.7bn acquisition of FEMSA Cerveza by Heineken N.V.

$2.4bn sale of Cedar Fair to Apollo Management

Lead financial adviser to BE on its 12.5bn recommended sale to EDF

$45bn merger of Unibanco and Banco Itau

2010

2009

2009

2009

Volkswagen AG / Porsche SE

Scottish & Newcastle

BM&F

Rio Tinto

10 Credit Suisse

Announced deals by value (1 Jan to 30 Sep 2009) Source Thomson Reuters 2 Oct 2009

Acquisition of Dr. Ing. h.c. F. Porsche AG (EV of 12.4bn), via acquisition of an initial 42% stake plus put/call arrangement for the remaining 58% 2009

Financial adviser to S&N on its defence and subsequent recommended 10.2bn cash offer from Carlsberg and Heineken consortium 2008

$20bn merger with Bovespa Holding

$1.7bn disposal of its 40.0% interest in the Cortez Gold Mine to Barrick Gold Corporation

2008

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Overview of Rothschild Inc.

Rothschild is a leading provider of debt advisory & restructuring services
2010 Restructuring Adviser of the year 2009 EMEA Restructuring Deal of the Year IMO Car Wash

Currently composed of 100 bankers globally with offices in New York, London, Paris, Frankfurt, Milan and Singapore Advisory focus with no conflicts from sales and trading or research activities Lender negotiations (waivers, amendments, forbearance agreements) Capital raising (rights offerings, rescue financing, DIP and exit financings) Exchange offers (debt-for-debt, debt-for-equity, hybrid) Distressed M&A Pre-packaged and pre-negotiated chapter 11 Traditional chapter 11 Strong relationships and credibility among various players in the process, including: (i) financing sources both debt and equity, (ii) banks, (iii) bondholders, (iv) financial and legal advisors, and (v) financial sponsors The Rothschild teams success in restructuring and debt advisory is a result of:

2009 European Restructuring House of the Year

2009 Turnaround and Restructuring Adviser of the Year

2009 Restructuring House of the Year Most Innovative in Corporate Restructuring Debt Advisory House of the Year Restructuring Adviser of the year

Depth of professional and transactional experience and a broad mix of skills represented by Rothschild bankers Demonstrated industry expertise in various industries and an extensive range of contacts among financial buyers Commitment to the highest standards of integrity, confidentiality and client service Creative and resourceful approaches to maximization of value for Rothschilds clients
Strong US debt advisory & restructuring presence

2008 Transaction of the Year Award Remy International Restructuring Deal of the Year: Eurotunnel

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Role of valuation in restructuring

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Role of valuation in restructuring

Valuation overview / considerations
Valuation is the cornerstone of investment banking Whether a transaction involves M&A, restructuring or financing, virtually every investment banking activity is influenced or driven by valuation analysis: Determining the price an Acquiror should pay for a Target company Establishing an appropriate value expectation for a target company seeking a sale of its business Valuing a company that is emerging from bankruptcy as part of a Plan of Reorganization Structuring the terms of a new preferred equity security Valuing a division of a public company to assess potential after-tax divestiture proceeds Valuation has its roots in corporate finance theory and is a balance between art and science The science of valuation includes understanding fundamental corporate finance concepts such as: Net present value (NPV): the value of a series of cash flows after discounting to account for risk and timing Capital Asset Pricing Model (CAPM): a model used to calculate the expected return of a stock based primarily on expected risk Weighted Average Cost of Capital (WACC): the expected return on a portfolio of all of a Targets securities and is utilized in DCF valuations and capital budgeting decisions The science of valuation also includes understanding the methods for appropriately identifying and compiling data to value a business Valuation is also an art that requires considerable judgment to interpret the significant amount of data (financial, operating, macroeconomic, etc.) that investment bankers must compile and analyze as they prepare a valuation

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Role of valuation in restructuring

Application of valuation
Out-of-court valuation Chapter 11 valuation

Mergers & acquisitions Fairness opinions New business projects Defense Capital raises Exchange offers Rights offers Basically any time a company modifies its ownership, operations or capital structure

Beginning of the case DIP financing, priming, cash collateral Middle of the case Business plan, asset sales, credit bidding, fraudulent conveyance and other avoidance actions End of the case Disclosure Statement and Plan of Reorganization

Our focus today will be the application of valuation in a Chapter 11 context

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Role of valuation in restructuring

Importance of valuation
The valuation of a company is critical in a restructuring as various stakeholders with competing interests are vying for a piece of the company

Government agencies

Board

Secured lenders

Trade creditors

Company

Unsecured lenders

Management

Old equity

Subordinated lenders

The Company often serves as the honest broker to resolve competing stakeholder views on value
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Role of valuation in restructuring

Motivations of key players
Depending on the valuation of the company, different stakeholders are either "in the money" or "out of the money." Those creditors that are more senior in the capital structure (i.e., Secured Lenders) are the first to be in the money. If value remains, it goes to more junior creditors and then to equity

Secured lenders Obtain as much debt in the restructured entity as possible If forced to accept equity, argue for the lowest defensible value Unsecured lenders Obtain some debt in the restructured entity, if possible Otherwise, argue for the highest defensible value Subordinated lenders Argue for the highest defensible value, if they are close to being "in the money" Seek affirmative litigation recoveries that may sidestep priority rules Trade creditors Avoid liquidation, continue to transact business during the restructuring and with the reorganized entity Pursue critical vendor motions

Old equity In the case of private money, obtain releases Assess the opportunity to invest capital through a new money plan Public equity rarely plays a role in insolvent restructurings Management Keep the business together, avoid piecemeal M&A or outright liquidation Identify and side with the "winning party" Minimize leverage in the reorganized company Board of directors If the company is solvent, maximize shareholder value If the company is insolvent, maximize value for all stakeholders Obtain releases Government agencies IRS, PBGC, SEC, FERC

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Role of valuation in restructuring

The business plan and its role
The business plan of the Debtor is of central importance when valuing an enterprise
The business plan is the forecast or projections of the business, generally prepared by the management of the Debtors The business plan should, to the best of the managements ability, forecast the cash flows of the business taking into account internal and external drivers Internal drivers include growth, company-specific revenue and cost characteristics, planned investments in capital goods, among many others External drivers include macro trends in the Debtors industry, macro-economic conditions, and actions of competitors The business plan evolves during the course of the bankruptcy process and its development is an iterative one between the management of the Debtor, its advisors and its stakeholders Management initially prepares the business plan with the aid of its advisors The Board of Directors then reviews and approves the business plan The Company presents its business plan to its creditors and other stakeholders as a basis for negotiations and the creation of the Plan of the Reorganization Since the business plan drives the valuation analysis, it can be a source of conflict among the stakeholders and their respective advisors

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Role of valuation in restructuring

Types of valuations
Going-concern value
Generally, the most common types of valuation seek to determine the going-concern value of a business in which the company being valued (or Target) is assumed to operate indefinitely The objective of a going-concern valuation is to value the future earnings power and cash generating capability of the collection of assets that make up the Targets operating business as well as any nonoperating or intangible assets that are owned by the Target Non-operating assets may include ownership interests in other companies, net operating losses (NOLs), etc. and intangible assets may include trademarks, brands, customer lists, technology know-how, etc.

