ACuPowder International, LLC

LBO CASE HISTORYSUCCESS DRIVERS

WZCC 2006 AGMJanuary 7, 2007

A SNAPSHOT – PRODUCTS,

PROCESSES, APPLICATIONS & MARKETS

• MANUFACTURER OF COPPER, TIN, BRONZE, BRASS AND OTHER SPECIALTY METAL POWDERS

A SNAPSHOT – PRODUCTS,

PROCESSES, APPLICATIONS & MARKETS

• MANUFACTURER OF COPPER, TIN, BRONZE, BRASS AND OTHER SPECIALTY METAL POWDERS

• MANUFACTURING PROCESS INCLUDES ATOMIZATION, METALLURGICAL REDUCTION AND COMMINUTION

A SNAPSHOT – PRODUCTS,

PROCESSES, APPLICATIONS & MARKETS

• MANUFACTURER OF COPPER, TIN, BRONZE, BRASS AND OTHER SPECIALTY METAL POWDERS

• MANUFACTURING PROCESS INCLUDES ATOMIZATION, METALLURGICAL REDUCTION AND COMMINUTION

• MAIN PLANT IS IN UNION, NJ – 75 EMPLOYEES SECOND PLANT IS IN GREENBACK, TN – 35

EMPLOYEES TOTAL ANNUAL SALES REVENUE IS $75 MILLION

A SNAPSHOT – PRODUCTS, PROCESSES,

APPLICATIONS & MARKETS• MANUFACTURER OF COPPER, TIN, BRONZE, BRASS

AND OTHER SPECIALTY METAL POWDERS• MANUFACTURING PROCESS INCLUDES ATOMIZATION,

METALLURGICAL REDUCTION AND COMMINUTION• MAIN PLANT IS IN UNION, NJ – 75 EMPLOYEES SECOND PLANT IS IN GREENBACK, TN – 35

EMPLOYEES TOTAL ANNUAL SALES REVENUE IS $50 MILLION• ACuPowder’s CUSTOMERS FABRICATE POROUS SELF-

LUBRICATING BEARINGS, FILTERS, FRICTION COMPONENTS, DIAMOND TOOLS, BRAZING PASTES, HEAT SINKS, ETC.

A SNAPSHOT – PRODUCTS, PROCESSES,

APPLICATIONS & MARKETS

• MANUFACTURER OF COPPER, TIN, BRONZE, BRASS AND OTHER SPECIALTY METAL POWDERS

• MANUFACTURING PROCESS INCLUDES ATOMIZATION, METALLURGICAL REDUCTION AND COMMINUTION

• MAIN PLANT IS IN UNION, NJ – 75 EMPLOYEES SECOND PLANT IS IN GREENBACK, TN – 35 EMPLOYEES TOTAL ANNUAL SALES REVENUE IS $50 MILLION• ACuPowder’s CUSTOMERS FABRICATE POROUS SELF-

LUBRICATING BEARINGS, FILTERS, FRICTION COMPONENTS, DIAMOND TOOLS, BRAZING PASTES, HEAT SINKS, ETC.

• THESE COMPONENTS ARE USED IN AUTOMOBILES, AIRCRAFT, HOME APPLIANCES, LAWN & GARDEN, HAND TOOLS, AND COMPUTERS

BIRTH OF ACuPowder• GOOD EDUCATION, GOOD JOB, COMFORTABLE LIFE.

1967-1992• PERIODIC URGES TO START MY OWN POWDER

METALLURGY CO. “A GOOD EDUCATION AND JOB SUCCESS WERE ACTUALLY DETERRENTS TO REALIZING MY DREAM”

• AN OPPORTUNITY CAME KNOCKING, AND MY LATENT ENTREPRENEURIAL JUICES WENT INTO HIGH GEAR. MY WIFE, NILOUFER, SUPPORTED ME.

• IT WAS NOW OR NEVER! I ASKED ALCAN TO SELL THE ALCAN POWDER DIVISION TO ME.

