May 19, 2005

- 1 -CONNING CAPITAL PARTNERS

May 19, 2005

Exits from Public Stocks

Effectively Administering Private Equity FundsHarvard Club, New York, NY


Conning Capital Partners (“CCP”)

Roots go back to founding of Conning & Company in 1912, as broker-dealer serving individuals and institutions in Hartford (e.g., insurance). Merchant banking practices expanded and institutionalized with formation of the first private equity fund in 1985, separate management in 1990, and spin-out from the sponsor in 2003.

The current active funds are Fund V and Fund VI, with $530 million in commitments. Twenty-one total employees, 23 portfolio companies.

Investment focus is on financial services and healthcare services. Seeking to invest $5 to $20 million in companies with revenues of $5 to $100 million, targeting a 20% to 30% IRR with a minimum 2.5x returns.

Over eight years CFO has conducted exits from a dozen public positions. Block trades, currency hedges, option exercise, collar transactions, et al.


Objective


The Three Points to Remember

It’s not an exit until it’s cash.

Nobody does it better.

Good partners make for good experiences.

CONNING CAPITAL PARTNERS- 5 -

Shares are received from: IPO

Shares of the acquirer of a portfolio company

PIPE

Follow-on investments post-IPO

Common tools: Dribble it Out

Block Trades

Stock Distributions

Secondary Offerings

Uncommon / New Tools: 10b5-1 programs

Option overwrite / covered calls

Currency hedging

Collars

Basket hedges

Block with upside

Exiting from Large and/or Illiquid Public Stock Positions

}Positions are frequently in thinly traded, small or even micro cap stocks


Sample Exit Using ZCF

$18 Deal Announced September 2003

$25 Shares Valued and Deal Closes November 2003

$27 December 2003

PricePer

Share

Portfolio CompanyOwnership

40% Cash

40% Stock

20% 1-Year Escrow

Shares are subject to a 6-month lockup which prohibits hedging.

Acquiror has positive EBITDA, but negligible net income.

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Sample Exit Using ZCF Con’t.

Working through alternatives, basket hedging rejected.

Developed a brief on how our hedge would benefit the acquiror, who then agreed to allow this one amendment to our lock-up. No other investor pursued the possibility of hedging.

Low trading volumes forced a hedge in two tranches.

HedgedValue

VC retainsPrice

Volatility

Call Ceiling

Put Floor

Stock Price

{Tranche#1 / #2

$28.33 / $27.77

$23.15 / $22.72

OpportunityCost

EliminateRisk

+/- about 10% of average price


Final Pricing is the Result of an Actual Short Position

ABSOLUTELY ESSENTIAL CHINA WALL

PrivateClient

Services

MonetizationServices

Group

InvestmentBankingDivision

InstitutionalTrading

Desk

InstitutionalSales

Traders

INFORMATIONBARRIER


Results

Economics

Market price after expiration of lock-up

$15

Market price at expiration of hedge

$17

Weighted average floor price

$23

Incremental gain

$3.4 million

Hedge began in January, closed in December, avoiding hedge accounting

Throughout 2004, able to promise investors a year-end distribution. Early

termination available at negotiated pricing.

The $3.4 million hedge gain was 22% of 2004’s total gains.


Over eight years, four different equity trading partners. Our experience: We need wide-ranging products and services with an expert team. At the same time, we do few

transactions.

We hold volatile small cap stocks where our trades can move the market.

Good execution adds 2% to 5% to the value realized on exit.

Good relationships grow.

Deal partners are rotten traders.

Cut through the sales pitch: Fast execution – weak compliance department.

Best pricing and best traders – inadequate China wall.

Not the major market maker – access to the potential block buyers.

China Wall not optional.

Picking an Equity Trading Partner

May 19, 2005

Documents

Transcript of May 19, 2005