i n v e s t m e n t b a n k i n g presentation to the alliance

I N V E S T M E N T B A N K I N G

Presentation to The Alliance

2

M O R G A N K E E G A N


RebsamenInsuranceRebsamenInsurance

• Commercial and retail banking

• Approximately 1,400 offices

• Geographic footprint in the South, Southeast, Texas and parts of Midwest

• Commercial and personal insurance broker

• Ranks among 50 largest insurance brokers in the United States

• Founded 1928

• Listed on New York Stock Exchange; symbol RF

• Market capitalization in excess of $15 billion

• Included in S&P500, Fortune 500 and Forbes 500

• Over $80 billion in assets

• Among 15 largest financial services providers in the nation

• Approximately 16,250 employees

Full-Service Investment Bank:

• Equity Capital Markets

• Fixed Income Capital Markets

• Private Client Services

• Investment Advisory

Morgan Keegan Quick Facts:

• Headquarters: Memphis, TN

• Offices: Over 200 including New York, Chicago, Atlanta, Boston and many cities located in the South, Southeast, Texas, and parts of the Midwest.

• Employees: Approximately 2,400

• Registered Reps: Approximately 1,000

• Wholly-owned subsidiary of Regions Financial Corp.

INTRODUCTION

3



SECTION 1 Current Market Conditions Tab A

SECTION 2 Strategic Alternatives Tab B

SECTION 3 Recapitalization Overview Tab C

SECTION 4 Process Considerations Tab D

LIQUIDITY AND EXIT STRATEGIES

4



CURRENT MARKET CONDITIONS

SECTION 1

5



■ Equity sponsor fundraising reached unprecedented levels in 2005- 159 firms raised new funds- $86.2 in total buyout/mezzanine

capital raised

■ 67% increase over 2004- Q4 2005 was the largest single

quarter raise in history

■ Supply is significantly outstripping demand- Many firms turning away investors- Excess capital eventually finding its

way into funds, creating excess liquidity

- Supporting near-high valuation multiples

RECORD PRIVATE EQUITY FUNDRAISING

Source: Thomson Venture Economics

Historical LBO/Mezzanine Fundraising

120 87 92 129 159 49 58 49 36

$46.8

$26.0$30.1

$51.6

$13.8

$24.3

$18.1

$30.1

$86.2

0

20

40

60

80

100

120

140

160

180

2001 2002 2003 2004 2005 Q1 '05 Q2 '05 Q3 '05 Q4 '05

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100Funds $

6



■ Sponsored transaction volume experiencing record growth:

- 23% increase from 2004 to 2005

- 50% CAGR from 2001 to 2005

■ Supported by favorable leverage environment

■ $125 billion in equity capital yet to be invested

■ 2006 deal flow continues at a record pace

- Record amount of funds raised in 2005

- $30 billion in loans floated in Q1 2006 to finance LBOs, highest quarterly level in history

RECORD SPONSOR TRANSACTION VOLUME

Source: S&P LCD

$15 $15 $22 $25 $24$10 $10 $15

$30$48

$41$57

$86$103

$68

$32 $36

$76

$145

$167

$0B

$50B

$100B

$150B

$200B

$250B

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Equity Other Sources

U.S. Sponsored Volume For the Years Ended 1996 – 2005

7



■ Purchase multiples remain at near-high levels

- Sponsor-to-sponsor transactions continue to generate premium valuations

- Approximate 10% premium to all other LBO transactions

■ Year-to-date transaction experience supports the thesis of continued premium valuations

Source: S&P LCD

LBO TransactionsFor the Years Ended 2002 – 2005

7.2 x 7.2 x

7.5 x

8.2 x

6.76.8

7.2

8.1

6.5 x

7.0 x

7.5 x

8.0 x

8.5 x

2002 2003 2004 2005

Me

an

Mu

ltip

le

Sponsor-to-Sponsor All Other

PREMIUM VALUATION MULTIPLES

Source: S&P LCD

Mean Historical Multiples of Enterprise Value to Trailing EBITDALeveraged Transactions < $250M