Liquidation value
Liquidation value determines the net proceeds generated by liquidating or selling off each of the Targets assets independently, or in clusters, for fairmarket value In most cases, the going-concern value exceeds liquidation value because the collection of assets produces a greater return when pooled together in a productive fashion within an operating business than when sold-off/disposed of individually in a liquidation (particularly if there are significant liabilities such as environmental clean-up, asbestos claims, severance or other liabilities that significantly offset gross liquidation proceeds)

Under the Best Interest Test and pursuant to the bankruptcy code, the creditors of a company emerging from bankruptcy must recover more value under a Plan of Reorganization than the value achievable in a liquidation of the Targets assets
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Valuation methodologies and mechanics

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Valuation methodologies and mechanics

Three primary valuation methodologies

Comparable Company Analysis

Values a target company by reference to publiclytraded companies with similar products or services and similar operating and financial characteristics

Precedent Transactions Analysis

Values a company by reference to acquisition multiples paid in recent transactions involving similar businesses and operations

Discounted Cash Flows Analysis

Values a company as the sum of its unlevered (before financing costs) free cash flows over a forecast period and the companys terminal value at the end of the forecasted period

Other Analyses
Fixed asset appraisals Trading price of public securities Net operating loss carryforward (NOL) Other multiples

% Weighting

% Weighting

% Weighting

% Weighting

Enterprise Value range

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Valuation methodologies and mechanics

Comparable companies analysis
Overview Comparable Companies Analysis is a common form of valuation that applies multiples derived from comparable publicly traded companies to the operating statistics of the company being valued (the Target) Comparable Companies Analysis is a Relative Valuation because it is premised on the concept that the public equity markets value fundamentally similar, or comparable, companies on a relatively consistent basis By analyzing certain key ratios and operating data for each public company in a comparable universe, investment bankers determine, within a range, how public equity markets may value companies similar to the Target Generally, the comparable data are expressed in the form of valuation multiples such as:
Often not used in the context of a restructuring since distressed companies usually have no earnings

Total Enterprise Value / Revenue Total Enterprise Value / EBITDA Total Enterprise Value / EBIT Total Equity Value / Net income Standard multiples utilized by investment bankers tend to vary from company to company and from industry to industry and can at times be somewhat esoteric. Some examples by industry are: Cable, telecom and subscription-based businesses: value per subscriber (e.g. $3,500 per subscriber) Oil exploration and mining businesses: value per unit of reserve or unit of production (e.g. $10 per barrel of oil) Power businesses: value per unit of capacity (e.g. $10 / kwH) Real estate and retail: value per square foot (e.g. $50 / square foot) multiples are the ratio of a measure of the Targets value (Enterprise Value or Equity Value) to its financial (or operating) results

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Valuation methodologies and mechanics

Comparable companies analysis (contd)
Steps Comments

A comparable peer group should embody the same business and financial attributes such that their public trading values represent a reasonable proxy for those of the company under consideration
Select Comparable Company Universe

Relevant attributes include: Business mix (products, markets served, distribution channels, etc.) and respective weight of each product Industry group Geographic location Cyclicality Seasonality Operations (production processes, critical inputs/ components) Financial parameters (leverage, historical and future growth rates, margins, dividend yield) Markets Size (revenues, assets, market capitalization) Shareholder base

Spread Comparable Company Financial Data

Calculate Comparable Company Multiples

Customers Once the comparable companies are chosen, the implied value of the asset / company is calculated by multiplying its EBITDA, sales, operating income, operating cash flow, net income, book value and other key operating statistics by the respective comparable company multiples Financial data should be adjusted to exclude non-recurring items and should be adjusted on a pro forma basis for certain material corporate events such as recent mergers, stock splits, financings, etc.

Analyze Data and Identify Appropriate Valuation Range

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Valuation methodologies and mechanics

Assessment of comparable companies analysis
Advantages Issues

An effective indication of public market value since it utilizes public data that is readily available highly transparent Market efficiency ensures that trading values reflect industry trends, business risk, market growth, etc. Can be utilized in the context of a break-up analysis or divisional valuation Widely recognized methodology used by public equity analysts Projected information comes from third party sources (theoretically less biased compared to those used in a companys DCF) Information is also useful to determine debt capacity for a reorganized company

Reliability depends upon the level of and robustness of comparable company data (no two companies are truly identical) Does not include a control premium Accounting policies can differ from one company to another complicating comparability If certain Target and/or comparable company metrics are negative, then multiples are irrelevant Comparable projected data may not be available or be difficult to obtain/assess Cyclicality is not reflected based on historical data and, often, limited projected information Less reliable if comparable set does not trade robustly Often need to adjust for leverage, liquidity and control Many feel that the stock market is emotional and sometimes fluctuates irrationally

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Valuation methodologies and mechanics

Selected comparable companies analysis
Selected comparable companies ($m except per share data)
Shr. Price Company Celanese Corporation Eastman Chemical Company Georgia Gulf Corp. Kronos Worldwide Inc. Olin Corporation Rockwood Holdings Inc. Westlake Chemical Corporation Max Upper Quartile Mean Median Lower Quartile Min 2/22/2010 $31.22 60.27 15.54 15.40 17.26 24.52 21.16 % 52Week High 89.8% 97.1% 31.1% 88.2% 93.8% 94.8% 75.0% 97.1% 94.3% 81.4% 89.8% 81.6% 31.1% Market Cap.
(1)

Enterprise Value
(2)

TEV / Revenue LTM 1.2 x 1.0 x 0.6 x 0.9 x 0.8 x 1.4 x 0.6 x 1.4 x 1.1 x 0.9 x 0.9 x 0.7 x 0.6 x CYE2010 1.1 x 0.9 x n.a. 0.9 x 0.8 x 1.3 x 0.6 x 1.3 x 1.1 x 0.9 x 0.9 x 0.8 x 0.6 x

(3)

TEV / EBIT LTM 11.8 x 9.3 x n.a. n.a. 10.5 x 12.9 x 13.3 x 13.3 x 12.9 x 11.5 x 11.8 x 10.5 x 9.3 x CYE2010 10.2 x 7.9 x

(3)

TEV / EBITDA CYE2011 8.0 x 7.8 x n.a. n.a. 5.6 x n.a. 10.7 x 10.7 x 8.7 x 8.0 x 7.9 x 7.3 x 5.6 x LTM 6.4 x 6.1 x 8.1 x n.a. 6.2 x 7.0 x 6.7 x 8.1 x 6.9 x 6.7 x 6.5 x 6.2 x 6.1 x CYE2010 5.8 x 5.6 x n.a. n.a. 5.0 x 6.5 x 5.8 x 6.5 x 5.8 x 5.8 x 5.8 x 5.6 x 5.0 x

