STOCK BASED LOANS. Part of the EC Funding Program

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1 Part of the EC Funding Program London 2012

2 Our Lender specializes in Share Financing, which is also known as a Stock Loan. The Lender has been funding loans in Europe, North America, and the Middle East and in Asia-Pacific (Hong Kong, Indonesia, South Korea, Thailand, Malaysia, Japan, Australia etc.) arena since Additionally, we service most global markets with the exception of countries that have currency controls (Venezuela, South Africa etc.) in place. OUR AREA OF EXPERTISE Our specialty is to provide funding and capital on listed companies when Traditional or Margin Financing is limited, For situations where confidentially and privacy are required, Estate Planning Programs General Asset Protection. As private Lenders we provide the Borrower with a level of confidentiality and flexibility, which most banks and traditional institutional lenders are unable to provide. We work closely with the Borrower and their representatives to structure a customize loan for each Borrower. Once we identify the borrowers specific needs privacy, estate planning, asset protection, restructuring of current margin loans, short term financing needs etc., we will create an appropriate loan structure. NON-RECOURSE STOCK LOAN A non-recourse stock loan by definition is a loan that is secured exclusively by the pledge of a specific stock(s); there is no additional collateral or personal guaranty. This type of loan allows a borrower to realize the locked up cash value of their equity position without selling the shares in the open market. Depending on the specific equity, this type of loan usually has a very competitive interest rate and is one of the simplest and most effective ways to monetize an equity position. The borrower has a number of options available to them at maturity. Providing that the loan has been kept in good standing throughout the term of the loan, the borrower at maturity can pay off the loan in full at which time the collateral will be returned to the borrower, or the borrower can refinance the loan. In the event that the stock experiences a substantial decline in value, the borrower need not repay the loan. The borrower can simply keep the cash and walk away from the loan with no impact to their creditworthiness or any other consequences. There is no reporting requirement on the part of the lender. THE LOAN TO VALUE RATIO The loan to value ratio (LTV) varies from stock to stock. There are a number of components that must be thoroughly analyzed and evaluated to arrive at a fair and equitable LTV. Some of the elements, which are considered, are the intrinsic quality of the underlying equity, potential risk and future performance of the collateral, the local equity market in general as well as geopolitical issues. Generally the loan to value ratio is 40% 70%. Each loan s LTV is evaluated on a case by-case basis. Private & Confidential 2

3 VALID SECURITIES (STOCKS) Stocks must be freely traded and unencumbered securities. Loans cannot be processed for restricted stock. LOAN FUNDING Most Loans are funded on a DVP (Delivery vs. Payment) non-print basis, which varies from market to market. Both parties coordinate a delivery date with their respective brokerage firms or securities houses to fund the loan. The stock is transferred to the Lenders account simultaneously to the loan funds being transferred to the borrowers account. As an alternative method of funding, the borrower may elect to make a free delivery of the collateral as the lender directs and receive the funds at any institution as the borrower directs. DISCLOSURE OF THE LOAN All stock loans are strictly confidential. There are no disclosures or reporting requirements by the Lender. The lender will not accept collateral at or above the 5% threshold thus the lender is not viewed as a major shareholder or insider and therefore has no reporting requirements. Due to the sensitivity of the loans, all loans are funded through a non-print transaction, this means that the delivery of stock and transfer of funds is completed outside the market and will not be reflected in the daily trading volume. This procedure will vary from market to market. MINIMUM LIQUIDITY REQUIRED FOR A STOCK TO QUALIFY FOR A LOAN Liquidity is relative to the size of the block of stock being pledged as collateral and the amount of the loan. Once again, no loan may exceed a pledge of 5% or more of the outstanding shares. Generally speaking the loan will be divided into several tranches, each tranche not to exceed 4-10 days average volume. MINIMUM FUNDING AMOUNT The minimum funding amount is Five Hundred Thousand USD ($500,000) per tranche (approximatly Three hundred thousand ( 300,000) British Pounds. No maximum limits. Below is an example method for determining if a stock may qualify for a loan. Example 1 Block of 25 Million Shares: Stock is trading at $1.00 per share with average volume at 1 Million shares a day. In this scenario the lender would consider breaking the loan into tranches of 4 Million to 7 Million Shares (4-7 times average daily volume) Per Tranche. If the LTV is 50% then each tranche would fund at $2 Million to $3.5 Million per tranche depending on amount of stock being pledged. This stock would reach the minimum requirement of Five Hundred Thousand USD ($500,000) per tranche. Example 2 Block of 10 Million Shares: Stock is trading at $0.25 per share with average volume of 100,000 shares a day. In this scenario even if the tranche size represented 7 days volume or 700,000 shares it will not qualify (at any LTV) since it would be under the minimum of five hundred thousand dollars per tranche (market value would be seven hundred thousand shares x $0.25 = $175,000). Private & Confidential 3