For the Years Ended 2001 – 2005 and LTM 3/2006

5.8 x 5.8 x

6.3 x

6.6 x

7.5 x

7.1 x

4.8 x

5.3 x

5.8 x

6.3 x

6.8 x

7.3 x

7.8 x

2001 2002 2003 2004 2005 LTM 3-06

Me

an

Mu

ltip

le

8



2.7 x3.0 x 2.8 x

3.2 x3.8 x

3.5 x

0.9 x

0.9 x 1.3 x

1.5 x

1.5 x

1.3 x

0.0 x

1.0 x

2.0 x

3.0 x

4.0 x

5.0 x

6.0 x

2001 2002 2003 2004 2005 YTD

To

tal

Deb

t/E

BIT

DA

Senior Debt/EBITDA Subordinated Debt/EBITDA

Average Debt Multiples for Highly Leveraged Loans

For the Years Ended 2001 – 2005 and YTD 2006

3.9 x4.1 x

4.7 x

3.6 x

5.3 x

3.463.75 3.86

4.36

4.8

4.354.07

4.43 4.47

5.29

5.8

5.15

0.0 x

1.0 x

2.0 x

3.0 x

4.0 x

5.0 x

6.0 x

2001 2002 2003 2004 2005 YTD

Mea

n M

ult

iple

<$500M Transaction Value >$500M Transaction Value

4.8x

Source: S&P LCD

■ In general, lenders remain aggressive

- Despite numerous Fed rate hikes, continued strong demand for acquisition financing has resulted in attractive leverage multiples

- Exceptional credits and credits with equity sponsors are finding total leverage of up to 5.5x EBITDA

- Second-lien market remains a viable and cost-effective alternative to traditional subordinated debt financing

ACCOMMODATING LEVERAGED LOAN MARKET

9



MARKET PERFORMANCE

Relative Performance HistoryJanuary 1, 2003 – March 31, 2006

80

90

100

110

120

130

140

150

160

170

180

190

1/1/

03

2/1/

03

3/1/

03

4/1/

03

5/1/

03

6/1/

03

7/1/

03

8/1/

03

9/1/

03

10/1

/03

11/1

/03

12/1

/03

1/1/

04

2/1/

04

3/1/

04

4/1/

04

5/1/

04

6/1/

04

7/1/

04

8/1/

04

9/1/

04

10/1

/04

11/1

/04

12/1

/04

1/1/

05

2/1/

05

3/1/

05

4/1/

05

5/1/

05

6/1/

05

7/1/

05

8/1/

05

9/1/

05

10/1

/05

11/1

/05

12/1

/05

1/1/

06

2/1/

06

3/1/

06

4/1/

06

DJIA Nasdaq S&P 500

DJIANasdaqS&P 500

■ Healthy general economic conditions and investor appetite continue to support major indices:

- Dow Jones Industrial Average: +33%

- S&P 500: +47%

- Nasdaq: +76%

10



Number of All Domestic IPOsYearly Statistics

CY 2001– YTD March 2006

Dollar Volume of All Domestic IPOsYearly Statistics

CY 2001 – YTD March 2006

■ Currently there are over 80 IPOs in backlog.

■ The current deals in backlog are expected to raise over $15 billion (includes over-allotment).

IPO MARKET UPDATE

92 86 83

254

224

47

0

50

100

150

200

250

300

2001 2002 2003 2004 2005 YTD 2006

$39.5

$25.9

$14.2

$47.2

$36.4

$7.6

$0

$10

$20

$30

$40

$50

2001 2002 2003 2004 2005 YTD 2006

(in b

illio

ns)

11



Median Post-Deal Market CapitalizationCY 1996 – CY 2005

IPO MARKET UPDATE

$90 $107 $133

$277

$391

$673

$330 $354 $364$306

$0

$100

$200

$300

$400

$500

$600

$700

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

(in m

illio

ns)

■ Market remains receptive to small-cap IPOs for companies that are:

- Profitable

- Have exhibited historical growth

- Viable near-term growth opportunities

■ Financial sponsor-backed offerings draw increased investor interest

- Business viewed as “institutionalized”

- Sponsors typically retain meaningful equity position post-IPO

■ Despite investor’s appetite for quality, small-cap IPOs, median post deal market capitalization remains above $300 million:

- Institutional investors limited in their ability to invest in small or micro-cap companies

- Small-cap companies commanding similar or premium valuations to those of the public markets through alternative exit strategies

Registered IPO Volume2004 - Present

$5.0$2.0

$3.8$5.9 $7.0

$3.8$6.6

$2.9 $4.0$1.0

$4.0$8.5

$10.2

$12.2

$3.9

$5.2

$4.5

$6.1$6.6

$1.0$0

$5

$10

$15

$20

Q1 '04 Q2 '04 Q3 '04 Q4 '04 Q1 '05 Q2 '05 Q3 '05 Q4 '05 Q1 '06 Q2 '06

(in b

illio

ns)