(3)

CYE2011 1.1 x 0.9 x n.a. 0.8 x 0.7 x 1.3 x 0.6 x 1.3 x 1.1 x 0.9 x 0.8 x 0.7 x 0.6 x

CYE2011 5.3 x 5.2 x n.a. n.a. 3.4 x n.a. 6.0 x 6.0 x 5.5 x 5.0 x 5.3 x 4.7 x 3.4 x

$4,624.5 4,387.4 524.0 754.6 1,360.0 1,850.3 1,396.1 $4,624.5 3,118.8 2,128.1 1,396.1 1,057.3 524.0

$6,767.7 5,265.8 1,257.2 1,240.9 1,310.3 4,367.9 1,666.7 $6,767.7 4,816.8 3,125.2 1,666.7 1,283.8 1,240.9

n.a. n.a. 8.0 x 11.2 x 10.4 x 11.2 x 10.4 x 9.5 x 10.2 x 8.0 x 7.9 x

Target Com pany EBITDA LTM EBITDA 2010E EBITDA Selected Range $200 $221 Mean 6.7x 5.8x Median 6.5x 5.8x Multiple Range Low 6.2x 5.6x
(4)

Im plied Range Low $1,240 $1,235 $1,225 High $1,380 $1,279 $1,325

High 6.9x 5.8x

Notes: (1) Based on fully-diluted shares outstanding (2) Market capitalization plus net debt (3) Based on Wall Street estimates (4) Based on upper and lower quartile

Comparable company analysis implies an Enterprise Value of approximately $1,225 million to $1,325 million
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Valuation methodologies and mechanics

Precedent transactions analysis
Steps Comments

Select Precedent Transaction Universe

Precedent Transactions Analysis is a common form of valuation that applies multiples derived from analyzing prices paid by purchasers for similar companies to the operating statistics of the company being valued (the Target) Precedent Transactions Analysis is a Relative Valuation because it is premised on the concept that one can assess the valuation of a Target based upon what third parties paid for similar assets The valuation technique is similar to a Comparable Companies Analysis, except one is analyzing what a purchaser actually paid in a previous acquisition, which incorporates the premium to gain control of the Target (the Control Premium)

Spread Precedent Transaction Financial Data

Traditionally, the implied control premium which a purchaser typically pays over and above the current market trading price (assuming a publicly traded company) is approximately 20-30% (although premiums vary to a wide degree) This premium reflects a market clearing price required to incentivize the previous owners to sell their shares and reflects the acquirors willingness to pay the seller for potential cost savings/synergies that can be generated in a combination as well as the strategic value of Target ownership Total Enterprise Value / Revenue Total Enterprise Value / EBITDA Total Equity Value / Net Income

Calculate Precedent Transaction Multiples

Generally, the precedent transaction data are expressed in the form of valuation multiples such as: Precedent transaction multiples are ratios of what an Acquiror paid for a Target in terms of Enterprise Value and Equity Value to the Targets own financial data

Just as in the Comparable Companies Analysis, standard multiples calculated tend to vary from company to company and from industry to industry
Analyze Data and Identify Appropriate Valuation Range

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Valuation methodologies and mechanics

Assessment of precedent transactions analysis
Advantages Issues

Potentially highly effective determinant of value when many comparable precedent transactions exist Incorporates payment of control premium Reflects value actually paid to acquire a comparable company Based on publicly available data often highly transparent Not highly dependent on assumptions and projections Realistic in the sense that past transactions were successfully completed at certain premiums Indicates a range of plausibility for premiums offered May demonstrate trends such as consolidation, foreign purchaser and financial sponsor activity, frequency of types of transactions, etc. Recent transactions can reflect supply and demand for assets and general investor sentiment toward an industry

Assumes previous acquirors appropriately valued target Works well only when relevant recent comparable precedent transactions exist Technique limited by the amount of data that is publicly available concerning transactions Public data on past transactions can be misleading, limited or nonexistent May not reflect recent information relative to Target industry prospects/competitive dynamics Market cycles and volatility may affect historical valuation levels Buyer synergies and transaction structure impact multiples paid for acquired companies May include price premium in strategic transactions Entirely based on historical results Often requires adjustments for leverage, liquidity, control, and unique value transfers Most unreliable method in times of high volatility Limited relevance for unprofitable companies

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Valuation methodologies and mechanics

Selected precedent transaction analysis
Precedent transactions (currencies in millions)
Implied
Date Annc. Feb-09 Jul-08 Jun-08 Mar-08 Feb-08 Oct-07 Aug-07 Jul-07 Jul-07 May-07 Feb-07 Nov-06 Sep-06 Apr-06 Feb-06 Oct-05 Mar-05 Feb-05 Target Nova Chemicals Corp. Hercules RAG-Stiftung / Evonik Industries Dyno Nobel Polynt S.p.A. Petkim Petrokimya Holdings Quattor Petroquimica Lyondell Chemical Huntsman Corp Pioneer Co Millennium Inorganic Chemicals Borsodchem Huntsman Corps (EU Polymer) Politeno Industria e Comercio SA Huntsman (US Butadiene/MTBE) Innovene Inc Great Lakes Chemical Corporation Basell Target Description Ethylene / polyethylene Specialty chemicals Industrial chemicals Explosive products Organic anhydrides & derivatives Petrochemicals Polyethylene / propylene Chemicals & plastics Chemical & inorganic products Chor-alkali and related products Chemical & inorganic products Acquirer Int'l Petroleum Investment Co. Ashland CVC Capital Partners Ltd. IncitecPivot InvestIndustrial Holdings Turcas Petrol Petroleo Brasileiro Basell NV Hexion Specialty Chemicals Olin Corp National Titanium Dioxide (Cristal) Enterprise Value $2,328 $3,333 $20,150 $3,015 437 $3,932 $2,358 $18,659 $10,186 $409 $1,300 $171,848 826 $205 $262 $10,700 $2,081 4,400 Enterprise Value Multiples Revenue EBITDA

LTM
0.32 1.48 0.89 2.16 0.76 2.32 1.59 0.71 0.95 0.80 0.97 0.71 0.30 0.40 0.40 0.50 1.30 0.50

CFY
N/A 1.44 N/A 2.04 0.84 2.34 N/A 0.74 0.97 N/A N/A 0.70 N/A N/A N/A N/A N/A 0.49

FY + 1
N/A 1.36 N/A 1.96 0.80 2.47 N/A 0.76 1.08 N/A N/A 0.61 N/A N/A N/A N/A N/A 0.42

LTM
9.8 8.7 6.9 13.9 6.8 24.5 10.8 7.2 7.9 4.4 N/A 4.7 4.7 5.0 6.1 6.2 13.6 6.2

CFY
N/A 8.1 N/A 11.2 7.9 19.9 N/A 6.5 8.3 N/A N/A 4.3 N/A N/A N/A N/A N/A 4.8

FY + 1
N/A 7.5 N/A 10.1 7.0 27.3 N/A 6.3 7.8 N/A N/A 4.1 N/A N/A N/A N/A N/A 4.6

Plastic raw materials & isocyanate First Chemical Holdings Chemical & inorganic products Polyethylene resins Chemical & inorganic products Petrochemicals & refining Specialty chemicals Chemicals and plastics Saudi Basic Industries Corp Braskem SA Texas Petrochemicals INEOS Enterprises Limited Chemtura Corporation Access Industries

