1. 1 TREFICA OF HONDURAS Andres Hernandez Sharon Udani Tianyuan Wang

2. 2 COMPANY PROFILE ► ► Trefiladora Centroamericana ► ► Production and commercialization of wire- related products ► ► Actively participates in the U.S., Mexican, Caribbean, South American and Central American markets ► Choluteca, Honduras ► Strategically located in Choluteca, Honduras

3. 3LOCATION

4. 4 COMPANY PROFILE ► ► Annual plant capacity exceeds 72,000 metric tons ► ► Galvanize over 36,000 metric tons of wire ► ► 8,400 metric tons in barb wire ► ► 18,000 metric tons of wire rod and rebar

5. 5 PRODUCTS & BRANDS Chain-link fencing High-resistance rebar Nails

6. 6 EMERGING MARKET ► Profit from a substantial economic growth based on significant productivity gainssignificant productivity gains technological changetechnological change change in their economic philosophychange in their economic philosophy ► Frequently characterized by political instabilitypolitical instability strong currency turbulencestrong currency turbulence high foreign debthigh foreign debt  High risk and return

7. 7 COMPANY BACKGROUND ► Founded in 1969 ► Sold to the Vente family in the 1980s ► Virtual monopoly in Honduras, El Salvador and Nicaragua in the 1980s ► Short-term, high interest loans to increase capacity in the 1990s ► Main supplier LAEI acquired 45% ownership to lower interest

8. 8OVERVIEW ► Increasing losses and cash flow shortfalls ► Foreign competitors ► International competition ► Family-owned business ► Decision on capitalization and future  SELL or RESTRUCTURE

9. 9ISSUES ► Financing Resources ► Ownership & Control ► Foreign Competition ► Quality Standards ► Local Economy ► Marketing Strategy ► COGS IMMEDIATE BASIC

10. 10 IMMEDIATE ISSUE MATRIX Importance Urgency Ownership & Control Financing Resources LOWHIGH LOW HIGH

11. 11 BASIC ISSUE MATRIX Importance Urgency Marketing Strategy & Local Economy COGS Quality Standards Foreign Competition LOWHIGH LOW HIGH

12. 12 COMBINED ISSUE MATRIX Importance Urgency Marketing Strategy COGS Ownership & Control FINANCING RESOURCES LOWHIGH LOW HIGH

13. 13 MARKET DOMINANCE 1984–1992 Virtual Monopoly Lack of Competition High Tariffs High Import Duties Running at Full Capacity

14. 14 EXPORTS Opened Borders Government Exports Strategy Tariff Structure Accelerated Local- currency Depreciation Exports Growth

15. 15 GLOBAL TRANSITION 1993-1996 International Quality Standards Opened Borders Additional Production Capacity Anemic Local Economy Illiquid Financial Sector Foreign Banks (Regional Political Risk) Borrow Locally Short-term Financing

16. 16 BORROWING LOCALLY High Political Risk No Foreign Banks Devaluating Currency High Inflation Rates Illiquid Financial Sector High Interest Rates

17. 17 INCURRING LOSS Big Expansion Machinery High Interest Loans Reneged Government Aid Reluctant Investors Accounting Loss

18. 18 PRECENT OF SALES COMPARISION BenchmarkTrefica Net Sales 100.0%100.0% COGS89.479.7 Gross profit 10.620.3 Selling Exp 1.38.8 G&A Exp 5.13.6 Op Income 4.27.9 Interest Exp 2.210.8 Currency Fluctuations 0.00.4 Income b/tax 4.8-3.3 Tax1.30.0 Net Income 3.5-3.3

19. 19 ALTERNATIVES 1. Stay the course 2. Find a US partner 3. Sell control to a Mexican Supplier 4. Sell control to LAEI

20. 20 1. STAY THE COURSE Pros ► 55% ownership ► Maintain control ► Wait for better opportunities Cons ► Too much high interest debt ► Potential loss of market share ► Potential bankruptcy

21. 21 2. FIND A U.S. PARTNER Pros ► Maintain control ► Access to U.S. financial markets ► Increase in U.S. market share ► Rationalizing production Cons ► Loss of 20% ownership ► Not enough investment to relief debt burden

22. 22 Historical Interest Rates Short term lempira debt 32.10% Short term USD debt 12.50% Long term USD debt 12.50%

23. 23 3. SELL CONTROL TO A MEXICAN SUPPLIER Pros ► $4 million investment to relieve debt burden ► Cheaper COGS ► Stay competitive in Central America Cons ► Loss of 21% ownership ► Potential loss of Presidency

24. 24 4. SELL CONTROL TO LAEI Pros ► Walk away with $ 5 million Cons ► Complete loss of ownership & control ► Possibly bring shame to the family

25. 25 DECISION CRITERIA  Market Accessibility  Ownership & Control  Debt Structure

26. 26 MARKET ACCESSIBILITY AlternativeMarkets Stay the course - U.S. Partner U.S. and U.S. financial markets Control to Mexican supplier Mexico Control to LAEI -

27. 27 OWNERSHIP & CONTROL AlternativeVenteLAEI U.S. Partner Mexican Supplier Stay the course 55%45%0%0% U.S. Partner 35%45%20%0% Control to Mexican supplier 34%0%0%66% Control to LAEI 0%100%0%0%

28. 28 OWNERSHIP DISTRIBUTION

29. 29 Common Shares in Lempiras85,000,000 Exchange Rate (Lempiras/USD)13.50 Common Shares in USD 85,000,000 / 13.50 = $6,296,296.30 % Equity Sold (True)Value: U.S. Partner $6,296,296.30 * 20% = $1,259,259.26 Mexican Supplier$6,296,296.30 * 66% = $4,155,555.56 Sell to LAEI$6,296,296.30 * 55% = $3,462,962.65 EQUITY VALUE

30. 30 Investment Offer Equity Value Difference Stay the Course N/AN/AN/A U.S. Partner $1,900,000.00$1,259,259.26$640,740.74 Sell to Mexican Supplier $4,000,000.00$4,155,555.56($155,555.56) Sell to LAEI $4,000,000.00$3,462,962.65$537,037.35EQUITY

31. 31 PROPOSED DEBT STRUCTURE Debt Structure:19971998 Short term debt90%35% % Lempiras66%65% % US$34%35% Long term debt10%65% Total debt100%

32. 32 PREFERRED ALTERNATIVE Alternative Market Accessibility Ownership & Control Debt Structure Total Stay the course 0404 U.S. PARTNER 43512 Control to Mexican supplier 3238 Control to LAEI 0000

33. 33IMPLEMENTATION ► Let U.S. Partner invest 20% equity ► Pay off short term debt ► Long term debt with lower interest rate ► Rationalize production

34. 34 QUESTIONS?