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Accounts Receivable Financing

This is a loan secured by accounts receivable, often a revolving line of credit and is often abbreviated as A/R. Lenders may require additional collateral. Depending on the type of accounts receivable, the lender's advance rate can range from 65% to 85% of the face value of the accounts receivable aged under 90 days.

Advance Rate

This is the percentage that a lender advances to the company based on appraised, book or agreed values, against the asset(s) being pledged as collateral.

Asset Based Financing

This is a loan secured with collateral. Often this is a revolving credit line secured by accounts receivable and inventory. It can also refer to term loans secured by equipment or real estate. The lender usually has a first lien on these assets.

Buyout Letter

A letter or communication from the lessor to the lessee that provides for transfer of ownership in consideration for a payoff of the lease and the buyout option.

Capex

This term refers to capital expenditures which include purchase of new equipment. Often lenders make an allowance for use of cash flow for CAPEX.

Cash-Flow Oriented Financing

This refers to loans that are based completely or substantially on the cash flow produced by the borrower. Often no other collateral is required. Such loans are typically reserved for well-established businesses with predictable cash flows and strong intangibles such as technology, market leadership, or established brand names.

Collateral

This usually consists of tangible assets such as real estate, equipment, accounts receivable, or inventory. Sometimes intangible assets such as patents, company name, or future cash flow can be used as collateral. Often a borrower's guarantee, either corporate or personal, is required. Loans having collateral are called secured loans, collateral-based financing, equipment-based financing, real estate financing or asset-based financing. Lenders almost always require an appraisal of fixed assets by a national appraisal firm acceptable to the lender. Lenders often rely on the borrower's accounting systems for values of A/R and inventory.

Commitment Letter

A document issued by a lender and/or lessor after they have decided to offer financing to a company but before they are ready to complete the formal documents. Commitment letters are usually short and describe only the essential terms of the pending agreement. By setting out the general terms of the pending agreement, commitment letters solidify each party's commitment to move forward with the deal. They also ensure that the parties have, in fact, come to terms with one another on the major points of the deal.

Debt Financing

These are amortizing loans, or term loans where you pay back both principal and interest over the term of the loan, interest-only loans and revolving credit lines where you pay only the interest on the amount borrowed. Under a loan, collateral may or may not be required depending on the financial condition of the company. Debt may be characterized as senior debt or subordinated debt.

Equipment Based Financing

This is a loan secured with a particular piece or set of equipment. The lender usually has a purchase money security interest specific to the equipment making this senior debt. Lenders may require additional collateral and almost always require an appraisal by a national appraisal firm acceptable to the lender.

Equity Financing

The sale of preferred stock, common stock, options or warrants in the corporation, either privately or in the public markets. Venture capital is a type of equity financing.

Exhibit A (Asset Listing)

A document listing the various assets (normally machinery or equipment) that Utica LeaseCo purchased from a company and is leasing back to it.

Factoring

This is the sale of accounts receivable invoices to a third party who then assumes the obligation of collecting the invoice. Factors can move quickly to get funds to a business but are usually the most expensive way to finance accounts receivable. Most factors initially pay 70% to 90% of the invoice amount followed by an additional payment when they collect the invoice. Ultimately, factors discount the invoice from 2% to 5% or more. Factors advance funds under one of two conditions: where the factor assumes all the liability for the invoice (non-recourse) or where the factor can come back to the business should the invoice become uncollectible and require reimbursement (recourse).

Fair Market Value - For Removal (FMV - For Removal)*

Defined as the estimated highest gross value which a willing buyer would be justified in Paying and a willing seller would be warranted in asking if each is:

• Well-informed or well advised and acting prudently in his own best interest
• Motivated by typical desire to buy and sell with neither party under duress
• Allowed a sufficient amount of time to test the marketplace
• Both parties being capable, and authorized to complete the transaction

This concept may be considered as a bulk asset sale to a hypothetical buyer who would not continue to use the subject property in place for continued (same or similar) operations on a turnkey basis. The assumption is that the buyer would remove the equipment for use at another location and assigns no value to such factors as installation, electrical / air / water connections, engineering, etc. Value stated assumes equipment is being sold with "free and clear" title.