Source: Public filings and news articles Note: Reflects financial results for last 12 months ended prior to announcement of transaction

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Valuation methodologies and mechanics

Selected precedent transaction analysis (contd)
Precedent transactions (currencies in millions)
Enterprise Value Multiples Revenue
(1)

EBITDA

LTM
Low Low er Quartile Mean Median Upper Quartile High 0.32x 0.77 1.06 0.92 1.35 2.16

CFY
0.74x 0.84 1.21 0.97 1.44 2.04

FY + 1
0.76x 0.80 1.19 1.08 1.36 1.96

LTM
4.4x 6.9 8.5 7.9 9.8 13.9

CFY
6.5x 7.9 8.4 8.1 8.3 11.2

FY + 1
6.3x 7.0 7.7 7.5 7.8 10.1

Target Com pany EBITDA LTM EBITDA 2010E EBITDA Selected Range $200 $221 Mean 8.5x 8.4x Median 7.9x 8.1x Multiple Range Low 6.9x 7.9x
(2)

Im plied Range Low $1,380 $1,742 $1,550 High $1,960 $1,830 $1,900

High 9.8x 8.3x

Precedent transaction analysis implies an Enterprise Value of approximately $1,550 million to $1,900 million
Source: Public filings and news articles Note: Reflects financial results for last 12 months ended prior to announcement of transaction (1) Due to the shift in industry multiples since prior to 2007 and dated nature of the transactions, Rothschild excluded transactions announced prior to 2007. The median of LTM EBITDA multiples pre-2007 is 6.8x. The median of LTM EBITDA multiples post-2007 is 7.9x. Petkim Petrokimya Holdings transaction is considered an outlier and is excluded (2) Based on upper and lower quartile

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Valuation methodologies and mechanics

Discounted cash flow analysis
Steps Comments

Review Target Historical/Projected Financial Results

Discounted Cash Flow (DCF) value represents the present value of unlevered cash flows to all providers of capital discounted at the weighted average cost of capital (WACC) Incorporates detailed assumptions about future cash flow generating ability and most closely represents the theoretical economic worth of the business (represents the Intrinsic Going-Concern Valuation)

Unlevered free cash flow is defined as EBITDA, less unlevered cash tax payments, less capital expenditures and changes in working capital DCF analysis is a theoretical valuation technique which values a company / asset as the discounted sum of its:
Calculate Projected Target Unlevered FCFs and Appropriate Discount Rate

Unlevered (before financial costs) free cash flows (this is not operating cash flow) over some forecast period (usually 5 years), and Terminal value at the end of the forecast period (usually Year 5) Trading Comps multiples of Year 5 cash flow, EBITDA, Sales, etc. M&A Comps multiples of Year 5 cash flow, EBITDA, Sales, etc. Perpetual Growth Rate (Gordon Growth Model) Perpetual value = (final year cash flow x (1 + growth rate)) / (discount rate growth rate)

Terminal values can be calculated in one of several ways:

Calculate the Terminal Value

The cash flow streams and terminal value are discounted at the companys appropriate weighted average cost of capital
Calculate the Enterprise Value

WACC = after-tax cost of debt x D / (D+E) + cost of equity x E / (D+E)

Because the accuracy of the DCF is highly dependent on a number of assumptions including financing performance, WACC assumptions and terminal value assumptions, valuations are expressed as a range of values determined by a range of values for key variables

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Valuation methodologies and mechanics

Assessment of DCF analysis
Advantages Provides rational economic framework for valuation Ties value to risk-adjusted cash generation versus other valuation techniques which may be influenced by accounting treatment or prevailing market influences Allows for detailed assessment of a Targets specific forecasted financial performance including sensitivities to financial results based upon different operating strategies and different economic assumptions Theoretically the most sound method depending on level of confidence in the projections and assumptions Not influenced by temperamental market conditions or noneconomic factors Allows future expected operating strategy to be incorporated into the model Issues The accuracy of DCFs is highly dependent upon multiple variables Target projections and resulting free cash flow (FCF) Terminal valuation methodology and assumptions Discount rate assumptions The terminal value often represents a significant percentage of total DCF value which results in the valuation being largely dependent upon terminal value assumptions vs. Target operating assumptions When utilizing the growing perpetuity method as part of a terminal valuation, a DCF valuation works most effectively when a Targets growth prospects are at or below the projected economys growth levels The perpetuity growth terminal value method assumes steady state (mature and sustainable) FCF May have limited relevance for early stage companies DCF does not consider debt obligations at the Target which may have prepayment penalties Forecasting future performance is inherently subjective Values can vary over a wide range and thus be of limited usefulness WACC does not necessarily account for projection risk and assumes constant capital structure

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Valuation methodologies and mechanics

Illustrative DCF analysis
DCF analysis ($ in millions)
Projection Period LTM Sales COGS SG&A EBITDA % Margin Depreciation & Amortization EBIT % Margin Cash Taxes EBIT (tax-effected) + Depreciation & Amortization - Capital Expenditures - Increase (Decrease) in Working Capital Unlevered Fre Cash Flow 37.5% $1,500 (985) (315) $200 13.3% (180) 20 1.3% (7) 12 180 (90) (15) $87 2010P $1,575 (1,024) (331) $221 14.0% (189) 32 2.0% (12) 20 189 (95) (16) $98 2011P $1,654 (1,067) (347) $240 14.5% (198) 41 2.5% (16) 26 198 (99) (17) $109 2012P $1,736 (1,111) (365) $260 15.0% (208) 52 3.0% (20) 33 208 (104) (17) $119 2013P $1,823 (1,167) (383) $273 15.0% (219) 55 3.0% (21) 34 219 (109) (18) $125 2014P $1,914 (1,206) (402) $306 16.0% (230) 77 4.0% (29) 48 230 (115) (19) $144

WACC 12.1% Mid-Year Convention Discount Factor (Mid-Year) Present Value of Unlevered Free Cash Flow s

0.5 0.944 $93

1.5 0.842 $91

2.5 0.751 $90

3.5 0.670 $84

4.5 0.597 $86

Exit EBITDA Multiple Terminal Value PV of TV PV of Unlevered Free Cash Flow s Illustrative Enterprise Value Implied EV / LTM EBITDA Terminal Value as a % of EV