SponsorNon-Sponsor

12



STRATEGIC ALTERNATIVES

SECTION 2

13



STRATEGIC ISSUES

MarketFactors /Timing

OperationalIssues

ManagementIncentives &Ownership

RetainingOperating

Control Desire toRemainInvolved

CapExNeeds

Partial Liquidity toRemaining

Owners

Exit for Minority

Shareholders

FamilySuccession

Issues

GrowthCapital

StrategicIssues

14



STRATEGIC ALTERNATIVES

IMMEDIATE LIQUITY

CO

NTIN

UED

OP

ER

ATIN

G C

ON

TR

OL

STATUS QUO

IPO

RECAP

SELL/MERGE

• Limited ability to monetize equity• Total operating control

• Significant partial liquidity if desired• Retained operating control with increased governance,

regulation

• Partial liquidity based on client’s desires

• Retained operating control with increased board governance

• Regular interaction with equity sponsor

• Complete liquidity• Limited ongoing operating

control, if any

15



RECAPITALIZATION OVERVIEW

SECTION 3

16



PRIVATE EQUITY REQUIREMENTS

■ Management strength and depth

■ Growth opportunities:

- Organic

- External

■ Low customer concentration

■ Solid cash flows

■ Attractive, near-term return on capital investment

■ Viable exit opportunities

17



• Specialty distribution business

• Trailing twelve month sales of $100 million; EBITDA of $20 million; Company has $30 million of debt

• 100% owned by founder

• Founder seeking liquidity and diversification

• Company agrees to consummate recapitalization with Equity Partners Co.

• Valuation agreed to as follows:

SCENARIO:

CASE STUDY: Acme Distribution

(in thousands)

TTM EBITDA 20,000$

EBITDA Multiple 8.0 x

Enterprise Value 160,000$

Less: Debt 30,000

Equity Value 130,000$

18



SOURCES and USES

Amount Equity Amount

Sources of Funds (in thousands) Owned Uses of Funds (in thousands)

Senior Debt (3.5x EBITDA) 70,000$ 0% Cash to Shareholders 105,500$

Mezzanine Debt (1.0x EBITDA) 20,000 0% Retire Debt 30,000

Common Equity - Equity Capital Co. 45,500 65% Equity Reinvestment 24,500

Common Equity - Founder 24,500 35%

160,000$ 100% 160,000$

Result: Owner receives pre-tax net proceeds of $105.5 million in cash and retains a 35% ownership interest in the Company.

Net

Owner Proceeds Reinvest Proceeds

Founder 130,000$ 24,500$ 105,500$

Ownership

Owner Before After

Founder 100% 35%

Equity Capital Co. 0% 65%

100% 100%

19



RECAPITALIZATION RESULTS

Diversify personal net worth• Receive 81% of business’ equity value in

cash at close• Proceeds from the transaction are non-

recourse• No personal guarantees on senior or any

other financing

Maintain operating control• Continuity of management• Financial partner who “buys in” to

strategic plan

Maintain substantial investment in the business

• Own 35% of the equity in the business (before incentive plans)

• Expectation is that remaining investment will be worth at 2x – 3x the value of the amount reinvested in 5 years

Access to virtually unlimited growth capital

• Opportunity to make strategic acquisitions

• Enhances flexibility and agility

20



MEZZANINE INVESTMENT TERMS

Traditional mezzanine financing takes the form of Senior Subordinated Notes with detachable Stock Purchase Warrants

■ Typical terms in today’s market- 10-14% cash interest rate- 0 – 4% PIK interest rate- Detachable stock purchase warrants- 5 – 7 year maturity- Prepayment protection

■ Minimal equity dilution- Target returns of 15 – 20%

■ Governance- No board control

21



DIVIDEND RECAPITALIZATION CASE STUDY

Result: Owner receives dividend of $50 million in cash and retains a majority ownership interest in the Company.