* These values are the opinion of the appraiser and these opinions cannot be interpreted as a guarantee of value.

Fair Market Value - In Place (FMV-IP)*

Defined as the estimated highest gross value, which a willing buyer would be justified in paying and a willing seller would be warranted in asking if each, is:

• Well-informed or well advised and acting prudently, in his own best interest
• Motivated by typical desire to buy and sell with neither party under duress
• Allowed a sufficient amount of time to test the marketplace
• Both parties being capable, and authorized to complete the transaction

This concept may be considered as a bulk asset sale to a hypothetical buyer who would continue to use the subject property in place for continued (same or similar) operations on a turnkey basis. The stated estimate is an opinion estimated by today's replacement costs including accessories, installation, leasehold-improvements, etc. as well as any pertinent economic factors regarding these assets but not regarding the value of the business itself. Value stated assumes equipment is being sold with "free and clear" title.

* These values are the opinion of the appraiser and these opinions cannot be interpreted as a guarantee of value.

Forced Liquidation Value (FLV)*

Defined as the estimated gross income of a well-prepared and properly advertised sale conducted on the premises at the present time. All bids being made on an "as is – where is" basis, cash terms, with buyers responsible for removal at their risk and expense. This is a forced sale concept in short terms (2-3 months). The consideration given to age and condition of the subject property, geographic location, difficulty of removal, adaptability or specialization, and other factors that effect marketability. Any deletions or additions could alter advertising appeal and would affect the total value. Value stated assumes equipment is being sold with "free and clear" title.

* These values are the opinion of the appraiser and these opinions cannot be interpreted as a guarantee of value.

Interest-Only Term Loans

These are loans for a fixed period of time during which only interest is repaid for some or all of the term. Usually, term loans are secured by some type of collateral such as real estate or equipment. Lenders almost always require an appraisal by a national appraisal firm acceptable to the lender.

Inventory Financing

This is a loan secured by inventory, often a revolving credit line. Lenders may require additional collateral and may require an appraisal by a national appraisal firm acceptable to the lender. Depending on the type of inventory, the lender's advance rate can range from 35% to 80% of the orderly liquidation value of the inventory. The stronger the accounting controls over inventory, the more aggressive the advance rates can become.

Landlord Waiver

A document in which a landlord acknowledges that certain property on its tenant's premises is owned by a third party (the lessor) and is leased to the tenant and in which a landlord agrees to recognize and not interfere with the lessor's rights to access its property.

Leasing

When structured as an operating lease, this is a form of financing that avoids the down payment usually required for the purchase of equipment. Because leased equipment is not owned by the company, it does not appear on the balance sheet. A financing lease does appear on the balance sheet.

Lease Term

The duration of a contract in which a tenant is allowed to use property for a specified period of time and rent.

Orderly Liquidation Value (OLV)*

Defined as the estimated gross proceeds that could be expected from the forced piecemeal Sale (and removal) of subject property, privately negotiated. The seller is given a reasonable long time term (6-9 months) with all sales made on an "as is – where is " basis, cash terms, with buyers responsible for removal. Examples of issues taken into the consideration of value include age, physical condition of the property, geographic location, removal cost, quantities brought into the marketplace, and overall psychological appeal. Any deletions or additions could alter advertising appeal and would affect the total value. Value stated assumes equipment is being sold with "free and clear" title.

* These values are the opinion of the appraiser and these opinions cannot be interpreted as a guarantee of value.

Payoff Letter

A letter or communication from a secured party or owner with a financial interest in the asset that provides payoff terms for release of that interest or ownership.

Payout Option (Or Purchase Option)

An option included in the lease contract that allows the lessee the possibility to buy the leased equipment at a predetermined price based on when the option is being exercised.