7.0x $2,144 $1,210 444 $1,653 8.3x 73.2%

Grow th Rate in Perpetuity Terminal Value PV of TV PV of Unlevered Free Cash Flow s Illustrative Enterprise Value Implied EV / LTM EBITDA Terminal Value as a % of EV

3.0% $1,620 $914 444 $1,358 6.8x 67.3%

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Valuation methodologies and mechanics

Illustrative DCF analysis Sensitivities
Exit Multiple Method Illustrative Enterprise Value ($ in m illions) Exit EBITDA Multiple $1,653 13.0% 12.5% 12.0% 11.5% 11.0% 6.0x $1,433 1,460 1,488 1,516 1,546 6.5x $1,516 1,545 1,575 1,605 1,637 7.0x $1,599 1,630 1,662 1,694 1,727 7.5x $1,682 1,715 1,749 1,783 1,818 8.0x $1,765 1,800 1,835 1,872 1,909
$1,358 13.0% 12.5% 12.0% 11.5% 11.0% 2.0% $1,158 1,214 1,276 1,344 1,421 Perpetuity Method Illustrative Enterprise Value ($ in m illions) Grow th Rate in Perpetuity 2.5% $1,196 1,257 1,324 1,399 1,482 3.0% $1,238 1,304 1,377 1,460 1,552 3.5% $1,284 1,356 1,437 1,528 1,631 4.0% $1,336 1,415 1,504 1,605 1,721 Discount Rate

Discount Rate

Im plied EV / LTM EBITDA Sensitivity Table Exit EBITDA Multiple 13.0% 12.5% 12.0% 11.5% 11.0% 6.0x 7.2x 7.3 7.4 7.6 7.7 6.5x 7.6x 7.7 7.9 8.0 8.2 7.0x 8.0x 8.2 8.3 8.5 8.6 7.5x 8.4x 8.6 8.7 8.9 9.1 8.0x 8.8x 9.0 9.2 9.4 9.5 Discount Rate

Im plied EV / LTM EBITDA Sensitivity Table Grow th Rate in Perpetuity 13.0% 12.5% 12.0% 11.5% 11.0% 2.0% 5.8x 6.1 6.4 6.7 7.1 2.5% 6.0x 6.3 6.6 7.0 7.4 3.0% 6.2x 6.5 6.9 7.3 7.8 3.5% 6.4x 6.8 7.2 7.6 8.2 4.0% 6.7x 7.1 7.5 8.0 8.6 Discount Rate

DCF analysis implies an Enterprise Value of approximately $1,375 million to $1,650 million
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Valuation methodologies and mechanics

Illustrative DCF analysis WACC components
Illustrative Weighted Average Cost of Capital WACC Component Market based: Risk Free Rate Unlevered Comparable Company Beta US Market Risk Premium 3.95% 3.70% 1.20 7.20% 6.50% Explanation of Assumption 10 Year US Treasury Average (mean) unlevered Beta for peer group Implied Equity Risk Premium per Ibbotson (2004) (2009)

Firm specific: Debt / Equity Levered Beta Tax Rate Cost of Equity (Ke) Cost of Debt (Kd) Cost of Debt After-Tax (Kd AT) Weighting of Debt Weighting of Equity WACC Captial Structure Sensitivities Debt / Total Capital 0.00% 10.00% 20.00% 30.00% 40.00% 50.00%
1 Debt includes preferred stock
1

25.00% 1.39 38.00% 13.93% 8.00% 4.96% 20.00% 80.00% 12.13%

Target Debt to Equity Ratio Formula: B-levered = B-unlevered * (1+ (1- tax rate)*(D/E)) Based on Marginal Tax Rate Formula: Ke = risk free rate + Levered Beta x (Market Risk Premium) Firm's current avg. rate or based on recent comparable financing Formula: (Pre-Tax Cost of Debt) * (1 - tax rate) Based on Debt to Equity Ratio Based on Debt to Equity Ratio

Debt / Equity 0.0% 11.1% 25.0% 42.9% 66.7% 100.0%

Levered Beta 1.20 1.28 1.39 1.52 1.70 1.94

Cost of Equity 12.6% 13.2% 13.9% 14.9% 16.2% 17.9%

Illustrative Cost of Debt 7.00% 7.50% 8.00% 8.50% 9.00% 9.50%

WACC 12.59% 12.33% 12.13% 12.00% 11.93% 11.92%

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Valuation methodologies and mechanics

Resulting enterprise valuation range
Valuation and weighting ($m)
Methodology Comparable Companies Analysis Precedent Transactions Analysis Discounted Cash Flow Analysis Range of Total Enterprise Value Low $1,225 1,550 1,375 $1,380 Mid $1,275 1,725 1,513 $1,500 High $1,325 1,900 1,650 $1,630 Weighting 33.3% 33.3% 33.3% 100.0%

Selected valuation range ($m)

Comp. Co.

$1,225

$1,325

Prec. Tran.

$1,550

$1,900

DCF

$1,375

$1,650

Range

$1,380

$1,630

$1,000 $1,100 $1,200 $1,300 $1,400 $1,500 $1,600 $1,700 $1,800 $1,900 $2,000
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Valuation methodologies and mechanics

Total Value versus Enterprise Value
The total value available to stakeholders in a restructuring is equal to the value of the operating assets or enterprise plus the value of all non-operating assets held by the Debtor

The three traditional valuation methodologies calculate the Enterprise Value or going-concern value of the business Ultimately, each method should be use d in conjunction and weighted according to the appraisers own judgment Valuation is an exercise in judgment that requires a substantial understanding of the Debtors business plan and the shortcomings and flaws of all three methods The result is the value or cash flows generated by the operating assets of the Debtor However, the value available to creditors and other stakeholders in a reorganization is the Total Value of the Debtor which may or may not equal the Enterprise Value The Total Value of the Debtor equals the Enterprise Value of a Debtor plus all value or cash flows generated by non-operating assets Non-operating assets can include: Excess cash Net operating loss carry-forwards / tax refunds Assets held for sale Non-operating notes receivables Other non-operating assets Litigation claims

Remember: Valuation employs fundamental tools but depends greatly on the investment bankers judgment
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Valuation methodologies and mechanics

Alternative methodologies
Alternative methodologies include: Fixed asset appraisals Use of other multiples / valuation metrics Trading prices of Debtors public securities A benchmark that many market participants use when valuing a company is market valuation of the Debtors publicly traded securities This method requires some insight into the Debtors eventual Plan of Reorganization and its total claims pool Bonds trade on an assumption in the market on a rate of return and expected time of emergence from bankruptcy To calculate a Debtors market valuation one must make assumptions for several factors: Administrative / priority claims Secured claims Unsecured claims Expected cash at emergence The treatment of the different types of claims are by no means standard; stakeholder recoveries vary based on the facts and circumstances of each case The secured claims plus administrative and priority claims less cash effectively constitute, in most cases, the net debt of the reorganized firm Depending on a companys received debt capacity, unsecured claimants are generally the recipient of any remaining debt capacity and the new equity of the reorganized firm As a result, identifying the current trading price of the secured debt plus the trading price of the unsecured bonds multiplied by the total unsecured claims pool approximates the total enterprise value of the firm Raises several methodological questions including whether: Trading values of junior securities should value more senior claims at par To add the trading value of equity that may be out of the money Analysis makes implicit assumptions about treatment in Plan of Reorganization

