Elephant Mezzanine Funding

Pouya Yousef
Yuliya Matnenko
 • MEZZANINE PRIVATE EQUITY

• COMBINATION OF DEBT AND EQUITY

• FACILITATES RAPID GROWTH OF CONSISTENT CASH FLOW COMPANIES

KEY ASPECTS
• EQUITY OFFERED AS WARRANTS

• MAJORITY OF FINANCING THROUGH DEBT

  Structure: Senior Note/ Second Lien
 Commitment Amount: $ 20,000,000
 Minimum Initial Draw: $5,000,000
 Future Draw Maturity: Min. $2,500,000 increments subject to pro
TERMS OF forma leverage test
PROPOSED  Coupon: 13% cash, 2.0% PIK

DEAL  Warrants: 2.5%, issued in full upon drawing the first $5.0 million
tranche
 Amortization: Bullet at maturity
 Prepayment Penalty: 4.0% in year 1, 2.0 % in Y2, and 1.0% in Y3
 Fees: 2.5% (1.0% commitment fee and 1.5% drawdown fee)
 Management
Sponsor
Key Individuals Allied Capital
John Fruehwirth
  Return of Capital/ Preservation of Principle

 Bad publicity through food born illnesses/employee negligence

DEAL RISKS
 Business model not working outside California

 Assumptions of growth within the industry

Expected Credit
Metrics
Leverage
Ratios
EV/EBITDA 11.6 11.6 11.6 11.6 11.6 11.6

DEBT/EBITDA 6.4837 3.9038 3.9373 3.6615 3.0159 2.5250

DEBT/(EBITDA
11.5982 5.4569 5.1689 4.4274 3.2185 2.6763
- POE)
 Expected
Credit Metrics
Coverage
Ratios

EBITDA/Interest 13.6953 2.5908 3.2357 4.0499 4.5498 5.1633

(EBITA-
POE)/Interest 7.6560 1.8535 2.4647 3.3493 4.2635 4.8713
(EBITDA-
CapEx)/Interest (38.621) 0.2234 0.2741 3.0088 6.6176 7.2717
 total cash received to total cash invested 1.79x
Analysis of
holding period return 89%
Expected IRR w/o warrants 16%
Returns
IRR w/Equity Multiplier 2008 20%

IRR w most recent stock valuation 17%

 TARGET IRR OF 18-19%
KEY CONSIDERATION:
WARRANTS
ALLIED TARGET CASH RECEIVED TO
CONSIDERATIONS CASH INVESTED 1.5X - 2.0X
 SCALABILTY OF BUSINESS
MODEL ACROSS STATES
  IF BASE CASE NUMBERS, WHICH ARE
CONSERVATIVE ARE ACHIEVED IRR WILL
RELY PRODOMENTLY ON FUTURE
VALUATION
WARRANTS
 WITHOUT WARRANTS THE DEBT
PORTION OF OUR MEZZANINE
FINANCING RETURNS APPROX 16%
 • ALLIED CAPITAL SHOULD REQUIRE A HIGHER RETURN ON ITS
INVESTMENT

• HIGHER RISK PREMIUM OF 4% WILL GIVE THE COMPANY A NEGATIVE

IRR
CONCLUSION
• UNRELIABLE BUSINESS MODEL OUTSIDE OF CALIFORNIA

• DIFFERENTIATION BASIS NOT SUBSTANTIAL IN PRICING OR SERVICE

IN COMPARISON TO RESTAURANTS IE: CHEESECAKE FACTORY, CPK

• NEGATIVE PR AT ONSET