Personal Guaranty

Agreement that one will be liable for one's own or a third party's debts or obligations. A personal guaranty signifies that the lender can lay claim to the guarantor's assets in case the borrower defaults. The lender's actions are usually based on whose assets are easier to take control of and sell. Once signed, a personal guarantee can only be cancelled by the lender.

Personal Property

A type of property which can include any asset other than real estate. The distinguishing factor between personal property and real estate is that personal property is movable. That is, the asset is not fixed permanently to one location as with real property such as land or buildings. Examples of personal property include business equipment, vehicles, collectibles, and inventory.

Public Auction Value (PAV)

~ See Term: FORCED LIQUIDATION VALUE (FLV) ~

Purchase Order Financing

This is the assignment of purchase orders to a third party who then assumes the obligation of billing and collecting. Usually, this type of financing is related to a specific transaction where the company requires cash to be able to acquire the raw materials to manufacture the goods for which it has received the purchase order. This is the most expensive way to finance because the third party assumes both the production risk and the collection risk.

Real Property

Land and all the things that are permanently attached to it (trees, buildings, and stationary mobile homes). Anything that is not real property is personal property and personal property is anything that isn't nailed down, dug into or built onto the land.

Rental Schedule

A document that outlines each monthly payment amount, due date, and optional purchase option throughout the entire lease term.

Revolving Credit Lines

These are loans for which the principal amount is variable. Usually in place for two to three years with renewal options, these loans have a maximum advance amount and often use an advance rate applied to accounts receivable and inventory to determine the amount that may be outstanding at any particular reporting period. Usually, revolving credit lines are secured by accounts receivable and inventory. They are often accessible through banks and are tied to a bank operating account.

Sale of Assets

The sale of current assets such as accounts receivable (factoring) or long term assets such as real estate or equipment.

SBA Loans

This is a federally insured loan usually at lower interest rates but always requiring an owner's personal guarantee. To be eligible, a company must be a small business as defined by the SBA and meet several other requirements.

Secured Loans

These are loans secured by collateral. A first or second lien is usually filed on the collateral by the lender. Lenders almost always require an appraisal by a national appraisal firm acceptable to the lender for fixed asset loan.

Senior Debt

This refers to debt secured by collateral on which the lender has put in place a first lien. Usually this covers all the assets of a corporation and is often used for revolving credit lines. Lenders almost always require an appraisal by a national appraisal firm acceptable to the lender.

Structured Finance

This usually refers to cash flow financing where there is little or no collateral involved in the loan, but there is strong historical operating cash flow to support debt repayment.

Subordinated Debt

This is a loan secured by collateral on which the lender has a second position behind the senior debt lender. Because of the higher risk to the subordinated debt lender, some type of additional compensation is usually necessary, typically in the form of warrants or options on the company's stock. Often, repayment can be arranged as interest only for some portion of the term of the debt.

Term Loans

These are loans for a fixed period of time during which both interest and principal are repaid on a regular basis. There can be a balloon principal payment at the end of the term. Usually, term loans are secured by some type of collateral such as real estate or equipment. Lenders almost always require an appraisal by a national appraisal firm acceptable to the lender.

Termination Statement

In asset-based lending, it is a statement releasing a lender's claim or security interest in a borrower's assets when a debt is fully paid, and terminating a previously filed Financing Statement. The Uniform Commercial Code requires secured lenders to sign a termination statement, generally known as Form UCC-3 to clear the borrower's name of liens listed in public records.

UCC

The Uniform Commercial Code is a set of legal statutes adopted in the United States to provide consistent and uniform laws for conducting business and regulating commercial transactions.

UCC Filing

A financing statement which is filed to perfect a security interest and provide a public notice of a security agreement between a debtor and a secured party. The financing statement describes certain types of collateral or property used as surety for the security agreement.

Venture Capital

This is a type of equity investment usually best suited for rapidly growing companies that require a lot of capital or start-up companies with a strong business plan. A typical venture capital investment usually requires sale of 25% to 55% of the company to the investor.