THE DEAL – 1995• MY INITIATIVE AND PRO-ACTIVE SUGGESTION PAID

OFF - Alcan agreed to value our Alcan Powders Division and

Edul Daver would have first option to say Yes or No. - It had to be a cash deal. Alcan would not take a note. - I had 6 months to come up with the financing and close the transaction.• VALUATION WAS $12,000,000 AND I SAID “YES”• KEY CHALLENGES

- Where was the financing coming from?- How would we improve the company’s performance?

A. FINANCING

• BUSINESS PLAN• BROKERS & DEAL MAKERS –

“THANKS BUT NO THANKS”• BANKS & FINANCIAL INSTITUTIONS

(30). KEPT LEARNING AS EACH SAID NO.

• FINALLY, EUREKA! AN ASSET BASED FINANCING STRUCTURE LOOKED DOABLE.

THE FINANCING STRUCTURE• ASSET BASED LOAN FORMULA

- EQUITY . . . $200,000- LAND & BUILDINGS . . . 80% OF MARKET VALUE- EQUIPMENT . . . 80% OF LIQUIDATION VALUE- RECEIVABLES . . . 85% OF ELIGIBLE A/R- INVENTORY . . . 60% OF ELIGIBLE INVENTORY- AIR BALL . . . CONFIDENCE IN MGMT/PERSONAL

GUARANTEE• SELECTED IBJ-SCHROEDER, NYC

- TWO TERM LOANS- WORKING CAPITAL REVOLVER- RETAINED 100% OF EQUITY- REASONABLE INTEREST RATES- NO BROKER FEES

• HHLBO- DEBT TO EQUITY RATIO. . . 60:1 PERFECT EXAMPLE OF A HIGHLY HIGHLY LEVERAGED BUY-OUT

B. THE PRODUCTIVITY STRUCTURE

• SAME COMPANY WITH A NEW NAME – ACuPowder International, LLC. Only change – high debt load and increased concern/ worry

• OFFERED AND GOT SEVEN KEY EMPLOYEES TO BECOME EQUITY PARTNERS

• CHANGE GEARS FROM CORPORATE MANAGERS TO ENTREPRENEURIAL LEADERS

• MOTIVATE EMPLOYEES- EIA. 20% of pre-tax profits to all employees. 25% equal, 25% SB, 25% LOS, 25% Group Perform- ance, readjusted for missed time.- JOB SECURITY. LAYOFFS ONLY IF SURVIVAL WAS

AT STAKE Overall goal . . . few good employees

• OPERATING PHILOSOPHY

SAFETY & QUALITY &

ENVIRONMENTAL SERVICE

PRODUCTIVITY

ENTREPRENEURSHIPTHE PURSUIT OF OPPORTUNITY BEYOND RESOURCES

CURRENTLY AVAILABLEPRODUCTIVITY

= (ABILITY) X (MOTIVATION) ± ENVIRONMENT= [APTITUDE X TRAINING] X [NEED X INCENTIVE] ± ENVIRONMENT

CCNCO-EQUALPRIORITIESO-CO-0

OBM

ENTREPRENEURIAL

PROFIT SHARING = EIA

• WE EXPLAINED BUSINESS AS A FUN GAME

- INDIVIDUAL POSITIONS AND RESPONSIBILITIES- GUIDELINES, RULES, FLEXIBILITY, PINCH-HIT- TEAMWORK CRITICAL- TERMINOLOGY

MEETING . . . . HUDDLESSMALL SUCCESSES . . . . HITSMAJOR SUCCESSES . . . . HOME RUNS/GRAND SLAMSFAILURES . . . . STRIKE OUTSEIA . . . . EXTRA REWARD/SHOW ME THE MONEY

- WINNING IS CONTINUOUS IMPROVEMENT AND BEATING THE COMPETITION. “DO LUNCH, OR BE LUNCH”

- PROFITS WOULD FOLLOW

IT WAS MAGIC

• RESULTS WERE UNBELIEVABLE AND EVEN SURPRISED US

• MARKET SHARE INCREASED FROM 19% TO 40% TODAY (NJ PLANT)

• PROFITS INCREASED DRAMATICALLY AND EMPLOYEES HAVE RECEIVED EIA’S IN EXCESS OF $10,000/YR./EMP.