Due to various market dislocations, market trading value is often not the best indicator of value for a bankrupt company
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Valuation in a restructuring
Contested valuations Introduction
One of the central components of a chapter 11 case is the enterprise value ascribed to the reorganized entity (the Reorganization Value or Plan Value) The Reorganization Value determines the size of the pie to be distributed to constituents and is therefore of paramount importance Considering allocation of value is a zero sum process because variance in the Reorganization Value will inherently transfer value from one party to another The Plan Value is determined by the Debtors and their advisors and disclosed in the Debtors Plan of Reorganization solicitation document (the Disclosure Statement) Threshold for approval is two-thirds in dollar amount and one-half in number Parties with standing have a voice in court and can object to the Plan Value When a party with standing objects to the valuation set forth in the Disclosure Statement, the Court will have a hearing to determine valuation considered a contested valuation or valuation fight

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Valuation in a restructuring
Hierarchy of claims and interests
Value flows through the waterfall:

The asset (the business, cash, etc.)

The government (taxes owed) Debtor-in-possession financing

Value flows downstream

Secured debt (mortgages, liens, etc.) Administrative claims (professional fees, etc.) Unsecured debt and other unsecured obligations Subordinated claims Preferred equity Common equity

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Valuation in a restructuring
Contested valuations Motivations of various constituents

Valuation fights are generally driven by the fact that constituents in chapter 11 cases have different motivations vis-vis Plan Value

Typically most concerned with getting paid out in cash / refinanced DIP Lenders May have bias towards low valuation in certain circumstances

Paid to the extent of the collaterals value. Must be paid in cash or debt, not equity (unless otherwise agreed to) Pre-Petition Secured Lenders Inability to cram up with equity

Typically want to assert a relatively low valuation Potential to equitize claim

May not want valuation to be too low as this could result in being under-collateralized Risk of losing secured rights on portion of claim deemed by the court to be unsecured

All of equal rank unless expressly subordinated. Claim can be paid in any current (cash, debt and equity) Unsecured Creditors Typically want to assert a valuation higher than that asserted by DIP lenders and pre-petition secured lenders May not want valuation to be too high as this could mean recovery to common / preferred equity holders Recovery to old equity usually means less or no equity to unsecured creditors Typically assert the highest valuation in order to position themselves as much in the money as possible

Old Equity

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Case study

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Case study
Overview
Company description
H. Miller Chemical Corporation (H. Miller or the Company) is in the commodity chemical business and produces large quantities of ammonia LTM sales of $1,050 million and EBITDA of $125 million Due to the robust economic growth, the Company has grown and plans to expand current production capabilities due to outlook for the business and price increases for ammonia

Characteristics of the business

In the commodity chemical business, chemicals are produced on a massive scale using relatively simple molecules at the lowest possible cost and sold in bulk Large scale needed to stay competitive Very capital intensive industry Volatile performance and highly dependent on the business cycle 10% - 15% EBITDA margins during normal operating environments (mid single digits after capex) Public trading multiples of comparable companies ranged from 6x 9x; the Companys multiple, prior to transaction, was 7.2x

In January 2007, Poor Allocator Investments (Poor Allocator), a large private equity firm, takes H. Miller private in a transaction valued at $1 billion
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Deal details
The company finances the acquisition with $200 million of equity, $350 million of bank debt and $450 million of bonds
The deal is predicated on LTM EBITDA of $125 million and projected 2007 EBITDA of $138 million

Prior to deal Capital structure ($ in millions)

Am ount Multiples Bank debt Equity (1) TEV $100 800 $900 0.8 x 7.2 x

Post deal Capital structure ($ in millions)

Am ount Multiples Maturity Bank debt Bonds Equity TEV $350 450 200 $1,000 2.8 x Jan. 2009 6.4 x Jan. 2012 8.0 x
Poor Allocator offered a 12.5% takeover premium above current market capitalization of $800 million + $100 million of debt

Rate 5.0% 8.0%

Purchase price multiples ($ in millions) Purchase price 2006A EBITDA

$1,000 = 125

= 8.0x

Purchase price 2007E EBITDA

$1,000 = 138

= 7.25x

(1) Market value

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Projections
At the time of the acquisition, Poor Allocator views the business as having a great future. They believe that the market does not fully understand the long-term growth story of China and the robust growth of developing economies which they expect to increase revenue and earnings more rapidly than the Company anticipates. They also believe that they can take 2% - 3% of the costs out of the business over the next 3 years
Poor Allocators projections for H. Miller and resulting IRR ($ in millions)
2006A Revenue EBITDA % margin Capex % of sales EBITDA - Capex Interest expense (1) Interest coverage IRR $1,050 125 11.9% 74 7.0% 52 2007 $1,150 138 12.0% 81 7.0% 58 54 1.1x 54% 2008 $1,275 163 12.8% 89 7.0% 74 54 1.4x 63% 2009 $1,400 189 13.5% 98 7.0% 91 54 1.7x 57% 2010 $1,550 220 14.2% 109 7.0% 112 54 2.1x 52% 2011 $1,700 255 15.0% 119 7.0% 136 54 2.5x 48% CAGR 10.1% 15.3%

Notice that interest coverage is 1.1x forward year projections

(2)

Poor Allocator closes the transaction and pops champagne. The Miller family that owned the business for the last 50 years (and knows everything about this business) does the same Poor Allocator, based on their projections and assuming the same exit multiple as the purchase price, believes the investment will generate a significant IRR for the fund
(1) Interest expense assumes no debt paydown (2) Interest coverage calculated as the (EBITDA-Capex)/Cash Interest

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Comparable company analysis
Trading comps ($ in millions)
Share Com pany Resnick Partners, Inc. Moneymaker Company Jindal's Sw indal Co. Get Rich Quick Incorporated Mitch Corp. A+ Chemicals Rothschild Commodity Harvey Biz Co. Price $56.96 13.10 10.00 14.08 113.69 81.04 11.97 8.64 Market Value $300 426 730 680 282 236 311 385 Debt $124 120 376 181 120 100 137 127 Preferred Equity -----50 --Cash ($45) (55) (295) (150) (122) (80) (40) (50) Enterprise Value $379 491 811 711 280 306 408 462 Low Mean Median High EV / Revenue LTM 1.0x 0.8 0.5 0.6 0.8 1.1 1.2 0.9 0.5x 0.9 0.9 1.2 2007 0.9x 0.7 0.4 0.5 0.6 1.0 0.5 0.8 0.4x 0.7 0.7 1.0 EV / EBITDA LTM 8.2x 7.8 6.0 6.2 9.0 8.5 7.4 7.6 6.0x 7.6 7.7 9.0 2007 7.4x 7.0 5.3 5.4 8.3 7.7 6.8 6.9 5.3x 6.9 7.0 8.3