(in thousands)

TTM EBITDA 20,000$

EBITDA Multiple 8.0 x

Enterprise Value 160,000$

Less: Debt 30,000

Equity Value 130,000$

Amount Amount

Sources of Funds (in thousands) Uses of Funds (in thousands)

Senior / Mezzanine Debt (4.0x EBITDA) 80,000$ Dividend to Shareholders 50,000$

Refinance Existing Debt 30,000

80,000$ 80,000$

Ownership

Owner Before After

Founder 100% 90%

Mezzanine 0% 10%

100% 100%

22



PROCESS CONSIDERATIONS

SECTION 4

23



STEPS TO MAXIMIZING YOUR PROBABILITY OF SUCCESS

HIRE EXPERT PROFESSIONALS

• Proficient at planning and orchestrating a process that maximizes value

• Well versed in a variety of transaction structures

• Recognizes and avoids common deal killers

• Proven ability to access buyers/investors

• Able to clearly communicate the Company’s story

• Enables management to focus on the business, not managing a transaction

24



Marketing

Materials Preparation

Closing

Negotiation & Due

Diligence

PlanningUnderstand objectives of shareholders and management:

•Shareholder interests

•Deal timeline

•Transaction structure

•Continuity of management

•Confidentiality

Establish valuation parameters:

•Perform various financial analyses

•Review subjective valuation factors

Assemble comprehensive buyers list:

•Understand rationale for each likely buyer

Process Steps

PROCESS OVERVIEW: Planning

25



Marketing


Closing

Negotiation & Due

Diligence

PlanningPerform extensive due diligence:

•Anticipate buyer and data room issues and requests

•Analyze any existing diligence issues or concerns

Create a persuasive and descriptive memorandum:

•Effectively communicate value proposition

•Provide sufficient detail to explain evolution of the business and the Company’s markets

Draft solicitation letter describing the opportunity.

Process Steps

PROCESS OVERVIEW: Materials Preparation

26



Marketing


Closing

Negotiation & Due

Diligence

Planning

Craft positioning strategy:

•Customize the strategy for each buyer

Evaluate staple financing:

•Arrange preliminary lender presentations

•Establish financing terms

Approach potential buyers and coordinate execution of confidentiality agreements.

Distribute confidential memorandum.

Initial follow-up by senior-level professionals:

•Ensure buyer is focusing on key positioning points

•Answer initial questions•Verbally communicate timelines and deadlines

Continuous dialogue with all interested parties prior to initial indication due date:

•Reiterate positioning•Answer questions•Determine interest level of prospective buyers

Process Steps

PROCESS OVERVIEW: Marketing

27



Marketing


Closing

Negotiation & Due

Diligence

Planning

Evaluate indications of interest based on:

Valuation, Ability to close, Structure, Form of consideration, Timing, Level of review, Additional due diligence

Assemble a management presentation:

• Address key buyer issues• Rehearse presentation with

management• Coordinate data room

Select groups to invite to management meetings:

• Focus on unique positioning for each buyer

• Communicate timeline and deadline for letter of intent

• Gain better understanding of buyer’s rationale for an acquisition

• Understand financing issues

Facilitate follow-up due diligence requests.

Conduct due diligence on buyers.

LOI vs. Marked-Up Purchase Agreement.

Achieve concessions prior to selecting purchaser.

Process Steps

PROCESS OVERVIEW: Negotiation & Due Diligence

28



Marketing


Closing

Negotiation & Due

Diligence

PlanningPrepare closing and responsibilities schedule.

Maintain back-up buyer interest.

Facilitate negotiations between all parties: buyers, lenders, lawyers, accountants.

Assist buyer with finalizing financing, if necessary.

Drive schedule to closing.

CLOSE.

Process Steps

PROCESS OVERVIEW: Closing

29



SAMPLE TIMELINE

Month

MAY JUN JUL AUG SEP

Morgan Keegan retained and begins due diligence

Morgan Keegan due diligence visits

Morgan Keegan refines valuation

Morgan Keegan / Company develop complete buyers list

Morgan Keegan / Company prepare confidential memorandum

Marketing calls by Morgan Keegan

Negotiate confidentiality agreements

Distribute confidential memorandum

Prepare management presentation

Prepare due diligence materials and assemble data room

Receive initial indications of interest

Analyze initial bids

Select buyers to attend management presentations

Commence management presentation visitsData room visits

Management presentations

Facility tours

Draft Definitive Agreement and prepare schedules

Distribute Definitive Agreement

Receive final offers with marked-up Definitive Agreement

Negotiate offers with prospective investor(s)

Sign Definitive Agreement with winning bidder(s)

File for requisite regulatory approval (if necessary)

Conduct confirmatory due diligence

Environmental audit / other

Close transaction

Phas

e I

Phas

e II

i n v e s t m e n t b a n k i n g presentation to the alliance

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