4 Example 3 Block of 50 Million Shares: Stock is trading at $4.00 per share with average volume of 4 Million shares a day. In this scenario the lender would consider breaking the loan into tranches of 16 Million to 28 Million Shares (4-7 times average volume) Per Tranche. If the LTV were 60% then each tranche would fund at $38.4 Million to $67.2 Million per tranche depending on amount of stock being pledged. This stock would reach the minimum requirement of Five Hundred Thousand USD ($500,000) per tranche. LOAN TERMS Loans terms are based on evaluation of the risk and future performance associated with the securities to be pledge as collateral. The term of the loan is typically three years, with interest payments on quarterly or semi-annual bases. Our stock loans are interest only and non-recourse, the borrower has the option of simply walking away at anytime with no further liability. In the event of a loan default the Lender does not report to any credit bureaus or governmental agencies, nor file any public notice. There is no adverse consequence to the borrower s credit. US$ 50K should be the minimum average trading volume per day. COSTS INVOLVED There are no hidden costs such as application fees, appraisal fees, or any other upfront costs. We are charging 1% on granted loans. TIME OF THE LOAN PROCESS Loans can close in 5-10 days depending on the speed at which the borrower processes the paperwork. With a swift information transfer we can produce the Term Sheet within 24 hours. INTEREST CHARGES AND PAYMENT Currently interest rates range from 4% 12% depending on the liquidity and risk involved and are generally paid quarterly or semi-annually, however other payment options are available. MINIMUM REQUIREMENT OF THE CAPITALIZATION OR ASSET OR ASSET VALUE There is no real minimum Market Cap, the issue is always liquidity and this is due to the high-risk nature of the loan(s). All of the loans we fund are non-recourse, require no personal guarantee and are collateralized only by the securities that have been pledged. WHAT ARE THE EXCHANGE REQUIREMENTS FOR STOCKS All collateral must be in electronic format and be free, clear and unencumbered. RESTRICTION TO INDUSTRY OF THE STOCK We have no restriction on industry. FUNDING THROUGH A PLEDGE OF PAPER STOCK WITH CLOSING AT A LAW FIRM All of the loans require a complete or partial transfer of the pledged stock position from the Borrower to the Lender. All transfers must be done electronically through an Electronic Clearing System such as DTC (for securities traded in the USA). Private & Confidential 4

5 Since the only collateral for the loan is the pledged stock the Lender must control the collateral so that in the event of a default the Lender can protect himself and liquidate the position (if need be) immediately without protest etc. The market can be very volatile and many stocks can collapse quickly. Unfortunately, market conditions do not afford the luxury of having paper stock being held as collateral. If the borrower wishes to pledge paper stock, in some circumstances the lender can take possession of the paper stock; have their securities firm convert it to electronic format, and then fund the loan (once the paper has been converted). The actual signing and execution of the loan agreements can take place at a legal firm. LOAN PROCESS Here is a brief overview of the funding process for a stock loan. We will need the following information to start an application; Borrower or Agent submits inquiry for loan by providing Name of the stock(s), Stock code or symbol Name of Exchange and target loan amount. Lender determines the viability of the loan, and calculates a loan-to-value ratio (LTV) and the interest rate, based on an assessment of both short and long term risks. Lender issues a term sheet to borrower or Agent to review. Terms are negotiated & finalized. Lender sends contract to borrower for review. Final contract is negotiated & signed. Both parties coordinate a delivery (funding) date with their respective securities firms to fund the stock loan. Shares are transferred to Lender and the Loan is funded through a non-print mechanism (private transaction outside the market), which varies from market to market. Please note minimum loan amount and terms will be determined on a deal-by-deal basis. Private & Confidential 5