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Case study
Developments
1

For the first half of 2007, the Companys results meet its plan. Chemical and market indices trade up as the business continues to perform well. The bank debt and bonds continue to trade near par. EBITDA outperforms 1H 2007 by $2 million
Pricing chart Company securities vs. market indices
100 80

60 40

20 -Dec-06

Jun-07

Dec-07

Jun-08 Bonds due 2012

Dec-08 S&P 500

Jun-09 S&P Chemical Index

Dec-09

Bank Debt due 2009

FY ended Dec-06 Plan Actual Variance LTM EBITDA multiples Median $125 125 --

1H ended Jun-07 $70 72 $2

2H ended Dec-07 $68

1H ended Jun-08 $75

2H ended Dec-08 $88

1H ended Jun-09 $85

2H ended Dec-09 $104

7.7x

7.8x

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Case study
Developments (contd)
2

Beginning in mid 2007, performance begins to falter. The housing and debt markets are starting to show cracks and the Companys results are slightly below plan. Managements view is that the shortfall is just a short-term economic hiccup. Poor Allocator remains pleased with their investment. EBITDA underperforms 2H 2007 by $10 million
Pricing chart Company securities vs. market indices
100 80

60

40 20

-Dec-06

Jun-07

Dec-07

Jun-08 Bonds due 2012

Dec-08 S&P 500

Jun-09 S&P Chemical Index

Dec-09

Bank Debt due 2009

FY ended Dec-06 Plan Actual Variance LTM EBITDA multiples Median $125 125 --

1H ended Jun-07 $70 72 $2

2H ended Dec-07 $68 58 ($10)

1H ended Jun-08 $75

2H ended Dec-08 $88

1H ended Jun-09 $105

2H ended Dec-09 $84

7.7x

7.8x

7.4x

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Case study
Developments (contd)
3

In the first half of 2008, the Company becomes more concerned as the subprime crisis spreads across the globe. Demand for product falls as do market prices. The outlook is highly uncertain. The Company determines the situation is not a short-term phenomenon and starts to defer capex spending to maximize cash flow. EBITDA underperforms 1H 2008 by $25 million
Pricing chart Company securities vs. market indices
100

80

60 40

20

-Dec-06

Jun-07

Dec-07

Jun-08 Bonds due 2012

Dec-08 S&P 500

Jun-09 S&P Chemical Index

Dec-09

Bank Debt due 2009

FY ended Dec-06 Plan Actual Variance LTM EBITDA multiples Median $125 125 -7.7x

1H ended Jun-07 $70 72 $2 7.8x

2H ended Dec-07 $68 58 ($10) 7.4x

1H ended Jun-08 $75 50 ($25) 6.5x

2H ended Dec-08 $88

1H ended Jun-09 $105

2H ended Dec-09 $84

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Case study
Developments (contd)
4

The second half of 2008 is a disaster. With the failure of Lehman, the financial markets seize and global demand comes to a halt. The Companys profitability falls into a tailspin and its bank debt and bonds trade at discounts to par value. The Company retains Weil Gotshal and Rothschild to review strategic alternatives. EBITDA underperforms 2H 2008 by $70 million
Pricing chart Company securities vs. market indices
100 80 60 40 20 -Dec-06

Jun-07

Dec-07

Jun-08 Bonds due 2012

Dec-08 S&P 500

Jun-09 S&P Chemical Index

Dec-09

Bank Debt due 2009

FY ended Dec-06 Plan Actual Variance LTM EBITDA multiples Median $125 125 --

1H ended Jun-07 $70 72 $2

2H ended Dec-07 $68 58 ($10)

1H ended Jun-08 $75 50 ($25)

2H ended Dec-08 $88 18 ($70)

1H ended Jun-09 $105

2H ended Dec-09 $84

7.7x

7.8x

7.4x

6.5x

5.5x

5.5x 2008 EBITDA of $68 implies a valuation of $374 million. Remember that Poor Allocator purchased the Company for $1 billion 2 years prior

The Company files for bankruptcy one day prior to the January 15, 2009 maturity date
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Case study
The business plan
The Company creates a new business plan. The new projections are compared to the prior projections below:
New projections ($ in millions)
2008A Revenue EBITDA % margin Capex % of sales $755 68 9.0% 23 3.0% 2009 $705 60 8.5% 28 4.0% 2010 $800 80 10.0% 40 5.0% 2011 $910 100 11.0% 55 6.0% 2012 $1,000 120 12.0% 60 6.0% 2013 $1,070 150 14.0% 64 6.0% CAGR 11.0% 25.7%

Prior projections ($ in millions)

2008 Revenue EBITDA % margin Capex % of sales $1,275 163 12.8% 89 7.0% 2009 $1,400 189 13.5% 98 7.0% 2010 $1,550 220 14.2% 109 7.0% 2011 $1,700 255 15.0% 119 7.0%

Variance ($ in millions)
2008 Revenue EBITDA % margin Capex % of sales ($520) (95) (3.8%) (67) (4.0%) 2009 ($695) (129) (5.0%) (70) (3.0%) 2010 ($750) (140) (4.2%) (69) (2.0%) 2011 ($790) (155) (4.0%) (64) (1.0%)

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Case study
The business plan
At the time of the reforecast, comparable companies were trading in the 6.0x range. The Company had approximately $800 million in debt
Trading comps ($ in millions)
Share Com pany Resnick Partners, Inc. Moneymaker Company Jindal's Sw indal Co. Get Rich Quick Incorporated Mitch Corp. A+ Chemicals Rothschild Commodity Harvey Biz Co. Price $35.77 8.23 6.28 8.84 71.40 50.90 7.52 5.43 Market Value $188 268 458 427 177 148 195 242 Enterprise Value $384 453 749 614 320 348 407 437 Low Mean Median High EV / Rev. LTM 0.8x 0.6 0.3 0.4 0.6 0.9 1.0 0.7 0.3x 0.7 0.7 1.0 EV / EBITDA LTM 6.6x 6.2 4.4 4.6 7.4 6.9 5.8 6.0 4.4x 6.0 6.1 7.4

Pre-petition capital structure ($ in millions)

Trading Am ount Bank debt (secured) Bonds (unsecured) Total $350 450 $800 Price 85% 15% Market Value $298 68 $365 Im plied TEV
(1)

Leverage 4.4x 6.1x

(2)

$298 418

(1) Assumes bank debt will get par before bonds get recovery (2) Calculated off 2008A EBITDA of $68 million

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Valuation range considerations
Below is an illustrative valuation range that constituencies could ascribe to the Debtor

Valuation range ($ in millions)

