A deck from Steve Gersz of Underberg & Kessler LLC, as presented to the Rochester Open Coffee Club meeting on April 8, 2011.

1. UNDERSTANDING CAPITAL
STRUCTURE
Steven R. Gersz, Esq.
Underberg & Kessler LLP
300 Bausch & Lomb Place
Rochester, New York 14604
(585) 258-2817
sgersz@underbergkessler.com
© 2010 Steven R. Gersz, Esq. Underberg & Kessler. All Rights Reserved.

2. Capital Comes from the Right Side of
Your Balance Sheet
Precision Technology Corporation
Balance Sheet
Current Assets Current Liabilities
Cash Accounts Payable
Marketable Securities Notes Payable
Inventories Salaries Payable
Interest Payable
Investments in other companies Income Taxes Payable
Current Portion of Long-term Debt
Property, Plant, and Equipment
Land Long-term Liabilities
Buildings Long-term Notes Payable
Less: Accumulated Depreciation Long-term Borrowings
Equipment Bonds Payable
Less: Accumulated Depreciation
Intangible Assets Stockholders' Equity
Patents Preferred Stock
Common Stock
Trademarks
Goodwill Additional Paid-in Capital, Preferred Stock
Additional Paid-in Capital, Common Stock
Retained Earnings
Total Assets Total Liabilities and Stockholders' Equity

3. Source of Growth Capital
l Grants
l Loans
l Equity
l Strategic Alliances

4. Types of Debt
l Trade Debt / Accounts Payable
l Notes
l Debentures
l Bonds

5. Debt Can Be In Ordered Layers
l Bank Debt (Senior Debt)
l Senior Subordinated Debt
l Junior Subordinated Debt
l Trade Debt
Debt Can be Secured or Unsecured

6. Types of Equity
l Common Stock
l Preferred Stock

7. Preference Items
l Voting
l Dividends
l Liquidation Proceeds
l Redemption Rights (Call/Put)

8. Hybrids
l Convertible Debt
l Convertible Preferred Stock
l Detachable Warrants

9. Financing Sources
l Angel Financing
l Private Placements
● Friends and Family
● Broker/Dealer Placed
l Institutional Venture Capital
● Seed Funds
● Early Stage Funds
● Growth Funds
● Buy-out Funds

10. Important Structural Concepts
l Future Purchase Rights
● Right of Refusal
● Pre-Emptive Rights
l Ratchet Clause
● Weighted Average Dilution
● Full Ratchet

11. Important Structural Concepts
(Continued)
l Control Provisions
● Board Seats
● Board Flips
● Transaction Restrictions
● Redemption Rights on Insider Stock
● Right of Refusal and/or Co-Sale Rights on Insider
Sales

12. Important Structural Concepts
(Continued)
l Registration Rights
● Lock-up on IPO
● Piggyback
● Demand
● Restrictions on Future Grants of Reg. Rights
● Participation Rights Among Reg. Rights Holders

13. Important Structural Concepts
(Continued)
l Exit Strategy
● Liquidity Events (Timing)
● Merger
● Sale of Assets
● Time Based (mandatory redemption)
● Put by Investor
● Call by Company
● Pricing
l Fixed Value
l Formula (compounded annual return)
l Appraisal

14. Questions

15. UNDERSTANDING CAPITAL
STRUCTURE
Steven R. Gersz, Esq.
Underberg & Kessler LLP
300 Bausch & Lomb Place
Rochester, New York 14604
(585) 258-2817
sgersz@underbergkessler.com
© 2010 Steven R. Gersz, Esq. Underberg & Kessler. All Rights Reserved.