• IN 2000 WE HAD SUFFICIENT RETAINED EARNINGS TO BUY-OUT A SMALLER COMPETITOR IN TN

• ACuPowder MS IS OVER 50%, MAKING US THE DOMINANT #1 IN NORTH AMERICA

• WE ARE CURRENTLY EXPORTING TO EUROPE, KOREA, TAIWAN, INDIA AND, YES, CHINA

OPEN BOOK MANAGEMENT

• CAME ACROSS A BOOK CALLED “OPEN BOOK MANAGEMENT” BY JOHN CASE. COVER STATEMENT “COMPANIES THAT PRACTICE OBM SEEM TO HAVE CAPTURED SOME SORT OF LIGHTNING IN A BOTTLE”

• SO WE READ THE BOOK, AND GUESS WHAT? WITHOUT KNOWING IT, WE WERE PRACTICING OBM

• HOWEVER, ONE CRITICAL ITEM WAS MISSING AT ACuPowder. WE HAD NOT PROVIDED FORMAL BUSINESS LITERACY EDUCATION TO OUR EMPLOYEES.

• A LOCAL COLLEGE PROVIDED A BUSINESS 101 COURSE TO ALL EMPLOYEES – FINANCIAL TERMS, INCOME STATEMENT, ETC.

• MOTIVATION & RESULTS IMPROVED FURTHER. IT HELPED EMPLOYEES SEE A RELATIONSHIP BETWEEN WHAT THEY DID, THE HOME RUNS, THE STRIKE OUTS, AND THE BOTTOM LINE.

OBM SUMMARY

WHAT IS IT?

• WAY OF RUNNING A COMPANY THAT GETS EVERY EMPLOYEE FOCUSED ON HELPING THE BUSINESS MAKE MONEY.

• EVERY EMPLOYEE MUST DEVELOP BUSINESS LITERACY AND UNDERSTAND COMPANY’S CRITICAL NUMBERS.

• EMPLOYEES ACCEPT RESPONSIBILITY AND ARE EMPOWERED TO MOVE THESE NUMBERS IN THE RIGHT DIRECTION.

• EMPLOYEES SHOULD SEE THEMSELVES AS PARTNERS IN THE BUSINESS WITH A DIRECT STAKE IN THE COMPANY’S FORTUNES.

OBM STRATEGY

HOW TO IMPLEMENT IT?

• INFORMATION & COMMUNICATION- VISION, STRATEGY, TACTICS- OBJECTIVES, MEASURE, CHART- RESULTS & FINANCIALS

• BUSINESS LITERACY- BUSINESS BASICS- FINANCIAL CONSTRAINTS- BETTER DECISIONS, LESS WASTE

• EMPOWERMENT- SAY IN ONE’S OWN WORK- HUDDLES, TEAMS, EXPERIMENT- CONTINUOUS IMPROVEMENTS

• STAKE IN SUCCESS- CELEBRATE SUCCESSES- PROFIT SHARE AND/OR EQUITY- ENTHUSIASM AND PEER MOTIVATION

OBM SUMMARY

WHY DOES IT WORK?

• COMMON GOALS OUTWEIGH PAROCHIAL ONES• FOCUSES ATTENTION, LIKE A LASER, ON OBJECTIVES• FACILITATES INNOVATION AND CONTINUOUS

IMPROVEMENT• HELPS MANAGERS LEAD RATHER THAN MANAGE• FINANCIAL & PEER MOTIVATION• SOURCES OF MISTRUST AND RESENTMENT VANISH• “NOTHING BREEDS SUCCESS MORE THAN SUCCESS

ITSELF”

CONCLUSION

• YESTERDAY HAS BEEN VERY SUCCESSFUL. HOWEVER PAST PERFORMANCE IS NO GUARANTEE OF FUTURE SUCCESS. HUBRIS IS DANGEROUS AND CAN BE LETHAL.

• TODAY. WE HAVE TO ACCEPT TODAY’S CHALLENGES AND EARN OUR WINGS EVERY DAY.

• TOMORROW. WE HAVE TO PURSUE OPPORTUNITIES BEYOND THE RESOURCES CURRENTLY AVAILABLE.