5.0x $500 450 400 350 300 250 200 5.5x $550 495 440 385 330 275 220 6.0x $600 540 480 420 360 300 240 EBITDA Multiple 6.5x 7.0x $650 $700 585 630 520 560 455 490 390 420 325 350 260 280 7.5x $750 675 600 525 450 375 300 8.0x $800 720 640 560 480 400 320 8.5x $850 765 680 595 510 425 340 9.0x $900 810 720 630 540 450 360

$100 $90 $80 $70 $60 $50 $40

Equity

EBITDA

Banks Bonds

The Companys investment bankers view of enterprise value for H. Miller is $330 million to $560 million
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Valuation comparison
Company valuation ($ in millions)
Methodology Comparable Companies Analysis Precedent Transactions Analysis Discounted Cash Flow Analysis Range of Total Enterprise Value Low $330.0 460.0 365.0 $360.0 Mid $360.0 540.0 407.5 $400.0 High $390.0 620.0 450.0 $440.0 Weighting 45.0% 10.0% 45.0% 100.0%

Unsecured creditors valuation ($ in millions)

Methodology Comparable Companies Analysis Precedent Transactions Analysis Discounted Cash Flow Analysis Range of Total Enterprise Value Low 400.0 520.0 575.0 $500.0 Mid 455.0 610.0 662.5 $575.0 High 510.0 700.0 750.0 $655.0 Weighting 33.3% 33.3% 33.3% 100.0%

Comp. Co.

$330

$390

Comp. Co.

$400

$510

Prec. Tran.

$460

$620

Prec. Tran.

$520

$700

DCF

$365

$450

DCF

$575

$750

Range

$360

$440

Range

$500

$655

$0

$150

$300

$450

$600

$750

$0

$150

$300

$450

$600

$750

The banks endorse the Companys valuation because it provides them with the vast majority of the value. The unsecured creditors object and argue for a higher valuation
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Assumptions
Comparison of assumptions ($ in millions) Company Unsecured Creditors
Unsecured creditors believe Companys EBITDA projection is too low

2009 EBITDA estimate

$60 million

$70 million

Comparable companies multiple

6.0x
Company provides little weight to precedents prior to the financial collapse, arguing they have limited use as an appropriate indication of current value

6.5x
Unsecured creditors argue that two of the comps selected by the Companys financial advisor are not appropriate because they are larger than H. Miller (Jindals and Get Rich)

Precedent transaction multiple

9.0x

9.9x

DCF assumption WACC 12%

10%
Unsecured creditors included 4 additional transactions (which happened to have higher multiples) that they believed to be comparable

Perpetuity growth rate

2%

3%

As one would expect, the Company and unsecured creditors propose valuations with substantially different assumptions
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Proposed Plans
New exit financing raised by third party

Company (bank endorsed) plan ($ in millions)

Bank debt Equity Plan TEV $150 250 $400

Value distributable to stakeholders

Total Claim Banks Bonds (1) Old equity Total $350 450 N/A $800

Cas h $150 --$150

De bt -----

Equity $200 50 -$250

Total V alue $350 50 -$400

Re cove r y % of claim 100.0% 11.1% N/A 50.0%

Pr o for m a e quity ow ne r s hip 80.0% 20.0% -100.0%

Note that financing parties will only finance on historical results (vs. projections) at current market senior debt leverage multiples Cyclical companies should have less leverage

New exit financing raised by third party

Unsecured creditors competing plan ($ in millions)

Bank debt Equity Plan TEV $200 400 $600 Pro form a equity ow nership 37.5% 62.5% -100.0%
Financing commitment was obtained with support from distress funds who own the bonds Leverage appears reasonable at 3.3x 2009E EBITDA of $60 million (Companys view) or 2.9x 2009E EBITDA of $70 million (Bonds view)

Value distributable to stakeholders

Total Claim Banks Bonds (1) Old equity Total $350 450 N/A $800

Cash $200 --$200

Debt -----

Equity $150 250 -$400

Total Value $350 250 -$600

Recovery % of claim 100.0% 55.6% N/A 75.0%

Remember the waterfall!

(1) Analysis assumes small amount of trade claims remain unimpaired

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Case study
Value distribution
Trading value range prior to Plan Plan TEV

Company (Bank endorsed) plan ($ in millions)

TEV Value to Bank Cash Debt Equity (80%) Total - Banks % recovery to banks Value to Bonds Cash Debt Equity (20%) Total - Bonds % recovery to bonds $300 $150 -120 $270 77.1% --30 $30 6.7% $350 $150 -160 $310 88.6% --40 $40 8.9% $400 $150 -200 $350 100.0% --50 $50 11.1% $450 $150 -240 $390 111.4% --60 $60 13.3% $500 $150 -280 $430 122.9% --70 $70 15.6% $550 $150 -320 $470 134.3% --80 $80 17.8% $600 $150 -360 $510 145.7% --90 $90 20.0%

Unsecured creditors competing plan ($ in millions)

TEV Value to Bank Cash Debt Equity (38%) Total - Banks % recovery to banks Value to Bonds Cash Debt Equity (63%) Total - Bonds % recovery to bonds $300 $200 -38 $238 67.9% --63 $63 13.9% $350 $200 -56 $256 73.2% --94 $94 20.8% $400 $200 -75 $275 78.6% --125 $125 27.8% $450 $200 -94 $294 83.9% --156 $156 34.7% $500 $200 -113 $313 89.3% --188 $188 41.7% $550 $200 -131 $331 94.6% --219 $219 48.6% $600 $200 -150 $350 100.0% --250 $250 55.6%

Potential recovery to banks under each plan as TEV rises Potential recovery to bonds under each plan as TEV rises

How a stakeholder structures its recovery is often dependent on its risk tolerance and assessment of the Companys prospects
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Case study
Strategy for old equity
Given valuation range that would put old equity in the money is so much higher than reasonable valuation range ($800 million assuming no other claims), Poor Allocator may consider the following alternatives to retain a stake in the Company:
Hire advisors and lawyers that can adequately highlight the cyclical nature of the business to the courts Argue to obtain warrants so that they receive some portion of the upside Holding up the process (i.e. nuisance value) may provide them with consideration If Poor Allocator truly believes in the upside story, they may consider providing new equity at some agreed valuation Cash may be required to take banks out at par and fund an exit Junior securities could receive PIK interest until cash flow increases to support higher debt
Poor Allocator sponsored plan ($ in millions)
Bank debt Unsecured PIK debt Equity Plan TEV Total Claim Banks Bonds Old equity Poor Alloc. Total $350 450 N/A N/A $800 $200 150 400 $750 Total Value $350 400 --$750 Recovery % of claim 100.0% 88.9% N/A N/A 93.8% Pro form a equity ow nership -62.5% 37.5% -100.0%

Cash $350 -(150) -$200

Debt -150 --$150

Equity -250 150 -$400

Poor Allocator paid $150 million to purchase 37.5% of the equity at a $750 million TEV another highly leveraged transaction
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